The Competition Commission has prohibited private equity investment fund ECP Africa's proposed acquisition of Burger King South Africa and Grand Foods Meat Plant from Grand Parade Investments (GPI), stating that the merger would lead to a significant reduction in the shareholding of historically disadvantaged persons (HDPs) in the target firm, from more than 68% to 0%.
Grand Foods Meat Plant primarily supplies Burger King South Africa with burger patties.
GPI is an empowerment entity listed on the JSE.
ECP has no ownership by historically disadvantaged persons. Thus, as a direct result of the proposed merger, the merged entity will have no ownership by historically disadvantaged persons and workers, the commission notes.
"The commission is, therefore, 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 HDPs in firms in the market as contemplated in the Competition Act. Thus, the proposed merger cannot be justified on substantial public interest grounds.
GPI says in a statement that it and ECP are considering their options following the commission's decision.
It further points out that the commission's decision was despite proposals submitted by GPI and ECP to address the public interest concerns.
These proposals included that, by the end of 2026, ECP would procure the investment of at least R500-million in aggregate capital expenditure for the establishment of new Burger King stores in South Africa; that the merged entity would increase the number of Burger King outlets in South Africa to at least 150; and that the merged entity would increase the number of permanent employees employed by it in South Africa by no less than 1 250 HDPs.
It also included proposals that the merged entity would increase the total value of all payroll and employee benefits in respect of all employees employed by the merged entity by no less than R120-million; that, subject to supply on reasonable commercial terms, the merged entity would increase its procurement of products and/or services from broad-based black economic empowerment- (BBBEE-) accredited suppliers in South Africa from about R665-million during the 12 months preceding the merger to an aggregate value of at least R930-million a year; and that, within 24 months of the implementation date, the merged entity would allocate an effective interest of 5% of the shares in the merged entity for an appropriate BBBEE ownership structure.
GPI's share price on the JSE fell by 25% early on June 2, following the commission's announcement.