Verimark: Major backers halted

Cape Town - The South Gauteng High Court has dismissed with costs an application by direct retailing specialist Verimark to buy out minority shareholders and delist the company from the JSE.

The development is surprising, with Verimark's share price suggesting in the past fortnight that the scheme would obtain court approval.

The scheme involved the Van Straaten Family Trust - an entity linked to founder and CEO Mike van Straaten - offering minorities a 50c per share offer.

The major controversy around the scheme stemmed from Van Straaten's insistence on voting shares under his control at the scheme meeting - which required support of 75% of Verimark's shareholders.

While the buyout offer represented a sizeable premium to the market price, a handful of shareholders - most notably Brait and rival retailer Homemark - opposed the scheme.

Brait Asset Manager Craig Butters recently told Finweek that Van Straaten's actions are fundamentally wrong, "which is why we have asked the court not to sanction the scheme". Brait and Homemark were joined in this regard by the Securities Regulation Panel.

While Van Straaten took legal opinion on his right to vote shares under his control, the court saw it differently.

Judge J Malan ruled the buyout offer by the Van Straaten Family Trust was made to the company's minority shareholders - the scheme's participants.

Malan ruled the offer was not made to the proposer (the Van Straaten Family Trust) nor the excluded members and, as such, only the scheme participants were allowed to vote on the project.

Malan's ruling may well be a landmark judgment - perhaps precluding any majority shareholders from making an offer to minority shareholders from voting on such a transaction.

Speaking to Fin24 on Friday, Van Straaten said he was disappointed at the verdict. "We genuinely believed the scheme was in the best interest of all shareholders."

Van Straaten said it would now be a case of back to basics for Verimark. "We'll be concentrating on the turnaround, and aim to shift Verimark back to profitability as soon as possible."

Top legal eagle Michael Katz of Edward Nathan Sonnenbergs - who represented the SRP in court - hailed the court ruling as a "very major judgement".

Katz said that for the offeror (Van Straaten) to use his own vote to ensure the scheme received 75% of shareholder support was clearly wrong.

At the time of going to press on Friday, Verimark's shares had not traded on the JSE, although most market watchers expected the price to weaken after news of the judgment filtered into the market.

Verimark shareholders - especially those eager to bail out at the 50c/share offer - will now be keenly awaiting a trading update around Verimark's figures for the half-year to end August 2009.

Any further trading strain in Verimark, which has battled for the last two years to get traction in a turnaround effort, could well see the company forced to raise fresh capital via a rights issue. This possibility was raised in Finweek earlier in August.

Verimark finished the year to end-February 2009 about R4m in the red - a period during which borrowings stretched to R24m mainly due to the acquisition of Verimark franchise stores.

- Fin24.com