South African motor group CMH to pay directors $46 million for 13 dealerships

Combined Motor Holdings, the South African motor retailer co-founded by Jebb McIntosh, will pay R745 million ($46 million) to buy 13 dealership properties from three of its executive directors and their family trusts, in a related-party deal that brings long-leased sites onto its own balance sheet.

The company told the Johannesburg Stock Exchange on August 19 that a subsidiary, CMH Management, would acquire the properties from directors BWJ Barritt, SK Jackson and JD McIntosh, along with associated trusts. Six of the sites are in KwaZulu-Natal and seven in Gauteng, and all are already leased and occupied by CMH businesses.

The cash price of R745 million ($46 million) sits below the properties' combined independent valuation of R780 million ($48 million), an effective discount of about R35 million ($2 million), or 4.5 percent, to assessed market value. CMH will fund the purchase with R395 million ($25 million) of existing cash and a R350 million ($22 million) bank loan.

Because the sellers are members of CMH's executive management, the deal is classified under exchange rules as a related-party transaction. The company must send shareholders a circular and hold a meeting at which only independent shareholders may vote, with the directors involved barred from the ballot. The deal also requires competition clearance and the bank financing before it can close.

CMH said it has held surplus cash above its operating needs for years, with more than R1 billion ($62 million) on its balance sheet, and expects the purchase to lift future earnings. Bringing the properties in-house will cut its lease liabilities, which stood at R544.7 million ($34 million) at the end of February, and remove the rent it pays on the sites.

McIntosh, who founded CMH with Maldwyn Zimmerman and remains its largest shareholder with a stake of roughly a third, has built the group from a single franchise into a national motor and mobility business. It now represents 36 vehicle brands across more than 100 dealerships, runs a rental fleet of more than 9,000 vehicles and generates over R14 billion ($868 million) in annual revenue.

The company, which listed in 1987 and carries a market value of about R2.75 billion ($171 million), completed a R192 million ($12 million) share buyback in December. The property purchase continues its move to deploy accumulated cash into assets it already controls.