Basson’s R1.8bn deal shocks shareholders
SHOPRITE MUM ON SWEETHEART DEAL Former Shoprite CEO Whitey Basson has cashed in shares bought for R10 at a strike price of R211.
Shoprite’s shock announcement that it was forced to repurchase R1.8 billion worth of shares from former CEO Whitey Basson has startled shareholders asking when they were informed about it. Yet the 8.6-million share repurchase doesn’t represent Basson’s entire shareholding of 1.59% or 9.1 million shares, according to the latest annual report. Last week, Shoprite told shareholders it was obliged to repurchase the shares in terms of a 2003 agreement with Basson – at a price on the date he exercised his put option.
He exercised his option on May 2, when Shoprite hit a five-year high of R211/share. Shoprite’s share price was lagging below R10 when the deal was made.
In theory, such an agreement would be disclosed in one of Shoprite’s annual reports after 2003. However, shareholders have been unable to find it.
Shoprite didn’t respond to Moneyweb’s question about whether it disclosed the put option agreement.
Shareholder activist Theo Botha said Shoprite’s chairperson of the audit committee had a duty to disclose the option as the liability had been growing over 14 years. “At the end of the day, it’s about transparency and shareholders have a right to know,” said Botha.
Shareholders must still vote on the share repurchase – requiring approximately 75% approval. Analysts expect Shoprite chairperson Christo Wiese, who owns 15.93%, to vote in favour of the option, but it might be rejected by the Government Employees Pension Fund, which holds 11.05%.
In terms of JSE rules, Shoprite has to obtain a fairness opinion on the share repurchase as it’s with a related party (Basson) and at a price which is at a premium to the weighted average traded price over the 30 business days prior to the strike date.
Shoprite said the repurchase price represented a 5.3% premium.
Jean Pierre Verster, portfolio manager at Fair Tree Capital, said it was strange for a company to give a put option to an executive.
“What this creates is a misalignment of interests for the executives because it would be in the executive’s interests to exercise the put option when the price is as high as possible. While for the company, it would want to buy back shares when the share price is low,” he said.
“Maybe Shoprite didn’t completely recognise the size of the liability when the agreement was entered into. They probably didn’t think that the share price might be this much higher when the put option was exercised,” said Verster. Just One Lap founder and Shoprite shareholder Simon Brown said the deal was “poorly structured”.
“Letting a director put shares to you whenever, leaves you with an unquantifiable liability, which should be on the balance sheet.”