A bid to create a R478 million company through the merger of FoneWorx and Value+ Nettwork has become hostile, with the Kirsh family calling for an extraordinary general meeting to replace FoneWorx's non-executive directors.
Last December, FoneWorx announced it and Value+ Nettwork, founded by William Kirsh, would merge to create a R478 million company. FoneWorx said it would pay R191 million through the issue of shares at 211c for Value+, which includes a 50.1% stake in Opengate Technologies.
However, the deal unravelled after FoneWorx's due diligence uncovered that financial figures at one of Value+'s subsidiaries had been materially changed, which would have required more funding than initially anticipated, says FoneWorx CEO Mark Smith.
Smith explains that meetings were held in a bid to come up with a solution that would have seen the merger go ahead on different terms. However, the original sale agreement was not adjusted, and FoneWorx decided to pull the plug on the deal, he says.
Fundamental weaknesses
Subsequently, the Kirsh family, which owns around 75% of Value+ and 32.7% of FoneWorx, has called for an extraordinary general meeting in a bid to oust FoneWorx's non-executive directors. The company's non-executive directors comprise Gaurang Mooney and chairman Ashvin Mancha.
The Kirsh family argues that the "fundamental corporate governance weaknesses at FoneWorx are undermining the shareholders' opportunity of building shareholder value".
Issie Kirsh says the family wants to introduce greater independence and governance from non-executive members on the board, and allow better representation of shareholder interests to support value creation for shareholders.
In a statement, the family raises several issues, such as FoneWorx failing to develop strategies that are shareholder value-enhancing, both strategically and financially; an executive-heavy board, which lacks independence; and FoneWorx's failure to buy back shares when they were "deeply discounted".
However, Smith argues that this is nothing more than the family hitting back at FoneWorx's refusal to ink a deal that would have been to the detriment of shareholders. Smith says the Kirsh family is now becoming hostile, and points out that few such bids have succeeded.
The Kirsh family are disgruntled sellers that could have raised these issues previously, says Smith.
Still committed
William Kirsh, who was set to become chairman of the new company, says the family and Value+ shareholders are "strategically committed to implement the merger that FoneWorx bought into".
Kirsh adds: "We agreed to the merger, recognising that the FoneWorx assets are complementary to our strategy and this remains our objective. We have been aware of these corporate governance weaknesses and intended to resolve them post the implementation of the merger.
"We are proposing to reconstitute the non-executive members of the board to restore proper governance, achieve the merger and build shareholder value in FoneWorx."
The family proposes that the current executive directors be retained on the board, and that William Kirsh be elected non-executive chairman, and that the family nominate a total of four non-executive directors.
Shareholders holding 11.1% have provided irrevocable undertakings, in addition to the Kirsh family's 32.7% for a total of approximately 43.8% to vote in favour of motions at the meeting to replace the non-executive members of the board. The family says if FoneWorx does not hold a meeting, it reserves its right to approach the courts.
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