Out with old and in with new at Dis-Chem as retailer expands

(Alliance News) – The Saltzman family’s divestment in Dis-Chem Pharmacies Ltd is an “astute” move to broaden the pharmacy retailer’s investment base as well as make way for fresh management as the old guard steps down, according to Deal Leaders International Chief Executive Andrew Bahlmann.

This all comes as the mid-cap listed firm continues to expand, having opened its 125th store in 2017 and aiming to open its 200th store soon.

Midrand-based Dis-Chem was founded in 1978 by Ivan and Lynette Saltzman, who are married to each other and run the company together.

On Tuesday, Dis-Chem announced that the Saltzman’s are looking to offload up to a 21% in the firm to various parties. This includes the sale of a 7.5% stake in the firm via an accelerated bookbuild offering, which took place Wednesday, raising ZAR1.96 billion.

In addition to this, the Saltzman family will be divesting up to a 3.8% stake to “a select number of key senior executives who are central to the delivery of the company’s strategic priorities”, including Chief Financial Officer Rui Morais, who is set to become chief executive.

The last part of the intended deal will see the sale of a further 10% stake to a consortium of BEE investors.

Bahlmann told Alliance News on Wednesday that the transactions are an astute move by Dis-Chem to broaden its investment base as it continues to expand, given that the deal involves a black economic empowerment component.

“Should Dis-Chem succeed in closing the BEE transaction, I believe the group will benefit from having introduced what it terms ‘high quality BEE shareholders’ into its business, which should deliver significant benefit to its operational and financial performance going forward,” Bahlmann said.

On top of this, the executive share scheme component will work partly as a retention scheme for Morais, who will succeed current Chief Executive Officer Ivan Saltzman. Lynette Saltzman is the current managing director of the company.

Following the transactions, the Saltzman family will still own a “substantial” 31.4% stake of Dis-Chem’s issued share capital, Bahlmann noted, down from 52.7%.

Bahlmann said: “Clearly, a transition is being planned. Ivor Saltzman and his wife Lynette Saltzman (both pharmacists) have led a long and distinguished career as founding members and CEO and MD respectively, having helped steer that company to become an internationally recognised pharmacy group.

“I would view this as a positive step for the group, as the old guard gives way to new.”

However, the Saltzmans will continue to be involved in the business for the immediate future, Bahlmann added.

The divestment comes at a time of rapid expansion by the company as the number of stores increase, revenue rises and the firm sinks its teeth into new sectors, such as through the pending acquisition of a 25% stake in health insurance provider Kaelo Holdings.

On Tuesday, Dis-Chem said that revenue for the 22 weeks to August 6 rose 16% year-on-year to ZAR12.98 billion from ZAR11.16 billion.

Apart from its 16% organic growth, Bahlmann said, Dis-Chem has another growth trick up its sleeve which will bring it into a more open clash with Cape Town-based rival Clicks Group Ltd, which is a Top 40 index constituent.

Bahlmann explained: “Having noticed a shift to smaller convenience malls, Dis-Chem also now has an alliance with franchise pharmacy group The Local Choice. It intends to roll out a number of TLC pharmacies owned by Dis-Chem and sized between 300 metres squared and 600m squared. That will give the group a channel to grow beyond 200 stores in a market which shows little danger of becoming overtraded.

“I see room for two major pharmacy groups in South Africa. That’s the way it is in other countries, and South Africa is no different.”

Looking more broadly, Bahlmann said that the healthcare sector still poses an attractive investment despite the “scars” of the ongoing battle against Covid-19, which has hurt their normal operations.

“Dis-Chem in particular has ramped up its digital business on the pharmacy side, which makes it a favourable long-term investment,” Bahlmann said.

By Greg Roxburgh; gregroxburgh@alliancenews.com

Copyright 2021 Alliance News Limited. All Rights Reserved

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