Tough conditions for Tongaat deal

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BY TAURAI MANGUDHLA

THE South African Competition Commission on Monday approved Tongaat Hulett Limited (THL)’s acquisition by Zimbabwe’s Rudland family, with stringent conditions.

The Zimbabwean tycoons will tie up the transaction through their Mauritius-based Magister Investments Limited.

This comes after THL shareholders recently voted to implement a rights issue of between R2 billion (US$130 million) and R4 billion (US$230 million).

The rights issue would be partially underwritten up to R2 billion by Magister, with the possibility the Mauritian unit could emerge with more than 50% ownership in THL.

In terms of the transaction, Magister intends to acquire control of THL, pursuant to its participation in, and partial underwriting of, THL’s proposed rights offer.

“The commission found that the proposed transaction is unlikely to result in a substantial prevention or lessening of competition in any relevant markets,” part of the March 7 statement read.

However, the Competition Commission raised concerns with respect to the likely impact of the proposed transaction on employment, the promotion of a greater spread of ownership as well as the effect of the transaction within the sugar value chain and the region in which THL is active.

“With respect to employment, the commission was concerned that the merger could result in retrenchment of employees. Food and Allied Workers Union and the Department of Trade Industry and Competition also raised employment concerns,” said the commission.

In order to remedy this concern, the commission approved the merger on condition the parties will not retrench any employees as a result of the merger.

The Competition Commission said with respect to the promotion of a greater spread of ownership, concern is about the uncertainty of the effects of the transaction on shareholding by historically disadvantaged persons (HDPs). The DTIC and FAWU were concerned about the impact of the merger on the participation of employees in any share ownership scheme post-merger.

In order to address this concern, the commission approved the merger on condition the merger parties shall establish an employment share ownership plan that will hold an effective 5% in the South African operating subsidiary of THL within  three years of the implementation date and that THL shall, within a period of three years, ensure that THL’s Black Economic Empowerment shareholding will be at least the same as it was at the date of the approval of the proposed transaction.

“Having noted that THL plays a crucial role in socio-economic development, primarily in KwaZuluNatal, the commission was concerned about the effect of the proposed transaction within that region. Among others, the commission found that THL currently sources almost half of its feedstock from a substantial number of black farmers and co-operative members and wanted to ensure that these suppliers are not negatively impacted by the merger.

“In order to address this concern, the commission approved the proposed transaction subject to a condition that requires THL to ensure that it continues to source at least 40% of its feedstock from historically disadvantaged persons,” the statement read.

The Competition Commission also said THL was required to continue to participate in the implementation of the Sugar Master Plan amid fears it would cease to post the transaction.