Deal starts to sour
HCI frustrated at stalling of urgent capitalisation plans
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