R1.7 billion WeBuyCars pre-listing dividends explained

WeBuyCars chief strategy officer Willem Klopper said the R1.7 billion in pre-listing dividends were fully disclosed and that there was nothing incorrect or untoward about it.

WeBuyCars was listed on the Johannesburg Stock Exchange (JSE) main board on Thursday, 11 April 2024, under the share code “WBC.”

WeBuyCars was founded in 2001 by brothers Faan and Dirk van der Walt. They bought and sold used cars and have built a fantastic business over the last 23 years.

The company has grown to 2,800 employees, 15 supermarkets, 74 buying pods, and over 340 buyers nationwide.

Before it was listed on the JSE, WeBuyCars had two shareholders.

• Founders Faan and Dirk van der Walt held their WeBuyCars shares in a company, I VDW Holdings, representing 25.1% of WeBuyCars.
• Transaction Capital held a controlling stake in WeBuyCars, representing  74.9% of the issued share capital.

Two months before WeBuyCars was listed, the company’s board of directors approved a series of dividends payable to the founders (I VDM Holdings) and Transaction Capital.

• R190 million declared in February 2024, payable from 31 March 2024 expected interim earnings.
• A R750 million cash dividend was declared in February 2024, called the first transaction dividend.
• A R760 million cash dividend was declared in February 2024, which was called the second transaction dividend.

WeBuyCars had only R164 million in cash on hand at this time, which was not enough to pay these dividends.

Therefore, WeBuyCars created a loan account in its balance sheet equal to R1.7 billion, which encompasses all the dividends declared.

WeBuyCars noted in its pre-listing statement that it would be conducting a pre-listing capital raise, in which new shares would be issued to qualifying investors, raising R750 million.

In its pre-listing statement, it noted that the R750 million raised from the pre-listing capital raise would be fully utilised to pay the first transaction dividend of R750 million. 

WeBuyCars also indicated in its pre-listed statement that it would undergo a share issue with Coronation where Coronation will subscribe to 11.3% of the WeBuyCars shares in issue for R760 million.

It further said that the R760 million received from Coronation will be used to cover the R760 million dividend.

The net asset value per share of new investors is R6.34 after dividends were paid out by the inflow of capital. Without the dividend payments, the NAV per share would be R9.96.

It raises the question of why WeBuyCars decided to structure the JSE listing process in this manner.

Daily Investor spoke to two independent experts, who speculated that it would minimize the tax implications to Faan and Dirk van der Walt and Transaction Capital.

They highlighted that dividends paid from one South African company to another are exempt from taxes.

The experts speculated that I VDM Holdings and Transaction Capital would be tax free as they were paid from one company to another.

If the two WeBuyCars shareholders sold their shares directly on the JSE, they would face significant capital gains tax.

The experts, therefore, argued that they used the pre-listing structure, which included issuing more shares and dividends, to optimise their tax liabilities.

WeBuyCars explain

WeBuyCars chief strategy officer Willem Klopper told Daily Investor that all of this was common practice for transactions of this nature

“In short, all these elements formed part of the various transactions steps as outlined in the pre-listing statement (PLS),” he said.

This was fully communicated to the market before the unbundling and separate listing of WeBuyCars.

All Transaction Capital shareholders at the time, and all prospective WBC shareholders that wished to participate in these steps had access to this information.

“Throughout the process, whenever any dividends were declared, WeBuyCars met all its solvency and liquidity requirements,” Klopper said.

He said the pre-existing shareholders of WeBuyCars wished to realise value for a portion of their relevant interests as part of the process.

Investors had the opportunity to receive shares on issue and/or acquire shares as part of the capital raise.

“Accordingly, pre-existing shareholders realised value through a dividend or sale as both components were catered for in the process,” he said.

“Furthermore, there were also disposals by shareholders as part of the transaction steps.”

The WeBuyCars chief strategy officer highlighted that it is not necessarily accurate to assume that all dividends received are exempt from capital gain or income taxes.

Prior to the transactions taking place, WeBuyCars and its shareholders received expert advice to ensure they adhere to the necessary laws and regulations and to structure a transaction to ensure it position itself for a listing.

“Through this process, legal, tax, commercial advice and regulatory advice was sought as well as advice on how to adhere to the JSE listing requirements and Companies Act,” Klopper said.

This was shared and confirmed by the relevant bodies before the transaction could go ahead.

“This is common practice for transactions of this nature. WeBuyCars was transparent through this whole process and all shareholders, existing or new, received this information,” he said.

“All these steps were fully disclosed to the market and the impact of any of the transactions steps were reflected in the valuation and pricing considered by investors and the JSE prior to listing who gave approval hereto.”

“We do not believe anything incorrect or untoward or not in the normal cause of a transaction of this nature were done.”

“Furthermore, WeBuyCars and its shareholders were not adversely affected by these transactions.”