About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Competition Tribunal
SAFLII
>>
Databases
>>
South Africa: Competition Tribunal
>>
2018
>>
[2018] ZACT 43
|
|
Gutsche Family Investment (Pty) Ltd v Fairfield (Pty) Ltd (LM180Sep17) [2018] ZACT 43 (21 February 2018)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM180Sep17
In
the matter between
GUTSCHE
FAMILY INVESTMENT (PTY)
LTD
Acquiring Firm
And
FAIRFIELD (PTY)
LTD
Target Firm
Panel
: Mr Enver Daniels (Presiding Member)
:
Ms Andiswa Ndoni (Tribunal Member)
:
Prof lmraan
I Valodia (Tribunal Member)
Heard
on
: 24 January 2018
Order
Issued on : 25 January 2018
Reasons
Issued on : 21 February 2018
PUBLIC
REASONS FOR DECISION
Approval
[1]
On
25 January 2018, the Competition Tribunal conditionally approved the
large merger between Gutsche Family Investments (Ply) Ltd
and
Fairfield (Pty) Ltd.
[1]
[2]
The
reasons for the approval follow.
Parties
to the transaction and their activities
Primary
acquiring firm
[3]
The
primary acquiring firm is Gutsche Family Investments (Pty) Ltd
("GFI"),
a
holding company for a number of investments. GFI is jointly
controlled and co owned by Gutsche Trust and P.R Gutsche
Holdings
(Pty) Ltd.
[4]
GFI
has a controlling interest in Woodlands Dairy (Pty) Ltd
("Woodlands"). Woodlands manufactures and supplies dairy
and dairy-related products in South Africa and is based in the
Eastern Cape. Woodlands produces products for retailers' house brands
and for sale under its own brand, 'First Choice'.
Primary
target firm
[5]
The primary target firm is Fairfield
(Pty) Ltd
("Fairfield").
Fairfield is controlled by the
trustees of the Fairfield Trust.
[6]
Fairfield
manufactures dairy, dairy-related and short-life fresh juice products
for retailers and for sale under its own brand,
'Fairfield',
throughout South Africa. Fairfield is based in Kwa-Zulu Natal.
[7]
Fairfield
owns a majority interest in Fairfield Farming Company (Pty) Ltd
("FarmingCo"),
a
dairy farming company that supplies dairy exclusively to Fairfield.
Fairfield obtains the majority of their dairy needs from these
farms.
FarmingCo does not form part of the proposed transaction - it will be
owned by the Fairfield Trust and will continue to
supply Fairfield
exclusively post-merger.
Proposed
transaction and rationale
[8]
In
terms of the Share Purchase Agreement, GFI intends to acquire 100% of
the shareholding interest of Fairfield from the current
holders in
three tranches. GFI will exercise joint control over Fairfield from
the completion of the first stage of the transaction
until the
exercise of the first call option, after which it will exercise sole
control.
[9]
The
acquiring firm's rationale for its purchase of Fairfield was to
expand its presence in the South African market. The divestment
by
the Fairfield Trust is due to the beneficiaries wishing to focus on
the hospitality industry.
[10] The
parties initial proposed transaction is as follows: at the first
stage GFI obtains - shareholding
of Fairfield and certain minority
shareholder rights, granting it joint control with the current
owners. Approximately two years
later, GFI would acquire a further -
shareholding in Fairfield. Thereafter, GFI will continue to exercise
joint control due to
the minority shareholder protections. The final
stage would involve GFI acquiring the remaining - shareholding and
sole control
over Fairfield. This final stage was to happen
approximately two years after the purchase of the further -
shareholding.
[11]
The parties sought approval for
all three stages of the transaction simultaneously. The Commission
was concerned with providing
approval to a transaction with such
lengthy periods of time between the date of approval and the change
from joint control to sole
control. The Commission submitted that
market conditions may change in that time and in order for the
Commission to assess the
transaction properly it would require
notification in terms of the Competition Act when there is a change
from joint to sole control.
[12]
To address the Commission's
concerns, the merging parties submitted that they will alter the
structure of the transaction and acquire
sole control within a two
year period. This will be done by removing minority shareholder
protections held by the remaining - of
shares.
[13]
The transaction is approved
subject to the condition that if sole control will be acquired within
two years of approval the merged
entity would not be required to
notify. If however, sole control is acquired after two years from
implementation the merged entity
would be required to notify in terms
of the Act.
Relevant
market and impact on competition
[14]
The Commission considered the
activities of the Merging parties and found a number of Horizontal
overlaps. Both of the merging parties
are active in the national
markets for the manufacture and supply of butter, cheese, cream,
flavoured milk, and amasi ("the
dairy related products") as
well as in the regional market for the procurement of raw milk.
[15]
For dairy related products, the
Commission's investigation revealed that the structure of the market
is unlikely to change significantly
due to the small market share
accretions and overall relatively low market share of the post-merger
entity.
[16]
When evaluating the market for
the procurement of raw milk, the Commission found that in the broad
regional market (consisting of
both the Eastern Cape and Kwa-Zulu
Natal), the post-merger entity will still hold less than 25% market
share and continue to face
strong competition from rival firms such
as Clover Milkyway (Ply) Ltd and Parmalat SA (Pty) Ltd.
Coordination Assessment
[17]
In light of past cartel
investigations into collusion in the market for the procurement of
raw milk, the Commission assessed whether
the proposed transaction
strengthens conditions that facilitate coordination between players.
[18]
The Commission found that the
merger is unlikely to alter the structure of the market or increase
buying power in any material way.
This was due to the relatively
small size of Fairfield and the strong incentives for the merging
parties to continue to operate
independently to avoid the increased
costs of transporting raw milk over long distances. Consequently, the
Commission was of the
view that the proposed transaction does not
increase the potential for cartel conduct. We accordingly agreed with
the Commission's
analysis.
Public
Interest
[19]
The merging parties submitted
that the facilities of Woodlands and Fairfield will continue to
operate independently using all existing
staff and thus no
duplication will occur and no retrenchments will be implemented.
Furthermore, the parties stated that their intention
was to expand
the product offerings and operations post merger and
retrenchments would be counter-productive in respect of
this goal.
Both the Commission and the relevant trade unions were satisfied with
representations made by the Merging Parties that
there would be no
loss of employment resulting from the merger.
[2]
[20]
However, for the sake of
assurance and certainty on any employment concerns, the merged entity
agreed on a condition that restrains
it from any merger specific
retrenchments for a period of two years from the date of approval of
the proposed transaction.
Conclusion
[21]
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
further public interest issues arise from the proposed transaction
apart from those addressed
above which are adequately safeguarded by
the proposed condition. Accordingly, we approve the proposed
transaction with conditions
21
February 2018
Mr
Enver Daniels
Ms
Andiswa Ndoni and Prof lmraan I Valodia
Tribunal
Researcher: Ms
Aneesa Ravat
Mr Jonathan Thomson
For
the merging parties Mr Judd Lurie of
Bowmans
For
the Commission:
Mr Billy Mabatamela
ANNEXURE A· CONFIDENTIAL
Gutsche Family Investments
Proprietary Limited
And
Fairfield
Dairy Proprietary Limited
CC
Case Number: 2017Sep0007
CONDITIONS
1.
DEFINITIONS
The following expressions shall
bear the meaning assigned to them below and cognate expressions bear
corresponding meaning: -
1.1
"Acquiring Firm" or "GFI"
means Gutsche Family Investments
Proprietary Limited, a company incorporated in accordance with the
laws of the Republic of South
Africa;
1.2
"Approval Date"
means
the date referred to in the Tribunal's clearance certificate (Notice
CT 1O);
1.3
"Business Day"
means
any calendar day which is not a Sa1urday, a Sunday or an official
public holiday in Sou1h Africa;
1.4
"Commission"
means
the Competition Commission of South Africa;
1.5
"Competition Act"
means
the
Competition Act 89 of 1998
, as amended;
1.6
"Conditions"
mean
1hese conditions;
1.7
"Fairfield"
means
Fairfield Dairy Proprietary Limited;
1.8
"Fairfield Trust" means the
Trustees for the time being of the Fairfield Trust;
1.9
"First Option" means 1he first
call option granted by the Fairfield Trust to GFI, or 1he first put
option granted by GFI
to the Fairfield Trust, for the purchase by GFI
of approximately 30% of the issued share capital of Fairfield at any
time on or
after
1
June
2020, but before 30 September 2020, in terms of the SSA;
1.10
"Implementation Date"
means
the date on which the Merger is implemented i.e. the date on which
the first tranche referred to in paragraph 2.3 becomes
effective;
1.11
"LRA"
means
the
Labour Relations Act 66 of 1995
;
1.12
"Merging Parties"
means
GFI and Fairfield;
1.13
"Merger"
means
the acquisition of control of Fairfield by GFI, resulting in GFI
eventually acquiring unfettered sole control over Fairfield;
1.14
"Minority Protections"
means the minority protections
numbered 31 and 32 and contained in Schedule 2
(Matters
Requiring
a
Special
Resolution)
of Fairfield's
Memorandum of Incorporation. For the sake of clarity, these minority
protections stipulate that a special resolution
is required with
respect to: (i) the appointment and dismissal from employment of any
of the following key staff of Fairfield:
the managing director, the
financial director and the operational director; and (ii) the
approval of the strategic plans and annual
budgets of Fairfield
(including capital expenditure) or a deviation of more than 10% if
the budgeted capital expenditure,
1.15
"Sellers"
means
the Fairfield Trust which currently holds a shareholding of 97.3% in
Fairfield, and Barry David Glanz who holds a shareholding
of 2.7% in
Fairfield;
1.16
"Second Option"
means
the second call option granted by the Sellers to GFI, or the second
put option granted by GFI to the Sellers, for the purchase
by GFI of
approximately 30% of the issued share capital of Fairfield at any
time on or after 1 June 2022, but before 30 September
2022, in terms
of the SSA;
1.17
"SSA"
means
the Sale of Shares and Option Agreement entered into between the
Sellers and GFI on 13 June 2017 (as amended as contemplated
in clause
3.2 herein);
1.18
"Target Firm"
means
Fairfield Dairy Proprietary Limited, a company incorporated in
accordance with the laws of the Republic of South Africa; and
1.19
"Tribunal"
means the Competition Tribunal of South Africa,
2.
RECORDAL
2.1. On 04
September 2017, the Commission received notice of a large merger
whereby GFI intends to acquire
control of Fairfield over a period of
time, resulting in GFI eventually acquiring unfettered sole control
over Fairfield (ie, the
Merger), The Merger will take place in
tranches or portions. The first tranche involves GFI acquiring an
initial 40% of the issued
share capital of Fairfield as well as the
Minority Protections. The second tranche involves the exercise of the
First Option, The
third and final tranche will see the exercise of
the Second Option. On completion of the above mentioned tranches, GFI
will wholly
own and control Fairfield.
2.2.
The Merging Parties submit that with
this notification they seek approval for all three tranches.
2.3.
The first tranche, will give GFI
de
facto
control of Fairfield. When the
First Option is exercised, GFI will cross the bright line (50% plus
of Fairfield's issued share capital)
to acquire a total shareholding
in Fairfield of approximately 70%. Initially, notwithstanding the
exercise of the First Option
(I.e. the second tranche), GFI would
have joint control of Fairfield as the Fairfield Trust would retain
the Minority Protections,
(and therefore
de
facto
control of Fairfield). This
then made the exercise of the Second Option a notifiable transaction.
2.4.
However, during the investigation, the
Merging Parties decided to change the structure of the transaction
such that upon the exercise
of the First Option (i.e. the second
tranche), GFI will then acquire unfettered sole control (i.e. both
de
Jure
and
de
facto
control) of Fairfield. This
means that the Minority Protections afforded to the remaining 30%
shareholders of Fairfield will now
be removed to allow GFI to have
unfettered sole control after the exercise of the First Option. This
then makes the notification
of the Second Option immaterial as GFI
would already have unfettered sole control after the exercise of the
First Option.
2.5.
The Commission is of the view that if
the First Option is exercised timeously, the Merging Parties will not
need to re-notify the
exercise of the First Option to the Commission.
In other words, if the First Option is exercised within two (2) years
of the Approval
Date, the Commission is of the view that the Merging
Parties will not need to re-notify the exercise of the First Option
to the
Commission. This is because the Commission has analysed the
Merger as if it entails the acquisition by GFI of both
de
Jure
and
de
facto
control. Further, the
Commission is of the view that within this period, it is unlikely
that market conditions could substantially
change.
3.
CONDITIONS
3.1.
Exercise of the First Call Option
3.1.1.
Should the First Option be exercised
within a period of 2 (two) years from the Approval Date, GFI shall
inform the Commission of
its decision within 10 (ten) Business Days
of exercising the First Option by way of an affidavit deposed to by
the CEO of the Acquiring
Firm.
3.1.2.
Should the First Option be exercised
after a period of 2 (two) years from the Approval Date, GFI shall
notify the exercise of the
First Option in the form of a new merger
filing in the form prescribed by the
Competition Act, provided
that
at the time the relevant merger notification thresholds are met.
3.2.
Amended
documents
3.2.1.
The
Merging Parties shall submit signed amended transaction documents
which includes, but is not limited to, the amended Memorandum
of
Incorporation and Shareholders Agreement of Fairfield, clearly
reflecting that the exercise of the First Option will provide
GFI
with unfettered sole control over Fairfield (i.e. the removal of the
relevant Minority Protections), within 10 (ten) Business
Days of the
Approval Date.
3.3.
Employment
conditions
3.3.1.
The
Merging Parties shall not retrench any employees as a result of the
Merger for a period of two (2) years from the Implementation
Date.
3.3.2.
For
the sake of clarity, retrenchments do not include (i) voluntary
separation arrangements; or (ii) voluntary early retirement
packages,
(iii) unreasonable refusals to be redeployed in accordance with the
provisions of the LRA; (iv) resignations or retirements
in the
ordinary course of business; (v) retrenchments lawfully effected for
operational requirements unrelated to the Merger; (vi)
terminations
in the ordinary course of business, including but not limited to,
dismissals as a result of misconduct or poor performance.
4.
MONITORING OF
COMPLIANCE WITH THE EMPLOYMENT CONDITIONS
4.1.
The Merging Parties shall circulate a
copy of the Conditions to all their employees and their relevant
trade unions or employee
representatives within 5 (five) business
days of the Approval Date.
4.2.
As proof of compliance thereof, the
Chief Executive Officers of the Merging Parties shall within 10 (ten)
business days of circulating
the Conditions, submit affidavits
attesting to the circulation of the Conditions and provide a copy of
the notice that was sent
to the employees, respectively.
4.3.
The Merging Parties shall inform the
Commission of the Implementation Date within 5 (five) business days
of it becoming effective.
4.4.
The Merging Parties shall, for a period
of two (2) years, on each anniversary of the Implementation Date
submit an affidavit confirming
compliance with Condition 3.3.
4.5.
Any individual who believes that the
Merging Parties have not complied with or have acted in breach of
these Conditions may approach
the Commission.
5.
BREACH
5.1.
In the event that 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.
6.
VARIATION
6.1.
The Merging Parties may at any time, on good cause shown, apply to
the Tribunal for the Conditions
to be lifted, revised or amended.
7.
GENERAL
7.1.
All correspondence in relation to the Conditions must be submitted to
the following e mail
address:
mergerconditions@compcom.co.za
[1]
Conditions to the approval of the merger attached as Annexure A.
[2]
Page 897 of the Commissions Record