Pepkor, the owner of Pep and Ackermans, has upset some of its own directors and investors over its deal to merge its fintech business, Flash, with the payments platform Shop2Shop. The combined company, called FintechCo, is valued at about R21.3 billion. Shareholders were not given a vote, and some directors voted against the deal at board level because they believed it should have been put to investors, according to a person familiar with the situation.

The objection is not to the strategy, it’s to the process and conflict of interest. Chief executive Pieter Erasmus held a minority stake in Shop2Shop before he joined Pepkor, and after the merger he will own about 13.2% of FintechCo, worth roughly R2.8 billion at the deal's valuation. Pepkor will own 57.1%. Under JSE rules, the deal did not need a shareholder vote because it falls below the exchange's threshold for a related-party transaction.

Erasmus recused himself from the board's discussions, Pepkor obtained independent valuations of both businesses and an independent opinion that the terms were fair, and his stake had been disclosed in earlier financial statements.

Asief Mohammed, chief executive of Aeon Investment Management, a top 30 shareholder, says that was not enough. "It would have gone down better had they done it," he said. "Seeking shareholder approval would have been good governance." He suggests Pepkor could have held a voluntary, non-binding vote, letting investors have their say while the board kept the final decision.

The timing makes investors more sensitive: Pepkor's share price is down 31% this year. The business underneath is substantial. Flash serves 170,000 informal traders selling airtime, data and prepaid electricity, and Shop2Shop has more than 210,000 users. At announcement the two had revenue of R11.2-billion and R9.3-billion respectively and more than R200-billion a year flowing through them.

Pepkor plans to use FintechCo to expand payments, lending and merchant services, support its planned digital bank, and eventually list it. The deal still needs competition and regulatory approval.

MyBroadband carried Bloomberg's report of the board dissent and Aeon's objection. Pepkor declined to say how many directors voted for the deal, citing board confidentiality. Pepkor's own announcement in July set out the structure, including R1.57-billion in cash for new Shop2Shop shares and Flash's contribution at a R10.6-billion valuation. Engineering News reported the plan to list the merged business in future.

Most observers saw the deal as sensible, and the backlash does not change that. What it shows is that following the rules is not the same as bringing people with you. A non-binding vote would have cost Pepkor little and taken the sting out of a deal that makes its chief executive about R2.8 billion.

Founders face a smaller version of this all the time: when someone on your side of the table benefits personally, disclosing it and inviting scrutiny beyond the legal minimum usually saves more trouble than it costs.

Meanwhile, the market is not waiting. While FintechCo waits for approval, Shoprite has taken a majority stake in R&A Cellular and its 15,000 spaza terminals; Lesaka already runs 90,000, and Sixty60 and the banks are fighting for the same airtime purchase. Informal trader payments are one of the most contested corners of South African fintech, and Pepkor's R21-billion valuation now puts a price on it.

Our township businesses research showed the payment rails have reached these shops while the selling rails have not, which is where the next opening sits.

You might also like our piece on Shoprite buying into spaza payments, Standard Bank's R3.4bn bet on OPay, and why banking no longer starts with a bank.

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