Tsogo Sun: The Second Joker in the Pack

… and SABMiller has promised its support already!

During the South Sea Bubble around 1720 one company issued a prospectus that contained the illuminating description of itself as “a company for carrying out an undertaking of great advantage, but nobody to know what it is” (Charles Mackay, ‘Extraordinary Popular Delusions and the Madness of Crowds’, 1841). That pretty much sounds like ‘Trust me, I’m your share salesman!’

Trust me, I’m your director!

What is it with us that we don’t understand the meaning of ‘transparency’? Or when we consider what we should properly disclose to be fair to our stakeholders?

I mentioned the strange R200 million loans aspect of the upcoming Tsogo Sun GM (resolution 6). Let me now shock you by stating that I plan to also vote against special resolutions 1, 2 and 4, plus ordinary resolution 1.

In the Repurchase Circular the directors of Tsogo Sun are stated to be ‘of the UNANIMOUS opinion that (the) terms and conditions are in the best interests of the Tsogo Sun Shareholders’ (my capitals)… Well, well, then I suppose I should vote along with the directors: obviously they have the inside track! BUT a closer look at special resolution 1 shows that if you vote for this resolution, the effect is to create 20 million preference shares in the authorised share capital as well as authorising the board to determine the (currently secret) issue price and the (currently secret) rights attaching to these shares (this being subject to the approval of the JSE). And, surprise, surprise, no real ‘terms and conditions’ are disclosed to us normal shareholders…

In general, there are four different basic types of preference share rights, each capable of significant fine tuning: Cumulative / Non-cumulative; Redeemable / Non-redeemable; Convertible / Non-convertible; and Participating / Non-participating. You can have combinations of these, you specify a dividend rate, you can link it to an interest rate, etcetera.

The problem is that none of these aspects are clarified in the resolution or in the circular. We don’t know what they’ll be: the board of directors will decide! Trust me, I’m a director…

It gets better (although probably not for minorities, especially the new ones who will now acquire the old SABMiller shares through the book-building exercise). Because special resolution 2 also aims to change the MoI to give the directors the right to create any class, determine the rights, increase or decrease the number, sub-divide or consolidate, and vary rights or limitations in future: and we the shareholders have no say. Trust me, I’m a director…

Now the ‘home run’ sits in ordinary resolution 1: here, we are requested to give the directors carte blanche to issue these preference shares, of which we know no important details, to whoever they deem fit, ‘from time to time’… Wow. All of this to ‘manage the capital structure’ and all structured in these resolutions this way to save the ‘costs of calling a separate Shareholders meeting’ from time to time…

The kicker is that SABMiller has already promised that it will support these resolutions except for number 3, where it is not allowed to. Luckily for SABMiller, it is now out of here and its three directors resign immediately. No effect on them…

Five of the remaining non-executive directors are HCI directors; Rex Tomlinson and Busi Mabuza are independent, and ex-CEO Jabu Mabuza will be paid an R8,5 million restraint-of-trade in quarterly instalments. The two executives are part of the R200 million interest-free loan deal.

Will a significant part of the preference shares be issued to HCI or its affiliates? No-one knows.

No terms and conditions, no idea of the total amount, the board has complete freedom to act on our behalf: this circular gives shareholders almost nothing on which to base an informed decision. And did the JSE really approve it after considering whether all salient facts were included?

Trust me, I’m a director.

(This article by Theo Botha and Charl Kocks, who recently retired as a director of Proxy View, was published on MoneyWeb in 2014.)