The competition authorities have finally approved Grand Foods Investments and Grand Foods Proprietary’s sale of their shares in Burger King South Africa (BKSA) and Grand Foods Meat Plant to Emerging Capital Partners (ECP) Africa Fund. The sale, approved on September 17, came with a list of conditions aimed at boosting South Africa’s economy.
The sale was announced in a Sens statement released by parent company Grand Parade Investments (GPI) on Tuesday morning. GPI did not indicate the updated value of the acquisition but stated in a previous Sens statement that the sale of Burger King to ECP “would result in a foreign direct investment into South Africa and payment of up to R498 million to GPI.”
The deal that keeps on giving
The Competition Tribunal approved the transaction with a list of conditions that the new franchise owners need to meet within the next five years.
The most noteworthy is that Burger King – under its new owners – is expected to procure investment worth no less than R500 million in aggregate capital expenditure.
BKSA is also expected to open 60 new stores in the country and permanently employ 1 250 historically disadvantaged people.
The tribunal further ruled that BKSA should increase the total value of all payroll and employee benefits of the new employees by at least R120 million. ECP Africa Fund is also expected to improve the American burger chain’s rating for the Enterprise and Supplier Development element on its Broad-based Black Economic Empowerment scorecard.
Second time’s the charm?
GPI first announced intentions to dispose of its interests in BKSA in February 2020, but the fact that ECP is an American private equity firm – focused on investing in Africa – did not count in the deals favour.
The deal was met with resistance by competition authorities who raised concerns that the initial deal was not uplifting previously disadvantaged persons, subsequently blocking the acquisition attempt.
The new deal addresses the authorities’ concerns as Burger King will now, on top of the above listed conditions, establish an employee share ownership programme.
Business Unity South Africa CEO Cas Coovadia told Moneyweb that the organisation welcomes the authorities’ efforts to ensure transformation remains on the agenda, but he also cautioned that transformation should not reduce investor confidence in the country and ultimately impede investment.
“We have been absolutely clear that the two critical issues for our country at the moment are increased investment and at the back of that to structure efficient and inclusive economies to create jobs – and that should be the focus.”
However Wayne McCurrie, portfolio manager at FNB Wealth & Investments, is less fazed. He told Moneyweb that these stipulations by the competition authorities, although stringent, will not be a hindrance to future foreign investment. Instead he calls them the “terms and conditions” of doing business in South Africa.
“It’s not new. Black economic empowerment has been around for 20 years and any foreign investor and domestic investor, know their environment.”
“Every country’s got restrictions and T&Cs [that investors] have got to comply with and these are one of our terms and conditions of investing here and I don’t think it’s a hindrance. It’s just one of the factors foreign investors will take into account coming to South Africa. If they think they will make money in South Africa, they will come.”
The tribunal expects the buyers of Burger King to sell Grand Foods Meat Plant – which supplies patties to the fast food chain. Burger King SA will instead have a supply agreement with the new owners of Grand Foods Meat Plant.