The FSCA investigation stalling Jannie Mouton’s R7.2bn buyout 

It looked like a straightforward deal when it was first announced on August 27. The Jannie Mouton Foundation (JMF), a public benefit organisation, was going to exchange its remarkably valuable Capitec shares as well as its PSG Financial Services shares for not-very-attractive Curro shares. 

But now the R7.2bn deal has stalled before the Competition Tribunal and it also happens to be the subject of a “preliminary investigation” by the Financial Sector Conduct Authority (FSCA). 

The headline-grabbing plan, announced in August, was that once acquired by the JMF, Curro would become a public benefit organisation without investors and with no tax liability. 

Sluggish performer

For the Curro shareholders who had watched on as their share price collapsed from R13.40 in February to a low of R7.91, the announcement was like a gift from heaven; swapping their sluggish shares for the strongest performer on the JSE.  

Just how much of a gift was evident from the 60% surge in the share price on the announcement day.  

It was all the sweeter given that the previous day the release of Curro’s interim results had confirmed market views that the private education group looked to be in a protracted decline. 

The expectation was that the deal would be done-and-dusted and Curro delisted by December 2. At least that’s what was outlined in the circular to shareholders in early October. 

A BEE snag?

Presumably the drafters of that circular hadn’t anticipated the competition authorities wanting to intervene. Curro and JMF have not revealed what’s troubling the commission and tribunal, but the Commission says it has recommended the Tribunal approve the transaction subject to “undertakings that will make a substantial positive contribution to education, including of historically disadvantaged persons”. Presumably this means a lot more bursaries.

Whatever is agreed will have to be approved by a public hearing at the Competition Tribunal. However, given the time of year, it could be a few weeks before the tribunal is able to hear the matter – and the deal can’t be signed off until the tribunal gives its approval. 

Meanwhile comes news of a preliminary investigation into trade in Curro shares ahead of the August announcement. In a statement released on Friday, the FSCA said it is in the process of gathering relevant information, after which it will decide whether to launch a full investigation. “At this stage the FSCA is not in a position to disclose any information about the matter,” it told Currency. 

The statement was released in response to a report on Moneyweb describing some of the share trading in the months leading up to the JMF’s announcement. Moneyweb wrote that one of the statutory bodies responsible for monitoring market activity had reported suspicions about the trades to the FSCA.  

Preliminary investigation

Gerhard van Deventer, divisional executive of enforcement at the FSCA tells Currency the regulator is required to undertake a preliminary investigation once it receives a complaint. “It’s a desk-top assessment to see if the case has merit,” he says. 

If it ticks several boxes the complaint is then transferred to a full investigation. But Van Deventer says a very small percentage of the initial complaints are actually transferred. In most cases there is no substance to the complaint and this becomes apparent during the preliminary investigation.

He does not say who reported the trades, but acknowledges that the JSE, “which has massive surveillance capacity”, was working on the case. 

‘Suspicious trades’

In its article, Moneyweb identified what it described as “suspicious trades by Citiclient Nominees No.8 and the Public Investment Corporation [PIC]”. In addition there were several transactions by parties linked to the Mouton family. 

Citiclient Nominees No.8 is a nominee account of Citigroup which, according to Moneyweb, has a policy of not commenting on these matters. 

The position of the PIC seems muddied by the fact trading is done in the name of the PIC and the Government Employees Pension Fund (GEPF). On a combined basis the PIC/GEPF appear to have been net sellers of Curro. In a statement released on Friday the PIC said “its officials never engaged with Curro and/or the Jannie Mouton Foundation regarding the proposed buyout of Curro by the Jannie Mouton Foundation before the public announcement of the offer”.  

As for the Mouton family and related parties, they purchased an additional 25-million Curro shares in April and early May. The details of these trades are included in an annexure to the shareholder circular. 

Moneyweb says the Mouton family acknowledged that the timing of the transactions was unfortunate, but stressed there was nothing untoward about them. Still, JMF’s decision to do the Curro deal was made on May 17, which is after the transactions.  

The trading was undertaken by the Jannie Mouton Familietrust and the decision to buy the shares was taken “in the normal course of long-term investment” by the trustees.  

No contact from FSCA or JSE, say Moutons

Piet Mouton, CEO of PSG and a director of Curro, told Currency that neither the FSCA or the JSE had been in touch with any family member, and he only knew of the investigation through the Moneyweb article. He did not immediately respond to other queries from Currency. 

Van Deventer does not identify the specific trading activity that prompted the preliminary investigation but does say there was a lot of trading activity that required explanation. “There’s no doubt the Curro case requires attention,” he says. 

Whether or not it becomes a full-blown investigation, the FSCA’s involvement will not impact the planned delisting. As Van Deventer says: “We tend to focus more on the individuals responsible than the companies.”

Unsurprisingly, the Curro share price has lost a little of its post-announcement glow as investors fret over the competition authorities’ delay. 

ALSO READ:

• Jannie Mouton’s big, beautiful buyout: Behind South Africa’s largest donation
• Not all philanthropy: inside Jannie Mouton’s R7.2bn Curro deal
• Curro’s slam-dunk deal leaves Moutons in the dollar seats

_{Top image: supplied.}