Tongaat analyst and whistleblower Dave Woollam has once again questioned the need for company’s highly dilutive capital raise. The main issue surrounds the underwriter, Magister, whose investments and past business dealings are largely unknown. Magister – which is tied to Zimbabweans, the Rudland family – will underwrite R2bn of the R4bn rights issue, meaning that in all likelihood they will take control of the business post rights issue. Existing shareholders will be expected to cough up to six or seven times the existing value of their shares to keep their pro rata shareholding in the company. If not, they face being diluted by more than 90%. A sad state of affairs for long-suffering shareholders. – Justin Rowe-Roberts
Dave Woollam on the reasons for opposing the EGM going ahead:
I certainly recognise that in our previous interviews we spoke about the deep trouble the company is in. There is no denying that but we feel there have been many opportunities to redress some of these issues, including recovering damages from those who failed in their duty, their duty of care or their professional responsibility. Also getting a better deal from the banks so they could have some time to fix the company as well as several other options that were offered and explored. They have kind of taken this very dramatic step of a big capital raise, raising five or six times the existing market cap of the company and bringing in an unknown outsider, a Zimbabwean company, which we know very little about. We know something about the principles behind the company that is effectively going to take control at what will be a very depressed rights issue price. They haven’t mentioned the exact price but I expect it will be around R2.75 to R3. That is my guess but we’ll see in time. That would mean existing shareholders get diluted by another 90%. Bear in mind, they have already lost 95% of what they had and that is a tragedy for long-suffering shareholders who stayed with the company through the last few years of turmoil.
On whether Tongaat’s right of reply to Woollam’s concerns swayed his opinion about the need for large capital raise:
No. I accept fully that the company must take action to ensure its survival. But I think it is also important that all stakeholders are treated in a balanced and fair way in that process. I asked a question several times and asked again in the meeting today: who exactly is Magister? What are they? What investments do they hold? I managed to establish only that it had a small investment in a company called Agri Terror, but I might be wrong. I asked them whether they had done due diligence on the balance sheets of this company. Do they know what investments they are in and where the source of their funding comes from? I did not get an answer to that and it doesn’t seem like an unreasonable question. If there was a large company about to take over an SA-listed corporation, I don’t think it would be unreasonable to expect the company taking over the organisation would show its credentials in more than a very disguised and oblique way.
On what happened today at Tongaat’s EGM:
Well, I think as all meetings go, it was a cordial affair and the chairman [kept control of] the process. It was an electronic meeting so it always makes it a bit more difficult. I wouldn’t, in any way, suggest Tongaat did anything untoward. They followed due process. They introduced all the resolutions. They gave quite a long introduction about why they’re doing this. And then there was a discussion. I think the discussion from various shareholders centred on three or four key areas. The one was the question about Deloitte. Why did they keep Deloitte on for so long? They said they couldn’t sue Deloitte because there would be a conflict of interest and I kind of went: well, it doesn’t really make sense. Then it was about Magister, the issues around the prospects of this company. We raise R2bn or R3bn of capital and we dilute shareholders by 90%. But is there sufficient cash flow in the business – after you pay all this money to the creditors – to run the business and fix the problems? Because we know there had been some serious operational issues owing to a lack of maintenance and expenditure in the mills. Those are the main issues.
Read also:
- Right of Reply: Tongaat tackles Woollam, explains why rights issue is critical and urgent
- Tongaat whistleblower Dave Woollam calls for EGM postponement – must read for all shareholders
- The rise and fall of Tongaat Hulett – analyst and whistle-blower David Woollam
- Tongaat slaps former execs with R450m in civil claims
- Chris Logan: Tongaat’s turnaround tale turns sour
