EPaper

Grand Parade saga defies understanding

BRIAN KANTOR

The Competition Commission has prohibited Grand Parade, a JSE-listed company, from selling its assets and obligations in the Burger King franchise to a private-equity company.

The reason the transaction was prohibited was, to quote the media release, because “the commission is concerned that the proposed merger will have a substantial negative effect on the promotion of greater spread of ownership, in particular to increase the levels of ownership by historically disadvantaged persons in firms in the market as contemplated in section 12A(3)(e) of the Competition Act. Thus, the proposed merger cannot be justified on substantial public interest grounds”.

Historically disadvantaged people comprise 68% of Grand Parade’s shareholders. ECP Africa Fund IV has none.

The qualification substantial public interest grounds, not just an unqualified and damaged public interest, is revealing. The problem with public-interest arguments is that the public comprises a variety of private interests, some of whom will benefit from a particular agreement and others who may be harmed. For example, common to the modus operandi of the competition authorities in SA, one can refer to cases of M&A that are only approved subject to the acquirer not reducing the number of people employed in the merged entity.

Clearly, this restriction is in the limited private interest of those who stand to lose their jobs. But the restriction also stands to make the merged operation less efficient and competitive than it would otherwise have been, given the cost savings of a merger, which has implications for the broader public interest.

Any lack of efficiency is not in the interest of the many consumers who may have benefited from lower prices or better quality or more convenient locations that a more competitive business might have offered.

Suppliers of goods, services or credit to the less-efficient operation would be compromised. Restrictions on cost savings would be unhelpful to its shareholders, who may include historically disadvantaged persons and who are likely to be members of collective investment schemes with widely spread ownership claims exercised by them through retirement plans.

Does the Competition Commission look through to the members of pension funds and other collective investment schemes to establish their racial composition? Or are the only empowerment interests recognised by them, and the government more widely, those that are held directly?

Which is to conveniently understate the number of beneficial owners of SA businesses of all races and opens up the opportunity for more deals for empowerment entrepreneurs, who are small in number, influential and politically important, but hardly representative of the public at large.

The winners and losers in this prohibited deal are obvious enough. The losers are the owners of Grand Parade, heavily and genuinely empowered, who are prohibited from realising part of their risky investment in the company.

VAGUE INTEREST

Their shares lost 60c after the news and with 430-million shares in issue this amounted to about R300m — surely not a sacrifice they would willingly make in some vague public interest. Another case of expropriation without compensation through regulation. The chances of their realising the same value with another deal, with a company of similar empowerment credentials to satisfy the commission, are surely remote.

As indicated by the commission there are few, if any, such broadly constituted and empowered groups of shareholders. The shareholders and managers of Grand Parade are in effect compelled to do nothing but hold on to their investment in Burger King, which may well end up destroying all of their investment.

But are such sacrifices forced on the shareholders of Grand Parade likely to promote similar such widely owned enterprise in the public interest? Denying risk-taking investors the fruits of their risk taking, or the ability to mitigate their losses — which is the case with this transaction — is surely setting a discouraging precedent for further broadbased empowerment.

It suggests that historically disadvantaged persons can take the risk of investing their savings in a broadly based and empowered venture, but are prohibited from cashing in on its success or from reducing potential losses. Hardly an enticing prospect.

Because they will be allowed to sell assets or the company only to a restricted number of buyers, then presumably it will be at a knock-down price. Surely this is not a restriction any business with current or prospective empowerment credentials would welcome.

The logic of the Competition Commission defies understanding. Interventions in agreements willingly reached by parties fully capable of recognising their own self-interests that have no implications for competition can never be against the public interest. The commission should protect competition and efficiency and the genuine public interest in well-functioning markets that they are set up to protect.

The public interest in competitive markets is not the same as a political interest. That is usually narrowly defined to include supporters and sponsors of a party and best left to the politicians and voters to pursue.

PUBLIC INTEREST … IS NOT THE SAME AS A POLITICAL INTEREST

● Kantor is head of the research institute at Investec Wealth & Investment. He writes in his personal capacity.

OPINION

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2021-06-11T07:00:00.0000000Z

2021-06-11T07:00:00.0000000Z

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