Vodacom payout ‘will hurt black investors’

The special purpose vehicle that holds Vodacom's broad-based BEE shares has argued that if Please Call Me inventor Nkosana Makate is paid out billions of rands, in line with a Supreme Court of Appeal (SCA) judgment, black shareholders will be negatively affected.

YeboYethu, which was created in 2008 as the main black empowerment scheme for Vodacom, has 80,000 indirect shareholders who are paid regular dividends. It has filed court papers to be accepted amicus curiae (friend of the court) in the protracted legal fight between the cellphone giant and Makate.

The legal dispute over Makate's compensation is headed for the Constitutional Court, which will hear Vodacom's application for leave to appeal a February ruling that favoured the inventor. Vodacom has estimated that the ruling could cost the company R63bn. 

Thabo Mokgatlha, chair of YeboYethu, says in the founding affidavit that should the decision of the SCA stand, 80,000 black indirect shareholders of Vodacom may not be paid any dividends.

“More dire, however, is that such payment would trigger events for purposes of the preference share arrangements and would commence the demise of YeboYethu and YeboYethu Investment Company,” Mokgatlha says.

The SCA set aside a R47m offer that Vodacom CEO Shameel Joosub made to Makate five years ago, which Makate rejected. Instead, the court ordered Vodacom to pay Makate between 5% and 7.5% of the total voice revenue generated by the Please Call Me service over 18 years from March 2001, plus interest.

Mokgatlha says in the affidavit that if the SCA judgment is upheld, it would lead to “disastrous consequences” for YeboYethu and its shareholders.

He says YeboYethu has an interest in the matter and even though it is not a legal interest, they are making submissions as friends of the court to help it understand the “significant impact of the SCA decision”.

“YeboYethu and YeboYethu Investment Company have a meaningful, new and distinct contribution to make to this honourable court in the application for leave and, if granted, any appeal.”

YeboYethu, through YeboYethu Investments, holds a 5.51% shareholding in the Vodacom Group, valued at about R11.3bn.

Mokgatlha says they only realised the “adverse impact of the SCA judgment” on YeboYethu's business in June after a meeting between him, YeboYethu board member Busi Silwanyana and Vodacom CFO Raisibe Morathi to discuss the SCA judgment.

“YeboYethu and YeboYethu Investment Company will be materially prejudiced if this application is not considered, given the material impact of a decision in this matter, without hearing their submission.”

Their involvement would provide “valuable and different insights into the impact the majority SCA judgment will have on the South African shareholders and the BBBEE scheme and contribute to a just and expeditious outcome,” he argues.

YeboYethu seeks to be admitted as amicus curiae, file written submissions in the leave to appeal, and if Vodacom is granted leave to appeal, be allowed to submit an affidavit or introduce additional evidence.

The empowerment scheme also seeks to file written arguments in the appeal and make oral submissions if the Constitutional Court gives it a hearing. 

YeboYethu's application comes after British multinational Vodafone — Vodacom's majority shareholder — suffered a setback two weeks ago when the Constitutional Court found that “no case had been made” for the parent company to be admitted as a friend of the court.

Makate, who is also opposed to YeboYethu's move to be admitted, described the latest attempt as “surprising” as the dispute has been raging for more than 15 years.

“We are surprised by YeboYethu, especially because it comes after the failed attempt by Vodafone. In their own papers [YeboYethu admitted] they were late.”

We are surprised by YeboYethu, especially because it comes after the failed attempt by Vodafone. In their own papers [YeboYethu admitted] they were late

—  Please Call Me inventor Nkosana Makate

Makate said it was strange that YeboYethu admitted it had no legal basis or interest in the matter but still wanted to be admitted as friend of the court.

“The financial impact of the Call Me liability was known to the Vodacom management and shareholders since 2015 before and after the judgment of the Constitutional Court. It is rather surprising that an application of this nature was not brought then,” he said. 

As a shareholder, YeboYethu should have been informed of the Vodacom liability quantification process, he added. 

“Vodacom management quantified and processed invoices through their accounting systems. The 2016/2017 interim financial statements of the Vodacom Group already stated that the PCM liability will significantly impact on cash flows and profits of the group,” Makate said.

“Yebo Yethu are shareholders like Vodafone [and] can’t be an independent amicus. They are also late and it does not make sense to apply now when the case has been in our courts for more than 15 years. How could they have missed facts on this case when they are located at Vodacom head office?”

Shareholders of YeboYethu include Royal Bofokeng Holdings Proprietary with 29%, while members of the public hold 38%. Another 22% is held by the Vodacom Siyanda Employee Trust, whose beneficiaries are the company's employees.

Mokgatlha told Business Times that they are applying to intervene to offer the proceedings “a unique perspective of the black South African shareholders”.

Asked about the timing of the application, he said they had been under the impression that Makate would be paid around R47m but had since learnt it could be more than R29bn.

He said YeboYethu was not seeking to frustrate the legal process.

“Rather, YeboYethu seeks to assist the court by bringing to its attention the material interests of the BBBEE shareholders and the impact that the SCA decision, in its current form, will have on them.”

Vodacom and Joosub, another party in the proceedings, did not object to YeboYethu's application and both provided consent on September 10 and 13 respectively, according to court papers. 

In a letter dated September 16, Makate, through his lawyers Stemela and Lubbe, said he did not consent to the request by YeboYethu to intervene in the matter and that “any application lodged will be opposed”.

Mokgathla said YeboYethu had so far paid out dividends of between R37m and R56m over the past five years to its shareholders. 

In February, Vodacom approached the Constitutional Court to quash a ruling by the SCA that it should make a new compensation offer to Makate for his idea. 

The court ordered Vodacom to make a fresh determination within 30 days to compensate Makate for his invention, and also set aside the R47m offered to him.

Vodafone and Vodacom say the impact of the SCA ruling would translate to a payout of possibly up to R63bn — which Makate denies, saying it's an exaggeration. He estimates that his compensation, guided by the SCA ruling, would mean he is due around R9.6bn.

The dispute has now made a round trip back to the Constitutional Court, which in April 2016 ruled that Vodacom was bound to an agreement that Makate had with the company’s then director of product development Phillip Geissler.

The court ordered Vodacom to begin negotiations with Makate for a reasonable payout. Makate had initially demanded 15% of the Please Call Me proceeds.