COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 54/FN/Oct03
In the matter between:
JOHNNIC COMMUNICATIONS LIMITED First Applicant
KAGISO MEDIA LIMITED Second Applicant
CAXTON AND CTP PUBLISHERS AND PRINTERS LIMITED Third Applicant
TERENCE DESMOND MOOLMAN Fourth Applicant
and
NEW AFRICA INVESTMENTS LIMITED First Respondent
INVESTEC BANK LIMITED Second Respondent
SAFIKA HOLDINGS (PTY) LIMITED Third Respondent
CAPRICORN CAPITAL PARTNERS HOLDING COMPANY (PTY) LIMITED
(previously known as NEWSHELF 730 (PTY) LIMITED) Fourth Respondent
MULTIDIRECT INVESTMENTS 180 (PTY) LIMITED Fifth Respondent
MINEWORKERS INVESTMENT COMPANY (PTY) LIMITED Sixth Respondent
PHAPHAMA HOLDINGS (PTY) LIMITED Seventh Respondent
THE COMPETITION COMMISSION Eighth Respondent
SHARES TRADED TOTALLY ELECTRONICALLY LIMITED Ninth Respondent
NEDBANK LIMITED Tenth Respondent
STANDARD CORPORATE AND MERCHANT
BANK LIMITED Eleventh Respondent
FIRSTRAND BANK LIMITED Twelfth Respondent
ABSA BANK LIMITED Thirteenth Respondent
SOCIÉTÉ G ÉNÉRALE LIMITED Fourteenth Respondent
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COMPUTERSHARE LIMITED Fifteenth Respondent
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Reason for decision and order
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1. The applicants have brought an urgent application before us
seeking a series of orders whose purpose is to interdict the
second to sixth respondents (“the Tiso consortium” or “Tiso”)
from further implementing a series of transactions to purchase
shares in the first respondent (“Nail”). The basis of the
application is that the transactions constitute a scheme by the
Tiso Consortium to implement a merger with Nail and that the
scheme is unlawful because mergers may not be implemented
until they have been approved by the relevant competition
authority. It is common cause that the Tiso Consortium has not
notified the transactions to the Competition Commission. The
Tiso Consortium denies that its scheme constitutes a merger
and hence alleges that it was under no obligation to notify.
Background
2. On 28 May this year Nail announced its intention to sell its
media assets and invited interested parties to submit bids. The
first to third applicants (the “Kagiso consortium”) and the Tiso
consortium made rival bids for Nail. Although we will not burden
this decision with the detail of the bids, what is of significance is
that the rival consortia invoked different procedural mechanisms
to achieve their end. The Kagiso bid contemplated an offer
conditional upon the acceptance of regulatory approval, which
included approval of the merger in terms of the Competition Act.
The rival Tiso bid was premised on a series of stages. The first
stage, which constituted an offer to the shareholders of Nail for
their shares at a price of R 10,50 per share, was not subject to
such a condition. 1
their shares at a price of R 10,50 per share, was not subject to
such a condition. 1
3. Each of the bidding consortia tried to woo Nail shareholders with
the merits of its respective bid and the imperfections of its rival’s.
Central to Tiso’s efforts was the fact that shareholders would get
1 Note that this refers to their revised offer. The only condition was a requirement in respect of the
level of the shareholding to be acquired and this it appears has been achieved.
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cash soon without having to wait for the conclusion of a
regulatory process of uncertain duration and outcome.
4. Thus the nonnotification of the Tiso consortium’s first stage of
the process was crucial for securing shareholder approval and
on the evidence thus far, this strategic choice has proved
successful. By following a process where regulatory consent is
part of the backend, not the frontend, Tiso hopes to succeed in
acquiring ownership of a sufficient critical mass of Nail shares so
that its rival bidders have nothing left to bid for. Thus the non
notification at the frontend is crucial to achieve a strategy
which, at least from the present papers before us, was designed
not to evade ultimate competition scrutiny of the sale of the Nail
assets, but to steal a march on its rivals. (Note that Tiso has an
option, as part two of its strategy to acquire Phaphama’s share
in Nail and then as part three, via a series of agreements, to
dispose of certain of the underlying businesses and holdings in
Nail. These latter two parts of the scheme, it contends, if they
meet the required thresholds, constitute notifiable transactions
that will be notified in due course.)
5. The Kagiso consortium, concerned because its rival was buying
up shares on a large scale in the open market and had made an
offer to shareholders open for acceptance until Friday 24
October 2003, filed this application with the Tribunal on 7
October. The matter was originally set down for a hearing on 8
October but was at the request of all the legal representatives
postponed to the following day to allow for more time for the
filing of answering and replying affidavits.
6. To deal with the problem of urgency, the applicants framed their
relief in two stages. The Part A relief which was sought on
Thursday 9 October provided for a series of orders to interdict
Thursday 9 October provided for a series of orders to interdict
the further implementation of the alleged merger until the issues
which might justify the Part B relief could be determined. 2 The
2 Part A prayers :
i) the first respondent, and the second to sixth respondents (together, the “Tiso Consortium”), shall be
and are hereby interdicted and restrained from implementing the transaction set out in the circular
dated 2 October 2003 attached marked “ PMJ1” to the applicants’ founding affidavit (the “transaction”);
ii) the Tiso Consortium shall be and is hereby interdicted and restrained from acquiring any further
ordinary shares and/or ordinary "N" shares in the first respondent.
iii) the Tiso Consortium shall be and is hereby interdicted and restrained, where it has not already done
so, from taking transfer of, or paying for, such ordinary shares and/or ordinary “N” shares in the first
respondent as it may have accepted pursuant to the offer contained in the aforementioned circular.
iv) the Tiso Consortium shall be and is hereby interdicted and restrained from voting, or otherwise
exercising any rights attached to, any ordinary shares and/or ordinary "N" shares it may have acquired
in the first respondent pursuant to the offer contained in the aforementioned circular.
v) the Tiso Consortium shall be and is hereby interdicted and restrained from acting, in any manner
whatsoever, in accordance with the special arrangements and agreed plan reflected in paragraph 8 of
the aforementioned circular.
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Part B relief duplicates in most respects the interdictal relief
sought in Part A, but it also includes two additional prayers. 3
The first is for a declaration that the transaction constitutes a
notifiable merger and the second a prayer that the first to sixth
respondents be ordered to notify the merger to the Commission
in accordance with the Act. In the Part B relief, the interdicts
would operate until such time as the final approval of the
transaction, if any, was granted by the appropriate competition
authority, whether with or without conditions.
7. The Tiso consortium and the seventh respondent, Phaphama
Holdings, opposed the application. Phaphama Holdings is the
owner of more than half of the Nail ordinary shares and thus at
the moment holds, because of Nail’s dual share capital
structure, the right to exercise the majority of votes in the
company. Phaphama has indicated that it has assessed the
competing bids and considers that Tiso’s bid is the superior one.
Phaphama has entered into two agreements with the Tiso
consortium, one known as the “Consortium agreement” and the
other the “Consortium arrangement”. Despite this Phaphama
contends that it is not a member of the Tiso consortium and has
no equity participation in the Tiso consortium. The applicants
allege however that Phaphama’s two major shareholders,
Hollard and Safika, which collectively hold seventy percent of its
equity in equal shares are also associated with the Tiso
consortium; Safika directly and Hollard through its interest in
Capricorn.
3 Part B prayers :
i)the transaction set out in the circular dated 2 October 2003 attached marked “PMJ1” to the applicants’
founding affidavit (the “transaction”) constitutes a large, alternatively intermediate merger which is
required to be notified to the eighth respondent in terms of the Competition Act (No 89 of 1998) (the
“Act”);
ii)the first respondent, and the second to sixth respondents (together, the “Tiso Consortium”), are
directed to notify the transaction to the eighth respondent as a large, alternatively intermediate merger,
in accordance with the requirements of the Act;
iii)pending the final approval, if any, of the transaction (with or without conditions) by the Competition
Tribunal or the Competition Appeal Court in terms of the Act;
iv)the first respondent, and the second to sixth respondents (together, the “Tiso Consortium”), shall be
and are hereby interdicted and restrained from implementing the transaction set out in the circular dated
2 October 2003 attached marked “PMJ1” to the applicants’ founding affidavit (the “transaction”);
v)the Tiso Consortium shall be and is hereby interdicted and restrained from acquiring any further
ordinary shares and/or ordinary "N" shares in the first respondent;
vi)The Tiso Consortium shall be and is hereby interdicted and restrained, where it has not already done
so, from taking transfer of, or paying for, such ordinary shares and/or ordinary “N” shares in the first
respondent as it may have accepted pursuant to the offer contained in the aforementioned circular;
vii)the Tiso Consortium shall be and is hereby interdicted and restrained from voting, or otherwise
exercising any rights attached to, any ordinary shares and/or ordinary "N" shares it may have acquired
in the first respondent pursuant to the offer contained in the aforementioned circular;
viii)the Tiso Consortium shall be and is hereby interdicted and restrained from acting, in any manner
whatsoever, in accordance with the special arrangements and agreed plan reflected in paragraph 8 of
the aforementioned circular .
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8. Although some criticism is made in the papers of the
independence of Phaphama and hence the bidding process,
these are not issues within our jurisdiction. The issue of
Phaphama and its nexus to the Tiso consortium is relevant, in
the competition context, only to an assessment of the allegation
that Tiso and Phapahama may exercise joint control over Nail as
a result of implementation of the Tiso offer (and then only as
part of a broader factual matrix that would appear to include an
evaluation of the agreements with Tiso).
The objections
9. The Tiso consortium and Phaphama, although separately
represented, have adopted a common approach to the
application. In the first place they object to the competence of
the relief from a procedural aspect. In the second place, on the
merits, they deny that the transactions constitute a notifiable
merger.
10. We do not need to go into the detail of the procedural objections
at this stage. In brief the contention is that the Tribunal does not
have the jurisdiction under the Act to the grant the kind of relief
sought and secondly that the applicants have failed to join third
parties who have accepted the Tiso offer but have not yet been
paid and accordingly have an interest in the outcome of the
application.
11. We will assume for the time being, without deciding, that we
have jurisdiction to grant the orders sought.
Issues that must be decided
12. At the outset we need to indicate that in this decision we are
only concerned with whether to grant the relief sought in Part A
of the Notice of Motion. During the hearing, applicants’ counsel
suggested that if we were so inclined, it might be appropriate to
grant relief in the form of an order declaring that the transaction
was notifiable. This suggestion was strenuously opposed by
was notifiable. This suggestion was strenuously opposed by
counsel for Tiso who argued that they had only come to deal the
Part A relief and were entitled to be heard and make additional
submissions later in relation to the Part B relief. As the
declarator was part of the Part B relief in the Notice of Motion,
not Part A, we have to have regard to this concern. It would be
unfair to expect the respondents who opposed this application
on little more than twentyfour hours’ notice to be prepared to
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deal with anything more. We have therefore not decided at this
stage whether the Tiso transaction in respect of Nail constitutes
a notifiable merger.
13. In addition we would want to hear the views of the Competition
Commission, the body charged with being the watchdog of the
interests which the Act protects, which has thus far not
participated in the proceedings. At the hearing we asked the
Commission’s stance on the matter. The Commission’s
representative informed us that it was going to investigate the
matter and would be able to come to some conclusion in a few
days. He tentatively suggested that at least in one respect the
transactions might constitute the acquisition by the Tiso
consortium of more than 50% of the beneficial shareholding in
Nail. This may constitute the acquisition of control by Tiso of Nail
for the purposes of section 12(2)(a) of the Act. If this is so, he
argued, Tiso was under an obligation to notify the transaction as
a merger.
Finding
14. Since the Commission stated it needed only a few days to
conduct this investigation we have ordered it to file answering
papers in these proceedings to address at least the issue of
whether a notifiable merger has occurred.
15. We have decided not to grant the relief sought in Part A. We
have done so based on our conclusion that the alleged harm
apprehended cannot be cured by the orders sought. In doing so
we leave open an opportunity for the applicants to pursue the
relief set out in Part B, subject to the other parties being given
an opportunity to respond. As the relief sought, if competent, is
urgent we have expedited the hearing by directing truncated
time periods for further filings. If the applicants elect to abandon
their application we will then decide the issue of costs at some
future date.
Reasons for not granting the relief set out in Part A
future date.
Reasons for not granting the relief set out in Part A
16. Our reason for not granting relief in Part A is premised on the
conclusion that we cannot grant an order that will be effective. At
this stage it appears that the Tiso consortiuim has effectively
bought up to 81.9 % of the “N” shares in Nail and 31.8 % of the
ordinary shares.If this purchase of shares was harmful, it is too
late to be remedied. It may well be that ironically the application
itself may have led to the sales. At the hearing, counsel for the
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applicants stated that Investec was aggresively buying shares
on the open market, “even as we sit here”. Uncertainty about
this application may have persuaded some holdout
shareholders to sell. Regardless of how these sales may have
come about they do not detract from the essential fact that, in
the words of the respondents, “the horse has already bolted”.
17. The applicants seek to persuade us that relief in terms of Part A
is still required because the horse “though bolted can still be
tethered” i.e. that although implementation on their version is
taking place, it is in its incipiency, and can still be checked. The
applicants have failed to satisfy us that the harm they apprehend
and which has been formulated for the most part in the most
general terms, (i) has either not already occurred, in which case
the order is futile or that (ii) the order that they seek cannot be
delayed until the 29th October when the matter will be enrolled
for consideration of final relief.
18. Some originally apprehended harm cannot be redressed as the
applicants abandoned their prayers against the ninth to the
fifteenth respondents, those responsible for registering share
transfers.
19. We must concede that two specific instances of harm may have
been established, but here too, the need for urgent relief has not
been established.
20. One fear of the applicants was that Phaphama would vote
against their ( ie the Kagiso consortium’s) offer to shareholders
in terms section 228 of the Companies Act, as Phaphama had
agreed to do this as one of its undertakings described in the
Tiso offer. Phaphama has indicated in its papers that it will vote
to block the Kagiso offer, regardless of whether the interdict is
granted or not. Thus this relief will not be effective.
21. The one other apprehension of harm that the applicants had
21. The one other apprehension of harm that the applicants had
greater reason to fear in the short term and placed great
reliance on, was the suggestion that the Tiso consortium may, if
it acquired 90 % of the shares in Nail as it plans to do,
expropriate the remaining minorities in terms of section 440K of
the Companies Act. Subsequent to our hearing, this concern
has been ameliorated because of a letter to the Tribunal from
Tiso’s attorneys in which they undertook that:
“ the Tiso consortium would not acquire shares in such a
manner as to trigger the provisions of section 440K.”
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22. We received, subsequent to this letter, further letters from the
applicants’ and the respondents’ attorneys taking issue with one
another. The contents of these letters does not concern us at
the moment as it appears that both the applicants and Tiso
accept that the section 440K offer cannot be triggered for certain
technical reasons. 4
23. We are satisfied that the undertaking, or at least the
understanding that expropriation under section 440K will not
take place in the interim, deals with the remaining issue of harm
that may occur before we consider the application for relief in
terms of Part B.
24. As the remaining apprehension of harm to the applicants is
expressed in a vague and generalised sense, we are not
persuaded that the order can be effective. It is trite law that if an
interdict will serve no purpose it should not be granted 5.
25. In respect of any alleged harm that implementation of the
transaction may cause to the public interest, here again without
deciding, we find that if such harm exists, nevertheless the
balance of convenience favours delaying relief until the
respondents have been given a more adequate opportunity to
be heard.
26. It would be imprudent of us, notwithstanding our reticence at this
stage to decide any of the other points in issue, not to point out
to the first to the sixth respondents that if the transactions are
notifiable as the applicants and, it appears, tentatively at least,
the Commission contends, they would be regarded as parties to
the merger with an obligation to notify. As the consequences for
failing to notify may involve both administrative penalties and
divestiture, the boards of the firms concerned should reflect
carefully on their position in relation to notification in the period
until the matter is finally resolved.
until the matter is finally resolved.
27. We accordingly make the following orders:
4 In the ordinary course the panel would not have had any regard to such further
correspondence received in this manner, however due to the urgency of the situation and the
fact that papers in respect of both parties were prepared in haste and the fact that the issue of
section 440K had been referred to by both counsel at the end of their argument, we decided
that it was appropriate to have regard to the correspondence on this point, as it provided
clarity on certain submissions made by counsel.
5 See “ The Law and Practice of Interdicts ”, C.B. Prest, 1996, Juta at page 6566 where the learned
author states that: “ Where the damage that can be sustained is noncontinuing or purely hypothetical or
the order is not in any way beneficial to the applicant or anyone else, an interdict will not be granted.”
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1. that Part A of the application is dismissed;
2. in respect of Part B of the application we direct the parties to
comply with the following timetable for the filing of further
papers:
2.1 the Commission is required to file answering papers by no
later than Wednesday 15 October 2003 , in which it must
state its considered view whether the transaction constitutes
a notifiable transaction or not;
2.2 the Applicants are to file supplementary papers, if they so
wish, by no later than Monday 20 October 2003 , in
amplification of the relief sought in Part B of the application;
2.3 the Respondents are to file supplementary answering
papers, if they so wish, by no later than Friday 24 October
2003;
2.4 the Applicants to are file supplementary replying papers, if
they so wish, by no later than Monday 27 October 2003;
2.5 the matter be set down for hearing on Wednesday 29
October 2003, at 10h00.
3. costs are reserved pending the further proceedings
outlined above. In the event that the applicants do not
proceed with the matter, any party may apply to the
Registrar of the Tribunal, to determine a date for a
hearing as to costs.
___________ 13 October 2003
N Manoim Date
Concurring: P Maponya, L Reyburn
For the Applicants: Adv. A Subel SC
Adv. J Wilson
Adv. A Gotz
Webber Wentzel Bowens
For the 2 nd –6 th Respondents: Adv. D Unterhalter SC
Adv. J Blou
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Moss Morris Inc.
For the 7 th Respondent: Adv. R Bhana
Knowles Husain Lindsay Attorneys.
For the Commission: M. Worsley, M. Sebothoma, Legal
Services Division.
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