The flashpoint was the R3,7bn fine levied on Sasol by the European competition authorities in October for anti-competitive practices at Sasol Wax in Europe.

In the ruling, Sasol was flamed as the leader of a nine-member “paraffin mafia” known as the ‘blue saloon club’ that conspired to fix prices between 1992 and 2005. Sasol bought 50% of that wax business in 1995, and the other 50% in 2002, but says it only found out about the price-fixing in 2005.

Although Sasol said on Friday it planned to appeal the fine, there were some ominious signs that the petrochemical firm may yet face further trauma over this case.

Under questioning from shareholder activist Theo Botha at the AGM, company secretary Nereus Joubert admitted that at least one of Sasol’s European customers told the company they intend to sue it for damages, having paid above the bar as a consequence of the price-fixing.

But for any action against Sasol to succeed, customers would have to prove they suffered harm – like paying higher prices. Davies says that after the cartel activity stopped, the price actually increase. “It was an ineffective cartel,” he said.

Twice this year, AGM’s have turned into a forum for angst over price-fixing. In February, Tiger Brands’ chairman Lex van Vught faced the wrath of shareholders; on Friday, Davies faced down bitter investors.

The 300,000 Inzalo shareholders – who bought into Sasol at a discounted price of R366 three months ago only to see the share crash to R265/share – were particularly peeved.

“Bryan”, whose stokvel took up the Inzalo offer, fumed: “we expect you to protect our funds. To the extent you are not able to do so, you should move over and let someone else lead the company who can”.

Davies agreed. “If we cannot continue to run the company effectively, I’ll be the first to resign”.

Peter Law, an individual shareholder, pointed out that the competition probe accounted for exactly seven lines in last year’s 274-page annual report.

“When I found out about this [fine], I was extremely upset. I felt you have tried to fudge the issue … it has severely dented my confidence in your company,” he said.

Davies, calling on all his political acumen, responded: “I can understand how you feel, I’d feel the same way. But please appreciate, if we thought [the fine] was going to be anywhere near the quantum it was, we would have communicated vastly differently”.

Botha asked how Sasol hadn’t picked up the anti-competitive behaviour, firstly when it bought its initial 50% in 1995, and again in 2002, when it bought the rest of the business.

Davies responded: “We did do due diligence … but it’s very difficult to pick up where there’s no paper trail and people don’t volunteer the information”.

But this seems a pretty flimsy answer. Sure, price-fixing is, by definition, a covert activity performed in seedy hotels by executives who know what they’re doing is wrong. But what is the point of spending millions on a due diligence investigation when they don’t provide you with any real reassurance that everything is above board?

Out with the old … 

It was the most well-attended Sasol AGM yet, despite its out-of-the-way venue at the Mosaiek Lifestyle centre tucked between the tacky Tuscan townhouses of the West Rand.

Perhaps the questions Sasol got at last year’s AGM over its soft environmental targets (Sasol is the country’s largest private polluter, with carbon dioxide emissions that grew last year from 70-million tons to 73-million tons) was a factor in picking this location.

But the degree of anger meant it was an inauspicious send-off for Pieter Cox, the chairman who until three years was CEO of Sasol. At last week’s meeting, he stepped down and was replaced by Hixonia Nyasulu.

Let’s not kid ourselves: Cox’s departure is far better for Sasol. After 28-years at the company, Cox may have known every nook and cranny of the organisation, but he was certainly no ‘independent chairman’ as best practice requires. His pay package of R3,7m seems to bear that out.

With Cox gone, Sasol has an opportunity for better governance that may help lure US investors into the company, which could support the share price.

There is greater sign of shareholder activism too. Besides the multi-pronged attack from various shareholders, only 85% of shareholders voted to re-elect Anshu Jain, a managing director of Deutsche Bank. Jain had somehow conspired to miss five of eight board meetings (62%).

Of course, it would have been better had Jain been booted off the board entirely for not doing his duty of pitching up to meetings, but in the context of apathetic shareholders who generally rubber-stamp re-election proposals, this was at least a step in the right direction.

Questions were also asked about why former deputy CEO, Trevor Munday, was given a stratospheric R16,2m “restrain of trade” payment that took his overall package from Sasol to R20m last year.

Here, Davies explained that Munday had a bundle of “strategic and technological” knowledge, so it “wouldn’t have been in our interests if he went to work for a competitor”.

Share price plunge

So just how badly has Sasol been hurt by this price-fixing issue?

The fine itself, at R4,1bn, represents 12% of its pre-tax profit for the year, which is considerable. Whether the appeal is wise is debatable: as the leader of the paraffin cartel, Sasol was due to be fined R7,4bn, but this was cut by half to R3,7bn because of Sasol’s “co-operation and support” in the probe.

Also, since the fine was announced, Sasol’s shares have fallen 20%. But the company probably rightly believes this has more to do with the sinking oil price ($94/barrel on the day Sasol was fined, now at $52) than the fine.

On this point, Davies says “the implication was that the wax fine has harmed the Inzalo shareholders [but] we can’t see any effect. The subsequent fall has to do with macroeconomic variables”.

This is debatable: Sasol’s shares fell 5,1% on the day of the fine but it’s difficult to divorce the causes with any authority.

But for investors whose shares have been hammered, the wax fine is just the sour cream on top of a steadily deflating cake.

At least Sasol has a well-timed hedge in place to protect 30% of its synthetic fuel production against the falling oil price. So, for every $1 movement below $90/barrel, Sasol will save R131m as a result of the hedge. With oil prices touching $50/barrel, this is a reprieve of R4,9bn – enough to pay the fine, with enough left over to buy a small company, like Comair.

At the AGM, financial director Christine Ramon conceded the lower oil price will hit profit, but there will be “a positive impact” from the weaker rand. Much of Sasol’s future prospects depends on what happens to the share price, and the extent of the impact of a lower price on Sasol’s profits.

OPEC (one of the few cartels in the world that are allowed to get away with it) seems intent on keeping the oil price at around $75/barrel. If it stays above that level, Sasol’s shares look relatively cheap.

But any further negative surprises, such as more competition issues, would change that picture.
—

Yet, the suspension of the CSIR’s water expert, Dr Anthony Turton, last week marked a new low in surpressing freedom of academic thought. The FM asked CSIR CEO Sibusiso Sibisi why it shouldn’t be him – not Turton – who is leaving the organisation in disgrace.

FM: CSIR executive Pat Manders said Dr Turton was prevented from giving his presentation as it “would offend members of the liberation movement”. Clearly this shows the decision to prevent him speaking was political, not scientific?
SS: Absolutely not. It just so happens that an off-the-cuff comment was made that was picked-up and made the headline. This was not an issue that was at the forefront of my mind. The man was expressing an opinion that he felt was an issue for consideration. What tends to happen is you may have a variety of strong reasons, and the tendency is to focus on the weakest reason.

FM: So were political considerations in any way a reason for suspending Turton? 
SS: Let me be clear, [the political implications] had nothing to do with the decision to ask Dr Turton to withdraw his presentation.

FM: So if Manders was wrong, what action will you take against him? Will he be suspended?
SS: That’s not the main issue, it’s an internal matter. 

FM: You make much of the CSIR releasing Turton’s paper, but that isn’t the issue. The issue is Turton’s presentation, which the CSIR has refused to make public. Why not?  
SS: I’m not sure what purpose there would be to that. It is standard practice to release the paper, which we did. But there is no further mileage to be obtained by making the presentation available to the public.

FM: Whose technical advice did you use in determing Turton’s “scientific rigour” wasn’t what it should be?  
SS: There are certain things that are generic  — I’m a scientist myself and am familiar with the research process. There were some very specific statements that were implying a cause and effect relationship where there was no evidence to draw those conclusions. The decision was made collectively, with the executrive director for research and development, and executive director for operations, all of whom are scientists.

FM: Is Dr Turton allowed to speak to the media about this? 
SS: Well, he has been doing this all along

FM: If you don’t see a problem with that, why was he suspended? 
SS: His suspension was triggered on the basis that he breached certain conditions of employment. The conditions related to external communication with people outside. It’s not an area I can go into.

FM: The SA National Editors Forum says Turton’s suspension is tantamount to censorship. It looks like the CSIR is supressing scientific discussion to please politicians. 
SS: But don’t you see inconsistencies? Our water scientists have made presentation’s to Parliament’s portfolio committee to indicate how serious the situation is. Would we have done that if we wanted to gag anyone?  

FM: When you combine the poor transparency entailed in not releasing the presentation and your gag of Dr Turton, should it not be you and the board who should resign for bringing the organisation into disrepute?
SS: That’s if you accept we’re gagging him. And that’s a big ‘if’ that I’m disputing. Dr Turton was suspended for acting in a manner that breached his conditions of employment. It’s nothing to do with being a water expert per se. The rigour of the presentation was a substantial departure from [best principles]

FM: The CSIR’s legitimacy has been badly hit. How do you hope to rebuild it?
SS: The only way to do so is continue to tell the truth and do what we’re meant to. It becomes very difficult in circumstances like this. But the issue is about  a clear understanding of what the CSIR is really about: applying rigour and well-researched scientific processes.  

FM:Did you speak to government prior to suspending Dr Turton?
SS: Most emphatically not.

FM: Did you speak to government after suspending Dr Turton?
SS: Of course we have to keep stakeholders informed. I’ve had discussions with Minister [Mosibudi Mangena], the deputy-minister, director-general [Phil  Mjwara] and the board.
—

Though this might seem a tricky subject to bring up, Nampak CEO John Bortolan proved willing in an FM interview to tackle the gorilla in the corner head-on, rather than skirt around it. “Ideally, I would have liked to have left Nampak with [good] earnings. But realistically, I know the challenges we’ve had,” he says.

Maybe, but Nampak’s results for the year to August make Africa’s largest packaging firm look more like a bumbling clown than a nimble soldier bracing for a tough market. Besides the write-off and a messy R250m settlement with the taxman, Nampak’s bread-and-butter trading income fell 13,7% to R1,5bn. Its trading margin dropped to 8,6% from 10,8%, while its loans and borrowings more than tripled from R526m to R1,7bn.

One problem for packaging companies was the steep rise in the price of polymers, which are needed to make plastic and are supplied mainly by Sasol, using a punishing import-parity pricing formula.

This was also evident in Astrapak’s results for the six months to August, where profit fell from R78m to R21m, which it said was due to “the relentless increase in polymer prices”.

Polymers are now selling for more than £1000/t. At the beginning of last year, the price was £800/t.

Bortolan says Nampak just couldn’t recover the higher cost of raw materials by hiking prices. “If we had been able to charge just 2% more on our selling price, then this would have turned that 13,7% decline in trading income into an 8% increase.” That would be a big swing, but packaging companies have lost their pricing power: retailers are squeezing branding companies, which are squeezing the weakest link in the chain: the packaging companies.

The 60-year-old Bortolan will leave in March after 29 years with Nampak, and will be replaced by Andrew Marshall — the current CEO of Oceana — who worked at Nampak a decade ago.

The lack of energy at Nampak has been obvious, which makes it all the more curious that it spurned an overture from one of the best industrial operators in the business. Bidvest, which owns about 5% of Nampak, launched an offer to buy 25% of the company.

Given Bidvest’s Brian Joffe’s reputation for sparking life into even the most sluggish sectors, it was the first time in years shareholders saw hope.

But Nampak’s board put out an announcement implying it was a bad offer. Saying it valued the company at a 8,9% discount to its current value, Nampak said it would give Bidvest a “blocking stake”, and that it had a plan to fix the business. Joffe then withdrew the offer.

Which is a pity. Nampak’s board seems to be a comfy club resistant to change: until recently, six of its 10 nonexecutive directors had been there for more than 10 years each.

Bortolan’s departure, and the appointment of Roy Andersen (chairman of Murray & Roberts and Sanlam), and Phinda Madi (who sits on the boards of Illovo Sugar and Spar) are welcome new blood.

But it may not be enough.

For years, the Public Investment Corp (PIC) and asset manager Fraters have pointed to Nampak’s poor governance, with few truly independent directors able to look after the interests of minority shareholders. Chairman Trevor Evans is the chief culprit. Having served on the board since 1990, he stepped down as executive chairman in 2003 to become a “nonexecutive”. Despite his recent role as an executive and his board role for nearly two decades, Evans describes himself as an “independent director” — a claim the PIC says isn’t true.

At the last shareholders’ meeting, 15% of shareholders voted against Evans’s reappointment. This appears small but in fact it is a far cry from most AGMs, where shareholders simply rubber-stamp the re-election of directors.

Bortolan defends Evans, saying “there must be some experience. He’ll make the right decision for himself and Nampak when the time is right.”

Evans told the FM: “I certainly don’t intend being there till I’m 70, but I’ll be there as long as the board needs me.” He says he intends to help Marshall “settle down” as CEO, before he casts around for someone to succeed him as chairman.

So why is it that on his watch Nampak has looked like a company singularly short of good ideas and dynamism?

“Around the world, packaging is a tough space to operate in. Yes, new ideas were required, but it’s not the board running the day-to-day business, it’s the CEO. That’s where you look for new ideas,” he says.

Evans says Nampak’s new plan, which entails identifying underperforming operations and selling them, shows there is “fresh thinking”.

But during Evans’s reign, Nampak has slipped from favour, shedding market share to Astrapak.

Though it started small, Astrapak’s share price has climbed 256% this decade to R6,31. Nampak’s stock has dropped 29% to R13 in that time.

This year, however, Astrapak and Nampak have both taken a hammering. Since January, Nampak has fallen 39%, while Astrapak’s stock has shed 36%.

Of the six stockbrokers who cover Nampak, none rate it a “buy”, two say investors should sell, and four rate it a “hold”. In contrast, the two analysts who cover Astrapak advise investors to hold the share.

Says one broker, who didn’t want to be named: “We expect Nampak’s earnings to be flat for the next two years, so we think the stock is fully priced. But at least with Nampak you know what you’re getting, and there isn’t much risk to the forecast.” At least this is some upside for an otherwise grim forecast.

On average, the analysts believe Nampak’s shares could rise to R13,40 — marginally above its current R13, and little reward when there are so many other bargains out there.

Packaging companies clearly aren’t the belle of the ball at the moment, but Nampak will need to do more to suggest it’s a better punt than Astrapak.

Packaging is a troubled industry, and with little prospect of Bidvest riding to the rescue anytime soon and a board blighted by directors who have overstayed their welcome, Nampak isn’t exactly a shining beacon.

“This is something the board considered. But the board’s view was that there is a relationship between the bank and the banking regulator, which is housed in the SA Reserve Bank. There is no line of sight at all with the minister of finance,” she said last week.

Marcus didn’t address this very pertinent question until asked late in the impromptu press conference, but she’d clearly been expecting it.

But her explanation seems flimsy. The finance ministry is, after all, ultimately responsible for banking policy. It was Manuel who approved the sale of Absa to Barclays in 2004, and just last week, he was talking about the international push to revamp the regulation of banks.

Ramos echoed Marcus’s sentiment, saying she lived her professional life “with integrity”, and expected no special favours from anyone.

Sure, but the real danger is the perception of conflict, rather than the actual granting of any special favours.

Sanlam Investment Management global fund manager Kokkie Kooyman says it is an unhealthy situation.

“Strictly speaking, there is a conflict. The risk is that when anything major happens, and Absa acts first, there will be talk. Neither Absa nor treasury would want this kind of finger-pointing, so a lot of people are deducing that Manuel won’t remain after the next election,” he says.

Absa was worried enough to prepare a 483-word statement to send to troublesome media. The gist was that neither Absa nor the registrar will allow anything to have an impact on their “integrity”.

But there is an apposite cautionary tale of exactly this sort playing out overseas. A furious row is raging in Norway over the friendship between Prime Minister Jens Stoltenberg and Rune Bjerke, the CEO of the country’s largest bank, DnB NOR. Days before Stoltenberg announced a government plan to boost bank liquidity, which cut the value of government bonds, DnB NOR sold a chunk of these bonds to rival banks.

Manuel’s spokesman, Thoraya Pandy, says Manuel “does not get involved in the day-to-day functions of the banks”.

Pandy says the man in charge of banks is registrar Errol Kruger who “always aspired to give effect to his independent mandate”.

Kruger, who is in the process of approving Ramos’s appointment, told the FM he did not see any conflict. “It doesn’t concern me at all. There is a very clear division of duties under the Banks Act. Around the world, bankers typically have strong relations with their ministries of finance in any event,” he said.

Absa’s gain, however, is Nedbank’s loss. Ramos was rumoured to have spoken to Nedbank prior to Tom Boardman’s appointment as CEO in 2003, and again now as a possible successor for when he leaves in February 2010. But when asked which other companies she had spoken to, Ramos refused to answer.

But the timing has raised questions. Why is Booysen leaving now, with 2½ years to go on his contract until 2011?

Some speculated his departure might have pre-empted a nasty bad-debt shock, but Absa insiders say this wasn’t the case. “Steve told the board in June they should start searching for a successor, and they got lucky with Maria,” says one.

Officially, Absa made much of the fact that Ramos came “on the market” now, and given the difficulty of finding a new CEO, it was as good a time as any.

But is it really that difficult to find a new CEO? “No, it’s not difficult at all,” Nedbank chairman Reuel Khoza told the FM. He should know, given the search for a successor to Boardman.

“We’ve already spoken to quite a number of people, both internally and outside the company. We started timeously, and cast our net wide,” he says.

Khoza says Nedbank is close to naming a successor. But he denies Ramos was talking to Nedbank. “If she did, it must have been very informally,” he says.

Though securing Ramos is a coup for Absa, her challenges will be to manage any perception of a conflict of interest (as long as Manuel remains minister) and to keep a lid on Absa’s bad debts.

Ramos’s record suggests she is well qualified. When she joined Transnet, it had just reported a R421m loss, and had a ratio of debt-to-capital of 83%. This year, it reported a R8,7bn profit, while its debt-to-capital ratio has fallen to 29%.

But Absa is hardly in need of a turnaround. For the six months to June, amid a global banking implosion, it managed a 24% jump in profit to R5,6bn.

Given that platform and Ramos’s record, Absa may yet challenge Standard Bank’s title as SA’s top bank.

 This judgment, by Judge Meyer Joffe, gave Investec Employee Benefits (IEB) the green light to transfer across the pension business it inherited from Fedsure to Capital Alliance.

A group of pension funds, that have a massive R3,9bn claim against IEB, opposed the transfer as it might not have left the company with sufficient cash to satisfy the claim – when that is finally heard. 

After the judgment today, IEB CEO Ciaran Wheelan said this vindicated his view that the funds’ opposition was “misguided and costly for them”.

“Sadly, the real losers here are the very pensioners and workers, whose interests the funds claim to be protecting,” he says. But that’s a little rich, considering that all IEB had to do to avoid the litigation was to provide the funds with a guarantee that, when the main case is finally decided, Investec will ensure any claim is paid.

Although Joffe ruled the “financial effect of the transfer agreement is very little” so it should go ahead, he still had some harsh words for Investec.

In particular, he said Wheelan’s conduct in not revealing to the pension funds that IEB had paid a R290m dividend to Investec this year “was unacceptable”, in light of the concerns raised by the funds.

“His persistence in this non-disclosure, despite advice to the contrary from IEB’s legal representatives, is mystifying and unacceptable and even more worthy of censure,” said Joffe.

Although he said the pension fund’s should pay for the application, he allowed for one notable exception. “As a mark of the court’s displeasure arising from [IEB’s] non-disclosure of the R290m dividend, IEB is not entitled to the costs of one day’s hearing of the application, and is ordered to pay the [pension fund’s] cost of one days hearing,” he said.

If you want a copy of the entire judgment, please email me and I’ll pass it along. I would upload it, but it’s apparently too large. (email: roser@fm.co.za )

The flashpoint was at Bidvest, where Pansy Tlakula had skipped all four meetings of the company’s transformation committee and 75% of the board meetings. When shareholders voted, all other Bidvest directors were re-elected with more than 97% of the vote — but Tlakula got only 67%. The minimum needed is 50%, but the message was clear.

This could have ramifications for Tlakula’s career; she is chief electoral officer of the Independent Electoral Commission and chair of the National Credit Regulator. Tlakula hadn’t responded to the FM’s request for comment by the time of going to press.

When asked, CEO Brian Joffe said he had “very little sympathy” for directors who miss meetings. Chairman Cyril Ramaphosa said: “If people persist in nonattendance, further action will be taken.” Ramaphosa said he would meet with Tlakula to “discuss this matter”. Neither Ramaphosa nor Joffe missed any meetings.

This “nay” vote at Bidvest could galvanise shareholders of other companies to vote off directors who miss meetings. The stakes are high: companies that appoint directors who don’t attend meetings run the risk of being accused of “window-dressing” by appointing people who don’t play any active role.

Awareness of truancy is growing. The three asset managers who follow bestpractice by publishing their voting records all raised similar concerns last year. The Public Investment Corp (PIC) voted against Eddie Funde’s re-election as a director of Murray & Roberts, saying he attended fewer than 75% of the meetings in the past two years, and made it to only half the safety committee meetings. The PIC also voted against James Sondiyazi’s re-election at Blue Financial and the Value Group, as he made it to only half the meetings.

RE:CM voted against reappointing Roger Jenkins to Absa’s board after he missed four of 13 meetings. “We take attendance seriously. If directors don’t have enough time, they should step down,” it said.

Fraters voted against re-electing Zoli Diliza to Growthpoint last December, and Geoffrey Howe to Investec in August, citing “a poor attendance record”.

Bidvest’s AGMs are usually absorbing affairs, with activist Theo Botha lobbing missiles at Joffe. This year was no exception, as he grilled Bidvest on why its audit committee contained too few independent directors to comply with the King governance code.

Joffe closed the meeting by imploring the press not to “sensationalise” the credit crisis. “It’s not panic states in any shape or form: people are still going to restaurants, people are still driving cars, babies are still being born.”

It was a soliloquy long on martyrdom (“I just want my life back”; “Sars is like a terrorist organisation”), tempered by a few concessions (“I accept I’m not squeaky clean” and “I should have disclosed details of my trusts”).

But as King sketched this scenario while waiters laid out the sushi, there was something disturbing about this protest: was this not a man who has allegedly tried to cheat the system and other taxpayers and was squealing now that he’d been caught?

Facing SA’s biggest tax claim of R2,3bn (R913m in personal tax and R1,4bn for his trust, Ben Nevis), King has already spent R150m on silk-tongued lawyers like Gilbert Marcus.

There is a view that King represents the worst that “buccaneer capitalism” has to offer SA, that those who sail the market believe they can take liberties without being held accountable.

They wouldn’t be far wrong. Says independent forensic expert David Klatzow: “It’s not only the rich corporate guys who’re getting away with it. The general diminishment of prosecutorial skills means you can’t even get a simple case investigated in the townships, let alone one involving smart guys with a bunch of lawyers.”

The list of corporate high-flyers, who were charged years ago but have not had judgment handed down, tells a tale of a prosecuting authority either unable to nail crooks, or one that shouldn’t have made the arrests.

The evidence? Tigon CEO Gary Porritt, arrested in December 2002, and director Sue Bennett, who was arrested in March 2003, are still mired in Legal Aid Board applications in Judge Geraldine Borchers’ court, and unlikely to be tried on the 3160 charges anytime soon.

Then there’s Fidentia founder J Arthur Brown, who faces three criminal cases — none of which is close to being heard.

In the past three years, former JCI chairman Roger Kebble has had tax evasion charges and fraud charges struck from the roll when the state realised it couldn’t prove its case. The state hasn’t even tried to charge those who helped Kebble’s son, Brett, steal billions from JCI and Randgold & Exploration in the years leading to Brett’s murder in 2005.

At least in the case of Regal Bank CEO Jeff Levenstein, arrested for fraud in 2003, final argument is now being heard. A verdict could still emerge this year.

Saambou is another cautionary tale. Here, three executives — former CEO Charles Myburgh, Charles Edwards and Gerhardus de Clercq — were arrested in 2003. After numerous delays, Myburgh died last December before the verdict.

In May, Judge Willem van der Merwe acquitted Edwards and de Clercq, and was scathing about the state’s case, saying the investigation looked shoddy.

It seems that the only way prosecutors can put corporate crooks behind bars is through plea deals. Fidentia’s accountant, Graham Maddock, and Jack Milne, who helped Porritt cheat investors, went to jail thanks to plea bargains.

Porritt told the FM that the state hadn’t made it easy for itself. “They could have taken less than two-and-a-half years to give us a charge sheet, for one thing … without us having to go to court to compel them to.”

John Burke, head of listings at the JSE who will testify against Porritt, says: “The delays are very frustrating. With Gary Porritt, it’s been quite a few years now, and nothing has happened.”

Whether King is guilty or innocent, the delays in his case illustrate that buccaneer capitalism may well pay; that even if people construct sophisticated scams, the state is likely to bungle it when it comes to prosecuting any case.

The state hasn’t done itself any favours by hitting King with a 200000-page indictment that defies belief. In the Pretoria high court, the boxes of papers sprawl across an entire wall, with the remainder spilling into the gallery looming above Judge Ronnie Bosielo. King says even if his lawyers work through 400 pages a day, it would take more than two years simply to process the docket.

So why has King’s case taken so long? Listening to the businessman at the Johannesburg Country Club, it seems a “clash of egos” between him and tax czar Pravin Gordhan has elevated a mundane tax dispute into a banner-headline proxy for corporate thievery.

It dates back to the R1,2bn windfall that King made on Specialised Outsourcing, which listed on the JSE in 1997 at R1,20/share. Its 71%-shareholder was a trust known as Ben Nevis (King was the beneficiary), which was registered in the tax haven of the British Virgin Islands.

Within a year of listing, Specialised Outsourcing’s share price soared to R76,50 as analysts gushed about King’s business model of providing treasury services for parastatals like Umgeni Water.

Back then, directors didn’t have to disclose if they were buying or selling shares — an important barometer of the health of a company. So when it emerged that King (or Ben Nevis) had sold his stake for R1,2bn, Specialised Outsourcing’s shares plummeted (see share price graph above). With the proceeds, Ben Nevis funded King’s luxury purchases in SA, including a Ferrari and three houses in the fancy suburb of Sandhurst, which he razed to build a 4000m² mansion. As the SA Revenue Service (Sars) testily points out, even his wristwatch and golf clubs belong to Ben Nevis, not King.

So, how did King become Sars’s target? In 2000, Charles Chipps, an elderly Sars investigator, noticed pictures in the FM of the high-flying King at his house with the Irma Stern painting he bought for a record R1,76m on auction. He wondered if this was the same man who claimed he earned R80000/ year and had applied to be deregistered as a taxpayer?

In his 1994 to 2001 tax returns, when asked “are you or your minor children beneficiaries of a trust?”, King ticked no. So Chipps wrote to King, asking him why Ben Nevis shouldn’t pay tax and how it was that with only R80000/year “declared income”, he had bought the Irma Stern painting and wine farms in the Western Cape.

King was arrested in May 2002 and was soon facing 322 criminal charges.

At the heart of the case is the tedious issue of whether the cash Ben Nevis made from selling the shares was capital (like you make by selling your house, and not taxable as there was no capital gains tax at that stage), or revenue (profit made through trading, and the main source of income).

King says his latest press conference is an effort to “counter the spin doctoring of Sars”. But it’s also clear he wants the case to disappear.

Yet a new scandal has erupted. Sars has laid a new charge against King for allegedly trying to bribe one of its executive committee members, Leonard Radebe. Sars spokesman Adrian Lackay says: “We laid a criminal charge with the office of serious economic offences, and our claim is that King submitted a fraudulent document to court, and tried to corrupt one of our general managers.”

Lackay won’t provide further details, but the allegation is that King was willing to pay Radebe more than R15m.

But according to King, Radebe approached him a few months back to settle the case. E-mails bounced back and forth and eventually culminated in what for King must be the equivalent of the holy grail — an agreement allowing him to pay R300m as a “final settlement” in exchange for Sars withdrawing its charges. When Gordhan got wind of Radebe’s “deal”, he suspended Radebe (who has since quit) and claimed the deal was fraudulent.

For an outsider, there are troubling elements to this “deal”. First, Radebe was in charge of customs, so why he was doing a deal with King is uncertain.

King responds: “I looked on Sars’s website, and saw that Radebe was on its executive committee, so it all checked out. I asked Radebe if Gordhan was on board with the deal, and he said he was.”

Second, the eight-page agreement is signed by King and a firm called “Delville Whatley & Associates” — a Rosettenville tax firm that claims it was mandated by Sars. But Sars says it “does not use tax practitioners to sign settlement agreements on its behalf”.

There are three letters attached to the agreement, allegedly giving Delville Whatley the mandate to “settle the dispute” and withdraw the criminal charges.

The letters are signed by a “P Erasmus” from Sars’s Germiston office. But Sars says P Erasmus does not exist.

Also, Erasmus’s room, 115, referred to as the source of the letter, is actually a bathroom in Sars’s Germiston office. (See document, right.)

In a court affidavit in June, Brett Kebble’s murder-accused, Glen Agliotti, implies that the Germiston Sars office may be compromised.

In one case, he says Clinton Nassif agreed to sort out someone’s personal tax issues by “transferring his file to the Sars Germiston office where Mauro Sabatini claimed to have influence”.

Elsewhere, Agliotti says he “approached Dave King, but he did not pay me any money”. At last week’s press conference, King admits meeting Agliotti, but said he wasn’t going to do anything “underhand” to bury his tax case.

But if the letters are fake, how could King believe he’d get away with it, or enforce it in court? Says King: “The absurdity of anyone — myself or Leonard Radebe — believing a deal could be done in an underhand way is huge. The only conclusion I can come to is that Radebe acted in good faith.”

The need for any deal to be validated by Gordhan makes the possibility of a scam “nonexistent”, he says.

On the bribery claim, he adds: “Well, I just don’t know how that would have worked. Whether anyone was bribed or not, the agreement would have to have gone to Gordhan. So it defies logic that I’d fight this for eight years and then resort to petty bribery.”

King believes P Erasmus does exist. “Erasmus works in Radebe’s office. When the letter came through from Erasmus, I asked [my bookkeeper] to find out who Erasmus was. She then told me she’d confirmed that he does exist.”

But King acknowledges there is something odd about the letter. He says the “most likely scenario” is that Radebe approached him in good faith, but when the matter spun out of control, officials distanced themselves from the deal.

Nonetheless, King served legal papers on Sars last week to enforce the settlement. “I’m saying that whatever you [Sars] did behind the scenes is your problem, and if something funny happened because of certain camps inside Sars, then it’s not my problem.”

King’s efforts to “come clean” at last week’s press conference were strangely ambiguous. He admits he should have disclosed the existence of the trusts, like Ben Nevis. “And the fact is, I do owe them money that I should have paid.”

But like a schoolboy forced to apologise, the conviction of this apology wasn’t there. He quickly points out that Ben Nevis’s existence was disclosed in Specialised Outsourcing’s listing prospectus, and says it is “untenable” to say he “went out of my way to conceal my involvement with the trusts”.

The son of a policeman, King arrived in SA three decades ago. An accountant, he still retains his Glaswegian accent and invested (or, rather, Metlika invested) £20m in Rangers Football Club in 2000.

Throughout the media briefing, King’s steely eyes underlined his bulletproof conviction of what he said, and he presents a compelling argument.

But why didn’t he just pay tax on his windfall? King says he was part of a “national sport” and “no different from many other SA business people, where we had overseas trusts and structures before 1994. It was part of the SA way”.

He also points to Sars’s numerous “schoolboy errors” in calculating its claim, using press reports and double-counting share sales. For example, Sars’s estimate of his assets includes R20m for buying AmaZulu football club (“I actually paid R1,” he says). King says 92% of Sars’s claim is “easily dismissed”. “Giving the benefit of the doubt to Sars”, he can come up with a R43m tax bill at most.

As King’s funds are frozen, how is he able to maintain his R80m Sandhurst mansion, and throw lavish events at the Johannesburg Country Club? King is vague: “I’m a businessman, I’ve got things I’m doing. I don’t have a bond on my house. The cars are there … I’ve got the assets I need.”

He also owns 21% of JSE-listed services company Micromega, says CEO Greg Morris. This is worth R32,6m.

But this doesn’t show in Micromega’s annual report. Instead, HSBC Investment Management, which owns 22% of the company, is listed as the largest shareholder. Morris says this HSBC shareholding belongs to King.

What is more surprising is that the largest shareholder listed in Micromega’s 2006 annual report — Drenk Services, which owned 53% — has disappeared in the 2007 report.

Morris explains that during the past year, “Drenk unbundled into six or seven [smaller] entities”.

Morris says King plays no role at Micromega:“He’s been quite focused on the [tax case]. I touch base with him; I still regard him as a good friend.”

He should — Morris was recruited from Umgeni Water, where Specialised Outsourcing landed a contract in 1997. After claims arose that King bribed Morris, both were arrested in 2003 but the charges were withdrawn. King says it was “a co-ordinated attempt by the Scorpions and [Gordhan] to put me under pressure to settle my tax dispute — a despicable abuse of state power”.

But with tension between King and Gordhan at unprecedented levels, any “settlement” soon is unlikely.

So why is Sars, so efficient at collecting cash, taking so long to tie up the King case? “It’s a combination of factors,” saysLackay. “King has the resources to counter every court order we issue.”

Sars had to go the supreme court of appeal seven times between 2002 and February this year to fight King. “We have to follow the legal process to the letter,” says Lackay. “This is the unique case of a very wealthy taxpayer who is able to frustrate this. But we have to apply the law equally to everyone.”

Yet the case resonates beyond the Sandhurst mansion and the Sars office in Brooklyn: it has become a flash point that has polarised opinion.

The comments of ordinary South Africans on websites like Moneyweb and Fin24 highlight this contrast: KWK writes: “King is not a hero. He is a billionaire that has paid less tax than our tea lady at work for the past eight years.”

Mad Hatter says King has “robbed us the salaries of nurses and police-officers”.

As with Tigon, there is also anger that King hasn’t yet answered the charges in court. NPA spokesman Tlali Tlali points out that financial cases are far more complicated to prove than shoplifting, where there is television footage. “In many instances, we also have to deal with pretrial litigation where [the accused] finds court challenges to avoid going to trial and dealing with the matters on the merits,” he says.

But the NPA does have the ability to unravel commercial crime, he says, and “we carry out regular tests to check that our staff have the skills to do this”.

Statistics in an NPA report suggest commercial crimes are being prosecuted. Last year, 1844 cases were enrolled for trial by the specialised commercial crimes unit (up from 2003’s 625) and there was a 94% conviction rate.

But could it be that the unit is only picking the low-hanging fruit, the easy cases? As independent foreign expert Klatzow notes, there have been no arrests — let alone convictions — for the “bulking” at Alexander Forbes, or the price-fixing contraventions by Tiger Brands. “The system can’t even cope with everyday crimes — at court, there are disillusioned magistrates, incompetent prosecutors and translators who play solitaire all day.”

The disbanding of the Scorpions, says Klatzow, is creating a culture of zero accountability. “We’re in a situation that some people have been warning about for some time: the law of the jungle.”

Institute for Security Studies researcher Hennie van Vuuren says the state should focus on fraud committed by the business and political elite, otherwise “this patronage could become systemic”.

“Not to do so suggests that the laws which apply to the rich and politically connected are not the same as those that apply to the poor.”

Though the NPA has been roundly abused by those with influence, it needs to show it isn’t losing its grip on sophisticated financial crime. The alternative is a “get out of jail free” card that crooks can rely on.

 

Within five years, chairman Kenneth Lay and CEO Jeffrey Skilling were convicted of intent to commit securities and wire fraud. Lay died of a heart attack before he was sentenced; Skilling is serving a 24-year jail term.

Despite the complexity of a case woven behind energy swaps and derivative contracts and argued in one of the most litigious societies in the world, the US trial was wrapped up in two months – including testimony from 22 witnesses.

There are other cases that point to a highly efficient system that is designed to punish corporate crooks. In 2001 US lifestyle guru Martha Stewart was found guilty of insider trading after she dumped about US$228 000 worth of ImClone shares the day before the Food & Drug Administration rejected ImClone’s application for approval of a cancer drug. The stock plunged on the announcement. Just three years later, she was serving a five-month sentence.

Yet in SA, consider the case of Tigon CEO Gary Porritt, who was arrested in December 2002, and director Sue Bennett, who was arrested four months later.

While Skilling has already served nearly two years of his 24-year sentence, Porritt and Bennett are still fighting in court to get free legal defence (as the constitution suggests they can) from the Legal Aid Board.

But this is a precursor to the main case, which still isn’t close to being tried in court. Says Porritt: “Right from the beginning, the state has delayed it.”

In legal papers three years ago, Porritt bemoaned the nine postponements (at that stage), claiming he was “treated as a pariah by many former friends, colleagues and associates… there is a tremendous reluctance in the business community to contract [me as I am] perceived to be a criminal due to the prolonged period the state has taken to bring the trial to court.”

The same could be said of Regal Bank CEO Jeff Levenstein, who was arrested in May 2003. After numerous delays, final arguments are now taking place. Levenstein’s attorney, Michael Werner, says: “It should have been wrapped up a long time ago, but factually we started it only some time last year. We ended up in court for 110 days.”

So why has it taken so long? Werner explains: “The facts of the case are very complicated, dealing with things like section 38 and section 424 contraventions of the Companies Act. The majority of the charges relate to financial structures, which are quite complex.”

Abroad, tax cases have been prosecuted with some zeal. To avoid the Internal Revenue Service (IRS), the first winner of reality TV show Survivor, Richard Hatch, should have stayed on the island of Palau Tiga off the coast of Borneo where the series was shot.

He was convicted in 2006 of tax evasion on his $1m prize and sentenced to 51 months in prison. Just how he thought he could get away with this, when millions of TV viewers saw him collect the cheque, is a mystery.

Hotelier and real estate magnate Leona Helmsley was not only famous for leaving $12m in her will to her dog, Trouble, but also for getting into trouble with the IRS. She was convicted in 1989 of $1,2m federal income tax evasion. She once said: “Only the little people pay taxes.”

Gangster Al Capone once remarked that tax laws were a joke because “the government can’t collect legal taxes on illegal money”. That didn’t help when the IRS charged the infamous Chicago mob boss with failure to pay four years’ worth of taxes. Capone was sentenced to 11 years in jail and an $80 000 fine in 1931.

More recently, actor Wesley Snipes was prevented from entering SA for presenting a fake passport, and was arrested in 2006 for not paying taxes of more than $12m. In 1997 Snipes declared no income, but the US government says he earned $7m that year. In February, he was found guilty of failing to file returns.

It’s little consolation for Snipes that had he been arrested in SA instead, he’d have many years before expecting to see the inside of a jail cell.

Under this deal, Sappi gets four M-Real’s paper mills in Europe and the order books and intellectual property of M-Real’s coated graphic paper business. Sappi will then account for 18% of the European coated graphic paper industry. But at the shareholder vote last Monday, Sappi got anything but a ringing endorsement of its plans.

For its special resolution to increase its share issue by 31% to pay for M-Real, it needed a “yes” vote from 75% of shareholders. It got 79,7% approval.

The purchase itself (which needed 50% approval) also got 79,9% approval, with 12% against and 8,1% abstaining. (In its statement after, Sappi said its deal was “passed by the requisite majority”.)

For a large corporate deal, this is almost unheard of: even when Citigroup recommended shareholders reject Standard Bank’s Chinese deal, only 4% of shareholders voted against it. So the fact that 20% of shareholders don’t buy Sappi’s vision should concern CEO Ralph Boëttger. The FM established the Industrial Development Corp (IDC) — its second-largest beneficial shareholder with 6,7% — abstained from voting.

But analysts weren’t convinced either. A broker’s note from Macquarie First South said: “We dispute the financial rationale for this transaction, particularly [as] the funding includes a major rights issue, which may prove challenging in the current volatile market conditions.”

Answering activist Theo Botha at the meeting, Boëttger said “this deal is not being done because of its profitability”.

Which is probably just as well, given that the business being bought made an after-tax loss of US$57,9m for the six months to June — a reversal from its $91m profit in 2007.

This is a big gamble, as Sappi’s European division itself made a loss of $111m for its quarter to September.

But Boëttger argued that “synergies will play an important role” in making this deal work. Sappi is bargaining that by the third year after the deal it will be getting à120m worth of “synergies” from this deal each year.

At the meeting, Boëttger admitted that the first few months would be “strained”, but said, in the long term: “We are confident that [the deal] will increase profits and returns.”

However, as chairman Danie Cronje said: “At the heart of this transaction is the elimination of capacity.” In all, Sappi believes that after this deal, there will be 1Mt less capacity in the European coated paper market — about a tenth less.

Partly, this is because M-Real has decided to shut down about 600000t of capacity, and other paper companies in Europe have already announced a reduction of 400000t.

This, fingers-crossed, should allow the hard-up European paper industry to hike prices. Boëttger said Sappi has already (for the first time in seven years) pushed through some price increases.

But the market isn’t convinced either.

On the day the deal was announced in September, Sappi’s shares lost nearly 1%, while M-Real’s stock rocketed 24% on the Helsinki Stock Exchange.

Since then, M-Real has given up 7,4% of those gains. But compare this to Sappi: since it announced the deal, its stock has shed 34% — a loss of R5,6bn in shareholder value within two months.

On Friday alone, after announcing it would issue new shares at R20,27 — a 65% discount to the closing share price of R58 last week — its stock fell 7,4%.

Perhaps this is why Sappi employed communications firm Brunswick at a cost of $800000 for this deal — multiples of the R34000 it is paying the JSE.

Sappi will have its hands full trying to prove that, facing huge losses in its European division, it hasn’t just made its life a whole lot more difficult.

One of the sweetest deals

Last week, Investec was back in another bruising court battle that saw it spar for five days with 11 pension funds in Johannesburg’s High Court. Investec knows the dust-yellowed windows of the dilapidated court well after clashing with shareholders of Brett Kebble’s former company JCI in a seperate case dating back to 2006.

As last weeks’ case stemmed from Investec’s 2001 takeover of Arnold Basserabie’s stricken insurer Fedsure, CEO Stephen Koseff might want to rethink doing deals with companies in trouble.

Altogether, 13 pension funds are suing Investec Employee Benefits (IEB) over ‘guarantees’ they were given by Fedsure, who had invested their pensioners’ cash. The funds claim Fedsure didn’t honour these guarantees in 2000 and 2001 and declared ‘zero bonuses’.

The pension funds teamed up  to claim the money they say they should have been paid under these guaranteed policies. By August, the combined value of these claims stood at R3,9bn. If, as some think, the case only finishes in 2013, IEB could face a R5,5bn claim.

Judge Meyer Joffe, who presided over last week’s hearing, quipped  “if the rand continues where it is going, maybe you’ll still be able to buy something with that”.

Last week’s court action wasn’t even the main event: it was an attempt by 9 of the 13 funds to prevent Investec transferring R13,8m of ‘assets’ to Liberty’s Capital Alliance, which had already been administering these policies for years.

Normally, this sort of ‘section 37’ court application is a formality: a company does a deal and goes to court with a yawn to rubber-stamp the transfer.

But Joffe wasn’t kidding when, submerged underneath thousands of pages of affidavits and actuary reports, he said wide-eyed, “this is the most contested ex-parte application I’ve ever had”.

The thrust of the pension funds’ argument is this: if Joffe approves the transfer of the R13,8bn to Capital Allliance, IEB might not have enough cash to satisfy their R3,9bn legal claim if the pension funds succeed when the main case eventually goes to court.

In legal papers, the funds say there would be a “a massive shortfall in available assets to back the claims”. IEB’s financials for the year to March shows it has a net asset value of R3,4bn — which already means it couldn’t pay a R3,9bn claim.

IEB’s argument is that this is simply an “accounting change” and  no actual assets are changing hands. The real change occurred between 2001 and 2005, when Investec put in place the “reinsurance deal” with Capital Alliance and shifted over R13,8bn in assets.

Andrew Rayner, IEB’s actuary, says of this transfer is approved now, “the solvency position of [IEB and Capital Alliance] will be unchanged”.

The pension funds don’t buy the view that this is simply an ’accounting entry’.

In legal papers, they say “in reality, there has only been a payment of a reinsurance premium, which the reinsurance agreements shall be repaid in certain circumstances”.

Briefly, those are the facts, and Joffe has said he’ll come back with a ruling before the end of December.

Business practices

But the worrying part for Investec is the accusation that has emerged about the way it does business. Ciaran Whelan, the Irish-born CEO of Investec Employee Benefits who came to SA after qualifying as a chartered accountant in the 1980s, attended every day of what was often soporific argument last week.

But he stands accused by the  funds of deliberately hiding “material facts” – a claim his lawyers claim is without merit. Since buying Fedsure, IEB has declared dividends out of IEB of nearly R4,4bn, out of profits of R5,9bn. This led to suggestions it was simply “asset stripping” Fedsure, “denuding itself of assets, and rendering the claims of the pension funds worthless”.

For its year to March, IEB made profit of R740m, and paid two dividends to Investec out of its reserves: R1bn initially, and another R290m at the end of the year.

But in its papers, IEB’s lawyers say this “dividend stripping claim” is “speculative, if not reckless”, pointing out there is “no credible evidence” of this.

However, with IEB’s assets a contentious point, it didn’t help that Whelan didn’t immediately reveal that IEB had declared that last R290m dividend to Investec. At the time, Whelan said there had been “full disclosure”.

But later, Whelan filed a “supplementary affidavit” admitting this dividend payment. He says in the affidavit “I did not disclose the … payment of the dividend [as] I took the view that such disclosure was not relevant”.

Advocate Greg Harpur, acting for the pension funds, said Whelan’s decision not to reveal this dividend while protesting “prevailed over the views expressed by its own counsel that there should be such disclosure”. He said Whelan’s earlier protestation that there was full disclosure was “clearly untrue”.

The funds also claim “IEB’s approach is not consistent with their appointed role as a guardian of pensioners money, and the trust and fiduciary position they should have been fulfilling”. 

Harpur claims “IEB engaged the pension funds in protracted litigation, refusing to furnish any proper accounting, and refusing to explain many apparent contradictions”.

He says last week’s court action could also have been avoided had Investec been willing to provide the pension funds with a guarantee that any successful claim would be honoured. But when the funds asked, Investec refused.

FSB reluctant to intervene 

So what are the consequences if Joffe does prevent the transfer going ahead?

IEB’s lawyers say it would be “inconvenient” and “more costly for policyholders”, especially as IEB “no longer has the ability to effectively administer the business of a long-term insurer”.

The pension funds fire back that this discomfort is “insignificant” compared to the prejudice that the pension funds would suffer if there weren’t sufficient assets to meet their legal claims.

The FSB has strangely decided not to intervene, although it met with both parties. CEO Dube Tshidi says: “we regulate both [IEB as an insurer] and the pension funds, and this matter is before the courts”.

But after IEB discussed  its talks with the FSB, Tshidi told the pension funds: “we have informed Investec of our extreme displeasure that they chose to issue a statement … in which they presume to speak on behalf of the FSB”.

Playing referee is a fine line though. If the funds win and IEB can’t pay, it could reflect very badly on the FSB.

Throughout last week’s hearings, it was clear that the fact the funds hadn’t yet proven their R3,9bn claim would be a problem. For one thing, you can’t technically claim IEB is insolvent because their R3,9bn is “disputed”, and so not a proven liability. Advocate Dennis Fine, speaking for Investec, argued IEB was “factually solvent by R3,4bn”.

Says Fine: “It is not necessary … to include any contingent liability as an actual liability in the measure of factual solvency”.

Gary Rademeyer, lawyer for 11 of the funds, told the FM  his clients were wedged between a rock and a hard place. “If we’re successful in the main case, we know there won’t be sufficient assets to pay our claim. But we didn’t want to get to the end and people ask why we didn’t oppose the transfer of assets”.

Whatever verdict Joffe returns, this is only the opening salvo of what could be a protracted and bitter legal case that could have a big impact on the lives of thousands of pensioners.
—