HERE is an interview by Alec Hogg  (photo) of  Moneyweb with Michel Nairac, CEO of Gold Circle, about The Competition Commissio’s ruling against proposed mergers.

ALEC HOGG: The Commission has ruled against the proposed deal. It’s quite complicated but very relevant. Phumelela at the moment owns horseracing everywhere except for KZN and Western Cape. The idea was that KZN and Western Cape, which are in Gold Circle, were going to de-merge and then Western Cape was going to end up in Phumelela. So you’d have KZN on its own, and the rest of the country would be Phumelela, which is listed on the stock market.

There were a lot of objections to this, including from Purple Capital, whose Charles Savage wanted to have a word with us tonight, but he’s off to go and see Pirates beat Sundowns and he said as a consequence of that he couldn’t talk to us. But he’s definitely one of the potential bidders. He said they have helped the Competition Commission to understand why this is not a good proposal or not a good idea.

Michel Nairack is the chief executive of Gold Circle. We tracked him down to Mauritius. Michel, I’m sure this news didn’t come to you quite as welcome as it was to Charles Savage.

MICHEL NAIRACK: No, Alec. Obviously we were disappointed because our members, on the 14th November voted for a separation of the two regions. As you know, the Western Cape and KZN got together in 2000. Gold Circle was formed before that by the three Natal clubs. So it came as a disappointment. But obviously we are going to be objecting to this because the Competition Commission in its report disputes the failing-firm issue; any way you want it we can prove the Western Cape region has been systematically losing money and has been subsidised by the Western Cape for the past 12 years.

ALEC HOGG: Reading through what the Competition Commission had to say, they believe there will be buyers for the Western Cape, so although it might be failing, there is someone prepared to take a chance on that failing firm. Given that, I suppose it’s a bit difficult for you to win your case against them.

MICHEL NAIRACK: You see, there will be a lot of potential buyers for the assets that exist in the Western Cape. But what is very important to horse-racing in South Africa is that we maintain the Cape product in its current form – the 80 race meetings that they produce in the national grid, and obviously from the racing perspective the big races that we have there every year. Yes, you can sweat those assets and make business profit out of it, but you can’t do that and sustain horseracing at the same time. The horseracing model in South Africa needs the Western Province as a region for racing. So by saying yes we can buy that business. The R600m tote turnover that the Western Cape does is enough to generate revenue to make a nice business, but it comes at the expense of stakes. And if we reduce the stakes of the Western Cape to make it profitable, their stakes level will drop well below Port Elizabeth, and you are going to have a exodus of horses and owners and that will hurt the game in its entirety in the country.

    You see, Gold Circle is non-proprietary. We reinvest everything we make into the game. Our very existence is the survival of the horse-racing industry.

ALEC HOGG: Michel, what happens now while your objections go in? Do you reassume management control of the Western Cape and does Phumelela have to be hands-off?

MICHEL NAIRACK: We’ve never lost control. That would have pre-empted the ruling of the Competition Commission. What happened since 1st February, Phumelela has been managing the region, but under the control of Gold Circle. They can’t take any decisions without referring to me and ultimately to the board of Gold Circle. So we’ve never lost control. We still have that control and, as far as we are concerned, the status quo remains.

ALEC HOGG: What happens if the Competition Commission’s objections are upheld by the Tribunal and your proposal to have this overturned doesn’t get the green light?

MICHEL NAIRACK: The agreement that we’ve reached with our Western Cape members is that, if we fail – and it was not just the Competition Commission, obviously the transfer of the totalisator licence fees were drop-dead clauses in the agreement – and the agreement is very clear, if we don’t reach those within a  certain period of time, then the status quo remains and we revert back to the one company running both regions with two separate boards in each region and one main board made up of representatives from each region. So it’s back to square one.

ALEC HOGG: The Competition Commission wants to see another player in the industry. They want to see a third player to compete with Gold Circle and Phumelela. Presumably that would make life more difficult for the listed company, and for yourselves.

MICHEL NAIRACK: Well, I heard your preamble, Alec – it’s not Phumelela that was actually buying Kenilworth Racing. The demerger that we sent to the Competition Commission was the creation of Kenilworth Racing, which would house all the racing assets of the Western Cape and its business. And that business would have been owned by the trust, not by Phumelela. Phumelela was just managing the region on an…relationship, and we were only benefiting from profits if they managed to turn the region around. As far as we are concerned, if the Tribunal says no and we fail on appeal, we go back to where we were and we find a mechanism to stop the bleed in the Western Cape and talk to our friends there and find a way forward.

ALEC HOGG: The other bit of news to come out of the Competition Commission today was that they have given you approval to sell the Clairwood Racecourse to a property developer. That must be seen as good news.

MICHEL NAIRACK: Yes, it is good news for us. As you know, horseracing in its heyday had 100% of the gaming market, and we’ve now shrunk to 5% of that market. We’ve still got those huge facilities of the past that are very costly to run, and absorb a lot of capital. On top of that, the world has moved on with technology. In all the new models of racecourses you’ve got two or three tracks with different types of surfaces at one venue, so it makes sense for us to sell Clairwood and build an all-weather track in KZN alongside the grass track at Greyville. That’s our plan, and at the same time it’ll give us enough capital to re-engineer the business, update our aging facilities and secure horseracing for the future. So we are very happy about that and we are taking it to our members for approval. … the racecourse is obviously in the members’ domain and we need a special resolution of members on the 19th April to approve the sale.

ALEC HOGG: Michel Nairack. Just to put that into perspective, although Phumelela wouldn’t own it, it would be owned by the Racing Trust, as Michel said accurately. Phumelela would manage it and operate the Western Cape. This is a setback for Phumelela. We did try to get hold of Rian du Plessis, the chief executive. No luck. He’s in the UK at the moment. But we did get hold of Charles Savage from Purple Capital, which is also a listed company, and he says he is very keen, as are many others, to buy the Western Cape racing should it become available because this proposed deal has now been put on hold. We’ll be watching this space.