Where the road leads
Jannie Mouton is credited with this insight: if a director, in need of cash, believes his company’s shares will double in value, he would rather find funds elsewhere than sell his shares.
Mouton himself has never sold a single share in the companies in which he is invested.
But Freddie Kenney, a director of construction company Raubex, has sold R145m worth of shares in the road builder within the space of two weeks. So eager has Kenney been to offload shares, he gave the buyer of the stock a sizeable discount on 7.5m shares. These represented 55.7% of Kenney’s investment in the company.
Raubex itself was the buyer of the stock. In a Sens announcement, the company says it bought back the stock from his Kenworth entity at a discount to its intrinsic value and it considers the acquisition opportunity to be “very efficient” use of its cash.
At the acquisition price of R16/share, this is a discount of 13.8% to the closing price on the day before the announcement was made.
Furthermore, this was almost a 12% discount on the stock’s volume weighted average price of the previous 30 trading days.
The previous week Kenney sold 1.5m shares for R28.5m, or R19/share.
The total 9m shares that Kenney disposed of represent less than half the stock he acquired as part of the company’s BEE deal in 2004.
Whereas back then he ended up with 20.6m shares (12.7%) in Raubex, last year his holding had shrunk to 14.9m (8% of the company).
Kenney says he will use the cash “to fund a private development project”.
Investors need to ponder a few issues when directors sell stock in their company.
How much transparency is provided in the transaction? What is the position of the seller in the organisation?
Kenney is intimately involved in the company’s affairs. As one of the major shareholders, his voice carries weight.
But now he has sold more than half his investment in the company, to fund other private investments.
His Raubex profile lists him as “a versatile and talented businessman in Bloemfontein, with interests in low-cost housing development, retail development and construction”.
The Financial Mail is aware that his new venture is related to these fields of practice.
But we have to wonder whether his disinvestment is a mere coincidence with the SA National Road Agency’s (Sanral) claim that Raubex, together with other construction companies, illegally colluded to fix the price of construction projects.
Sanral has lodged a court case in which it is suing these entities, many of which have already paid admission of guilt fines for their roles in the illegal fixing of tenders for the stadiums and other infrastructure built in preparation for the soccer World Cup six years ago.
As one of Raubex’s influential directors, Kenney sat on the key audit committee during the time in question.
Only time will tell if his “private venture” has anything to do with avoiding court sanction.
To go back to Mouton, over in Stellenbosch, at the PSG Group of companies he founded, executives acquired a combined R17.7m worth of PSG and Curro Holdings stock, through family trusts.
Even the well-heeled love a good discount. And Curro, with its 26% discount on the prevailing share price, didn’t disappoint.
But not all the directors joined the stampede to accumulate more Curro stock. Chris van der Merwe, the CE and founder of the schools group, was a net seller while everyone else was buying Curro stock.
He also sold 326,516 nil paid letters to bank R2.2m. Back in March he disposed of 350,000 of his own shares, raising R15.6m since the announcement of the rights issue.
As a small “consolation” to other Curro investors, he did acquire 10,000 shares in the rights issue, reducing his loot going to the bank to R15.3m.
Why was he selling? The sale was for only “for a few shares, compared to Chris’s total interest in the company”, says Phakamisa Ndzamela, the company’s strategic relations officer.
“The small amounts of shares were sold as part of a personal financial management strategy to decrease [his] debt levels and diversify his portfolio.”