Ann Crotty Writer-at-large
HCI chairman Johnny Copelyn. Picture: ESA ALEXANDER
HCI chairman Johnny Copelyn. Picture: ESA ALEXANDER

HCI’s recently released 2017 integrated annual report contains a long letter to shareholders from chairman Johnny Copelyn in which he outlines the company’s impressive achievements over the past 20 years.

Sectors in which HCI has built up substantial businesses include mining, television and gaming. In the process of establishing these HCI has created substantial value for its shareholders, in particular for the SA Clothing and Textile Workers’ Union. The union was not only one of the initial funders of Copelyn’s business ambitions, it provided HCI with extremely valuable black economic empowerment credentials. Given this context, it’s no surprise that Copelyn takes the opportunity to remind shareholders there isn’t just a commercial side to the story: "HCI has tried to develop itself as an exemplary corporate citizen."

The four-page letter provides an interesting insight into the growth of one of the country’s most successful post-apartheid corporate stories. Anyone who knows Copelyn from his years as a master strategist within the fledgling trade union movement is unsurprised by the way he has mastered the intricacies of corporate restructurings and legal battles. They’re also unsurprised by his ability to win.

Perhaps next year’s annual report will provide an insight into the recent bizarre battle with the competition authorities over whether or not HCI was obliged to get approval for the proposed restructuring of the gaming assets held by two subsidiaries, Niveus and Tsogo Sun. The 2018 annual report may explain why HCI waited seven months before it decided to discuss the deal with the competition authorities.

In December 2016 Tsogo Sun and Niveus shareholders had been informed of plans to sell Niveus’s gaming operations to Tsogo Sun. At that stage no mention was made of the competition authorities. For reasons that are not entirely clear, in July 2017 HCI sought an advisory opinion from the commission on whether or not the deal had to be notified. Having waited seven long months HCI sought a speedy response from the commission.

When the commission said a few weeks later it believed the deal had to be notified, HCI immediately headed off to the competition tribunal in a bid to have this opinion overturned.

The tribunal was flummoxed. There was no precedent for appealing an opinion, as it is not binding on the parties. No transaction had been filed with the commission so the tribunal had no authority to make any ruling. HCI was equally unhappy about the tribunal’s response and its failure to give it the all clear, and rushed off to the competition appeal court in search of something more accommodating. Remarkably, it was able to secure a hearing date within a matter of days.

While a robust challenge to legislation often helps to improve it, HCI’s challenge was to the process, and if in any way successful could undo much of the progress made by the competition authorities over the past 20 years.

Over that period the business community has learnt, sometimes painfully, that there is no escaping the commission’s often lengthy and intrusive process.

HCI’s action opens up the possibility that there is a way of avoiding it. In an unprecedented postscript to its ruling the tribunal slammed HCI and suggested it was "involved in nothing but a cynical attempt to exclude the commission’s regulatory oversight".

By merely entertaining HCI’s application the competition appeal court may have set a precedent encouraging other companies to mimic HCI’s tactics. During the competition appeal court hearing, judge president Dennis Davis raised the possibility of opening the floodgates for parties wanting to sidestep the competition authorities. "It would mean that any time anyone wanted to do a transaction they will come to us first — we will be flooded," said Davis.

HCI’s legal team dismissed the concern, saying the transaction was so unusual it would not cause floodgates to be opened. As even modestly talented lawyers will tell you, there is no such thing as "unusual" with lawyers determined to make use of a favourable precedent.

It’s not just in competition law that HCI is making history. This trade union-backed investment company also looks intent on undermining the power of appraisal rights created in terms of the new Companies Act.

HCI’s abuse of former KWV minority shareholder Albie Cilliers shows little sign of the "exemplary corporate citizenship" it claims to be developing. It looks much more like the heavy-handed tactics used by corporate SA against trade unionists during the dark days of apartheid.

The casino at Gold Reef City.
The casino at Gold Reef City.

Legal scholars say the section 164 appraisal rights granted to dissenting shareholders were part of the new act’s bid to boost the rights of small shareholders. HCI’s determination to deprive Cilliers of these rights has resulted in this small investor being trapped in a legal no-man’s land.

A year after notifying HCI subsidiary KWV (subsequently renamed La Concorde) that he intended to exercise his appraisal rights Cilliers, whose resources are severely limited, is being dragged deeper and deeper into a legal quagmire by the hugely well-resourced legal team available to HCI. Not only has he not been paid out "fair value" for his shares but during this time he has been deprived of all his rights as a KWV shareholder. He has not received the 100c/share dividend paid out by the company earlier this year.

Section 164 of the act was designed so that minority shareholders who did not want to remain as a shareholder after implementation of a proposed transaction (in this case the sale of its liquor assets by KWV) could, with relative ease, exit with a "fair value" payment. No such luck for Cilliers. He isn’t even getting a chance to argue that his "fair value" estimate is much closer to R20/share than the R13.47 declared by the company.

HCI’s legal team is now arguing that section 164 does not apply when it is a subsidiary of a company (KWV SA) and not the company itself (KWV Holdings) that sells the asset. On this argument there would be almost no application of section 164. The argument even seems at odds with paragraph 8 of the circular sent to KWV shareholders outlining details of the transaction.

That paragraph describes what dissenting shareholders must do to exercise their appraisal rights.

And as for the R13.47 valuation, the "independent professional expert" that vouched for this was none other than KPMG. It received a R20,000 fee for an exercise that has been roundly trashed by Cilliers, who claims KPMG did not commit the necessary time or resources for an opinion that could be relied upon.

Not much sign of exemplary citizenship in all of this.

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