On the 2nd of December, we will witness Miekles unbundling one of its business units, Tanganda to add a company to the ZSE. New listings have been few and far between on the ZSE. In the last 10 years, we count 1 Initial Public Offering (IPO) (Getbucks 2016) and 5 unbundlings (Axia 2016, Cassava 2018, Padenga 2010, Proplastics 2015 and Simbisa 2015). Let’s look at the case of Tanganda’s unbundling as it provides what is a rare but not unique learning opportunity for us.
Unbundling is pretty much as the plain meaning of the word suggests, the remove one thing or many from a bundle. You will appreciate that it is normal at the listed company level to have many business units. These are businesses that can or do run autonomously (or semi-autonomously) from the rest of the company. When a listed company sees value in a business unit they can choose between different paths to separate that business unit and allow it to stand alone. We’ve spoken about these ways before, you can have a read of them in summary. Miekles in this case has chosen to do so with Tanganda by way of a stock dividend.
The stock dividend
The stock dividend is a type of dividend in specie (dividend by other means than cash). A company opts to give its shareholders a dividend in the form of the shares of one or more of its business units. The business unit(s) will then go on to be listed separately. This is not free to the company as they must pay for the shares in the unit they are giving to shareholders. Let’s look at our present focus, Miekles shareholders will receive one Tanganda share for every Miekles share they own. These shares have a book value of 1 Zimbabwean cent (ZWL$0.01). So Tanganda will be written off as a dividend expense in the accounting books of Miekles.
Why do this?
Great news if you’re a Miekles shareholder but why is Miekles doing this. The answer you will get to this is “to unlock value”. If you’re like me and have an inquisitive mind you should be asking questions. Who locked the value? How is it unlocked? What does this mean for me? Unbundlings are usually followed by a capital call (the unbundled unit asks for money from shareholders). This is usually executed through a rights share issue (the company offers shareholders additional discounted shares proportional to their shareholding). Cassava and Proplastics unbundlings were both followed by capital calls. This allows the company (which retains majority shareholding in the unbundled unit) to access funding for the expansion of the business unit without muddying the waters of other business units in the company. There may also be strategic motivations for unbundling a unit as was the case with Cassava, Padenga and Axia.
This isn’t an event and we have been looking forward to it for most of 2021. According to ZSE listing rules the company, Miekles, must convene an Extraordinary General Meeting for shareholders to vote on this resolution. In this case, Miekles has set the EGM date for 18th November. The move is unlikely to go opposed by shareholders but if it does it will die a premature death. From there on the rest of the dates are similar to the dates we identified when we discussed the dividend notice. The dividend recording date (last day cum div) will be the 19th of November, Miekles shareholders on the books at the close of business will be recorded as recipients of the Tanganda shares. After a few more formalities the Tanganda shares will be onboarded to the ZSE for the 2nd of December and trading of Tanganda shares is expected to commence thereafter.
How to get involved
The short answer is to get your hands on Miekles shares before November 18th. If you’re active or at least paying attention to the market you may have noticed a recent price surge in Miekles shares. This is because the market now views Miekles shares as cum div (with dividend), so the pricing of the shares will include that dividend. On the 25th of October Miekles shares closed trading at ZWL$169.4305. The circular on the Tanganda unbundling was released on the 26th of October and since then the price has risen to ZWL$205. So clearly the market has placed a premium on Miekles shares in expectation of Tanganda unbundling. All this to say Miekles shares will be pricey. Those who took heed of the message earlier managed to get in much cheaper.
It will be great for those who have not witnessed unbundling in Zimbabwe before to learn from this. Miekles have teased unbundling more of their units though they will surely pale in comparison to Tanganda. When Cassava was unbundled by Econet in 2018 it became the most valuable company on the ZSE on its first trading day. I don’t think we can expect such from Tanganda but I would love to be proven wrong.