Con­flict of in­ter­est at R&E and JCI

Share­hold­ers’ com­plaints ig­nored

Finweek English Edition - - Companies & markets - BY MICHAEL COUL­SON

IT’S NO SUR­PRISE THAT THE ar­bi­tra­tion be­tween Rand­gold & Ex­plo­ration and JCI has dragged on longer than ex­pected, and al­though the latest state­ment from ar­bi­tra­tors Schalk Burger, Charles Nu­pen and Har­vey Weiner is de­lib­er­ately stud­ied and ju­di­cious, read­ing be­tween the lines it’s clear that so far all the odds are in favour of R&E.

To drive the point home, for those who have dif­fi­culty with small print, the ar­bi­tra­tors put out a “post­script” to their state­ment, say­ing that “the R&E claims, if suc­cess­ful, will ex­ceed the net as­set value of JCI”. If you think that “if suc­cess­ful” is a ma­jor qual­i­fi­ca­tion, in the main body of the re­port they say: “It ap­pears to us that the value of sus­tain­able claims might well ex­ceed the NAV of JCI.”

In lay­man’s lan­guage, that con­firms that JCI is bust.

In the JCI in­terim state­ment pub­lished last Septem­ber, its net as­sets were put at R810m. The ar­bi­tra­tors now sug­gest that a fig­ure of R1,2bn to R1,5bn for R&E’s claim would be a “re­al­is­tic start­ing point” for dis­cus­sions of a set­tle­ment. So that leaves a deficit of at least R400m.

How­ever, the me­di­a­tors also point out that pro­tracted ar­bi­tra­tion and the “spec­tre of liq­ui­da­tion” are com­mer­cially and prac­ti­cally unattrac­tive to share­hold­ers of both com­pa­nies – a re­mark­ably pub­lic-spir­ited approach from mem­bers of the le­gal pro­fes­sion.

They there­fore sug­gest that the best so­lu­tion is a share-swap merger, and they’re aware that the CEO and FDs of both com­pa­nies have dis­cussed pos­si­ble terms.

Now this is where it gets in­ter­est­ing. Peter Gray is CEO of both com­pa­nies. Jo­han Lam­precht, FD of JCI, was re­placed in the same ca­pac­ity at R&E by Marais Steyn as re­cently as 13 De­cem­ber 2006.

There have been re­peated, even stri­dent, com­plaints of con­flict of in­ter­est in the over­lap­ping di­rec­torates of R&E and JCI, which are sub­stan­ti­ated by the split­ting of the roles of FD. Gray has con­sis­tently said that he sees no con­flict, but would re­con­sider if it emerged.

Surely that is now the case? How can he ne­go­ti­ate with him­self on both sides of a pos­si­ble share-swap takeover?

The me­di­a­tors say that any set­tle­ment pro­posal that leaves no value for JCI share­hold­ers is “un­re­al­is­tic” and “a poor al­ter­na­tive for JCI to lit­i­ga­tion”. Af­ter all, it can’t end up with less than the noth­ing it’ll start with, so it might as well hope that some un­pre­dictable judge will make an in­ex­pli­ca­ble find­ing in its favour.

But con­sider the fig­ures. Pre-sus­pen­sion mar­ket caps were R666m for R&E and R356m for JCI. R&E owns 37,6m shares in JCI, but at R6m they’re a tiny part of its most re­cently dis­closed to­tal net as­sets of R1,5bn. Given the likely sus­tain­able claim by R&E against JCI (in­ci­den­tally, it’s sig­nif­i­cant that JCI has made no counter-claims on R&E, de­spite ear­lier blus­ter), a ra­tio based on pre­sus­pen­sion mar­ket caps would be ab­surd.

In lay­man’s lan­guage, that con­firms that

JCI is bust.

In­deed, putting any value on JCI is a gen­er­ous act. The trick will be to pitch a ra­tio that min­imises the di­lu­tion to R&E but is just enough of an in­duce­ment to JCI not to lit­i­gate.

In my view, any­thing that gives ex-JCI share­hold­ers much more than 10% of the merged com­pany would be ex­ces­sive. But this is a story that’s far from over.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.