I write as a concerned shareholder of Bell Equipment.
A year ago, I co-authored an OpEd that called for more thoughtful capital allocation in the boardroom, but today the stakes are higher: 30 Rand per share and a continuing skirmish between Bell, its regulators, and my investment firm around the issue of Bell’s disclosures.
Thirty Rand is the difference — more or less — between net asset value of around R40 and the R10 price at which the chairman’s family holding company recently proposed to acquire the business. The disclosure skirmishes take some explaining…
Bell is a KZN-based manufacturer of Articulated Dump Trucks (ADTs), and according to their marketing material, “proudly South African”.
Bell is also a warren of conflicting interests: its largest shareholder, and the one proposing to acquire the company for R10, is the chairman’s family holding company. The two entities use the same lawyers—ENSafrica—and the holding company provides financing to Bell customers.
Bell family members receive various related-party payments from Bell, though these relationships are inconsistently reported.
To better understand the scope for self-dealing between Bell and its chairman’s holding company, I and my lawyers have used CoR24 and PAIA requests to seek more disclosure from Bell. Those requests have either been rebuffed by Bell, or have been answered with data that contradicts what is publicly disclosed on CIPC (a regulatory body). Our next step, should we choose to pursue it, is to appeal Bell’s PAIA rejections in court.
But all that is just scenery.
The real issue is that Gary and Ashley Bell are directors of Bell Equipment and are the sole directors of the IA Bell—the family holding company. They are, therefore, the “left hand” and the “right hand” of transactions between Bell Equipment and its largest shareholder.
Yet through its SENS releases (see below), Bell maintains the fiction that its board has no idea what the holding company is up to. On this fiction hangs the entire question of Bell’s fair value:
- At the 15 July 2020 AGM, Bell’s board disclaimed any knowledge of plans by the holding company to delist the business, despite the family’s conspicuous body language in that direction. The family has been buying shares for the first time in years, and Bell has ceased hosting conference calls with investors when it releases financial results, a common prelude to delisting. In the kind of irony that can only delight a lawyer, shareholders now know that the family does plan to delist the business, but they have not yet seen accurate minutes of the AGM at which those plans were denied. Bell’s refusal to release accurate AGM minutes is the subject of an ongoing regulatory investigation by the JSE.
- In a 31 July SENS release, Bell denied any knowledge of whether the holding company was in talks to sell Bell to a third party. At the time of those rumoured talks, the holding company was also buying shares on the open market. If there were talks, shareholders would surely like to know what price was discussed (and regulators might want to know what the holding company knew when it was buying shares). Shareholders might also reflect on why a board might throw cold water on sales talks; it would not be too cynical to note that a controlling shareholder who delists for R10 reserves for himself the option of selling the shares at the NAV (R40) at a later date.
- In an 18 February 2021 SENS, Bell used the same pretence of ignorance to claim that R10 was the full extent of consideration paid by the holding company for a larger stake in Bell. The price matters because it will set a floor on a subsequent tender for minority shares. We spotted suspicious phrasing in the SENS, guessed what Bell was up to, and filed complaints with the JSE, FSCA, and TRP. Bell came clean in a 10 March 2021 SENS, admitting that Gary Bell at Bell Equipment had just learned from Gary Bell at the holding company that there is an additional contingent payment (“agterskot”). You could not fool a substitute teacher with this ruse, but Bell almost fooled the market.
The agterskot is triggered if the holding company sells Bell Equipment to a third party within two years for more than R10 a share. The agterskot will be a payment of 50% of the value above R10 per share. However, the family can avoid paying the agterskot if the business is sold after two years and one day. In terms of economics, getting Bell to admit the agterskot’s existence is a hollow victory.
But this pattern of practised obfuscation matters because Bell’s board has an obligation, in law if not in practice, to maximize the value of the business.. Shareholders will soon receive a circular describing the “Scheme of Arrangement” whereby the holding company proposes to buy and delist minorities’ shares for R10 apiece (plus the potential of an agterskot, which we forced Bell to divulge).
That document will include the usual legal platitudes: that the cost of remaining public is a burden on the company, that an illiquid listing no longer benefits shareholders, that times are tough and that R10 fairly values the business.
But R10 does not fairly value the business.
Those who follow Bell’s industry know that their ADT platform is worth in the neighbourhood of R40 per share to any of the half dozen or so global excavator manufacturers who don’t yet offer an ADT. Indeed, in a moment of ill-advised candour at the 2020 AGM, chairman Gary Bell admitted as much, responding to a question of mine by saying that the business could be worth NAV “or more”.
The company is now facing a regulatory investigation into its refusal to release accurate minutes of that meeting. And on 25 March, I filed a second complaint with the JSE and FSCA, asking them to investigate Bell’s SENS release of 10 March 2021, as well as its release of 31 July 2020.
I have warned Bell privately that common law jurisdictions do not smile on boards who fail to act as “auctioneer” when they know their business is in play.
Bell is obviously in play, so I now call publicly for the resignation of Directors John Barton, Gary Bell, and Ashley Bell, whose conduct has not met the standards of candour and good faith imposed by Sections 76 and 77(3)(c) of the Companies Act.
Bell’s reconstituted board should launch an inquiry into any past expressions of interest received from potential acquirers, then retain bankers to run an auction of the business.
Bids should be solicited from major excavator manufacturers who lack a complete ADT offering, not least of whom are Sany, Hitachi, Zoomlion, JCB, Kobelco, Liugong, and Sumitomo. I have every confidence that a much higher bid would be obtained. Bell shareholders deserve R40 per share, not R10.
Carson Mitchell is Managing Member of Shipyard Capital Management LLC and splits his time between Puerto Rico and South Africa. Shipyard controls 1.2 million shares in Bell Equipment.