Heads-up on one very clever deal

IT’S an extremely clever transaction, but Combined Motor Holdings’ use of share repurchases to buy out its controlling shareholder might be the first and last of its kind.

Essentially, the directors, led by CEO and founding director Jebb McIntosh, have been able to use R450-million of the company’s own cash resources to acquire control of the company from the Zimmerman family.

Assuming McIntosh and his co-directors are committed to the company, this move may be good for it and its shareholders in the long term. Or it may not.

McIntosh is adamant that the repurchase is a good investment, and it certainly is from his perspective. Whether it is such a good investment for all the other stakeholders is less certain.

The critical issue is whether our laws and regulations are appropriate to monitor and direct this sort of activity.

In 2009, when Phil Knight, the Canadian who drove the drafting of our new Companies Act, was explaining why it imposed minimal requirements for share repurchases, he referred to “casual or one-off decisions to reacquire shares” not being of much significance. Because of this, share repurchases did not need shareholder approval . . . unless the shares were being repurchased from directors, in which case a special resolution was needed.

The JSE is a little tougher. It requires shareholders’ approval, in the form of a special resolution, for any repurchases. It also distinguishes between specific and general repurchases.

What this case has highlighted is that there is no such thing as a casual repurchase. Indeed, there is an army of extremely well-paid corporate lawyers and advisers constantly surveying the regulatory landscape to identify the best (cheapest, fastest) way of implementing a corporate action.

In this instance, the Zimmermans have been able to secure a fixed price for their substantial block of shares, something that might not have been possible if they’d sold into the illiquid market for the shares.

Because it is a voluntary pro rata share repurchase, Zimmerman and the new controlling shareholders are entitled to vote at the shareholders’ meeting. This guarantees its success.

And then there’s the R1-ashare tax benefit for the Zimmermans, which they would not have received if they’d sold their shares into the market. TALKING of tax benefits, it appears that Apple is being a little less robust in its attitude to the advantages it receives from Ireland’s national tax policy.

In a recent filing with the Securities and Exchange Commission, Apple warned investors it could face “material” financial penalties from the European Commission’s investigation into its Irish tax deals.

The Financial Times reports that “material” in Apple’s life could exceed $2.5-billion (R29billion). In January, Apple reported the highest quarterly profit to date for a US company. It has more cash than it knows what to do with, and, assuming its new watch turns out to be as compelling as all the other stuff, in a few months it’ll be drowning in cash. A penalty of $2.5-billion won’t even make a dent.

Both the Irish government and Apple have consistently denied any wrongdoing, says the Financial Times. If the European Commission rules against Ireland, it could require Ireland to recover from the company past taxes covering a period of up to 10 years.

For all those hundreds of millions of middle-class individuals across the globe who are unable to secure the sort of tax treatment enjoyed by Apple, its ability to avoid tax is frustrating. A global cost-benefit analysis needs to be done.

To the extent that some powerful players are not paying their due, the rest of us pay more. We might in protest get around to dumping our iPads,

This highlights that there is no such thing as a casual repurchase

iPhones, Airs and MacBook Pros and ignoring new stuff such as the Apple-Watch . . . but not just yet. APRIL has seen huge volumes of share-trading activity by corporate executives. The guys at Old Mutual have been particularly busy, and over at Woolworths, some of the “zero-cost collar” hedging transactions entered into last year by its executives have been concluded.

These were entered into ahead of the massive Country Road rights issue to secure the value of existing shareholdings.

The effect for Zyda Rylands was the sale this week of R43.2million worth of shares at R81.29 a share. Sam Ngumeni sold R18.4-million worth at the same price. The current market price is R89.97. ON the subject of executive remuneration, the really exciting news from the UK is the Labour Party’s pledge, if elected into government, to require companies to place worker representatives on remuneration committees.

This would shake things up a bit. It might even wake up our own government to the possibility of introducing a more considered voice into the circle of cronies who dictate the matter here.