Marc Hasenfuss Editor-at-large
Picture: ISTOCK
Picture: ISTOCK

The frustration in exercising appraisal rights for minority shareholders has been highlighted in the proposed delisting of boutique hotel group Gooderson Leisure from the JSE.

Last year Gooderson managed to buy out minorities with an 85c/share offer — but feisty small shareholder Albie Cilliers refused to capitulate and opted to exercise his appraisal rights.

Technically speaking, section 164 of the Companies Act gives minority shareholders an option in the form of an appraisal right to force the company to buy back shares at a fair value — even if most shareholders have approved a transaction like an empowerment deal, a takeover or a management buyout.

Cilliers is already involved in another appraisal rights battle with Niveus and its former subsidiary, KWV Holdings, following a takeover transaction involving Viv Imerman’s Vasari.

His exercising of his appraisal rights is premised on Gooderson paying him out value for his 460,000 shares.

In a circular detailing the minority offer scheme, Gooderson’s fair value is estimated at 130c/share.

This value was determined by an independent expert, who also deemed the 85c/share offer not fair (net asset value, or NAV, was set at 158c/share) but reasonable (as it represented a premium to the share price prior to the buyout offer being announced).

Valuation matters are further clouded by a recently published book on the company, by chairman Alan Gooderson, that boasted that the company’s NAV was R200m — or 165c/share.

To date Cilliers has been frustrated in his efforts to secure fair value for his shares.

A letter last week from Gooderson company secretary Rajen Nannoolal advised that Cilliers’ nominee company would receive the scheme offer of 85c/share. The correspondence concludes with the contention that there is “no basis or necessity for the company to make
an offer”.

Picture: ISTOCK
Picture: ISTOCK

Section 164 states that on the day a company receives an appraisal rights demand it must send to that shareholder “a written offer to pay an amount considered by the company’s directors to be the fair value of the relevant shares ... accompanied by a statement showing how that value was determined”.

Naturally Cilliers may be viewed as opportunistic in some quarters, especially now that other Gooderson shareholders — including deep-value specialist RECM & Calibre — have accepted the buyout offer.

But it’s worth noting that this is Gooderson’s second delisting from the JSE.

The company first listed in 1968, then delisted in 1972. When it listed again in 2006, the listing price of 85c/share was a 50% premium to the stated NAV of 56c/share.

The scoreboard will show the Gooderson NAV has increased about threefold since listing on the JSE, but the Gooderson family is buying out minorities for the same price the business was listed at 10 years ago.

Picture: ISTOCK
Picture: ISTOCK

This is fodder for jaundiced market watchers; list at a substantial premium, delist at a big discount.

Cilliers intends going the legal route to secure a fair-value-appraisal right price.

“It is a concern when a small shareholder has to incur large legal costs to fight a battle with a company. Most people would not do this — but I am confident I can secure a higher exit price through exercising my appraisal rights,” he says.

Cilliers contends that, though it is a steep learning curve (it will cost more than R100,000 just to file papers), the effort will be worthwhile in tackling other corporate actions where appraisal rights are triggered.

The appraisal rights clause was written for a specific purpose — to protect minority shareholders’ interests.

“There is a good intention behind appraisal rights — like acting as a check against opportunistic management. But companies seem to be able to put up too many hurdles. I intend going to court, otherwise companies will get away with it all the time,” says Cilliers.

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