The focus always falls on the disparities between the salary packages of chief executives and the lowest-paid workers, but the era of black economic empowerment (BEE) deals reveals much larger gaps between the top names and the broad base of shareholders.
The Telkom deal, for example, will net 100 000 shares for consortium leader Andile Ngcaba for every one share that a broad-based beneficiary receives. Telkom CE Sizwe Nxasana earned R11,14-million in the past financial year, 142 times the current salary package of the lowest earner, according to figures supplied by the Communications Workers Union.
The same inequality analysis can be applied to empowerment. What does the consortium leader get compared with the average member?
Former Department of Communications director general Ngcaba concluded a deal last month with the Public Investment Corporation (PIC) where the Elephant consortium will buy 10,1% of Telkom, part of a 15,1% stake previously held by Thintana, co-owned by United States-based SBC Communications and Telekom Malaysia.
Elephant will buy the stake from the PIC, which manages state pension funds, over a five-year period.
There is yet to be full disclosure on the deal even though a state body, the PIC, has billions of rands of funds under its control to facilitate and fund the deal. But the basic workings are that Elephant gets the 10,1% stake, shared equally between Lion, Buffalo and a broad-based BEE grouping yet to be formulated.
Lion’s shareholders are Ngcaba, Lester Peteni, Mafika Sihlali, Bongani Caga and Dali Tambo. The five hold 70%, the remaining 30% goes to broad-based women’s groups.
The five share 2,3% of Telkom, worth R1,4-billion when the deal was announced.
Buffalo is led by Gloria Serobe of Women’s Investment Porfolio Holdings (Wiphold) and includes American Jim Myers, Dali Mpofu, Barend Hendricks and African National Congress official Smuts Ngonyama. Wiphold has said that Buffalo has 318 000 beneficiaries.
Ngcaba, as the leading player, is said to have managed to secure more than half the allocation to the five Lion “directional value-adding individuals”. This would give him at least 1,15% of Telkom, worth about R700-million, when the deal was announced.
The share allocation within Buffalo is also undoubtedly unequal, but if we assume for the purposes of this exercise that it is equal, the 318 000 consortium members would share 3,37% of Telkom, about R2,1-billion, or R6 550 each. This equates to 59 shares each.
At 1,15% Ngcaba would get 6 405 865 shares, meaning he nets more than 100 000 shares for every one that goes to an ordinary member of the Buffalo consortium.
On the face of it, it might appear that Elephant’s stake is being bought from the departing Thintana.
If Thintana wants to sell on a disproportionate basis to Ngcaba, and he makes the funding arrangements, who’s to quarrel?
But the state had first option on Thintana’s shares, the right to buy these shares at the prevailing market price. The PIC became the actual purchaser of the shares, paying R78,74 a share.
The PIC decided to “warehouse” the shares for six months on behalf of future empowerment parties while the structure of the deal and beneficiaries were worked out. Early last month it announced that Elephant will be buying the 10,1% stake while the PIC will retain 5%.
The PIC bought the shares from Thintana with R6,6-billion from the Isibaya Fund, set up to invest in BEE.It agreed to sell the shares to Elephant at R92,50, showing a R1,5-billion profit on the back of a rising Telkom share price.
Elephant will put up R40-million to buy shares. Funding for the rest will come from Nedbank, Absa and, to a lesser extent, the PIC.
Financing costs will run to several hundred million, but his stake is likely to be worth considerably more than its current R711-million when it runs to maturity five years hence.
Apologists for large corporate-income differentials argue that the difference reflects market value: Nxasana, who is to step down as CE at year-end, adds 142 times more value to Telkom than the lowest paid worker. In Ngcaba’s case it has to be remembered, though, that because he holds the position of chairperson of Dimension Data, a company that competes with Telkom in some activities, he will not be a director of Telkom and so will add no direct value.
If we compare Ngcaba and Nxasana, the former’s role in enhancing Telkom’s empowerment credentials somehow takes on a stratospheric valuation, which appears to defy any market sense.
This analysis, in the absence of full disclosure by the parties, has to be, in part, speculative. It could be that Ngcaba is an equal shareholder with his four Lion partners, meaning that he would have just under 0,5%, worth R280-million, when the deal was announced. But, in the absence of evidence to the contrary and based on his profile in Elephant, it is much more likely that the 1,15% figure is correct.
Comparisons of top and bottom earners sometimes express the differ-ence in man-years. It will take the lowest paid Telkom worker 142 years to earn what Nxasana makes in a year.
It’s a bizarre thought, then, that Nxasana would have to work as Telkom’s CE for 62 years to get what Ngcaba has just scooped from the PIC.