The acquisition of Engen Botswana Limited by Fusionspark (Pty), a company controlled in part by businessman Ramachandran Ottapathu has erupted into a legal dispute.
This is after the buyer (Fusionspark) appealed against conditions imposed by the Competition and Consumer Authority (CCA). The conditions include a requirement that Ajantha Proprietary Limited divest its 75 percent shareholding in the Reddy Group. Ottapathu has business interest in Ajantha and Reddy Group. He also has a 30% stake in Fusionspark.
The Competition and Consumer Tribunal says it has received an appeal by Fusionspark challenging Merger Decision delivered on September 8, in which the CCA approved the acquisition of ordinary shares in Engine Botswana subject to conditions intended to address competition concerns arising from the transaction.
At the centre of the dispute is the relationship between Engine Botswana, Fusionspark and the Reddy Group, which operates retail fuel stations under multiple brands. The regulator fears the transaction could create incentives to favour Engine-branded fuel at the expense of independent dealers and rival fuel wholesalers. In its merger assessment, the CCA found that the transaction creates a vertical link between Engine Botswana and Fusionspark through Engen-branded retail service stations operated by the Reddy Group, in which Ajantha holds a 75 percent stake.
The Authority identified potential risks of market foreclosure. It argued that the shareholding structure, combined with Ottapathu’s 30 percent interest in Fusionspark, could give him the ability and incentive to influence the Reddy Group’s commercial decisions in favour of the merged entity.
The Authority identified potential risks of market foreclosure. It argued that the shareholding structure, combined with Ottapathu’s 30 percent interest in Fusionspark, could give him the ability and incentive to influence the Reddy Group’s commercial decisions in favour of the merged entity.
“The Authority’s assessment findings indicate a strong likelihood that Ajantha’s 75% shareholding in the Reddy Group will provide Mr Ottapathu with the ability to align the Reddy Group’s commercial decisions with the merged entity’s interests,” the merger assessment states. It further warns of “an incentive to discriminate in favour of the Target branded volumes against unaffiliated Target dealers, and rival wholesalers operating through the Reddy Group’s multi-branded sites.” The conditions have now become the subject of a legal challenge with Fusionspark seeking to have the most contentious measures overturned or amended. Under condition (a), Ajantha must divest its 75 percent shareholding in the Reddy Group. It is also prohibited, for three years after the divestiture, from being associated with, interested in or engaged in any firm, business or company with the Reddy Group “in any capacity whatsoever”.
Fusionspark argues that this condition exceeds the powers granted to the CCA under sections 52 and 53 of the Competition Act. It also contends that the regulator failed to establish the relevant market and conduct the assessment. The company further argues that there is no evidence on the record capable of supporting the divestiture requirement and that the condition is disproportionate, vague and excessively broad.
Fusionspark alleges that the CCA breached the rules of natural justice and its right to fair administrative action, including the audi alteram partem principle, which requires parties to have a fair opportunity to be heard. It argues that the Authority failed to disclose third-party consultations and findings relevant to its decision.
Fusionspark alleges that the CCA breached the rules of natural justice and its right to fair administrative action, including the audi alteram partem principle, which requires parties to have a fair opportunity to be heard. It argues that the Authority failed to disclose third-party consultations and findings relevant to its decision. The second contested condition requires the merged entity to honour existing agreements with independent dealers operating under dealer or franchise arrangements with Engine Botswana.
These agreements cover fuel supply, pricing, payment, equipment, maintenance and other operational arrangements. The condition preserves the parties’ ability to amend, terminate or renegotiate agreements by mutual consent, in the ordinary course of business or in accordance with their terms and applicable law, provided such changes do not result from the transaction. Fusionspark considers this condition disproportionate and wants it varied to impose a three-year time limit.,In its appeal, the company is seeking an order suspending the operation of the contested conditions, as well as the periods for compliance, pending the final determination of the proceedings. It wants condition (a) set aside, condition (b) amended to include a three-year limit and the CCA ordered to pay the costs of the appeal.
Fusionspark is controlled by MMPG Limited, Surya Artha Holding Limited and Ottapathu, a Motswana businessman with interests in several companies, including Choppies Enterprises Limited, which is listed on the Botswana Stock Exchange and Johannesburg Stock Exchange; The Far Property Company Limited, listed on the Botswana Stock Exchange; Ajantha Proprietary Limited; and Kamoso Africa Proprietary Limited. Ajantha has interests in 67 retail station sites through its stake in the Reddy Group, placing its ownership structure at the centre of the regulator’s concerns about potential conflicts of interest and discriminatory treatment in the fuel market.
