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[2014] ZACAC 2
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Oceana Group Limited and Another v Competition Commission (130/CAC/May14) [2014] ZACAC 2 (11 June 2014)
REPUBLIC OF SOUTH
AFRICA
IN THE COMPETITION
APPEAL COURT
CAC CASE NO:
130/CAC/May14
DATE: 11 JUNE 2014
In the matter between:
OCEANA GROUP
LIMITED
................................................................
First
Appellant
FOODCORP (PROPRIETARY)
LIMITED
.....................................
Second
Appellant
And
THE COMPETITION
COMMISSION
.....................................................
Respondent
J U D G M E N T
VICTOR, AJA:
Introduction
[1] This appeal concerns two iconic
South African pilchard fish brands, Lucky Star and Glenryk. The first
appellant, Oceana Group
Ltd owner of the Luckystar brand wishes to
acquire the total allowable catch (‘TAC’) quota of small
pelagic fish from
the second appellant Foodcorp (Pty) Ltd, the owner
of the Glenryk brand (‘the merging parties’). It does
not wish
to acquire the Glenryck Label.
[2] The central issue in this appeal is
concerns conditions imposed by the Competition Tribunal (‘Tribunal’)
namely
that second appellant’s small pelagic fish quota (TAC)
be disposed of together with the Glenryck brand.
[3] The merging parties first notified
respondent (‘the Commission’) of the transaction on 2
August 2013. The Commission
conducted its investigation and raised
certain horizontal overlaps in harvesting, processing and marketing
of a number of fish
products. The Commission found that the merging
parties pilchard brands were the closest competitors in the market
with a combined
market share of 80%, compared to 10% of its next
closest competitor. Hence, the Commission found that there was a high
barrier
to entry and expansion in the form of regulatory barriers,
high capital outlays, brand loyalty, input scarcity. In the view
of the Commission, the proposed transaction would lead to the removal
of an effective competitor.
[4] The Commission concluded that the
merged entity had an incentive to resort to unilateral conduct to the
detriment of competition
due to high entry barriers at the harvesting
level; high capital requirements at the processing level; with no
other effective
competing brand at the marketing level. Further, the
virtual removal of an effective competitor at each level of the value
chain,
would result in a substantial reduction in competition in the
vertically integrated market for the supply of pilchards. Within
his
context, the Commission considered that the proposal by the merging
parties to divest the Glenryck brand without a simultaneous
divestment of the quota allocation for pilchards was insufficient to
address the Commission’s concerns.
[5] There was a request for
consideration of an intermediate merger on 13 November 2013. It was
the merging party’s case that
by selling off the Glenryck brand
to Bidfish would address any negative competition concerns. On 15
April 2014 the Tribunal approved
the merger transaction, subject to
the condition that, in addition to the disposal of the Glenryck
brand, first appellant had to
dispose of all of second appellant’s
small pelagic quota.
The background to the transaction
[6] Foodcorp wishes to dispose of its
fishing operations because it is not core to its future strategic
investment and Foodcorp’s
fishing rights, including the
survival of its entire fishing business, were under serious threat
from the Department of Agriculture,
Fisheries and Forestry (“DAFF”)
as a result of Foodcorp’s reduced empowerment shareholding.
[7] DAFF under the Marine Living
Resources Act of 1998 (“the MLRA”) has approved the
purchase by Oceana of the TAC,
being the fishing rights that have
been allocated to Foodcorp and the fishing rights that have been
contracted to Foodcorp by third
party quota holders to the extent
that such holders have consented to the transfer of their rights from
Foodcorp to Oceana.
[8] According to the merging parties,
the proposed merger will secure the survival of Foodcorp’s
fishing business, including
the Laaiplek processing facility where
approximately 1000 people are employed. Oceana has an acceptable
empowerment status and
established track record in the South African
fishing sector. It was on this basis DAFF approved the transfer of
Foodcorp’s
fishing rights to Oceana. Oceana is currently
reliant on approximately 64 per cent of its pilchard requirement by
way of imports.
The acquisition of the Foodcorp quota will allow
Oceana to substitute a small percentage of these imports, that is 8.2
per cent
of its pilchard requirements with Foodcorp’s quota,
thereby providing a small advantage at the margin. It is Oceana’s
case that it would serve no purpose to take over the processing
operations without the quota. The Food and Allied Workers Union
has
supported the merger because of the public interest factor at
Laaiplek where it is the majority trade union.
[9] Bidvest Namibia Fishery Holdings
(Pty) Ltd (“Bidvest”) concluded a binding agreement with
Foodcorp to purchase
the Glenryck brand without the quota. Bidvest
does not have a canned pilchards brand in South African market and
Bidvest is well
able to support the requirements of the Glenryk brand
with its existing allocated and contracted quota.
[10] In motivating that it was not
necessary for the quota and the brand name Glenryck to be sold
together, the managing director
of Bidvest Namibian Fishers (
‘Bidfish’), Mr Arnold emphasised in his evidence that
Bidfish could support the Glenryck
brand without the TAC allocation,
because it is able to obtain a significant supply from Namibia,
supplemented by imports. In addition,
Bidfish contends that it is
able to expand the presence of the Glenryck brand into the South
African market.
According to Mr Arnold:
‘Bidfish has developed
significant resources and expertise in the broader Namibian fishing
industry, and possesses both the
ability and capacity to acquire the
Glenryck brand and to expand its presence in the market against Lucky
Star without the small
pelagic fishing rights currently held by
Foodcorp. Bidfish will also enjoy the support of Bidvest South Africa
for the management
and development of the Glenryck brand in South
Africa, which further strengthens Bidfish’s ability to compete
effectively
with the brand.’
[11] Mr Arnold also testified that
Bidfish could maintain Glenryck’s standing in the market and
indeed grows the business
and hence its market share. He noted that
Bidfish’s Namibian TAC was substantial and no more expensive
than the court from
a South African source.
The essence of the Commission’s
case
[12] The Commission, in support of the
anti-competitive harm resulting from the proposed merger emphasised
to the following aspects:
(a) The current and future market share
of the merging parties in the canned pilchards market is, and will
continue to be informed,
to a significant extent, by the ability of
the vertically integrated entity to rely on a secure supply of
pilchards through access
to a significant percentage of the TAC.
(b) The Commission also contended that
Oceana had been allocated 13 507 MT of pilchards (15.01% of the TAC).
Foodcorp was allocated
10 074 MT (11.2% of the TAC). Oceana is
thus the largest TAC holder, with Foodcorp in second position. In
the market for the
harvesting of pilchards, the merged entity would
have a combined market share of approximately 26.2% if they were
allowed to proceed
with the transaction in terms of their agreement.
This would, in the Commission’s view have the effect of:
(1) The removal of an effective
competitor which will have repercussions on forward linkage segments
of the value chain where competition
concerns are transmitted into
processing and marketing.
(2) This effect will be amplified in
circumstances where Oceana currently benefits from approximately 20
quota contracts and where
recent trends indicate a propensity on the
part of smaller rights holders and other third parties to switch
supply to Oceana, apparently
based on Oceana’s willingness and
ability to pay a premium. The ability to pay a premium, so the
Commission submitted, derives
from the market power that is
associated with being so significant a player at all levels of the
market. In the Commission’s
view this market power will
increase if Oceana has access to an even greater share of the small
pelagic fishing allocation, as
well as to the contracts currently
held by Foodcorp, in consequence of the transaction.
(3) The effect will be seen in the
market for the processing/canning of pilchards, where the merged
entity would have a combined
market share of approximately 34.7%
(after the accretion of 16.3%).
[13] Thus the main concern pressed by
the Commission arises in the market for the sale of canned pilchards,
where Oceana’s
Lucky Star brand currently enjoys a 73.1% market
share. Glenryck has a market share of 8.2%, but Lucky Star, with
access to Foodcorp’s
fishing rights, will be able to ramp up
its production and supply. Thus, even if the Glenryck brand were to
be supported by alternative
supply in the same quantities as are
currently employed to support is production, the Commission argued
Glenryck’s market
share percentage would shrink, and that of
Lucky Star would grow.
[14] The sale of quotas was thus a
significant issue. Pre-merger a number of companies that had
received quota allocations from
DAFF were not processing their fish.
Instead they sold off their quota allocation to larger players in
the market which have
the financial resources to invest in processing
plants and in vessels. Some of the smaller players, even after
processing the pilchards,
sold to those who had strong brands such
Premier Fishing which processes under the Lucky Star brand. According
to the Commission,
this will inhibit market penetration.
[15] There was also the concern
articulated by Pioneer Fishing that the merged parties, by benefiting
from the extra local quota,
will benefit overall as the volatility of
the exchange rates when sourcing raw imports increases their basic
costs. There is insufficient
local supply; hence there will always
reliance on imports and all players would continue to face the
volatility of exchange rates.
[16] A further concern articulated was
that, once the TAC has been allocated, there was a lock-in period of
8 to 15 years. This,
of course, means that Oceana would have the
extra TAC for 8 to 15 years. This advantage however must be assessed
against the facts
that the merger would only result in 650 000
cartons from local source out a market of 8 150 000 cartons.
[17] The Commission also argued that
smaller players in the fishing industry may find it difficult to
participate in the harvesting
market because of the higher capital
requirements to run the fishing boats and the processing clients.
Harvesting is a highly
capital intensive process. The Commission was
also concerned that the smaller quota holders who sell off their
fishing rights
will have fewer choice and hence less bargaining
power. They would only be left with Saldanha and Pioneer as remaining
entities
to which they sell their fishing rights. It should be noted
that the counterfactual position to this is that Oceana would prefer
to purchase their stock from local quota holders rather than imports
so it would be erroneous to conclude that small quota holders
will be
prejudiced by not achieving competitive prices from Oceana.
[18] A further theory relied upon by
the Commission for the lessening of competition was that Glenryck
would be removed as an effective
competitor across the value chain
and this would occur at the vertically integrated level.
The Tribunal’s decision
[19] The Tribunal found that the
potential competitive effect brought about by the acquisition of
Foodcorp’s quota for small
pelagic fishing would substantially
lessen competition in the market. Notwithstanding the proposed
transaction between Bidfish
and Foodcorp and the assurances offered
by Mr Arnold, the Tribunal held that:
‘Post-merger, the Glenryck brand
once divorced from its quota is unlikely to be an effective
competitor in the canned pilchards
market. The Glenryck brand owner
would have source pilchards from a variety of third parties at a much
higher costs than pre-merger.
Reliance on imports for Glenryck is
not a reasonable option post-merger and even if it did import product
post-merger, its margins
would decline significantly….
On the other hand Lucky Star (Oceana)
the already dominant player in the market would gain additional
advantages through increased
access to local quota which would enable
it to increase its dominance in the downstream canned pilchards
market. This quota once
transferred to Oceana was unlikely to be
available to smaller competitors.’ (paras 120-121)
This finding necessitates a closer
examination of the facts.
The Facts
[20] South Africa has a total allowable
catch of 90 000 MT. Namibia has a TAC of 25 000MT. Oceana has
13.508MT of the South African
TAC. This constitutes 15 % of the total
TAC. Glenryck has 10.07MT, being 11 %. The merging parties therefore
have 26% of the South
African TAC. Of the total TAC, Oceana,
Foodcorp Saldanha and Pioneer cumulatively hold 38 % of the TAC. The
remaining 68 % is
held by the remaining quota holders and is sold off
by them.
[21] The market share for canned
pilchards is as follows:
• 72 % - Oceana
• 8 % - Glenryck
• 10 % - Shoprite and other white
label
• 7 % Saldanha
• 3 %Pioneer
[22] In 2013, Oceana required 7.5
million cartons of pilchards to sustain its production. It imported
the equivalent of 4.8 million
cartons of pilchards. If the 4.8
million cartons made up by imports is subtracted from its total
requirement of 7.5 million cartons,
its local source. Thus comprised
of 2.7m cartons. Foodcorp’s local source amounted to of 650 000
cartons. Thus, post the
merger, without the condition relating to
the Foodcorp quota, Oceana will acquire a further 9% of its input
requirement, thereby
reducing its import requirement from 63% to 55%.
[23] It should be noted that, apart
from a direct TAC allocation, parties acquire quota from third
parties (i.e. from the remaining
quota holder who obtain 68% of the
total). Foodcorp had a third party quota amounting to 3989 mt, or
approximately 4.4% of the
South African pilchard TAC in 2013. Of
this amount, about 02.6 mt (or 1.1 % of the TAC) will be
transferred to Oceana in terms
of the merger, as the holders of the
remainder have not consented to the transfer of their quotas to
Oceana. They have elected,
instead, to make it available to other
potential purchasers in the market.
[24] Thus, post-merger, Oceana will
have access to a total of approximately 50% of the South African
pilchard TAC, made up of allocated
quota of 23 582 mt (26.2%) and
contracted quota of 21 122 mt (23.5%). This represents only 2 682
000 cartons, or 36% of Oceana’s
total demand for 7 506 000
cartons of pilchards per year. Of this total demand, the allocated
quota accounts for only 19% and the
contracted quota (which is not
guaranteed from one year to the next) for only 17%.
[25] Given this relatively small
overall increase in domestic supply and the identity of the existing
market participants, the Commission
nonetheless asserted that the
effect of the proposed transaction would have consequence for other
participants in the market and
on the alternative bidders for the
Foodcorp fishing business.
[26] The foundation upon which the
Tribunal’s decision was predicated was couched thus: ‘the
question that we are concerned
with is whether or not the transfer of
Foodcorp’s quota to Oceana will lead to a reduction in
competition in the canned Pilchards
market’ (para 103). The
answer given to the Tribunal to this question is:
‘We agree that the sale of the
Foodcorp quota to Oceana, already the holder of 15.1% of the TAC,
shall result in a likelihood
of increased barriers to entry for a
smaller players in the market, including players with BEE credentials
for entry an expansion
and for that matter, the sale of Foodcorp’s
quota is likely further to increase barriers for expansion for
Oceana’s
existing vertically integrated competitors in the
downstream canned pilchards market.’ (para 104)
[27] The difficulty confronting this
Court is that the Tribunal did not run with one coherent theory of
harm. Earlier in its determination
it said:
‘The evidence of the merging
parties themselves and indeed Oceana’s stated rational for the
acquisition of Foodcorp’s
quota - namely that it sought to
reduce its reliance on imports for better margins-taken together with
the evidence of the other
witnesses confirms that the Glenryck brand
post-merger without its own quota will be competing at a significant
disadvantage to
the dominant Lucky Star which, should this merger
were allowed on the terms proposed by the merging parties, would have
further
entrenched it already dominant position with increased access
to own quota (sic).’ (para 80)
[28] The Tribunal concluded that even
if the some regard be had to the evidence of Mr Arnold, his evidence
confirmed the Commission’s
concerns that Glenryck as a label
could not be sustained without the quota. This conclusion however
ignores all the undisputed
facts about the Namibian quota enjoyed by
Bidfish and its expertise. It also ignores the undisputed evidence
that Bidvest South
Africa, a most formidable organisation will
support the marketing of the product in South Africa.
[29] This observation aside, I turn to
deal with both of these theories of harm. To recap, the total market
share in the relevant
market is 10.25 million cartons. Of this,
Oceana holds 72%, Glenryck 8%, Shoprite and other white labels 10%,
Saldanha 7% and
Pioneer 3%.
[30] The question which the Tribunal
failed to answer and which is critical to the assessment on this
theory of harm is what effect
the absence of the Foodcorp quota into
the general pool would have on existing competitors, all of whom have
been listed above.
[31] There is no credible evidence to
suggest that the Glenryck label will be put ‘into a drawer’
in Namibia as suggested
by Mr Sanqela of Ntshonalanga Fisheries (Pty)
Ltd and thus no longer provide competition in the relevant market.
As matters stand
presently the Glenryck brand is declining by reason
of the fact that fishing is not the core business of Foodcorp. There
is no
objective evidence to suggest the performance of Bidfish would
not be as successful as the other companies in the Bidvest group.
[32] As regards the effect on the
smaller participants in the pilchards markets, the Commission relied
on an affidavit of Mr Du
Preez who did not testify. This evidence
remains untested. On the basis of the evidence of Mr Silberman from
Saldanha Fisheries,
Mr Sanqela and Pioneer’s submissions, the
Commission raised the issue that small players would be squeezed out
of the market.
However, this has not been supported by any empirical
evidence or facts based on commercial reality. The smaller players
had their
difficulties pre-merger but there are no objective facts to
support the assertion that the situation will change dramatically by
changing the source of 650 000 cartons of fish from imported to local
source.
[33] Mr Silberman was concerned that
“the economies of scale arising out of the potential merger may
allow Lucky Star to negotiate
deals with retailers and wholesalers
which could exclude other suppliers of canned fish”. This
opinion is unsupported by
the evidence before the Tribunal and is
undermined by the successful input by the white label players which
are rapidly increasing
their share in the market place. Mr
Sanqela’s main point, apart from his understandable desire to
acquire the fishing business
of Foodcorp, was that the Glenryck brand
would have to be accompanied by Foodcorp’s TAC quota. He was
concerned that ,absent
the quota , Glenryck would fade as a viable
participant in the market . Critically however, his main complaint
turned on the
possible sale of Glenryck to a new participant so as to
transform the market . That is not the kind of evidence that
supports
a case regarding foreclosure of new entrants , particularly
on appeal when the only issue before this Court was not about
the purchase of Glenryck but only about the condition concerning
the quota .
[34] There was the further concern
about anti-competitive harm which suggests that the merger may allow
Oceana to reduce the price
that it is prepared to pay to the smaller
quota holders who have been contracted to sell their quota. The
evidence of Mr Sanqela
and his statement in this regard overlooks the
commercial reality of the market pre- and post-merger. The merging
parties saw the
advantage in having a local fish supply rather than
an imported supply. Given the quantum of the quota, there was,
unsurprisingly,
little evidence to suggest that much will change post
the merger, except that there will be a small reduction in Oceana’s
cost base.
[35] Mr Silverman was concerned about
the exchange rate and the importation of pilchards. He felt that the
advantage obtained by
Oceana in increasing their local source by
eight per cent would mean that Oceana could dominate the market on
price. If Oceana
has access to greater availability of local fish
supply then it would automatically result in Saldanha being
prejudiced. Saldanha,
in any event has a maximum of eight to ten per
cent of the market, which is on par with the white label sellers.
Much of the white
label sourced fish is imported, yet the cans are
sold in the retail sector at highly competitive prices. It was
demonstrated in
his cross-examination, that the intended transaction
would not make Saldanha any more vulnerable to import price
fluctuations,
since those currency variables are a constant factor
irrespective of the merger.
[36] Mr Arnold’s evidence that
Bidfish would compete with Lucky Star, the absence of the Foodcorp
quota notwithstanding cannot
be ignored. He confirmed that, given
Bidfish’s access to a significant Namibian quota, it would be
in a sound position to
support the Glenryck brand and was in no need
of this quota. He was subjected to cross examination on this
particular issue.
The following exchange is illuminating:
‘MS ENGELBRECHT: And so, when you
talk about the potential for the expansion of the brand, we must
understand that the product
that you will focus on, is not the
pilchard product that traditionally is the Glenryck brand product?
MR ARNOLD: No. I don’t think
that is entirely correct. If we have the Glenryck brand that puts us
in the position to review
how aggressive we will formulate the
strategy for pilchards for South Africa. And as I said, if we have a
brand, and if we have
a market demand, we will participate in the
pilchard market a bit more aggressively in South Africa, and in
Namibia.
MS ENGELBRECHT: Yes, But you did
explain to us that you see Lucky Star as such a dominant player, that
you don’t really want
to go and play on their playground. You
would rather develop another brand, another product?
MR ARNOLD: We will play on their
playground, but it will be arrogant to say we are going to challenge
them. But we certainly intend
to play on their grounds.
MS ENGELBRECHT: Yes, so don’t you
believe that you can effectively challenge them in the market, in the
pilchards market?
MR ARNOLD: We can challenge them, but
to make inroads in the 75% dominance, and here we come with Glenryck
in the short term, I
think it is a bit arrogant of us to assume that
we can seriously compete with them, but it is certainly our intention
to do just
that, at a level where we can.’
[37] Turning to Pioneer, from the
information which it provided to respondent, it appears that in 2013
it enjoyed a surplus of 210
436 cartons and hence was in no need of
Foodcorp’s quota.
[38] No evidence was provided by the
Commission as to any reasons which may cause Shoprite and the other
white label products to
be less competitive as result of the merger
proceeding, absent the quota. Indeed, in a letter generated by the
Commission to the
Shoprite Group on 09 September 2013, a series of
question with regard to Shoprite’s participation in the market
were raised.
[39] The answers are again significant:
’13. Do you regard the Shoprite
in-house Pilchard brand as a competitor an effective competitor to
the Glenryck and the Lucky
Star brand? Kindly explain your answer
in as much detail as possible. Yes, our Shoprite In-house brand is
an effective competitor
on price and quality to Glenryck and Lucky
Star.
14. Do you regard your Shoprite’s
House brand as constraining the pricing of Glenryck and Lucky Star?
All pilchards are imported
by ourselves or by local suppliers and
governed by the same SABS and NRCS standards. Shoprite in-house
brand offers the consumers
a saving by cutting out the middle man.’
[40] It is also significant that
Shoprite indicated that it sourced its product from Namibia and in
Taiwan by way of imports.
It was not at all dependant on a domestic
source for pilchards. Again the Foodcorp quota would have no effect
on the level of
its competition in the market.
[41] That left only Saldanha as a
market participant which could support the theory of harm advocated
by the Commission and which
was accepted by the Tribunal. Again the
evidence is hardly convincing, as the following exchange in cross
examination between
Mr Unterhalter who appeared on behalf of the
appellant and Mr Silverman on behalf of Saldanha reflects:
‘Mr Silverman when you’re
ready I’d indicated to you before the luncheon adjournment that
the effect of this merger
is simply that at the margin – and
it’s a relatively small margin – Oceana will be able to
reduce its imports
and substitute for local fish but that it remains
massively exposed to imports and so all it’s trying to do is
get a slightly
better balance in the local to imported ratio and that
that really has minimal impact on you, do you accept that?
MR SILVERMAN: Prima facie it has
minimal impact on us but I think that if you look a little bit deeper
it dies have an impact because
the pricing on the shelf is largely
dictated by the costs of your raw material you’d understand
that with any commodity and
clearly the cheaper you can buy your raw
material the better you can price your output product.
MR UNTERHALTER: But all that it’s
going to mean is that at the margin it’s going to assist Lucky
Star which is the leading
brand and is the price setter in the market
do you accept that?
MR SILVERMAN: Yes.’
[42] The upshot of this evaluation is
that, even though Oceana enjoyed 72% share in the market, the
evidence from the balance of
the participants did not support a
conclusion that the absence of the Foodcorp quota being reinserted
into the general pool would
result in a substantial lessening or
preventing of competition. Indeed, save for some unsubstantiated
averments by Mr Silverman,
the other witnesses and documentary
evidence provided to the Tribunal pointed clearly in a contrary
direction.
[43] It is important to emphasise that
this appeal was not concerned with the effect of the merger on
competition but only with
the effect of the quota on this level of
competition in the defined market.
[44] Turning to the question of
harvesting, and the smaller entities, the situation of the small
players would be unchanged insofar
as capital requirements are
concerned post-merger. The small TAC quota of Foodcorp will not
bring about any change in the financial
abilities of the smaller
players. Smaller players have not been able to overcome this problem
pre-merger and endeavours by smaller
players to enter into joint
ventures or pool their resources to minimise operational costs will
remain unchanged, should the merger
go ahead.
[45] The consideration of competition
for imported fish will remain the same. In fact, the white brands
rely entirely on imports
and it is undisputed that the sale of their
product has increased rapidly. It represents at 10 per cent share of
present. There
is no evidence to suggest, on the facts presented,
that post-merger the players in the field would change in their
import demands.
It is suggested that because the merging parties are
strong they can absorb the cost of importing and therefore the
relevant TAC
should not be acquired by Oceana. This is a flawed
model of the competitive process and a theoretical abstraction as
there is
no evidence to support this conclusion.
[46] On the question of brand loyalty
and access to shelf space there is no credible evidence that Oceana
will put more tins on
the shelf post-merger. The only gain by Oceana
is some 650 000 cartons on local fish source. In any event it is
common cause that
the Glenryck brand was declining and the white
label brand has become a very important competitor for shelf space.
The intervention
of Bidfish is likely to enhance competition.
[47] Turning to the question of the
possible potential of new participants in the market this Court
warned the Tribunal in Pioneer
Hi-Bred International Inc. and another
v Competition Commission and another (CAC Case no: 81/AM/Dec10) that
a sound evidential
basis was required to arrive at a conclusion such
as the one which formed one theory of harm developed by the Tribunal,
that is
a retardation of access of new smaller players into the
relevant market. Regrettably, it again appears that the Tribunal
made
the same error as it did in Pioneer. See the Tribunal’s
decision at para 111 – 116 where the criticism which was
levelled
against the Tribunal unfortunately needs to be repeated:
‘The public interest in
maintaining competition in the market, cannot justify the refusal of
a merger, on the basis that competition
will be maintained in the
market, as a consequence of such refusal, by virtue of
unsubstantiated speculation that the target firm
will enter into a
partnership with another firm, which is not a competitor in the
market, and which is wholly unsuited to a merger.
The Tribunal’s
approach runs the danger of placing too much emphasis upon the
interest of competitors rather than
upon the key principle, of maintaining or promoting competition in
the relevant market. The
public interest in maintaining competition
in the market, does not justify the exploitation of the vulnerability
of a target firm,
by the competition authorities, in such a manner.
To condone such an approach would constitute an intrusion into the
management
and control of private companies, not justified in the
public interest, particularly, as on the available evidence such a
merger
could not possibly be considered to make financial sense.’
(at para 22)
[48] To amplify: the Commission raised
the question of the appropriate burden of proof to when the Tribunal
considers a merger
in terms of s 16 (2) of the Act. The merging
parties relied on Primemedia and Others v Competition Commission
[2007] 1CPLR (CT)
where it was found that in large mergers it, the
Commission must show that the proposed transaction would likely
result in the
lessening or prevention of competition. The Commission
asserts that when this Court deals with a s 16(2) inquiry, it is
hearing
an appeal against the original adjudicator, being the
Commission and therefore the onus rested on the merging parties.
[49] The argument about onus however
obfuscates the critical point. For the Tribunal to reach a proper
conclusion there must be
sufficient evidence to show justify a
conclusion of a prevention of or lessening competition. This cannot
be done by simply applying
a balance of probabilities test to an
untested theory. In my view, in assessing whether there will be a
lessening of competition,
the enquiry must be much wider than a mere
mechanical implementation of an onus.
[50] Instead of defining where the onus
rests in of s 16(2), it would be more constructive to assess the
reliability and convincing
nature of the evidence adduced by both
parties and whether this evidence, read carefully as a whole, can
sustain the conclusions
reached.
[51] In this case, the Tribunal has
drawn inferences from speculative evidence and ultimately its
findings have led to conclusions
which, as I have shown are not based
on the facts.
[52] There was some suggestion that the
merger should be rejected because there were alternative offers which
had been made by BEE
bidders. As I have already noted, because this
appeal turns only on one question, namely whether a condition should
be attached
to a merger which the Tribunal had approved the dispute
falls outside of the remit of this appeal. The merger has been
approved.
That is not the issue which is the subject of this appeal.
The question of possible suitors other than Oceana for the Glenryck
label is thus not before this Court. [53]It is therefore not
necessary to deal with the evidence concerning whether either of
the
two offers viable and whether they were justifiably rejected on
credible commercial reasons.
[54] There is however one significant
issue of public interest in terms of s 12 A of the Act which requires
emphasis. The continued
existence of Foodcorp’s fishing rights
together+ with its fishing business will result in the survival of
its Laaiplek processing
facilities and the employment associated
therewith for approximately 1000 employees. Understandably, for
this reason the Food
and Allied Workers Union supported the merger in
its present form, for, if the merger is not approved, there would a
large scale
retrenchment of employees at Laaiplek which would clearly
have a significant impact not simply on the employees but on the
entire
Laaiplek community. It is a consideration which clearly
should have been taken into account in the broader assessment of this
merger.
[55] For these reasons therefore the
following order is made:
1. The appeal is upheld with costs
including the costs of two counsel.
2. The order of the Tribunal of 15
April 2014 is set aside and replaced with the following:
‘The merger between the Oceana
Group Limited and Foodcorp (Pty) Limited is approved subject to
conditions which are contained
in Annexure A to this judgment.’
M. VICTOR
ACTING JUDGE OF APPEAL
DAVIS JP and NDITA AJA concurred
Counsel for Appellants Mr D
Unterhalter SC and Mr J Wilson
Attorneys for First Appellant
Webber Wentzel
Attorneys for Second Appellant
Cliffe Dekker Hofmeyer
Counsel for Commission Ms M J
Engelbrecht
ANNEXURE A
Oceana Group Limited
And
Foodcorp (Proprietary) Limited
CONDITIONS
1.Interpretations
1.1 The headings of the clauses in this
Annexure “A” are for the purposes of convenience and
reference only, and shall
not be used in the interpretation of, or to
modify or amplify, the terms of the referral of the Competition
Commission of South
Africa to which this document is annexed.
1.2 In this Annexure “A”,
unless a contrary intention clearly appears, words importing:
1.2.1 Any one gender conclude the other
genders;
1.2.2 The singular includes the plural
and vice versa
1.2.3 Natural persons include legal
persons and vice versa.
1.3 The following terms shall have the
meanings assigned to them hereunder and in any annexure to it, an
cognate expressions shall
have corresponding meanings, namely:
1.3.1 “Acquiring Firms”
means the Oceana through its subsidiary companies, Oceana Brands,
Amawandle Pelagic;
1.3.2 “Amawandle Hake”
means Amawandle Hake Proprietary Limited;
1.3.3 “Amawandle Pelagic”
means Amawandle Pelagic Proprietary Limited;
1.3.4 “the Act” –
means the
Competition Act 89 of 1998
, as amended;
1.3.5 “clearance date” –
the date that the Competition approves the transaction and as
referred to in the Merger
Clearance Certificate (Form CC15);
1.3.6 “the Commission” -
means the Competition Commission of South Africa;
1.3.7 “days” – means
business days;
1.3.8 “Glenryck Trademark”
means the Glenryck Trademark (and all related trademarks) together
with any logo or device
associated therewith and all translations,
adaptations, derivations and combinations thereof, and whether
registered or not;
1.3.9 “Glenryck Purchasers”
– means any willing and able independent third party, that
elects to purchase the
Glenryck trademark on terms and conditions
that are acceptable to Foodcorp;
1.3.10 “Glenryck Sale” –
means the subsequent sale by Foodcorp of the Glenryck Trademark to
the Glenryck Purchaser;
1.3.11 “Merger” means the
acquisition of control by Oceana over the fishing business of
Foodcorp, excluding the Glenryck
Trademark;
1.3.12 “Merging Parties” –
means Oceana Group Limited (“Oceana”) and the fishing
business of Foodcorp
(Pty) Ltd (“Foodcorp”);
1.3.13 “the Regulations” –
means any regulations made in terms of the Act;
1.3.14 “the Sellers” -
means Foodcorp; Foodcorp Fishing (Pty) Ltd, Bongulethu Fishing
Enterprises (Pty) Ltd; Emachibini
Fisheries (Pty) Ltd; Ezintlanzini
Fishing (Pty) Ltd; Ezolwandle Fishing (Pty) Ltd; Orgel Vismaatskappy
Ltd; Sea-Ice Manufacturers
(Pty) Ltd; Siyasebenza Fishing (Pty) Ltd;
and Umfondini Fishing (Pty) Ltd;
1.3.15 “Target firm” means
the fishing business of Foodcorp, excluding the Glenryck Trademark.
2. Recordal
2.1 On 2 August 2013, the Merging
Parties submitted a notice of merger with the Commission. The
implementation of the Merger will
result in the Acquiring Firms
gaining control over the Target Firm. The Merging Parties
subsequently reached an agreement in terms
of which the Glenryck
Trademark is excluded from the transaction and is retained by
Foodcorp.
2.2 In order to expedite the
Commission’s Investigation of the Merger and address the
Commission’s concerns regarding
the market for the supply of
canned pilchards, the Merging Parties have agreed to the Condition as
set out herein.
2.3 The Commission is of the view that
the Conditions sufficiently address potential concerns in relation to
the Merger which are
likely to arise following the completion of the
transaction, as proposed.
3. Conditions
3.1 Foodcorp shall retain and continue
to operate the Glenryck Trademark in accordance with good business
practice.
3.2 In the event of the subsequent sale
of the Glenryck Trademark, Foodcorp shall notify the Commission of
the proposed Glenryck
Purchaser and shall, to the extent required by
the Act or if requested to do so by the Commission, notify the
proposed Glenryck
Sale to the Commission.
4. Undertakings by Foodcorp
4.1 Foodcorp undertakes, to the best of
its ability, to do the following in respect of the Glenryck
Trademark, which undertakings
are subject to Foodcorp’s right
to sell the Glenryck Trademark in accordance with clause 3.2 above,
in which event these
undertakings will lapse:
4.1.1 Preserve and maintain the
economic and competitive value of the Glenryck Trademark in
accordance with good commercial practice
and to manage the Glenryck
Trademark in the best interest of such business;
4.1.2 Refrain from carrying out any act
that may reasonably be expected to have a significant adverse impact
on the economic value,
the management, or the competitiveness of the
Glenryck Trademark;
4.1.3 Refrain from carrying out any act
that may be of such a nature as to, in an adverse way, after the
economic value of the Glenryck
Trademark or which could after the
commercial strategy in respect of the Glenryck Trademark in a
significantly adverse way;
4.1.4 Provide sufficient resources for
the maintenance of the business in respect of the Glenryck Trademark.
5. Monitoring of Conditions
5.1 In the event that the Commission
receives any complaint in relation to non-compliance with the above
conditions, or otherwise
determine that there has been an apparent
breach by Foodcorp of the conditions, the breach shall be dealt with
in terms of Rule
39 of the Competition Commission Rules.
5.2 All correspondences in relation to
these Conditions shall be forwarded to mergerconditions@compcom.co.za