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[2015] ZACT 120
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RTT Group (Pty) Ltd v Courierit SA (Pty) Ltd and Another (LM105Aug15) [2015] ZACT 120; [2015] 2 CPLR 668 (CT) (15 October 2015)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM105Aug15
In
the matter between:
RTT
GROUP
(PTY)
LTD
Acquiring Firm
And
COURIERIT
SA (PTY) LTD
WAREHOUSEIT
(PTY)
LTD
Target
Firms
Panel
: Yasmin Carrim (Presiding Member)
: Mondo Mazwai (Tribunal
Member)
: Medi Mokuena (Tribunal
Member)
Heard
on
: 23 September 2015
Order
Issued on
: 23 September 2015
Reasons
Issued on
: 15 October
2015
Reasons
for Decision
Approval
[1]
On 23 September 2015, the Competition Tribunal ("Tribunal")
conditionally approved the merger between RTT Group (Ply)
Ltd ("RTT")
and Courierit SA (Pty) Ltd ("Courierit") and Warehouseit
(Pty) Ltd ("Warehouseit").
[2]
The reasons for the conditional approval follow.
Parties
to transaction and their Activities
Primary
acquiring firm
[3]
The
primary
acqumng
firm
is
RTT,
a
private
company
incorporated
under
the
company laws
of
South
Africa. RTT
is
controlled
by
RTT
Holdings
(Ply) Ltd
("RTT
Holdings").
[1]
RTT controls
Old
RTT Group
(Ply)
Ltd,
Old
RTT
Holdings
(Pty)
Ltd and
Revert Risk
Management
Services
(P
l
y)
Ltd
("Revert").
[4]
RTT is an integrated logistics and distribution company
that offers secure transportation, warehousing
and
distribution and other value added services throughout South Africa.
RTT delivers its integrated offering through the following
three
service groups:
•
Express parcels and fine
distribution which focuses on high value goods;
•
Contract logistics
services which provides closed distribution, warehousing and
client specific solutions;
•
Risk management
and security services in-house
and
to third-party companies including
courier and logistics companies.
[5]
RTT also offers goods in transit insurance as an ancillary service to
its core logistics services.
[6]
For
the
sake
of
completeness,
the
merging
parties
have
provided
details
regarding
the activities of RTT
Holdings'
shareholders. Ethos
is
a
private equity investment
fund which
focuses
on
acquisitions
of equity
interests
in management
buy
outs.
Relevant
to
the
proposed
transaction
is the fact
that
GEPF
has
non-controlling
interests
in other
companies
which
operate
in the
broader
logistics
market.
[2]
ADP
II
is a
private
equity
company
established
with
the
objective
of
building
a
diversified
pan
African
portfolio
of
private
equity
investments.
Primary
target
firms
[7]
The target firms are Courierit and Warehousit which are both private
companies registered in accordance with the laws
of South
Africa.
[8]
Courierit provides domestic courier services
whilst Warehouseit provides storage,
pick and
pack operations and other value add services for a variety of
customers including Courierit.
Proposed
transaction
and
rationale:
[9]
In terms of the proposed transaction, RTT intends to acquire 70% of
the issued share capital from each of the target firms.
Post-merger
RTT will control the target firms.
[10]
RTT submits that the proposed transaction ties in with its growth
strategy to acquire a majority stake in complimentary companies
active in the logistics services industry. The target firms
submit that the transaction will enable them to form part of
a
company that provides extensive courier services with a more
established transportation and logistics frame work.
Relevant
Market:
[11]
In
defining
the
relevant
product
market, the
Competition
Commission
("Commission")
found
that
both
RTT and
Courierit
operate
in the
markets
for
the
provision
of
courier
and
warehousing
services
which form
part of the
broader
logistics
industry. The Commission based
its
findings on
the
views of
customers
and
competitors
of
the
merging parties
who
indicated
that
courier services differ from
traditional
logistics
services.
[3]
It
was
also
indicated
that
courier
services
are
distinct
from
contract
logistics
and
warehousing
services
which
can
be
procured
separately
from
different
logistics companies. Customers also
stated
that
warehousing
can
be
offered
as
a separate
service
from
an
integrated
logistics
solution
depending
on
customers'
needs.
[12]
In relation to the geographic market, the Commission found that RTT
and the target firms are active throughout South Africa.
Further,
according to competitors of the merging parties, it is important that
suppliers of these services have a national footprint.
[13]
The Commission accordingly assessed the impact of the proposed
transaction on the following markets:
•
The national market for
the provision of courier services;
•
The national market for
the provision of warehousing services;
Impact
on Competition:
[14]
The Commission considered the activities of the merging
parties to determine whether there were any
overlaps between them. It found that a horizontal overlap exists in
the markets for the supply of courier and warehousing services
respectively. In the Commission's view, these overlaps would not
result in competition concerns as the merged entity's post-merger
market shares would be 9.1% (5.4% accretion) in the market for
courier services and 2.0% (0.3% accretion) in the market
for
warehousing services. Moreover, the merged entity would face
significant competition from competitors in both of these
markets post-merger.
[15]
The Commission further found that a vertical relationship exists
between the merging parties as RTT's subsidiary, Revert, currently
supplies security services to the target firms. However, as the
target firms only account for 7% of Revert's total revenue and
Revert
accounts for less than 1% of this market, the Commission found that
the proposed transaction would not result in any foreclosure
concerns.
[16]
The Commission also considered whether the proposed transaction would
result in cross-directorships and potentially facilitate
co-ordination between competitors post merger. This was based on
the fact that GEPF, a shareholder of the RTT Group, has board
representation in various non-controlling portfolio companies
and will be able to appoint directors to the target firms
post-merger. As the merging parties did not raise any objection to a
condition addressing this aspect, the Commission approved the
merger
subject to the condition that the directors appointed to the boards
of the target firms not be appointed to the boards of
the
non-controlling portfolio companies.
Public
interest:
[17]
In relation to employment, the merging parties submitted that the
firms will continue to operate as separate entities post-merger.
Thus
there will be no retrenchments. However, upon considering the merging
parties' strategic documents, the Commission was concerned
that
certain cost saving initiatives may be achieved through consolidation
of the merging parties' operations. More specifically,
that the
consolidation of deliveries and collections as well as the
incorporation of some of Courierit's branches into RTT's existing
facilities would result in retrenchments. When informed of the
Commission's concerns, the merging parties indicated that they were
amenable to a two year moratorium on retrenchments.
[18]
A further employment concern was raised in relation to Courierit's
subcontractors which provide the last leg deliveries where
Courierit
does not have vehicles running. This concern was based on the view
that the merger would have a knock-on negative effect
on employment
as the subcontractors' businesses would run the risk of closure if
the merged entity were to refrain from using them
post-merger. To
remedy this concern, the merging parties agreed to a condition
directing them to continue to use their present
subcontractors for a
period of five years from the approval date of the proposed
transaction.
[19]
The proposed transaction did not raise any other public interest
concerns.
Conclusion:
[20]
In light of the above, we agree with the Commission's analysis and
conclude that the proposed transaction is unlikely to substantially
prevent or lessen competition in the relevant markets and that the
merger should be approved subject to the conditions marked "Annexure
A".
15
October 2015
DATE
_________________________
Yasmin
Carrim
Mondo
Mazwai and Medi Mokuena concurring
Tribunal
Researcher:
Ammara Cachalia
For
the merging parties: Andile
Nikani, Fluxman's Attorneys
For
the Commission:
Maanda Lambani and Kholiswa Mnisi
Annexure
A RTT Group (Pty) Ltd
And
Warehouseit (Pty) Ltd
And
Courierit
SA (Pty) Ltd
CC
Case Number: 2015Jul0371 CT Case Number: LM105Aug15
Conditions
1.
DEFINITIONS
The
following expressions shall bear the meanings assigned to them below
and cognate expressions bear corresponding meanings: -
1.1
"Acquiring
Firm"
means RTT Group (Pty)
Ltd
("RTT");
1.2
"Affected
Employees"
mean the
five hundred and sixty eight (568) employees of Courierit and
Warehouseit, hundred and twenty nine (129) owner-driver contractors
and thirty (30) casuals;
1.3
"Approval Date"
means the date referred to in
the Competition Tribunal's clearance certificate (Form CT 1O);
1.4
"Business
Day"
means any calendar day
which is not a Saturday, a Sunday or an official public holiday in
South Africa;
1.5
"Commission"
means the Competition Commission
of South Africa;
1.6
"Competitively Sensitive Non-Public
Information"
includes but is not limited to pricing information, rebates,
discounts provided to customers, any planned price increase or price
reduction, information on tendering, margin information, customer
specific information (including but not
limited to sales volumes and sales value,
service level agreements),
investment strategies,
advertising,
marketing,
promotional strategies, business plans and expansion plans.
1.7
"Conditions"
mean these conditions;
1.8
"Courierit"
means Courierit SA (Ply) Ltd;
1.9
"GEPF"
means the Government Employee Pension
Fund;
1.10
"Implementation
Date"
means
the date, occurring after the Approval
Date, on which the Merger is implemented
by the Merging
Parties;
1.11
"Labour
Relations Act"
means
the Labour Relations Act No. 66 of
1995 (as amended);
1.12
"Merging
Parties"
means RTT and
Courierit and Warehouseit;
1.13
"Non-Controlling
Portfolio
Companies"
means Barloworld Limited, Eqstra Limited, Imperial Holdings
Limited, Grindrod Limited, Super Group Ltd and Trencor Limited;
1.14
"PIC"
means Public Investment Corporation Limited;
1.15
"Merger"
means the acquisition
of majority interest by RTT over
Courierit and Warehouseit;
1.16
"Target
Firms"
means Courierit
and Warehouseit;
1.17
"Tribunal"
means the Competition Tribunal of
South Africa.
1.
RECORDAL
1.1.
The Commission's investigation of the proposed merger found that
there are competition
concerns arising from the merger relating to
the sharing of Competitively Sensitive Non-Public Information. GEPF,
represented by
PIC has non-controlling interests in Non-Controlling
Portfolio Companies which operate in the broader logistics industry
and are
competitors of the Target Firms in this market. Although the
interests are non-controlling, the Commission has established that
the GEPF/PIC has the right to appoint directors to the board of each
Non-Controlling Portfolio Company. Moreover, this Merger will
enable
GEPF/PIC to appoint directors to the boards of the Target Firms.
Therefore post-merger this structure of cross directorships
raises
the likelihood for the sharing of Competitively Sensitive Non-Public
Information. In addition, the proposed merger raises
public interest
concerns, particularly relating to employment.
1.2.
Furthermore, Courierit is currently using sub-contractors to
distribute parcels on
its behalf. RTT has vehicles running in the
same routes. Post-merger, it is the intention of the acquiring firm
to conduct Courierit's
inter-branch transfers and distribution. This
will result in the existing Sub-Contractors or third party service
providers currently
distributing parcels on behalf of Courierit
losing the Courierit business. This is likely to result in
significant public interest
concerns, in particular job losses.
In order to address these concerns, the Commission and the merging
parties have agreed on a
set of remedies which seek to address these
concerns.
1.3.
In light of the above concerns, the Commission recommends that this
Merger be approved
subject to the Conditions as set out below.
2.
CONDITIONS
TO THE APPROVAL
OF THE
MERGER
2.1.
INFORMATION
SHARING
2.1.1.
No board member appointed to the board of directors of the
Target Firms by
the PIC shall be appointed to serve as a member of
the board of directors of any of the Non-Controlling Portfolio
Companies.
2.1.2.
The board member appointed by the PIC to the board of directors of
the Target Firms
may not have held such a position in the Non
Controlling Portfolio Companies for a period of one year following
that board
member having ceased to be a board member appointed by the
PIC to the board of directors in the Non Controlling Portfolio
Companies.
2.1.3.
The PIC shall ensure that its investment in the Target Firms is
housed in
a different division/department to its investments in the
Non-Controlling Portfolio Companies, with adequate security and
confidentiality
safeguards preventing the sharing of Competitively
Sensitive Non-Public Information.
2.1.4.
To the extent that a board member appointed by the PIC to the board
of directors
of the Target Firms may have access to Competitively
Sensitive Non-Public Information pertaining
to the
Target
Firms, the PIC and that board member shall ensure that such
Competitively Sensitive Non-Public Information is only reported
to
the respective investment committee of the PIC in closed door
sessions and that such information is aggregated.
2.1.5.
The board member appointed by the PIC to the board of directors of
the Target Firms
shall sign a confidentiality undertaking confirming
that he/she will protect the Competitively Sensitive Non-Public
Information
of the Target Firms. The PIC shall submit a copy of
the confidentiality undertaking to the Commission.
2.1.6.
The PIC shall notify the Commission of any change in the identity of
the board
member appointed by the PIC to the board of directors of
the Target Firms and shall confirm that such board
member
has signed the confidentiality undertaking in line with
paragraph 2.1.5 above. The PIC shall submit a copy of the
confidentiality
undertaking to the Commission.
2.2.
EMPLOYMENT
2.2.1.
The Merging Parties shall not retrench any of the Affected Employees,
as a result
of the Merger for a period of two years from the
Implementation Date. Retrenchments do not include -
2.2.1.1.
Voluntary separations;
2.2.1.2.
Voluntary early retirement packages;
2.2.1.3.
Resignation or retirements in the normal cause;
2.2.1.4.
Unreasonable refusals to be redeployed in accordance with the
provisions of the
Labour Relations Act; and
2.2.1.5.
Any employee who ceases to be employed by the merging parties in the
normal and
ordinary course of business including termination owing to
the expiry of a temporary and/ or fixed term contract.
2.3.
CONDITION
RELATING
TO
THE
SUB-CONTRACTORS
2.3.1. The
Merging Parties undertake that for a period of five years (5) from
the Implementation
Date, that Courierit will continue to use its
current Sub-Contractors on terms and conditions that are no less
favourable than
the terms and conditions as contained in the current
Courierit service level agreement.
3.
MONITORING
OF COMPLIANCE
WITH
THE
CONDITIONS
3.1.
In relation to paragraph 2.1 above:
3.1.1.
The Merging Parties shall inform the Commission of the Implementation
Date within
5 business days of it becoming effective.
3.1.2.
The PIC shall implement the conditions in paragraph 2.1 above within
10 business
days of the Implementation Date and shall submit the
confidentiality undertakings referred to in
paragraphs
2.1.5 and 2.1.6 above to the Commission within fifteen
(15) business days of the Implementation Date.
3.1.3.
Should the PIC dispose of its interests in the Target Firms,
the PIC shall
inform the Commission of the disposal within 30
business days of concluding the final sale agreement in regard
thereto, notwithstanding
whether or not the transaction meets the
requisite merger thresholds for notification and shall submit a
signed copy of such final
sale agreement to the Commission as proof
thereof.
3.2.
In terms of paragraph 2.2 above,
3.2.1.
The Merging Parties shall inform the Affected Employees of the
Conditions
in paragraph 2.2 above within five (5) business days of
the Approval Date
3.2.2.
The Merging Parties, through a senior official must provide an
affidavit attesting
to the notification
referred to in paragraph 2.3.2.1 above, and
provide a
copy of the said notice to the Commission within 10 (ten)
business days of the Approval Date.
3.2.3.
The Merging Parties shall submit a report on an annual basis, on the
anniversary
of the Approval Date confirming that none of the Affected
Employees have been retrenched as a result of the Merger. The report
shall be accompanied by an affidavit from a senior official of the
Merging Parties, confirming the accuracy of the information contained
in the report.
3.2.4.
The first report shall be submitted on the anniversary of the
Implementation Date and the final report a year thereafter.
3.3.
In order to monitor the Merging Parties' compliance with the
condition set out in
clause 2.3. 1:
3.3.1.
The Merging Parties shall circulate a copy of these Conditions to
Courierit's Sub-Contractors
within 5 business days of the Approval
Date.
3.3.2.
The Merging Parties, through a senior official must provide an
affidavit attesting
to the notification referred to in paragraph
3.3.1 above, and provide a copy of the said notice to the Commission
within 10 (ten)
business days of the Approval Date.
3.3.3.
The Merging Parties shall report to the Commission on an annual
basis, on the anniversary
of the Implementation Date indicating
that the service level agreements with the Sub-Contractors are still
in place. This
report shall be accompanied by an affidavit from a
senior official attesting to the accuracy of the information
contained
in the report.
4.
GENERAL
4.1.
All
correspondences
in
relation
to
these
conditions
must
be
submitted
to
the
following
e-mail
address:
merqerconditions@compcom.co.za.
4.2.
Any employee who believes that his/her employment with the Merging
Parties has been
terminated in contravention of these Conditions may
approach the Commission with his or her complaint.
4.3.
In the event that the Merging Parties appear to have breached the
above Conditions
or if the Commission determines that there has been
an apparent breach by the Merging Parties of any of the above
Conditions, this
shall be dealt with in terms of
Rule 39
of the Rules
for the Conduct of Proceedings in the Commission read together with
Rule 37
of the Rules For the Conduct of Proceedings in the Tribunal.
4.4.
The merging parties shall be entitled, upon good cause shown, to
apply to the Tribunal
for a waiver, relaxation, modification and/or
substitution of one or more of the conditions.
5.
DURATION
5.1.
The Conditions set out in clause 2.1 shall remain in effect for as
long as PIC has
an interest in the Target Firms.
5.2.
The Conditions set out in clause 2.2 shall remain in effect for a
period of 2 years
from the Implementation Date.
[1]
RTT Holdings' shareholders include: Ethos Fund
VI
("Ethos"), Government Employees Pension Fund ("GEPF"),
Africa Development Partners II
L.P
("ADP"),
the Management and various management trusts and the BEE Staff
Trust. None of these shareholders control RTT
Holdings as their
respective shareholdings are all under 50%.
[2]
These companies include: Barloworld Limited,
I
mperial
Holdings Limited, Grindrod Limited and Super Group Limited.
[3]
Courier services
generally
entail the
collection
of
goods from
point A
and
delivery
to point B
whilst traditional
logistics
services
may
include warehousing.