The two stunning retailer-related events of the 21st century — so far — have been the decision by Bain Capital to take Edcon private and Walmart’s acquisition of just over 50% of Massmart.
In early 2007 Bain announced the largest-to-date private equity deal in a R25bn heavily-geared transaction that pretty much marked the beginning of the end of a spectacular growth period for the decades-old Edcon. Since then Edcon has been in almost consistent decline and more recently on the edge of business rescue.
In 2012, after a prolonged battle with the competition authorities, Walmart eventually got its hands on 51% of Massmart, paying R148 a share for the stake.
It isn’t just the benefit of hindsight that makes these deals look ill-considered. Back in 2007 many analysts were concerned about the steep price at which Bain was buying out shareholders and the hefty amounts of debt that were being piled onto the Edcon operations.
As for Massmart, the R148 looked like a gift at the time — it still does. The share price has moved above that level on a few occasions since but for much of the past year has hovered below R100. Perhaps if Walmart hadn’t been blocked from taking 100% by the competition authorities it might have been able to impose its own disciplines and management style on Massmart. Although it has to be said Walmart hasn’t got an impressive record outside the US.
It’s difficult to excuse Massmart’s poor performance on tough local conditions given that the other major retailers have managed to generate very attractive returns. One analyst reckons Massmart’s return on invested capital has been dropping almost steadily since 2011 as trading margins have been squeezed on a significantly growing asset base.
In this modern age it’s a complete mystery why companies don’t provide all shareholders electronic or telephonic access to their annual general meetings (AGM), if not for voting then for the chance to engage the board.
For companies with listings in different countries the mystery is tougher to explain.
To expect shareholders in those various jurisdictions to travel to a central point to be able to ask questions and engage with the board’s chair and directors on a public platform is nonsensical in an age where digital communication is nearly ubiquitous.
A small company, Orion Minerals, for example, has offered its shareholders to dial in to proceedings at its AGM in Perth in June. While those shareholders will not be able to vote they will be able to participate in a meeting that hitherto would be handled by a proxy.
Yes, some AGMs are bland, box-ticking affairs and concluded within 10 minutes, attended by the smallest number of investors.
But others are far more fiery, with the board challenged on executive remuneration, a source of growing unhappiness among investors, share issues along with environmental and community concerns.
These meetings can drag on for hours, as recently witnessed with Anglo American’s AGM in London that the company’s South African investor base could only access through Twitter and Facebook commentaries from activists grilling the resources company.
For the sake of corporate transparency and accessibility companies must give as wide a range of shareholders as is possible the opportunity to participate in these annual meetings.
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