Kingdom Meikles: A fight Chanakira dare not lose

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By Gilbert Muponda

ON THIS column last week, GMRI Capital briefly reviewed the boardroom squabbles raging at one of Zimbabwe’s leading companies -- Kingdom Meikles Africa Limited.
Due to the overwhelming response to that article, it is imperative that we clarify certain aspects of the on-going dispute.

The matter has to be taken beyond personalities and viewed in the context of the wider picture and historical trends considering how Zimbabwean entrepreneurs have been looked down upon and generally found it hard to graduate into big business.

For this reason, it is imperative that Nigel Chanakira highlights his strengths and how he built his business from scratch to such an extent that Meikles found it an attractive investment.

Since the boardroom squabble has racial undertones which are very hard to prove, we believe the three threatened executives have to undertake road shows meeting KMAL investors highlighting the value they add to the group whilst highlighting the weakness of the transactions, strategy and tactics being pursued by the major shareholder.

There is need for both parties to try and fight a clean fight. The boardroom battle must abide by the rule of law otherwise the Company could become damaged goods and will find it very hard to access international finance markets. It is well known that running a business in Zimbabwe is like swimming in a shark infested beach, therefore both parties are well prepared for the fight ahead. The challenge is to fight clean and try to leave the business untainted by this battle.

A shareholder profile analysis by GMRI Capital shows either party can win the battle should they build a solid case to the minority shareholders who are not directly involved in the fight. John Moxon through various investment vehicles controls close to 43% of the voting shares whilst Companies linked or associated with Chanakira control approximately 25% of the shares. This leaves a float of approximately 30% which either party can tap into in the proxy fight.

Late in 2007, Kingdom Meikles Africa entered into an option agreement, which would include an exchange of assets, to invest in Mentor Africa, a new pan-regional, sub-Saharan Investment Company, subject to all regulatory approvals. At this point we cannot confirm whether the exchange control approvals have been obtained.

Mentor Africa is headed by Stephen Levenberg (CEO) and Brett Till (Financial Director), both formerly of Mvelaphanda. The Group plans or planned to expand into the sub-Saharan region in areas which may include natural resources, telecommunications and hospitality. The current boardroom battle largely emanates from this transaction under which KMAL “sold” its world famous Cape Grace Hotel to Mentor Africa. The quarrel centres on Asset Valuation, Fees Paid, and Use of the Proceeds as well as Strategic Focus going forward.

It appears the sale of the hotel wasn’t done at arms length terms and conditions. It is reported that Moxon has vested interest in Mentor Africa which is giving rise to the allegation that KMAL is being asset-stripped, thereby prejudicing all minority shareholders who will not benefit from the transaction on a pro-rata basis. In addition to the disagreement on the sale, there is reportedly another battle on the use of proceeds from the sale with Moxon trying to retain the funds outside Zimbabwe, which may well be a good idea if the funds are wisely invested, but the lack of information makes it hard to ascertain the benefits.

Kingdom Meikles Africa Limited put on hold a planned private placement of its shares in London after government nullified an earlier approval making its shares fungible between the London and Zimbabwe bourses. The 5.9 million share placement is on hold for now. The loss of fungibility, as announced on the KMAL website, took away the sparkle for would-be investors.

The government of Zimbabwe, battling the black market for foreign currency, accused certain participants of using fungible shares from Old Mutual to determine the exchange rate for the black market, in the process triggering a spike in domestic prices. KMAL got caught in the cross-fire that ensued from the use of Old Mutual (OMIR) shares in the determination of the black market exchange rates, resulting in the annulment of an earlier approval for the KMAL shares listed on the London and Zimbabwe stock markets to trade across bourses.

Moreover, the Old Mutual shares, whose fungibility was also suspended, were said by government and its agents to be used for the purpose of externalising foreign currency by buying shares locally and selling them abroad. This has attracted the authorities’ attention which KMAL could do well without.

Meikles Group History

Meikles was formed in 1892 Meikles brothers opened a successful trading business in Fort Victoria (Masvingo). Part of the initial capital was land and cattle proceeds from the Pioneer Column conquest by British South Africa Company in which the Meikles brothers are believed to have participated.

During its formative years, Tanganda Tea Company which is part of the group, is believed to have used slaves or forced labour on its estates and plantations in the Eastern Highlands of Zimbabwe. Given this background, the Meikles group is a sensitive asset considering Zimbabwe’s current unpredictable political and economic environment.

In 1890, Rhodes sent a group of settlers, known as the Pioneer Column, into Mashonaland. The Pioneer Column was a force raised by Rhodes and his British South Africa Company in 1890 and used in his efforts to annex the territory of Mashonaland, later part of Southern Rhodesia (now Zimbabwe).

The 400-man Pioneer Column was guided by the explorer and big game hunter Frederick Selous and was officially designated the British South Africa Company Police (BSACP). When they reached Harari Hill, they founded Fort Salisbury (now Harare).

Rhodes had been distributing land to the settlers even before the royal charter, but the charter legitimised his further actions with the British government. It should be noted that Meikles at one point owned all the land east of Nelson Mandela Avenue and North of Second Street including all that area covering the Africa Unity Square up-to Enterprise Road, which land had been distributed before Rhodes got the Royal Charter.

British South Africa Company set up a “Loot Committee” which determined that settlers who participated in the war would be rewarded with a free farm measuring anywhere, with no obligation to occupy the land; each man was also guaranteed 15 reef and five alluvial gold claims, while the “loot” – cattle was to be shared, half going to the Company and the remaining half being divided equally among the men and officers. This is according to Wikipedia and various other sources.

Creation of KMAL

The merger transaction saw the issue of seventy eight million shares to the shareholders of Kingdom Financial Holdings (excluding Meikles Africa), Tanganda Tea Company and Cotton Printers. The price was $8, 5 million a share, being the Meikles Africa share price at 31 December 2007. The issue value was compared to the net assets of the acquired companies resulting in goodwill of $614 trillion in historic terms.

Moxon is respected in the Zimbabwean business community but in this instance it appears he may have shown poor judgement. Considering the current political-economic environment in Zimbabwe, it is not advisable to try to replace directors en-masse in the manor in which he is trying. It may well be his right, but as an investor with a position to protect, it may have been a better idea to move more prudently and cautiously and not dramatically as he has tried. Firing a partner to replace him with your own sister is hardly a model for good corporate practice.

Current Squabbles

Zimbabwe is in desperate need of success stories such as Nigel Chanakira’s and this takes the matter beyond the KMAL boardroom. Kingdom is regarded as one of the few success stories in Zimbabwe banking and it’s proudly Zimbabwean. Loading it with South African and other foreign directors and senior management is likely to be resisted at all level. Many believe once the bank is foreign-owned/managed, then it would be even harder for local entrepreneurs to access loans and other credit products. This is a serious implication for the Zimbabwean economy and the banking sector.

GMRI Capital has been able to confirm that there is no fall-out between Econet and Kingdom or their respective major shareholders over the KMAL situation. The dispute is over asset stripping and externalisation which will prejudice minority shareholders including Chanakira. The Econet side were the first to be uncomfortable with the Mentor Africa transaction. This explains why earlier board members from the Econet team left the KMAL board.

The current power struggle represents an opportunity for the former Kingdom team to increase their stake in the group and re-align their vision with that of Meikles by ensuring that Moxon doesn’t find his way back on to the board. At the same time, they should try to block the appointment of his sister to the board. It is unclear what qualifications she holds which make her more qualified than Chanakira.

Given the rising temperatures, Chanakira should try to remain focused on legal facts and build a solid case about his qualifications, competence, determination and vision. This is what is required to convince other minority shareholders to vote with him. All this should be done within the confines of the law, and as indicated above, there are enough floating shares to support the participant with the Group’s interest at heart. This is critical if the Group’s vision of a Wall Street listing is to be realised.

A few analysts have been advocating for the break-up of the Group due to the current squabbles. However, that view seems driven more by emotion and frustration than the benefits to the shareholders.

It is advisable that the former Kingdom team should try to exert more control on the entire KMAL group, rather than just try to withdraw the assets they contributed to the merger. In short, they need to implement a Pac-man take-over strategy.

However, the law must be respected and the race card must not be over-played. Focus should be on the merits and the synergies between the warring parties.
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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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