Brief Summary

Competition — Merger approval — Conditional approval of merger between Coca-Cola Beverages Africa Limited and various Coca-Cola bottling operations — Merger subject to conditions addressing public interest concerns — Competition Tribunal finds that negotiated remedies adequately mitigate competition and public interest issues raised by stakeholders.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings were large merger proceedings before the Competition Tribunal of South Africa, in which the Tribunal was required to decide whether to approve a notified transaction and, if so, whether approval should be subject to conditions. The matter culminated in a decision of conditional approval, with reasons subsequently furnished.

The primary acquiring firm was Coca-Cola Beverages Africa Limited (CCBA), described as a newly formed company intended to become a subsidiary of SABMiller plc, with shareholding post-transaction held by SABMiller (57%), Gutsche Family Investments Proprietary Limited (GFI) (31.7%), and The Coca-Cola Company (TCCC) (11.3%). The primary target firms comprised various Coca-Cola and related bottling operations, including Coca-Cola Sabco Proprietary Limited (Sabco), Coca-Cola Fortune Proprietary Limited (CCF), Coca-Cola Shanduka Beverages South Africa Proprietary Limited (CCSB), Waveside Proprietary Limited (Waveside), and Coca-Cola Canners of Southern Africa Proprietary Limited (Canners).

Procedurally, the merger was filed with the Competition Commission on 19 March 2015. The Commission investigated the transaction, engaged with stakeholders (including the Minister of Economic Development) and third parties, and on 17 December 2015 recommended approval subject to conditions. Thereafter, the Tribunal managed a pre-hearing process in which various parties sought to intervene, including the Minister and trade unions (FAWU and NUFBWSAW), as well as other potential interveners. Although the matter was initially set down for an extended hearing (9 to 27 May 2016), negotiations among the merging parties, the Minister, the unions, and the Commission resulted in settlement of the outstanding issues, which obviated the need for a prolonged evidentiary hearing.

The general subject-matter concerned the consolidation of Coca-Cola bottling operations in South Africa into a single bottling entity and the transfer of certain beverage brands, together with associated competition and public interest concerns, particularly in relation to employment, local procurement and localisation, B-BBEE, support for SMMEs, and access to refrigeration/cooler space for smaller rivals in certain retail outlets.

2. Material Facts

The Tribunal treated the notified transaction as having two components. The first was the “Bottling Transaction”, in terms of which various existing Coca-Cola bottling operations (then owned or controlled in different configurations by TCCC, SABMiller’s subsidiary interests, and GFI) would be consolidated into a single bottling entity, CCBA. Post-transaction, SABMiller would hold a controlling interest in CCBA (57%), with GFI and TCCC holding minority interests.

A key factual feature accepted in the Commission’s assessment was the system structure by which TCCC, as the brand owner, supplies beverage concentrate and authorises bottlers under bottler agreements to prepare, package, distribute, and sell TCCC-branded non-alcoholic beverages in defined territories. The merging parties contended, and the Commission accepted, that the bottlers operated under the Standard International Bottlers Agreement (SIBA), which constrains pricing and territorial/customer conduct, and that the acquired bottling plants already exclusively bottled Coca-Cola related products pursuant to these arrangements.

The second component was the “Branding Transaction”, under which SABMiller’s Appletiser and Lecol brands would be transferred to TCCC (or a subsidiary). In South Africa, Appletiser products were manufactured by Appletiser SA and distributed through the TCCC system, while Lecol manufacturing was outsourced and distribution was handled by a logistics provider. The merging parties submitted that this branding transfer did not constitute a merger (or, if it did, would fall below thresholds), but it formed part of the notified transaction as described in the Tribunal’s reasons.

From a competition perspective, the Commission identified a vertical relationship between TCCC (brand owner and concentrate supplier) and the bottlers (manufacturers/distributors), but accepted that post-merger operations would remain materially similar given the ongoing role of TCCC’s bottler agreements. In relation to the branding transfer, the Commission identified a horizontal overlap in the broad non-alcoholic beverages space, but concluded the transfer of ownership of the brands would not materially alter market dynamics and that Appletiser would face the same competition post-merger as pre-merger.

From a public interest perspective, the Commission and the Minister identified concerns relating to employment effects, localisation of procurement, local sourcing of fruit juice concentrate inputs for Appletiser, B-BBEE outcomes, support for downstream SMMEs, owner-driver scheme concerns, and access to refrigeration/cooler space at certain retail outlets where Coca-Cola-supplied fridges might otherwise affect rivals’ ability to compete. These concerns were addressed through negotiated and revised conditions ultimately placed before the Tribunal.

The Tribunal recorded that no evidence was ventilated before it on whether the alleged harms were established or, if established, whether the conditions mitigated them, because the relevant parties reached a settlement. The Tribunal’s approval was therefore based on the existence of an agreed set of conditions supported by the merging parties, the unions, the Minister, and accepted by the Commission.

3. Legal Issues

The central legal questions concerned whether the Tribunal should approve the merger, and if approval was granted, whether it should be conditional and on what terms. This required consideration of the merger’s potential effects on competition and the relevant public interest dimensions raised during the Commission’s investigation and through interventions.

Within the Tribunal’s own description of the process, the dispute ultimately became less about factual contestation on the merits (because evidence was not led) and more about the application of the merger control framework to a matter resolved through negotiated conditions. The Tribunal also addressed procedural participation issues, including the differentiation between parties with a statutory right to participate (the unions and the Minister) and parties requiring leave to intervene, and the scope on which the Minister would be permitted to intervene.

The Tribunal further had to decide how to approach the assessment of conditions that are the product of settlement, which involved a discretionary and evaluative judgment about whether the agreed conditions were facially disproportionate, inappropriate, or irrational relative to the concerns they were designed to address.

4. Court’s Reasoning

The Tribunal explained that the transaction and the concerns it generated had been the subject of an extensive investigative and interlocutory process. It recorded that the Commission initially agreed a set of remedies with the merging parties, but that one issue—refrigeration and coolers—remained contested during the Commission phase. After the Commission recommended approval with conditions, a pre-hearing process unfolded in which the Tribunal managed intervention requests and confined participation to those with standing or granted leave, and it delineated the Minister’s permitted scope of intervention.

The Tribunal then placed emphasis on the fact that, immediately prior to the hearing, negotiations between the merging parties and the Minister resolved all outstanding issues, and FAWU likewise reached an agreement with the merging parties that was extended to NUFBWSAW and accepted. After being afforded an opportunity to evaluate the revised conditions, the Commission indicated that the new conditions satisfied its concerns. On this basis, the Tribunal found that no outstanding disputes remained requiring a prolonged hearing.

In articulating its approach to conditions agreed through settlement, the Tribunal stated that where parties settle disputes over conditions, it generally adopts a deferential approach to reviewing them, unless the conditions appear, on their face, to be disproportionate to the harms alleged to be addressed, or otherwise inappropriate or irrational. The Tribunal expressly recorded that it did not make findings on whether the alleged harms had been established or on the efficacy of the conditions in mitigating those harms, because the matter was resolved through settlement and no evidence was led.

Although the Tribunal did not conduct a full merits evaluation in the reasons, it outlined the Commission’s competition assessment. In relation to the bottling consolidation, the Commission accepted that the transaction was unlikely to materially change competitive conditions because the bottling operations already formed part of the TCCC system and would continue to operate within the constraints of the bottler agreements, with TCCC retaining the ability to control production and distribution parameters through those agreements. In relation to the branding transfer (Appletiser and Lecol), the Commission identified the overlap in non-alcoholic beverages but concluded that the transaction was unlikely to substantially prevent or lessen competition because it largely constituted a transfer of brand ownership without altering the competitive constraints Appletiser faced.

The Tribunal also summarised (for “posterity”) the public interest concerns raised and the types of remedies incorporated into the final conditions, noting that the principal changes from the Commission’s initial conditions to the final negotiated conditions related mainly to coolers/refrigeration and employment, with concessions by the merging parties. The Tribunal considered it unnecessary to make further findings given the settlement basis for approval.

5. Outcome and Relief

The Tribunal conditionally approved the merger on 10 May 2016, with reasons issued on 25 July 2016. Approval was granted subject to a set of conditions agreed upon through settlement negotiations among the merging parties, the Minister, the unions, and accepted by the Commission, which were attached to the reasons as “Annexure A” (non-confidential conditions).

The reasons do not record any order as to costs.

Cases Cited

No case law citations are recorded in the Tribunal’s reasons.

Legislation Cited

Competition Act 89 of 1998 (as amended)

Broad-Based Black Economic Empowerment Act 53 of 2003 (as amended)

Labour Relations Act 66 of 1995 (as amended)

National Small Enterprise Act 102 of 1996

Codes of Good Practice on Broad-Based Black Economic Empowerment, 2013 (published pursuant to the Broad-Based Black Economic Empowerment Act 53 of 2003)

Rules of Court Cited

Rule 39 of the Rules for the Conduct of Proceedings in the Competition Commission

Held

The Competition Tribunal approved the proposed transaction, comprising a consolidation of Coca-Cola bottling operations into CCBA and the transfer of the Appletiser and Lecol brands to TCCC (or a subsidiary), on a conditional basis.

The Tribunal’s approval was founded on the fact that the Commission, the merging parties, the Minister of Economic Development, and the participating trade unions reached a settlement that resolved the competition and public interest concerns raised during the investigation and pre-hearing process. The Tribunal indicated that, where conditions are settled in this manner, it ordinarily adopts a deferential review unless the conditions are facially disproportionate, inappropriate, or irrational, and it recorded that no evidence was led to require adjudication of the alleged harms.

LEGAL PRINCIPLES

The Tribunal applied the principle that in merger proceedings where stakeholders (including the Commission and entitled interveners) resolve disputes through negotiated conditions, the Tribunal will generally adopt a deferential approach to the agreed package of remedies. This approach is qualified by an oversight function: the Tribunal will intervene if the conditions appear, on their face, to be disproportionate to the alleged harms, or inappropriate or irrational.

The reasons reflect the application of merger control analysis distinguishing between vertical and horizontal relationships and evaluating whether a transaction would materially alter competitive dynamics. In particular, the Tribunal recorded the Commission’s conclusion that, given the continuing role of TCCC’s bottler agreements in controlling production and distribution parameters, the consolidation of bottlers into a single entity would maintain key operational features post-merger, supporting a conclusion of no substantial lessening of competition on the facts as assessed by the Commission.

The decision also reflects the statutory merger control framework’s incorporation of public interest considerations (including employment, localisation, empowerment, and participation of smaller firms), and the permissibility of addressing such concerns through behavioural and investment commitments embodied in enforceable merger conditions, monitored through the Competition Commission’s processes (including the complaint mechanism referenced via Rule 39).

Coca-Cola Beverages Africa Limited v Various Coca-Cola and Related Bottling Operations (LM243Mar15) [2016] ZACT 68; [2016] 2 CPLR 822 (CT) (25 July 2016)