Africa-Press – South-Africa. Loyal African Rainbow Capital Investments (ARC) shareholders, who backed the company when no one else would, are only offered part of what the company is worth for their shares.
ARC is an investment holding company founded by billionaire Patrice Motsepe, with a diversified portfolio of assets to deliver long-term capital growth.
The company was listed on the Johannesburg Stock Exchange (JSE) on 7 September 2017 at R8.50 per share. The capital raised was used to fund commitments and an investment pipeline.
Over the past seven years, ARC shareholders have had a rocky ride. The share price steadily declined in the first three years, hitting a low of R2.50 in March 2020.
It then increased, hitting a high of around R9.50 by December 2024. Over the past year, the share price rose by 84%.
During the first few years, the ARC management team consistently complained that the share is trading at a significant discount to its net asset value (NAV).
They were so frustrated with the discount to NAV that they blamed the market and started toying with the idea of delisting the company.
In October 2023, ACR co-CEOs Johan van der Merwe and Johan van Zyl said the management and the board considered whether there is value in being listed.
They highlighted that they would consider delisting ARCI should the discount to the company’s net asset value remain excessive. They repeated this view last year.
Many stakeholders thought the significant share price increase over the last year would be enough to satisfy the management team and keep the company listed. They were wrong.
On 18 March 2025, the company announced that it would acquire all the ordinary shares in ARCI to facilitate the delisting of ARCI, ARC, and ARC SPV.
It said almost all of the African Rainbow Capital Investments shareholders are South African, and there is limited liquidity in the ARCI shares.
“The ARCI share price also does not reflect the true value of the investment in the ARC Fund and trades at a discount to the net asset value of the ARC Fund,” it said.
The company is offering shareholders R9.75 per share, which is a premium of 12.6% to the closing price of R8.66 per share on Friday, 14 March 2025.
ARC’s offer to shareholders analysed
ARC co-CEO Johan van Zyl
The R9.75 per share offer puts ARCI’s delisting value at R14.8 billion, which represents a 11.7% premium to the 17 March closing market cap of R13.3 billion.
However, the offer is a significant discount to African Rainbow Capital Investments’ ARCIs intrinsic net asset value (INAV).
ARCI stated that the business has an intrinsic value of R12.78 per share, translating into a valuation of R19.4 billion.
ARCI’s INAV increased by R2.5 billion in the past year from R16.9 billion to R19.4 billion. Rain’s intrinsic valuation increased by R2.75 billion to R25.9 billion, making it the biggest contributor.
This means that the offer to shareholders, which translates into a valuation of R14.8 billion, is 23.7% lower than the INAV.
Simply put, although the offer to shareholders is higher than its share price, it is a significant discount to the company’s INAV.
Although this offer is a slight premium on the prevailing share price, it deprived shareholders who believe in the company’s potential of more upside.
Loyal shareholders who waited for Rain to turn profitable or for TymeBank to become the next best thing have had the rug pulled from under them.
Although there is an option to remain a minority shareholder in the unlisted company, most would not like it, as it comes with liquidity problems.
Daily Investor asked ARC why it offered shareholders a price that is 23.7% lower than the INAV. However, the company preferred not to answer this question.
It would also not say why it believed the offer was fair, while also complaining that the discount to INAV was unfair.
Expert opinion about the ARC offer
Vestact portfolio manager Michael Treherne
Vestact portfolio manager Michael Treherne said when ARC listed in 2017, it came with a great story and an impressive management team.
“We only avoided the stock because we felt the management fees were too steep,” Treherne said in a note to clients.
“Buffett likes to call high-fee investment structures remuneration devices masquerading as an asset class.”
He said the company was listed at R8.50, and the share price went one way from there, down, partly due to those steep management fees.
Since then, it has recovered thanks to investments in Tyme Bank and Rain, and more recently, delisting rumours helped bring it back to the R8.50 IPO price.
Treherne said the offer to buy out existing shareholders for R9.75 per share is a premium to the recent share price but a discount to intrinsic net asset value.
“The kicker, though, is that management fees are charged based on the intrinsic net asset value,” he said.
“Basically, management is saying that they deserve to be paid fees based on INAV because that is what the assets are worth.”
“However, shareholders shouldn’t be paid that amount, because in the real world, the assets aren’t worth that.”
He added that BDO South Africa’s independent view that the buyout price is ‘fair’ surprised many analysts, including him.
“These sorts of deals give the financial sector a bad reputation. It shows that the small shareholder always comes off second best.”
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