Pragmatic Patel pushes Pepsi deal
Ebrahim Patel, the minister of trade & industry, has won our respect for his pragmatism. In a last-minute agreement he struck with PepsiCo, which is in the middle of buying branded consumer foods maker Pioneer Food Group, Patel took stock of our economy’s vulnerabilities and the broader national goal of attracting much-needed foreign direct investment.
The rare $1.7bn (R26bn) US-SA tie-up could have been |delayed by an amendment to the competition legislation, which gives Patel, who has a history of intervening in M&As, more clout and adds BEE ownership to its public interests mandate.
The new law requires mergers to lead to higher BEE shareholding, and Patel was not happy with the BEE terms of PepsiCo’s takeover of Pioneer.
What had been a sticking point is that the BEE deal gives employees Nasdaq-listed shares in PepsiCo worth R1.6bn, which only turn into local ownership in five years’ time.
Dollar-based shares is not quite the BEE that Patel had in mind, which he understands as local ownership and real participation in the SA economy. The BEE merger amendment is new, untested, with no Competition Tribunal decision yet on it, and offers no interpretation of what “increase the spread of ownership” means and in which market.
It is not clear what level of BEE is required for a merger to get his blessing, or if shares held in an overseas parent company with a local subsidiary constitutes BEE.
Patel could have dragged the transaction out for months to get the Competition Tribunal, which adjudicates in antitrust cases and recommendations by the Competition Commission, to establish precedent on the new law. Thankfully, he didn’t.
The trio came to an agreement on Wednesday, showed a united front at the tribunal on Thursday and paved the way for one of the biggest investments by a foreign company to get the thumbs-up 24 hours later.
Patel said he was flexible enough to ensure the deal went down in the required period set by PepsiCo’s board, with his legal team telling the tribunal the minister was cognisant of the need for foreign investment.
In the week when the economy slipped into recession, putting already dangerously high forecasts of our debt-to-GDP ratio —a metric of the financial health of a country watched by ratings agencies like Moody’s — at risk, Patel would have invited a flurry of criticisms had he been rigid.
PepsiCo and Pioneer came to the party and offered workers voting rights from day one, also allowing them to appoint a director, setting up a R1bn supplier develop fund and offering money for entrepreneurs and scholarships.
That said, it is anyone’s guess if the broader ANC-led government has fundamentally shifted its viewpoint on ideology to allow growth, investment and job creation to take off.
As great as this deal is — and R26bn into SA is no small deal — unless we see real concessions from the ANC, it is difficult to say whether Patel’s pragmatic stance on this specific deal as a sign of the ANC reckoning with realities.
Given our energy supply crunch, you would think energy minister Gwede Mantashe would prioritise private power procurement and give the go-ahead to companies such as mines to make or buy their own energy.
Will there ever be agreement on the mining charter and the required BEE levels in mines? Let’s not get startled at the delay in fixing the mess at state-owned enterprises and the scepticism around the government’s ability to negotiate the decreased wage bill that finance minister Tito Mboweni needs.
Until we see action on the state wage bill, struggling stateowned enterprises and the production of private electricity, one cannot decide from this deal that President Cyril Ramaphosa’s administration has painted a true image of an investorfriendly market.
IT REMAINS ANYONE’S GUESS WHETHER THE STATE HAS SHIFTED ITS IDEOLOGY VIEWPOINT