The board of Nova PropGrow has distanced itself from statements made by the financial director of the group at an investor meeting two weeks ago that the listing proposal put to former Sharemax investors was “daylight robbery”.
Rudi Badenhorst spectacularly broke ranks during the meeting when he said he could not sit on the stage and seem to endorse the proposal. He said he and operations director Dirk Koekemoer (still a director but suspended as an employee) objected to the equity stake of 43% the seven founding shareholders would receive in the newly-listed company and proposed a reduced holding of between 10% and 15%.
Nova CEO Dominique Haese said in an answer to a Moneyweb question that the “statements by Mr. Badenhorst and allegedly by Mr. Koekemoer, are at odds with their prior communication with the Nova board. Both have, as recently as October 31 2017, confirmed and requested the allocation of their shares, in accordance with their respective pro rata proposed share quantums, of the proposed 43%, of the total quantum of shares proposed in Nova Holdings (Listco).
In addition, since that day and up to the date of the meeting of 10 November 2017, Mr. Badenhorst supported and contributed in his capacity as financial director, to the proposed listing process and the preparation of financial related documentation required for the Section 155 Circular dated 29 September 2017, on the 43% basis.”
Badenhorst did not want to respond to this statement by Haese, but affirmed that he stood by his remarks made at the meeting where debenture holders were set to vote on the listing proposal.
But Badenhorst threw the cat amongst the pigeons when he described the proposed scheme as “daylight robbery”, specifically citing the 43% equity stake the seven founding shareholders were set to receive as it would unduly dilute the investments of the 19 700 debenture holders. Koekemoer did not want to comment on the matter.
His actions highlight a rather dramatic disagreement and infighting within the four executive board members and the huge financial benefits they stand to make if the scheme is pushed through in its current form.
The Nova board convened an emergency board meeting and issued a press statement and answers to several Moneyweb questions on Friday. (Read the full set of questions and answers here.)
In response to a question whether the scheme was fair and reasonable towards debenture holders, Haese responded: “The board, including Mr. Badenhorst, approved the Section 155 Circular, and Mr. Badenhorst signed the certificate in terms of Section 155(5) of the Companies Act, on September 29 2017, on the basis that the board viewed the proposed Scheme of Arrangement fair and reasonable.”
Haese also said in relation to Badenhorst’s resignation: “Mr. Badenhorst was requested by the CEO to resign, based on certain issues which were discussed with him, inter alia, that he neglected to fulfill his duties as a financial director, while continuing to take his full remuneration as financial director. He acknowledged that the issues discussed with him were well founded and he resigned on August 17 2017 out of his own free will, which resignation, effective 30 November 2017, the board accepted and was formally minuted.”
Amendments to the Scheme of Arrangement
Debenture holders will reconvene on Friday in Pretoria for another investor meeting. The Nova press release states that due to time constraints a new scheme document would not be available prior to the meeting, and that it would therefore only be an information session. Another meeting will be scheduled at which debenture holders would be required to vote.
The press release also reaffirmed that the listing of Nova PropGrow, the company that owns all the former Sharemax properties, on the JSE will become a condition of the scheme. This is a critical amendment to the original proposal as the entire scheme will now be hedged on the listing and would require Nova to produce a detailed prelisting statement.
Another amendment would see the High Court sanction the Scheme of Arrangement.
However, two main issues remain that were not addressed in detail in the press statement or in the answers the Nova board provided to Moneyweb. They relate to the shareholders’ agreement of the founding shareholders and whether they will indeed receive 43% of the newly listed company, and the other is whether an independent firm would be appointed to conduct a fair and reasonable assessment.
The press release states that these issues are “being considered and will be attended to”. It is this allocation of 43% that Badenhorst labeled as “daylight robbery” and not in the interest of debenture holders, as the 19 700 debenture holders were set to collectively receive only 34.5%.
The transparency of the shareholders’ agreement is critical as it sets out how the 95.7% equity stake the seven founding shareholders currently own in Nova PropGrow will be converted to shares in the newly listed company.
At the meeting on November 10, Nova chairman Connie Myburgh said the shareholders’ agreement couldn’t be disclosed due to “regulatory” reasons. Moneyweb sourced legal advice on the matter, which found that there could be no regulatory requirement to keep this confidential.
Haese confirmed this position in the answers she provided to Moneyweb questions: “The board prefers to accept the legal advice of its external, independent legal counsel and the board supports the statements made by Mr. Myburgh.”
Section 155 Scheme of Arrangement and the absence of a fair and reasonable statement
The second issue is whether the actual Scheme of Arrangement should be brought under Section 155 or 114 of the Companies Act. The current proposal is in terms of Section 155, but Moneyweb believes it should be brought under Section 114. The major difference is that under Section 155, it is not necessary to commission a fair and reasonable assessment, while it is compulsory under Section 114. The original proposal does not make provision for such an analysis.
In the Nova press statement, the board states that it remains of the view that Section 155 is the correct section for the scheme and has a specific independent legal opinion to support this.
However, even if the scheme is brought under Section 155, the board may be forced to commission an independent fair and reasonable assessment of the scheme to assist debenture holders in their decision to accept or reject the offer.
This is inevitable following the public criticism of the scheme by Badenhorst. Considering this, it is also unlikely that the JSE would allow the listing of the company or that the High Court would sanction such a scheme without a fair and reasonable statement.
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