WHAT MINORITIES NEED TO KNOW
PERHAPS the first thing minority shareholders faced with a buyout offer need to know is that they “don’t need to go gently…” Over the years there haven’t been too many instances of minorities successfully defending buyouts from either parent companies or management.
But the victories that we can recall have been significant (and, hopefully, inspiring): most notably, retail giant Shoprite (a private equity pitch) and building supplies firm Masonite (whose US parent wanted to mop up minorities). (See report page 34). The resistance was rewarding, as both companies have proved their worth to shareholders over the past few years.
But even if shareholders’ resistance doesn’t derail a buyout, vehement and vocal resistance from minorities can sometimes secure a better buyout offer or ensure continued participation in an unlisted company. The classic “fightback” example would be from the early Nineties, when the late, great shareholder activist Issy Goldberg coaxed the directors of Tafelberg Furnishers into a stuffy storeroom for negotiations that ultimately eked out a few more cents to make the buyout offer more palatable.
SA Shareholders’ Association chairman David Sylvester says although market regulation and investor protection have increased dramatically over the years, market forces still operate. “There are rules in place for the number of shareholders and percentage of equity to be garnered in order to delist, execute transactions greater than a certain quantum and the like.” He says though minority shareholders do have some protection they tend to be complacent. “When you feel aggrieved you need to be heard – but there’s a limit to what you can do…”
JSE business development manager Lauren Czepek says: “Our rules are in place to ensure fair treatment in the process. Whether shareholders decide to take up the offer is an investment decision that they must be comfortable with.”
In determining the merits of a specific buyout offer it’s advisable for shareholders not just to scan the latest financial statements but to go right back to the original prospectus or prelisting documentation. Remember: companies are currently in a squeeze, thanks to global economic uncertainty and more localised issues, such as tighter interest rates, higher fuel costs, the weaker rand, etc.
Economic conditions (touch wood) can change quickly, so it’s important to maintain a longerterm view on prospects. Check whether the company has delivered strategically and operationally on its pre-listing promises. If things have gone awry it’s important to understand why and to apply those findings in a forward-looking manner to the business. In other words: Is the current pressure on profits a blip in what’s otherwise an appealing long-term growth story?
Try figuring out how the funds raised at listing have been utilised and whether the assets acquired or strategic capex could see the business grow markedly in future years.