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[2014] ZACAC 3
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Oceana Group Limited and Another v Competition Commission (130/CAC/May14) [2014] ZACAC 3; [2014] 2 CPLR 372 (CAC) (19 December 2014)
REPUBLIC OF SOUTH
AFRICA
IN THE
COMPETITION APPEAL COURT
CAC CASE NO:
130/CAC/May14
OCEANA GROUP
LIMITED
.............................................................................
First
Appellant
FOODCORP
(PROPRIETARY)
LIMITED
.................................................
Second
Appellant
and
THE COMPETITION
COMMISSION
...................................................................
Respondent
JUDGMENT
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 (
M
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 concurrred
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