BEE blocks Burger King SA acquisition
The R570 million deal, according to the Competition Commission, will completely wipe out black ownership in Burger King SA.
The Competition Commission has halted the R570 million acquisition of Burger King South Africa by Grand Parade Investments (GPI) due to the lack of BEE shareholder representation in the deal.
Burger King South Africa acquisition paused – Here’s why
As reported by IOL News, JSE-listed GPI was dealt a blow after the Competition Commission stepped in, on Monday, to rule against the firm’s acquisition of Burger King SA and Grand Foods Meat Plant (GFMP) from Emerging Capital Partners (ECP).
Since 2020, shortly before the COVID-19 pandemic struck South Africa, the two firms had been working on a deal to pass over 95% ownership of the international fast-food chain and GFMP to GPI. Originally, the price for a Burger King takeover was tagged at R670 million but due to the impact of the pandemic, this was slashed down by R100 million and all parties had, by February 2021, settled on R570 million, while GFMP’s value was reduced from R27 million to R23 million.
This grand acquisition would have invigorated South Africa’s tumbling jobs market but according to the Competition Commission, a greater worry is presented in the multi-million-rand deal.
“The acquiring firms have no ownership by historically disadvantaged persons (HDPs). Thus, as a direct result of the proposed merger, the merged entity will have no ownership by HDPs and workers … thus, the proposed merger cannot be justified on substantial public interest grounds,” the commission noted in its ruling.
From the perspective of the commission, this merger would have effectively stricken down HDP shareholder representation from 68% — when ECP was the majority shareholder of the businesses in question — to 0%.
While the commission found no direct threat to the competition in the industries these two businesses play in, the fact that BEE representation in the companies’ ownership was completely wiped out was not indicative of equitable business practices.
‘This will discourage foreign investment’ – DA
The Democratic Alliance is the first political party to challenge the Competition Commission’s ruling on the merger. in a statement, the party’s shadow trade minister Dean Macpherson blasted the commission’s decision as “racial bean-counting.”
“Because of this intervention by the Competition Commission, it has effectively devalued every business in South Africa and sent a warning signal to foreign investors that they have no business in South Africa if they do not confirm (sp) to Broad-Based Economic Empowerment,” Macpherson wrote.
Following the commission’s refusal to see the deal through, GPI saw a seismic 17% drop in its stock value on the JSE. This, Macpherson says, is “is perverse and will only damage the workers of Burger King and investors in GPI, of which up to 28 000 are black.”
“In a time when 74% of young people are unemployed and South Africa hitting record unemployment of 42%, we are shooting ourselves in the foot by blocking much needed foreign investment like this,” the DA leader added.
At this time, no indication has come from GPI on whether the firm will seek to challenge the commission’s decision at the Competition Tribunal.