HCI, the JSE Securities Exchange-listed group, headed by former trade unionists Marcel Golding and John Copelyn, may be remembered as South Africa’s first black economic empowerment predator.
It recently bid for control of Johnnic, its chief rival for control of Tsogo Investment Holdings (TIH), which in turn controls the casino and hotel assets of Tsogo Sun. Johnnic believes another target is its cash mountain of more than R1-billion, which would help HCI pay down the debt it has run up in recent years.
HCI is a new kind of animal on the South African corporate landscape, a corporate raider. Hostile takeovers to date have been few and far between, business is more often being conducted on golf courses or in the smoke-filled rooms of the gentle-men’s club. Johnnic, one of HCI’s targets, is widely seen as typifying the complacent, being slow to act and happy to sit on its bank balance. HCI’s message to companies such as Johnnic is simple: you snooze, you lose.
If HCI secures control of Johnnic, it then has the 51% of TIH and control of Tsogo Sun’s prodigious cash flows. Tsogo Sun comprises 82 hotels across Africa and five casinos, including the flagship Montecasino in Fourways, Johannesburg.
The battle for Tsogo Sun has been fractious; at one time its parent TIH even held dual board meetings as both factions claimed control, but this week it held a “unified” meeting in an atmosphere described as “relative calm”.
HCI has never been far from controversy. In 2003 it announced plans to delist the company from the JSE with an offer to buy out minorities at 350c a share. United Kingdom-based Marathon Asset Management, with 24% of HCI, objected to the proposed delisting offer and resorted to the courts to stop it going ahead.
The uncertainty surrounding the delisting plans prompted the JSE to suspend HCI shares for more than 13 months. The suspension was lifted in September last year when HCI abandoned its delisting plans, and the shares promptly shot to R30 — vindicating Marathon’s claims that it was being short-changed.
Had the delisting gone through, HCI’s shareholders would have done themselves proud. In October last year, just one month after it shares were reinstated by the JSE, it declared a 94c dividend, a 27% yield on the proposed delisting price.
Two years ago, HCI signalled its intention to expand its interests in gaming by acquiring small empowerment companies with stakes in TIH. TIH chairperson Michael Leaf says HCI’s elbowing out of smaller empowerment players in TIH follows a familiar pattern. “HCI did a similar thing at e.tv when smaller empowerment groups were eventually diluted out, leaving HCI with 66% control.”
HCI chairperson Marcel Golding disputes this, saying all minorities in e.tv’s holding company MidiTV were give ample opportunity to follow their rights.
He says, “e.tv needed R1,5-billion to survive, and those who put in money got shares. We approached several other black investors at the time, but few people thought e.tv had much of a chance.”
In retrospect, Johnnic should have moved faster to secure its gaming interests, but it dithered long enough to give HCI the turnover ball. HCI declared its hand in April when it announced it had acquired 21% of Johnnic, just days after Nafhold and Johnnic had agreed to consolidate their interests in TIH. This agreement was supposed to cement Johnnic’s control of TIH and forestall the kind of hostile bid HCI subsequently launched. With lightning speed, HCI grabbed the loose ball and ran for the try line. It bought Gold Reef Casino’s 10% in Johnnic and then, like Springbok Brian Habana, intercepted Fabvest’s 19% in TIH, originally earmarked for Johnnic.
This left HCI with 32% of TIH and 40% of Johnnic, triggering an obligation to make an offer to acquire the shares of Johnnic minorities.
Meanwhile, Johnnic has refused HCI representation on its board on the grounds of conflict of interest: both groups are competing for the same assets.
Johnnic and Nafhold appear to have been out-foxed every step of the way, and both have now turned to the courts and the Competition Tribunal and lodged objections to the various gambling boards to block HCI’s move on TIH and Johnnic.
Johnnic CEO Christine Ramon says HCI should have sought Competition Commission approval when it acquired its first 21%, and that it subsequently increased its stake to 35% without the requisite regulatory approvals from the competition and gaming authorities. “Our concern is that HCI is in competition with Johnnic and, as the largest single shareholder, it has obstructed our transactions.”
Ramon says, technically, there has already been a change in control at Johnnic, now that HCI is the largest single shareholder. She has accused HCI of sailing close to the wind on a number of occasions.
Golding told the Mail & Guardian that HCI had acquired its shares fairly, and denied it was making a hostile bid for Johnnic. “How can it be hostile when you acquire shares on a willing-buyer, willing-seller basis?”