empowerment
Madeleine Wackernagel : Taking Stock
If it weren’t so tragic, it would be farcical. The great black empowerment dream has turned to dust – and not just because of the slump in the gold price, which, granted, didn’t help. What transpired at the JCI board meeting this week is a tale of mismanagement and poor investment decisions.
Since Mzi Khumalo took over in March, he has rarely been out of the news. Public relations agencies rate their success in serving their clients’ interests according to the number of column inches published; in JCI’s case, the opposite pertains. After the initial fanfare, each new story revealed a company clutching at increasingly elusive straws.
This week was no exception, beginning with a rumoured takeover bid from Lonrho, JCI’s erstwhile target, that raised a few eyebrows and many more questions. The hostile move was actually a gentlemanly merger in Khumalo-speak – and would “offer several advantages for shareholders, including diversification, critical mass and access to international capital markets”.
While such a deal may offer an elegant way out of the current imbroglio for JCI, the benefits to Lonrho are unclear at best, non-existent at worst.
First, why should Lonrho want to get involved in a merger along similar lines to the one discussed earlier this year and then called off – the difference this time being that JCI has just disposed of two of its best assets, HJ Joel and Western Areas?
Second, any such deal has to clear several hurdles, not least of which is the European Commission, which has still to decide on the JCI-Lonrho share swap with Anglo American.
Then there’s Lonrho’s sale of the Princess Hotels, which may be used to fund the deal. Not only has the original valuation of the hotels been significantly downgraded – from 350-million to 220-million, but it is being delayed by a highly complicated due-diligence process.
Third, why devote management time and advisers’ fees to finalising an overpriced bid for a division (Tavistock), only to bid for the whole company three months later? Since when did changing one’s mind become a business strategy?
The Duiker-Tavistock link-up had some commercial attributes, but why would Lonrho want to expand wholeheartedly into South Africa when every other South African mining house is moving in the opposite direction?
All in all, the deal does not match up. As for JCI, this time Khumalo and his partner Brett Kebble came off relatively unscathed. The board may not be as lenient in future.
Indeed, by voting against the acquisition of a stake in Southern Mining Corporation, the board has made its disquiet clear.
But that wasn’t the only deal to be put to the directors retrospectively: the share swap with Anglo American in return for JCI’s stake in Western Areas and HJ Joel, as well as the acquisition of 13% of Beatrix at a price of R22 a share, were only ratified this week.
Accountability doesn’t seem to be this country’s strong suit — viz the scandal at the Central Energy Fund. But JCI is a private company, accountable to its shareholders, whose interests it supposedly serves. So why are no heads rolling over the R80-million-plus loss looming on the Beatrix buy? The shares are now for sale; Khumalo says he is waiting for the best offer. Meanwhile, the shares are trading at R13,70.
But most worrying – and extraordinary – was Khumalo’s announcement that from now on, more board meetings will be held, for which read that correct procedures have not been followed in the past.
The institutional investors that took up the rights issues are running out of patience. No longer will they cough up, nor put up with slack standards of corporate governance. This week’s board meeting was a final warning.
If it were any other company the logical conclusion to this sorry tale would be a management shake-out and possibly a takeover at a knock-down price. But for Khumalo and Anglo much more is at stake. Khumalo has a lot riding on him. He cannot afford to get it wrong again.