CATALOGUE OF INCOMPETENCE
Flyt to fight Western Province Rugby Football Union after deal dispute
In another addition to Western Province Rugby Football Union’s catalogue of incompetence, the company that loaned it R112-million as part of a deal for the development rights to Newlands Stadium is set to institute legal action against the union.
In the past year, the Western Province Rugby Football Union (WPRFU) has been a case study in how not to run a business.
On Thursday, Flyt Property Investment, the company the WPRFU courted after it reneged on an agreement with Investec to redevelop Newlands, formally declared a dispute with the union.
Hours later, the New York-based MVM consortium, which offered to buy a 51% equity stake in the professional arm of the union for $6-million (R100-million), formally withdrew its interest. It is understood it will move on to the Sharks.
“Given the recent media speculation, we thought it was important to the players, coaches, management, sponsors and supporters of Western Province rugby to share that MVM Holdings has decided to cease negotiations with WPRFU and to pursue other opportunities in professional rugby,” read a statement from MVM’s lead investor, Marco Masotti.
That was the least of the blows WPRFU suffered on the day, considering president Zelt Marais had stonewalled MVM for months and the deal was all but over weeks ago, despite the Americans’ attempts to keep it alive.
The bigger blow came with the news that Flyt, which replaced Investec at the eleventh hour in June this year, was claiming damages from the WPRFU.
“Flyt Property Investment and an associated company, Dream World Investments (‘the Flyt Group’), formally lodged a claim with the Western Province Rugby Football Union for damages,” CEO of Flyt Property Investment Zane De Decker said in a statement.
“The claim arises from the WPFRU’s repudiation and breach of the binding agreements it concluded with the Flyt Group in June 2020 for the intended development of the Newlands rugby stadium and other properties owned by the WPRFU.
“The WPRFU approached the Flyt Group seeking a R112-million loan to settle its looming debts and to conclude a development agreement in June 2020. This was just 30 days before its existing outstanding repayment obligations to Investec and Remgro for R112-million were due.
“The Flyt Group’s strong balance sheet and ability to fund a deal of this magnitude without bank finance – and the associated delays – meant that it could move swiftly to consider advancing the funds that the WPRFU was seeking.
“WPRFU President Zelt Marais called the successfully concluded transaction ‘the deal of the century’. It, therefore, comes as a surprise that the WPRFU now appears to be seeking a way out of the deal that it sought and on a land value which it determined, which was also concluded after a comprehensive and transparent approval process.”
In June, Marais declined to sign off on the sale of Newlands development rights to Investec, which had taken 18 months to finalise. Heads of agreement had been signed in December 2019 and Investec advanced the union R50-million to cover its debts that same month. But at the eleventh hour, Marais stepped back.
In an email to Daily Maverick on 30 June, Marais confirmed careful due diligence on the Flyt deal had been done, even though negotiations only began on 3 June.
The Flyt Group advanced the WPRFU a R112-million loan to cover its debt to Investec and R58-million owed to Remgro.
The WPRFU also signed over the mortgage bonds of 11 properties it owns to Flyt as guarantees for the loan.
“With the uncertainty of the market, due to Covid-19, Dream World Investments required additional security, which is why the WPRFU has offered its other properties as security under the loan agreement,” Marais confirmed to Daily Maverick in the email.
“This is far better than any previous deal that has been on the table. It will ensure the sustainable and long-term future of Western Province rugby. That is our absolute priority.”
Yet five months on the deal is already collapsing because it appears that under Marais’ so-called leadership, the WPRFU is not fulfilling its end of the deal. It’s the same modus operandi that soured the Investec deal and drove MVM away.
All obligations met
The WPRFU had not responded to the accusations levelled at it by Flyt at the time of publishing.
“The Flyt Group has met all requirements of the agreements to date,” De Decker said. “These include the payment of the R112-million secured loan to the WPRFU; the incorporation of the Newlands and Brookside DevCos; and the appointment of a board of directors for both companies, which had started to conduct meetings of the companies to plan for the intended developments.
“Despite compliance by the Flyt Group with the agreements concluded, the WPRFU has inexplicably chosen to replace STBB as its legal advisers with a new litigation attorney, and has deliberately reneged on the transaction.
“The WPRFU has done so by now objecting to the agreed land value forming part of the substance of the transaction, and through its conduct is acting in flagrant disregard for the binding nature of the agreements.
“It is important to point out that the land value agreed on was proposed by the WPRFU, not the Flyt Group. This value has subsequently been incorporated into the Newlands and Brookside DevCo’s that are co-owned by the WPRFU and the Flyt Group. To demand that the price be increased six months after the deal has been concluded is simply outrageous.”
Moving of the goalposts
Daily Maverick understands that the WPRFU now wants Newlands Stadium to be valued at R370-million, and not the R112-million which it agreed to with Flyt. That figure was reached based on the WPRFU’s outstanding debts and was what was agreed to contractually.
But, as has been the case with several of Marais’ dealings, it was the WPRFU that came up with the numbers and months after doing the deal, then attempted to move the goalposts.
MVM Holdings made its offer in August and inserted a 45-day exclusivity clause to deal with Marais and the WPRFU. Despite MVM’s efforts to conclude the deal to buy an equity stake in WP Rugby, the professional arm of the business, Marais allowed the 45-day clause to lapse. According to MVM, Marais obstructed any constructive negotiations.
“Everything Zelt Marais has done through this process is indicative of self-serving interests,” MVM investor Michael Yormark told Daily Maverick last month. Yormark is also president of influential management company Roc Nation, which counts Siya Kolisi, Maro Itoje and Cheslin Kolbe among its leading rugby clients.
“He doesn’t care what’s best for the players, the fans, the sponsors and the community. He only cares about one person – and that’s himself,” Yormark said.
“The franchise is undercapitalised and it needs professional management. It has a great upside, but it will never reach its potential with the current management structure and current leaders running the show over there.
“MVM also wants to develop an infrastructure that can support the players and which can provide an incredible fan experience in Cape Town and around South Africa. But Zelt won’t listen.
“The consistent fabrication of the deal structure which has been presented by Marais in the media is frankly just insulting.”
The pattern is now sadly familiar. Heads of agreement were signed for Investec’s property division to buy the development rights to Newlands in November 2019. Investec advanced the WPRFU R50-million to help offset its debt.
But when it came time to sign the final agreement, Marais balked. He claimed there were suspensive clauses that Investec had not met, but the reality was that the WPRFU kept changing the agreed terms, therefore creating suspensive conditions. It was the same situation with MVM.
MVM wanted a controlling 51% stake, which the WPRFU was unhappy about. Marais was quoted in the media saying he could not sign an agreement with MVM because conditions had not been met.
“We agreed to all the terms – he keeps changing them. He keeps removing the clause about a controlling stake, which is non-negotiable for us,” Yormark said. “Every time we sent back the heads of terms, they [he] changed the term sheet.”
But now it appears to have gone a step further with Flyt. Because, unlike the negotiations with Investec and MVM, the WPRFU has a binding contract with Flyt, and not only heads of agreement.
“The Flyt Group has taken comprehensive legal advice from senior counsel, and is assured of its rights under the agreements duly concluded with the WPRFU,” De Decker said.
“Accordingly, the Flyt Group will now institute a claim for damages under the agreements as it is entitled to do. The Flyt Group is in the process of quantifying its considerable damages which, in addition to its direct costs, will include the losses sustained as a result of the lost opportunity to develop both the Newlands Stadium and Brookside property as the parties intended.” DM
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