1
COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 112/LM/Dec12
016113
In the matter between:
Capitau Investments Management Limited Acquiring Firm
And
New Foodcorp Holdings Pty Ltd Target Firm
Panel : Norman Manoim (Presiding Member),
Yasmin Carrim (Tribunal Member)
and Merle Holden (Tribunal Member)
Heard on : 25 April 2013
Order issued on : 25 April 2013
Reasons issued on : 08 May 2013
Reasons for Decision
Approval
[1] On 25 April 2013, the Competition Tribunal (“Tr ibunal”) conditionally
approved the merger between Capitau Investment Mana gement Limited
(“Capitau”) and New Foodcorp Holdings (Pty) Ltd (”F oodcorp Holdings”) in
respect of which Capitau and Rainbow Chicken Limite d (“Rainbow”) will
indirectly acquire 76.1% of the ordinary share capi tal in Foodcorp
Holdings. The reasons for conditionally approving t he proposed
transaction follow below.
2
Parties to the transaction
[2] The primary acquiring firm is Capitau which is controlled by Rainbow,
which in turn is controlled by Remgro Limited (“Rem gro”). Remgro also
has a non-controlling stake in Unilever South Afric a (Proprietary) Limited
(“Unilever”).
1
[3] Rainbow is the holding company of three princip al operating subsidiaries
namely: Rainbow Farms (Proprietary) Limited (“Rainb ow Farms”), Vector
Logistics (Proprietary) Limited (“Vector”) and RCL Group Services
(Proprietary) Limited (‘RCL Group Services”). These subsidiaries enable
Rainbow to operate as a vertically integrated chicken producer.
[4] The primary target firm Foodcorp Holdings which is the sole controller of
Foodcorp (Proprietary) Limited (“Foodcorp”) a group of businesses
engaged predominantly in the production, marketing and distribution of
food products from basic essentials such as maize m eal to top end
desserts and convenience meals.
Rationale for the transaction
[5] The transaction will provide an attractive inv estment opportunity for
Remgro to realise its strategy to develop a portfol io in food and reduce its
dependence on chicken, a cyclical business which ha s recently faced
significant import competition.
Relevant markets and impact on competition
Vertical issues
[6] The Commission submitted that the proposed tran saction would give rise
to vertical overlaps in the following markets:
• Market for fresh and frozen chicken products,
1 For more on Unilever SA, see merger record para 5.3.6, page 63, in the merging parties’
Competitiveness Report.
3
• Market for fishmeal, which is used as an input in the production of
animal feed,
• Market for bran, which is a by-product of the whea t milling process to
produce flour,
• Market for defatted maize germ and maize oil are b y-products in the
milling of maize for human consumption,
• And market for the production and distribution of sugar.
[7] After assessing the above-mentioned markets, th e Commission came to
the conclusion that there would be no competitive c oncerns as there were
alternative firms that would continue to compete wi th the merged entity
post merger in the various markets. In addition to this, in most of these
markets the purchases between the merging parties w ere so insignificant
that any likelihood of customer foreclosure was unlikely.
2
[8] The Commission’s investigation into the vertica l issues was very thorough
and we agree with its conclusions that the vertical relationships that arise
are not significant enough to give rise to an incen tive or an ability to
foreclose rivals in either upstream or downstream markets.
Horizontal issues
[9] There are no overlaps between the activities o f Rainbow and those of
Foodcorp. However, Remgro, Rainbow’s parent and whi ch is the ultimate
acquiring firm, owns shares in another food produce r, Unilever, which
entitles it to board representation on the Unilever board. Unilever produces
salad dressing and mayonnaise as does Foodcorp. The merging parties
point out that Remgro does not have a controlling i nterest in Unilever and
that the combined market shares for the firms for t hese two products are
insignificant. 3
2 See Commission Report para 10, page 64.
3 In the mayonnaise market the combined market shares for the merging parties is 8%, and in the salad
dressing market their combined estimated market share is 2% (See page 19 and 21 of Merger Record).
4
[10] Further the merging parties point out that in terms of concerns over
information exchange, a clause exists in the presen t shareholders
agreement between Unilever and Remgro, which preven ts Remgro from
appointing a director to sit on the Unilever board, who sits on a competitor
board.
[11] The Commission was satisfied that this clause was sufficient to regulate
any possible information exchange between the firms . At the hearing we
asked the Commission whether it would have imposed such a condition if
it was not contained in the shareholders agreement. The Commission said
it would.
Condition Imposed to Transaction
[12] Due to the high rate of past collusion in the markets where the merging
parties are active a condition to prevent informati on exchange is
appropriate. In this respect we agree with the appr oach taken by the
Commission that information exchange is a potential harm occasioned by
the merger. Notwithstanding the apparent present lo w market shares of
the merging parties this concern still justifies the imposition of a condition.
[13] Where we depart from the approach of the Commi ssion is its satisfaction
that the existence of the parties’ private arrangem ent to prevent
information exchanges contained in the shareholders agreement suffices
to replace the need for a condition. We cannot rely on the provision in the
shareholders agreement to usurp what should be the proper function of
public enforcement because if the parties do not en force the agreement or
amend it, there is no remedy available to the Commi ssion to enforce its
adherence. Hence the undertaking has been made a co ndition for the
approval of the merger.
5
[14] The merging parties undertook to furnish a condition to this effect which is
similar to one imposed on Remgro in another merger.
4 We are satisfied
that the terms of the condition are sufficient to p revent information
exchange between the two competing boards. 5
[15] In terms of the condition the merging parties elevate the obligations
contained in the shareholders agreement to a merger condition and to
adhere to that for so long as they have an indirect or direct interest in
Unilever SA and regardless of any amendments to the shareholders’
agreement or the status of that agreement from time to time.
6
[16] There were no public interest concerns, and th e proposed transaction
had no effect on employment. 7
CONCLUSION
[17] We approve the proposed merger with the condit ion set out in the
Annexure to these reasons.
____________________ 08 May 2013
Norman Manoim DATE
Yasmin Carrim and Merle Holden concurring.
Tribunal Researcher: Caroline Sserufusa
For the merging parties:
Chris Charter of Cliffe Dekker Hofmeyer
For the Commission: Thelani Luthuli
4 Remgro Limited vs. Venfin Limited: Case No: 54/LM/Jul09
5 See Transcript para 20, page 6.
6 See Transcript para 5, page 11.
7 See merger record para 22, page 83.