Naïve or de­vi­ous?

Is Kop­pel guilty of block­ing In­vestec/JCI merger?

Finweek English Edition - - Companies & Markets - MICHAEL COUL­SON

THE TUS­SLE over the con­tro­ver­sial In­vestec/JCI loan agree­ment in­creas­ingly looks like a one-man vendetta from which third par­ties are un­likely to ben­e­fit and could end up big losers. While it’s tempt­ing to blame South African ex­pa­tri­ate lawyer and in­vestor Monty Kop­pel as the stum­bling block, there have been faults on both sides.

If you’ve been pay­ing at­ten­tion you’ll re­call that last month’s AGM to vote on JCI’s pro­posed merger with Rand­gold & Ex­plo­ration (RGE) was post­poned for a fort­night to al­low dis­si­dents to ne­go­ti­ate a com­pro­mise with In­vestec over its claim of R575m – and ris­ing. When the meet­ing re­sumed, sur­prise, sur­prise: no set­tle­ment pro­posal from the dis­si­dents but one from JCI’s man­age­ment that In­vestec would peg its claim at R275m – roughly R100m less than JCI it­self put it at.

Kop­pel asked for an­other one-week post­pone­ment to con­sider that and, when meet­ing chair­man Isaac Maleka, de­clined and voted to block the merger. That scup­pered the pro­posed set­tle­ment, re­ac­ti­vat­ing In­vestec’s full claim – which, JCI CEO Peter Gray said af­ter the meet­ing, could go well over R1bn in a few years, with ac­cu­mu­lated in­ter­est. As JCI’s stated net as­sets at 31 Oc­to­ber were around R1bn it’s thus no ex­ag­ger­a­tion to say the claim would wipe the com­pany out, leav­ing mi­nori­ties with noth­ing.

Kop­pel was quoted on min­ingmx. com af­ter the meet­ing as say­ing he didn’t think In­vestec is en­ti­tled to any­thing at all, which raises the ques­tion of whether there was any point in the two-week ad­journ­ment he re­quested in the first place. But the fact is: a com­pany that comes up with a pro­posal it knows a ma­jor share­holder can block – at huge po­ten­tial cost to all con­cerned – is be­ing ei­ther naïve or de­vi­ous if it doesn’t en­sure he’s brought on board timeously.

We must also won­der how, af­ter the orig­i­nal meet­ing was told it would be im­pos­si­ble to ar­rive at a set­tle­ment in two weeks, one was sud­denly de­vised. We have to as­sume the par­ties in­volved were gal­vanised into action by Kop­pel’s re­ac­tion. Had they shown sim­i­lar ur­gency a year or more ago, a good deal of sub­se­quent un­pleas­ant­ness could have been avoided.

On the other hand, it seems Kop­pel’s in­tran­si­gence has cost him much sup­port. At the orig­i­nal meet­ing, dis­si­dents claimed to speak for 30% plus of JCI’s eq­uity. With 2,2bn shares in is­sue that equates to more than 650m shares. Though that claim was never tested, be­cause the meet­ing was ad­journed by the chair­man’s rul­ing, it wasn’t de­nied ei­ther.

How­ever, at the re­sumed meet­ing only 461m shares voted against the merger. Kop­pel claims to hold 20% of the eq­uity, though his main hold­ing com­pany – Let­seng – has a dis­closed in­ter­est of only 177m shares, or 8%.

But tak­ing him at his word, Kop­pel con­trols 440m shares – and this sug­gests he was backed by hold­ers of only 20m other shares, which, it’s ru­moured, may have in­cluded fugi­tive ex-di­rec­tor John Stratton. While, as I say, no vote was taken at the ear­lier meet­ing at least one holder of 100m shares then backed the call for an ad­journ­ment but now ap­pears to have switched sides.

While JCI’s is­sued eq­uity is 2,2bn shares, 266m are held by RGE and 202m by JCI it­self and its share in­cen­tive trust. So only around 1,75bn are en­ti­tled to vote, giv­ing Kop­pel a per­ma­nent veto power over any pro­posal re­quir­ing 75% ap­proval.

As long as Kop­pel re­mains adamant there’s sim­ply no way of negat­ing his op­po­si­tion. If he’s pre­pared to ac­cept the risk that his ac­tions will ren­der his in­vest­ment worth­less he’s en­ti­tled to. Other share­hold­ers may feel he’s ir­ra­tional but there’s noth­ing they can do about it.

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