- The national lottery operator says it will terminate all relationships with HCI in early August.
- The two companies have been at loggerheads since 2015 as HCI accused Ithuba of breaching their funding agreement in several ways.
- Ithuba says HCI has been making up breaches so that it can take over as the operator of the national lottery.
The four-year long squabble between the National Lottery operator, Ithuba, and owner of eMedia, Hosken Consolidated Investments, could finally come to an end in August.
Ithuba has served HCI - which recently approached the Competition Commission to "step in" to the running of Ithuba - with three months' notice to cancel the management agreement between the two companies.
No right to step in?
"The management agreement, which gives rise to the right to step in, no longer exists.
"Number two, we paid them the entire loan and interest. So, the funding agreement which was due on 29 April no longer exists. So, HCI have no right to do a management oversight," said Ithuba founder and CEO,
Ithuba and HCI have been at loggerheads since 2015 shortly after the former won the bid to operate the National Lottery operations for eight years in 2014. At the core of their conflict is the loan that HCI advanced to Ithuba to help it launch the national lottery.
But Ithuba wanted to repay the loan earlier, a move that HCI said constituted a breach of the funding agreement between the two companies and triggers HCI's step-in rights.
HCI also said that Ithuba breached its financial agreement when its historic debt cover ratio fell below the minimum required level. It further saw red flags with the fact that Ithuba's management company Zamani was paying salaries of the lottery operator's employees.
In July 2019, an arbitrator who was appointed to look at the case ruled that HCI was indeed entitled to exercise its right to management oversight but few months later in November, the Johannesburg High Court dismissed HCI's takeover bid, saying the company needs to get regulatory approvals from the competition authorities among other parties.
Brakes on contested merger
Last year, HCI lodged an application with the Competition Commission for a merger approval but that too has now hit a snag. The Commission recommended in April that the Tribunal approve the HCI's merger application, even though Ithuba was opposing the application. Now the Tribunal has postponed the matter indefinitely.
"The Competition Tribunal said you guys have other disputes that have not been cleared. You have no agreement. The founding management agreement has been cancelled. So, first sort out that dispute and then come back to us," said Mabuza.
The merger would have seen HCI take over the running of the affairs of Ithuba's management company Zamani, and by extension the daily management of the national lottery, explained Mabuza.
In the process, Ithuba would have to pay 1% of its gross monthly revenues to HCI. With the Tribunal's indefinite postponement, it means that for the merger application to pass, HCI would have to lock Ithuba into the management contract beyond the 5 August or prove that cancellation by Ithuba was unlawful.
Fin24 reached out to HCI CEO John Copelyn, but had not received any response at the time of publication.
Hostile takeover accusation
Ithuba said all HCI has been doing over the years is to attempt a hostile takeover of the lottery contract. The company alleges that HCI has refused to accept its repayments so that it can retain its step-in and oversight rights.
While HCI has accused Ithuba of breaching their agreements in several ways, Mabuza said HCI is clutching at straws, trying to create a picture of management crisis at Ithuba so that it can hijack the national lottery contract.
"I've lost track of those breaches. They try this, if they fail on this, they try another one," said Mabuza.
Ithuba characterised its conflict with HCI as a "classic David and Goliath story" of someone using what was given to them as a right to protect their loan to circumvent and become an operator of the national lottery license the company failed to get on its own.