Cyril Ramaphosa is the guy who most South Africans think will be our next president. He played the lead role in negotiating the agreement that led to the new South Africa, he is a major player on the empowerment scene. He is a big guy.
But here is his former comrade from the National Union of Mineworkers (NUM) taking one of his flagship companies from him.
Hosken Consolidated Investments (HCI) chairperson Marcel Golding, a former deputy secretary of NUM, and certainly not of the stature to hold Nelson Mandela’s speech as Ramaphosa did at the parade in Cape Town shortly after Mandela’s release from prison, is a relative political lightweight compared to Ramaphosa.
But his company, HCI, has quietly upped its stake in Johnnic to 40%, making it the controlling shareholder and triggering an automatic offer to minority shareholders.
Johnnic, which can trace its history back to diamond magnate Barney Barnato, has been an early bearer of the black economic empowerment (BEE) standard in South Africa. It is now also somewhat emasculated, being a shadow of the media conglomerate of not too long ago.
In its present incarnation, after unbundling its media interest Johncom and selling off its interest in MTN, it has a market valuation of just R1,7-billion. HCI has a market valuation of R3,4-billion.
Barnato would probably approve of Golding’s move. His target is Gauteng gold, specifically Tsogo Sun’s network of casinos in the country’s richest province.
HCI increased its holding in Johnnic to 40% by buying 10% of Johnnic at R162-million, or R9,75 per share from Gold Reef City Casinos. The purchase followed Johnnic shareholders’ refusal last Thursday of HCI’s bid to have Marcel Golding, John Copelyn, HCI CEO, and executive director Velaphi Mphande elected to the Johnnic board. Shareholders refused on the grounds of what they saw as a conflict of interests.
Johnnic is currently locked in a battle with HCI for the control of Tsogo Investment Holdings (TIH). TIH owns 51% of Tsogo Sun, an influential gaming player and owner of Tuscany-themed Montecasino, among others. HCI currently owns 32% of TIH and Johnnic 19%. The key to control is a 25% stake held by the National African Federated Chamber of Commerce (Nafcoc). This led to the perceived conflict of interest that blocked Golding’s ascendancy.
Gavin Joubert, fund manager at Coronation Asset Managers (CAM), a 10% shareholder at Johnnic, told the Mail & Guardian that he does not believe that HCI wants to ”take out” Johnnic, but rather wants board control through a 51% holding.
As a shareholder, Joubert notes that CAM would not be prepared to sell for R9,75 per share — HCI’s implied price — for an asset CAM currently value at R11,50. Joubert adds that if Johnnic successfully acquires Nafcoc’s stake at an attractive price, then its price would be taken up to around R13. Johnnic bought its current stake at R192-million. This gives it a 9,7% stake in Tsogo Sun.
Joubert values Tsogo Sun at R5-billion. He suggests that any offer that HCI makes would have to be closer to R13. A potential clincher for Tsogo Sun was this week’s announcement by SABMiller that it is willing to sell its 49% stake at the right price.
A Johnnic watcher, who declined to be named, pointed out that HCI’s takeover ”cannot be stopped”. He noted that the takeover would be good as Johnnic had a tendency to take an excruciatingly long time to make decisions. These would probably include decisions such as collapsing its pyramid structure. Also, in an era when so many players are eager to enter the empowerment arena, it is puzzling why Johnnic is taking so long to bolster its empowerment credentials. Its lack of empowerment credentials is another reason the analyst believes Johnnic should be taken over.
Following the vote on Thursday last week, Johnnic Holding CEO Christine Ramon struck a conciliatory note, suggesting a negotiated settlement could be found. Then, after the Gold Reef City Casinos sale, she described the action as hostile, and committed herself to protecting minority shareholders, immediately casting HCI as a bully. Touching playground heroism, but time will tell if it has a place in the cold calculating markets.
Now the most ironic battles in black economic empowerment history are on the cards. In their period as general secretary and deputy secretary of the NUM, Ramaphosa and Golding never thought they would engage in an openly hostile battle, certainly not over citadels of wealth such as casinos.
The deal is already being put in the league of the Nedcor/Standard Bank and the recent Harmony/Goldfields attempts. The worst that could happen in this deal is what happened to Harmony: never to have the deal put to shareholders of the target company.
Setting out in his career as an investor, Golding is reported to have once noted to his union comrades: ”I see socialism on the horizon, but for now it is time to make money.” With a salary of R1,6-million and a bonus of R1,8-million for the last financial year, it would be curious to establish how far off the socialism horizon is.
Yet by all accounts, it appears that a protégé, Marcel Golding, has outfoxed the master.