‘We meet, we laugh, we hug,” said Johnnic chairperson Cyril Ramaphosa of his adversaries at Hosken Consolidated Investments (HCI), currently involved in a hostile bid for its gaming and real estate group.
But the love only goes so far among former trade-union comrades, now eyeballing each other across the boardroom table. Ramaphosa, one-time secretary general at the National Union of Mineworkers, is pitted against former union colleagues Marcel Golding and Johnny Copelyn, who now head up HCI.
Johnnic’s attempt to pass a special resolution allowing it to use some of its R1,5-billion cash mountain to buy back its own shares was defeated at its annual general meeting this week. The special resolution needed support from at least 75% of shareholders, but won only 48%. ‘The shareholders have spoken. That’s clearly a democratic outcome,” said Ramaphosa.
The signature of HCI, which already owns 40% of Johnnic and is now bidding for majority control, was splattered all over this defeat.
Share buy-backs are a common defence against hostile takeovers for groups with spare cash. They increase demand for the company’s shares, pushing up the price and thereby making it more expensive for predators. This is known in the takeover business as a ‘poison pill”. Another defensive option is for Johnnic to issue more shares, thereby diluting HCI’s shareholding.
‘The defeat of the special resolution reduces our flexibility in how we use our cash,” says Johnnic CEO Christine Ramon. This is, perhaps, a measure of the influence HCI already exercises over Johnnic.
Fabvest, an empowerment company, plays a crucial role in the contest between HCI and Johnnic for control of Tsogo Investment Holdings (TIH), the controlling shareholder of Tsogo Sun. Johnnic says it has an agreement to acquire Fabvest’s 19% in TIH with pre-emptive rights over the remaining 19%. The first tranche of the 19% was acquired without a hitch but, when it came to acquiring the second tranche, Fabvest suddenly channelled its affections to HCI, claiming that Johnnic had not met certain conditions in the agreement.
This is disputed by Johnnic, which is attempting to force Fabvest to honour the original sale agreement. By intercepting the 19% in TIH originally earmarked for Johnnic, HCI could possibly end up with 51% and stop Johnnic from gaining control of TIH.
In another development this week, the Competition Tribunal dismissed with costs Johnnic’s application to prevent HCI from implementing a merger with it, or from voting using shares already acquired in Johnnic, and from acquiring more shares.
In answer to a question from a shareholder on how the group planned to respond to the tribunal’s ruling, Ramaphosa said an appeal to a higher court would be considered, depending on the reasons given for the dismissal. ‘When two bulls fight, the grass underneath suffers and, if shareholders are the grass, we want to make sure they do not suffer too much damage,” he said. ‘HCI wants to buy us out of [Johnnic], a company we worked so long for,” said one shareholder. ‘My heart is bleeding.”
Johnnic is positioning itself as a focused gaming and leisure group, and believes this focus would be lost in a takeover by HCI, whose interests range from gaming to media, dairy, bus companies and financial services.
Johnnic is attempting to thwart HCI’s bid for control of TIH on several fronts:
- It says it has pre-emptive rights to acquire shares in Fabvest Investment Holdings, which owns 38% of TIH;
- It has lodged objections with various provincial gaming boards over HCI’s application to acquire shares in holders of gaming licences;
- It says HCI failed to apply timeously to the KwaZulu-Natal Gambling Board for approval when it acquired 21% in Johnnic earlier this year;
- It is urging shareholders to reject HCI’s hostile offer on the grounds that it undervalues Johnnic. HCI is offering R10,70 per Johnnic share and one HCI share for every 2,57 Johnnic shares held. Johnnic this week traded at R11,25 a share.
It may be months before all of these issues are decided — and any one of them could tip the balance in Johnnic’s favour.
Ramon says these actions are necessary to defend shareholders’ interests, and are not being pursued out of executive hubris. ‘We’ve tried to reach agreement with HCI and discussed the possibility of a friendly merger, but we could not reach a mutually beneficial agreement. Therefore we have no option but to take this route.”
Some analysts believe HCI will eventually prevail in its hostile bid, but there’s no sign of surrender at Johnnic, which this week attempted to place another obstacle in HCI’s path. It lodged a complaint with the various provincial Gaming Boards that HCI had contravened Section 38 of the Companies Act, which prevents companies from providing financial assistance in the acquisition of their own shares. Johnnic claims that HCI lent money to Fabvest to buy its shares.