In the JSE’s more than R10-trillion investment universe, Caxton and Mpact are hardly household or significant names. 

Caxton, a printer and distributor of newspapers, books and magazines, is worth R3.2-billion on the JSE. Meanwhile, Mpact is a paper and plastics packaging business and recycler worth R4.3-billion. Mpact is majority owned by Caxton, which holds 34% in the company.

For the most part, Mpact has performed well and created value for Caxton since the former was spun out of Mondi and listed on the JSE in May 2011. Mpact was listed at R13.60 in 2011, with its share price running in the following years until it hit a low of R1.11 in the early days of the Covid pandemic in March 2020. But its share price has since recovered by more than 2,000% closing at R28.97 on Monday, 15 August — creating a lot of value for Caxton over the years. 

Although Caxton and Mpact are relatively small on the JSE, the goings-on at both companies will reverberate across the local bourse and add to many incidents of sour takeover battles in corporate South Africa.  Caxton has been trying to acquire control of Mpact for years, especially after it built up its shareholding in the company to 34% over the past two years. Caxton’s ownership of Mpact would be closer to the 35% mark, triggering the former to make a mandatory offer to Mpact shareholders to take full control of the company, as is required by competition laws. Caxton has stated its intention to do so, but its negotiations with Mpact have gone awry, and tension between both companies has boiled over. 

The AGM that turned sour

Caxton is now considering legal action against the board of Mpact for comments made by its CEO Bruce Strong about Caxton’s vote on the pay of non-executive directors at Mpact’s annual general meeting (AGM) on 2 June.

At the meeting, Caxton used its 34% shareholding to prevent the passing of a special resolution that was needed to pay fees to Mpact non-executive directors. These fees are paid to the directors for serving on the board. The special resolution received 62.6% support from Mpact shareholders, falling short of the required 75% support. 

In a statement following the AGM and Caxton’s vote, Mpact said its non-executive directors confirmed that “at this stage, they will continue to serve on the board without being remunerated while the requisite shareholder consultations are conducted”.

Mpact board members would speak to Caxton after the AGM to address the company’s concerns about the remuneration of Mpact non-executive directors. But it seems like the discussions didn’t go well, as described by Mpact CEO Bruce Strong at the company’s interim results presentation on 10 August.  

Strong said: “Unfortunately, up until now we’ve been unable to find common ground as it’s clear that their [Caxton’s] conduct is underpinned by a different motive, leaving us in a rather invidious position when it comes to the NED (non-executive directors) fees.” 

Strong’s comments have vexed Caxton as its board chair, Paul Jenkins, issued a stinging rebuttal via a JSE Sens statement on 12 August. “The inference [from the comments] is clear: according to Mr Strong, Caxton is acting improperly and contrary to the interests of Mpact, for its own ulterior purposes,” said Jenkins. 

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Mpact’s run-in with competition authorities 

Weeks ago, it wasn’t clear why Caxton voted against the special resolution for the remuneration of Mpact non-executive directors. But Jenkins’ statement has provided clarity, indicating that Caxton has been uncomfortable with Mpact finding itself on the wrong side of competition laws (several times) under the stewardship of the non-executive directors. 

In 2016, the Competition Commission launched an investigation into Mpact for buying several companies without getting requisite approval from the competition authority. And for this, Mpact was hit with an administrative fine of R7-million. But during the investigation, the commission uncovered other acts of wrongdoing by Mpact. 

The company and several smaller entities were involved in anti-competitive behaviour relating to price-fixing, collusive tendering, and division of markets for the manufacture and supply of corrugated packaging paper products. These products are used in fruit boxes and boxes for secondary packaging of wholesale goods, cereal boxes, detergent boxes and paper plates. One of the companies that was implicated in anti-competitive behaviour, along with Mpact, was New Era Packaging, the former’s competitor. 

“The commission’s investigation found that from the 1980s to 2015, Mpact and New Era had an agreement not to compete with each other for customers for the supply of packaging paper products,” Competition Commissioner Tembinkosi Bonakele announced in April 2019. Mpact has since admitted to operating a long-standing cartel with New Era. 

So, on top of the R7-million fine imposed on Mpact, the company was also referred for prosecution at the Competition Tribunal for cartel conduct. But since 2019, the Competition Tribunal case hasn’t been finalised. 

New Era is a subsidiary of a company called Golden Era, which, in turn, owns 10% of Mpact shares. Caxton’s Jenkins said it informed Mpact that it voted against the pay of non-executive directors because it believes Mpact’s board failed in its fiduciary duties by not disclosing “adequate details” of the pending cartel case to shareholders and the risks involved. He also believes that Caxton’s stated intention to acquire control of Mpact has been met with “inexplicable hostility, not only from Mpact, but also from Golden Era”. 

Caxton alleged that Mpact is soliciting support from Golden Era to oppose its merger and that it filed “secret representations” and affidavits with competition authorities. This, Jenkins said, has worsened Caxton’s concern that Mpact and Golden Era “remain involved in the vestiges of their long-standing cartel”. BM/DM