Shareholders force Arcelor rethink

ArcelorMittal South Africa (Amsa) has said that the outcome of its due diligence investigation into the acquisition of controversial Imperial Crown Trading (ICT) could impact on ICT’s stake in the steel giant’s R9-billion empowerment deal.

The concession came after a week of rising dissatisfaction about the empowerment deal among Amsa’s minority shareholders.

Shareholders, including the Public Investment Corporation (PIC), Sanlam and RMB Asset Managers, have questioned the BEE deal, which was announced in August, with the decision to buy ICT.

The PIC released a statement last Tuesday raising concerns about the transaction. It said that, although the deal fell within “the letter of the law”, the PIC was not confident of the “ethics of such a transaction”.

Its links to politically connected players have garnered a welter of criticism.

“The details of the BEE transaction continue to be reviewed and finalised,” the company said in a response to questions from the Mail & Guardian.

It said that the due diligence investigation was focused on the proposed ICT transaction.

“Hypothetically speaking, however, failure to pass the due diligence test could possibly influence the participation of ICT in the BEE package,” it said.

The PIC’s criticism of the transaction has been the most strident so far in a rising swell of shareholder activism against the deal.

The consortium partners include ICT shareholders and it is linked to President Jacob Zuma’s son, Duduzane Zuma, through his company, Mabengela Investments.

Amsa offered to buy little-known ICT after it was announced that ICT had been awarded prospecting rights to a 21% portion of the mineral rights to the Sishen Iron Ore mine, owned by Kumba Iron Ore.

The rights had secured Amsa access to cheap iron ore at cost plus 3%.

Kumba, which had also applied for the rights, is challenging the award of the rights to ICT in court.

Amsa has previously stated that it would buy ICT (at a cost of R800-million) only if it was satisfied through its own due diligence investigation that the mineral rights were acquired lawfully and on the proviso that the courts uphold the awarding of the prospecting rights award to ICT.

But the BEE deal has been earmarked to go ahead irrespective of the outcome of the investigation.

The PIC has questioned why Amsa leadership allowed the rights—crucial to the company’s supply base—to lapse in the first place.

It was also asked why Amsa was “undergoing a BEE deal that is not broad-based”.

Finally, it questioned the controversy surrounding the awarding of the rights to ICT.

But Amsa’s majority shareholder is ArcelorMittal, based in Luxembourg, and its heft would be sufficient to push the deal through.

The PIC and the Industrial Development Corporation are among the largest local investors in Amsa.
Geoffrey Qhena, the IDC’s chief executive, said the company would not make any pronouncements on the matter until a circular had been issued to shareholders.

Amsa emphasised that no formal proposal has been put to shareholders.

“We have been in discussions with our major local shareholders since the announcement and we are highly aware of their concerns,” it said.

Meanwhile Dion George, the Democratic Alliance’s shadow finance minister, has called for an investigation by the Financial Services Board into the deal, should it be approved.

Given the questions surrounding the deal, he said pension fund members and other shareholders were entitled to some kind of protection if their rights were eroded.

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