LITMIR.BIZ

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but was soon a loss-making problem child. Edgars then decided to merge it with its Jet chain, but before it could execute the strategy, Wiese offered R21 million in cash. Edgars accepted.

      Ackermans fitted nicely into Pepkor’s plans for a larger footprint in the inner cities. The acquisition shortened a five-year expansion programme by four years, said Wiese.22 And so he got control of another business that had turnaround potential and losses from previous years that came in handy to keep Pepkor’s tax bill as low as possible. Within a year Ackermans was a profitable division.

      Later that year Wiese and Shoprite’s managing director, Whitey Basson, approached Grand Bazaars, a retailer straining under a heavy debt burden. The chain had several shops in the northern part of the country, which would complement Shoprite’s footprint in the Cape Province. Wiese’s offer was rejected. ‘It was always agreed that our business was not for sale; people may make us an offer we cannot refuse, but it is still not for sale,’ said Grand Bazaars managing director Manny Sachar after talks reached a stalemate.23

      Basson, when telling the story years later, said the transaction was torpedoed by Sachar’s insistence on remaining chairman of the merged retailer’s board. This did not sit well with Shoprite founder Barney Rogut, who had clashed with Sachar in the past. The food had already been dished up at the cocktail function to celebrate the transaction, joked Basson.24 But the deal was called off.

      Not too perturbed by Grand Bazaars, Wiese looked further afield. He saw opportunities in foreign markets and soon Pepkor was exporting to the United States. The plan was to sell clothing, especially IL Back’s wares, in the world’s largest consumer market. IL Back had in the meantime been renamed House of Monatic. In 1984 Pepkor opened a store in Atlanta, Georgia, and soon added another four outlets.25

      The following year, Pepkor bought the clothing manufacturer M Bertish for R8 million from the Veka group. This brought the brand names Embassy and Consulate into the stable, but Pepkor was more interested in the company’s factories, which could be used to produce more House of Monatic products for export.26

      With Wiese at the helm, the group financed its operations to a large extent with debt.

      In an effort to escape rising interest rates, in September 1982 Pepkor started borrowing abroad, where it could get cash at a much lower interest rate. By mid-1983 it looked like an excellent move. Not only were interest rates lower, but Pepkor also turned a profit of R4,5 million on its foreign borrowings, thanks to an appreciation in the value of the rand.27

      This, however, did not last long. Towards the end of 1983 the first foreign exchange losses showed up on the books.28 ‘In the medium term, it is expected that the total cost of foreign borrowings (i.e. the interest paid and exchange rate fluctuations) will be lower than the cost of local borrowings,’ announced Pepkor in its results for the half-year to the end of August 1983.

      By the middle of the following year, as much as 80% of Pepkor’s debt was in the form of foreign loans, in an attempt to benefit from the lower interest rate in the United States – at that stage 13% compared with 21% in South Africa. Although Pepkor’s profit from its actual operations was still growing despite the recession, the firmer dollar caused the group to suffer forex losses of R8,2 million.29 These losses, at first, were only on paper and did not affect the group’s cash flow. Wiese believed the rand was undervalued and therefore Pepkor decided not to pay back its foreign loans, but to extend them.

      Unfortunately for Wiese, South Africa’s image abroad was suffering serious damage. And the rand’s slide continued owing to weak economic growth, tougher sanctions by foreign governments, the withdrawal of prominent multinational companies, consumer boycotts and political violence that some feared would escalate into a civil war. By the middle of 1984 the dollar was trading at R1,35. Within four years South Africa’s currency had lost nearly half its value.

      Pepkor initially did not take out forward cover for its foreign exchange obligations, but after the rand’s steep decline in the second half of 1984 the board decided to take precautions to limit possible losses. The company took out currency options and foreign exchange contracts to cap losses, due to the rand’s volatility, at R19 million.30 ‘If we take a loss we are sure that it can be sustained without jeopardising the company,’ said Wiese in August of that year.31

      Pepkor borrowed in dollars and had to settle the debt in dollars. The problem was the ever-weakening rand, which meant the company’s interest-bearing debt ballooned to R141 million by the end of August compared to R94 million a year earlier.

      To reassure investors about its debt ratio, Pepkor swiftly sold down its stake in some of its properties, realising capital gains of R35 million. Unfortunately its remaining holdings in these properties were placed in a joint finance company, but owing to its structuring Pepkor was obliged to list these as losses in its income statement, which had the opposite effect of what the company had intended.32

      Meanwhile, the company’s actual operations – sales of clothing and food – chugged away with steady growth despite intense competition from other groups and a drought that weighed on disposable income in the rural parts of the country. Although the company was having a hard time, its shops were doing well.

      Pepkor started taking a more cautious approach to foreign debt. Early in 1985, Wiese announced that all forex transactions were now fully covered and that this would be the company’s policy going forward.33

      Ever the optimist, he explored the opportunities suddenly presented by the weaker rand. Pepkor tested the market in the United States and United Kingdom and increased the turnover of its export business to R1,5 million in the year to end February 1985, eyeing R10 million the following year and as much as R30 million within five years.34

      But many South Africans didn’t see opportunities, only an increasingly unstable society. Political unrest became more visible, even in so-called ‘white’ areas. Bomb blasts hit civilian targets, such as the explosion that ripped through a shopping centre in the seaside town of Amanzimtoti, killing four people. Emigration rose sharply. It was big news when Pep Stores founder Renier van Rooyen put his Durbanville mansion up for sale and emigrated to Portugal.35

      One could try to predict the rand–dollar exchange rate. And one could try to position oneself for the direction in which the exchange rate was expected to move. Especially if, like Pepkor and several other South African companies, one sat on a mountain of foreign debt. But no one could predict what would happen in August 1985. Indeed, if company bosses were well prepared for the events to follow, it was more a case of luck than wisdom.

      On 15 August President PW Botha addressed the National Party’s congress in Natal. It was the sort of event that would under normal circumstances not have attracted much attention. But that evening a worldwide audience of more than 200 million expectant people were tuned in. The chatter in diplomatic channels in the preceding weeks had billed the speech as a momentous event, hinting at a big announcement.

      A comprehensive behind-the-scenes account of the reasons for what turned out to be a disaster, which soon became known as the Rubicon Speech, is expertly presented in Hermann Giliomee’s book The Last Afrikaner Leaders.36 What the rest of world was expecting to see is open to speculation. Perhaps a clear framework for negotiations to thrash out plans for a democratic election, maybe the unconditional release of Nelson Mandela and other political prisoners, or maybe just a reasonable man willing to lead a nation valiantly into the unknown. What they got was something completely different. The best description, in a catchy tune, is given by Johannes Kerkorrel and the Gereformeerde Blues Band: ‘’n nare gesig … ’n moerse klug’ (a terrible face … a hell of a farce).37

      Botha, not the most charismatic of 69-year-olds at the best of times, told the world, with a waving forefinger and a heavy Afrikaans accent, that he and his government would not bow to pressure to do what they did not want to do. ‘Don’t push us too far’ was the quote that had the longest echo after the speech.

      No significant change of policy was announced – at any rate, nothing that would resonate with an international audience. The consequences were catastrophic. That same day the American bank Chase Manhattan announced it would terminate borrowing facilities and call in all maturing loans, citing South

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