Choppies enters choppy waters after volatile EGM
Mbongeni Mguni | Friday September 6, 2019 11:53
By Thursday evening, the market was agog with speculation and rumours. The auditors, PricewaterhouseCoopers resigned, the banks are calling in loans, the chief financial officer quit. All the reports difficult to verify, but even if totally untrue, are symptomatic of the nervousness that has gripped sections of the market following the explosive, marathon extraordinary general meeting (EGM) on Wednesday.
Suspended CEO, Ramachandran Ottapathu romped to victory in the EGM securing a near-‘dream board’ for himself, comprising close ally, Farouk Ismail and two of his chosen nominees.
Shareholders also voted off Ram’s board rivals comprising the four non-executive directors, while former president Festus Mogae brought forward his planned exit and announced his immediate resignation after the final tally.
Prior to the EGM, Ram had told Mmegi that his first objective was to secure the board he needed for the company to grow.
“We would get a clean plate and full alignment between the board and executives,” he said when asked about his ideal board before the EGM.
“Choppies needs to address the issues in North West province in SA and put in some working capital there and in Kenya.
“The board must work as a team to resolve these issues. It’s not happening at the moment and the only issue is investigation, investigation, investigation.
“What is the value in that investigation or the purpose, nobody knows.”
In that partly lies the anxiety in the market about Choppies’ direction. Analysts who spoke to Mmegi said the EGM result left a lot of questions around the future of governance at Choppies, as the non-executive directors pushing the legal and forensic probes had essentially been replaced with Ram’s handpicked nominees.
Speaking after the tally of votes, the suspended CEO recommitted both to the legal and forensic probes as well as to his own ongoing disciplinary action, but analysts believe the composition of the new board has taken the willpower out of that trajectory.
The non-executives were seen as counterbalancing Ram’s dominant influence on the board and in strategy, providing a level of oversight in a company whose family shop background means power tends to concentrate in one person and around one personality.
Various sources that took Mmegi into their confidence about the EGM vote say the institutional investors, who previously appeared to unwaveringly support Ram, turned against the suspended CEO on Wednesday.
“The details laid out in the forensic and legal reports were just overwhelmingly against Ram,” said one of the sources, an analyst with a local asset manager.
“Governance shortcomings were just incredible. Take fund managers for instance.
“They use their discretion with clients’ funds but they have clear guidelines for investment and the governance gaps and abuses exposed were very worrying, not to mention the history of apparent resistance to change shown by executives at the top.”
While earlier this year, Ram was able to show physical evidence of written support from all six fund managers holding equity in Choppies, at the EGM, many flipped.
“One of the fund managers’ major clients, a local pension fund, explicitly told its fund managers holding equity in Choppies which way to vote.
“Yes, the asset managers use their discretion, but this time, the pension fund apparently felt it had to intervene to save pensioners’ interests from any further losses in Choppies,” sources said.
Prior to the EGM vote, the former board members and their advisors spent hours detailing the allegations against Ram, spelling out everything from his alleged tendency to steamroll the board, to the minutiae of dozens of questionable transactions.
The former directors repeated estimates that Choppies’ as yet unpublished 2018 results could contain a P400 million or so reduction due to the revision of questionable historical transactions authorised by Ram. So bulky were the presentations against Ram that over the hours, some shareholders seemed to sit in a form of stupor, barely paying attention.
By contrast, in responding to the allegations, Ram made his petition clear in a concise six-minute address. The choice for shareholders was between crying for investigations and disciplinary hearings or returning value to the group. Either to go after Ram for governance and other slights, or to get back to making money. Either to trust Ram to deliver the money or go with non-executives and their investigations.
“I have been telling them to forget about all these things and put in a plan to rescue the business, but all I hear is that we need to finish this or that investigation.
“If this company is great, I can make it greater. That’s the confidence you should have in me.
“I’m committed to the right governance and we learn from our mistakes, but I can only talk about the future.
“We will not have these types of issues coming again.
“What’s lacking now is that Choppies needs life. Right now it’s like a dead animal being pushed around by people who don’t really know what’s going on.”
Those privy to the secret ballot say the Ram/Ismail voting bloc won over certain sections of the retail shareholders and helped push the suspended CEO and his nominees to victory. Ram himself scraped over the line, securing 52.05% of the vote, marginally ahead of the 50% +1 minimum threshold for board appointment.
Ram and Ismail together hold about 35% shares. Mmegi is informed that the push over the line came from retail investors and one of the fund managers, which holds its own equity in Choppies, apart from client’s mandates.
The new board meets on Monday and is expected to later brief the market on the stand-in chair and other board appointments, which will all be later confirmed at the annual general meeting due before year end.
Besides the buzzing market speculation, the board will also be seized with how to handle Ram’s disciplinary hearing, the outcomes of the forensic and legal reports and the path to finalising the 2018 results. Disgruntled investors, meanwhile, who did not get the board they wanted, are keenly waiting for the 2018 results and reportedly plan to sue the board if any discrepancies around losses are found.
The tension in the aftermath of the EGM has some speculating that the new board could delist Choppies as soon as possible, offering shareholders a little on top of present value of shares.
“The experience of the audit enquiries, forensic and legal scrutiny as well as the mountain of governance and investor confidence issues to climb may prove simply too much.
“The directors may feel that Choppies is better off unlisted, in private hands where decisions are more dynamic, than the current set up.
“With its plans to exit SA, Kenya and Tanzania, Choppies could soon delist as well,” one market commentator told Mmegi.
For Ram, however, the focus is on one day at a time.
“The board will meet on Monday and discuss the way forward, including announcements on the acting chair and other appointments to the board.
“I’m committed to the investigations and the disciplinary process. Let us not pre-empt the board and let it do its work,” he told Mmegi by telephone from India, his place of birth to where he travelled shortly after the EGM.