Walkout plan at Group Five

FIVE board members of one of South Africa’s largest construction firms, Group Five, plan to resign ahead of the ailing firm’s extraordinary general meeting next month, following a breakdown in talks with investment firm Allan Gray, its biggest shareholder.

The planned mass resignations of non-executive directors Philisiwe Mthethwa, Kalaa Mpinga, Willem Louw, Justin Chinyanta and Vincent Rague come after CEO Eric Vemer left in February.

Allan Gray, which owns about 23% of Group Five, has subsequently pushed for an overhaul of the board with its own five new candidates, saying it had lost faith in the current board, chaired by Mthethwa.

At the dispute’s centre, say sources, is the fund manager’s insistence that Group Five’s most profitable unit – the investments and concessions business – be unbundled and sold off to a local private equity firm.

At the start of the year, a private equity firm expressed interest in buying the unit, which operates tolls on the continent and in Europe, with scope to expand into the US. The board apparently did not want to lose the unit because of its importance to the comp long-term growth strategy.

The equity firm was apparently also interested in the manufacturing unit that provides building materials and steel products. That unit had 25% growth in core operating profit for the six months to December 2016. Overall, the group reported a loss of R338-million.

Mthethwa said had it not been for the contribution of the two units, “with all the problems, the company would have collapsed”.

Andrew Lapping, Allan Gray’s chief investment officer, said: “Allan Gray does not have an agenda with regards to Group Five’s strategy. We want an independent board with the ... skills that will protect and grow value for all stakeholders.”

Mthethwa said an expression of interest had been received for the investments unit, but no firm offer. She said at that time the board had been attending to mass resignations. She acknowledged that Allan Gray inquired about the expression of interest that was apparently rejected.

The board had commissioned a valuation to assess if its engineering unit could be a standalone company.

The extraordinary meeting will be held on July 24. — TMG