Beleaguered Corpcapital left with few options.

Posted On Wednesday, 29 January 2003 02:00 Published by
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WHAT on earth does Corpcapital do now?
WHAT on earth does Corpcapital do now? Leaving aside the corporate governance issues for a moment, what are the business options open to the company?

Increasingly, the recent cash distribution, which was roughly 30% of its market value, is appearing to have been a last blast in a crisis of direction.

The Corpcapital group once aimed at impressing the market with earnings and potential, hiring big guns and pressing toward high tech. However, the valuation issues raised by former director Nic Frangos in his letter of resignation place a question mark over the earnings.

Also, Corpcapital is suffering from the same malaise as many other small banks an inability to demonstrate any unique competitive advantage.

A firm trading at less than its annual earnings must, one would think, be in imminent danger of being bought, with or without management's acquiescence.

Such, though, is the doubt that now hangs over the company that it seems difficult to imagine buyers queueing at the door.

The group most likely to make a bid would conceivably be Investec, or possibly FirstRand. But the problem with buyouts is that they are so much more profitable to execute once the target has actually fallen over, than while it is still a going concern.

In addition, more than 30% of Corpcapital is now in the hands of management and board members, making a hostile bid tricky. More likely, the predators will circle and wait.

What about a management buyout, or a white knight? With reputational risk abounding, who would finance a management buyout, and who would chance galloping in from the wings?

A management reshuffle would be worth a shot, but it is unlikely considering how much of the equity is owned or controlled by management.

The cash distribution will give management and executives some of the resources required for a creeping buyout, perhaps an extra 20%.

However, minorities are likely to be suspicious of a formal buyout offer, particularly after the way they were treated during the recent merger.

Corpcapital's predicament is a neat example of how companies not only need management to add value, but also shareholders to add value.

Treat your shareholders badly, and the good ones leave. The net result is that management is not given the space

Publisher: Business Day
Source: Business Day

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