Summary of Judgment

1. Introduction

These proceedings concerned a merger approval application before the Competition Tribunal of South Africa under case number LM261Jan18. The matter involved a proposed transaction in which Sea Harvest Corporation (Pty) Ltd and Sea Harvest Group Ltd were the primary acquiring firms, and Viking Fishing Holdings (Pty) Ltd together with Viking Fishing Aquaculture (Pty) Ltd were the primary target firms.

The matter followed an investigation by the Competition Commission into the competitive and public interest effects of the proposed transaction. The Tribunal heard the matter on 18 June 2018, issued an order on the same date, and later issued written reasons for decision on 26 September 2018.

The general subject-matter of the dispute concerned whether the proposed acquisition and associated transfer of fishing-related assets and rights would be likely to substantially prevent or lessen competition, including by increasing market concentration, facilitating coordination, or enabling information exchange through structural links arising from common shareholding interests, and whether any public interest concerns arose, particularly relating to employment.

2. Material Facts

The acquiring side consisted of Sea Harvest Corporation (Pty) Ltd, a wholly-owned subsidiary of Sea Harvest Group Ltd. Sea Harvest Group Ltd was owned and controlled by Brimstone Investment Corporation Ltd through Brimco (Pty) Ltd. Sea Harvest’s operations were described as vertically integrated within the South African fishing industry, including harvesting (notably Cape hake and prawns), processing, and marketing of seafood products, supported by a fleet of fishing vessels.

The target side comprised Viking Fishing Holdings (Pty) Ltd and Viking Fishing Aquaculture (Pty) Ltd. Viking Holdings was controlled by the Nico Bacon Family Trust (holding 56% of the shares), with the Viking Staff Share Trust holding 20% and other shareholders holding more than 5% also identified. Viking Aquaculture was controlled by Viking Fishing Group Administration (Pty) Ltd (holding 60%), with Moonshine Investments and SEAS holding 20% and 10% respectively.

The proposed transaction entailed Sea Harvest Group acquiring 51% of the issued share capital of Viking Aquaculture from Viking Group Administration, thereby obtaining a controlling interest in Viking Aquaculture. The transaction also entailed a broader transfer to Sea Harvest of components of Viking Holdings’ fishing business, including fishing rights, selected vessels, factories, assets, liabilities, and business operations, along with certain shareholding interests (including a shareholding in Southern Cape Fishmeat) and the fixed assets used in Viking Holdings’ fishing business.

As to competitive conditions, it was common cause on the record that Sea Harvest operated across fishing/harvesting, processing, and marketing of seafood products, while Viking Holdings held fishing rights and operated vessels, cold storage, and seafood processing facilities, and Viking Aquaculture operated aquaculture farms producing abalone, oysters, mussels, and trout. The Commission identified overlaps between the parties, including in the harvesting, processing, and marketing of fish and seafood and specifically in hake. The Commission’s assessment included a view that, on a hake-focused approach, the merged entity’s post-merger market share would be approximately 31%, with an accretion of 7%, and that the top three firms (identified as the merged entity, Irvin and Johnson, and Oceana Group Ltd) would control more than 65% of the market.

On market definition, the reasons record that the merging parties submitted that the relevant market should not be narrowly construed as Cape hake alone, and that the merging parties and the Commission concurred that the market in this transaction was a broad market for the processing and supply of seafood products.

A further material factual aspect concerned structural links and potential information exchange. The Commission raised concerns about the prospect of information exchange between Oceana and Sea Harvest post-merger, given that Brimstone (as Sea Harvest’s controlling shareholder) held approximately 17% in Oceana and 42% in Vuna (an integrated fishing firm involved in harvesting and processing of hake, in which Brimstone held an indirect interest through Brimco’s interest in Vuna Fishing Group). The merging parties’ position, as recorded, was that the transaction did not introduce a new shareholding position for Brimstone that it did not otherwise already enjoy, and that there were no common directors between the boards of Sea Harvest and Oceana; additionally, Brimstone had previously undertaken to the Tribunal not to elect the same directors in Sea Harvest and Oceana. The Commission accepted that to date Brimstone had not elected common directors in Sea Harvest, Vuna, and Oceana, but considered that the undertaking should be formalised into an enforceable merger condition.

In relation to public interest, the Commission recorded that concerns had been raised by SMMEs, but concluded that these concerns were not likely to be the result of the merger. It was also recorded that the merger would secure the employment of 1500 employees of Viking Fishing who might be at risk if Viking Fishing failed to retain fishing rights at the next allocation in 2020. No other public interest concerns were identified in the reasons.

3. Legal Issues

The central legal questions were whether the proposed transaction was likely to substantially prevent or lessen competition in any relevant market and, if competition concerns existed, whether these could be addressed through conditions. This required assessment of competitive effects in the identified relevant market(s), including both unilateral and coordinated dimensions, and the effect of structural links on the risk of competitively sensitive information exchange.

The dispute as presented in the reasons was primarily one of application of law to fact and evaluative competition assessment, rather than a pure question of law. It required the Tribunal to evaluate market definition as accepted by the parties and the Commission, the significance of market concentration and the potential for coordination, and the significance of cross-shareholding and governance arrangements to the risk profile.

A further legal issue concerned public interest considerations, particularly employment effects and whether concerns raised by smaller market participants were causally connected to the merger.

4. Court’s Reasoning

The Tribunal proceeded from the premise that the Commission had investigated overlaps and potential effects in markets connected to the processing and supply of seafood products, with particular attention given to hake-related activities. While the Commission had initially identified overlap and concentration in narrower terms and expressed concerns about unilateral market power, the reasons reflect that the parties and the Commission ultimately concurred on a broad market for processing and supply of seafood products for purposes of the transaction.

In evaluating competitive harm, the Tribunal recorded the Commission’s findings that the transaction could enhance the likelihood of coordination in concentrated markets for processing and supply of seafood and for harvesting, processing, and marketing of hake. The Commission’s theory of harm relied on the proposition that a concentrated market with three large players controlling the bulk of supply, combined with the ability of firms to monitor each other’s conduct, could facilitate coordination. The Commission also pointed to the transaction creating a structural link involving Brimstone’s interests, and the likelihood that Viking Holdings would be removed as an independent competitor in the relevant competitive landscape.

Despite these concerns, the reasoning reflected the Commission’s own conclusion that the size of Viking Fishing meant the structural change was not likely to result in a substantial lessening of competition. The Tribunal aligned with that assessment and concluded that the merger was unlikely to substantially prevent or lessen competition in any relevant market.

The Tribunal nevertheless treated the risk of information exchange as a concern requiring a remedy. The reasons emphasised that Brimstone had holdings in multiple industry participants and that the Commission considered it necessary to formalise Brimstone’s undertaking regarding governance arrangements. The Tribunal accepted that, although there had been no election of common directors to date and the merging parties had stated there were no common directors, the undertaking should be made enforceable through merger conditions. The Commission had recommended approval with conditions aimed at information sharing concerns, and the Tribunal’s conclusion indicated approval with conditions attached (as reflected by reference to an annexure of conditions).

On public interest, the Tribunal accepted the Commission’s position that SMME concerns were not likely attributable to the merger and noted the merger’s role in securing employment for approximately 1500 employees who might face risk in a counterfactual scenario related to future fishing rights allocations. The Tribunal recorded no other public interest issues arising.

5. Outcome and Relief

The Tribunal approved the proposed transaction, concluding that it was unlikely to substantially prevent or lessen competition in any relevant market. The Tribunal’s reasons indicate that approval was granted with conditions attached (referenced as annexure “A”), consistent with the Commission’s recommendation that conditions addressing information sharing concerns be imposed and that Brimstone’s undertaking be formalised into an enforceable merger condition.

The reasons do not record any separate or specific costs order, and no costs determination is reflected in the text provided.

Cases Cited

No cases are expressly cited in the reasons provided.

Legislation Cited

No legislation is expressly cited in the reasons provided.

Rules of Court Cited

No rules of court are expressly cited in the reasons provided.

Held

The Tribunal held that the proposed acquisition by Sea Harvest of control in Viking Aquaculture, together with the transfer of Viking Holdings’ fishing business components, was unlikely to substantially prevent or lessen competition in any relevant market. Although the Commission identified concentration and coordination risks, and raised concerns regarding structural links and information exchange due to Brimstone’s interests, these concerns did not justify prohibition.

The Tribunal further held that concerns relating to potential information exchange warranted the imposition of enforceable conditions, including formalising Brimstone’s undertaking regarding director interlocks, and approved the transaction subject to the conditions referenced in the reasons.

On public interest, the Tribunal held that SMME concerns were not likely to result from the merger and accepted that the transaction would secure employment for a substantial number of employees, with no other public interest concerns arising on the facts recorded.

LEGAL PRINCIPLES

The reasons apply the principle that a merger is assessed by reference to whether it is likely to substantially prevent or lessen competition in any relevant market, which entails an evaluative inquiry into market structure, concentration, and theories of harm such as unilateral effects and coordinated effects.

The reasons further reflect the principle that where a merger does not justify prohibition but raises specific risks—such as the risk of competitively sensitive information exchange arising from structural links or common ownership—those risks may be addressed through merger conditions, including conditions that render governance-related undertakings enforceable.

The reasons also apply the principle that merger assessment includes public interest considerations, including employment effects, and that concerns raised by particular stakeholders must be evaluated for whether they are likely to be caused by the merger as opposed to other market dynamics.