TOP STORY] Caxton vs Mpact: The wheels grind slowly

SIMON BROWN:  I’m chatting with Paul Jenkins. He is the Caxton non-executive chairperson. A Sens came out late on Friday afternoon. I have to say [it was] one of the more crazy Sens, in a sense. They are usually quite boring. This was not. It was around the Caxton vote at the Mpact AGM. Paul, I appreciate the time.

Read: Tensions between Caxton and Mpact boil over

Some background here. Caxton holds about 34% of Mpact. If memory serves, you started buying about two years ago. It was around October/September 2020. The stated intention ultimately is control?

PAUL JENKINS: That’s absolutely correct, Simon. Thank you for having me on the show. We accumulated a very chunky shareholding, and then Mpact did a share buyback and we found ourselves sitting at about 32%. We accreted some more shares earlier in this year. … the highest price that we’ve paid is about R33. We were wanting to get to about 34% and then make some decisions about whether we went over the threshold beyond 35% to trigger a mandatory offer.

Our concern has been that we want to file a merger and get the Competition Commission process out of the way, because we are really concerned that there are some extraordinary competition issues that might bedevil Mpact. The competition process can be quite drawn out, it can take up to six months; it’s a large merger. We figured that we would clear the decks of the regulatory issues and then we’d be able to make a decision around our offer and the process of getting beyond the 35% and getting to control.

But we’ve been very clear: we want to take control of this company. We think it’s a good fit, and we think that we can add a immense amount of value to Mpact. But obviously our ministrations have been rejected and have been kind of regarded as somewhat interfering – and it’s clear that we are not welcome.

SIMON BROWN: The rejected part is a little bit weird. I want to get to that in a second. One of the issues is an ongoing cartel case involving Mpact and New Era, which is weirdly a competitor but also a shareholder.

PAUL JENKINS: This matter presents quite a strange face because it was only last year that Golden Era – the co-accused in the cartel case with Mpact – started to accumulate shares and bought a parcel of up to 10% during 2021. If you go and have a look at the volumes of the shares traded in 2021, the vast volume of all of these shares is the 10% accumulated by Golden Era and the shares purchased by the Mpact Share Trust. So in this period you’ve seen the share price edging up very nicely for Mpact, and it means that Caxton has made a good investment.

But it’s really extraordinary that a co-cartel accused is now actually also a material shareholder in Mpact and, it appears, now opposes the merger by Caxton with Mpact, and is also Mpact’s large customer. It clearly does something near to R1 billion of turnover with Mpact every year, but it’s also a competitor in the corrugated market. So you’ve got this extraordinary relationship.

But it is bedevilled by the fact that in 2016 the Competition Commission did a dawn raid and found that there was evidence of cartel behaviour, market-sharing, price fixing between Mpact and Golden Era, that had been going on for years and years. When I say Golden Era, I mean its subsidiary New Era, which is in the packaging business – but they’re part of the same group.

What is apparent, of course, is [that] although the Mpact management say that the Competition Commission seeks no relief against them, that is because Mpact has gone and confessed. So they’ve got corporate leniency by making a clean breast of things.

SIMON BROWN: Okay.

PAUL JENKINS: The problem with that is that your amnesty is provisional provided you tell the truth. And here’s the strange thing. Golden Era deny that there’s a cartel and say the only reason that they kind of grew their business at the expense of Mpact wasn’t because of market sharing or anything like that, but because Mpact was conducting a crappy business.

SIMON BROWN: [Chuckling] Yes. I take the point on that. To your other point – I’m not an expert on takeover by any stretch – but my sense is that the Mpact board needs to cooperate. They might not want you to be a controlling shareholder, but the short answer is that they need to cooperate, and reading that Sens from Friday afternoon [it] suggests that they are not [cooperating].

PAUL JENKINS: There are two ways in which you can file a merger. There’s a Rule 27 procedure, where the two parties, the buyer and the target, cooperate in making a competition filing. Then of course there’s another route where there is no love lost between the buyer and the target, and this requires a Rule 28 process.

Now Rule 28 says there must be a potential merger or an actual merger, and then it must be fair and equitable.

So we said to Mpact we would like to file a merger and they said, ‘Look, we don’t think that you’ve made an offer and therefore we’re not sure there’s a transaction. Go and approach the Competition [Commission] and do what you must do’. So we did that, only to find that Mpact then brought all their guns to bear on their opposition to a Rule 28 filing, saying that they didn’t think there was a transaction and they didn’t think it was just and fair and equitable for us to file a merger.

So we can’t even file a merger. And that’s because Mpact says, ‘well, you must make an offer, and only once you’ve made an offer that we can consider, are we in kind of merger territory, and then you can go and make a filing’.

Our position, of course – and so this is the intractable difference between us – is that we can file a merger, but we don’t want to do so until we’ve got a clear perspective [on] what the enormity or otherwise of these competition issues [is].

SIMON BROWN: Gotcha. And that ultimately is that sticking block. I get Mpact’s point where they say ‘make the offer’. You’re saying, hang on, we need insight into what is a significant issue and concern. What is your next step, then? Is this ultimately at [the] lawyers, is it at the Competition Commission? Where does it sit – a takeover regulation?

PAUL JENKINS: We were minding our own business. We were contemplating what our next step was, and we’ve been waiting for the Competition Tribunal to provide us with a finding in the proceedings we brought to review the decision of the Competition Commission. Now remember here, the Competition Commission decided against us in terms of our Rule 28 application, based on what we then found out was secret information and a secret case that had been put forward by Mpact together with its co-cartel, its competitor and shareholder, Golden Era.

We found out that Golden Era was involved in the opposition to these proceedings, because they filed an affidavit but forgot and redacted it, so that Golden Era was airbrushed out. But they forgot to redact the index.

Then I said, ‘What is Golden Era doing in our competition case?’ So that’s where the fight started. We reviewed the proceedings of the Competition Commission and we are waiting for an answer from the tribunal – but that’s been delayed for at least kind of 45 days already, and we don’t know when we are going to get a result, although we are assured that we’ll get it soon.

Now it might be that we are permitted to file a merger and it might not be, but the point is that a merger filing might well be the result that comes out of the the hearing. In the meantime [Mpact CEO] Mr [Bruce] Strong at last week’s results presentation took what I thought was a gratuitous swipe at Caxton saying, look, you voted against our NED [non-executive director] pay, because Caxton is very unhappy about what’s going on, and that’s because Caxton’s got an ulterior motive, which seems to indicate that we are acting badly. Well, our [Caxton’s] view is that the shoe’s on the other foot.

SIMON BROWN: A last question. The motive is quite simple, and I said it right up front: your stated intention is that ultimately you want control of Mpact?

PAUL JENKINS: We want control of Mpact. You’ve asked me what I do next. Well, I’ve been contemplating my position, but I’ve sent a letter to Mpact today saying: ‘Please will you convene a meeting of the shareholders?

‘Let the shareholders decide whether they want to see what the secret information is.’

So what I now expect is that Mpact must convene a meeting of shareholders and we’ll put it to the vote. I’m disinclined to go off to regulators and start more fights, etc, when it’s a really simple thing; the secret information must come out.

SIMON BROWN: Yes, and I take your point. Shareholders must vote. We will keep an eye on Sens.

Caxton non-exec chair Paul Jenkins, I appreciate the time.

Disclosure: Caxton’s majority shareholders are also majority shareholders in African Media Entertainment (AME), the owner of Moneyweb