Is this just too good to be true?
It is puzzling that a US firm should invest in the company’s subsidiary and that Trustco’s CEO is not called a related party
Namibian investment company Trustco seems to enjoy some extremely generous patronage from large shareholder Riskowitz Value Fund (RVF), a Us-based firm.
The Financial Mail has already reported on the eyebrow-raising transaction in which RVF will fork out R1.2bn to buy a 20% stake in unlisted Trustco subsidiary Legal Shield, which houses mainly the company’s insurance and property interests.
At the time of the proposed transaction, late last year, the inferred value of Legal Shield was more than the market capitalisation of Trustco, which sparked a huge rally in the share price, albeit at low volumes.
The release of a circular detailing the proposed transaction coincides with the Financial Services Board (now the Financial Sector Conduct Authority) naming Trustco in a list of companies being investigated for possible market manipulation. The investigation, interestingly enough, covers trades in Trustco shares from December 2017 to February this year. Between early November and mid-january, the price of the scantily traded Trustco share ranged from 476c to a record high of R10.
The deal also coincides with growing rumblings in the Namibian legal fraternity about nonpayment for services commissioned by Legal Shield (see Fox, March 8-14).
The Law Society of Namibia has already repeatedly called Trustco out about statements made against legal practitioners. Trustco had implied that it was not reimbursing certain of these practitioners due to unethical actions. It also claimed disputes regarding the accounts of some lawyers, alleging that fees were charged that exceeded the agreed structure, that invoicing was submitted for work not done, and that payments were claimed that were not due or were not payable before the finalisation of specific phases of cases.
The Law Society asked Trustco to submit evidence of alleged unethical conduct via e-mail and post. Trustco said the correspondence was never received. Trustco was again petitioned to provide evidence, but at the time of writing it had still not provided the Law Society with a reply.
There is general puzzlement over RVF’S decision to invest directly in Legal Shield.
The US investor seems to have a penchant for smaller JSE stocks — it holds stakes in food franchiser Taste Holdings, vehicle retailer Combined Motor Holdings, financial services group Finbond and low-cost housing developer Calgro M3.
Surely it would have been more prudent for RVF to acquire more shares in Trustco, thereby effectively gaining access to Legal Shield at a lower price?
According to the just-released circular detailing the Rvf-legal Shield transaction, the official rationale is that the deal will not result in a change of control in either Legal Shield or Trustco. More pertinent is its contention that the disposal “is a consequence of RVF wishing to invest directly in certain specific segments of Trustco which are more suited to certain RVF investment mandates”.
In this regard, the circular states that “RVF concurs with management’s view that there is value to be unlocked in, inter alia, the property portfolio, which holds potential for development in the next 15 to 20 years”.
Shareholders get to vote on the proposed transaction next month.
A curious reference in the circular notes that the agreement allows Legal Shield to declare a
Surely it would have been more prudent for RVF to acquire more shares in Truscto, thereby effectively gaining accessing to Legal Shield at a lower price?
pre-acquisition dividend of up to R1.1bn in favour of Trustco. It says the pre-acquisition dividend will be paid by Legal Shield Holdings “as and when the property debtors’ book of Elisenheim Property Development Company unwinds”.
This development will be worth monitoring in the months ahead, simply because such a windfall seems to undermine the rationale for selling 20% of Legal Shield in the first place.
But what stands out conspicuously in the circular is that Trustco CEO, prime mover and majority shareholder Quinton van Rooyen will be voting his 392.5m shares (about 47.5% of the issued shares) at the general meeting.
At face value, one might justifiably deem Van Rooyen to be a related party.
Not so, it seems. The circular argues that Van Rooyen has not entered into an agreement with RVF that would deem him to be acting in concert with the buyer.
The circular maintains Van Rooyen is not a related party to the sale of the 20% stake in Legal Shield and that the disposal does not result in any unusual, vested or other interest or right being created for the CEO.
In other words, the Legal Shield deal is as good as done.
Not that too many Trustco shareholders would vote against a deal for which the purchase price seems awfully generous — at least in relation to the independent valuation