Many small investors were attracted by the JSE listing of the AfroCentric Group. Created in 2006 and touted as the investment vehicle of successful businessmen Brian Joffe (Bidvest), Meyer Kahn (SABMiller) and Motty Sacks (Netcare), expectations were high. In the eight years since, the business has grown to a capitalisation of R2bn. But progress has stalled lately, with its share price down 7% in the past year. And as this letter from a Biznews.com community member shows, it’s not just the disappointing share performance making some in the AC family unhappy. Our correspondent is a shareholder in a business originally created by Netcare for Black partners. After Sacks left Netcare, AfroCentric subsequently acquired control of what is now called Afrocentric Health (ACH). Our correspondent is unhappy because dividends have dried up and a R100m bonus was paid to ACH directors – he suggests as payback for selling the business cheaply into Afrocentric. Here is his letter – and the response from the man under scrutiny, Afrocentric’s Sacks. – AH
Hi Alec,
Every so often something happens-that might be kosher-but it sticks in your gut. This is the case of AfroCentric. Around 2005, Netcare created a BEE vehicle. It was called Netpartners. It comprised an investment in Netcare as well as shares in Medscheme.
Due to regulatory issues, Netpartners was collapsed and BEE shareholders were given Netcare shares as well as Lethimvula shares [Medscheme] At the time Motty Sacks was the chairman of Netcare. AfroCentric had no decent investment at the time. You and David Shapiro often joked that apart from a dud investment in Jasco, they had only exchanged business cards with Rio Tinto.
Around 2008, Sacks was on his way out of Netcare and he made his move on Lethimvula. He offered part cash, part shares over three years with profit guarantees. The main reason to motivate the deal was that since Lethimvula was unlisted, it would allow shareholders to trade via AfroCentric. There wasn’t much consensus and the deal was pushed through.
Alec, as you probably know, the medical types are mentally challenged when it comes to financial knowledge. 94% acceptance was achieved. Apart from lack of debate, that’s fine. Up to 2010, Lethimvula shareholders used to collect a decent dividend. In the past three years Lethimvula shareholders have not been receiving a dividend. Yet the part AfroCentric controls have been paid off and is receiving dividends regularly.
My main grouses:
1. The deal was pushed. The 2013 results gloat that that the deal was done at a PE of 4. In comparison Discovery trades at a PE of 20 – This company could have been listed on its own at a premium.
2. We, the Lethimvula shareholders, used to receive an annual dividend. As soon as AfroCentric took over it received regular dividends, while we Lethimvula shareholders did not – since 2010. How can this be possible especially since Lethimvula – or Afrocentric Health as it is now known – is a cash cow that AfroCentric is using to pay its shareholders while we, the other Lethimvula shareholders are left high and dry.
3. Probably the most damning case of impropriety – in the 2013 results it states that 20 m shares will be issued to ACH [Letmimvula] directors. 20m shares @ R5 = R100m bonus for those directors that presumably gave Sacks the company on a platter.
4. How on earth are Meyer Kahn, Brian Joffe and Sacks going to enhance ACH empowerment credentials?
Afrocentric co-founder and former Netcare chairman Motty Sacks responds:
Insults aside, the writer is respectfully misinformed on the facts, the sequence of events and the initiating parties responsible for the transactions referred to. It seems to me that he just regrets making a poor investment decision in 2009.
The acquisition of Afrocentric Health (formerly Lethimvula) in 2009 was the result of an offer to all Lethimvula shareholders contained in a comprehensive Circular containing all of the terms, conditions and payment provisions. All Lethimvula shareholders had the same opportunity to accept or decline the offer and the consequences of not accepting the offer was also made clear. The transaction received overwhelming support and as a result Afrocentric owns 94.07% of the issued share capital in Lethimvula.
Since the initial transaction, Afrocentric has continued to accept Lethimvula shares presented to it and exchange them for shares in Afrocentic on the same basis as the original transaction. Many parties have taken advantage of this opportunity. In nearly every instance that a distribution was made by Afrocentric to its shareholders, the remaining Lethimvula shareholders have also received a distribution (fiscal 2012 was the exception and that decision was made by the board of Lethimvula).
Lethimvula shareholders will be receiving a dividend of 22.66 cents per Lethimvula share for the year ended 30 June 2013. The dividend is payable on 17th February 2014, simultaneously with the 15 cents per share dividend to Afrocentric shareholders.
Afrocentric is a level 2 BBBEE company, the shares being approximately 66% black owned and probably the highest black owned company listed on the JSE.
