Not a pile of doggy doo

Gem of an in­vest­ment

Finweek English Edition - - Companies & Markets - MICHAEL COUL­SON

IT’S NOT A PLEAS­ANT WAY to come back af­ter a break, but some­times you just have to bite the bul­let and eat hum­ble pie. When I last wrote about Afgem in Septem­ber, I may have cre­ated the im­pres­sion I thought the com­pany was a pile of doggy doo and of ab­so­lutely no value.

Alas, I couldn’t have been more wrong. While it’s true Afgem pro­poses to wind it­self up, it will be re­pay­ing cap­i­tal to the tune of a hand­some 2,65c/share. That’s a to­tal of R6,8m, against the R33,5m mar­ket cap be­fore the share was sus­pended in March 2007. Be­fore its list­ing in 2001, shares were is­sued at 400c and I can only marvel at how the man­agers and con­trol­ling share­hold­ers have striven to pre­serve the wealth of all share­hold­ers.

Mean­while, what of the un­suit­able as­sets taken out of Afgem and benev­o­lently trans­ferred to Lon­don’s AIM mar­ket – the equiv­a­lent of SA’s AltX – through Tan­zan­iteOne? As you may re­mem­ber, when I last wrote Pallinghurst Re­sources’ Gem­fields as­so­ciate – whose CE is Pallinghurst boss Brian Gil­bert­son’s son, Sean – was con­sid­er­ing mak­ing an of­fer at 45p/share, which val­ued Tan­zan­iteOne at the equiv­a­lent of around R500m.

Tan­zan­iteOne has just come up with a novel de­fence: it’s is­sued its direc­tors with un­listed but vot­ing B shares that rep­re­sent 50,2% of the en­larged cap­i­tal, mak­ing the board an im­preg­nable oli­garchy. While the shares may lapse af­ter six months, Tan­zan­iteOne says that will give it time to de­vise a more per­ma­nent pro­tec­tive shield.

Though that ma­noeu­vre wouldn’t be ac­cept­able in Jo­han­nes­burg, Tan­zan­iteOne jus­ti­fies it as nec­es­sary to pro­tect share­hold­ers from Gem­fields’ lat­est first-come, first- served of­fer for 57% of the eq­uity at a slightly lower 42,75p, which could have trans­ferred con­trol of the com­pany without giv­ing all share­hold­ers the chance to sell.

There’s in ef­fect now been a change of con­trol without giv­ing any share­hold­ers the chance to sell, which is clearly much fairer. It’s heart-warm­ing that the own­ers of Tan­zan­iteOne are show­ing the same com­mit­ment to their mi­nori­ties as they did at Afgem.

Some­what snidely, they point out Gem­fields’ share price has fallen by a third since it first an­nounced its in­ten­tion to bid two months ago. Con­versely, Tan­zan­iteOne’s price has al­most dou­bled from the Au­gust low of 25,5p/share, though it’s moot whether that would have hap­pened without the un­der­pin of the Gem­fields of­fer.

The direc­tors have also “re­moved” from the board Mark Sum­mers, a non-exec since he re­signed as chief fi­nan­cial of­fi­cer in June 2007. Is he sus­pected of sup­ping with the en­emy?

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