6 December 2019
Competitionlaw
Applying a broader perspective
ELISHA BHUGWANDEEN AND NADIA DHORAT
Although most mergers are approved subject to two or three year mora-
O
ver the past few years, public interest consider- toriums on retrenchments, in light of current unemployment statistics, it is
ations have played an increasingly prominent likely that the competition authorities will continue to adopt a more strin-
role in merger assessments undertaken by gent approach towards job losses. For instance, while we have only seen a
competition authorities in South Africa. While we have handful of mergers being approved subject to moratoriums longer than
three years, in April 2019, the Tribunal approved the IDC/Celrose merger –
become accustomed to conditions relating to retrench-
subject to a moratorium on retrenchments for five years.
ments, we are now seeing other categories of innovative
Furthermore, where traditional conditions have mainly been confined to
conditions which may broadly influence the merged entity’s protecting affected employees, we are now seeing conditions aimed at
business strategy – these range from local procurement uplifting both affected employees and their communities. The Competition
commitments, to the creation of new jobs and education Tribunal recently approved the Boundary Terraces/Bravo Group merger,
funds. subject to a condition that the Bravo Group establishes a development fund
worth approximately R7.35
million to assist affected
Although some recent conditions employees and their immedi-
might have appeared somewhat ate family members in terms
novel, in light of the primary of reskilling, small business
objectives of the Competition development and/or a bursary
Amendment Act 2018 allocation for either an
(Amendment Act) and existing immediate family member or
provisions in the Competition the affected employee. In the
Act (89 of 1998), we can expect Mondi Plc/Mondi Limited
to see more merger conditions transaction, the Mondi
aimed at addressing broader socio- Group was required to invest
economic issues. In particular, the in programmes aimed at pro-
Amendment Act introduces a viding support to small busi-
number of provisions aimed at nesses within the Mondi
supporting the fair participation Group and developing com-
of small and medium enterprises munities where the Mondi
and firms controlled by historically Group conducts its business
disadvantaged persons in the activities. The Mondi Group
economy. This position is further entrenched by the Competition was also required to invest in initiatives to support small-scale businesses of
Commission’s final guidelines on the assessment of public interest provi- historically disadvantaged persons and groups as part of an integrated supply
sions in merger regulation. In terms of these guidelines, although not bind- chain, supported by local contractors and growers.
ing, the Commission is entitled to take into account factors including pub- We saw a culmination of similar types of conditions in the Milco/
lic policy goals, social projects, industrial and government policies and Clover merger in September. The Tribunal sought an undertaking from
constitutionally enshrined rights when considering public interest grounds. the merged entity to contribute R10 million towards the relocation and
training costs of affected employees applying for new or vacant positions
Employment at the newly merged entity. Although the circumstances were complicated,
Over the years, merger parties have accepted that many transactions will the merged entity eventually agreed to not retrench any employee in
be approved subject to a limitation on the number of retrenchments over South Africa as a result of the merger, and to create 550 new permanent
a specified time period. We are now seeing the competition authorities employment positions.
taking employment conditions a step further by imposing longer morato-
riums on merger specific retrenchments (or restricting merger specific Local Procurement and Supply Commitments
retrenchments altogether), and the creation of reskilling, relocation and In the past three years, we have seen a number of cases approved subject
education funds. to procurement conditions. These include undertakings that the merged
WP December.qxp_WP Feb 2019/11/25 3:12 PM Page 7
December 2019 7
Competitionlaw
entity maintain or increase their The spotlight was also placed on
procurement from local suppliers, procurement considerations in the
not substitute current, South Milco/Clover merger where the
African owned suppliers with off- Tribunal approved the proposed
shore suppliers, and honour existing transaction subject to the condition
procurement contracts with previ- that the merged entity would, for a
ously disadvantaged persons. period of three years, continue to
In the Telefonaktiebolaget LM procure its required volumes of bulk
Ericsson/Kathrein SE merger, the juice concentrate from local suppli-
Commission found that the pro- ers on substantially the same terms
posed merger would raise substantial and conditions currently in place.
public interest concerns with regard
to the effect on the ability of small Other conditions
businesses or firms controlled by Over and above employment and
Bhugwandeen historically disadvantaged persons local procurement, we have seen a Dhorat
to become competitive. host of other conditions aimed at
Accordingly, the merger was approved subject to a condition that the achieving broader objectives. In the SAB/Diageo SA merger, SAB was
merged entity would not terminate the distribution agreement in place required to provide refrigerator space to its competitors, while in the
with a South African sales partner that Kathrein SE was using. In the CIVH/Vumatel merger, the merged entity agreed to retain an open access
New Holdco/Edgars Consolidated Stores Ltd merger, the Tribunal service provision model for certain of its services post-merger, and that the
imposed a condition that went beyond maintaining procurement agree- merger parties provide free uncapped fibre services to public and private
ments. In this instance, the merged entity was required to expand its pro- schools that its networks bypass. Interestingly, in the Mosstrich/Klein
curement from South African suppliers. Karoo merger, the merged entities agreed to offer at least 40% of their
8 December 2019
Competitionlaw
slaughter line ostrich feathers on tender in each financial year, while in communities and broader socio-economic issues within particular sectors.
the Glencore/Chevron SA merger, Glencore had to ensure that Chevron’s Although competition law may not be the silver bullet to address all of
decisions be taken in South Africa and, where practicable, implemented these issues, merger control is certainly being fully used as a tool to con-
using local skills and expertise. tribute to industrial and social welfare policies, as well as addressing past
inequality where possible.
Where to from here? However, a question that should be posed is whether or not this is sti-
Prospective merger parties should be aware that merger conditions are fling investment and economic growth in South Africa? ◆
evolving. These conditions will undoubtedly have a multitude of effects
ranging from the timing of the proposed transaction to the way in which Bhugwandeen is a Professional
the business of the merged entity is ultimately conducted. Merger parties Support Lawyer and Dhorat a
may have to think beyond traditional due diligence analyses and also con- Candidate Attorney with Webber
sider the effect of the merger on small and local businesses, surrounding Wentzel.
Competition Commission
penalises market allocation
CHARLIZE MORGAN
was reasonable, and led to efficiency or pro-competitive outcomes, would
probably have passed muster in terms of s5. However, preventing Karan Beef
A
settlement agreement between the Competition
Commission and Karan Beef (Pty) Ltd high- from marketing these products itself was viewed by the Commission as a
restriction on a potential competitor which fell foul of s4(1)(b) of the Act.
lights that market allocation in contravention of
This case serves as a good exam-
s4(1)(b)(ii) of the Competition Act can be a costly mistake ple of how commercial negotiation
when parties who are potential competitors enter into about supply may potentially result
supply agreements. in product or customer restrictions
which the Commission may regard
as prohibited market allocation
The settlement agreement ensued from the Commission’s investigation of between competitors or potential
Karan Beef and Irvin & Johnson Ltd (I&J). The Commission found that competitors.
on 26 June 2000, Karan Beef and I&J entered into an agreement in terms It is worth noting that the
of which Karan Beef undertook to cease the manufacture of processed Competition Amendment Act
beef products for its own account and to do so on behalf of I&J. In 2002, (which partly came into effect in
Karan Beef and I&J entered into an amended manufacturing agreement, July 2019), now includes a new
which provided that Karan Beef would not manufacture, produce or mar- ground for exemption from the
ket the same or similar products to those that it manufactured for I&J. In s4(1)(b)(ii) prohibition on market
addition, Karan Beef agreed to only manufacture certain products similar allocation, in subparagraph (v) of
to those that it manufactured for I&J, using different recipes, and that ss3(b), namely: if the agreement Morgan
these products would only be supplied to the food services market (restau- between competitors contributes to
rants, fast food outlets). “competitiveness and efficiency gains that promote employment or indus-
The Commission concluded that this was a form of market division by trial expansion”. Accordingly, competitors who need to build restrictions
allocating specific types of goods and customers, in contravention of into their supply agreements could potentially gain an exemption if they
s4(1)(b)(ii) of the Act. The Commission and Karan Beef entered into a can show the restriction is necessary to promote competition and/or effi-
settlement agreement in terms of which Karan Beef agreed to pay an ciency, and will promote employment or industrial expansion. ◆
administrative penalty.
If Karan Beef had agreed that it would not manufacture these products for Morgan is a Candidate Attorney with Falcon & Hume. The article was
anyone else it would simply be a form of exclusive supply agreement and, if it overseen by Heather Irvine.
