- January 18, 2008
- Posted by: admin
- Category: General
THE TUSSLE WITH JOHNNIC HCI’a dubious tactics with Johnnic have left it vulnerable to legal action.
Johnny Copelyn’s Hosken Consolidated Investments (HCI) may have pushed one ethical boundary too many. As a court battle rages with the Mpumalanga gambling board, the gaming authority has raised the prospect of asking the Scorpions to probe HCI’s behaviour, which it says was “not fit and proper.”
The gambling board has refused to approve HCI’s purchase of 50% of Fabvest Investment holdings (FIH) — an important step for HCI to take control of Tsogo Sun, owner of casinos like Montecasino. The board refused HCI’s application, citing “unsuitable conduct” as one of its reasons.
In volumes of board minutes seen by the FM, the gaming authority particularly raised concerns about the “improper way in which consultant Peter Venison was paid by HCI.
The story starts during HCI’s bloody tussle with Johnnic holdings from 2004 to 2005 for control of Tsogo Investment Holdings (TIH). Ultiimately, HC1 won by taking control of Johnnic, unceremoniously ejecting CEO Christine Ramon and chairman Cyril Ramaphosa.
But in mid-2005, Johnnic was in the ascendancy and had signed a deal to buy 50% of Fill from the ultimate controlling company, the Fabcos Trust.
This was important as it would have given Johnnic an effective 19% of TIH and put it in a plum position to win the battle for Tsogo. As usual, Johnnic needed gambling board approval for that deal. If it couldn’t secure approval before an expiry date, Fabcos would have been free to deal with HCI.
At the time, Peter Venison was acting as a consultant to Fabcos on its plans to sell its stake in Tsogo Sun. Venison himself is something of a gambling guru, with a history of working with Sol Kerzner. At the inception of Southern Sun in 1971, Venison became its deputy MD, and later became executive chairman of Sun International. He quit in 2000 to form Venison & Associates.
However, in April 2005, HCI cut a deal with Venison to give him 200 000 of its shares as a “brokerage fee” (then worth R6m). While that might have been suspect in itself because, as HCI’s rival Johnnic was in the midst of a deal with Fabcos, what made it worse was a particular clause in the Venison agreement.
The exact clause stated that HCI would issue “200 000 HCI shares to Venison . .. [if ] the Fabcos Trust signed an agreement, if required, that it will not extend the date for gambling board approval in the agreement between the Fabcos Trust and Johnnic”. The same clause also mentions a further 200 000 share issue to Venison but is not clear about the conditions for that. If that happened, it would have opened the door for HCI to get the Fabcos stake.
An inspection report by the Mpumalanga board said “the conduct by HC1, to enter into an agreement with a person who advises Fabcos on its gaming interests and represents Fabcos on the TIHl and Tsogo Sun Holdings board, to ensure that the Fabcos Trust refuses to extend the date for gambling board approval to Johnnic, is not the conduct of a fit and proper person.”
What made it all the more suspicious was that the board says HCI didn’t reveal the Venison deal until after it had asked for more details. The board claimed this was tantamount to misleading it.
Copelvn, however, insists his company did not do anything untoward. In affidavits, he says the deal was “entered into at arm’s-length and with the prior knowledge and approval of Fabcos,
As you might expect, he says HCI’s failure to reveal this Venison agreement was “not intended to be devious or to mislead”.
In his affidavit, Venison says “at all times, I acted impartially, independently and in the best interests of Fabcos/FabVest”. He says he was employed to act as a broker and independent dealmaker for Fabcos”. and Fabcos agreed that he could be paid a broker fee by whoever bought the other 50% of FIH.
However, the gambling board doesn’t buy this argument. In one report, the board says these acts of HCI may be seen as bribes in order to obtain favourable treatment from Fabcos in choosing between Johnnic and HCI for the sale of the Fahcos interest”.
At a gambling board meeting on October 26, it was noted that the compliance committee recommends to the board that the matter he referred to the Scorpions or other relevant authorities for further investigation”.
A month later, a gambling board meeting reiterated that there was a concern that a corrupt relationship may have existed between HCI and Mr Venison which may need to he considered by a relevant authority”.
In an interview with the FM, Copelyn says he still isn’t clear what HCI did wrong.
it’s tine to say, look, you took a person who was part of the seller and paid him a personal amount to act against the interests of the seller, but we didn’t do that. He was not part of the seller, he wasn’t part of the decision to sell, as he was totally outside Fabcos, he says.
But to the outsider, it appears that Venison was clearly a related party. For one thing, Venison was advising Fabcos. even though he wasn’t a director or a trustee of the Fabcos Trust, which was the ultimate shareholder. But given the close links throughout the Fabcos chain, HCI’s payments look suspect.
Copelvn argues: “He was not a trustee of the Fabcos Trust nor a director of the company selling the shares, so he was not a conflicted person. He was emploved as an adviser to the company we were buying (FIH).”
HCI got the advice of senior counsel John Newgatc and Alfred Cockrell. about whether this deal was unlawful. They concluded that “neither HCI nor Venison acted in breach of the Corruption Act”, nor did they break any laws.
But did this mean they didn’t breach any ethical boundaries — a key concern of the gambling board considering whether HCI was a lit and proper” entity?
This wasn’t its only questionable behaviour in the Johnnic battle that led the gambling board to its unfavourable conclusions about HCI’s character.
At the height of the battle with Johnnic, Copelvn was quietly building up a stake in Johnnic. which had reached 30% in mid-2005. At that stage. Johnnic ‘vent to the gambling boards asking fhr approval for the Fabcos purchase, and pointed to the fact that it was properly empowered because the black- owned HCI held 30% of its shares at that stage.
Copelyn was furious that Johnnic was using HCI’s empowerment as an argument for gambling board approval. So he told the gambling board that HCI would be “selling” its shares in Johnnic to its white directors (being Copelvn, Brian Schreiner and Michael Jacobson), while retaining a call option to buy the shares back later.
It was indisputably dirty tricks stuff: the aim was purely to thwart Johnnic, and came soon after Johnnic’s shareholders refused to give Copelyn a seat on the board.
But things get murkier. In June 2005, Copelyn told the gambling board that this “transaction has now been implemented, in terms of which the [HCI] shareholding has been sold to Schreiner, Copelvn and Jacobson”.
Yet the Mpumalanga gambling board inspectors believe this was “misleading, because no sale had actually taken place. In fact, HCI had decided not to go ahead with the transfer, after Johnnic had got approval.
Though Copelyn backtracked and put this down to a miscommunication, the board said that explanation as “highly doubtful.”
“HCI may have intended to mislead the board … to ensure that Johnnic would not be able to comply on June 30 2005 with the [empowerment] requirement… that Johnnic had to be at least 25% black owned.
In his affidavit, Copelvn said it was not HCI’s intention to misrepresent the transaction”, as his company “had every intention of proceeding with the sale”.
But this will only place further question marks over HCI, as it had firmly told the gambling board that the deal, which actually never took place at all, had already been implemented.
When it comes to that trick, Copelvn is unrepentant.
“The thing that is unclear to me even now is, what is the complaint? I don’t feel what we did was unjustified, and certainly not unlawful,” he told the FM.
“Why should we have allowed them to take advantage of our shareholding to get something that was contrary to our interests? What is true, though, is that when there is a public spat. nothing looks great and I think that’s the case. But I’ve no doubt it was proper and legitimate, he says.
These two actions appear to starkly contradict Copelyn’s picture of HCI as a company wedged into a corner and forced to defend itself against marauding invaders.
To support his view, Copelvn describes how others manipulated the process.
Take Fabcos: according to Copelyn. when Fabcos first wanted to sell its share in Tsogo, it approached Johnnic. Johnnic said it would pay R265m, so Fabeos went to HCI and said it wanted R295m.
“We said sure. But then they went back to Johnnic and said, we don’t want to sell to HCI but they’re willing to give us R295mi and here’s a letter from HCI to prove it. Do I think that’s nice? I absolutely don’t but that’s how the Johnnic deal got done. They used us to jemmy up the price by R30m.” he says.
Copelvn says HCI wound up bidding for Johnnic not out of some Machiavellian strategy but “purely to defend ourselves.” He says HCI put forward a lot of compromise ideas, but “thev were so full of themselves,” he says.
For a start, he says HCI offered to team up with Johnnic, and place all its Tsogo assets in Johnnic — but only if Johnnic played ball and gave HCI seats on its board. But Ramon refused to do this and teamed up with Nafcoc instead.
Copelvn says HCI was forced into a corner because Ramon’s plans were to take over Fabcos, have Nafcoc as a 34,9% shareholder and own all the shares in TIH except for HCI’s minority.
“HCI was going to be totally outside. We’d have no seat on the board, we’d be a tiny minority [shareholder]…….. what those guys had in mind for us was just to smash us, leaving us as a minority” he says.
To punctuate this sentiment, Copelyn adds: 1 don’t think HCI behaved badly, we behaved fabulously as we bought stakes that were on offer and offered to be partners with everybody.”
This might not be spin: Copelyn seems to believe this version of events. But the intemperate battles of HCI’s history suggest its defence is another man’s onslaught.
HCI RESPONSE TO ARTICLES:
“The Tussle With Johnnic: Anything Goes” – Letter from Attorneys
“Cowboys Don’t Cry”
Recent cover stories on HCI and its Executives
Source: Financial Mail – Rob Rose