Hersovs and Menells are in no hurry to yield control of AnglovaalJulie Walker looks at a dynasty that decided to bow out graciously
DONNY Gordon couldn't let go of his baby, Liberty Life, but the heirs of the Anglovaal founders Slip Menell and Joe Hersov have found it in their hearts to relinquish family control of the once great mining and industrial group - albeit not in a rush.
This week, Anglovaal announced it would undo the protective holding structure whereby Hersov/Menell wield control over Anglovaal (equity and debentures worth R4.5billion) with a 51% shareholding in Anglovaal Holdings, market capitalisation of R263-million and participating preference shares of R256-million.
There are five classes of shares in the underlying Anglovaal, and the intention is to equalise voting rights and restructure all into one class of equity in Anglovaal (AVL).
The loan stock, trading at only R14.75 in March, is to be redeemed at R32. The Ns get full voting rights, but the controlling stake becomes a class of unlisted, convertible preference stock with special voting rights. When they convert, control is relinquished but until then, the block speaks for 51% of the vote in Anglovaal.
Next, the board of AVL will invite more independent directors. At present, Anglovaal Holdings lists three Hersovs, two Menells and a Kleynhans. A structure will prevail until 2 001 to permit the controlling families to retain control even though the entire deal will be laid to rest by June 1999.
Anglovaal will sell, redevelop or redeploy everything other than Anglovaal Industries and Avmin will maximise shareholder value. Anglovaal will be split into separate holding companies, AVL (for Anglovaal Industries) and AVL2 for Avmin, each with a single class of shares.
The Rosebank head office of 130 will go. Rick Menell will run Avmin from Anglovaal's original offices in Main Street, Johannesburg, and Richard Savage Anglovaal Industries from premises yet to be arranged. The Rosebank block will be sold.
Basil Hersov, chairman of the group and the most senior of either family, says his biggest regret is that loyal and long-serving staff will no longer have jobs. "But I am 100% behind the rest of the process."
He says consultants who participated in the strategic review advised that the current structure was unsuitable for the future. That was something he knew and many could have told him for free. "We created it, and did what we wanted to do. Family control never stopped the group from growing. There was never a financial constraint."
Taking this step only in 1998 seems to be several years too late. More than 75% of the value of Anglovaal has been wiped from the JSE since the peak in January 1996. Rick Menell, who came to the group in 1993 after extensive international experience, probably arrived back when the group was already in decline, even if this was not manifest in the share price.
"The Anglovaal patient was pretty poorly even then, but Hersov was not very accommodating of young Menell's ideas initially," says one insider.
The two presented a more or less united front this week in announcing the dismantling of the families' control. They concur that retaining control for three more years is in the interests of all shareholders, although the market finds this a little hard to swallow. "They're just hanging in as long as they can," says one securities analyst.
Hersov says he will retain his holding in Anglovaal's investments. "I am very much looking forward to the increase in shareholder value that this unbundling should bring about. Usually, if the mining arm is down, the industrial contribution has compensated. There have been many years when both arms have performed. This year both were weak at the same time."
Menell says he will also stay aboard. Are they disappointed that only one Hersov and two Menell grandchildren total have executive involvement in the group? "More could have led to more confusion," says Hersov.
Menell says special commitment is needed and a willingness to work and build Anglovaal. "We are all here on merit."
He is running the mining arm in difficult circumstances, not the least being low commodity prices. Menell says Avgold's fund-raising efforts are well received offshore. Some R600-million to R700-million is needed to develop the next stage of Target mine. Menell believes the bulk can be secured as debt and possibly a small equity-raising exercise. He says Avmin's priority is to find, develop and manage high-quality new projects and grow shareholder value.
It is expanding production, reducing exploration costs and looking for greater cooperation with junior mining companies.
Management urgently needs augmentation at AVI and new appointments have been made.
AVI has been largely unable to adapt to the new rules of global competitiveness. Packager Consol was delisted because of poor prospects and low share-tradeability. Hersov says R800-million has been invested in plant improvements, and unit costs are being reduced. The tyre, rubber and paper packaging divisions have been sold.
Grinaker has been unbundled, and the electronics division sold to black business and management. Food group I&J has entered a joint venture with Simplot Australia. National Brands is focusing on big brands, market share and cost reduction.
Hersov could be pleased Anglovaal did not buy Rainbow, the chicken group run so successfully by founder Stan Methven and so poorly by HL&H when Methven sold out and the company listed. "We had lunch every year and discussed Anglovaal's purchase of Rainbow. Every time we agreed on a price, Stan later rejected it because he thought it must be too low if we were prepared to pay it."
The Frame group is another share Anglovaal was lucky to miss. It is believed the cross-holding between Frame and Conframe was offered at net asset value of R30+ rather than market value of R18. Conframe has been to 40c and is now R9.
Anglovaal did have an unprofitable foray into financial services with its investment in Crusader Life and Anglovaal Insurance, from which it walked away and left minority shareholders with a bitter taste and emptier pockets.
Even that far back, Anglovaal destroyed the myth that the big daddy would support any dog merely to keep face.