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[2014] ZACT 1
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AgriGroupe Holdings (Pty) Ltd v Afgri Ltd (017939) [2014] ZACT 1; [2014] 1 CPLR 52 (CT) (15 April 2014)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case No: 017939
In the matter
between:
AgriGroupe
Holdings (Pty)
Ltd
................................................................................................
Acquiring
Firm
And
AFGRI
Ltd
........................................................................................................................................
Target
Firm
Panel: Andreas
Wessels (Presiding Member)
Mondo Mazwai
(Tribunal Member)
Imraan Valodia
(Tribunal Member)
Heard on: 06 March
2014
Order issued on: 06
March 2014
Reasons issued on:
15 April 2014
Reasons for
Decision
Conditional
approval
[1].On 06 March 2014
the Competition Tribunal (“the Tribunal”) approved an
acquisition by AgriGroupe Holdings (Pty)
Ltd (“AgriGroupe”)
of AFGRI Ltd (“AFGRI”) subject to conditions.
[2]. The reasons for
the conditional approval of the proposed transaction follow.
[3].
The primary acquiring firm is AgriGroupe, a newly incorporated
company. AgriGroupe will be controlled by Joseph Investment
Holdings
(“JIH”), a company duly incorporated in Mauritius. JIH is
wholly owned by AgriGroupe Investments LP (Cayman
Islands)
(“AgriGroupe Investments”). AgriGroupe Investments is a
limited partnership, in which Fairfax Financial Holdings
Ltd
(“Fairfax”) will be the majority partner.
1
AgriGroupe, JIH, AgriGroupe Investments and Fairfax are hereinafter
referred to as “the Acquiring Group”. None of the
firms
from the Acquiring Group control any firm in South Africa.
[4].
AgriGroupe is a newly incorporated company and does not offer any
goods or services, nor does it have any existing investment
portfolios. None of the firms from the Acquiring Group have business
activities in South Africa. Internationally, Fairfax is a
financial
services holding company that is primarily engaged in property and
casualty insurance and reinsurance and investment
management.
2
In relation to agricultural activities, Fairfax’s subsidiary,
namely Ridley Inc. (“Ridley”), is a commercial
animal
health nutrition business that manufactures and markets a full range
of animal nutrition products. Ridley operates in North
America,
serving customers mainly in the United States and Canada.
[5]. The primary
target firm is AFGRI, a public company listed on the Johannesburg
Securities Exchange Ltd (“JSE”) and
not controlled by any
other firm. The shareholders that hold 5% or more of AFGRI’s
issued share capital are: Allan Gray (12.15%),
Liberty Group (8.23%),
the Government Employees Pension Fund (7.29%) and Sanlam (5.30%).
AFGRI directly and indirectly controls
the following firms: AFGRI
Operations Ltd, OTK Investment House (Pty) Ltd, AFGRI Mauritius
Holdings (Pty) Ltd, Afgritech Ltd, and
AFGRI Ghana Ltd.
[6].
AFGRI is a South African agricultural commodity trading company that
operates through three business segments, namely: AFGRI
Agri
Services, AFGRI Financial Services and AFGRI Foods. The Agri Services
segment comprises of two divisions, namely: the Grain
Management, and
Retail and Mechanisation divisions. These divisions are active mainly
in the maize value chain, but also provide
services to producers of
wheat, soya and sunflower. This is done within AFGRI’s
geographical focus area, which includes the
Mpumalanga, Gauteng,
North West and the Free State provinces.
3
[7]. AFGRI’s
Financial Services segment comprises three distinct operating units,
namely: the GroCapital Financial Services
unit that provides
specialised finance to businesses involved in the agricultural value
chain, the UNIGRO Financial Services unit
that acts as an originator
and administrator for the Land and Agricultural Development Bank of
South Africa (“Land Bank”)
in the extension of
agricultural credit, and Unigro Insurance Brokers, which provides
risk solutions and insurance.
[8].
The AFGRI Foods segment is comprised of two divisions, namely: Animal
Protein; and Oil, Milling and Protein. The Animal Protein
division
comprises AFGRI’s integrated poultry operation and the Group’s
animal feed factories. The Oil, Milling and
Protein division operates
through AFGRI’s oil extraction and protein plant situated in
Mokopane (Limpopo), namely Nedan.
This plant,
inter
alia,
processes
oil and other raw materials into edible oils, fats and high-protein
textured vegetable products for the food processing
and animal feed
industries. AFGRI Milling comprises three yellow maize mills that are
used in the production of various maize based
value-added products
such as cereals, crisps and thickeners.
Proposed
transaction and rationale
[9]. AgriGroupe
intends to acquire the entire issued ordinary share capital of AFGRI.
Post-merger, AgriGroupe will have sole control
over AFGRI.
[10].
AgriGroupe submitted that, through this transaction, it will be able,
inter alia,
to:
(i) develop and grow the presence of AFGRI’s core business
across the African continent, leveraging off the skills and
experience of the South African operations, and (ii) increase
capabilities and improve efficiencies within the AFGRI food sector
operations, increasing the returns achieved on these assets but
having due consideration for its impact on the environment.
[11]. AFGRI
submitted that it considers the offer made by AgriGroupe to be fair
and reasonable to its shareholders and that the
acquisition will
facilitate continued growth and enhance the competitiveness of its
business.
Competition
Analysis
[12]. The
Competition Commission (“the Commission”) found that
there were no horizontal or vertical overlaps in the
activities of
the merging parties since AgriGroupe is not active in South Africa.
The Commission therefore concluded that the proposed
transaction was
unlikely to result in a substantial prevention or lessening of
competition in any market. We concur with this analysis
and finding.
[13]. The
Commission, however, received a number of submissions from third
parties, which raised concerns about this transaction.
These concerns
are discussed below.
Third party
concerns
[14].
The third parties who raised concerns regarding the proposed merger
were the following: (1) Four government departments, namely:
the
Department of Rural Development and Land Reform (“DRDLR”),
the Department of Agriculture, Forestry and Fisheries
(“DAFF”),
the Department of Trade and Industry ("the DTI”) and the
Economic Development Department (“EDD”),
4
(2) the African Farmers’ Association of South Africa (“AFASA”),
(3) the National African Farmers Union South
Africa (“NAFU”),
and (4) the South African Communist Party (“SACP”) Below
is a summary of these concerns,
the response from the Commission as
well as further submissions made to us.
The Government
Departments’ concerns
[15]. The EDD raised
concerns on behalf of the government departments mentioned above. The
departments’ concerns were in relation
to AFGRI’s grain
storage, grain trading, infrastructure, AFGRI’s tax-related
benefits, and the value of AFGRI.
[16]. According to
the departments, silos are strategic and essential facilities for
food security in South Africa and since AFGRI
operates in the major
grain producing regions in the country, it plays a vital role in the
food value chain. The departments further
submitted that AgriGroupe
will have approximate 25% market share in the silo market in South
Africa and was likely, post-merger,
to increase grain storage costs
in the KwaZulu-Natal, Mpumalanga and Gauteng regions as it will own
the majority of silos in these
provinces.
[17]. In relation to
grain trading, the departments’ concern was that AFGRI, under
new foreign ownership, was likely, post
merger, to export grain to
the United States of America, Canada and other countries and increase
the price of grain and maize in
South Africa. Furthermore, the
departments argued that AgriGroupe would adopt a strategy of selling
its grain to the market when
the price is most favourable to it,
thereby increasing food prices. The departments also raised concerns
that AgriGroupe may, post-merger,
exclude other market participants
from access to vital infrastructure such as the railway line that is
used to transport of grain
to AFGRI silos.
[18]. With regard to
tax-related benefits, the departments submitted that AFGRI’s
establishment and growth has been funded
by government using public
resources. The EDD therefore suggested that the Commission needed to
investigate this and recover these
public resources. The departments’
other concern was that AgriGroupe was likely to move AFGRI's business
to Mauritius because
of possible tax benefits in Mauritius. In
addition, the departments submitted, in respect of the value of
AFGRI, that the company
was under-valued and that the Commission
needed to investigate the company’s fair market value.
[19]. Although the
EDD raised these concerns, it indicated that it was not opposed to
the proposed transaction but that the transaction
should be approved
subject to conditions which would address its concerns.
AFASA’s
concerns
[20]. AFASA made
submissions in relation to the post-merger control of AFGRI by a
foreign entity, AFGRI’s position in respect
of agri-logistics
infrastructure, and the impact of the proposed merger on support in
the future by AFGRI to black farmers. In
relation to support to black
farmers AFASA submitted that, post-merger, black farmers were likely
not to receive benefits from
AgriGroupe, which they were receiving
pre-merger from AFGRI.
[21]. In respect of
agri-logistics infrastructure, AFASA submitted that AFGRI holds a
dominant position in relation to grain silo
storage in South Africa.
AFASA further submitted that since the current replacement costs of
silo infrastructure were high and
AFGRI’s facilities fully
depreciated (and competitors are not able to match its current market
position and facilities),
AFGRI could have an undue influence over
the market in the areas in which it operates (Mpumalanga, Gauteng,
KwaZulu-Natal and some
areas of the Free State) as there was no
realistic alternative storage solutions.
[22]. AFASA also
submitted that the assets of AFGRI had historically been funded from
public resources in South Africa and consequently,
they argued, these
assets needed to remain under South African ownership. Based on these
concerns, AFASA initially submitted that
this merger should be
prohibited.
NAFU’s
concerns
[23]. NAFU submitted
that it understood that black farmers would benefit from the
transaction directly by way of shareholding to
be made available to
them. However, NAFU indicated that it was concerned that these
benefits may not be realised as it was not
given specific information
as to how this would be implemented. NAFU therefore requested the
Commission to get a firm commitment
from the merging parties
regarding the empowerment dimensions of the transaction. NAFU
indicated that it would support this transaction
on condition that
the Commission received commitments from the merging parties
regarding the benefits to black farmers, and that
this be made a
condition of the merger.
The SACP's
concerns
[24]. The SACP
indicated that it supported the submissions made by AFASA.
[25]. The SACP
raised further concerns about the potential for AFGRI to increase the
costs of seeds and other inputs in the food
value chain post- merger.
[26]. Further, the
SACP submitted that the proposed transaction was likely to result in
approximately 3 500 employees losing their
jobs and that the
transaction would lead to the loss of a unique opportunity for
effective and broad based BEE in the agricultural
production and
marketing chain.
The Commission’s
response to the concerns raised
[27]. In terms of
section 12A(3) of the Competition Act, 89 of 1998 (the “Act"),
the Commission and Tribunal are required
to ascertain whether a
merger would have a substantial positive or negative impact on any of
the public interest grounds as set
out in section 12A(3). Section
12A(3) states that:
“
(3)
When determining whether a merger can or cannot be justified on
public interest grounds, the Competition Commission or the
Competition Tribunal must consider the effect that the merger will
have on -
(a) a particular
industrial sector or region;
(b) employment;
(c) the ability
of small businesses, or firms controlled or owned by historically
disadvantaged persons, to become competitive;
and
(d) the ability
of national industries to compete in international markets. ”
[28]. We summarise
the Commission’s findings with regards to the effect of the
proposed transaction on each of the above public
interest grounds
below. We begin with employment.
(a) Effect on
employment
[29].
According to the Commission, it assessed whether this transaction
would result in a duplication of functions and whether the
resulting
restructuring of the business might, post merger, lead to a negative
impact on employment. The Commission, relying on
the merging parties'
internal strategic documents, concluded that the business operations
of both AFGRI and AgriGroupe were likely
to continue in their current
form and that there would be no duplication of functions as the
activities of the merging parties
do not overlap in South Africa. The
Commission further noted that the merging parties had plans to expand
production which would,
inter
alia,
boost
GDP growth and create job and business opportunities.
[30]. The Commission
therefore concluded that the proposed transaction was unlikely to
have a negative effect on employment and
that the transaction was
likely to result in job creation, with a positive effect on
employment in the long term.
(b) Effect on a
particular industrial sector or region
[31]. The proposed
merger takes place in the broader agricultural and agroprocessing
sectors in South Africa and AFGRI is one of
the largest players in
these sectors, servicing more than 7 000 farmers in South Africa. The
Commission assessed whether the proposed
merger could (i) result in
the relocation of certain AFGRI operations outside South Africa, (ii)
lead to AgriGroupe exporting/diverting
grain to other countries
(which would impact negatively on South Africa’s food
security), and (iii) lead to AGFRI and AgriGroupe
having the ability
and incentive to foreclose or deny access to key strategic resources,
i.e. silos, railway infrastructure and
agricultural implements and
services.
a.
The possibility of
relocation of plant/operations outside the country
[32], The Commission
found that, for a number of reasons, the relocation of AFGRI’s
plants or facilities was unlikely. First,
silos cannot physically be
relocated. Second, although Fairfax holds investments in entities
that produce animal feed, it might
not be economically feasible for
it to import animal feed. In addition, the Commission noted that
AgriGroupe intends to invest
in other African countries, using
AFGRI's local operations as a platform.
[33]. The Commission
therefore concluded that it was unlikely that any of the AFGRI
operations could or would be relocated or replaced
through imports.
b. Diversion of
resources (grain) resulting in food security concerns
[34].
In South Africa grain is traded on the South African Futures Exchange
(“SAFEX”).
5
The Commission considered how the SAFEX platform for trading grain
operated and how this platform could be affected by the proposed
merger. The following are the Commission’s findings. The price
of grain is determined by the SAFEX price, which is subject
to market
forces. Price movements on SAFEX are driven by domestic demand and
supply, regional demand and supply, international
prices and exchange
rates. Thus, AFGRI and AgriGroupe have no ability to influence
prices.
[35].
The Commission also found that AFGRI is not currently active in
trading and therefore does not export grain, nor is it able
to
influence whether and to which markets grain is exported. According
to the Commission, even if AFGRI becomes active in the grain
trading
market, it is not likely to have a significant influence on SAFEX
pricing.
6
[36]. The Commission
concluded that the merged entity would not have the ability or
incentive to transfer grain to other countries
to the detriment of
food security in South Africa.
c. The ability
and incentive to foreclose or deny access to key strategic resources
(silos, railway infrastructure and agricultural
implements and
services)
[37]. In relation to
access to silos the Commission considered whether AFGRI would have an
incentive to deny black farmers or any
other farmers access to its
silo infrastructure. The Commission found that AFGRI has excess
storage capacity in each of the provinces
considered i.e. the Free
State, Gauteng, KwaZulu-Natal, Limpopo, Mpumalanga, North West and
the Western Cape. The Commission further
found that even during the
harvest period, AFGRI’s storage capacity utilisation was
significantly below capacity. The Commission
therefore found it
unlikely that AFGRI would deny farmers access to its silos and was of
the view that, in fact, AFGRI had an incentive
to increase the amount
of grain passing through its storage facilities due to the revenue
that it can earn from the grain management
operations.
[38]. In relation to
rail infrastructure, the Commission was informed by farmers that they
did not generally make use of the railway
infrastructure for
transporting grain to AFGRI’s silo structures. These farmers
instead make use of trucks and tractor-trailers
to transport grain
from their farms to the silos as it is cheaper and more efficient.
[39]. Moreover,
AFGRI does not have any exclusive arrangements with Transnet, the
owner of the national railway infrastructure.
Thus, AFGRI cannot
‘lease’ control over any portion of the railway line for
its own use.
The Commission
therefore concluded that the merged entity will not have the ability
or the incentive to restrict access to rail
infrastructure.
[40].
In relation to the retail side of the business, AFGRI has 65 retail
outlets and John Deere agencies (15 stores). This business
was merged
with that of Senwes Ltd (“Senwes”) in 2013 when the two
companies formed a joint venture.
7
Farmers currently purchase a significant amount of their agricultural
inputs (fertilizers, oil and diesel, and other consumables)
from
AFGRI’s retail outlets in order to produce a crop, which they
will then store at AFGRI silos.
[41]. The Commission
found that AFGRI’s retail business contributed significantly to
the group’s total revenue. Consequently,
the Commission found
that it was unlikely that the merged entity would have the incentive
to reduce access to agricultural inputs
as the retail business
contributes significantly to revenue. In addition, the Commission was
of the view that as AFGRI was in a
joint venture with Senwes (on the
retail side of the business), AFGRI cannot unilaterally take a
decision to close operations or
not to supply certain customers. The
Commission therefore concluded that the proposed transaction would
not lead to any negative
impact on the particular industrial sector
or region.
(c) Effect on
small, medium enterprises or firms owned/controlled by historically
disadvantaged individuals (“HDIs")
in becoming competitive
[42]. The Commission
considered in its assessment the various forms of assistance that
AFGRI currently provides to small farmers
or farms owned by
historically disadvantaged individuals and whether, post-merger,
there was an incentive for AgriGroupe to discontinue
this assistance.
Pre-merger, small farmers were receiving the following benefits from
AFGRI: Emerging Farmer Development Programme
("the Development
Programme") established in 2012 and Land Bank funding
programmes.
[43].
The Development Programme spans five years and is designed to provide
farmers with both practical and theoretical training
in order to
equip them with the necessary skills and expertise to ensure
sustainable, viable and independently successful farmers.
AFGRI’s
Land Bank funding programmes include the provision of funding at a
preferential rate to fanners. The Commission found
that AFGRI plays a
vital role in assisting the Land Bank with its mandate and in
providing assistance to emerging farmers and that
it has assured the
Land Bank that it would continue with its obligations in terms of the
Facility Agreements.
8
[44]. The Commission
did not find any evidence to suggest that the proposed merger was
likely to erode or prevent AFGRI from continuing
with small farmer
development or to discontinue the assistance provided to emerging
farmers.
[45].
Pre-merger, the Government Employees Pension Fund has a 7.29%
shareholding in AFGRI. Post-merger, AFGRI will have Bafepi (Pty)
Ltd
(“Bafepi"), a special purpose investment vehicle
representing the Bafepi Consortium, as a BEE shareholder. Bafepi
will
own 20% of the shares in AgriGroupe. The Government Employees Pension
Fund (represented by the Public Investment Corporation
(“PIC”)),
will own 15% of the shares in AgriGroupe. At the hearing, however,
the Commission noted that it could not
confirm the status of the
Government Employees Pension Fund in relation to BEE accreditation.
9
Accordingly, the Commission found that this transaction did not
dilute the BEE shareholding in AFGRI but increased it.
(d) Other
concerns raised
[46]. There were a
number of other concerns raised, which the Commission considered to
fall outside the ambit of the Act and were
thus not investigated by
the Commission. These included the allegation that AgriGroupe was
likely to move AFGRI’s business
to Mauritius because of tax
benefits in Mauritius, the argument that AFGRI was funded from public
resources, and the concern that
AFGRI was under-valued.
The Commission's
overall conclusions
[47]. The Commission
concluded that the merger was unlikely to substantially prevent or
lessen competition in the relevant markets.
It concluded further that
the merger raised no public interest concerns and recommended the
unconditional approval of the merger.
Tribunal
process and assessment
[48]. Following the
Commission's recommendation, and in the normal course, the Tribunal
wrote to the parties that had made submissions
to the Commission and
asked them whether they wished to make any further written
submissions. We further requested the parties
to indicate whether
they would be making oral submissions at the hearing of this matter.
[49].
NAFU indicated that it would not make any further written or oral
submissions as its concerns had been adequately addressed
by the
Commission, and that it will abide by the decision of the Tribunal.
10
NAFU was, however, represented at the hearing.
[50].
The EDD was also represented at the hearing and confirmed that it did
not wish to make any oral submissions.
11
[51]. Although the
SACP did not make any further written submissions, it requested an
opportunity to make oral submissions at the
hearing, which we
allowed. We summarise the SACP’s oral submissions below (see
Paragraph 55).
[52]. No other third
party, other than the SACP, wanted to make oral submissions at the
hearing.
[53]. During the
hearing, members of the Tribunal raised a number of queries and
concerns about the analysis conducted by the Commission,
especially
on the effect of the proposed transaction on employment, trade and
the ability of small and/or historically disadvantaged
farmers to
become competitive in agriculture.
[54].
With regards to employment, more specifically, we note that the
Commission’s focus was exclusively on the potential
duplication
of functions resulting from the merger. However, it was rather
obvious that this “no product overlap merger",
combined
with the fact that the Acquiring Group has no activities whatsoever
in South Africa premerger, would not result in job
duplication. Job
losses stemming from job duplication was, however, not the concern
raised by the third parties. The Commission
seemed to have
exclusively considered the strategic documents submitted by the
merging parties that deal with the longer term strategic
goals of the
merged entity and not the potential shorter term employment effects
resulting from AFGRI being under new ownership.
The merging parties
at the hearing confirmed that AFGRI currently employs approximately 4
000 persons.
12
The Commission, furthermore, did not investigate if a potential move
of AFGRI’s head quarters to outside of South Africa
will have
implications for employment in South Africa.
SACP
[55].
The SACP submitted, at the hearing, that its main concern was that
although AFGRI was not involved in commodity trading on
SAFEX, it had
a dormant trading licence
13
.
Thus, if it were to decide to trade in the future, this could have a
major impact on food security. The SACP therefore requested
that
AFGRI make a firm commitment that it will not trade in the future and
that the Tribunal make this a condition of the approval
of the
merger. The SACP’s other concern was that since AFGRI provided
both finance and silo storage services to farmers,
this placed AFGRI
in a powerful position vis-a-vis the farmers.
[56]. In response,
the merging parties explained that trading on SAFEX did not require a
licence. They further explained that AFGRI
was previously involved in
the trading business but had taken a decision a few years ago to
close this business, having lost significant
amounts of money in
trading activities. They submitted further that the trading business
was competitive and consisted of many
large South African, as well as
international traders. In addition, the parties submitted that even
if AFGRI were to be involved
in trading, it would not have any
influence in relation to the trading prices on SAFEX as these vary
depending on local conditions
of supply and demand as well as on
other markets. Responding to questions of the Tribunal, Mr. Venter of
AFGRI confirmed that grain
is traded on the SAFEX and that AFGRI had
no influence on the trading prices.
[57]. Based on the
evidence presented about the nature of the maize market and the
mechanics of the SAFEX, we believe that there
is no basis to impose
any condition relating to grain trading by the merged entity
postmerger.
[58]. With regards
to the SACP’s concern that AFGRI’s involvement in both
loan financing and silo storage ownership
places it in strong
position vis-á-vis the farmers, the merging parties responded
that AFGRI was a small player in the market
for loan funding to
farmers and it competes with other, much bigger, financial
institutions. The parties further submitted that
the security that
AFGRI takes on its loan financing is not related to grain stored in
its silos and that its debtor’s book
is ceded and assigned to
the Land Bank in back-to-back transactions, and the Land Bank then
holds the loans and security.
[59]. We are of the
view that the imposed conditions (see below) sufficiently address any
potential negative effect of the proposed
transaction on the ability
of small and/or historically disadvantaged farmers to become
competitive.
The Agreement
between Government departments, AFGRI and AgriGroupe
[60].
The EDD informed us that it had engaged with AFGRI in an effort to
address the concerns raised by the government departments
mentioned.
Following this, the EDD and AFGRI concluded an agreement which
addressed the departments’ concerns. The agreement
deals,
inter
alia,
with
provisions such as loans to emerging farmers
14
from the Land Bank, the enrolment of participating emerging farmers
in a development programme, grain storage discounts to qualifying
emerging farmers, technical support and advice to the departments on
alternative storage facilities and potential retrenchments.
Thus the
agreement reached essentially relates to sections 12A(3)(a),
12A(3)(b) and 12A(3)(c) of the Act.
[61]. The agreement,
more specifically, creates a fund called the AFGRI Fund, which will
make an aggregate amount of R90 million
available over four financial
years to be utilized in accordance with the provisions of the
agreement. The purpose of this fund
is to secure a number of
objectives.
[62]. The overall
purpose of the agreement is to define specific benefits for emerging
farmers, through making available loan funding,
mentorship, practical
and theoretical training, as well as to protect the interest of AFGRI
employees from possible negative consequences
arising from the
proposed transaction and to establish a mechanism for advice,
oversight and interaction between the parties to
the agreement
through an advisory board.
[63]. Grain storage
discounts will be provided to qualifying emerging farmers for the
duration of the agreement. This entails a
40% discount on storage
rates in respect of grain stored in AFGRI’s existing grain
storage facilities. This discount will
not be funded from the AFGRI
Fund (see clause 6 of the agreement).
[64]. Provision is
also made for AFGRI to provide the relevant government departments
with technical support and advice in respect
of the development and
utilisation of alternative grain storage facilities (see clause 7 of
the agreement).
[65]. Clause 8 of
the agreement provides for the enrolment of participating emerging
farmers in the Development Programme. This
programme refers to the
Emerging Farmer Development Programme as established by AFGRI in
2012. The Development Programme is designed
to optimise the
utilisation of land by emerging farmers.
[66]. Clause 9 of
the agreement makes provision for loan finance to emerging farmers.
AFGRI will manage the Land Bank Facility for
as long as this facility
remains in place.
[67].
Clause 10 of the agreement provides for the provision of poultry
farmer assistance. This includes assisting emerging farmers
with,
inter alia,
funding
for technical and veterinary skills development, access to a
comprehensive laboratory service and full technical and nutritional
services.
[68]. With regards
to employment, AFGRI has undertaken to ensure that there will be no
retrenchments as a result of the proposed
transaction (see clause 11
of the agreement).
[69]. AFGRI shall
further not relocate its head office to outside the Republic of South
Africa for the duration of the agreement
or thereafter (see clause 12
of the agreement).
[70].
In terms of the agreement, an advisory board, constituted by four
representatives nominated by AFGRI and one representative
nominated
by each of the four relevant government departments, will,
inter
alia,
be
entitled to call for and receive reports from AFGRI regarding the
implementation of the agreement, as well as to make recommendations
and advise AFGRI on the implementation of the agreement and the
achievement of its objectives (see clause 13 of the agreement).
[71]. The agreement
is to be implemented over a period of four years, commencing on the
date of approval of the proposed transaction
by the Tribunal.
[72]. Both AFGRI and
AgriGroupe confirmed at the hearing that they accepted the agreement
reached with the above-mentioned government
departments.
[73].
The Tribunal noted that AgriGroupe was not a signatory to the
agreement and queried this with the merging parties. The merging
parties confirmed by letter
15
and again at the hearing that AgriGroupe supported the agreement, was
involved in the negotiation of the agreement and will honour
the
agreement through AFGRI.
16
[74].
The merging parties further confirmed that they were in agreement
with the departments that the entire agreement could be
made a
condition of the approval of the proposed transaction.
17
[75]. As stated
above, the agreement relates to sections of the Act. The Tribunal
took the view that, broadly, matters covered in
the agreement fell
within the ambit of sections 12A(3)(a), 12A(3)(b) and 12A(3)(c) of
the Act.
[76].Though we had
some reservations about the Commission’s level of
investigation, analysis and conclusions, we believe that
the
agreement reached by the merging parties and the government
departments adequately addresses possible public interest concerns
about the merger.
[77]. Given that the
EDD and the merging parties had agreed on the terms of the agreement,
we did not have to decide on any dispute
or pronounce on the scope of
any of the issues raised as public interest issues.
[78].
The Tribunal, however, asked the merging parties a number of
questions about the agreement relating,
inter
alia,
to
the dispute resolution clauses in the agreement and recourse should
the merged entity not comply with the agreement,
18
as well as the oversight role of the envisaged advisory board and
monitoring of the conditions, if imposed.
19
[79]. In relation to
the monitoring of the imposed conditions, we note that the agreement
makes provision for an advisory board
that includes representation
from the relevant government departments. Further, the imposed
conditions will be made public and
affected farmers, to the extent
that the conditions relate to them, can monitor the merged entity’s
compliance with the agreement
themselves. We therefore do not foresee
any concerns regarding the Commission’s ability to monitor the
imposed conditions.
The Commission also did not raise any such
concerns at the hearing.
Conclusion
[80].We approve the
proposed transaction subject to the conditions annexed herein, marked
as Annexure "A”.
15
April 2014
Prof. Imraan
Valodia
Andreas Wessels
and Mondo Mazwai concurring
Tribunal researcher
: Ipeleng Selaledi
For the merging
parties : David Unterhalter S.C. instructed by Norton Rose
Fulbright and Webber
Wentzel
For the SACP: Dr.
Stephen Grech
For the Commission :
Xolela Nokele, Jabulani Ngobeni and Thulani Mandiriza
1
The
merging parties have indicated that the other partners have not yet
been confirmed. However, the only entity which will exercise
any form
of control over AgriGroupe will be JIH, which will hold approximately
65% of the shareholding in AgriGroupe. The remainder
of the shares
will be held by minority shareholders, who are likely to be
empowerment groups and/or institutional funders.
2
Fairfax
also has interests in other firms which are involved in a variety of
other activities. These include leisure and travel,
computer
programming, restaurant operations and agriculture, among others.
3
According
to the merging parties, these provinces are South Africa’s key
grain growing areas, especially for maize and wheat
but also include
soya and sunflower.
4
The
Land Bank also made submissions. However, the bank did not have any
concerns and
it further
indicated that it supports the proposed transaction.
5
SAFEX
was bought in 2001 by the Johannesburg Securities Exchange and now
forms part of its Agricultural Products division (“APD”).
6
It
was revealed at the hearing that between the period April to July
2013 that it would have been profitable to export grain to
the U.S.
However, the Commission pointed out that the incentive to export was
not merger specific as AFGRI could have done so anyway,
given the
fact that market conditions were favourable at that time.
7
The
joint venture was approved by the Tribunal in May 2013.
8
These
are agreements entered into between the Land Bank and AFGRI that
regulates their relationship in terms of the funds managed
by AFGRI
for the benefit of farmers.
9
Transcript
pages 34 and 35.
10
See
letter received from NAFU’s attorneys dated 18 February 2014.
11
Transcript
pages 2 and 3.
12
Transcript
page 12.
13
According
to the merging parties AFGRI’s trading business was closed in
April 2010
14
In
terms of the agreement ‘emerging farmer’ means
subsistence farmers or small-scale farmers who are attempting to
become commercial farmers or such additional category of farmers as
approved by the Advisory Board.
15
See
letter received from Norton Rose Fulbright dated 05 March 2014.
16
Transcript
page 66.
17
Transcript
pages 65 and 66.
18
Transcript
pages 66 to 68.
19
Transcript
pages 68 and 69.