Showdown for Ascendis

You don’t have to scratch too far into the history of Ascendis Health before getting the feeling you’re reading about the corporate equivalent of a banana republic. The sort of place that has semi-regular coups resulting in guerrillas swapping places with the government every year or so. Only, in the corporate world the guerrillas are called shareholder activists, and the government is the board.

Inevitably, changes of the guard are accompanied by earnest commitments about unlocking shareholder value; and almost inevitably, no such unlocking is achieved — the share has plummeted from R28 to 80c. It’s not that the group hasn’t been through a lot of action during its 10 years as a listed entity, either.

This health and wellness investment holding company, which markets and distributes a portfolio of brands, products and medical devices, looked like a promising investment opportunity when it listed at about R10 in early 2014. On the back of a spate of seemingly exciting international acquisitions, the share price came within spitting distance of R30 in September 2016. But then came the collapse as management battled to deal with the debt — largely foreign — that had been incurred to buy the assets.

It was the familiar story of South African executives desperate to cushion their company’s fortunes from the destructive actions of then president Jacob Zuma by building up an international asset base. 

And as with so many others, debt-laden Ascendis faced an existential crisis. In October 2018 the company’s co-founder and CEO Karsten Wellner, who had driven the acquisition strategy, stepped down and was replaced by Thomas Thomsen. He committed to undertake a review of the group’s portfolio to reduce its debt and unlock value for shareholders. In October 2019 Thomsen departed and Mark Sardi took over the portfolio-reviewing, value-unlocking strategy.

Within two years, Sardi had exchanged a large chunk of the group’s international assets for debt write-offs. During this process, shareholder Harry Smit emerged as something of an activist force. He created the Ascendis Activist Investors group and demanded transparency in restructuring talks that involved hundreds of millions of rands of Ascendis value, including eye-watering amounts of transaction costs.

Smit joined the board and at the December 2021 AGM was appointed chair.

In December 2021, Sardi was replaced by Andrew Marshall who lasted a full three weeks before being replaced by the group’s CFO Cheryl-Jane Kujenga at that year’s AGM. At this stage Wellner, and the company’s co-founder Gary Shayne of Cambridge Capital, returned to the board. It was also at about this stage that many analysts, irked by all the drama, stopped tracking Ascendis. “Clearly there are attractive assets there, many parties have expressed interest in them,” an analyst told the FM. “But there was too much drama; I stopped covering it two years ago.”

Then, in September 2022, Carl Neethling — an investor in Ascendis and a board member since May 2022 — was appointed acting CEO. As with Smit, Neethling was concerned about how the ongoing sale of assets was being handled.

However, whatever early agreement there may have been between Smit and Neethling evidently didn’t last. At the December 2022 AGM Smit was voted off the board, prompting claims by him that the board lacked independence and that “everyone is conflicted”. 

During 2023, the Ascendis executive team began to ramp up talk of a delisting from the JSE, something that had been whispered about for a few years. And yes, you’ve guessed it, the delisting was part of a strategy to unlock value for shareholders.

In September the board informed the market that it was entering into discussions with Neethling about a potential delisting. At that time, shares were trading at 69c and the company had a market cap of R436m. In November Neethling’s investment firm ACN Capital made a firm offer of 80c a share. Shareholders who wanted to, could remain invested in what would become a private company. However, regulations prevent collective investment schemes from being invested in unlisted entities.

In November Neethling’s investment firm ACN Capital made a firm offer of 80c a share. Shareholders who wanted to, could remain invested in what would become a private company

Within days Neethling told the media the delisting proposal had 60% support, which equated to about 90% of traditional votes at Ascendis AGMs.

As the delisting required approval by 75% of the votes of all shareholders present, the deal seemed to be in the bag. 

Or at least it did until late December, when Smit cried foul. The former chair claimed the 60% support included investors who should have been tagged as “related parties” and therefore not allowed to vote on the resolution.

Just days before the January 18 meeting at which shareholders were due to vote on the takeover offer, the Takeover Regulation Panel (TRP) stepped in. 

The process had to be halted and the circular to shareholders has to be rewritten, with upgraded disclosure of all of the concert parties involved. The underdisclosure is no small matter, given that it could have resulted in a company being taken off the JSE inappropriately. 

The underdisclosure is no small matter, given that it could have resulted in a company being taken off the JSE inappropriately

The Ascendis board promptly released a Sens announcement confirming the inaccurate details, which it said was a “bona fide error”. It is in the process of rewriting the circular. Once finalised and reissued, shareholders will have to be given at least 15 business days’ notice of the rescheduled meeting.

Andre Visser, director issuer regulation at the JSE, tells the FM Ascendis will be required to publish the salient dates on Sens, once the revised date has been determined. “The JSE is currently engaging with the relevant parties, the company and its sponsors to establish the facts and to assess compliance with the listings requirements.”

Neethling says he is waiting for confirmation from the TRP before releasing the supplementary circular. “Hopefully it will be soon,” he tells the FM.

But the real intrigue at this stage relates to allegations by Smit that Neethling’s consortium has tied up attractive deals to sell off businesses after the delisting. Smit has written to the JSE, the Financial Sector Conduct Authority and the TRP telling them he has proof that the 80c a share offer falls far short of the value discussed by Neethling in a presentation to insiders.

Neethling describes Smit’s accusations as “outlandish”. He tells the FM there is no basis to claims about proposals to sell any of the businesses to other parties. Smit promptly assured the FM he has proof to back all his accusations.

Whatever happens now, the rescheduled meeting is likely to be an appropriately dramatic one and might even result in unlocking some value for shareholders.