RMB and FirstRand execs R400m share buy

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JOHANNESBURG - On Wednesday morning, the week before Christmas, RMB and FirstRand (JSE:FSR) announced that its founders were selling R400m of shares to the new guard. Moneyweb asked new FirstRand CEO Sizwe Nxasana how the deal will work and who bears the risk if things go pop.

The founders are Lauritz Dippenaar, Paul Harris and Gerrit Ferreira, while the participants buying the 22.8m FirstRand shares at R16.06 a share and the 1.2m RMBH shares at R26.84 are:

New FirstRand CEO Nxasana (3.7m FirstRand shares)
FirstRand Chief Operating Officer Johan Burger (5m FirstRand shares)
RMBH Chief Operating Officer and Financial Director Peter Cooper (1.2m RMBH shares)\
A collection of other FirstRand executives (14.1m FirstRand shares)

The split is R32.3m in RMBH shares and R366.2m in FirstRand shares.

Nxasana admits that it's difficult to just come up with R400m at short notice. He explains that there is a funding structure in place that has been agreed upon between the founders and the participants.

The transaction is 90% geared, which means the buyers have to come up with almost a R40m deposit. The structure lasts for four years, after which Nxasana says the purchase consideration should be fully paid off and the shares will be owned by the participants fully, no strings attached.

He explains that this transaction is a private one between the founders and the participants. It has no involvement from RMB or FirstRand and will have no bearing on the incentive structures at either organisation.

This means that all of the risk is borne by those involved in the transaction, says Nxasana. It would be interesting to have seen this transaction concluded before the financial crisis and how those involved would've dealt with the turmoil.

No doubt this possibility is something that the deal takes into cognisance.

As this deal has no strings attached, would the participants be able to sell out during the four year funding period and make a quick profit? Nxasana says this is possible, but the funding structure has a sliding scale profit-share agreement in place.

Nxasana goes on to explain that the success of the group was due to the owner mentality and this deal aims to keep that with the next generation of management. He says that to him it's "absolutely critical" that he is an owner of what he runs.

He also divulges that the transaction was driven by the participants. It's a small percentage of the founders' shareholding.

Nxasana criticises the granting of options to executives, saying that it does not align management to shareholders interests as the downside is limited to the options hitting zero. Now the execs will have their own flesh in the fire, with real downside risk.

Dippenaar mirrors these thoughts, saying in the press release "The transference of ownership of these shares to the senior management of both RMBH and FirstRand goes some way towards creating the next generation of "owner managers" to take the businesses forward, and in addition ensures that management and shareholders' interests continue to be closely aligned."

The deal also "affirms our strategy of growth for the group" as well as Nxasana's confidence in his own management skills and the ability of the group, he says.

RMB and FirstRand did send out a press release, although it was password protected for some reason thus taking up space in the inbox.

Write to Chris Blaine: chris@moneyweb.co.za