Thom McLachlan

Tsogo’s submission, objecting to Gold Reef’s R11,4bn private equity buyout led by Ethos Private Equity, and involving Goldman Sachs and Gold Reef’s senior management, alleges that the senior management team — including chairman Maxim Krok — were compensated for accepting an R11,4bn private equity offer involving a management stake instead of a more lucrative one made by Tsogo.

Krok, it alleges, was paid R12m to compensate for the lower price offered by the consortium, while Richard Moloko, who represents the company’s empowerment partners, was given Krok’s position as executive chairman in the new entity and a significant discount to take up his portion of the 12,5% management stake.

In a circular submitted to Gold Reef shareholders in response to the submission, Gold Reef management said Tsogo’s claims of improper inducement were “wrong”. According to the circular, the company’s board resolved to pay Krok the R12m for “services rendered”. It said Krok’s payment was for achieving an increase in the price for the company from R32 to R34 a share.

It said that the payment had been made on August 12 — “after Gold Reef shareholders owning 76,1% of Gold Reef’s fully diluted share capital had irrevocably undertaken to accept the (private equity consortium’s) offer”.

But Tsogo, which has been set on acquiring Gold Reef since early last year, criticised the listed company for attempting to pass the offer of R34 per share by the Gauteng Gambling Board and its shareholders without highlighting Tsogo’s earlier offer of R34,50.

It claimed Krok, who represents the Krok family’s 25,9% interest in Gold Reef and his own portion of those shares, and Moloko were rewarded for their acceptance of the management offer rather than Tsogo’s.

Tsogo’s submission claims that “the only explanation for this ... is that (Krok) would personally be placed in the same financial position as if he had accepted the offer of R34,50 from Tsogo”.

“This must be the condition he must have demanded to approve the transaction on behalf of the Krok family interest which he represented.”

Tsogo asked that the gambling board investigate the payment made to Krok and the “non-disclosure” of Tsogo’s prior offer.

Tsogo claimed that Moloko, who represents the 25% black empowerment stake in the deal, gained a “substantial portion” of the management stake in the new structure at a significant discount, “despite having no declared executive responsibilities”. Gold Reef, in its response, said Moloko would take over from Krok as the new entity’s executive chairman, dedicating three days a week to the company.

It said the insinuation that Gold Reef management had received an improper inducement was “wrong”.

“Management paid the same price for the shares that they are receiving upfront as all other members of the consortium,” Gold Reef’s circular read.

Gold Reef said that Tsogo’s submission was “argumentative, unsustainable and irrelevant”. It said Tsogo was attempting to delay the gambling board’s process beyond January 31, after which the offer to Gold Reef shareholders is nullified.

Tsogo said that while it was not privy to the confidential financial information behind the deal, it had deduced that senior management had taken a R300m discount for its 12,5% stake, paying just R187,5m. It said this was “at the expense of the BEE shareholders” who had acquired their 30% stake for an estimated R1,273bn. Gold Reef denied this.

Tsogo and Gold Reef said they would not comment further until the hearing had taken place.

The Gauteng Gambling Board confirmed that the hearing will be held on Thursday.