Lodestone share sale shouldn't be 'one horse race', says Markus Jooste's son-in-law | Fin24
 
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Lodestone share sale shouldn't be 'one horse race', says Markus Jooste's son-in-law

May 21 2018 19:50
Carin Smith

A "one horse race" with only one bidder would not be in the best interests of any shareholders of fast-moving consumer goods business Lodestone Brands, according to Stefan Potgieter, Markus Jooste's son-in-law.

He is one of the respondents opposing an application by some minority shareholders of Lodestone to try and prevent Jooste's Mayfair companies (of which Potgieter is a director) and others from selling their shareholding in Lodestone in a competitive sale process.

According to Potgieter, the type of "forced sale" the applicants want would preclude the possibility of maximising the price through "competitive tension", limiting the ability to consider different potential buyers "which may be in a better position to responsibly steward Lodestone's business".

Potgieter admits that it is in the interests of Lodestone to separate from Mayfair Holdings, "given the reputational effect" of the association with Jooste, as well as the financial predicament in which Mayfair Holdings finds itself. Jooste stepped down as the CEO of embattled retailer Steinhoff in early December amid an accounting scandal. 

Potgieter alleges that the minority shareholders are bringing the court application because they want to pressure a sale of the shares held by Second Chapter Investments (SCI) and Mayfair Holdings in Lodestone through a forced sale.

SCI is the majority shareholder in Lodestone (66.7%). SCI has two shareholders: Mayfair (78.37%) and SCI P1 (21.63%).

"The applicants hope, in this way, to be able to acquire the shares in Lodestone at a more favourable price for themselves than they would have to pay in terms of the competitive sale process," Potgieter says in his opposing affidavit.

Sale mechanism 

He is of the opinion that the sale mechanism the applicants want will benefit only them by making them the sole bidder, which they hope will lead to them acquiring the Lodestone shares at a lower price.

"The applicants are aware that Mayfair Holdings is required to dispose of its indirect shareholding in Lodestone held through SCI and the shareholding held directly by Mayfair Holdings in Lodestone by no later than 31 December 2018," states Potgieter.

He claims the applicants have been aware of this deadline since a meeting held in January 2018.

The applicants want to stop the competitive sale process in terms of the company's Memorandum of Incorporation, thus forcing the respondents to trigger the applicants' own contractual rights in the form of certain pre-emptive rights.

'Forced sale price'

That in turn would enable the applicants to acquire the majority shareholding held by SCI and the shareholding held directly by Mayfair Holdings at a "forced sale price".

"A competitive sale also achieves the common goal of a separation from Mayfair Holdings in a manner most likely to protect the interests of Lodestone itself, because it will elicit the widest range of potential acquirers and will facilitate the selection of a responsible owner for Lodestone," states Potgieter.

He claims the applicants became minority shareholders in Lodestone with this knowledge and consenting to the "competitive sale" process.

Potgieter says if the applicants do not wish to sell their shares in Lodestone, there is nothing precluding them from making an offer in the "competitive sale" process by means of a management buyout or in conjunction with a private equity partner.

Potgieter claims that in March the respondents offered the applicants an expedited arbitration in order to resolve the dispute, but the applicants rejected this offer.

'Maximum disruption'

Potgieter further claims the application has been brought to cause "maximum disruption" to the competitive sale process. He claims the true purpose of the application is to prevent SCI from exercising its rights in terms of the "competitive sale" process and to ensure the applicants "can engineer their own purchase of Lodestone at the lowest possible price".

Gregory Senior, CEO of Mister Sweet, a division of Lodestone Brands and one of the applicants in the case, alleges in a supplementary affidavit that the majority directors are by virtue of the multiple directorships and interest they have, conflicted when it comes to making decisions as part of the Lodestone board in respect of the competitive sales process.

In Senior's view, the majority directors are in breach of their fiduciary duties and not acting in the best interests of Lodestone.

"They are actively participating in and driving the oppressive and prejudicial conduct of Mayfair and SCI through their decision making at Lodestone board level and without regard to the prejudicial impact that their decisions have on the sustainability of Lodestone's business," claims Senior.

"It has always been my understanding that the management buyout ought to have been the only buyout considered, but the board disagreed on this issue."

Senior says Mr Sweet, of which he is the CEO, is the biggest contributor towards profits in Lodestone.

"However, the continuous harassment by the majority board at decisions I make as CEO instead of providing the requisite support, is improper," he claims.

Senior also admits that it is in the interest of Lodestone to separate from an association with Jooste's Mayfair companies.

However, he still claims the competitive sales process will benefit the financially distressed SCI and Mayfair and be to the prejudice of the minority shareholders and Lodestone itself.

"Mayfair Holdings is, due to its own financial distress, forced to dispose of its interest in Lodestone in order to avoid liquidation," states Senior.

"The fallout from the Steinhoff and Jooste debacle should be minimised and not be permitted to spread to Lodestone and its stakeholders, including its minority shareholders who have nothing to do with Steinhoff and Jooste..."

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steinhoff  |  mayfair  |  court  |  retail
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