competition trlbunal
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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM244Mar17
In the matter between:
WBHO CONSTRUCTION (PTY) LTD
FAKU FAMILY ENTERPRISES (PTY) LTD
and
GRINDROD RAIL CONSTRUCTION (SA) (PTY) LTD
GRINDROD RAIL CONSTRUCTION COMPANY (PTY) LTD
Panel : AW Wessels (Presiding Member)
Acquiring Firms
Target Firms
: Prof. Fiona Tregenna (Tribunal Member)
: Medi Mokuena (Tribunal Member)
Heard on
Order Issued on
Reasons Issued on
Approval
: 28 June 2017
: 28 June 2017
: 28 July 2017
REASONS FOR DECISION
[1] On 28 June 2017, the Competition Tribunal ("Tribunal") approved the
proposed transaction involving WBHO Construction (Pty) Ltd ("WBHO
Construction"), Faku Family Enterprises (Pty) Ltd ("FFE"), Grindrod Rail
Construction (SA) (Pty) Ltd ("GRCSA") and Grindrod Rail Construction
Company (Pty) Ltd ("GRCC").
[2] The reasons for the approval of the proposed transaction follow.
Parties to the proposed transaction
Primary Acquiring Firms
[3] The primary acquiring firms are WBHO Construction and FFE. Both these
companies are incorporated in accordance with the laws of the Republic of
South Africa.
[4] WBHO Construction is a wholly-owned subsidiary of Wilson Bayley Holmes
Ovcon Limited ("WBHO"). WBHO is listed on the Johannesburg Securities
Exchange ("JSE") and its shares are widely traded. WBHO controls various
firms in South Africa and abroad.
[5] WBHO Construction is active in the construction industry where it offers a
spectrum of services across four major operating divisions. Relevant to the
competition assessment of the proposed transaction are its activities in the
provision of civil engineering in the rail sector.
[6] FFE is wholly-owned by the Ntinga Investment Trust.
[7] FFE is an investment holding company with subsidiaries active in the
construction, property, coal and petrochemicals and related logistics services
sectors.
Primary Target Firms
[8] The primary target firms are GRCC and GRCSA. Both these companies are
incorporated in accordance with the company laws of South Africa.
[9] GRCC is a wholly-owned subsidiary of Grindrod Holdings (South Africa) (Pty)
Ltd which is ultimately controlled by Grindrod Limited, a firm listed on the JSE.
GRCSA is a wholly-owned subsidiary of GRCC.
[10] GRCC is an investment holding company active through its subsidiaries,
GRCSA, GRC Admin and GRC Plant. GRCSA is active in the construction,
rehabilitation, electrification and maintenance of rail networks. It engages
2
primarily with state-owned companies and rail and port authorities. In the
private sector, GRCSA engages with local and international entities, being
primarily large industrial or mining clients that require physical rail
infrastructure and associated civil works for mines or substantial
manufacturing plants. GRC Admin and GRC Plant provide in-house support to
GRCC's business activities within and outside of South Africa. GRC Admin is
responsible for the administrative and financial management of GRCC and
GRC Plant is responsible for the hire of plant and machinery for use by
GRCC.
Proposed transaction and rationale
[11) The proposed transaction involves a series of inter-conditional and indivisible
steps that will ultimately result in WBHO Construction holding 85% of the
shares in GRCC, and retaining a 49% shareholding in GRCSA. FFE will have
a 51% shareholding in GRCSA and a 10% interest in GRCC.1
[12) In terms of rationale, WBHO and FFE submitted that they foresee growth in
the rail sector in South Africa and that the proposed transaction represents an
opportunity for FFE to partner with experienced players to take advantage of
the anticipated growth.
[13) Grindrod, the seller, indicated that it decided to exit the rail and locomotive
assembly business while retaining the rail operating business.
Impact on competition
[14) The Competition Commission ("Commission") found that the merging parties
operate at different levels of the value chain in the rail construction sector,
with the acquiring firm providing civil engineering for rail construction and the
target firm providing the laying of the rail tracks. To this end the services
provided by the merging parties are complementary.
1
See merging parties' Joint Competitiveness Report, pages 64 and 65 of the record .
3
[15] The Commission furthermore specifically considered potential post-merger
bundling, but found that competition concerns were unlikely due to bundling
since customers dictate the scope of work to be covered in a project and even
if a tender requires a firm to provide a package of services, market
participants submitting bids have the option to outsource the competencies
which they lack to third parties. This, along with the bidding nature of the
relevant market and presence of a number of players, on the Commissions
version, would constrain the merged entity from exercising market power.
[16] The Commission concluded that the proposed transaction is unlikely to
substantially prevent or lessen competition in the affected markets. We have
no reason to disagree with this conclusion.
Public interest
Employment
[17] The merging parties in their merger filing confirmed that the proposed
transaction will have no negative effects on employment and particularly that
there will be no job losses at either of the merging parties as a result of the
proposed transaction.2
[18] The Commission in its report stated that a copy of the non-confidential merger
filing was served on the National Union of Mineworkers ("NUM"}, Ms
Yongezwa Sali, representing FFE employees and the National Union of
Metalworkers of South Africa ("NUMSA"). NUM and the FFE employees'
representative did not raise any concerns. However, NUMSA indicated that
there were job losses at the merging parties prior to the notification of the
proposed transaction and the Commission's investigation confirmed that there
were retrenchments in a number of entities of the merging parties since 2015.
[19] The merging parties confirmed that there were job losses at WBHO
Construction, Masakeni (a subsidiary of FFE) and at GRCSA in the past two
years. The merging parties however argued that these retrenchments were
2 Merger Record, pages 7 and 70.
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the result of operational restructuring and not as a result of the proposed
transaction.
[20] After considering the strategic documents of the merging parties, the
Commission concluded that the past job losses that occurred are not merger
specific, i.e. they are unrelated to the proposed transaction, stating that the
retrenchments were the result of insufficient workload and there being no new
work / contracts in the relevant area.
[21] Noting the concerns in the merger record raised by NUMSA the Tribunal
invited NUMSA to make representations at the hearing.
[22] The legal representative of NUMSA at the hearing indicated that NUMSA's
submissions were ne<;:essitated by the fact that the merging parties had not
been forthcoming with information pertaining to the details of certain recent
retrenchment notices and therefore NUMSA was unable to assess whether or
not the notices were done in contemplation of the proposed transaction.3
[23] The Tribunal, with the legal representative of NUMSA present, requested
details from the merging parties regarding the number of retrenchments at
each of WHBO, Masakeni and GRCSA, the reasons for the retrenchments, as
well as the timing of the retrenchments relative to the merger negotiations.
The Tribunal also questioned the merging parties regarding potential job
duplication, i.e. duplication of roles, as a result of the proposed transaction.
[24] The merging parties informed the Tribunal that on the target side, GRCC had
no retrenchments in the relevant period. With regard to GRCSA, the merging
parties submitted that there were only nine employees affected and those
employees all accepted voluntary severance packages. They submitted that
this was as a result of a severe lack of projects in the Cape Town region at
Grindrod Rail Construction Cape Town Operations. A decision was taken to
close the Cape Town operations down, because it lost the City of Cape Town
contract and furthermore was unsuccessful in winning PRASA tenders.4
3 Transcript , page 34.
contract and furthermore was unsuccessful in winning PRASA tenders.4
3 Transcript , page 34.
4 Transcript , pages 27 to 29.
5
[25] With regard to Masakeni, a business bought out of business rescue in April of
2016, the merging parties submitted that there were approximately 75
employees affected by operational restructuring at Masakeni. However, 20
employees were retained and 50 employees accepted voluntary severance
packages, with ultimately only 5 involuntarily retrenched employees.5
[26] The merging parties also submitted details on the number of past
retrenchments at WHBO and claimed that these retrenchments were the
result of an insufficient workload in different divisions of the business.
[27] The merging parties furthermore submitted that section 189 notices under the
Labour Relations Act were issued by one of the Grindrod subsidiaries,
Grindrod Locomotives, but said that that business does not form part of this
proposed transaction and for all intents and purposes is a completely
separate entity. 6
[28] The merging parties again confirmed (see paragraph 17 above} that the
proposed transaction will not result in any retrenchments and furthermore said
that there is no duplication of jobs that arises as a result of the proposed
transaction.7
[29] Having received details of the merging parties' past retrenchments through
the Tribunal hearing process, the legal representative of NUMSA indicated
that his instructions were to accept the merging parties' submissions to the
Tribunal at the hearing. He stated that if the information differs from what the
Tribunal was told, NUMSA will take appropriate legal steps.8
[30] We have found no evidence suggesting that the past retrenchments at the
merging parties are related to this transaction. However, we did express a
concern regarding the lack of sharing of adequate information on the one
hand by the Commission with NUMSA and, on the other hand, by the merging
s Transcript, pages 26 and 27.
6 Transcript pages 37 and 38.
7 Transcript , pages 32 to 34.
8 Transcript, page 46.
6
parties with NUMSA on retrenchments at the merging parties' entities.9 Any
trade union must be placed in a position to properly assess the potential
implications of a proposed transaction on its members, including the
relationship between past retrenchments at each of the merging parties and
the proposed transaction. Non-transparency on these issues may lead to
postponements of hearings.
Other public interest issues
[31] No other public interest concerns arise from the proposed transaction.
Conclusion
[32] In light of the above, we conclude that the proposed transaction is unlikely to
substantially prevent or lessen competition in any relevant market. In addition
no significant public interest issues arise from the proposed transaction.
Accordingly we approve the proposed transaction unconditionally.
Mr AW Wessels
28 July 2017
Date
Ms M Mokuena and Prof. F Tregenna
Tribunal Case Manager:
For the Commission:
For the Merging Parties:
ForNUMSA :
9 Transcript , pages 39, 40 and 46.
Alistair Dey-Van Heerden
Zintle Siyo
Gomolemo Kekesi of Bowmans
Nkonzo Hlatshwayo of Hogan Lovells {South Africa)
Inc.
7
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