Minority shareholders that plan to buy SAA will fight Competition Commission ruling

24 May 2023

The Competition Commission has recommended the booting out of minority shareholders from a consortium that plans to buy a majority stake in state-owned airline SAA. But the minority shareholders will challenge the commission’s decision at the Competition Tribunal.

Minority shareholders that are part of a consortium that plans to buy SAA will challenge their booting out from the deal by SA’s competition authority.

The Department of Public Enterprises named the Takatso Consortium as the preferred buyer of a 51% shareholding in SAA in June 2021, with the government still retaining the remaining 49%.

The consortium comprised Harith General Partners (an infrastructure company that owns Lanseria Airport in Gauteng), Global Aviation and Syranix, both of which are partners in the aviation industry and co-owners of SA’s newest domestic airline, Lift.

Harith owns 80% of the Takatso Consortium and would be responsible for providing funding for SAA’s capital needs, while Global Aviation and Syranix own the remaining 20% (10% each). In the consortium, Global Aviation and Syranix would be responsible for providing the technical expertise in the running of SAA.

Although the Competition Commission, which regulates competition dynamics in SA’s economy, recommended two weeks ago that the Competition Tribunal approve the Takatso Consortium’s purchase of a majority stake in SAA, it has imposed one condition. The commission wants Global Aviation and Syranix to exit the SAA deal by selling or “divesting” their shareholding in the Takatso Consortium before the Competition Tribunal can provide final approval of the deal.

Exposure to Lift

The Competition Commission is worried that Global Aviation and Syranix have exposure to Lift airline and, through SAA, they will have exposure to a competing airline. The commission said the involvement of Global Aviation and Syranix in SAA would probably result in a substantial lessening and prevention of competition in the domestic passenger airline market, and the pair would have access to competitively sensitive information belonging to SAA.

The Competition Tribunal, which acts as a court on competition and antitrust matters, will now weigh up the merits of the Competition Commission’s recommendation that Global Aviation and Syranix exit the SAA deal.

In an interview with Business Maverick on Wednesday, Gidon Novick, who represents the minority shareholders and is a founder of Lift, said the minority shareholders will make submissions to the Competition Tribunal, with a view to challenging the Competition Commission’s recommendations.

“We remain open to finding a way to share the deep local skills and experience we have to build a sustainable regional and international airline and an iconic South African brand,” Novick said.

“Our business plan for SAA was set on a fresh opportunity to rebuild SAA with a fresh and energetic team, and without legacy problems. Our focus was on a demand-led strategy of not flying to all places but flying where the demand is to have a competitive advantage.”

He found it curious that there was a recommendation to boot Global Aviation and Syranix out of the SAA deal when both companies were initially approached by the Department of Public Enterprises to acquire SAA early in 2021 when LIFT was already operating.

“I don’t know what it means to divest or sell your shares to someone else. Do we have to value the shares? Or put out a request for bids? I’ve never gone through this process. It is a shame to have reached this point,” said Novick.

Stalked by problems

Since the government named Takatso as the government’s preferred strategic equity partner for SAA in June 2021, the transaction has been stalked by problems. Two years after its announcement, the deal has not been concluded. Novick unexpectedly resigned from the Takatso board, saying he was being kept in the dark by Harith about, among other things, the R3-billion capital injection that the company promised SAA and deliberations with the Competition Commission.

The terms and conditions around Takatso’s involvement in SAA have largely been kept secret, with the government and Harith arguing that details around the deal are “commercially sensitive”. But Novick has rejected this notion, saying that SAA is a public asset and funded by the taxpayer, and the terms and conditions of Takatso’s involvement should be published.

The introduction of private-sector players in SAA’s ownership model is significant as it is set to serve as the blueprint and litmus test for privatisation in the state-owned enterprise (SOE) universe. If privatisation is successful at SAA, then the same ownership model could be introduced at other SOEs, including Eskom and Transnet.

But there are signs that the government is still uncomfortable with the privatisation model and wants full control of SOEs. Following the Competition Commission’s recommendation, the government expressed interest in buying the shares belonging to the minority shareholders (Global Aviation and Syranix) in the Takatso Consortium. In a recent appearance before Parliament, Deputy Public Enterprises Minister Obed Bapela said the government was interested in clawing back a larger shareholding in SAA and becoming a majority shareholder in the airline, holding more than 49%.

That the government has ambitions to still be a majority shareholder in SAA means that the taxpayer would still be on the hook for bailouts to the airline to keep its operations going.

By introducing private sector investors to the ownership model of SAA, Public Enterprises Minister Pravin Gordhan said it was intended to create an “airline that is no longer dependent on the South African fiscus” for survival. Takatso said it would not comment on a scenario in which the government buys the shares of minority shareholders. DM

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Business Maverick

Exposure to Lift

Stalked by problems