Deal starts to sour

HCI frus­trated at stalling of ur­gent cap­i­tal­i­sa­tion plans

Finweek English Edition - - Companies & Markets -

THE RE­LA­TION­SHIP BE­TWEEN empowerment group Hosken Con­sol­i­dated In­vest­ments (HCI) and dairy gi­ant Clover In­dus­tries has soured to the point that the orig­i­nal black empowerment deal looks in jeop­ardy. HCI holds a 34,9% stake in Clover, an ar­range­ment that mar­ket watch­ers be­lieved would give the empowerment group a mean­ing­ful foothold for fur­ther for­ays into the food sec­tor. HCI also holds 44% of Clover’s pref­er­ence shares.

But there have been lin­ger­ing ten­sions be­tween both par­ties over the past two years, with HCI openly crit­i­cal of a per­ceived lack of de­vel­op­ment in re­struc­tur­ing and re­cap­i­tal­is­ing Clover. In late 2007 Fin­week’s web­site Fin24 re­ported HCI reck­oned the cap­i­tal struc­ture of the un­listed dairy group was “a sig­nif­i­cant con­straint to the busi­ness” and that a sin­gle cap­i­tal struc­ture was re­quired to “free it from milk quo­tas”.

At that time HCI said a re­quest was made for the Clover board to in­ves­ti­gate the re­cap­i­tal­i­sa­tion of the group but “that progress re­mained ex­tremely slow”. It would seem sub­se­quently that HCI and Clover have re­mained at log­ger­heads, with the for­mer run­ning out of pa­tience.

In HCI’s re­cently re­leased re­sults to endMarch 2009 CEO Johnny Cope­lyn said Clover con­tin­ued to drag its feet over a nec­es­sary cap­i­tal re­struc­tur­ing for a fur­ther year. It would now seem a frus­trated HCI is ready to bail out at Clover. Last month Cope­lyn noted: “HCI has as a re­sult lost con­fi­dence this (the cap­i­tal re­struc­tur­ing) will ever hap­pen and is con­tem­plat­ing re­duc­ing its ex­po­sure to the com­pany.”

Pre­vi­ously Cope­lyn had ar­gued that for Clover to sur­vive and pros­per in fu­ture, the group needed to adapt its busi­ness model and free its cap­i­tal struc­ture from quo­tas. He sug­gested Clover’s po­ten­tial wouldn’t be re­alised with the cur­rent cap­i­tal struc­ture and re­sources.

Cur­rently Clover – a for­mer co-op­er­a­tive – has a rather com­pli­cated cap­i­tal struc­ture that en­sures dairy pro­duc­ers (ie, farm­ers) ef­fec­tively re­main in con­trol of the com­pany. There are “de­liv­ery agree­ments” linked to or­di­nary shares be­tween Clover and its

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