The Ministry of Public Enterprises of South Africa has announced termination of the agreement with Takatso for the sale of 51% of South African Airways (SAA).
DPE says: “Over the past 3 years, the Department of Public Enterprises and Takatso Consortium has been negotiating the transaction to sell 51% of SAA. We regret to announce that both DPE and Takatso agreed that negotiations on the transaction have been terminated as there was no agreement on the revised transaction structure. This arises largely from a new business and asset valuation undertaken by professional firms.”
According to the DPE, it has been agreed that “the engagement with Takatso has ended, and that there will be further steps taken both by this 6th administration and the 7th administration, to stabilize SAA.”
According to the statement from the DPE, three key areas that needed to be noted as at the time Takatso was considered as the preferred equity partner were “SAA is a public asset that has grown in value between 2019-2024, recognizing that it is a public asset and that any sale of shares has to be at a fair market value and thirdly, the process must result in the sustainability of SAA and its growth, in terms of its aircrafts and routes that it needs to fly.”
However, three years ago, a valuation of SAA’s business and assets had been reached, circumstances have now changed – prompting a disagreement on the revised transaction structure.
The airline had undergone business rescue, battled through being grounded and was facing serious challenges following the COVID-19 pandemic. However, in the last year three years it became clear that the market conditions have changed, the economy had improved, the demand for flying had increased formidably and this required that a new valuation be done.
Currently, “the business valuation came out at R1 billion and the property valuation at R5.5 billion. This meant that there was a net increase in the property by R3,1 billion in the value of SAA. The equity value had increased from 0 to R1 billion.”
According to the DPE, “It took almost a year for the Competition authorities to approve the transaction. The Competition Tribunal approved the transaction subject to certain conditions including the divesture by Takatso of its minority shareholders, before the implementation of the transaction. It became clear in the negotiations that the revised transaction structure must take into account public interest and fair market price.”
However, these requirements were not met in the renegotiations. As a consequence, “a mechanism to terminate the Sale of Shares Agreement by mutual consent in terms of clause 10.1.1 of the Agreement was put into effect. It was then decided late last week that there was no purpose in continuing with further negotiations.” And it was decided that “SAA will revert to be 100% owned by the State and that a corporate plan needs to be devised by the board and the management of SAA. The new corporate plan will embrace more routes and more aircraft. In order to support these next steps an aviation strategy advisor will be brought to support the Board and management.”
The Board needs to be strengthened further. The South African DPE expressed their confidence that “SAA will continue to fly and grow in terms of the number of routes and aircraft that it is able to lease. Furthermore, a new form of raising finances on the basis of the assets of SAA will be explored with financial institutions.”