BEE deals still on the rise at R24bn

The value of announced BEE deals last year was up 9% on 2009, according to my analysis of Who Owns Whom's Takeover Talk. About R24-billion in BEE deals were announced last year, R2-billion more than in 2009.

The figure would have been higher had it included the R1.6-billion raised in last year's Optimum Coal listing on the JSE, or even better the R8-billion market capitalisation of the company. As a black-controlled group, Optimum Coal is a rarity on the JSE.

The company also boasts on its website: "50 million of the company's shares are owned by its employees and the local community, with extensive social investment and enterprise development programmes being rolled out on a daily basis. An unencumbered shareholding in Optimum Coal Holdings has been allocated to the Optimum Employee Benefit Trust and Optimum Community Trust at no cost to the trusts."

Capital-raising exercises were deliberately excluded. The focus was instead on the traditional definition of a BEE deal - acquisition of a stake in a company by a black-owned or black-empowered company.

Two deals accounted for R17-billion of last year's announced deal value: one of the most broadly based BEE deals yet, and one that taints empowerment in the minds of the public.

The MTN Zakhele retail share offering proved popular, raising R2.78-billion from the black public, but was worth R8-billion. The widely questioned acquisition by the Ayigobi consortium of a stake in steel firm ArcelorMittal South Africa was put at R9-billion.

The ArcelorMittal deal involved Duduzane Zuma, a son of President Jacob Zuma, and the Guptas, an Indian family close to Zuma, and attracted criticism on the basis of perceived cronyism. Cosatu, for instance, called for the renationalisation of ArcelorMittal, which was formed out of the privatised Iscor.

What should also have been of concern about the ArcelorMittal deal was that it reversed a trend for big deals to be overwhelmingly broad-based rather than ones that enrich a few politically connected individuals.

The MTN Zakhele deal appeared to be a good bet for those who could participate, despite increasing competition in the cellphone market with the entry of Telkom, though there are always risks involved with any investment.

Another sizeable deal that reversed the broad-based trend was the buyout by Shanduka Resources, a subsidiary of Cyril Ramaphosa's Shanduka Group, of tens of thousands of "distressed" shareholders who owned stakes in platinum empowerment company Incwala, for about R2.8-billion. Shanduka received a majority stake in platinum mine Incwala Resources.

Ramaphosa's reputation and involvement in uplifting black South Africans deflected potential criticism about the deal involving one of the "usual suspects".

As with the calculation of the 2009 figures, BEE "exit deals," where beneficiaries received shares or cash in lieu, were not included. One such notable deal was the conclusion of the Brait deal. Last year the financial services group bought back the 26% of Brait South Africa it had sold to empowerment partner Sitogo in September 2004 as part of its BEE transaction.

The total value of the stake was R170-million, but Sitogo and Old Mutual, as the financiers, were due to get an estimated R142-million, a large part of which would be for the empowerment partner. Brait, credited with empowerment points for the deal for two years, now has to look for a new empowerment partner.

The unwinding of previous deals has two effects: it directly enriches a number of black South Africans, who can now get the full benefit of the shares they were locked in to holding, and it means that new BEE deals must be on the horizon.

Looking at the table of top 10 deals, it is obvious that minerals legislation and the mining charter continue to drive transactions. Including the ArcelorMittal deal, four of the top 10 deals were in mining, the same number as in 2009.

A look at top groups on the JSE by market capitalisation shows most have done BEE deals, so new activity may for a while be driven by unwinding of old deals and having to do new ones. Also, companies will want to do new deals to increase their BEE ownership, especially as competition for better scores intensifies or the pressure mounts for higher ownership targets.

It is likely that there are still a few significant potential BEE deals. Telkom, for instance, would do well to engineer a broad-based deal, reducing the state's shareholding, which seems to make it vulnerable to accusations of outside interference in management.