Zimmerman family to net R450m in CMH buyback

IN July 2013, when Maldwyn Zimmerman announced that he was retiring as chairman of Combined Motor Holdings (CMH), the group had 108 million shares in issue. By July this year, after the completion of the second of two hefty share repurchases, CMH will only have 72.6 million shares in issue.

If things go according to plan, the Zimmerman family will have reduced their holdings from a controlling stake of about 42 million shares, equivalent to a holding of about 37%, to just 7.3 million, or 10%. In the process, they will have walked away with R450-million cash from the company.

The Zimmermans are out, but it is unclear who is in control.

It appears to be CEO Jebb McIntosh, who built up the company with Maldwyn and holds 25.5 million shares. McIntosh is noncommittal on the matter. But it appears McIntosh and his co-directors have used R450-million of the company’s cash to get control.

The recent shareholder circular refers to “all the directors having material direct or indirect beneficial holdings” representing some 64.36%. That figure includes the 28 million shares owned by the Zimmer- man family as well as McIntosh’s 25.5 million.

The “repurchase circular” to shareholders issued in November 2013 indicates that, apart from the two founding directors, only Old Mutual, with 7.4%, and Sanlam, with 5.4%, have beneficial interests above 5%.

The staggered change of control of the company has not been accompanied by a formal offer to minorities. This may be because this section of the Companies Act has never been used to effect a change of control. It may also be because all shareholders received the same offer made to the Zimmermans.

In 2013, when the board was planning to buy back 14% of the shares, the Takeover Regulation Panel ruled the repurchase price did not even require a fairness opinion. The 2013 shareholder circular emphasised the repurchase offer was voluntary, that shareholders could tender as many of their shares as they wanted, including none at all. Because it was voluntary and free of any form of compulsory expropriation, the panel deemed that no fairness opinion was needed.

McIntosh is adamant the two buybacks are good for the company and remaining sharehold-

SHAKEDOWN: It is unclear who is in control of CMH ers. Although the circular talks of the company having excess cash for current growth expectations, he is bullish about CMH’s prospects. He says the Zimmerman family wanted to sell and CMH got a very good price. “The share price has in- creased to R16, helped by the recent results, compared with the R11.83 we’re offering for the repurchase. I think we’ve done a very good deal.” The Zimmermans will enjoy a tax advantage of around R1 a share on the repurchase.

Given the comparatively low offer price, McIntosh says it is unlikely other shareholders will tender their shares.

Zimmerman had been at the helm of CMH since its inception in 1976, first as CEO and later as chairman. He stayed on as a nonexecutive director until July last year when he was replaced by Issy Zimmerman. Last month, Issy announced he would be retiring with effect from May 28 2015, the day shareholders will meet to vote on the second repurchase.

The second repurchase, if approved, will see the company pay out R250-million to buy back 21.1 million shares at R11.83 each.

The first repurchase, the first ever undertaken by the company, was completed early last year with R201-million spent to buy back 15.4 million shares. The buyback price was R13 a share.

In the 2015 preliminary re- sults, released last month, McIntosh noted the Zimmerman family had sold 15 million shares during the 2014 repurchase.

“The family has confirmed it will similarly participate in the repeat offer at the end of May 2015,” he said. “On the assumption that a large majority of the 21.1 million shares proposed for repurchase are supplied by the family, its remaining interests will be reduced to approximately 7.3 million shares.”

In neither case does the rationale for the repurchase refer to the Zimmermans wanting to exit.

Instead, the board tells us the company has more cash than it needs and that buying back shares represents a better return for the remaining shareholders than interest income. There is also the low tradeability in the share, which posed challenges for “larger shareholders wishing to create a liquidity event . . . to realise cash”.

The Zimmermans wanted to sell and CMH got a good price