THE JSE looks set to lose yet another promising mid-cap stock, with mining explosives and agribusiness Omnia Holdings now on the cusp of a buyout, assuming a planned sale to Indian group Solar goes ahead.
Its would-be buyer is massive: a $21bn market cap company involved in explosives for the mining, housing and infrastructure sectors, as well as defence and aerospace. At R134.50, the offer has been pitched at a 31% premium to Omnia’s undisturbed price on Friday, and miles above where the company was forced to go, cap in hand, to the market seven years ago to raise money.
The FM spoke to CEO Seelan Gobalsamy about the plan.
It’s quite an astounding change from when you first came in to fix Omnia, in 2018. What does Solar want with little Omnia?
If we go back to the dark days, Omnia was very strong in agriculture and mining and then the management team started investing quite aggressively in other businesses — base oils, fuels, biostimulants etc — and the company ran out of money. I came in as a management member and we did a rights issue at R20; I’ve been with the company now for seven years in a CEO capacity and I would say three and a half years was spent fixing the company. I guess in the last three years we’ve been saying it’s just growth: there’s no more cost synergies, we’d built the management team, we put investments down in Canada and Indonesia and we said: ‘where’s our next partner and what’s our next big thing to digest?’ And then you have to think about cost-of-capital, being South African listed, and we thought let’s consolidate and bring in another explosives player and while we’re doing that we get approached: someone knocks on our door, being Solar, and they say: ‘we love the BME business, we love the management team, your capital’s well-managed and would you consider engaging with us?’ And the next thing comes an unsolicited offer. In essence we believe this is good for shareholders, it’s good for Omnia, it’s good for the country and it’s good for our staff.
It is a big premium to where the share was, but there are some who think it should have been closer to R150. Are you selling yourselves short here?
I think any company has upside and it has risk. These are long term shareholders and they’re looking through the risks. I think a 35% premium [to the share’s 30-day trading average] is a very respectable number and we have spoken to shareholders and 20% have said yes; nobody has said no.
Which 20%?
We can’t say. [But] our biggest shareholders are the PIC, Camissa, Allan Gray and M&G.
Maybe there’s also some disappointment for retail investors that there wasn’t a scrip alternative, because it now means another mid-cap delisting, which is a bit tragic, really?
Yes. That’s the difficult part of it. If you asked me what would have been perfect is if we could have had an inward listing of Solar on the JSE; that could have solved a little bit of that. However, when you look at the complexity of a listed business having a major shareholder on its book, it makes the listing irrelevant, so this is a neater solution. And I guess the option is to take your money and buy Solar shares. But it’s not ideal. Being South African, we’d love an inward listing but at this point it’s not allowed in terms of Indian regulations.
Were you approached by any others and could Solar still be gazumped by a rival, at this stage?
What I can say is that Omnia is a very attractive company. We’ve had discussions with different people but what is unique about Solar is that they are interested in the entire group; they’re interested, and very committed, to the agri-business and the mining business. They’ve offered a global explosives multiple for the combination for Agri and mining, and Agri companies trade on a much lower multiple globally because of the cyclicality risks. So our shareholders are getting a huge, blended premium. I’m not answering you directly, but when we looked at these unsolicited engagements, we looked for something that was good for the entire Omnia business. We’ve given exclusivity to Solar and the board’s recommending them.
It must have been a pretty exhausting — and exhilarating — seven years. Are you going to stay on?
I really love Omnia as my baby; when I left Stanlib I never thought I would go from asset management into explosives and agriculture and I want to see it through for the next chapter, which I’m talking to staff about. There’s 3000-odd people that are looking us, and from our perspective, Solar wanted the management team to stay on, including me. And they want us to continue with Omnia and their growth objectives globally. I don’t have an intention to leave and they don’t have an intention to replace us. And Agri is a new segment for them completely.
