Clicks & Tricks
6 July 2000
Dickson Concepts (International) Ltd (DCI), chaired by flamboyant retailer Dickson Poon, has breached the Stock Exchange listing rules.
In a transaction disclosed for the first time today, it emerges that back on 30-Dec-99, a wholly-owned subsidiary of DCI entered into a "Consultancy and Professional Services Agreement" with Dickson Management Consultancy Ltd (DMC) in respect of the establishment and development of a department store (sorry, "physical mall") and a web site (sorry, "cyber mall"). DMC is wholly-owned by Dickson Poon, the Chairman of DCI.
The agreement requires a fixed consultancy fee of HK$130m to DMC. This is purportedly
"on a cost reimbursement basis, this fixed amount being equal to the parties' pre-estimate of the cost to DMC of providing the relevant services."
We are left to guess as to what those costs are - do they, for example, include a payment for the services of Mr Poon? If this fee were really a cost reimbursement, then surely it would be based on actual costs incurred and not a lump sum. The announcement was silent on whether this amount has already been paid.
The board of DCI (which has 2 independent directors) claims to have believed that pursuant to (unspecified) exemptions in Chapter 14 of the listing rules, the agreement was not subject to disclosure or approval by independent shareholders. Common sense tells you otherwise - there is a clear conflict of interest here involving a material amount of money. The SEHK agrees and has ruled that the transaction was not exempt.
Independent shareholders will now be asked to ratify the transaction, and no doubt a scribe will be wheeled out to say that it was all fair and reasonable. We demand full disclosure of what these alleged costs incurred by DMC relate to, including any amounts payable to connected parties of DCI, and any amounts subcontracted to outside developers.
We also want to hear why shareholders of DCI should pay for retail expertise from a consultancy company owned by its Chairman, when DCI is supposed to already possess retail expertise and could have contracted third parties for any aspects of the web site which were beyond its competence. At least part of the services are for setting up a department store (above the new Kowloon MTR station), something which DCI has done many times before.
Then, as a matter of principle, independent shareholders should vote against the transaction and refuse to ratify it, because the company failed to seek their consent in the first place. Rejection of the agreement will not unwind it, but it will send a message that this kind of behaviour is intolerable.
We note that the Agreement also requires DCI to buy HK$110m of hardware and software recommended by DMC for the project, from DMC's recommended suppliers. DMC will receive no commission on these purchases. The combined total of HK$240m is exactly what DCI has already recorded as "Website/portal development costs" in its results for the year ended 31-Mar-00.
Option Schemes are Next
At the same time, shareholders will be asked to approve the spin-off of Dickson Cyber Concepts Ltd on GEM, and to approve separately pre-IPO and post-IPO share option schemes for Dickson Cyber. Shareholders should think twice if any of these options will be granted to Mr Poon or other directors of DCI. Any such options should be itemised in advance of the vote.
Weak Corporate Governance
DCI has a history of poor corporate governance - last year observers raised questions over the sale of the company's non-Asian retail assets (including Harvey Nichols and S.T. Dupont) to Mr Poon, a transaction which received independent shareholders' approval and was partly paid for by a dividend of the sale proceeds from DCI. The 1999 annual directors' report of DCI is riddled with a list of connected transactions which goes on for 2 pages.
In relation to the breach of the listing rules by DCI in its deal with DCM, the Stock Exchange "has indicated that it reserves the right to take appropriate action against DCI". Such as listing Dickson Cyber on GEM, perhaps. That'll teach them.
We've seen those words printed so many times that the SEHK must have a special rubber stamp which bears them. They said the same thing about Van Shung Chong and iSteelAsia.com.
And what about DCI's so-called independent directors? Well, they are Mr Karl Scheufele and his son, Karl Friederich Scheufele. Karl senior is the owner and President of Chopard of Geneva, a manufacturer of luxury watches and jewellery which is a supplier to DCI's stores.
It is safe to say that these gentlemen are probably not leading experts on the listing rules. If Hong Kong's listing rules required real independent directors, chosen and appointed only by public shareholders rather than by controlling shareholders, then transactions such as this would be much rarer.
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