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[2019] ZACAC 1
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Association of Mineworkers and Construction Union and Another v Competition Tribunal of South Africa and Others (169/CAC/Dec18) [2019] ZACAC 1 (17 May 2019)
THE
COMPETITION APPEAL COURT OF SOUTH AFRICA
HELD
IN CAPE TOWN
CAC
CASE NO:
169/CAC/Dec18
In
the matter between
ASSOCIATION
OF MINEWORKERS AND
CONSTRUCTION
UNION
First
Appellant
GREATER
LONMIN
COMMUNITY
Second
Appellant
and
COMPETITION
TRIBUNAL OF SOUTH AFRICA
First
Respondent
SIBANYE
GOLD LIMITED t/a SIBANYESTILLWATER
Second
Respondent
LONMIN
PLC
Third
Respondent
MINING
FORUM OF SOUTH
AFRICA
Fourth
Respondent
SIKHALA
SONKE
Fifth
Respondent
GREATER
LONMIN
COMMUNITY
Sixth
Respondent
COMPETITION
COMMISSION OF SOUTH AFRICA
Seventh
Respondent
JUDGMENT:
17 May 2019
DAVIS
JP
[1]
Albert Einstein once said 'God does not play dice with the universe'.
Whatever the controversy with regard to the meaning of
this
statement, there should be no difficulty in understanding that courts
should not play dice with the welfare of workers, particularly
in a
country with notorious levels of unemployment as is the case in South
Africa. This consideration must be uppermost in the
mind of a court
confronted with public interest concerns raised in respect of a
proposed transaction between merging parties when
these concerns
relate to the employment of some 32 000 workers is potentially at
risk.
The
background
[2]
On 13 March 2018 second respondent (Sibanye) and third respondent
(Lonmin) notified the seventh respondent (the Commission)
of a
proposed large merger in terms of which Sibanye intended to acquire
the sole control of Lonmin. Sibanye proposed to implement
the merger
by issuing 0.967 shares in Sibanye in exchange for each ordinary
share in Lonmin. This would mean that, subsequent to
the merger,
Lonmin's shareholders would hold 11,3% of the enlarged Sibanye
entity. In its competition filling Sibanye submitted
that access to
Lonmin's smelting and refining facilities would make it a fully
integrated Platinum Group Metals (PGM) producer
in South Africa.
Sibanye contended that there would be a potential realisation of
synergies between contiguous Sibanye and Lonmin
assets and
opportunities to further progress current developmental projects
within the Lonmin business.
[3]
In the merging parties filing, Lonmin set out its reasons for the
merger: 'Lonmin has been suffering major challenges in recent
years
in respect of its debt structure, capital constraints and liquidity.
As the headroom in the Lonmin group's tangible net worth
had
decreased, Lonmin's financial statements for the six months to 31
March 2017 disclosed the risk of a potential breach of Lonmin's
debt
covenant, which could reduce its liquidity. As at the end of Lonmin's
2017 financial year, the tangible net worth covenant
was breached.
Despite a series of restructuring initiatives, Lonmin has been unable
to adequately restructure its debt so as to
provide the liquidity
required for the business to operate properly.'
[4]
The Commission conducted an extensive investigation of the proposed
transaction which included a market analysis of the proposed
transaction, a competitive assessment, and a public interest
assessment. It concluded its competitive assessment by finding that
the proposed transaction presented both a horizontal and a vertical
overlap. After evaluating the pre and post merger market
structure, it concluded that the proposed transaction was unlikely to
substantially lessen competition in any of the separate PGM
markets
it had identified.
[5]
The Commission found that the proposed transaction did not raise any
unilateral effects. In its vertical analysis the Commission
noted
that the proposed transaction raised vertical issues because Sibanye
did not have any smelting or refining operations in
South Africa but
sold its PGM concentrates to refiners and smelters in the downstream
market where Lonmin was active. It, however,
concluded that input or
customer foreclosure was unlikely in the circumstances. In the light
thereof, the Commission concluded
that it was unlikely that the
proposed merger would substantially lessen or prevent competition in
any of the relevant markets.
The
Tribunal's decision
[6]
On 21 November 2018 the Tribunal approved the proposed merger,
subject to certain conditions to which reference will be made
presently. The appellant (AMCU) together with certain other
participants were granted the right to intervene in the proceedings
before the Tribunal. One of the parties which was granted intervenor
status was second appellant (GLC), which belatedly applied
to be
heard in the appeal before this Court. I shall return to this
application after analysing the Tribunal's decision.
[7]
The Tribunal accepted the Commission's analysis that the proposed
transaction was unlikely to substantially lessen competition
in the
relevant markets. It however accepted that the merger raised public
interest issues, in particular the contemplated large
scale
retrenchments at Lonmin and post merger, the noncompliance by
the merging parties with their respective Social Labour
Plans (SLP),
the effect of the merger on local suppliers and historically
disadvantaged persons, the potential rolling out of an
Agri-lndustrial Development Program to create economic and social
benefits for communities which were in the area where mining
was
conducted.
[8]
Before the Tribunal, AMCU referred to the independent operational
plans for the future of Lonmin which had been provided by
Sibanye and
Lonmin respectively. In a standalone plan, Lonmin had envisaged 12
459 retrenchments in order to cut costs and continue
operations.
Sibanye constructed a joint operational plan with Lonmin which
envisaged 13 344 retrenchments. Sibanye considered that
only 885
retrenchments were merger specific. By contrast the Commission
considered that 3188 retrenchments were merger specific.
AMCU
considered that all the retrenchments, whether 12 459 or 13 344
retrenchments, should be considered to be merger specific.
[9]
The Tribunal found, on the basis of the available evidence, that
there was no justification for concluding that all retrenchments
proposed in Lonmin's plans were merger specific. In this connection
it said 'The exact calculation of all merger-specific retrenchments
is difficult as it is in business decisions and plans based on
imperfect assumption'.
[10]
The Tribunal then examined the countervailing public interest
arguments advanced by the merging parties, namely that, absent
the
merger, more workers at Lonmin stood to lose their jobs and Lonmin's
assets were consequently sold on a 'fire-sale'. The potential
loss of
jobs was estimated to be as high as 32 000. While the Tribunal
eventually found, in the light of the uncertainty regarding
the exact
number of retrenchments and when retrenchments were expected to take
place, that it was unable to 'give the merging parties
a free hand at
the dismissal of whoever they wish without a thorough economic
analysis and stakeholder engagement ... we have to
balance the above
commercial realities and cannot force unfeasible mines to stay open.'
[11]
As a result, the Tribunal decided to adopt what it referred to as a
'balanced approach'. As a result, the order it made was,
inter
alia,
that all retrenchments at Lonmin would be prohibited for a
period of six months from the implementation of the proposed
transaction,
as well as imposing certain further conditions arising
from an undertaking given by the merging parties to ensure that
certain
job saving measures were implemented. These further
conditions were dependant on the realisation of certain PGM price and
mining
costs levels.
[12]
The Tribunal then addressed the SLP commitments made by the merging
firms to the Department of Mineral Resources (DMR) in terms
of the
Mineral and Petroleum Resources Development Act 28 of 2002 (MPRDA).
These plans involved certain social responsibilities
which were
designed to uplift communities in the area in which the mining
operations are located.
[13]
Sibanye agreed to honour Lonmin's SLP obligations post-merger and to
the imposition of a specific condition to that effect.
In addition,
the merging parties tendered to set up a community engagement forum
for the purpose of providing information and soliciting
the views of
stakeholders surrounding the commitments in terms of the SLPs. The
tender was included as one of the conditions ordered
by the Tribunal.
[14]
Sibanye agreed to honour four existing contracts owed to the Bapo
Community Companies as well as an agreement to continue to
pay the
community and annual amount of R 5 million. In addressing the
question of the effect upon local suppliers and historically
disadvantaged persons (HOP), the Tribunal added a condition that
Sibanye would honour all existing contracts to HOP suppliers and
would endeavour to ensure that it would comply with current HOP
procurement policies.
[15]
The final issue concerned the Agri-lndustrial Development Program
which was designed to promote the economic and social upliftment
in
the Rustenberg area which was most effected by the mining operations.
Sibanye is to set up a memorandum of understanding with
the 'West
Rand Steering Commission' that seeks to develop agricultural and
social benefits for the West Rand Communities affected
by mining
operations.' It was also accepted by the merging parties that, once
the West Rand Development Program was completed,
they would ensure
that an independent body would conduct a feasibility to study to
determine the suitability of such a project
in the Rustenberg
community. If the feasibility study found in favour of rolling out
such a plan in Rustenberg, Sibanye would donate
500ha of land for use
in this initiative. If the feasibility study did not find in favour
of the roll out of the agriculture and
industrial development
program, Sibanye would investigate potential alternative programs and
report the status of such to the Commission.
In summary, the Tribunal
approved the merger but subjected it to certain conditions all of
which have been carefully articulated
in its order.
[16]
The substantive conditions which are relevant to this appeal are:
'Employment (the "Employment
Condition”)
3.1
The target and acquiring firm will not retrench any
employees for a period of 6 months from the Implementation Date.
3.2
For the sake of clarity, retrenchments do not include
(i) voluntary separation arrangements; (ii) voluntary early
retirement packages;
(iii) unreasonable refusals to be redeployed in
accordance with provisions of the LRA; (iv) resignations or
retirements in the
ordinary course of business; (v) terminations in
the ordinary course of business, including but not limited to,
dismissals as a
result of misconduct or poor performance; (vii) any
decision not to renew or extend a contract of a contract worker; and
(viii)
the initiation of proceedings in terms of s 189 of the LRA as
long as such proceedings are not finalised before the expiry of the
period in 3.1 above.
3.3
The Acquiring Firm commits that it shall, provide that
the variables and pre-requisites set out in item 1 of Annexure A1 are
satisfied,
save (through avoiding retrenchments and/or creating new
jobs) 3714 jobs in the period 2018 to 2020. Annexure A1 herewith
provides
a breakdown of variables and pre-requisites such as the
timeline and economic variable (including minimum price and reduction
in
cost base or operational costs) that would need to be satisfied,
as well as technical and economic assessments required to be
undertaken,
per Short Term Project in order for such job savings to
be realised.
…
.
The Agri-lndustrial Community
Development Programme ('the Development Programme Condition”)
3.6
The Acquiring Firm shall ensure a feasibility study on
an Agri-lndustrial Community Development Programme is conducted
through the
appropriate members of the West Rand Programme Steering
Committee to understand the potential of rolling out a similar
initiative
as its Rustenberg platinum operations (including the
Target Firm's operations) and the potential impact on job creation,
within
1 (one) year from the finalisation of the Agri-lndustrial
Community Development Programme project structure and roll-out plan.
For the sake of clarity, the West Rand Programme Steering Committee
shall be an independent committee.
3.7
Prior to the commencement of the feasibility study
merging parties shall, enter into consultations with the Bapo
Traditional Community,
representatives of the Greater Lonmin
Community (GLC), Sikhala Sonke, the Mining Forum of South Africa,
Trade Union, and any other
affected communities to discuss the
envisaged Development Programme and feasibility study to be
undertaken and to solicit their
views.
3.8
In the event the feasibility study supports the rolling
out of a similar initiative in Rustenberg, the Acquiring firm shall
contribute
land measuring approximately 500ha in extent as its
Rustenburg operations to the initiative.
3.9
If the feasibility study contemplated in clause 3.6
above does not support the rolling out of a similar initiatives, the
Acquiring
Firm will, for a period of two years following receipt of
the feasibility study, explore other options, in consultation with
the
stakeholders mentioned in paragraph 3.7 above, to achieve the
objectives described in the Recordal above.
Target Firm SLP (the "Target
Firm SLP Condition”)
3.14
The Acquiring Firm will honour existing commitments
made by the Target Firm in terms of its SLP as at the Merger
Announcement Date
(colloquially known as "SLP2H), as well as any
commitments being made by the Target Firm for 2019 in terms of the
SLP that
it is currently in the process of being finalised for
submissions to the DMR ("SLP3"), which commitments shall at
all
times confirm with and be subject to then-current legislation and
regulations.
3.15
The Acquiring Firm will establish a Community
Engagement Forum ("Forum"), within a period of six months
from the Implementation
Date for the affected communities and
stakeholders of the Target Firm, including but not limited to the
Bapo Traditional Community,
representatives of the Greater Lonmin
Community (GLC), Sikhala Sonke, the Mining Forum of South African and
Trade Unions. The purpose
of the Forum will be to provide information
and to solicit the views of the affected community and stakeholders
of the Target Firm
on the Acquiring Firm's commitments under SLP 2
and/or SLP 3, as applicable, and apprise the Forum of the Acquiring
Firm's performance
under the commitments.
6.
VARIATION
The Merging Parties and Commission may
at any time, on good cause shown, apply to the Tribunal for the
Conditions to be waived,
relaxed, modified and/or substituted. The
Commission or merging parties will not be precluded from opposing
such application.'
The
appeal before this Court
[17]
The appeal by AMCU against the decision of the Tribunal focussed
ultimately on whether the Tribunal had taken sufficient account
of
the public interest concerns raised by it. AMCU contended that the
Tribunal had failed to adequately assess the effect of the
merger on
employment. Hence, it asked this Court to refuse approval of the
merger, alternatively impose further conditions or amend
some of the
conditions imposed by the Tribunal. It is to be noted though that the
appeal specifically dealt with the application
of s 12 A (3) of the
Competition Act 89 of 1998 (the Act), as opposed to the determination
as to whether the proposed merger raised
cognisable competition
concerns relating to the likelihood of the merger substantially
preventing or lessening competition in the
relevant market.
The
admission of GLC
[18]
Before dealing with the merits of the appeal, it is necessary to
address the application by the GLC to be admitted as an appellant
in
these proceedings. On 5 March 2019 GLC essentially applied to be
admitted as an appellant in the matter. It did so by simply
lodging
an appeal against the decision. This was some three and a half months
after the Tribunal had delivered its decision to
approve the merger
and almost three months after the Tribunal had published the reasons
for its decision. It was also a month and
a half after this Court had
set down the appeal. It also applied for condonation for the late
'lodging of the appeal'. Upon receipt
of the application on 08 March
2019, this Court directed GLC to file written arguments in respect of
its application for condonation.
It was further directed to address
the question as to whether it had
locus standi
in terms of the
Act to appeal the decision of the Tribunal. IGLC's application to be
admitted as an appellant was opposed by the
merging parties.
[19]
After hearing argument from both the merging parties and the GLC,
this Court dismissed the application by GLC to be admitted
as an
appellant. It did so on the basis of s 17 (1) of the Act which
provides that two categories of persons may appeal against
a decision
of the Tribunal in merger proceedings, being 'any party to the
merger' and any person who was required to be given notice
of the
merger in terms of s 13 A(2), provided that such a person had been a
participant in proceedings before the Tribunal.
[20]
It is common cause that GLC did not fall into either of these two
categories. It was not a party to the merger. It was not
a registered
union representing a substantial number of primary employees of the
acquiring firm or of the primary target firm.
There was however some
suggestion that s 61 of the Act could justify GLC's case for
admission. This section provides: 'a person
affected by a decision of
the Competition Tribunal may appeal against or apply to the
Competition Appeal Court to review that decision
in accordance with
the rules of the Competition Appeal Court if, in terms of, section
37, the Court has jurisdiction to consider
that appeal or review that
matter'.
[21]
This Court has dealt with this provision and scrutinised the issue of
the limited classes who may appeal against a merger decision
of the
Tribunal in
Competition Commission v Distillers Corporation (SA)
Ltd and Stellenbosch Farms Winery Group Limited
(31/CAC/Sep03) at
para 38:
'...ss 61(1) and 37 [of the
Competition Act] should
not be read as altering or derogating from
the provisions of
s 17
in respect of appeal against Tribunal merger
decisions. It follows that the categories of persons which may appeal
against Tribunal
merger decisions are those limited categories
specifically set out in
s 17(1)
and not the class of 'affected'
persons referred to in
s 61
(1).'
[22]
The further question was raised as to whether GLC had
locus standi
as a result of s 62(2)(b) of the Act, namely that this Court has
jurisdiction over any constitutional matter arising in terms of
this
Act. GLC is concerned about the SLP and whether the conditions which
were imposed by the Tribunal complied with the MPRDA.
This concern
does not raise a constitutional issue as contemplated ins 62(2)(b) of
the Act. Hence, there is no basis upon which
the GLC could be
admitted as a party to these proceedings on appeal. Having reached
this conclusion there is therefore no need
to deal with the issues
arising from its application for condonation. Accordingly, its
application was dismissed with no order
as to costs.
The
merits of the appeal
[23]
This appeal focussed entirely on what conditions were
appropriate to justify the public interest concerns which arose in
respect
of the merger. In summary, AMCU raised two specific
arguments. In the first place it argued that 13 344 employees would
have to
be retrenched as a result of the merger. In short, unlike the
merging parties or the Commission, AMCU contended that all of the
job
losses which flowed, whether from Lonmin's precarious financial
position or the effect of the merger were merger specific and
had to
be taken into account insofar as the imposition of conditions was
concerned. Secondly, the two significant conditions imposed
by the
Tribunal, namely that no employees be retrenched for a period of six
months from the implementation date of the merger and
that Sibanye
implement some short term projects in order to save jobs totalling
3714 employees over a three year period between
2018 and 2020 were
fraught with caveats and were vague. AMCU contended that a six month
moratorium on retrenchments was inadequate
and that the sub (??)
saving projects which were to be undertaken by Sibanye were
conditional upon the increase in platinum prices
to a certain level
threshold level as well as to the costs of mining certain shafts
being maintained at a particular level. In
the event that these
conditions do not materialise after a three month period of
assessment, the merging entities would be relieved
of them. A similar
argument was raised with regard to the condition imposed by the
Tribunal in respect of the Agri-lndustrial Community
Development
Program.
[24]
Distilled to its essence, AMCU's argument was that the
Tribunal had seriously misdirected itself by failing to properly
consider
the effects of the change of circumstances between the
filing of the merger on 13 March 2018, the finalisation of the merger
report
of the Commissioner on 17 September 2018, the publication of
Lonmin's Regulatory Releases on 26 October 2018, the metal exchange
agreement with Pangae Investment Management Limited (PIM) and the
general improvement of PGM prices and positive market forecasts
at
the hearings on 12 November 2018. Before turning to evaluate these
arguments, it is necessary to examine the existing jurisprudence
relating to s 12 A (3) of the Act.
The
public interest grounds in a merger
[25]
Section 12 A sets out the considerations which have to be
taken into account in the evaluation of a proposed merger.
Considerations
of a merger by the Competition authorities. The Act
envisages three separate but related inquiries:
1. Whether or not the merger is likely
to substantially prevent or lessen competition;
2. If the result of this inquiry is in
the affirmative, whether technological efficiency or other
pro-competitive gains override
the initial conclusion reached in
stage 1 together with the further consideration based on substantial
public interest grounds,
which, in turn, could justify permitting or
refusing the merger; and
3. Notwithstanding the outcome of the
enquiries in 1 and 2, the determination of whether the merger can or
cannot be justified on
substantial public interest grounds.
The
specific public interest grounds are set out ins 12 A (3):
'(3) When determining whether a merger
can or cannot be justified on public interest grounds, the
Competition Commission or the
Competition Tribunal must consider the
effect that their merger will have on –
a) a particular industrial sector or
region;
b) employment;
c) the ability of small businesses, or
firms controlled or owned by historically disadvantaged persons, to
become competitive; and
d) the ability of national industries
to compete in international markets.'
[26]
As mentioned above, this case does not involve first two legs of the
inquiry. The appeal therefore relates exclusively to assessing
the
merger through the prism of the public interest grounds.
[27]
This court has considered the specified public interest grounds in
Minister of Economic Development and others v Wal-Mart Stores Inc
and others
[2012] ZACAC (09 March 2012), where it did so in the
context of an enquiry as to whether the merger should be disallowed
on the
basis of specific public interest concerns, rather than one
based on competing public interest arguments.
[28]
Subsequent to the decision in
Wal-Mart,
the Tribunal had
occasion to further consider the test that should apply in assessing
public interest considerations where it focussed
on evaluating
competing arguments regarding the public interest. In
Metropolitan
Holdings Limited and Momentum Group Limited
[2010) ZACT 87 (9
December 2010} the Tribunal dealt directly with the question of the
appropriate test to be applied in determining
the issue of
substantial public interest based on a loss of employment in a
merger. The Tribunal found that there was an evidential
burden upon
the merging parties, once a
prima facie
case that the merger
would result in a significant loss of employment had been established
to show that the merger should nevertheless
be sanctioned. To this
end the Tribunal held that two criteria had to be satisfied. In its
words:
'1) a rational process has been
followed to arrive at the determination of the number of jobs to be
lost, i.e. that the reason for
the job reduction and the number of
jobs proposed to be shed are rationally connected; and
2) the public interest in preventing
employment loss is balanced by an equally weighty, but countervailing
public interest, justifying
the job loss and which is cognisable
under the Act.'
Metropolitan Holdings
at para 70
[29]
The second leg of the inquiry emphasises the public nature of the
test; that is, if the merging parties are able to demonstrate
that a
loss of employment, for example, promoted efficiency and thereby
could be justified by a gain to shareholders, this alone,
cannot be
considered to have satisfied the public interest ground for approving
the merger. By contrast, a countervailing public
interest ground
would be one of the other grounds set out in s 12A(3), namely the
ability of a national industry to compete in
international markets,
the ability of firms controlled or owned by historically
disadvantaged persons to become competitive or
the necessity of
saving a failing firm or a firm in a precarious financial position
where absent some loss of employment a far
greater loss of employment
could result if the merger was not permitted. See also
BB
Investment Company (Ply) Ltd and Adcock Ingram Holdings (Ply) Ltd
(CT
018713) 28 August 2014 at paras 94-95.
[30]
In the light of these decisions, the Tribunal held that two critical
questions have to be answered: (i) whether a rational
process has
taken place with regard to the effect on employment pursuant to the
merger and (ii) is the public interest in preventing
any employment
loss at least balanced by an equal weighty, but countervailing public
interest justifying the job losses? Expressed
differently, the first
stage of the enquiry involves interrogating the reasons for job
losses while the second involves a proportionality
inquiry, which
involves an examination of the competing public interest issues: that
of job losses with any other counter-vailing
public interest issue.
[31]
Returning to evidence, in their merger filings, both Sibanye and
Lonmin submitted operational plans for the future of Lonmin.
Lonmin's
plan (referred to as the Standalone plan) envisaged 12 459
retrenchments in order to reduce its costs and thus continue
with its
business operations. Sibanye constructed a plan together with Lonmin
(the Sibanye plan) which envisaged 13 344 retrenchments.
Sibanye
submitted that 885 retrenchments were merger specific which figure
was calculated as follows: Sibanye calculated that there
were 1283
merger specific job losses comprising of 1132 jobs which would be
lost because of the implementation of its operational
plan, together
with 151 jobs which would be lost because of duplication or
consolidation of operations resulting from the merger.
It then
reduced the merger specific job losses by what it referred to as 398
'merger specific job savings'.
[32]
The Commission examined both plans and concluded that the Standalone
plan did not contemplate 12460 retrenchments but rather
10156
retrenchments. Therefore, the Commission concluded that 2304
retrenchments (i.e. the difference between 12460 and 10156)
were
merger specific ones. Adding this figure to the 885 proposed
retrenchments specified in the Sibanye plan, the Commission
maintained that the merger specific retrenchments totalled 3189. By
contrast, AMCU contended that all the proposed retrenchments,
(i.e.
13 344) were merger specific.
[33]
In support of this contentions, Mr Puckrin, who appeared together
with Mr Coetzee on behalf of AMCU, referred to a passage
of the
evidence of Mr Froneman of Sibanye. The passage emphasised by Mr
Puckrin reads:
'We asked Lonmin to provide us with
their base plan and help us develop our plan based of their base
plan, because in the timeframe
we had this company was about to hit
the wall, we did not have the luxury of time to go and do that with
our limited knowledge.
That is exactly what - that is our plan, not
their plan okay. We are asking for them give us your base plan and we
will tell you
how we want to develop our plan. That is not the Lonmin
plan, that is the Sibanye plan. That is exactly, and that is what is
being
presented to this Tribunal and to the Competition Commission.
That is the S1banye plan. Lonmin have their own plan which is not
this plan.'
[34]
On the basis of this evidence, Mr Puckrin submitted that Sibanye had
influenced Lonmin's plan to such an extent that all the
proposed
retrenchments identified there were a product of Sibanye's influence
and was designed to make Lonmin an attractive target
for Sibanye.
Hence, al the proposed retrenchments (13444) were accordingly merger
specific.
[35]
Mr Puckrin also submitted that the evidence supported AMCU's
contention that Lonmin's financial position was not so precarious
as
to justify all of its proposed retrenchments. In this regard he
submitted that Lonmin had re-evaluated its operational planning
and
delayed placing some of its shafts on care and maintenance because of
improved market conditions and an improved financial
position. This
argument was based on Lonmin's Regulatory Release First Quarter 2019
Production Report and Business Update', which
evidence AMCU sought to
have admitted at the appeal. I shall return to this application
presently. For the moment it is necessary
to examine the dispute
regarding the merger specific job losses.
[36]
In
BB Investment Company (Pty) Ltd, supra
at paras 55 - 61,
the Tribunal sought to engage with the question as to what is meant
by 'merger specific' losses. In its view,
a merger specific job loss
is one 'that can be shown, as a matter of probability, to have some
nexus associated with the incentives
of the new control...'. (para
56) Translated to an inquiry into the public interest effect on
employment, the Tribunal sought to
distinguish between merger
specific employment loss and the 'operational employment loss', which
would result regardless of whether
the merger takes place or not. The
latter job loss is a non-merger one.
[37]
It is only the merger specific job loss that bears relevance when
determining whether to approve the merger or not. This Court
in
Wal-Mart,
at para 140, in dealing with the questions of
retrenchments said 'a retrenchment, which takes place shortly before
the merger is
consummated may raise questions as to whether the
decision forms part of the broad merger decision making process and
would, accordingly,
be sufficiently closely related to the merger in
order to demand that the merging parties must justify their
retrenchment decisions.'
[38]
Applying this
dictum
to the present case, it is necessary to
examine the reasons proffered by the merging parties for their
retrenchment proposal. The
merging parties provided a detailed set of
spread sheets in which each job loss was categorised and the
retrenchment decision justified.
Four reasons were given for job
losses: the close of shafts in which there was no more ore left to
mine, volume reduction due to
the end of a project, the
implementation of the Sibanye-Stillwater operational model and
duplication and consolidation as a result
of the merger. In terms of
Lonmin's analysis, 6680 job losses were attributable to the close of
shafts and 4679 attributable to
volume reduction due to the end of a
project. These job losses were categorised correctly as operational
job losses. They had nothing
to do with the merger. They would have
also occurred if a counter factual had been applied; that is that
Lonmin was required to
make a decision with regard to its existing
labour force, absent a merger with Sibanye.
[39]
In summary, while there might be a dispute between the figures of 885
merger specific retrenchments suggested by Sibanye and
3189 proposed
by the Commission, there can be no doubt that, outside of these two
sets of figures, none of the other job losses
could be said to be
merger specific.
The
rationality enquiry
[40]
Lonmin developed a number of business plans during 2017 in order to
deal with its dire financial position. Its precarious business
plan
is illustrated in the Commission's report. The Commission found that
Lonmin experienced losses during the period of 2014 to
2017 as
follows:
'1. In 2014, the
operational loss was $255m;
2.
In 2015, the operational loss was $2 01Bm;
3.
In 2016, the operational loss was $322m; and
4.
In 2017, the operational loss was $1 079m.'
[41]
Its retrenchment plans during 2017 were in direct response to this
precarious financial position caused by huge financial losses.
It
completed a shaft by shaft analysis in order to determine the best
manner in which it could reduce its high costs of production;
in
particular where the production of PGM was relatively more expensive
due to, for example, mining methods used, depth of the
mine, type and
characteristics of ore or concentrate extracted. It explained that
the retrenchments proposed in respect of each
of the shafts was
largely due to the reduced production profile as well as to shafts
closing due to their mineral resources being
exhausted or capital not
being available in a short term to invest in further development of
these shafts. Although there were
a series of iterations of this
plan, the upshot was that the proposed retrenchments, as indicated,
were rationally based on Lonmin's
precarious financial position and
the need to engage in a significant restructuring to save the company
from, at the very least,
going into business rescue.
[42]
To the argument that Sibanye influenced the entire proposal for
retrenchment the Commission correctly found that, while Sibanye
had
indicated that whatever retrenchment numbers had been submitted to by
Lonmin business plan, it was clear that these were inadequate,
in its
view, to save the company from being liquidated. This is made clear
in the non binding proposal generated by Lonmin on 28
November 2017:
'Lonmin's standalone business plan
envisaged a significant headcount reduction of approximately 1,800
employees over the next 24
months (with a further 2,800 in 2020),
primarily as a result of the closure of the Generation One shafts,
associated overhead savings
and assumed increases in operational
efficiencies. Sibanye-Stillwater understands that this process is
essential for the sustained
viability of Lonmin. We also noted that
Lonmin had planned a savings of approximately ZAR500 million per
annum in overhead costs
from 2019 onwards, primarily associated with
a reduced number of employees required to support the downscaled
operations. Despite
this significant restructuring on the basis of
our review of the Lonmin operating plans, we do not believe they are
sufficient
to ensure the long term sustainability of the company. The
primary reason for this is the cost reductions are not sufficient to
offset the very significant capital requirements to sustain mining
volumes that ensure Lonmin's survival as a standalone entity.
The jointly developed sustainable
business plan incorporates the expected synergies needed to ensure a
profitable operation at current
commodity prices that also does not
put Sibanye-Stillwater at excessive risk. Sibanye-Stillwater
continues to refine its thinking
around the optimal headcount level
based on the revised business plan and currently believes that a
further 1800 employees, over
and above the Lonmin standalone plan,
may be impacted in the next 24 months to ensure the on-going
profitability of the operations
due to the current economic
circumstances.'
[43]
This evidence was not and could not be gainsaid. In my judgment it
shows that a rational process was followed in order to determine
the
number of jobs that were to be lost, whether merger specific or not.
It is not strictly necessary to decide whether the merging
parties
figure of 885 merger specific job losses or the Commission's number
of 3189 merger specific job losses is correct. The
important fact is
that all the proposed job losses were rationally connected to the
precarious financial position of Lonmin.
The
justification enquiry: weighing the questions of loss of employment
[44]
This enquiry requires the merging parties to show that the public
interest in preventing employment loss is balanced by an
equally
weighty and countervailing public interest which justifies the job
losses and which is cognisable under the Act. In turn,
this enquiry
requires an examination of the proper counter factual; that is the
position absent the merger. Expressed differently,
the initial
question for determination turns on how many jobs would be lost if
the merger does not take place. The Commission conducted
an
investigation which indicated that there was a risk that Lonmin would
have be placed into business rescue absent the implementation
of the
merger. AMCU submitted however that this concern which had clearly
influenced the decision of the Tribunal had not taken
account of two
important factors, namely the metal purchase agreement concluded
between Lonmin and PIM in October 2018 and the
improved market
conditions.
[45]
The agreement with PIM was that PIM advanced $200m loan to Lonmin.
Hence AMCU argued that Lonmin's financial position had improved
significantly. But, this is only partially correct. This loan was
firstly used to repay existing lenders ($150m), leaving a net
amount
of $34 m (after transaction costs and cash applied to collateralised
guarantees issued by South African banks had been taken
into account)
to be utilised in its business. Lonmin remained indebted to PIM for
the amount of $200m which debt it would have
to service at an
interest of 15% per annum while the capital would have to be repaid
by way of delivery of platinum and palladium
to PIM until the debt
had been extinguished.
[46]
As Mr Cockrell, who appeared with Mr Ngcongo and Mr Wild on behalf of
the merging parties correctly noted, the net liquidity
improvement
$34m was marginal; it was less than one month salary for Lonmin's
workforce and approximately 2.5% of Lonmin's annual
operating costs.
Mr Cockrell pointed out that Lonmin generated sales of approximately
$1.1 to $1.3 billion per year and its cost
base, which was largely
fixed, had the same order of magnitude. A net liquidity of $ 34m was
hardly likely to have any significant
impact on Lonmin's financial
viability or sustainability.
[47]
AMCU also contended that Lonmin's production report for the quarter
ending 30 September 2008 revealed that it was no longer
in a dire
financial position. There had been an improvement in the PGM prices
which meant that average prices in rand/Oz exceeded
unit costs in
rand/Oz for the three months to 30 September 2018. But as Mr Cockrell
submitted, it was impossible to predict whether
the improved PGM
prices would continue into the future. Furthermore, Mr Froneman gave
credible evidence to the effect that quarterly
reports were not a
useful way to assess the financial health or position of a company.
Examining Lonmin's position regarding its
net cash position, despite
the variation over the year, as at the end of the fourth quarter of
2017 was US $ 103m and at the end
of the fourth quarter of 2018 it
was US$ 14m. Nothing fundamental had changed. This is confirmed by
the evidence of Mr van der
Meiwe, on behalf of Lonmin, who testified
further that for Lonmin to invest in new projects and therefore for a
significant difference
to be made to its long term financial
viability, Lonmin would require about US $ 500m before new capital
projects could be initiated.
[48]
In summary, the correct counter factual was one in which,
notwithstanding transient fluctuations in the price of PGM and
currency
(the value of the rand compared to the $, Lonmin's continued
existence was in jeopardy. It had exhausted its capital. It only had
debt funding, absent the merger. It was unlikely to acquire new
capital because given its precarious financial position, shareholders
are unlikely to take up a further rights issue and lenders are
unlikely to advance any further loans. At best, Lonmin would, as
Mr
Cockrell described, continue to 'tread water'; that is, if it was not
placed into business rescue, which, if it occurred, would
hold
significant risk for 32 000 jobs.
It
is, thus, clear that the merger specific job losses (even taking the
Commission's figure of 3189 retrenchments) were vastly outweighed
by
the potential job losses if the counter factual applied.
Application
to admit new evidence
[49]
On 20 February 2019 AMCU launched an application to produce new
evidence on appeal. The evidence took the form of three publicly
available documents all of which were published after the Tribunal
had delivered its decision on 21 November 2019. These documents
were
a summary of the Annual Report and Results extracted from the Annual
Report and Accounts of Lonmin of 29 November 2018, the
First Quarter
2019 Production Report and Business Update of 08 February 2019 and a
newspaper report of 08 February 2019.
[50]
Section 19
(a) of the
Superior Courts Act 1O of 2013
does permit a
court, which exercises appellate jurisdiction, to receive further
evidence. However, as the Constitutional Court
said in
Rail
Commuters Action Group v Transnet Limited tla Metrorail
[2004] ZACC 20
;
2005 (2)
SA 359
(CC) at para 43: 'such evidence must be weighty, material and
to be believed. In addition whether there is a reasonable explanation
for its late filing is an important factor. The existence of a
substantial dispute of fact in relation to it will militate against
its being admitted.'
[51]
In its justification for the admission of this new evidence, AMCU
contended that the evidence it sought to adduce was relevant
to the
determination of the appeal and would be of assistance to the court.
It submitted further that the interests of justice
compelled its
submission.
[52]
The test, as set out in Rail Commuters Action Group, is clearly
applicable to an appeal in respect of a merger case. Because
markets
do not remain static and because other economic and financial
conditions fluctuate, great care should be taken to ensure
that any
evidence adduced at the late stage of an appeal is weighty and
material, of such a kind which would probably cause the
Tribunal to
come to a different conclusion. {See:
Simpson v SFMED Medical
Scheme
1995 (3) SA 816
at 825 D-E.)
[53]
The fact that evidence sought to be adduced might show a transient
improvement in Lonmin's financial position does not detract
from
other non controversial facts such as Lonmin's lack of
liquidity, the continued vulnerability to uncontrollable factors
such
as exchange rates, commodity prices, high fixed costs, the inability
to raise funds for capital projects that could extend
the life of
some shafts, the depletion of mineral deposits at some shafts and the
lack of geographic and metal diversification.
[54]
In his answering affidavit in respect of this application, Mr van der
Merwe placed this evidence into proper financial context:
'The slight improvement in some
metrics (i.e. pricing and weakening in exchange rate) in Q1 2019 does
nothing to alter Lonmin's
position - in fact, Lonmin's position
worsened in the first quarter of 2019 as evidenced by the unit costs
increases of around
17% compared to Q1 2018 and 27% from Q4 2018; and
a reduction in cash of over $30 million, despite the additional
liquidity of
$34 million contributed by the PIM refinancing
transaction. As explained above, these factors are variable and
unpredictable.
Over the course of the last decade,
Lonmin consumed $1,6 billion of shareholder equality contributions.
The aggregate operating
losses of $3 674 billion (over R50 billion at
current exchange rates) during financial years 2014 to 2017 is
noteworthy in comparison
to an operating profit of $101 million for
the 2018 financial year and clearly indicates that this profit is
immaterial compared
to the capital losses suffered by the company in
the previous decade.'
[55]
Thus, the evidence which AMCU sought to be admitted is, at best,
ambiguous in relation to the financial position of Lonmin,
post the
decision of the Tribunal. This is evident in the appendix which is
extracted from the annual report to Lonmin accounts
of 29 November
2018, contained in one of the documents sought to be admitted:
'In light of the challenges facing
Lonmin and the PGM industry, the Company's strategic response in 2015
was to right-size the business,
but costs, enhance working capital
management and contain capital expenditure. These initiatives have
proved effective resulting
in the Company remaining net cash
positive. Notwithstanding these improvements and the good performance
achieved during 2018, notably
form solid production, higher PGM
basket prices and weaker USD/ZAR exchange rate, Lonmin still remains
financially constrained.
Further mitigating measures undertaken
during 2018 led to refinancing the business in October 2018 by
concluding the $200 million
forward metal sale agreement; however
this financial measure only provides relief during the short-term and
regrettably does not
provide an opportunity to avoid retrenchments
and shaft closures. In spite of the effectiveness of the measures
undertaken, the
viability of Lonmin on a stand-alone basis is more
vulnerable when compared to being part of a larger group.
Consequently, failure
to complete the Sibanye-Stillwater transaction
will significantly impede Lonmin in funding the significant
investment required
in sustaining the business in the future.'
[56]
This passage reveals the fundamental flaw in the case of AMCU, namely
that it sought to cherry pick extracts from the documents
which suit
its case, whilst eliding over those parts which confirmed or
supported the case of Lonmin. Read as a whole the evidence
sought to
be admitted is not weighty and material as to have caused the
Tribunal to come to a different conclusion. There is, therefore,
no
basis to admit it.
[57]
In summary, the merging parties have established
that a the determination of the number of jobs to be lost as a result
of the proposed
merger was rational and that the public interest in
preventing employment loss was balanced by an even more weighty
public interest,
namely the saving the jobs of the vast majority of
Lonmin's workforce. Hence, there has been no misdirection on the part
of the
Tribunal in this regard.
The
conditions
[58]
Two significant arguments were raised by AMCU in
relation to the conditions imposed by the Tribunal. Mr Puckrin
criticised the condition
which provided that, if certain variables
and prerequisites were satisfied, some 3714 jobs could be saved
during the period 2018-2020.
His criticism was that the prerequisites
for these jobs saving proposals depended on the price of PGM and the
cost base. In his
submission, the key variable should be the margin
between price and cost rather than just the price and the cost
themselves.
[59]
The merging parties conceded to this argument by introducing the
profit margin as a further variable. Mr Puckrin's argument
has merit
and accordingly the confidential condition must be altered in order
to reflect the profit margin as the determinative
condition in
respect of the job saving proposals.
[60]
Mr Puckrin also criticised the proposed Agri-lndustrial program
condition. He submitted that this was little more than an undertaking
on the part of Sibanye to investigate the feasibility of a program,
consult the community and other stakeholders, and should it
fail,
consider another alternative for two years. Consequently, he
submitted, this condition was fraught with uncertainty and might
never come to fruition. It bears noting though that no details had
been provided regarding the feasibility study undertaken by
the West
Rand Steering Committee and/or its potential viability.
[61]
The problem with this criticism of this condition imposed by the
Tribunal is that the Agri-lndustrial community development
program
depended on consultation with the West Rand Steering Committee, a
party not before this Court and which also fell outside
of the
control of the merging parties. The entire program depended on
cooperation with the Steering Committee. It is therefore
difficult in
these circumstances to alter the proposed conditions which directly
involves a body which was neither a party to the
merger, did not
appear before this Court, nor did it fall within the control of the
merging parties. There is no basis by which
this Court can now
interfere with the contents of this condition.
[62]
Although AMCU succeeded in having one of the conditions
altered, in my view, this does not constitute substantial success.
Conclusion
[63]
For these reasons the appeal fails, save for the alteration of
one condition in one minor respect.
Order
1. Subject to paragraph 2 the appeal
is dismissed with costs including the costs of two counsel.
2. Paragraph 3.3 of the conditions
outlined in the order of the Tribunal of 21 November 2018 is amended
as follows:
'Annexure A1 herewith provides a
breakdown of variables and pre requisites that would need to be
satisfied, as well as technical
and economic assessments required to
be undertaken, per Short Term Project in order for such job savings
to be realised.'
____________________
DAVIS
JP
MGUNI
and VALLY JJA agreed