Brief Summary

Competition Law — Merger Approval — Conditional approval of merger between Robertsons Holdings and Silver 2017 — Commission finding that merger unlikely to substantially prevent or lessen competition — Employment concerns addressed through conditions ensuring no retrenchments — Merger approved unconditionally.

Comprehensive Summary

Summary of Judgment

Introduction

The proceedings concerned the consideration of a large merger in terms of the Competition Act 89 of 1998 (as amended) before the Competition Tribunal of South Africa. The matter was adjudicated under Case No: LM251Dec17, with reasons delivered under the citation Robertsons Holdings Proprietary Limited v Silver 2017 Proprietary Limited (LM251Dec17) [2018] ZACT 79 (17 August 2018).

The primary acquiring firm was Robertsons Holdings Proprietary Limited (“Robertsons”), ultimately controlled by Remgro Limited (“Remgro”). The primary target firm was Silver 2017 Proprietary Limited (“Silver 2017”), referred to in the reasons as Newco, a special-purpose vehicle incorporated for the transaction and wholly owned by Unilever South Africa (Proprietary) Limited (“ULSA”) prior to implementation.

On 20 June 2018, the Tribunal approved the merger subject to conditions, and the written reasons were issued on 17 August 2018. The general subject-matter of the dispute was whether the proposed merger was likely to substantially prevent or lessen competition in any relevant market and whether it raised public interest concerns, particularly relating to employment, as well as concerns connected to a pending cartel case involving the ULSA Spreads Business.

Material Facts

Remgro, through its group structure, controlled interests relevant to the transaction. In particular, Remgro controlled RCL Foods, which manufactured branded and private label food products (including mayonnaise and cooking oil) and distributed those products through its supply chain specialist, Vector Logistics. Robertsons also held a 25.7% shareholding in Unilever South Africa Holdings Proprietary Limited (“ULSAH”), which was relevant to the funding structure of the deal.

The target business was the ULSA Spreads Business, to be housed in Newco. The Spreads Business comprised the manufacture, marketing, sale, and distribution of spread products, including margarine under the Rondo, Stork, Rama, Flora, and Marvella brands, a dairy cream alternative (Meadowland), and Flora cooking oil.

The transaction was structured so that Robertsons would sell its 25.7% interest in ULSAH back to ULSAH, and the proceeds would be used to purchase Newco, thereby acquiring control of the Spreads Business after it had been transferred into Newco by ULSA through an internal restructuring. The parties stated that the rationale was linked to ULSAH’s intention to dispose of its spreads business globally, which Robertsons viewed as a business opportunity.

In relation to competitive effects, the Commission identified a horizontal overlap in the supply of refined packed sunflower oil, because RCL Foods owned the Nola cooking oil brand and the Spreads Business included the Flora cooking oil brand. The Commission found that the merged entity’s combined market share would be less than 5%, with an accretion of less than 1%, and that several competing firms would continue to constrain the merged entity post-merger.

The Commission also identified two vertical relationships: the processing of oil seeds and the provision of cold chain distribution services. On oil seed processing, the Commission found that Nola had processing capabilities but did not provide crushing and refining services to third parties (with only ad hoc sales of excess supply), and that its refinery capacity was less than 10% of the market. ULSA did not process its own sunflower oil and relied on third-party suppliers. The parties confirmed they would continue to procure crude and refined sunflower oil from existing suppliers.

On cold chain distribution, ULSA procured such services from a third party, while the Remgro Group used Vector Logistics. The Commission considered the availability of alternative logistics providers and also considered whether the merged entity would terminate an existing supply agreement (referred to as expiring on a specified future date in the record). It identified alternative suppliers in the market and concluded foreclosure concerns were unlikely.

A further material aspect was the Commission’s submission that there were ongoing cartel investigations in markets connected to edible oils, baking fats, and margarine, and that the ULSA Spreads Business had been implicated in a cartel matter pending before the Tribunal under Case No. CR223Mar17. Because the Spreads Business would be transferred into Newco, the Commission sought clarity regarding liability for any administrative penalty that might later be imposed for that alleged contravention.

On public interest, the employees of the Spreads Business were to be transferred to Newco and were not expected to be affected. However, the parties identified approximately 60 ULSA employees (employees not transferred to Newco) who might be affected because they performed work partly for the Spreads Business and partly for ULSA’s other business interests. During the Commission’s investigation, the Minister of Economic Development filed a notice to participate and proposed approval subject to an employment condition. The Commission and the merging parties ultimately agreed to conditions aimed at ensuring no merger-related retrenchments and addressing the position of the identified employees through continued employment in ULSA or offers within Newco/Remgro Group.

Legal Issues

The central questions for determination were whether the proposed transaction was likely to substantially prevent or lessen competition in any relevant market, assessed through horizontal effects, vertical foreclosure (input and customer foreclosure), and the risk of co-ordinated effects in a sector subject to cartel investigations. These issues primarily concerned the application of competition-law standards to the economic and commercial facts identified in the Commission’s investigation.

A further central issue was whether the merger raised public interest concerns, in particular relating to employment, and if so, whether those concerns could be adequately addressed through conditions attached to the approval.

In addition, the Tribunal had to consider how to address the Commission’s concern regarding the potential enforcement of an administrative penalty in a pending cartel case involving the ULSA Spreads Business after that business was transferred into Newco, which raised a question of regulatory risk allocation to be managed through merger conditions.

Court’s Reasoning

The Tribunal approached the competitive assessment by considering the Commission’s delineation of relevant overlaps and its evaluation of market shares and constraints. On the horizontal overlap in refined packed sunflower oil, the Tribunal accepted the Commission’s conclusion that the merged entity would have a small combined market share (less than 5%) and a minimal increment (less than 1%). The Tribunal also relied on the Commission’s identification of alternative competitors that would remain in the market post-merger and therefore constrain the merged entity. On this basis, the Tribunal agreed that the merger was unlikely to substantially prevent or lessen competition in the relevant horizontal market.

On the vertical assessment, the Tribunal considered the two vertical links identified by the Commission. Regarding oil seed processing, the Tribunal accepted the Commission’s findings that Nola’s refinery capacity was relatively limited (less than 10% of the market), that it did not offer crushing and refining services to third parties as a business line, and that ULSA historically relied on third-party procurement and refining arrangements. The Tribunal also noted the parties’ confirmation that procurement patterns would continue post-merger. In this factual context, the Tribunal agreed with the Commission that the merger was unlikely to give rise to input foreclosure (restricting rivals’ access to inputs) or customer foreclosure (restricting suppliers’ access to customers).

Regarding cold chain logistics, the Tribunal accepted the Commission’s view that there were alternative logistics providers capable of constraining the merged entity after the merger. It also accepted the Commission’s analysis that, even if contractual arrangements changed (including the possibility of the termination or expiry of an existing agreement), the availability of alternative suppliers meant the transaction did not give rise to likely foreclosure effects. The Tribunal therefore concurred that vertical foreclosure concerns were unlikely.

On co-ordinated effects, the Tribunal recorded the Commission’s submission that the industry was subject to ongoing cartel investigations and that the Spreads Business was implicated in a pending case before the Tribunal. The Tribunal treated this as giving rise not to a basis to prohibit the merger on competition grounds within the merger assessment, but rather as a concern requiring clarity on the payment of an administrative fine should ULSA ultimately be found to have contravened the Act in the pending cartel matter. Although the merging parties initially opposed the inclusion of such a remedy on the basis that section 64 mechanisms were available to enforce an order, they accepted at the hearing that a condition could be included. The condition recorded ULSA’s undertaking that it would remain responsible for paying any administrative penalty imposed post-merger in relation to the pending cartel case, while also clarifying that this commitment did not exonerate Robertsons or successors from liability arising from those proceedings.

On public interest, the Tribunal focused on employment effects. It accepted that the employees directly within the Spreads Business would be transferred to Newco and would not be adversely affected. It nevertheless treated the identified group of approximately 60 employees as raising a potential employment concern, given that their work allocation spanned both the Spreads Business and other ULSA business lines. The Tribunal noted the Minister of Economic Development’s participation and the proposal for an employment condition. It accepted the negotiated solution between the Commission and the parties, namely conditions designed to ensure that the transaction would not result in any retrenchments as a result of the merger, that a portion of the potentially affected employees would receive employment offers within Newco or the Remgro Group (in their current locations where possible and on terms not materially less favourable overall), and that the remainder would continue to be employed by ULSA.

In synthesising these findings, the Tribunal concluded that the merger was unlikely to substantially prevent or lessen competition and that the public interest concern relating to employment was remedied through conditions. The reasoning culminated in approval of the transaction, with the approval in fact being conditional on the set of conditions attached to the decision.

Outcome and Relief

The Tribunal approved the large merger between Robertsons and Silver 2017 (Newco) subject to conditions. The conditions included an employment protection regime aimed at preventing merger-specific retrenchments and regulating the treatment of identified potentially affected employees, as well as a condition addressing liability for any administrative penalty imposed on ULSA in relation to the pending cartel case CR223Mar17, together with monitoring and duration provisions.

No costs order was recorded in the reasons.

Cases Cited

No prior reported cases were cited in the reasons for decision.

Legislation Cited

Competition Act 89 of 1998 (as amended)

Labour Relations Act 66 of 1995 (as amended)

Rules of Court Cited

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

Held

The Competition Tribunal held that the proposed transaction was unlikely to substantially prevent or lessen competition in any relevant market, given the limited horizontal overlap and the absence of likely vertical foreclosure effects. It further held that public interest concerns relating to employment could be adequately addressed through agreed conditions ensuring that the merger would not cause retrenchments and that potentially affected employees would be accommodated through continued employment within ULSA or offers within Newco or the Remgro Group. The Tribunal therefore approved the merger subject to conditions, including an undertaking allocating responsibility for payment of any administrative penalty imposed on ULSA in relation to the pending cartel case.

LEGAL PRINCIPLES

The merger assessment applied the principle that a large merger may be approved where it is not likely to substantially prevent or lessen competition in any relevant market, evaluated through consideration of horizontal overlaps (including combined shares and the extent of remaining competitive constraints) and vertical relationships (including the likelihood of input foreclosure and customer foreclosure).

In assessing vertical effects, the Tribunal applied the approach that foreclosure concerns are less likely where the upstream capacity is limited, where the relevant input is available from alternative sources, where the firm does not materially supply third parties as a business model, and where customers have feasible alternatives, including in logistics and distribution services.

The decision reflected the principle that public interest factors, particularly employment, may justify merger conditions designed to prevent merger-specific job losses and to structure commitments for redeployment and continued employment, with compliance monitoring mechanisms.

Where merger implementation intersects with pending enforcement proceedings (here, cartel proceedings), the decision illustrated the use of merger conditions to obtain clarity on responsibility for payment of any administrative penalty post-merger, coupled with monitoring and duration provisions tied to the finalisation of the pending proceedings.