Great assessments. In terms of potential future dividends over...

Great assessments. In terms of potential future dividends over the short to medium term, I agree with borg81, that there is a possibility that dividends may be the preferred option for RG to service loan commitments, but I certainly haven’t based my investment on it.

I am quite happy for any free cash flow to be reinvested into the business, whether that be for further growth initiatives or to reduce the net debt, which would have always been my preference before the takeover offer. Additionally, the franking credit balance as of 30 June 2023 was only $1,999,000.

Funding Arrangements:
At the beginning of the bid, RG held 172,159,594 shares and he now holds 301,129,014 shares as of 6 May 2024. Based on my calculations, he has acquired 128,969,420 shares for a total cost of $108,334,313 plus, of course, the associated transaction costs.

The Bidder’s Statement (dated 13 September 2023) includes information regarding the source of funds and lending arrangements. Please refer to section 9, "Sources of Consideration" from the referenced Bidder’s Statement.

ANZ (lender) agreed to provide the full amount of the new facilities, being $70m, under a binding commitment letter on the terms set out in a term sheet forming part of the commitment letter. The facility was based on the initial $0.68 offer price, where the maximum amount that Bennamon could be required to pay under the Offer was $118.4m, together with transaction costs. There is also commentary regarding intracompany loan arrangements.

The loans will need to be serviced. No doubt RG has numerous options available based on his substantial investments, and he will, of course, make decisions based on what will help to facilitate his preferred outcome. Presumably, the original plan was to ensure compulsory acquisition at a much earlier date and then restructure Pact and associated borrowings while benefiting from the cash flows.

Divestments:
Divestments within Pact remain a possibility. I suspect the original strategy was to ensure completion of compulsory acquisition before finalising such plans.

The most likely scenario is that RG had hoped to have completed compulsory acquisition earlier this calendar year followed shortly after by further divestments so any capital losses could have been used to offset taxable capital gains from the Crate Transaction. Once again, I’m sure RG will now time such divestments based on what will be of most benefit to him.

Related Party Transactions:
There are numerous related party transactions between Pact, PPG, Visy, Kin Group, TRS and other entities, which are listed in the respective annual reports.

The Pact FY 2023 Annual Report specifically lists related party transactions for the following entities: Kin Group Pty Ltd, Pro-Pac Packaging Limited, Centralbridge Pty Ltd (as trustee for the Centralbridge Unit Trust), Centralbridge Two Pty Ltd, Centralbridge (NZ) Limited, Albury Property Holdings Pty Ltd, Green’s General Foods Pty Ltd, Remedy Kombucha Pty Ltd, The Reject Shop Limited, Propax Pty Ltd, Gem-Care Products Pty Ltd, The Hive (Australia) Pty Ltd, BG Wellness Holdings Pty Ltd and Brimful Beverages Pty Ltd.

A larger transaction with Visy, private equity or other JV partners remains a possibility and there are various other options available that could benefit both RG and minority shareholders.

Pact Property Leases:
As highlighted by Radmn and disclosed in the Pact FY 2023 Annual Report, they leased 10 properties (eight in Australia and two in New Zealand) from controlled entities associated with RG. The aggregate annual rent payable by Pact under the leases for the period ended 30 June 2023 was $6.2 million (June 2022: $5.9 million).

According to the report, the rent payable under leases was determined based on independent valuations and market conditions at the time the leases were commercially agreed. The leases are on commercial terms which the Board has determined are at arms’ length in accordance with section 210 of the Act.

RG’s Other Investments:
Pro-Pac Packaging (PPG) -
The 2023 annual report has inconsistent figures, but RG holds ~66%. The business has been performing poorly, so no dividends are on the horizon to assist with servicing loans. RG (Kin Group) has taken on the role of landowner and site developer for PPG’s new soft plastic film recycling plant.

The Reject Shop (TRS) -
As of 8 August 2023 (see the FY2023 Annual Report), RG held 20.52%. The share price is at close to a 52-week low but is still above his 2018 bid price and the 2020 equity raising. TRS has been paying dividends, but there are clearly some concerns regarding trading conditions. As announced on 22 February 24, they stated "Like many Australian retailers, The Reject Shop is facing some near-term margin pressure from higher shrinkage and rising costs."

Their balance sheet is healthy, but since 15 April 2024, there have been no announcements regarding the buy-back. TRS earns the majority of its EBIT and NPAT in the first six months of the financial year (Jul - Dec).

McPherson's (MCP) -
It is a very small investment for RG. According to the FY2023 Annual Report as of 31 August 2023, Gallin Pty Ltd (RG’s entity) held 4.41%. The share price has performed very poorly since the 2021 takeover bid but they have been paying a dividend.

Investors Mutual Limited (IML) / QV Equities (QVE) -
There is public information available regarding RG’s investment and their performance. Bennamon was a T20 holder in the QV Equities Limited FY2022 Annual Report but not the most recent FY2023 Annual Report. IML was, of course, previously a substantial shareholder of Pact and remains a substantial shareholder of PPG.

Dynapack Asia -
RG is the Chairman, and previous reports stated that RG owns 50%. They are a rigid plastic packaging provider in Asia, and their HQ is in Indonesia. Dynapack is not a listed entity, and I can’t comment on their recent performance. They have potential synergies with Pact.

Tosca -
RG is a director. They are a reusable plastic packaging and performance pooling solutions business. Tosca operates ~30 wash sites and ~nine global offices across North America and Europe. They are owned by Apax Partners (private equity), and they have potential synergies with Pact. Apax invested in Tosca in 2017 and have since completed several large transactions. They appear to have increased their headcount. I can’t comment on RG’s financial exposure.

Kin Group -
RG’s Kin Group lists several other businesses / brands including wholly owned operating businesses and co-investments.RG also obviously has numerous other property and business investments.