About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Competition Tribunal
SAFLII
>>
Databases
>>
South Africa: Competition Tribunal
>>
2015
>>
[2015] ZACT 126
|
|
Pembani Group Proprietary v Shanduka Group Proprietary Limited (LM041Jun15) [2015] ZACT 126; [2015] 2 CPLR 661 (CT) (18 September 2015)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No:
LM041Jun15
In
the matter between:
Pembani
Group Proprietary
Limited
Primary Acquiring Firm
And
Shanduka
Group
Proprietary
Limited
Primary Target Firm
Panel
: Norman Manoim (Presiding Member),
Andiswa Ndoni (Tribunal
Member)
Yasmin Carrim (Tribunal
Member)
Heard
on
: 19 August 2015
Order
issued on
: 19 August 2015
Last
submissions on : 17
September 2015
Reasons
issued on :
18 September 2015
Reasons
for Decision (Public version)
Approval
[1]
On 19 August 2015 the Competition Tribunal ("Tribunal"}
conditionally approved the large merger between Pembani Group
Proprietary Limited (Pembani") and Shanduka Group Proprietary
Limited ("Shanduka Group"). The reasons for approving
the
transaction follow.
Parties
to the transaction
[2]
The primary acquiring firm is Pembani an investment holding firm,
which holds both controlling and minority shareholdings in
a number
of subsidiaries in South Africa. Pembani is ultimately controlled by
Mr Phutuma Nhleko ("Mr Nhleko") and companies
under
his control ("Nhleko Entities"), and
Old Mutual Life Assurance
Company
(South Africa) Limited ("OMLACSA")
1
As a result of their control in Pembani, the Nhleko Entities and
OMLACSA
2
are also acquiring firms in the proposed transaction, along with
Pembani Development Trust ("PDT"), Lexshell 849 (Pty)
Ltd
("Lexshell 849"), Jadeite (Pty) Ltd ("Jadeite"),
3
Standard
Bank of South Africa Limited ("Standard Bank")
4
and Micawber 799 (Pty) Ltd ("Micawber
799"). Micawber has a
shareholding in Shanduka Group.
[3]
Pembani has non-controlling interests in various companies, with
a primary focus on oil, gas and mineral resources
sectors. Of
relevance to the proposed transaction, as
we discuss later,
is
Pembani's 6% shareholding interest in
BHP
Billiton Energy Coal South Africa Proprietary Limited
("BECSA").
5
BECSA
is active in the production and sales of thermal coal in South
Africa. Pembani also has an approximate
1
% shareholding
interest in Exxaro Resources Limited ("Exxaro") and
controlling interests in Pembani Coal Carolina (Pty)
Ltd ("PCC"),
Afric Oil (Pty) Ltd ("Afric Oil") and AfriSam Group (Pty)
Ltd ("AfriSam").
[4]
The primary target firm is Shanduka Group, which is the
holding company for Shanduka Restaurants (Pty) Ltd ("Shanduka
Restaurants) and Shanduka Resources (Pty) Ltd ("Shanduka
Resources"). The merger has different consequences
for these two subsidiaries.
[5]
Shanduka Restaurants holds a single investment; a 100% shareholding
in McDonald's South Africa (Pty) Ltd ("McDonald's SA")
the
well-known fast food outlet. This stake will
remain the only asset retained
post-merger by the Shanduka Group although Pembani will acquire
a non controlling interest in the Shanduka Group.
6
For
ease of reference we have attached to these reasons a post-merger
diagram of how the holdings change in respect of McDonald's
SA marked
Annexure "B".
7
[6]
Shanduka Resources is invested in a wide portfolio of listed
and unlisted companies ranging from resources,
financial
services, energy and telecommunications amongst others. Some of these
interests are purely investment stakes whilst others
allow Shanduka
or its subsidiaries to control or jointly control underlying
operating companies. At the hearing the merging parties
identified
the following companies as one's where the merger would lead to a
change of control or joint control, namely The Coca
Cola Shanduka
Beverages, Shanduka Coal Proprietary Limited ("Shanduka Coal"),
McDonald's SA, McDonald's Property Portfolio,
Diepkloof Square, 18
Acacia Road, Chislehurston, Icon House, Ghana, Attacq (Atterbury),
Mondi Shanduka Newsprint
("Mondi Shanduka")
Zebediela Platinum Exploration Project and lncwala Resources.
8
[7]
In respect of one of the operating companies, Mondi Shanduka, we were
advised at the hearing that although Shanduka holds a
42% stake in
it, this is not a controlling stake and the company is controlled by
Mondi.
[8]
For competition analysis purposes, of relevance to the proposed
transaction is Shanduka Resources' coal mining interest in Shanduka
Coal, which also has mining interests in various companies that are
active in the mining and sale of coal. These companies are
namely:
Kangra Coal Proprietary Limited ("Kangra"), Graspan
Colliery (Ply) Ltd ("Graspan"), Wakefields Investments
(Ply) Ltd ("Wakefields"), Springlake Holdings (Ply) Ltd
("Springlake Holdings"), Springboklaagte Mining (Ply)
Ltd
("Springboklaagte") and Dialstat Trading 115 (Ply) Ltd
("Dialstat"). The other firms relevant to the proposed
transaction is Lexshell 849 (Pty) Ltd ("Lexshell 849), a special
purpose investment-holding vehicle for the empowerment shareholdings
in Umcebo Mining (Pty) Ltd ("Umcebo") and Optimum Coal
Holdings Ltd ("Optimum"). Lexshell 849 does not conduct
any
operational business.
Proposed
transaction and rationale
[9]
The proposed transaction, which will take place through a series of
repurchase, dilution, share exchanges and subscription agreements,
involves the acquisition by Pembani of Shanduka Group's shareholding
and loan claims in a portfolio of investments held by Shanduka
Group.
The proposed transaction will take place in three steps. We have not
burdened this decision with the details of these steps
which
involve many entities and much complexity. Nevertheless for
ease of reference we have attached a post-merger
diagram marked
hereto as Annexure "C".
9
[10]
Our concern is to analyse the transaction after all three steps have
been implemented to consider the impact of the transaction
as finally
consummated. As we go on to consider below there are only two
consequences to be considered; one in relation to competition
and the
other the public interest.
[11]
As far as the rationale is concerned Pembani submits that the
proposed transaction provides it with a platform to create a
sizeable
black controlled natural resources and industrial company, whilst the
Shanduka Group submits that it has identified Pembani
as a suitable
and complementary strategic Black Economic Empowerment ("BEE")
partner.
10
Competition
assessment
Unilateral
effects
[12]
Despite the complexity of the transaction and the number of entities
involved, the only one with an implication for competition
is a
horizontal overlap in the national market for the mining and sale of
thermal coal and access to the export allocation capacity
at the
Richards Bay Coal Terminal ("RBCT"). This is because both
the merging parties, through their shareholding interests
in various
firms (viz. Shanduka Coal and Pembani's investment stake in BECSA)
are active in the market for the mining and sale
of thermal coal, as
well as access to export allocations at RBCT. Typically in past cases
coal mining mergers have distinguished
between two market segments -
what is termed the tied domestic market and the residual market. In
relation to the tied domestic
market, the post-merger market shares
will be less than 14%. In the residual domestic market the
post-merger market shares will
be less than 21%. Note that the
merging firms themselves do not own all this interest, rather this is
the combined market share
of all the operating firms in which they
have controlling and non-controlling interests. The proposed
transaction is thus unlikely
to raise any unilateral effects
competition concerns as the merged entity will continue to be
constrained by firms such as Anglo
Coal (Pty) Limited ("Anglo
Coal") and Exxaro Resources amongst others. In relation to the
export market at RBCT, the
Commission found that the proposed
transaction will increase the export allocation of the merged entity
to less than 15%. The Commission
again concluded that such an
increase does not raise competition concerns. We agree with the
Commission's findings.
Co-ordinated
effects - concerns on information exchange
[13]
As noted Pembani currently holds 6% shareholding interest in BECSA.
This shareholding allows Pembani to appoint a director
to the board
of BECSA. The Commission's main concern was that this cross
directorship between the Shanduka coal entities ('Coal
Entities")
and BECSA would facilitate the sharing of competitively sensitive
information which might diminish competitive
constraints between the
Coal Entities and BECSA, through the medium of Pembani, which would
now have board access to both companies.
BECSA is a significant
player in the coal markets with market shares of approximately 15% in
the tied domestic market and approximately
1%market share in the
residual market as well as having access to RBCT. The Commission thus
recommended that the merger be approved
subject to a condition that
will address its concerns on possible information exchange.
The condition can be
summarised as follows:
[14]
The person elected to sit on the board of directors of BECSA ("the
Pembani BECSA Nominee"), may not at the same time
be -
14.1
a director on the board of directors of any of the Coal Entities; or
14.2
an employee of Pembani occupying a coal marketing position; or
14.3
an employee of the Coal Entities occupying a coal marketing position;
14.4
and the Pembani BECSA Nominee may not have held such a position for a
period of one year prior to the Pembani BECSA Nominee's appointment
to the BECSA board of directors, nor may any person be
appointed to hold a director or coal marketing position during a
period of one year following that person having ceased to be the
Pembani BECSA Nominee.
[15]
Pembani confirmed that it had no
objection to the imposition of
the
conditions, as they are in line with its existing governance practice
not to facilitate the
flow
of competitively sensitive information between
subsidiaries.
[16]
Based on the above analysis, the Commission came to the conclusion
that the proposed transaction will not substantially prevent
or
lessen competition in the identified markets. We concur with the
Commission on this finding.
Public
Interest
[17]
The proposed transaction may have an impact on employment. Post
merger the positions of eight employees may become redundant.
Although the potential job losses are thus merger specific we see no
reason to impose a condition in this respect for the following
reasons. Firstly, the nature of the jobs is such that those who may
be affected are highly qualified with post graduate qualifications.
Secondly, the number affected is small and thirdly, the impact of any
retrenchment will be delayed for at least one year post-
merger and
that those affected had been informed of this. We were also told that
depending on the merged firm's fortunes after
the year, no
retrenchments may be required. These factors suggest that the merger
does not give rise to a substantial public interest
concern in
respect of employment. Nor did the Commission or any of the affected
employees suggest a condition was required.
11
The proposed transaction raises no other public interest concerns.
CONCLUSION
[18]
We agree with the Commission's findings that the proposed
transaction is unlikely to substantially prevent or lessen
competition in the identified market provided concerns over potential
co-ordinated effects are constrained by preventing the possibility
of
information exchange as discussed earlier. We therefore approve the
transaction subject to the conditions attached hereto as
Annexure
"A".
18
September 2015
DATE
___________________
Mr
Norman Manoim
Ms
Andiswa Ndoni and Ms Yasmin Carrim concurring.
Tribunal
Researcher:
Caroline Sserufusa
For
the merging parties:
Paul Cleland of Werksmans
Attorneys and Lital Avivi of Bowman
Gilfillan
For
the Commission:
Rakgole Mokolo
CONFIDENTIAL
Pembani
Group (Proprietary) Limited and Shanduka Resources (Proprietary)
Limited
Cc
Case Number: 2015May0255
1
DEFINITIONS
The
following expressions shalt bear the meanings assigned to them below
and cognate
expressions
bear corresponding meanings:
1.1
"BECSA"
means the company previously named BHP
Billiton Energy Coal Proprietary Limited, recently renamed to South32
SA Coal Proprietary
Limited;
1.2
"Coal
Entities"
mean all companies
that conduct coal mining activities in respect of
whom Pembani will, as a result of
this merger, acquire control, being
Shanduka Coal Investments Proprietary Limited, Shanduka Coal
Proprietary Limited, Umcebo Mining
Proprietary Limited and their
subsidiaries. For the purpose of these conditions, the Coal Entities
include Kangra Coal Proprietary
Limited and Optimum Coal Holdings
Proprietary Llmited and their subsidiaries, if any;
1.3
"Commission"
means the Competition Commission of
South Africa;
1.4
"Competition Act"
means the
Competition Act 89 of
1998
, as amended;
1.5
"Competitively
sensitive information"
includes all pricing infonnation Including but not limited to prices
charged for thermal coal, rebates, discounts and planned thermal
coal
volumes to be supplied; information on thermal coal purchasing
contract; information on production capacity; information on
tendering; information on customers including sales volumes of
clients; marketing strategies of each coal mining entity; investment
strategies; budgets, Business Models and Business Plans; Promotion
Plans and expansion plans.
1.6
"Conditions"
mean these conditions;
1.7
"Implementation Date"
means the date of
implementation of this merger;
1.8
"Merger"
means the transaction notrtied to the
Commission on 19 May 2015 under case
number
2015May0255, in terms of which·
inter
alia
Pembani will acquire the entireIssued
CONFIDENTIAL
share
capital of Shanduka Resources and will acquire 37% of the issued
share capita! of
Shanduka;
1.9
"Merging
Parties"
mean, for the
purpose of these conditions, Pembani, Shanduka and the Coal Entities
(although there are other merging parties, named
ln the merger filing
submission, who are not relevant to these Conditions);
1.10
"Newshelf'
means Newshe!f 1129 Proprietary
Limited; a firm in which Pembani holds 75% of the issued
share capital and which
in turn holds 8o/o of the issued share
capltal of BECSA, a company involved in coal mining activities in
South Africa;
1.11
“
Pembani"
means Pembani Group
Proprietary Umited, one of the primary acquiring firms in this
merger, and its subsidiaries including (without
limitation) Newshe!f;
1.12
"Pembani
BECSA
Nominee"
means the person nominated by Pembani to the BECSA board of
directors from time to time;
1,13
"Shanduka"
means, collectlve!y, Shanduka
Group, Shanduka Resources and their subsidiaries;
1.14
"Shanduka Group" means Shanduka Group Proprietary Limited,
one of the primary
target
firms in this merger; and
1.15
"Shanduka Resources"
means Shanduka
Resources Proprietary Limited, one of the
primary target firms in this merger.
2
CROSS-DIRECTORSHIPS
The
person elected to sit on the board of dlrectors of BECSA ethe Pembani
BECSA Nominee"), may not at the same time be -
2.1
a director on the board of directors of any of the Coal Entities; or
CONFIDENTIAL
2.2
an employee of Pembani occupying a coal marketing position; or
2.3
an employee of the Coal Entities occupying a coal marketing position,
and the Pembani BECSA Nominee may not have held such a
position for a
period of one year prior to the Pembani BECSA Nominee's appointment
to the BECSA board of directors, nor may any
person be appointed to
hold a director or coal marketing position referred to in clauses
2.1,
2.2
or 2.3 during a period of one year following that person having
ceased to be the Pembani BECSA Nominee.
3
LIMITATION IN RESPECT OF COMPETITIVELY SENSITIVE INFORMATION
3.1
To the extent that the Pembani BECSA Nominee has access to
competitively sensitive information pertaining to BECSA, the Pembani
BECSA Nominee shall -
3.1.1
ensure that he/she shall not communicate such competitively sensitive
information to any other Newshelf or Pembani personnel,
or facilitate
or permit the use of such information by Pembani, other than such
information in aggregated, historical or summary
form; and
3.1.2
not communicate any competitively sensitive
information to any person who
is a
director of, or holds a coal marketing position within, any of the
Coal Entities.
3.2
Within three months of the Implementation Date, the Pembani BECSA
Nominee shall slgn a confidentiality undertaking confirming
that
he/she will protect the compeUtively sensitive information of BECSA
and comply with the provisions of clause 3.1.
3.3
Any newly appointed Pembani BECSA Nominee shall sign a similar
confidentiality undertaking within 1 month of being elected
confirming that he/she will protect the competitlvefy sensitive
information of BECSA and comply with the provisions of clause
CONFIDENTIAL
3.1.
Such undertaking signed by any newly appointed Pembani BECSA Nominee
shall be sent to the Commission within 1 month of signature.
4
MONITORING OF COMPLIANCE WITH THE CONDITIONS
4.1
Within three months of the Implementation Date, Pembani shall provide
the Commission
with
-
4.1.1
written confirmation that it has circulated a copy of these
conditions to the current
Pembani
BECSA Nominee and to BECSA;
4.1,2
written confirmation that the current
Pembani BECSA Nominee meets the
requirements set out in clause 2; and
4.1.3
a copy of the confidentiality undertaking referred to ln clause 3.2.
4.2
Within one month of the first and second yearly anniversaries of the
Implementation Date, if there has been any change in the
identity of
the Pembani BECSA Nominee in the preceding twelve months, Pembani
shall -
4,2.1
notify the Commission of that change
and confirm that such person
meets
the requirements set out in clause 2; and
4.2.2
provide the Commission with written confimiation that the new Pembanl
BECSA Nominee has been provided with a copy of these
conditions and
has signed a confidentiality undertaking as required by clause 3.2
and 3.3.
4.3
All correspondence in relation to these conditions must
be submitted to the following
email
address:
mergerconditionsCW compcom.co.za
.
CONFIDENTIAL
5
DURATION
5.1
These Conditions will apply for as long as Pembani through its
shareholding in Newshelf has the right to nominate one director
to
the board of directors of BECSA. Should Pembani no longer have this
right, \t shall notify the Commisslon in writing and provide
proof
that the right no longer exists.
5.2
The Merging Parties may nevertheless apply to the Competition
Tribunal at any time to lift, revise or amend these Conditions on
good cause shown.
1
Mr Nhleko controls Pembani as a result of his direct and indirect
shareholding in Pembani, his indirect shareholding being through
Micawber 766 Proprietary Limited ("Micawber 766") and
Richtrau Number 94 Proprietary Limited (Richtrau"). Micawber
766 and Richtrau are special purpose ring fenced entities that
do not conduct any business activities other than holding
shares in
Pembani.
2
OMLACSA is a registered financial services provider, which provides
a variety of products and services, including long-term and
short-term insurance products, financial planning products and
services, investment and asset management services and fund
administration.
3
Jadeite is a subsidiary of the Chinese Investment Corporation, a
sovereign wealth fund of the People's Republic of China.
4
Standard Bank is a wholly-owned subsidiary of Standard Bank Group
Limited, which is listed on the JSE, and is a leading provider
of
financial services.
5
This interest is held
through a special purpose
vehicle, Newshelf 1129 (Pty)
Ltd ("Newshelf').Pembani holds 75% of
Newshelf which in
turn holds 8% of BECSA. Newshelf can thus nominate one director and
one alternate director to the BECSA board.
6
The Shanduka Group shareholding will be held as follows; [
CONFIDENTIAL INFORMATION
......................................................
.................................................]
7
This Annexure is omitted from the public version as it contains
confidential information.
8
See pages 10-13 of the transcript of hearing.
9
This Annexure is omitted from the public version as it contains
confidential information.
10
See page 13 of Transcript of hearing.
11
See pages 7-8 of the Tra nscri pt.