EDITORIAL: Lonmin deal an escape from ground zero
Once again well-paid executives will walk away from the scene of a disaster with their pockets full
By now, a day ahead of Tuesday’s shareholder vote, the fate of Lonmin will probably have been decided. And given how widely dispersed the shareholding is and the likelihood most institutional investors will opt for the relative security offered by the Sibanye-Stillwater takeover proposal, it seems inevitable the Public Investment Corporation (PIC) has determined that fate.
With its 29.3% stake, the PIC can block any deal — such as the share swap proposed by Sibanye-Stillwater, which requires 75% shareholder support.
Sibanye-Stillwater CEO Neal Froneman has confirmed he will not make any further changes to the one-for-one offer that is on the table following the rather derisory 3.4% “improvement” announced in April. This fighting talk is essentially confirmation of the UK regulations, which now prohibit a higher offer.
Froneman is adamant the deal is attractive for Lonmin, which he contends is not a going concern on a stand-alone basis, even at the current improved platinum prices. This is a chilling thought for shareholders who have looked on helplessly for almost two decades as successive leadership teams have destroyed the value of their investment.
The proposed deal values Lonmin at a paltry 60p a share, almost a rounding error compared with the equivalent £2,500 at which it peaked in the pre-rights issue days of 2007. There is little in Lonmin’s recent history to encourage hope of something better.
It is a travesty that Lonmin’s management team is set to score an immediate R130m windfall on their share options if the share swap proposal goes through.
Back in the early 2000s, there was the ill-considered multi-billion rand attempt, in defiance of geological reality, at mechanisation and then the high-profile ongoing failure to meet its social and community obligations, which overlapped with the appalling events of August 2012 when 34 striking miners were shot dead by police.
Throughout it all, the London-based board seemed incapable of the leadership needed to extract profit and survive in the complex environment that is SA. Notwithstanding this, the group’s executives were generously rewarded. At the most recent annual general meeting in March, an unprecedented 74% of shareholders voted against the remuneration report.
It is difficult not to see a vote in favour of the Sibanye-Stillwater deal being a vote to escape this ongoing management deficit. It is a touch bizarre, although not surprising, that the board has recommended that shareholders accept the offer, which provides an escape route from their chronically poor management.
But by doing so, they have side-stepped the need for an independent valuation to determine whether the offer is fair and-reasonable. They have also ensured that with 75% backing, the remaining 25% shareholders will be forced to accept the transaction.
A less supportive Lonmin board might have forced Sibanye-Stillwater to make a takeover offer, which would require the backing of 90% of Lonmin shareholders. That option is still on the table and, given the potentially enormous benefits Froneman’s group stands to reap, might prove to be the acceptable compromise if the PIC opposes the share swap.
It is a travesty that Lonmin’s management team is set to score an immediate R130m windfall on their share options if the share swap proposal goes through. This includes a R23m payout to CEO Ben Magara for share options awarded to him as recently as December 2018. Once again well-paid executives walk away from a disaster with their pockets full. It is not just the bill for hugely inappropriate rewards to executives that shareholders are now left with. The circular to shareholders reveals that advisers — the lawyers, merchant bankers and brokers — will pick up R345m from Lonmin and a further R471m from Sibanye-Stillwater.
As for the tens of thousands of employees, we will be told that those who are not retrenched should consider themselves lucky to be able to hold onto their jobs.