Cape Town - The Shareholders` Association yesterday claimed it had discovered a "possibly fatal flaw" in a circular sent by Stocks Hotels and Resorts (Stochot) to shareholders earlier this month regarding the proposed sale of the business to a consortium that included top directors.
David Sylvester, the chairman of the Shareholders` Association, said although the circular met JSE requirements, it was not submitted to the Securities Regulation Panel (SRP) for approval. "The deal could be postponed or delayed by this oversight".
But last night Neil Yates, the financial director of Stochot, countered the Shareholders` Association claim. "We have established that SRP approval has been given ... there was a technical slip when we issued the circular."
Stochot, a subsidiary of Stocks & Stocks (Stocks), proposes to sell its entire business as a going concern to Brookfield Investments for R60 million.
Bart Dorrestein and Bruno Corte, two high-ranking directors at Stochot, are members of the purchasing consortium.
Sylvester said tomorrow`s shareholders meeting required a simple majority to approve the deal "As Stocks, which holds more than 50 percent of Stochot, has agreed to vote in favour of the scheme, the proposed deal`s a foregone conclusion".
He argued that the shares of Stocks should not be allowed to vote, enabling minority shareholders to decide the issue.
Sylvester said the consortium was paying R60 million for the hotel interests and R37, 8 million for the company that earned the management fees for operating the hotels. "This is effectively a price of R97 million to Stocks & Stocks to retire debt of which only R60 million goes to Stochot."
Sylvester said Stochot listed in 1997 at a price of R2,50 and the directors now saw fit to make an offer at 60c when tangible net asset value was R1,50 on April 30.
He said that in 1999 Stochot`s directors and auditors valued investment in associates at R48 million, and investments and loans at R123 million. "Included in the R123 million is a figure of R101 million relating to promissory notes purchased. During the year more promissory notes were purchased using cash resources.
"These notes are written on the back of the underlying Michelangelo and Portswood hotels and the directors and auditors saw no need to restate them at April 30. We can only assume they are recorded at fair values."
Sylvester said he estimated that, excluding the other assets, whose values may be questionable, the net amount of investments less liabilities of R45 million yielded a net asset value of R126 million. "This is a long way off the R60 million the directors have agreed to sell the net assets out of the company for."