The Wiese riddle
New Shoprite proposals don’t even mention whether he’s entitled to vote his shares
SO THOSE WHO THOUGHT a Shoprite share price trading above the indicated offer of R26 meant that further action was likely have been proved right. And with previous objector Allan Gray committing itself to accepting the new terms – though it may still face some hard talking to persuade all its clients to go along – any fund managers who remain opposed to the deal have lost much of their bargaining power. After all, Allan Gray and its clients control 26,5% of Shoprite’s ordinary shares.
Allan Gray has certainly been able to win major improvements in the deal as the price of its acquiescence. Briefly, the base price (to be escalated if the deal isn’t concluded by mid-March) is up R2 to R28; existing shareholders will be able to sell part of their holdings without forfeiting the right to participate in the new company for the rest of their shares; and talks are to be held with the JSE to see whether a listed instrument can be devised that would give exposure to the new company.
Given the bull-headed assertions by spokesmen for the buyout that changes to the terms were unthinkable, that’s a big climb-down and Allan Gray must be congratulated for its part in the process. But it doesn’t meet all the objections.
In the first place, careful wording makes it clear that there’s no guarantee that the talks with the JSE will succeed. My interpretation is that transaction leader Brait and its colleagues are hoping to design some form of indirect investment in the Shoprite successor company, still unimaginatively known as New Retail. After all, the exercise loses much of its point if Shoprite is simply replaced by a mirror image New Retail.
Given the JSE’s perfectly reasonable dislike of pyramid-type companies, this may require fair ingenuity. Still, that’s what investment banks are paid huge fees for; and it’s in everybody’s interest to find a solution.
However, the one key objection that the new proposals don’t address – or even mention – is whether Christo Wiese is entitled to vote his shares. Now the question of whether Wiese’s preferential voting rights are legitimate, and why investors didn’t object when they were created a few years ago, is a red herring. Were I a Machiavellian I might even suspect that it was deliberately raised by the framers of the deal to draw attention away from the real issue.
That is, simply, that Wiese shouldn’t be allowed to exercise any of his votes.
He’s too intimately involved, not only on both sides of the deal but also in the middle. It’s all very well saying that everybody knows that Wiese controls the company, but Wiese, with his legal background and long business experience, also knows that if you want the benefits of a stock exchange listing, you have to accept the responsibilities. One of the most fundamental of those is that you may have to limit the exercise of your own power in the interest of equitable treatment of others.
There’s as yet no word from the Financial Services Board on whether the revision of the deal will affect its planned deliberations. Frankly, it’ll be a disgrace if it does; important issues of principle still need to be settled.
Allan Gray may have done its bit, but I hope other dissident fund managers, such as Coronation and Peregrine, won’t now simply throw in the towel just for another R2/share.