Pretoria - The Southern Palace Group was on Wednesday grilled by the Competition Tribunal about the five-year restraint of trade proposed in the transaction to acquire the infrastructure and building platform of listed Murray & Roberts (M&R).
The tribunal also raised questions about the reason to link the restraint of trade to Southern Palace being a black-owned company when it was a successful firm and had the ability to stand on its own feet.
Southern Palace chief executive Lucas Tseki said the company had been around for almost 20 years, but had not taken operational control of the businesses in which it had invested in the past.
“This is the first investment where we are now responsible for the control of the business and for the capital allocation and all the important decisions,” Tseki said. He said the restraint of trade was justifiable given the nature of the projects the platform was involved in, some of which had a duration in excess of eight years, such as the Medupi and Kusile power projects.
Tseki said the third rationale for the duration of the restraint of trade related to the 100-year-old M&R brand.
He said it only had the right to use the M&R name for one year after the closing of the transaction. “We cannot place ourselves in a position whereby the same seller who sold us this business can quickly hire a number of project engineers and potentially compete with us.
"They have the history, the trademark and the name, which gives them the ability to do that. That was another key commercial consideration that we had to take into account,” he said.
Ahmore Burger-Smidt, appearing for Southern Palace, added that the determination of the restraint of trade period was underpinned in the discussions around the detailed financial modelling in assessing the recoupment period for the investment made by the group.
Burger-Smidt said this initially showed that Southern Palace should have requested a far lengthier restraint of trade period, but it was conscious of competition regulations and agreement was reached on a five-year period.
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She said through this transaction a black industrialist was, for the first time, entering the construction sector but had not approached the tribunal to approve the transaction only on the basis that it was a wholly-owned black entity.
From a competition perspective, a new entrant was being introduced that would enhance competition in a highly concentrated market, she said.
Zintle Siyo, appearing for the commission, said the primary acquiring firm was Firefly Investments, which was controlled by Southern Palace with its 75 percent shareholding in Firefly. The remaining 25 percent shareholding in Firefly is owned by the Government Employees Pension Fund.
Shareholders in M&R approved the disposal of the platform to Southern Palace for R314 million in December.
Siyo said a section of the Competition Act required the commission to consider the effects of a merger on the ability of firms owned or controlled by historically disadvantaged individuals to be competitive.
The commission found that the duration and scope of the restraint was reasonable and commercially justifiable.
The tribunal approved the transaction without conditions.