IN THE COMPETITION TRIBUNAL
CASE No: 93/LM/NOV04
In the Discovery Application between:
GOLD FIELDS LIMTED Applicant
and
HARMONY GOLD MINING COMPANY LIMITED
First respondent
and
The COMPETITION COMMISSION Second respondent
In re: The large merger between:
HARMONY GOLD MINING COMPANY LIMITED Primary Acquiring Firm
and
GOLD FIELDS LIMTED Primary Target Firm
DECISION AND ORDER
1. This is an application brought by the applicant, Gold Fields, for discovery of
certain documents from the first respondent, Harmony.
2. The discovery application relates to merger proceedings pending before us
where Harmony seeks to take control over Gold Fields. Gold Fields the target
firm is seeking discovery from Harmony, the acquiring firm. This kind of
discovery application between merging parties is unusual in our proceedings,
because normally the merging parties at least are ad idem and hence the
informational asymmetries between adverse parties, which discovery
applications seek to address do not arise. In this case however the merger
proposed by Harmony is being vigorously opposed by Gold Fields. Both parties
have filed separate submissions with the Competition Tribunal, which form part
of the record of the merger proceedings.
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3. Harmony has, unsurprisingly as the acquirer, asked the competition authorities
to approve the merger. The Commission has filed a recommendation in which it
recommends approval subject to one condition that relates to employment
effects of the merger. Gold Fields opposes the merger and has filed a
submission with the Commission in which it seeks a prohibition of the merger.
4. Gold Fields has, in its founding affidavit, identified the issues that it considers
are pertinent for us to determine during the merger hearing. It states that all the
documents sought are pertinent to these issues and hence must be produced.
5. We outline below what Gold Fields considers these issues to be insofar as they
have a bearing on the documents in dispute.
• The potential cost savings alleged by Harmony and the cost at which
these savings shall be achieved. (Gold Fields has expressed extreme
scepticism about whether these savings are achievable.)
• Employment issues;
• Black economic empowerment issues;
• Corporate social investment projects invested in by Harmony. 1
6. This background is necessary to understand relevance of the documents that
are the subject of this application.
Documents sought
7. Gold Fields originally sought production of 26 items. In response to Harmony’s
answering affidavit it persists in its application for 7 items; the remaining items
were either discovered or were alleged not to exist.
8. We deal in this decision only with the outstanding items. Usefully Gold Fields
has organised its request thematically and so, where appropriate, we have
decided the issues by theme rather than per line item.
Items 1.4, and 1.5
Item 1.4 states : “all correspondence, documentation, memoranda and/or
agreements relating to the First Respondent’s anticipated involvement in
the Application following the proposed transaction as well as any
the Application following the proposed transaction as well as any
intended subsequent divestment of the First Respondent’s asset;”
1 See founding affidavit record page 1314.
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Item 1.5 states : “all strategic papers, internal notes, memoranda and
discussion papers prepared for the First Respondent by its advisors, or
by the First Respondent, in relation to the proposed transaction and the
manner in which the Applicant will be managed if the proposed
transaction is successful;”
9. Although not motivated for specifically in the founding affidavit it seems that
these documents are relevant as they may indicate Harmony’s future intentions
in respect of Gold Fields. Nevertheless, their relevance is not disputed.
Harmony’s objection rather is that the claims are overly broad and imprecise. In
respect of item 1.4 Harmony alleges that no documents relating to any
subsequent divestment of assets exist and Gold Fields appears to accept this,
so we are left to consider the remaining part of that item and item1.5.
10. Item 1.5 appears to be a subset of the documents sought under 1.4 It is hard to
imagine a document sought under 1.5 that would not also fall under 1.4
However 1.5 is more precisely framed with its emphasis on the way in which the
“applicant will be managed if the proposed transaction is successful”
11. We agree with Harmony that in their present form both these items are
overbroad, but believe that this can be cured by confining the request to the
issues that Gold Fields has already signalled in the discovery application as
being of relevance.
12. We rule that the applicant is not entitled to further discovery in terms of the
remainder of clause 1.4, on the grounds that as presently formulated it is
overbroad and imprecise, but is entitled to the production of those documents
set out in the reformulated item 1.5 which we set out below:
“all strategic papers, internal notes, memoranda and discussion papers
“all strategic papers, internal notes, memoranda and discussion papers
prepared for the First Respondent by its advisors, or by the First
Respondent, in relation to the proposed transaction and the manner in
which the Application will be managed if the proposed transaction is
successful; insofar as they relate to cost saving proposals, employment,
black empowerment and corporate social investment.” (Our reformulation
is underlined).
Items 1.7, 1.8 and 2.3
Item 1.7 states : “all documentation, together with underlying supporting
documentation, prepared by or on behalf of the First Respondent or its
advisors regarding the South African Code for the Reporting of Mineral
Resources and Mineral Reserves (SAMREC Code), evidencing
compliance with public reporting of resources and reserves;”
Item 1.8 states : “the First Respondent’s Competent Persons Report
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(“CPR”), detailing information on the First Respondent’s audited Reserve
and Resources and any draft CPR which is more recent than the most
recent final CPR;”
Item 2.3 states : “all documentation prepared by or for the First
Respondent detailing its operating shafts and plants and the projected
outlook (including without limitation projected closures) in respect of such
shafts and plants for the next 12 months;”
13. Harmony objects to producing any of the documents on the grounds of
relevance. Harmony further alleges that even if these requests relate to
documentation that is relevant, there is, in any event, only one document in
existence that qualifies for discovery in respect of all three items. This is the
Competent Person’s Report (CPR) (item 1.8), which includes the documentation
sought in connection with its compliance with the SAMREC code (item 1.7).
Harmony added in its oral submissions that the CPR was the only document
that they were aware of that would fit the description of the documents sought in
terms of item 2.3
14. Absent any evidence to refute this we must accept that the CPR is the only
document available to be produced in relation to these three items. It remains
for us to decide whether production of the CPR is relevant for our proceedings.
15. Neither side has dealt with their views on relevance of this document in any
detail. Gold Fields in its affidavit does not specifically motivate why the
document may be relevant, but rather seeks to found relevance through
adopting a broad brush approach. In paragraph 12.3 of the founding affidavit it
is alleged that it seeks documents relating to Harmony’s “ compliance with
public reporting requirements regarding resources and reserves” . It also, in 12.4,
public reporting requirements regarding resources and reserves” . It also, in 12.4,
states that it seeks documents “regarding cost claims that Harmony claims it will
be able to generate as a result of the merger.”
16. Let us assume in Gold Fields favour that it seeks production of the CPR for both
these purposes. It is by no means clear to us what compliance with public
reporting requirements have to do with our concerns in merger evaluation.
Without further elaboration its relevance in this respect is not self evident and
we cannot compel production on this ground.
17. The second ground relates to evidence of cost savings. This is the ground that
Gold Fields placed reliance upon in argument. From what we understood of this
argument, if it emerged from the CPR that Harmony’s state of reserves was less
sanguine than Harmony has publicly held out, this might have an impact on
Harmony’s ability to implement its cost savings exercise in respect of Gold
Fields – the implication being that if Harmony cannot achieve those efficiencies
it claims it can in its public filings, it will be compelled to introduce ruthless cost
cuts into the present business of Gold Fields and those cost costs are those with
a public interest impact, namely employees, corporate social investment,
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suppliers etc.
18. Doubtless there are a multitude of issues that could impact on Harmony’s cost
reducing ambitions. Gold Fields need to show a greater link between the content
of this document, which relates to Harmony, and the adverse effects of the
proposed merger on Gold Fields that it alleges. 2 This is an onus that Gold
Fields, as the applicant, must discharge and it has not done so. Unlike the
documents sought under item 1.5 there is no evidence that this document has a
nexus to Harmony’s cost savings intentions in respect Gold Fields. The request
for the production of these three items is denied.
Items 2.5 and 2.10
Item 2.5 states : “all documentation, notes or discussion papers by or for
the First Respondent pertaining to current or future retrenchments by the
First Respondent which retrenchments are contemplated outside of the
proposed transaction ;”
Item 2.10 states : “all documentation, correspondence or discussion
papers prepared by or for the First Respondent containing information of
the expected cost savings by the First Respondent from labour pursuant
to the proposed transaction and the correlation of savings to employee
job losses in the First Respondent’s Payroll; ”
19. These requests for documents both relate to information that may be relevant to
the employment impact of the proposed merger. Harmony does not dispute the
relevance of employment related documents and indeed it has already
discovered some in relation to other items requested in this category. 3
20. Harmony’s objection in relation to item 2.5 is that it relates to retrenchments that
are not merger specific. It argues that as we are only concerned with merger
specific effects on employment in terms of the Act, this information can never be
relevant for our purposes.
21. Without deciding it let us assume the correctness of this contention. In practice
21. Without deciding it let us assume the correctness of this contention. In practice
differentiating operational related reductions from those that are merger related
may be very difficult indeed. There is a legitimate concern that firms otherwise
engaged in nonmerger operational retrenchments, may use that opportunity to
disguise, as operational, retrenchments that are in fact merger specific. If large
operational retrenchments are contemplated it may well be relevant to the
efficacy of any employment related conditions that the Commission currently
proposes. In our view the documents referred to in item 2.5 are relevant and
2 Although this is not a document that Gold Fields has had sight of, given that a CPR is a standard
requirement in the industry, one would assume that as a mining company they could have offered us
greater insights into the likely nature of its content and linked this to its relevance to our proceedings.
3 See answering affidavit paragraphs 5.189,5.224.
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should be produced.
22. In relation to item 2.10, Harmony did not object to the production on grounds of
relevance, but alleged that it was difficult to understand what was being sought
of it from the way the request is framed. Gold Fields, has conceded that the
language used gives rise to difficulties and has proposed as a cure deleting the
final phrase. We accept that with the proposed rephrasing the items are properly
sought, and order their production in terms of an amended item 2.10 that now
reads as follows:
“all documentation, correspondence or discussion papers prepared by or
for the First Respondent containing information of the expected cost
savings by the First Respondent from labour pursuant to the proposed
transaction.”
General
23. All items whose production has been ordered must be produced within 3
business days of this decision.
24. As we heard no argument on costs from either side, but costs were sought in
the event of opposition, we will reserve the question of costs to later in the
proceedings.
____________ 4 April 2005
N Manoim Date
Concurring: Y Carrim and D Lewis.
For the Applicant : Adv. Gauntlett S.C, Adv. Michael Van der Nest S.C.and Adv. Alfred
Cockrell instructed by Knowles Hussein.
For the First Respondent :Adv. David Unterhalter S.C., Paul McNally, and Adv. Jerome
Wilson, instructed by Cliffe Dekker Inc.
For the Second Respondent : Mark Worsley (Legal Services Division, Competition
Commission).
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