Sibanye Gold Ltd v Newshelf 1114 (Pty) Ltd (017855) [2014] ZACT 46 (3 March 2014)

78 Reportability

Competition Law

Brief Summary

Competition Law — Merger Approval — Sibanye Gold Limited acquiring 76% of Newshelf 1114 (Pty) Ltd — Competition Tribunal conditionally approving merger — No substantial prevention of competition identified due to minimal market share — Condition imposed to prevent retrenchments for two years post-merger — Public interest concerns addressed through conditions.

Comprehensive Summary

Summary of Judgment

Introduction

These proceedings concerned an intermediate merger approval before the Competition Tribunal of South Africa under the Competition Act 89 of 1998. The matter arose from a notified transaction in which Sibanye Gold Limited (the primary acquiring firm) sought to acquire a controlling shareholding in Newshelf 1114 (Pty) Ltd (the primary target firm) from Gold One International Limited.

The merger was initially notified to the Competition Commission on 12 September 2013. Following its investigation, the Commission referred the merger to the Tribunal in terms of section 14A of the Competition Act with a recommendation that the transaction be approved subject to a public-interest condition relating to employment. The Tribunal heard the matter on 5 February 2014, issued its order on the same date, and later furnished written reasons on 3 March 2014.

The general subject-matter of the dispute was whether the proposed acquisition would be likely to substantially prevent or lessen competition in the relevant markets for the international production and supply of gold and silver, and whether any public-interest concerns, particularly employment-related concerns, required the imposition of merger conditions.

Material Facts

Sibanye Gold Limited is a publicly listed company on the JSE, with a secondary listing of its American Depositary Receipts on the New York Stock Exchange, and it controls a number of subsidiary firms. The target firm, Newshelf 1114 (Pty) Ltd, was at the time solely controlled by Gold One International Ltd, which held 76% of Newshelf’s shares. The remaining 24% was held by the Rand Uranium Empowerment Partnership (RU Partnership). Newshelf wholly controlled Rand Uranium (Pty) Ltd, which in turn wholly controlled the Cooke Rehabilitation Trust.

A structural feature relevant to the transaction was that, to implement the proposed acquisition, a restructuring and consolidation of the relevant mining operations would occur. The operations were then housed across Rand Uranium (comprising Cooke Shafts 1 to 3) and Ezulwini (comprising Cooke Shaft 4). After the restructuring, Ezulwini would be controlled by Newshelf 1114. The Tribunal treated the target business, post-restructuring, as comprising Cooke Shafts 1 to 4 underground operations and the Randfontein Surface Operations in the Western Witwatersrand Basin region, collectively described as the Cooke Mining Operations.

The proposed transaction was that Sibanye would acquire 76% of the shares in Newshelf 1114 from Gold One, with RU Partnership retaining its 24% non-controlling interest. Upon implementation, Sibanye would acquire sole control over Newshelf 1114.

The Tribunal accepted the parties’ rationale that the acquisition would enable Sibanye to consolidate surface gold production opportunities in the West Rand and Western Witwatersrand Basin region and generate infrastructure and operational synergies, while Gold One would obtain value through an equity interest connected to the relative valuation of the relevant assets.

On competition facts, the Tribunal proceeded on the basis that the relevant market was the international production and supply of gold and silver. On gold production, the merged entity would have an approximate market share of 1.41%, with an accretion of 0.08%, in a market described as highly fragmented. On silver production, Sibanye’s output was described as negligible such that reliable market share data could not be established, but the merged entity would continue to face significant competition.

On public interest facts relating to employment, the merging parties submitted that no retrenchments were envisaged as a result of the transaction. However, the Commission’s investigation revealed that relevant unions had been given notice prior to filing of possible retrenchments within Sibanye’s divisions, and the parties maintained that any retrenchment process was not merger-specific but operationally driven.

During the Commission’s investigation, Gold One issued a section 189 notice for possible retrenchment of 82 employees from the Cooke Mining Operations, but later withdrew that process due to concern that the retrenchment exercise might affect the proposed transaction. This withdrawal contributed to the Commission’s concern that retrenchments might occur post-merger.

The Tribunal recorded that the Commission, after reviewing the information, was not able conclusively to determine whether retrenchments were merger-specific. This uncertainty in causation was treated as relevant to the public-interest assessment, and it formed the basis for the Commission’s recommendation of an employment-related condition.

The record also noted that the Commission considered the effects of a related transaction in which RU Partnership intended to acquire negative control in terms of section 12(2)(g) of the Competition Act, with the combined effect that Newshelf would move from sole control by Gold One to joint control by Sibanye (76%) and RU Partnership (24%) after implementation of the parallel transactions.

Legal Issues

The central questions before the Tribunal were whether the merger was likely to substantially prevent or lessen competition in the relevant markets and whether the merger gave rise to public-interest concerns requiring conditions, specifically in relation to employment and retrenchments.

The competition inquiry primarily concerned the application of law to economic facts, focusing on market definition, market shares, and competitive constraints in international commodity markets. The public-interest inquiry involved both factual assessment and an evaluative judgment, particularly because the Commission was unable to determine conclusively whether retrenchments were merger-specific, yet recommended protective conditions in light of the surrounding circumstances.

A further issue was whether the Tribunal should adopt the Commission’s recommended condition preventing merger-related retrenchments for a defined period after implementation and, if so, what monitoring obligations should accompany that condition.

Court’s Reasoning

On the competition assessment, the Tribunal accepted the relevant market framing as the international production and supply of gold and silver and relied on the Commission’s investigation that the merged entity’s share in gold production would remain below 2%, with minimal accretion. The Tribunal treated the fragmentation of international gold supply and the presence of other significant competitors as indicating that the merger was unlikely to alter competitive conditions materially. A similar conclusion followed for silver, where Sibanye’s production was described as negligible and where competitive constraints from other producers were expected to persist.

On public interest, the Tribunal considered the merging parties’ claim that retrenchments were not envisaged due to the merger, against the Commission’s evidence of union notices and the issuance, and subsequent withdrawal, of a section 189 notice affecting Cooke Mining Operations employees. The Tribunal noted the Commission’s extensive investigation and accepted that the Commission could not conclusively determine merger-specific causation. Nonetheless, the Tribunal treated the factual context, including the withdrawn retrenchment process, as sufficient to justify the imposition of a prophylactic condition aimed at preventing retrenchments “as a result of the merger” for a limited period.

The Tribunal further relied on the fact that the merging parties did not contest the Commission’s recommended condition. In adopting it, the Tribunal reflected an evaluative judgment that the public-interest concerns could be adequately managed through a time-bound prohibition on merger-related retrenchments, rather than refusing approval.

The condition, as reflected in the annexure, drew a distinction between prohibited retrenchments attributable to the merger and permitted forms of workforce reduction, expressly excluding voluntary separation arrangements and voluntary early retirement packages from the scope of prohibited retrenchments. The annexure also included compliance monitoring measures, including notification of the merger implementation date by affidavit, circulation of the conditions to employees, and annual reporting to the Commission, with breaches to be addressed under the Commission’s procedural rules.

Outcome and Relief

The Tribunal approved the merger conditionally in terms of section 16(2)(b) of the Competition Act, subject to the conditions in Annexure A. The key substantive condition prohibited the merging parties from retrenching any employee as a result of the merger for two years following the merger implementation date, subject to specified exclusions for voluntary arrangements.

The Tribunal also ordered that a Merger Clearance Certificate be issued in terms of Competition Tribunal rule 35(5)(a). The record reflected the Tribunal’s authority in terms of section 16(3) of the Competition Act to revoke approval in specified circumstances, including incorrect information, deceit, or breach of an obligation attached to the approval. No costs order was recorded in the text provided.

Cases Cited

No reported cases were cited in the judgment text provided.

Legislation Cited

Competition Act 89 of 1998, including section 12(2)(g), section 14A(1)(b), section 16(2)(b), and section 16(3).

Rules of Court Cited

Competition Tribunal rule 35(5)(a).

Competition Commission Rules, rule 39.

Held

The Tribunal held that the proposed acquisition by Sibanye of 76% of the shares in Newshelf 1114, conferring control over the Cooke Mining Operations, was unlikely to substantially prevent or lessen competition in the international markets for the production and supply of gold and silver given the merged entity’s minimal market shares and the fragmented nature of those markets.

The Tribunal further held that, although the Commission could not conclusively determine whether anticipated retrenchments were merger-specific, the public-interest concerns relating to potential employment effects justified imposing a condition preventing merger-related retrenchments for a defined post-merger period. The merger was therefore approved subject to a two-year prohibition on retrenchments attributable to the merger, together with monitoring and reporting obligations.

LEGAL PRINCIPLES

The Tribunal applied the merger control principle that a transaction should be prohibited or conditioned only if it is likely to substantially prevent or lessen competition in the relevant market(s). In assessing that question, it proceeded by identifying the relevant market, evaluating the merged entity’s market shares and the increment attributable to the merger, and considering the broader competitive constraints in the market, including fragmentation and the presence of other viable competitors.

The Tribunal also applied the public-interest principle that merger approval may be conditioned to address employment-related effects, including by imposing behavioural conditions aimed at preventing retrenchments causally linked to the merger for a defined period after implementation. Where causation between retrenchments and the merger cannot be conclusively determined on the available record, the Tribunal accepted that it may nevertheless impose a protective condition where the surrounding facts reasonably raise concern, particularly when the condition is limited in duration and scope and is supported by monitoring mechanisms.