News

UNI affiliates in South Africa are concerned at a wave of private equity buyout activity in their country.

Globally private equity funds have a war chest of $500bn to spend and South Africa is in their sights.

Affiliates intend to raise the private equity issue with union centre COSATU and the South African government to kick off a public debate.

As controversy rages over private equity buyout deals in South Africa, Minister of Finance Trevor Manual, said: "Am I on a rooftop with a trumpet, inviting them? No, clearly not. You can't wish them away."

But, in an important development, the tax service has issued a statement that would exclude mergers from tax benefits. This could cost the Shoprite Checkers deal 1.6 bn rand.

“Private equity is racing up the global union agenda,” said UNI General Secretary Philip Jennings. “We are committed to working with our affiliates in South Africa and around the world on private equity. Last year saw record buyout activity and unions and workers everywhere are faced with its continuation in 2007.”



Bones Skulu, General Secretary of commercial workers’ union SACCAWU, said that more than 100,000 workers in the South African retail sector are subject to private equity buyouts. Two household names in South Africa - Shoprite Checkers and Edgars - are subject to buyouts.

Bones explained that they found out about these aggressive bids through the media. There has been no outreach from private equity. There are no commitments on jobs or on future investment and they have no idea who the ultimate owners will be. SACCAWU will oppose the two buyouts.

While UNI General Secretary Philip J. Jennings was in discussions with SACCAWU at their offices, a 100-page document from the Ministry arrived, which raises more questions than it answers.



The purchase of Edgars will be conducted through a vehicle known as Main Street 522, which has an address in Johannesburg and Luxemburg and claims to have just one employer. It would appear that Bain Capital of the USA is behind the buyout. UNI has approached Bain, encouraging them to meet with SACCAWU.

Keith Jacobs, Deputy General Secretary of CEPPWAWU, says that almost each week news of a buyout reaches the union. The latest buyout candidate is Consul Glass, which employs 1,200 staff. The Competition Commission documents confirm that the private equity buyout firm is Brait, whose registered address is the Cayman Islands.



There have been indications that the Ministry of Finance is concerned at private equity activity in South Africa.

In his budget speech on 22 February 2007 Finance Minister Trevor Manual cracked the whip on financial crime and asked that fiduciary and trusteeship responsibilities receive the highest priority in the oversight activities of regulators. He observed that abuse of stewardship obligations should not be allowed to violate hard earned democracy or the integrity of the country.

Business Day newspaper reported (21/02/07) that the government has voiced displeasure about how private equity deals rob the country of tax revenue. The concern arises because as in the Edgars case, a large portion of cashflow will be used to repay the loans taken out by private equity buyers - loans that are mostly sourced from overseas banks.

There has been speculation that a non-resident tax on interest payable to foreign loans made to non-governmental organisations is in the pipeline.