Pick n Pay shareholders made of sterner stuff

Pick n Pay — pyramids

PICK n Pay is showing tentative signs of being on the road to recovery although probably not enough to justify the recent strong run in its share price.

At last week’s AGM, new CEO Richard Brasher said: “We’re not back yet, but we’ve started.”

Shareholder activists such as Chris Logan reckon it would have been on the road to recovery years earlier if it hadn’t been for the tight control structure, which ruled out the possibility of a hostile takeover.

Shareholder activists have an unshakeable belief in the efficiency of markets and would contend that any inefficiencies — such as massive value-destroying booms and busts — are the result of blockages that interfere with the unfettered workings of the system.

In the case of Pick n Pay, the Ackerman family’s control represents such a blockage, say shareholder activists. The threat of being taken over was what kept management on its toes and ensured it was constantly generating quality earnings, Logan told the Ackermans.

He said the company’s recovery was unnecessarily delayed as a result of the family’s control structure.

Group chairman Gareth Ackerman countered that the delay was due to the comprehensive nature of the changes that had to be implemented, and was adamant the family had played a critical role in growing and developing the business over its 46year history as a listed company. For most of this time, it had been a very profitable market leader.

Despite all the talk, there seems some confusion at board level about the future of the pyramid control structure.

Ackerman said it was constantly under review, but “there’s no plan to do anything about it this year”. He pointed out that “we’re not having a lot of pushback from institutional shareholders”.

However, nonexecutive director Jeff van Rooyen said at the meeting that the board would look at the structure “and do what is in the best interests of all shareholders”.

Pick n Pay – no voting results

The generally vigorous engagements between the Pick n Pay board and its shareholders inevitably mean AGMs drag on well beyond the 10 or 20 minutes traditionally allocated for these events by JSE-listed companies. Its recent AGMs have on average taken about two hours. This involves no small commitment from all involved, given the near Arctic conditions of the room in which the AGM always takes place. It is midwinter Cape Town with a cold front bearing down and the air conditioning in the room has obviously not been reset since the blistering heat of February. It’s hard to know whether or not this is a canny ploy to keep things brief. Pick n Pay shareholders are evidently made of tough stuff.

But you would think that having sat through a two-hour AGM, shareholders would at least be given the results of the voting at the AGM. Not a chance. Not only did shareholders not get the immediate unbundling of the pyramid that some were looking for, they didn’t even get the full results of their voting. All they got was the bland comment: “All resolutions, including the special resolutions, were passed with the necessary majority.” Pressed for detail, all that a company spokesman would add was: “They were passed with very comfortable majorities.”

Is the Pick n Pay board trapped in some sort of time warp where pyramids and poor disclosure are the order of the day?

There is no excuse for not providing the detailed results of voting at an AGM. The fact that it is currently not a JSE requirement is certainly not an acceptable excuse.

The official comment from Pick n Pay is that it is its “long-standing policy to release these voting results alongside the minutes of the AGM only after these have been approved by the board at its October meeting”.

Ratings agencies

The crisis in the Ukraine might just prove to be good news for African Bank as it stares down the barrel of a ratings agency downgrade. It might even prove to be good news for South Africa, which appears to be staring down a similar barrel.

According to Financial Times reports, Russia and China have agreed to set up a joint rating agency with the rapidly unfolding Ukraine debacle adding a sense of urgency to their plans. Both countries are keen to reduce their dependence on US and European financial institutions in general.

It is a sentiment shared with other Brics countries, including South Africa. The FT reports that the Brics countries — about whom we hear so little these days — have long discussed plans to set up their own rating agency along with a Brics bank — also about which we hear so little these days.

The Brics countries complain that the globally dominant agencies such as S&P, Moody’s and Fitch focus on developed countries and fail to assess developing economies fairly.

The complaint that “they don’t understand us” probably resonates with Abil’s Leon Kirkinis, and may hold some truth. But the unfortunate reality is that despite playing a significant role in the 2008 financial crisis, it seems international investors continue to see huge merit in the globally dominant agencies.

However, things might change if a Brics agency was able to establish a formidable reputation with investors in developing economies.

But that would probably be too late for Abil.