Will Glencore sustain Optimum BEE?

Will Optimum Coal sustain its impressive black economic empowerment (BEE) credentials under the new ownership of global commodities giant Glencore?

This question has become a focal point as the Glencore takeover, in partnership with Cyril Ramaphosa, comes close to a conclusion. The London listed commodities giant, secured approval from the competition authorities to go ahead with its takeover of Optimum. The transaction is now awaiting approval from the Department of Mineral Resources (DMR). Having secured about 67% of Optimum shares Glencore would soon make a mandatory offer to minorities and delist Optimum.

Optimum has developed to be one of the largest coal miners in the country with revenue approaching the R6bn mark from R3.3bn when the company listed about 3 years ago. It has become a model BEE entity attracting all sorts of accolades and awards. “Our vision to become the country`s benchmark South African black owned and controlled coal mining and exploration group remains core to our overall strategy,” declares the group.

There were concerns that the Glencore takeover would disturb Optimum’s BEE momentum. These concerns were rather partly informed by theoretical assumptions which have it that empowerment was bound to suffer at the hands of a foreign entity. The fact that Glencore is delisting Optimum has also fueled these concerns. The argument is; as a private entity Optimum will face less pressure to keep up its BEE performance because private entities face less public scrutiny.

Prominent BEE analyst Ajay Lalu was quoted saying the takeover of Optimum by Glencore may not good for BEE. “We believe that as Glencore looks at establishing itself as an operating entity in South Africa, it has to consider its own empowerment status and this should be a priority for the directors and shareholders of Glencore.” He warned that if Glencore does not come up with a good BEE plan it might not secure approval from the DMR. He was also quoted saying “I don’t think the DMR would approve the transaction unless a minimum level of 26% black ownership is maintained.”

BEE watchers might find comfort from Glencore’s partnership with prominent businessman Cyril Ramaphosa in this takeover. Ramaphosa has been installed as chairman of Optimum after the London based wasted no time in remaking the board.  Soon after the transaction secured approval from the competition authorities, Optimum rung radical changes to its board which saw seven old board members depart. Out are: Doug Gain who was financial director and Bobby Godsell who was chairman. Also out are and non executive directors Tom Boorman, Deon Dhlomo, Peter Gain, Elias Monkoe, Mlungisi Kwini and Lulu Letlape.

The new look board chaired by Ramaphosa includes new members Richard Cohen and Clinton Ephron. Cohen also assumes financial director position replacing Gain. Nomavuso Mnxasana, Loutjie Smit and Paul Nkuna survived the Glencore chop. More significantly Mike Teke retains his CEO position. The new board will have four black members out of a total of seven. As such it could be that Glencore is committed to the promise it made last year that it will maintain Optimum’s BEE momentum. “The Consortium is committed to black economic empowerment and recognises that Optimum is a true leader in the field of transformation,” said Glencore in a statement issued towards the end of last year.

Ownership may be a challenge. A significant portion of the shares acquired by Glencore to get to the 67% mark came from black shareholders and mainly founding members of Optimum. This helped the group to boast BEE ownership in excess of 50%. There were no details to the Glencore consortium but the Ramaphosa factor may take care of this. In addition Glencore has indicated that it might maintain the broad based ownership element in Optimum. This comes through two trusts, Optimum Employee Benefit Trust and the Optimum Community Trust jointly held about 50 million which translates to about 19% of Optimum shares. In its September statement Glencore said “The Consortium understands that, pursuant to existing contractual arrangements, the BEE Companies, the Optimum Employee Benefit Trust and the Optimum Community Trust are subject to restrictions which will affect their ability to accept the Proposed Offer. In addition to these restrictions, Warrior and Micsan have, pursuant to the conclusion of the Acquisition Agreements, irrevocably undertaken in favour of the Consortium not to accept the Proposed Offer”.

“The Consortium recognises the value in having the Trusts as key shareholders in Optimum and believes that the significant stake held by the Trusts contributes to the alignment of the incentives of the workforce of Optimum and the community with those of shareholders.  The Consortium informed the Board of its willingness to consult with Optimum and the Trusts regarding the Trusts’ ability to participate in the Proposed Offer”.

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