“Politician – n. Someone who shakes your hand before an election and your confidence after it.” (source unknown)
Initial feedback has been sensational, shocking and the picture painted of the industry and its leaders is a disconcerting one, writes Robyn Louw
Request for Consideration
According to the Competition Commission list of submissions, Kenilworth Racing (Proprietary) Limited & The Thoroughbred Horseracing Trust are petitioning the Competition Tribunal to consider a merger in terms of section 16(1) of the Act. They are asking for the merger to be approved without conditions. The application is signed by Johan Roodt, in his capacity as Attorney for the Thoroughbred Horseracing Trust.
Then there’s a second application filed on behalf of the Kenilworth Racing (Proprietary Limited & The Thoroughbred Horseracing Trust for the merger to be allowed, signed for by Robert Bloomberg in his capacity as Director of Kenilworth Racing (Proprietary) Limited.
The parties
The Racing Trust was established in early 1998 at the time of corporatisation. It is a non-profit organisation stated to have as its object, “the protection and furtherance of the interests of the racing industry”, but mainly seems famous for the fact that it has a shareholding of 35.25% (or somewhere in the region of 27 million according to reports) of Phumelela shares. It is funded by dividends from its Phumelela shares which it says it spreads across the stakes pot for racing in Gauteng, Eastern Cape and Northern Cape, the Work Riders’ Programme in Gauteng, the informal racing sector in Northern Cape, contributions towards research and development in respect of African Horse Sickness, the Gauteng Jockeys Academy and special projects such as contributions towards HIV testing of grooms. Five of its seven trustees are nominated by the Racing Association (currently chaired by Larry Wainstein). The remaining two are nominated by SASCOC. Current trustees are Johan Roodt (chairman, from Roodt Inc), Mary Slack, Michael Leaf, Markus Jooste (Phumelela), Chris van Niekerk (Phumelela), Gideon Sam (SASCOC) and Vinesh Maharaj (SASCOC). It is worth nothing that the Racing Trust appointed a sub-committee to “oversee the conclusion and implementation of the proposed merger between the Trust and Kenilworth Racing” which consists of Chris van Niekerk and Markus Jooste.
I should probably explain (as it was news to me) that Kenilworth Racing (Proprietary) Limited is a shelf company (current directors being Vidrik Thurling and Robert Bloomberg), which is controlled by “an association of thoroughbred racehorse owners and members” calling themselves the Western Province Regional Racing Association (or WPRRA). The directors of WPRRA are Vidrik Thurling, Robert Bloomberg, Lita Futeran, Tom Fowler and Rodney Dunn. Chris van Niekerk’s Witness Statement asserted that the Racing Trust would be appointing him (and presumably Markus Jooste) to the WPRRA board should the merger be approved.
It’s a little convoluted, but essentially, the Kenilworth Racing (Proprietary) Limited shelf company wants to acquire Gold Circle (Proprietary) Limited. Then The Thoroughbred Horseracing Trust wants to acquire Kenilworth Racing (Proprietary) Limited, effectively putting Kenilworth Racing under the direct control of The Thoroughbred Horseracing Trust.
Why?
The reasons stated for the desired transactions, according to the submissions, are that Gold Circle WC and Gold Circle KZN “have fallen out”. Furthermore, Gold Circle WC has sustained losses over the past few years and it is stated that “Gold Circle lacks the necessary strategic, managerial and financial resources necessary to sustain the conduct of the business of Gold Circle WC.” This statement is repeated in various versions across the initial proposal document as well as Vidrik Thurling and Chris van Niekerk’s witness statements.
Despite the fact that Gold Circle feels it does not have the resources to manage itself successfully, it is interesting to note that it feels that under the control of the Trust, it “will be able to reposition and restructure the business of Gold Circle WC Operationally and financially so as to render it financially viable.”
Phumelela, who describes itself as “a firm which administers the sport of thoroughbred horseracing in Gauteng, the Eastern Cape, the Free State and the Northern Cape”, both in terms of betting services and audio visual content and related media, wants to enter into an agreement with Kenilworth Racing to undertake the operation of business of Gold Circle WC, although this will be done subject to the board of directors of Kenilworth Racing (ie Vidrik Thurling and Robert Bloomberg).
Well, things were all going ahead according to plan until on 19 March 2012, the Competition Commission prohibited the merger. So this Tribunal is essentially racing’s effort to appeal and try to overturn the decision and go ahead with the transactions as set out above.
Argument for Merger
The two Merger Parties are appealing on, well, lots of different grounds really, but mainly that they feel that the Commission has been incorrect in its factual and legal assessment of the case and is incorrect in concluding that the merger will lead to a reduction of competition as defined in section 12A of the Competition Act. My unschooled brain interprets the operators’ argument as being that racing is a very specialist organisation which does not compare to or presumably fall under the rules of normal business practice. It seems that the operators feel that racing is so unique and specialist that the Commission have no hope of accurately understanding or appreciating all the ins and outs. Given that our current administrators feel they do not have the wherewithal, I guess that assertion may seem fair.
Furthermore, the petitioning parties contend that without the merger, it is likely that WC racing will ‘fail’, impacting the WC, the sport of horseracing, the gambling sector, the economy and South Africa in general.
How I see it
My understanding of the documentation submitted is that there are so many contradictions and inconsistencies that I hardly know where to begin, but I would encourage all interested parties to read the documentation for themselves. They can be found at www. http://www.comptrib.co.za/gold-circle-kenilworth-racing-merger.
Considering that our current team (who confess it “lacks the necessary strategic, managerial and financial resources necessary to sustain the conduct of the business of Gold Circle WC”) is convinced that Gold Circle will fail without the merger deal, they have not stated why this is so. While it has been widely postulated that finances are the dividing issue (we’ve all heard the old adage that when money goes out the front door, love goes out the back door), there are as many who propose that the failure is due to the boards of WC and KZN not being able to work together due to personal conflicts. Given the assertion about the lack of resources, I’d not be entirely surprised at either. Or both. But surely then the fault would appear to lie with the administration (as so many disgruntled folks have been asserting for so long?). And if that is true, then surely a sensible solution would be to try new management (perhaps some who do have the relevant resources and communication skills)?
In his witness statement, Mr Thurling reconfirms the assertion that “Gold Circle WC cannot operate on a standalone basis”. Amongst the things it requires to survive is administrative agreements with other operators (ie Phumelela and GC KZN), better management and funding. He also asserts that the proposed merger transaction that they are arguing for “protects the fixed assets of the Western Cape for the benefit of the sport”. Unfortunately his verbal testimony somewhat contradicted this when he stated that WC assets would be used as collateral for the funding they require. It is also stated that the merger “presents a realistic prospect of returning racing in the WC to a state of continued viability and profitability, through the involvement and operational expertise of Phumelela.” There’s an old adage that reads ‘if it ain’t broke, don’t fix it’. Well, what if it IS broke ?? If the WC is failing as miserably as everyone says, then it worries me that the core existing directors are being proposed to stay on for the future.
Public interest
Despite the hearings being public and therefore accessible to any interested party with sufficient interest and spare time, it has unfortunately been poorly attended, but initial feedback has been sensational, shocking and the picture painted of the industry and its leaders is a disconcerting one.
In trying to follow the proposed divorce and then the proposed merger, I was repeatedly told by separate individuals not to worry and that everything was under control. I’m really not feeling too reassured that those same people see fit to state, in writing, before a court of law, that they lack the necessary resources ! In fact, given that statement, I’d quite like to know when last we did have anyone with sufficient wherewithal to make a sensible decision !
Questions abound, most pertinent of all of course is the question “where to from here ?” Einstein is credited with saying that “The definition of insanity is doing the same thing over and over again and expecting different results”. So it seems patently obvious that we need people with the requisite resources and that the current crowd are duty bound by their confession to step down. But who will take up the reins?
Going Forward
The racing forums have been abuzz with speculation and there is something of an impromptu on-line popularity contest going on. Which is a shame, as it rather detracts from the facts at hand, but nonetheless, the posters have a serious point. It will be a while until the Commission hands down its ruling, so I suppose the WC continues to be ‘care-taken’ by Phumelela in the interim. After that, who knows? Who among us does have the necessary ‘resources’ and will they have the courage to step forward?
Should the merger be disallowed, there will no doubt be several parties rushing to the fore. As I am already unpopular for giving Phindi Kema a voice, I may as well go the whole hog and state that I have been very impressed by Purple Capital during the proceedings so far. They have come across as being exceptionally well prepared, well-researched, well-rehearsed and well-behaved – in short, like consummate professionals. Whether they have an opportunity to make a serious bid for WC racing, only time will tell, but they have most certainly acquitted themselves in a most impressive manner. If doubts as to their backers can be laid to rest, they make for a very interesting proposition indeed.
I believe that there are still a few factual witness statements to be completed, after which it will be the turn of the expert witnesses. The Inquiry is due to run till the end of October with a ruling expected in early November.
