A conflict of interest and possible corruption

Benguela Global raises concerns about Oceana’s Daybrook deal.
Oceana rejects accusations it has unfairly favoured the CEO in a deal. Picture: supplied

Benguela Global, the fund manager that raised concerns about Capitec’s loan policies at the same time as Viceroy published a critical report on the bank, has made public its objection to recent developments at fishing company Oceana, suggesting the developments are a “related party transaction entailing a massive conflict of interest and potentially even laced with corruption”.

The finer details of these objections have been outlined in a six-page letter addressed to the company and included here.

In a nutshell, Oceana acquired 100% of US fishmeal producer Daybrook Fisheries in July 2015 for $382.3 million as part of its bid to diversify its operations and grow globally as there were few options remaining in South Africa.

US law prohibits foreign ownership (above 25%) of fishing fleets. Thus Daybrook spun this part of its business into Westbank. Oceana acquired 100% of Daybrook and 25% of Westbank. The original owners retained 75%.

This is where it gets interesting.

The deal saw a put option premium placed on the 75% of the shareholding that Daybrook did not own. Essentially this meant that Oceana offered to pay R164 million to retain the shareholders for three years, and then for the privilege of nominating the buyer of the shares. R164 million equates to about 3% of the purchase price for the transaction.

Up to this point Benguela had no major problem. However in 2016 the shareholders gave notice that in 2017 they would exercise their put option and exit the business at the end of 2017. Oceana then began the process of identifying a US partner to take over the shares.

“Under normal business circumstances this [the existence of the put option] would have prompted management to establish processes to fulfil the put option obligations as soon as the transaction completes,” writes Benguela in its letter. “It would appear that this wasn’t the case with Mr Kuttel and his team.”

“The fact that this search did not begin in 2015 is a major lapse in accountability,” Zwelakhe Mnguni, CIO at Benguela, tells Moneyweb.

In 2016 a search for a suitable bidder ensued. According to Oceana key evaluation criteria included US citizenship, expertise in and knowledge of the industry and commercial attractiveness of the proposed transaction.

On February 13 2018 Oceana put out a cautionary notifying the market that prior to the search for a prospective suitor, its CEO Francois Kuttel had made it known that he would like to be considered a prospective bidder. The cautionary continued to say that after a rigorous (and independent) selection process Kuttel had been nominated the preferred bidder.

“It is a major concern for us when the CEO changes from running a business to bidding on a tender within the same business without communicating this to the market. The market only heard about Mr Kuttel’s conflicted bid for the first time on February 13 2018 when he suddenly came out as a winning bidder. Why was Mr Kuttel’s conflict of interest not disclosed three months ago in the annual report in which the chairman mentioned that the bidding process was underway? Mr Kuttel’s bid was not mentioned on November 15 2017 when results were published or when the annual report was published on December 15 2017, less than two months ago, in which the bidding process was mentioned by the chairman, Mr Brey,” Mnguni asked.

As a result of the fact that negotiations are now underway, Kuttel has stepped down as CEO.

Mnguni is not buying this. “The Daybrook transaction was structured by the very same person who was tasked with finding a ‘bidder’ to take over the remaining 75% in Wesbank, who is now stepping down as CEO because he is the successful bidder? This is a clear case of conflict of interest.

“It looks like a deliberate plan by Mr Kuttel to secure himself a fantastic deal at the expense of Oceana’s shareholders. The board needs to urgently set up an independent investigation and pursue criminal charges in the event that any evidence of criminal wrongdoing is found.”

Oceana’s CFO Imraan Soomra refutes the allegations. “We strongly disagree with several of Benguela’s statements regarding material facts, as well as its conclusions on the law and corporate governance, which are reckless and irresponsible.’’

These have been documented in a letter, which can be read here.

According to Soomra, in late 2016, Oceana was well aware of the fact that the Westbank shareholders planned to exit at this point. “We knew we didn’t have long-term partners by this stage. We constructed the agreement to at least allow us smooth transfer of skills, taking into consideration the age of the relevant shareholders (70, 71 and 80).

“Prior to the search for a bidder the CEO said he would like to be considered. The board was happy with this provided effective corporate governance measures were put in place, and an independent third party was hired to manage a process to identify and screen potential buyers.”

Soomra added that the Daybrook deal wasn’t a deal made by one man to feather his own nest in the US. “Our independent board and committees, our shareholders including Tiger Brands and Brimstone, our lenders – they all looked at this deal closely.”

Mustaq Brey, chairman of Oceana and CEO of Brimstone, which holds a 17% stake in Oceana, was taken aback by the accusations. “I don’t believe Oceana has transgressed in this instance. The board was aware of the governance issues and created a sub-committee that was guided by a corporate advisor, Standard Bank, to deal with the sale of the shares. They also sought legal advice. The next step is to take this to shareholders – we are not trying to sweep anything under the carpet.”

Oceana is currently under cautionary as the parties negotiate. The financial details of the deal, as well as how Kuttel plans to fund the purchase price will be fully disclosed to the market in due course.

At this point Oceana will ask its shareholders for approval. This is in line with a formal ruling Oceana obtained from the JSE on the matter.



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Something very wrong here. MD resigns with immediate effect, Interim MD lasts a few days and then refuses the role(he was available at the time of the first SENS announcement and subsequently isn’t?-maybe he saw the corrupt mess and ran for the hills) and the CFO now takes over. This all at a time of moving fish prices, quota renewals etc.

The Chairman appears to be confused and the rebuttal letter from the CFO is vague.(at best).

And the share trades at a very high PE-better value elsewhere in SAMs view!

I think after the whole Steinhoff thing every short seller in the market is publishing its own reports into irregularities and hoping it damages the share price and whatever they shorted gets “Steinhoffed” and they can rake in the profits, ironically at the current share holders expense that they claim to be caring for.

We can definitely surmise that there has been Insided activity butnot sure if this share is being shorted ( yet) judging by the price rise today. Need to watch this space.

End of comments.




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