JSE-LISTED Grand Parade Investments (GPI) was dealt a major blow yesterday after the Competition Commission shot down a deal, which has been more than a year in the making, whereby Emerging Capital Partners (ECP), a private equity fund intended to acquire Burger King SA and Grand Foods Meat Plant (GFMP) from the investment holding company that operates in the food and gaming sectors.
The commission found that the merger would lead to a significant reduction in the shareholding of historically disadvantaged persons (HDPs) in the target firm, from more than 68 percent to 0 percent as a result of the merger.
GPI entered into talks on February, 18, 2020 to sell its 95.36 percent stake in Burger King SA and the 100 percent stake it holds in GFMP to ECP.
The agreement was supposed to be finalised by June, 30, 2020, but on July 29, GPI said the terms of the sale had been renegotiated after Covid-19 wiped off about R100 million of the value of Burger King SA (BKSA).
In February this year, GPI finalised the deal.
While it originally agreed to sell Burger King for R670m, this was lowered to R570m due to the impact of Covid-19 on the business.
It also reduced the price tag on its GFMP to R23m from R27m previously.
While the commission found that the proposed transaction was unlikely to result in a substantial prevention or lessening of competition in any relevant markets, it was concerned that the proposed merger would have a substantial negative effect on the promotion of greater spread of ownership, in particular to increase the levels of ownership by HDPs.
“The acquiring firms have no ownership by HDPs.
“Thus, as a direct result of the proposed merger, the merged entity will have no ownership by HDPs and workers … thus, the proposed merger cannot be justified on substantial public interest grounds,” it said.
BKSA did not turn out to be the golden goose GPI expected when it bought the franchise in 2012 and ended up on the whole knocking its earnings, leading to the firm’s decision to sell the fast food franchise.
However, in GPI’s results for the six months to end December, it said BKSA had increased its revenue by 7 percent to R676.4m, with average monthly restaurant revenues increasing by 1.3 percent.
The group increased Burger King restaurants to 102 restaurants, up from 97 compared to a year earlier after opening seven new restaurants and closing two non-profitable restaurants.
GPI’s shares closed 3.23 percent lower at R3 on the JSE yesterday.