Summary of Judgment

Introduction

The matter was a large merger proceeding before the Competition Tribunal of South Africa, in which the Tribunal was required to decide whether to approve a proposed acquisition of the Waco Africa businesses and, if so, whether approval should be subject to conditions.

The acquiring firms were Business Venture Investments No. 1624 (Pty) Ltd (“BVI”) and Business Venture Investments No. 1623 (Pty) Ltd (“SA Holdco”). The target firms were Waco Africa (Pty) Ltd (“WAPL”) and Waco Africa Holdings (Pty) Ltd (“WAH”) (collectively, “Waco Africa”).

The Tribunal heard the matter on 30 May 2012, issued its order on the same date, and later issued reasons on 30 July 2012. The Tribunal acted in terms of section 16(2)(b) of the Competition Act 89 of 1998 (as amended), and ultimately granted conditional approval.

The general subject-matter of the dispute concerned the competitive effects of the merger in scaffolding-related markets, with the central competition concern being the risk of post-merger coordinated conduct facilitated by potential information exchange due to the acquiring side’s investment links (through RMB entities) to another scaffolding competitor (Robor Scaffolding).

Material Facts

BVI and SA Holdco were described as newly incorporated entities that did not supply products or services at the time. BVI was controlled 74.9% by SA Holdco, with the remaining 25.1% held by Kagiso Strategic Investments (Pty) Ltd. SA Holdco’s shareholders included RMB Private Equity (Pty) Ltd, RMB Ventures Five (Pty) Ltd, and RMB Ventures Six (Pty) Ltd (collectively “RMB”), holding 29.3% of SA Holdco. RMB was part of the FirstRand group. SA Holdco’s shareholders also included Ethos Private Equity Fund V and Ethos Private Equity Fund VI (collectively the “Ethos Funds”), holding 43.9%.

A fact treated by the Tribunal as relevant to the competitive assessment was RMB’s minority shareholding of 21.7% in Robor (Pty) Ltd, a steel tube and pipe manufacturer. One division, Robor Scaffolding, supplied and erected access scaffolding equipment, including managing erection, inspection, handover, and dismantling. RMB was described as exercising negative control over Robor, and therefore Robor Scaffolding.

On the target side, WAPL wholly owned operational subsidiaries including Form Scaff (Pty) Ltd (with a Mauritian branch “Form Scaff Mauritius”) and Kwikform (Mauritius) (Pty) Ltd, which in turn wholly owned Waco Madagascar (Pty) Ltd. WAH controlled other entities listed in the reasons. For competition purposes, the Tribunal treated it as material that Waco Africa was involved in the manufacture and supply of scaffolding, and also provided an “all-in-one” scaffolding service, namely the rental and erection of scaffolding material.

The proposed transaction was structured as follows: BVI would acquire the business of WAPL as a going concern, and SA Holdco would acquire the business of WAH as a going concern. The merging parties presented this as a single, indivisible transaction. The stated rationale was that the acquisition represented an attractive private equity investment opportunity arising from a willing buyer/willing seller context.

In relation to competitive effects, it was treated as common cause in the reasons that there was no overlap between the merging parties’ activities except in relation to scaffolding, and that the Competition Commission did not identify unilateral effects concerns in the relevant scaffolding markets. The Commission did, however, raise a concern regarding the possibility of post-merger coordinated conduct through the exchange of information between Robor and Waco Africa, given RMB’s investment interest in Robor.

The Tribunal recorded that the merging parties did not object to conditions aimed at addressing the information-exchange concern. It also recorded that, after questions raised at the hearing, the Commission and merging parties submitted an agreed enhanced set of conditions.

Legal Issues

The central legal issue was whether the merger should be approved, and specifically whether it should be approved subject to conditions to address a competition concern identified by the Commission, namely the risk of coordinated conduct post-merger facilitated by information exchange and governance overlaps associated with RMB’s interests.

The dispute primarily concerned the application of competition-law standards to the facts of the transaction. While the reasons did not suggest a significant contest on factual questions relating to market overlap or unilateral effects, the decision required an evaluative assessment of whether the identified risk of coordination could arise and whether behavioural and governance conditions were adequate to prevent that risk.

A further issue was whether the transaction raised any public interest concerns, particularly relating to employment, and whether any such concerns required conditions or justified refusal.

Court’s Reasoning

The Tribunal approached the matter by identifying the relevant area of competitive interaction. It accepted that the only meaningful overlap implicated by the transaction related to scaffolding activities. The Commission’s market framing identified two potential relevant markets: an upstream market for the manufacture and supply of scaffolding, and a downstream market for the hiring/renting of scaffolding including erection and dismantling, with a national geographic scope. Within that framework, the Tribunal recorded that the Commission did not identify likely unilateral competition concerns, and for that reason the reasons did not further develop unilateral effects analysis beyond noting the existence of other market participants.

The Tribunal’s principal reasoning focused on the Commission’s concern about post-merger coordinated conduct. The concern arose not because the acquiring vehicles themselves were operational competitors, but because RMB (a shareholder in SA Holdco) had an existing minority interest in Robor, whose Robor Scaffolding division operated in the downstream scaffolding services area. The Tribunal treated the risk as one of information exchange across competing firms, potentially facilitated by board representation and internal reporting lines within an investment group with interests on both sides.

To address that risk, the Tribunal relied on undertakings and conditions designed to separate competitively sensitive information and to avoid overlapping governance roles that could facilitate coordination. RMB, by affidavit, undertook that the same RMB representatives sitting on Robor’s board would not sit on any board of Waco (as defined in the reasons to include Waco International (Pty) Ltd, WAH, and WAPL), so as to prevent information exchange post-merger. RMB also confirmed that, in internal investment portfolio reporting within RMB, competitively sensitive confidential information pertaining to Robor Scaffolding would be redacted/expunged, such that no RMB representative (other than those on Robor’s board) would be privy to that information.

The Tribunal then imposed conditions directed at the same concern, emphasizing both a substantive obligation not to share competitively sensitive information and a structural safeguard against interlocking board participation. The conditions specified that RMB must ensure that Robor board representatives do not share competitively sensitive information (including pricing, strategies, customer, and competitor information) about Robor Scaffolding with RMB representatives on any Waco board, and that RMB representatives on Robor’s board would not sit on any Waco board. The conditions also identified the individuals then serving in those roles and regulated replacements to reduce the risk that a replacement could have previously served on Robor’s board, thereby limiting channels through which sensitive information could travel.

In addition, the Tribunal framed the duration of these safeguards by providing that the conditions would apply for as long as RMB held a direct or indirect interest in both Waco and Robor. This reflected an evaluative judgment that the coordination risk was linked to the persistence of common investment interests capable of creating information pathways.

On public interest, the Tribunal accepted the merging parties’ submission that there would be no negative employment effects, because the operations were being acquired as a going concern, and it identified no other public interest concerns requiring intervention.

Outcome and Relief

The Tribunal approved the merger subject to conditions. The conditions were directed at preventing post-merger coordinated conduct through information exchange between Robor Scaffolding and Waco Africa, primarily by restricting board overlap and the sharing of competitively sensitive information and by regulating internal reporting access to sensitive information.

No separate or additional public interest remedies were imposed, and the reasons did not record a costs order.

Cases Cited

No case law citations were recorded in the reasons.

Legislation Cited

Competition Act 89 of 1998 (as amended), section 16(2)(b).

Rules of Court Cited

No rules of court were cited in the reasons.

Held

The Tribunal held that, although the merger did not raise unilateral effects concerns in the relevant scaffolding markets, it raised a concern of potential post-merger coordinated conduct through information exchange given RMB’s minority interest and negative control position in Robor and its role in the acquiring structure. The merger was therefore approved only on enhanced conditions aimed at preventing the flow of competitively sensitive information and avoiding interlocking board participation between Robor and Waco, with those conditions operating for as long as RMB maintained interests in both firms.

LEGAL PRINCIPLES

The decision applied the principle that a merger may be approved subject to conditions where a defined competition risk is identified and can be adequately addressed through targeted remedies, rather than requiring prohibition.

The decision further reflected the principle that common shareholding and governance links (including board representation and internal portfolio reporting structures) can create a risk of coordinated conduct by facilitating the exchange of competitively sensitive information between firms active in the same markets, and that conditions may be crafted to mitigate this risk by establishing information barriers and preventing interlocking directorships or equivalent governance overlaps.

The decision also applied the principle that where the merging parties and evidence indicate no adverse public interest effects—particularly on employment where businesses are acquired as a going concern—public interest considerations may not require additional conditions beyond those addressing competition concerns.