Summary of Judgment

1. Introduction

These proceedings concerned a large merger notified to, and adjudicated by, the Competition Tribunal of South Africa under the Competition Act No. 89 of 1998 (as amended). The Tribunal considered whether to approve, prohibit, or approve subject to conditions a transaction in which Absa Bank Limited (the acquiring firm) would acquire the private label store card portfolio of Edcon (Pty) Ltd (the target business).

The matter came before a Tribunal panel comprising N Manoim (Presiding Member), A Wessels, and M Mokuena. The merger was heard on 20 September 2012, an order was issued the same day, and written reasons were issued on 23 January 2013. The Tribunal ultimately issued a decision of conditional approval in terms of section 16(2)(b) of the Competition Act.

The general subject matter was the competitive effect of Absa’s acquisition of Edcon’s store card receivables and accounts, specifically whether the transaction—given Absa’s existing 50% interest in Woolworths Financial Services (Pty) Ltd (WFS)—would create a structural link capable of facilitating information exchange and coordinated conduct between Edcon and Woolworths, which were treated as competitors in unsecured credit products.

2. Material Facts

Absa Bank Limited is a South African company and a wholly owned subsidiary of Absa Group Limited, a public company listed on the Johannesburg Securities Exchange. Absa Group operates in financial services and, relevantly for this merger, supplies unsecured credit products including personal loans, overdraft facilities, and credit cards.

A fact of particular relevance to the competition assessment was that Absa Group had an existing joint venture with Woolworths (Pty) Ltd, namely Woolworths Financial Services (Pty) Ltd (WFS), in which Absa held a 50% share. WFS offered unsecured credit products including private label store cards usable at Woolworths stores and selected Engen Food Stops, as well as personal loans and credit cards.

The target was the Private Label Store Card Portfolio of Edcon (Pty) Ltd, which formed part of Edcon’s unincorporated Credit and Financial Services Division. Edcon issued private label store cards enabling qualifying customers to purchase a range of goods on credit primarily at Edcon retail stores such as Edgars, Jet, Boardmans and CNA. The portfolio included card offerings on six months interest free terms and twelve months interest-bearing terms, and Edcon also had card acceptance relationships with certain third-party merchants.

In terms of the proposed transaction, as recorded by the Tribunal, Absa would acquire the right, title and interest in the accounts and receivables relating to Edcon’s South African private label store card portfolio (“the Portfolio”). The parties also indicated that Absa and Edcon would enter into a broader strategic relationship for the provision of unsecured credit and other financial services to Edcon customers.

A further operational fact relied upon by the Tribunal was that the parties envisaged a Program Agreement under which Edcon would continue to manage and operate the Portfolio on Absa Group’s behalf. Following implementation, Absa would assume responsibility for credit and fraud risk management, legal, accounting, compliance, and key back office operations, while Edcon would manage front office operations, primary customer interaction, and certain back-office functions related to the Portfolio.

The Tribunal recorded that the Competition Commission found a horizontal overlap between the merging parties in the provision of unsecured credit to individuals in South Africa, and that the merged entity’s post-merger national market share in 2011/2012 in that market would be approximately [20–30]%. Competitors identified included large banks such as African Bank, Standard Bank, and FNB, as well as smaller players. The Tribunal did not record material factual disputes on these points and proceeded on the basis of the Commission’s competition assessment and the parties’ confirmation of the agreed remedy at the hearing.

3. Legal Issues

The central legal questions were whether the merger was likely to substantially prevent or lessen competition in any relevant market, and, if competition concerns existed, whether those concerns could be addressed by conditions sufficient to justify approval under the Tribunal’s statutory powers.

The dispute as presented to the Tribunal largely concerned the application of competition-law principles to the established transactional structure and industry relationships, rather than the resolution of contested evidentiary facts. In particular, the key issue was not framed as unilateral market power or price effects, but as a forward-looking assessment and value judgment about the risk that the transaction would create a platform for collusion through information exchange.

A further legal issue concerned the appropriateness and adequacy of a behavioural remedy, namely whether ring-fencing and monitoring measures were necessary, proportional, and sufficient to address the identified risk of competitively sensitive information flowing between Edcon and Woolworths through Absa’s dual involvement in WFS and the Portfolio.

4. Court’s Reasoning

The Tribunal accepted the Commission’s analysis that the parties’ activities overlapped horizontally in unsecured credit to individuals in South Africa, and it noted the Commission’s market share estimate of approximately [20–30]% for the merged firm. The Commission was recorded as not being concerned about unilateral effects from the merger, and the Tribunal did not suggest an independent unilateral-effects theory as the basis for its decision.

The Tribunal’s reasoning focused instead on the Commission’s concern that the transaction would create a structural link between WFS and the Edcon Portfolio because Absa would, post-merger, have an interest in both. The Commission’s concern, which the Tribunal stated it concurred with, was that this structure could facilitate the exchange of commercially sensitive information between Edcon and Woolworths via Absa, including information such as cardholder data, marketing plans, financial data, and business strategies. The Tribunal treated this as a risk capable of enabling coordination on matters such as pricing, marketing policies, and commercial strategies, thereby potentially substantially preventing or lessening competition.

In response to this concern, the Tribunal recorded that the Commission and the merging parties agreed to a set of behavioural conditions, confirmed by the parties at the hearing, and that the Tribunal imposed these conditions. The essence of the remedy was the continuation and application of ring-fencing measures for as long as Absa controlled both the Portfolio and WFS. The Tribunal identified the purpose of the ring-fencing as preventing the sharing of competitively sensitive information between Edcon and Woolworths through Absa, including information relating to pricing, margins, costs, client and client strategy, and marketing strategies.

The Tribunal further stated that it imposed monitoring conditions linked to the behavioural remedy. Although the Tribunal’s reasons did not reproduce the full text of the annexed conditions, it expressed satisfaction that the conditions were necessary to address the identified concern of likely information exchange, and that they were proportional and adequate to address that concern. This reflects an evaluative judgment that conditional approval, rather than prohibition, was justified given the nature of the harm identified and the availability of an agreed behavioural solution.

On public interest, the Tribunal recorded the parties’ confirmation that the merger would not cause job losses, and it stated that no other public interest issues arose.

5. Outcome and Relief

The Tribunal approved the proposed transaction subject to conditions. The approval was granted in terms of section 16(2)(b) of the Competition Act, and the conditions were recorded as being set out in Annexure A to the order.

The relief granted consisted of conditional approval incorporating ring-fencing obligations to prevent the flow of competitively sensitive information between Edcon and Woolworths through Absa (for so long as Absa controlled both the Portfolio and WFS), together with monitoring conditions relating to the implementation and oversight of that behavioural remedy.

The reasons did not record any costs order, and none is reflected as having been made in the Tribunal’s reasons.

Cases Cited

No cases were cited in the provided judgment text.

Legislation Cited

Competition Act No. 89 of 1998 (as amended), including section 16(2)(b).

Rules of Court Cited

No rules of court were cited in the provided judgment text.

Held

The Tribunal held that the merger raised a competition concern not in the form of unilateral effects but in the form of a risk of coordinated effects through information exchange, arising from Absa’s post-merger involvement in both the Edcon store card portfolio and Woolworths Financial Services.

The Tribunal held that behavioural conditions, particularly ring-fencing measures preventing the sharing of competitively sensitive information between Edcon and Woolworths through Absa, together with associated monitoring measures, were necessary, proportional, and sufficient to address the identified competition risk. On that basis, the Tribunal approved the merger subject to conditions.

LEGAL PRINCIPLES

The decision applied the principle that a merger may be conditionally approved where the primary competition risk is the facilitation of coordination through structural links and the potential exchange of competitively sensitive information, even where unilateral effects are not a concern.

The decision further applied the principle that behavioural remedies—including ring-fencing obligations and monitoring arrangements—may be imposed to prevent or limit competitively harmful information flows where a merged structure could otherwise create a conduit for sharing sensitive information among competitors.

The Tribunal also applied the merger-control approach that conditions must be necessary to address the identified competitive harm and must be proportional to that harm, and that public interest considerations (including employment effects) must be considered where raised on the facts.