Distillers Corporation (SA) Ltd and Another v Bulmer (SA) (Pty) Ltd and Another (08/CAC/May01) [2001] ZACAC 4; [2001-2002] CPLR 36 (CAC) (27 November 2001)

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[2001] ZACAC 4
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Distillers Corporation (SA) Ltd and Another v Bulmer (SA) (Pty) Ltd and Another (08/CAC/May01) [2001] ZACAC 4; [2001-2002] CPLR 36 (CAC); 2002 (2) SA 346 (CAC) (27 November 2001)

IN THE COMPETITION APPEAL COURT OF SOUTH AFRICA
Case No.
08/CAC/MAY 01
In the matter between:
DISTILLERS
CORPORATION (SOUTH AFRICA)
LIMITED
First Appellant
STELLENBOSCH
FARMERS’ WINERY GROUP
LIMITED
Second Appellant
and
BULMER (SA) (PROPRIETARY) LIMITED
First Respondent
SEAGRAM AFRICA (PROPRIETARY) LIMITED
Second Respondent
JUDGMENT
DELIVERED ON 27 NOVEMBER 2001
DAVIS, JP
:
INTRODUCTION
:
On 20 September 2000 first and second appellants entered
into an agreement in terms of which first appellant would acquire,
subject
to the approval of the shareholders, the assets and
liabilities of the second appellant for a purchase consideration of
R515 157
950,31 which amount was to be discharged by the issue of 55
580 000 ordinary shares in the share capital of first appellant.(‘the
agreement of 20 September’)
The shares in each of first and second appellant are
listed on the Johannesburg Stock Exchange (‘JSE’). Shares in
each of the
Appellants were owned as follows: 60% of the share
capital by Rembrandt-KWV Investments Limited (‘Rem-KWV’).
Rem-KWV is a joint
holding company of Rembrandt and KWV in which each
holds a 50% interest. KWV’s interest in Rem-KWV was held through a
listed subsidiary,
KWV Investments Limited, in which KWV owned
approximately 54%. An additional 30% of the shares were owned by
South African Breweries
Limited (‘SAB’) and the remaining 10% by
the general public.
A voting pool agreement existed between Rembrandt, SAB
and KWV in respect of each of first and second appellant pursuant to
which
Rembrandt, SAB and KWV exercised control over each of first and
second appellant.
The Competition Commission adopted the approach that the
transaction as set out in the agreement of 20 September (the terms of
which
were amended on 9 October 2000) did not constitute a merger as
defined in the
Competition Act 89 of 1998
as amended (“The Act”).
In the event that the transaction did constitute a merger,
appellants were, in terms of
section 13
of the Act, enjoined to give
prescribed notice of the transaction to the Competition Commission.
Appellants adopted the approached
that they were under no such
obligation as the transaction did not lead to a change in the
ultimate control of either company. Two
of appellants’
competitors, being respondents in the present dispute, adopted a
contrary view and brought an application to the
Competition Tribunal
(“The Tribunal”) in terms of
s62(1)
of the Act on the basis that
appellants had failed to notify the transaction.
The Tribunal found that the agreement of 20 September
constituted a merger as defined in
section 12
of the Act and ordered
that appellants be given a period of 10 business days from the date
of their decision to notify the merger
to the Competition Commission
in the manner prescribed in the Act and rules for large mergers to be
so notified. It is against this
decision of the Tribunal that the
appellants now appeal to this court.
FACTUAL BACKGROUND TO THE AGREEMENT OF 20
SEPTEMBER 2000.
In 1979 the consent of the then government was granted
for a restructure of the liquor industry. A new entity Cape Wine and
Distillers
Limited (‘CWD’) was formed out of an arrangement
between SAB, second appellant, the Oude Meester Group Limited (‘OMG’)
and
KWV. The basis of this restructure rested on the purchase of the
Rembrandt Group’s beer interest by second appellant in exchange
for
its agreement to limit its involvement in wine and spirits to its 30%
investment holding in CWD. The Rembrandt Group duly undertook
to
desist from any involvement in the beer industry. CWD was then
listed on the JSE with ownership of its shareholding as follows:
30% held by the Rembrandt Group;
30% held by SAB;
30% held by KWV; and
10% held by the public.
The structure can be illustrated
diagrammatically thus:
SAB
30%
KWV
CWD
30%
PUBLIC
RG
10%
30%
OMG
SFW
At a later stage Rembrandt and KWV formed a jointly
owned holding company, Rembrandt KWV Investments Limited in which
they consolidated
their respective shares in CWD to an agreement of
60% of the shares of the latter company. In 1998 second appellant
and OMG were
separately listed on the JSE. CWD retained the
activities of second appellant which was renamed accordingly while
the OMG’s interests
were transferred to a new entity, namely first
appellant.
On 8 June 2000 appellant’s attorney wrote
to the Competition Commission seeking clarification as to whether a
proposed merger between
first and second appellants constituted a
notifiable transaction. On 7 August 2000, the Commission addressed a
letter to appellants
attorney in which it said: ‘
the
information submitted by Rand Merchant Bank indicates that the voting
pool agreement will remain unchanged and that, while a new
shareholders agreement will be drafted, it will remain materially the
same but will exclude the “non-compete” clause contained
in the
existing agreement. Therefore, it would appear that after the
transaction has been effected, there would be no change of control
as
envisaged in the Act.
On the basis of the above information, the Commission
therefore concludes that the proposed transaction would not
constitute a merger
as defined in
section 12
of the Act. The
proposed transaction will thus not be notifiable in terms of
section
13
of the Act. It must further be highlighted that, should the
voting arrangements change in any way, the above opinion may not
apply’.
Appellants effected the transaction whereby
first appellant was to acquire all the principle assets and
liabilities of second appellant
in terms of the agreement of 20
September 2000 as amended on 9 October 2000. On 10 October 2000 the
Competition Commission again
wrote to appellants attorney and
informed him as follows: ‘
After such review,
the Commission determined that the said transaction between SFW and
Distillers constituted a merger as defined
in
section 12
(1) of the
Competition Act no. 89 of 1998
as amended. The Commission’s
decision is based, inter alia, on the fact that in its view, the
transaction does not constitute
an internal restructuring as
suggested by the parties.
In the circumstances, the transaction must be
notified to the Commission within 7 days of receipt of this letter,
failing which the
merger will be deemed to be in contravention of the
Act.’
This letter did not prove to be the
end of the Commission’s role. According to an affidavit deposed to
by appellants attorney,
Mr. Katz, ‘
a few days later the
Commissioner telephoned me to advise me that he had considered the
matter carefully and I made an appointment
to see him. During the
course of that appointment the Commissioner informed me that he and
his colleague had carefully considered
the matter and that they
accepted the correctness of the interpretation of
section 12
as
advanced on behalf of the First and Second Respondents and that
accordingly the transaction could proceed
.’
Thereafter respondents brought an
application in the Cape High Court on 10 November 2000 for a
declaration that that the agreement
of September 20 constituted a
notifiable transaction in terms of the Act. Respondent further
sought an interdict restraining appellants
from implementing the
merger, alternatively an order to refer the matter to the Tribunal.
Jali J found that
section 65
(3) of the Act made it clear that the
High Court did not have jurisdiction to hear a matter which concerned
a question of law which
pertained to the Act.
Respondents then approached the
Tribunal for an order declaring that the agreement of 20 September
2000 constituted a merger as defined.
THE TRIBUNAL’S FINDING
The Tribunal was required to interpret
sections 12
and
13
of the Act as they were prior to the extensive
amendments in terms of the Competition Second Amendment Act 39 of
2000 (‘the amending
Act’). As the parties based their arguments
on the legislative position which applied prior to the application of
the amending
Act, this court is not required to deal with the
question of the application of the amending act to this dispute. The
matter can
thus be resolved in terms of the law which applied before
the application of the amending Act.
Section 13(1) of the Act which is
central to this dispute provides as follows: ‘Any party to an
intermediate or large merger will
notify the Competition Commission
of that merger no more than seven days after the earlier of :
the conclusion of the merger
agreement;
the public announcement of the
proposed merger bid;
the acquisition by any of the
parties to that merger, of a controlling interest in another.
Section 12 contains the crucial
definition of merger:
(1) “
merger” means the direct or indirect acquisition or
direct or indirect establishment of control, by one or more persons
over all
significant interests in the whole or part of the business
of a competitor, supplier, customer or other person, whether that
control
is achieved as a result of:
purchase or lease of the
shares, interest, or assets of that competitor, supplier, customer
or other person;
(b) amalgamation or combination with that competitor, supplier,
customer or other person, or
(c) any
other means.
A person controls a firm if
that person –
beneficially owns more than
one half of the issued share capital of the firm;
is entitled to vote a majority
of the votes that may be cast at a general meeting of the firm, or
has the ability to control the
voting of a majority of those votes,
either directly or through a controlled entity of that person;
is able to appoint or to veto
the appointment of a majority of the directors of the firm;
is a holding company, and the
firm is a subsidiary of that company as contemplated in section
1(3)(a) of the Companies Act, 1973
(Act No. 61 of 1973);
in the case of firm, that is a
trust, has the ability to control the majority of the votes of the
trustees, to appoint the majority
of the trustees, to appoint or
change the majority of the beneficiaries of the trust;
in the case of a close
corporation, owns the majority of members’ interest, or controls
directly, or has the right to control
the majority of members’
votes in the close corporation; or
has the ability to materially
influence the policy of the firm in a manner comparable to a person,
who, in ordinary commercial practice,
can exercise an element of
control referred to in paragraphs (a) to (f)
”.
The key to the present dispute turns
on the interpretation of section 12, namely the scope of the
definition of merger, the existence
of which is essential for the
application of section 13.
The Tribunal found that section 12(1)
provides for a merger to be achieved through the acquisition or
establishment of direct or indirect
control. Given the inherent
difficulty in ascertaining the nature of indirect control, it held
that section 12(2) was introduced
in order to give
“some
examples of indirect control that might be exercised over a firm
”.
The Tribunal concluded thus: ‘
when
we want to understand what control means for the purpose of section
12 we must interpret the language of section 12(1) and see
the
instances of section 12(2) as ancillary to but not determinative of
that inquiry. To put it in another way section 12(2) sets
out the
most commonly occurring situations to be found within the boundary of
meaning of control but it does not set the boundary
- that must be
done by reference to section 12(1) alone’.
In response to respondents argument
before the tribunal that first appellant acquired direct control over
the business of second appellant
by way of an asset purchase,
appellants contended that section 12(1) sought to ensure that
notification only took place where a change
occurred to “
ultimate
”
control or “
effective
” control. As both appellants had
been controlled by the same shareholders prior to the transaction,
and first appellant would
be so controlled after the transaction, no
change in effective control had taken place. Accordingly the
transaction did not fall
within the definition of section 12. This
argument was based upon the contention that where firms are located
in a single economic
entity, a rearrangement between a purchaser and
a seller within this same economic family does not lead to a change
of effective
control and thus falls outside of the scope of section
12. As the two companies had always formed part of a single economic
entity
both prior to and subsequent to the agreement of 20 September
2000 no change of control had occurred.
In finding that the appellants did not
constitute a single economic entity the Tribunal emphasized the
following :
Appellant
companies were separately legal entities;
they were controlled by separate
boards of directors;
they operated separately;
they had separate listings on the
JSE;
Appellants have publicly held
themselves out in their own circulars to shareholders as being in a
competitive relationship, which
relationship was to the benefit of
shareholders.
The tribunal concluded as follows: ‘
on
the facts before us we find that there is no evidence to suggest the
respondents form part of a single economic entity. Nor is
there
evidence that the shareholders direct the activities of either of the
respondents let alone directing that they act in concert.
On the
contrary there is at least prima facie evidence that the two
companies operated autonomously and were hold out as competitors
to
their shareholders’
.
The Tribunal found that first
appellant had direct control over the business of second appellant
and hence the transaction constituted
a merger which was notifiable
in terms of section 13.
APPELLANTS CASE:
Mr. Kuper, who appeared together with
Mr. Bhana on behalf of appellant’s attacked the reasoning employed
by the Tribunal on a number
of different bases. Firstly he submitted
that it was only partly correct to conclude that section 12(2) was
not exhaustive of the
definition of control. He contended that
section 12(2) dealt with changes that occur in the structure or
shareholding of a company
or artificial person that owns a business.
Where section 12(2) so legislates, it is exhaustive. Thus the
threshold shareholding
that the legislature determined to be relevant
for the purpose of defining the change of control was 50,1%. If the
change of shareholding
was less than that threshold, such change
would not be relevant in assessing any change of control. Were it
intended to be otherwise
there would have been little purpose in
specifying with precision the quantitative criteria specified in
section 12(2)(a), (b) and
(c). Mr Kuper’s second attack was that
the Tribunal had employed an overly literalist interpretation of
section 12(1) in disregard
of the fact that ultimate control had not
changed. To so illustrate this submission, he employed an example.
Assume B(Pty) Ltd sold
its business to C(Pty) Ltd. A(Pty) Ltd held a
100% of the shares in both B(Pty) Ltd and C(Pty) Ltd. On a literal
interpretation
of section 12(1), there would be a change of control.
On the approach employed by the Tribunal, this transaction would
entail a
change of control. Recognizing that such a transaction
could not be intended to fall within section 12(1), Mr. Kuper
suggested that
the Tribunal is constrained to employ a subjective
test such as the single economic entity test to exclude such a
transaction from
the ambit of the section. By contrast the
legislature intended the section to provide for a clear ascertainable
set of criteria
to determine whether the transaction was a merger for
the purposes of s13.
The test of
ultimate control represented such an objective, ascertainable test
and obviated recourse to a subjective test such as
a single economic
entity test.
Applying this test to the facts, Mr
Kuper submitted that the effect of the sale of the business from
second to first appellant resulted
in the transfer of the business
from a firm controlled by either Rembrandt KWV Investments Limited or
Rembrandt, KWV and SAB into
another firm controlled by the same
company/ companies .
Mr. Kuper also referred to section
12(2)(d) of the Act in which it is provided that a holding company
controls a firm if that firm
is a subsidiary of the former. No change
of control had occurred by reference to this section in that the
holding/subsidiary relationship
remained unchanged after the
agreement of 20 September. Ultimate control remained with the same
holding company.
In the alternative Mr. Kuper submitted
that even if the Tribunal was correct to adopt the test of a single
economic entity, it had
failed to apply the test correctly to the
facts of the present case. Had it so applied the concept correctly,
it would have found
that appellants together with their common
controlling shareholders formed a single economic entity.
In this regard Mr. Kuper relied upon a
dictum of the US Supreme Court in Copperweld Corp v Independence Tube
Corp 467US752(1974) at
771, namely:
‘
A parent and its subsidiary have
a complete
unity of interest
. Their objectives
are common not disparate; their general corporate actions are guided
or determined not by two separate consciousness
but by one. If the
parent and a wholly owned subsidiary do agree to a cause of acting,
there is no sudden joining of
economic resources that had
previously served different interests
’.
In the present case, common control of
the boards of each of the appellants ensured a unity of interest.
The corporate actions of
appellants were determined ultimately not by
the independent actions of the two appellant companies but by the
entities which control
the directors and thereby controlled their
boards.
Mr. Unterhalter, who appeared on
behalf of first respondent submitted that, following an application
of the plain words of section
12(1), first appellant had acquired
direct control over the whole of the business of second appellant.
All the elements of section
12(1) were present namely first appellant
was a person within the meaning of one or more persons, the assets of
second appellant
constituted ‘all significant interests in the
whole or part of the business the
competitive
,
supplier, customer or other person’, first appellant acquired
direct control over second appellant’s business as a result of
acquisition of the assets of second appellant pursuant to the
agreement of 20 September. Thus, on a plain application of the words
of section 12(1) the transaction fell within the definition of a
merger.
Mr. Unterhalter also attacked the
unitary or ultimate concept of control adopted by appellants, namely
once a person controls by reason
of one of the circumstances provided
for in section 12(2), such control is exhaustive of the question of
control and thereby precludes
any other form of control from being
relevant for the purposes of s13. He submitted that this
interpretation rested upon the postulate
that, if the control of the
ultimate shareholders is not altered by a merger, control cannot be
acquired in any other form by another
party.
Mr. Unterhalter submitted that this
unitary concept of control was fundamentally flawed. If section 12(2)
is dispositive of the meaning
of control, it would then contemplate
that one person may control a firm by reason of the fact that such
person beneficially owns
more than half of the issued share capital
of the firm (section 12(2)(a)) while another person controls the firm
because that person
is able to veto the appointment of a majority of
directors of the firm (section 12(2)(c)). Thus on appellants very
argument, section
12(2) contemplates that, at one and the same time,
different persons can control the firm by reason of different powers
that they
may enjoy and the recognition of one species of control
does not oust the recognition of another.
Mr. Unterhalter also contended that
section 12(2) did not refer to a change of control but simply defined
the circumstances in which
a person controlled a firm. According to
this submission, there was nothing in the language of section 12(2)
which suggested that
once control resided with a person for the
purposes of the sub-section, that for the purposes of s13, all
questions of control had
been determined. On the contrary, section
12(1) refers to the acquisition or establishment of control “
by
one or more persons
” It was clear that section 12(1) provides a
general definition of a merger and refers to a general concept of
control. Section
12(2) does not exhaustively provide for
circumstances in which a person acquires or establishes control but
simply tabulates circumstances
in which a person is deemed to control
the firm. Accordingly, section 12(2) does not operate to define
circumstances which exclude
the notion that other persons may acquire
or establish control nor does it define how a change of control might
take place.
On the basis of this argument, the
proper relationship between section 12(1) and 12(2) can be defined
thus: section 12(1) refers to
the means by which control can be
achieved. S12(1)(c) provides examples of a residual class by which
control may be achieved. This
is indicative of and indeed,
supportive of the general provision. Put another way, section 12(2)
then instances circumstances of
control but does not define nor limit
the circumstances in which a person may acquire of establish control
over a firm.
On this line of argument, in the case
where a parent company makes use of a subsidiary company to acquire
the assets of another business,
there will simultaneously be a direct
acquisition of control of the subsidiary over the business so
acquired and an indirect acquisition
of control by the parent
company. Section 12(1) refers to both indirect and direct
acquisitions of control and thus recognizes different
but
complementary ways in which control can be acquired. The indirect
acquisition of control by the parent company as a shareholder
of the
subsidiary does not exclude the direct acquisition by the subsidiary
over the assets of the business in question. For this
reason,
section 12(1) does not envisage a unitary concept of control.
Applying this approach to the facts of
the present dispute, Mr. Unterhalter submitted that, prior to the
transaction, the shareholders
of first and second appellant exercised
indirect control as shareholders over the assets of these two
companies. The effect of the
merger was that first appellant
acquired direct control over the assets of second appellant. The
acquisition by first appellant
of the assets of second appellant
constituted an acquisition of direct control by first appellant as
between first and second appellant
whether or not this transaction
disturbed the control which the shareholders of first and second
appellant may have continued to
exercised. Thus, the acquisition
falls within the meaning of section 12(1).
Mr. Newdigate, who appeared together
with Mr. Butler on behalf of second respondent , submitted that the
argument of appellant had
failed to take account of the very facts of
the case. There was no evidence to the effect that the shareholders
of first and second
appellants had in fact exercised control over the
business of the companies. To the contrary, it was common cause
that, prior to
the transaction, appellants were separate companies,
each having its own board of directors with the usual fiduciary
duties towards
the particular company of which they were directors.
Each company was listed separately on the JSE. Each company competed
with
the other in various areas of the liquor industry. As an
illustration of their operational practice, he referred to a circular
to
shareholders dated 21 October 1988 in which CWD set out proposals
for the separate listing of CWD to be renamed second appellant
and
OMG to be renamed first appellant where the following appeared:
‘Since its establishment in 1979 it has been Cape Wines firm
policy that SFW and OMG operate as completely separate and competing
companies. Each handles its own production, marketing and
distribution and under separate directors and management they compete
with all other producers in the market as well as each other. This
policy stimulates healthy competition between SFW and OMG and
the
industry as a whole to the advantage of the public and the industry.
The board of Cape Wine wishes to ensure that this position
be further
strengthened and has consequently decided to implement the proposals
as set out in this circular.”
The circular further stated that
‘
shareholders in Cape Wine will not be affected in any way in
that their shareholdings in Cape Wine will be replaced by identical
shareholdings
in both SFW and OMG (via Distillers). This will afford
shareholders the opportunity of assessing the performance of both
companies
in a competitive environment
’.
According to Mr. Newdigate these facts
supported the argument that the shareholding of company A in company
B did not exclude the
acquisition of control of company B over the
assets or interest of another company or entity. This would only
occur, hypothetically,
in the extreme example of the directors of
company B being no more than puppets of company A who do its bidding
without regard to
the separate existence of company B or their
fiduciary duties to it.
The approach to ss12 and 13
Chapter 3 of the
Act deals with merger control. Section 11 empowers the Minister to
determine the threshold for the classifications
of mergers as either
being large or intermediate which, in turn, regulates the size of the
transaction which requires scrutiny by
the Commission, Tribunal or
Minister.
Section 13 obliges any party to an
intermediate or large merger (as defined in terms of section 12) to
notify the Competition Commission
of that merger within the
prescribed period. Section 14 empowers the Competition Commission to
consider and approve such a merger
save in the case of a large
merger, as defined, where it must refer that notice to the Tribunal
or the Minister and within the prescribed
period must forward a
recommendation as to whether the implementation of the merger should
be either approved, with or without conditions,
or prohibited.
Section 16 provides that, whenever
required to consider a merger the Competition Commission or, where
applicable, the Tribunal must
initially determine whether or not the
merger is likely to substantially prevent or lessen competition. A
set of factors are then
set out in section 16(2) which serve as
guidelines in terms of which the Commission and Tribunal must assess
whether or not a merger
is so likely to substantially prevent or
lessen competition. The factors listed in section 16(2) would appear
to include a transaction
between a holding and two subsidiary
companies where such a transaction is likely to exhibit any of the
factors listed in s16(2)
such that the consequences of the
transactions may prevent or lessen competition in a particular
market. Such a transaction may
remove an effective competitor in the
relevant market and give rise to higher levels of concentration or
increase the danger that
barriers the entry in the market are
extended.
The applicable sections of the Act
thus provide a clear indication of the purpose of chapter 3, namely
that transactions which are
likely to substantially or lessen
competition should be carefully examined by the competition
authorities. This interpretation is
supported by the preamble to the
Act which provides, inter alia, that the Act ‘
restrain
particular trade practices which undermine a competitive economy and
establish independent institutions to monitor economic
competition’
.
Section 2 of the Act provides that the purpose of the Act is to
promote competition in the Republic. It follows that the Act was
designed to ensure that the competition authorities examine the
widest possible range of potential merger transactions to examine
whether competition was impaired and this purpose provides a strong
pro-pointer in favour of a broad interpretation to section 12
of the
Act.
By contrast, appellants contend for a
narrow interpretation of the definition of merger. The basis of
their argument is that when
section 12(1) refers
to “the direct
or indirect acquisition or direct or indirect establishment of
control
” it refers exclusively to ultimate control. Unless
ultimate control changes as a result of the transaction in question,
such a
transaction falls outside of the scope of section 12 and
accordingly the provisions of section 13 are inapplicable. It follows
that
on the basis of this argument, only one form of a control is
relevant, being ultimate control.
Such an interpretation is not mandated
by the express wording of section 12(1). To the contrary, section
12(1) makes no express provision
for the exclusion of transactions
between a company and its wholly owned subsidiary, from the
definition of merger.
The wording of section 12(2), clearly
contemplates a situation where more than one party simultaneously
exercises control over a company.
This situation can be illustrated
with the following example:
A beneficially owns more than half of
the issued share capital of the firm. He concludes an agreement with
B in order that the latter
may run the business. B agrees provided
that he obtains control over the appointments to the board of
directors as well as of senior
staff and marketing policy. In such a
situation A would control the firm as defined in terms of section
12(2) (a) and B would exercise
control as defined in term of section
12(2)(g). In short, while A would have ultimate control, B would
have control of a sufficient
kind to bring him within the ambit of
control as defined in section 12.
A similar example to be found in
Richard Whish
Competition Law
(4
th
edition) at 746
namely: ‘
were one undertaking acquires more than 50% of the
voting capital of another, this would normally give rise to sole
control unless,
for example, the shareholders agreement gave the
minority shareholder(s) joint control with the majority shareholders,
for example,
through rights of veto
”.
As Whish notes at 742 “
merger
control is not, or not only, about preemptively preventing a merged
entity from abusing its dominant provision in the future;
it is also
about maintaining a market structure that is capable of producing the
kind of outcome that follow from competition
.”
For this reason the purpose of merger
control envisages a wide definition of control, so as to allow the
relevant competition authorities
to examine a wide range of
transactions which could result in an alteration of the market
structure and in particular reduces the
level of competition in the
relevant market.
The facts in the present provide a
good illustration of the importance of such a conclusion to the
purpose of the Act in general and
chapter 3 in particular.
Prior to the proposed merger,
appellants were separately listed on the JSE. They were separately
legal entities, controlled by different
boards of directors and had
totally separate operating structures.
When the proposed merger was
announced, Mr. Scannell, the managing director of first appellant
issued a statement on 11 October 2000
in which he said that the
marketing administration, IT and sales operations of the two
companies would first be merged into a single
structure. He then
went on to state that the merging of the production bottling and
distribution activities could take at least
take 18 months to
complete.
At best for appellants case, prior to
the transaction, the shareholders of appellants might have exercised
indirect control over the
assets of the two companies. The effect of
the transaction was that first appellant acquired direct control over
the assets of second
appellant and that two distinct business would
effectively be merged into one. Thus, the acquisition of the assets
by first appellant
would bring about the acquisition of control as
between first appellant and second appellant, irrespective of what
effect the transaction
itself might have on the ultimate control that
the shareholders of the two appellants exercised.
For this reason, the transaction falls
within the meaning of section 12(1) in that there was an acquisition
of control pursuant to
a transaction by which first appellant
acquired the assets of second appellant. Accordingly appellant were
required to provide notification
in terms of section 13 of the Act.
For these reasons the appeal is
dismissed with costs, such costs in the case of second respondent to
include those of two counsel.
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DAVIS, JP
Selikowitz AJA and Mailula A JA concurred.