THE merger between Gold Circle and the Thoroughbred Horseracing Trust was on Thursday conditionally approved by the Competition Tribunal, overruling the Competition Commission’s decision earlier this year to prohibit the transaction.
The merging parties took the prohibition on review before the tribunal and led evidence why the transaction was not anti-competitive as the commission claimed.
The tribunal approved the transaction on the condition that there would be no retrenchments, relating to the transaction, within two years of the date of the transaction. The commission prohibited the transaction because of the presence of JSE-listed Phumelela Gaming Leisure (PHM).
The commission was convinced that the transaction would increase Phumelela’s dominance in the horse racing market, and would lead to a lessening of competition. The merging parties argued that horse racing in the Western Cape would have received the death knell if the transaction was not approved.
The tribunal, after hearing evidence from the merging parties, potential buyers of Gold Circle and bookmakers, decided that it was unlikely that the transaction would result in a substantial lessening of competition in the horse racing operator and sports betting markets. It did however agree with the commission that the transaction could create a situation where Kenilworth Racing did not act independently of Phumelela. The commission said Phumelela was behind the transaction and would ultimately control the Western Cape operations, as opposed to merely managing it, and thereby entrenching the listed group’s dominance in the horse-racing administration and gaming industry.
Phumelela will be managing the Western Cape operations of Gold Circle once the assets and operations are first sold to Kenilworth Racing, and the shares in Kenilworth Racing are then sold to the trust.
The tribunal did not issue any reasons for its decision, but said in a statement it would consider the competition consequences of the present regulations governing the market when it did provide its reasons.
Prior to the approval of the transaction Phumelela had tote betting licences in seven of the nine provinces and held 61% of the tote market share. Golden Circle had licences in the Western Cape and KwaZulu-Natal and held 39% of the market share. Gold Circle, with an annual turnover of more than R1.8bn, is a key player in the national horse racing industry.
Phumelela now has tote betting licences in all but one province — KwaZulu-Natal.
The Thoroughbred trust has a 30% share in Phumelela and its only source of income arises from dividends it receives from Phumelela.
During the hearing before the tribunal Phindi Kema, CEO of Africa Race International, and her special adviser Ian Jayes, said Phumelela would be "disastrous" for horse racing in the Western Cape, saying it had sold horse-racing assets in Gauteng, the Eastern Cape and Bloemfontein to benefit its shareholders and not the industry.
Jayes alleged only two racecourses remained in Gauteng because of the stripping of assets, and they were not properly maintained. Kema, who has been vocal about the state of competition in the market, laid complaints with the commission and the public protector. She has also taken the Gauteng legislature to court.
The tribunal said it would issue its reasons for conditionally approving the transaction in due course.