Rugby unions demand more time before voting on Saru equity sale proposal, suggest alternative

Phepsi Buthelezi of the Hollywoodbets Sharks in action against Benetton during the United Rugby Championship. The Sharks are on sigantory on the letter. (Photo: Roberto Bregani / Gallo Images)

By Craig Ray

15 Oct 2024

South African rugby is facing a potential crisis with nearly half its unions set to oppose a proposed equity sale to an American Consortium.

Seven of 15 rugby unions have signed a letter to the South African Rugby Union (Saru) urging the mother body to postpone the Special General Council meeting to vote on the sale of an equity stake.

Representatives of The Sharks, Bulls, Lions, Stormers (Western Province are in administration), Griquas, Free State and Boland are signatories to the 14-page letter, dated 14 October.

A Special General Council meeting is set for 17 October where Saru’s members have been asked to vote for or against a proposal to sell a 20% stake to American consortium Ackerley Sports Group (ASG) for $75-million (R1.3-billion).

Among the signatories to the letter are Stephen Saad (Sharks chairman and Aspen Pharmacare CEO), Marco Masotti (the Sharks controlling shareholder), Johan le Roux (Stormers CEO), Altmann Allers (Lions chairman and Digicall Group chairman), Willem Strauss (Blue Bulls president), Andre Markgraaff (Griquas CEO), Bennie van Rooi (Boland president) and Coenraad Klopper (Cheetahs president).

“This letter is written with the utmost dedication to the interests and future of South African rugby,” the letter from the seven unions states.

“We, the undersigned member unions and their commercial affiliates (the ‘Members’), are deeply concerned about the proposed Transaction, which is due to be voted on at a Saru Special General Council meeting to be held on 17 October 2024.

“Based on the available information received to date and the last-minute roadshows only a few days before the general council, we are not supportive of this proposal. Our objections relate to both the substance of the Transaction, as well as the process followed to date.

“We urge you to postpone the upcoming special general council meeting rather than have the Transaction voted down by the Members, creating a public spectacle which is not in the interests of Saru or its Members.

“While we understand and support the need for Saru to explore opportunities for international brand growth, the purported contribution and involvement of ASG in these efforts remains unclear,” the letter continues.

“Equally unclear is the involvement of a private equity sponsor to unlock these opportunities, when this should be the remit of commercial management.”

It is slightly confusing that provincial unions, who sold stakes to private equity firms to unlock commercial opportunities, appear to be accusing Saru of mis-management for doing exactly the same.

Could it be a case of “only our equity investment will do, anything else we will oppose”?

Embrose Papier of the Vodacom Blue Bulls in action in the URC clash against Edinburgh at Loftus Versfeld on 28 September 2024. The Bulls also want to postpone the vote. (Photo: Gordon Arons / Gallo Images)

Questions

The letter laments that the sources of ASG’s funding remains unclear, and that the deal construct and the deferred payment schedule are problematic.

There is also a claim that ASG’s finding is a “debt-like equity structure” and, even though a new Commercial Rights Company (CRC) will be established, there are too many variables.

The letter states: “ASG is set to recoup its entire capital investment plus a preferred return of 6%, out of 80% of CRC’s profits.

“After the repayment period, ASG would continue to earn 20% of CRC’s profits, raising concerns about Saru permanently relinquishing a large portion of potential upside from predictable revenue streams.”

Further concern are the transaction fees for the proposed deal to be paid to a company called Jordan & Associates, presumably for brokering the deal.

“The proposed fee structure of 10% net of transaction costs $7.5m/R131-million), payable to Jordan & Associates is not market related for a transaction of this nature,” the letter reads.

“Many of the senior executives of the undersigned Members and their shareholders have significant experience in public and private capital markets and the fee proposed is not appropriate by any measure.”

What makes this curious then, is that they appear to be accusing Saru of withholding information, or possibly deliberately misleading its members. It’s a highly provocative implication.

Because of current reporting on this issue, Saru, in response, issued a timeline of events to underline how much time the 15 unions have had to probe the proposal.

Timeline

2018: SA Rugby initiates exploratory discussions with several private equity firms.

2019: The SA Rugby General Council, composed of its member unions, authorises the Executive Council to formally begin negotiations with CVC.

2020-2021: The impact of the pandemic stalls conversations as the Springboks do not play a home Test in front of fans for two years.

2022: The conversation resumes in earnest although the due diligence process proceeds at a slow pace.

2023: Negotiations with CVC continue slowly. Saru asks CVC to improve its post-Covid offer. During this time, several other potential investors express interest.

2023: Discussions are held with multiple potential investors but, by year end, only CVC and newcomer Ackerley Sports Group (ASG) remain serious contenders.

2023 (December 8): Saru’s member unions unanimously approve ASG as the preferred bidder following presentations from both entities, which include details on the associated success fees and transaction costs. The members mandate management to present a formal offer to the Council for consideration.

2024 (March, May and June): Information sessions are held with all members unions, during which all questions are addressed. Additional sessions for smaller groups are planned.

2024 (October): Further information sessions are held for members in five separate groups to thoroughly examine the proposal.

2024 (17 October): A Special General Meeting is scheduled where members will decide whether to approve the investment.

Sharks Phepsi Buthelezi of the Hollywoodbets Sharks in action against Benetton during the United Rugby Championship. The Sharks are on sigantory on the letter. (Photo: Roberto Bregani / Gallo Images)

Saru response

After receiving this letter, Saru responded to Daily Maverick enquiries to the situation, again underlining that this was a decision taken unanimously by the general council last December.

“Saru remains engaged with its member unions on the proposed equity investment in the commercial rights of rugby and will take their advice on how they wish to proceed,” a spokesperson wrote to Daily Maverick.

“Various questions have been raised and addressed during this process and have been raised once again in recent days and we are responding to those directly to our members.

“It is worth reminding the public that Saru’s membership supports private equity investment and unanimously backed the Ackerley Sports Group as the preferred bidder.

“The main facts of the deal are repeated here for clarity.

“ASG will become a 20% shareholder in a new company that will hold the commercial rights of Saru. The contracting of players and coaches and the running of national teams and competitions will remain the role of Saru.

“ASG and Saru will have three representatives on the board under an independent chairman who will be nominated by ASG but only confirmed on Saru’s approval.

“ASG will only receive a dividend or recoup the value of their investment when, and if, the consolidated business (both the commercial company and Saru) shows a profit or ASG sells their stake – which they cannot do for at least eight years.

“If the consolidated business does not make a profit, ASG (or Saru) does not take a dividend.

“The value of the proposal has been independently assessed and found to be ‘fair value’; comparisons to other valuations are misleading unless calculated on business values – rather than onfield success or perceived value.

“One of the principal reasons for such an equity transaction is to increase the value of the South African rugby business, which lags significantly behind its international peers.

“Further meetings are planned with member unions before Thursday’s Special General Meeting at which we will continue to answer any questions members may have and listen to all perspectives.”

Takeover attempt?

While much of the union’s letter is drafted in a way that leaves the image of concern, there is also a whiff of being a hostile takeover about it.

Due to Saru’s structure, where the 15 union presidents are on the general council, the real heavy hitters – the private equity partners in the major unions – are not at the table.

That, perhaps, is a weakness of the rugby governance structure.

But the idea that the four major unions and their investors will present a new deal in the best interests of all South African rugby provinces needs more interrogation.

Saru’s mandate is to govern all rugby diligently and with the sport’s and its members’ best interests at the forefront.

Obviously, at a club level, the best interests of the Sharks, Bulls, Stormers and Lions come first for the owners of those clubs. If they become the equity partners and dominate a new board it could create a problematic dynamic for the rest of the SA rugby ecosystem.

Would the Big Four put the interests of other, lesser unions on a par with theirs?

In their letter, the signatories outlined a broad, alternative proposal in which they establish a working committee, including Saru members.

It’s a vague outline with no indication where the funding would come from, suggesting that the “members” might be willing to fund it.

“If an equity contribution is required to implement an alternative funding solution, then Saru should approach its members first,” the letter states.

“Short-term funding solutions can be considered to guarantee Saru’s liquidity throughout the process.” DM

Categories:

Tags:

DM is much better if you are signed in...

Business Maverick

Questions

Timeline

Takeover attempt?