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[2018] ZACT 60
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Unitrans Supply Chain Solutions (Pty) Ltd v Xinergistix (Pty) Ltd (LM081Jun18) [2018] ZACT 60 (17 September 2018)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case No: LM081Jun18
In
the matter between
Unitrans
Supply Chain Solutions (Pty)
Ltd
Primary
Acquiring Firm
And
Xinergistix
(Pty)
Ltd
Primary Target
Firm
Panel
: Enver Daniels (Presiding Member)
:
Fiona Tregenna (Tribunal Member)
:
Anton Roskam (Tribunal Member)
Heard
on
: 21 August 2018
Order
Issued on : 22 August 2018
Reasons
Issued on : 17 September 2018
REASONS
FOR DECISION
Approval
[1]
On
22 August 2018, the Competition Tribunal ("Tribunal")
unconditionally approved a proposed transaction involving Unitrans
Supply Chain Solutions (Pty) Ltd ("USCS") and Xinergistix
(Pty) Ltd ("Xinergistix"), hereinafter collectively
referred to as the merging parties.
[2]
The
reasons for approval of the proposed transaction follow.
Parties to the transaction
Primary Acquiring Firm
[3]
USCS
is a wholly-owned subsidiary of Unitrans Holdings (Pty) Ltd and
ultimately controlled by KAP Industrial Holdings ("KAP").
The shares in KAP are widely dispersed and as such no single
shareholder controls KAP. KAP and uses control numerous firms in
South Africa. uses, KAP and all firms directly and indirectly
controlled by them are hereinafter collectively referred to as the
'KAP Group'.
[4]
The
KAP Group is an industrial group that consists of three divisions
namely industrial, chemical and logistics. Of relevance is
the
logistics division which provides contractual logistics and passenger
transport services. uses forms part of this division.
[5]
USCS
is an integrated logistics, warehouse and distribution management
business that provides services to the petroleum, chemical, mining
and cement, specialised warehousing, and food sector. uses is also
involved in the transportation of refrigerated perishable food
products. uses renders transport from its depots in Gauteng, Cape
Town and Durban, but mainly operates from its clients' premises.
Primary
Target Firm
[6]
Xinergistix
is jointly controlled by uses and the eGL Custodian Trust ("eGL").
Xinergistix controls nine firms including
Neogistix (Pty) Ltd
("Neogistix").
[7]
Xinergistix
provides local and cross-border transportation services from its
depots in Cape Town, Johannesburg, Bloemfontein, Port
Elizabeth,
Durban, Slurry and Langeni. Xinergistix is primarily focused on
general cargo and refrigeration transport services with
perishable
goods such as medicine, dairy products, meat, fish and vegetables. It
also provides maintenance and repairs services
to its sister
companies.
Proposed
transaction
[8]
In
terms of the
Sale of Shares
Agreement,
the proposed transaction
entails uses which currently owns 50.1% of Xinergistix-acquiring
the remaining 49.9% from CGL and
Xinergistix. Post-merger, uses will
exercise sole ownership and control over Xinergistix.
Relevant
market and impact on competition
[9]
The
Competition Commission {"Commission") considered the
activities of the merging parties and identified a horizontal
overlap
in the national market for the provision of (i) general cargo
services and (ii) refrigerated cargo transport services.
[10]
In the market for the provision of
general cargo services, the Commission found that the merging parties
will have a combined post-merger
market share of less than 5% with a
share accretion similar to that of the post-merger market share.
[11]
In
the market for the provision of refrigerated cargo transport
services, the Commission found that the merging parties will have
a
combined post-merger market share of less than 15%, with an accretion
of less than 5%.
[12]
The
Commission was of the view that proposed transaction was unlikely to
alter the pre-merger market structure as uses is merely
increasing
its ownership in Xinergistix. Furthermore, there are other firms in
each relevant market that are able to exercise competitive
restraints
against the merged entity.
[13]
The
Commission thus concluded that the proposed transaction is unlikely
to substantially prevent or lessen competition in each relevant
market. We see no reason to differ from the Commission's conclusion.
Public
interest
[14]
A
competitor in the market for refrigerated cargo transport services
and a trade union known as Motor Transport Workers Union of
South
Africa ("MTWU") both raised concerns about the proposed
transaction. At the hearing the focus was solely on MTWU
concerns as
there were many queries around the employment issue. According to
MTWU, Xinergistix had engaged in a restructuring
process pursuant to
the proposed transaction. The restructuring process resulted in the
Xinergistix employees' wage structure being
changed from an hourly
rate to a per kilometre rate. Moreover, some of the fleet was
transferred to Xinergistix's subsidiary, Neogistix.
MTWU contended
that the restructuring process adversely affected employees.
[15]
The
Commission investigated the matter and found that the restructuring
process was not pursuant to the proposed transaction. In
2015,
Xinergistix decided to separate its transport business into two
namely Fixed Contracts and General Cargo. The Fixed Contracts
business services contract customers and brokerage business.
[1]
Thus, it dedicates its trucks to certain customers.
[2]
The General Cargo business is a line haul business. Any customer can
hire trucks as and when they are available.
[3]
Xinergistix formed Neogistix and subsequently transferred the General
Cargo operations to its subsidiary. According to the merging
parties,
the General Cargo business under Neogistix was a new business
altogether hence Neogistix appointed new drivers.
[4]
This upset MTWU as it felt that work was being taken away from the
Xinergistix employees.
[16]
On
17 May 2016, MTWU filed a dispute with the Bargaining Council for the
Road Freight and Logistics Industry. MTWU alleged that
Xinergistix
drivers were idling around with no work to do and being payed Jess
than Neogistix drivers. In June 2016 however, MTWU
withdrew the
matter and consequently no decision was taken. The Tribunal
questioned the Commission and the merging parties about
the reasons
for MTWU's withdrawal of the matter. Both the Commission and the
merging parties had no knowledge on MTWU's reasoning.
[17]
It
was only in August 2017 where the merging parties took the decision
to merge. What the Commission understood from this timeline
is that
restructuring process was a business decision taken long before the
parties contemplated the proposed transaction. There
was no link
between the two events. The merging parties had also disputed MTWU's
claims. At the hearing, Ms Irvine of Falcon &
Hume stated that
the restructuring process did not negatively impact the employees. No
employee of Xinergistix had been retrenched
and they earn almost
exactly the same as Neogistix employees on an average basis.
[5]
There was consensus amongst the merging parties and the Commission
that the concerns raised were based on a change in employment
conditions. They were not merger-specific.
[18]
Although
the decision to restructure took place in 2015, the Tribunal was
concerned that the effects continued well into 2018.
[6]
A point of reference was Xinergistix's board minutes which indicated
that Neogistix would employ 15 new drivers on a three-year
collective
agreement and would later hand pick drivers from Xinergistix.
Furthermore, half of Xinergistix's fleet would be transferred
to
Neogistix. From the Tribunal's view, there was a risk of jobs being
sacrificed in the process of the proposed transaction.
[19]
The
merging parties assured the Tribunal that the proposed transaction
will not have any negative effects on employment in South
Africa. The
Tribunal was satisfied with merging parties' commitment.
[20]
The
proposed transaction raises no other public interest concerns.
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 other
public interest concerns arise from the proposed transaction.
Accordingly, we approve the
proposed transaction unconditionally.
Mr Enver Daniels
Prof
Fiona Tregenna and Mr Anton Roskam concurring.
17 September 2018
Date
Tribunal
Researcher
: Hlumelo Vazi
For
the merging parties : H Irvine of Falcon &
Hume Attorneys Inc
For
the Commission
: N Msiza and M Aphane
[1]
Transcript, page 6.
[2]
Transcript, page 6 .
[3]
Ibid.
[4]
Transcript, page 3.
[5]
Transcript, page 8.
[6]
Transcript, page