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[2018] ZACT 12
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K2017235138 (South Africa) (Pty) Ltd v Old Mutual Plc (LM179Sep17) [2018] ZACT 12; [2018] 1 CPLR 283 (CT) (26 January 2018)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case No: LM179Sep17
In
the matter between:
K2017235138
(South Africa) (Pty)
Ltd
Primary
Acquiring Firm
and
Old
Mutual
Plc
Primary Target
Firm
Panel
: Norman Manoim (Presiding Member)
: AW Wessels (Tribunal Member)
: Medi Mokuena (Tribunal Member)
Heard
on
: 10 January 2018
Order
Issued on
: 10 January 2018
Reasons
Issued on
: 26 January 2018
Reasons
for Decision
Approval
[1]
On 10 January 2018, the Competition Tribunal ( Tribunal")
approved the proposed
transaction between K2017235138 (South Africa)
(Pty) Ltd and Old Mutual Plc subject to conditions.
[2]
The reasons for approving the proposed transaction follow.
Parties
to proposed transaction
Primary
acquiring firm
[3]
The
primary acquiring firm is K2017235138 (South Africa) (Pty) Ltd, which
since the notification of the transaction, has had its
name changed
to Old Mutual (Pty) Ltd, and will in due course be converted into a
public company, Old Mutual Ltd ("OM Limited").
[1]
[4]
OM
Limited is a newly incorporated company which does not have direct or
indirect control over any firm, nor is it controlled by
any firm.
[5]
OM
Limited was incorporated with the purpose of facilitating the
internal reorganisation and managed separation of the Old Mutual
Group and to allow for listings on various stock exchanges. OM
Limited will be a non-operating entity and it will act as the holding
company the Old Mutual Group's emerging markets operations.
Primary
target firm
[6]
The
primary target firm is Old Mutual Plc (“OM Plc"), a
company incorporated in accordance with the laws of the United
Kingdom. OM Plc is currently the holding company for the Old Mutual
Group globally and is listed on the London Stock Exchange with
a
secondary listing on the Johannesburg Stock Exchange, nor is it
controlled by any firm.
[7]
For
purposes of this transaction, and to understand the steps involved,
OM Plc holds an interest in the following entities:
a.
100% in Old Mutual Group (UK) Limited
“OMGUK");
b.
OMGUK
in turns holds 100% of the issued ordinary shares in Old Mutual
(Netherlands) BV (”OM BV");
c.
OM
BV in turns holds 100% of the issued ordinary shares in Old Mutual
Group Holdings (SA) (Pty) Ltd ("OMGH"); and
d.
OMGH is the holding company for the Old
Mutual group of companies in South Africa.
[8]
The
Old Mutual Group provides investments, savings, life assurance, asset
management, banking and property and personal insurance
in Africa,
Latin America and Asia. The Old Mutual Group has approximately 18.9
million customers and approximately 64 000 employees.
Proposed transaction and
rationale
[9]
The
proposed transaction is part of the internal reorganisation and
managed separation of the Old Mutual Group. The reorganisation
of the
Old Mutual Group is to take place in 4 (four) Phases.
[2]
The transaction before us relates to Phase 3, which in itself will
take place in 3 (three) steps, and is the final Phase to appear
before the Tribunal.
a.
Step 1
-
OM Limited Creation
This
step entails the incorporation of a new entity, namely OM Limited,
which will acquire the entire shareholding in OM Plc. The
effect of
the creation, is that the shareholders of OM Plc immediately prior to
the implementation of the creation will be the
same shareholders of
OM Limited after the creation.
OM
Limited will have a primary listing on the Johannesburg Stock
Exchange, a standard listing on the London Stock Exchange as well
as
secondary listings on the Malawi Stock Exchange, Namibia Stock
Exchange, and the Zimbabwe Stock Exchange. OM Plc's issued ordinary
shares will be delisted from all the securities exchanges on which
they are currently listed.
b.
Step 2
-
Distribution of OM BV by OM Plc to OM
Limited
OM
Plc will distribute its shares in OM BV to OM Limited in terms of an
in specie
dividend distribution. This results in OM Limited
becoming the direct holding company in OM BV.
c.
Step 3
-
Distribution
of
OMGH by OM BV
to
OM Limited
OM BV will then distribute its
shares in OMGH to OM Limited in terms of a liquidation distribution.
This will result in OM Limited
becoming the direct holding company of
OMGH. OM BV will be liquidated in due course.
Impact
on competition
[10] The
Commission found that the transaction does not result in a horizontal
or vertical overlap as it
relates to an internal reorganization of
the Old Mutual Group. As a result the Commission is of the view that
the proposed transaction
is unlikely to substantially prevent or
lessen competition in any market within South Africa.
[11] We
concur with the Commission that the proposed transaction is unlikely
to substantially prevent or
lessen competition in any relevant
market.
Public
interest
[12]
The merging parties submitted that the
proposed transaction is an internal restructuring and managed
separation of the Old Mutual
Group and as such no retrenchments are
expected as a result of the proposed transaction.
[3]
[13]
The Commission, further noted that the
proposed transaction does not result in a horizontal overlap, thus it
is unlikely that retrenchments
as a result of job duplications shall
arise. The Commission concluded that the proposed transaction will
not result in any job
losses.
[14]
The Department of Economic Development
("EDD") filed a notice of intention to participate in the
merger proceedings in
terms of
section 18(1)
of the
Competition Act,
No. 89 of 1998
, as amended.
[15]
The merging parties and the EDD engaged
in discussions relating to public policy issues identified by the EDD
such as black economic
empowerment, employment and enterprise
development.
[16]
Following their discussions, an agreement was reached, in terms of
which the merging parties have made
certain undertakings to address
the public policy issues. The merging parties and EDD proposed to the
Commission and to the Tribunal
that their agreement be included as
conditions to the approval of the transaction. The Commission did not
object to the imposition
of the commitments as conditions to the
merger. Nevertheless the Commission adapted some of the terms of the
Framework agreement
in order to put them in a suitable form to
constitute conditions. The merging parties and the EDD raised no
objection to this.
[17] At the hearing
before the Tribunal, the merging parties confirmed that in their view
the restructuring
did not give rise to any adverse competition or
public interest concerns.
[4]
Further, the merging parties confirmed, that in their view, the
conditions are not remedial but they are nevertheless content to
be
bound by them. At the hearing, their representative stated:
“
...
my client is very
happy to agree to the conditions or the undertakings
as
set out in the
agreement. The key point though is that these are not remedial
conditions, they're not conditions that are seeking
to
remedy any harm,
certainly from an Old Mutual perspective or from
a
Commission
perspective.
"
[5]
[
18]
The Tribunal was thus not required to assess whether there were any
adverse public interest consequences
of the merger and whether the
conditions proposed remedy theme.
[6]
[19]
The proposed transaction further raises no other public interest
concerns.
Conclusion
[20] In
light of the above, we conclude that the proposed transaction is
unlikely to substantially prevent
or lessen competition in any
relevant market. In relation to public interest, issues that were
raised, were adequately addressed.
Accordingly, we approve the
proposed transaction subject to the public interest conditions
derived from the agreement between the
EDD and the merging parties.
The conditions are annexed hereto.
Mr
Norman Manoim
Mr
AW Wessels and Mrs Medi Mokuena concurring
26 January 2018
Case
Manager:
Kameel Pancham
For the Merging Parties:
Robert Wilson and Werner Rysbergen of Webber
Wentzel
For the Commission:
Sewela Moshoma and Ratshidaho Maphwanya
For the EDD:
Tebogo Malatji of Geldenhuys-Malatji Attorneys
Annexure A
Commission Case No: 2017Sep0008
Tribunal Case No. LM179Sep17
In
the large merger Involving:
Old
Mutual (Pty)
Ltd
Primary Acquiring Firm
Old
Mutual
Plc
Primary Target Firm
MERGER
CONDITIONS
1.
DEFINITIONS
The following expressions shall
bear the meanings assigned to them below and cognate expressions bear
corresponding meanings -
1.1
Act
means
the Competition Act No. 89 of 1998 as amended;
1.2
BBBEE
Act
means the Broad-Based Black Economic
Empowerment Act No. 53 of 2003as amended;
1.3
Black Person
means
persons defined as ,;Black" in the BBBEE Act;
1.4
Black-owned Business
means
a business directly or Indirectly controlled by Black Persons;
1.5
Commission
means
the South African Competition Commission duly established under·the
Act
;
1.6
Competition Authorities
means
a collective reference to the Commission and the Tribunal;
1.7
Conditions
means
these conditions Imposed by the Tribunal In relation to the
Transaction and which are set out in more detail below;
1.8
EDD
means
the Economic Development Department of the Government;
1.9
Framework Agreement
means
the Framework Agreement entered into between OML and the EDD, signed
on 09 January 2018;
1.10
FSC
means the Financial Services Sector Code, a code created for the
financial services Industry in South Africa in terms of Section
9 (1)
of the BBBEE Act In the form applicable as at the Signature Date;
1.11
FTE
means
a full time equivalent associated with the employment of persons in
full or part time employment, whether employed directly,
or In terms
of fixed term contracts or commission agency contracts;
1.12
Government
means
the government of South Africa;
1.13
Implementation Date
means
the date on which the Transaction closes;
1.14
JSE
means the Johannesburg Stock Exchange;
1.15
LSE
means
the London Stock Exchange;
1.16
Managed Separation
means
an Internal reorganisation and managed separation of the Old Mutual
Group, which Is envisaged to take place In four phases,
and In terms
of which, Inter alia, OML will become the holding company for all of
the emerging markets operations currently conducted
by the Old Mutual
Group;
1.17
OMBV
means
Old Mutual (Netherlands) B.V.;
1.18
Old Mutual Group
means
the group of companies and businesses presently controlled by OM;
1.19
OM
means Old Mutual Plc, a public company incorporated In England and
Wales under Registration No. 03591559, which is listed on the
LSE,
with a secondary listing on the JSE, and other listings on stock
exchanges in Malawi, Namibia and Zimbabwe. OM Is currently
the
holding company of the Old Mutual Group;
1.20
OMEM
means
Old Mutual Emerging Markets Limited, a company Incorporated ln South
Africa with Registration No. 1998/012277/06 and which
conducts
various emerging markets operations falling within the Old Mutual
Group, and in particular various businesses operating
In South
Africa;
1.21
DMGH
means
Old Mutual Group Holdings (SA) (Proprietary) Limited, an Intermediate
holding company Incorporated ln South Africa with Registration
No.
1998/012276/07and which is the holding company of the various
emerging markets operations falling within the Old Mutual Group,
and
in particular various companies and businesses operating in South
Africa, Including OMEM;
1.22
OML
means
Old Mutual Limited, a public company incorporated in South Africa
under Registration No. 2017/235138/06 which has been incorporated
to
facilitate the Managed Separation and which Is Intended to have a
primary listing on the JSE and a secondary listing on the
LSE, as
well as on the stock exchanges of Namibia, Zimbabwe and Malawi;
1.23
OML Ecosystem
means
OMEM itself, the Black-owned Businesses and SMMEs from which OMEM
procures or will procure goods and services, any businesses
financed
or supported by OMEM's enterprise development Initiatives, and any
new Investments made by OMEM in subsidiaries and associates
after the
Implementation Date. For the avoidance of doubt, in measuring the OML
Ecosystem, SMMEs from which OMEM procures goods
and services on or
prior to the Signature Date will continue to be treated by the
parties as falling within the OML Ecosystem for
the duration of this
Agreement.
1.24
Signature Date
means
the date on which the Framework Agreement Is signed;
1.25
Small Business
means
a business generally regarded in South Africa as a small business,
including SMMEs;
1.26
SMME
means
a business generally recognised as a small, medium or
micro-enterprise, including those defined as "small business"
under the
National Small Business Act No. 102 of 1996
;
1.27
South Africa
means
the Republic of South Africa;
1.28
Transaction
means
the transaction as Is more fully described in paragraph 2.1 below;
and
1.29
Tribunal
means
the South African Competition Tribunal duly established under the
Act.
2.
RECORDAL
2.1
The merging parties notified a large
merger to the Commission on 6 September 2017 relating to an Internal
reorganisation and managed
separation of the Old Mutual Group, which
is envisaged to take place In four phases. The current Transaction is
ln relation to
Phase 3 of the Managed Separation. Phase 3 will be
implemented through three separate steps which will entail the
following:
2.1.1
The acquisition by OML of the entire
shareholding in OM:
2.1.2
The distribution by OM of its shares In
OMBV to OML in terms of a in specie dividend distribution; and
2.1.3
The distribution by OMBV of its shares
In OMGH to OML in terms of a liquidation distribution.
2.2
In terms of the Transaction, OML will
become the direct holding company of OMGH and, through Its
shareholding in OMGH, will control
the various emerging markets
operations falling within the Old Mutual Group and, In particular,
various companies and businesses
operating in South Africa, Including
OMEM. The Transaction involves a direct change in control of OM and
has been notified as a
large merger under the Act under Case No.
2017Sep0008.
2.3
The EDD has a statutory mandate in terms
of
section 18(1)
of the Act, to consider the public interest
implications of any merger notified to the Competition Authorities.
Following the exercise
of Its statutory mandate, the EDD found that
the Transaction gives rise to public policy issues in the context of
black economic
empowerment, employment and enterprise development.
OML and EDD have engaged on these public policy issues and OML has
made certain
undertakings in addressing these public policy Issues.
The undertakings are reflected in these Conditions.
3.
CONDITIONS
3.1
Commitments In respect of black
economic empowerment
3.1.1
To the extent that OML BEE shareholding
is less than 25%, OML shall Increase its BEE shareholding to at least
25% within 3 (three)
years of the Implementation Date based on
principles prescribed in the FSC and associated empowerment
regulation and legislation.
3.1.2
It is recorded that OML will benchmark
Its BEE shareholding to its peer group, and arms to have a BEE
shareholding which ls best
ln class, measured against comparable
competitors as at the Implementation Date. Measured against that
benchmark, and In accordance
with the provisions set out In paragraph
3.1.3 below and OML Board Approval at the time, OML undertakes that
within 5 (five) years
of the Implementation Date, it will procure
that the effective BEE shareholding In OML shall be no less than the
effective BEE
shareholding in the best empowered peer company as at
the Implementation Date.
3.1.3
It ls noted that, as at the date of these Conditions:
3.1.3.1
the relevant transactions necessary to give effect to the
undertakings set out in paragraphs
3.1.1 and 3.1.2 will be subject to
provisions of the Companies Act, JSE Listings Requirements or other
applicable legislation;
3.1.3.2
OML shall have full latitude to design appropriate transactions to
give effect to the
undertakings set out In paragraphs 3.1.1 and
3.1.2, to ensure performance or the obligations In paragraphs 3.1.1
and 3.1.2. To
the extent that this Involves a BEE share transaction
in OML, this shall Include broad based and employee participation
elements.
3.2
Employment commitments
3.2.1
OML shall not retrench any employees as
a result of the merger.
3.2.2
OML shall Increase the number of FTEs In
OML or OMEM in South Africa by not less than 50 persons by the
Implementation Date.
3.3
Enterprise development commitments
3.3.1
It Is recorded by OML that OMEM
contributed significantly to the growth of employment in South Africa
by virtue of its preferential
procurement of goods and services from
Black-owned Businesses and SMMEs, as well as Its enterprise
development programs. It Intends
to broaden this through a further
commitment to Enterprise Supplier Development, as contemplated In
paragraph 3.3.3 below. OMEM,
the businesses Impacted by these
Initiatives, and any new Investments made by OMEM in subsidiaries and
associates are referred
to as the OML Ecosystem. For the avoidance of
doubt, the OML Ecosystem does not Include any of the Investments
referred to in paragraph
3.3.2.
3.3.2
OML
records that, as at the date of these Conditions, the Old Mutual
Group ls already involved in a number of projects in South
Africa
which support social upliftment and the development of Small
Businesses and Black-owned Businesses. These Include:
3.3.2.1
preferential procurement from SMMEs and Black-owned
Businesses;
3.3.2.2
funding by the Masistzane Fund;
3.3.2.3
funding by the Black Distributor's Trust;
3.3.2.4
funding by the OM Foundation.
3.3.3
In addition to the projects Identified
In paragraph 3.3.1 above, OML undertakes to procure that the Old
Mutual Group shall, over
a period of 3 (three) years following the
Implementation Date, allocate an Incremental amount of R500 million
(five hundred million
Rand) to a ring-fenced perpetual Enterprise
Supplier Development Fund (the ESD Fund), subject further to the
terms of paragraphs
3.3.4 and 3.3.5 below. Funding extended by the
ESD Fund is intended and anticipated to generate additional jobs in
the OML Ecosystem..
3.3.4
The ESD Fund provided for under
paragraph 3.3.3 may extend funding through a combination of
Instruments to support individual Enterprise
Supplier Development
projects In the most appropriate way. These Instruments may Include
development funding loans, commercial
loan guarantees, direct grants
and technical assistance, skills development and training. The
repayment of funding extended by
the ESD Fund shall be retained by
the ESD Fund for future investment in ESD projects.
3.3.5
The Old Mutual Group's participation in
the ESD Fund and In the other activities referred to in paragraph
3.3.1 and paragraph 3.3.2
shall be managed and administered by a
specially created function within the office of the Chief Executive
of OML, which function
shall also be responsible for the measurement
of compliance by the Old Mutual Group with the FSC and OML's broader
commitment to
transformation In South Africa.
3.4
Having due regard for the South African
Government's focus on employment and the need to create Jobs for
South Africans, OML Is
committed to maximizing employment in the OML
Ecosystem on a commercially viable basis. It is acknowledged that, in
the normal
course of business and unrelated to the merger, there may
be a reduction in OMEM's aggregate employment In South Africa,
subject
to the applicable labour legislation. If, In the normal
course of business and unrelated to the merger, OMEM's aggregate
employment
In South Africa were to reduce (and in accordance with
normal legal provisions) below that at the Signature Date, OML is
committed
to Increase aggregate employment in the OML Ecosystem to
the level at the Signature Date, measured at the second anniversary
of
the Signature Date. To this end, OML undertakes that such loss in
FTEs at OMEM's South African businesses between Signature Date
and
the second anniversary of the Signature Date will be compensated for
In new Jobs created elsewhere In the OML Ecosystem In
South Africa
(Including the Increase in the number of FTEs as a direct consequence
of the funding extended by the ESD Fund as set
out in paragraph 3.3.3
and the Transaction as set out In paragraph 3.2.2), measured as at
the second anniversary of the Signature
Date.
3.5
Given the undertakings In paragraph 3.4,
OML intends to continue seeking to support employment in the OML
Ecosystem on a commercially
viable basis following the expiry of the
two year period following the Signature Date.
4.
REPORTING
It Is recorded that the financial
year of OML will end on 31 December in each year. OML shall, by 30
April in each following year,
provide a suitable and appropriately
detailed annual report for the previous financial year of OML to the
EDD and the Commission
regarding its compliance with the Framework
Agreement and these Conditions. This reporting obligation shall apply
for a five year
period commencing from 30 April 2019 to 30 April
2023. Thereafter, reports will be provided to the EDD and the
Commission on request
provided such request Is given within a
reasonable timeframe.
5.
VARIATION
5.1
OML may at any time, on good cause
shown, apply to the Tribunal for the Conditions to be lifted, revised
or amended.
[1]
Transcript page 6, lines 64-67.
[2]
Phase 1 relates to the restructure of Old Mutual Group UK. Phase 1
has already been approved by the Tribunal under case number
LM
122Aug17.
Phase 2 relates to the demerger of
the Northern Group and will not be notified in South Africa -
Transcript page 12, lines 156-
158.
Phase 3 (current transaction)
relates to the OM Limited restructure.
Phase 4 relates to a percentage of
OM Limited's interest in Nedbank Group Limited being unbundled
through a series of corporate
transactions. This is to take place
approx. six (6) months after this transaction.
[3]
Inter alia
page 11 of the Merger Record.
[4]
Transcript page 7, line s 80-82.
[5]
Transcript page 7, lines 87-90.
[6]
Transcript page 7, lines 73-80.