Shareholder activists have welcomed Remgro’s decision not to vote on a controversial proposal to repurchase 14.5 million RCL Food shares from the food group’s top executives.
All Weather Capital chief investment officer Shane Watkins says the decision not to vote at the shareholder meeting in May is “good and certainly correct”. Earlier this month Watkins described the plan to pay R149 million to repurchase the shares, which had been issued at no cost to the executives, 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 a long-term executive incentive scheme.
Over the past 10 years the RCL share price has dropped from R17 to its current level of just below R10 as return on equity and operating profit slumped almost steadily. In 2019 earnings plunged 61%.
In early April RCL chairman (and Remgro CEO) Jannie Durand told Moneyweb the decision to repurchase had been prompted by RCL’s “extremely limited free float, low trading volumes and lack of tradeability, [which] severely restrict the ability of the participants to trade in the shares”.
The recent transfer of the shares to Dally and his executive colleagues 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,” Durand told Moneyweb in early April. At the time he said Remgro would vote at the meeting “in the best interest of the company, the shareholders and management”.
Because it is a specific repurchase, the transaction needs shareholder approval, which was a certainty if Remgro, with a 71% stake, had voted.
On Tuesday RCL issued an updated statement informing shareholders that after giving careful consideration to concerns that had been raised, the Remgro board had decided to abstain from voting at the shareholders’ meeting in May. “In order to address [shareholders’] concerns, and to provide reassurance to all shareholders that the specific repurchase will be effected in a fair and transparent manner, the board has noted Remgro’s indication that it will abstain from voting at the general meeting,” it said.
Activist and RCL shareholder Albie Cilliers says Remgro’s decision not to vote is encouraging. “It’s good to see that they are listening to shareholders and taking note of valid concerns,” Cilliers told Moneyweb. But he queried why it was that Dally and his executive team had been issued with any performance-related shares given the company’s chronic underperformance.
Although it is not voting Remgro said in the statement issued on Tuesday that it intends acquiring enough shares from the executives “as will enable them to meet their tax liabilities arising from the vesting of the CSP [conditional share plan] awards.”
Although pleased with the decision not to vote, Watkins told Moneyweb it is unclear why Remgro would resort to a plan B to bail out an incompetent management team.
Analysts believe that even without Remgro’s vote, the proposal will secure sufficient shareholder backing.