Snide swipe on Sens
RCL seems to think the news service is a platform to pillory those who get up its nose
Listed companies can’t use the JSE’s stock exchange news service (Sens) to harangue some or other party that has irked them. Could it be that neither food group RCL nor its financial adviser Rand Merchant Bank (RMB) is aware of this?
How else to explain the vitriolic Sens statement RCL issued recently, which served little purpose other than to trash shareholder activist Albie Cilliers. RCL, which got legal advice, says the statement in question is “legally compliant”.
It wasn’t just a random trashing of a shareholder; even RCL would know better than to do that. Cilliers, who has waged — and generally won — some David and Goliath battles with the investment establishment, intervened in RCL’s recent unwinding of its BEE transaction.
The law entitles him to do this, and investors are better off because he and a handful of like-minded activists are prepared to take on the establishment. It helps to ensure price-setting is determined by the market and not the establishment.
Section 164 of the Companies Act gives dissenting shareholders appraisal rights for good reason. If controlling shareholders use their muscle to execute a transaction, a minority shareholder can force the controlling shareholder to buy them out at “fair value”.
If that sounds easy, it’s anything but. The Companies Act may want to help unhappy shareholders, but it has put up all sorts of hurdles to make sure things aren’t too easy for them. The appraisal rights route is high-risk and can take several months, sometimes years, to yield a result.
And, as all these activists will tell you, while it’s important for the market that pricesetting is as efficient as possible, they wouldn’t take on the challenge if they didn’t think they could make a profit. So, yes, they are in the market to make money.
Which brings us back to RCL’s 2014 BEE deal in which absolutely nobody made any money. The shares were issued to the BEE shareholders when RCL was trading at R17, which turned out to be close to the 10-year high of R19.25 reached in March 2018. After that, it steadily sank to a low of R6 in late 2020. It did recover to R15 in early 2022, but not for long, and May 2022 marked the end of the transaction’s term.
The RCL board decided the only thing to do was repurchase all the shares and cancel the obligations owed by the BEE shareholders.
Share repurchases have become so common that few stop to consider the conflict of interest risk that they present to minority shareholders and creditors. The prospect of minority shareholders exercising their appraisal rights is about the only restraint facing a board that has decided, for whatever reason, to buy back its shares. The repurchase price needs to look reasonable.
Noting that audit company BDO expressed a fair and reasonable value of R18.08 for RCL and that the shares were trading at about R11, Cilliers bought 150,000 shares and proceeded to exercise his appraisal rights. He and RCL agreed a price of R14.69 a share and Cilliers made a profit of R600,000 on the deal.
In terms of the JSE’s listing requirements, RCL was obliged to issue a Sens statement in relation to its repurchase of those shares.
The JSE is specific about the information that must be provided in that statement — how many shares were repurchased and the delisting date, the price paid and the identity of the registered shareholder.
What the JSE doesn’t allow is “any information that is not factually supportable or contains features of human emotion such as derogatory or malicious statements”.
RCL wasn’t going to let some dull listing requirement get in the way of retaliation. It disclosed the required details and then went right off-piste by providing “additional information”. RMB tells the FM the additional information was formulated by the RCL board in conjunction with its adviser.
That additional information essentially challenged Cilliers’s motives, claimed he was the only party to benefit from the repurchase (seemingly ignoring the benefit to BEE shareholders from hundreds of millions of rand of debt being written off) and stated he was abusing the appraisal rights remedy. Just when you thought it couldn’t get any more bizarre, it provided details of Cilliers’s other appraisal rights actions. And there are the privacy issues.
RCL’s bullying attitude reflects why investors need activists who aren’t afraid of using the law to enforce their rights against the big guys.
Cilliers is tough enough not to need protection, but he should be able to enjoy his rights and shouldn’t be subjected to this sort of intimidation.