Global Aviation Operations and its partner Syranix, the minority shareholders in the Takatso Consortium that is acquiring a 51% stake in SAA, are said to have placed a R1bn price on their start-up airline Lift for it to merge with the restructured national carrier, and also sought management control of the future merged airline.
When this and requests for access to confidential information were rebuffed, Gidon Novick resigned from the Takatso board, saying they were kept in the dark by majority shareholder and funder Harith General Partners regarding the process of securing the R3bn to be injected into the new SAA as part of the acquisition process.
Harith is an investor in infrastructure on the continent and has a stake in Lanseria Airport. Global is an aircraft-leasing company.
Business Times spoke to several people privy to the deal who said while initially there was understanding that Lift would be merged with a future SAA, things turned sour when Novick and his business partners set an astronomically high price on their start-up airline, and further demanded management control.
“They wanted north of a billion for a company with two leased assets," said a source, referring to the two aircrafts Lift has leased for its domestic carrier operations.
Syranix and Global, who run Lift as a joint venture, are said to have approached SAA to seek a code-sharing agreement without the knowledge of the other partner in Takatso, a move that did not go down well with the majority shareholder.
Responding on Friday, Novick denied they had valued Lift at more than R1bn during merger talks.
“At the start of the discussions we looked at a few possibilities and one of them was a merger of the companies. But it never reached a stage of evaluation because it was certainly premature back then. Given the complexity of the (SAA) deal, we haven't crossed that bridge. Lift is a pretty new business, it's not something we want to put into the market,” he said.
On their request for management rights, he said that from the beginning Global Aviation’s involvement in the consortium was about providing skills and expertise in the management of airlines.
“Syranix has skills across various areas of airline management, revenue management, marketing, sales and customer support. It was never a demand but always an offer that we made available. We have the skills and capabilities and if SAA needs them we are happy to assist. If it’s not needed, it’s also fine. As shareholders we want it to be successful.”
Announcing his resignation this week, Novick said he was leaving as a director due to concerns over the ability to fulfil his fiduciary responsibilities as a director of Takatso “given a lack of information and communication”. He cast doubt on the consortium’s ability to secure the required R3bn.
Responding to his resignation, Takatso cired “an inherent conflict on interest” in relation to the transaction.
An executive with insight on the deal said it was not true that Novick had been kept in the dark. “Takatso kept Mr Novick up to date on the progress of the transaction even to a point of informing both parties, Syranix and Global, of when the transaction was in May filed with competition authorities.”
Syranix has skills across various areas of airline management, revenue management, marketing, sales and customer support. It was never a demand but always an offer that we made available
The Takatso Consortium was announced 18 months ago by the department of public enterprises as the strategic equity partner chosen to take a 51% stake in SAA. The government will retain 49% while the consortium puts up the R3bn required to acquire SAA. Completion of the deal hinges on the government settling R3.5bn in historical SAA debt owed to creditors and compensation to holders of tickets that could not be used before SAA went into business rescue. Approval by competition authorities is also required.
Finance minister Enoch Godongwana didn’t announce the R3.5bn allocation in his medium-term budget policy statement last month, something that has frustrated Takatso shareholders as it adds to delays in concluding the deal.
Business Times has been told, however, that Novick and his partners have not been co-operating with the competition authorities’ approval process because competition laws would prohibit directors of Lift from taking up management roles in SAA as the two airlines are direct competitors on domestic routes.
Lawyers are said to have advised that Novick would have had to resign as a Takatso director for the deal to be approved.
“Building up to submitting information to competition authorities, our lawyers said they can’t be involved, there has to be a Chinese wall,” said another insider.
Novick told Business Times he wasn’t aware of this. “I don’t know where they would have communicated that, certainly not to us.” He said they were co-operating with the Competition Commission, which had sent questions mostly related to the background of the business, and he was responding to them.
It is understood that the conflict of interest was identified earlier on in the transaction and an agreement reached that Global/Lift not be directly involved in the transaction and also not have access to market-sensitive information.
Grating Novick and Syranix management rights after the takeover would have allowed them access to information of a competitor, said an executive who asked not to be named.
On the code-sharing agreement, Novick admitted they had sought one with SAA because airlines co-operate in various areas, such as maintenance.
“Those arrangements are normal. Lift and SAA have some arrangements [which are] operational collaborations between airlines. It’s part of the airline industry.”
Takatso spokesperson Khaya Buthelezi told Business Times the consortium was made aware of Novick’s approaches to SAA.
“Our legal advisers are assessing the impact of this on the competition approval process,” he said.
But Novick repeated his earlier assertion that Takatso consortium members had not responded to their request for meetings for six months. “As a director, you just can’t be kept in the dark on key issues. So, it just made sense to resign. We still have a strong interest in the deal going through, we just need to know what's going on."
Novick said it doesn't serve anybody's interest to have a lack of transparency. "SAA is still a public entity and the public needs to be updated,” he said.
Buthelezi told Business Times Novick was always aware of the need to adhere to the conflict-management strategy Takatso put in place considering he’s a competitor to SAA.
“In terms of the update, Mr Novick has been kept up to date on the progress of the transaction as required,” he said.
Novick said he got contacted by the department of public enterprises to get involved in the process of rescuing SAA and saw this as an opportunity to help. “I've been involved from the start. In fact, Lift initiated the whole transaction with the department.”
The department issued a statement on Friday reiterating its commitment to the deal and condemning “the deliberate misinformation and casting of doubts about the transaction and regulatory processes” since the resignation of Novick.
“This distortion of facts will not succeed in derailing the creative solutions to ensuring a positive future for the airline and its pilots and staff,” the department said.
Buthelezi said Harith had secured its portion of the funding and that third-party funding would be released only “upon satisfaction of all suspensive conditions”.
Asked about the way forward since Global and Syranix remained minority shareholders in Takatso, Buthelezi said it was business as usual. He said the shareholders would discuss how to take things forward, including nominations to replace Novick.
Updating on how far they were in assessing the deal, Competition Commission spokesperson Siya Makunga said the commission had an initial investigation period of 40 days which can be extended by up to 15 days at a time until it concludes its investigation. "In this matter, the period expires on December 15," he said.
“This is a complex merger and involves extensive consultation and a wide range of stakeholders and interested parties,” Makunga said.
Editorial note: The Takatso Consortium is majority controlled by Harith whose Executive Director, Tshepo Mahloele, is chairman of Arena Holdings, our holding company. Over the past three years we have consistently disclosed this relationship to our audiences and are satisfied that it is now a commonly known fact in the market.
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