And then came the second sign of trouble. Joffe, a prime anchor man in W&A’s executive structure, figured he could do a lot better on his own. He resigned on the premise that he would be able to buy W&A’s property subsidiary Aurochs which he wanted to turn into a major trading company specialising in food and related products.
17
FW, June 11, 1992
Humpty-Dumpty had a great fall
Early the following year, the market woke up to the news that W&A was proceeding with yet another rights issue, this time for R500m. Liebesman’s problems, notably the never-ending debt mountain, had proved too much.
“In what can only be described as a coup of breathtaking proportions, W&A’s Jeff Liebesman has secured an injection of R350m in fresh capital from JSE-listed star performer Trencor.
“Trencor’s investment will give it join control of the recapitalised W&A group. In terms of the agreement, Trencor will invest R350m by underwriting the rights offers and by taking up rights renounced in its favour by companies in the W&A group.
“Seen from W&A’s viewpoint, the arrangement is nothing short of manna from heaven. Hard pressed in terms of its gearing ratios, burdened with a huge load of interest commitments, and viewed with scepticism in the investment community, Liebesman has succeeded, in one astonishing blow, in restoring his asset-rich group to a modicum of financial respectability.
“’I would never have dreamt that Liebesman would persuade Trencor to invest in W&A,’ said one bemused analyst who confessed he found it difficult to understand what synergistic benefits could be in it for Trencor.
“It is how this marriage will turn out which will have the financial community agog over the months ahead.”
Barely ten days after that article appeared, the
Financial Mail returned to the W&A and Trencor story with a lengthy and detailed leading commentary.
“Why would a highly focused company like Trencor − developed, mature, enormously successful, confident and cash rich − see any merit in the acquisition of a group plagued by unsatisfactory gearing ratios, burdened with heavy interest payments and viewed with suspicion by institutional investors? This is a litany with which Trencor chairman Neil Jowell surely wouldn’t normally be associated.”
As Jowell would have it, the reason was that Trencor was restrained from investing any further overseas by exchange control regulations. It had been seeking expansion opportunities and W&A, asset rich and cash-shy, looked ripe.
“Good marriages, it is alleged, are made in heaven. Flamboyant Liebesman (40) and reserved Jowell (59) make an unlikely pair at first sight. Liebesman is very conscious of his new partner’s expertise and knowledge; more than that, he’s acutely aware of the power he’s been obliged to hand to Jowell.
“[All this]…raises questions about Liebesman’s relationship with Jowell and Trencor. The rapport between them appears genuine. But joint chairmanship and joint control agreements rarely seem to last long in practice.”
And the newsmagazine concluded that “Liebesman and Jowell both deserve to be successful in this venture and in their new-found partnership. But corporate life operates on its own imperatives: it might be worthwhile for Liebesman to ponder the really difficult part of making relationships work after the wedding feast.”
By the time W&A’s financial statements for calendar 1992 were released the damage that had for so long been hidden from view was there for everyone to see.
“The final dividend has been passed and there is blood all over W&A’s accounts. Not that this should have come as a surprise. The
FM warned the day of reckoning was at hand after interviewing chairman Jeff Liebesman and white knight Neil Jowell...No investor can read these accounts without concluding that major changes to the style and conservatism of the underlying accounting policies have been applied. But it was logical that new partner Trencor would insist on this and it is probably wise to take the punishment on the chin in one blow.
“This leads, of course, to the forthcoming rights issue. It is interesting to note that this has grown to R650m − previously it was supposed to raise R500m.”
Then,
after another disaster, this time involving AAF, the W&A group’s London Stock Exchange-listed subsidiary in which about R100m was lost, it became clear that Trencor had lost patience with both Liebesman and his leading associates.
“It was hot in Cape Town last week: bright days and azure skies,” wrote a
Financial Mail financial correspondent. “But it was hotter in the boardroom of Trencor. This blue-chip company now looks dishevelled after its affair with W&A, the conglomerate which Trencor rescued from bankers last year.
“Hasson returns to Johannesburg with an uncompromising, unequivocal brief: he must tell W&A joint chairman Jeff Liebesman, a whiz-kid and self-made tycoon, that the parting of the ways has come. Barely a year since the marriage, Trencor is filing for an instant divorce.
“I don’t know what Hasson said to Liebesman. He won’t tell me; neither will Liebesman (who refuses to speak at all). But it must have been a savage conversation. Liebesman signs a latter of resignation and leaves W&A’s elegant offices in Doornfontein.
“Next, Hasson turns to financial director Neville Cohen. Whatever he knew, whatever his role may have been, he is not wanted. Cohen tenders his resignation.
“…The conclusion that has to be drawn from his [Liebesman’s] rapid departure and the market’s positive response to the news, is that there is more to this than Liebesman’s youthful exuberance conflicting with Jowell’s celebrated conservatism.
“Shareholders will have to be told in greater detail and with more candour about the sources of these irreconcilable differences. Neither the Jowells nor Liebesman will gain in credibility by remaining coy.”
Jim Jones, by now editor of South Africa’s daily business newspaper, Business Day, delivered a pungent eulogy: “The final message was written on the wall earlier this month when Trencor announced plans to raise R800m in a last-ditch rescue attempt of debt-burdened subsidiary W&A. The rights issue underscored the full extent of the mistake well-run Trencor had made in acquiring control of Jeff Liebesman’s W&A.
“Drastic measures were needed. And, when it became clear that the institutions would not back the rights offer while Liebesman remained with the group, he had to go.
“Liebesman’s slide to disaster began in October 1987 when his brash FSI company bid for Waicor, the controlling company of Mannie Simchowitz’s W&A. The R35-a-share bid for Waicor represented an effective 880c a share for W&A. Liebesman calculated that the JSE’s bull run was unstoppable and did not even consider the possibility that he might have to stump up cash. Two days later the JSE collapsed and the share prices of FSI and W&A dropped by about half. Simchowitz, who was packing for Los Angeles, indicated he would be taking the cash option.
“Liebesman put a brave face on things. He was and still is one of the most creative corporate accountants in town. And he reckoned that the fact that FSI had to borrow heavily for its W&A acquisition and pay cash to Waicor minorities who sensibly followed Simchowitz’s cash election was manageable.
“….The situation deteriorated behind a veil of creative accounting. Even conservatively run Trencor was confident that problems could be managed…Whether Trencor was fully informed of the true state of affairs is debatable. Clearly it was not informed about the problems developing in London-listed AAF Industries. In the past Liebesman had hidden details of his group’s foreign interests, claiming disclosure would prejudice foreign operations.
“AAF had to sell assets and Liebesman refused to divulge any more details than had appeared in the official announcement. That was one of the final straws for Trencor, which had been looking inept.
“By November 1993 when Campbell Belman produced their last Company Confidence Predictor, FSI was ranked bottom in all respects….The Campbell Belman list was damning.”
Liebesman’s departure was made simultaneously with that of Neville Cohen, the chartered accountant who had, once upon a time, been his boss at Kessel Feinstein. That left Ray Hasson as the sole executive chairman of W&A.
It is easy enough now − with the unfailing vision that hindsight bestows − to see that, when Liebesman was finally obliged to seek a financial underpin for his failing businesses, he did so believing he had covered his tracks. But he reckoned without Ray Hasson, an engineer by discipline and training, and a man who never flinched in his pursuit of the truth.
To their shock and horror, Trencor’s directors discovered that things at W&A weren’t at all what they seemed. Snakes started emerging from the woodwork as Hasson calmly worked his way through the mountains of information.
He was looking for something, anything, that would unlock the door to Liebesman’s secrets. He found it finally in the case of the errant Rolls Royce. Some years earlier, Liebesman had bought a Rolls Royce, an extravagant and ostentatious vehicle in a country in which millions of its citizens live in poverty.
Whose is the Rolls? asked Hasson. Without flinching, Liebesman responded that it was his. But Hasson wasn’t satisfied. He wandered off to the back office where he casually asked the bookkeepers whether there had been any payments on the car. And there they were.
That was why, two years after making the investment, Trencor instituted a legal action against Liebesman and W&A’s auditors, Kessel Feinstein. The circle had been squared.
The matter was lodged in 1995 and settled eventually in 1997. A confidentiality agreement prevented any details of the settlement leaking out. Hasson refused to comment on any of the negotiations though the media carried startling stories over a long period. Liebesman, of course, wouldn’t talk to anyone.
But in 2003, court papers containing the settlement were made available to the media. These revealed that Trencor and companies in the broader W&A group had sued for repayment of about R86m. They also revealed rather a lot more.
Among a litany of accusations, Trencor alleged that Liebesman had arranged for alterations to his personal home, costing almost R2m, to be paid for by a group company. He had also used company funds to redeem the
various debts of his brother, Brian Liebesman, amounting to R1m.
In another matter, Liebesman arranged for W&A to pay off R5,65m of debt incurred by a company involving his cousin, Ernest Leibowitz. And he even succeeded in getting the group to pay for his son’s expensive barmitzvah party (R37 000), held at the Sandton Sun hotel.
Finally, Trencor turned its attention to a company called Confor Investments One, owned solely by the Liebesman family and close associates. “During the period 1989 to 1993 Liebesman and Cohen caused numerous other payments to be made from the funds of [W&A group companies] to or for the benefit of Confor and themselves. In causing the said payments to be made, Liebesman and Cohen were not acting bona fide in the best interests of [W&A group companies], but with a view to benefiting Confor and themselves.
“…the amounts represent monies paid wrongfully and in consequence of a breach of fiduciary duty committed by Liebesman and Cohen…Furthermore, to the knowledge of Liebesman and Cohen, a number of the payments were, in contravention of s38 of the Companies Act, made to assist Confor and other entities controlled by Liebesman and Cohen to acquire shares in group companies.” The amount claimed was R41m.
What came out of the court files was a cryptic fax from Cape attorneys Sonnenberg Hoffmann Galombik dated March 1997 in which the settlement was recorded.
Hasson uncovered mountains of evidence that led to only one conclusion - that Liebesman had deliberately defrauded his own companies (and, therefore, his fellow shareholders) of substantial sums. Hasson was satisfied he could prove to a court that nearly R100m had been subsumed into the maw of the Liebesman family, among many other serious irregularities.
In point of fact, he had plenty of additional evidence that pointed to much more. His problem was that he would not be able to prove it beyond a reasonable doubt. Adding these “doubtful” thefts to those he knew were based on solid, irrefutable, evidence would only weaken the overall case. Hasson, chose, therefore, to omit any claims he could not prove absolutely.
So, Liebesman had finally met his match. But he could still muster up a defence, even though his situation looked hopeless. First, he lodged claims against his former companies that amounted to very nearly the sum Trencor and Hasson were claiming. Then, Liebesman surrounded himself with high class legal brains. He wanted to be quite certain he wasn’t about to sink without a formidable fight.
But this wasn’t all. He turned to the Jewish community, famous everywhere for its willingness and readiness to come to the aid of those of its folk in trouble. Liebesman had been rich, well sort of. He had made free with money. Not always his own money, true, but he donated readily and no one was about to ask questions that might cook the goose. Besides, in those days, no one had any inkling of the limited extent of Liebesman’s personal cheque book.
And some influential people responded readily enough to Liebesman’s SOS. The rescue charge was led by Eric Ellerine himself, personally fabulously wealthy from his colossal furniture empire. He denied this.
As the date finally set down for the court case to be heard came closer, so Liebesman’s friends put out feelers to Trencor and Hasson that might lead to a negotiated settlement. As everyone knows, and as the famous British statesman and warrior, Winston Churchill, once observed, jaw-jaw is better than war-war. In any event, the outcome of court actions is never certain and some experienced observers suggest the odds either way are flirtatious and unfathomable in the extreme.
But Hasson proved uncompromising. He was absolutely satisfied that Liebesman deserved to be locked up and he was determined that was where he was going - behind bars.
But, before the matter reached the High Court, Hasson died, killed in a motor accident while travelling by car to Johannesburg’s International Airport. Seen from the viewpoint of Trencor, Hasson’s death was both untimely and premature. It was, in fact, nothing short of disastrous for Jowell who was left without a long- time friend and ally and a man whose personal integrity was impeccable.
But it provided Liebesman with a respite - and, let it be said, an opportunity he was quick to capitalise on.
On the basis that if you don’t talk, you’ll never know, and given that Trencor had just lost the one man whose finger was on this pulse, the company went along with the talking.
ooo000ooo
The story of the Jowell family fortune is worth looking at, however briefly. Its origins lay in the tiny
dorp of Springbok in the remote northern reaches of the Cape Province. The Jowells provided a comprehensive transport service to the wider farming community, made up mostly of Afrikaner farming families. This was very much in the tradition of Jewish traders,
smouses as they were known, who followed the travels of Afrikaner communities during the nineteenth century in their quest to escape British suzerainty and supplied them with gunpowder bullets, pots and pans, cloth and essential food items such as salt.
Over
the twentieth century, the Jowell family flourished because it recognised early the need to get cosy with those such as civil servants and their political overlords in the Department of Transport. In those days, road hauliers required special permits to operate across designated routes. The permit system was, in effect, a licence to print money − and the Jowells had Springbok and its surrounding region tightly wrapped up.
Under the next generation, the Jowell family took a quantum leap. It expanded until it was almost unrecognisable. It moved into the multi-use, international container industry, a sector that reached its apogee in the early to mid 1990s. The move made the Jowell business, Trencor, a darling of the investment community.
And it was at that time that Liebesman arrived on Trencor’s front door, offering joint control of a conglomerate with an international reach which was filled with sparkling assets but which was burdened by a crippling debt load.
Trencor had already discerned the limits to the growth opportunities in the container business. The brothers Neil and Cecil, the two men who had propelled the company to new heights, were casting around for suitable avenues into which to channel the company’s cash resources. Exchange control barriers precluded them from expanding abroad and South Africa seemed pretty well tied-up.
On the face of it, then, the W&A group must have appeared as a heaven-sent opportunity.
But they could not have anticipated the lengths to which Liebesman and Cohen were prepared to go to dissemble. Though Trencor’s auditors, at the time Arthur Andersen conducted what they claimed was a detailed due diligence (which Hasson was later forced to concede wasn’t thorough enough), the big question was why had so much gone wrong since then? The AAF disaster in London was simply at the end of a long farrago which, as it unravelled, exposed a breathtaking readiness to pervert every business ethic and a willingness to take unacceptable risks with other people’s money, even to the extent of committing fraud.
Once Hasson had pieced together what he could of Liebesman’s activities − along with those of Cohen and auditors Kessel Feinstein − Trencor was resolved to bite back, understandable in the circumstances. Jowell might have been tempted to sweep it under the carpet and get on with restoring W&A to health (there has never been any suggestion he would) but, in any event, his own shareholders would have demanded action.
So, when Trencor launched its action, even Liebesman must have finally realised he was between a rock and a hard place. Trencor’s detailed and complicated summons demanded repayment of about R90m, money it believed it could demonstrate to the satisfaction of any court had been extracted by illegal means. With the kind of devil-may-care insouciance that the investment community had come to expect of Liebesman, he and Cohen launched counter-claims of about R100m. All they could have hoped to gain from that tactic was to delay matters.
The one time senior partner of auditing firm Kessel Feinstein, Kas Herman (he was cited by Trencor as one of the correspondents in the summons issued against Liebesman, Cohen
et al) has since revealed to Frangos the details of the secret meeting that took place between Trencor and a number of individuals after Ray Hasson’s death.
It was that meeting that delivered the miracle that saved Liebesman’s bacon.
The investment community was frankly taken aback to learn that the argument between Trencor and Liebesman had been resolved though one analyst commented much later that, in the circumstances of Hasson’s death, Trencor probably didn’t have the stomach for an extended, knock-down fight.
So what had taken place? As it now emerges, a secret meeting convened in February 1997 in the offices of Gustav Benjamin Liebmann who was Liebesman’s attorney. Present at that meeting were the furniture king, Eric Ellerine (he denied ever having played any role in this), banker and co-founder of Investec Bank, Errol Grolman, Julius Feinstein (founder of Kessel Feinstein), Neil Lazarus, a prominent senior counsel specialising in corporate law, Michael Hart, now chairman and senior partner of the prestigious corporate law firm, Deneys Reitz, Liebmann and, of course, Liebesman himself.
Representing W&A and, therefore, Trencor indirectly, was the man who, a few years earlier had denuded Johan Claasen of his ownership of Arwa, handed it on a plate to Liebesman, who had then joined W&A, had become its deputy chairman − and had survived unscathed, Hennie van der Merwe.
There can be only one reason for Ellerine’s presence at the meeting − Liebesman had presented him with repeated opportunities to enrich himself through FSI and W&A and, if he could help extract Liebesman
from the hole he was now in, there was a promise of much more to come down the line. Reviewing what later happened at Corpcapital, and the extent of Ellerine’s inexplicable support for Liebesman in the face of contrary evidence, it is not possible to arrive at any other explanation.
Grolman’s sudden appearance is less understandable. Yet, as with Ellerine, his subsequent deep involvement with Corpcapital, of which he became a senior executive director, sheds light on his actions in 1997. The information now available suggests that Grolman was motivated primarily by the opportunity that Liebesman’s difficulties presented to enable him, Grolman, to externalise some of his assets.
Finally, and perhaps most important, by the time of the secret meeting, Ellerine had already prevailed on Frangos for his active support as a co-founder (and chairman) of Corpgro. This was the small (at the time), unlisted company that was the vehicle for Liebesman’s rehabilitation. The last thing any of those involved with Liebesman wanted was for Trencor’s case against him to arrive on public display in the High Court. The damage that would cause would be irreparable.
The purpose of the meeting was to finalise what had obviously been a long gestation during which there had been much to-ing and fro-ing between emissaries seeking resolution. At its conclusion, Grolman handed over a cheque for R30m. It was accepted on behalf of W&A and Trencor by Van der Merwe.
This was not a partial payment. It was a final settlement. Liebesman and his associates appear to have made off with R90m over a period of some years and were now off the hook with a repayment of R30m. On the basis solely of simple arithmetic, this demonstrates that crime does indeed pay.
From among the welter of information later amassed by Frangos, emerges details that suggest Grolman’s West Indies company, Frampton, was the recipient of moneys accessed off-shore by Liebesman and his attorney, Liebmann, from Peter Moss, an émigré South African. Moss played a major, if hapless, role in kick-starting Corpgro, later Corpcapital.
What appears to have taken place is that Grolman − perhaps with others − made available the money need to settle Liebesman’s obligations to Trencor. He recovered these outside the country, thereby short-circuiting South African exchange control regulations.
Grolman is an intriguing character. Short in height, of limited physical presence, nevertheless there is little doubt that he is unusually clever. In the estimation of many, he is probably among the smartest businessmen of his generation. But some observers have also commented that his obsession with money and wealth may well have been the cause of his abrupt removal from Investec Bank, which he helped to establish and which is now the country’s fifth largest.
Frangos says of Grolman that his own involvement with him was coloured by his approach to company ownership and the entitlements of executives.
Grolman made it abundantly clear to Frangos − not once but often − that, in his view, managers are the most significant element in any company. Their recompense is paramount; shareholders come a poor second. And Grolman bluntly told Frangos, then chairman of Corpcapital’s board of directors’ remuneration sub-committee, that he, Grolman, would play a significant role in determining who got what share.
Nor was he, recalls Frangos, beyond shifting the goal posts. “I can recall one occasion during which I remonstrated that a particular demand was out of bounds. It was not what the nonexecutive and executive directors had earlier agreed. That was then, responded Grolman. This is now. And the rules have changed.”