The minority shareholders of RCL Foods have voted against a proposal to spend R149 million buying back shares from its top executives, leaving it to controlling shareholder Remgro to fund the repurchase and bail out the executives.
Following an earlier backlash from shareholders who were angry about the proposal, Remgro, which holds 71% of RCL, undertook not to vote at the meeting.
At Tuesday’s meeting just over 55% of the minority shareholders voted against the special resolution and 54% against the ordinary resolution needed to implement the buyback.
At the end of the brief meeting Jannie Durand, who is chair of RCL and CEO of Remgro, said Remgro would step in and buy back the shares to ensure that management would be able to settle the tax liability resulting from the recent transfer of shares to the executives.
“Clearly we don’t want the management team to be faced with this tax liability when they have to manage a company in difficult times,” said Durand at the meeting, which was held virtually.
Outcome ‘wasn’t inevitable’
Chris Logan of Opportune Investments, who had been an outspoken critic of the planned buyback, welcomed the shareholders’ decision. He also commended Remgro for not voting its shares and for undertaking to tighten up its remuneration practices.
“The outcome of the meeting wasn’t inevitable, even after Remgro undertook not to vote,” Logan told Moneyweb, adding that Remgro “was ahead of the pack when it came to considering the alignment of executive remuneration with shareholder value”.
Peter Mageza, chair of the RCL remuneration committee, told the meeting that PwC had been commissioned to review the company’s long-term and short-term incentives “with the current experience in mind”. He said the details of the new scheme would be published ahead of the next AGM.
“We’re trying to move close to best practice under the guidance of PwC, hopefully there will be an alignment to shareholder value,” said Mageza.
All Weather Capital chief investment officer Shane Watkins previously described the plan to spend R149 million repurchasing the shares, which had been issued to the executives at no cost, as “outrageous”.
Miles Dally, CEO of the food group since 2006, was in line to receive R37.2 million from the proposed transaction in exchange for 3.6 million shares he had recently received as part of the company’s long-term incentive scheme.
Over the past 10 years the RCL share price has dropped from R17 to below R10 as return on equity and operating profit slumped. In financial 2019 earnings plunged 61%.
Durand said the decision to repurchase the shares had been prompted by RCL’s extremely limited free float, low trading volumes and lack of tradeability. The transfer of the shares to the executives had triggered tax obligations.
“Given the lack of liquidity in the market there’s limited opportunity for individuals to sell these shares to meet tax and other obligations,” said Durand.
Lack of clarity
Shareholder activist Theo Botha criticised Durand for not clarifying why the performance conditions attached to the awarding of the shares had never been disclosed.
Durand had told the meeting that details of the incentive schemes had not been disclosed publicly because of “strategic reasons and market issues and the possibility of corporate actions”. In addition, he said in 2016 when the scheme was initiated Pioneer and Tiger Brands were looking for executives and RCL believed it was better to keep the details confidential to ensure they could retain their executives.
Botha told Moneyweb after the meeting that shareholders didn’t need to know corporate secrets but did need to know what the key performance indicators were.
He also expressed concern that the remuneration committee was using PwC, which is RCL’s external auditor, to review the long and short-term incentive system. “How objective can they be?” asked Botha.