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[2015] ZACT 53
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Fidelity Cash Solutions (Pty) Ltd and Others v Competition Commission, In re: Fidelity Cash Solutions (Pty) Ltd and Another v Protea Coin Group ( Assets in Transit And Armed Reaction) (Pty) Ltd (020545) [2015] ZACT 53; [2015] 1 CPLR 204 (CT) (27 May 2015)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: 020545
DATE:
27 MAY 2015
in
the matter between:
Fidelity
Cash Solutions (Pty)
Ltd
....................................................................................
First
Applicant
Fidelity
Security Services (Pty)
Ltd
............................................................................
Second
Applicant
Protea
Coin Group (Assets In
Transit
..........................................................................
Third
Applicant
And
Armed Reaction) (Pty) Ltd
And
The
Competition
Commission
..............................................................................................
Respondent
In
re the intermediate merger between:
Fidelity
Cash Solutions (Pty)
Ltd
..................................................................
Primary
Acquiring Firms
Fidelity
Security Services (Pty) Ltd
And
Protea
Coin Group (Assets In
Transit
..................................................................
Primary
Target Firm
And
Armed Reaction) (Pty) Ltd
Panel:
Yasmin Carrim (Presiding Member)
Andreas
Wessels (Tribunal Member)
Anton
Roskam (Tribunal Member)
Heard
on: 06 May 2015
Order
issued on: 06 May 2015 Reasons issued on: 27 May 2015
Reasons
for Decision
Conditional
approval
1.
On 09 January 2015
the Competition Tribunal (“Tribunal”) received a request
for consideration of an intermediate merger
from the above-mentioned
merging parties. The Competition Commission (“Commission”)
conditionally approved the merger
on 23 December 2014. The merging
parties in this application sought to have the merger approved
subject to a proposed set of conditions
that was materially different
to the conditions imposed by the Commission in its decision.
2.
The intermediate
merger In question involves the intention of Fidelity Cash Solutions
(Pty) Ltd (“Fidelity Cash Solutions”)
and Fidelity
Security Services (Pty) Ltd ("Fidelity Security Services”)
to acquire the following businesses: (i) Protea
Coin Group (Assets In
Transit and Armed Reaction) (Pty) Ltd in respect of the Designated
Division and Designated Assets; (ii) Coin
Aviation Security (Pty) Ltd
in respect of the Air Transport Business; (iii) Coin Risk Management
(Pty) Ltd; and (iv) Coin Cameos
(Pty) Ltd. The businesses to be
acquired are described in more detail below.
3.
On 06 May 2015 we
approved the proposed transaction subject to a set of conditions as
agreed to by the Commission and the merging
parties. The conditions
that we have imposed relate to concerns regarding the likely exchange
of commercially sensitive information
between certain competitors in
certain relevant markets post-merger, as well as concerns regarding
the effect of the proposed transaction
on employment in South Africa.
Parties
to proposed transaction
4.
The primary acquiring
firms are Fidelity Cash Solutions and Fidelity Security Services.
Both these firms are wholly owned subsidiaries
of Fidelity Security
Group (Pty) Ltd ("Fidelity Security Group”).
5.
The primary target
firms are:
5.1.
Protea
Coin Group (Assets In Transit and Armed Reaction) (Pty) Ltd (“Protea
Coin Group”) in respect of the Designated
Division and those
Designated Assets
[1]
which are unrelated to the Air Transport Business. Designated
Division means (i) Protea Coin's Cash In Transit (“C)T”)
division which provides cash in transit services to its customers;
(ii) Protea Coin Group's cash management and processing division
which provides custom designed
cash processing
solutions to its customers; and (iii) the Air Transport Business, as
such divisions exist on the effective date.
5.2.
Coin
Aviation Security (Pty) Ltd (“Coin Aviation”) in respect
of the Air Transport Business. Air Transport Business
means that part
of Coin Aviation's business, as carried on by Coin Aviation in the
normal, ordinary and regular course and which
is limited to the
transportation by air of cash, including all contracts relating
thereto to which Coin Aviation is a party as
at the effective date,
but expressly excluding the provision of any services which any of
the Sellers [Protea Coin Group] render
in terms of any licence or
other authority or to a customer in respect of cash or any other
valuables, bullion, precious metals,
gemstones and jewellery at any
airports, on the airside of the airport;
5.3.
Coin
Risk Equity, meaning 100% of the issued share capital held by Protea
Coin in Coin Risk Management (Pty) Ltd (“Coin Risk”)
together with all claims which Protea Coin has against Coin Risk as
at the effective date; and
5.4.
Protea
Coin and Smart Solution Holdings (Pty) Ltd (“Smart Solutions”)
in respect of the Coin Cameos Equity. Coin Cameos
Equity means 100%
of the issued share capital of Coin Cameos (Pty) Ltd (“Coin
Cameos”) held as to 74.9% by Protea Coin
and 25.1% by Smart
Solutions together with all claims which Protea Coin and Smart
Solution have against Coin Cameos as at the effective
date.
6.
The businesses to be
acquired are controlled by Protea Coin Group.
Proposed
transaction
7.
In terms of the Sale
Agreement, Fidelity Cash Solutions and Fidelity Security Services
intend to acquire the following from the
primary target firms: (i)
shares in and claims against Coin Cameos and Coin Risk; and (ii) the
Designated Division, comprising
the Designated Assets, but excluding
certain assets and liabilities as referred to in the Sale Agreement.
Post-merger, Fidelity
Cash Solutions and Fidelity Security Services
will own and solely control the Designated Division, Designated
Assets, Coin Risk
and Coin Cameos.
8.
The activities of the
merging parties overlap in the supply of products and services
relating to cash management In particular,
the activities of the
merging parties overlap in the provision of the following services:
®
cash handling devices;
•
CIT
services, further segmented into (i) wholesale CIT services; (ii)
national retail CIT services; (iii) regional/local CIT services;
(iv)
ATM CIT services; and (v) government/public sector CIT services; and
•
cash
processing services, further segmented into (i) wholesale; (ii)
national retail; and (iii) ATM services.
9.
The Commission found
that the proposed transaction is unlikely to give rise to any
unilateral effects in any relevant market, but
found that the
proposed transaction raises significant coordination concerns. We
shall not deal in any great detail with the Commission’s
coordination concerns, but provide a short summary. The Commission's
main post-merger coordination concern related to the shareholding
interest of FirstRand Limited (“FirstRand”) in various
competing security companies and therefore the Commission insisted
on
certain behavioural conditions to restrict the flow of competitively
sensitive information amongst competing security companies
post-merger.
10.
The Commission was,
more specifically, concerned that commercially sensitive information
may be exchanged between five security
companies, namely Fidelity
Security Group, Protea Coin Group, G4S, Servest and SBV after the
proposed merger. The security companies
such as Protea Coin Group,
SBV, Fidelity Security Group and G4S are competitors in the security
markets for cash handling devices;
CIT services; and cash processing
services. In addition, the Commission found that these players
(including Servest) also compete
in other security markets such as
guarding services, armed response units and technical security
services (such as installation
and monitoring of CCTV footages).
11.
The Commission
considered the complex cobweb ownership structure of the merging
parties post-merger, including FirstRand’s
direct and indirect
control of certain firms. The Commission found that FirstRand has an
indirect shareholding interest in Fidelity
Security Group and an
indirect shareholding interest in G4S, SBV and Servest.
Post-implementation of the transaction, Fidelity
Security Group will
also have acquired various businesses of the Protea Coin Group.
Through its shareholding interest in Fidelity
Security Group,
FirstRand will therefore also acquire some shareholding interest in
the businesses of the Protea Coin Group that
form part of the
proposed transaction. The Commission was concerned that FirstRand’s
involvement in these competing security
companies could likely lead
to the sharing of competitively sensitive information which could
make it easier for the firms to coordinate
their actions, whether
tacitly or explicitly, after the proposed merger,
12.
We concur with the
Commission’s finding that the proposed merger raises
significant post-merger coordination concerns. However,
the
Commission and the merging parties proposed a set of conditions to
address these concerns. We have accepted the proposed set
of
conditions as adequate to address the postmerger coordination
concerns. The conditions include the following:
12.1.
The merged entity
shall, within six months of the Tribunal’s order in respect of
the imposed conditions, amend their memoranda
of incorporation to
incorporate a requirement to the effect that no person who serves on
the board of directors of SBV, G4S and/or
Servest shall be eligible
to be appointed to, or serve on, or be invited to participate in any
meeting of any board of directors
of the merged entity. For the sake
of clarity, reference to the boards of directors shall include any
sub-committee of the board
of directors.
12.2.
The merged entity
shall, in writing, within 60 days of the Tribunal's order in respect
of these conditions, request that its shareholders
who form part of
the FirstRand group, or who directly or indirectly report to any of
the merged entity’s competitors, provide
a written undertaking
within 30 days, that any direct or indirect reporting to FirstRand or
any of the merged entity’s competitors,
does not facilitate the
sharing of competitively sensitive nonpublic information between
the merged entity, G4S, SBV and/or
Serves!
12.3.
In the event that its
shareholders refuse to provide such written undertaking, the merged
entity will notify the Commission in writing
of their refusal. The
written notification must be provided within seven days of the merged
entity receiving such refusal and must
include the following
information:
12.3.1.
the steps taken by
the merged entity to procure the written undertaking; and
12.3.2.
the reasons given by
its shareholders for refusing to provide the written undertaking.
12.4.
Within three months
after the order of the Tribunal, the merged entity shall develop,
adopt and implement a compliance policy aimed
at ensuring that the
sharing of competitively sensitive non-public information with
competitors, does not occur. The compliance
policy shall be subject
to the Commission's approval.
Public
interest
13.
The Commission also
identified public interest concerns, i.e. employment concerns,
arising from the proposed transaction. We deal
with these concerns
immediately below. We note that the Commission, however, did not
identify any other public interest concerns
resulting from the
proposed transaction other than employment concerns.
14.
In their merger
filing the merging parties submitted that the proposed transaction
would result in the retrenchments of approximately
300 employees in
the CIT division of Fidelity Security Group. According to the merging
parties, these retrenchments are part of
the rationalisation process
of the merging parties’ respective CIT operations. The
rationalisation process will include the
“parking” of a
number of vehicles as a result of the need by Fidelity Security
Group to streamline
the scheduling of the merged entity’s CIT operations by
removing certain duplicated routes and stops.
15.
The merging parties
however, at a later stage, revised the number of employees to be
retrenched as a result of the proposed merger
downwards from 300 to
240 employees. The breakdown of the figure of 240 employees is as
follows: (i) 180 employees based on vehicles
to be parked; and (ii)
60 support staff due to the consolidation of branches.
16.
The Commission's
investigation further revealed that Fidelity Security Group
contracted Price Waterhouse Coopers inc. (“PWC”)
to
determine
inter
alia
the potential
number of employees to be retrenched as a result of the proposed
transaction by considering overlapping branches and
schedules for the
merging parties CIT operations. This resulted in the above-mentioned
revised number of 240 employees likely to
be retrenched as a result
of the proposed merger. The Commission found no evidence suggesting
that PWC’s approach to calculating
the 240 number was either
flawed or against industry standards and concluded that PWC in its
analysis followed a rational approach.
17.
The Commission
further concluded that the 240 employees likely to be retrenched as a
result of the proposed merger represent a substantial
number (i.e.
the loss of employment is of a substantial magnitude) under the
current economic climate and given the limited short-term
prospects
of reemployment for these employees. According to the
Commission, the retrenchment of 240 employees would represent
approximately 10% of the employees in the merged entity’s CIT
division.
18.
In terms of potential
countervailing public benefits, the merging parties submitted that
the anticipated job losses are rationally
connected to the
efficiencies to be realised from the proposed transaction. However,
the Commission concluded that no evidence
was submitted on how the
efficiencies to be realized are going to be passed-on to customers.
The Commission also indicated that
the merging parties did not rely
on the so-called failing firm defence. The Commission ultimately
concluded that the merging parties
did not furnish convincing
arguments to show
that the efficiencies to be realized from the proposed transaction
are of a public benefit rather than a private
one.
19.
We concur with the
Commission’s finding that the proposed merger raises
significant employment concerns. However, as stated
above, the
Commission and the merging parties agreed to a set of conditions to
address these concerns.
20.
At the hearing of the
matter we requested clarification regarding certain of the proposed
conditions and suggested certain drafting
changes to be made to the
wording of the proposed set of conditions. The Commission and the
merging parties responded to the Tribunals
questions/queries and
submitted a revised set of conditions, which we have accepted and
imposed. The imposed conditions include
the following:
20.1.
The
merged entity shall not, as a result of the proposed merger, retrench
any employees in South Africa for a period of 18 months
after the
implementation date of the proposed merger.
[2]
2002. As indicated
above, the merging parties submitted that the proposed transaction
may result in the retrenchment of a maximum
number of 240 employees
in the CIT business of the merged entity as follows: (i) 180
employees based on the number of vehicles
which will be parked as a
result of the duplication of schedules arising from the proposed
transaction; and (ii) 60 support staff
employees due to the
consolidation of certain branches.
20.3.
All
Affected Employees
[3]
shall be offered employee study assistance to the maximum value of
R15 000 per employee to assist them to take skilling courses
offered
by institutions other than the in-house courses offered by
Fidelity. A
mechanism for administering this condition must be set up by the
merged entity.
20.4,
The
Affected Employees shall furthermore be the first to be offered
employment
[4]
within Fidelity for vacant positions and this will occur before the
vacant positions are advertised externally. This offer to Affected
Employees will continue for a period of 12 months after the expiry of
the moratorium on job losses.
20.5.
Monitoring by the
Commission of the proposed conditions includes the requirement that
the merged entity shall circulate a copy of
the imposed conditions to
all their employees and registered trade unions in South Africa
within 10 business days of the Tribunal’s
order in respect of
the conditions.
21.
We are satisfied that
the above conditions adequately address and are in proportion to the
employment concerns resulting from the
proposed transaction.
CONCLUSION
22.
For all of the above
reasons we have approved the proposed merger conditionally. The
conditions that we have imposed are attached
hereto marked
“
Annexure
A”,
27
May 2015
Andreas
Wesseis
Yasmin
Carrim and Anton Roskam concurring
Tribunal
Researcher : Ipeleng Selaledi and Ammara Cachalia
For
the merging parties : Adv. Mike van der Nest instructed by Cliffe
Dekker Hofmeyr
For
the Commission : Anisa Kessery
[1]
“Designated Assets” include fixed assets, accounts
receivables, customer database, the
goodwill,
IP, licences and property leases of the Designated Division as
described in the Sale
Agreement.
[2]
Retrenchments do not include voluntary separation arrangements and
voluntary early retirement packages.
See
paragraph 1.1 of the imposed set of conditions. “Affected
Employees” refers to the above- mentioned maximum number
of
employees that may be retrenched as a result of the merger (see
paragraph 20.2 above) and only 18 months after the implementation
date of the proposed merger (see paragraph 20.1 above).
[4]
Employment of the Affected Employees will be subject to them meeting
the standard requirements for employment in such vacant
positions.