Coperate Finace

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BF 208
CORPERATE FINANCE
In 2004, First Mutual was hit by several high profile insider trading scandals that lead to the insurance giant being suspended on the ZSE. Is successful insider trading consistent with the 3 forms of efficient market hypothesis. {25) History repeats itself and rhymes| | | |

Thursday, 09 June 2011 19:35|
By Evonia MuzondoFIRST Mutual Life Assurance (FML) and its successor companies have always had this propensity to be in the headlines.  The company has this innate ability to attract drama and controversy.  The events at FML now AFRE are cyclical and usually involve management and parties close to them. Prior to its listing and at that time (1998), it was a mutual society, a group calling itself “First Mutualities”, which comprised prominent empowerment activists and former employees had tried to take over the company. This sparked a proxy war ahead of an annual general meeting and even spilled into the courts. There were corruption and mismanagement allegations, which forced the authorities to place the company under a special investigation by a committee led by Mutumwa Mawere.  In 1999, another scandal involving a couple of its Fund managers, the main actor there being Anthony Light surfaced. At that point, it was estimated that the society had been prejudiced over Z$100 million. This one was a real disaster and claimed the scalps of many people at FML and the asset management and broking industry.     The situation was quiet for a while, before the group under the leadership of Norman Sachikonye who ironically is Patterson Timba’s friend and had been head of investments when the chicanery was taking place, decided to demutualise and list the group on the Zimbabwe Stock Exchange (ZSE). At the same time, they entered into a highly publicised strategic alliance and cross shareholding arrangement with Trust Holdings Limited. Timba , through his advisory team at Renaissance Merchant Bank had been advisor to the transaction which involved a debenture to finance management vehicle Capital Alliance.  The listing was fairly successful but there was a lot of controversy regarding the management vehicle, with allegations of discrimination and non-inclusivity of the arrangement. Capital Alliance had acquired 20% of FML. Within 10 months of listing, things went awry again. This time, Trust Bank had been placed under curatorship and First Mutual Asset Management had been scandalously exposed to ENG and Royal Bank. The company at this juncture sought a voluntary suspension from trading.  As the debenture failed to perform and some of the dreamland assumptions that had been used in coming up with the debenture were not borne in practice, Renaissance was exposed. Timba, using Renaissance Financial Holdings as the vehicle and with the assistance of Econet coupled with some clever fancy footwork by the lawyers’ took over FML. The then second chief executive officer in three years, Douglas Hoto, is alleged to have been forced to resign after having worked hard against the takeover. His exit golden handshake also attracted a lot of attention from shareholders and the media. The takeover bid was also the subject of scrutiny from the ZSE who felt that the transaction was not at arms length. This led to the second suspension, which was quickly lifted following a court appeal. One would have been led to believe that the christening of the institution to Africa First Renaissance Corporation meant that the company would take a positive direction forward. But the management changes at the company after the Renaissance takeover left a tingling feeling that the bubble could burst at any time. And it did. Shareholders and the authorities should have at least questioned the intention of Timba opting to be the executive chairman of the group. Corporate governance practices do not encourage executive chairmanships as this usually creates conflict of interest. In the event that option is considered, there should be...
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