SAA's deal with Takatso collapsed last week. (Delwyn Verasamy/M&G)
The acquisition of South African Airways (SAA) by the Takatso Consortium for R51 has sparked considerable debate and media criticism. However, it is essential to understand that such acquisitions involving nominal amounts are not uncommon globally.
By exploring international case studies of companies that were sold for a nominal sum that later experienced successful turnarounds, I hope to shed light on the broader context and commercial justifications for these transactions. These cases shed light on the potential for transformative change and commercial justifications behind such deals.
Let me explain.
In the corporate world, acquiring a company for a nominal sum often entails strategic considerations beyond the apparent monetary value. Such transactions involve complex agreements, restructuring plans, asset acquisition and liability mitigation.
The exchange of a symbolic dollar amount signifies a transfer of ownership rights and a commitment to revitalising the acquired entity. Let us delve into global case studies to comprehend the rationale behind these seemingly unconventional deals.
One noteworthy example is Etihad Airways’ sale of its 40% stake in Air Seychelles for $1. This transaction, although raising eyebrows, was driven by strategic considerations. Etihad Airways, facing financial challenges, sought to focus on its core operations.
By divesting its stake to the Seychelles government, the airline aimed to foster economic growth and ensure Air Seychelles’ long-term sustainability. This case demonstrates how $1 transactions can be part of broader strategic realignments and mutually beneficial arrangements.
Turning our attention to the Takatso-SAA deal, it is crucial to consider the commercial justifications behind this acquisition. South African Airways has faced significant financial and operational challenges in recent years, leading to its business rescue and subsequent restructuring.
The Takatso Consortium, consisting of Harith General Partners and Global Airways, recognises the potential for revitalising the national carrier and positioning it as a key player in the African aviation market.
Firstly, the nominal acquisition cost allows the Takatso Consortium to assume control of SAA’s assets, intellectual property and operational infrastructure while minimising the burden of legacy debts. This provides an opportunity for a fresh start and a strategic turnaround. The consortium can implement efficient management practices, optimise routes, and streamline operations to enhance profitability.
Secondly, the deal facilitates a strategic partnership between the consortium and the South African government. By sharing responsibilities and resources, both parties can work together to rebuild the airline, boost tourism, and drive economic growth. This collaboration aligns with the government’s goal of job creation and economic transformation, providing a pathway for sustained success.
Critics may argue that selling a national asset for a nominal amount undermines its true value. However, it is important to acknowledge that the sale of distressed companies or those in need of substantial restructuring often requires a pragmatic approach. The Takatso-SAA deal reflects the acknowledgment of the challenges faced by the airline and the need for innovative solutions to ensure its long-term viability.
Let’s face these irrefutable facts.
While Air Seychelles operates seven aircraft with only two of those leased, SAA operates a fleet of seven aircraft with all but one flying jalopy leased.
Furthermore, Numsa’s relentless pursuit of substantial wage increases, coupled with its refusal to accept SAA’s necessary restructuring efforts due to its financial struggles, resulted in a devastating strike staged by its members. The airline incurred a staggering daily loss of approximately R50 million throughout the duration of the strike.
The drastic reduction of SAA’s workforce from over 11,000 employees to a mere 2,000, along with its limited operation in comparison to the routes it once dominated, is the result of numerous factors. Among these factors, is the influence of corrupt union leaders who exploit their positions to prioritise their own financial interests over the well-being of vulnerable workers at an airline that is, ineluctably, now on life support.
Let us delve into notable examples of troubled entities that were sold for a nominal sum and later experienced successful turnarounds.
Case Study 1: Chrysler Corporation:
One of the most iconic examples is the sale of Chrysler Corporation to what became known as “The Chrysler Five” in 1979 for a token $1. Facing financial distress, the automaker required substantial restructuring and innovation. The new management, led by Lee Iacocca, implemented aggressive cost-cutting measures, introduced popular models like the minivan, and negotiated government assistance.
This resulted in a remarkable turnaround, allowing Chrysler to regain its profitability and play a significant role in the US automotive industry.
Case Study 2: Chelsea Football Club:
One of the powerhouses in English soccer, Chelsea was facing ruin in the early 1980s after a long-running battle with property developers who tried to evict them from their London stadium.
In 1982, the club was sold to businessman Ken Bates for one pound. Bates didn’t waste time turning the club’s fortunes before selling it to Roman Abramovich. Chelsea now has a net value estimated at $3.1 billion.
Case Study 3: General Motors:
During the 2008 financial crisis, General Motors (GM) found itself on the brink of collapse. The US government stepped in to prevent its demise and provided financial assistance. As part of its restructuring efforts, GM filed for bankruptcy and emerged under new ownership, with the US Treasury holding a majority stake. Although the government’s investment exceeded $1, the restructuring exemplified the commitment to revitalise a troubled company. GM subsequently underwent significant operational improvements, strengthened its product lineup, and regained profitability.
In these cases, the $1 acquisitions served as catalysts for change, enabling transformative strategies to revitalise struggling companies. Several common factors contributed to their success:
- Strategic Vision and Leadership: Effective leadership, coupled with a clear vision for the future, played a crucial role in driving organisational transformation. The new management teams in each case implemented bold strategies, innovation, and decisive actions to reposition the companies for success.
- Operational Restructuring: Focused efforts on operational efficiencies, cost reductions, and streamlining processes helped eliminate waste and improve profitability. By making tough decisions and aligning operations with market demands, these companies could regain competitiveness.
- Product and Brand Innovation: Successful turnarounds often involved revitalising product offerings, identifying new market opportunities, and rejuvenating brand appeal. Investing in research and development, introducing new products and effectively marketing them played vital roles in reconnecting with consumers.
It is evident that these deals represent a pragmatic approach toward achieving long-term sustainability and success.
The Takatso-SAA deal aligns with a broader global trend of troubled companies being sold for nominal amounts. By examining notable examples across the world, we witness the transformative potential of $1 acquisitions. These cases underscore the significance of visionary leadership, operational restructuring, and innovation in driving successful turnarounds.
Of course, the Takatso-SAA deal, a scenario where company law arguably takes precedence over procurement law in the context of a state-owned entity, is slightly more than double the $1 acquisitions phenomenon that is the subject of this essay.
Public enterprises minister Pravin Gordhan’s alleged interference in the deal has cast a pall on what should easily be the biggest black empowerment deal in local aviation.
Though Gordhan denies the allegations, the public has an inviolable right to know about any wrongdoing on the part of those involved in this transaction notwithstanding their political or business profile. If Gordhan is found to have acted unlawfully, accountability mechanisms must be instituted.
Lest we forget, our Constitution makes no provision for political, religious or business deities.
While concerns about possible wrongdoing surrounding the Takatso-SAA transaction have been raised, it is important to approach the allegations with objectivity, fairness, and an emphasis on verifiable evidence.
Transparency, due diligence, regulatory oversight, independent auditing, and the presumption of innocence are critical factors in evaluating the validity and fairness of the claims. Only through a thorough examination of the facts can a conclusive determination be reached.
Tebogo Khaas is founder and chairperson of Public Interest SA.
The views expressed are those of the author and do not necessarily reflect the official policy or position of the Mail & Guardian.