Group Five's largest shareholder, Allan Gray, has admitted it wants the engineering and construction firm's assets to be unbundled — and its insistence on this plan has resulted in the board collapsing.

Allan Gray, which holds 25% of Group Five, had repeatedly said in the past few weeks that its call for the board to quit was not over differences about strategy but that it had "lost faith" in the board at one of the oldest construction companies in the country.

Allan Gray's chief investment officer, Andrew Lapping, confirmed on Friday that it had written to the board earlier this year proposing the unbundling.

Board chair Philisiwe Mthethwa said the board's refusal to accept an unbundling proposal was the real reason it was being booted out. Tomorrow, five board members, led by Mthethwa, will step down at an extraordinary general meeting called by Allan Gray.

Lapping said on Friday: "When shareholders lose faith in management then shareholders have a right to call a meeting and change the board. It's a democratic process. It's in the best interest of good corporate governance that boards are held to account. People mustn't take it as a personal slight. It just is what it is."

The Public Investment Corporation, which lifted its stake in Group Five above 20% this week, is unhappy with Allan Gray's choice of directors.

They include former CEO Mike Upton, who is touted as the next chairman and was at the helm during collusion over the construction of World Cup stadiums for 2010.

Business Times has seen a letter that Allan Gray wrote to the board on April 12 proposing the unbundling after it rejected a similar proposal from management in January. The proposal was also made around the time the board received an expression of interest for the group's lucrative investment and concessions business — which includes toll businesses abroad — from a private equity firm, which Mthethwa refused to name.

It is understood that the firm is Ethos Private Equity, which manages more than R8-billion in investments.

When asked about the proposal, Ethos said: "Naturally some of our engagements do not evolve beyond the exploratory stage and as such we do not comment on rumours or market speculation, especially in the instance of listed companies."

Lapping denied knowing about the private equity offer until late April, when Allan Gray met the board.

When we spoke about unbundling originally we were concerned that something strange was going to go on and going to destroy value
Andrew Lapping

"At the time of our writing letters to [Group Five board in early April] we did not know there was any private equity interest. How I came to be aware of private equity interest is that the chairman of the board told me so."

In his April letter to the board he suggested unbundling of the investments and concessions business through a separate listing or sale and distribution of all proceeds to shareholders. In the letter there was no mention of reinvestment of proceeds into Group Five's engineering and construction unit, which was in financial distress as a result of dwindling large construction projects.

Mthethwa said: "Allan Gray was very specific ... It means they were taking a short-term view, whereas the other shareholders are in it for the long term."

But Lapping said: "When we spoke about unbundling originally we were concerned that something strange was going to go on and going to destroy value ... and if they sold or unbundled they must return the cash to shareholders because we didn't know what they were doing."

He said the "strange thing" was that several senior staff members resigned in succession after former CEO Eric Vemer resigned in February, leaving in March. Staff who left told Allan Gray to speak to Mthethwa. But meetings with Mthethwa and other management members in April "did not allay our fears. After our meeting I was substantially more concerned."

Mthethwa and other directors, Kalaa Mpinga, Willem Louw, Justin Chinyanta and Vincent Rague, resigned in June after the conflict with Allan Gray could not be resolved but have stayed on until the extraordinary general meeting tomorrow.

Lapping said the proposed directors had "no agenda".

He added it "would be no use if we put two independent people on the board and the rest ... still had their own agenda".

Mthethwa said the board would not reverse its decision to quit but Allan Gray's insistence on appointing five directors indicated "that because you want to interfere with the processes of the board" but could not get your way "with the stripping of the assets" you then bring in new directors.

Should the unbundling proceed in the future, Allan Gray and others who support the move will require a 75% majority among shareholders to pass the resolution.

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