ECH – the investment arm of Econet Wireless – took the market by surprise last week when it requested the battle weary KMAL board to convene an extraordinary general meeting (EGM) at which shareholders will be asked to vote for the de-merger of the group to end the costly imbroglio.

Econet is understood to have entered into a voting pool agreement with Moxon to give the thumbs up to the unbundling of the Chanakira-founded Kingdom Financial Holdings Limited (KFHL) from a marriage solemnized in November 2007.
Between them, ECH and the Meikles family – represented by Moxon – control over 53 percent of the KMAL stock.
That the two investors will carry the day at the EGM is not in doubt.

KMAL last week took the first step to comply with ECH’s request issued through chairman, Tawanda Nyambirai.
In a statement issued at the weekend, KMAL asked those dealing in its shares to exercise caution until such a time the matter is put to vote.

Analysts this week described the KMAL dispute as an unfortunate development as it has shaken the foundation of what they had seen as "the first real test for Zimbabwe’s black economic empowerment crusade".
The battle for control between Moxon and Chanakira, they claim, demonstrates what happens if hostile indigenisation laws stampede companies into marriages of convenience.

While the bride and the groom in the KMAL union had insisted they did not wed because of the threat of indigenisation, the timing of the merger exposed their underlying motive – the fear of being whipped into marriage with rogue partners.
When the deal that resulted in the merger of Meikles Africa Limited, Tanganda Tea Company, Cotton Printers and KFHL was consummated, government had touched the raw nerve in the corporate sector by pushing through Parliament legislation which had the effect of tilting the scales in foreign-owned businesses in favour of indigenous blacks.

For Moxon, now specified, the merger presented an opportunity for Meikles Africa, Tanganda and Cotton Printers to escape Zimbabwe’s indigenisation laws that will force foreign investors to offload 51 percent of their holdings to locals.
Chanakira’s KMAL was therefore seen as a better partner ‘to go to bed with’.

Anxious to create a rapport with the authorities through a strategic deal with a black-owned enterprise, Moxon plunged headlong into the deal with a man seen as an icon among those with ‘new money’ – Chanakira – without thoroughly digesting the unintended consequences of the alliance.

For Chanakira, the spinoffs from the ‘mega transaction’ were irresistible.

These included ready cash injections from TM Supermarkets, the enlarged group’s hotel interests as well as access to Meikles Africa’s foreign cash kept at the Reserve Bank of Zimbabwe for KFHL.

Chanakira might also have seen an opportunity to exploit the stronger balance sheet of the enlarged group to survive a systemic liquidity crisis that hit the banking sector between 2004 and 2008 while bringing within reach his dream of listing the business on Wall Street – the world’s largest bourse.

As of May 10 KMAL’s market capitalisation stood at US$175 million.

It is now clear however, that Moxon and Chanakira rushed into the deal without taking time to understand the strategic direction they were to take.

Both overlooked some possible sticking points which have now exploded into the open, weakening the very foundation of the merger.

Meikles, then 70-years old in 2007, had historically operated as a closely-knit family business, with essentially very little consultation in decision-making.

As chairman, Moxon obviously found it difficult to break with tradition by going through the pain of consulting the ambitious new partner.

And when Chanakira questioned Moxon’s decision to dispose of Cape Grace Hotel, the South African property at the centre of the dispute, the reality began to sink in for the KMAL chairman.

It was a big cultural shock for Moxon that anyone could challenge his decisions.
On the other hand, KFHL had built its powerful brand around Chanakira whose meteoric rise on the corporate ladder had not escaped the eye of Meikles Africa.

Obviously, the KFHL CEO’s vision to list on Wall Street could not resonate with Moxon and the rest of the Meikles family, used to running the business as a family.

In the expanded group, some were bound to be greed, some rational, some politically stronger with huge egos, some politically weak but with huge egos as well, and some quiet but influential.

But what Meikles, with cross ownership in Tanganda and Cotton Printers failed to recognise was the influence of the race card in the politically-charged Zimbabwe.

It was not surprising therefore that the ill-fated October EGM assumed a racial dimension when Moxon attempted to remove three black KMAL directors and replace them with white board members.

Allegations that KMAL had externalised funds did not help matters.

The Financial Gazette realised recently that the race card was indeed strong in the whole KMAL equation.
"Musashandiswe nevarungu, (Do not be used by whites)," a top executive with KMAL said last week in reference to an interview The Financial Gazette had early this year with Moxon.

The emergence of ECH has however, taken the sting out of the racial undertones.

Questions are now being asked about what the de-merger would mean to both KFHL and Meikles Africa – the protagonists in the dispute whose acrimony had caused minorities to lose significant value.

KFHL is likely to emerge as the biggest loser once the group is de-merged, analysts say.
Chances are high that Moxon might cause TM Supermarkets and other investments linked to Meikles Africa to move their business elsewhere post the de-merger.

The retail sector in particular is blossoming with the industry operating around 80 percent on average. Kingdom had thus benefited from its relationship with TM, a cash business.

Indications are that the US$22,5 million deposited by KMAL with the central bank as capital for the banking group will also revert to Meikles Africa after the de-merger.

Kingdom Bank will therefore have to find capital from alternative sources to consolidate its position. This will be a tall order.
Even more interesting is the fact that Meikles will still remain the most significant shareholder in KFHL after the unbundling. Possibly, Meikles Africa might have to divest from KFHL to end the relationship.

All eyes will also be on Strive Masiyiwa, the Econet founder, as the market closely follows how the Econet group CEO will play his cards.

Should Masiyiwa’s ECH decide to offload its shareholding in KFHL or Meikles Africa in the heat of the realignment of the group the results will be bad for both Zimbabwe Stock Exchange-listed giants. It will be more damaging for KFHL given the long-standing relationship that exists between Masiyiwa and Chanakira.

Analysts however say, ECH will most likely maintain its shareholding in both KFHL and Meikles Africa. But they fear that even if Masiyiwa remains, a Meikles-Econet-First Africa ReNaissance Corporation (Afre) relationship will now have more clout in KFHL than Chanakira, with the potential to dictate the direction of the business.

"Chanakira will have to strike a good relationship with the men behind the shareholders (Masiyiwa, Moxon and Patterson Timba, chairman Afre), or at least one of them, otherwise they can look for someone to lead KFHL and relegate him to being a mere shareholder. Their investment will be huge and remember Masiyiwa has a stake in Afre," said one analyst.
Some shareholders aligned to Moxon have not forgiven Chanakira for alerting the authorities to what he alleged to be the externalisation of funds by the former KMAL chairman leading to his specification in January, which has wrecked havoc in the Meikles family.

This week, a disgruntled shareholder said; "Very disturbingly, having denied being able to remove the specification, Nigel attempts to blackmail John (Moxon) in return for a settlement…In the context of a settlement I would be prepared to recommend to KMAL that it make appropriate submissions to the relevant authorities with a view to having that order (specification) removed".

Other analysts argue that for Chanakira, what has happened at KMAL was a temporary setback.
"Chanakira can find other partners. Let’s not right him off yet, but it is really a major setback," the analyst said. "The KMAL influence was huge and could have taken any CEO where he wanted to go," the analyst added.
In the final analysis, the de-merger has more winners than losers.

As Nyambirai correctly noted, "the demerger is expected to resolve the existing shareholder disputes and improve the market perception of both KMAL and KFHL. It is envisaged that improved market perception will unlock shareholder value expected through improved share price performance of the demerged entities relative to the consolidated entity.  It is also hoped that the specification on the Meikles family, on their investment vehicles, and on TM Supermarkets will be lifted. Such a positive development is expected to help improve the image of the country, and to make the group more attractive to foreign investors."

Royal Rumble: How things turned nasty

OCT 2007:  Tanganda Tea Company, Cotton Printers, Meikles Africa and KFHL announce merger to create KMAL.
DEC 2007:  KMAL lists on ZSE with KFHL and Meikles Africa being delisted from the bourse.

EARLY 2008: KMAL is hit by intense infighting triggered by chairman, John Moxon’s attempt to sell the Cape Grace Hotel.
OCT 2008: Moxon calls for an EGM at which shareholders were expected to pass a vote of no confidence in CEO Nigel Chanakira and two other KMAL directors.

– Chanakira raises externalisation allegations against Moxon and an extensive forensic audit is commissioned by the RBZ.
– Africa First ReNaissance Corporation (Afre) approaches the High Court, successfully blocking KMAL from convening the EGM.

– The RBZ sanctioned forensic audit unearths US$43 million in potential loses to the group through alleged externalisation of foreign currency through a web of companies linked to Moxon.

JAN 2009: Government specifies Moxon. He relocates to Cape Town, South Africa.
FEB 2009: Moxon appeals to the London Stock Exchange to de-list KMAL until the boardroom wars are resolved. He also appeals to the ZSE to look into the dispute.

MAR 2009: Moxon speaks for the first time in public about his problems with Chanakira. He reveals details of a proposal he had made to de-merge KMAL but alleges Chanakira was not keen on pursuing the option.

– Chanakira flies to Cape Town to meet Moxon and the two sign a confidentiality clause not to go public about the fissures.
MAY 2009: Econet Capital Holdings (ECH) announces a proposal to de-merge the group subject to approval by shareholders at an EGM later next month.

– KMAL publishes a cautionary following ECH’s request.