Dis-Chem Founders Conclude R500 Million Sale of Head Office and Distribution Centre

In a decisive move that reflects a strategic realignment of its property assets, Dis-Chem, South Africa's leading pharmacy group, has purchased its head office and distribution centre in Midrand for a total of R500 million. This bold transaction, primarily between the group and its founders, Ivan and Lynnette Saltzman, represents a calculated step towards asserting greater control over its core operating facilities.

The crux of the transaction lies with Columbia Falls Properties 7, the owning entity of the premises, which is under the trusteeship of The Directors Adventures Trust. This trust includes not just the Salztmans but also other prominent figures within Dis-Chem's hierarchy, such as Saul Salztman, Stanley Goetsch, Lynette Saltzman, Brian Epstein, and Kevin Sterling. The massive stake of 78% held by the founders through Ivlyn (Pty) Ltd, along with significant holdings by SGFT Investments, highlights the intertwined nature of Dis-Chem's leadership and its operational assets.

The decision to bring these assets under the direct ownership of Dis-Chem was preceded by near-annual expenditures amounting to R55 million in rent. Despite being under a long-term lease with an annual increment of 8%, the transfer of ownership falls within the group's strategic goals, aiming to cut costs and bolster the income statement while minimally affecting the balance sheet.

Dis-Chem's transition towards this state of self-ownership hasn't been impulsive. Previously, in January 2022, the founders and directors had sold three warehouses to the group, totaling more than R200 million. The pathway to this transition was cleared amid rising unease over related-party ownership, which hit a peak during the turbulent pandemic months when Dis-Chem sought rent relief for its retail outlets due to stringent lockdown measures.

The company's integrated report of 2020 went so far as to note stakeholders' concerns regarding conflicts of interest and emphasized the then-ongoing process to manage and unravel these entanglements through increased disclosures and the sale of its distribution centres. With this current R500 million deal, the group hopes to have put significant concerns to rest, for the Midrand property acquisition means that no significant property asset rented by Dis-Chem remains in the hands of related parties.

Nevertheless, it's not a complete divestiture. Dis-Chem still pays rental fees—approximately R13 million annually—to other property companies controlled by the directors for spaces such as shopping and medical centres. In a further move towards consolidation, in 2021, the Saltzmans reduced their stake in Dis-Chem, which, following share sales to institutional investors, executives, and BEE investors, is valued at around R9 billion. This leaves Coronation Fund Managers and the Public Investment Corporation as key shareholders with 20% and 10% stakes, respectively.

With strategic maneuvers like these, Dis-Chem reaffirms its commitment to optimizing its operations while addressing shareholder concerns about transparency and conflict of interest. This latest real estate acquisition not only strives to enhance financial efficiency but also signals a broader shift towards a more self-reliant corporate structure that could set a precedent for other companies navigating the complexities of related-party transactions.