For a decade, the shares of Grupo Sura, Grupo Argos and Grupo Nutresa together lost around 70% of their value in dollars. The three companies went from having a market value of 27 billion dollars to 7 billion dollars in November of last year. The main cause was that there were administrators and members of the board of directors who did not think about their shareholders. They embarked on buying assets abroad at exorbitant prices to enlarge their empires and suppressed their dividends. The most affected were minorities and pensioners.
Since the takeover bids for Nutresa and Sura were launched at the end of 2021, Sura shares have risen almost 100% in dollars, Nutresa 128%, and Argos approximately 32%. In total, they went from being worth around seven billion dollars to around 15 billion dollars. This profit has benefited millions of Colombians and boosted the Colombian Stock Exchange, which is one of the highest in the world in 2022.
This week, meetings of various GEA companies will be held to decide on the third and possibly last takeover bid for shares of Sura and Nutresa. According to market analysts, at the end of the takeover bids, the shares could fall by up to 40%. The directors and members of the boards of directors of Grupo Argos, Cementos Argos, Grupo Sura and Grupo Nutresa have a fiduciary responsibility with all their shareholders. By law, they cannot act in a group. While the potential to create value is real, it will not be achieved with managers and board members entrenched in perpetuating their individual power.
The ISS firmrecognized internationally for making voting recommendations to shareholders at meetings, was highly critical of the list presented by the GEA for the Sura Group. They recommended voting against. For example, they do not consider a member as independent who has been in office for more than 12 years. Let’s start with Grupo Sura. This Wednesday, the shareholders meeting meets to decide on potential conflicts of interest. The board is expected to make a decision on the sale of its Nutresa stake. The third OPA of Nugil SAS offers 12.58 dollars per share, which gives a value of 17x EBITDA of 2021.
There is little doubt that it has arrived at the fundamental value that investment banks have recommended to board members. Looking in detail at the individual income statements of the companies for the year 2021, the following data emerge:
1. Income from cash dividends received by Grupo Sura was 604,675 million pesos. The financial expense was 407,797 million pesos and will surely have a significant increase with the rise in rates that is being presented in the market. Two-year Colombian public debt papers are already paying more than 8% yield. The administrative expense, of only the holding, was 89,284 million pesos. Taxes of 15,137 million pesos and dividends to shareholders of 347,898 million pesos were paid. Subtracting all these payments from the cash received in dividends, the result is very negative, -255.441 million pesos. They are resources that had to be taken in additional debt or in divestments.
2. At the end of 2021, Grupo Sura, in its independent income statement, had liabilities of 5.19 billion pesos with an average cost of 7.9% per year. If Sura decides to sell the shares he has in Nutresa, more than 2.170 billion dollars (7.69 billion pesos) would come in, with which he could pay all his debt and have cash to distribute an extraordinary dividend of 2.5 billion pesos and focus on generating value in its strategic businesses. This would lead to a significant increase in the share price of Grupo Sura for the benefit of its shareholders in the short and long term.
3. Without this debt, the cash generated, assuming the same numbers, would already be positive at 152,356 million pesos, without counting on additional efficiencies due to higher dividends from its investments, among others.
It is important to remember that AFP Protección, whose controlling shareholder is Grupo Sura, sold all the shares of Sura and Nutresa that they had in the first two takeover bids, since its independent members of the investment committee made that decision for the benefit of the shareholders. affiliates.
How are the directors of Grupo Sura going to reject more than 2,170 billion dollars at that valuation of 17x EBITDA, if they are not acting as a group? Why, despite the fact that some of its administrators have promised offers from third parties, have not materialized, despite the fact that more than five months have passed and they are advised by the best investment banks in the world? The patrimonial detriment that they could cause to their shareholders could lead to civil and criminal actions against them.
Turning to Grupo Argos, it would be time to make the following reflection, given that under no circumstances, unless they are acting as a group, their investment in Nutresa, of 9.86%, can be considered strategic for their shareholders.
1. Given the high indebtedness that the company has and a very difficult year 2020, in which they lost 59 billion pesos, they proposed to pay a dividend in 2021 in shares or in cash, since they did not have enough cash.
2. If they decreed a dividend in shares, why at the same time do they have a share repurchase plan for up to 300,000 million pesos? Wasn’t it better and more transparent for minority shareholders to tell them that there would be no dividend? Did they then seek to dilute them with a stock dividend at a price that was very low?
3. Why then, if they did not have enough cash, not even to pay the dividend in money, just in the last quarter they bought 291,000 shares of Grupo Sura, which could be more than COP 7,000 million, but they do not report the amount in their annual report. (Information is obtained by viewing the reports that Grupo Sura makes to the Financial Superintendent and the portfolio reports that Grupo Argos makes to its shareholders).
4. If the cash flow of Grupo Argos is reviewed separately, it can be seen that the previous year it received cash dividends of 422,774 million pesos, paid dividends of 258,119 million pesos, interest on its debt of 87,665 million pesos, taxes of 5,260 million pesos and, very surprisingly, administrative expenses of 134.521 million pesos, which represent 31.8% of dividend income. This shows a cash deficit of 62,791 million pesos, which is not sustainable, much less to acquire shares of non-strategic companies.
5. In all these situations, The best that Grupo Argos can do is sell the shares of Grupo Nutresa, which are only 9.86% and would represent 2.13 billion pesos. With this they would be able to pay all the debt that is headed by Grupo Argos and help its strategic subsidiaries to reduce their debt, where Cementos Argos alone owes almost 4.4 billion pesos to financial entities and bondholders.
6. Even, Grupo Argos could sell the shares it has in Grupo Sura (27.9%) and obtain around 4.8 billion pesos, with which it could capitalize Cementos Argos and thus this would stop being so indebted and continue with the growth of the same and of the other subsidiaries of the Group.
There is a unique opportunity to generate value for all shareholders. It is unlikely that Jaime Gilinski, now the largest individual shareholder of Grupo Sura, and directly or indirectly of Grupo Nutresa, and Grupo Argos, will sit idly by after having invested 9.5 billion pesos.
As he expressed in the assemblies of Grupo Sura and Grupo Nutresa, Its goal is to increase the value of the shares for all shareholders, increase dividends, and continue developing the emblematic social work of these companies. The administrators and members of the board of directors are not owners. It is also not expected that more takeover bids will continue.
If the shares actually fall 40%, as market analysts estimate, decision makers will have to give serious explanations. Even worse, they would be depriving shareholders of seeing their investments have a significant appreciation. Until now, GEA share price increases have been artificially inflated by takeover bids. At the end of this round comes reality and individual responsibilities.
*Gabriel Gilinski is a shareholder of SEMANA Publications.