Nedbank offer at odds with prohibition
|Published
Nedbank Group says it will buy back shares from shareholders with less than 100 shares following the Old Mutual unbundling. Photo: Jason Boud/African News Agency (ANA) Nedbank Group says it will buy back shares from shareholders with less than 100 shares following the Old Mutual unbundling. Photo: Jason Boud/African News Agency (ANA)
PRETORIA – Nebank’s odd-lot offer to shareholders is at odds with the principles applied by the former Consumer Affairs Committee, now replaced by the National Consumer Commission (NCC), when it prohibited inertia or negative-option marketing in 2004 in terms of the Unfair Business Practices Act.
However, Nedbank’s odd-lot offer complied with the JSE’s listing requirements, provided certain conditions were met.
Nedbank Group announced in October it intended to buy back shares for cash from eligible shareholders who owned less than 100 of the bank’s shares following the finalisation of the Old Mutual unbundling process.
Old Mutual Limited (OML) reduced its majority holding in Nedbank from about 52 percent to a strategic minority holding of 19.9 percent, resulting in the number of Nedbank Group shareholders increasing from about 20 000 to 500 000 shareholders, with an estimated 1.5 percent of them owning less than 100 shares.
These odd-lot holders were given the option of selling their holding to Nedbank Group at a 5 percent premium or retaining their odd-lot holding.
However, if they wished to retain their Nedbank Group shares, they had specifically had to elect to do so.
“Those odd-lot holders who do not make an election will automatically be regarded as having accepted the odd-lot offer and chosen to dispose of their Nedbank Group shares to Nedbank Group and receive the cash consideration,” Nedbank said.
Negative-option marketing was a strategy where marketers offered new products or services to existing customers. But if these consumers did not expressly reject the offer, the marketers assumed the proposals were acceptable and debited their accounts.
The investigation into the practice concluded: “It is unfair to expect a consumer who does not wish to enter into a transaction to take active steps to prevent the transaction from going through.”
Trevor Hattingh, the spokesperson for the NCC, said on Friday that the prohibition would not apply to Nedbank’s odd-lot offer, because shares were not defined as “goods” in terms of the Consumer Protection Act.
Hattingh referred Business Report to the Financial Sector Conduct Authority (FSCA).
Attempts to obtain comment from the FSCA were unsuccessful.
Mike Brown, the chief executive of Nedbank, said the JSE’s listings requirements allowed listed companies to repurchase shares from shareholders holding less than 100 shares, and who did not specifically elect to retain their shares, provided shareholders specifically approved the odd-lot offer.
Brown said Nedbank shareholders overwhelmingly approved the odd-lot offer at a shareholders’ meeting last month, with 98.6 percent of the votes in favour.
He added the offer afforded odd-lot holders the opportunity to dispose of their odd-lot shares for a cash consideration in an effective manner, at a 5 percent premium and at no brokerage or other cost to them.
“We believe this is fair to all parties concerned and is not uncommon on the JSE,” he said.
Andre Visser, the general manager: issuer regulation at the JSE, said odd-lot offers were regulated corporate actions in terms of the listing requirements and a well-established market practice that had been implemented by many companies over the years.
Visser said it was a mechanism available for companies that wanted to reduce the administrative cost associated with large numbers of odd-lot holders.
He said there were a number of protection mechanisms built into the listing requirements, including that shareholders must be given an election either to hold their odd lots or sell them, with full disclosure of the consequences if no election was made; and a market-related price must be paid to shareholders wishing to sell their odd lots and those who did not respond.