Potential buyers of SAA might want to study the Acsa case before taking the plunge. From Moneyweb.
As South Africa tries to drum up foreign investor interest in South African Airways (SAA), potential buyers would be well advised to study the case of the “oppressed minority” shareholders in Airports Company of SA (Acsa), which manages the country’s nine largest airports.
That’s according to Alun Frost, who is advising minority shareholders who were enticed into buying 4.2% of Acsa two decades ago on the promise that the company would be privatised and listed.
That never happened, and the minorities want out. Three years ago it seemed both sides had come to an agreement, which was made an order of court, with the only question remaining: at what price?
SAA, now in business rescue, is flogging off its surplus fleet and looking for equity investors to refloat the airline. “My advice to anyone considering buying SAA is to take a close look at the case we have been fighting against the government to be bought out at a fair market price,” says Frost.
Broken promise, compromise, backtracking
“We were originally promised a listing for Acsa, which never happened. Government took the minorities’ money and left us to hang, fighting us every inch of the way when all we wanted was fair market value for our shares,” adds Frost.
“This does not look good for any promises made by the government to outside shareholders or foreign investors going forward.”
After much to and fro in court, it was decided to appoint an independent valuer to come up with a price. Both sides agreed on RisCura as the independent valuer, and it came up with a price of R78 a share, equivalent to R1.6 billion if 4.2% of minorities chose to sell.
The deal was made with government’s consent, with Acsa agreeing to buy back the minorities’ shares. This was then made an order of court.
Once RisCura had finalised the valuation, Acsa’s major shareholder (government) leapt into the fray, arguing that the proposed share buyback would violate the Public Finance Management Act (PFMA) and devastate Acsa’s finances.
Government asked the Johannesburg High Court to rescind the court ordered agreement, and last month got its wish when Judge Seena Yacoob granted the rescission application on technical grounds.
The minorities are now appealing that decision. Final resolution of the case is still probably some years off, with any decision likely to be appealed to the higher courts by the loser. It has already been five years since the case was first launched.
Minorities – all of them empowerment shareholders funded by pension funds – have pointed out that the share buyback agreement does not violate the PFMA, which only applies to transactions involving “significant” shareholdings. This means National Treasury does not have to be notified, nor does the finance minister have any legal interest in the case. Judge Yacoob disagreed, and ordered that the minister be joined to the proceedings.
The government also claimed this agreement bound it to a future financial commitment, which minorities say is untrue as Acsa is self-financing.
“Given the quantum of funds involved, government probably feels it is worth it to spend up to R50 million on legal fees to fight this case and deny minorities fair redress,” says Frost. “This doesn’t look good for anyone investing in SA on the promise of privatisation, now or in the future. The government can change its mind at any time and try to litigate its way out of broken promises.”
The RisCura valuation included compensation for “oppressive conduct” as defined under the Companies Act. This is where one or a group of controlling shareholders acts in a way that oppresses minority shareholders.
The oppressive conduct claimed by the minorities included the commercially irrational decision by Acsa to build the new King Shaka International Airport (KSIA) in Durban under pressure from government, with the project costs more than doubling to almost R10 billion. KSIA only made a R10 million profit in 2019 while operating at 80% capacity.
This was followed by another “irrational” decision by the dysfunctional regulatory system to drop airport tariffs. Frost says this was inconsistent with Acsa’s objective to earn a commercial return in each financial year.
Acsa to slash capex budget by 95% (Jun 2020)
Acsa originally offered to buy back minority shares at R12.87 per share, which was less than half of what they were worth on an audited net asset value basis. On this basis, minorities argued that Acsa’s balance sheet was materially overstated and should be impaired by about R6 billion.
The lesson to be learned in all this for potential SAA buyers: caveat emptor.
Source: Acsa 2019 annual report