The Editor
Financial Mail

22nd January 2008

Attention Mr. Barney Mthombothi

Dear Barney,

Re: Cowboys Don’t Cry:

Your ‘analyst’ claims to have spent four months working on his HCI story. How can a guy be so far from the mark after such effort? We weren’t hiding from him. I invited him into my home. Obviously it’s the first time that’s happened to him judging by his report. Probably the funniest that he has written to me is, “I didn’t think I was rubbishing HCI, I just thought it was a debate about empowerment and HCI.” I can’t imagine what will happen when he decides to rubbish us.

We can’t meaningfully unpick the contortions of his venom in a 700 word reply so we have filed an open letter to him on our website for any of your readers that are sufficiently interested. The address is

Next time he becomes “alarmed” that I control SACTWUs’ 40% stake in HCI via some preference shares, ask him at least to check the simple things, like whether the company involved has ever owned a single HCI share in its history. HCI share registers are open to the public on payment of a nominal amount. Great lasso work; wrong cow.

When he quotes from court papers in our review application, ask him to try to be balanced since you well know we cannot answer while the case is ongoing. At least, admit the papers show three other Gaming boards scrutinizing the same Nafhold objection and finding no merit in it; that the compliance committee of the Mpumalanga gaming board that you quote concerning the Scorpions actually recommended approval of our application too. Admit that the court papers state the Venison agreement was considered by the FSB, the SRP, the JSE, SARS and three other Gaming boards who found nothing untoward about it. Say you haven’t heard the faintest rumour that the matter was referred to the Scorpions or that they are investigating anything. Certainly we haven’t heard anything in the couple of years this argument has been going on, though admittedly the Scorpions probably have had other things on their mind. At least, hint to your readers that HCI claims it was obliged to enter such an agreement to compete effectively with a very similar one offered by Johnnic and that there may be some truth in this since a copy of that Johnnic agreement is filed in the papers. Tell them that HCI required Venison to inform Fabcos of the proposed contract and to get their permission before we would enter into it and that we have put up affidavits from Fabcos confirming they knew about the contract and had no problem with it.

Ask him whether it sounds right for Johnnic to be granted permission to hold it’s gaming interest on the basis that it is a BEE company since HCI owned 30% of its shares (even though HCI was being excluded from the Johnnic board) and then for HCI to be barred on the basis that it’s insufficiently Black?

Then there is the issue of the “scarce indeed’ information in the trust deeds of SACTWU trusts which Nafhold scrutinized. After four months of research couldn’t he have mentioned the documents don’t belong to HCI; that the deeds (which are public documents) state clearly that its purpose is to promote the education of union members, union staff and their families (99% of whom are Black). It provides for the trust to be controlled by trustees (all of whom are Black) who must be current leaders of the union (I left in1994). In truth the deed is drafted in the same format as the trusts that own shares in Nafhold save for the fact that the SACTWU trustees do not need HCI board approval for decisions they make whereas the Nafhold trustees need the permission of the Nafhold board before they can sell their Nafhold shares.

The article makes the same snide comments on the HCI Foundation. It’s time your analyst was directed to read the HCI Foundation Annual Report we sent him. Inter alia he should try to absorb the fact that Marcel and I donated the HCI shares the Foundation owns to it. We don’t secretly control HCI through them.

We respect the FM as a magazine of some substance but this analysis of HCI is more suitable for the gutter press than a business magazine.

John Copelyn


21st January 2008


Dear Rob,

Usually HCI simply rides with media stories irrespective of whether we agree with them or not. Nevertheless, your recent article in the FM is so prominent, in a business magazine with such a large circulation, is so full of errors and is so mischievous in its orientation, that some rebuttal of the most obvious inaccuracies seems unavoidable.

To make things more difficult, an entire section of the attack on HCI relates to our review application against the Mpumalanga Gaming Board. We have taken advice from our attorneys on what we may legitimately deal with while the matter is sub-judice. As a result of this advice, we feel it is more appropriate for our attorneys to deal with these aspects. I simply attach their document to this open letter.

The order of my comments is essentially just following the order of your article rather than in order of importance.

1 I have been quoted as saying Marcel was nervous to be interviewed, which allegedly raised your suspicions that he had something to hide. In truth, I advised you that Marcel declined the interview because he anticipated it would concentrate on speculation around what HCI intended to do with its pay TV licence and he did not want to fuel speculations in a highly sensitive area. We were, at the time, negotiating an agreement to provide channels on DSTV rather than competing with them to create another platform that would have involved investing billions of rand in an exceptionally difficult venture.

In any event, HCI does not feel obliged to give interviews to journalists merely because it owns media assets. In light of the appalling distortions of the article under reply I can well imagine you may meet more refusals to grant interviews in the future.

2 Our hostile bid to take over Johnnic was well documented at the time. The bid was hostile in the sense that it was not supported by the Johnnic board and not in the sense that it was driven by personal animosities between the managers concerned. When we acquired a majority of its shares, Christine Ramon immediately resigned. We did not fire her. Her exit from the company was handled in a perfectly professional manner. Likewise, there was absolutely no personal animosity towards Cyril Ramaphosa with whom both Marcel and I have had a long association. His reasons for resigning were made public at the time and were essentially that the outgoing board was stepping aside to allow the new controlling shareholder to appoint a board of its choice.

3 You say that HCI claims that it is a top rated BEE company and that this rating was affirmed by certain independent consultants. Actually you know perfectly well, and allude to it later in the article, that it was the Financial Mail that so rated us in its BEE survey of companies.

4 The FM article makes much of my statement that HCI’s non-compliance with the Company’s Act in relation to the minutes of its board was inadvertent and that despite being a qualified attorney I was unaware of the precise requirements of the Act. I did explain to you prior to the publication of your article that the issue related to an Mpumalanga Gaming Board inspector drawing the attention of our company secretary to the fact that that the law requires our minutes to be pasted into a minute book and not to be kept in a leaver arch file. Every minute for the last ten years is scrupulously kept in sequential order. Every resolution of the board is kept in numbered sequence. There is not a single page missing from any minute since Marcel and I took over managing HCI nor is there a single resolution missing from the sequence. These documents have been routinely looked at, not only by our auditors, but by virtually every regional Gambling board inspectorate and have been found to be perfectly satisfactory. The Mpumalanga gambling board, in particular, has been inspecting these records for many years and never expressed the slightest concern. On this occasion the inspector drew the attention of our company secretary to the fact that the Act requires these minutes to be pasted into a bound minute book. As a result we stuck them all in a book. He neither raised the matter with me personally nor did he suggest there could be any significance to his comment.

5 The article quotes the objection by Nafcoc to the BEE status of a trust established by the Southern African Clothing and Textile Workers’ Union and suggests some deviousness on the part of HCI for not providing Nafcoc with details of its trustees and the like.

The truth of the matter is that the trust deed is a public document as are the names of its trustees (all of whom are Black). The trust was established two years before we reversed into HCI. The deed states clearly that the purpose of the trust is to promote the education of union members, its full time staff (99% of whom are Black) and their families. It provides that the trust be controlled by persons who are current leaders of the union. Far from the document providing “scarce indeed” information, it is a document drafted in the same format as all the trusts that own shares in Nafhold (Nafcoc’s investment company) other than the fact that Nafhold trustees are not entitled to dispose of their interest in Nafhold without the permission of the Nafhold Board whereas SACTWU trustees are free to do whatever they see fit. (Life being what it is, Nafhold refused to give HCI copies of its trust deeds and we were obliged to obtain them through formal channels. Not much about that in their objections!).

The SACTWU trust is in no way controlled by HCI. There is absolutely no substance in the suggestion that it does not fall squarely in the definition of a BEE shareholder. In fact, the Mpumalanga Gaming Board did not suggest it had any difficulties in this regard. Its problem was that HCI was not owned 100% by Black persons and they were not agreeable to any further dilution of the effective BEE shareholding of TIH. Whatever the merits of this view (which is one of the issues in contention in the litigation) there is no suggestion that SACTWU and its trusts are not Black, that they are “amorphous’ or that they are controlled either by HCI or myself.

The FM article then proceeds to quote from the Nafhold objection where they state that the precise level of BEE shareholding in HCI varies all the time because of trade in its shares. While this true for any listed company, what is remarkable about HCI is that it has the majority of its shares stably owned by BEE shareholders. SACTWU and its associated trust, for example, have not sold a single share in HCI since 2001. There has not been a single day since 2001 (when the company significantly reduced its authorized share capital) that it has not been majority owned and controlled by BEE shareholders.

6 Your article makes the same snide comments about the HCI Foundation. Just to make a few points in response:

6.1 Marcel and I donated the HCI shares that the Foundation owns, to the Foundation. We no longer control these shares. If it was so important to us that we did, we could have kept them or at least we could have retained the voting rights thereon, which we did not.

6.2 The Foundation’s work is documented in a 59-page report annual report to shareholders, distributed with our financial statements. Its staff, trustees and activities are well set out therein and its accounts are made public. The control of this Foundation rests with its trustees, of whom Marcel and I are two out of ten. Most of the others are in positions of responsibility in HCI or its subsidiaries. Currently, all of them other than myself are Black. All of them, including myself, want to see the HCI group, including its Foundation, committing itself to promoting the upliftment of disadvantaged communities in South Africa as well as poorer employees within our group, which now employs some 20 000 people.

6.3 Unlike many other companies, we are in the fortunate position of having a Foundation with its own capital base independent of any HCI corporate social responsibility spend through which to achieve our social vision. This capital base was partly donated by farsighted people who previously owned and currently run, our bus company, and partly by ourselves. Other shareholders of HCI who simply invest in its shares for commercial gain were not asked to contribute.

The consequence is that we can be as assertive as we are in business and as uncompromising of shareholder returns. At the same time we can commit ourselves to major social initiatives at the same cost level as companies like SANLAM and the Old Mutual, many times our own market capitalization.

6.4 Excluding payments made to SACTWU to fund its extensive social programs the HCI Foundation spent some R16m in its financial 07 year on housing, educational bursaries, AIDS programs and a wide variety of other social programs. This work includes fostering and financially aiding similar projects inititiated and promoted within subsidiaries and associates of the group. Next year (fin 09) the Foundation has budgeted to spend some R34m. When you add dividends to SACTWU this amount will in all likelihood virtually double. Which BEE company beside the HCI group do you think will be spending R60m on social programs in that year?

6.5 When you say information on this Foundation is “scarce indeed” and that it is “amorphous” what really is your criticism? Is your problem that Marcel and I are trustees of the Foundation, or what?

7 The FM article makes a number of unintelligible comments about a company called Ortaga, which you have framed as “alarming discoveries”. I’m sure you will recall that when you raised the name of the company with me I did not even recall it. I had to phone our financial manager (which I did immediately and in your presence). After getting a brief background on the company from him I explained to you that it was a dormant company and that it held no HCI shares.

You claim to be promoting a debate about Black Economic Empowerment rather than just hitting on HCI without any reason. If you honestly want to debate issues, try to understand how far you are from any substance in this attack. The facts are simply the following: Ortaga had been a 100% subsidiary of HCI for some years and had been used by HCI for purposes entirely unrelated to SACTWU and its associated trusts. When HCI’s use of the company ended and it had been completely cleaned up to total dormancy it was sold as a shelf company for a nominal amount. This was years ago and HCI has never had any further interest in it. In particular, I emphasize that Ortago had no connection whatsoever to the structures through which SACTWU and its associated trust hold their 40% shareholding in HCI (nor did it ever acquire a single HCI share during the time HCI owned it nor subsequent to HCI disposing of it.)

HCI is a publicly traded company. Its shareholder registers are public documents. Any person, including you, is free to inspect the register. Patently Ortaga is not an HCI shareholder. You make it sound like we should have given more prominence to this subsidiary of HCI than a passing mention in our formal accounts but it would seem the problem is simply your unwillingness to understand the difference between a company that partly owns HCI and a completely irrelevant dormant subsidiary unrelated to the “debate” about SACTWU’s ownership in HCI.

8. MIC had representatives on our board pursuant to a voting pool agreement with SACTWU. Well after we established eTV, MIC became a joint controlling shareholder of Prime Media, a company which in general was competing for media opportunities against HCI and conflicted sharply with HCI’s entry into the media space. It is not possible for the same individual to simultaneously serve on the board of directors of both companies. At the time that individuals were asked to resign from the board of HCI, MIC had already publicly announced its representatives on the HCI board were taking up very prominent executive positions in Prime Media the following month.

9 There are a number of points in the article all of which insinuate that management in general and Marcel and I in particular are a law unto ourselves. This is simply a complete misunderstanding of the differing roles of executives, a board of directors the majority of whom are non-executive, and shareholder roles in a company.

9.1 Employment issues such as a sabbatical are not the preserve of shareholders in any public company. They are contractual arrangements between an employee and the board of directors. I was given a sabbatical by the board of HCI.

9.2 Responsibility for other members of staff and their control is primarily the responsibility of senior management and despite the slur of ‘authoritarianism’ I do believe it is significant there has not been a single complaint by any HCI member of staff ever referred to the CCMA in all the years since we took over HCI. On the contrary, we have been rewarded by a most loyal and long serving group of employees.

9.3 SACTWUs’ choice of whom to have on the board of HCI is primarily a shareholder matter. Each board member of HCI is required to stand for re-election by rotation every three years. A third of the board so stand at each annual general meeting of the company. Formal circulars are sent out to all shareholders and they vote as they choose. The entire board has been routinely re-elected to office with the broadest possible support of shareholders, be they SACTWU, institutional shareholders or management shareholders.

9.4 The fact of the matter is that virtually all persons on the board of HCI have in the past had long periods of distinguished service in SACTWU. If SACTWU wants to have anyone different on the HCI board it is free, as it always has been, to make such appointments/ changes. In truth we have for a long time been suggesting to it that it should review its decision not to have current union leadership on the board of HCI. The comments made by Ebrahim are not a criticism of the company; they are part of an ongoing debate within the union as to how many resources to divert from union work to administering its capital base.

10 The FM article makes the point that HCI’s dividend policy has been sporadic. The tone of the article is so critical of everything that HCI does that it would seem this is intended as a criticism. In truth there was no choice whatsoever. We spent five hard years pouring every spare cent into a loss making eTV that almost everyone was sure would bring ruin on HCI. Thereafter, we had to raise money to buy into Tsogo Sun and subsequently were driven to take over Johnnic to protect the Tsogo investment. It was exceptionally difficult to pay dividends in that period. Nevertheless, we did release significant dividends to shareholders – sufficient for SACTWU to run its social programs of some R100m over the 10 years. However, in our previous annual report our board did commit that HCI would try to pay regular dividends once per year now that this has become possible in a business with a stronger balance sheet.

11 Some peculiarly nasty comments are gratuitously thrown into the article concerning Johnnic and it seems appropriate to clarify the following:

11.1 The SARB approved the investment in Montauk prior to Johnnic making that investment.

11.2 The Blue Wolf Agreement was re-structured with benefit to Johnnic when difficulties arose in getting SARB support for the original agreement. Johnnic was not refused approval. It was advised that the application it sought to make was outside the current guidelines for SARB approvals and we would have to approach the Minister of Finance for consideration of our proposal. There was not sufficient time to go through such a process and we chose to vary the arrangements so as to circumvent problems that were staring at us.

11.3 The decision to invest in Montauk was not mine alone. I believed at the time and continue to believe that an investment in green energy would be lucrative for Johnnic. So did my colleagues on the Johnnic board. I am no longer the CEO of Johnnic and the primary responsibility of monitoring the progress of that investment is no longer mine as a result. If the board changes its view on Montauk it will do something about it. Rob, how you come to have such definitive views about Montauk I don’t know. I would hazard a guess your knowledge of this company is close to zero, but if you turn out to be right perhaps HCI will beg you to join its management team.

11.4 The investment decision was not made with special reference to SACTWU. 80% of the equity invested in Montauk by Johnnic was on behalf of shareholders other than SACTWU. The FM asks why this was done. The answer is that this is what we do. We are in the business of investing in private equity opportunities that we can substantially influence and which we believe will bring above average returns to our shareholders.

The fact that cannot be avoided is that HCI has been one of the top performing companies on the JSE over the ten years since Marcel and I took over its management. We have achieved an annual return for shareholders of over 50% per annum. This has allowed SACTWU to build up a capital base over the period in the same order of magnitude as that of lifetime business achievers like those that provided the drive behind PEP stores or Pick ‘n Pay. The difference, however, is those extraordinary family achievements were primarily family businesses, and other investors who believed in them were the highly successful side shows. In the case of HCI, it is a social movement of substance that has been the primary beneficiary, and it is others, including the rising wealth of people such as Marcel and myself, who are the side shows.

11.5 Can we make mistakes? Certainly we can.

Do we think Montauk is one of them? Actually we don’t.

Do we in any event think a business that owns substantial land filled gas reserves is a highly risky investment? Actually we don’t think so.

Do we think it appropriate to diversify some country risk? Actually we do.

Is the decision ultimately one for the 40% shareholder of HCI to make? Actually we don’t think so. We think its the responsibility of the Board of Johnnic unless it constitutes more than 30% of the market cap of Johnnic (which it doesn’t) in which event we think it would be the responsibility of the Johnnic board and all Johnnic shareholders- particularly that of the HCI board which votes the controlling Johnnic shares.

Is SACTWU one of those shareholders? To the best of my knowledge it is not.

Rob, there is of course something entirely unfair about this “debate”. Your articles with all their completely unnecessary distortions are distributed to thousands while ours are simply sent to you and posted on the HCI website. Nevertheless ultimately Marcel and I believe it is better to tolerate even the most biased free journalism rather than to obstruct it.

I joked with Marcel that the only way to get any responsible reporting on HCI out of the FM would be to buy it. Marcel tells me, however, that if we were to stop you bad mouthing HCI and ourselves FM would not make any money. So there it is. You are safe unless you are right about Montauk. As for us, cowboys don’t cry.

John Copelyn
Chief Executive Officer


K Pretorius/smf/0267195
our ref

Mr Johnny Copelyn

your ref

Hosken Consolidated Investments Limited

Block B, Longkloof Studios
Darters Road
22 January 2008

Dear Johnny

1. I refer to the article published on pages 39 to 41 of the Financial Mail (“FM”) of 18 January 2008 under the above heading.

2. The article refers to at least 3 aspects which form part of the subject matter of the review proceedings instituted by HCI against inter alia the Mpumalanga Gambling Board under case number 13937/07 in the High Court of South Africa (Transvaal Provincial Division) (“TPD”), namely:-

2.1. the empowerment credentials of HCI;

2.2. the consultancy agreement entered into between HCI and Mr Peter Venison during April 2005 (“the Venison agreement”); and

2.3. the transaction entered into during June 2005 in terms of which HCI sought to dispose of its shares in Johnnic to 3 individuals (Messrs Copelyn, Scheiner and Jacobson), subject to a call option in favour of HCI (“the Mercanto transaction”).

3. As you know, HCI is in the process of finalising its replying affidavits in the proceedings before the TPD, which are due to be filed by 31 January 2008. I expect the review to be heard by the TPD during the last quarter of 2008 or the first quarter of 2009. In the circumstances, it will be entirely inappropriate for HCI to canvass these aspects with FM in the press or any other public forum at this stage.

4. It is clear from the FM article that its author had regard to the affidavits filed of record in the TPD under case number 13937/07 to date (“the court papers”). As set out in paragraph 3 above, the court papers are not yet complete, with the replying affidavits of HCI still to be filed. This notwithstanding, FM has chosen to refer to the incomplete court papers, and then in a highly selective manner. HCI is entitled to correct the selective and incomplete presentation of facts by FM, by referring to certain pertinent facts (as they appear in the court papers) that have a bearing on the aspects dealt with in paragraph 2 above. In so doing, HCI ought to confine itself to that which is set out in the court papers.


5.1. You will have seen from the court papers that:-

5.1.1. HCI’s empowerment credentials have been exhaustively scrutinised by the Eastern Cape Gambling and Betting Board, the Gauteng Gambling Board, the Kwazulu-Natal Gambling Board and the Mpumalanga Gambling Board (“the MGB”). Save for the MGB, the other gambling boards were satisfied with such credentials;

5.1.2. the MGB has not indicated what it would regard as adequate BEE credentials for the purpose of approving applications to hold an indirect financial interest in a casino licensee;

5.1.3. EmpowerLogic independently verified HCI’s BEE credentials. In fact, during 2007, FM awarded HCI the fifth highest BEE score (70,12%) out of 200 companies evaluated by FM for the purpose of its Top Empowerment Companies survey, rating HCI as the top BEE company in the financial sector.

5.2. The article in FM does not refute the EmpowerLogic (and FM) ratings of HCI’s BEE credentials.


6.1. FM states in the article that the compliance committee of the MGB recommended that the Venison agreement be referred to the Scorpions.

6.2. FM fails to indicate that the primary recommendation of the compliance committee of the MGB was that the HCI application be approved and that the potential referral to the Scorpions was a secondary recommendation of such committee.

6.3. I understand that, as matters presently stand, HCI is not aware of any referral by the MGB to the Scorpions or of any investigation by them in this regard.

6.4. Moreover, in my view HCI ought to point out that the nature and implications of the Venison agreement have been considered by a number of regulators, namely the Financial Services Board, the Securities Regulation Panel, the JSE Limited, the South African Revenue Services, the Eastern Cape Gambling and Betting Board, the Gauteng Gambling Board, the Kwazulu-Natal Gambling Board and the MGB. Save for the MGB, all other regulators found nothing untoward about such agreement.

6.5. The court papers also indicate the following (which is ignored by the FM article):-

6.5.1. Venison is a reputable and highly experienced expert in the gambling industry;

6.5.2. at the relevant time (April 2005), Johnnic concluded a consultancy agreement with Venison along very similar lines, providing for almost identical consultancy fees, thereby compelling HCI to enter into the Venison agreement if it were to compete effectively with Johnnic for the relevant equity stake in Tsogo;

6.5.3. HCI and Venison made a full disclosure to Fabcos and Fabvest regard the Venison agreement and they consented to HCI concluding such agreement with Venison; and

6.5.4. as a result of Venison’s intervention, the purchase consideration paid by HCI to Fabvest was substantially more than the consideration paid by Johnnic for an identical equity stake in



7.1. The court papers clearly sets out the version of HCI in respect of the Mercanto transaction (which version is by and large ignored by the FM article), as follows:-

7.1.1. HCI decided to enter into the Mercanto transaction during June 2005, as it wished to preclude Johnnic from relying on HCI’s BEE credentials at a time when Johnnic refused to grant HCI any representation on the Johnnic board.

7.1.2. The nature of the Mercanto transacting was fully disclosed to the MGB, in particular, that it was a temporary arrangement subject to a call option in favour of HCI, in terms of which it could cause the relevant Johnnic shares to be re-transferred by Messrs Copelyn, Scheiner and Jacobson to HCI.

7.1.3. When it became evident that the MGB resolved to approve the Johnnic application (on 30 June 2005), HCI elected not to proceed with the Mercanto transaction. It would have been futile to do so, just to call back the relevant shares at a later stage.

7.1.4. Within days of deciding not to proceed with the Mercanto transaction, HCI notified the MGB accordingly.

7.2. FM’s treatment of the Mercanto transaction is inaccurate, as it selectively deals with the contents of the court papers in this regard. HCI is entitled to refer to all of the facts regarding the Mercanto transaction, as they appear in the court papers.

8. To summarise, given the inaccuracies contained in the article in regard to the issues in paragraph 2 above, HCI is entitled to refer to the full conspectus of facts in the court papers, without commenting on the relative merits thereof.

9. I also suggest that HCI expressly reserves its rights against FM.


“The Tussle With Johnnic: Anything Goes” – Letter from Attorneys
“Cowboys Don’t Cry”
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