Cape Town - Empowerment group Hosken Consolidated Investments [JSE:HCI] (HCI) has put a profitable end to an unhappy relationship with dairy group Clover.
On Monday Clover proposed re-purchasing all the ordinary shares held in the company by HCI in a R337m transaction. Not only will HCI get a windfall from the shares sale (affected at over 1 000c/share) but as a holder of 38 million preference shares, the empowerment company will also receive a special dividend of 410 cents per share (totalling R156m).
The special dividend precedes a change to the preference share structure, which effectively precludes these classes of shares enjoying a share of Clover's profits.
HCI held a 34.99% stake (or 31 million ordinary shares) in Clover - an investment market watchers believed could form a mustering point for the empowerment group's further participation in the food sector.
But HCI - as reported in Finweek in June 2009 - was not a happy camper at Clover, and had suggested the BEE deal was in jeopardy because of disagreements over the best way to recapitalise the dairy group.
Finweek reported at the time that HCI CEO Johnny Copelyn went as far as saying he had lost confidence that a capital restructuring would ever transpire at Clover.
The problem in recapitalising Clover stemmed from sensitivities around Clover's farmer shareholders.
Currently Clover - a former cooperative company - utilises a complex capital structure, which ensures dairy producers effectively remain in control of the company.
There are "delivery agreements" linked to ordinary shares between Clover and its producers, which are claimed as non-negotiable and integral to the dairy farmers' relationship with the group.
Clover's decision to buy out HCI's ordinary shares and declare a special preference share dividend comes scarcely three months after the company cashed in its 45% holding in the Clover-Danone joint venture for about R1.1bn.
In a voluntary Stock Exchange News Service (Sens) announcement, HCI said it would be "opportune to realise its investment in Clover".
Clover was more specific around the rationale for the transaction.
In a notice to shareholders, it said the deal would remove the conflict created by the different classes of shares (voting and economic).
Clover directors also felt the deal would "significantly improve" the company's capital structure.
This is because the deal, importantly, also involves a change to the preference share arrangement as regards participation in "super profits". The preference shares will now only benefit from Clover profits based on a fixed dividend, set at 90% of prime.