Johnnic`s sale of its MTN stake has caused some shareholder discontent, but the group says it has done no wrong.
Johnnic announced last week that it had sold its remaining 40 million MTN shares on the open market for a net aggregate consideration of R1.3 billion.
The announcement upset some shareholders and fund managers, who felt that shareholder approval should have been sought.
Fund managers also said the sale was announced more than a week after it occurred, which meant that investors believed they were still exposed MTN shares when they were not.
The timing of the sale also caused some dissatisfaction, as it took place just before MTN`s share price soared in response to a strong set of financial results.
However, Johnnic has defended the sale, saying that it had indicated to shareholders that it was its intention to sell the shares in the short term without reverting to shareholders for authority.
It says the shareholders` circular of 16 May last year made it clear that the 40 million MTN shares would be retained to cover a corporate guarantee, Johnnic`s ongoing working capital requirements, potential funding requirements for the Suncoast Casino & Entertainment World and possible tax liabilities.
Timing
The shares were retained last year after Johnnic unbundled most of its shareholding in MTN.
"The unbundling was approved by shareholders on 3 June 2003 and thereafter the 40 million MTN shares were shown as a current asset," it says.
It adds that it was understood that further shareholder approval was not required to deal with what was effectively a current asset held for working capital and funding requirements purposes.
Regarding the timing of the announcement, Johnnic says it sold the shares in the market, and to carry this out in an orderly manner and without creating the perception of an overhang in MTN shares, it was advised not to notify the market before the disposal.
The group has also defended the timing of the sale, saying that Johnnic management implemented an equity monetisation plan after being advised of impending changes and the uncertainty in the telecommunications sector.
"In view of Johnnic`s further anticipated working capital and funding requirements, it was deemed judicious to cap the company`s exposure to a potential downside in the MTN share price. The advice given was that the results of MTN had already been factored into the current share price and that MTN`s impending results announcement was not predicted to have a material impact on the MTN shares."
The Johnnic share lost 15c to close at R19.80 on Friday, the day after its announcement. It lost a further 15c to trade at R19.80 this morning. MTN`s rise continued today, with the share trading at R41.80, up 90c from Friday`s close. MTN has risen by R8.50 since the beginning of the month.
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