Safika: Who is in charge?

Safika Holdings, one of the highest black economic empowerment (BEE) fliers, is jointly controlled by Standard Bank, Competition Tribunal documents show.

The tribunal earlier this year approved a merger between Standard Bank and Safika, where the former bought a 20% stake in the latter for an undisclosed sum. The approval was necessary as the two companies both offer a range of overlapping financial services.

The tribunal documents, dated May 2005, show that Standard Bank’s purchase of just 20% of Safika gave what the tribunal describes as ‘joint control”.

Standard will ‘acquire certain rights in terms of the shareholders’ agreement, including the right to appoint a director to the board and the right to veto certain of Safika’s decisions, including the strategic plan and annual budget,” says the tribunal report.

‘In consequence, Standard Bank will be able to ‘materially influence’ the policy of Safika, to trigger the change of control as required by Section 12(2)(g) of the Act. Standard Bank is therefore acquiring joint control over Safika.”

The tribunal says the rationale for the transaction is that it ‘will faci-litate Standard Bank to enter into various BEE transactions, insofar as Safika is an empowered firm”.

Saki Macozoma, deputy chair-person at Safika, says Standard Bank does not have joint control of Safika. He says Standard Bank owns 10% of Safika, and the Liberty Group the other 10%.

‘[Standard Bank] has the usual minority protections and it has reserved in certain matters a power to veto company decisions. These are limited,” says Macozoma.

‘An example is if Safika bought a stake in a competitor and used its influence to enable such a competitor to earn [Financial Services] Charter points to the detriment of Standard Bank. All institutional investors in BEE companies have, in varying degrees, these minority protections.”

Macozoma says the Standard Bank investment has no impact on black ownership of Safika. The company is now 70% owned by previously disadvantaged individuals (PDIs). It has the highest PDI ownership in the top 10 BEE companies, he says.

The 70% PDI equity in Safika is held by just five individuals. Macozoma says: ‘We took the view early on that we would embrace broad-based groups on a transaction-by-trans-action basis. There is no law or regulation that says a BEE company must have a large number of beneficiaries in their company structure.

‘Some BEE companies have decided to introduce large numbers of beneficiaries at certain levels of their company structures. Others have introduced them at subsidiary levels. There is no one size that fits all.”

Standard Bank CEO Jacko Maree says Standard Bank’s joint control of Safika does not change Safika’s empowerment status. ‘The Competition Commission authorities assess the existence or otherwise of joint control by reference to the existence of factors additional to the right to vote the majority of shares or appoint the majority of directors,” says Maree.

‘Standard Bank was granted certain minority shareholder protections which were deemed to give it ‘joint control’ but it has no agreement at all to act in concert with any other shareholder.”

Maree says the shareholders agreement between Standard Bank, the other shareholders and Safika contains a provision that each shareholder holding 10% of the share capital has the right to elect one director.

‘Standard Bank’s 20% shareholding gives it the right to appoint two directors to the board of Safika. However, it has chosen from the outset to reserve its right and instead elect observers. The company is therefore controlled by the board, which has an overwhelming majority of black directors, and Safika is therefore still a black controlled and black owned company as defined by the Codes of Practice.”

‘While Standard Bank does have the right to appoint directors and has certain minority protections commonly associated with transactions of this nature, it does not exercise joint control or board control, and in no way restricts Safika in its day-to-day operations,” he added.

‘Furthermore, Standard Bank’s shareholding and right to appoint directors is in no way intended to prevent Safika from doing business with other parties which may be in conflict with Standard Bank.

‘Standard Bank does not have the right to influence deal flow in Standard Bank’s direction and Safika continues to procure funding lines and build relationships with a number of other banks, as illustrated by the Safika Investments Private Equity fund set up with RMB.”

Maree declined to disclose the value of the 20% purchase in Safika. ‘We do not disclose the value of transactions for confidentiality and competitive reasons.”

Says Macozoma: ‘The value of the deal between Standard Bank and Safika is subject to a confidentiality agreement between the two groups. We are bound by it.”

The tribunal approved the merger.

Safika is a leading member of the Tutuwa consortium, which is buying a 10% stake in Standard Bank. Safika has a 20% stake in Tutuwa.

The ties that bind

Safika’s fortunes appear to be closely tied to Standard Bank, at least in the financial services arena. The Competition Tribunal lists Safika’s financial services interests as follows: