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Shoprite cuts chairman Wiese’s voting influence

The proposed deal will see Wiese’s voting interest reduced to 17.8% from 42.3%.

South African grocer Shoprite is to buy back deferred shares held by its chairman Christo Wiese to simplify its voting structure but substantially curbing Wiese’s influence in the company he helped turn into an African powerhouse.

Besides ordinary shares, Shoprite’s capital structure includes deferred shares which carry about 32.3% of the voting rights at Shoprite. The deferred shares are held by Weise’s investment vehicle, Thibault Square Financial Services Proprietary. 

Under the deal, Titan – another one of Wiese’s entities – will receive 20 million new ordinary shares from Shoprite, in exchange for deferred shares which Shoprite will buy for R265 000 ($18 836.41) and cancel, the retailer said in a statement.

The proposed deal will see Wiese’s voting interest reduced to 17.8% from 42.3%, while his direct shareholding will increase to 17.8% from 14.8%, Shoprite said.

Following the issuance of the new shares, the total voting interest of minority shareholders will increase from nearly 60% to more than 80%, while their shareholding will be diluted by 3.5%, it added.

Wiese has been instrumental in Shoprite’s transformation from just six outlets in South Africa in the 1970s to 2 800 shops across Africa, dwarfing rivals including Walmart Inc’s South African unit Massmart.

Shoprite, which also sells furniture and medicine, said the deal is expected to result in a potential once-off reduction in earnings and headline earnings of R3.3 billion, based on a 30-day-volume-weighted-average price of R165.35 per share as at April 17. 

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Sharholders have bought control of the company for 3,5% when it normally goes for 30% Win Win I think.

Wiese is not the type to leave R10 on the floor. For him to agree to this there must be economic benefit. I assume he cannot trade the deferred shares and by exchanging these for 20m ordinary shares he now has liquidity.

Voting control only has a value if you are going to use it to stomp on minorities (the way Wiese has tried to do in the past). Nobody trusts Wiese now, so it is unlikely that he could get Allan Gray or the PIC to back him to take the company private like he did before. In my view the only benefit of getting rid of the deferred shares is to reduce Wiese’s influence. But R3.6bn is a huge price tag given that his influence is waning along with his reputation. What return will Shoprite get on this investment? They are already suffering from declining RoA and RoE from previous unwise investments.

The fact that it was announced 5 minutes before a 4 day weekend should be a clue to the fact that this is not good news for Shoprite investors!

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