The stakes are high as businesses do battle for Johnnic, a showpiece empowerment company, writes Jenny Cargill
It is almost like old times watching the current wrangling within the National Empowerment Consortium (NEC) over New Africa Investments Limited’s (Nail) bid to merge with Johnnic.
The 18-month run-up to the NEC’s purchase of the controlling interest in Johnnic saw more acrimony and contest within the NEC than between buyer and seller. This time, however, the stakes are much higher. The success of the country’s showcase empowerment transaction hangs in the balance.
It is this message which appeared to be having difficulty sinking in over the past few weeks. But it now has, and resolution is likely within a week or so.
Industrial holdings company Johnnic was Anglo American’s first major black economic empowerment transaction, followed by Johannesburg Consolidated Investments (JCI). The latter collapsed as an empowerment initiative and it would be a sorry chapter in the short history of black empowerment should Johnnic go the same way – as one proposal on the table in its current form would suggest.
The Johnnic experience highlights the inherent difficulties in creating a broad- based consortium of shareholders. The upside of such a consortium is its representative character. The downside is the difficulty in achieving strategic focus within such a disparate grouping of shareholders.
The challenge is to create a more coherent shareholder base for Johnnic that is able to provide direction, yet at the same time retain a broad-based grouping of beneficiaries to ensure the company retains credibility as an empowerment – rather than enrichment – initiative.
Looking to a major growth spurt, Nthato Motlana’s Nail made a pitch a few weeks ago for Johnnic. It envisaged bringing its own investments and Johnnic’s into a R20- billion black-owned conglomerate.
The new Johnnic would have three dimensions: industrials (including South African Breweries), financial services (Metlife, African Merchant Bank, African Bank and Hertz); and media and communications (MTN, M-Net, MIH, Times Media Limited/Sowetan, Naftech and Mega).
According to Nail’s current offer, NEC shareholders can be bought out on the basis of ”see-through” value or can take out N shares (non-voting shares) in the new company. New union investment companies will be brought in as shareholders.
This will introduce the required broad- based shareholding needed to deal with the political sensitivities around major beneficiaries being just a handful of leading Nail personalities. However, control will rest with Nail, ensuring strategic focus rather than a lack of cohesion within the shareholder grouping.
When first mooted, the Nail proposal appeared audacious. Yet it resonated well with the growing perception that Johnnic needed a new strategic focus.
The move, however, rekindled tensions within the NEC, evident before the Johnnic deal was consummated 18 months ago. As a result, one leading NEC member, Worldwide Africa Investments, initiated the formulation of a counter offer, structured by Standard Corporate and Merchant Bank.
That alternative would see the unbundling of South African Breweries interests and the introduction of a new shareholder, Dimension Data (Didata), thereby creating an ”infotainment group”. As yet, the Worldwide proposal is said to have been bounced off the Didata management which indicated a strong interest, but talks have not been opened with the major Didata shareholders.
Last week, the NEC – realising that uncertainty about Johnnic’s future could not be dragged out indefinitely without damaging the company – set out some time frames. Firm proposals have to be presented within the next few days and a decision taken shortly after that.
The Didata alternative has not even begun to be passed through the necessary channels, suggesting that a firm proposal may not be realistic before the deadline.
The see-through value of Johnnic has yet to be determined, although some analysts put it at R80 a share, as against the share price which is vacillating between R68 and R70 a share. Agreement on the premium could be a source of delays.
The political influence that may wish to be exercised over Johnnic could be around the size of the empowerment base. Should Johnnic end up being in the hands of a few black business people, then empowerment as a concept will be significantly discredited at a time when government is stepping up pressure for black empowerment to take place on a large scale.
In the run-up to an election, the government will hardly want to be seen to be underpinning a process of economic change that is too narrow in its impact, developing only a small black elite.
* Jenny Cargill is the director of the consultancy, BusinessMap.