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Competition Commission and Edgars Consolidated Stores Ltd and Others (95/FN/Dec02) [2003] ZACT 19 (24 March 2003)

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Competition Law
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Brief Summary

Competition Law — Merger Notification — Acquisition of assets constituting a merger — The Competition Commission alleged that Edgars Consolidated Stores Ltd and Retail Apparel (Pty) Ltd implemented a merger without prior approval, following the purchase of Retail Apparel's book debts and other assets during its liquidation. The respondents contended that the first leg of the transaction did not constitute a merger as it involved only the acquisition of book debts, while the second leg was a notifiable merger. The Tribunal held that the first leg did constitute a merger under section 12 of the Competition Act, as it involved the acquisition of control over part of a business, thus requiring notification and approval prior to implementation.

Comprehensive Summary

Summary of Judgment


1. Introduction


This was an enforcement application brought before the Competition Tribunal to determine whether an acquisition implemented by the first respondent constituted a merger as defined in section 12(1) of the Competition Act 89 of 1998. The immediate practical consequence of that characterisation was whether the transaction ought to have been notified and approved before implementation, and whether its implementation without prior approval contravened section 13A(3).


The applicant was the Competition Commission. The respondents were Edgars Consolidated Stores Limited (Edcon) as first respondent and Retail Apparel (Pty) Ltd (RAG) as second respondent (acting through liquidators in consequence of provisional liquidation). The Commission alleged that the respondents had implemented a merger without the required prior approval and sought the imposition of an administrative penalty under section 59.


Procedurally, the transaction had already been the subject of a merger notification and was ultimately approved unconditionally by the Tribunal on 23 September 2002 under a single large-merger notification. The present proceedings followed thereafter, with the Commission seeking a declaration that the earlier-implemented “first leg” constituted a merger and that the respondents contravened the Act by implementing it prior to approval, together with a substantial administrative penalty.


The dispute concerned the proper construction and competitive characterisation of a transaction structured in two stages during liquidation, in particular whether the first stage—described as the purchase of book debts and related rights—amounted to the acquisition of “the whole or part of the business” of another firm for purposes of the merger definition.


2. Material Facts


RAG, a group of companies trading under various brands in the retail clothing and apparel sector, was placed in provisional liquidation in May 2002. Edcon, operating in the same retail apparel trade and competing for similar credit customers, made a written offer to purchase certain assets of RAG on 3 June 2002, which was accepted by the liquidators on 13 June 2002 (with written acceptance dated 14 June 2002). The core document (referred to by the Tribunal as the agreement) structured the acquisition as two “legs”.


The first leg (the “first sale assets”) comprised the purchase of book debts (claims against customers/trade debtors) and a VAT refund. This leg was implemented immediately. The agreement’s definition of “book debts” extended beyond a mere list of historical receivables, and included ancillary rights such as interests in account protection plans and extensive records relating to customers and collection. The first leg also contemplated the creation and acquisition of “subsequent debts” incurred after the first effective date, because the liquidators were obliged during an interim period to continue trading at designated premises and extending credit to existing customers on the same terms, while Edcon undertook to acquire those new debts at a discount.


The second leg (the “second sale assets”) comprised the purchase of other assets (including stock, fixed assets, intellectual property, and rights relating to the “Club”, defined as the group’s customer database of account holders/members). This second leg was expressly subject to competition authority approval.


After acceptance of the offer, RAG’s attorneys wrote to the Commission on 13 June 2002 informing it of the agreement and stating, as a “courtesy”, that Edcon had agreed (said to be by “a separate agreement”) to purchase the book debts immediately; that this was urgent for recovery; and that it would proceed even if the proposed merger did not. The letter asserted that the book-debts purchase did not constitute a merger and likened it to the discounting of debts to a financier. The Commission did not respond.


The parties implemented the first leg and later notified the second leg as an intermediate merger on 25 July 2002. The Commission queried this, contending that the purported bifurcation was artificial and that the transaction should be treated as a single transaction constituting a large merger. The parties conceded that point and notified both legs as a large merger (without prejudice, according to them). The Tribunal treated both legs as a single notification and approved the merger unconditionally on 23 September 2002.


In these proceedings, there was some lack of clarity in the Commission’s papers and argument as to whether it treated the legs as separate transactions or as one transaction. The Tribunal stated that it was unnecessary to resolve that issue because it analysed the first leg on a stand-alone basis, and concluded that, on either approach, implementation had occurred without prior approval; however, it expressed the view that the two legs were elements of a single merger.


3. Legal Issues


The central legal question was whether the first leg—the acquisition of book debts and associated rights—constituted a merger as defined in section 12(1), specifically whether it involved the acquisition of direct or indirect control over “the whole or part of the business” of another firm.


This required determination of whether the rights acquired amounted to “part of a business” rather than the mere acquisition of an asset. The dispute therefore concerned primarily the application of law to facts: the statutory concept of “business” and “part of a business” was not defined in the Act, and the Tribunal had to interpret that concept in context and then evaluate whether, on the particular facts and terms of the agreement, the first leg crossed the line from asset acquisition into acquisition of a business (or part thereof).


A further issue arose as to the appropriate administrative penalty under sections 59(1) and 59(3) if a contravention were found, and specifically whether the respondents’ conduct amounted to (i) failure to notify as required and/or (ii) implementation prior to approval, and what penalty was justified given the statutory factors.


4. Court’s Reasoning


The Tribunal began with the statutory framing. It emphasised that a merger under section 12(1) occurs when control is acquired over the whole or part of the business of another firm, and that section 12(2) contemplates that mergers may be achieved through acquisition of assets. The Tribunal treated the statutory limitation—control must be over a “business” or “part of a business”—as critical: the acquisition of an asset is not automatically a merger merely because it meets thresholds; the acquired asset must constitute a business (or part thereof) in the statutory sense.


Because the Act does not define “business”, the Tribunal considered interpretive guidance, noting that domestic case-law on “business” under other statutes was of limited utility because meaning is context-dependent. It referred to approaches from other jurisdictions to illuminate when an asset acquisition can constitute an acquisition of a business. From the European Commission’s approach in Blokker v Toys ‘R’ Us (Case No IV/M.890), it extracted the proposition that acquisition of assets may amount to acquisition of a business where the assets constitute a business to which market turnover can be clearly attributed. From United States materials, including the analysis associated with partial asset acquisitions, the Tribunal adopted as useful an approach aligned with Hovenkamp: asset acquisitions become competition-relevant when they represent a measurable and relatively permanent transfer of market share or productive capacity, or otherwise enlarge market share or concentration, including by acquisition of assets such as trademarks that may not increase productive capacity but may increase market position.


Applying those interpretive guideposts, the Tribunal analysed the first leg holistically within the context of the entire agreement, rather than treating the definition of “first sale assets” in isolation. It treated the attempt at severability and two-stage structuring as insufficient to determine merger status, and stated that permitting parties to structure transactions to avoid notification obligations posed a regulatory danger, including by reducing a large merger to an intermediate or rendering it non-notifiable. It reaffirmed a holistic approach consistent with its prior decision in Khumo Bathong (Case No: 31/LMN/May02), where transactions discrete in contract law were treated as one merger for competition purposes. It also referenced European practice described in secondary material as treating multiple transactions between the same undertakings within a defined period as a single concentration.


On the facts, the Tribunal concluded that what Edcon acquired through the first leg went beyond the passive ownership of a receivables ledger. It highlighted features of the agreement that, in its view, connected the first leg to the operational and competitive core of RAG’s business. The Tribunal stressed that information delivered under the first leg included a schedule identifying customers and indicating whether they were members of the Club, thereby providing access to valuable information about the seller’s customer base. It also pointed to the interim-period arrangements obliging the liquidators to continue trading on credit and requiring Edcon to acquire the subsequent debts, together with Edcon’s access to RAG’s books, records, and systems, the ability to migrate records to Edcon’s systems, and operational control over the centralised credit call centre for purposes of recovering the sale debts. These mechanisms, in the Tribunal’s assessment, enabled Edcon to obtain not only claims but also operational leverage and customer-related information and continuity that served competitive ends.


The Tribunal further relied on contemporaneous statements made by an Edcon director (Evans) in an affidavit to the High Court (in a Companies Act context), where he described the urgency of controlling the book debts to enable immediate extension of credit to customers, maintain trading to realise stock values, and avoid customer defection. The Tribunal interpreted this urgency and the described objectives as indicating that the value being preserved was the value of a business relationship and customer base, not merely the value of an asset in isolation. It treated the first leg as a “bridgehead” into RAG’s business, designed to prevent migration of customers to competitors pending regulatory approval for the broader acquisition.


In reaching its interpretive stance, the Tribunal relied on the Competition Appeal Court’s observation in Distillers Corporation (South Africa) Limited and Another v Bulmer (SA)(Pty) Ltd and Another 2002(2) SA 346 (CAC) that the obligation to notify should be broadly construed so that competition authorities can examine the widest possible range of potential merger restrictions, and because notification is essential to jurisdiction under the South African regime. The Tribunal stated that it would “err on the side of notification” when determining whether a transaction constitutes a merger.


On that basis, the Tribunal found as a matter of fact and characterisation that the first leg constituted the acquisition of part of a business and hence constituted a merger for purposes of section 12. It cautioned, however, that the decision should not be read as authority that the acquisition of book debts is invariably a merger; the question is fact-specific and depends on whether the acquisition involves something more than a bare asset that enhances competitive position.


Turning to penalty, the Tribunal held that administrative penalties are competent for both failure to notify and implementation prior to approval under section 59(1)(d). However, it found that the respondents had contravened the Act in one respect only, namely implementing the merger prior to clearance, because the transaction was ultimately notified (though belatedly). It rejected the submission that no fine could be imposed because the Commission led no evidence in aggravation, reasoning that the Tribunal could apply the section 59(3) factors based on the record.


In applying those factors, the Tribunal considered the duration of the contravention (implementation from mid-June 2002, notification in late July 2002, approval in September 2002), the absence of demonstrated loss or damage given unconditional approval (while noting that premature implementation could frustrate a prohibition or divestiture remedy in other cases), the respondents’ behaviour (including that they obtained legal advice and did not appear to intend to evade substantive scrutiny, but did seek to avoid delay), the absence of evidence of profit derived from the contravention, the degree of cooperation (including the June letter, but with diminished mitigation due to inadequate disclosure and a characterisation the Tribunal did not accept), and the absence of prior contraventions.


The Tribunal characterised the breach as primarily procedural rather than substantive, warranting a penalty materially lower than sought by the Commission but not so low as to make procedural evasion worthwhile. It determined that an administrative penalty of R250 000 was appropriate.


5. Outcome and Relief


The Tribunal held that the respondents had contravened section 13A(3) by implementing a merger prior to approval in terms of the Act. It ordered the respondents, in terms of section 59(1)(d)(iv), to pay an administrative penalty of R250 000, for which they were jointly and severally liable, with payment to be made to the Commission within seven business days of the decision.


The Tribunal did not make an order as to costs in the text of the order.


Cases Cited


Blokker v Toys ‘R’ Us, European Commission Merger Decision, Case No IV/M.890. Distillers Corporation (South Africa) Limited and Another v Bulmer (SA)(Pty) Ltd and Another 2002(2) SA 346 (Competition Appeal Court). Khumo Bathong, Competition Tribunal, Case No: 31/LMN/May02. The merger approval decision referred to as reported was 53/LM/Aug02 (Competition Tribunal).


Legislation Cited


Competition Act 89 of 1998 (as amended), including sections 11, 12, 13A(3), 14(1)(b), 16(2), 17, 59(1)(d)(i), 59(1)(d)(iv), and 59(3). Companies Act 61 of 1973, including sections 311(6) and 386 (as referenced in the definition of the second effective date and in the High Court affidavit context).


Rules of Court Cited


No rules of court were cited in the judgment.


Held


The Tribunal found that the first leg of the transaction, although framed as a purchase of book debts and a VAT refund, in substance constituted the acquisition of part of the business of RAG because it transferred to Edcon not merely receivables but significant ancillary rights and operational access connected to the customer base and credit operations, thereby enhancing Edcon’s competitive position and functioning as an entry into the seller’s business pending approval of the broader acquisition.


On that basis, the Tribunal held that a merger as defined in section 12 had been implemented without prior approval, constituting a contravention of section 13A(3). The Tribunal imposed an administrative penalty of R250 000, jointly and severally against the respondents, payable within seven business days.


LEGAL PRINCIPLES


A transaction constitutes a merger under section 12(1) only if it involves the acquisition of control over the whole or part of the business of another firm; the acquisition of an asset is not automatically a merger unless, in context, the asset (together with associated rights) constitutes a business or part of a business.


Whether an asset acquisition amounts to the acquisition of a business or part of a business is a fact-specific inquiry that must be undertaken holistically, having regard to the whole transaction and its competitive implications, rather than relying solely on contractual labels or severability clauses.


The obligation to notify mergers is to be construed broadly in light of the purposes of the Competition Act and because notification is jurisdictionally significant in South African merger control; in cases of interpretive uncertainty, the Tribunal indicated an approach that errs in favour of notification.


In assessing administrative penalties for merger contraventions, the Tribunal must apply the factors in section 59(3) on the record, and may impose a penalty for implementation prior to approval even where the merger was ultimately notified and approved; the penalty should reflect the procedural nature of the contravention while remaining sufficiently deterrent to prevent strategic avoidance of pre-implementation approval requirements.

COMPETITION TRIBUNAL 
REPUBLIC OF SOUTH AFRICA
     Case no.: 95/FN/Dec02
In the matter between: 
The Competition Commission Applicant
and 
Edgars Consolidated Stores Limited 1st Respondent
Retail Apparel (Pty) Ltd 2nd Respondent
________________________________________________________________
Reasons for decision and Order
________________________________________________________________
INTRODUCTION
1. In   this   matter   we   have   to   decide   whether   an   acquisition   by   the   first  
respondent   constitutes   a   merger   as   defined   in   section   12   of   the  
Competition   Act.   If   it   does,   then   the   transaction   ought   to   have   been  
notified as a merger in terms of the Act and approved in the manner the  
Act provides, prior to the acquisition being implemented.
2. In   this   case   the   Commission   alleges   that   the   respondents   have  
implemented   a   merger   without   the   required   consent   and   seek   the  
imposition of a fine on the respondents.
BACKGROUND 
1

3. In   May   2002   the   Retail   Apparel   Group   (“RAG”),   a   group   of   companies  
carrying on business under various brand names in the retail clothing and  
apparel trade, went into provisional liquidation.
4. The first respondent, a firm carrying on business in the same trade, made  
a written offer to purchase the assets of RAG on 3 June 2002. The offer  
was accepted by the liquidators on the 13 th of June 2002. We will refer to  
this document as the agreement.
5. The   construction   of   this   document   is   fundamental   to   the   issues   in   this  
case. What the parties purported to do was to divide the purchase into two  
legs. 
6. The   first   leg   involved   the   first   respondent   purchasing   the   second  
respondent’s book debt and certain ancillary rights. In the second leg the  
first respondent purchased further assets of RAG and its subsidiaries. This  
latter   sale   was   subject   to   the   condition   that   the   parties   obtain   the  
necessary approval from the competition authorities.
7. The  parties  are of  the  view   that  the  second leg constituted  a  notifiable  
merger, but that the first did not as it did not amount to the acquisition of a  
business or part of the business.
8. After   the   liquidators   had   accepted   the   offer 1  the   second   respondent’s  
attorneys wrote to the Commission on 13 June 2002 2  to advise them of  
the agreement and they stated in paragraph 4 that: 
“The purpose of this letter is also, as a courtesy, to inform you that  
Edcon has, as a separate agreement with the liquidators, agreed to  
purchase the book debts (“book debts”), that is the claims against  
trade   debtors,   of   Retail   Apparel   (Pty)   Ltd   and   certain   of   its  
subsidiaries.   This   sale   has   been   concluded   in   advance   of   the  
proposed   merger   and   will   be   implemented   immediately   and   was  
necessitated  by   the   fact  that   Edcon’s  ability  to   recover  the   book

necessitated  by   the   fact  that   Edcon’s  ability  to   recover  the   book  
debts is entirely dependent on it being afforded the opportunity as a  
matter of urgency. The sale of the book debts is not dependent on  
the   proposed   merger,   will   be   implemented   even   if   the   proposed  
merger does not proceed and therefore does not form part of the  
proposed  merger.  As  such,   Edcon’s  purchase  of  the book  debts  
does   not   constitute   a   merger   or   part   of   a   merger   and   does   not  
1  The written acceptance of the offer is dated 14 June 2002.Record page 53.
2  See page 54 of the record.
2

require approval in terms of the Competition Act. Edcon’s purchase  
of the book debts is akin to a situation in which a creditor discounts  
its book debts to a financier.” 
9. The Commission did not respond to the letter. The parties proceeded to  
implement   the   first   leg   and,   in   due   course,   notified   the   second   as   an  
intermediate   merger   on   25   July   2002.   At   that   stage   the   Commission  
queried   the   notification.   It   contended   that   the   bifurcation   sought   to   be  
achieved by the agreement was artificial, and that there had been a single  
transaction,   which   included   the   first   leg,   and   hence,   with   the   added  
attributable   turnover,   constituted   a  large,   not   intermediate,   merger.   The  
parties then conceded this point and notified both legs of the transaction  
as a large merger. They did so on a without prejudice basis in order, they  
allege,  to  expedite clearance. The  Tribunal  considered both legs of the  
transaction   as   a   single   notification,   and   approved   the   merger  
unconditionally on the 23 rd of September 2002.  3
10. The Commission then brought the present application before us in which  
they seek the following relief: 
1) That the purchase by Edgars Consolidated Stores Ltd (“Edcon”) of  
certain claims against trade creditors of the Retail Apparel (Pty) Ltd  
and   certain   of   its   subsidiaries,   as   described   in   Edcon’s   offer   to  
purchase   dated   13   June   2002   (“the   book   debts”)   constitutes   a  
merger as contemplated in section 12 of the Competition Act No.  
89 of 1998, as amended (“the Act”).
2) That the Respondents contravened section 13(A)(3) of the Act in  
that   they   have   implemented   the  merger  prior  to  approval   by  the  
Applicant;
3) Ordering that the Respondents jointly pay an administrative penalty  
of R 85 552 610 in terms of sections 59(1)(d)(i) and/or 59(1)(d)(iv)  
of the Competition Act 89 of 1998 (as amended) and;

of the Competition Act 89 of 1998 (as amended) and;
4) Further and/or alternative relief.
11. Section 13A(3) states the following:
The parties to an intermediate or large merger may not implement  
3  This decision is reported as   53/LM/Aug02 
3

that merger until it has been approved, with or without conditions,  
by the Competition Commission in terms of section 14(1)(b), the  
Competition Tribunal in terms of section 16(2) or the Competition  
Appeal Court in terms of section 17.
12. Section   59(1)   of   the   Act   sets   out   the   circumstances   in   which   an  
administrative  penalty  may  be  imposed.  For  our purposes  the  following  
sub­sections are pertinent:
59(1) The Competition Tribunal may impose an administrative penalty  
only­
(d) if the parties to the merger have
(i) failed to give notice of the merger as required by Chapter 3;
(ii) …
(iii) …
(iv) Proceeded to implement the merger without the approval of  
the       Competition Commission or Competition Tribunal, as  
required by this Act.
DISCUSSION 
13. Initially the Commission was of the view, when it issued its notice of non­
compliance to the parties after notification of the second leg, that the first  
and second legs constituted a single transaction. 
14. Yet in Paragraph 5.4 of his founding affidavit, in the present application,  
the Commission’s deponent alleges that:
“..the   first   transaction   between   the   First   and   Second   Respondents  
constitutes a notifiable merger as contemplated in section 12 of the Act, as  
amended. ..” 4
15. Later in Paragraph 5.5 of the affidavit, after all the facts have been set out,  
he states:
“I submit that the transaction between the First and Second Respondents  
constitutes a notifiable merger as contemplated in section 12 of the Act in  
4  See affidavit of John Nesidoni, page 6 of the record, paragraph 5.4.
4

that the  second transaction has the effect of ….”.  5  (Our emphasis)
16. Not   surprisingly   this   latter   paragraph   led   the   first   respondent,   in   its  
answering affidavit, to query what is meant by the reference to the second  
transaction and whether the Commission was alleging, in contrast to what  
it   had   stated   in   earlier   5.4,   that   the   transactions   constituted   a   single  
transaction.
17. Regrettably the Commission does not deal with this in its replying affidavit.  
In   its   Heads   of   Argument,   however,   it   appears   to   consider   them   as  
“separate   and   discrete” .6  Yet   in   oral   argument   in   response,   the  
Commission warns of the dangers of piecemeal notification, which would  
again suggest that it considers there to have been one transaction. 
18. We have approached this decision in a manner that does not require us to  
resolve   this   question.   We   have   analysed   the   first   leg   as   a   stand­alone  
transaction   in   order   to   decide   whether   it   constitutes   a   merger.   As   we  
answer this question in the affirmative, the question of whether the two  
legs constitute a single or discrete transactions is not one we are required  
to   determine,   since   on   either   approach   there   would   have   been   a  
transgression of the Act ­ i.e. either a merger or part of a merger had been  
implemented   without   prior   approval.   We   nevertheless   express   the   view  
that the two legs constitute elements of a single merger.
19. For this reason the crisp issue that we have to decide is whether the first  
leg constitutes a merger. To be crisper still, what we have to determine is  
whether the rights sold in terms of the first leg constitute the sale of part of  
a business.
20. The reason for this comes from the definition of a merger in section 12 (1):
(a) For purposes of this Act, a merger occurs when one or more

(a) For purposes of this Act, a merger occurs when one or more  
firms   directly   or   indirectly   acquire   or   establish   direct   or   indirect  
control over the  whole or part of the business of another firm . (Our  
emphasis). 
(b) A merger contemplated in paragraph (a) may be achieved in any manner,  
including through – 
(i) purchase or lease of the shares, an interest or   assets 
of the other firm in question; or
5  See affidavit of John Nesidoni, page 7 of the record, paragraph 5.5
6  See 4.1.2 of the Commission ‘s heads of Argument 
5

(ii) amalgamation or other combination with the other firm  
in question . (Our emphasis)
21. The first respondent does not dispute that the first leg gave it control over  
the   book   debt   and   that   a   book   debt   is   an   asset,   what   is   in   dispute   is  
whether the rights acquired constitute part of a business. 7
22. The mere acquisition of an asset, assuming it otherwise falls within the  
thresholds   of   capture   in   section   11   of   the   Act,   does   not   constitute   a  
merger. What the Act clearly sets out, as a limiting feature, is that which is  
taken control of is a “ business” or “ part of a business” .
23. Now   if   one   reads   sections   12(1)   and   12(2)   together,   clearly   the   Act  
contemplates   that   the   acquisition   of   an   asset   may   constitute   the  
acquisition of a business. It also contemplates that a  business  is divisible,  
and hence a merger can be accomplished by the acquisition of  “part of the  
business of another firm.”
24. When an asset becomes a business and when it is just to be considered  
an  asset,   is   a  subject  for   interpretation.   Too  wide  a  notion   of  business  
would make any number of ordinary transactions notifiable as mergers,  
too narrow, would risk creating a loophole for regulatory avoidance.
25. The   Act   does   not   define   what   a   business  is.   Black’s   Law   Dictionary  
defines a  business as:
A   commercial   enterprise   carried   on   for   profit;   a   particular  
occupation or employment habitually engaged in for livelihood or  
gain. 
26. While the word  business  has been interpreted frequently by our courts in  
relation to other statutes, this has not been of assistance, since the word  
has   a   chameleon­like   quality–   its   meaning   is   usually   coloured   by   the  
context of the statutory framework in which it is located. 8
7  Initially the Commission had stated that was all that it had to prove, but correctly this

7  Initially the Commission had stated that was all that it had to prove, but correctly this  
stance was not adopted during argument before us and it too agreed with the manner in  
which the first respondent had characterized the issues to be decided, although it came to  
the opposite conclusion on the facts.
8  See in this regard the Butterworth’s Dictionary of Legal Phrases where, it is observed that generally the  
word  business is susceptible to a wide range of meanings and then goes on to refer to the range of meanings  
accorded to the word  business in the case law, dealing with legislation as varied as licensing ordinances and  
the Motor Vehicle Insurance Act, No. 29 of 1942.
6

27. More useful guidance comes from other jurisdictions where the principle of  
when asset acquisitions qualify for notification as mergers is examined.
28. In   the   European   Union   in   the   case   of   Blokker   v   Toys   R   Us, 9  the  
Commission stated:
“…Therefore, acquisition of control is not limited to cases where a  
legal   entity   is   taken   over   but   can   also   happen   through   the  
acquisition of assets. In this situation the assets in question must  
constitute   a   business   to   which   a   market   turnover   can   be   clearly  
attributed.”
29. The Commission proceeded to analyse the assets being acquired:
“In this operation Blokker takes over all the assets (leases, fixtures  
and inventory, personnel, use of brand name) which make up the  
business  of  Toys  ‘R’   Us   in   the   Netherlands.   To   this  business,   a  
turnover can be clearly attributed.
30. The   Commission   concluded   that   the   transaction   constituted   a  
concentration within Article 3(1)(b) of the Merger Regulation. 
31. In the United States mergers are governed by section 7 of the Clayton Act.  
Historically this statute applied only to stock acquisitions, but the Act was  
amended in 1950 to cover acquisitions of assets. 
32. In Antitrust Law Developments 10 the authors note that: 
“Section 7 applies to a wide variety of asset acquisitions – not only  
those resembling mergers (i.e., acquisitions of substantially all of a  
business’   assets),   but   also   to   acquisitions   of   certain   key   assets  
such   as   patents,   trademarks,   or   sales   volume,   leases,   and   to  
transactions resulting in control of decision making.”
33. Herbert Hovenkamp in discussing the problem presented by partial asset  
acquisitions observes that:
“Antitrust policy becomes concerned with partial asset acquisitions when  
the   asset   that   changes   hands   represents   a   measurable   and   relatively  
permanent transfer of market share or productive capacity from one firm

permanent transfer of market share or productive capacity from one firm  
9  Case No IV/M.890   paragraph 13.
10  ABA, Antitrust Law Developments (Third), page 279 ­280
7

to another”. 11 
34. He then goes on to observe that:
“..   no   shorter   analysis   has   yet   appeared   that   will   effectively  
separate harmless from dangerous asset acquisitions.”
35. He does however formulate a general approach:
“  In general, if the asset acquisition appears on its face not to affect  
industrial   concentration   or   the   market   share   of   its   buyer,   the  
acquisition will be treated as outside the scope of section 7. If it  
does tend to enlarge the market share or productive capacity of the  
acquiring firm, or if it increases concentration in the industry, then  
its effects on competition must be assessed.” 12
36. He makes the salient point that:
“Certain asset acquisitions may tend to increase concentration or give the  
acquiring firm a larger market share even though the asset itself does not  
increase productive capacity. Acquisition of a trademark will fall into this  
category.”13
37. The Hovenkamp approach seems the one closest to serving the purpose  
of understanding what is contemplated by business in section 12.
38. We turn now to analyse the first leg of the transaction, which the parties  
contend amounted to no more than the acquisition of a debtors' book i.e.  
an asset but not a business. 
39. They rely for this interpretation on the definition given in the agreement to  
what constitutes the first leg of the transaction, which is referred to in the  
language of the agreement as the   first sale assets.   The   first sale assets  
are defined in clause 1.16 as:
“..collectively, the book debts and the VAT refund.”
40. The book debts are defined in clause 1.5 as:
“All book debts of the group falling within the ambit of paragraphs 1  
11  Herbert Hovenkamp, Federal Antitrust Policy, The Law of Competition and Its Practice,   page 498
12  Hovenkamp op. cit. pg 499.
13  Hovenkamp op. cit. p. 499, fn 8.
8

to   12   (inclusive)  of   annexure  C  (other  than  the  delinquent   debts  
and sundry debtors of the group) reflected in the books and records  
of the group as at the first effective date (including but not limited to  
all accounts, records, details of lists of debtors’ records in respect  
of which credit has been issued by the group to customers of the  
group   against   defined   parameters   and   in   respect   of   which  
collections against such debts have been fully or partially made or,  
alternatively,  in  respect   of which  there  is  valid  cause  to  proceed  
with such collection) together with the group’s right, title, interest  
and benefit in and to the account protection plans in respect of and  
pertaining to those book debts”  
41. The agreement goes on to describe the   second sale assets,   which are  
defined in clause 1.30 as:
“­collectively,­
1.30.1  the designated stock;
1.30.2  the fixed assets;
1.30.3  the intellectual property;
1.30.4  the group’s right, title, interest and benefit in and to the  
Club”  
42. The   transaction   has   been   structured   in   such   a   way   that   the   offer   to  
purchase, although contained in the same document, comprises separate  
offers for the purchase of the first and second sale assets. The agreement  
further   provides   that   the   offer   is   “severable   in   respect   of   the   first   and  
second sale offer” .
43. These clauses in the offer, the first respondent argues, demonstrate the  
two important hooks on which its defence is pegged. Firstly, that the first  
and second  legs,   despite  being  housed in  the same  offer,  were  in  fact  
separate transactions. Secondly, that the description of what was sought  
to be acquired in the two respective legs, clearly indicates that the first  
involved the acquisition of only assets, and the second the acquisition of a  
business.
44. It is not entirely clear from the first respondent’s argument what attributes

business.
44. It is not entirely clear from the first respondent’s argument what attributes  
the   second   sale   assets   possess,   that   make   them   more   susceptible   to  
constituting a business than the first. Is it the cumulative effect of the four  
itemized assets  that  are referred to in the definition of the second  sale  
9

assets that give them an attribute that they would otherwise not possess if  
taken individually, or are some of the assets, taken on their own, more  
susceptible to being part of a business than a book debt because of some  
characteristic inherent in them?
45. However   at   least   one   was   singled   out   for   special   mention   by   the   first  
respondent’s counsel, as having the attributes of a business as opposed  
to a book debt and this was “ the group’s right title and interest and benefit  
in and to the Club.”  14
46. Some significance attaches to this, as in clause 15.1.1 of the agreement it  
provides that on the first effective date  15the liquidators must deliver to the  
offeror against payment, inter alia: 
“15.1.1.1 
a   schedule,   in   such   form   (electronic   or   otherwise)   as   may   be  
acceptable to the offeror, containing full details of each customer of  
the group with a written indication as to whether the debts of  such  
customers comprise the book debts and whether such customers  
are,   as   at   the   first   effective   date,   members   of   the   Club ”   (Our 
emphasis)
47. Thus   a  vital   piece  of  information,   constituting   the   “business”  that   forms  
part of the second sale asset, is already disclosed to the first respondent  
in terms of the first. Thus as a result of the first sale transaction the first  
respondent has not merely acquired a book debt but valuable business  
information concerning the seller’s customer base.
48. There   are   other   features   of   the   agreement   that   suggest   that   what   was  
acquired by the first respondent in terms of the first leg, went beyond the  
mere description of the first sale assets in clause 1.16 and on which the  
first respondent is so reliant to establish its case. 
49. In terms of clause 8 of the agreement, the first respondent was entitled to  
acquire within 30 days of the acceptance of the offer (that date is set as 14

acquire within 30 days of the acceptance of the offer (that date is set as 14  
June), the right to acquire the leases subject to the necessary landlord  
consents and assignments. Whilst it is correct that this right comes into  
14  Clause 1.30.4 The Club is defined in clause 1.7 as “the group’s database of members of the “Smart  
Fashion Club”, previously known as the “Bee Gee Club” and the “Smart Centre Club”, incorporating  
“Patrick Daniel”, “Bee Gee” and “Smart Centre” account holders.”
15  The first effective date is defined as the “ earlier occurring date of fulfillment of the conditions referred  
to in 12.1 and 16 June 2002;”.
10

effect  only   on   the   second   effective   date   16,   it   does   not   appear   to   be  
dependant on the first respondent pursuing the second leg and indeed the  
right to the leases would be   exercised  before the second effective date.  
Nor is this right defined as forming either part of the first or second sale  
assets ­ it appears supplementary to the first.
50. The agreement also establishes an interim period in terms of clause 9,  
during which the parties have certain further rights and obligations. This  
period is defined as period between the date of acceptance of the offer  
(i.e. 14 June) and the close of business on 28 August 2002. 
51. During the interim period the liquidators are obliged to continue carrying  
on the business at premises designated in the agreement, and to extend  
credit   to   existing   customers   on   the   same   terms   and   conditions   as  
previously. In return the first respondent agrees to acquire these debts,  
which are defined as the subsequent debts, at a discounted price.
52. The first respondent is then granted access during the interim period to  
the books, records and systems of the group to enable it to 17:
“centrally manage and control the recovery of the sale debts;
effect the migration of the records pertaining to the sale debts from  
the   company’s   to   the   offeror’s   systems,   and   without   limiting   the  
generality   of   the   aforegoing,   enable   the   offeror   to   manage   the  
group’s   centralised   credit   call   centre   for   the   purposes   only   of  
recovering the sale debts, provided that the liquidators furnish all  
reasonable assistance to the offeror in doing so and that the offeror  
bears   all   direct   costs   and   expenses   of   the   operation   of   the  
centralised credit call centre (including the direct costs of engaging  
employees of the company to operate the centre) in recovering the  
sale debts during the interim period;

sale debts during the interim period;
with effect from the close of business on 15 June 2002, pay to the  
offeror on a daily basis all amounts received by the liquidators on  
account of the discharge of any of the sale debts.” 18
16  The second effective date is defined in clause 1.31 as  “ the later occurring of – 11 August 2002, the  
date of fulfillment o f the conditions referred to in 12.2; and if an arrangement is proposed pursuant to 19,  
the date of registration by the Registrar of Companies of the court order sanctioning the arrangement in  
terms of section 311(6) of the Companies Act.
17  Clause 9.1.3.1­ 9.1.4.
18  Note that the first respondent was to pay for these subsequent debts on the last business day of each  
month during which the subsequent debts are created. ( Clause 6.1.4) 
11

53. Observe   that   this   clause   gives   the   first   respondent,   during   the   interim  
period, the right to transfer all sale debts from the RAG systems to its own  
system and the right to effectively take over the operation of the RAG call  
centre, and if necessary to supply its own staff for that purpose. The  sale 
debts  are defined to include the   book debts   and the   subsequent debts . 
The first leg was thus not confined to the purchase of historic debt as the  
subsequent debts are in turn defined as:
“all debts of the group ( other than delinquent debts) which have  
been created by the group on the basis set out in 9.1.2 at any time  
after   the   first   effective   date   together   with   the   groups   right,   title,  
interest   and   benefit   in   and   to   the   account   protection   plans   in  
respect of and pertaining to those book debts.”
54. That   this   was   the   parties   understanding   as   well,   is   manifest   from   an  
affidavit made by Graham Evans, a director of the first respondent, to the  
High Court, in terms of section of section 386 of the Companies Act, dated  
14   June   2002   (ie   the   date   of   acceptance   of   the   offer)   and   which   is  
attached  to  his  answering   affidavit.   In  paragraph  11   of  that   affidavit   he  
states:
“It   is   to   be   noted   that   in   the   offer   document,   Edcon   specifically  
stipulated that it needed to be given access and possession of the  
book debts of the company, as well as access to all other books,  
documents and records, which Edcon required for the collection of  
the book debts, and also to enable Edcon to be in control of the  
book debts by Tuesday 18 th June 2002.  This would enable Edcon  
to   immediately   extend   credit   to   customers   of   the   company’s  
business, and that of its subsidiaries, so that the Liquidators could  
commence trading immediately to realise the best possible prices

commence trading immediately to realise the best possible prices  
for  the  sale  of  the stock  of  the  company  and  its  subsidiaries.   In 
addition, the Liquidators would have no risk in doing so because  
Edcon were purchasing the new book debts created.   This would  
obviously   result   in   an   enormous   benefit   to   the   creditors   of   the  
company, and its subsidiaries.”  (Our emphasis)
55. Why   did   the   parties   purport   to   divide   the   transaction   into   two   discrete  
legs?
12

56. According to the first respondent’ s affidavit in answer to this application, it  
had   considered   acquiring   RAG’s   book   debts   alone,   and   not   RAG’s  
business as well, at some time before the liquidation in discussion with  
RAG and its bankers. 19
57. However Evans in his High Court affidavit, which was deposed to prior to  
these   proceedings,   describes   these   discussions   more   broadly,   and   the  
acquisition of the book debt is stated as an alternative to the acquisition of  
the company, but both are clearly contemplated. 20
“About ten days before the company was placed into provisional  
liquidation, Edcon was approached by the company’s bankers, in  
an endeavour to ascertain whether Edcon was possibly interested  
in acquiring the company’s book debts, or   whether Edcon would  
also consider the possibilities of proposing an offer to purchase the  
shares and/or of the company.”  (Our emphasis)
58. The clearest indication of the  parties’  intent  emerges however from  the  
agreement   itself   where   in   clause   19   there   is   a   clause   setting   out   the  
“arrangement”.
59. In terms of this clause:
19.1 “The offeror records that in order, inter alia, to –
19.1.3   obviate   the   delays   which   would   be   suffered   in  
seeking to­
19.1.3.1   acquire   the   sale   assets   through   a  
mechanism of an arrangement
19.1.3.2 obtain the approval set out in 12.2.2  21,
it was necessary for the offeror to structure this transaction  
on   the   basis   provided   for   in   the   offer   which   seeks   to  
achieve   an   expeditious   acquisition   and   implementation  
process….”   (Our emphasis)
19  Paragraph 18.1.1 of the answering affidavit.
20  Paragraph 4, page 76 of the record.
21  This is approval in terms of the Competition Act.
13

60. This clause appears to evidence the real intent of the parties, namely that  
it was expedition, and not uncertainty about what they finally wanted to  
purchase, that drove the choice to divide the transaction into two stages,  
and the reason why expedition was so crucial to them appears again from  
Evans affidavit in the High Court application. 22
“It immediately became apparent to me, to whom Edcon had entrusted  
the assessment of the Retail Apparel Group, as well as its book debts,  
that because of the provisional liquidation, it would be imperative to  
both   the   Liquidators   and   to   Edcon   that   in   order   not   to   destroy   the  
goodwill of the business, and to preserve any value in the book debts,  
an agreement had to be concluded urgently with the liquidators, failing  
which:­
8.1.   customers  denied   access   to   credit   purchases   would  find   no  
reason   to   effect   payment   against   a   debt   owing   to   the   company.  
This   was   exacerbated   by   the   fact   that   the   provisional   liquidation  
had occurred at month end;
8.2 customers of the company would switch loyalty by seeking alternative credit  
at competitors of the company, which would ultimately lead to a loss of this  
customer and would have a severe impact on the prospects of a successful  
collection from this debtor;
8.3 to miss a further month end payment would cause a severe deterioration in  
the value of the company’s book debts, which would be to the severe prejudice  
of the creditors of the company;
8.4   to meet month end deadlines, Edcon would need at least a  
period   of   10   days   prior   administration   of   the   book   debts,   and   a  
period of 2 days in which to integrate its own management and to  
extract the relevant records by which to evaluate the book debts,  
and the recovery prospects thereof.”
61. This is further evidenced in paragraph 13 where he states:
“I contend that it is essential for Edcon to have this transaction in its

“I contend that it is essential for Edcon to have this transaction in its  
present   form   consummated   immediately,   and   pray   that   an   order   be  
granted by this Honourable Court urgently for the following reasons:­
22  Paragraph 8, page 77­78 of the record.
14

13.1 Edcon has to incur substantial costs and risks in having to arrange for  
experienced personnel in different fields to be available over this long weekend  
to transfer the book debts of the company, and its subsidiaries, to Edcon’s credit  
management. Edcon is unable to make the necessary arrangements without the  
Liquidators being granted the relevant authority in law to accept Edcon’s offer;
13.2 If Edcon for any reason whatsoever are unable to control of the book debts  
this long weekend, the value of the book debts which Edcon is purchasing  
according to a specified formula, which is highlighted in the offer document,  
would be eroded to the prejudice of the company’s creditors. There would also  
be a great increase in the risk by which Edcon is acquiring such book debts;
13.3 The uncertainty and low morale of the company’s staff at present, especially  
in the credit call centres is further reducing the productivity in regard to the  
collection of the book debts;
13.4 The liquidators are being deprived of effecting credit sales at present, and  
the impact is particularly severe in trading the stock of the group. Due to  
seasonal variations, the group’s stock in trade is depreciating on a daily basis;
13.5 Customer loyalty is also being lost and this will lead to the debt recovery,  
especially collections over the next month end, being reduced dramatically;
13.6 Third party collection agents are totally demotivated, which is now having  
an adverse effect and is slowing down the collection of the book debts.
62. What   all   this   analysis   serves   to   show   is   two   features   –   one   that   the  
separation of the first and second transactions was designed to create a  
mechanism for the first respondent to secure the book debt of RAG on an  
urgent basis to prevent the migration of customers to RAG’s competitors.  
This objective would have been frustrated had the transaction been held  
up to obtain regulatory approval. 23

up to obtain regulatory approval. 23
63. Secondly, that the distinction between the two legs is sometimes difficult  
to discern from the agreement and that is because they were intended to  
form part of one overall transaction.
64. However, as we stated above, our approach has been to examine whether  
the first leg constituted a merger and hence we are not required to decide  
23  This is not to suggest that this was the only form of regulatory approval that the parties wished to  
obviate in the first transaction it seems clear that exchange control and the Labour Relations Act were also  
of concern.
15

whether the two legs formed part of a single, seamless transaction.
65. We   do   however   agree   with   the   Commission   that   there   is   a   danger   in  
allowing parties to structure transactions in a way that could obviate their  
obligations to notify. If parties to asset transactions could purchase one  
stand alone asset by agreement to form part of a severable agreement it  
is   easy   to   see   that   this   could   be   used   to   reduce   the   threshold   for   the  
merger   notification   either   to   make   an   otherwise   large   merger   an  
intermediate one or to render it not notifiable at all. 
66. We need to look at a transaction holistically and not piecemeal. This was  
the approach we took in  Khumo Bathong, Case No: 31/LMN/May02  where  
we held that what were in contract law two discrete transactions were part  
of the same merger and hence notifiable only once. 
67. The   approach   in   Europe   is   even   stricter,   Frank   L.   Fine   in   his   book  
Mergers and Joint Ventures In Europe: The law and Policy of the ECC  
(1998), p. 179, states that:
“…if two  or more  such transactions take  place within a  two­year  
period   between   the   same   undertakings,   these   transactions   are  
treated   as   one   concentration   arising   on   the   date   of   the   last  
transaction.” 
68. What the parties acquired as a result of the first merger was a not a mere  
book debt. Indeed, this case should not be considered as authority for the  
proposition that the acquisition of a book debt constitutes, if the thresholds  
are   met,   a   notifiable   merger.   What   we   are   saying   is   that   when   the  
acquisition of an asset constitutes the acquisition of a business or part of a  
business is a question of fact that must be examined in the context of the  
whole transaction. Is the acquiring firm by acquiring the asset, acquiring  
something   more   than   a   bare   asset   that   would   enhance   its   competitive

something   more   than   a   bare   asset   that   would   enhance   its   competitive  
position? One example of this would be where the purchase of an asset  
enables the acquiring firm to increase its market share or to pre­empt a  
rival from increasing its.
69. The  first   respondent,  a  firm   that  sells   clothing   and  apparel   to  the   retail  
trade   on   credit,   acquired   the   book   debt   of   a   fallen   rival   coupled   with  
significant  ancillary rights that gave it access to the core of the seller’s  
business, namely its customer base.   What needs to be borne in mind is  
that   the   first   respondent   is   in   the   same   line   of   business   as   RAG   and  
competes for the same customer base in the credit retail apparel market.  
16

In the High Court affidavit for instance, Evans describes the credit base of  
its debtors and states:
“there are many similarities between Edcon’s credit base and the  
credit base of Retail Apparel (Pty) Ltd..”
70. What was acquired in the first leg was more than the right to collect past  
debts. It included, through the identification of the Club members valuable  
information about RAG’s customer base, the right to its subsequent debts,  
the right to require it to continue to trade on credit, and control of over  
subsequent  debtor   management   and  information.   By  its  own  admission  
this   was   to   attempt   to   prevent   the   migration  of   the   seller’s   business  to  
rivals. It was a bridgehead into the RAG business, designed to ensure that  
the customer base kept its loyalty and did not defect to rivals, until such  
time as regulatory approval could be secured for the second leg.
71. The haste with which the arrangement was to be instituted, as evidenced  
from Evans’ High Court affidavit, suggests that the value to be preserved  
by permitting the implementation of the first transaction was the value of a  
business not a mere asset. 24 Edcon decided to make the offer on the 3 rd 
June 2002, the offer was accepted by an informal meeting of creditors on  
12th  June, put into written form on the 13 th  June and accepted on the  
14th June. 25
72. Properly understood within the context of the agreement, and the reasons  
advanced by Evans for the purchase in his High Court affidavit, the first  
leg amounted to the acquisition by the first respondent of RAG’s custom  
and the pre­emption of that custom being acquired by a third party rival. 
73. In   our   view   that   makes   the   subject   matter   of   the   first   leg   a   legitimate  
matter for enquiry in terms of the interests the Act seeks to protect.
74. The Competition Appeal Court in   Distell26  observed that in terms of our  
Act the obligation to notify will be broadly construed – this is because in

Act the obligation to notify will be broadly construed – this is because in  
24  There is some US authority to suggest that haste is an indication that what is being purchased is more  
business than mere asset. See Antirust Law Developments (Third edition) fn.40 p.281
25  See Evan’s High Court affidavit record page 78­9.
26    Distillers Corporation (South Africa) Limited and Another v Bulmer (SA)(Pty) Ltd and Another,     
2002(2) SA 346 (CAC)  at 358:  “… It follows that the Act was designed to ensure that the competition  
authorities examine the widest possible range of potential merger restrictions to examine whether  
competition was impaired and this purpose provides a strong pro­pointer in favour of broad interpretation  
to section 12 of the Act.”
17

our law notification is essential to jurisdiction, and not as in some other  
pre­notification regimes, independent of it. For this reason we will err on  
the side of notification in interpreting whether a transaction constitutes a  
merger in terms of the Act.
75. We are satisfied that the first leg constituted the acquisition of part of a  
business of the selling firm and hence it constitutes a merger.
THE PENALTY
76. In terms of section 59(1)(d)(i) and (iv) of the Act both the failure to notify a  
merger and the implementation of a merger before it has been cleared by  
the   appropriate   competition   authority   are   contraventions   of   the   Act   for  
which an administrative fine is competent.
77. We have found however that the respondents have only contravened the  
Act   in   one   respect,   namely   implementing   the   merger   prior   to   it   being  
cleared. The impugned transaction was notified to the Commission, albeit  
belatedly.
78. The Commission initially sought a fine of R 85 552 610, which we were  
advised   was   10%   of   the   turnover   of   the   acquiring   firm   and   hence   the  
maximum permissible fine in terms of the Act. During argument however  
the Commission conceded that there were a number of mitigating features  
concerning   the   merger   and   that   a   fine   of   half   that   amount   was   more  
appropriate.
79. The first respondent contended that as the Commission had not sought to  
adduce any evidence to motivate its recommendation for a fine, no fine  
was appropriate. 
80. We cannot agree with this conclusion. The factors that we must take into  
account in determining a fine are set out in section 59(3) of the Act. This  
section states:
When determining an appropriate penalty, the Competition Tribunal  
must consider the following factors:
a) the   nature,   duration,   gravity   and   extent   of   the  
contravention;
b) any   loss   or   damage   suffered   as   a   result   of   the  
contravention;
18

c) the behaviour of the respondents;
d) the   market   circumstances   in   which   the   contravention  
took place;
e) the level of profit derived from the contravention;
f) the degree to which the respondent has co­operated with  
the   Competition   Commission   and   the   Competition  
Tribunal; and
g) whether   the   respondent   has   previously   been   found   in  
contravention of this Act.
81. To   the  extent   that   this   information   is   on   the   record  we  can  take  it  into  
account. The fact that the Commission has not adduced any evidence in  
aggravation does not preclude us from imposing a fine. From the papers  
we   have   sufficient   evidence   before   us   of   the   factors   that   section   59(3)  
requires us to consider. To the extent that much of this evidence has been  
adduced by the respondents it is to their benefit and meant that we find  
the Commission’s proposed fine, albeit revised downward, inappropriate  
on these facts.
82. We have had regard to the following:
• The   implementation   was   not   of   long   duration   the   merger   was  
implemented on 13 June 2002 and notified on  25 July 2002 and then  
approved by the Tribunal on 23 September 2002.
• Given   that   the   merger   was   approved   unconditionally   there   is   no  
evidence that the contravention led to any loss or damage. However it  
needs to be borne in mind that had the merger not been approved or  
had it been approved subject to the divestiture of part of the business  
such as the client lists, the premature action could have frustrated such  
a purpose.
• The respondents do not appear to have intended to evade competition  
scrutiny. They notified the transaction albeit belatedly and also notified  
the Commission of their legal view of the status of the first leg, prior to  
implementation.27   (We say more about the construction to be put on  
this   letter   when   we   deal   with   the   parties   co­operation   with   the

this   letter   when   we   deal   with   the   parties   co­operation   with   the  
Commission below.) At worst what they wanted to do was to secure  
27  See letter from Werksmans dated  13 June 2002, page 54 of the record. The Commission never replied  
to this letter, which the parties seek to rely on. The Commission argued that as the  letter did not request  
anything of them it was not necessary for them to reply and the parties were not entitled to place any  
reliance on its passivity.
19

the book debt advantage without having to face the delay associated  
with obtaining regulatory approval. It is thus a lesser form of evasion,  
although   not   one   we   can   treat   with   impunity   as   all   mergers   cause  
parties delay and that is a reality which firms must accept and factor  
into their activity. Prior to implementation the respondents had sought  
and   received   legal   advice   that   the   transaction   did   not   constitute   a  
merger.   Whilst   we   have   differed   from   the   conclusion   given   in   that  
advice, given this set of facts, we cannot suggest that the advice was  
unreasonable or not considered. 
• The market circumstances in which the contravention took place are  
not pertinent here.
• There is no suggestion that the respondents acquired any profit as a  
result of the contravention given that the merger was approved.
• The respondent on the Commission’s own admission co­operated with  
it. Whilst the letter from the respondents attorneys, dated 13th June  
2002, which we referred to above, shows that the respondents advised  
the Commission at the outset, the respondents moral high ground is  
dented, by the acknowledgement that the information was to appear in  
the press and thus presumably would have come to the Commission’ s  
notice in any event. 28 Furthermore the facts disclosed concerning the  
first leg of the transaction amount to a gloss on the transaction that  
does not accord with the facts as we have analysed them above. The  
letter   suggests   that   the   transaction   amounted   to   a   “   separate  
agreement   with   the   liquidators”   and   later   on   states   that   “Edcon’s  
purchase of the book debts is akin to a situation in which a creditor  
discounts its book debts to a financier.”  We have found neither of these  
propositions to be correct. The agreement containing the offer does not  
appear to have been disclosed to the Commission in the June letter.

appear to have been disclosed to the Commission in the June letter.  
We are not suggesting bad faith on the part of the respondents. We do  
however suggest that the mitigating aspect of the letter is diminished  
by inadequate disclosure.
• The respondents have not previously been found in contravention of  
the Act.
28  See Paragraph 21.5 of the answering affidavit where Evans states,  “ Edcon instructed [the attorneys] to  
write the letter …. because  Edcon was concerned that press reports might suggest that Edcon had  
implemented the second transaction immediately in June 2002 and Edcon wished to avoid concern on the  
part of the Commission and to assure the Commission that it would not implement in violation of the Act.”
20

83. In   essence   the   violation   is   one   of   a   procedural   rather   than   substantive  
provision of the Act; this coupled with the fact that the respondents had  
never intended to evade substantive scrutiny of the merger suggests that  
a fine far lower than proposed by the Commission is appropriate. On the  
other hand it cannot be so low a firm would regard it as worth evading the  
procedural prerequisites of the Act to secure a quick deal. In our view a  
fine of R 250 000 is appropriate.
ORDER 
a) We find that the respondents contravened section 13(A)(3) of the  
Act  in  that  they have implemented a  merger  prior  to  approval   in  
terms of the Act.
b) In terms of section (59(d)(iv) of the Act, we order the Respondents  
to pay an administrative penalty of R 250 000. 
c) The respondents are jointly and severally liable for the payment of  
the fine, should one pay the other is to be absolved.
d) The fine must be paid to the Commission within 7 business days of  
date of this decision.
24 March 2003
N. Manoim Date
Concurring: D. Lewis and P. Maponya
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