Palace revolution at Wescoal
A once solid company has been turned into one with an uncertain future, thanks in large part to Eskom’s coal procurement policy.
it’s perhaps unfair to blame Eskom for everything, but there’s a lot to be said for the effect of its coal procurement policy which, like a textbook case of chaos theory, has wrought problems in entirely unpredictable ways. Take Wescoal Holdings, for instance. Its attempt to reconstruct its shareholder register so that it could meet Eskom’s demand for 50% + one share of black economic empowerment (BEE) has led to an almighty fraying of tempers between seemingly harmonious board members.
What happened next was the very rapid departure of a CEO – Andre Bojé – whose key virtue at the company had been his longevity and long-term take on Wescoal’s future. He’d been the founding CEO of the company 18 years ago.
The BEE component of Wescoal, WPP, decided to unbundle its 30% BEE structure so that its constituents could buy up shares, take part in a special purpose vehicle and would eventually own 51% of the company. In so doing, Wescoal would win the right to supply Eskom with some 1.2m tons from its newly acquired Elandspruit colliery, a production rate that is roughly 25% of Wescoal’s entire production and, therefore, quite a big deal.
The trouble was that Robinson Ramaite, Wescoal’s chairman who led the BEE grouping, started buying up shares at nearly the same time as an unsolicited bid was made by Dutch company Unico. That proved problematic because the corporate interest, from a fairly well-heeled foreign firm, introduced competitive tension into Wescoal’s share price.
Why, minority shareholders asked, should Ramaite buy up the company at the prevailing share price when outside offers would inevitably put a much higher value on the company?
Ramaite’s response was outrage. How, he asked, was he to believe the Unico offer was unsolicited? Surely it had been the brainchild of Bojé who had invited the bid to stop Ramaite picking up Wescoal shares so cheaply.
Where once the interests of Ramaite and Bojé were aligned (Bojé owns 5% of the company), they were now seemingly at odds. The outcome was an irreconcilable fall-out in the Wescoal board with some directors supporting Ramaite, and others siding with Bojé.
Bojé said he remained confident in the fundamental DNA of Wescoal, which has built up a strong track record over the last few years for solid, if not very impressive, performance. Nonetheless, its immediate future seems uncertain.
Minority shareholders, led by Brendon Hubbard of ClucasGrey, an asset management company, wants two non-executive directors appointed to the Wescoal board: Greg Saffy, a former banking analyst for RMB Morgan Stanley, and African Alliance director Advocate Des Mahoney. These nominations are to protect minority interests, which Hubbard said totalled 40% of the company – a sizeable block of voting shares. Hubbard told finweek there were still “interested parties scratching around”, suggesting that he and his fellow shareholders think there’s more value in attracting a bid than in Ramaite securing the Eskom contract through his BEE holding.
There’s truth in Hubbard’s words because the SA-based junior and mid-cap coal sector is starting to become a very interesting place.
Already German company IchorCoal has bought a 24% stake in Universal Coal, a Sydney-listed firm with operations in Mpumalanga, while Keaton Energy is thought to be interested in the takeover of Continental Coal, another Australian firm in SA.
Then there’s the corporate action that may result from Anglo American selling its Eskom-dedicated mines and the possible deal-flow of the South32 listing, the BHP Billiton demerger company that has SA thermal coal mines at its heart.
It makes sense for Wescoal minorities to win some assurance its board is working for all shareholders.
Where once the interests of Ramaite and Bojé were aligned, they were now seemingly at odds. The outcome was an irreconcilable fall-out in the Wescoal board.