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Shuter’s MTN sign-on bonus cobbled by weak share price

Raft of board changes stir concerns.
Rob Shuter, CEO of MTN Group. Image: Waldo Swiegers/Bloomber

MTN CEO Rob Shuter was paid out a sign-on bonus of just R17.8 million in March. This is a sizeable figure but it’s less than half of the value indicated in March 2017, at the time he was awarded the bonus.

When Shuter, who has announced he will be leaving MTN when his four-year contract expires next March, was headhunted from Vodafone Europe he was granted 327 214 MTN shares as contractual compensation for equity he forfeited from his previous employer.

A spokesperson for MTN told Moneyweb the shares had a three-year vesting period and were paid out at the prevailing share price in March of R54.39. This was less than half of the R125 at which MTN was trading in March 2017, when Shuter’s sign-on bonus was valued at R41 million.

Chief financial officer Ralph Mupita who was also given a sign-on bonus in 2017, did significantly better than Shuter. He was awarded 446 027 MTN shares, a month after Shuter. These were paid out in October 2019 when the MTN share price was R94.28, giving him a bonus of R42 million.

Group chief operating officer Jens Schulte-Bockum was awarded a sign-on bonus in January 2017 of 64 432 shares, which were settled in January 2020 at a share price of R89.12 giving him a bonus of R5.7 million.

While Covid-19 concerns knocked the share price in March, along with most of the market, MTN has been on a steadily weaker trajectory for a lot of the time Shuter was at the helm. Analysts say the high growth enjoyed by the sector globally is a thing of the past and that share price performance is coming into line with that reality. MTN’s share price woes were also aggravated by various regulatory problems it faced, in particular, the ongoing and expensive regulatory challenges in its largest market Nigeria, which were triggered long before Shuter’s arrival. Last month Mupita confirmed MTN intended to press ahead with plans to reduce its majority holding in the Nigerian business due to the high-profile clashes with the government.

Read: MTN’s rise and fall in Nigeria

Also knocking investor sentiment is legal action in a US court asserting claims for civil monetary relief under the US Anti-Terrorism Act. The litigants allege MTN made protection payments to the Taliban to ensure its infrastructure would not be attacked and also that it deactivated its cellular network at night at the Taliban’s insistence. Last month MTN requested the US court to end the lawsuit and grant a judgement in MTN’s favour. It argued the court lacked jurisdiction over MTN, which does not operate in the US, and also that the complaint does not allege any conduct by MTN that would have violated the Anti-Terrorism Act.

Read: MTN seeks to dismiss US anti-terrorism case in Afghanistan

Meanwhile back in South Africa, MTN finally came to an agreement last month with the competition authorities about cutting the cost of data.

It may be of some compensation to Shuter that the Vodafone share price did not do too much better; over the three-year period since he left it has almost halved in value.

Announcing his departure at the end of the 2019 financial results presentation in early March, Shuter said that leading MTN had become “an enormous sacrifice”.

“I’ve loved my time here. It’s been the greatest privilege of my working career, but it’s been enormously challenging.”

While his departure is the highest profile one at the country’s largest cell phone company, it is far from being the only one. During financial 2019 MTN announced six other board retirements with one shareholder activist noting that, effective May 2020, half the MTN directors have served for less than three years. Long-serving directors Alan Harper, Jeff van Rooyen and Koosum Kalyan left the board at the end of 2019; they were followed by Peter Mageza and Dawn Marole at the end of last month. Christine Ramon, with just five years, will be the longest-serving independent director on the board. In addition the group’s chief legal counsel, surely a busy position at MTN, left in July 2019.

More significantly last December Phuthuma Nhleko ended a decades-long executive involvement with the company he had played a crucial role in building. Nhleko had acted as CEO from 2002 to 2011 and took up the executive chairman position in 2015 after CEO Sifiso Dabengwa resigned in the wake of the battle with the Nigerian government. (He will be joining the high-profile advisory board appointed late last year.)

Mike Martin of Active Share, which advises NGOs how to vote at AGMs, says the extent of the changes – all within an 18-month period – is problematic. “We have concerns about continuity and the potential loss of institutional knowledge,” said Martin. His concerns are compounded by the limited information provided on the new directors and fears some may be overextended.

Amongst the existing directors, Martin says that Paul Hanratty’s appointment to head up Sanlam, from July 1 this year, will surely make it almost impossible for him to play an effective role on MTN’s audit committee. Hanratty, who was appointed to the MTN board in 2016 is currently one of the longest-serving directors.

Not all analysts share Martin’s concerns, believing the board churn poses little or no risk because the group’s high-growth, high-risk strategy is a thing of the past. However, Sasfin’s Alec Abraham says that being spread across so many jurisdictions, whether or not there is high-growth, creates considerable complexity for the running of the business. “There are no economies of scale on regulation,” said Abraham who agrees all the boardroom changes represent a disadvantage to the group.

The MTN spokesperson says the company is confident there is sufficient institutional knowledge, which will be blended with the new and fresh views of the incoming directors. MTN says it had been necessary to “evolve” the board as many of its directors had been serving for over nine years.

“The changes were also implemented in order to realign the skills mix following a comprehensive review of the skills retained on the board. As such, it was resolved to stagger the departures over a few months whilst also appointing new directors to the board. It was thus a deliberate process to evolve the board in an orderly and seamless manner.”

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Let’s hope Shuter is not returning to Nedbank my shares are doing quite nicely and I wouldn’t want him to upset the applecart

The share price of MTN is indeed worthy of discussion. It peaked a couple of years back at R250 I seem to recall. Now it trades at R50-a stunning 80% drop.

Notwithstanding its colossal cash drain from fines from regulators, mature markets, somewhat unpalatable foreign jurisdictions( Nigeria, Iran) and past somewhat oily previous management there is something else wrong to warrant such a dramatic fall.

So either its a good buy-or the market knows something that the average investor cannot

I was an mtn bee shareholder and had the unfortunate pleasure of being locked in while they accumated fines and frolicked with the nigerian authorities…never and never again!…all the while the coronation analyst was punting this as a winning stock.

I think it has been manipulated.
I have been watching its price trajectory … Its pretty strong on the buy side but as soon as it comes in at R50 … there is a huge sell off… sell volumes just seem to get loaded at R50…. why would you sell at R50 if you know you can make more…. a bit puzzling.

End of comments.

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