Summary of Judgment

1. Introduction

These proceedings concerned the Competition Tribunal’s determination of a large merger and the issuance of a Merger Clearance Certificate. The Tribunal delivered written reasons for its decision after it had already approved the transaction.

The primary acquiring firm was Lexshell 296 Investment Holdings (Pty) Ltd (to be renamed Rebserve), a wholly owned subsidiary of Rebhold Limited, an investment company listed on the JSE. Lexshell was formed specifically for purposes of implementing the merger. The primary target firms comprised Molope Group Limited and a number of its subsidiaries, which were subsidiaries of L.S. Molope Holdings, also listed on the JSE.

From a procedural perspective, the Tribunal recorded that it issued a Merger Clearance Certificate on 23 February 2000, approving the merger without conditions, and these reasons explain the basis for that approval.

The general subject-matter of the dispute was whether the merger would likely prevent or lessen competition in any relevant market in which the parties overlapped—namely catering services, security services, and facilities management services—and whether the merger raised any public interest concerns, particularly regarding employment.

2. Material Facts

It was undisputed that Lexshell (the acquiring vehicle) was a wholly owned subsidiary of Rebhold and that it was established specifically to effect the merger. It was also undisputed that the targets comprised Molope Group Limited and certain identified subsidiaries, including (among others) MRS Catering (Pty) Ltd, Protea Security Group Holdings (Pty) Ltd, and entities providing cleaning and residential services.

The Tribunal relied on the fact that the parties’ operations overlapped in three areas. First, in catering services, Royal Foods Services (a Lexshell subsidiary) and MRS (a Molope subsidiary) both provided catering services described as the preparation and serving of food on clients’ premises. On the figures placed before the Tribunal, the merged firm’s estimated post-merger market share in catering would be 6.5%, while independent surveys indicated that Fedics and Compass/Supervision (identified as the two largest competitors) each had market shares of 15%.

Second, in security services, Coin Security Group (Pty) Ltd (a Rebhold subsidiary) operated mainly in guarding and cash-in-transit, while Protea (a target firm) operated in guarding services. The merged entity’s estimated post-merger market share in the guarding services market was 3.5%, and independent surveys indicated that Fidelity Guards and Gray Security (identified as the two largest competitors) had market shares of 9% and 6% respectively.

Third, in facilities management services, the Tribunal proceeded on the basis that facilities management entailed cleaning facilities managed by the firms. The evidence accepted by the Tribunal was that MRS provided this service primarily in the mining industry, while Royal provided it as an ancillary service to its main business. The Tribunal relied on an estimate that the merged firm’s market share would be below 4%. It further relied on the estimate that more than 90% of facilities management in mines was performed in-house by the mines themselves, with the remainder outsourced.

A factual feature emphasised by the Tribunal was that Lexshell submitted various independent market surveys with divergent market share estimates, resulting in some uncertainty regarding precise market shares. However, the Tribunal accepted that, even taking the survey that attributed the largest market shares to the merging parties, the transaction did not raise concentration concerns.

On public interest facts, the Tribunal relied on the sale agreement’s provision that employees’ contracts were transferred to Rebhold as contemplated in section 197 of the Labour Relations Act, and it accepted that the target firms’ businesses would continue to operate independently of Rebhold, with no intention to retrench employees.

3. Legal Issues

The central legal questions the Tribunal was required to determine were whether the merger was likely to prevent or lessen competition in any relevant market in which the parties overlapped, and whether the merger raised public interest concerns, particularly those relating to employment.

These questions primarily involved the application of competition-law evaluative standards to economic and market facts, including assessments of market share, concentration concerns, and likely market power. The analysis also required a value judgment in relation to public interest considerations as reflected by the Tribunal’s consideration of employment continuity and the transfer of employees’ contracts.

4. Court’s Reasoning

The Tribunal’s reasoning proceeded from an evaluation of competitive effects in each overlapping area of activity. It treated the small post-merger market shares as a strong indicator that the transaction was unlikely to confer market power on the merged entity. In catering, the Tribunal considered that a 6.5% post-merger share, in the context of identified competitors with substantially higher shares, suggested the merged firm would not be able to exercise market power. In security services, the Tribunal similarly treated the 3.5% post-merger share, measured against larger competitors, as inconsistent with a meaningful risk of reduced competition. In facilities management, the Tribunal placed weight on the estimate that the merged firm would have below 4% market share, and additionally on the market characteristic that most services in mines were performed internally rather than outsourced, which further supported a finding of limited competitive impact from the merger.

A significant aspect of the reasoning was the Tribunal’s treatment of the uncertainty in market-share evidence. Although it noted that surveys provided divergent estimates, it concluded that even under the survey most favourable to a finding of higher shares (that is, attributing the largest market shares to the parties), the resulting levels were still insufficient to raise concentration concerns in the relevant markets. In effect, the Tribunal accepted that the conclusion on competitive effects was robust even when the market-share evidence was taken at its highest plausible level on the record.

The Tribunal also relied on the nature of the affected industries, describing the relevant services as being provided in highly competitive industries. This contextual assessment reinforced its view that the merged firm was unlikely to acquire market power. On that basis, the Tribunal agreed with the Competition Commission’s conclusion that the merger was unlikely to prevent or lessen competition.

On public interest, the Tribunal considered employment effects. It relied on the fact that employees’ contracts were transferred to Rebhold in a manner contemplated by section 197 of the Labour Relations Act, and it accepted the representation that the target firms would continue operating independently, with no intention to retrench. These factors led it to conclude that the merger did not raise public interest concerns.

5. Outcome and Relief

The Competition Tribunal approved the merger without conditions and issued a Merger Clearance Certificate dated 23 February 2000.

No order as to costs was recorded in the reasons.

Cases Cited

No cases were cited in the provided reasons.

Legislation Cited

Labour Relations Act 66 of 1995, section 197

Rules of Court Cited

No rules of court were cited in the provided reasons.

Held

The Tribunal held that, notwithstanding uncertainty arising from divergent market surveys, the post-merger market shares in the overlapping markets were small and did not raise concentration concerns. It found that the relevant industries were highly competitive and that the merged firm was unlikely to obtain market power or to prevent or lessen competition.

The Tribunal further held that the merger raised no public interest concerns, particularly as employees’ contracts were transferred in accordance with section 197 of the Labour Relations Act and there was no intention to retrench employees. The merger was accordingly approved without conditions.

LEGAL PRINCIPLES

The Tribunal applied the principle that merger assessment turns on whether a transaction is likely to prevent or lessen competition, with particular attention to post-merger market shares, the risk of market power, and the competitive conditions within the relevant industries.

Where market-share evidence is uncertain and derived from divergent surveys, the Tribunal’s approach reflected that competitive assessment can remain determinable if the outcome is unchanged even on the highest market-share estimates reasonably presented on the record; on those figures, the Tribunal found no concentration concerns.

In assessing public interest considerations relating to employment, the Tribunal treated the transfer of employment contracts as contemplated in section 197 of the Labour Relations Act and the absence of an intention to retrench employees as supporting a conclusion that the merger did not raise public interest concerns.