Pity the Spar shareholders: they are a much put-upon group of investors. So put-upon that they now appear to take even the most dramatic news in their stride. The top two directors of the board have jumped ship, and all that happens is a 4.7% slip in the share price.
Are they waiting with bated breath for confirmation that former CEO Wayne Hook has agreed to return to the board; or that another CEO, Angelo Swartz, might make a comeback? Or perhaps not having any idea why chairman Mike Bosman and deputy chairman Shirley Zinn really decided to resign helps shareholders to cope with the umpteenth change in senior personnel since December 2022.
The SENS announcement issued by the board first thing Monday morning was evidently intended for maximum murkiness. Nobody outside a tight circle of insiders would be any the wiser about why, three months after stating he would stay for another two years, Bosman decided to quit.
The announcement starts off with encouraging support for the two departed directors but then promptly veers into the obtuse. “While Mr Bosman and Dr Zinn continue to have the full support of the board, taking into consideration the context of the period that both these directors and the board have recently experienced, Mr Bosman and Dr Zinn have separately concluded that stepping down and resigning from the board is the right decision for them and in the best interest of the Company.”
Does anybody beyond the board know what they’ve actually experienced? Certainly, a lot has happened to Spar, not just recently as the announcement suggests, but since Bosman was appointed to replace Graham O’Connor in December 2022. Large chunks of international operations bought between 2014 and 2019 were sold off, costing the group tens of billions of rands and putting ever more pressure on previously highly profitable operations back home.
Fraying at the seams
While the disposals were generally deemed necessary and reasonably well executed, the board and head office seemed unaware of mounting pressures on the home front. The crucial relationship between the 1,300 independent retailers who carry the Spar signage and the company was fraying at the seams. That fraying had already begun during O’Connor’s reign when massive amounts of the group’s financial and management resources were poured into international acquisitions.
The home base was overlooked and deprived of the resources needed to maintain a complex but reasonably well functioning system. That Spar head office had lost the plot became evident to all in February 2023 when it attempted to roll-out the SAP system at its Kwa-Zulu Natal distribution centre, seemingly blissfully unaware of how ill-prepared it was.
It was a disastrous and expensive failure that left the independent retailers in the lurch. The KZN distribution centre essentially collapsed, forcing the retailers to search around for alternative sources of supply. While KZN was the SAP hotspot, independent retailers across the country were becoming increasingly agitated by the declining quality of service from Spar HQ. Battles erupted all over the place. And head office seemed unaware or uninterested.
Breaking cover
Eventually, in May this year the independent retailers broke cover and went public with their concerns: declining retailer profitability and sustainability; weakening competitiveness and retail relevance; insufficient Spar-specific retail capability at board level; declining innovation and strategic retail leadership; and repeated concerns that retailer realities and operational economics were not being adequately recognised in strategic decision-making. It was a radical and much considered move.
In a public letter to the board, not only did they itemise their concerns, but they also called for the resignation of Bosman. But the board was having none of it. They promptly told the independent retailers (essentially Spar’s customers) to take a hike. Zinn said Bosman had the board’s full backing. Bosman told Financial Mail he had no intention of leaving. He was keen to remain for another two years to complete what he regarded as a five-year project. A lot had been achieved in the past three years but there was more to do, he said.
Still, the independent retailers persisted and called for an independent review. They also attempted to get major shareholders involved. By some accounts, only the Public Investment Corporation was prepared to listen. Then, at the end of July, according to one insider, they called for arbitration and told executive management that if Bosman did not resign, they would boycott Spar.
The likelihood of the smaller independent retailers being able to boycott Spar seems slight given their indebtedness to the company. But the larger operators are substantial players in their own right and have reportedly been preparing for a showdown. It’s not just their jobs at stake, it’s their livelihoods. Some have been involved with Spar for generations. Who knows exactly what happened but by 14 August Bosman apparently agreed to step down.
‘A brutal assignment’
It certainly didn’t help that Spar has continued to flounder in the marketplace, prompting increased worries about contravention of bank covenants. And all the while in the background were calls for investigations into potential conflicts of interest such as – just one example – Spar’s growing business with Zinn’s company Tuesday Consulting.
Bosman and Zinn’s statement added little substance to shareholders’ understanding. It talked of capricious behaviour experienced from certain current and former Spar retailers and former employees. It said they had been subjected to sustained personal attacks, hostility and at times attacks. “For both of us (a) line has now been crossed to an extent that makes our continued involvement with Spar untenable.”
No doubt, Bosman’s stint as chairman has been, as he said in May, “a brutal assignment” but the share price’s muted response to his departure suggests investors are focused not on that brutality but the fear that the company appears to be in a more precarious position now than it was in December 2022.
Who knows how much longer it would have survived under O’Connor’s flawed leadership but since December 2022 the share price has plunged from R165 to R43, the group’s debt remains stuck at over R7bn and margins have slumped from around 2.5% to 1.1%. At the very least, it means Spar shareholders deserve an explanation for why the board accepts that it’s in the best interests of the company that Bosman and Zinn have gone.
