Grave concerns raised by the country’s Competition Commission

The Competition Commission in South Africa has prohibited a proposed takeover of the Burger King franchise in that country by an international private equity fund, Emerging Capital Partners (ECP).

Last year, the struggling Grand Parade Investments, which holds the franchise announced that it would sell Burger King South Africa and Grand Foods Meat Plant, which primarily supplies Burger King with patties, to a fund owned by ECP. However, Fin24 business news outlet is reporting that South Africa’s Competition Commission on Tuesday prohibited the transaction, objecting to the lack of black shareholding. 

ECP, which was founded in the US, is a private equity firm that focuses on African investments.

According to Fin24, “the Commission found that the merger would lead to a significant reduction in the shareholding of historically disadvantaged persons in the target firm, from more than 68 per cent [empowerment shareholding in Grand Parade] to 0 per cent as a result of the merger.”

While the Commission found that the proposed transaction is unlikely to have an impact on competition in SA, it has reportedly said that historically disadvantaged persons (HDPs) won’t hold any ownership of Burger King SA following the deal. Thus, as a direct result of the proposed merger, the merged entity will have no ownership by HDPs and workers.

Competition Commission has concerns about merger

The Commission is therefore concerned that the proposed merger will have a substantial negative effect on the promotion of greater spread of ownership.

Fin24 has quoted the commission as saying, “the proposed transaction has raised significant public interest concerns in that it has a substantial negative effect on the promotion of a greater spread of ownership, in particular the levels of ownership by historically disadvantaged persons and workers in firms in the market”.

Burger King SA operates more than 90 fast-food restaurants across South Africa. Grand Parade Investments, which also owns Grand West casino in Cape Town and stakes in other businesses, first announced the transaction in February last year.

The listed food and gaming empowerment group is buckling under a massive debt burden, due in part to its unsuccessful launch of US fast-food brands Dunkin’ Donuts and Baskin Robbins in the country. However, the company was forced to lower its sale price by 15 per cent last month, due to the impact of COVID-19.

The price for Burger King SA was cut from R670 million to R593 million, and the price for Grand Foods Meat Plant from R27 million to R23 million. Grand Parade Investments acquired the South African master franchise for Burger King in 2012. 

Its share slumped by more than five per cent following the Competition Commission’s announcement late on Tuesday.