Disgruntled empowerment partners are planning to have one of South Africa’s largest fishing groups investigated after the company announced it would discontinue a R1.2bn empowerment deal that smoothed the way for it to secure fishing rights.
Mast Fishing Investment Holdings and Ntshona Investments, which have been I&J's empowerment partners since 2004, received a letter on June 13 stating AVI’s intention not to extend a broad-based BEE transaction with them when the deal expired on July 1.
I&J, which sells frozen food brands including Light & Crispy Hake Fillets and Golden Smackaroo Hake Bites, is owned by JSE-listed AVI and has entered into a new empowerment deal with the consortium Twincitiesworld.
But the former empowerment partners, led by Mkhuseli Jack, an anti-apartheid activist and head of Mast Fishing Investments, are challenging the decision on the basis that I&J secured fishing rights with their involvement. F
The unwinding of the deal will result in the empowerment partners receiving R23,149, according to Jack. But in a letter sent to AVI's lawyers, Webber Wentzel, by his legal representatives, Gawula Inc, Jack and his empowerment partners said they were due R239m, had AVI exercised a call option to unwind the deal, based on the company's market cap.
A put-or-call arrangement allows an entity to buy back or sell shares at a specific price by a predetermined date.
Gawula also informed Webber Wentzel in a letter on Thursday that Jack plans to notify the minister of forestry, fisheries & environmental affairs, Barbara Creecy, and call for a section 28 investigation, which could see the fishing license revoked if the probe finds against AVI.
AVI entered into the empowerment deal with Mast Fishing and Ntshona Investments, headed by William Bedford, in 2004, through a consortium called Main Street 198. Bedford and Jack joined the I&J board in 2004 and 2005 respectively.
AVI said in a shareholder notice that its B-BBEE transaction alongside I&J with Main Street 198 matured on July 1 and it had since concluded a new transaction with Twincitiesworld, a 100% black-owned company, which would see the entity acquire 18.75% of the issued share capital in I&J.
“I&J's employees own 6.25% of the company and together with the Twincitiesworld shareholding of 18.75%, 25% of the issued share capital of I&J is now held by previously disadvantaged shareholders,” the notice said.
The company said the new transaction “provides a broad-based sharing of the value created by the company and will be registered with the B-BBEE Commission, along with a notification to the department of forestry, fisheries & environment".
Your letter fails to acknowledge that the fishing quotas are allocated by the authorities as future fishing rights based on the B-BBEE participation at the date of granting the fishing rights until termination at some future date several years in advance
“Twincitiesworld has historical links to I&J. It has strong community ties and is committed to the long-term social upliftment of those communities, and it will make an active contribution to the business,” the notice said.
Twincitiesworld is chaired by Brian Figaji, former director of the Youth Development Trust.
In a letter to AVI’s CFO, Justin O’Meara, which Business Times has seen, Jack and Bedford said the company was “disappointed” to receive AVI’s termination letter.
“Your letter fails to acknowledge that the fishing quotas are allocated by the authorities as future fishing rights based on the B-BBEE participation at the date of granting the fishing rights until termination at some future date several years in advance,” they wrote.
The letter warned that the decision not to extend the B-BBEE transaction would signal to regulators and the public that the private sector did not take transformation seriously.
“B-BBEE participation will not be favourably looked upon by the authorities if the B-BBEE participation of one group is used to obtain fishing quotas, only to abandon such group immediately thereafter for another B-BBEE group to possibly bolster one's business in a financial manner.”
They warned that the public may interpret this as a "perversion" of the B-BBEE legislation, resulting in negative perceptions of the I&J and AVI brands.
The aggrieved parties said participants in the B-BBEE transaction could potentially be seen as having been used as a business commodity, rather than as having been part of promoting redistribution that benefited the previously disadvantaged.
In an e-mail responding to queries from Business Times, AVI said: “AVI and I&J are fully committed to transformation in South Africa and are in the process of finalising a new B-BBEE transaction which will secure its ongoing fishing rights through a 25% black empowerment participation in I&J, with I&J staff owning 6.25%.”
The company said that after several extensions, the now terminated B-BBEE transaction matured on July 1, having generated more than R202m in net cash to Main Street, and AVI would now enter a new agreement with Twincitiesworld, which will own 18.75% of issued share capital in I&J.
Gawula Inc said AVI incorrectly applied the formula for calculation of the market value of the shares by deducting excess dividends that had not been paid within the applicable period.
Webber Wentzel partner, Safiyya Patel, in a letter to Jack and Bedford's lawyer, said: “Our instructions are that our client exercised its call option over the shares held by your client in I&J strictly in accordance with the provisions of the I&J shareholders agreement, as it was entitled to.”
The fishing rights in question emanated from the allocation process , which exists to “promote equitable access to and involvement in all aspects of the fishing industry”.
In an e-mail exchange with Jack, which Business Times has seen, O’Meara said the redemption of the preference shares, the exercise of the call option in respect of the I&J shares, and the resignation of Jack and Bedford as directors of I&J Holdings were all within the terms of the I&J shareholders agreement.
“I&J will remain empowered through its existing staff scheme as well as the proposed new B-BBEE transaction and we are confident that both of these will deliver significant value to BEE in line with our continuing commitments to achieving a broad-based sharing of value creation,” O'Meara said.
He said he would look to address Jack and Bedford on the redemption of preference shares and the removal of the Main Street directors from the arrangement.
Jack and Bedford served as nonexecutive directors on the I&J board. The two were involved in critical business decisions such as investing, divesting, and strategic planning, according to an I&J empowerment memo.
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