Court rules in favour of EC-Hold minorities
July 1, 2004
By Margie Inggs
Durban - A long-running dispute between the Securities Regulation Panel and MGX has taken a new twist with last week`s ruling in the high court.
MGX is EC-Hold`s controlling shareholder and parent company.
Judge J Malan noted that Ronnie Price, the former chairman and controlling shareholder of MGX, whose daughter is the sole beneficiary of the Mandy Rebecca Price Trust, had managed the trust`s purchase of EC-Hold shares with MGX`s co-operation at the same time that MGX was making a bid for EC-Hold. The actions suggested that the parties had acted `in concert`.
According to the judgment, trustees of the Mandy Rebecca Price Trust can be charged in personal capacities for failing to make a mandatory offer to EC-Hold minority shareholders after MGX and the trustees together increased their stake to more than 35 percent in October 1999.
If found guilty, MGX and the trustees could be compelled to make a mandatory offer to EC-Hold minorities, whom the panel claims should have been offered R2.40 a share, the price paid when boosting their combined shareholding.
Most of the shareholders at the time accepted an 80c a share offer and investors who subsequently bought into the company were offered 20c a share.
The panel claimed that as MGX approached the 35 percent controlling level in EC-Hold, members of the group, including former MGX chief executive Chris Hills, acted jointly to make further share purchases through the trust.
At the time, loans were made between MGX and the Price family through a bankers guaranteed cash management arrangement.
This secured an `affected transaction` giving MGX a controlling stake in EC-Hold without making a mandatory offer to minorities at the same price a share paid in the initial transaction.
Ralph Schambacher, an SA Stockbrokers portfolio manager, said the ruling was a `superb victory for minorities. I doubt that the parties will be compelled to make a mandatory offer, as this would set an interesting precedent.
`So far there has been no joy for minorities who lost everything in Regal, Paradigm, ITI Technologies and LeisureNet.`
But MGX`s full board has refuted the allegation that it acted `in concert` with the trustees.
The defendants have alleged that MGX had never crossed the 35 percent ownership limit as the stake owned by the company and the chief executive had always exceeded this, meaning that the purchase had not pushed them over the limit.
As evidence that the parties had acted in concert, the panel said MGX had funded the trust with R19.3 million to pay for the shares and had paid the brokers effecting the acquisitions.
MGX has been flailing financially for more than a year and is delisting following a debt restructuring agreement with its major funders late last year to bail it out of technical insolvency.
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