Who the hell is Halco?
Additional control level not disclosed in annual report
CONTROL STRUCTURES have lately been a contentious issue at the Jowell family controlled companies Mobile Industries and Trencor, which ultimately control New York Stock Exchange-listed container management business Textainer. The Jowell family controls Mobile with a 25% stake. Mobile holds 46% of Trencor, which in turn holds 62,6% of Textainer.
Those are indisputable facts. And page three of the latest Trencor/Mobile annual report confirms that control structure. So it was with some surprise shareholders at last week’s Trencor AGM heard – courtesy of shareholder activist Theo Botha – that the Mobile/Trencor/Textainer structure actually contained two further ownership tiers. Those tiers weren’t shown or alluded to in either the Trencor or Mobile annual reports. It seems the meticulous Botha uncovered the arrangement from SEC filings.
Botha says there are two holding companies – Halco Trust and Halco Holdings Inc (see accompanying graphic) – that sit between Trencor and Textainer. The Halco Trust has three “protectors” in the form of Neil Jowell, Cecil Jowell and Jimmy McQueen – all directors of Trencor. The Halco Trust holds 100% of Halco Holdings Inc.
The existence of Halco – and the nondisclosure about the structure – is likely to worry shareholders, especially those who have long called for the dismantling of the Mobile control structure as a way to unlock value for shareholders. The uncovering of Halco certainly reinforces notions from some investment quarters that there could be a preoccupation about control over the main operating asset, Textainer.
Most worrying, though, was that Mobile and Trencor directors weren’t terribly convincing in their explanation of the Halco structure. In fact, there was a fair amount of muffled conferencing around the boardroom table before questions were answered.
Trencor chairman Neil Jowell explained somewhat sheepishly that the Halco structure harked back to the days of sanctions against SA. Asked why this structural legacy would still have relevance today, Jowell referred to Halco holding “trade secrets” but “preferred not to go into reasons” – other than saying there were “significant trade benefits”.
Botha chided Jowell for not revealing the Halco structure to South African shareholders in Trencor and Mobile, adding that such non-disclosure recalled the Sage Group (where information about losses in the group’s US operations were withheld from SA shareholders).
Jowell stressed Trencor and Mobile weren’t trying to suppress the existence of Halco. “Halco is there to protect the underlying asset.” When Botha argued that a straightforward control structure could achieve the same result, Jowell suggested “there were many issues of benefit to Trencor”. However, he didn’t elaborate on those issues.
There was also some concern about the role of the “protectors” in the Halco Trust. Botha noted: “The protectors seem to have a lot of power.” The SEC filings state: “The protectors of the trust have the power, under the trust documents, to appoint or remove the trustee. The protectors cannot be removed and have the right to nominate replacement protectors. In addition, any changes to the beneficiary of the Halco Trust must be agreed to by both the independent trustee and the protectors of the trust.”
Botha was also concerned that while Trencor’s annual report showed the company also owned 44% of TAC (a company that owns marine cargo containers) the stake was in fact also held through Halco. Asked who held the balance of the shares in TAC, Jowell said those shares were held by parties Trencor had done business with for a long time. He added Halco had an option to take up those shares.
Chris Logan, of Opportune Investments, says it seemed Halco held “a lot of cash” and asked why Halco didn’t reflect its options in TAC as an asset. Trencor MD Hennie van der Merwe countered that the options held no value until exercised. He said Trencor’s stake in TAC was reflected under receivables in the company’s balance sheet. “If you value the TAC option as an asset then you effectively double count.”
It seemed the questions about Halco flustered the Trencor board, with Jowell eventually proclaiming: “Halco owns 62% of Textainer… there’s no more to know than that.”
But there’s clearly more to know about Halco. Shareholders might want to learn the exact nature of the “trade secrets” referred to by Jowell and demand more detail about the “significant trade benefits” to Trencor/ Mobile shareholders.
After the AGM, Botha told Finweek: “I just don’t feel comfortable with the Halco structure, even after hearing what Trencor’s directors have said on the matter.”