4 December 2007

South Africa: PIC Sinks Move to Buy Out Altech Minorities

Johannesburg — SHAREHOLDER activism has scuttled Altron's plans to buy out minorities in its listed Altech subsidiary, with the Public Investment Company (PIC) blocking the deal in protest against Altron's lack of transformation.

The PIC's opposition almost sank an identical plan for Altron to delist subsidiary Bytes, but that won 76,2% support, just above the required 75% hurdle.

PIC CEO Brian Molefe said the R4,8bn in deals offered investors a 29% premium, but snatched back their voting rights. "We already have concerns about Altron from a corporate governance point of view. They are overloaded with executive directors and their board isn't transformed."

Altron's 14 directors included just one woman and two black men, which did not represent SA's demographics.

"We voted against the deal because they were giving us nonvoting shares which would have disempowered us in assisting Altron's transformation endeavours, because I'm sure they would like to transform," Molefe said.

The PIC owns 10,89% of Altech and that sank Altron's R3,4bn offer to buy out Altech minorities. But its 3,59% stake in Bytes was too small to sabotage the R1,4bn offer to Bytes' minorities.

"Of course, we're disappointed, but an increasing number of people are beginning to share our point of view about the need for institutional investors to be active shareholders, and that's encouraging," Molefe said.

"In the past we'd have lost on both, but even on the Bytes deal institutional investors are beginning to take the issue of shareholder activism seriously."

The PIC has attacked Sasol and Barloworld for not having enough black directors, accused Standard Bank, FirstRand and Old Mutual of the same offence, and questioned the lack of transformation in retailer JD Group.

The PIC recently issued new corporate governance rules, saying it would vote against directors who were on too many boards, demand greater disclosure on their remuneration and question companies that issued shares with unequal voting rights.

Altron CEO Robbie Venter said he was not surprised the vote prevented its bid to absorb both subsidiaries into Altron. "The PIC issued corporate governance guidelines about six weeks ago and maybe they felt that it didn't align with that," he said.

Altron itself owns 61,8% of Altech and 57,7% of Bytes, but did not use its voting rights to force the proposals through. "We took the view that we wouldn't vote with our shares, and would let the minorities form their own views. One or two shareholders had different views, and it was their right and prerogative."

Sanlam Private Investments also opposed the bid for Bytes, partly because of the loss of voting rights, but also because Bytes pays higher dividends than Altron. A third argument from portfolio manager Jack Shapiro was that Bytes' goal of acquiring Business Connexion at some stage would not fully benefit shareholders if they had swapped their shares for Altron shares.

Venter said: "We made progress in the simplification of our group by acquiring Bytes. Some people may see a negative slant, but I see it in a positive light. We have reduced our listed entry points from nine in 2000 to two. That's certainly progress in terms of getting to one listed entry point for the group.

"The important thing is we put something on the table that was fair and compelling from a commercial point of view and it was something a lot of shareholders had asked for."

Bytes CEO Dave Redshaw said he knew the vote would be close as the PIC opposed the deal and some shareholders wanted to remain invested in Bytes. The deal was swung by institutional investors lured by the premium.

The move would benefit Bytes as direct access to Altron's cash would make acquisitions much easier, he said. Bytes has made overtures to Business Connexion, and is keen to expand in the UK. The cash it can tap into from Altron should speed that up.

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