Inside the Kingdom Meikles boadroom battle

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By Gilbert Muponda

KINGDOM Meikles Zimbabwe (KMAL.ZI) majority shareholder John Moxon is calling an extraordinary general meeting for October 23, 2008, to have Group CEO Nigel Chanakira, and non-executive directors Rugare Chidembo and Callisto Jokonya, removed from the board.

Insiders on both sides confirmed to GMRI Capital that the fallout centred on Cape Grace being sold to Mentor Africa, currently an investment shell being run by former Mvelaphanda CEO Stephen Levenberg, who would apparently get a 22% "promoter's fee" for the transaction.

Such a high fee is unheard of in most markets. An informed source confirmed to GMRI Capital that the KMAL CEO tried to stop the sale which he believed was not in the Group’s interest and amounted to asset stripping.

The identity of the buyer and their relationship with leading shareholders needs to be clarified for the good of the company’s reputation and in line with internationally accepted corporate governance practices.

It is strange for a Zimbabwean based Group to be selling hard currency generating assets such as the Cape Grace Hotel especially ahead of the 2010 World Cup. Considering that the 2010 World Cup is just around the corner and Cape Grace Hotel is expected to make windfall profits, the Group CEO appears justified in his opposition to this ill-timed disposal of such a critical asset.

Given the information gaps it seems KMAL will be forced to disclose more information why they want to fire the Group CEO who is highly respected in Zimbabwean financial markets and is an inspiration to young professionals seeking to set up their own ventures.

It’s hardly credible that a Group would want to fire a founding partner just because there is poor communication within the board, so the market is awash with rumours as to the true nature of the problem, but there is general consensus of asset stripping and possibly racism being among the problems.

KMAL tried to re-assure the market by saying the resolutions being sought are not in any way going to endanger the merger that brought together Kingdom, Meikles and Tanganda. The market seems taken by surprise that there is a direct move to fire the Group CEO which is an extreme measure.

Normally, when there are serious disagreements with a key partner who is also a material shareholder, the issue can be resolved by either re-assigning the key partner or possibly making him a non-executive director. This allows an orderly succession and protects the Company’s reputation. The way this has been handled somehow will endanger the Company’s reputation for some time to come and will make its road to Wall Street listing bumpy.

The resolutions are for the removal of Chanakira, Chidembo and Jokonya "to be removed as directors of the company, with immediate effect". Resolution 5 covers the appointment of Marilyn Hugill, Moxon's sister, as a director, while resolutions 6-9 propose the appointment of four South African-based directors. The other directors to be appointed are Ashwin Mancha, Jack Mitchell, Fiona Silcock, and Carl Stein.

Of the directors appointed following the December 11 vote in favour of the merger between Meikles Africa and Kingdom, only former Kingdom chairperson Busi Bango will remain. No resolution has been filed to remove Econet CEO Douglas Mboweni, who replaced Tawanda Nyambirai earlier this year. This appears a well calculated move to drive a wedge between shareholders representing Econet and those representing the former Kingdom.

The replacement of the three directors at this stage appears not so well-thought out given the government of Zimbabwe’s well stated views about foreign control of what they term sensitive assets such as banks and other financial institutions. This move will not escape racial scrutiny given that its five South African directors replacing three Zimbabweans on the board of a Zimbabwean domiciled company are white.

A conglomerate format is not the in-thing in many leading markets. This format has been left to private equity funds. The widespread trend is to build solid and sector-focused businesses. There are fears, therefore, that Meikles may be going the wrong direction. It maybe time to visit the prenuptial agreements and see if the group cannot be broken down to its pre-merger entities.

The merger deal is a victim of the proposed power sharing government since Meikles feel the 51% local ownership rule may not apply. The signing of the GNU agreement changed sentiment and brought about a feeling that some of the recent radical proposed and passed legislation on indigenous ownership may not be applied once the new inclusive government takes office. This remains to be seen.

Troubles come with territory. Boardroom wrangles and wars are normal and not for the faint hearted. Meikles was tapping into political capital and young dynamic management in Kingdom. This is like new money meets old money, Chrysler meets Daimler AG, and AOL meets Time Warner. The markets are awash with such deals gone sour.

In the Zimbabwean scenario, this is very sensitive because it appears one of the few remarkable success stories of Zimbabwean banking is being stripped of a business built from scratch. This is perception because not all details are known. However, in business perception can easily replace reality in the eyes of the investors and the public.

The Meikles team was reportedly unhappy with the Kingdom valuation ahead of the merger. They reportedly felt the conversion and exchange ratios favoured the Kingdom shareholders. Threats to block the deal were well pronounced before voting on December 11, 2007.

The fungibility of shares was limited by the RBZ. This appears to have angered the Meikles team as fungibility was one of the key aims of the deal in addition to making Meikles politically acceptable. It appears Meikles miscalculated. They were looking for a window dressing CEO who would rubber stamp all decisions and play a ‘yes man’ role. This role appears not well suited for Chanakira and Chidembo both renowned for their strong will to defend positions which they feel justifiable.

Meikles was formed in 1892 when Meikles brothers opened a successful trading business in Fort Victoria (Masvingo) in the then Rhodesia. Part of the initial capital was land and cattle proceeds from the Pioneer Column conquest by British South Africa Company.

In 1915 Thomas Meikles opened a hotel in present-day Harare. The company was listed on the Zimbabwe Stock Exchange in 1996.

Kingdom is a product of sheer hard work and well calculated acquisitions. It was started by a group of young entrepreneurs led by Nigel Chanakira. This includes the reverse-listing through the DCZ takeover which solidified Kingdom’s position as a leading and respected local brand.

Meikles has been historically a disappointing performer for many market watchers. This was mainly as a result of the company’s core-strategy of relying on exchange gains for group profits for most of the last decade. Meikles raised foreign currency at listing and deposited a huge chunk with the Reserve Bank. Perfectly legal, but hardly beneficial to shareholders!

A shareholder expects executives to be able to do what shareholders can’t do for themselves, so it does not make much economic sense to raise hard currency only to deposit it at the RBZ as Meikles have done over the last decade. The market expected the injection of Kingdom executives to add more dynamism into the Meikles Group but should the proposed resolution pass as proposed, then Meikles will remain Meikles.

Meikles appear to be importing the flawed South African Black Economic Empowerment (BEE) model. Most BEE deals have been based on a token appointment of a few black executives for window dressing purposes whilst the real decision makers and beneficiaries remain unchanged. In this instance, it appears Meikles wanted a few black executives for window dressing purposes and go a bit further by stripping them of the assets after they serve that purpose.

Reliable sources confirmed to GMRI Capital that politicians (from both parties) are particularly irked by the fact that Meikles is trying to replace black executives with five imported white executives as if Zimbabwe does not have its own qualified white executives. Their view is that there is an effort to internationalise the company by grabbing Zimbabwean-built brands and simultaneously dump indigenous entrepreneurs who built the business.

The disturbing trend of events indicates the challenges that Zimbabwean entrepreneurs face. It is extremely difficult to raise capital and to network yourself into the old money network. When they seek partners to expand their businesses, the story is often the same -- the invited guest turns to a monster and tries to swallow you or kick you out.

In this case, young professionals established a solid business and a strong brand. In their efforts to expand and further strengthen the business, they invited an older and long established institution which is now trying to dump them whilst grabbing the business they formed! That can’t be right.

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DISCLAIMER:
The views expressed are the views of GMRI Capital and are subject to change based on market and other conditions. The opinions expressed may differ from those with different investment philosophies. The information we provide does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. We encourage you to consult your tax or financial advisor. All material has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. Investing in shares may not be suitable for all investors. Seek independent advice if necessary. Past performance is no guarantee of future results.
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Gilbert Muponda is a Zimbabwe-born entrepreneur. This article appears courtesy of GMRI Capital. He can be contacted at gilbert@gmricapital.com. More articles at www.gmricapital.com

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