Patrice Motsepe. Picture: TREVOR SAMSON
Patrice Motsepe. Picture: TREVOR SAMSON

African Rainbow Capital Investments (ARC), the investment company started by billionaire Patrice Motsepe and run by two former Sanlam senior executives, has seen its relationship with agroprocessing company BKB descend into acrimony over a proposed share sale.

BKB went to the high court in Johannesburg last week in an attempt to stop ARC from selling its 20% stake in the company to another shareholder, Acorn Agri & Food (Acorn), an agricultural investment holding company in which ARC is also invested.

The conflict is already the subject of arbitration, which is at an advanced stage, with a decision set for October 1.

Acting high court judge Selemeng Mokose ruled that the matter was not urgent, partly because the arbitration process is ongoing.

Any decision in favour of BKB could result in ARC’s failure to realise the maximum value on its investment in BKB and hamper its effort to consolidate its agricultural investments under Acorn.

"We launched the application to prevent ARC from transferring the shares until such time as the arbiter has made a decision," said BKB CEO Wolf Edmayr. "We will carry on seeking relief from the court until such time as we have finality on the matter."

ARC Investments, which has a market capitalisation of R6bn, listed on the JSE in September 2017. Motsepe appointed two former Sanlam executives, Johan van Zyl and Johan van der Merwe, as joint CEOs.

ARC has 49% of its shares held by the public and the other 51% is controlled by a broad collection of BEE groups, the Sanlam Ubuntu-Botho Community Development Trust and the Motsepe Family Trust.

ARC subscribed for shares in BKB at the end of November 2016 for R195m, effectively gaining a 20% interest at R10.50 a share. To oversee its investment, ARC appointed Van Zyl to the BKB board.

The crux of the dispute between the parties is a clause called the "right of first refusal", which was included in the subscription agreement that was entered into at the time ARC made its investment in BKB.

The clause gives BKB the right to pre-empt any offer ARC receives for its shares in BKB for a period of three years, expiring on December 1, 2019 by matching terms from a third party. But, according to papers filed by BKB, ARC attempted to subvert the principle of the first right of refusal by negotiating with Acorn to purchase ARC’s shares in BKB through what was termed an "option agreement".

Acorn presented ARC in September 2017 with an "irrevocable offer" to purchase its 20% stake in BKB at R22 a share, which valued ARC’s stake at R409m, more than double what ARC paid less than a year before. According to papers filed by ARC, it was termed an option on the basis that it gave ARC the right to sell its shares at a set price by signing the offer at any point up to June 1, 2018.

ARC says the unsigned document crucially did not represent a "wish to dispose" of its interest as it was never "obliged to do so". ARC in its full-year results to end-June carried the value of BKB at R22 per share, which accounted for just more than 5% of its investment portfolio. But the option lapsed.

Alternatives

ARC then negotiated with Acorn to construct a new sale agreement, which had two possible alternatives: at Acorn’s discretion they could pay cash for the shares at a price of R26.40 per share; or they could issue Acorn shares (based on the price at the time) to the value of R407m to ARC in lieu of the value of its BKB shares.

But this agreement was also subsequently cancelled.

A third agreement, in which Acorn purchases ARC’s shares in BKB for cash at price of R26.40 per share (R491m) was signed and agreed to, and presented to BKB in terms of the first right of refusal.

ARC said in its court documents that this is the price BKB must meet, while BKB argues that R22 per share should be used as the basis.

ARC did not respond to requests for further comment.

thompsonw@businesslive.co.za

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