No re­lated party is­sues at Rem­gro

JSE comfortable, Theo Botha per­plexed

Finweek English Edition - - Openers -

T HE JSE DIS­MISSED sug­ges­tions last week that re­lated party is­sues in the re­struc­tur­ing of Ru­pert fam­i­ly­con­trolled in­vest­ment group Rem­gro had been over­looked. Share­holder ac­tivist Theo Botha first raised con­cerns about re­lated party is­sues in Rem­gro’s re­struc­tur­ing ( Fin­week 16 Oc­to­ber “Bad times could be good for Reinet”) ear­lier this month.

Botha, who ques­tioned Rem­gro chair Jo­hann Ru­pert at length at a re­cent share­hold­ers’ meet­ing ear­lier in Oc­to­ber, ques­tioned why the un­bundling and list­ing of new in­vest­ment ve­hi­cle Reinet In­vest­ments was not flagged as a re­lated party trans­ac­tion. On pa­per, Botha seems to have raised a valid point, with Ru­pert (the chair­man of both Rem­gro and Richemont) chair­ing and con­trol­ling Reinet In­vest­ments as well as chair­ing and con­trol­ling its in­vest­ment ad­vi­sory com­pany, which earns a fee on as­sets ac­cu­mu­lated and a per­for­mance fee on cu­mu­la­tive re­turns.

Ini­tially, Reinet’s big­gest in­vest­ment will be a 3% share­hold­ing in Bri­tish Amer­i­can To­bacco (BAT), gar­nered from 10% of the BAT shares due to be un­bun­dled to Rem­gro and Richemont share­hold­ers. CF Ru­pert and the Rem­brandt Trust – both con­trolled by the Ru­pert fam­ily – are also listed as the un­der­writ­ers of new Reinet shares to be is­sued in a rights of­fer. Ru­pert, at the re­cent Rem­gro share­hold­ers’ meet­ing, ac­knowl­edged there could be ques­tions about re­lated party is­sues. How­ever, he in­di­cated that Rem­gro’s ad­vis­ers had as­sured him that – legally – that wasn’t the case.

Nev­er­the­less, Botha pe­ti­tioned the JSE about Ru­pert’s re­lated party con­cerns, sug­gest­ing the mat­ter could set a prece­dent for other listed com­pa­nies. He said other listed com­pa­nies might be able to skirt re­lated party is­sues by point­ing to the Rem­gro re­struc­tur­ing as a prece­dent-set­ting trans­ac­tion.

How­ever, Fin­week is in pos­ses­sion of corre- spon­dence sent to Botha from JSE GM of is­suer ser­vices Doug Doel that makes it clear the SA bourse is sat­is­fied with de­vel­op­ments at both Rem­gro and Richemont (which be­gan its un­bundling process last Mon­day).

Doel says prior to the re­struc­tur­ing, Rem­gro held a one-third in­ter­est and Richemont a two-thirds in­ter­est in the joint ven­ture R&R Hold­ings, which, in turn, held a 30% stake in BAT. Doel says that, as part of the trans­ac­tion, Richemont and Rem­gro dis­trib­uted 90% of their re­spec­tive hold­ings in BAT to share­hold­ers, leav­ing the re­main­der in R&R, which was col­lapsed into Richemont SA to be­come Reinet In­vest­ments.

Doel says post the re­struc­tur­ing, Rem­gro con­tin­ues to hold one-third of the new R&R (ie, Reinet) with Richemont hold­ing the other two-thirds. Fol­low­ing the dis­tri­bu­tion of Rem­gro and Richemont’s re­spec­tive 90% BAT share­hold­ings there’s an ef­fec­tive 3% in­ter­est in BAT left in Reinet.

Doel con­cludes that since Rem­gro share­hold­ers, af­ter the re­struc­tur­ing, are in the same po­si­tion with re­gard to their in­vest­ment in R&R/Reinet as they were be­fore the re­struc­tur­ing, the JSE treated the trans­ac­tion as “one in­di­vis­i­ble re­struc­tur­ing”. He says that didn’t fall within Sec­tion 10 of the JSE’s list­ings re­quire­ments “as op­posed to a se­ries of trans­ac­tions”.

Botha isn’t im­pressed by the JSE’s state­ment, ask­ing whether Doel’s ar­gu­ment would stand up in a court of law. Botha reck­ons the prospec­tus for Reinet In­vest­ments iden­ti­fied a slew of re­lated par­ties with which it had en­tered into ma­te­rial

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