BREAKS OUT AT GROUP FIVE

Five nonex­ec­u­tive di­rec­tors re­sign amid pro­pos­als for a fresh start, as a bat­tle brews over new board mem­bers

CityPress - - Business - JUSTIN BROWN and LE­SETJA MALOPE busi­ness@city­press.co.za

Ama­jor cor­po­rate war has bro­ken out at con­struc­tion com­pany Group Five, with the out­go­ing chair­man put­ting it down to a fight against trans­for­ma­tion. Group Five chair­per­son Philisiwe Mthethwa told City Press on Friday that the fight be­tween the Group Five board and Allan Gray was ul­ti­mately a bat­tle against trans­for­ma­tion – and, in par­tic­u­lar, against the ap­point­ment of a black CEO, Themba Mo­sai, to head the con­struc­tion com­pany.

This drive against trans­for­ma­tion was re­flected by the move to ap­point for­mer Group Five CEO Mike Up­ton to the board as Up­ton’s ap­point­ment would un­der­mine and set up Mo­sai for fail­ure, she added.

Mo­sai’s ap­point­ment was also met with re­sis­tance as two ex­ec­u­tives within the com­pany had in­di­cated that they re­fused to work with him.

One of the ex­ec­u­tives had put this in writ­ing. One had left the com­pany and the other was in the process of ex­it­ing, Mthethwa said.

All five nonex­ec­u­tive di­rec­tors of Group Five, in­clud­ing Mthethwa, have given no­tice that they would re­sign next month af­ter pres­sure from Allan Gray, which holds a 25% stake in the com­pany.

A bat­tle is emerg­ing be­tween Allan Gray and two other share­hold­ers, the Pub­lic In­vest­ment Cor­po­ra­tion (PIC) and Mazi Cap­i­tal, about which nonex­ec­u­tive di­rec­tors should re­place the de­part­ing ones.

The PIC and Mazi Cap­i­tal were un­able to pro­vide City Press with any com­ment on Friday af­ter­noon.

An­other share­holder bat­tle­front con­cerns the di­rec­tion that Group Five is tak­ing, with Allan Gray want­ing “sig­nif­i­cant por­tions” of the group to be un­bun­dled.

Over the past year, Group Five’s shares on the JSE have lost al­most a quar­ter of their value. On Friday, the com­pany was val­ued at R2 bil­lion. Group Five has three key di­vi­sions, and the en­gi­neer­ing and con­struc­tion unit has been suf­fer­ing losses – in­clud­ing an op­er­at­ing loss to­talling R237 mil­lion for the com­pany’s 2016 fi­nan­cial year.

In May, Group Five an­nounced that it had re­ceived a writ­ten de­mand from Allan Gray for the re­con­sti­tu­tion of the com­pany’s board and the re­moval of all ex­ist­ing nonex­ec­u­tive di­rec­tors, namely: Mthethwa, Kalaa Mpinga, Justin Chinyanta, Willem Louw and Vin­cent Rague.

Mthethwa is the CEO of the Na­tional Em­pow­er­ment Fund. She is the sis­ter of Deputy Fi­nance Min­is­ter Sfiso Buthelezi, who is chair­per­son of the PIC, which holds 15.67% of Group Five shares.

“While all the nonex­ec­u­tive di­rec­tors have de­cided to step down, we are con­cerned about the ap­proach Allan Gray has taken to date, in­clud­ing a de­mand for its di­rec­tors to be nom­i­nated as a block,” she said.

“We also ques­tion the un­der­ly­ing rea­sons for this call for a board re­con­sti­tu­tion. Im­por­tantly, we be­lieve that the re­con­sti­tu­tion of the board should not be driven by a sin­gle share­holder.”

Mthethwa told City Press that: “We do not think this is part of good cor­po­rate gov­er­nance”.

Allan Gray has put for­ward five re­place­ment nonex­ec­u­tive di­rec­tors: Rei­tumetse Hunt­ley, Nazeem Martin, Nyami Mandindi, John Job and Michael Up­ton.

The PIC has put for­ward Cora Fer­nan­dez and Thabo Kgogo, while Mazi Cap­i­tal has rec­om­mended Ed­ward Wil­liams and Keneilwe Moloko to be new di­rec­tors.

Group Five share­hold­ers will vote on the di­rec­tors at an ex­tra­or­di­nary gen­eral meet­ing (EGM), to be held on July 24.

In its EGM no­tice, the ex­ist­ing Group Five board mem­bers said they be­lieved that it was “in­ap­pro­pri­ate to ap­point Michael Up­ton as a nonex­ec­u­tive di­rec­tor of the com­pany, given his role as for­mer Group Five CEO, in light of his being in of­fice at a time when his­tor­i­cal in­dus­try be­hav­iour was se­verely crit­i­cised and notwith­stand­ing his in­dus­try ex­pe­ri­ence and in­sti­tu­tional mem­ory”.

“The board be­lieves that his ap­point­ment would seriously un­der­mine the author­ity and vi­sion of the new management team as it seems con­trary to the no­tion of a ‘fresh start’.”

The board added that other share­hold­ers were also con­cerned about Up­ton’s ap­point­ment to the board.

Up­ton was Group Five CEO from April 2007 to Novem­ber 2014.

An­drew Lap­ping, Allan Gray’s chief in­vest­ment of­fi­cer, said in a state­ment that: “We are pleased the ex­ist­ing nonex­ec­u­tives have de­cided to re­sign. It is un­for­tu­nate that they de­cided to draw out this process to such a de­gree, given that a lengthy process is not in Group Five’s in­ter­ests.

“It is odd that the board does not favour the ap­point­ment of Mike Up­ton ... We un­der­stand he was well liked and re­spected by em­ploy­ees dur­ing his ten­ure at Group Five and is highly re­garded in the con­struc­tion in­dus­try.

“Allan Gray does not have an agenda with re­gard to Group Five’s strat­egy.

“We want an in­de­pen­dent board with the rel­e­vant skills that will pro­tect and grow value for all stake­hold­ers,” Lap­ping said.

In its EGM no­tice the ex­ist­ing board said: “The cur­rent board, as well as other share­hold­ers who have been can­vassed, are op­posed to the man­ner of Allan Gray’s ap­proach to re­con­sti­tute the board.

“The board also does not agree with Allan Gray’s views re­gard­ing the fu­ture di­rec­tion of Group Five which in­volves un­bundling sig­nif­i­cant por­tions of the group.”

Vanessa Baard, spokesper­son for Corona­tion, which holds a 14.49% stake in Group Five on be­half of in­vestors, said the com­pany would not be com­ment­ing.

San­lam has a 7.77% stake in Group Five, ac­cord­ing to Group Five’s lat­est an­nual re­port.

A San­lam spokesper­son was un­able to com­ment.

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