FIRST Mutual Ltd chief executive Douglas Hoto did not resign as claimed but was pushed out by one of the major shareholders, Renaissance Financial Holdin
gs, after frustrating its bid to completely take over the insurance company.
A press statement by the FML board said Hoto had resigned “to pursue private interests” but businessdigest can reveal that there is more to his sudden exit that has not been made public. Officials close to the issue said Hoto was pushed out by Renaissance’s representatives on the FML board who were bitter that he had scuttled their deal to completely control the company last month.
Renaissance, which has been battling to take over the insurer for the past three years, holds 28% of FML and has four representatives on its board. It holds the chairmanship through its chief executive and founder Patterson Timba. The other four Renaissance proxies on the board are Professor Norman Nyazema, Ricky Mapani, Rachel Kupara and Tose Ndebele.
The five members form the camp of directors who have been pushing for the takeover of FML which is currently the second biggest insurance company in the country after Old Mutual. Though Renaissance officials claim otherwise, there is strong market speculation that the larger part of the stake it has in FML actually belongs to EW Capital Holdings — a wholly owned subsidiary of Econet Wireless Zimbabwe Ltd.
The battle lines were drawn as early as 2005 when Capital Alliance, a management company in which Hoto has a stake, started fighting with Renaissance over the shares in FML. Hoto was at the forefront of the fight to defend Capital Alliance’s stake which had been taken over by Renaissance.
The real problem intensified after a High Court ruling last month that the dispute between Renaissance and Capital Alliance should be taken for arbitration. Sources say while the two parties were still deciding on the arbitration process, Timba suggested that they settle the matter out of court.
Hoto however insisted on going through arbitration, attracting the wrath of Timba and his camp. The source said Hoto started his journey towards the exit door some four weeks ago as the battle for FML intensified. The final straw came after he objected to a proposal by the Timba-led camp of the board for FML to take over Renaissance through an equity swap. The idea was that the equity swap would give Renaissance a majority stake in FML. “It was thought that after the swap, Renaissance would get an additional 23% to complete the takeover,” said a source.
The Timba faction had hoped that Renaissance with its subsidiaries was valuable enough to give them additional shares for them to reach the takeover level. The plan was that after Renaissance had been swallowed, Timba and his team would have a bigger share of the insurance company in their individual capacities. After pressure, the other members of FML agreed to open negotiations and a cautionary statement was issued to announce the decision.
Hoto, who is known for his independent mind, is said to have expressed reservations about the deal and insisted that a due diligence be done on Renaissance by independent auditors to ascertain its financial status and viability.
“That was his first mistake because it appeared that Renaissance had already lined up its firm to do the due diligence,” the source said. Hoto also attracted the anger of the Timba group when he insisted that they must also seek shareholder approval even if due diligence proves that the deal was viable. The due diligence job was won by KPMG who however did not produce a favourable report that Renaissance had hoped to used to push the deal. The report revealed that Renaissance was not big enough to push its stake to the required 51%. That effectively dashed Renaissance’s long-term ambition to control the like insurance company.
Two weeks ago Timba and his five representative directors are understood to have told Hoto they were finding it difficult to work with him as the chief executive. After three days of relentless pressure Hoto give in and agreed to leave.