The ‘black empowerment purchase’ of JCI and Johnnic has=20 important implications, reports Reg Rumney
The National Empowerment Consortium (NEC) is poised to buy=20 a big stake in Johnnic, the industrial firm that came out=20 of the unbundling of conglomerate Johannesburg Consolidated=20
The details of how the union and black-business-based=20 consortium intends pulling this off are unclear.
Chairman of the NEC, Metal & Electrical Workers Union=20 (Mawusa) secretary general Tommy Oliphant, indicates this=20 is only the first step. A stake in the mining house JCI=20 Ltd, the second of the three companies left after the=20 dismemberment, is next. Some members of the consortium=20 believe NEC should have a small stake in JCI Ltd, say 10=20 percent, as well as a larger one in Johnnic. Oliphant says=20 a meeting with Anglo American to discuss details is=20
Corporate Africa’s Nthato Motlana, initially lukewarm, is=20 now interested in coming along to buy into Johnnic. The=20 other recent black empowerment exercise Real Africa=20 Investments Limited (RAIL) has also been linked to the=20 consortium, but Oliphant says RAIL, headed by Don Ncube, is=20 only interested in the mining company, JCI Ltd.
The union groupings involved, according to Oliphant are:=20 Mawusa, the National Union of Mineworkers, the National=20 Union of Metalworkers of South Africa, the Food and Allied=20 Workers Union, the South African Commercial, Catering and=20 Allied Workers Union, and the South African Railways and=20 Harbour Workers Union.
Along with them are various black business interests,=20 including both arms of organised black business, the=20 Federation of Business and Consumer Organisations, and the=20 National African Federated Chambers of Commerce. Several=20 prominent black figures have been linked to the NEC,=20 including businessman Don Mkwhanazi.
The Board of Executors, locally, and Lehman Brothers,=20 internationally, are advising the consortium. They will=20 mobilise funds overseas and from South African business to=20 buy into Johnnic, says Oliphant. Locally, the unions will=20 approach pension and provident funds to direct investment=20 towards the consortium.
Oliphant says the details of the financing have not been=20 worked out. One source maintains the NEC will not use debt,=20 either local or foreign to acquire equity. This would make=20 little sense, anyway, since servicing the debt at present=20 interest rates could cancel out the monetary gains of=20 buying into the company.
Although Oliphant says that from the union point of view,=20 the consortium would not want the full 48 percent on offer=20 for control of Johnnic, he mentions a figure of 34,5=20 percent. That kind of stake is effective control, as Anglo=20 American Corporation’s Brian St John points out.
That size stake would not come cheap — around R2-billion=20 at the present value the market places on company’s shares=20 of R5,8-billion. And the 10 percent stake in JCI Ltd=20 Oliphant mentions alone would cost R400-million, based on=20 its present market capitalisation of around R4-billion.
Yet investment without control makes no sense, since the=20 NEC might as well buy into the underlying listed assets,=20 such as South African Breweries.
Anglo has made it clear there will be no special deals: it=20 wants a market price for its shares. Indeed, St John points=20 out that buying a controlling stake usually means paying a=20 premium for the shares. Johnnic is now trading at an 18=20 percent discount to asset value, giving an indication of=20 how much higher the price might have to rise.
Oliphant also points to differences in the way the NEC sees=20 black empowerment. On the one hand, he says the reason for=20 not wanting control is not to create a conflict of=20 interests. “We don’t want the unions toyi-toying at us.” On=20 the other hand, he believes the NEC can have an influence=20 on how the companies which are bought are run.
“We have succeeded in doing that through the Community=20 Growth Fund,” says Oliphant, who has been intimately=20 involved in the union-led unit trust.
Oliphant says the exercise will empower black business, but=20 the unions do not want to create instant millionaires, as=20 was done with the listing of Motlana’s New Africa=20 Investments and Ncube’s RAIL.
Empowerment should be spread, he says, and new=20 conglomerates should not be created to replace the old ones=20 being dismantled, with black conglomerates dominated by=20 certain people. “We don’t want just to reverse the roles.”
This would rule out??? or RAIL??? the kind of pyramid=20 structure whereby Motlana rules New Africa Investments. It=20 also means the NEC will have to find a good deal of hard=20 cash to buy control.Understandably, speculation about the=20 deal is rife. One source maintains that borrowings would=20 not be used, and that Motlana will mobilise funds from=20 Sanlam, which aided his move into insurer Metropolitan=20 Life, to help him buy into Johnnic.
That is bound to make Liberty Life nervous. Johnnic’s=20 biggest asset is South African Breweries (SAB), a=20 conglomerate in its own right (see page B4). Although=20 Johnnic has only 13,8 percent of SAB, it accounts for=20 around 60 percent of Johnnic, with Premier, Omnicor, Toyota=20 and various property interests making up the balance.
The Liberty Life board must be wondering whether the deal=20 is a cheap way into SAB, Toyota and Omnicor for Sanlam.
Johnnic and Liberty have a joint control agreement on=20 Bevcon, the holding company of SAB, and Premier, but St=20 John points out it only kicks in if Johnnic decides to=20 sell. The agreement, in simple terms, means that either=20 group has a pre-emptive right on the other’s shares. But=20 there is no “grandfather” clause, so the agreement stays=20 with Johnnic, whoever buys controls of it.