ARC co-CEOs’ incredible R370 million bet

African Rainbow Capital (ARC) co-CEOs Johan van Zyl and Johan van der Merwe made R192 million in less than a year by betting big on the ARC Investments share price.

On 30 April 2021, Van Zyl and Van der Merwe bought 67,272,736 of ARC Investments’s ordinary shares each.

At R2.75 per share, the two ARC CEOs paid R185 million each for these shares.

At the end of trading on Friday 18 June, ARC’s share price was R4.18. The shares they bought are therefore worth R281.1 million — each.

Van Zyl and Van der Merwe both made R96.2 million from the transaction.

Explaining the agreement, ARC said the co-CEOs negotiated and concluded their transaction of purchasing shares in September 2020 at R2.75 per share.

The share purchase deal was only implemented as part of a series of broader Ubuntu-Botho Investments (UBI) transactions on 30 April 2021.

ARC is a 100% subsidiary of UBI, a Black-owned and controlled company that was created in 2004 with its initial purpose of building black-controlled capital.

UBI held its annual general meeting in March, during which shareholder approval for the co-CEO’s share purchase transaction was received.

The chart below shows the ARC Investments share price when the transaction was concluded, and where it is trading now.

ARC-Share-Price

ARC highlighted that this transaction does not affect minority shareholders of ARC Investments – the listed entity.

“The transaction has no financial or commercial impact on any ARC Investments minority shareholder,” the company said.

“In fact, the transaction is to the benefit for ARC Investments shareholders as it further aligns the interest of both individuals with the interest of ARC Investments.”

Van Zyl and Van der Merwe have long argued that the ARC Investments share price was trading at a considerable discount – well below the company’s net asset value.

ARC is a shareholder in many prominent companies, including Rain, TymeBank, Alexander Forbes, and Sanlam.

One of the reasons for the discount, Van Zyl said, is because a significant percentage of the value of ARC’s investments are in early start-ups like TymeBank and Rain.

As young companies, these investments are not at the level where they generate significant and consistent profits.

ARC Investments is also a relatively new company. It only listed in September 2017, which means it requires time to build a track record to demonstrate its ability to unlock value for shareholders.

The ARC co-CEOs trusted their belief in the company and their conclusion that the market was undervaluing its assets.

With this R370 million share purchase transaction, they put their money where their mouths were, and so far the decision is paying off handsomely.

Now read: Rain’s incredible valuation per subscriber

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ARC co-CEOs’ incredible R370 million bet