YeboYethu deal lessons

VODACOM B-BBEE : DO NOT LET EMOTIONS LEAD TO POOR INVESTMENT DECISIONS

Craig Gradidge

The year is 2008, an exciting time in South Africa in general. Markets had been going up strongly for almost five years, the economy was growing, property prices were soaring. Fast-forward a few months – president Thabo Mbeki is recalled; the global financial crisis hits hard; interest rates shoot up; the currency falls off a cliff; and the stock market loses almost 40% of its value in a matter of months.

In the middle of everything, Vodacom announces a broad-based black economic empowerment (B-BBEE) deal, YeboYethu.

More than 102 000 investors received 100 shares each, and had the rest of their subscription refunded if they applied for more. There was some frustration as investors lamented the effort and time taken to participate in these deals with seemingly very little to show for it.

This discontent showed in future deals, with MTN’s Zakhele deal receiving far less interest than it should have.

A lot happened in YeboYethu’s 10-year empowerment period

In the B-BBEE share space, MultiChoice’s Phuthuma Nathi and PSG Group’s Thembeka Capital schemes would reward their shareholders with great returns as they reached the end of their respective empowerment periods.

R10 000 invested in Phuthuma Nathi in 2007 would have yielded over R73 000 in dividends and be worth about R100 000 today; while R30 000 invested in Thembeka Capital in 2007 would be worth about R365 000 today, with investors getting their capital outlay back in dividends.

But it wouldn’t be all good news for black shareholders. African Bank’s two deals – Eyomhlaba and Hlumisa – would lose investors all their capital, and Media24’s Welkom Yizani would have to be bailed out and only reward investors with a windfall late in 2017, essentially growing a R10 000 investment to about R35 000 over 11 years.

MTN Zakhele would also disappoint by turning R20 into R56, despite being worth over R120 at one stage. Not bad though, considering that the JSE Top 40 returned just under 120% in the last 10 years.

YeboYethu surprises the market

Imagine my surprise when I read the YeboYethu announcement last week. As an investor, I will be getting a massive dividend and keep my YeboYethu shares, get exposure to Vodacom and trade my YeboYethu shares at any stage.

The share price rallied – up 42%. Suddenly, those 100 YeboYethu shares were worth something, and will be worth a lot more in a few months’ time. There is the small matter of YeboYethu shareholders having to vote to agree to the deal on the table. Only a fool would vote against it.

In essence, YeboYethu is currently worth about R7.5 billion. Of that, R3 billion will be paid to shareholders in the form of a dividend and the rest will be reinvested in the “new deal”. This new deal sees the underlying Vodacom SA asset in YeboYethu being swopped for Vodacom shares.

There will be some facilitation from Vodacom and a bit of debt funding in the new deal, which results in YeboYethu owning as much as 6.2% of Vodacom and lifts its overall black ownership to about 20%. However, I am saddened that over 15 000 YeboYethu shareholders threw in the towel over the last 10 years. They missed their payday.

The lesson here is: don’t let emotions get in the way of your investment decisions. And do not get caught up in the noise of daily share price movements.

Craig Gradidge is the co-founder of Gradidge-Mahura Investments