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[2015] ZACT 31
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Ethos Private Equity Fund VI v Nampak Corrugated and Nampak Tissue Business Divisions of Nampak Products Limited (020412) [2015] ZACT 31 (1 April 2015)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: 020412
In the matter
between:
ETHOS
PRIVATE EQUITY FUND
VI
..................................................................................
Acquiring
Firm
And
THE
NAMPAK CORRUGATED AND
NAMPAK
......................................................
Primary
Target Firms
TISSUE BUSINESS
DIVISIONS OF NAMPAK PRODUCTS LIMITED
Panel: Andreas
Wessels (Presiding Member)
: Medi Mokuena
(Tribunal Member)
: Imraan Valodia
(Tribunal Member)
Heard on: 11 March
2015
Order Issued on : 11
March 2015
Reasons Issued on :
01 April 2015
Reasons for
Decision
Approval
[1] On 11 March
2015, the Competition Tribunal (“Tribunal”)
unconditionally approved the merger between Ethos Private
Equity Fund
VI (“Ethos Fund VI”) and the Nampak Corrugated and Nampak
Tissue divisions of Nampak Products Limited (these
two divisions are
collectively referred to as “the target firms”).
[2] The reasons for
approving the proposed transaction follow.
Parties to
transaction and their activities
Primary acquiring
firm
[3]
The primary acquiring firm is Ethos Fund VI, a company incorporated
in accordance with the laws of the Republic of South Africa.
Ethos
Fund VI comprises of the following firms: Ethos Capital VI GP
(Jersey) Limited, Ethos Capital VI GP (SA) (Pty) Ltd and the
interim
trustees of the Ethos Fund VI Co-Investment Trust. Ethos Fund VI
controls/holds investments in a number of companies.
1
[4] Ethos Fund VI is
a private equity investment fund that comprises of various local and
foreign limited partners (investors).
[5]
Ethos Fund VI is advised by Ethos Private Equity (Pty) Ltd (“Ethos”).
Ethos also advises two other private equity
investment funds, namely
Ethos Fund V and Ethos Technology Fund. No single shareholder
directly or indirectly controls Ethos. Ethos
Fund V and Ethos
Technology Fund control/hold investments a number of companies.
2
Primary target
firm
[6] The primary
target firms are the Nampak Corrugated and Nampak Tissue divisions of
Nampak Products Limited (“Nampak”).
[7] Nampak
Corrugated manufactures corrugated packaging in South Africa.
[8] Nampak Tissue
manufactures tissue paper products and other related household
products in Southern Africa.
Proposed
transaction and rationale
[9] In terms of the
proposed transaction, Ethos Fund VI intends to acquire the businesses
and operations of the Nampak Corrugated
and Nampak Tissue divisions
of Nampak. Upon implementation of the proposed transaction, Ethos
Fund VI will control the target businesses.
[10] Ethos submitted
that the target businesses are strong players in their industries
with a stable volume growth outlook.
[11] The target
firms submitted that the transaction fits in with Nampak’s
strategy to focus on its core product segments.
Impact on
competition
[12] The Commission
concluded that there are no horizontal overlaps between the
activities of the merging parties since the portfolio
firms in which
Ethos, Ethos Fund V, Ethos Fund VI and Ethos Technology Fund have
interests, are not involved in similar activities
to those of the
target firms.
[13]
The Commission found that a vertical relationship exists between the
activities of the merging parties and assessed whether
there were any
foreclosure concerns. The potential vertical effects arise from the
fact that RTT Holdings (Pty) Ltd, controlled
by Ethos Fund VI, offers
distribution and related services. Currently, Imperial Logistics
Southern Africa (“Imperial”),
through the Imperial Cargo
Division, offers distribution and related services to the target
firms. The Commission however concluded
that it is unlikely that
Imperial will be foreclosed post-merger.
3
We concur with the Commission’s assessment and do not deal with
this vertical aspect in any further detail.
[14] We conclude
that the proposed transaction is unlikely to substantially prevent or
lessen competition in any relevant market.
Public interest
[15] We below deal
with the potential effects of the proposed transaction on employment.
The proposed transaction raises no other
public interest concerns.
[16] As background
to the potential employment effects: the employees of Nampak
Corrugated are represented by the Chemical Energy
Paper Printing Wood
and Allied Workers Union (“CEPPWAWU”); and the employees
of Nampak Tissue are represented by both
CEPPWAWU and the South
African Typographical Union (“SATU”).
[17]
In their merging filing the merging parties submitted to the
competition authorities that they will not retrench any employees
as
a result of the proposed merger other than at senior management/
executive level, in particular no semi- or unskilled workers
will be
retrenched as a result of the proposed transaction.
4
This was also confirmed by the merging parties’ counsel at the
hearing.
5
They further submitted that to the extent that any senior management
/ executives will be affected by the proposed transaction,
the merged
entity will attempt to find alternative positions internally for such
employees (also see paragraph 22 below).
[18]
The merging parties furthermore indicated that all employees of the
target firms, excluding two managing directors, will be
transferred
to the acquiring group in terms of
section 197
of the
Labour
Relations Act 66 of 1995
, on terms and conditions that are on the
whole no less favourable to those employees. Again, this was
confirmed by the merging
parties’ counsel at the hearing.
6
[19]
The Commission further noted that the merging parties, after certain
concerns were initially raised by SATU, also made the
following
submissions: (i) that Ethos Fund VI only plans to restructure the
current managing director of Nampak Tissue who has
agreed to remain
an employee of Nampak post-merger and will not be transferred to the
merged entity; (ii) as regards Nampak Tissue's
Pietermaritzburg
plant, the merging parties submitted that Ethos Fund VI has no
intention to close down or move this plant post-merger
and intends to
continue running the plant as is; and (iii) Ethos Fund VI will not
implement any new employment policies on the
current employees.
7
[20] The Commission
indicated that SATU ultimately, after consultations with the merging
parties, submitted that it did not have
any further concerns
regarding the proposed transaction’s impact on employment.
[21] CEPPWAWU, on
the other hand, submitted to the Commission that although to a
certain extent the merging parties provided clarification,
it was
still concerned about the impact that the proposed transaction was
likely to have on employment. It proposed a five year
moratorium on
forced retrenchments and other terms and conditions related to the
working conditions of employees. CEPPWAWU’s
concern was in
essence that Ethos allegedly is more concerned about improving its
own business interests and will acquire the target
companies and /or
business units and then sell them.
[22] After
investigation of the potential impact on employment and taking into
account the submissions from both the trade unions
and the merging
parties, as welt as conducting a review of the merging parties’
strategic documents, the Commission concluded
that it had no evidence
which contradicts the merging parties’ various submissions that
the proposed transaction will not
result in any retrenchments. The
Commission further indicated that the merging parties have entered
into agreements with two senior
employees that would have been
affected by the restructuring to avoid any retrenchments.
[23]
However, the merging parties were prepared to give the undertaking
that for a period of only one year after the proposed transaction
there will be no merger-related retrenchments.
8
The Commission was of the view that a moratorium of only one year on
merger-related retrenchments would essentially make the employees
worse-off, bearing in mind that the merging parties have undertaken
that there will be no retrenchments at all as a result of the
proposed transaction.
9
[24] Given the
concerns raised, specifically by CEPPWAWU, the Tribunal informed both
CEPPWAWU and SATU of the set down of the matter
and gave both these
unions the opportunity to make oral submissions at the hearing.
[25]
The representative of SATU at the hearing confirmed that after
interactions between it and the merging parties it no longer
had any
concerns regarding the proposed transaction.
10
[26]
CEPPWAWU’s representatives at the hearing however indicated
that it was still concerned and requested that a five year
moratorium
be placed on retrenchments resulting from the proposed transaction.
It alleged that the acquiring group will make the
target firms more
efficient by retrenching employees and then in time sell these
firms.
11
It also raised concerns regarding the conduct of another acquirer of
a Nampak business in a previous merger on which the Commission
imposed employment conditions.
12
However, since this past merger involves the alleged conduct of a
different acquiring group we do not consider it relevant to this
assessment and do not deal with this any further in these reasons.
[27]
We note that the Tribunal questioned the merging parties regarding
their willingness to give only a very limited undertaking
of one year
with regards to merger-specific retrenchments. The merging parties
then extended their undertaking to, for a period
of two years after
the proposed merger, not retrench any employees as a result of the
proposed merger, with the exception of two
managing directors.
13
[28] We shall hold
the merging parties to their submissions that they will not retrench
any employees as a result of the proposed
merger other than two
employees at executive level and that all employees of the target
firms, excluding two managing directors,
will be transferred to the
acquiring group in terms of
section 197
of the
Labour Relations Act,
on
terms and conditions that are on the whole no less favourable to
those employees.
[29] We have found
no reason to deviate from the Commission’s recommendation on
employment. We have not been provided with
any evidence which
contradicts the merging parties’ submissions that the proposed
transaction will not result in any retrenchments.
We therefore
approve the proposed merger without conditions based on the merging
parties’ submissions to the competition
authorities that the
proposed merger will not result in any job losses or retrenchments
other than two executive positions. No
doubt the trade unions will
monitor this and inform the Commission should any merger-specific
retrenchments occur after the proposed
transaction.
Conclusion
[30] In light of the
above, we conclude that the proposed transaction is unlikely to
substantially prevent or lessen competition
in any relevant market.
In addition, based on the merging parties’ submissions with
regards to employment, no public interest
issues arise from the
proposed transaction. Accordingly we approve the proposed transaction
unconditionally.
01
April 2015
DATE
Andreas Wessels
Medi Mokuena and
Imraan Valodia concurring
Tribunal Researcher;
Ammara Cachalia
For the merging
parties: Shawn Van der Meulen of Webber Wentzel
For the Commission:
Portia Bele and Nompucuko Nontombana
1
See
merger record, pages 22, 52 and 53.
2
See merger record, pages 20, 21 and 53 to 56
3
See
Commission’s Report, pages 17 to 19.
4
Merger
record, pages 13, 47, 49 and 62.
5
Transcript
pages 7, 8 and 19.
6
Transcript
pages 7, 8, 11, 12 and 22.
7
Commission’s
Report, page 21.
8
Also
see transcript page 9.
9
Also
see transcript pages 10 and 11.
10
Transcript
page 12.
11
Transcript
pages 13 and 14.
12
Transcript
pages 15 and 16. Also see merging parties’ response at
transcript pages 16 and 17.
13
Transcript
pages 20, 22 and 25.