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South Africans snigger about the way Australian businessmen bring their lawyers to business meetings. Or how there are so many lawyers in America they sue each other to stay occupied. There are obvious downsides to litigious societies. But it is also possible to lean too far in the opposite direction, as South Africa has done for too long.
The disaster that is JSE-listed earthworks business Protech Khutele provides a ready example. In Decemebr 2012, Eqstra made an unsolicted takeover offer at 60c a share. Protech’s management team, enthused by the newly appointed CEO Antony Page, commissioned PWC to compile an independent valuation.
After three months of deliberating, the audit firm came up with a number of at least 79c a share – or R285m in total. On the strength of this, the Protech board “strongly recommended” shareholders reject the offer. There’s no specific disclosure of what PWC was paid for its dubious insights, but deep into the accounts is a note about a “transaction related fee” of R6.2m plus R15.5m for “other professional fees”. So it looks like close to dammit as R20m was coughed up for that advice.
With Protech’s value now at best a fifth of what PWC’s experts said it was worth, might the firm do the honourable thing and refund those fees? Or might Eqstra, itself a substantial shareholder, lead the others and sue for damages? After all, had there not been such misguided advice, Protech shareholders would now be at least R150m better off. PWC recently paid R150m to settle a similar challenge from Randgold shareholders. Its insurers must be getting a little tired of this kind of thing.
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