Group Five says Allan Gray wants breakup, return of ex-CEO Mike Upton

By Aarti Bhana

(Bloomberg) – Group Five said its largest shareholder, Allan Gray, has nominated former Chief Executive Officer Mike Upton to the board as a non-executive director and has proposed that the South African construction and engineering company be broken up.

MIKE UPTON - Group Five
Mike Upton

Upton’s return would be “inappropriate” as he led the company “at a time when historical industry behaviour was severely criticised,’’ Johannesburg-based Group Five said in a letter to shareholders seen by Bloomberg. The board also disagrees with Allan Gray’s breakup plan and has the support of other investors, the company said.

Upton is one of five new non-executive directors proposed by Allan Gray as part of the Cape Town-based investor’s attempt to force Group Five to change strategy. Shareholders will vote on the appointments at a July 24 meeting, replacing five board members slated to resign. Upton led Group Five for almost eight years through 2014, a period that coincided with the fining of several South African construction companies for collusion over contracts to build stadiums for the 2010 soccer World Cup.

“It is odd that the board does not favor the appointment of Mike Upton – we think few non-executives could add as much value to the group,” Andrew Lapping, chief investment officer of Allan Gray, said in emailed comments. “Mike led the group through the early and intense internal investigation into historic industry behaviors, the results of which were used by the Competition Commission in designing their industry-wide investigation and amnesty program.”

Stock Halved

Group Five shares declined 0.5 percent to 18.74 rand at the close in Johannesburg on Friday, extending the year’s drop to 24 percent. The stock has more than halved in the past three years as sluggish economic growth in South Africa led to a slowdown in infrastructure and construction projects. The company announced the departure of CEO Eric Vemer on Feb. 22, to be replaced on a temporary basis by Themba Mosai, and later said it would reorganize its businesses, leading to job cuts.

It’s “natural” for the board to oppose the recommendations made by Allan Gray, Avior Capital Markets analyst Roelof Brand said by phone, adding that the intervention may nevertheless be what’s needed to address Group Five’s under-performance.

As an alternative to Allan Gray’s five nominations, Group Five has proposed a further four non-executive directors for shareholders to vote on. Two were nominated by the Public Investment Corp., Africa’s biggest money manager, and two by Johannesburg-based Mazi Capital.

“Allan Gray does not have an agenda with regards to Group Five’s strategy, we want an independent board with the relevant skills that will protect and grow value for all stakeholders,” Lapping said.

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