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[2014] ZACT 18
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AgriGroupe Holdings (Pty) Ltd v AfrGri Ltd (017939) [2014] ZACT 18 (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.
Merging
parties and their activities
[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, postmerger, 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
("theDevelopment
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- a-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. instructe by Norton
Fulbright and Webber Wentzel
For
the SACP Dr. Stephen Grech Rose
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.