Group Five on shaky ground after board scuffle
Uncertainty ahead as construction company and Allan Gray go head to head over strategy, board composition
Group Five continues to keep the market guessing about its future ahead of an extraordinary general meeting on July 24 to replace five nonexecutive board directors, who have resigned from that date.
The drama comes as Group Five is looking to sell at least 40% of its domestic assets to empowerment partners in line with a “voluntary” settlement agreement with government over transformation.
Amid a recent spate of director resignations, Group Five executive committee member and head of developments Themba Mosai was confirmed as CEO. This came after the company in February said — without explanation — that CEO Eric Vemer would leave the group in a matter of weeks.
Since then, there have been reports that certain current or former board members have been pursuing their own agendas, while dismissing shareholder concerns.
In this regard, the current crop of departing directors say they do not agree with Allan Gray’s view over the future of the company, which “involves unbundling significant portions of the group”.
But Allan Gray, which holds 25% of Group Five on behalf of clients, and has called for a reconstituted board, contradicts this statement. Chief investment officer Andrew Lapping says the company “noted in a letter to the board a few months ago that if Group Five sold any assets the proceeds should be distributed to shareholders”.
“We have lost faith in Group Five’s current board to act in the best interests of all stakeholders, given [its] unsatisfactory response following the large number of resignations by key individuals in recent months. [It has] been unable to regain our trust following numerous meetings and engagements,” Lapping says.
“Our motivation is not related to Group Five’s strategy, involving the unbundling of assets, or otherwise. We simply want a board that is independent, with the relevant skills that will protect and grow value for all stakeholders.”
Departing Group Five chair Philisiwe Mthethwa says all shareholders, including minorities, should have their say in the selection of a new board. This should have a “fundamental and strategic commitment to transformation” and execute the company’s strategy to “deliver across the full infrastructure cycle”.
She says Group Five has an “excellent portfolio of assets” and there needs to be a proper strategic assessment before turning these into standalone entities.
“Give us a bit of time,” she says. “We don’t take too kindly to one major shareholder’s instructions.”
Lapping says Allan Gray’s five suggested board replacements, if elected, will result in a more transformed board that has industry experience, continuity and institutional memory, as well as sensitivity to historical industry behaviour.
The fund manager has named Reitumetse Huntley, Nazeem Martin, Nonyameko Mandindi, John Job and former Group Five CEO Mike Upton as replacement nonexecutives.
Insiders at Group Five say Vemer did not resign — he was pushed.
This came after an offer had apparently been presented to the board for a private equity company to buy part of the company. But shareholders were not told of this.
Meanwhile, the private equity concern remains an unknown entity.
The insiders also say certain Group Five directors saw a gap for themselves to buy the company and sell the valuable European tolling and concessions business — which operates in Poland, Hungary and Ireland — for a healthy profit. This division brought in the bulk of profits for Group Five in the year to June 2016.
“At the moment we do not have any ... information on which private equity firm is vying to purchase part of Group Five,” says Momentum SP Reid analyst Dexter Mahachi.
He says the recent sale by Group Five of 49.99% of the European project investment portfolio for about R620m to UK-based Aberdeen Infrastructure Funds “appears to have been part of a strategy” to co-invest in future toll and concessions projects.
Meanwhile, Group Five says it has “serious concerns” with the individuals put forward by Allan Gray as replacement nonexecutive directors and their nomination as a group. It says their nomination does not adequately take account of transformation or past collusive behaviour.
“[We] believe that it is not in the best interests of the company and its stakeholders that [it] accept Michael Upton, a former CEO, as a nonexecutive director,” the company says in a recent statement.
But Lapping says Allan Gray believes Upton meets the stipulated board criteria: “[Upton] was recognised for proactively initiating the investigation into industry collusion. Under his tenure, Group Five was rewarded for this proactive action with the granting of amnesty and did not have to pay any punitive fines. The existing board [members] supported Upton when they were nonexecutives during his tenure.”