PIC ups stake in Group Five amid leadership tussle

Jul 17 2017 16:35
Fin24 and Bloomberg

Cape Town – The Public Investment Corporation (PIC) has raised its stake in Group Five to 20.135%, the JSE-listed construction company said on Monday, edging closer to majority shareholder Allan Gray (25% stake).

This comes as a battle emerges between Allan Gray and the PIC (along with Mazi Capital) about which nonexecutive directors should replace the departing ones, according to City Press.

Group Five told shareholders that Allan Gray had punted bringing back former Group Five CEO Mike Upton and proposing to break up the company, Bloomberg reported on Friday.

Group Five chairperson Philisiwe Mthethwa told City Press on 25 June that the fight between the Group Five board and Allan Gray was ultimately a battle against transformation – and, in particular, against the appointment of a black CEO, Themba Mosai, to head the construction company.

"The PIC can confirm that it has increased its shareholding in Group Five from 19.404% to 20.135% and has reported this to the company as required by section 122 of the Companies Act of 2008 and Regulation 121 of the Companies Act as published in 2011," Deon Botha, head of corporate affairs at PIC, told Fin24 on Monday.

"The change in Group Five shareholding is due to portfolio re-balancing, which the PIC undertakes on continuous basis to ensure that the overall portfolio is in compliance with clients’ mandates, including the specified benchmarks.”

On 12 May, PSG disposed of its 9.98% stake in Group Five.

Group Five said Allan Gray nominated Upton to the board as a non-executive director and has proposed that the South African construction and engineering company be broken up, Bloomberg reported on Friday.

Upton’s return would be “inappropriate” as he led the company “at a time when historical industry behaviour was severely criticised”, Group Five said in a letter to shareholders seen by Bloomberg. The board also disagrees with Allan Gray’s breakup plan and has the support of other investors, the company said.

Upton is one of five new non-executive directors proposed by Allan Gray as part of the Cape Town-based investor’s attempt to force Group Five to change strategy. Shareholders will vote on the appointments at a July 24 meeting, replacing five board members slated to resign. Upton led Group Five for almost eight years through 2014, a period that coincided with the fining of several South African construction companies for collusion over contracts to build stadiums for the 2010 soccer World Cup.

“It is odd that the board does not favour the appointment of Mike Upton – we think few non-executives could add as much value to the group,” Andrew Lapping, chief investment officer of Allan Gray, said in emailed comments. “Mike led the group through the early and intense internal investigation into historic industry behaviours, the results of which were used by the Competition Commission in designing their industry-wide investigation and amnesty program.”

Stock halved

Group Five shares declined 0.5% to R18.74 at the close in Johannesburg on Friday, extending the year’s drop to 24%. By 16:00 on Monday, the share price was up 0.26% at R19.53 a share.

The stock has more than halved in the past three years as sluggish economic growth in South Africa led to a slowdown in infrastructure and construction projects. The company announced the departure of CEO Eric Vemer on February 22, to be replaced on a temporary basis by Mosai, and later said it would reorganise its businesses, leading to job cuts.

It’s “natural” for the board to oppose the recommendations made by Allan Gray, Avior Capital Markets analyst Roelof Brand said by phone, adding that the intervention may nevertheless be what’s needed to address Group Five’s under-performance.

As an alternative to Allan Gray’s five nominations, Group Five has proposed a further four non-executive directors for shareholders to vote on. Two were nominated by the Public Investment Corp., Africa’s biggest money manager, and two by Johannesburg-based Mazi Capital.

“Allan Gray does not have an agenda with regards to Group Five’s strategy, we want an independent board with the relevant skills that will protect and grow value for all stakeholders,” Lapping said.

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