Who the hell is Halco?

Ad­di­tional con­trol level not dis­closed in an­nual re­port

Finweek English Edition - - Companies & Markets - MARC HASEN­FUSS march@fin­week.co.za

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.”

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