Summary of Judgment

1. Introduction

These were merger proceedings before the Competition Tribunal of South Africa concerning the conditional approval of a proposed transaction involving Remgro International Holdings (Pty) Ltd as the primary acquiring firm and Capevin Holdings Limited as the primary target firm.

The matter came before the Tribunal after an investigation by the Competition Commission, which assessed the transaction’s effects on competition and public interest considerations. The Tribunal heard the matter on 9 May 2018, issued an order on 11 May 2018, and delivered written reasons on 18 June 2018.

The general subject-matter was a restructuring of the ownership and control structure of Distell Group Limited (Distell), effected through interrelated steps including the creation and listing of a special purpose vehicle, and resulting in a shift from joint to sole control within the Remgro group. While the Commission found no substantial competition concerns, it raised a public interest concern relating to prior BEE-oriented divestiture conditions imposed in an earlier Tribunal approval involving the Public Investment Corporation and Distell.

2. Material Facts

The acquiring firm, Remgro International Holdings (Pty) Ltd (RIH), is incorporated in South Africa and is controlled by Remgro Limited (Remgro), a JSE-listed investment holding company. Remgro itself does not sell products or provide services, but holds strategic interests across multiple industries. For purposes of the merger assessment, Remgro’s relevant interest was its indirect involvement in the liquor industry through Distell, which produces and markets wines, spirits, ciders, and ready-to-drink beverages.

The target firm, Capevin Holdings Limited (Capevin), is an investment holding company whose sole asset is an indirect investment in Distell.

The proposed transaction consisted of a restructuring of Distell’s multi-tiered ownership. A special purpose vehicle, Business Venture Investments No. 1997 Limited (New Distell), would be created and listed, and would hold shares directly and indirectly in Distell. As a result of the transaction, Remgro (through New Distell) would increase its shareholding in Capevin from 19% to 100%, which would increase Remgro’s shareholding in Remgro-Capevin Investments (Pty) Ltd (RCI) from 50% to 100%. This would shift control such that Remgro would obtain sole control over Capevin and RCI, and thereby attain control over Distell. Post-implementation, Distell would be controlled by RCI (52.8%) and New Distell (47.2%).

On the competition facts, the Commission found no horizontal overlap, because firms in the acquiring group did not provide alcoholic beverages, save for the acquiring group’s indirect interest in Distell. The Commission also identified an existing vertical relationship: the acquiring group supplied Distell with liquid carbon dioxide, packaging facilities, and overnight funding facilities, which Distell used as inputs. However, the Commission found that foreclosure was unlikely, because alternative suppliers existed and other alcoholic beverage market players sourced such inputs from multiple suppliers.

On public interest, it was common cause (as presented to the Tribunal) that the transaction would not have negative employment effects. The Commission’s public interest concern related instead to the effect of the restructuring on previously imposed Divestiture Conditions from an earlier merger approval, which required the Public Investment Corporation SOC Limited (PIC) to divest a portion of its stake to a Black Economic Empowerment (BEE) purchaser. The Commission found that, upon implementation of the present transaction, those Divestiture Conditions would not be implementable as framed, because the PIC would no longer hold shares in Distell but rather in New Distell, and the original conditions applied to Distell shares specifically. The Commission also identified a potential dilution of voting rights in New Distell (affecting what could be divested), and that a BEE purchaser would hold shares indirectly via New Distell rather than directly in Distell, potentially undermining the original purpose of promoting participation by firms controlled by historically disadvantaged persons.

3. Legal Issues

The central questions for determination were whether the proposed transaction was likely to result in a substantial prevention or lessening of competition in any relevant market, and whether any public interest concerns arose that required the imposition of conditions.

The dispute primarily concerned the application of competition-law principles to largely common-cause facts. In relation to competitive effects, the issues turned on market relationships (horizontal overlap and vertical links) and an evaluative assessment of the likelihood of foreclosure. In relation to public interest, the issue required an assessment of how the proposed restructuring would interact with previously imposed Tribunal conditions aimed at BEE participation, and whether a remedial set of conditions could adequately address the Commission’s concerns.

4. Court’s Reasoning

On the competition assessment, the Tribunal accepted the Commission’s findings that there was no horizontal overlap between the activities of the merging parties, given that the acquiring group did not operate in alcoholic beverages aside from its interest in Distell. The Tribunal also accepted that the relationship between the acquiring group’s supply of liquid carbon dioxide, packaging, and overnight funding to Distell constituted a vertical relationship, but agreed with the Commission that the transaction was unlikely to raise foreclosure concerns because there were other suppliers available for those inputs and services. The Tribunal stated it had no reason to disagree with the Commission’s competition assessment and concluded that the transaction was unlikely to substantially prevent or lessen competition in any relevant market.

On public interest, the Tribunal noted that the merging parties confirmed that the transaction would not negatively affect employment, and no employment-related conditions were required. The Tribunal’s principal focus was the Commission’s concern that the transaction could undermine the Divestiture Conditions imposed in the earlier PIC/Distell transaction. The Tribunal recorded that the Commission had found the existing Divestiture Conditions would not be implementable after the restructuring because the PIC’s shareholding would shift from Distell to New Distell, potentially with diluted voting rights, and because the BEE purchaser would hold an indirect interest through New Distell rather than a direct holding in Distell.

The Tribunal accepted that these concerns warranted conditions, and approved the merger subject to an agreed remedy between the Commission and the merging parties. The remedy required, first, that RIH agree to a waiver of certain pre-emptive rights in order to enable the PIC to fulfil its divestiture obligations (or amended obligations). Second, it required that RIH and New Distell not oppose the PIC’s efforts to amend the Divestiture Conditions before the Tribunal so that the conditions would apply to the PIC’s shareholding in New Distell and so that the defined BEE equity would equate to 5.28% of the voting rights and economic interest in New Distell to be sold to one or more BEE purchasers.

The Tribunal considered these conditions to be an adequate remedy to the Commission’s identified public interest concern, and recorded that the transaction raised no other public interest issues.

5. Outcome and Relief

The Tribunal conditionally approved the proposed transaction between Remgro International Holdings (Pty) Ltd and Capevin Holdings Limited.

The approval was subject to public interest conditions agreed between the merging parties and the Competition Commission, including (i) a waiver by RIH of certain pre-emptive rights to facilitate the PIC’s ability to comply with divestiture obligations and/or amendments, and (ii) an undertaking by RIH and New Distell not to oppose amendments to the prior Divestiture Conditions so that they apply to New Distell and preserve the intended quantum of BEE equity measured as 5.28% of voting rights and economic interest in New Distell.

No costs order was recorded in the reasons provided.

Cases Cited

Government Employees Pension Fund represented by the Public Investment Corporation SOC Limited and Distell Group Limited, Competition Tribunal case no: LM215Feb17, conditionally approved on 29 March 2017.

Legislation Cited

No legislation was expressly cited in the text of the reasons provided.

Rules of Court Cited

No rules of court were expressly cited in the text of the reasons provided.

Held

The Tribunal held that the proposed restructuring transaction was unlikely to substantially prevent or lessen competition in any relevant market, given the absence of horizontal overlaps and the unlikelihood of foreclosure effects arising from the identified vertical relationships.

The Tribunal further held that the Commission’s public interest concern—that the restructuring could render earlier BEE-related divestiture conditions inoperative or undermine their intended effect—was adequately addressed through agreed conditions requiring a waiver of pre-emptive rights and non-opposition to amendments aligning the divestiture framework to the New Distell structure.

Accordingly, the transaction was approved subject to conditions.

LEGAL PRINCIPLES

The Tribunal applied the principle that a merger is to be prohibited or conditioned only if it is likely to result in a substantial prevention or lessening of competition, assessed with reference to the competitive relationships implicated by the transaction, including whether the parties’ activities overlap horizontally and whether any vertical relationships create a realistic risk of foreclosure in input or related markets. Where alternative suppliers and sourcing options exist, vertical links may be found unlikely to create foreclosure concerns on the facts.

The Tribunal also applied the principle that merger control includes an assessment of relevant public interest considerations, and that where a transaction may undermine the operation or purpose of previously imposed conditions—particularly conditions aimed at promoting BEE participation—the merger may be approved subject to remedial conditions designed to preserve the implementability and intended effect of those public interest measures within the restructured ownership framework.