July 29, 2015 / 3:37 PM / 3 years ago

UPDATE 1-South Africa schools merger collapses, revealing cultural rifts

(Adds Curro announcement that it dropped the bid)

By TJ Strydom

JOHANNESBURG, July 29 (Reuters) - A plan to create a $1.5 billion private school giant in South Africa collapsed on Wednesday after parents threatened to pull pupils out of elite academies if they were bought by a company accused of having segregated children by race.

After months of negotiations, Curro Holdings, which runs 40 affordable private schools and plans to double its size within five years, announced it had withdrawn its bid for rival Advtech, owner of a smaller portfolio of prestigious schools with names like Crawford College and Trinityhouse.

Two decades after the fall of apartheid, the case has drawn attention not only to unsettled questions of racial equality, but to a cultural gulf between South Africa’s once-dominant, Afrikaans-speaking whites of Dutch descent, and its newer English-speaking elites of all races.

Curro is 52 percent-owned by PSG Group, a fast-growing investment firm founded by Jannie Mouton, an Afrikaaner businessman known as the “Boere Buffett” in Afrikaans newspapers that compare him to U.S. billionaire Warren Buffett.

It aims to open schools not just in South Africa but across the African continent, where growing economies have created a surging market for education among an expanding middle class unsatisfied by weak and underfunded state schools.

Curro has seen its share price rise seven-fold since its 2011 float. Chief Executive Chris van der Merwe said a merger with Advtech, which has opened its first school in Botswana, would help create a “continental champion”.

But Curro has been hit by bad headlines after video emerged of pupils apparently being segregated by race at one of its schools near Pretoria. The government threatened to revoke the school’s license and the company fired the principal.

The company says any such incidents were isolated, and children had been separated not by race but by language, for pragmatic purposes. But the footage of mostly white, Afrikaans-speaking children being separated from their mostly black, English-speaking friends struck a nerve.

Advtech’s two largest shareholders, Coronation and Kagiso Asset Management, who together hold more than a third of shares, nonetheless backed the merger with Curro.

But Advtech boss Frank Thompson described relations with Curro as “hostile” and “a blend of cultures that I think is problematic”.

At an Advtech shareholders’ meeting this week, at least two parents said they would pull their children out of Advtech schools in the event of a takeover.

“It concerns us greatly. Curro has only received negative publicity,” said Audrey Gray, a parent at one of Advtech’s Trinityhouse schools.

Thompson said after the meeting his “non-shareholding stakeholders” - a clear reference to the parents - would want a say in any takeover.

Curro remained adamant throughout that it would not tinker with schools in Advtech’s portfolio.

“From an acquirer’s perspective, it would be absolutely silly to pay a premium and then change the brands or ethos of the business you are acquiring,” said Johan Holtzhausen, one of PSG’s in-house advisers. “We indicated this to Mr Thompson and the Advtech board from day one.”

Curro said in a statement on Wednesday that it would not extend its offer to all shareholders, as it could not justify paying a premium for Advtech shares without first seeing its target’s books. And without the support of Advtech’s board, that will never happen. (Editing by Ed Cropley and Peter Graff)

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