Casino company has two boards - Tuesday 12th of July 2005

The extraordinary contest between rival empowerment groups over control of Tsogo Sun has led to both factions claiming board control to the point of running parallel board meetings. This dispute, one of several, is now being fought in court.

One faction, led by Hosken Consolidated Investments (HCI), attempted to unseat Michael Leaf, chairperson of Tsogo Sun’s holding company, Tsogo Investment Holdings (TIH), during a board meeting in February, and replace him with HCI chairperson Marcel Golding.

The other faction, led by Johnnic Holdings and empowerment group Nafhold, is resisting what it says is a backdoor move by HCI to secure control of TIH, the 51% parent of Tsogo Sun.

When approached by the Mail & Guardian, Leaf, who is also CEO of Nafhold, confirmed that HCI had orchestrated a vote of no confidence in him at a February board meeting. “This was an illegal move, as any attempt to replace a sitting chairman must be taken to shareholders. This is not a decision for the board to make.?

Leaf says he closed the meeting after ruling the vote of no confidence out of order, but the rebel directors continued with Golding chairing the meeting.

Tsogo Sun comprises five casinos and 82 hotels across Africa, and is known to generate substantial cash flows. Some commentators believe HCI must secure control over these cash flows to pay down the debt it has run up acquiring assets over the last year.

HCI is claiming effective ownership of TIH, having swung a deal with Fabvest, another empowerment group with an effective 19% of TIH, last December. The Gaming Board has yet to approve this transaction. The deal is being contested by Nafhold, a 25% shareholder in TIH, on the grounds that HCI violated Section 38 of the Companies Act, which prohibits a company from providing assistance in the acquisition of its own shares.

HCI is also being challenged on other grounds: that it irregularly allocated shares in three HCI-controlled vehicles with an effective 32% of TIH, and that its attempt to gain control of Tsogo dilutes the group’s empowerment status in violation of Gaming Board rules.

HCI also owns 40% of Johnnic, which has signalled its desire to gain a bigger foothold in the casino market. In February HCI’s CEO John Copelyn raised an objection with the Gaming Board over the fact that Johnnic did not qualify as a black economic empowerment (BEE) shareholder.

In a reply to Copelyn’s assertion, Leaf says HCI’s “weak? empowerment status would dilute the BEE credentials of TIH.

Nafhold says HCI has been acquiring interests in Tsogo’s various ownership vehicles in violation of an agreement that gives existing shareholders pre-emptive rights to buy up any shares offered for sale. HCI reportedly disputes this version, saying existing shareholders were given ample opportunity to exercise their pre-emptive rights.

For now, HCI appears to have wrested control of TIH from Johnnic and Nafhold. The company secretary has taken up residence at HCI and signatories to the bank account have been changed.

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