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Tribunal releases public version of conditions
imposed on sale of Burger King SA
The Tribunal has released the public version of the conditions imposed on the merger whereby ECP Africa Fund IV LLC & ECP Africa Fund IV A LLC (collectively, “ECP Africa Fund”) will acquire Burger King (South Africa) RF (Pty) Ltd (“Burger King SA”) and Grand Foods Meat Plant (Pty) Ltd (“Grand Foods”). Burger King SA and Grand Foods are owned by Grand Parade Investments Ltd (“Grand Parade”).
The intermediate merger was initially prohibited by the Competition Commission (“the Commission”) on public interest grounds that the shareholding of historically disadvantaged persons (“HDPs”) in Burger King would decrease from more than 68% to 0% as a result of the merger. There were no employment concerns since the merger parties gave an unequivocal undertaking that there will be no retrenchments as a result of the merger. In addition, the transaction did not raise any competition concerns.
Following the prohibition, the merger parties entered into discussions with the Commission and the Department of Trade, Industry and Competition (“the dtic”), seeking to remedy concerns around the effect of the merger on the promotion of a greater spread of ownership and increasing levels of ownership by HDPs and workers in firms in the market, a specific public interest ground in terms of section 12A(3)(e) of the Act.
The merger parties subsequently approached the Tribunal for a reconsideration of the Commission’s decision. A revised set of merger conditions, reflecting a joint position between the parties and the dtic, was proposed. This was not opposed by the Commission.
During an online hearing, the Tribunal heard submissions from the merger parties, the Commission, the dtic and SACTWU, a union representing workers at Grand Foods, the meat plant which primarily supplies Burger King SA with burger patties. After considering the submissions and the subsequent amended merger conditions addressing issues raised at the hearing (and containing a set of public interest commitments), the Tribunal has approved the transaction. Below, is a summary of the merger conditions:
Merger conditions
As a package, the merger conditions address the several public interest issues. The conditions involve, inter alia, the following:
- Expansion commitments: involving (1) an investment of no less than R500 million in terms of capital expenditure; (2) increasing the number of Burger king outlets in South Africa from 90 to at least 150; (3) in addition to current permanent employees, employing no less than 1250 HDPs as permanent employees in Burger King SA, increasing the value of the payroll as well as employee benefits (in respect of the 1250 employees) by an amount of no less than R120 million;
- Commitments relating to South African suppliers: involving local procurement and to improve compliance with the Enterprise Supplier Development element of the merger parties’ Broad-Based Black Economic Empowerment (“B-BBEE”) scorecard. Details of this have been claimed as confidential by the merger parties.
- Commitments relating to an employee share ownership program (“ESOP”): In the context of worker empowerment, this will provide an effective 5% interest to workers in Burger King SA; and
- A commitment to divest the meat plant: the acquiring group shall seek to conclude the meat plant disposal. The transaction must be notified to the Competition Commission for consideration, even if it is classified as a small merger. Among other obligations, Burger King SA must preserve and maintain the economic and competitive value of the meat plant in accordance with good commercial practice – and it must conclude a supply agreement with the meat plant or the meat plant purchaser in terms of which it will continue to procure inputs from the meat plant.
In addition, the conditions contain an express provision that the merged entity will not retrench any employees as a result of the merger. The rest of the conditions have been claimed as confidential by the merger parties. The Tribunal’s non-confidential order and the conditions will be available on www.comptrib.co.za in due course.
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