Acsa: Time now to flush out this cannibalistic capitalism
Acsa’s success is indicated by its performance against the South African equity market in general. Since March 2006 to the end of Acsa's 2018/2019 financial year, the company's shareholders’ interest after providing for currency profit or loss translations grew by 10.2percent per annum while the capital growth of the FTSE JSE All Share was 8.2percent per year.
African Harvest was once a financial services company with an empowerment slant. It was a black empowerment equity partner alongside Aeroporti Di Roma in Acsa. Acsa would have been privatised 20 years ago but the government got cold feet.
African Harvest Strategic Investments is no longer, and should no longer be seen and regarded as an empowerment company. According to reports, the company is now owned by Ghanaian businessman Sam Jonah.
Ever since 2015, African Harvest Strategic Investments (Pty) Ltd, African Harvest and some of the other black empowerment entities wanted to sell their holdings in Acsa.
In July 2015 African Harvest Strategic Investments and Up-front Investments approached the courts, arguing that the offer made on its shares was grossly undervalued.
And rightly so.
In January 2016 the then-transport minister supported a buy-back limited at R22 per share. That compared to the shareholders’ interest of R29.7 per share at the time.
The offer represented a massive discount of 26% based on shareholders’ interest in 2014/15 financial year. It would have been value-enhancing for the government to the tune of nearly R3.9 billion. Naturally, the minorities would not accept the offer as it was an insult.
The important role of the shareholders’ agreement and its inclusion in the company's memorandum of incorporation should never be ignored.
From the application by African Harvest et al in 2015 it emerged that in terms of Section 163 (2) of the Companies Act, 71 of 2008, that the shareholders’ agreement entailed that the one acquiring the others to be absolved, is directed to acquire the seller's shareholding of the issued share capital at fair value, to be settled in cash.
In the case of a dispute an internationally recognised, independent investment bank doing business in South Africa with experience in the valuation of airports shall be appointed by agreement between the parties (or failing such agreement by the chairperson for the time being of the Banking Association of South Africa) to determine the fair value of the seller's shareholding in the company.
Or alternatively, an internationally affiliated firm of chartered accountants with experience in the valuation of airports, shall be appointed by agreement between the parties to determine the seller's shareholding in the company.
In their application stamped on July 29, 2015, the sellers set the following covenants for the valuation of their holdings: Discounted cash flows based on forecasts, enterprise value to Ebitda and net asset value.
Their legal team also argued that the valuation should not take into account that the sellers are minority shareholders and that the transferability of their shareholding is restricted.
In August 2017 the high court in Johannesburg granted African Harvest Strategic Investments (Pty) Ltd and Up-Front Investments 65 (Pty) Ltd a court order whereby a referee was to be appointed to value its shareholding in Airports Company South Africa SOC Limited, following which Airports Company South Africa was to buy back the shareholding at the value to be determined by the referee.
Minorities and the company approved the appointment of joint valuator RisCura in September last year. The referee concluded its valuation on February 26, 2018. African Harvest Strategic Investments (Pty) Ltd and Upfront Investments 65 (Pty) Ltd have subsequently brought an application to make the valuation an Order of Court.
The apparent value placed on a share was 7 800c per share.
Acsa and its major shareholder, the South African government, opposed this application on the basis of it being fundamentally flawed, irrational and detrimental to other shareholders. The matter is to be heard in October 2019.
How the valuators got to this valuation is a mystery to me. Based on 12-month trailing earnings they value the shares at 18.8 times earnings. That compares to 19.2 times earnings of the JSE at the end of February 2018 - a discount of 2percent to the market. It ignores the fact that the sellers are minority shareholders and that the transferability of their shareholding is restricted. In normal circumstances a discount of up to 30percent can be expected. A premium of up to 30percent can be expected if the goal of the minorities was to gain ultimate control of the company.
It is also worthwhile to note that the PIC bought Aeroporti Di Roma’s 20percent interest at a multiple of around 1.4 times FY 2005/06’s NAV. Yes, a 40percent premium but it ensured total control of Acsa by the government.
The price determined by RisCura and claimed by the minorities in 2018 and 2019 represents a price to shareholders’ interest (or NAV) of 1.95 times FY 2017’s NAV and 1.84 times FY 2018’s NAV - a premium of 84percent to underlying value.
The controlling shareholders - government, 100percent government-owned PIC - and the company offered about half the price which equates to 99percent of FY 2018’s shareholders’ interest. The price claimed by the minority shareholders and valuation means that they put a value of R39 billion on the company and compares to shareholders’ interest of R21.8 billion at the end of Acsa's 2018/2019 financial year.
If the R78 per share is made an order of the court it means that some R350 million in shareholders’ wealth will be destroyed.
Yes, it will cost taxpayers an effective R350 million for nothing. Apart from that, if the court order is made Acsa will be forced to make a similar offer to other minority shareholders inclusive of the share incentive scheme.
It will mean that effectively the government, PIC and Acsa will impair an amount of more than R1.05 billion.
It is a disgrace to say the least. Acsa's cash and cash equivalents amounted to R1.2 billion at the end of the 2018/19 financial year. If the court order is upheld, Acsa's financial position will be severely compromised as net current assets will barely exceed current liabilities. It will put Acsa’s capital expansion programme under severe strain while the company's credit rating will suffer. The impact on the South African economy will be severe.
Any concession or relenting by the government on its counter-offer will be tantamount to wasteful spending.
Yes, an example of cannibalistic capitalism. Enrich yourself at the cost of the poorest of poor.
The cannibals put the blame on President Ramaphosa and his “A” team. I quote from an opinion expressed on businesslive.co.za on July 16 regarding the Acsa dispute: “The government's attempt to renege on a settlement agreement with smaller shareholders represents bad faith that is not expected by investors under a ‘new dawn’”.
This is nothing but an attempt to extort the government, taxpayers and the poor. The suitors have no conscience.
Apparently the owners of African Harvest Strategic Investments went so far as changing the company's name to Oppressed Acsa Minority 1 in November 2018. The name change is not reflected in Acsa’s 2019 annual report though. If I was government I would dispute the costs of the valuation too. Ag sies man!
Ryk de Klerk is an analyst-at-large. Contact [email protected] The views expressed are his own.