We can flip on Burger King deal, says Tembinkosi Bonakele
But CC boss says transformation still trumps shareholders
Competition Commission boss Tembinkosi Bonakele says it could reverse its hugely controversial decision to block the sale of Burger King by Grand Parade Investments (GPI) to US-based Emerging Capital Partners (ECP) if it improves its empowerment offer.
“We are entertaining proposals on how the sale could be allowed subject to a remedy,” says Bonakele.
The commission announced in June it would recommend that the sale of the hamburger franchise to Africa-focused private equity firm ECP by 68% black-owned GPI be blocked.
“You had an entity that had quite an impressive transformation profile, and all of that was going to disappear at the stroke of a pen with this transaction,” says Bonakele.
The decision has been sharply criticised by Business Unity SA (Busa), among many others, for prejudicing the interests of the company’s black shareholders.
GPI had been trying to sell its 90 Burger King franchises and a meat patty plant for 18 months (by which time their value had fallen by R100m to R570m because of Covid-19) so it could pay down debt and resume dividends to its mainly black shareholders, who have not seen payouts from their investment in the company for years.
The decision to block the deal deprives these historically disadvantaged shareholders, many of them from the impoverished Cape Flats, of payments they badly need.
To add insult to injury the value of their shares fell by R85m when the JSE-listed GPI’s share price went down 10% after the commission’s announcement.
Bonakele says whether individual black shareholders are prejudiced or not is beside the point. “The point is what the Competition Act says about transformation in this country. I find this argument difficult that we must somehow relax the provisions of the law because those who will be negatively impacted are black.”
Isn’t the point of transformation to promote the interests of black-owned businesses and black shareholders?
“What we are looking at is not a system that is necessarily targeted at empowering individuals. We are looking at a structural change in the economy. That’s what provisions in the Competition Act are about.”
He says it doesn’t matter that a few individuals may be negatively impacted.
“If one has to think of the impact of a merger on individual shareholders every time we have a merger before us you will have total confusion.
“This is about the system, it is not about individual shareholders. We are not really concerned about the immediate impact on Joe Soap today, that’s not the criteria.”
ECP was going to invest R500m in new Burger King stores, create 1,250 jobs and increase the black supply chain.
None of this will now happen.
“You’re presupposing the decision of the commission kills the deal. That’s not necessarily correct. That’s why the parties are still engaged,” says Bonakele.
He’s hoping the commission will “end up with better empowerment credentials”.
“You’re assuming we can’t get more. I’m saying wait for the negotiations.”
Won’t this kind of hard-ball act deter future foreign direct investment?
“What you need is an understanding that the sustainability of SA’s democracy is at stake here. Any investor coming here for a long-term investment must really think about what the impact of exclusion and lack of transformation has on this country in the long term.
“Investors I’ve spoken to acknowledge it as a very important thing to think about. By deepening participation, by improving the transformation credentials of your suppliers, you are guaranteeing the long-term stability of this country.”
Busa says the commission is denying the right of BEE companies and their black investors to realise value from their investments when it suits them.
They can sell their shares anytime, says Bonakele.
To other black investors?
“They must mitigate the impact on transformation. That’s not a denial of a right.”
Busa argues that white-owned companies and white shareholders don’t have these constraints.
“We require them to transform too,” says
Bonakele. “We’ve imposed a variety of public interest conditions on companies like CocaCola, InBev and Walmart.”
He says that “sometimes BEE conditions may disadvantage some people, sometimes they advantage others”.
Such as who in this case?
“Grand Parade made money out of empowerment legislation. It worked for them in the case of casinos. It may not work for them all the time. You don’t choose which aspects of empowerment will advantage you and therefore that must be the law. We are balancing things here so that in the end the structural profile of the South African economy reflects the demographics of the country.
“So you win some, you lose some. You’re not always going to come out a winner out of an empowerment situation.
“Black people enjoy the benefits of affirmative action in SA. But when a black man is unhappy because he’s not getting a promotion because AA favours a black female, that black beneficiary cannot now complain about AA because in this instance he has not benefited. It doesn’t work that way.”
Bonakele believes competition law is the appropriate mechanism to advance transformation.
Isn’t this the job of the BEE commission? “It may well be, but it is the job of the commission to look at the impact of BEE measures. That cannot be diminished by the fact that somebody else has that responsibility. You’ve got to implement the law, and that is what we’re doing.”
Public interest issues have been placed by the legislature at the centre of competition policy, Bonakele says.
“If you looked at the legislation you wouldn’t be criticising those who are implementing it. You’d be criticising parliament; they are the ones who have passed this law. I think we are going to be expected to do more, not less, when it comes to public interest issues.
So they’re going to raise the bar even higher for would-be foreign investors?
“Not just foreign investors. This doesn’t discriminate between local and foreign.”
He concedes that SA needs FDI. “But it’s not like empowerment imperatives are less important than FDI.”
Where would the empowerment opportunities be without investors?
“If inequality levels in SA are so high that there is massive public discontent that leads to a civil war, why would FDI be more important than us putting down a civil war?” Because it creates jobs?
“What are we going to do with jobs when we’re having a civil war?”
We are not really concerned about the immediate impact on
Joe Soap today Tembinkosi Bonakele Commissioner of the Competition Commission