Public Enterprises terminates transaction with Takatso Consortium by mutual agreement

13 March 2024

Over the past 3 years, the Department of Public Enterprises and Takatso Consortium has been negotiating the transaction to sell 51% of SAA. We regret to announce that both DPE and Takatso agreed that negotiations on the transaction have been terminated as there was no agreement on the revised transaction structure. This arises largely from a new business and asset valuation undertaken by professional firms.

SAA was on the verge of being liquidated. The Board of SAA placed the airline under business rescue, which government supported. After that, the country went through the COVID-19 pandemic, and it impacted on the global aviation. The closure and opening of borders required government to search for a strategic equity partner as directed by Cabinet.

Having identified Takatso as the preferred strategic equity partner to negotiate with, three key areas needed to be noted:

SAA is a public asset that has grown in value between 2019-2024.

Recognizing that it is a public asset and that any sale of shares has to be at a fair market value.

Thirdly, the process must result in the sustainability of SAA and its growth, in terms of its aircrafts and routes that it needs to fly.

There were two valuations that were undertaken. The first valuation was undertaken during the COVID-19 period. And that valuation took place when the airline was not flying. The business and the properties were valued at a liquidation asset valuation methodology and this amount to R2,4 billion. And the business was valued at between 0 and negative.
 
However, in the last year three years it became clear that the market conditions have changed, the economy had improved, the demand for flying had increased formidably and this required that a new valuation be done.

The business valuation came out at R1 billion and the property valuation at R5.5 billion. This meant that there was a net increase in the property by R3,1 billion in the value of SAA. The equity value had increased from 0 to R1 billion.

It took almost a year for the Competition authorities to approve the transaction. The Competition Tribunal approved the transaction subject to certain conditions including the divesture by Takatso of its minority shareholders, before the implementation of the transaction.

It became clear in the negotiations that the revised transaction structure must take into account public interest and fair market price. However, these requirements were not met in the renegotiations.

As a consequence, a mechanism to terminate the Sale of Shares Agreement by mutual consent in terms of clause 10.1.1 of the Agreement was put into effect. It was then decided late last week that there was no purpose in continuing with further negotiations.

Cabinet was briefed on this matter this morning and took note of the stance taken by DPE that SAA will revert to be 100% owned by the State and that a corporate plan needs to be devised by the board and the management of SAA. The new corporate plan will embrace more routes and more aircraft. In order to support these next steps an aviation strategy advisor will be brought to support the Board and management. The Board needs to be strengthened further.

As a consequence we announced today that the engagement with Takatso has ended, and that there will be further steps taken both by this 6th administration and the 7th administration, to stabilize SAA.

We are confident that SAA will continue to fly and grow in terms of the number of routes and aircraft that it is able to lease.

Furthermore, a new form of raising finances on the basis of the assets of SAA will be explored with financial institutions.

We will address the staff on Friday to fully take them on board on this matter. There were lots of lessons to be learned both during the business rescue and in the process of these negotiations. SAA now enters a new chapter of its life.

Issued by Ellis Mnyandu, DPE spokesperson, 13 March 2024