Yes, Ann Crotty, HCI is a good corporate citizen plus more
• HCI boss Johnny Copelyn hits back at what he says is unwarranted criticism of the group
Idon’t generally respond to articles about HCI. However, persistent unbalanced criticism without ever being allowed to offer an explanation does occasionally demand a reply (Is HCI an exemplary corporate citizen? October 26).
Worse, of course, is when the issues on which one is attacked are sub judice and one has to keep one’s eyes focused on the litigation, no matter how provocative the article. Unfortunately, the KWV saga will have to wait for progress in the courts.
On the competition matter, however, the granting of the Competition Appeal Court judgment this week does allow one to reply without fear of undermining a court case that is in progress.
Ann Crotty has it that it was somehow wrongful for us to challenge what we saw as an unbearably obstructive ruling from the Competition Tribunal. She suggested my wily character may even allow us to win that litigation — which happily we have since done — but that it is not nice and certainly sits badly next to claims of trying to be a good corporate citizen.
The background to the matter is as follows: we successfully applied to the competition authorities for permission to merge with Johnnic a few years ago, including the right to become the joint controlling shareholder of Tsogo. Some time later, SABM decided to dispose of its stake in Tsogo, leaving us as the party in sole control. Tsogo took the opportunity to buy back some of its shares, concentrating our holding from 42% to 47%.
HCI decided to consolidate Tsogo’s earnings into its accounts. Out of deference to the competition authorities and to ensure we were free to increase our stake to above 50%, HCI applied a second time to the competition authorities for per- mission, this sole control.
At the time, we were the majority owners of two other gaming businesses, Vukani and Galaxy Bingo. All this was well known to the authorities and was disclosed in that application. Again, the authorities approved our right to take full control of Tsogo.
In December 2016, we announced our intention, subject to due diligence, written agreement and regulatory approvals, to restructure our gaming businesses into a single corporation. This was no merger. We already had sole control of each of them with the permission of the competition authorities.
The due diligence was completed, the agreement of sale was signed and the many regulatory requirements for a related party transaction in a listed environment were complied with, including obtaining external opinions that the terms of the transaction were fair and reasonable, and allowing shareholders to vote on the matter by special resolution requiring 75% approval in a vote from which HCI was precluded as it was the related party.
The transaction has the smallest effect on HCI. Before it, we owned 52% of Vukani and Galaxy Bingo and 47,5% of Tsogo. After the transaction, we will own about 50,5% of all three.
We were not able to approach the competition authorities prior to the signing of the sale agreement but immediately it was signed, we notified them of the transaction and that we believed it did not require any further approval by the competition authorities since they had already approved it.
Our group had done a very similar transaction in the Hospitality Property Fund in which Tsogo applied for permission to merge the fund into Tsogo and had been granted permission to take control of it. time asking
Subsequently, it restructured several of its hotel properties by transferring them into the fund. Out of an abundance of caution, it applied for an opinion from the authorities, for which there is provision in the legislation, confirming no further approvals were necessary by the competition authorities. This was provided.
Again, out of caution, HCI applied for such an opinion from the authorities. There are time limits for them to provide such an opinion and we were months ahead of the date required. To our utter amazement, having extended the maximum period allowed for a decision, they said we could not rely on previous approvals as we had taken too long to implement them, and the manner in which we were acquiring a majority share in Tsogo was different from that previously contemplated by the authorities.
There were no time limits attached to the previous approvals, nor were any limits placed on how we might achieve our majority stake.
We applied to the tribunal for relief, but without success and ultimately were driven to the Competition Appeal Court for a ruling that, in effect, says once the authorities have approved a merger, one is free to implement it without haste in one’s own good time and in the most efficient manner one chooses, without having to revert to the authorities on the detail.
Their responsibility was to decide whether there was any reason HCI should not take control of the assets involved. If they had ruled there was no problem, the authorities would not get the right to reverse their previous approval. What floodgates is Crotty talking about? This has nothing to do with defiance on our part. It simply is to do with the fact that we are entitled to implement our merger at this stage and are not obliged to jump through more hoops.
In all fairness I say we jumped through a lot of hoops to do a fairly simple transaction, spending millions of rand and providing months and months of work for an army of professional and regulatory personnel. It has taken a full year to implement. This is certainly no example of it being easy to do business in SA!
Given the judgment, I would hope Crotty and the publications she writes for might wish us well with a transaction supported by a huge majority of the shareholders of both companies and having zero effect on competition, instead of whining on behalf of nobody in particular.
IN ALL FAIRNESS I SAY WE JUMPED THROUGH A LOT OF HOOPS TO DO A FAIRLY SIMPLE TRANSACTION