African Phoenix is rejigging itself as an investment company that will focus on private equity, but still has the legacy issue of preference shares to resolve dating back to its African Bank Investments Limited (Abil) days.
Abil, which owned African Bank, furniture retailer Ellerines and insurer Stangen, was SA's largest unsecured lender and worth more than R30bn at its zenith. But bad debts bled the company dry and in 2014 the Reserve Bank and other lenders stepped in to rescue the bank while the rest was put into business rescue.
As part of the rescue plan the bank was split into a "good bank", which has recovered and trades as African Bank, and a "bad bank". African Phoenix is the only shareholder in the "bad bank", which rakes in old debts and pays what is collected over to senior creditors.
It also owns Ellerines, which is being wound down. African Bank is now unrelated to African Phoenix.
But now, African Phoenix - which is also sitting on a pile of more than R1bn in cash and still owns Stangen - wants to buy out the preference shareholders.
R1bn The value of African Phoenix's cash pile
The company's largest shareholder, Steyn Capital Management, sees this plan as the "rational way" to come to a negotiated division of assets half a decade after the collapse of Abil.
Preference shareholders, who usually invest for a steady income, are entitled to dividends before ordinary shareholders. But though dividends were a given in Abil's halcyon days, preference shareholders have been stuck high and dry for five years.
"I pushed very hard to get the board to make an offer to preference shareholders," said Andre Steyn of Steyn Capital, which holds more than 27% of the ordinary shares in African Phoenix but has no representation on the board. Steyn Capital is also the largest preference shareholder and is backing the buyout offer of R37.50 a share.
This week, African Phoenix said having 13.5-million preference shareholders does not fit in with its new plans and that is why it is willing to spend R500m of its cash pile to buy them out.
The interests of ordinary shareholders and preference shareholders are "misaligned", said CEO Siya Nhlumayo.
"At African Phoenix we haven't been able to move forward due to the capital structure," he said.
The company's new strategy is to invest in privately owned businesses that would benefit from BEE partners.
African Phoenix has the empowerment credentials many smaller companies need and can do deals without the usual disruption of being forced to exit in order to realise value for empowerment partners.
"Companies are wary of doing empowerment deals every five or six years," said Nhlumayo, adding that their model would allow for longer-term investments.
It will start with a fund of about R500m and will look for significant stakes in private companies, spending the initial sum on three or four different investments.
After a while they will ask African Phoenix's ordinary shareholders for more money to invest if they are happy with the returns.
And they are ready to write cheques.
"We have quite a busy pipeline," said financial director Shafiek Rawoot.
But it cannot seal these deals until the issue of preference shareholders is resolved - especially as aggrieved preference shareholders could be tempted to follow the legal route if their capital is locked into multiyear investments without a realistic prospect of dividends any time soon.
The shareholders will vote on the proposed scheme on March 20.
Besides Steyn Capital, Value Capital Partners - which holds about 15% of the ordinary shares in African Phoenix - has also given its irrevocable support to the buyout, said Nhlumayo.
But the scheme has a high threshold - three-quarters of both the ordinary shareholders and preference shareholders have to vote in favour.
If the scheme of arrangement does not go through, preference shareholders could still elect to have their shares repurchased by African Phoenix.
The voluntary repurchase will also be at R37,50 a share, a 44% premium to the preference share price on the day before the plan was announced in September last year.
But preference shareholders are free to choose to retain their shares and chance a few more years without dividends.
strydomt@sundaytimes.co.za..