What cards does ElementOne have up its sleeve?
April 7, 2009
It's extremely difficult to imagine what the directors of ElementOne will be able to achieve in the next six months that they could not achieve in the past 12.
Apparently, the directors, led by Allan Gray's Francois van der Merwe, are talking to not one but two parties about a possible transaction. Because they are in talks, the JSE has allowed a six-month listing extension to an entity that really should never have had a listing in the first place.
The creation of ElementOne a year ago was a contrivance that seemed to suit only Allan Gray's plans to make a hefty profit on the sale of its stake in Avusa to Mvelaphanda.
ElementOne is essentially the renamed husk of Johnnic Communications (Johncom) after everything but the stake in listed media group Caxton was disposed of.
As long ago as 2005 it seemed that Allan Gray and Coronation were driving this disposal - also known as asset stripping - strategy, which started with the sale to Naspers of Johncom's 38 percent stake in MNet/SuperSport.
ElementOne's only asset is a 33.6 percent stake in Caxton, of which 16.2 percent is owned directly. The remaining 17.4 percent is held via an unlisted company called Afmed, controlled by Caxton chief executive Terry Moolman.
In terms of the JSE's requirements, a company has to have operating assets or it forfeits its listing.
Whatever is happening at ElementOne, it seems that not all the major shareholders are being kept in the loop.
Brian Molefe, the chief executive of the Public Investment Corporation (PIC), which has more than 10 percent, says he is not aware of any talks on the matter.
The rather elusive Van der Merwe told Business Report yesterday that he could not comment on the talks with the "two parties" because the company had issued a cautionary. He did not want to comment in the press about Molefe's statement.
Learning the rules
One message that has been sent out loudly by the R19.1 million "gardening" pay that is going to former Absa chief executive Steve Booysen is that the circumstances of his departure from the banking group were not quite what shareholders had been led to believe last November.
At that stage, Booysen said he was leaving the bank because he thought "it was a good time to move on and all the goals that we set out to achieve have been realised".
Speculation is that Booysen told the board last June that he wanted to leave, at which stage the board set about looking for a replacement and eventually announced the appointment of Maria Ramos. All of which seems straightforward.
But then, why pay Booysen twice as much as he is entitled to? Was it just to stop him plundering Absa's assets in the form of staff and clients?
It is in a bid to reduce this sort of speculation and uncertainty that the draft of the King 3 report on corporate governance recommends there should be "full, timely and appropriate disclosure" of the reason for the cessation of directors' appointments.
King 3 states that "balloon payments on termination do not generally meet the requirements of a balanced and fair remuneration policy". It recommends that where "individuals leave voluntarily before the end of the service period … any unvested share-based awards should lapse".
Booysen's departure meets none of these far-from-onerous requirements. Not only does he get a huge balloon payment, but he will benefit from "good leaver treatment", which means he will be able to hold on to his share options. Even the code's basic recommendation, that companies should adopt remuneration policies and practices that create value for the company over the long term, seems to be ignored.
Of course, King 3 has not yet been implemented. Perhaps next time around, Absa's remuneration committee will get it right.
Symptoms of recovery
Over the past few weeks, analysts have been agonising over the extent and sustainability of the recent rallies in global stock markets. After two years in which the news only got worse and worse, everyone is desperate for a sign that we have passed the bottom and are on the road to recovery.
On Friday the Dow Jones industrial average closed at 8017.59 points - 22.5 percent above its March trough. And the Dow is in the middle of its biggest four-week rally since 1933, according to Sapa-AP.
Yesterday started with a bang in Hong Kong, but subsided to a whimper by the time the sun reached New York, as the focus turned to the week ahead. This is a critical period for investors in US stocks. They will be anxiously scrutinising first-quarter company reports for signs that a recovery is really in place.
Some big companies abroad have hinted that the worst is past. If this week shows their predictions are accurate, the market will continue to run.
Stock markets have been generally improving, in fits and starts, since late last year. But it's still impossible to tell a dead cat bounce from the start of a recovery - however tentative.
Paul Hansen, the group director retail investing at Stanlib, quotes research house The Bank Credit Analyst (BCA).
"BCA notes that all previous economic recessions ended with positive developments that at first looked suspicious," Hansen says. "Let us hope this one is similar. BCA holds the view that an economic recovery phase should begin to unfold during July to September 2009, with emerging markets leading the way."
He quotes the BCA on Japan, on which it is positive, because the country is so "washed up … There is no one left who is even remotely bullish on Japanese shares".
BCA think Japanese yen will devalue and the government will be forced to implement sizeable fiscal spending programmes, which should eventually help turn the economy around.
Let's hope indeed that the worst of this credit crisis is behind us.
Edited by Nontyatyambo Petros. With contributions by Ann Crotty and Ethel Hazelhurst
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