Stellenbosch-based investment holding company PSG was the centre of much of last week’s market chatter, with commentators speculating wildly on how it planned to sustain its eye-wateringly generous, inappropriate and undeserved executive pay packages after it unbundles the bulk of its stake in Capitec.
“They’ll find a way, don’t worry,” said one weary and understandably cynical shareholder. The first thing will be a repricing of all the share options.
Mid-way through the week the group announced its plans to offload 28.11% of Capitec to shareholders, leaving it with 4.3% of one of the fastest-growing and most profitable banks in South Africa. The unbundling is in response to growing shareholder frustration about the widening discount between the PSG share price and the value of its component parts – in excess of 30% in recent months.
Not shy of resorting to a bit of hyperbole, the PSG executives likened their plan to that of Naspers’s trillion-rand unbundling of Prosus last year.
No doubt it is this sort of grandiose thinking that underpins the group’s consideration of remuneration matters.
At the end of the week its annual financial statements revealed that the top three executives – CEO Piet Mouton, finance director Wynand Greeff and executive director Johan Holtzhausen – had been paid a total of R135.5 million. For financial 2018, remuneration for the same three was R127.4 million.
In both years the bulk of the value came from gains on exercising share options – R95.7 million in 2019 and R91.5 million in 2018. Mouton’s remuneration was R47 million in 2019, Holtzhausen got R45.1 million and Greeff R41 million.
Unvested options ‘out of the money’
The massive share option gains were made when the options were exercised in April 2019 at the comparatively attractive ruling share price of R265.
In what may – or may not – have been an attempt to calm shareholders’ frustrations about this generosity, PSG says in a note to the financial statements that the subsequent decline in the share price means the unvested share options are currently “significantly out of the money” and that the executive directors will be penalised if the share price does not perform over time – unless they’re repriced.
Of course even PSG’s largesse looks almost reasonable when stacked up against the huge amounts of money the top guys at Coronation Fund Managers pocket every year, almost without fail.
The poor savers
Last week we heard once again from a group led by executives who will never, ever have to worry about not having tens of millions of rands to fritter away, about the inordinate pressure on savers and the danger of having no social security net.
One analyst wondered if the comfort provided by this wealth didn’t make Coronation more tolerant of underperformers such as Trencor, or perhaps make them less wary of high-risk operations such as Steinhoff and African Bank.
“They’re getting so much themselves they probably don’t see that the millions being spent on Trencor’s chronically underperforming board represents really bad value,” suggested one Trencor shareholder.
Talking of which, Trencor’s AGM this week looks set to be quite a heated affair. Unlike Coronation, some of the Trencor minority shareholders are desperate to see some action from a board that seems just as desperate to secure its continued stress-free existence until December 2024.
AGM of the week?
On the subject of AGMs, last week’s prize for best-performer goes to Old Mutual. Sibanye-Stillwater deserved to win thanks to excellent choreographing by the group’s formidable company secretary, but was pipped by the insurer, who provided a useful insight into what must have been a truly grim year for it.
Manuel, also assisted by an extremely effective company secretary, engaged with shareholders in a reasonably open manner, shedding light on some of the circumstances around the Peter Moyo debacle.
Sticking with the subject of big finance, at last government has appointed a new CEO to the Public Investment Corporation (PIC). Presumably the announcement that Abel Sithole is taking up this crucial position will soon be followed by the news that he is stepping down as commissioner of the Financial Sector Conduct Authority (FSCA).
Edcon’s fall from grace
On matters more mundane, Mr Price didn’t miss the opportunity to delicately trash Edcon last week.
It released a Sens announcement providing clarity on its plans to issue up to 10% more equity and stating that it has no intention of buying any part of the severely struggling clothing retailer.
It seems just a matter of time before this once-great operator will disappear from the local market.
Ironically, way back in the early 1980s the two founders of Mr Price were working at Ackermans until then-Edgars bought the chain and fired them. What a lucky break that was for Mr Price shareholders.
Also ironic is that the refusal by Mr Price’s board to sweat its balance sheet (load it up with debt) is one of the reasons the group is looking quite comfortable right now.
In stark contrast Edcon went from star performer to laggard shortly after Bain Capital loaded up its balance sheet with debt and imposed crippling targets on management.
On a completely different matter, it apparently took Value Group – or was it the JSE? – two days to work out that an evidently related-party transaction had to be approved by shareholders. It’s difficult to imagine what took so long.