South Africa demands black economic empowerment before Burger King acquisition
Grand Parade Investments (GPI) wants to sell its Burger King franchise in South Africa to a US-based private equity firm named ECP Africa Fund. The majority black-owned holding company reached a deal with ECP in February, but the Competition Commission blocked the deal in June on grounds that historically disadvantaged persons (HDP) would lose their 68.56% stake in Burger King SA.
This week (18 August), GPI announced that it had agreed to new terms that address the commission's public interest concerns. The case shows (a) the continued evolution of the regulatory mandate beyond traditional focus on ‘restrictive practices’ or ‘abuse of dominant position’ to include Broad-Based Black Economic Empowerment (B-BBEE), and (b) that HDP and employee participation should be core priorities for deal makers.
Significance – ‘Greater spread of ownership’
The Burger King deal highlights how competition regulation in South Africa is strongly influenced by the African National Congress’ (ANC) black economic empowerment (BEE) policy, which was further rooted in law when the Competition Act was amended in 2018. This law authorises the Competition Commission to prohibit a merger based on any of five public interest factors that especially relate to HDP ownership and employment – and the commission indeed frequently invokes this authority. Last year, the commission set public interest conditions for 30 out of the 33 mergers that it received.[1]
The current case drew significant public attention because a non-black company ECP was proposing to acquire a black-owned company[2]. This appeared to contradict a new clause in the amended competition law that the regulators must prioritise ‘the promotion of a greater spread of ownership, in particular to increase the levels of ownership’ by HDPs and workers.[3] The Competition Commission consequently rejected ECP’s countervailing proposals. These included increasing procurement from B-BBEE-approved suppliers by 40%, setting aside 5% of shares in the new entity for B-BBEE, and investing USD40 million to employ more HDP staff and grow Burger King SA’s outlets by 117% within five years.[4]
Now, the Competition Commission has endorsed the acquisition request because counterparties have agreed to sell GPI’s Grand Foods meat plant, the franchise’s main supplier, to a black-owned company as part of a revised deal to improve benefits for HDPs and Burger King SA employees. The Competition Tribunal is presently reviewing the request based on the revised terms. While this specific decision is pending, the political and institutional orientation appears settled.
Trade Minister Ebrahim Patel championed amendments to the competition law to promote black economic empowerment and employee participation, at a time when he was the minister for economic development. A former labour leader, he remains particularly inclined to advance conditions for HDP and workers during competition regulation, such as a shareholding arrangement where workers are empowered to appoint board members as in the merger between PepsiCo unit Simba and Pioneer Food in 2020. Labour leaders have spoken to us about him favourably, and sources indicate smooth cooperation between the Trade ministry and the Commission on policymaking.
Outlook – Overarching priorities
South Africa has a proven framework for impartially resolving disputes related to competition regulation. In February 2020, the Competition Appeal Court overruled the Competition Tribunal, which had affirmed the Competition Commission’s decision to block a merger between health firms Mediclinic and Matlosana citing adverse impact on the competitive environment. However, policymakers will continue to favour deals that most advance conditions for HDPs and employees while contributing to a greater spread of HDP ownership in the economy. For instance, employees in the successful PepsiCo/Pioneer merger gained a 12.9% stake in the successor company through a new BEE employee share ownership scheme.
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[1] 2019/2020 annual report (January 2021). Competition Commission.
[2] GPI is majority black-owned
[3] Competition Amendment Act 2018 (February 2019). Government of South Africa.
[4] Competition Commission decision (June 2021). GPI.
*Photo credit: Burger King. Ismail Hadine. @prince_1sma
**Additional text inserted to introduction after publishing (same day) adding detail to timeline of events.
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