Wal-Mart Stores Inc's decision to invest in South African retailer Massmart Holdings Limited, has been seen as a vote of confidence in the country and in Africa in general. This is the largest foreign acquisition by Wal-Mart since its 1999 acquisition of Asda and one of the largest investments by a US corporation into Africa to date. There has been significant interest in the transaction in South Africa, Africa and around the world, with the SA Government and trade unions actively opposing the transaction before SA's competition authorities and constant media attention since announcement.

Although it was generally accepted that the merger did not raise competition concerns, the SA Competition Act mandates the competition authorities also to assess the effect of a merger on certain public interest considerations, such as its effect on employment. Many other African jurisdictions have given similar mandates to their competition authorities. The decision of South Africa's Competition Appeal Court therefore has continent-wide relevance.

The transaction required competition approval in six African countries and was approved without substantial conditions being imposed in four of these countries. While there were some regulatory complications in Namibia, the most significant challenge to it came in South Africa, where the Government and trade unions opposed it.

South Africa's Competition Commission had recommended that the Competition Tribunal approve the transaction unconditionally. After hearing evidence from the merging parties and the opponents to the merger, the Tribunal approved the merger in May 2011, subject to conditions that were tendered voluntarily by the merging parties. These conditions addressed public interest concerns that had been raised by the Government and trade unions in relation to employment and procurement issues. The Government and trade unions challenged the Tribunal's ruling before the Competition Appeal Court - the Government took the Tribunal's decision on judicial review, arguing that the process the Tribunal had adopted in dealing with the matter resulted in the Government not enjoying a fair hearing, while the trade unions launched an appeal against the decision. The trade unions contended that the Tribunal had erred in approving the merger subject to conditions and argued that the Court should prohibit the merger or impose more extensive conditions on the parties.

On March 9 2012, the Court dismissed the review application, but partly upheld the appeal by the South African Commercial, Catering and Allied Workers Union (SACCAWU).

Although the Court found that there was insufficient evidence to conclude that the merger's effect on SMMEs and employment was sufficient to prohibit the merger, it partly upheld the appeal as it found that there were legitimate concerns which justified the imposition of conditions. The Court endorsed the employment related conditions imposed by the Tribunal, but extended them and ordered that a study be conducted by three experts appointed by SACCAWU, the merging parties and the Government to assist the court in framing a supplier-development condition.

The judgment is important as it gives an indication of the Court's interpretation of the legal test in South Africa's Competition Act to be applied by the competition authorities when assessing and deciding on a notifiable merger.

The authorities first need to examine the effect of the transaction on competition and thereafter its effect on specified public interest factors.

The Court considered the argument made by the opponents to the merger that since the competition assessment requires the authorities to consider whether or not the merger "substantially prevents or lessens competition", this precluded consideration of any pro-competitive gains resulting from the merger. Accordingly, if there was any public interest harm arising from the merger, the pro-competitive gains could not be weighed up against this harm.

However, the Court appears not to have accepted this argument and rather adopted an interpretation of the Act which mandates the authorities to weigh up the competition effects of the merger (positive, negative or neutral) against the public interest harm (positive or negative). A merger can be prohibited on public interest grounds only when the merger would lead to "substantial" public interest harm. However, where the public interest harm is not sufficient to justify prohibition of the merger, it nevertheless needs to be measured to determine whether or not conditions should be imposed and, if so, the extent of the conditions. Evidence of public interest harm and competition effects is therefore crucial.

In this case the Court found that it was uncontested that prices will be reduced to the benefit of consumers as a result of the merger and that it did not appear to be disputed either that there was the potential for South African SMME suppliers to gain benefit from the presence of Wal- Mart and its unique access to global value supply chains.

These positive factors would need to be weighed up against any losses which would be experienced by SMMEs, as well as the consequences for employment. The Court concluded that in dealing with a standard that seeks to weigh up the competition assessment against the public interest assessment, it is highly unlikely that the prohibition of the merger could have been justified.

However, the Court pointed out that in such circumstances the public interest harm was not irrelevant. The Court recognised the concerns identified by the Tribunal regarding the effect of the merger on SMMEs and employment, particularly in light of the development of global supply chains viewed within the context of broader globalisation. The Court therefore concurred with the Tribunal that conditions were required.

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