SAB's BEE deal. There were some deals that really worked for me, this was one (Dec 2009)

 The original post is at the bottom of this post.  It's probably posted somewhere else on this blog.

But old Udge (Ajay Lalu) still has a moustache.  Nowhere near as good as the one he had back then.  

As I used to say - BEST BRISTLES IN THE BUSINESS

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It's made the press again -in fact it's made a lot of press.  I was referred to the Business Day report by Robert Simmonds.  This report concentrated on the beneficiaries, 20% of whom are SAB's lower paid white employees.  And once again Mr Obvious (one Ajay Lalu) is asked for his opinion - to which he replies  “Unfortunately, according to the codes of good practice, white beneficiaries don’t qualify,”  Er....... tell us something we don't know Ajay.  So what if they don't get any points for this deal - what SAB hopes to achieve is the financial independence of their staff and sundry other players.

And then not to be outdone ol' Aj "criticised the fact that there was no guarantee on the value of the stakes at the end of the 10-year lock-in period."  He might have been taken a bit out of context here so I'll cut our hero a little slack - but just in case AjLal is not that clued up about these things I'll explain it for him.  RISK AND REWARD OLD MAN, CAPITALISM IS ALL ABOUT RISK AND REWARD.

I've blogged about the SAB deal before

SAB is a fascinating deal, it stands out as the only one where the business reasons are so apparent.   We know that the Western Cape is clamping down on unlicensed taverns and 70% of SAB's turnover comes from unlicensed taverns.  Here is SAB staring at the potential demise of their biggest channel unless they do something.  Sheer brilliance, if I may use such a superlative.

And I still think it's the best deal done so far, in spite of what Fawu says.  Let them strike I say - just make sure that you suck on Windhoek Lager at the end of the day of hard toyi-toying.

AND HERE IS THE POST I REFER TO 

July 27, 2009

Let's do it, let's do a deal.  The question is what is the common feature between all these companies - SAB, Spar, Massmart and Woolworths.  It can't be retail because of SAB.  The answer has to be liquor licences.  I once asked Massmart a few years ago why they were so concerned about BEE when they were a retail company - the answer was licquor licences. 

SAB is a fascinating deal, it stands out as the only one where the business reasons are so apparent.   We know that the Western Cape is clamping down on unlicensed taverns and 70% of SAB's turnover comes from unlicensed taverns.  Here is SAB staring at the potential demise of their biggest channel unless they do something.  Sheer brilliance, if I may use such a superlative.

And Spar?  Your local Spar sells wine and if you head out to Gateway in Durban looking for whiskey, you'll find it at Tops Liqour Store - which forms part of the Spar Group.  Spar has announced their BEE deal - no surprises here. 

Why then is the liquor industry different to the minerals industry when it comes to licenses?  Simple - liquor licences are controlled by the DTI.  Take a look at the requirements here. And if you consider that the BEE Act is theirs too, then of course they are going to use those principles.  I would suggest that the operative clause is section 10 of the Act

Every Organ of State and Public Entity must take into account and,as far as is reasonably possible, apply any relevant code of good practice issued in terms of this Act in –

•  Determining qualification criteria for the issuing of licenses, concessions or other authorisations in terms of any law

This highlights the essence of empowerment and the private sector.  The best way for the government to force compliance is to do it through the issuing of licences and concessions.  This is the measure of BEE deals in the retail sector.  A recent FM article notes that Clicks Group, Lewis, Shoprite, JD Group, Foschini and Truworths haven't done BEE deals at the equity level.  Other than Shoprite, which of those needs a licence to operate?  Is the black ownership of Truworths significant to the consumer who want to buy a pair of shoes?  The answer is no.   And then again what does Shoprite know that the other don't; have they managed to convince the DTI that the balance of their scorecard is acceptable. 

A Business Report article published just after the Spar deal laments the slow pace at which the retail sector has been doing deals.  I found this paragraph the most interesting

Retail analyst Syd Vianello from Nedcor Securities warned that at some point the government would force companies to put black economic empowerment (BEE) schemes into place.

My immediate reaction is how are they going to do this?  Are they going to legislate like jungle and Peter Vundla have suggested.  Or does Syd know something about the constitution that I don't because if you legislate then you'd better start amending a few sections. 

And as a predictable postscript - why is it that ownership is still the only measurement for empowerment?