South Africas: MTN’s BEE share fracas goes to court
18 October 2019
A group of 382 MTN employees are taking the mobile telecommunications giant to court over payouts from a multibillion-rand black economic empowerment (BEE) share scheme.
The case — relating to the allocation of dividends derived from the unbundling of the scheme, worth more than R4-billion — will likely be heard in the high court in Johannesburg towards the end of the year.
In late 2002, company Newshelf 664 purchased 309-million shares in MTN at R13.89 a share, or R4.3-billion in total. The Alpine Trust — headed by five MTN executives, including former board chair Phuthuma Nhleko — held Newshelf’s shares on behalf of the scheme’s 3 260 beneficiaries.
The Alpine Trust aimed to allocate 75% of the benefits to black MTN employees. But beneficiaries of the scheme have claimed that the trust had reduced the amount originally allocated to them without explaining its process.
A 2003 letter to Lucy Mackay, one of the scheme’s beneficiaries, sets her provisional allocation from the scheme at 34 799 shares. But court papers show that, when the shares were distributed to beneficiaries in 2008, Mackay received only a fraction of that — getting 6 336 shares.
The 382 current and former employees in the court case claim that the allocation of their shares remains incomplete and suspect.
This is not the first time MTN has come under fire for one of its BEE share schemes. In July, the Broad-Based Black Economic Empowerment Commission found that the company’s Zakhele-Futhi Scheme “contains elements of fronting” because its black directors and shareholders did not have decision-making or voting rights.
The applicants in the matter are asking the court to order the appointment of a curator to manage the Alpine Trust to effect the payment of the outstanding dividends at the current share price. At the time of writing, the share price was R93.89.
In December 2008, the chairman of the trust, Paul Jenkins, informed the beneficiaries of the scheme that — after paying back Newshelf’s funders with interest and selling off a portion of the shares — the Alpine Trust held 34.4-million MTN shares, worth just more than R3.4-billion. At the time, the share price was R99.
In a letter, Jenkins advised beneficiaries that these shares would be distributed, but the trust would retain 300 000 MTN shares for contingency and costs.
“At some time in the future you should receive a small final distribution from the trust out of what is left of the 300 000 shares that we have held back,” the letter reads.
In July 2013 — four-and-a-half years since the initial distribution by the trust — Jenkins sent another letter to beneficiaries telling them that a final distribution based on the leftover shares would be unlikely to happen in the near future.
The Tsunami Group, formed to represent the beneficiaries, sent a letter through its lawyer to Jenkins in 2017, asking for clarity on the final top-up distribution.
In his response, Jenkins said that at the time the Alpine Trust still held 160 000 MTN shares with a value of about R20-million.
In an affidavit Mndeni Twala, one of the scheme’s beneficiaries, contends that there is a “vast disparity” between the trust’s unencumbered assets and the value of the distribution made to the beneficiaries in 2008, “particularly considering the eightfold increase in the value of the shares between 2002 and 2008”.
He further states that the conduct of the trustees “falls well short of what is required of them by law”.
“The trustees in this case appear biased and incapable of properly carrying out their duties as trustees in an impartial and unbiased manner,” reads the affidavit.
“All the trustees have no doubt financially benefited handsomely from the unwinding of the trust and Newshelf, yet the applicants and I, as beneficiaries, have no satisfactory answers or clarity to the distribution of our dividends and share allocations.”
In an affidavit responding to Twala, Jenkins disputes suspicions that the trust is holding on to the money owed to the beneficiaries.
“The application appears to be motivated by a misconception by the applicants that the trust has a hidden or secret reserves of shares in MTN that are still to be distributed to beneficiaries,” the affidavit reads.
The affidavit further indicates that there “simply are no additional MTN shares for distribution”.
Jenkins points out that the applicants in the court case have already received a total distribution of R200-million. “Despite this considerable benefit having already been received, these applicants do not accept that inevitable fact that there is no further pot of gold at the end of the rainbow,” the affidavit reads.
He also argues that the trustees “should be commended for an extraordinary performance for the beneficiaries, as opposed to being pilloried for failing to distribute the last remaining R20-million”.
In another affidavit, Twala calls Jenkins’s assessment of the trustees’ performance “nothing less than lavish”.
Twala further questions the amount paid back to Newshelf’s funders, which he says “the trustees continue to refuse to disclose”.
“Sadly, the pith of the narrative from the respondents is nothing less than a claim that the applicants — as some variety of the grateful, poor black workers benefiting from corporate largesse — should bow their heads and accept less than full transparency from the trustees,” the affidavit reads.