Tensions between Caxton and Mpact boil over

Reporting on a statement distributed by JSE-listed Caxton and CTP Publishers and Printing via Sens on Friday – in reaction to a discussion when Mpact presented its recent results – necessitates disclosure that Caxton’s majority shareholders are also majority shareholders in African Media Entertainment (AME), the owner of Moneyweb.

One also needs to remember that Caxton has been trying to acquire control of Mpact for years, after accumulating an interest of 34% in the R4.3 billion packaging group.

With 34%, Caxton is the largest shareholder in Mpact.

Ulterior motive

Caxton’s Sens announcement and its vote against Mpact’s executive remuneration at the latter’s AGM a few weeks ago make it clear that there is little love lost between Mpact’s directors and its largest shareholder.

The announcement was signed by Caxton chair Paul Jenkins.

It states that: “Mpact CEO Bruce Strong told investors at the company’s interim results presentation on Wednesday, 10 August 2022, that despite attempts to engage with Caxton in order to understand its reasons for voting down non-executive directors’ remuneration at the recent Mpact AGM, the Mpact board has been unable to find common ground with Caxton, because Caxton’s ‘conduct is underpinned by a different motive’.

“The inference is clear: according to Mr. Strong, Caxton is acting improperly and contrary to the interests of Mpact, for its own ulterior purposes.”

Jenkins says Caxton takes issue with Strong’s statement and denies it.

“As the largest shareholder in Mpact with a 34% shareholding, having invested some R700m in Mpact shares, Caxton is vitally interested in Mpact’s success.

“Far from having an ulterior motive, Caxton’s stated intention to acquire control of Mpact has been met with inexplicable hostility, not only from Mpact, but also from Golden Era, which is Mpact’s competitor, major customer, co-accused in a cartel case which has been under investigation by the Competition Commission since 2016, and more recently a 10% shareholder in Mpact,” adds Jenkins.

Takeover

The argument started following a seemingly innocent question last week when Mpact announced its interim results for the six months to June.

Anton Smit, analyst at Peregrine Capital, asked for an update on discussions with Caxton, which voted against special resolutions at Mpact’s AGM at the beginning of June, and an update on a recent hearing of the Competition Tribunal.

Strong answered that Mpact is still waiting for feedback from the tribunal.

Read: Mpact delivers strong gains in half-year profit, shipping challenges remain

Strong tells Moneyweb the hearing in June related to an appeal by Caxton against a ruling in favour of Mpact after it lodged an objection with the Competition Commission to Caxton’s filing of a merger application before tabling an offer.

“The Mpact board has declined to support a separate merger filing because Caxton had, amongst other things, not disclosed a proposed offer price or terms, rendering the board unable to determine whether any such offer would be in the best interests of the company and all of its shareholders,” he says.

“The fact is that our board consistently acted and continues to act in the best interests of our shareholders and the company. The board will appoint independent advisors to look at any offer, if and when Caxton makes an offer.

“But there is no offer and we don’t know if or when an offer will be made,” says Strong.

Non-executive pay

He says Mpact has engaged with Caxton about the remuneration of non-executive directors (NEDs).

“Some of our board members have engaged with Caxton since the AGM, to understand their concerns relating to the fees. Unfortunately, up until now, we have been unable to find common ground as it’s clear that their conduct is underpinned by a different motive, leaving us in a rather invidious position when it comes to the NED fees,” said Strong when discussing Mpact’s interim results.

Jenkins said in the Caxton Sens announcement that Mpact has been fully advised of Caxton’s concerns around NED pay, while Strong responded by saying that Mpact “strongly refutes” all the allegations and that the board acts diligently.

Read:

Voting

An analysis of the outcome of voting at the Mpact AGM shows that Caxton voted against several important resolutions.

It voted against the adoption of the annual financial statements, the re-election of Timothy Ross as non-executive director, and Ross’s election as a member of the audit and risk committee. However, these resolutions passed as they received the necessary majority of more than 50%.

Caxton also voted its 34% against two non-binding resolutions and three special resolutions, with the outcome that these could not be accepted as they needed 75% of the votes to pass. The non-binding resolutions were the advisory note of Mpact’s executive remuneration policy and the advisory note on the implementation of the remuneration policy.

Caxton blocked the adoption of special resolutions to authorise Mpact to repurchase its own shares, authority to provide financial assistance to subsidiaries, and the proposal to pay non-executive directors.

Of interest is that quite a few other shareholders also voted against some of the resolutions – investors owning up to 44% voted against in some instances. It is also telling that more than 90% of shares were voted in person at the meeting or by proxy.

When Mpact announced the outcome of the voting at the AGM, it said the special resolutions that did not pass would not materially affect the company at the time.

“The general authority to provide financial assistance to subsidiaries and other related and inter-related entities in terms of sections 44 and 45 of the Companies Act was granted to the company at its previous AGM held on 3 June 2021 and remains valid for two years after its adoption,” it said.

“The company will continue to rely on such authority until 3 June 2023 and will therefore be able to continue with its normal day-to-day business and financing operations.”

Meanwhile, the non-executive directors said they will continue to serve on the board without pay for the time being.

Secrets

Jenkins says Caxton is of the view that the Mpact board has not complied with its fiduciary duties in that it failed to disclose to shareholders adequate details of the investigation into allegations of non-competitive conduct and the risks to shareholders, “notwithstanding that Mpact has admitted to operating a long-standing cartel with New Era”.

New Era is a subsidiary of Golden Era.

Jenkins says Mpact also failed to disclose to shareholders all the material facts of a potential Caxton merger in Mpact’s 2021 annual report.

“In soliciting support from Golden Era to oppose a possible Caxton merger, the Mpact board has filed secret representations and affidavits before the Competition Commission and Tribunal, thereby exacerbating concerns held by Caxton that Mpact and Golden Era remain involved in the vestiges of their long-standing cartel,” says Jenkins in his report.

“By order of the Tribunal, this Mpact secret information has recently been disclosed on a restricted basis to the Caxton chairman [Jenkins] only, who now considers that the Mpact board has also failed in its duty to disclose material price sensitive information to all Mpact shareholders [including Caxton].

“In failing to make proper disclosure of price sensitive information pertaining to Mpact [which failure is ongoing] the Mpact board has displayed gross misjudgement. Caxton is seeking legal advice as to remedies, including potential action under section 165 of the Companies Act 2008, against the Mpact board and potential reporting of its conduct to the JSE for investigation.

“In the interest of all shareholders, and in line with its stated intention regarding possible control of Mpact, Caxton remains committed to engaging with the Mpact board, and will be able to do so more meaningfully once Mpact has provided Caxton and all other shareholders with access to the secret information it is clearly so reluctant to disclose,” adds Jenkins.

Strong denies that Mpact submitted “secret” information to the commission.

“As part of the separate ‘merger filing dispute’ between Caxton on the one hand, and the Competition Commission and Mpact on the other, the competition authorities received confidential representations, including from a third party,” he says.

“The Competition Tribunal required all parties, including Caxton’s chair, to respect the confidentiality of this third party information. Mpact will abide by the Competition Authorities’ instruction.”

Solution

The solution to the impasse probably lies in the hands of other shareholders.

Big shareholders in Mpact include Old Mutual which holds 7.3% of the shares and Allan Gray with just less than 6%.

Other notable shareholders are Aeon Investment Management (5.3%), GMT Capital (4.2%), Dimensional Fund Advisors (3.3%) and M&G Investment Managers (1.3%).

That all adds up to 27.4%.

For a pdf of the above, click here.