Summary of Judgment

1. Introduction

These proceedings concerned a merger control application before the Competition Tribunal of South Africa in which the Tribunal was required to decide whether to approve a proposed acquisition in terms of South African competition law merger review.

The acquiring firm was Tiger Brands Limited (“Tiger”), a JSE-listed public company with several subsidiaries in South Africa and no single controlling shareholder. The target firm was Davita Trading (Pty) Ltd (“Davita”), a South African private company which did not itself control any other firms.

The matter proceeded in the ordinary course of merger adjudication. The transaction was heard on 25 May 2011, the Tribunal issued an order on 26 May 2011 unconditionally approving the merger, and it later issued written reasons on 8 July 2011. The Tribunal’s reasons record that the Competition Commission (“Commission”) investigated the transaction and made a recommendation to the Tribunal.

The dispute concerned whether the proposed transaction was likely to result in a substantial prevention or lessening of competition in any relevant market, and whether any public interest issues arose from the transaction, with particular attention to the parties’ horizontal overlap in powdered soft drinks.

2. Material Facts

Tiger was described as a branded fast-moving consumer packaged goods company with a diverse portfolio. For present purposes, the relevant activities were located in Tiger’s domestic food division, which manufactured, distributed, and marketed various food products, including beverages. The beverage portfolio included powdered beverages (which must be diluted with water), and within this category Tiger supplied powdered soft drinks (including Oros, Sweeto, and Super 7) and powdered sports drinks (including Game and Clifton). The reasons further recorded that some Tiger soft drink brands were also available in non-powder formats, and that ready-to-drink Oros was sold at a premium relative to the powdered form when compared on a per-litre diluted basis.

Davita was described as a manufacturer and distributor of powdered soft drink products and powdered food stock. The competitive assessment focused on Davita’s powdered soft drinks sold under Jolly Jus and Davita Flavoured Drink, which were supplied only in powdered form. These products were manufactured in South Africa and distributed for sale to various other African countries and Dubai. Davita had made only minor, ad hoc sales in South Africa, a fact relied on by the Tribunal in evaluating competitive effects in the national market.

The proposed transaction entailed Tiger acquiring the entire issued share capital of Davita, resulting in Tiger obtaining sole control over Davita post-merger. The reasons recorded that Tiger’s strategic rationale was to expand its presence on the rest of the African continent by leveraging Davita’s established distribution footprint and distributor relationships, and also to introduce Davita’s powdered soft drinks more broadly within South Africa. Davita’s shareholders intended to dispose of their interest in the business and regarded the sale as an opportunity to obtain a return on their investment.

On the competitive landscape, the Tribunal recorded that the merged entity’s post-merger market share would be less than 10% in a national market for the manufacture and supply of powdered soft drinks. It further recorded that the two largest players in this market were Promisador (with brands Drink o Pop and Amila) and Kraft Cadbury (with the Tang brand). The Commission’s investigation included engagement with customers, and the reasons noted that customers contacted did not raise competition concerns regarding the proposed deal.

On public interest, the parties submitted that no job losses would result from the transaction, and the Tribunal recorded that no other public interest issues arose.

3. Legal Issues

The central legal questions were whether the proposed acquisition was likely to lead to a substantial prevention or lessening of competition in any relevant market, and whether the transaction gave rise to any public interest concerns requiring conditions or justifying prohibition.

The issues involved the application of competition law principles to market facts, including an evaluative assessment of competitive effects. A subsidiary issue concerned the proper definition of the relevant product market, including whether it was necessary to determine precise boundaries (for example, between soft drinks and sports drinks, powdered and ready-to-drink forms, and premium versus economy powdered soft drinks). The Tribunal treated market definition in this matter as part of an effects-based assessment, rather than as an issue requiring a definitive finding.

The geographic scope considered by the Commission, and accepted by the Tribunal for purposes of the analysis, was national.

4. Court’s Reasoning

The Tribunal approached the competitive assessment by first identifying the area of horizontal overlap, namely the manufacture and distribution of powdered soft drinks. It then considered the Commission’s view that the relevant product market definition could be approached at different levels of granularity within non-alcoholic beverages, including distinctions between sports drinks and soft drinks, and within soft drinks between powder and ready-to-drink forms. The Tribunal also noted pricing information indicating that ready-to-drink Oros carried a premium relative to powdered product when assessed on a per-litre diluted basis, supporting the plausibility of segmentation by form.

The Tribunal further considered the Commission’s market investigation suggesting a potential distinction within powdered soft drinks between premium and economy segments. The reasons recorded that premium powdered soft drinks (with higher nutritious value and higher selling prices) could be distinguished from economy products such as Tiger’s Super 7 and Sweeto, and Davita’s Jolly Jus and Davita Flavoured Drink. The Tribunal noted that the merging parties’ brand and strategy documents indicated brand positioning into premium or affordable segments, which aligned with the Commission’s segmentation hypothesis.

Despite these potential delineations, the Tribunal concurred with the Commission that it was not necessary to precisely define the exact parameters of the relevant product markets in this case. The Tribunal’s stated basis for leaving market definition open was that, on the facts before it, the merger raised no likely competition concerns under any plausible market delineation considered.

In applying the competitive principles to the facts, the Tribunal relied on (i) the merged entity’s post-merger market share being below 10% in a national market for powdered soft drinks, (ii) the presence of larger competitors (specifically Promisador and Kraft Cadbury) as key participants, and (iii) the assessment that in other potential market formulations the parties either did not overlap or Davita’s presence in South Africa was insignificant, reducing the likelihood of competitive harm. The Tribunal also took into account the Commission’s customer enquiries, which did not reveal concern about the transaction.

On public interest, the Tribunal treated the absence of anticipated job losses as material and recorded that the deal raised no other public interest issues. This contributed to the conclusion that there was no basis for imposing conditions on public interest grounds.

5. Outcome and Relief

The Tribunal unconditionally approved the proposed transaction in which Tiger Brands Limited would acquire the entire issued share capital of Davita Trading (Pty) Ltd, thereby obtaining sole control.

No conditions were imposed, and the reasons did not record any separate or special order as to costs.

Cases Cited

No cases were cited in the Tribunal’s published reasons.

Legislation Cited

No legislation was expressly cited in the Tribunal’s published reasons.

Rules of Court Cited

No rules of court were cited in the Tribunal’s published reasons.

Held

The Tribunal held that the proposed acquisition was unlikely to lead to a substantial prevention or lessening of competition in any relevant market, including on alternative plausible approaches to product market delineation considered in the Commission’s investigation.

The Tribunal further held that the transaction raised no public interest concerns, including because the parties indicated that no job losses would result, and no other public interest issues were identified.

On these bases, the Tribunal approved the merger without conditions.

LEGAL PRINCIPLES

The Tribunal applied the principle that precise market definition is not always necessary where the evidence indicates that a merger does not raise likely competition concerns across plausible alternative market delineations, and where the outcome of the competitive assessment does not depend on drawing exact market boundaries.

In assessing competitive effects, the Tribunal applied an effects-based evaluation that considered horizontal overlap, post-merger market shares, the presence of significant competitors, and the target firm’s limited presence in the relevant geographic area as factors bearing on whether a merger is likely to substantially prevent or lessen competition.

The Tribunal also applied the principle that merger assessment includes consideration of public interest factors, and that where the evidence indicates no job losses and no other public interest concerns, the transaction may be approved without public-interest-related conditions.