SARU's candid response amid Parliament scrutiny

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REACTION: The South African Rugby Union confirmed that they met on Friday to clear up any uncertainty in the wake of renewed questions from the South African Government and media.

SARU's finances has caused a massive stir after being put under the spotlight by the Portfolio Committee on Sport, Arts and Culture Chairperson, Joe McGluwa.

McGluwa's committee met with SARU just two days before a special general council voted #NO for the US$75-million (ZAR1.3-billion) equity deal with the American-based equity consortium, trading under the banner of 'Win-by-1'.

There are renewed questions around a company operated by SARU CEO Rian Oberholzer's son, which was appointed to organise the Springboks' Tests against Ireland last year.

The same company was also in the running to host all matches at the Cape Town stadium if the much-maligned ASG deal went through.

Members of the Portfolio Committee on Sports raised their scepticism about these developments at the meeting with SARU on December 4.

However, McGluwa said that while they want to 'scrutinise 'SARU's books and meet with them again.

Following the latest development, SARU revealed that a governance review by an independent audit firm is being commissioned to assure stakeholders that governance requirements were adhered to in relation to a proposed equity transaction.

SARU's Executive Council met on Friday to discuss stakeholder concerns raised by certain media reports around technicalities relating to the transaction.

The reports related to the proposed investment by the ASG Group into the commercial rights of SARU. The proposal failed to meet the 75 percent threshold it required to receive approval from the General Council in December.

The recent questioning related to the establishment of a company, Win by One (Pty) Ltd in SA, and the sub-division of the fee that would have been payable to the international brokers who worked on the deal.

The independent review will be focused on both elements.

For clarity, the media are advised of the reasons for the creation of Win by One (Pty) Ltd:

- The implementation steps of the transaction, should it have been approved, would include the setup of commercial entity owned by both shareholders. As part of preparation, SARU setup the Special Purpose Vehicle (SPV), named Win by One, which was 100% owned by SARU as per standard commercial practice.
- The equity partner would acquire its shareholding from the SPV.
- The SPV would be a South African tax-registered company that could immediately perform all the functions required of the planned new company. This structure was advised at all steps of the process with all stakeholders, including in media advisories.
- For convenience's sake that entity was called Win by One (Pty) Ltd. The Win by One LLP company established by ASG is a separate entity in an international jurisdiction in which SARU has no interest.
- The creation of the SPV a purely technical process and was performed by BDO for SARU on the instruction of the company secretary. The power to create such an entity is covered by clauses 7.16 and 7.17 of the constitution.
-Such entities require the naming of at least one director until the Board of the new company would have been constituted. - - As the accounting officer of SARU, the CEO was automatically named as the sole director of the new company as is business custom and practice.

The establishment of the amount of the transactional costs and the sub-division of the fee is explained as follows:

-Provision was made for a maximum of 15 percent costs towards the equity transaction.

-Of which an estimate of a maximum of 5 percent was identified to cover the transactional fees for lawyers, mergers and acquisitions specialists, audit and tax advisers among others.

-The company that comprised the agents and associates who introduced SARU to the transaction presented the commission structure to SARU.

-It included an agreement reached with the brokers for a success fee of 10 percent should the deal go through.

- The success fee was renegotiated to 8% with the brokers before it was presented to the General Council.

- The division of the fee among the parties in the event of success was at their discretion.

- The agreement and fees went through all the necessary approvals and governance structures according to SARU's policies.

- As the proposal was not approved no fees have been paid to the brokers.

- The professional fees incurred by SARU are to be carried by SARU.

SARU's statement also added that further information will be provided at the conclusion of the governance review.

Meanwhile, the latest equity deal will be formally put on the table on February 6 at the SARU council meeting where all four franchises – Bulls, Sharks, Stormers and Lions – will combine to present a united front.

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