In the 2010/11 financial year 229 mergers were notified to the Commission (up from the 190 mergers notified in the previous year) and 55 mergers were heard by the Competition Tribunal (slightly below the Tribunal's average of 63 mergers per year).
A focal point for merger control last year was the imposition of conditions relating to public interest considerations on merging firms; the most notable being those imposed by the Tribunal in the Wal-Mart / Massmart merger. The Government departments and trade unions which participated in the Wal-Mart / Massmart merger have subsequently appealed and reviewed the Tribunal's decision to the Competition Appeal Court (CAC), seeking prohibition of the merger or more onerous conditions.
Prior to this decision, public interest (particularly employment) related conditions imposed by the Tribunal were concerned only with job losses resulting from the merger within the merging parties themselves. However, in the Wal-Mart / Massmart merger, the main focus of the proceedings was the trade unions' and Government's opposition of the merger on the grounds that it would result in job losses for local suppliers as a result of Wal-Mart increasing the procurement of imported goods. The merging parties argued that the merger would result in significant pro-competitive benefits to consumers (in the form of lower prices) and that the Government departments and trade unions' concerns regarding job losses in the local manufacturing sector were concerns that exist independently of the merger. The merging parties nevertheless volunteered undertakings to establish a R100 million development fund to develop local suppliers to the merged entity, which were imposed as conditions by the Tribunal. The Tribunal avoided making a finding on the issue of whether the merger would result in significant employment effects and found that while a change in the procurement patterns of the merged entity was likely, the quantitative impact of this (job losses in manufacturing) was not clear. The Tribunal commented that the fact that an (employment) concern exists independently of a specific merger, however weighty that concern may be, does not bring it within the Tribunal's jurisdiction in performing merger adjudication.
As this decision is currently under review and appeal, it will be interesting to see whether the CAC, whose judgment is expected in the next few weeks, will see the need to extend the scope of public interest consideration in merger assessment beyond the Tribunal's approach. The CAC will certainly have to give careful consideration to the manner in which the Competition Act requires the competition authorities to balance the competition effects of a merger on the one hand, and public interest factors on the other.
The Kansai / Freeworld merger was another example of a merger in which the Commission imposed significant conditions relating to public interest considerations. Initially, extensive conditions were imposed by the Commission on the merging parties; in particular, that Kansai (i) divest of Freeworld's automotive coatings business in South Africa; (ii) establish original equipment manufacturer automotive coatings facilities in South Africa; and (iii) refrain from any retrenchments of employees for the next three years. Kansai subsequently requested the Tribunal to reconsider the Commission's conditional approval. This resulted in the parties and the Commission renegotiating and agreeing the conditions imposed on Kansai, ultimately doing away with the obligations of divestiture and the development of local manufacturing facilities. The removal of these conditions was approved by the Tribunal.
An unusual employment-related condition was imposed by the Commission in the Marley / Petzetakis merger. Petzetakis was a pipe manufacturer which was in the process of being liquidated and its employees retrenched. Marley proposed to acquire the Petzetakis assets and revive the business. In conditionally approving the transaction, the Commission imposed a condition requiring Marley to employ no less than 311 former Petzetakis employees once it had acquired the Petzetakis assets. This is an interesting condition given that absent the merger being approved all former Petzetakis employees' jobs would have been lost entirely.
A further noteworthy case in 2011 was the Commission and Tribunal's prohibition of the proposed intermediate merger between US multinational seed producer Pioneer Hi-Bred International, and South Africa's Pannar Seeds, ostensibly to protect competition in South Africa's seed industry from being dominated by two international seed suppliers. The merger was approved by regulatory authorities in Kenya, Malawi, Namibia, Swaziland, Tanzania and Zambia. However, the Commission found that should Pioneer merge with Pannar Seeds, competition in the South African seed market would be reduced to two players in the market, being Monsanto and the merged entity, which would substantially lessen competition in South Africa. The Commission accordingly prohibited the merger and the parties asked the Tribunal to reconsider the matter. The Tribunal agreed with the Commission's findings and also prohibited the merger. The Tribunal has not yet released its full reasons for the decision, but the parties are appealing the Tribunal's decision to the CAC. Developments in this case should bring an interesting start to 2012.
Given recent trends in Commission and Tribunal merger proceedings, merging firms should anticipate even greater scrutiny by the competition authorities of the public interest effects of mergers in future.
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