On the 2nd of June, the Competition Commission prohibited the sale by Grand Parade of Burger King to an American investor called Emerging Capital Partners (ECP). It is an unprecedented act by the Commission because by its own admission, the sale would not reduce competition nor would it have had a negative impact on employment. The Commission stopped the sale on the grounds of public interest because Grand Parade is 68% Black owned and ECP has no qualifying Black ownership at all.
The transaction has been underway since before lockdown last year. ECP was to pay half a billion Rand for Burger King and a meat processing plant. ECP also committed to Foreign Direct Investment of a further R500m over the next five years to open a further 150 BK stores. It committed to creating 1,250 additional jobs for Historically Disadvantaged Individuals (HDIs) along with an increased wage bill of R120m. It committed to increasing procurement from Black owned suppliers by 40% to an annual R930m. It even committed to 5% Black ownership within two years.
Grand Parade, which made a loss of R130m last year, held a shareholders’ meeting in the middle of April. Unsurprisingly, 99% of those present voted in favour of the transaction. R500m is approximately R1.20 per share.
On the announcement of the sale’s prohibition, the share price fell 20%, wiping out almost a quarter of a billion Rand of shareholder value.
The Commission acted within its revised mandate to consider public interest – defined specifically in terms of the interests of HDIs. The mandate is so broadly defined however that it amounts to broad discretion granted to the regulator. In other words, the action taken by the Commission was not aberrant but rather what it was tasked with doing. It is reasonable to expect more of the same.
Consider what this means.
Investors and especially foreign investors require a clear and consistent regulatory environment. This is the opposite. An agreement between a willing buyer and a willing seller was trumped by a surprise action by an inconsistent regulator.
Do you think that ECP will bring another billion Rand to South Africa? Will others like it who hear about what happened here choose to invest?
There is a much bleaker implication as well. The shareholders of Grand Parade bought their shares as ordinary investors. The Commission chose against real HDIs, the 68% of Black shareholders of Grand Parade in favour of the abstract notion of Black Ownership.
The primary entitlement of any owner is the right to dispose of their asset.
What the Competition Commission has asserted by its action is that Black shareholders do not enjoy the same rights as other shareholders. Even if the Black investors bought their shares on the open market, it is in the public interest to diminish their rights relative to the rights of other investors.
I’ll say that again. According to the regulator, it is in the public interest for the rights of real Black shareholders to be less than the rights of other shareholders.
This is not a view I have heard from an organ of the state since before 1993.