Article by Mark Garden, Justin Balkin and Kirsty van der Bergh

Judge Dennis Davis, the President of the Competition Appeal Court ("CAC"), dismissed the application by the Minister of Economic Development, the Minister of Trade and Industry and the Minister of Agriculture, Forestry and Fisheries to review and set aside the decision of the Competition Tribunal (the "Tribunal") to approve Walmart Stores Inc's ("Walmart") acquisition of a 51% stake in Massmart Holdings Limited ("Massmart") (the "Tribunal's May decision").  At the same time, the CAC partially upheld the appeal launched by the South African Commercial, Catering and Allied Workers Union ("SACCAWU") against the Tribunal's May decision. 

In the review application, the Ministers argued that they had not enjoyed a fair hearing before the Tribunal, as the Tribunal had erred by refusing to order the discovery of a range of documents, and, by making certain scheduling decisions which ultimately precluded the intervening parties from fully and adequately addressing their concerns.

The CAC held that, in evaluating the Ministers' submissions, the applicable test was not what the court might have done itself in making scheduling and discovery decisions, but what a reasonable decision maker would have done, within the context of the Tribunal's mandate, its workload, expertise and the time available to it.  The CAC found the Tribunal to have acted as a reasonable decision maker and dismissed the Ministers' review application.

In the appeal, the CAC found that there was insufficient evidence to refuse the approval of the merger on the grounds that the merged entity would have a detrimental effect on small and medium sized businesses.  Indeed, the CAC found that the evidence indicated that consumers would benefit from lower prices as a result of the merger, and these lower prices could, in turn, lead to greater job creation. 

The CAC also rejected the proposition made by SACCAWU that a condition should be imposed whereby the merged entity would become the subject of group centralised bargaining and a closed shop agreement.  The Court emphasized that these benefits could not be obtained through competition law, especially in circumstances whereby it could not have obtained these protections through labour law, and accordingly these safeguards should be the result of negotiations between trade unions and the merged entity. 

The Court rejected SACCAWU's proposal that a limitation be placed on the merged entity's ability to import goods as such a condition would create distortions in the industry and be difficult to implement, especially when said condition would be imposed only upon the merged entity and not its competitors. 

The appeal was partially upheld in relation to SACCAWU's proposition that same 503 workers who were previously retrenched by Massmart should be reinstated by the merged entity.  The CAC held that the evidence indicated that the retrenchments were so closely linked to the merger and its timetable that they must have been merger-related.

The fourth condition imposed in the Tribunal's May decision, namely that the merged entity must establish a programme aimed exclusively at the development of local South African suppliers, including SMME's, funded in a fixed amount of R100 million, was held to be ineffective by the CAC.  The Court indicated that the R100 million fund proposed by the merged entity in the Tribunal hearings was accepted without sufficient interrogation as to how precisely the programme would be implemented.  In its judgment, the CAC indicated that it had no idea how the fund should work, whether it would be effective and indeed if R100 million was sufficient or not. 

The CAC accordingly ordered that a study be commissioned by three experts, representing the Ministers, SACCAWU and the merged entity.  The three experts must be appointed within one month of the CAC's decision, and will have a further two months in which to produce a report detailing how best to utilise the merged entity's supplier fund to the benefit of small and medium-sized South African suppliers and ensure that the benefits of the merger flow to this important sector of the economy.  Once parties have responded to the submissions, the CAC will be empowered to formulate the mandate and conditions by which the fund would operate, ensuring the advancement of the public interest.

Of the conditions imposed by the Tribunal, two were upheld and two were amended by the CAC.  Ultimately, the conditions imposed by the CAC are as follows -

  • the merged entity must ensure there are no merger-related retrenchments in South Africa for a period of two (2) years from the effective date of the transaction;

  • the merged entity must honour existing labour agreements and must continue to honour Massmart's current practice of not challenging SACCAWU's position as the largest representative union within the merged entity, for three (3) years from the effective date of the transaction;

  • the merged entity must reinstate the 503 employees who were retrenched by Massmart in 2009 and 2010 and must take into account the employees' years of service; and

  • the merged entity must commission a study to determine the most appropriate means together with the mechanism by which local South African suppliers may be empowered to respond to the challenges posed by the merger and thus benefit thereby.  In particular, the study shall canvass the best means by which South African small and medium-sized suppliers can participate in Walmart's global value chain training programmes that might be established to train local South African suppliers on how to conduct business with the merged entity and Walmart and the costs which would reasonably be incurred in so far as the development of such a programmes is concerned.

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