The news that MTN staff and executive management are to repay the loan used to purchase an 18,7% stake three years ahead of schedule sounds like a reason to celebrate. But on closer inspection, the feat came at a huge price for empowerment and represents a loss of long-term vision.
Newshelf 664, a company made up of 2 400 MTN staff members, purchased the stake two years ago at an average price of R13,90 a share.
The Public Investment Corporation (PIC) advanced a loan of R2,1-billion to help fund the purchase of a deal worth R4-billion in total.
Last week Newshelf announced that it would give 118,65-million shares to the PIC to settle its debt. It will sell the corporation a further 75,2-million shares and use the proceeds to settle other debt. This would free the company of its debt burden, but it may ultimately prove to be a step backwards for empowerment. The reason Newshelf was able to settle early has been the phenomenal performance of the shares. Since the purchase at a price below R15, the shares have since trebled in value to trade around R45, an increase of about 200%.
Yet in concluding this deal, Newshelf has decreased its stake from 18,7 % to 6,9%. This raises the questions of what the point of a staff and management buyout is if not to exert influence; and why, in a bid to extricate itself from debt, a company would give up so much influence. Newshelf should have held on to at least 10 % of MTN. Moreover, why did Newshelf not sell the 75,2-million shares in the open market?
A logical, if slightly unpalatable, final step of the deal was for four executive directors, headed by Phuthuma Nhleko, to exchange their stake in Newshelf for MTN shares worth R12,4-million. That will certainly rile staff.
The PIC, as funders of this deal, come out roses, but that too has to be questioned.
The corporation has made a profit of R3,4-billion on the loan or a return of about 64% a year. On those numbers, the corporation cannot be faltered for accepting the settlement. But a question that has to be asked is what the corporation’s original goal in funding the deal was — to generate cash or to advance empowerment? At the time of the funding, it pointed more to the latter.
PIC spokesperson Mukoni Ratshitanga was reported to have suggested that the deal was a meaningful contribution to empowerment. But it is difficult to see how that will be the case. The PIC has, as a result of this deal, increased its stake in MTN to 22,2%. But that was at the expense of MTN staff, not an institutional shareholder or the open market.
Brian Molefe, head of the PIC, has emphatically stated that having the PIC as a shareholder does not allow a company to claim empowerment credentials. So MTN has in fact had its empowerment credentials weakened. The only way that Molefe can use the transaction to advance the empowerment cause is to reserve, say, 7% of the stake, for an empowerment grouping. That would still leave the PIC with 15% of MTN, a good investment by any stretch of the imagination.
The PIC must show that driving transformation is not about chastising companies over their board and senior management appointments. It is also about asking empowerment beneficiaries hard questions like what their long-term intentions are, and emphasising that building wealth is a process that requires patience — and maybe, just maybe, they should have held on to a much bigger portion of the stake a bit longer.
Nhleko and Molefe should have talked more before doing the deal.