Former Steinhoff International Holdings NV chairman Christo Wiese’s Shoprite payday looks like it’s running into a fair amount of pushback.

Things have not been going well for Wiese for a while now. His fortune took a knock last year after Steinhoff was hit with allegations of accounting fraud.

Then the South African Revenue Service (SARS) claimed that ENS – a law firm at which Wiese was an executive – helped multi-national oil company Tullow shift about R3,9 billion in assets out of the country to dodge taxes.

Before we go into recent news, here’s what you need to know:

Years ago, Pepkor, a South African based investment and holding company then still in its fledgeling phase, agreed to give Wiese special voting rights. The idea was that doing so would protect the growing entity from competitors.

As the years moved on, Pepkor grew and Shoprite was founded, soon becoming the largest supermarket chain on the African continent. As Shoprite grew, Wiese’s shares grew with it.

Daily Maverick with where we are now:

Earlier in 2019, Shoprite announced it intended to make Wiese an offer for these shares, and that deal was announced last Thursday.

The Shoprite board announced that it would buy the high-voting shares and cancel them. In exchange, it would issue new shares in Shoprite to pay for them. Those new shares are currently worth about R3.3-billion, which would be what Wiese would pocket.

A pretty decent payday, even by Wiese’s standards.

The board argued that this would simplify the company’s voting share structure and, moreover, align the company with international best corporate governance practice.

This is because all the shares after the deal would have the same voting rights. This, the board said, would appeal to institutional investors and would have increased a positive demand for the company’s shares.

Wiese’s 305.6-million deferred shares control 32.2% of Shoprite’s voting rights, and they were issued to Wiese in 2000 at a nominal value of 0.1c a share. After the deal, the voting interest of minority shareholders will increase from 57.7% to 82.2%. Or to put it another way, Wiese’s voting power will come down from 42.3% to 17.8%, being 3% more than the 14.8% he currently holds.

Wiese was happy with this outcome, but some fund managers disagree.

Karl Leinberger, Chief Investment Officer at asset management company Coronation, which holds about 5% of Shoprite on behalf of clients, said the company would recommend voting against the board’s proposal. Coronation is the largest institutional shareholder of Shoprite outside of the Public Investment Corporation and Wiese’s investment entities. 12

Leinberger said it would be voting against essentially because the proposal was an extremely high price to pay to extinguish what is, in reality, a comparatively low level of risk.

The shares offer a high level of voting rights which, he argues, could potentially constitute a governance risk.

The company is handling the issue in an exemplary manner, he said, but “our main point is that the risk the shares pose is a lot lower than the value being placed on them”.

“The shares have really no readily ascertainable monetary value, so essentially, what shareholders are paying for is votes at an annual general meeting. It is possible to construct a context where there might be risks associated with high-voting shares, but in this case, we don’t think the risks are that high, and certainly not high enough to justify this expense,” he said.

On the upside for Wiese, the stock market has taken the proposal in its stride, and Shoprite ended the day just in the green on Tuesday, after at one point dropping by 2%.

The vote will take place in September.

Regardless of the result, Wiese won’t be going hungry.

[source:dailymaverick]