Stephen Gunnion
18 November 2008
Johannesburg — THE JSE may raise the stakes in its bid to buy the Bond Exchange of SA (Besa) in order to secure control of SA's biggest debt market.
In a cautionary announcement yesterday, the JSE said it was in discussions that could result in a raised offer for Besa.
Last month, the JSE offered R173,2m, or R90 a share, a 106% premium to Besa's net asset value . The premium excluded the Besa Guarantee Fund, an investor protection fund, which was worth about R100m at the end of last year. At the time, the JSE said it would consider revising the offer if it could buy Besa as a going concern. This would require it receiving enough support from shareholders to forcibly buy out remaining minorities.
If the JSE gets 100% of Besa it will gain access to its cash flows and the full benefits of merging all its systems, including trading and clearing platforms.
However, New Zealand Stock Exchange (NZX) , which owns 22% of Besa, and Purple Capital (5,3%) said they were unhappy with the initial offer.
Earlier this month, NZX said the JSE offer was "extremely low" and "very significantly below fair value". It said the JSE's bid valued the business at only R6m above the cash value of the business in a dissolution.
JSE deputy CEO Nicky Newton-King was unable to comment further on the announcement but said the exchange had been in talks with Besa's shareholders. "I am quite confident we will be successful in the transaction, we have a significant level of support."
The JSE must submit formal offer documents for the bid by November 26, unless it receives an extension from the Securities Regulation Panel.
Besa's board was seeking independent advice on the JSE's offer and would give advice to shareholders once it had received the JSE's offer document, CE Garth Greubel said. "Our preliminary view has been thus far that their methodology of a net asset value-based calculation was the wrong method to use," Greubel said.
He said the offer did not value the entire business, including the benefits that would flow from Besa's recent R80m recapitalisation and its joint venture with Nasdaq OMX, which would provide Besa with a transparent clearing platform. Besa also had plans to launch into the fixed income futures market. Broader market issues including competition had to be considered too, he said.
Mark Barnes, chairman of Purple Capital, which advised Besa on its recent recapitalisation, said: "We are investors in the Bond Exchange, not speculators. We remain of the view that the interests of shareholders and members are best served as an independent exchange."
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