Bafokeng reaps rewards of persistence in R5.4bn deal

One of the measures of a good business book is how much you remember years after reading it. By that measure, Mark McCormack book on Negotiating rates highly. The founder of the world’s dominant sports agency IMG shared many of his experiences, all of which led to the conclusion that the best deal was one where everyone walks away with a smile on their faces. Never screw over the other side, he advised. It will always come back to bite you. The best deals are those when everyone feels they have given up a little more than they were able to take.

I got the feeling that this was the kind of approach uppermost in the minds of the parties who concluded Monday's R5.4bn mega-deal between the Royal Bafokeng, Remgro and the founders of FirstRand. Royal Bafokeng get a 15% stake in a major financial services group; Remgro reduces its stake by 4% and in return gets a couple billion cash to cover its recent investment in Grindrod (and add further to its cash pile); and Messrs GT Ferreira, Laurie Dippenaar and Paul Harris sell a third of their stakes in the group they created without having to accept much of a discount to the market price.

All three parties should be comfortable with the outcome. The people should be smiling most, though, are managers inside FirstRand. Although they have never admitted it publicly, at some point the three founders must have considered combining with Remgro and negotiating to sell their controlling block to one of the offshore predators that keep circling South African banks. How life might be when someone with a foreign accent calls the shots must have occupied the minds of FirstRand CEO Sizwe Nxasana and his team. Especially after hearing from counterparts at Standard Bank and Absa how disruptive the influence of offshore shareholders can be. After Monday's transaction that prospect, for FirstRand, is clearly off the table.

Bafokeng Strategy
From the Royal Bafokeng Holdings side, the deal is the fulfilment of a strategy in gestation for some years. Mindful of the risk of being heavily exposed to a single sector (for RBH's a single commodity - platinum) they've been chipping away at the dominance through buying stakes in telecoms, property, financial and industrial companies. But nothing to really shift the needle like Monday's deal.

The way RBH strategic investments executive Wilhelm Nauta explained the deal (from his holiday spot in Mozambique), the Bafokeng has long coveted a big stake in the empire built by FirstRand's founders. The first chance to get a slug came in April when the Bafokeng acquired 5% by kicking in capital needed for the founders' vehicle RMBH to take Outsurance stake to 90%. Monday's deal confirms the new partnership is working well.

The Bafokeng's R5.4bn investment comes via a cash injection of R1bn with the rest in debt. A complicated structure ensures interest on the borrowings is serviced through the dividends paid by FirstRand, Discovery, MMI and Outsurance. That means the existing R420m annual dividend flow to RBH - which is used in turn to fund community-focused projects for its 300 000 tribesmen - won't be affected.

Perhaps most importantly, RBH's non-mining assets are now up to half its total portfolio. Achieving a milestone that looked impossible when it all began with acrimonious negotiations between Bafokeng and Impala Platinum, which mined its historic homeland. The tribe persevered. And today harvested another of the many rewards of that far-sighted strategy.

This article was written by Alec Hogg and first appeared on Alec Hogg's daily blog:

Category: guest articles

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