Old Mutual gets board stamp, but déjavu persists
October 21, 2009
In its latest bid to buy out the minority shareholders in Mutual & Federal (M&F), Old Mutual has done a few things a little differently. It has managed to get a corporate bank to provide a "fair and reasonable" stamp of approval and, as a result, has been able to secure the support of the M&F board.
Other than that there is a depressing sense of déjavu about this proposed transaction, not just in the manner in which it is to be implemented, but also in the "tightness of the price" being offered.
Back in 2004 the M&F board did not back the R17.50 a share offer, which meant that Old Mutual could not proceed with the proposed scheme of arrangement and was forced to make a general offer.
A scheme of arrangement only requires the support of 75 percent of the shareholders that are being expropriated. A general offer requires the support of 90 percent of the minorities.
Given the evident opposition to the transaction it wasn't much of a surprise that the offer failed to get support from anyone other than the chairman and deputy chairman of M&F at the time, namely Mike Levitt and Chris Liebenberg, respectively.
Then in 2007 Old Mutual decided it would sell its 73 percent stake in M&F. Negotiations are believed to have reached an advanced stage with Royal Bafokeng Holdings, but were rather abruptly terminated last year.
Although no figure was publicly disclosed, analysts speculated that a price of about R26 a share was being discussed.
Now it is purchase time again. On the surface the R21.25 a share that is being offered - in Old Mutual shares - reflects a more generous historic price:earnings (p:e) rating of 11 times. The previous offer represented a p:e ratio of just six.
But this time around the M&F earnings are in the doldrums and the Old Mutual share price is enjoying a bounce.
BEE survival kit
The process by which some businesses have come to "embrace" transformation can be likened to the five stages of grief.
For those grieving, it is commonly said that they will experience denial, then anger, followed by bargaining, then depression and finally acceptance.
When black economic empowerment (BEE) was first put on the agenda in the 1990s and then formalised when the broad-based BEE codes were gazetted in February 2007, some businesses, probably most, went into denial: "We don't need it and we don't have to do it."
But when a lack of compliance starts to hurt the bottom line - when, for example, that all important tender is lost to a competitor with BEE credentials - then anger sets in.
Once that has subsided a company will begin the bargaining phase. Looking for a black partner, that is. But this, warns Mbuso Zungu, a regional executive for empowerment rating firm Empowerdex, is where a company can tread on dangerous ground. A rush to secure a black partner may result in a deal that does not deliver the expected points on the BEE scorecard.
Zungu says a BEE deal will not score points if it does not translate into voting rights for the black partner equal to the stake acquired.
So if a deal is done and this is the outcome, that is, no score for the scorecard, then depression will set in.
After that, maybe acceptance will come.
Some businesses are ahead of the game on this one, no doubt driven by the need to win government business. Other companies have been slower to transform, but even without a pressing economic imperative to change, government disapproval is uncomfortable for most companies.
So the late bloomers may yet grow up, accept reality and get on with the business of change.
Lessons to be learnt
Empowerdex, the national empowerment rating agency, yesterday published its first service delivery index in which it assesses the extent of delivery of basic services by all local, district and metropolitan municipalities, as well as improvements in delivery over a period of time.
The data for the research came from Statistics SA because - as Suhail Mohamed, the project developer at Empowerdex, pointed out - local authorities are under no obligation to provide this type of information. One can hardly expect much co-operation from municipalities on this point as many of them would just end up with egg on their faces.
Nonetheless the ANC and these municipalities would do well to take note of the research's findings. Failure to do so could result in unpleasant consequences for municipalities and the ruling party.
The local government elections take place in two years' time, and national and provincial elections three years later.
It may be a time for reckoning as the current service delivery protests promise.
At the moment voters may be swallowing the line that this is a new ANC administration, totally different from the one of former president Thabo Mbeki, which left a lot to be desired as far as service delivery was concerned.
But it's not a line that will hold credibility for much longer. The report says that basic service delivery is the fundamental building block to achieving economic empowerment in South Africa.
"One criticism of black economic empowerment is that its benefits have not reached all levels of society. Redistribution of wealth and empowerment of the masses remains one of the greatest challenges facing the government," it says.
The report adds: "This service delivery index is the next step to bringing about change in South Africa.
"We hope that the insights presented in this report will be used by the government to identify those communities who fall behind the curve and implement the necessary improvements to service delivery, thereby providing opportunities for enhanced economic empowerment."
We live in hope indeed.
Edited by Nontyatyambo Petros. With contributions from Ann Crotty, Samantha Enslin-Payne and Wiseman Khuzwayo
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