FoneWorx hits back

JSE-listed FoneWorx has hit back at the Kirsh family, after the family called for an extraordinary general meeting to replace non-executive directors, subsequent to alleging governance irregularities at the company.

A deal that would see the merger of FoneWorx and Value+ Nettwork, founded by William Kirsh, to create a R478 million company, has gone sour after FoneWorx apparently uncovered financial irregularities at a Value+ subsidiary.

The Kirsh family, which owns around 75% of Value+ and 32.7% of FoneWorx, on Sunday called for an extraordinary general meeting in a bid to oust FoneWorx's non-executive directors. On Monday, FoneWorx's shares closed flat at 250c, but lost 30c in trade yesterday.

It cited several governance irregularities, FoneWorx failing to develop strategies that are shareholder value-enhancing; an executive-heavy board, which lacks independence; and FoneWorx's failure to buy back shares when they were "deeply discounted". FoneWorx has denied there are corporate governance issues.

"The attack by the Kirsh family on alleged corporate governance weaknesses at FoneWorx, poor board performance and so called lack of strategic direction is nothing more than an attempt by the Kirsh family to so reconstitute the board of FoneWorx as to enable them to force through a transaction, which would give them access to the significant capital required to pursue a course which the board of FoneWorx perceives as fundamentally flawed," says a statement issued by the company.

FoneWorx was set to pay R191 million through the issue of shares at 211c for Value+, which includes a 50.1% stake in Opengate Technologies.

However, after signing a sale agreement, FoneWorx's board was "apprised" of additional revised financial information relating to Opengate, one of the divisions comprised in the business, which is in a development and build phase. It was concerned by the "constant changes to Opengate's financial projections and funding requirements".

As a result, FoneWorx decided not to proceed with the deal based on the initial terms as this would be detrimental to the company. However, bids to find a solution were not successful, says the listed company.

However, Kirsh argues that Smith's contention about material issues with financial figures at a subsidiary is "totally unfounded". He says this claim is based on incorrect facts. "They got their facts wrong."

Kirsh says the family did not get involved to be passive shareholders and wants to see the deal implemented. He says he will push ahead, even if the board has to be reconstituted.

FoneWorx, however, says the family agreed to exit the deal, and a cancellation agreement was drawn up. "The first indication that the company had that the Kirsh family had again reneged on that agreement was the press release to which we are responding.

"We believe that the Kirsh family's hostile approach is inappropriate and a mischievous attempt to discredit a well-managed company in order to try and implement an agreement to acquire a business which they control and the company's cash reserves in a manner for a purpose which the board strongly opposes," says FoneWorx.