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Authorities greenlight Burger King sale

…with hefty BEE-centred conditions.
Image: Citizen

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.

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GPI has a market cap of R1.3 billion, yet …. “The most noteworthy is that Burger King – under its new owners – is expected to procure investment worth no less than R500 billion in aggregate capital expenditure.”

What am I missing?

Our apologies! It’s actually R500 million.

BEE is allowed to be mentioned but when the rights of Caucasians are uttered, MW deletes my post

Typical

Don’t abolish BEE

I’t’s opened doors for the entrepreneur

Long may they live and flourish

No wonder it costs R620,000 investment per job compared to the US where it costs R420,000…

As a country we should at be supporting all forms of FDI into our country, for the risk and conditions of doing business is astonishingly high.

The fact that a company is being told is being told to increase its payroll by R120,000,000 whilst there is no guarantee of the business success due to unfriendly business law, poor labour laws and slow economic activity…

Meanwhilst in the UAE, the government their has give the green light on a host of reforms so that SMEs both get incubated and grow. Everything from 100% ownership to Zero Tax on Profits.

Yes, agree all forms of FDI should be welcomed with open arms. We need everything that can grow the economy.

THe problem is Ebrahim Patel… this moron needs to exit with his master Zupta.

Someone else needs to come in and grow the Trade and Industry sector…. preferably business minded.

Honestly if these guys had the same say on the sale of a Second Hand Car, can you imagine the paper work and rules…

Hi, before we let you spend your money you will need to comply with the following:
1) increase the seating capacity
2) ensure that those who are the least competent have the best seat and are given complementary beverages and food whilst they give direction to your final destination
3) you are only allowed to purchase fuel from a selected petrol station where there will be a fuel surcharge
4) the car will need to undergo regular maintenance and check up at our predetermined shops
5) we cannot guarantee the condition of the road so be very careful and good Luck.

“historically disadvantaged people” ? – considering its been 27+ years now, that must mean people of Caucasian heritage surely?

The most noteworthy is that Burger King – under its new owners – is expected to procure investment worth no less than R500 billion in aggregate capital expenditure. I suggest you count the zeros and then correct the article. You are welcome.

Our apologies!

I honestly think they said billion instead of million in the next quote: “R500 billion in aggregate capital expenditure”

Who in their right mind would agree to all these conditions? No wonder no one wants to invest in S.A. Or does ECP have a hidden agenda?

The negative effects of BEE:
– There never has been anything broad-based about it;
– The cost premium is too high;
– The link to corruption is off the chart;
– The cost of not putting the right person in charge is astronomical.

Would have been cheaper to liquidate the burger king franchise and start anew !!

The blind leading the stupid. 30% pass rateeducated cadres in charge.

We are in trouble if competition law allows the state such a broad scope of terms & conditions to add to a deal where willing buyer and seller already have agreement.

People would be up in arms if government came to a business and told them how much they must invest or employ in the future. How is this different just because there is a new owner????

It is hardly as if fast food is economically strategic or as if there is a monopoly. Time to reign in this power or nobody will want to invest because they won’t be able to sell freely.

I see no conditions relating to the quality of the food on offer ?
No use wanting turnover without customers…..

I have never been to Burger King, are their food any good?

You’re not missing anything…

BEE is part of the cost of doing business in South Africa for sure! Guess who pays for it though? Where do the margin increases come from to fund the BEE requirements? The investor won’t fund it! He wants a minimum return on investment or he will simply walk away. The investor has choices after all.

The consumer is the only party out there who can fund the BEE requirements. Who are the consumers? Previously disadvantaged persons, mostly. When we calculate the benefits and costs and divide them among the target group, it is clear that the previously disadvantaged persons put a BEE benefit of R10 in their left pocket and then spend R20 out of their right pocket to finance the deal by overpaying for the burger.

Then, after they have finished eating their burger, after spending their last dime on it, they praise Ebrahim Patel for empowering them!

The cost?
It’s immeasurable… Because the focus is not on sound business practices and growing SMEs into sustainable (& bigger) businesses.

How do you count the lost opportunities, the people who simply don’t invest here anymore and the businesses that could’ve been much better we’re it not for some utterly idiotic political rule?

Without a focus on what really matters – which is education and value creation – it doesn’t matter what stupid rules they impose, the end result will be far worse than it could be.
And in SAs case, it’s a downward spiral… Not even slow growth.

Spot on!

“The real cost of the State is the prosperity we do not see, the jobs that don’t exist, the technologies to which we do not have access, the businesses that do not come into existence, and the bright future that is stolen from us. The State has looted us just as surely as a robber who enters our home at night and steals all that we love.” – Frederic Bastiat

The cost?
It’s immeasurable… Because the focus is not on sound business practices and growing SMEs into sustainable (& bigger) businesses.

How do you count the lost opportunities, the people who simply don’t invest here anymore and the businesses that could’ve been much better we’re it not for some utterly idiotic political rule?

Without a focus on what really matters – which is education and value creation – it doesn’t matter what stupid rules they impose, the end result will be far worse than it could be.
And in SAs case, it’s a downward spiral… Not even slow growth

End of comments.

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