TO MERGE OR DEMERGE : THAT IS THE QUESTION

The Competition Tribunal has issued its decision.
(Image : Senkook/Glogster/Protevangelium/Summerhill)

“Whether it was momentous or not, only time will tell,
but it was certainly historic.”

The Competition Tribunal has issued its decision on the appeal of the interested parties against a decision of the Competition Board to deny the demerger of the two components of Gold Circle (KZN and the Western Cape,) and the merger of Gold Circle Western Cape (now known as Kenilworth Racing) into Phumelela. As we see them, the implications are these:

• Gold Circle KZN has for many years considered the Western Cape division a liability, which is apparently borne out by the losses incurred in that region in that time. Clearly, because it’s by some measure the smaller of the two racing operators, Gold Circle KZN was less able to bear those losses than Phumelela. It must therefore be considered a good outcome for Gold Circle KZN.
• For almost as many years, Gold Circle Western Cape has wanted to be free of the entrenched dominance of Gold Circle KZN in terms of the original founding agreement, and this must therefore be a victory for them as well.
• The Phumelela perspective is not quite as easy to fathom. Unless it has to do with the economies of scale and the greater dominance of the horseracing betting market, and developing a new business model for the Western Cape, it’s difficult to work out the attraction in “acquiring” the Western Cape. The world “acquiring” is in inverted commas because the agreement between them is in the nature of a management deal secured by Kenilworth’s underlying assets, which have been placed in “trust” with the Racing Association, presumably to cover future losses. Of course, they may have a formula in mind which can turn around a region which has been bleeding money for as long as we can remember, but one thing is for sure, South Africa needs a thriving Western Cape racing environment, and if Phumelela can pull this one out of the bag, they’ll have done us all a great service.

There’ve been all sorts of theories put forward for the saving of Western Cape racing, one of which historically, is that the retail footprint served a minority community, and that they missed the boat with the rising affluence of the coloured and African middle classes. That may of course be true, and if it is so, they’ll need to do whatever it takes to make horseracing more accessible to these people, as well as winning their minds in an attempt to transform them from casino punters to racing bettors. Hassan Adams, a celebrated owner in the region and one-time chairman of Grand West Casino, will tell you that Grand West is one of the most profitable casinos in South Africa, which makes it all the more remarkable that horse racing has such little appeal as a betting medium in a vicinity which stages a world class show on the racecourse.

The other thing is, it’s apparent that most of the growth in betting in this country (even though it’s off a relatively new base) lies with cellphones and internet betting, which calls for a step up in technology against a considerable saving on the investment needed to build tote outlets in the old physical sense. It’s not only cost-efficient to go with technology, but it’s staff-efficient as well, and therein may lie something of a solution.

One thing the Western Cape has in abundance, is a body of enormously wealthy racing people, not only in the ranks of its owners, but especially those who have stud farms. Several of the country’s wealthiest families (think Plattner, Jooste, Kantor, Van Niekerk, Rupert, Opppenheimer (Slack), Rattray, Jacobs, Beck, Taberer, Kalmanson and may the good Lord forgive us if we’ve left anyone out) are heavily invested in the breeding business, and they have accumulated their wealth by dint of their astuteness at the office through decades of endevour. Their collective intellectual resources, coupled with those of their biggest owners, Adams, Shirtliff, Finch, Ressell et al, must be a source of salvation going forward.

Either way, it seems the Appeal Board’s decision will be beneficial in at least one very material respect. Each region has the liberty to stand or fall by their own choices, and that alone should make them better businesses.

From a purely parochial perspective, Gold Circle KZN is now spectacularly positioned. Without having to carry the losses of the Western Cape, it can leverage all of the benefits of the cash generated from the sale of Clairwood racecourse, and the prosperity which its racing generates in the normal course of business, and that provides the local operator with the opportunity to once again become the undisputed racing centre of choice on this continent. We’re told that maiden stakes will shortly catapult to R100,000, and if that’s the case, that’s talking!

THABANI NZIMANDE GRADUATES FROM THE NATIONAL STUD

Thabani Nzimande - National Stud Best Practical Student Award
(Photo : Summerhill Stud)

“Opportunity, sooner or later,
comes to all who work and wish.”
Lord Stanley

There was a time, when literacy and learning was the right of the pious and the privileged. We’ve come a long way, and whilst South Africa’s youthful democracy avers that all have the right to an education, training and the transfer of knowledge remains a challenge for the majority of our population.

The School of Management Excellence is an extravagance for a Zulu farm, but Summerhill and the School’s scholarship sponsors, Investec, the Cape Breeders Club, N3 Tolcon and Phumelela, have risen to the call to educate and were vindicated by the success story of one of its graduates this week.

A young man, whose dream was to become a paramedic once he had completed high school, was recruited some five years back by the Pre-training & Sales division at Summerhill Stud, starting out as a stable cleaner. Thabani Nzimande graduated as the top student at the School of Excellence in 2011, and was awarded a scholarship through the Childwick Trust to the English National Stud. To explain the connection, the Trust founder was the late Jim Joel, nephew of the diamond legend, Barney Barnato, and whose racing colours “black, cherry cap” are adorned these days by Mary Slack’s runners.

At the fabled stud in Newmarket, England on Friday, Thabani and fellow South African, Mathew de Kock, graduated from the course with distinctions, and Thabani won the Best Practical Student Award.  Courage, hard work and making the most of every opportunity has earned him a hero’s welcome back in South Africa.

The Winter Workshop, hosted by the School next week (Monday 9^th to Wednesday 11^th July), promises to be every bit as good, if not better than last year’s Winter School, with a supporting cast of 5 professors, economic and racing gurus, an international equine geneticist, and the country’s leading racing and breeding celebrities among them.

Last year’s inaugural Winter School was a runaway success, and this year’s programme is crammed with “two-year-old” potential. Please click here to get full details of the full panel of lecturers, their topics and the programme right away.

The Memorial Theatre’s capacity is limited though, so if you’re an aspirant attendee, please get in touch with Heather Morkel on heather@summerhill.co.za, as soon as you can. There is accommodation available at Hartford House, though the organisers can arrange alternatives in the district once Hartford is fully booked. The daily rate includes a luncheon prepared by Eat Out’s Most Popular Restaurant of 2011.

Heather Morkel +27 (0) 33 263 1081
or email heather@summerhill.co.za
www.summerhill.co.za

IT'S OFFICIAL NOW

The first official sign that things are really looking up…
(Image : Gold Circle / Reflections)

GOLD CIRCLE KZN
“Operating profit of a net R11.4 million”

You can follow these columns with some confidence, because most times, our sources are good. We reported some months ago on our expectations of a strong performance from Gold Circle KZN. The latest chairman’s report endorses it. The local racing entity recorded a profit of R21,3 million, (mitigated by a R9.9 million loss in the Western Cape region,) and leaving an operating profit of a net R11.4 million. The cash flow statement for the six months ended January 2012, reflects a cash and cash equivalent position of R49,050 million, an extraordinary turnaround, and a statement of rude health.

The Western Cape region appears happier looking after its own affairs now, and as we’ve said before, Phumelela must be trading pretty well too, as both it and Gold Circle feed from similar pots.

It can’t be long now, and local horseman can look forward to healthy increases in prize money. It won’t be before time, but it’s the first official sign that things are really looking up.

COMPETITION COMMISSION REJECTS RACING DEMERGER

Demerger Rejected
(Image : ComFin/WWR)

“Phumelela plan to run racing
in Cape rejected”

A demerger that could have relieved leisure and gaming company Phumelela’s three-year long profitability pressures had collapsed because of the belief that it posed a serious competition threat in the horseracing industry, the Competition Commission said on Tuesday.

The commission announced that it had denied two proposed independent transactions involving Kenilworth Racing, Gold Circle and Phumelela’s largest shareholder, Thoroughbred Horseracing Trust.

The Competition Commission said it found that the proposed transactions would significantly lessen competition in the markets for horseracing administration, horseracing television rights, as well as betting, as they would allow Phumelela to further entrench its already strong position such that it could exert power in these markets.

Phumelela and Gold Circle are the only two racing operators in the country who exclusively hold totalisator licences, which allow for certain betting activities in each province.

Gold Circle holds the licence in the Western Cape and KwaZulu-Natal, and Phumelela in the remaining provinces. The commission said that if the merger was allowed, Phumelela would operate in eight of the nine provinces while Gold Circle would remain in KwaZulu-Natal only.

“This effectively substantially increases Phumelela’s share of the market for the administration of horseracing and the associated betting activities in South Africa. In addition, a set of arrangements and agreements between Phumelela and Gold Circle diminish competition between the two groups,” the commission argued.

It also argued that given the high barriers to entry in the industry, mergers and high market shares would be unfavourable to other firms, particularly small and emerging horseracing entities.

Warwick Lucas, a senior investment analyst at Imara SP Reid, said it was unfortunate that the commission had prohibited the merger, saying it showed the regulator’s lack of understanding of the horseracing business.

“The bookmaker doesn’t have to use Phumelela’s services. And Phumelela cannot protect the outcomes of the races they hold,” he added.

At this stage participants in each of the regions of KwaZulu-Natal and and the Western Cape have reaffirmed their commitment to the separation of the regions and will continue to work together towards achieving this.

Extract from Business Report

THE BRIGHTER SIDE

Click above to watch Nedbank’s new TV ad… Reason over Emotion
(Image and Footage : 12TMcKenna)

“Reason prevailing over emotion
in matters financial”

Things are definitely looking up. Even the markets have gone into “sleep mode” on the matter of Greek debt, and IMF chief Christine Lagarde told the world this week that while the road ahead would be long and painful, the European financial crisis had a distinctly more sombre and settled look to it.

There is something about our pysches though, which too often tempts us into self-flagellation, and there is a tendency to over-react. Where the affairs of racing were said to be a few months ago, and where they’ve actually turned out to be, are poles apart. The reactions to Gold Circle’s demerger process were strong and unfortunately boisterous, and reminded us how appropriate Nedbank’s new ad about reason prevailing over emotion in matters financial, is. While there is still the hurdle of the Competitions Board to be dealt with, it seems at first glance at least, that it might’ve been the best thing from everyone’s perspective. Far from reducing competition it has heightened it; that’s evident in the renewed vigour among the operators. Gold Circle KZN is reportedly trading so well, there’s a contemplation of stakes of R100,000 for maidens in the province: at that price, we should all be racing.

On Tuesday evening, Phumelela’s Vee Moodley told us how well the international division was performing, and suggested we “watch this space” for news of R20 million co-mingled football pools. That’s proper money, and it means proper revenue for racing.

That is good music for the ears of breeders, because a sound and prosperous racing environment converts itself into better yearling prices, and better yearling prices mean greater reinvestment in our productive resources. The one big constraint we need to resolve, is the export market, and in particular the international market for proven racehorses. Big international prices for these horses puts money back into the pockets of owners, and in the end, that flows back to the breeding industry. The good news there, is that May witnesses the revision of the OIE’s (loosely translated, the “Organisation for International Exports”) codes for the movement of horses.

Recent progress in the development of a PCR test (a 48 hour procedure relating to African Horse Sickness) means that horses on the brink of departure, can be tested with virtual immediacy, and this has the potential of limiting quarantine for horses due for export to 14 days. Given that animals outside of the surveillance zone in the Western Cape, are required under the current regime to do a 90 day period within that area, 42 of which are in quarantine, this is a considerable step in the right direction. It will also facilitate the lifting of any suspension on exports following an African Horse Sickness outbreak (or any other disease for that matter) within 80 days of clearance, as opposed to the prevailing two years.

We’ve always maintained that very little in life is not “do-able”, and these things confirm the virtue of that belief. It’s been a sunny old autumn so far in KwaZulu-Natal, and it looks like being an even brighter winter.