E arlier this year, on 24 August, the Swiss cement and building materials company, Holcim, the second biggest cement company in the world, took our country by surprise. On this day, the company announced that, effectively, it had decided to sell Holcim South Africa, its subsidiary, to a black consortium. Its statement said:
"Since political transformation in 1994, the government of South Africa has introduced legislation and supported industry self-regulation aimed at ensuring an equivalent economic transformation, termed Black Economic Empowerment (BEE). The goals of BEE are to bring about a significant increase in the ownership, management and control of the economy by South Africans from historically disadvantaged communities.
"Holcim has been fully supportive of the process of transformation in South Africa and has committed itself to ensuring meaningful and sustainable BEE in its South African Group company.
"As a result, Holcim has signed a conditional agreement to sell 85% of its stake in Holcim South Africa to a BEE Consortium based on an enterprise value of R15.5 billion. Holcim would maintain a 15% share in the newly founded AfriSam, which would hold a 54% stake in Holcim South Africa. Holcim would continue to provide technical assistance.
"AfriSam Consortium is a broad-based BEE company established specifically for the proposed transaction. Its shareholders will include all employees of Holcim South Africa, as well as a number of charities and broad-based groups, and will be led by a new entrant BEE group, Bunker Hills Investments. Completion of the transaction is subject to, inter alia, regulatory approvals and the completion of AfriSam Consortium's financing process. Holcim expects to be able to conclude the transaction in 2007..."
Explaining itself in another document, Holcim said: "Rather than deliberately undertaking a complex re-organisation of (our) operating structure (covering plants in South Africa and six other SADC countries), to restrict BEE to a minority interest in regulated parts of its South African operations alone, Holcim believes that an approach which includes all of (its regional) operations is more consistent with the imperative for economic transformation, by enabling real shareholder participation by Historically Disadvantaged South Africans."
Our media correctly concluded that when it is finalised, the agreement between Holcim and AfriSam would create the leading black-owned and black-controlled business in the building materials industry in Southern Africa. It also observed that apart from exceeding the 26% black ownership visualised in the mining sector, this deal would constitute one of the largest BEE transactions in our country since 1994.
On the face of it, in principle this transaction should have been warmly welcomed by those who truly support the objective of the creation of a non-racial South Africa, which Holcim said, correctly, would include both "political transformation" and "economic transformation". But interestingly, the Holcim August announcement has attracted comments that verge on the hostile.
This is despite the important statement made by Tom Clough of Holcim during an interview, in which he said: "There are certain requirements for us under the rules and the philosophy of (South Africa), and they have an impact on our mining licences, etc. Now we could have gone along with the minimum of that and said that that's all we are going to do. But if you take a longer view and you consider carefully the sort of whole strategic future of Holcim South Africa - and remember, as major shareholders that's something we have to do - and if we look at that future we see that, rather than sort of do the minimum, but if we immediately go into it wholeheartedly and say, OK, we will have this as a black-controlled company, then what we see is a great competitive advantage and a great future for Holcim South Africa. At the end of the day that's our responsibility."
And there lies the rub! Holcim had taken the decision that it made good commercial sense for Holcim South Africa to be black owned and controlled. Since it had come to the conclusion that BEE was not a threat to commercial success but made good business sense, it saw no reason why it should accept black South Africans only as minority shareholders, or engage in a protracted, step by step progression to black ownership of its Southern African subsidiary, if this was its fundamental intention.
It therefore took the decision that it was strategically correct that a major global company such as Holcim has the capacity both to demonstrate its unqualified commitment to the building of a non-racial South Africa, and to create the best conditions for the growth of its erstwhile subsidiary, by turning it into an African company, rather than retain it as a subsidiary of a Swiss company.
It also made the determination that the longer term interests of Holcim in our country and region, would best be served by having a strong partner, but independent African company with which it could enter into joint ventures, constituting a true African-Swiss equitable corporate partnership.
It is clear that some in our country consider the projected Holcim-AfriSam agreement to be too good to be true! There has to be a catch somewhere! There has to be some underlying negative intention on the part of Holcim, cunningly disguised as Black Economic Empowerment! Drawing on Winston Churchill's advice concerning the all-important Normandy landings during the Second World War, which had to take Nazi Germany by surprise, Holcim has decided that its less than noble intentions will have to be protected by "a bodyguard of lies"!
Necessarily, this construct contains the assertion that Holcim's BEE partners have allowed themselves to be used as dupes or a black front in the perpetration of a fraud. Within this context, and unkind as it might seem, the question must arise - at what price were these black partners in deceit bought!
From this perspective, it is clear that in the view of some in our country, what would have been good and acceptable would have been for Holcim to do the minimum required, and sell only 26% of its equity to its BEE partners. To facilitate black ownership and control despite the current and future excellent market conditions, with virtually guaranteed good profits, has made absolutely no sense to those intensely focused on 'the bottom line' of the annual financial statements.
In this regard, one of our commentators has written: "Two burning questions about the deal are: why is (Holcim) selling now and why is it selling all but 8%?
"The first question arises because the cement market in South Africa is strong and looking stronger. It has been suggested that local cement buyers pay almost double what other developing countries pay for cement...
"South Africa is on the verge of a construction boom, with government committing itself to huge sums in infrastructure spending. As it is, the major companies have to import cement to meet demand.
"Secondly, the parent company reports that Holcim South Africa had an operating profit of about R1,4 billion on sales of R5 billion last year. That looks like a successful company to me...The fact remains that there is no obvious reason for Holcim's departure now."
Obviously unable to penetrate the "bodyguard of lies", this commentator decided that Holcim had decided to disinvest from our country. He wrote:
"We may never know exactly why Holcim is disinvesting from South Africa. There is an intriguing possibility - and this is only speculation.
"The reasoning is as follows. The company now has two owners, parent company Holcim and Aveng. One of them has to give up a stake to allow black investors in.
"Aveng might be unwilling to have its stake diluted, because Holcim SA is an attractive investment. Could it be that, faced with having to give up 26% of its 54% stake in Holcim SA, leaving it with less than a controlling stake, Holcim decided it might as well go the whole hog? BEE would then be the reason for Holcim's disinvestment as well as the means. How terribly ironic."
Another commentator was less hesitant. Under the title "Broadstrokes: Dressing up disinvestment as BEE", he wrote:
"When is a disinvestment not a disinvestment? I've always gone with the analogy that if it looks like a horse, neighs like a horse and kicks like a horse, it is a horse; but a couple of recent transactions in which foreign principals have tried to deny that they're disinvesting have to make one wonder.
"The more important of these is the proposal by Swiss firm Holcim, the second-biggest cement producer in the world, to cut its holding in Holcim SA - previously known as Alpha, and before that as Anglo-Alpha - from 54% to 8% by way of a BEE deal.
"This is a particularly odd deal in that Aveng, successor to Anglovaal Industries, which was Holcim's local partner ever since - under its own then name of Holderbank - it opened its first factory in SA at Roodepoort in 1934, had been told as a courtesy that Holcim was considering a BEE deal, but given no inkling that Holcim intended virtually to sell out.
"This decision too is odd, as Holcim had always considered its SA investment as important in its global strategy...
"The timing too is significant, at the start of a surge in infrastructure spending that will bring a corresponding increase in demand for cement...
"Holcim may deny that it's disinvesting, on the grounds that it's retaining a vestigial interest and will continue to provide technological back-up, but even those convinced by that flimsy argument must concede that the ploy will relieve it of most of the need to take part in major pending capex...
"Of course, foreign companies have every right to disinvest. But they must be honest about it, not try to dress it up as a BEE deal..."
Another commentator said: "No one can deny that the Swiss are an ingenious nation: from the art of Genevan watchmaking to the 1934 secrecy laws that made stashing your cash in a Swiss bank account, the preferred option for the publicity averse.
"No less innovative overseas, it is remarkable that it has taken a Swiss company to come up with a notion of using black economic empowerment as a cloaking device to spin a disinvestment into a rosy tale of glittering opportunity."
And yet another said: "For all the spin being put on the Holcim black economic empowerment deal announced yesterday, one is left with one nagging thought. And that is that the Swiss cement group is pulling out of South Africa, even if it does so with panache...
"The Holcim deal is one of the biggest empowerment deals in recent memory...That should not hide the fact that the Swiss company is packing its bags and heading home. But that fact will likely be swept under the carpet because Holcim is using its departure to do a very good deed indeed."
With regard to the foregoing, one of Holcim's financial advisers has said: "Holcim accepted that regardless of precedent transactions in the South African market, its own approach to BEE should seek to maximise the opportunity for its regional business as a result of BEE, rather than seeking to minimise the impact of BEE on it(self)...
"It is in our opinion unfortunate that this proposed transaction can be misinterpreted as disinvestment, simply because the controlling shareholder that wished to maximise the benefits of economic transformation for its regional operations happens to be a foreign parent rather than a local company.
"We have confirmed elsewhere that everything will be done to ensure that any receipts are remitted in a way which is sensitive to the SA Reserve Bank, and...Holcim remains keen to consider suitable additional investment opportunities in the region, but we hope to ensure that the AfriSam Consortium can be seen to be genuinely assuming control of Holcim South Africa in an arms length transaction.
"From an advisory perspective, we also hope that applying this approach on such a prominent transaction will ensure that more South African and international companies recognise that BEE does not have to be entered into using the traditional transaction structures and BEE partners.
"Instead, we believe that, as with Holcim, the prerogative of economic transformation can be put at the heart of a company's overall corporate development strategy so as to maximise the potential for growth and stability, which is where we believe it, (economic transformation), was intended to belong."
The negotiations to close the Holcim-AfriSam deal have not as yet been finalised. It is virtually guaranteed that this transaction will continue to be attended by controversy, in good measure driven by a sense of disbelief among the sceptics.
The fundamental matter at issue among these is, to them, the unfathomable puzzle that an eminently successful global company, such as Holcim, could actually come to the conclusion that "the prerogative of economic transformation (in South Africa), can be put at the heart of a company's overall corporate development strategy so as to maximise the potential for growth and stability, which is where we believe it was intended to belong."
What is a puzzle to these hard-nosed sceptics will be celebrated by others who are committed to non-racialism and human fulfilment as a major and unprecedented step forward. The latter will be excited that a major international corporation gets truly inspired by its social responsibilities, leading it to reach out to our nation beyond the commercial imperative to make immediate financial profit.
They will be moved that Holcim decided, deliberately, to accept as its own responsibility the task to advance the challenging non-racial transformation agenda of democratic South Africa, as an integral part of its overall corporate development strategy. When all is said and done, as has happened, it does indeed seem that, after all, it is true that one man's meat is another man's poison!
Whatever will happen in the end, which will determine who owns Holcim South Africa, and given the imperative for this company to continue to supply its products throughout our region, and retain and increase its workforce, it is very inspiring that the Managing Director of Holcim South Africa, Karl Meissner-Roloff, could say:
"I know I speak for the whole of the senior management team of Holcim South Africa when I say how excited we are about this comprehensive BEE transaction. I know ASC (AfriSam Consortium) shares our enthusiasm for this business and its potential, and we are now looking forward to working with them to create the leading black-controlled building materials producer in Southern Africa."
