Ram’s P1.13 billion Choppies-Zim buy out

 

TEFO PHEAGE

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Former president and Choppies Chairperson Festus Mogae and the Chief Executive Officer of Choppies Ramachandran Ottapathu have decided to relinquish their interests in Choppies Enterprise in Zimbabwe, which they co-owned with former Zimbabwean Vice President Phelekezela Mphoko.

Choppies entered the Zimbabwean market in 2013 using an investment enterprise known as Nanavac. Mphoko and his son, Siqokoqela, jointly own 51% shareholding in the company while the Choppies Group holds 49%, to meet the citizen ownership requirements of Zimbabwean legislation.

Following a heated dispute over the company shareholding that was threatening to spill over into the Zimbabwean Courts, the retail giant has decided to bow out and grant the Mphokos full control of the business after the Mphokos invoked the buyout provision contained in the shareholding agreement. The buyout will not however be handed over on a silver platter.

The Botswana Gazette has intercepted legal documents exchanged by the warring parties’ lawyers. The documents in publication’s possession confirmed by lawyers reveal that the retail giant has resolved to sell its entire Zimbabwean concerns to the Mphokos for over ninety four million US dollars (approximately One Billion, thirteen million Pula).

“We are instructed that Choppies Enterprise limited our client accepts your offer to purchase all of its shares in Nanavac and we will deliver the shares to you, against payment of the purchase price of USD $ 94 898 880 (ninety- four million eight hundred and ninety-eight thousand eight hundred and eighty United States Dollars) which represents a multiple of 12 times Nanavac’s earnings before interest, tax, depreciation and amortization and extrapolated to annual amount from Nanavac’s latest financial statements for its quarter ending on 30th September 2018,” reads a letter from Dube- Banda Nzarayapenga and Partners who were instructed by Mogae, Ramachandran Ottapathu and the retail giant’s executives.

The acceptance of the buyout offer comes after Mphoko, through his lawyers Mathonsi Ncube Law Chambers invoked of the buyout clause in the shareholding agreement.

“Clause: 13 Buy out. Notwithstanding anything contained in clause 10, the Mphokos may at any time purchase all of the Choppies shares for a cash consideration equal to the latest audited EBIDTA (earning before interest, tax, depreciation and amortization) multiplied by twelve, and settled within 10 days of making such an offer. In the absence of audited financial it shall be computed as follows: EBIDTA as on a particular day/ month of year shall be arrived at and thereafter extrapolated to annual figures,” reads Mphoko’s letter from his lawyers.

The lawyers note that, “in terms of the quoted clause 13 of the Shareholding agreement, we are instructed to give notice, as we hereby do, that ours have decided to invoke the provisions of the said clause of the agreement and thus you are hereby given notice that ours intend to buy you out from the company. The notice effectively terminates forthwith the business partnership between our clients and Choppies Enterprise. Consequently, in terms of Clause 14 of the shareholding agreement ours will with assistance of Accountants and Lawyers, be inspecting the company books of accounts in order to ascertain the latest audited EBIDTA for the purpose of determining that which is payable to yourselves in terms of clause 13 of the Shareholders agreement.”

In terms of clause 13 of the Shareholders Agreement, on 24 July 2013 (“The Shareholders Agreement”) The purchase price settlement was extended to 5th of November 2018. “Choppies hereby nominates the following bank account into which the purchase price must be paid,” reads the response to the Mphokos.

The Choppies attorneys further demand that they must be shown proof of payment prior to effecting the share transfer, “please let us have proof of payment of the purchase price, on receipt of which our client will deliver to your clients its share certificate together with a signed share transfer form made out in favour of your clients. Ours being a holder of the valid investment certificate issued in terms of the law and being a foreign entity will expect yours naturally to seek exchange control approval to pay them the sum due to it in Botswana.”

Operational Agreements disputes.

“We are instructed that it is tacit, alternatively an implied term of the Stakeholders Agreement, that upon Choppies ceasing to be stakeholder of Nanavac, the Stakeholders Agreement will terminate as between Choppies on the one hand and your clients and Nanavac on the other. Accordingly, Choppies will regard the Stakeholders Agreement as having no force or effect with effect from the date on which it ceases to be shareholder of Nanavac,” argue Choppies Attorneys.

The dispute between the shareholders, already on thin ice due to allegations embezzlement filed with the Zimbabwean Police in Bulawayo, escalated to a new titfortat exchange: “We further note that your client alleges that the operational services agreement centered into between Nanavac and Choppies on or about 23 September 2013 (“Operational Services Agreement”), is a forgery. We assume that this means that that Mr S Mphoko alleges on behalf of Nanavac that he did not, in his capacity as director, sign the Operational Services Agreement on behalf of Nanavac. Our client denies this allegation and submits that the Operational Services Agreement was duly signed by Mr S Mphoko on behalf of Nanavac and is full

force and effect.”

Choppies lawyers contend that Mr S Mphoko’s allegations, in his capacity as a director of Nanavac, and the denial of existence of the valid agreement on behalf of Nanavac, as an unequivocal intention of Nanavac to no longer to be bound to the provision of the Operational Services Agreement. “We are instructed that Choppies accepts Nanavac’s repudiation of the Operational Services Agreement. Such agreement is accordingly of no further force or effect.”

Choppies tightens noose on Mphokos.

Meanwhile Choppies has tightened the noose on Mphoko by strictly enforcing the buyout clause of the Shareholders Agreement. Choppies lawyers indicate that they have been instructed to inform the Mphokos that Choppies will cease to render all of the operational services to the business as a result of the buyout. “As a result of the cancellation of the Operational Services Agreement and termination of the Stakeholders Agreement, we are instructed that Choppies will with effect of 5th November 2018, cease render all of the operational services specified in clause 6 of the Operational Services Agreement and clause 3 of the Stakeholders Agreement.”

Raising the foreign currency in a hard currency cash strapped economy will be only the tip of the iceberg for the Mphokos, “Choppies will withdraw all management staff seconded from Choppies to manage and implement the business operations of Nanavac, withdraw all financial assistance and banking facilities made available to Nanavac and terminate all supply agreements between itself and Nanavac,” Choppies lawyers notify their opposing colleagues.

Furthermore Nanavac must with effect from 5th November 2018, desist from using the Choppies Business System (as defined in the Operational Services Agreement), “Should Nanavac continue to use the Business System and/or Intellectual Property , we are instructed that our client will take such legal action against your clients and/or Nanavac as may be available to it in law,” warns Choppies.

Where it all began…

Mogae wrote to Mphoko (Reference FGM/4/1) on June 1, 2018, warning him against resisting regularization of the shareholding. Mphoko, it has emerged from the various threatened and actual legal proceedings, was drafted into the business in a controversial gambit to circumvent Zimbabwe’s contentious indigenization laws, which have been abandoned by the new post Mugabe government.

Mogae says the Mphokos were only given 7% shareholding in Choppies Zimbabwe, although Mphoko insists he holds 51%. Mphoko insists he cannot be wished away “just like that” and also reiterated that they are the biggest shareholders in Zimbabwe’s Choppies operations. Choppies Zimbabwe has 32 outlets across Zimbabwe.