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[2019] ZACT 12
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AAF Energy Ltd and Weijo Investments (Pty) Ltd v Quest Petroleum (Pty) Ltd, Montidox (Pty) Ltd, Quest Lubricants (Pty) Ltd and On Route Convenience (Pty) Ltd (LM1940ct18) [2019] ZACT 12 (11 March 2019)
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM1940ct18
In
the matter between
AAF
Energy Ltd and Weijo Investments (Pty) Ltd
Primary
Acquiring Firms
And
Quest
Petroleum (Pty) Ltd, Montidox (Pty) Ltd, Quest
Primary Target
Firms
Lubricants (Pty) Ltd and On
Route Convenience (Pty) Ltd
Panel
: Yasmin
Carrim (Presiding Member)
:
Mondo Mazwai (Tribunal Member)
:
Andiswa Ndoni (Tribunal Member)
Heard
on
: 20 February 2019
Order
Issued on : 20 February 2019
Reasons
Issued on : 11 March 2019
REASONS FOR DECISION
Approval
[1]
On
20 February 2019, the Competition Tribunal ("Tribunal")
unconditionally approved the proposed transaction involving
the
acquiring firms: AAF Energy Ltd ("AAF Energy"), Weijo
Investments (Pty) Ltd ("Weijo") and the target firms:
Quest
Petroleum (Pty) Ltd ("Quest Petroleum"), Montidox (Pty) Ltd
("Montidox"), Quest Lubricants (Pty) Ltd
("Quest
Lubricants"), On Route Convenience (Pty) Ltd ("ORC").
[2]
The
reasons for the approval of the proposed transaction follow.
Parties
to the transaction
Primary
Acquiring Firms
[3]
The
primary acquiring firms are AAF Energy and Weijo. AAF Energy is a
wholly owned subsidiary of Overberg Agri Bedrywe (Pty) Ltd
which in
turn, is a wholly owned subsidiary of Acorn Agri and Food Limited
("AAF"). Weijo is a wholly owned subsidiary
of AAF. AAF
directly and indirectly controls numerous firms in South Africa. Of
relevance to the proposed transaction is MOOV Fuel
(Pty) Ltd
("MOOV").
[4]
AAF
Energy and Weijo are newly established firms and as such, they do not
control any firms, nor have they traded yet. MOOV controls
two firms.
[5]
MOOV
and its subsidiaries are an independent wholesaler of petroleum
products
[1]
and related services. MOOV operates under four divisions namely
Branded Marketer, Commercial, Logistics and Property. MOOV's
operations
include the wholesale and distribution of petroleum
products to branded retailers; the commercial wholesale and
distribution of
petroleum products to industrial and agricultural
users; providing fuel logistics services to third party clients; and
leasing
of retail sites. MOOV is active in the Western Cape, Eastern
Cape and Northern Cape.
Primary
Target Firms
[6]
The
primary target firms are Quest Petroleum, Montidox, Quest Lubricants
and ORC. Pre-transaction, the target firms were ultimately
controlled
by common shareholders through various trusts.
[7]
The
target firms are managed by a sole CEO and operate as a single
economic entity. The target firms operate as an independent
wholesaler of petroleum products. They operate through four divisions
namely Retail, Commercial, Logistics and Property.
Proposed
transaction
[8]
In
terms of the
Sale of
Shares
Agreement,
AAF
Energy will acquire 51% of the share capital holding in each of the
target firms. The remaining share capital (49%) in each
of the target
firms will be acquired by Weijo. Post-merger, the target firms will
be jointly controlled by AAF Energy and Weijo.
[9]
The
proposed transaction will take place in various steps. The first few
steps comprise of an internal restructuring of the AAF
group of
companies. The restructure includes a change in control of the
acquiring firms. In addition, the minority shareholders
of MOOV will
exchange their shares in MOOV for shares in either AAF Energy or
Weijo. The final step involves AAF Energy and Weijo
exercising joint
ownership and control over the target firms.
Impact
on competition
[10] The
Competition Commission ("Commission") found a horizontal
overlap in the following markets:
(i) the market for the
wholesale/distribution of petroleum products in Eastern Cape, (ii)
the market for the wholesale/distribution
of petroleum products in
Northern Cape, (iii) the market for the wholesale/distribution of
petroleum products in Western Cape and
(iv) the market for the
wholesale/distribution of lubricants in the Eastern Cape.
[11]
In
its investigation, the Commission found that the merged entity would
have relatively low post-merger market shares in all the
relevant
markets save for the market for the wholesale/distribution of
petroleum products in Eastern Cape which was approximately
21.4%.
[12]
The
Commission was of the view that the post-merger market share for
wholesale/distribution of petroleum products in Eastern Cape
would
unlikely raise competition concerns as the market accretion is
de
minimis
and the merged entity would
continue to face competition from other market participants such as
Engen, Sasol and Shell SA.
[13]
In
light of the above, the Commission concluded that the proposed
transaction was unlikely to substantially prevent or lessen
competition
in any relevant market.
[14]
At
the hearing, the merging parties raised concerns around the
Commission's findings specifically, the finding that the merged
entity would have a post-merger market share of 21.4%. According to
merging parties, the information used by the Commission was
unreliable and the post-merger market share should have been 6%.
[2]
The Commission itself admitted that there were discrepancies in the
Department of Energy's statics, yet it proceeded to utilise
those
figures in its report.
[3]
[15]
In
response, the Commission explained where it may have erred. The
Commission failed to properly state that even though it had included
the Department of Energy's figures in the report, it accepted and
relied on the market share provided by the merging parties which
is
6%. The Commission acknowledged that the 21.4% figure may have been
overstated given the discrepancies in the statistics.
[4]
This response was accepted by the Tribunal.
Public
interest
[16]
The merging parties submitted that
approximately 12 employees of the target firms may be retrenched as a
result of the proposed
transaction. The Commission raised concerns
over the retrenchments and in response to the concerns, the merging
parties undertook
to place a moratorium on merger related
retrenchments for a period of two years from the date of
implementation of the proposed
transaction ("the undertaking").
The Commission did not make the moratorium a condition for its
approval as it was satisfied
with the undertaking.
[17]
The
Tribunal raised concerns about the monitoring of the undertaking by
employees and directors of the merged entity as well as
the
Commission, as would be the case had the undertaking been imposed as
a condition to the merger.
[18]
To address these concerns the Tribunal
gave the following direction:
"
The
merging parties must, within 30 days after the date of approval of
the proposed transaction, deliver
a
written notice of
the undertaking and the terms thereof to all employees, directors,
and persons involved in the proposed transaction.
In addition, the
merging parties must deliver
a
covering letter
to the Commission confirming that they have adhered to the Tribunal's
instruction. The letter, together with an
affidavit deposed to by
a
director and
a
copy of the
notification, must be delivered within 30 days after the date of
approval of this proposed transaction."
[5]
[19]
The
merging parties agreed to comply with the Tribunal's direction. The
proposed transaction raised no other public interest concerns.
Conclusion
[20]
In light of the above, we approved the
proposed transaction unconditionally.
Ms
Yasmin Carrim
Ms
Mondo Mazwai and Ms Andiswa Ndoni concurring.
11 March 2019
Date
Tribunal
Researcher:
Hlumelo Vazi
For
the merging parties: P Neethling of
Vanderspuy and Partners Incorporated
For
the Commission
B Ntshingila and T Masithulela
[1]
The petroleum products include petrol, diesel, lubricants and liquid
petroleum gas.
[2]
Transcript, pg 15.
[3]
Transcript, pg 16.
[4]
Transcript, pg 17.
[5]
Transcript, pg 8 and 9.