Rare Holdings buyout offer seemingly cheap

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There has been no outrage in the market at a proposed buyout of pipeline specialist Rare Holdings by a company associated with one of SA's richest businessmen.

Last month Mayfair Speculators, which is linked to Steinhoff International prime mover Markus Jooste, expressed a firm intention to acquire all the ordinary shares in Rare not held by major investors Doculate Investments and Stafric Investments.

Mayfair Speculators, according to Rare’s most recent annual report, already holds a 29.68% stake in the company, while Doculate and Stafric are 52.7% and 5.15% shareholders respectively.

With around 88% of Rare’s shares held by these three investors, Mayfair Speculators will be looking to buy up roughly 5.346m ordinary shares at an offer price of 150c/share. This will set Mayfair Speculators back a princely R8m.

At face value the pitch values Rare well below the indicative tangible net asset value (NAV) of 320c/share stated in the annual report for the year to end June 2015.

But Rare, which manufactures and distributes piping for fluid conveyance cycles and offers water treatment services, has operated at a loss for the past few financial reporting periods. The company, which listed in 2007 on the back of the SA infrastructure boom, has needed to be recapitalised several times since 2010.

Though a sustainable operating turnaround has remained elusive, it remains to be seen whether long-suffering minority shareholders in Rare will hold out for a better price from Mayfair Speculators.

The lack of liquidity in share trading might mean some minorities will be happy to walk away at 150c/share, even though Rare was trading as high as 580c on the JSE as recently as May.

Mayfair Speculators stress that the continued turnaround at Rare will require more time and capital than originally foreseen.

Delisting from the JSE will reduce costs. Though Rare is too small and illiquid to warrant much interest from even the JSE’s small-cap pundits, Mayfair Speculators seems to be convinced that the business will eventually turn around.

Don’t be surprised then if a re-engineered Rare that is able to turn on the cash flow taps is sold at an attractive price to a larger industrial concern in the years to come.