On Tuesday, African Rainbow Capital Investments (JSE: AIL) or ARC for short, released their interim results for the six-months ending December 2024. But it was the second SENS release that grabbed all the attention and sent its shares +5% higher. In short, management announced its intention to buyout all the ordinary shares in company, and subsequently, delist from the JSE and A2X exchange.

So, why is ARC delisting and most important, should shareholders take this buyout offer?

The rationale behind ARC’s delisting?

Management points to numerous factors, which aren’t surprising…

• Limited public shareholding as the majority of shareholders are South African.
• Limited liquidity (as many small caps on the JSE experience)
• Share price does not reflect the true value of its investments. In other words, ARC trades at a discount to its NAV per share and management wants to unlock value for shareholders.

I find the third point quite amusing and baffling. And here’s why…

A heist in broad daylight…

Management announced an offer price of 975cps to shareholders. This is a 12.6% premium to ARC’s Friday closing price of 866cps.

The offer also represents a 21% premium to ARC’s 30-day volume weighted average price of 806cps. I suspect management included this little detail to make the offer seem more attractive.

Nevertheless, in ARC’s interim financial results – released at the same time as the buyout offer – it showed growth in Indicative Net Asset Value (INAV) per share of 3.2% to 1278cps.

You can see where I’m going with this…

An offer price of 975cps – when the company’s NAVPS is worth 1278c – is a slap in the face of shareholders if I’m being honest. It’s even worse when you consider ARC reached a high of 995c in December 2024. So, I certainly wouldn’t call the offer “unlocking shareholder value”.

But that’s just me.

Others see it differently.

You see, ARC’s board appointed BDO Corporate Finance, as an independent expert, to provide a Fairness Opinion. Based on the draft Fairness Opinion received from BDO, which takes into account ARC’s recent interim results, the board believes the offer is fair to shareholders.

Perhaps BDO thinks ARC’s shares are worth much less than management’s own fair value of 1278cps?

That would then raise other questions about the management fees ARC has taken based on the high valuations of its assets.

Nevertheless, management will recommend shareholders vote in favour of the offer (not surprising) and subsequent delisting.

In short…

I’m not an ARC shareholder, but if I was, I would reject this poor offer.