Mvelaphanda Group canned a scheme on Friday that would have seen three executives stand to make millions out of getting rid of the group's assets. In an item buried in the group's recently released annual report, it was revealed that executive chairman Mikki Xayiya, CEO Yolanda Cuba and chief financial officer Ernst Röth were to form a management company to benefit not only from an annual fee of R6.5-million, excluding VAT, but also from a share of the profit if they sold or unbundled Mvela's investments at a better-than-expected price. This could have totalled as much as R95-million.
On Friday, Mvela announced that the scheme was canned "due to the complexity of establishing an appropriate management company structure acceptable to all shareholders and to prevent any confusion that has arisen".
Cuba said the management company idea arose from the change in the group's mandate and there was no opposition to it when it was discussed with shareholders in September. But it was becoming too complex.
Friday's announcement said Xayiya, Cuba and Röth would now stay on in their respective positions with the responsibility of "managing the unbundling and realisation of assets to unlock value for shareholders".
Mvela has already announced that it will sell or unbundle its assets, which include 10.7% of Group Five, 12.4% of Vox Telecom, 25.5% of Avusa and 22.2% of Life Healthcare Group, as well as stakes in Swissport, Mvelaserve and Steinhoff. Unlisted investments, about 70% of the group's value, are expected to go first.
Mvela also has 2.28% of Absa, but this was not part of the agreement with the three executives.
Detailing the management company, Mvela's annual report said a participation fee structure "has been agreed ... to ensure that the interests of shareholders are aligned with that of the management company", even though at least two of the three members of the management company were already significant shareholders. It did not say who had agreed to this structure.
If the three sold or unbundled Mvela's investments above a certain price they would get 15% of the proceeds. If they realised between 90% and 100% of the intrinsic value of the investments, they would get between R20-million and R80-million. If it was more than 100%, they could have got up to R95-million.
The intrinsic value of the group's investments, which Mvela determines using a variety of methodologies, was R3.68-billion at the end of June. The value changes with share price movements. In the event of an economic upturn, the management company would have made the extra money without doing anything.
Announcing that it had canned the idea, Mvela did not admit that it had been a bad idea or that an outcry was anticipated. It merely referred to complexity problems. It said the managers would not have received R95-million, putting the likely figure at R40-million to R45-million.
Cuba said that, in deciding on the participation fee, opportunity costs were taken into account and the executives would have had to stay on instead of building careers elsewhere. She added that with a R40-million participation fee, "for three executives, over two to three years, getting rewarded when they actually perform, the amount is commercially sound".
One informed source said the management company details were presented in the annal report but were never put to shareholders, so it was not clear if shareholders had a chance to object.
A stock market source said the idea of the management company was to ensure that core executives were retained to maximise value for shareholders.
While they should be paid well to seek the best prices, they should not have extra incentives.
While shareholders welcomed Mvela's decision to get rid of its assets, as it trades at a discount to its investments, the decision sparked questions about the company's success as a beacon of black economic empowerment. It has, in its 10-year history, bought many assets, but is now selling them.
Mvelaphanda, under the leadership of Tokyo Sexwale, was started in the late 1990s.
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Siegfried Hannig