public Minister of Enterprise Pravin Gordhan announced on Wednesday afternoon that the sale of a 51% stake in South African Airways (SAA) to the Takatso consortium has been called off.
This comes almost three years after the consortium was announced as the preferred bidder to acquire the airline for R51 (implying a total valuation of R100), and has vowed to keep the details of its deal with Takatso confidential. This was achieved after a fierce struggle by Mr. Gordan.
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“Takatso was expected to inject R3 billion into the business, but that hasn't happened yet,” he said.
Although SAA is once again fully state-owned, Mr Gordhan said its future operations would not be funded by taxpayers. The company plans to consider various other financing options to expand its business, including expanding its route network.
Mr Gordhan explained that the original deal took place at a time when SAA had just emerged from business rescue in the aftermath of the COVID-19 pandemic and was not operating at the time.
At that point, the company's assets were valued at R2 billion, the liquidation value of the estate, which was “not a lot” for the business.
Since then, the airline has resumed operations and added routes. A new valuation was carried out at the end of last year, putting the value of the business at R1 billion and the value of assets at R5.5 billion.
Read: Pravin Gordhan’s legacy
The government began renegotiating the deal with Takatso, but late last week both parties agreed that the deal needed to be terminated.
gordan We submitted this to the Cabinet on Wednesday morning and received the green light to carry out the cancellation.
He said SAA could survive for the next 12 to 18 months and that there were various other ways to raise immediate funding, “but it is unlikely that SAA will receive funding from the Treasury in the coming months.” I don't know yet if I can do it.”
Gordhan, who previously announced he would retire from politics after the May 29 election, said the government and the new administration would consider various ways forward, including code sharing, partnerships and equity partners. He said it was possible.
He assured SAA staff that their jobs are safe.
Mr Takatso could not allow renegotiations to be 'protracted'
Following Gordhan's announcement, the Takatso Consortium said in a statement: “In 2021, Takatso announced its interest in acquiring a controlling stake in SAA at a time when market conditions were favorable and the airline industry was bracing for opportunities for recovery – the pandemic.
“However, it has always been clear in our analysis since then that the opportunities presented by the market conditions at the time are limited in such a competitive market and that time is of the essence in seizing them. At the time, SAA, which had ceased operations under business rescue, had ambitions to restart operations.
Approximately six months ago, the company announced that “SAA is in a position to restart operations and the very different dynamics at the time, including the reality that SAA is no longer in the position of business rescue as it was when the deal was first discussed and negotiated.'' Recognizing that,” he said. The parties “agreed to re-evaluate the transaction structure and the current value of SAA and resume negotiations.”
“Despite the fact that both parties had already signed a valid, binding and enforceable share purchase agreement in February 2022, Takatso is committed to finding a solution and will ensure that a solution “We have agreed to this renegotiation in good faith because we are determined to find the best possible solution for SAA.”This transaction will continue to be based on fairness and recognition of SAA's strategic value.
“These negotiations have been protracted and the resulting revised deal structure has created an unacceptable level of risk and uncertainty,” the report said.
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“Given the scale and significance of the proposed changes, this transaction may need to be resubmitted to the competition regulatory process, which would add further complexity and make the process even longer. It also became clear that there was a possibility.
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“Takatso has therefore concluded that the amended terms and conditions are no longer in the best interests of its stakeholders, particularly in light of the further closing conditions that have yet to be fulfilled. These include the hassles imposed by the Competition Tribunal. These include the terms of the sale, the need to obtain necessary legal and regulatory approvals, and the repeal of the SAA Act, which was withdrawn from parliament last month.
“These conditions are unlikely to be significantly brought forward or met by March 31, 2024. “The agreement is the latest in a series of extended suspension dates that have been extended multiple times over the past two years.”
“The terms of the proposed amended transaction are not workable for Takatso. Under the circumstances, we cannot allow this process to drag on.”
what the prosecutor says
DA Alf Ries, a member of the Parliamentary Standing Committee on Public Accounts (Scopa) who has been fighting for transparency in transactions since 2021, said that the secret deal between SAA and Takatso was a bad deal between Japan and the US. He said that failure is inevitable given the The beginning.
“Taxpayers assumed all of SAA's massive debt of approximately R15 billion, leaving SAA debt-free and with substantial assets, including well-regarded brands, likely to be worth more than R7 billion. .
“For 51% of this debt-free SAA to be sold for R51 is outrageous and is like a slap in the face to the taxpayers,” Mr Lees said.
“SAA currently has huge losses amounting to approximately R760 million in the first three quarters of this year. This incompetent SAA management will continue to cause these huge and continuing losses and cost further taxpayers money. It will lead to salvation.
“There is no strategic need for a national airline that would divert limited national funds from the dire need to stimulate economic growth.
“SAA needs to be carved out and sold. The aviation industry is recovering and a willing private buyer should be easy to find.”
Mimy Gondwe, the shadow minister for public enterprises, said the cancellation was not surprising and had been shrouded in secrecy, making proper parliamentary oversight impossible.
SAA is a public institution and the public has a right to transparency, she said.