The strug­gle for con­trol

Finweek English Edition - - Insight -

ONE OF THE AS­PECTS Sen­wes will prob­a­bly have to look at be­fore its list­ing is its con­trol struc­ture – es­pe­cially the role played by Sen­wes Be­leg­gings. To un­der­stand that in­trigue prop­erly, prospec­tive in­vestors in Sen­wes need to look deeply into South Africa’s his­tory.

Years ago – es­pe­cially dur­ing the time of the Great De­pres­sion of 1930 – the farm­ers felt Jewish shop­keep­ers in ru­ral towns were cheat­ing them. They al­ways paid too lit­tle for the maize and the skins the farm­ers brought to them but charged too much for meal.

Af­ter the Na­tional Party came into power in 1948, with the aid of loaded ru­ral votes, sev­eral agri­cul­tural con­trol boards were cre­ated to en­sure farm­ers would never again be ex­ploited by out­siders. When these con­trol boards be­gan to be scrapped in 1996 it sud­denly be­came fash­ion­able for agri­cul­tural co-ops to switch to be­ing com­pa­nies and to list on the JSE. So farm­ers again feared out­siders would strike and gain con­trol of the JSE. On the one hand, they liked the idea of the so-called value that list­ing would bring but were very wor­ried about out­siders gain­ing con­trol.

The first co-op to risk that move was OTK, the top one in SA, which is based in Mpumalanga in the mid­dle of our best maize-pro­duc­ing re­gion. Ini­tially, things went well. But just when the dom­i­nantly Afrikaner board started spend­ing more time squab­bling among them­selves than man­ag­ing the OTK, the out­siders (in this case, Al­lan Gray and friends) struck and took over.

That bit of his­tory is nec­es­sary in or­der to un­der­stand the share­hold­ing struc­ture of Sen­wes and many other co-ops. To make it a bit more dif­fi­cult for out­siders to take over, at the time when it switched from a co-op to a com­pany, Sen­traal­wes cre­ated the clas­sic struc­ture of Sen­wes Be­leg­gings and the or­di­nary op­er­at­ing com­pany, Sen­wes.

The farm­ers took some of the shares in Sen­wes they were en­ti­tled to and used them for Sen­wes­bel shares. The ar­ti­cles of as­so­ci­a­tion state the Sen­wes­bel shares may only be sold to bona fide farm­ers in the area. Ev­ery­thing went well and Sen­wes­bel, with its 32% in­ter­est in Sen­wes, ef­fec­tively con­trolled the lat­ter. The farm­ers – the old mem­bers of the co-op – still con­trolled the new com­pany of Sen­wes, but now via Sen­wes­bel.

Things went so well that by 1998/1999 there was even talk of list­ing Sen­wes. But then sud­denly ev­ery­thing went hay­wire. In­ter­est rates climbed, debt-bur­dened farm­ers threw in the towel one af­ter the other and Sen­wes it­self looked very un­steady.

The shares in Sen­wes – and es­pe­cially in Sen­wes­bel, with their limited trad­ing pos­si­bil­i­ties – be­came al­most worth­less. In 2002, auc­tion­eers Hugo and Terblanche ad­ver­tised it had been in­structed to sell 2,4m Sen­wes­bel and 2,2m Sen­wes shares. My own of­fer was 1c/share for the Sen­wes­bel shares and there were jokes go­ing around the mar­ket Sen­wes shares wouldn’t fetch more than 10c each. How­ever, a farmer, Willem Schutte, suc­ceeded in ob­tain­ing a court or­der to halt the auc­tion, bring­ing an end to that bit of his­tory.

But the ex­tremely low price at which Sen­wes­bel shares were of­fered at the time at­tracted at­ten­tion. Sen­wes chair­man Japie Grob­ler and three of his fel­low di­rec­tors used the op­por­tu­nity to buy Sen­wes­bel shares. They also later sup­ported Sen­wes­bel’s rights is­sue. Now they owned 25% of Sen­wes­bel, which in turn owned 38% of Sen­wes. Grob­ler and his fel­low di­rec­tors were firmly in con­trol.

Trea­cle – a group that in turn be­came in­volved, along with an em­pow­er­ment trans­ac­tion, and now holds 17% of Sen­wes – doesn’t like this at all. Want­ing to make things sticky for Sen­wes­bel, Grob­ler and his friends Trea­cle are now turn­ing to the courts to force them to give 8,3m Sen­wes shares, which they al­legedly ob­tained too cheaply, back to Sen­wes or the orig­i­nal own­ers.

Well, Fin­week has no com­ment about that case. The ad­vice to spec­u­la­tors/in­vestors, of which I’m one, is: don’t go off and buy Sen­wes shares now for 830c (or even more) in the ex­pec­ta­tion of a big profit early next year as a re­sult of the list­ing. The share al­ready looks rather fully priced.

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