Unbundling – the process of transforming a subsidiary or division into an independent entity – has become an effective strategy for South African listed companies. It brings opportunities to improve operational focus, enhance transparency, and unlock shareholder value by allowing companies to concentrate resources on their core business activities.
Recent unbundling transactions highlight the significant value that can be unlocked. For example, in 2022, Tamela acted as Independent Sponsor to PSG Group when it unbundled its stakes in subsidiaries such as PSG Konsult, Curro, Stadio, CA Sales, and Kaap Agri, unlocking approximately R114 per share in value for its shareholders, with a premium of 38.4% over the market price. Similarly, Barloworld’s unbundling of Zeda (Avis) allowed the automotive division to list separately on the JSE, enabling Barloworld to focus on its core industrial operations while Zeda pursued its own growth path.
More recently, in April this year, Transaction Capital unbundled its stake in WeBuyCars, listing the vehicle reseller separately on the JSE. Analysts considered this unbundling a key step in unlocking shareholder value and enhancing market positioning.
A successful unbundling hinges on navigating South Africa’s regulatory landscape. Companies must adhere to JSE Listings Requirements, which demand transparency in issuing circulars and shareholder notices that outline financial impacts and strategic benefits. In some cases, approval from the Takeover Regulation Panel (TRP) is required, particularly when the transaction could lead to the disposal of a significant part of the undertaking or a change in ownership or control. Ensuring compliance with these frameworks is essential to maintaining trust and avoiding transaction delays.
Key technical challenges
- Valuation: Accurately valuing both the parent and the unbundled entity is essential to ensure shares are fairly priced. Independent assessments help shareholders and the market to better understand the true value, reducing potential volatility.
- Debt allocation: Properly distributing debt between the entities is crucial to maintaining financial health. If not carefully managed, one entity could face financial strain, impacting both operations and shareholder value.
- Shareholder approval: Unbundling often requires approval by way of a special resolution. Clear and transparent communication with shareholders is critical to gaining their approval while outlining both the potential benefits and risks of the unbundling.
- Post-unbundling operations: Achieving operational independence is a delicate balance. The success of both entities post-separation depends on the effectiveness of their operational structures and their ability to manage shared services or collaborations where necessary.
How can we help?
Tamela provides tailored advisory services designed to address the technical and regulatory challenges of unbundling. We specialise in deal structuring, compliance with regulatory frameworks, and managing shareholder communications to ensure that transactions are completed smoothly.
Our extensive experience in corporate finance enables us to guide South African companies through every stage of the unbundling process, from initial planning to post-transaction support, ensuring that the process is executed effectively.
For more information contact Ethan Fenwick on tel:+27117834907 or Ethan@tamela.co.za