Issue: June/August 2008
Editorials

BEE INVESTMENT

R156m in dispute

Aggrieved unionists scrap with a Cosatu union’s investment company over proceeds for their retirement fund from Aspen Pharmacare’s empowerment deal. Matter set for arbitration.

Daggers are drawn between former members of the Cosatu-affiliated Chemical, Energy, Paper, Printing, Wood & Allied Workers Union (Ceppwawu) and the union’s investment company. The former members, now in the General Industries Workers Union of South Africa, which is not affiliated to the Cosatu federation, are fighting for a larger payout than the Ceppwawu investment company is prepared to grant.

Serious money is involved. It’s between R150m and R156m, ultimately depending on computation, in assets of the Chemical Industries National Provident Fund. This amount, which can drastically affect for better or worse the retirement benefits of workers whose savings are in the provident fund, represents the difference between what the investment company has offered to pay and what the fund believes is its entitlement in terms of agreements concluded. The dispute between the Ceppwawu investment company, which is effectively controlled by a union trust, and the fund has been referred by the fund to arbitration.

There’s a background of added bitterness in that the investment company has claimed legal “prescription”, meaning there is a legal time bar to the fund being able to claim anything at all. Despite raising prescription, namely that the period for the fund to be allotted and issued the shares has elapsed, the company has tendered R375m to the fund. The offer nevertheless falls far short of the further R150m-156m to which the fund insists it has a right in terms of signed agreements.

The matter dates back to 2002 when Ceppwawu Pharmaceuticals Investments was set up as a special-purpose vehicle (SPV) to become the black empowerment shareholder in JSE-listed Aspen Pharmacare. Relevant agreements were concluded between the fund, the Ceppwawu investment company and the Ceppwawu SPV, whereupon the fund paid R108m to the SPV for preference shares in the SPV.

In turn, the SPV used this money to purchase 18m preference shares in Aspen. Sanlam Investment Managers was appointed by the fund to manage the investment and to report to the fund on the total value of the prefs.

The value of the prefs was mirrored in 75% the value of Aspen’s listed ordinary shares. As the ordinary shares performed, the gross value of the fund’s investment increased from the original R108m to over R550m at Aspen’s market peak. The 2002 subscription agreement provided that the fund could not redeem the prefs for a minimum of five years from date of purchase.

Then came a series of shocks. The first was in 2005 when it turned out that the Ceppwawu SPV had in fact not allotted and issued the Aspen shares to the provident fund. This, contends fund principal officer M K Tsolo, was contrary to what the fund had been led to believe.

A series of meetings was held by the fund with the Ceppwawu investment company and the Ceppwawu SPV. Both purportedly indicated to the fund that they would, in terms of the 2002 agreement, issue the prefs to the fund. However, the shares weren’t issued. Instead, last year, came the second shock. The fund was hit with the prescription claim. The SPV said it no longer had a legal obligation to issue the shares to the fund or even repay to the fund its original R108m investment.

The third shock was the R375m then tendered by the Ceppwawu investment company and SPV to the fund in an offer of settlement, both of the contracted return and the prescription claim. Although the R375m is R23,2m more than the investment company’s own valuation of the shares, after various deductions, it’s still significantly below an independent valuation commissioned by the fund from accountancy firm PricewaterhouseCoopers (PwC).

It’s also below the most recent valuation that Sanlam had placed on the investment. And this is despite the Ceppwawu investment company submitting that it had used the same valuation principles as in the PwC calculation.

Now the matter’s for arbitrator J G Wasserman SC to sort out, if he can. Meanwhile there are some pretty unhappy fund members. They’re anxious not only for their retirement benefits to be quantified, but also for an explanation of the Ceppwawu investment company’s attempts to get them reduced.

Among other things, the arbitrator will now have to decide whether the fund’s right to be issued the preference shares has indeed prescribed. If it has, fund members might lose out badly. In a worst-case scenario, since the R375m settlement offer wasn’t accepted, they can potentially be up the creek even for their original R108m investment -- without interest and without the settlement offer, let alone the full value of some R531m that they insist is their rightful entitlement.