Directors face the ultimate challenge as corporate raider Active Value moves in for the kill
Alec Hogg
Shareholders of Primedia are being asked to vote on five key proposals at a special general meeting called for early May. This is the climax to a year-long war of attrition and could result in wholesale changes of the group’s management team.
The local business community’s equivalent of the weekend’s heavyweight boxing showdown has been set for two weeks’ time. On May 11 the United Kingdom corporate raider Active Value will present the ultimate challenge to directors of the formerly family-owned Primedia, which has unanimously rejected its advances.
A circular being distributed to the owners of Primedia stock carries information about the meeting and the five resolutions shareholders will be asked to vote on. These proposals call for shareholders to:
1. Remove Issy Kirsh as Primedia chair. Kirsh is the father of the group CEO William Kirsh, a former merchant banker who used the family-owned Radio 702 then worth R40-million as the cornerstone upon which Primedia was built in a flurry of acquisitions in the early 1990s. At its peak the group was capitalised at R10-billion, 10 times the current value.
2. Appoint Brian Meyerson as a director of Primedia. Meyerson, an expatriate South African who lives in London, is the co-principal of Active Value.
3. Appoint Julian Treger as a director of Primedia. The younger of the two co-principals of Active Value, Treger is also an expatriate South African who relocated to London some years back.
4. Elect Meyerson and Treger as joint deputy chairs of Primedia, to hold office for one year from the date of their appointment. This provides insight into the time that the raiders believe they will need to realise a return on an initial investment made more than a year ago. The investment, the purchase of 34,9% of the Primedia ordinary shares through the open market, has lost more than half its value.
5. Appoint Mark Barnes as a director of Primedia. Barnes, an independent merchant banker in South Africa who owns a quarter of recently expanded Bridge Capital, has been the Active Value duo’s local representative for little more than two months.
The circular repeats arguments the Primedia board raised when releasing the group’s interim financial results on April 2, primarily the unanimous rejection of all Active Value’s proposals. Three days later Active Value issued the required notice to call the general meeting of shareholders.
If Active Value wins more than 50% of the shareholder vote, it is not only the two Kirsh family members who would be likely to vacate their offices.
Among the other 12 members of the Primedia directorate are four more Primedia executives chief operating officer Ferdi Gazendam, financial director Rob Nicholson, corporate finance specialist Peter Maw and head of strategy Kuben Pillay. Given the unanimity of the board’s vote, they would presumably find it untenable to work under Active Value’s direction. This threat of a mass executive walkout will, no doubt, be carefully considered by shareholders before they cast their votes.
Most visible of the group’s non-executive directors are Mineworkers’ Investment Company chief Paul Nkuna, who serves as Primedia’s deputy chair; retailer Massmart’s CEO Mark Lamberti; financial services entrepreneur Chris Seabrooke; and experienced businessman Mackie Brodie, who is a director of Rebhold and works out of the Primedia head office.
Boardroom confrontations of this type are rare in South Africa. The only other recent example was last year’s successful bid by shareholders to evict the directors and shareholders of Planit Technology, who refused to leave office. As in this instance, those who made the effort to change the board were unhappy about the performance of the management and the destruction of shareholder wealth.
The lack of many more interventions by shareholders is a direct result of the past leniency of local stock exchange regulations. A variety of instruments could be used by those with relatively small holdings to exercise effective control over empires corporate, with Anglo’s Oppenheimer, Remgro’s Rupert, Pick ‘n Pay’s Ackerman and Pepkor’s Wiese families the most obvious examples. Among the tools were pyramid structures, the last of which were dismantled when new regulations came into effect late last year, and a special class of shares (N shares) that carry a fraction of the voting rights of ordinary shares.
Though there has been no official change, shareholder pressure has seen virtually all of the companies that previously used N shares enfranchise them through a conversion to full voting rights. Primedia is one of a handful of companies that have not yet done so. This has meant the Kirsh family and its empowerment partner, Mineworkers’ Investment Company, have been able to exercise effective control though their combined stake is equivalent to only slightly more than 15% of the total issued capital.
By the same token, it has also enabled Active Value to punch well above its actual shareholder weight as the UK raider has restricted its investment to the higher-voting ordinary shares.