There may be no retrenchments in South Africa as a result of the merger for two years after the implementation of the transaction (1 December 2010), except senior management.
On 14 October 2010 the Competition Tribunal announced the approval of the merger of Metropolitan Holdings Limited and Momentum Group Limited subject to certain conditions. There may be no retrenchments in South Africa as a result of the merger for two years after the implementation of the transaction (1 December 2010), except senior management.
The Competition Act requires the tribunal to "initially determine" the competition effects of a merger. If the merger is not likely to substantially prevent or lessen competition, then the tribunal must still consider its effect on the public interest. The Act sets out the public interest grounds. Employment is one of the public interest law grounds listed found to be relevant to this merger because the merging parties had indicated that the merger may lead to up to 1000 retrenchments.
The tribunal confirmed that merging parties are not required to affirmatively justify a merger on public interest grounds. However, once the merger, on the face of it, may not be justifiable on substantial public interest grounds, the burden shifts to the merging parties to rebut the inference. The merging parties must prove that a rational process has been followed to arrive at the determination of the number of jobs to be lost; and that the public interest in preventing employment loss is balanced by an equally weighty, countervailing public interest justifying the job loss which is recognized under the Act.
Even if the merging parties make a good efficiency argument for job losses, if the job losses are substantial this efficiency gain must, be justified on a ground that is public in nature to countervail the public interest in preserving jobs. The Act refers to the public interest which must be distinguished from a private interest. The merger must be assessed on public policy grounds even after it has been justified for its efficiency.
The tribunal found that that the merging parties failed to prove a rational connection between the efficiencies sought from the merger and the job losses claimed to be necessary on their worst case scenario. Thus the tribunal found that the merging parties had not met the second leg of the criteria, namely, that the job losses can be justified for a reason that countervails the job loss incurred by the merger.
The tribunal accepted that there may be certain circumstances where efficiency gains with substantial job losses may be justifiable on public interest grounds. However, in this case the merger leads to an adverse effect on the public interest on employment. response to a request to take a deferential approach to labour issues, the tribunal held that it has a discretion that it must exercise. The employment loss would be of a considerable magnitude and the short term prospects of re-employment for a substantial portion of the affected class are limited. Thus an unconditional merger would have a substantial adverse effect on the public interest.
The merger was, therefore, approved subject to the limited moratorium on retrenchments for two years, except in the case of senior management. This merger clearly illustrates how public interest and employment considerations can have an impact on proposed mergers and can serve to delay or stall or attach conditions to a merger even a merger with limited anti-competitive effects.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.