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Shoprite Holdings [JSE:SHP] is in exclusive talks with Thibault Square Financial Services – linked to billionaire Christo Wiese – over the acquisition, redemption and cancellation of deferred Shoprite shares held by Thibault.
Wiese is the chair of Shoprite Holdings, and Thibault holds nearly a third of the votes at the Cape Town-based company through deferred shares, which have more influence in voting than ordinary shares.
One share, one vote
Shoprite Group CEO Pieter Engelbrecht told Fin24 on Tuesday afternoon that the deferred shares date back to 1986, when the company was first listed.
Over the past two years, the group has communicated closely with shareholders, who indicated they had three issues they wanted addressed, Engelbrecht said.
"Firstly, the composition of the board. And we have had some movement in this respect already.
"Secondly, about our remuneration policy. We are currently working on this.
"Thirdly, around aligning with global best practice where you move to one economic share for one vote," said Engelbrecht.
A cautionary notice to shareholders said the aim was to ensure the group's "economic and voting rights are fully aligned".
Shareholders will decide
Engelbrecht also stressed that shareholders would vote about the final shape the transaction would take.
Depending on what shape it takes, in the end it would require approval of either 75% or 50% of the shareholders - excluding the votes Wiese controls, he said.
"This is out-and-out a shareholder-driven engagement and decision making purely by the shareholders. No management decisions are involved," said Engelbrecht.
"We foresee it should be finalised before the end of our financial year at the end of June."
Wiese told Fin24 that his Titan Premier Investments – of which Thibault is an investment company – has been the largest shareholder in the Shoprite Group for almost 40 years.
"Titan considers its Shoprite investment as a core investment and will remain a long-term holder thereof," Wiese told Fin24.
Capital structure
Shoprite Holdings' capital structure currently consists of two share classes, namely ordinary shares and deferred shares. All the deferred shares are held by Thibault. These carry about 32.3% of the voting rights of Shoprite Holdings.
An independent board will consider the proposed transaction and the company has appointed Investec Bank as financial adviser as well as an independent expert.
The proposed transaction, if concluded, may impact the price of the securities of Shoprite Holdings. Accordingly, the group advised shareholders to exercise caution when dealing in the securities of Shoprite Holdings until a further announcement is made.
Impact
An analyst, who asked not to be named, told Fin24 that two factors should be considered regarding the proposed transaction, namely that these deferred shares do not earn dividends, yet they have voting rights.
"These shares have no economic interest. There will have to be a balance in whatever deal they end up making between this lack of economic value and the fact that these shares control a voting stake," the analyst said.
The analyst argues the impact on shareholders will depend on how such a transaction is resolved - likely in one of three ways. Firstly, it can all be sold to one person.
"I am not sure if this option is on the table. They do say that they are trying to simplify the shareholder structure, so this option seems unlikely, in my view," commented the analyst.
Diluted earnings
The second option could be to swap ordinary shares for the deferred shares, and the third option could be for Shoprite to issue fresh shares and just use the cash to buy back the deferred shares. Both the second and third possibilities would dilute earnings for existing shareholders.
"It all comes back to the quantum in the end - the voting rights versus the economic interest. It is difficult to predict what will happen," he said.
"The fact that advisers have been appointed does not always mean shareholders will be protected. One could say control might be more broadly spread afterwards, depending on who buys it."
* Interim results for the Shoprite Group for the six months ending December 2018 were negatively affected by increased financial pressure on its core customers and challenges with certain IT projects, among others factors, the group said on Tuesday morning.
By the end of Tuesday Shoprite shares were trading up 4.9% at R169.75.
