Buffett-style AGMs for Telkom?

Some retail shareholders in Telkom on Friday openly protested against the box-ticking nature of the annual general meeting (AGM), demanding greater participation in the decision-making processes at the company.

They asked to be allowed to air their views more freely and debate issues such as share buy-backs, particularly before being asked to vote on resolutions.

One shareholder, Arthur Lello from Kwa-Zulu Natal – who between him and his wife speaks for 14 600 shares worth just over R2m – accused Telkom management of "pulling a conjuring trick" by asserting the cost of distributing dividends made it undesirable to return all excess capital via such distribution mechanism.

Lello wants Telkom to return excess capital via higher dividends instead of partially via share buy-backs.

He also believes that Telkom should rather be spending its money on growing its business because it was able to show EBITDA (earnings before interest, tax, depreciation and amortisation) margins of 43% last year, but only achieved a return of 10% on share buy-backs, according to his calculation.

Lello’s suggestion met with loud applause from the audience.

Not comparing apples with apples

But Telkom’s chief financial officer Kaushik Patel said Lello was not comparing apples with apples, and misleading small shareholders as a result.

Lello should rather be comparing the earnings per share number – the bottom line – than the EBITDA margin, which is before interest, tax, depreciation and other costs.

Patel said when Telkom saw no immediate opportunity to spend excess capital; it would rather return this to shareholders in various ways in order for them to decide how better to deploy the cash.

But, due to the cost associated with paying dividends – STC and distribution costs – it would not be in the best interest of shareholders to exclude buy-backs as a mechanism for returning capital, Patel said.

In the last financial year, Telkom paid out R9 in dividends – R5 ordinary and R4 special – and spent R1.5bn on share buy-backs. It intends spending another R2bn on buy-backs this year.

Shareholders with 99.7% of the shares voted in favour of the special resolution allowing Telkom to repurchase its shares again this year. All the other resolutions were also passed unanimously.

Not alone in frustration

Lello said he believed other shareholders should stand up and air their views as well.

The AGM, he said, should be a forum for enabling small shareholders to give their input on the company’s strategy going forward, and gain a better understanding of the group and its plans for the year ahead.

Lello said he didn’t want things to become confrontational, but the directors, as custodians of the wealth of shareholders should help them gain a better understanding of their company: "Surely that is not a problem?" he asked.

Lello was not alone in his frustration.

When the voting began, another shareholder stood up and asked what the point was of having an AGM if there was going to be no room for debate: "So you just want us to tick boxes?" The company hadn’t even introduced the board of directors to the meeting, he complained.

‘Fat cats’

In response to Lello’s concerns around share buy-backs, Advocate Michael Alachouzos – who has been fighting legal battles with Telkom over various pedantic procedural issues for some years now and interrupted the meeting on a number of occasions to place these on record again – recited the Berkshire Hathaway treatise on share buy-backs.

He said – without accusing Telkom of any of these – that potential abuses could include manipulating stock options, and that buy-backs inevitably placed more of the company in the hands of the "fat cats" than the small shareholder by decreasing the pool of free float shares available.

Patel said Alachouzos was sending an inappropriate message; that the purpose of buy-backs was to take out minorities. These shares were bought on the open market on a willing buyer, willing seller basis.

"The purpose is to get the capital structure right, and not hold money in the bank," he said.

The topic of debate aside, it seemed from the way the meeting played itself out that Telkom shareholders would welcome a more interactive AGM in the style of the famous Berkshire Hathaway expansive question and answer sessions presided over by Warren Buffett and business partner Charlie Munger.

Thousands and thousands of investors travel from around the world to attend these AGMs each year.

Attendance at Telkom’s AGM was not quite on the same scale, but shareholders nonetheless filled an impressive two ballrooms at the Sandton Convention Centre.

"Question of balance"

Telkom CEO Papi Molotsane said during interval that the company would be open to re-examining that way that its AGMs were conducted: "I am a big subscriber of shareholder activism. We should allow shareholders to engage with management," Molotsane said. "It’s just a question of balance."

Largely because Telkom offered shares at a discount to previously disadvantaged shareholders at listing, the base of shareholders is diverse and people from all walks of life do travel from around the country to attend the AGM.

But in reality, these shareholders have little say.

At the end of March, 85 432 individuals – down from 88 645 the year before – owned Telkom shares. But their entire holding accounted for just 1.73% of the shares.

The government holds a 38% stake, the PIC, 16%, empowerment grouping the Elephant Consortium owns almost 7%, while various institutional shareholders hold significant chunks of the shares.

At last year’s AGM, some of the small shareholders requested a greater understanding of how the share markets work, and so this year, Telkom held an education session from 8am until 1pm prior to the AGM.

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Buffett-style AGMs for Telkom?