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It’s war, says Grand Parade chairman

‘Shareholders are attempting a hostile takeover.’

Hassen Adams, founder and executive chairman of Grand Parade Investments (GPI), is fuming and has accused a small group of shareholder activists of launching a ‘hostile takeover’ on the company. The shareholders, who collectively hold 12.5% of GPI, have requested – and been granted – an extraordinary general meeting (EGM), which will be held on October 31.

The purpose of the meeting is to give shareholders the opportunity to vote for four new independent directors, ostensibly to deepen the skills and independent oversight of the board. In addition, the activist shareholders have requested that all existing non-executive directors be put forward for re-election to reinstate good corporate governance.

Adams does not believe their intentions are honourable. “I extended an olive branch – I suggested we accept two of their nominations. But they want all or nothing. On that day we declared war. The battle is on. They want to destroy my legacy. For me, it is not about the money. It is about the thousands of shareholders who believe in me.

“I’m sending a letter to all the institutions – they must know their blue-collar investors are being abused by these guys. I’m also going to look at a political intervention. Quite frankly this cannot happen. If it was happening for the right reasons then yes. But it is not.”

Grand Parade Investments is a black-empowerment success story. It was founded in 1997 to partner Sun International as its primary black economic empowerment partner in the Western Cape and listed on the main board of the JSE in 2008. From there it expanded its gaming investment portfolio, adding slot machines and other investments. All went swimmingly, with the share price eclipsing R7 in 2014 and dividend payments remaining constant and generous.

Grand Parade: A fall from grace

But in 2014 GPI changed tack, claiming onerous regulatory requirements in the gaming space. It sold off part of its gaming portfolio and diversified into quick service restaurants. Specifically, it rolled out Burger King – there are now 80 corporate stores countrywide, more latterly adding US brands Baskin-Robbins and Dunkin’ Donuts to its portfolio.

Since 2013 it is estimated that capital expenditure plus losses incurred by the foods division add up to about R1.4 billion, well north of GPI’s market capitalisation of just over R1 billion. 

In the year to June 2018 headline earnings from core investments declined from a loss of R20.1 million last year to R48 million this year. While Burger King managed to reduce its losses from R41 million to R29 million, Dunkin’ Donuts, Baskin-Robbins, Mac Brothers, and the new Grand Bakery all deepened their losses.

The gaming business grew its contribution by 13% from R103 million to R117 million.

The share price has declined to R2.05, well off the R7.50 high reached in 2014. In tandem, dividends are declining, with the 11.5c declared for the results to June 2018 half what it was in 2017.

The shareholders who have requested the EGM include Denker Capital, Kagiso Asset Management, Westbrooke Alternative Asset Management, Rozendal Partners and Excelsia Capital. 

This follows several failed attempts by these shareholders (who together hold 12.5% of GPI shares) to constructively engage with the GPI board about governance concerns, poor results and the departure of two chief executive officers in the past 18 months, as well as a chief financial officer and the chief executive officer of Burger King SA. 

“These are yuppies who are gambling with blue-collar money,” says Adams. “GPI is trading at a big discount to its NAV [net asset value], all they want to do is strip the assets – there is R3 billion worth of assets in the business.

“This is being done under the guise of shareholder activism, but they are nothing more than hyenas.”

According Jarred Winer, fund manager at Westbrooke, the shareholders have three main concerns: capital allocation, governance and strategic direction.

“Management has invested a fortune into its food brands but has not demonstrated a proven ability to generate returns. Certainly, performance at Burger King is improving, but it remains loss-making. Before management had a chance to prove itself, it invested in Baskin-Robbins and Dunkin’ Donuts.”

Dunkin’ Donuts now forms part of GPI’s quick-service restaurant portfolio where losses continue to deepen. Picture: Patrick T. Fallon/Bloomberg

Further capital allocation concerns relate to GPI’s purchase of Spur shares after the initial purchase in 2014 of 10% of Spur shares via a B-BEEE transaction. In 2016, the company tried to acquire up to R779 million of Spur shares from Coronation Fund Managers at R40 per share, a 25% premium to the market price at the time. This was blocked by shareholders, but GPI continued to buy Spur shares in the open market. Spur shares now trade at R24 and management has publicly stated that it wishes to sell its stake in Spur.

In addition, the shareholders believe that management and shareholder interests are not aligned. “Total bonuses paid to executive directors amounted to R15 million in the 2017 financial year, while the group made headline losses and the dividends paid to shareholders halved,” says Winer.

The composition of the board and extended director tenures are another cause for concern. “The GPI board has five non-executive directors, two of which have been on the board for 21 years while a third has been on the board for 10 years,” says Winer. “This results in a lack of independence, especially when the existence of an executive chair (Dr Adams) on the board puts an even greater demand for independence on the remaining board members.”

Further, the current board’s skills and experience are not aligned to the company’s new strategy. GPI’s shift into the quick service restaurant (QSR) industry requires a board with relevant industry skills, knowledge and experience.

The directors proposed by the shareholders include Cora Fernandez, a CA with experience in the private equity industry and former CE of Sanlam Investments Institutional Business; Mark Bowman, former MD of SABMiller Africa; Ronel van Dijk, former CFO of Spur and COO of Spur International; and Seapei Mafoyane who is CEO of Shanduka Black Umbrellas, the enterprise and supplier development partner to, among others, Transnet, Lonmin, Anglo American, Exxaro and Mitsubishi Hitachi Power Systems Africa.

Adams does not believe the nominees have the necessary skills and experience, except possibly Mark Bowman. “They will not be a good fit.”

Ricco Friedrich, director and fund manager at Denker Capital, counters that the nominees are credible and would represent the interests of all shareholders, including small shareholders. “The community members are powerless. They have no voice to speak out against the massive destruction of shareholder value that is taking place. The share price was down 70% but rose 25% on the news that an EGM is to be held.”

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Another tin pot dictator beating the drum on his own. I know people who were also offered the Baskin Robbins ice cream thing and they declined because the royalties were too high and the price of the ice cream ridiculous. But GPI thinks it is a great idea.

The question is the action of these “activists” legal or not? As I understand Adams does not have more than 50% share in GPI, so why should he be the one who decides how things should be run.

BEE is the elephant in the room here. We experience the results of the socialist government policies like BEE, in the form of a shrinking economy, lower consumer spending, rising unemployment and higher personal debt levels.

This is the beauty of it -socialist BEE policies are cannibalizing BEE beneficiaries. The BEE beneficiaries at Eskom simply add their share of the looting to the price of electricity. Those at municipalities add their share to the price of rates and taxes. This starves the poor BEE beneficiaries at GPI of consumer spending. The monster is eating its children now. BEE is destroying BEE.

This is how the realities of the free-market come to bite the socialists in the but.

BEE is a socialist and racist policy that treats more capable people as second-class citizens.(this is similar to what the NAZIS did)

“From the fact that people are very different it follows that, if we treat them equally, the result must be inequality in their actual position, and that the only way to place them in an equal position would be to treat them differently. Equality before the law and material equality are therefore not only different but are in conflict with each other; and we can achieve either one or the other, but not both at the same time” – Friedrich A. Hayek

I used to be invested in this company eons ago prior to it being moved to the main board. The company has done nothing under Adams leadership and seemed to move from one disaster to the next especially when they entered the slot machine market and the entry into this market in Worcester. He also comes across as a person who is fixated with there only being one direction (his) to success – yet GPI has not really been successful at all, and entering the food market seems to have been ill conceived and poorly executed

The share price is down 43 % in five years. With the exception of dividends, what have shareholders got to show for their investment? The investments in licencing international brands has not paid off.

Firstly Ice Cream is not a business they should be in, Wakaberry was a similar experience for Famous Brands. Secondly, vertical integration(GF Meat) is not an option if you don’t have the base to sell to.

The way to clean up this business is to exit Baskin Robbins, exit Dunkin Donuts(scale), exit Meat production and sell off Mac Brothers. Then focus on businesses/industries you have a reasonable chance of succeeding at

Adams has managed this business into the ground.

Only good can come from getting rid of him.

It’s amazing that Mr Adams who claims to represent the community was as recently as yesterday forcibly removed as a trustee of the Hout Bay Development Trust by the highest court in the land. The acting Judge Davis, stated in the judgement “he clearly resents having to answer to the applicants, who he denigrates and regards as his inferiors in terms of qualification and experience. In my view Adams has demonstrated an utter lack of appreciation of the collaborative nature of trusteeship, and wholesale disregard for the law and the limits of his power. For these reasons…., I consider that he is unsuited to hold office as a trustee”. According to the judgement, Adams falsified minutes of the trust meetings, paid money to himself and related companies for which there was no proof. Is this somebody who truly represents the community.

Based on the above I’m surprised Judge Davis didn’t call for the police to arrest and charge him with fraud.

“I’m also going to look at a political intervention.” Really? Friends of friends in the ANC? I think they already have their hands full ….

Balance sheet does not look good:
Cash
2013: 403m
2017: 23m
Current Liabilities
2013: 118m
2017: 67m
Cash flow from operations <0 for 2015, 2016, 2017
They are going to have to raise cash somewhere soon.

Share price performance over last 5 years: -43%

This destruction of shareholder value is not reflected in the remuneration of Mr Adams.

Remuneration of H Adams
2013: 9,127,000
2017: 16,872,000 plus loan advance of 5,251,000
Annual growth of 16.6%

If I was a fund manager invested in GPI, I would be worried that questions would be asked as to my fiduciary responsibilities to my fund holders.

Would love to see the motivation and justification presented to shareholder as to these emoluments – performance certainly can’t be a criteria

Given yesterday’s judgement one wonders whether Mr. GT Ferreira will have it in him to do the right thing and acknowledge that his friend Adams is an unfit person …?

We love our people, but we will milk them for all they haven’t got (Episode 56m and counting)

This sums it up for me…it’s all about him!

“They want to destroy my legacy. For me, it is not about the money. It is about the thousands of shareholders who believe in me”

That is why it is called “Grand Parade” dear CEO. You have to listen to your shareholders. The own you and not the other way round.

Adam should rather stick to selling bunny chows than american crap.
Its far more healthier.

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