On 16 March 2007 a requisition was received
by the Racing Association (“the Association” or “the RA”) in
terms of section 181 of the Companies Act. In essence, a group
of members are calling thereunder for a meeting at which they
intend to vote on the removal of the entire Board ("the Board").
The following persons presently serve on the
Board of the Association (appointment dates reflected in
brackets):
Chairman: Bruce Gardner (appointed 19
November 2001)
Directors: Michael de Broglio (8
December 2003)
Alec Hogg (29 November 2004)
Markus Jooste (18
November 2002)
Charles Laird (19
November 2001)
Michael Leaf (30
November 2004) – co-opted
Peter Miller (8 December 2003) – Free
State/Northern Cape Chapter Representative
Peter Naidoo (29 November 2006)
Ashley Parker (29 November 2005) – Eastern
Cape Chapter Representative
Chris van Niekerk (18 November 2002)
Some members of the
Board have interacted privately with the personalities behind
the requisition to establish whether the matter could be
addressed differently. Although some progress was made, the view
of these members seems to be that they have started something
which they would like to see run to its logical conclusion –
i.e. a vote by the RA’s 1 800 members on whether the current
Board is serving their interests.
Although they did not initiate it, the Board
welcomes this process as it provides an opportunity to further
communicate with members about the progress that has been made,
particularly in the past three years. Racing is an emotive
sport, and unfortunately yesterday’s rumour often becomes
tomorrow’s “fact”.
The Board has been aware of some
misunderstanding among members for some time, but despite its
best efforts, has found it difficult to address these through
the communication channels available to it. Sadly, the Annual
General Meetings where the Board’s strategy has been
comprehensively articulated, are generally poorly attended. From
the perceptions which exist among the unhappy members, it seems
that the readership of the regular RA newsletter, industry
issues in the Racing Express and the Association’s Annual
Report, is not high.
The Board has not been formally presented
with the grievances of the concerned members seeking its
removal, but in the Sporting Post of Friday, 16th –
Sunday 18th March 2007 four issue were outlined,
specifically –
“The closure of the Race Tracks – Gosforth
Park, Bloemfontein and Newmarket.
The current stakes we race for, in
comparison to the costs incurred in owning a race horse.
The concern that the Current Racing
Association is not taking decisions in the Best Interest of the
Owners.
Decisions are being made to ensure that
the Phumelela Share Price increases and not to improve or change
the betterment of Racing in South Africa.”
The purpose hereof is to apply the relevant
facts to each of these issues. The RA directors are confident
that once members are fully appraised of these, they will vote
against the proposal which will be tabled at the forthcoming
special general meeting.
Background and Chronology of Material
Events
After the introduction of casinos into
metropolitan areas of South Africa, the once monopolistic horse
racing industry fell into considerable distress. A tax rate of
13% on all bets put the industry at a massive competitive
disadvantage to its new competitors, whose tax rate was a
fraction of this. As a result, by the mid 1990s, three of the
four Racing Clubs on the Highveld were in dire financial straits
and technically insolvent. Racing appeared to be in terminal
decline and in real danger of dying.
In September 1996 after prolonged
negotiations between the industry and the newly elected
authorities, representatives of Gauteng’s Racing Industry
entered into a Memorandum of Understanding (“the MOU”) with the
Provincial Government. Central to the agreement was a "rescue
package" where the racing betting tax would be reduced to 5% of
turnover and on an equitable basis with other forms of gambling.
In return, the authorities required that the industry be
corporatised, a significant Black Empowerment shareholding
guaranteed, and the new company (Phumelela) be listed on the
Johannesburg Stock Exchange.
The Association was established at this time
to safeguard the interests of racehorse owners in Gauteng. The
Racing Trust, which now owns 38% of the shares in Phumelela, was
also established at this time.
On 22 September 1997 Phumelela Gaming and
Leisure Limited was incorporated in terms of the MOU. It was
the vehicle into which was injected all assets of the Gauteng
Clubs, the Totalizator Agency Board and the Highveld Racing
Authority.
On 22 January 1998 Phumelela and the
Association concluded a written agreement governing the levels
at which stakes are to be paid by Phumelela for horse races in
Gauteng (“the
Stakes Agreement”). When the Stakes Agreement was concluded, it
was acknowledged that it was likely that corresponding racing
interests in other provinces would join in the “corporatisation”
process and that the stakes agreement would be amended to
accommodate such interests in an appropriate manner.
On 1 April 1999, pursuant to the MOU and in
terms of a proposal approved by the members of the Gauteng Clubs
at special general meetings, the Clubs disposed of their
businesses as going concerns to Phumelela. The businesses,
assets and liabilities of the three racing clubs in Gauteng, the
TAB (Tvl) and the HRA were sold to Phumelela for R115,5m, raised
as a Racing Association loan to Phumelela.
In due course, The Vaal Turf Club,
Bloemfontein Turf Club, Totalizator Agency Board (Free State),
Griqualand West Racing Club and the East Cape Racing Club also
concluded agreements with Phumelela to dispose of their
businesses as going concerns to Phumelela.
It was a requirement of the MOU - and
critical in the negotiation to reduce the betting tax from 13%
to 5% - that members of the racing public and Previously
Disadvantaged Individuals would have the opportunity to
participate in the new corporatised entity by becoming
shareholders of Phumelela. Hence the process which resulted in
the listing of Phumelela on the Johannesburg Stock Exchange in
June 2002.
It is important to note that ongoing
negotiations have resulted in a further reduction to the current
tax rate of 1,6%.
Facts Relating to the Concerns Raised
“The closure of the Race Tracks”
In the Association Chairman’s Report at the
2000 Annual General Meeting, members were informed that because
of the process being forced upon the industry, one of either
Newmarket or Gosforth Park would be closed during 2001, with the
other track closing the following year. Members were asked to
vote on which track should close first and selected Gosforth
Park. Phumelela was under no legal obligation to consult with
the RA in this matter as ownership of Gosforth Park and
Newmarket never vested in the RA.
At the time such agreements were concluded
none of the members of the current Board was serving on the
directorate of the Association. They inherited what was
effectively a fait accompli. The Board, through
constructive engagement with Phumelela, was able to extend
racing at Newmarket until 2007. Among these actions was the
negotiation of an agreement on the sale of the centre to a
property developer on the basis that the racecourse would remain
in operation for at least a further seven years.
The property developer subsequently changed
its mind on incorporating racing as a central theme in the
proposed R600m development. Faced with the prospect of having
racing at Newmarket massively disrupted during an extended
period of construction, Phumelela negotiated a R40m settlement
to cancel its Use Agreement. The RA supported Phumelela’s
decision on condition that the R40m would be reinvested into the
Turffontein facility and, specifically, through lighting of the
Turffontein racecourse to ensure night racing could continue and
turnovers – and hence stakes available to RA members – be
minimally impacted.
Members should appreciate that the current
Board was appointed long after the sale and subsequent closure
of Newmarket had been decided upon. The Board has used its best
endeavours to ensure that in this process, the interests of its
members have been protected.
“The current stakes we race for, in
comparison to the costs incurred in owning a race horse.”
The RA board has engaged constructively with
Phumelela in discussions to amend the Stakes Agreement in a
manner that will ensure local racing benefits from the growth
which the company has achieved through its international
activities. However, Phumelela is under no obligation whatsoever
to alter the Stakes Agreement which was concluded way back in
January 1998. This agreement was concluded long before any
member of the current RA board was appointed – again, it was an
inherited position.
According to the Stakes Agreement, increases
in stakes are regulated by a formula. The relevant clause in
the Stakes Agreement, under ''Duration" reads: “This
Agreement shall commence on The Effective Date and shall
remain in force for an indefinite period which may not be
terminated by either party for any reason.”
The Stakes Agreement may be terminated by
either party “if and only if” any one of the following
events occurs:
·
if the other party commits a
breach which is material and goes to the root of the Stakes
Agreement and, being such a breach, is not capable of being
remedied by specific performance by payment of damages; or
·
if the other party is placed
under any final order of winding-up or judicial management or
passes any resolution for its winding-up, otherwise than for the
purposes of an amalgamation or reconstruction duly sanctioned by
a court having jurisdiction; or
·
if Phumelela ceases permanently
to carry on the business of horse racing; or
·
if the parties agree in writing
to terminate it.
Moreover, the Stakes Agreement contains a
non-variation clause that reads as follows:
“Non-variation
No agreement to vary, add to or
terminate this agreement shall be of any force or effect unless
reduced to writing and signed by or on behalf of the parties to
this agreement.”
“The concern that the current Racing
Association is not taking decisions in the best interest of the
Owners.”
This is an emotive allegation. No
particulars are provided. Members are reminded that the current
Board are served by persons with substantial investments in the
thoroughbred industry, primarily because of the enjoyment they
derive from owning and racing these magnificent animals. It is
illogical to suggest that they would act against their own
interests as racehorse owners. Also, members should be aware
that the Board voted unanimously to forego all of the fees
traditionally paid to RA directors, and injects these monies
directly into the Stakes Pot for the benefit of all members.
“Decisions are being made to ensure that
the Phumelela share price increases and not to improve or change
the betterment of Racing in South Africa.”
Members of the Board believe they act at all
times in the best interests of South African horse racing and,
by definition, racehorse owners. The Board took a strategic
decision in 2005 to insist on extending the right in the MOU –
which had expired earlier in 2005 – which enabled the RA to
appoint three directors to the Phumelela Board. These
appointments were part of the Board’s decision to embark on a
process of constructive engagement with Phumelela and to
represent racehorse owners’ best interest.
The current Board includes three members –
Alec Hogg, Markus Jooste and Chris van Niekerk - who have also
been appointed to the Phumelela Board. They have played an
active role in promoting and protecting the interests of
racehorse owners at the Phumelela board level by refocusing that
company’s attention on the need to invest for the long term to
improve racing in South Africa.
The Board, and particularly its
representatives on the Phumelela directorate, fully appreciate
the workings of the stock market and regard as disingenuous any
insinuation that their decisions are taken to influence the
company’s share price. The value of a company is not enhanced
by short-term decisions driven by expediency, but through
carefully considered strategies that enhance the environment
within which that business operates. In this respect, the RA
directors believe that the interests of the RA and Phumelela
converge – namely in the building and maintenance of a strong
South African racing industry which is sustainable and
positioned to thrive over the long term.
Concluding Observations
A perusal and consideration of the material
clauses of the Stakes Agreement ought to make it clear to
members that there is no basis upon which the formula that
determines the quantum of stakes can be amended on a unilateral
basis. Notwithstanding the constraints contained in the Stakes
Agreement the Board has at all times sought to engage Phumelela
management on a constructive basis with a view to increase
stakes. These attempts have yielded substantial success. The
efforts of the Board in this regard continue on an ongoing
basis.
Phumelela is an independent company with a
broad stake of shareholders and the Association is in no
position to interfere with its operational management.
Notwithstanding legal and contractual constraints, the Board has
adopted an approach of constructive engagement with Phumelela.
The Board is committed to full transparency
and open communications about its decisions and policies. It
will continue to provide members of the Association with further
information regarding the issues sought to be addressed
herein. The Board wishes to thank members for their support,
contributions and participation in addressing the challenges
faced by the sport of racing in this country.
The Directors of the Racing Association