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.

Finweek English Edition - - NEWS - By David McKay ed­i­to­rial@fin­

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.

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