Brief Summary

Competition — Merger approval — Wands Investments (Pty) Ltd's acquisition of JD Consumer Finance (Pty) Ltd and JDG Investment Holding Company (Pty) Ltd — Proposed transaction assessed for competition impact and public interest concerns — Horizontal overlap in unsecured credit market identified, but market share post-merger below 10% — No substantial prevention or lessening of competition found — Public interest concerns, particularly regarding employment, addressed with no significant negative impact established — Conditional approval granted by Competition Tribunal.

Comprehensive Summary

Summary of Judgment

Introduction

The matter concerned merger proceedings before the Competition Tribunal of South Africa, in which the Tribunal was required to decide whether to approve a proposed transaction in terms of the merger control regime administered by the Competition Commission and the Tribunal.

The primary acquiring firm was Wands Investments (Pty) Ltd (“Wands Investments”), a shelf company within a broader corporate group referred to in the reasons as the Acquiring Group. The primary target firms were JD Consumer Finance (Pty) Ltd (“JDCF”) and JDG Investment Holding Company (Pty) Ltd (“JDGI”), collectively described as the JD Consumer Finance and Insurance Business, within the JD Group and ultimately within the Steinhoff corporate structure.

The procedural history reflected that the Competition Commission investigated the proposed transaction, identified the relevant overlaps, and considered public interest issues raised during the investigation. The Tribunal heard the matter on 9 March 2016, received the last submission on 18 March 2016, issued its order on 22 March 2016, and later furnished written reasons on 21 April 2016. A trade union, SACCAWU, participated at the Tribunal hearing and raised employment-related concerns.

The dispute concerned the likely competitive effects of the transaction in the relevant market(s) and, more prominently in the Tribunal’s reasons, whether the merger raised public interest concerns, specifically employment concerns, warranting merger conditions.

Material Facts

Wands Investments was described as a shelf company within an acquiring group whose only South African activities comprised an unsecured lending business conducted under the trade name “Capfin”, offering personal loans to South African consumers via Pepkor’s Pep and Ackermans retail stores.

JDCF operated the consumer finance business of the JD Group, including the provision of secured and unsecured credit primarily to customers of JD Group retail chains for purchases made in those stores, with limited credit provision to customers of other Steinhoff group retailers and to customers of certain third-party retailers. JDGI provided micro-insurance products (including credit-related insurance products) to customers of JD Group retail stores, with JDGI having been established to underwrite certain insurance policies sold to retail consumers applying for and obtaining credit from the JD Group.

The proposed transaction was that Wands Investments would acquire the entire issued share capital of JDCF and JDGI from the seller entity, with Wands Investments consequently obtaining control over both target firms upon implementation.

On the competition assessment, the Commission identified a horizontal overlap between the parties in the national market for the provision of unsecured credit. There was no horizontal overlap in insurance, because the acquiring group was not active in that area. The Commission found that the merged entity’s market share in unsecured credit would be below 10%, and that multiple other significant market participants were present, including Nedbank, FirstRand Bank, Capitec Bank, ABSA Bank, Standard Bank of South Africa, and African Bank.

The public interest record included undisputed evidence that the broader JD Group had been engaged in restructuring, including initiatives such as freezing vacancies, redeployments, and reducing staff according to operational requirements. This restructuring was said to have resulted in approximately 3 409 job losses, predominantly in the JD Group’s furniture retail operations, and it was recorded that approximately 2 800 employees accepted voluntary severance packages. It was also placed before the Tribunal that the JD Group intended to close approximately 250 stores, which was likely to affect about 1 500 employees.

SACCAWU represented employees of the JD Group (including JDCF). During the Commission’s investigation and again at the Tribunal hearing, SACCAWU expressed concern that the transaction could lead to retrenchments and sought stringent employment conditions, including a demand that the JD Group reinstate employees retrenched in October 2015. The merging parties’ response, accepted by the Commission in its assessment, was that the relevant restructuring was not merger-specific, having been identified in 2014, with consultations occurring in early 2015, while the proposed transaction was only envisaged toward the end of 2015.

At the Tribunal hearing, SACCAWU relied significantly on the Tribunal’s prior approach in a different transaction involving the consumer finance business of the JD Group, contending that similar conditions should be imposed here, but with a longer moratorium period. The merging parties maintained that job losses in 2015 and those announced in February 2016 were operational and aimed at maintaining the JD Group’s viability rather than being caused by the proposed merger.

Legal Issues

The Tribunal was required to determine whether the proposed transaction was likely to substantially prevent or lessen competition in any relevant market, given the identified horizontal overlap in the provision of unsecured credit. This aspect required an application of competition assessment principles to the market facts and structural indicators placed before it (including market shares and the existence of competitors).

The Tribunal also had to determine whether the proposed transaction raised public interest concerns, and in particular whether there were employment-related concerns that justified imposing conditions. This involved an evaluative judgment about the relationship between ongoing job losses within the seller’s broader corporate group and the specific merger before the Tribunal, and about what conditions were justified to address employee uncertainty while remaining proportionate.

A further issue, arising from the history of restructuring and the parties’ submissions, was how to address allegations or anxieties about merger-specific retrenchments where the evidence did not establish causation, but where significant contemporaneous restructuring created a risk of confusion and dispute. This was principally a question of crafting an administrable remedial framework rather than resolving a disputed factual causation finding on the merits.

Court’s Reasoning

On the competition assessment, the Tribunal accepted the Commission’s identification of a horizontal overlap in unsecured credit and noted the absence of overlap in insurance. It placed weight on the Commission’s finding that the merged entity’s market share would be below 10% in the relevant national market and that several other major financial institutions operated in the same space. On this basis, the Tribunal concurred with the Commission that the transaction was unlikely to substantially prevent or lessen competition in any relevant market.

On public interest, the Tribunal agreed with the Commission’s conclusion that there were no significant public interest concerns generally, but it treated employment as requiring specific attention. While the parties asserted that the proposed transaction would not negatively affect employment and that the acquiring group intended to continue the target businesses “as usual,” the record demonstrated substantial ongoing and planned restructuring in the broader JD Group, including historical job losses and contemplated store closures.

The Tribunal stated that it found no evidence that retrenchments to date within the broader JD Group were related to the proposed merger. At the same time, it considered SACCAWU’s submissions about employee insecurity, the ongoing restructuring environment, and the risk of future retrenchments being perceived as merger-related. In that context, the Tribunal characterised the imposition of conditions as serving transparency and certainty for affected employees.

As to the appropriate design of conditions, SACCAWU sought a five-year moratorium on merger-related retrenchments, whereas the merging parties contended for a moratorium of no more than one year. The Tribunal stated that it found no justification for either extreme position and selected a two-year period as the appropriate balance.

In addition, the Tribunal crafted an evidentiary and enforcement framework for the condition during the two-year “Merger Condition Period.” It recorded that, to avoid unnecessary compliance burdens given ongoing restructurings at the seller, retrenchments during the condition period would be presumed not to be merger-specific. The Tribunal then set out how that presumption could be challenged: if employees or their representatives alleged that retrenchments were merger-specific, they bore the burden to rebut the presumption and prove merger-specific causation, after which the Commission would investigate and, if an apparent breach were found, the matter would be dealt with under the enforcement mechanism referenced by the Tribunal.

Finally, the Tribunal required that the merging parties circulate the imposed conditions to employees and their representatives within a specified period, reflecting the Tribunal’s focus on ensuring that employees were informed of protections and procedures.

Outcome and Relief

The Tribunal approved the proposed transaction, finding it unlikely to substantially prevent or lessen competition in any relevant market.

Approval was granted subject to employment-related conditions, principally that the merging parties would not retrench any employees as a result of the proposed merger for a period of two years from the implementation date, with specified qualifications as to what constitutes retrenchments for purposes of the condition and an administrable framework for disputes about whether retrenchments are merger-specific.

The reasons did not record any costs order.

Cases Cited

Merger involving RCS Cards Proprietary Limited and The Consumer Finance Business of the JD Group, Tribunal Case No. LM193Feb15/020644 (conditionally approved on 20 May 2015).

Wands Investments (Pty) Ltd v JD Consumer Finance (Pty) Ltd and Another (LM210Jan16) [2016] ZACT 40; [2016] 1 CPLR 281 (CT) (21 April 2016).

Legislation Cited

No legislation was expressly cited in the provided reasons.

Rules of Court Cited

Rule 39 of the Competition Commission Rules.

Held

The Tribunal held that the proposed acquisition of JDCF and JDGI by Wands Investments was unlikely to substantially prevent or lessen competition in the national market for unsecured credit, given the merged entity’s low market share and the presence of multiple significant competitors.

The Tribunal further held that, although there was no evidence that ongoing retrenchments within the broader JD Group were caused by the proposed merger, employment-related anxieties warranted conditional approval to provide transparency and certainty. It therefore imposed a two-year moratorium on merger-specific retrenchments, coupled with a presumption that retrenchments during that period were not merger-specific, subject to rebuttal by affected employees or their representatives and investigation and enforcement processes involving the Commission.

LEGAL PRINCIPLES

The Tribunal applied the principle that a merger may be approved where it is unlikely to substantially prevent or lessen competition in any relevant market, particularly where structural indicators such as low post-merger market share and the presence of significant competitors support the conclusion that competitive harm is unlikely on the facts placed before it.

The Tribunal also applied the principle that, even where competition concerns do not warrant prohibition, a merger may be approved subject to conditions to address public interest concerns, including employment concerns, where such conditions are considered appropriate to promote certainty and transparency in a context of workforce insecurity and contemporaneous restructuring.

In formulating employment protections, the Tribunal applied an administrability-oriented approach to merger conditions in circumstances where retrenchments may occur for operational reasons independent of the merger. It endorsed a conditional framework in which retrenchments during a defined period were presumed not to be merger-specific, while allowing employees or their representatives to rebut that presumption and placing an alleged breach within a specified procedural enforcement pathway.