MTN demands R1.5m from employees looking to own stores
MTN has divulged the criteria for employees who wish to take over stores in a proposed deal that will see the company offload its branded channel across the country.
These include that potential store owners must have a minimum amount of R1.5 million “unencumbered, non-borrowed cash and the balance may be financed by MTN”.
Analysts have criticised the mobile operator’s stringent conditions.
ITWeb reported earlier this month that MTN employees had expressed fears the company’s move to sell off its stores (Branded Channel) will result in them losing their jobs.
The company denied retrenching staff, stating its objective with the project is not to close stores, but to rather increase, not only the company’s store footprint, but also its BBBEE ownership of MTN stores.
“The plan will see MTN increasing its number of stores in the coming two years, creating businesses for new owners and new job opportunities for new store employees. The opportunity for staff to apply to become a store owner is not a once-off opportunity,” Jacqui O’Sullivan, executive for corporate affairs at MTN, said at the time.
According to documents seen by ITWeb, the broad-based black economic empowerment criteria MTN will use includes partnerships of two employees, and the intended beneficiaries must be black, Indian, coloured or Chinese. The scheme will cover both male and females in the mentioned groups.
The condition that has attracted criticism is that potential store owners must have a minimum amount of R1.5 million cash.
The full cost of the stores is not provided, save to say: “Stores will be allocated depending on their availability. MTN will take into account an employee’s preferred region, but MTN cannot guarantee that such locations/stores will be available or allocated. Locations of stores and availability will be dependent on MTN’s overall strategy.”
Ajay Lalu, MD of BEE consulting firm Black Lite Consulting, is not convinced the proposed funding model supports black empowerment.
“I really think MTN should develop a funding model that can support the transaction. Typically, the category of workers that MTN are seeking to empower will not earn enough to fund the unencumbered deposit of R1.5 million to acquire the stores. We have seen it with other BEE transactions, especially in the liquid fuels sector.
“It should be easy to organise third-party funding backed by MTN’s balance sheet. That would have been a better model, in my opinion.
“If you believe in something, you have to back it. I think this is designed for existing owners that have available capital, as opposed to workers as claimed,” Lalu adds.
“Most empowerment deals require some skin in the game and typically this ranges between 5% and 10% of the value of a transaction. If you want to own something, you must have something to risk, but R1.5 million seems excessive in relation to the value of a typical store.
“I suggest facilitation by MTN of worker true ownership could include getting a group of employees to form a company that will own the store. MTN could facilitate funding models – say up to 95% of the transaction value – given that these are existing profitable stores with existing cash flows.”
Professor of banking, finance and corporate law at Wits University, Herbert Kawadza, was more scathing in his assessment of the proposed transaction.
“It’s a travesty of justice; this is purely a commercial transaction and they are using black economic empowerment (BEE). This goes against the spirit of BEE. No employee present or past would be able to raise that kind of money. If they were genuine, they should have made finance available. Why can’t they issue shares?”
According to the MTN documents, employees “cannot use their share allocation to offset the financial requirements of the business opportunity”.
The Communication Workers Union, the leading labour union in the sector, has promised to defend the workers’ rights, with its secretary-general Aubrey Tshabalala telling ITWeb: “MTN tabled their embarrassing transformation plan on BBBEE, where in all their franchised stores only one African happens to own their store.”