Tough CompCom conditions on SAA-Takatso deal

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FIFI PETERS: On Friday, you will remember, most news houses were reporting on the progress on the SAA deal; the Competition Commission had given the okay to Takatso’s plans to acquire that 51% strategic interest in SAA. But the approval came with some conditions, including that Takatso’s minority shareholders Global Aviation and Syranix, who are behind low-cost carrier Lift, divest from the consortium.

Read: SAA-Takatso deal: CompCom finalises tribunal submission

At the weekend Gidon Novick, who represents the minority shareholders and is also the founder of Lift, told Business Times that they would remain in the consortium, but they wouldn’t be on the board.

So we have Siyabulela Makunga, the head of communications at the Competition Commission, as well as Gidon Novick, co-founder at Lift, for more on this.

Siyabulela, thanks so much for your time. Let me begin with you, sir. First of all, this deal took well over 18 months to get to this point of approval. Just a question on whether there was a delay and what the reasons for it were.

Read: CompCom recommends conditional approval of Takatso’s SAA deal

SIYABULELA MAKUNGA: Thank you very much, Fifi, for having us, and good evening to your listeners and your Lift guest. I’m happy that you ask this question as your launching pad. It is incorrect that the commission took 18 months to assess this deal. We have made it clear in our statement …

Obviously the commission has looked at the deal and it has done its due diligence and part of that process included taking feedback and undertakings from the parties. This obviously would’ve impacted the turnaround time for the decision. As you would imagine, there was a lot of consultation that we had to go through to ensure that all aspects of our assessments are equally addressed.

Obviously we have raised our concerns and the parties, after a bit of time, accepted both divestiture and the employment conditions that the commission had imposed on the deal.

I must be frank that this is one deal where we’d said that until all the matters are fixed the deal would not be implementable.

FIFI PETERS: Okay. Gidon, bringing you in, good evening, sir. You heard Siyabulela. He said one of the conditions was around divestiture and that all parties had agreed. Is this true? Have you, as the minority shareholders, agreed to divest from Takatso?

GIDON NOVICK: Hi Fifi, hi Siya. Fifi, the short answer is that we haven’t. It’s quite a bizarre situation, I must be honest, to find ourselves in a position where we read up on something that we’ve apparently agreed upon – which we certainly haven’t.

I’ll tell you why we wouldn’t agree – we were selected as the strategic equity partner for SAA.

We were requested by the DPE [Department of Public Enterprises] in 2021 [to get involved]. You’ll recall that SAA was in business rescue, had gone through a long process to find the partner, was unsuccessful in that process, and then requested us to get involved. At the time Lift was already launched, so it was up and running. We put in many, many months of work to get a business plan up and running for SAA to negotiate a deal with the DPE.

Read: Potential funders for SAA put their hands up

There was subsequently a funding partner that we were requested to partner with in the consortium, who then took a majority stake in the Takatso Consortium.

And then, just fast forward to the last month or two, in the last week we found out that we’d been told that we have to divest or that we’d agreed to divest, which again, just to be very, very clear, we have not agreed.

I don’t see any reason why we would agree, given that we were selected as the partner … and we remain completely committed to that.

Read: Novick: Funding needed to relaunch SAA ‘has not been committed’

FIFI PETERS: Gentlemen, there seems to be a bit of a stalemate then. Siya, to bring you back in here, you have heard from Gidon that he was not at the agreement table of choosing to divest. What then does that mean for this deal? Can it go ahead if the minority shareholders remain in the consortium?

SIYABULELA MAKUNGA: We also made it clear, Fifi, that the role of the commission, as obligated by law, is to do an assessment and evaluation in terms of Section 12(a) of the Competition Act; one, to look at whether or not the deal does not lessen competition in that particular sector, but also to look at the public interest issues.

And if you look at our recommendations, which are very clear on the divestiture, in our assessment we were of the view that this deal is likely to result in a substantial lessening and prevention of competition in the domestic passenger airline market.

We want to ensure that we are quite frank in this aspect of our assessment because we want to impact on the efficiency of the local passenger airline market, but also we want to make sure that we protect the interests of the workers, especially those who are currently in the employment complement of SAA.

And we are very clear about our own consultations. We’ve done our work above board in terms of consultations. We have been writing the commitments from the parties, and we’re of the view that now this matter rests really on the shoulders of the Competition Tribunal, which is a final arbiter of this matter. We wouldn’t want to have a back-and-forth parallel process [with] the Commission Tribunal.

We’ve passed the stage of assessment and we are hoping that parties will find one another on this matter.

We are happy to really argue our own concerns, and why we think that the fix-it-first approach is an appropriate remedy to this deal. We would really get a hearing from both the tribunal and the parties.

But we are very clear that until that is done, we don’t see this deal being implemented.

FIFI PETERS: Sure. But the thing is now you issued a statement on Friday saying something different, and in that statement you said that the minority shareholders had agreed to divest. Gidon has just told us that he was even surprised to read that because that was not agreed to. So why did the commission publish this statement as fact when it doesn’t seem to be the case?

SIYABULELA MAKUNGA: I don’t [know] what is the measure of the validity of the argument being advanced by Lift, but as I said, above all what the commission has done is due diligence. We’ve been consulting with the parties, which obviously is one of the reasons why there was a bit of a delay on the deal.

We have got all this in writing and we want to invite all parties, including Lift, to really come back to the commission and put on record what their position really is.

You and I know that the spokesperson of Takatso has been very clear in his comments to say that indeed they have agreed on these terms. We were quite clear about noting those comments, but also we’re noting the deviating comments from the comments of the spokesperson. But these are matters that you and I know would have to be dealt with both at the negotiating table, [from] which I think the horse has bolted.

But obviously the onus is on the tribunal to decide upon the matter based on the argument that parties would be bringing before the tribunal when the date of the hearing would have been set.

So we are happy to entertain a final position of parties, but we’re very clear that until all of the concerns that the commission has raised on this deal are fixed, we don’t see this deal being implemented.

Read: SA set to announce strategic equity partner for SAA

FIFI PETERS: So, Gidon, what do you have to say about the commission’s concerns around the reduction in competition in the domestic passenger-airline market? Should you remain as part of the consortium, just given the proximity that you’ll have to the strategy around local routes and all that, which could potentially put Lift at an advantage by knowing what is coming? Do you find merit in the commission’s concerns, essentially?

GIDON NOVICK: Not really. We fully respect the work that’s done and the promotion of a competitive market. I think that’s critical. If you look at the structure, interestingly, of the current domestic market there’s one very large player with well over a 50% market share. And then there are a number of smaller players including Lift, including SAA.

I’m not a competition expert, but that factor alone is quite strange to me – to be threatened by two smaller players.

And just regarding that, as a minority shareholder with no access to the board or any information, there would be no conflict because it’s like holding a share in a public company and being in the same industry as that company; you have no influence over the company. And it’s been made very clear that we’ve been requested to not be involved in any way. So that I don’t understand.

And lastly, just curiously, I would love to understand how just a few years ago the government through the DPE were owners of four airlines at the same time, and those would’ve been SAA, Mango, SA Express, and they also hold a share in Airlink. So I’m just curious as to whether the standards are consistently applied in terms of how industries are assessed. So, yes.

And just finally, if there is any agreement we have made and that I’ve forgotten about, if I can just ask here, maybe just send me that tomorrow morning first thing, or tonight.

I would love to really see where in fact we’d agreed to divest from SAA.

FIFI PETERS: Siya, what do you say about that, in terms of the standards then that are applied when you look at competition and ownership-concentration in the market – and also whether you are able to send that confirmation of where Gidon agreed. He seems to have forgotten [whether] he may or may not have agreed.

SIYABULELA MAKUNGA: Look, I must put it quite clearly that the only guide for the Competition Commission in assessing this measure is the act.

I beg to differ with the recollection of your guest, and I want to confirm that in the past we have accepted the behavioural conditions, and this obviously included us recommending some prohibitions …

But I must state that, having assessed the deal, we felt that this deal, if it were to go through with those issues not being addressed, and with both Global Aviation and Syranix having shareholding and the ability to approach the Takatso board of directors, it will put us in a situation where there’s going to be sharing of competitively sensitive information among parties. And obviously what also exacerbates this deal is the fact that the domestic passenger airline market is a highly concentrated market, and barriers to entry are quite high.

These obviously [have] exposed the deal to coordinated effects, where parties would coordinate and share information, in terms of which we could easily allow for collusion. And that is not what the commission is about.

The commission is about levelling the playing field, is about ensuring that the markets are efficient, and that this efficiency would obviously be passed on to a consumer. And we are really this concerned.

We have agreed that Global Aviation must completely divest from Takatso prior to the implementation of this deal.

FIFI PETERS: So Gidon is asking, are you able to send that agreement in email form, maybe even scan it – where that agreement was made so he can see.

SIYABULELA MAKUNGA: We are aware that there are processes in terms of engaging parties.

I would be surprised if your guest is not aware of the channels that are appropriate to engage the commission. You would appreciate that we’ve got our negotiating team, they’ve got their negotiating team. And if they are that unclear, this is a very clear process of raising these issues – and not in the public domain. Ours was really to communicate our decision in terms of how we have assessed the deal, [and] the conditions that were imposed or recommended for the tribunal to impose on the deal.

And we’re quite clear that until these matters are fixed, we don’t see this deal going ahead.

So I would advise that, through the appropriate channels, let your guest get in contact with the commission and submit whatever – this must be in writing – is unclear [regarding] the agreements in terms of accepting the imposition of the remedial actions.

I must say that part of the delay was the fact that the commission had initially decided on the prohibition because initially the parties did not accept the remedial conditions. But until that was achieved, the commission then relooked at this decision and approved a conditional approval.

FIFI PETERS: But the thing is they still don’t accept some of those conditions.

Gidon, just a parting shot then, because I suppose we could go around in circles here. The commission is saying that this deal is not going to go ahead if you as minority shareholders remain part of the consortium. So what does that mean? Is there a point whereby you would be willing to exit, or not? And if not, what then?

GIDON NOVICK: I think it is worthy of a challenge. We are looking at the details of it. As I say, we fully respect the work that the Competition Commission does, and the imperative to maintain a competitive environment in a competitive industry.

But the logic of a minority shareholder – which we’ve been demoted to with no board access, just to be clear on that – the logic of that being some kind of hindrance to competition doesn’t make sense to us.

Maybe there are elements we don’t fully understand, but we’ll assess it fully and just request in the future [that] if there are any commitments that we need to make, we are requested to make them directly.

FIFI PETERS: Okay. Siya, just a quick one before I let you go. When is the tribunal hearing happening? What date?

SIYABULELA MAKUNGA: We don’t have a date, but you are aware that within 10 days of receiving a recommendation from the commission the tribunal must make a decision on the matter.

So within 10 days we would know whether or not this deal is going through.

But I do want to make this point again – that negotiations are not in the public domain. They are [for] the negotiating table and this is not one of the platforms to negotiate a position.

But we do accept that parties have got their independence in terms of stance and any time the commission has got an open-door policy in terms of hearing what parties have to say.

And this we’ve done in a number of these. One of them was Burger King. There was a time that the commission had recommended a prohibition. And, until such time that parties reached out to the commission and said, look, we have relooked at our position with a change of mind – and the deal was implemented.

You and I know that that deal has actually resulted not only [in] economic participation by the historically disadvantaged persons, but it has also ensured that there is creation of quite a substantial number of jobs.

Read/listen: Burger King SA sale blocked over lack of diverse ownership

FIFI PETERS: All right. Siya, thanks so much for your time. I do think that the issue here is not necessarily that it was about negotiating these terms on a public platform. I think the issue was perhaps a miscommunication in terms of the statement that has been released regarding this deal. The public was informed on Friday by yourselves, as well as the Department of Public Enterprises, that parties had agreed to matters that were holding this deal up, and that there was progress. And now it seems like we are still in a little bit of a limbo.

But we’ll have to leave it there for now. Gentlemen, thanks so much for your participation and we await – in 10 days’ time we will have further clarity on the matter from the Competition Tribunal.