Summary of Judgment

1. Introduction

The proceedings concerned an intermediate/large merger (as treated by the Competition Tribunal) in which the Competition Tribunal of South Africa was required to decide whether to approve, prohibit, or approve with conditions the acquisition of aspects of Sara Lee Corporation’s business by Unilever Plc and Unilever N.V. The matter was determined under the merger control provisions of the Competition Act 89 of 1998.

The acquiring firms were Unilever Plc and Unilever N.V. (referred to collectively as Unilever), operating in South Africa through Unilever South Africa (Pty) Ltd. The target firm was Sara Lee Corporation (referred to as Sara Lee), operating in South Africa through Sara Lee South Africa (Pty) Ltd.

The merger was investigated by the Competition Commission and then considered by the Tribunal. The Tribunal conditionally approved the transaction after a hearing on 05 November 2010, issuing its order on 08 November 2010, and later providing reasons on 07 December 2010.

The dispute’s general subject matter concerned the merger’s competitive effects in personal care product markets in South Africa—particularly the deodorants category—and public interest considerations, specifically the potential employment impact of redundancies arising from integration of the businesses.

2. Material Facts

Unilever was described as a global manufacturer and supplier of fast moving consumer goods (FMCGs), active internationally in food and beverages, home care, and personal care product categories, and operating locally through Unilever SA. Sara Lee was described as a global company registered in the United States, listed on the NYSE and LSE, with South African operations that manufactured and supplied bath and shower products (and, internationally, also having a European laundry care business supplying fabrics and laundry aids).

The transaction entailed Unilever acquiring Sara Lee’s worldwide body care and European fabric care businesses. In South Africa, the relevant aspect was the acquisition of Sara Lee’s Body Care business by Unilever SA. The rationale recorded for Sara Lee was a strategic decision to dispose of its body care business to concentrate on its core food and beverage businesses, using proceeds for growth and stock repurchases. Unilever’s rationale was that Sara Lee’s brands were consistent and complementary to Unilever’s portfolio, supporting entry and competition in new areas within the skin cleansing space.

For competition analysis, the Commission and Tribunal approached product market definition against a background of differentiation by brand, price, efficacy, gender, fragrance, and format, making precise market boundaries difficult. The Commission accordingly relied on the closeness of competition and the views of market participants, particularly customers, and treated the geographic market as national.

It was found that there were no overlaps between the parties’ activities in Bath Additives, Fabric Care, and Oral Care. Overlaps were identified in several personal care categories, including deodorants, skin cleansing, skin care, hair care, and the male aftershave market. However, the Tribunal’s competition concern focused on deodorants, where Unilever’s market share was recorded at approximately 35–40%, Sara Lee’s at approximately 9–15%, and the merged entity’s share was stated as approximately 44–55% nationally.

On the Commission’s assessment, Status (Sara Lee) and Axe (Unilever) were regarded as close competitors, creating concern that the merger could enable the merged firm to raise or manipulate prices to consumers’ detriment, with customers said not to have sufficient bargaining power to constrain this. The Commission also recorded third-party views that the merger would remove an effective competitor (notably Status), reduce incentives to innovate, and remove competition between Status and Axe.

The Commission additionally considered entry and expansion, recording the view that even if entry were possible, it was unlikely to be timely or sufficient to constrain price effects because of barriers such as brand development and shelf space allocation, and because some brands had reportedly been unable to gain significant market shares or compete effectively in the category.

On public interest, Unilever stated that where the merger produced “duplication of roles,” up to 60 roles were anticipated to become redundant in South Africa. The Commission proposed approval subject to employment-related conditions focused on training or re-skilling for affected employees. The Tribunal, however, considered it necessary that the conditions also address the number of retrenchments, and imposed a cap limiting dismissals in South Africa resulting from the merger to a maximum of 60 employees, together with training or re-skilling measures as set out in annexed employment conditions.

3. Legal Issues

The central legal questions were whether the merger was likely to substantially prevent or lessen competition in any relevant market, with particular emphasis on the deodorants market, and if so, whether conditions—specifically divestiture—could cure the identified harm so that the transaction could be approved conditionally rather than prohibited.

A further legal issue concerned the Tribunal’s duty to consider public interest factors, including the effect of the merger on employment under section 12A(3)(b) of the Competition Act, read with the Act’s purposes, including the promotion of employment under section 2(c). The Tribunal had to determine what employment-related conditions were appropriate on the facts presented.

The dispute involved a combination of application of law to fact (assessing competitive effects and the sufficiency of remedies in the deodorants market) and an element of value judgment/discretion (the appropriateness and design of conditions, including divestiture mechanics and employment protections).

4. Court’s Reasoning

On market definition and competitive assessment, the Tribunal accepted that product differentiation in personal care markets made precise market delineation difficult and that the Commission had therefore considered closeness of competition and market participant views. While several overlaps were identified across personal care categories, the Tribunal’s reasoning concentrated on deodorants because the recorded market shares and evidence of close rivalry suggested a meaningful risk of unilateral effects.

The Tribunal recorded that the merging parties contended for a single, highly differentiated deodorants market and argued against narrower segmentation by gender, age, format, functionality, or price, maintaining that the merger would not raise competition concerns. The Commission, by contrast, concluded that unilateral effects were likely because Status and Axe competed closely, and the merged entity would hold a materially increased share. The Commission’s concern was that the merged firm could more easily raise prices post-merger and that customers would lack countervailing bargaining power.

The Tribunal aligned itself with the assessment that Status and Axe competed closely and that they did not face “meaningful nor effective” competitive constraint from other brands in the category. On that basis, it concluded that the merger was likely to lead to a substantial lessening of competition in the deodorants market.

Having found likely competitive harm, the Tribunal turned to the remedy. It accepted the Commission’s view that a divestiture of the Status business could cure the anti-competitive effect by removing the elimination of rivalry between the two close competitors. In addressing divestiture, the Tribunal referred to criteria recognised in its prior matters, including that the divested assets must be clearly identified; the divestiture process must be described clearly and comprehensively; the timeframe must be short; the merged firm must undertake not to take steps that could adversely affect the divested business; and compliance should be monitored. The Tribunal described the “litmus test” for divestiture effectiveness as whether it maintains competition in the post-merger market, or in statutory terms, whether it permits a transaction that does not substantially prevent or lessen competition. It recorded that it was satisfied the proposed divestiture conditions met these criteria, and required sale to an independent third-party buyer approved by the Commission in terms of annexed divestiture conditions and a trustee mandate.

On public interest and employment, the Tribunal applied the statutory requirement to consider employment effects under section 12A(3)(b), read with the Act’s purpose provisions, including section 2(c). It recorded that Unilever anticipated redundancies of up to 60 roles to the extent that the merger created duplication. While the Commission’s proposed conditions emphasised training or re-skilling for affected employees, the Tribunal was not satisfied that the conditions sufficiently addressed the number of retrenchments. The Tribunal therefore imposed a cap: Unilever SA was required to limit merger-related dismissals in South Africa to a maximum of 60 employees, alongside training or re-skilling measures for qualifying employees as recorded in the annexed employment conditions.

5. Outcome and Relief

The Tribunal approved the merger with conditions.

The principal competition remedy required the merging parties to dispose of the Status business (the “divested business”) to an independent third party approved by the Commission, in accordance with the Divestiture Conditions and Trustee Mandate contained in Annexures A and B to the order.

On public interest, the Tribunal ordered that Unilever SA must limit the number of employees dismissed in South Africa as a result of the merger to a maximum of 60 employees, and must provide training or re-skilling measures for qualifying employees as set out in Annexure C to the order.

No separate costs order was recorded in the provided text.

Cases Cited

JD Group / Ellerines, Competition Tribunal Case No. 78/LM/July 00.

Mercanto IM (Pty) Ltd / Johnic, Competition Tribunal Case No. 78/LM/August 05.

Legislation Cited

Competition Act 89 of 1998, section 12A(3)(b).

Competition Act 89 of 1998, section 2(c).

Rules of Court Cited

No specific rules of court were cited in the provided text of the reasons.

Held

The Tribunal found that the merger was likely to result in a substantial lessening of competition in the national deodorants market, because Status and Axe were considered close competitors and the merger would eliminate competition between them in circumstances where other brands were not viewed as providing effective competitive constraint.

The Tribunal held that the identified competitive harm could be remedied through structural relief, namely the divestiture of the Status business to an independent buyer approved by the Competition Commission, subject to detailed divestiture conditions and monitoring arrangements.

The Tribunal further held that the merger raised public interest concerns relating to employment, and that it was appropriate to impose a condition limiting merger-related dismissals in South Africa to no more than 60 employees, together with obligations concerning training or re-skilling for qualifying affected employees.

LEGAL PRINCIPLES

The decision applied the principle that, in merger analysis, where product differentiation makes exact market boundaries difficult to define, competition assessment may proceed by focusing on the closeness of competition between products and the views of market participants, with geographic market scope assessed on the evidence (here treated as national).

It applied the principle that a merger may be found to substantially lessen competition where it eliminates rivalry between close competitors and thereby creates scope for unilateral effects, including the ability to raise prices, especially where customers are assessed as lacking sufficient bargaining power and where entry or expansion is unlikely to be timely or effective due to barriers such as brand development and shelf space constraints.

It applied the principle that divestiture is an established remedial tool for curing anti-competitive merger effects, and that an effective divestiture condition requires clear identification of the assets to be divested, sufficient detail on implementation, a short divestiture timeframe, protections against deterioration of the divested business, and monitoring mechanisms. The effectiveness inquiry was framed as whether the remedy maintains competition so that the transaction does not substantially prevent or lessen competition.

It applied the statutory principle that merger control requires consideration not only of competition effects but also of public interest factors, including the effect on employment under section 12A(3)(b), read with the Act’s purposes including the promotion of employment under section 2(c). The Tribunal treated employment conditions as capable of including both measures directed at mitigation (such as re-skilling) and quantitative constraints (such as a cap on dismissals) where warranted on the record.