COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 66/LM/Oct01
In the large merger between:
Shell South Africa (Pty) Ltd
and
Tepco Petroleum (Pty) Ltd
Reasons for Decision
Approval
1. The Competition Tribunal issued a Merger Clearance Certificate on 8 February
2002 approving the merger without conditions. The reasons for our decision are
set out below.
Background
Recommendation by the Competition Commission
2. The Competition Commission recommended that the merger be approved on the
following conditions;
a) Tepco continue to exist in the market jointly controlled/owned by Thebe
and Shell South Africa;
b) That the Tepco brand be maintained as a viable brand in the market place;
and
c) Any agreement, including a shareholders agreement, between the parties
pursuant to these conditions must be submitted to the Commission for its
approval prior to the implementation thereof by the parties.
The transaction
3. Thebe Investment Corporation (Pty) Ltd (“Thebe”) is selling its subsidiary Tepco
Petroleum (Pty) Ltd (“Tepco”), after acquiring the shares of the minority
shareholders in Tepco, to Shell South Africa (Pty) Ltd (“SSA”).
4. Prior to the transaction SSA will be restructured into two companies, Shell South
Africa Energy (Pty) Ltd 1, responsible for the refinery, chemicals, renewables, gas
and power, exploration and production businesses, and SSA, responsible for retail
marketing, the marketing distribution network, commercial fuels, liquefied
petroleum gas, aviation, marine, lubricants and bitumen.
5. SSA will change its name to Shell South Africa Marketing (Pty) Ltd (“Shell SA
Marketing”) after the merger. At the same time Thebe will acquire between
17,5% and 25% of the issued share capital of Shell SA Marketing.
6. According to the parties Tepco will become a wholly owned subsidiary of Shell
SA Marketing and will for the foreseeable future remain a separate brand, distinct
from Shell, and will still be managed by the current management which is
predominantly black. Shell SA Marketing will retain the Tepco brand and develop
it in the market for as long as it remains viable and profitable. In terms of the
shareholders agreement Shell shall appoint three of the four directors to the Board
of Shell SA Marketing, including the Chairman and the Managing Director of the
Company, and Thebe one.
The parties
7. Thebe is a broadbased black empowerment investment holding company, which
was established primarily to use economic market mechanisms and opportunities
to benefit previously disadvantaged people and communities. Thebe is controlled
by the BathoBatho Trust, which holds 73.67% of the issued shares in Thebe. Old
by the BathoBatho Trust, which holds 73.67% of the issued shares in Thebe. Old
Mutual holds 8.77%, Sanlam 8.77% and Investec 8.77%.
8. The objective of the Trust is to hold the shares in Thebe and to derive income
from dividends declared by Thebe, its subsidiaries and associated companies. The
income derived from Thebe is to be utilized for the sole benefit of previously
disadvantaged people or communities behind them.
1 A member of the Shell Group of Companies will hold the entire issued share capital of the new company.
2
9. Thebe holds 85% of the issued share capital in Tepco. Mvelaphanda Holdings
(Pty) Ltd, Stelma Trust and MalanKinders Trust hold the remaining 15%. Tepco
currently employs 38 people, 80% of whom are historically disadvantaged
communities including three of its five senior managers. Tepco’s principal
business activity is the marketing and distribution of petroleum products.
10. SSA is a member of the Royal Dutch Shell Group of Companies, which is
involved in oil and gas activities around the world. SSA’s main business in South
Africa is the manufacturing and sale of petroleum products, which it conducts
directly through SSA or indirectly through subsidiaries.
Rationale for transaction
11. According to the parties the oil industry is a mature market with a low growth rate
as well as low profit margins. Structural barriers to entry are high which makes it
difficult for new players that do not have the same resources as the multinational
oil companies (including access to the upstream portion of the supply chain) to
penetrate the market. For these reasons Tepco has incurred a net loss exposing its
shareholders to increased risk in the event of Tepco being liquidated. In the
absence of alternative funding solutions, and in order to remain a player in the
industry Thebe decided to sell Tepco to SSA.
12. The major oil companies and other stakeholders in the petroleum industry have
adopted the “Charter: For the South African Petroleum and Liquid Fuels
Industry on Empowering Historically Disadvantaged South Africans in the
Petroleum and Liquid fuels Industry” (“the Charter”) on 2 November 2000. The
Charter states that it is the intention of the participating parties to bring about a
25% ownership and control by historically disadvantaged South Africans of all
facets of the industry over a ten year period.
facets of the industry over a ten year period.
13. This transaction will assist Shell in laying the foundation for the involvement of
previously disadvantaged persons in the company and is the overriding reason for
Shell’s decision to purchase Tepco.
The South African oil industry
14. The oil industry is a high volume, low margin, capitalintensive and, in South
Africa, highly regulated industry. Shell, BP, Caltex, Engen, Total and Sasol are all
crude refiners. They are also distributors of the final product marketed under their
respective and wellknown brand names. These companies, including Tepco,
constitute the South African Petroleum Industry Association (“SAPIA”).
3
15. Price control, especially retail price maintenance, and import control are the
cornerstone of the regulatory dispensation of the South African liquid fuels
industry. Maximum prices are set for petrol, diesel and paraffin from which
dealers are allowed to discount.
16. Government is currently in the process of reviewing the current regulatory
framework and both the Department of Trade and Industry (“DTI”) and the
Department of Mineral and Energy Affairs (“DMEA”) have reiterated their
support for measures that will increase the level of competition in the domestic
market. The DMEA, a driving force behind the Charter, together with
stakeholders in the liquid fuels industry have also set themselves goals to achieve
Black Economic Empowerment in the sector.
Evaluating the merger
The Relevant market
17. The supply chain in the petroleum products industry can be divided into upstream
activities, covering oil exploration, extraction and transportation and downstream
activities consisting of refining, marketing and distribution. SSA and Tepco are
players in the downstream activities where both SSA and Tepco have operations
that overlap in the marketing and distribution of petroleum products. Tepco does
not operate in the refining part of the value chain while SSA does
18. SSA and Tepco supply products to both the retail market, i.e. products that are
sold to consumers through retail franchise networks such as petrol stations, and to
the commercial market, i.e. business to business, which buys in bulk on either
tender/contract basis or at individual negotiated prices. The commercial division
is a major part of its business it only owns fourteen stations that sell to the retail
market.
19. The geographic market for the retailing of petrol is subnational. Data is only
market.
19. The geographic market for the retailing of petrol is subnational. Data is only
available at the level of the magisterial district. With regard to the commercial
segment we define the geographic market as national in light of the hospitality
arrangements2 between the market participants.
20. Within these two market segments both merging parties operate in the relevant
product markets set out in the following two tables:
2 This agreement allows customers to go to any depot with which the contracting oil company has a
hospitality arrangement, i.e customers are not limited to buying products from the owner of the nearest
depot.
4
The Retail Market segment
PRODUCT MARKET KEY CUSTOMER GROUPS SHELL SA TEPCO
Petrol Fuel stations selling to the public x x
Diesel Fuel stations selling to the public x x
The Commercial market segment
PRODUCT
MARKET
KEY CUSTOMER GROUPS SHELL
SA
TEPC
O
Petrol • Parastatals
• Commercial/passenger
transport
• Agriculture
• Manufacturing
• Construction
• Mining
• Local Municipalities
• Resellers
x
x
x
x
x
x
x
x
x
x
x
x
x
Diesel • Parastatals
• Transport
• Agriculture
• Manufacturing
• Construction
• Mining
• Local Municipalities
• Resellers
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Illuminating paraffin • Resellers x x
Effect of merger on competition
Market Shares
5
21. Percentage market shares of each of the participants on a national level for
overlapping product markets, based on 2000 sales data are:
Market
segments Product
s
SSA BP Caltex Engen Sasol Total
Afric
Oil Exel Tepco
Merged
Entity
RETAIL
Petrol 18.2 16.1 18.7 27.1 6.4 12.3 1.1 0.2 18.4
Diesel 25.3 15.3 12.8 31.7 0.8 13.0 1.0 0.1 25.4
Petrol 13.7 14.7 7..9 22.6 2.4 24.1 0.3 11.7 2.7 16.4
Diesel 16.2 15.3 16.8 27.0 0.6 14.0 0.2 6.1 3.7 19.9
Paraffin 19.2 16.9 16.7 31.2 8.0 2.7 5.2 24.4
22. SSA is the second largest national player in the retail diesel and commercial
illuminating paraffin markets, the third largest national player in the retail petrol
market and the fourth largest national player in the commercial petrol market.
Total is the national leader in the commercial petrol market and Engen the
national market leader in the retail petrol market, the retail diesel market and the
commercial diesel market.
23. In analyzing the market share information 3 provided by the parties we found that
in the retail petrol and diesel markets Tepco is present in five of the nine
provinces namely Free State, KwaZuluNatal, Gauteng, Mpumalanga and
Northern Province, while SSA is present in all nine provinces. SSA and Tepco’s
businesses overlap in nine of the magisterial geographic areas. The merged entity
will have market shares of between 20%30% in four of the fourteen magisterial
areas, market shares of between 30%40% in two of the fourteen magisterial areas
and market shares of more than 40% in two of the fourteen magisterial areas.
24. The market shares above 40% can be attributed to the fact that these are
geographic markets situated in small towns and the merged entity will not own
more than 50% of the total number of stations currently operating in these
geographic areas.
geographic areas.
25. The percentage market shares in the commercial petrol market in each province
3 i.e. the number of stations selling petrol and diesel in a magisterial area
6
are:
BP Caltex Engen Sasol Total Afric
Oil
Exel Merged
entity
Western Cape 12.6 10.1 19.8 28.0 11.2 18.2
Eastern Cape 15.4 6.5 30.7 20.4 5.3 21.6
Northern Cape 37.4 11.3 18.8 13.8 2.6 16.1
Free State 6.7 6.2 31.8 1.1 16.7 27.1 10.3
KwaZuluNatal 14.7 7.5 35.1 21.0 2.3 19.3
NW Province 17.9 12.5 17.3 15.0 27.5 9.8
Gauteng 13.1 3.5 14.1 10.0 27.6 1.4 14.5 15.8
Mpumalanga 13.0 5.7 20.6 3.6 33.2 9.5 14.4
Northern Province 14.7 10.9 20.8 27.0 1.7 10.3 19.7
26. From the above it is clear that the merged entity will be the third largest player in
most of the provinces.
27. The percentage market shares in the commercial diesel market in each province:
BP Caltex Engen Sasol Total Afric
Oil
Exel Merged
entity
Western Cape 24.7 21.5 19.7 12.8 2.4 18.9
Eastern Cape 14.7 22.8 28.5 18.0 1.2 14.9
Northern Cape 11.7 20.1 28.3 22.7 1.8 15.3
Free State 7.9 21.5 32.6 0.2 10.9 9.5 17.5
KwaZulu Natal 12.7 12.6 28.7 15.1 6.7 24.2
NW Province 20.1 14.4 28.8 0.3 15.5 7.9 13.1
Gauteng 14.9 16.3 27.2 1.1 12.1 1.3 8.0 19.1
Mpumalanga 11.4 13.8 26.4 2.7 13.5 6.4 24.9
Northern Province 17.8 16.9 27.0 0.3 12.5 6.6 18.8
28. Post this merger Engen will still be able to maintain its position as market leader
in eight of the nine provinces and the merged entity the second largest player in
four provinces and the third largest player in three provinces.
29. The percentage market shares in the commercial illuminating paraffin market in
each province:
BP Caltex Engen Total Exel Merged
entity
Western Cape 14.2 16.5 25.8 12.5 2.3 28.6
7
Eastern Cape 13.3 31.3 12.1 18.2
Northern Cape 14.8 25.1 15.0 10.8 0.1 24.4
Free State 9.3 26.4 35.8 4.7 1.7 22.1
KwaZulu Natal 9.9 7.7 34.3 8.8 3.0 36.3
NW Province 23.1 35.3 22.8 5.7 3.6 9.4
Gauteng 23.1 12.8 28.4 8.4 0.3 27.0
Mpumalanga 1.4 17.2 32.6 15.6 12.7 9.5
Northern Province 30.4 33.7 8.5 8.5 5.5 15.8
30. Postmerger the merged entity will be the largest player in two markets and the
second largest player in three provinces.
31. Calculations presented by the Competition Commission and the parties on the
level of concentration in each of the product markets before the merger show high
levels of concentration in each of the product markets, well above 1800 4, with the
post merger increase in the HHI in most of the product markets above 50 points.
Is the merger likely to substantially prevent or lessen competition in these
circumstances?
32. The merger will not raise those barriers to entry in the downstream market that
stem from Government induced regulation. Moreover the merger will not have an
effect on access depots because Tepco does not own any. Countervailing power
does exist and the fact that these are relatively homogeneous products makes it
very easy for customers to switch between suppliers. Furthermore, none of the
participants in the commercial product markets have market power to raise prices
unilaterally after the merger and customers have indicated to the Commission that
they can negotiate prices.
33. Tepco is a small player with 14 stations countrywide. It has established a market
presence in a few selected high risk markets that the other market participants
were not interested in servicing. Although Tepco will exit the market, an effective
competitor will not have exited the market in light of the fact that Tepco is a
failing firm.
34. Although the merged entity’s market shares in some of the magisterial markets
are high this will not afford them market power at present as petroleum prices are
are high this will not afford them market power at present as petroleum prices are
regulated. If the market is deregulated at a later stage, in accordance with
government’s professed policy, we do not believe the high market shares raise
concern. In the first place we doubt that magisterial boundaries correctly define
4 A market with a post merger HHI of above 1800 points is considered highly concentrated. If the post
merger HHI yields an increase of less than 50 points competition authorities are unlikely to challenge such
mergers.
8
geographic markets for the retail petroleum market. Customers of retail outlets go
to a convenient place to fill up. This could be a place near where they work or live
or another place that they go to routinely. These convenience markets do not
necessarily coincide with magisterial boundaries they may be larger or smaller.
Thus market shares at a magisterial level are not necessarily indicative of possible
concentrations. More important is the fact that barriers to entry at the retail level
are low and any one of the major companies can enter a local market to counter
the exercise of market power at this level.
35. We thus agree with the Competition Commission that the merger does not
substantially prevent or lessen Competition in the relevant markets.
Public Interest
36. We are required in terms of Section 12A(3) to examine the transaction’s impact
on public interest. It states as follows:
When determining whether a merger can or cannot be justified on
public interest grounds, the Competition Commission or the
Competition Tribunal must consider the effect that the merger will
have on –
a) a particular industrial sector or region;
b) employment;
c) the ability of small business, or firms controlled or owned
by historically disadvantaged persons, to become
competitive; and
d) the ability of national industries to compete in
international markets.
37. It is important to emphasize that in terms of the Act our assessment of the public
interest impact of the transaction may lead to the prohibition of (or the imposition
of conditions on) a procompetitive merger. Or it may result in us approving an
anticompetitive merger. Hence, in balancing public interest and competition we
are obliged to consider whether a merger that passes muster on the competition
evaluation nevertheless falls to be prohibited because of its negative impact on
evaluation nevertheless falls to be prohibited because of its negative impact on
any of the specified public interest factors including, in terms of Section 12A(3)
(c), ‘ the effect that the merger will have on the ability of small businesses, or
firms controlled or owned by historically disadvantaged persons, to become
competitive’.
38. Conversely we are obliged to consider whether a ‘bad’ merger, that is a merger
that will lead to a substantial lessening of competition, should nevertheless be
approved because of its positive impact on the public interest, including the
9
competitive potential of firms owned or controlled by historically disadvantaged
persons. Note that the Act does not otherwise guide us in balancing the
competition and public interest assessments except insofar as Section 12A(1)(b)
requires that the public interest grounds should be ‘substantial’.
39. In the transaction before us the Competition Commission has concluded – and we
have concurred – that competition is not lessened. It nevertheless recommends
that we impose conditions on the transaction because, alleges the Commission, it
has a negative impact on the competitive position of a firm controlled by
historically disadvantaged persons.
40. In summary: Tepco is owned and controlled by historically disadvantaged
investors. The controlling shareholder is Thebe, an investment company, which is
controlled by the BathoBatho Trust. The transaction will result in Shell SA
Marketing acquiring control of Tepco. The consideration from this transaction –
a sum of […] 5 plus an additional […] will be used by Thebe to acquire a 17.5%
share in Shell SA Marketing, the company that will, postmerger, control the
assets and trademarks of Tepco. The Commission has recommended conditions
designed to ensure that control, or partial control, of Tepco remains in the hands
of historically disadvantaged persons and designed to maintain the Tepco entity,
that is, to ensure that its brands and separate identity are maintained. Thirdly that
the Competition Commission pursuant to these conditions approves the
Shareholders’ agreement prior to implementation thereof. These
recommendations, avers the Commission, are designed promote Tepco’s
competitive position.
41. We will now look at the conditions recommended by the Commission. Although
it seems the Commission has proposed them as a package we will for the purpose
it seems the Commission has proposed them as a package we will for the purpose
of analysis first look at them individually and then make some general comments.
First Condition Tepco continue to exist in the market jointly controlled/owned
by Thebe and Shell South Africa
42. The difficulty with the condition is that it amounts to restructuring the deal in a
form that neither of the merging parties wants. Tepco is no longer viable as a self
standing company. It appears that its difficulties are, to some significant extent,
structural. That is to say, it appears that a small company isolated in a low return
segment of the oil industry’s value chain has precious little chance of sustainable
growth. The Commission’s condition is no solution to this problem. Adding Shell
as a shareholder will not cure Tepco’s ills nor is it likely that Shell would agree to
a condition that kept the companies separate operationally. Empowerment is not
furthered by obliging firms controlled by historically disadvantaged persons to
5 Confidential information.
10
continue to exist on a life support machine.
Second Condition That the Tepco brand be maintained as a viable brand in the
market place ;
43. We assume firstly that this remedy is not selfstanding and must be coupled to
first condition. If that is the case then it suffers from the same defects as the first
condition viz.the prolonging of a nonviable option. The parties have not said they
will discontinue the Tepco brand. At our hearing Mr Shoniwe the Tepco
Managing Director confirmed this. However they want SSA to have the freedom
to make this judgment call themselves. There is no public interest served by
imposing on them the compulsory continuation of a brand name. 6
44. If our first assumption is wrong and this is indeed a selfstanding condition then
we cannot understand what ill this remedy is designed to cure. Postmerger
Tepco will be owned and controlled by Shell SA Marketing. Thebe, the erstwhile
controlling shareholder of Tepco, will have a minority share in Shell SA
Marketing. Why then propose measures ostensibly designed to protect the
competitive position of Tepco, a company no longer controlled by historically
disadvantaged persons? If Tepco, in its premerger form, was entering into an
anticompetitive agreement with Shell, the Commission may, in terms of Section
10(3)(b)(ii), have been entitled to consider and grant an exemption on the grounds
that the anticompetitive agreement promoted the ability of a firm owned by
historically disadvantaged persons to become competitive. 7 But once Tepco’s
ownership has changed hands there can be no earthly reason for protecting its
competitive position – it is manifestly no longer owned or controlled by
historically disadvantaged persons.
Third condition Any agreement, including a shareholders agreement, between
Third condition Any agreement, including a shareholders agreement, between
the parties pursuant to these conditions must be submitted to the Commission for
its approval prior to the implementation thereof by the parties.
45. The parties shareholder’s agreement for Shell SA Marketing had not been
finalized at the time of our hearing. We have had sight of a draft proposal, which
6 The parties also criticized the condition for its vagueness. In view of our approach to the appropriateness
of such a condition, we do not need to consider any further its formulation.
7 Or, postmerger, we may well face the situation where the merged firm, wishing to make an anti
competitive acquisition, argues for the transaction on the ground that it will promote the competitiveness of
a firm with a substantial HDP shareholding. This would be a more credible avenue for invoking the public
interest clause of the merger evaluation process and may well provide a sterner test for the competition
authorities in its task of balancing competition and public interest. At this stage the competition authorities
may well conclude that a 25% HDP interest does not sustain a case for approving an anticompetitive
transaction whereas more fulsome HDP ownership and management involvement might.
11
we understand is near finalization. It is not clear whether the Commission’s
condition relates to the Shell SA Marketing’s shareholder agreement or to an
agreement that related back to the first condition i.e. the parties joint
shareholding in Tepco in which case it would have had to deal with the joint
control and ownership of that company. If the shareholders agreement
contemplated is the latter then no more need be said about it as we have already
indicated that we consider the first condition inappropriate. 8
46. If it relates to Shell SA Marketing we also see no justification to approve the
terms and conditions. The parties are in our view free to make whatever bargain
suits their respective commercial interests and no public interest is implicated by
the nuts and bolts of the transaction that would require the regulator’s scrutiny.
The only caveat to this are the provisions of sections 15 and 16(3) 9. If the deal
ultimately looks different to the one, which has been notified, the Commission
could apply to have the merger revoked. This however is not a public interest
issue, but a general issue that relates to all mergers no condition is necessary to
give the Commission that power.
The conditions generally
47. The only conceivable rationale for the Commission’s recommendation is that it
does not wish to see the ownership and control of a firms passing out of the hands
of historically disadvantaged persons. If this is its concern – and it may have had
some difficulty using the Competition Act for this purpose then it should have
recommended prohibition of the merger. However, the Commission is extremely
reluctant to take this step – indeed it has gone out of its way to assure us of its
support for the transaction.
48. It is not difficult to understand why, from a public interest perspective, it would
be reluctant to prohibit the transaction:
be reluctant to prohibit the transaction:
Firstly, the transaction does not lead to the exit of a historically
disadvantaged investor from the petroleum industry in a related
transaction Thebe acquires a 25% shareholding in Shell SA
Marketing. Given the provisions of the Charter championed by
the DMEA, SSA’s interests are clearly served by a measure of
partnership with Thebe. Indeed no great imaginative leap is
required to present this transaction as SSA agreeing to take
Tepco off Thebe’s hands in exchange for Thebe agreeing to
8 As it happens no such agreement exits since that was not the deal made by the parties.
9 The Commission or Tribunal may revoke its decision to approve or conditionally approve a small or
intermediate merger or a large merger.
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maintain a degree of participation in the industry in association
with SSA.
Secondly, and related to this, Tepco, as we have noted above, is
in parlous straits.
Thirdly, Thebe’s position requires careful consideration. Tepco
represents a significant investment for Thebe. The travails of the
small oil company may represent a considerable threat to Thebe
itself. Accordingly, Thebe’s decision to rid itself of this
troublesome asset may represent a commercially prudent
decision on its part. Would the ‘competitiveness of firms owned
by historically disadvantaged persons’ have been promoted if
Thebe, constrained in its ability to dispose of a troublesome
investment, had sustained significant damage?
49. The Commission may protest that it has no wish to prevent the transaction.
However, it must be recognized that the imposition of a condition on the
purchaser will come with a price and Thebe, precisely the firm owned and
controlled by historically disadvantaged persons, will pay that price. We would
however go further and insist that even if Tepco had been a company in perfect
health, the Commission should be extremely careful when, in the name of
supporting historically disadvantaged investors, it intervenes in a commercial
decision by such as investor.
50. Consider the following eminently plausible scenario: Thebe, in its commercial
wisdom, may have decided to consolidate and expand its interests in the leisure
and tourism industry. In order to do this it may have elected to dispose of its
assets in the oil industry. White owned and controlled firms obviously do this
with impunity – it represents a significant and perfectly respectable mode of
financing business expansion. The Commission may believe that its proposed
financing business expansion. The Commission may believe that its proposed
condition only constrains the acquiring firm. On the contrary its condition
constrains the seller, the target firm, to sell its assets only to a purchaser who will
accept these conditions, or, what is the same thing, it is constrained to offer its
assets at a discount because the assets are accompanied by conditions specifying
the posttransaction utilization of these assets.
51. To constrain the capitalraising options of firms owned by historically
disadvantaged persons in this way not only condemns these firms to the margins
of the economy and the margins of those sectors in which it believes it is best able
to make a significant mark, it also lays the Commission open to a charge of
paternalism. The Commission’s role is to promote and protect competition and a
specified public interest. It is not to secondguess the commercial decisions of
precisely that element of the public that it is enjoined to defend, particularly
where no threat to competition is entailed.
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52. The Department of Mineral and Energy Affairs has, with the support of the
Commission, recommended additional conditions. It has focused on a provision in
the shareholders’ agreement concluded between SSA and Thebe that commits
SSA, in the event that it elects to dispose of all or part of its investments in its
upstream refining activities, to discuss its intentions with Thebe. We are requested
to require SSA to give Thebe a ‘right of first refusal’ in the event of such a
disposal. This is tantamount to giving Thebe an option to acquire SSA’s refining
activities. Were Thebe ultimately to take up such an option this would
undoubtedly represent an expansion of the stake of HDP firms in the oil industry.
53. We are, however, constrained to observe that options of this sort come at a price.
There is no evidence suggesting that Thebe is willing to pay this price. On the
contrary Thebe supports the transaction, it is a perfectly willing seller, a
willingness attested to by both its CEO and the CEO of Tepco. We should point
out that were SSA to consider disposing of its refining interests to one of its large
competitors in the industry, the Commission would undoubtedly be concerned
about the competition implication of such a divestment. This would be the
appropriate circumstance in which to insist that SSA consider approaching a firm
such as Thebe whose acquisition of these interests would raise no such
competition concerns. But to insist that at this stage SSA gives an option to
Thebe is simply to invite SSA to increase the price at which Thebe acquires its
current shareholding in Shell SA Marketing.
54. Other conditions have also been proposed. It is suggested that we firm up Shell
SA Marketing’s commitment to capacity building and skills development; that it
SA Marketing’s commitment to capacity building and skills development; that it
enhances the participation of historically disadvantaged persons in the
management of Shell SA Marketing. Shell points out that it has an employment
equity and skills development programme in place; that the shareholders’
agreement requires the board of Shell SA Marketing, of which the CEO of Thebe
will be a member, to establish a transformation committee charged, inter alia,
with increasing the involvement of historically disadvantaged persons in the
management of the business. We make no judgment on the sincerity of SSA’s
commitments in this regard. We are however skeptical of the ability of the
Competition authorities to play a meaningful role in securing these laudable
objectives and we are extremely concerned at the prospect of generating, in the
process, a range of wholly unintended consequences.
55. We take comfort in the knowledge that Thebe negotiated the terms of its disposal
of Tepco and its acquisition of a stake in Shell SA Marketing with SSA. It
achieved the best deal that it believed that it was able to conclude. Who are we to
say that, in concluding this deal, it ‘undersold’ the interests of historically
disadvantaged investors, concretely represented by itself. As earlier noted, it is an
approach vulnerable to the charge of paternalism.
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56. To quote Mr Khanyile, CEO of Thebe: “ the question is, is it Tepco that must be
made more competitive or it is Thebe that must be made more competitive? If
Thebe can compromise certain things about Tepco in order to gain an added
economic advantage for Thebe, which is a historically disadvantaged company
acting on sectors broader than just the petroleum sector, yes. Thebe becomes
more competitive as a black owned company. I don’t have problems in making
that decision because I know that we will be empowered and I can actually
demonstrate through our BEE approach that we are a much more vibrant BEE
company after the transaction, than before the transaction, at a Thebe level .”
57. We take note of the Commission’s rejoinder to the effect that as a public authority
it must be guided by the public interest, it must enforce public policy. Expressed
otherwise, the Commission is suggesting that what may be good for the Tepco
shareholders, specifically Thebe, may not be good for South Africa and, in
particular, may not be good for securing the spread of ownership by historically
disadvantaged persons. While Thebe’s narrow commercial interest may dictate
that it exits Tepco and enters Shell SA Marketing on the agreed terms, the broader
public interest requires that Thebe’s pursuit of this objective not diminish the
extent of ownership and control of historically disadvantaged persons in the
economy.
58. Our view is that this argument, though selfevident in many respects, should be
advanced with considerable caution when the competition authorities use public
interest as a basis for their intervention, particularly when competition is
unimpaired and when the only historically disadvantaged investors whose
interests are directly affected expressly reject the Commission’s interventions.
The role played by the competition authorities in defending even those aspects of
the public interest listed in the Act is, at most, secondary to other statutory and
regulatory instruments – in this case the Employment Equity Act, the Skills
Development Act and the Charter itself immediately spring to mind. The
competition authorities, however well intentioned, are well advised not to pursue
their public interest mandate in an overzealous manner lest they damage
precisely those interests that they ostensibly seek to protect.
22 February 2002
D. Lewis Date
Concurring: N.Manoim and U. Bhoola
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