In 2005, the Competition Tribunal approved the large merger of the respective canning businesses of Langeberg (part of Tiger Brands) and Ashton Canning, subject to certain conditions.
Approximately 80% of the merged entity's production of canned deciduous fruit and fruit puree is exported, but the decision correctly focused on the effect that the merger would have on competition in the domestic South African market. The merged entity would enjoy 68% of the South African fruit canning market, as the merging firms were two players in a fruit canning market of just four participants. The merging parties also engaged in the production of fruit puree where only four other market participants are to be found.
Self-evidently, the Tribunal found that the merger would lead to a substantial lessening or prevention of competition in a highly concentrated market, as the merger would result in the removal of an effective competitor. In considering these concentrated markets, the Tribunal noted that their characteristics were "hardly suggestive of a culture of vigorous competition between firms", noting further that each market had few players, was mostly export driven and demonstrated a high level of discussion between competitors.
The merging parties argued, however, that any anti-competitive effects resulting from the merger would be outweighed by an efficiency gain, thus giving scope to the competition authorities to approve the merger in terms of the Competition Act, despite its anti-competitive effects. The Tribunal found that there were indeed dynamic production gains to be yielded by the merger, which were "credible, conservative and ongoing".
Having found favour with the Tribunal in respect of their "efficiency gains" argument, the merging parties were permitted to merge subject to certain conditions relating to limiting employment losses as a result of the merger. The limitation of employment losses is an important public interest consideration for our competition authorities when considering a proposed merger.
First, the Tribunal imposed a condition that prohibited the merged entity from effecting merger resultant retrenchments of more than 10% of the merging parties' combined permanent staff.
Second, the merged entity had to undertake to ensure that not more than 1000 seasonal workers (of a total seasonal workforce of approximately 15 000) would lose their positions.
Third, the merged entity was obliged to establish a training fund for the retrenched employees and seasonal workers who would no longer be employed. The Tribunal ordered a capital sum of R2 million to be contributed to this fund, notwithstanding that the merging parties had only offered a R250 000 contribution. It seems that the parties were hard pressed to argue against the higher amount, as the value of the efficiency gains (which are confidential) were ultimately the only justification for the merger approval.
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