Famous Brands share disposal raises questions

Should directors be more responsible?
The ambiguity of directors' dealings can have negative connotations for companies. Picture: Shutterstock

Last week Famous Brands released a Sens announcement that one of its directors, John Halamandres, had sold 150 000 shares at R121.01 each for just over R18 million. The announcement explained that this was an “on market disposal of shares to settle a financing obligation entered into in August 2015”.

Halamandres is a member of the founding family, which has been selling shares in the company over a number of years now. There was therefore nothing remarkable about the sale itself.

However, the explanation behind it raised some eyebrows amongst market watchers, including JustOneLap’s Simon Brown:

The company had never made shareholders aware that the director had entered into this financing obligation, either through Sens or its annual reports. When Moneyweb asked company secretary Ian Isdale why this was, he explained that:

“The contract was not known to the company until the director requested approval for the transaction. Our sponsors advise there was no obligation on the director to inform the company at the time the contract was concluded.”

There was therefore no compliance breach. However, what happened next caused an even bigger stir.

The very next day – August 16 – Famous Brands released a poor trading update that warned that conditions were tough, margins were under pressure, and that its six month results to August 31 would therefore be weaker than for the comparable period last year.

This bad news immediately impacted the share price. It fell almost 8% over the day.

Given this drop, market watchers didn’t take long to question the appropriateness of Halamandres’ selling shares on the eve of such a clearly price sensitive announcement. Vunani Securities analyst Anthony Clark raised his concerns on twitter:

https://twitter.com/SmallTalkDaily/status/897730735016214528

https://twitter.com/SmallTalkDaily/status/897774903407104001

On the face of it, this certainly didn’t look good for either the company or its director. How could approval for the transaction have been granted under the circumstances?

When questioned by Moneyweb, Famous Brands’ company secretary however explained that the settlement date on the obligation entered into by Halamandres had been set two years ago:

“The director entered into a finance agreement in August 2015,” Isdale said. “The contract had a predetermined settlement date of August 11 for the 150 000 shares. The price was predetermined based on a volume weighted average price (VWAP) prior to the settlement date. As the contract was entered into in 2015 at a predetermined price the approval for the transaction was granted.”

This explanation was also shared with Clark:

While the episode may, ultimately, have just been a case of very unfortunate timing, it still left a number of people feeling a bit uncomfortable. Clark himself questioned whether the compliance requirements around something like this aren’t a little too vague.

“I think it needs to be tightened up,” he told Moneyweb. “I think directors should have a gentlemen’s understanding that if they enter into any formal transaction or structure that could have a negative impact on the company’s share price or even market sentiment, it should be disclosed in the annual reports or at least every six months. This issue just highlights once again that when something like this pops up, it makes the company, which in theory is an innocent party, look bad.”

The point is that if shareholders had known about the obligation in advance, there would have been no issue.

“Your first reaction is not to question the director when something like this happens,” said Clark. “The first thing you ask is why didn’t the company know about it? I think the ambiguity of directors’ dealings can have negative connotations for companies, even if it wasn’t their fault.”

Given how poorly this episode reflected on Famous Brands, it is worth bearing in mind that directors have a legal duty to always act in the best interests of the company. It’s not difficult to argue that that should include taking shareholders into their confidence when entering into these kinds of transactions.

As Clark put it:

“There’s a moral obligation to negate any form of corporate ambiguity which could necessitate questions being raised about the company’s governance.”

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the writing is on the wall!!! good luck to all those franchisees!!!!! one by one they will be going bang, bang, bang!!!!!

Why would you say that ? They do have some real quality assets in s.a

When Kevin Hedderwick retired, it signaled the end for Famous Brands. The current Board has no direction … and no oversight over John Halamandres actions anymore.

A fish rots from the head.

Die vraag is nou of die maatskappy doelbewus die sensitiewe inligting weerhou het van die mark totdat die direkteur se aandeelverkooptransaksie afgehandel is met die doel om die direkteur in die proses te bevoordeel en/of te beskerm.

This action by John Halamandres is massively irregular and probably illegal and definitely worthy of insider trading investigation.

If the pending sale was not noted in the financials prior to disposal it is irregular and needs to be investigated.

We should also ask if Famous Brands chose to delay the SENS by a few days which benefit the director. An investigation should be able to determine how long they sat on the trading update before releasing it?

Regardless of any previous arrangements or deals, all directors, company sec, staff etc. should be subject to a closed period prior to the results coming out. The closed period has to supersede any previous deals or arrangements for obvious reasons. The ambiguity of this sale is not acceptable. He could have easily just waited for the results to reach the market before calculating his VWAP and transacting. It was only one day later. That would have been the right thing to do.

Can Moneyweb – Request a copy of the extract of the financing agreement and a extract of the directors resolution reached, dated two years ago from the secretary who must acknowledge the authenticity of the documentation with a standard affidavit confirming dates etc.

The information is public knowledge now – so there
should have no problem is releasing this info.

Agreed

That would provide some justice here

Although, the reality is you could bet your bottom dollar that affadavit document would prob be fabricated too !!

No one there would be interested in compromising the company or the jobs

Kinda like the mafia.

What a crock of sh….it !!!

“The director entered into a finance agreement in August 2015,”

Right !

They could BACKDATE anything by saying this.

Reality is, the Seller waited till the last possible minute to maximize timing, as he knew the writing was on the wall

And the company issued this bullsh*t statement to do damage control

Is anybody buying this crap !!!!??????

Please tell me

Or is this how ROTTEN the JSE and listed companies are ??

Disgraceful !!!

Nothing less then INSIDER TRADING.

Full stop.

This was a distinct vote of no confidence in their own brand and frankly very disappointing .Some of the brands look tired and I some serious invigoration in this stable is needed .Hedderwick s decision making was also looking questionable over the last few years and i expect further erosion in the value of this shares in the coming years

End of comments.

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