The siren call of the spreadsheet

PROTECH’S fall from grace is a tale of immense value destruction.

In 2008, the engineering company listed on the JSE at more than R3 a share. Last year, rival Eqstra launched a takeover bid, offering to buy out shareholders for 60c a share — an offer Protech spurned as being insultingly low.

Soon after Protech rejected the offer, its share price skidded to 15c a share. Now in liquidation, its shares are for all intents and purposes worthless, with its liabilities exceeding its assets.

Perhaps predictably, Eqstra is fairly critical in its assessment of Protech’s board, which advised shareholders to reject the 60c a share offer.

“Quality-wise, many of them were not the kind of people you would want on a board protecting shareholders’ interests,” says a senior Eqstra executive. Had the bid been accepted, Protech would have survived, he says.

Protech’s board, he says, was not as independent as it should have been and the directors were ultimately concerned about protecting their own interests. This, perhaps, is why they fought to prevent Eqstra getting board representation — although it was a 32% shareholder — until it was too late and the company was on the skids.

Had the deal succeeded, the R500-million of business that Eqstra outsourced would have been brought in-house and given to Protech.

“All this business could have gone to Protech. Plus, they were renting more than half their equipment from the market. We have a plant rental business — we could have put all the equipment in there and recapitalised them.”

Acting CEO Victor Dingle refuses to hold the board responsible for Protech’s collapse. “You’re making an assumption that rejecting the bid caused the company to collapse,” he says.

Rejecting the bid is not ultimately what destroyed shareholder value, he says.

“The performance of the company is what would have either enhanced or eroded shareholder value.”

Dingle won’t comment on the quality of the board, other than to say that very few of the members are left.

New board members were brought in, including highly regarded former Eskom executive Paul O’Flaherty as acting chairman “to add value”.

“There needed to be a bit of rebuilding,” says Dingle.

But by then, of course, it was too late.

So was the old board wrong to reject the 60c offer?

“In hindsight, maybe the

Many of them were not the kind of people you would want on a board protecting shareholders’ interests

value was not 90c. Maybe it was not 60c. Certain assumptions were made coming up with that valuation, which I’m sure were well tested.”

Eqstra’s view is that a lot of assumptions were made about things that “possibly would happen” and future contracts Protech “would potentially” get. As it happened, of course, none of them was realised. “Excel is a wonderful thing,” is the acerbic comment of an Eqstra executive, referring to the spreadsheet application. “It can give you any answer. But unfortunately there’s a thing called reality as well.”

Dingle says he has received no notice of intention from employees, creditors or shareholders to take legal action against the board.