Tuesday, January 18

Burger King Sale: How Will It Affect Future Acquisitions?


FIFI PETERS: Well, Burger King South Africa’s hot sale to a private company may be back on the table. That’s after the Competition Commission, which initially blocked the deal over concerns that would leave the public at a disadvantage, has had a change in… ..[0:21]. We get the details from Bakhe Majenge, who is the main legal adviser to the Competition Commission.

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Bakhe, thank you very much for your time. Just help us understand what is happening here and what elements of the agreement changed in such a way that the commission now approves the agreement in progress.

BAKHE MAJENGE: Thanks a lot. Good evening to you and your listeners. Remember that the transaction presented us with a difficult scenario in terms of Burger King South Africa moving from a 68% interest in BEE to a 0% interest in BEE?

What has changed is that we have received a much better compromise package from Burger King, which we believe will provide sufficient compensatory public interest for the loss of BEE’s stake.

There are basically four main commitments Burger King has made in South Africa. The first is (the) expansion commitment in terms of which Burger King South Africa has committed a capex of approximately R500 million. It will also increase its stores from 19 to 115. It will also increase the number of permanent employees by 1,215 and increase the payroll benefit.

Besides that, you will also increase your local purchases ……[2:21]. One of the most important features of the agreement is that it will also establish an employee share ownership scheme or program in terms of which employees will effectively own a 5% stake in Burger King South Africa.

And the latest commitment is that it will sell its meat plant, which is based in Cape Town, to an HDI (historically disadvantaged individual) player. So this is essentially a ……[2:58] a value chain opportunity within Burger King. The details of the HDI will, of course, be provided by Burger King in South Africa; It depends entirely on Burger King.

FIFI PETERS: So some of the terms you listed as part of this transaction sound very similar to the starter package that was on the table. Just to understand more clearly what has changed, maybe you can give us an indication on the dilution that the Competition Commission initially objected to with the old package: what happens now with that dilution level? Is it still going from 68% to effectively zero or not?

BAKHE MAJENGE: Yes, the shareholding will end essentially at zero. But, as I indicated, there is a compensatory package or initiatives. And these initiatives are qualitatively improved, I must point out, from the initial package because now it has the sale of the meat plant, which was not there before. And there are also some incremental improvements that have been made to the conditions above.

Of course, some of the details of this have been declared confidential by …… [4:34] but they are configured to meet a gradual improvement in condition compared to the previous proposal we had received. And we should point out that if we had received this package at a much earlier stage, we could have approved this transaction based on a new proposed condition.

FIFI PETERS: And how far from the finish line is the deal at this stage? Where do we go from here?

BAKHE MAJENGE: I think that the approval of the competition authorities, that process is almost at the end, because what remains is that the parties have to make certain changes, especially in the share ownership program of the employees of ……[?5:40], which had been suggested by the Competition Court. So once those changes have been made, the transaction is likely to be approved by the Competition Court.

FIFI PETERS: As early as this year?

BAKHE MAJENGE: Yes, it will normally happen. I think this will happen in the next week.

FIFI PETERS: Good. So not very far. Bakhe, thank you so much for giving us the details behind the changes around the hot juicy Burger King deal. It attracted quite a bit of attention due to the implications of potential future foreign investment in South Africa, and whether it would be deterred by the fact that our empowerment requirements were viewed or perceived as somewhat stringent. But it seems like changes have been made behind the scenes, and all systems are working at this stage.

That was Bakhe Majenge, chief legal adviser to the Competition Commission.


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