Presumably PSG Group CEO Piet Mouton will write another long letter to JSE CEO Leila Fourie once the PSG restructuring is completed as planned. And this time, instead of complaining about the regulations on listed companies, perhaps he’d thank the JSE for the chance it provided a comparative handful of PSG associates to make something of a killing.
What killing, you ask. Well, first up, as my colleague Marc Hasenfuss noted a few weeks ago, there’s the estimated R2.7bn of value left on the table for the founding Mouton family, friends and senior executives to unlock in future years. That’s in “future years” when PSG won’t have any pesky shareholders they’ll have to share it with.
The restructuring offer — hardly really an “offer”, more a take-it-or-leave threat — will see PSG unbundle its listed investments direct to PSG shareholders. That’s the straightforward part. It’s the second leg that is causing a bit of dissension among investors, who reckon the R23 a share cash payment for the leftover rump of the investments is way short of reasonable value.
The PSG board has indicated there’s no scope for debate on the R23 cash payment and if the shareholders don’t give the necessary approval, the deal’s off. That would mean PSG remains listed and will probably continue trading at a discount of about 40% to the sum of its parts.
But it’s not only the ordinary shareholders who might take a bit of a hit. Indeed, abandoning the deal might be more costly for the “insiders” than for the ordinary shareholders. It would mean that not only do the Mouton family, friends and senior executives walk away from the estimated R2.7bn but Piet Mouton, Johan Holtzhausen and Wynand Greeff will also each be giving up a generous R30m retrenchment payment. In addition, they will lose the opportunity for the early exercise of any awarded but unexercised share options they have. And then there’s the “service contract” black box about which there is no public information.
The PSG board justifies the R30m payment to the three executives on the grounds that the deal will mean their “executive involvement” will no longer be required. Section 14.4 of the recently released shareholder circular explains: “The PSG remuneration committee accordingly resolved that an aggregate of R90m be paid to the executive directors in respect of retrenchment packages.” The payment was approved by the board, “with the recusal of the three directors in circumstances where they accepted this arrangement”, according to the circular.
In unusual circumstances such as this, ordinary shareholders might have preferred to see a more persuasively independent board. The five independent nonexecutive directors include Chris Otto, who’s been on the board since 1995; Patrick Burton, who’s been a director since 2001; and KK Combi, a director since 2008. However much they claim to be independent, these long tenures are not a good look in terms of corporate governance.
Mouton does not agree that the R30m should be described as “generous”, noting that each of the three executives has dedicated his life to the success of the PSG Group over the past 20 years. He also disputes the contention that the executives have been generously paid over this period. “Our salaries have generally lagged that of comparably sized companies in the financial services sector,” Mouton tells the FM.
However, one analyst has calculated that the three enjoyed double-digit increases in the compound annual growth rate (CAGR) of their base salary between 2011 and 2022. Greeff’s and Holtzhausen’s CAGR was 18.29% and Mouton’s 19.87%. Indeed, since the three executives took up their top positions in 2010, they’ve accumulated combined remuneration of more than R500m.
The executives created a big discount and now want to be rewarded for closing it, through no effort of their own
— Asief Mohamed
This certainly looks generous in the context of even PSG’s own analysis of its performance, as disclosed in its latest annual report.
“PSG Group’s compound annual growth rate of its TRI [total return index] as at February 28 2022 was 9.1% over the past five years, compared to the JSE’s all share index’s 12.1%,” states the annual report. TRI tracks share price increase and total dividends received. So, these guys are hardly shooting the lights out.
But Mouton remains adamant about the “reasonableness” of the R90m retrenchment award. “The total value unlocked from the Capitec unbundling alone has been more than R20bn, so the R90m is less than 0.5% of the upside that the shareholders have received in recent years,” he tells the FM, adding that the three executives could easily sit back, let the status quo remain and each year pocket their annual salaries and share options.
One fund manager, who did not want to be named, said the PSG executives have lived off the spectacular success of Capitec for decades. No doubt it was a brilliant investment, he says, “but for much of the past 15 years their genius was in not selling Capitec; that hardly justifies this sort of reward”.
For Asief Mohamed, chief investment officer at Aeon Investment Management, it’s uncomfortably close to the Prosus/Naspers situation. “The executives created a big discount and now want to be rewarded for closing it, through no effort of their own.”
So perhaps there is some room to negotiate the R23.
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