This interview was originally aired on RSG Geldsake (in English).
You can also listen to this podcast on iono.fm here.
RYK VAN NIEKERK: Last night we discussed the Competition Commission’s conditional approval of the transaction that will see the Takatso Consortium acquiring a 51% stake in South African Airways (SAA).
However, an essential condition is attached to the approval, which is that two of Takatso’s minority shareholders must relinquish their stakes in the consortium. The minority shareholders are Syranix and Global Aviation, and they are also shareholders in the airline Lift. The commission is concerned that through their shareholding in Takatso they will have access to sensitive information from South African Airways, thereby negatively impacting competition in the aviation sector.
I spoke to Gidon Novick last night. He is one of the co-founders of Lift, and represented the minority shareholders on the Takatso board. However, he resigned from the Takatso board last year because it apparently did not share all the information about the negotiations with the minority shareholders. Novick said the minority shareholders were unaware of the condition and only read about it in the media last week.
Read/listen: Tough CompCom conditions on SAA-Takatso deal
Thulasizwe Simelane is on the line. He is a spokesperson for the Takatso consortium. Thulasizwe, thank you so much for joining me. First of all, is Takatso ready to take its majority stake in SAA?
THULASIZWE SIMELANE: Oh, we absolutely are. And in fact the approval with conditions by the Competition Commission is a significant milestone in that direction. It’s been over 18 months since it was first announced that Takatso would be the strategic equity partner to government in SAA, and it’s been almost a year since the transaction was submitted by ourselves to the Competition Commission. It’s a step that we’ve been waiting for and anticipating for quite some time, so this really sets us on a path to get final merger clearance from both the commission and the Competition Tribunal, which is where the transaction is headed next. And we look forward to engaging in those processes.
RYK VAN NIEKERK: Now there seems to be some discontent among the shareholders in the Takatso Consortium, especially from the minority shareholders. They believe they were not consulted about this condition that they should dispose of their stakes in Takatso. What is your response to that?
THULASIZWE SIMELANE: The first thing I want to say, Ryk, is that it is not our intention to engage in a media spectacle back and forth with the minority shareholders, because there are ordinary calls, business processes through which we engage – and it’s what we are. It’s exactly what we were saying on Friday last week, that now that we have this approval with conditions, [it] is the official position from the Competition Commission, and now engagement can start, can begin in earnest between the partners with a view to implementing and seeing how we can fulfil these conditions. So that is our official position – without having to do a back-and-forth.
But I can clarify one thing. It can’t be that they were not aware of the condition being considered.
I can safely say that the minority shareholders were aware that this was a condition that was being considered by the Competition Commission.
And now that this has become the official position of the commission, we are looking forward to engaging with a view of how to fulfil this critical condition.
RYK VAN NIEKERK: But to fulfil the condition you need to either buy out or convince these minority shareholders to relinquish their stakes, which seems to be a significant challenge for you.
THULASIZWE SIMELANE: It would be sheer speculation on my part as to exactly what the modalities would be. It’s exactly what the engagements will entail.
How we fulfil this condition is exactly at the heart of the engagements that will be taking place among the partners in Takatso Aviation.
So whether it’s a buyout or any other method, I really don’t have the mandate to even speak about that at this point, until such time that the official channels have been followed – as opposed to us engaging in the media – which is what we do not want as Takatso.
RYK VAN NIEKERK: Have you met with the minority shareholders after the [conditional] approval was granted?
THULASIZWE SIMELANE: My understanding is that processes to initiate that engagement have been triggered or are in process. Let me put it this way: in the process of being triggered. I don’t know where they are, to be quite honest with you. I can’t tell you exactly and say there’s this meeting that has been set up.
But everyone understands that this necessitates there should be engagements and meetings, so that we put this condition on the table now that it’s an official position, because one of the other things we’ve got to remember, Ryk, is that the point at which the commission has landed actually vindicates the concerns that we started having.
Read: SAA-Takatso deal: CompCom finalises tribunal submission
In your introduction, you alluded to Mr Novick’s resignation from our board in November last year, citing that there was not enough information flowing within Takatso.
It was based on these concerns that we started taking these precautions, because the Competition Commission was consistently watching what was happening within Takatso, what mechanisms we were putting in place.
We could not have been saying to the commission that your concerns about competition-sensitive information being exchanged between the parties in Takatso, the mitigations that we are suggesting, without showing that actually we are acting to try and mitigate any of those concerns coming into place. So in that sense, we feel vindicated …
But additionally, Ryk – let me say it this way – the statements attributed to Mr Novick in the media suggest that his position is that they would be willing to not occupy a position within the Takatso board.
Well, if you think about what we had suggested, which was not accepted by the Competition Commission, we had said no one who is a shareholder representative on the board of Takatso, or representing either Syranix or Global [Aviation], can also be a person who’s also active within Lift, within Global’s other aviation businesses and Syranix’s other aviation businesses, or indeed SAA and that information flowing from SAA would be limited … He is suggesting something very similar. At least the media reports suggest that he is suggesting something very similar, if not more drastic than what we had suggested in the first place.
RYK VAN NIEKERK: But yet, when the agreement was signed 18 months ago, the structure of the consortium was well known, and they were critical partners in the consortium as they have specialised aviation experience and skills. Why would that have changed during the period while you were waiting for approval from authorities?
THULASIZWE SIMELANE: It’s a great question you ask and I’ve been expecting that someone will have the sense to actually ask that question. The conditions at that time were very different.
Let’s start here. The points of common interest, the synergies, were definitely there. Our ability to finance and get big transactions over the line – when I say ‘our’ I mean the majority shareholder – the ability to put together these complex transactions across the African continent is a track record that speaks for itself.
But at that time when SAA was not flying, was not in the skies, it was clear that any return and relaunch of SAA would need, for instance, aircraft, [crew], maintenance and insurance, or ACMI, which is the space in which Global plays.
Read: CompCom recommends conditional approval of Takatso’s SAA deal
But the other context for this was that there had been conversations about Harith potentially acquiring a stake within Lift Airlines. So it was a conversation that was framed at that time around what a new SAA would need after the relaunch. It also had in mind the thinking that any concerns about information flow or possibilities of collusion could be mitigated – which were the mitigation options that we put before the Competition Commission and which unfortunately were not accepted, despite the fact that they have been accepted in the case of other transactions in the past.
RYK VAN NIEKERK: Harith, as you’ve said, is the majority shareholder in the consortium, and primarily the funder. It will need to put up R3 billion for this transaction to go through. Is it one of the requirements that the consortium has aviation skills, and provides that to the new SAA?
If that is the case you’ll probably need to find a new aviation expert to drive the new airline.
THULASIZWE SIMELANE: Spot on, spot on, Ryk. That is one of the requirements.
Obviously, if you’re going into this business and you’re making the case that the new SAA will run better and more efficiently and more sustainably than it has been run until now, you need to be able, one, to have that business plan which we’ve worked on and which is ready and basically it’s now a matter of process for it to be adopted and accepted by all stakeholders.
But there is a business plan on the table.
You need to then put the capital, operations capital, which is R3 billion, which Takatso is going to invest in SAA. And the processes around raising that are at an advanced stage.
Read: Potential funders for SAA put their hands up
But, as you rightly say, the aviation expertise was the other element in this conversation.
I can tell you now that through all these processes there have been various engagements with experts far and wide, including international aviation experts.
So there’s no question of the possibility of a gap arising of aviation expertise, because a number of people who are international experts have been speaking to us and saying that they would be quite ready to step in to buttress the expertise that we would take to SAA.
But importantly also, Ryk, people forget that SAA is the world’s 17th oldest airline and basically has a lot of expertise within itself, if we’re talking operational expertise, because we’ve got to be specific.
Are we talking the expertise of running an airline business, which we’re saying should not be a challenge at all because there are multiple conversations happening about various partnerships and permutations?
But at the same time, if you’re talking technical flight-level expertise, SAA has plenty of that within its stable.
And basically it would be a matter of harnessing that, such that it supports the business plan we have in place.
Read:
RYK VAN NIEKERK: If I understand you correctly, you say obviously SAA has taken to the skies after you concluded the agreement 18 months ago and it seems to be operating, at an operational level at least, profitably. So what you’re saying is there are skills within SAA currently, but you may bring in another partner and it’ll most probably be an international partner?
THULASIZWE SIMELANE: I will not commit to another partner, but I can say that in terms of the aviation expertise we certainly have a feeling that there’s a lot of that available for us to tap into at various points.
I don’t think, Ryk, that the presence of Global and Syranix meant that it would close the door to any other partnerships that would potentially make sense, certainly in as far as bolstering the technical expertise from time to time. I don’t think anyone ever envisages that that closes off any engagement with any potential partners as far as the technical expertise is concerned.
And as far as SAA is running profitably at this point, that’s a welcome development. It’s exactly what we all want.
I think I’ve been hearing this conversation: Because they’re now operating profitably does the transaction still make sense?
I think it’s historical, that argument, and it also doesn’t take into account what the strategic equity partner was sought for. It wasn’t sought for instantaneous performance but it was sought for sustainability, setting the airline on a path of sustainability such that even in future, when market conditions change and the airline needs some kind of capital boost and an injection of capital, the first point of call doesn’t become the national fiscus which is saddled with all these other responsibilities.
But SAA has a strong balance sheet on the basis of which it is able to raise whatever capital it needs.
It’s backed by a majority shareholder, a shareholder who will not be going away, who will understand at that point what the business needs of the airline are and be ready to step in as a first point of call, as opposed to the national fiscus.
RYK VAN NIEKERK: You refer to a ‘strong balance sheet’, but it’s not that strong because there’s a lot of historical debt on that balance sheet and the government has committed to finance that debt. Have the conditions of the original agreement changed over the past 18 months, or put differently, are you still committed under the same agreement to continue to take up this 51% stake?
THULASIZWE SIMELANE: Yes, it’s absolutely the same agreement. When I refer to a strong balance sheet, I’m talking at the point at which we are implementing the business plan that we have.
Now basically the transaction has closed and it’s at a point at which the reconfigurations that will come with the close of the transaction have been put in place.
The idea is that SAA should get to a point where its balance sheet is strong enough for it – like any other business that faces changing market conditions – to be agile and adapt.
And if it needs to borrow, that’s something that can be done without burdening the fiscus. That is what I’m talking about in as far as a strong balance sheet is concerned.
Read: Novick: Funding needed to relaunch SAA ‘has not been committed’
But the conditions have not changed. There are those conditions precedent that we are ticking off one at a time. As I say, the Competition Commission approval, albeit with conditions, was a big one that we ticked off. And the next one now will be the Competition Tribunal.
There are other processes that the Department of Public Enterprises is responsible for.
There are issues around the annual financial statements of the last four years or so that need to be attended to. You mentioned the issue of National Treasury. Those are processes that are also happening. You saw that R1.1 billion being announced in February. That’s part of the laundry list that we are all going through and ticking off the items – [one] at a time.
RYK VAN NIEKERK: But you will still have to meet with your minority shareholders, and I think that’s going to be a tough meeting, given Novick at least – he’s very vocal in the media at the moment. He claims that the minority shareholders did not know of this condition, or that there were negotiations regarding the conditions of this investment. You … said earlier that they were aware. So that will be a pretty heated meeting, I would assume. I would love to be a fly on that wall.
THULASIZWE SIMELANE: [Chuckling] Ryk, again, I will not speculate about the meeting or meetings, and I don’t know how many meetings it will take for us to get to a position that’s decisive on this. But without getting again into engaging with one of our shareholders in the media, I can safely say, without fear of contradiction, that the minority shareholders were aware that this condition was being considered by the Competition Commission.
That it’s been taken up as a position by the Competition Commission we all found out when the Competition Commission announced that this is their final position, that they will recommend an approval of the transaction with these conditions, the main one being a divestiture.
The point about it is that we had suggested ways around mitigating the concerns of the commission which I outlined to you a few minutes ago. But unfortunately those were not accepted by the Competition Commission, despite the fact that they’ve been implemented in relation to other transactions in the past. And this is where we find ourselves, where we need to now sit as partners and engage about how we fulfil this condition.
RYK VAN NIEKERK: It’s going to be interesting. We’ll have to leave it there. Thulasizwe, thank you so much for your time today. That was Thulasizwe Simelane, the spokesperson for the Takatso Consortium.
