Much was said last week about how the long overdue collapsing of the Pick n Pay Holdings (Pikwik) pyramid control structure will benefit supermarket specialist Pick n Pay Stores’ shareholders.
I’m delighted the archaic pyramid structure is being dismantled, but considerably less enamoured of proposals to issue B-shares to Ackerman Investments to ensure the Ackerman family retains artificial outright control of Pick n Pay with an effective economic interest of just 26%. The argument, from Pick n Pay chairman Gareth Ackerman, is that over time the simpler structure should improve Pick n Pay Stores’ appeal to investors, which could, in turn, help the company’s long-term growth strategy.
Fair enough, but the way I see it — and I’m not a Pikwik or Pick n Pay shareholder — is that the way the pyramid is being dismantled could prejudice shareholders in the longer term. At the outset, the short-term benefits of the collapsing of the pyramid — involving its Pick n Pay shares being unbundled — is felt mainly by Pikwik shareholders and the Ackerman family. Recent share price movements tell that story clearly. At the time of writing, Pikwik, its traditional discount narrowed, was up around 10% over seven days, and Pick n Pay Stores down almost 7%.
The sticking point for me is the creation of unlisted B-shares. Those carry no economic value; the B-shares ensure the Ackerman family retains voting control over Pick n Pay Stores.
Some readers may ask: why is that such a big deal?
For one thing, one could argue that the Ackerman family’s artificial control of Pick n Pay nurtured too comfortable a corporate culture over the past decade, so much so that the company’s main retail rivals markedly outperformed it. With control of Pick n Pay Stores firmly in the hands of the Ackerman family, shareholders could not band together to demand change at leadership levels or in strategy.
Nor — and this is probably more important — could potential suitors approach the shareholder body to advance on the company with takeover intentions. Shareholders not only need to be in the same boat, they also need to be rowing with the same oars. It can’t be fair if, for instance, the majority of Pick n Pay Stores shareholders are in favour of another retail entity taking a strategic stake in the company but the family shareholder is opposed to a deal (one that might unlock value and accelerate growth).
Certainly, if I were a Pick n Pay shareholder my enthusiasm to extend the Ackerman family’s rule by artificial control would be somewhat muted, notwithstanding the efforts by new CEO Richard Brasher to turn the company around. I would have been far more excited for Pick n Pay if the Ackerman family had lined up with other Pikwik minorities to receive its quota of the unbundled Pick n Pay Stores shares. Holding an influential 26% stake, sans the undemocratic power bestowed by the B-shares, would still leave the Ackerman family as “king makers” at Pick n Pay Stores.
So far, Pick n Pay shareholders have not really kicked up a huge fuss about the B-share proposals. I suspect there might have been more dissenting voices around effectively extending the control structure if this had been proposed a few years ago, when Pick n Pay was really struggling against its feisty competitors. Timing is everything, I suppose.