The proposed payout would amount to about R40m, equivalent to almost 50% of the attributable profit reported by Sovereign in financial 2016.
Vunani Securities small to mid-cap analyst Anthony Clark described the planned payout as another example of the patronage that has destroyed the support of smaller shareholders. "Over the past two years, this management team has failed to reach its own targets and yet it believes it deserves a huge payout if a hostile takeover is successful," said Clark.
By late Friday, the chances of a hostile takeover had increased significantly. Kevin James, CEO of Country Bird, said that after buying shares and talking to some of the institutional shareholders, the company was close to securing the 25% level needed to block a proposed Sovereign scheme that would introduce a black economic empowerment shareholder and give the management team joint control. As things stand, Tuesday is the last day to trade in order to be able to vote at the Sovereign scheme meeting scheduled for 25 July.
James wants this plan delayed by a month. He said that if the scheme went through it would kill the Country Bird offer, which is pitched at 900c a share. "There would be an extra 20m Sovereign shares in circulation; we couldn’t afford that," he said.
Albie Cilliers, a long-term Sovereign shareholder, was an enthusiastic supporter of management until he came across what he regarded as excessive and unjustified remuneration in financial 2015.
Cilliers had expected earnings of about 150c. The company reported 102c instead.
Bonuses and incentives increased by about R30m that year, sucking up 40% of the increase in profits. The payment to management knocked 39c a share off Sovereign’s earnings.
At one of the many shareholder meetings held in the past 10 months, Cilliers trawled through documents held at the company’s office in Uitenhage. When he came across the arrangement, put in place in 2013, to pay out three years’ pay plus bonuses to management, he realised it was time to get out of the company.
Cilliers hopes that Country Bird will increase its offer nearer to Sovereign’s R10 a share net asset value. But James believes 900c is generous and should be compared with the 850c the empowerment scheme was priced at or with the recent independently assessed fair value of 742c-798c a share.
The large institutional shareholders, which have consistently backed management throughout the past 10 difficult months, say it is too early to comment on Country Bird’s offer. Lynn Bolin, head of communications and media at Prudential Investment Managers, which holds 22% of Sovereign, said Prudential was carefully analysing the offer and was unable to comment. At Old Mutual Investment Group, Jenna Wilson said the OM Equities team was considering the merits of the offer and could not comment at this stage.
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