Phumelela and Gold Circle Demerger Rejected
Phumelela and Gold Circle Demerger Rejected

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