Opposition to Basson's pay-out
Shoprite CEO Whitey Basson might not get a R1.8 billion golden handshake, judging by the resistance of Shoprite's investors which include South Africa's Government Institutions Pension Fund.
Back in 2011, when critics got into a flap about the R595 million that former Shoprite CEO Whitey Basson made when he exercised a chunk of the share options he'd received as part of his remuneration package, chairman Christo Wiese told the Financial Mail: “I would pay R1 billion in the middle of the night for another Whitey.”
At Shoprite's AGM in late October 2016 Wiese again jumped to the defence of Basson's remuneration package. This time he told testy investors, who'd questioned the R100 million paid to Basson in 2016, “I would have been happy to pay him much more”.
Shoprite's recent shocking Sens announcement about Basson's Put option is proof that Wiese was not exaggerating. Far from it. It seems Wiese actually understated the generosity he was prepared to heap upon Basson, who retired from the group in December. The Sens announcement released last Friday revealed the existence of a remarkable and hitherto unheard-of employment agreement that obliged Shoprite to repurchase any shares put to it by Basson.
A few days earlier, on 2 May, Basson notified Shoprite that he was exercising the put option at the middle market price of R211. It turns out this was a five-year high for the share.
If shareholders approve the transaction, Shoprite will have to repurchase 8.7 million of Basson's shares at this price, which means handing over R1.8 billion to the man who is largely responsible for building the group into the largest food retailer in Africa.
Wiese's comment about being happy to pay Basson so much more will come back to haunt shareholders as they face an eye-popping R144 million per year in additional interest costs to fund his generous gesture.
Some analysts have expressed concern that Basson's decision to sell all but 400 000 of his Shoprite shares is an indication that he believes the group is now ex-growth. Others say it's an appropriate move for someone who must walk away and let a new executive team put their stamp on the business.
At this stage, despite Wiese's 45% voting bloc, it's not a dead certainty the transaction will get the necessary 75% shareholder approval. It's difficult to see why shareholders, particularly the Government Employees Pension Fund with a 16.3% holding, would vote in support. It's not as though Basson will ever do another full day's work for the group. A R144 million per year interest bill is a hefty thank you and not the sort of gesture hard-nosed investors are inclined to make. If it is blocked, it is unclear what happens to Basson's right in terms of the employment agreement. Presumably he could pursue the matter through the courts.
It wouldn't be the first time this year Wiese failed to get his way with a controversial deal. In February a plan to combine Shoprite with Steinhoff's African brands was called off when key shareholders were unable to reach agreement on the share-exchange ratio to be applied.
While there's little debate about the contribution Basson made to Shoprite during his 37 years in the driving seat, there is huge debate over the nature and origins of this little-known employment agreement. It's a debate that will grow in the weeks between now and when the shareholders get a chance to vote on it.
FINANCIAL MAIL
At Shoprite's AGM in late October 2016 Wiese again jumped to the defence of Basson's remuneration package. This time he told testy investors, who'd questioned the R100 million paid to Basson in 2016, “I would have been happy to pay him much more”.
Shoprite's recent shocking Sens announcement about Basson's Put option is proof that Wiese was not exaggerating. Far from it. It seems Wiese actually understated the generosity he was prepared to heap upon Basson, who retired from the group in December. The Sens announcement released last Friday revealed the existence of a remarkable and hitherto unheard-of employment agreement that obliged Shoprite to repurchase any shares put to it by Basson.
A few days earlier, on 2 May, Basson notified Shoprite that he was exercising the put option at the middle market price of R211. It turns out this was a five-year high for the share.
If shareholders approve the transaction, Shoprite will have to repurchase 8.7 million of Basson's shares at this price, which means handing over R1.8 billion to the man who is largely responsible for building the group into the largest food retailer in Africa.
Wiese's comment about being happy to pay Basson so much more will come back to haunt shareholders as they face an eye-popping R144 million per year in additional interest costs to fund his generous gesture.
Some analysts have expressed concern that Basson's decision to sell all but 400 000 of his Shoprite shares is an indication that he believes the group is now ex-growth. Others say it's an appropriate move for someone who must walk away and let a new executive team put their stamp on the business.
At this stage, despite Wiese's 45% voting bloc, it's not a dead certainty the transaction will get the necessary 75% shareholder approval. It's difficult to see why shareholders, particularly the Government Employees Pension Fund with a 16.3% holding, would vote in support. It's not as though Basson will ever do another full day's work for the group. A R144 million per year interest bill is a hefty thank you and not the sort of gesture hard-nosed investors are inclined to make. If it is blocked, it is unclear what happens to Basson's right in terms of the employment agreement. Presumably he could pursue the matter through the courts.
It wouldn't be the first time this year Wiese failed to get his way with a controversial deal. In February a plan to combine Shoprite with Steinhoff's African brands was called off when key shareholders were unable to reach agreement on the share-exchange ratio to be applied.
While there's little debate about the contribution Basson made to Shoprite during his 37 years in the driving seat, there is huge debate over the nature and origins of this little-known employment agreement. It's a debate that will grow in the weeks between now and when the shareholders get a chance to vote on it.
FINANCIAL MAIL
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