Takatso eager to take control of SAA, ‘engaging’ with minority shareholders

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RYK VAN NIEKERK: The Competition Commission approved the deal through which the Takatso Consortium [was] said to acquire 51% in South African Airways earlier this month. The consortium consists of Harith General Partners, Syranix and Global Aviation. Harith is the largest and controlling shareholder, while Syranix and Global Aviation are minorities. One of the conditions set by the commission for the transaction is that the two minority shareholders must sell their shares in the consortium.

The reason for this is that Syranix and Global Aviation also have an interest in the airline Lift, and the commission is concerned that Lift could access sensitive information from SAA through their shareholding in the Takatso Consortium.

Shortly after the announcement I spoke to Gidon Novick. He was on the Takatso board and represented the minority shareholders, but resigned last year because he believed the board did not share information about the negotiations with government, with him and therefore per definition the minority shareholders.

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He’s also the co-founder of Lift and would’ve provided the technical expertise to get SAA off the ground. From this interview it was clear that the minority shareholders were not impressed, and said they were never informed of the condition that they must relinquish their shareholding in Takatso for the deal to go through.

Tshepo Mahloele is the chairman of both Harith and the Takatso Consortium. Tshepo, thank you so much for joining me today. Before we discuss this situation with the minority shareholders it must have been a big day for Takatso when this announcement came. Are you and government on the same page, as I believe there has been some tension between the parties since when it was announced about 18 months ago in the run-up to the approval.

TSHEPO MAHLOELE: Having been through the process of the Competition Commission, sharing with them everything that we needed to share through that investigation to make them comfortable about all the investigation they needed to do, I think it was a big relief to get that go-ahead from them.

It’s an institution that’s important for the country in terms of ensuring that there’s enough competition in the marketplace to ensure that we get new players in the marketplace, and then to ensure that there’s still better value for money for consumers going forward.

So for us it was a very good outcome.

We were very happy, knowing the type of plans that we hope we are going to make and bring to bear with the new SAA.

RYK VAN NIEKERK: When we spoke last, I sensed that there were some tensions between Takatso and government, one being that it was taking so long to get the final approval and getting access to certain of the operational information and financial information from SAA, which I believe you weren’t privy to at the time.

TSHEPO MAHLOELE: The process has taken long. It was a very stressful process. But besides being stressful, you can imagine a very expensive process. Besides expensive, you can imagine the long it takes the most stressful it is, also with regard to the anxieties which go with it, with regard to the noise about the whole thing, and our inability to address all the issues that one would love to address about this transaction.

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So in that respect it was not a very comfortable position to be in as a group. But we are now approaching the stage where the line of sight to the end is very close. We are comfortable that from a government point of view side there’s progress with the financials of the underlying entity in terms of those being addressed, that they are doing that. [It’s] not yet finalised but we know that the line of sight is very clear.

We can now move forward with regard to starting to address issues of some of the licensing that we need to apply for.

We can now also move forward other activities to which prior to now we couldn’t give the type of attention that we needed to. So in that regard we are feeling much more relieved that we can now put shoulder to the wheel.

RYK VAN NIEKERK: So it’s a done deal. Have you signed the final agreement?

TSHEPO MAHLOELE: No, not yet. We’re still going to the tribunal. There will be some other [conditions] in terms of what comes out of the transaction. As you know, we have now been taking over an asset that started operating, as opposed to when we started negotiations, and it wasn’t an operating asset.

It was an asset that was in the business-rescue process. There are adjustments that have to be made in this regard that we have to talk about.

So in all these issues there are nuances which have crept in, which we may have made provision for in the initial discussions in the initial documents that have to be looked at. So in that regard we have to do that. The market was a very different thing, so we have to sort out one or two issues. But from an understanding point of view, I do not think that we have any deal-breakers that we can see at this moment in time.

RYK VAN NIEKERK: According to the original agreement, Takatso needs to supply operating capital of around R3 billion while the government needs to pay off the historic SAA debt. Will that happen? Is that one of the issues of concern?

TSHEPO MAHLOELE: I think from our side it’s not a concern. We are geared up to bring this capital to SAA. It sorely needs it to be able to be competitive. We know that many people have been worried about this happening. The truth of the matter is that now how do you close a deal if that doesn’t happen. So that will happen.

The capital gets to ensure that the new SAA is able now to be properly capitalised to go forward and be successful.

We need to be circumspect in this regard. This debt was the debt which was in business rescue – it was ring-fenced. It has to be wrapped up there be dealt with. It’s not that which is part of the current entity now and unless you deal with that you don’t know what else will come out. So from a sustainable entity going forward, I think it’s only fair that that process is properly wrapped up, so that you don’t one day have an entity that’s running, and then you get your whole service messed up going forward. So I think wrapping up that process nicely and cleanly is key to a clean airline starting up.

RYK VAN NIEKERK: So when do you think all of these boxes would be checked to sign the final agreement, and then to become operationally involved?

TSHEPO MAHLOELE: I would hope that we can wrap this up – and I’m going to give myself a range to be really fair to myself. Things happen. This is Mzansi, as they say, you know [laughter].

RYK VAN NIEKERK: Absolutely.

TSHEPO MAHLOELE: So we have to give ourselves a bit of a range. I’d say somewhere, Ryk, between October and February 2024 this should be clearly wrapped up. To the extent that we can do it before this calendar [year] is out, I think better for us we can start dealing with the coming down of the market, and then the entity, and then the people working there, and then start giving them an airline that has a great future ahead of it, we believe.

RYK VAN NIEKERK: Let’s talk about the minority shareholders – Global Aviation and Syranix. What stake do they hold in the Takatso Consortium?

TSHEPO MAHLOELE: There are actually two entities, Syranix and Global, and each holds 10%. So it’s a 20% shareholding within the consortium.

RYK VAN NIEKERK: Now they are unhappy, they believe they were not consulted about this concession – that they need to relinquish their shares as one of the key conditions of the commission’s approval of the deal. What is your take on their position?

TSHEPO MAHLOELE: I think at this moment I will not talk about that issue, whether they were consulted or not. I do know that there were discussions between the commission and us, the discussions between the commission and everybody else involved in the transaction. However, post the commission coming out, I have sat down with Gidon [Novick], and we have agreed to address the issues of the commission in terms of seeing how we sit down and address what the commission has raised.

So we, he and I, are currently in discussion to see how we address those concerns, so that there’s a clear way of moving forward. And those discussions are very cordial in terms of moving forward.

RYK VAN NIEKERK: It seems a pretty simple scenario. Either they sell their shares or they don’t, and if they don’t it’ll definitely impact the future of this deal.

TSHEPO MAHLOELE: You are probably right. We are in discussions. I do not want to pre-empt anything.

All I can say is that between ourselves right now as shareholders we are sitting down and very eager to ensure that we can respond to the commission in a manner that ensures that the South African public is not deprived of a viable and thriving aviation industry.

So we are committed to finding a way of moving forward.

RYK VAN NIEKERK: Was it not a condition of the original agreement that Takatso supply technical aviation expertise to a new SAA, because if there is a disinvestment from Global Aviation and Syranix you won’t such skills within the consortium? Was that a condition at the start of this whole process? And if the condition is met that they divest, what would you do to supply those technical skills?

TSHEPO MAHLOELE: It was not a condition that Takatso should have technical skills. The consortium would be structured in such a manner that it would be able to respond to acquiring SAA. The strategy would’ve been holistic in whatever way it was going to do that.

We also knew that SAA had management, but in that the consult was going to come with its own management with technical skills. To that extent, and even within that, you can imagine that there’s a whole host of other permutations which can involve professional management, which can involve other partners coming in – [including] international, if you look at the competition issues.

There’s a whole host of other different permutations to look at in this regard. So, I am quite confident that, in that regard from a technical point of view to the extent that we have to satisfy the Competition Commission, the technical aspect of ensuring that SAA is appropriately resourced – or that Takatso is appropriately resourced – would not be an issue at all.

RYK VAN NIEKERK: So everything is, according to you, still on track. You are still waiting for some approvals and licences. And once those are in place you will take SAA, and take it to new heights. That’s still the plan?

TSHEPO MAHLOELE: We are working very hard at that. We are still committed to it. We still believe that, if you look at what is happening out there in terms of offerings to the customers locally and internationally, that is still available.

There are some market commentators who believe that – with the mentioned capacities coming in of the other current operators – that window is closing. We believe that if you look at this in terms of the capacity needed over the next three to five years, that opportunity still very much remains alive.

RYK VAN NIEKERK: Did the fact that SAA restarted operations following its business rescue process change the business case at all?

TSHEPO MAHLOELE: We can say yes, if I’m to be transparent in that regard. The way we looked at it then is very difficult for the partners, as opposed to the way we are looking at it now from a market-opportunity point of view. So there is some change in terms of the way we are looking at it, yes. And the market has changed …

RYK VAN NIEKERK: I know you fly a lot. Do you fly SAA when you travel domestically?

TSHEPO MAHLOELE: [Laughing/coughing] For sure.

RYK VAN NIEKERK: And are you happy with the service you get on the planes?

TSHEPO MAHLOELE: I’m very happy with the service and, if it’s not up to scratch, I do communicate with the people on board: ‘How about this?’ or ‘How about that?’ But I know that they’re working very hard at what they’re doing. It’s a very warm and fuzzy sort of service that they’re offering, and [I’m] looking forward to also be a colleague soon.

RYK VAN NIEKERK: That was Tshepo Mahloele, chairman of Harith and the Takatso Consortium.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.

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