Independent News & Media South Africa, expected to change hands for R2-billion later this month, could find itself under the effective control of the South African government and two mystery Chinese investors.
It was previously disclosed that the South African government-owned Public Investment Corporation (PIC) was buying 25% of the newspaper group using Government Employee Pension Fund money.
Now conditions imposed by the Competition Commission have revealed that, through the PIC, the state is also financing part of the 75% controlling stake to be acquired by the Sekunjalo Independent Media consortium. The commission's concerns deal with the potential for anti-competitive information flows, because the PIC would now own large stakes in three major media houses.
But competition law does not address the implications this creeping state hold over newspaper groups could have for South Africa.
AmaBhungane can also reveal that the state financier has been a major player in the deal since at least October last year, when it suddenly withdrew support for a competing bidder, apparently to favour Sekunjalo.
The PIC and Sekunjalo have refused to answer amaBhungane's questions about the loan to Sekunjalo.
The PIC's investment chief, Daniel Matjila, said the commission would comment only after an "internal" deadline of August 15, as "there are a few outstanding issues which still need to be finalised". Independent chief executive Tony Howard recently said that the asset would be transferred on the same date.
The commission has also disclosed that the proposed Chinese investors – expected to hold 20% of the group – are to be given controlling powers, despite their stake being downplayed by Sekunjalo as a "minority" holding.
After months of speculation, Irish Independent News & Media announced in February that it had agreed to sell its South African subsidiary to Sekunjalo Independent Media, a consortium led by politically connected businessman Iqbal Surve and his company Sekunjalo Investment Holdings.
In June, Sekunjalo named some members of the consortium that would buy the 75% stake. Fuzzy on detail, the statement sketched a web of political influence: three ANC-allied trade union investment vehicles, a trust linked to the ANC's Umkhonto weSizwe Military Veterans' Association, controversial ANC parliamentarian Mandla Mandela, and South African Brics council representative Sandile Zungu, among others.
The consortium also included a 10% stake for staff and shares for a number of empowerment groups.
Correspondence seen by amaBhungane details how the PIC withdrew support for a competing bidder last year.
On November 22 2012, the PIC's Matjila wrote to advertising player Groovin Nchabeleng, who had assembled the NAM consortium to bid for the Independent and had approached the PIC in July for funding. In his letter, Matjila said the PIC could not support NAM's bid "as the PIC has decided to pursue the acquisition with another consortium".
At the time, a whistle-blower told amaBhungane that it was Sekunjalo that was being favoured.
Responding to the PIC, NAM attorney Colin Wulfsohn of law firm ENS suggested the PIC had performed an about-face. He said that when NAM met the PIC in July 2012 for the first of several encounters, Matjila had apparently told the consortium that the PIC needed to remain impartial and neutral in the bid process and was concerned not to be perceived as supporting one potential bidder over another before the preferred bidder was announced.
Yet the PIC's rejection letter to Nchabeleng arrived almost three months before the Independent group announced it would sell to Sekunjalo.
The whistle-blower told amaBhungane at the time: "For God's sake, all are still in the bidding process. The PIC should and must give all bidding South African companies support and surely continue with the winning bid after the process. Is it right that state coffers are used to support one connected group?"
Responding to questions, Matjila said the PIC had considered all applications and "decided that it was commercially viable to pursue the transaction with the commercially preferable consortium". Nchabeleng has now been cut in as a stakeholder in Sekunjalo's consortium.
Late last month, the Competition Commission approved the deal, subject to conditions, some of which dealt with the PIC's existing stakes in Times Media Group (19.2%), the publisher of the Sunday Times and other newspapers, and Naspers Limited, the owner of Media 24 (17.2%).
The commission was concerned that any sharing of business-sensitive information between the media houses would be anti-competitive, and that the PIC might gain "control" over Independent as or after the deal was finalised.
This was important because South African competition law groups mergers into small, intermediate and large categories. "Large" mergers, worth more than R6.6-billion, are subject to much more strenuous and transparent processes.
The size of a merger is calculated based on the combined value of the buying and target firms, in this case the Sekunjalo consortium and Independent South Africa.
The PIC is currently excluded from this calculation because it will not have "control" over the Independent group, meaning the merger is deemed to be "intermediate" and thus exempt from the more stringent conditions of a large merger.
Deputy competition commissioner Trudi Makhaya said that "on the evidence that has been placed before us, there is nothing that gives the PIC control". According to South African competition law, a shareholder has "control" if it owns more than 50% of a company, or if it is given power to "materially influence the policy" of the company through, for example, majority voting rights or the ability to appoint or veto directors.
But the commission has demanded that the signed shareholders' agreement and the PIC and Sekunjalo's loan agreement must be submitted as soon as the deal is finalised.
If these agreements give the PIC control and if the PIC's loan is later converted into shares, a new merger notification must be filed.
Makhaya said that despite the fact that the Chinese investors' proposed agreement with Sekunjalo would give them "material" control over the newspaper group, it would not make the deal a large merger because the Chinese investors did not have South African assets.
The commission is still considering the Chinese bid.
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The M&G Centre for Investigative Journalism (amaBhungane) produced this story. All views are ours. See www.amabhungane.co.za for our stories, activities and funding sources.