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[2019] ZACT 59
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Namane Logistics (Pty) Ltd v Crossroads Distribution (Pty) Ltd (LM067Jul19) [2019] ZACT 59 (20 September 2019)
Competition
tribunal
SOUTH
AFRICA
COMPETITION
TRIBUNAL OF SOUTH AFRICA
Case
No: LM067Jul19
In
the matter between:
Namane
Logistics (Pty)
Ltd
Primary
Acquiring Firm
and
Crossroads
Distribution (Pty)
Ltd
Primary
Target Firm
Panel
: Yasmin Carrim (Presiding Member)
:
Enver Daniels (Tribunal Member)
:
Andreas Wessels (Tribunal Member)
Heard
on: 21 August 2019
Order
Issued on: 23 August 2019
Reasons
Issued on: 20 September 2019
Reasons
for Decision
Conditional
approval
[1]
On 23 Agust 2019, the Competition Tribunal ("Tribunal")
conditionally approved the proposed transaction between Namane
Logistics (Pty) Ltd ("Namane") and Crossroads Distribution
(Pty) Ltd ("CRD").
[2]
The reasons for the conditional approval follow.
Parties
to proposed transaction
Primary
acquiring firm
[3]
The primary acquiring firm is Namane Logistics, a wholly owned
subsidiary of Namane Resources (Pty) Ltd ("Namane Resources").
The shareholders of Namane Resources are lnkonkoni Investment Holding
Trust, Merino Investment Holding Trust and Mantokozo Investment
Holding Trust (hereafter "the Trusts").
[4]
Namane Resources controls,
amongst others, Namane Energy Ltd, Anker Coal and Mineral Holdings SA
(Pty) Ltd and Arrow Creek Investments
78 (Pty) Ltd.
[1]
Namane Logistics does not control any
firm.
[5]
The Trusts control a number of
firms, the most relevant of which, for purposes of the proposed
transaction, is Community Investment
Holdings (Pty) Ltd ("CIH").
[2]
Specifically, CIH's shareholding in
Community Logistics (Pty) Ltd ("Community Logistics")
which, in turn, has an indirect
shareholding, through Crossroads
Distribution Holdings (Pty) Ltd ("CRD Holdings"), in CRD,
the primary target firm in
the instant transaction.
[6]
Namane Resources, its controllers and subsidiaries are,
hereafter, referred to as the Namane Group.
[7]
The Namane Group comprises of several holding firms with
interests in various sectors, namely Healthcare, ICT, Power and
Energy,
Mining, Logistics and Infrastructure. Relevant for purposes
of the proposed transaction is the Group's activities in the mining
of coal. In particular, the Namane Group owns four colliery fields.
Of these fields, only Elandsfontein Colliery (Pty) Ltd
("Elandsfontein")
and Golfview colliery are in operation,
while Temo Golf Mining (Pty) Ltd ("Temo") and
Vanoudshoornstroom Coal (Pty) Ltd
("VOC") are in a
development stage.
Primary
target firm
[8]
The primary target firm is CRD, a company incorporated in
accordance with the laws of South Africa. CRD is jointly controlled
by
CRD Holdings, with a 55% shareholding, and Nedcor Investments Ltd,
with a 43% shareholding ("NIL").
[9]
CRD controls a number of firms,
including Crossroads Distribution Namibia (Pty) Ltd, Crossroads
Distribution Lesotho (Pty) Ltd,
CR Distribution (Pty) Ltd and
Moripane Transport Holdings (Pty) Ltd.
[3]
[10]
CRD provides transport services, specifically the transport of fuel,
gas, chemicals, explosives and general freight. CRD owns
[...] trucks
which it utilises to render such transport services.
[11]
CRD also transports coal on behalf of Namane Commodities
("NC"), which is part of the acquiring firm, from its
Elandsfontein
colliery to Eskom's Kusile Power Station. CRD does not
own trucks for coal transportation and uses third party trucks which
it
leases to render this transportation service. CRD does not
transport coal for any party other than NC.
Proposed
transaction and rationale
[12]
The Namane Group intends to acquire 43% of the issued capital
of CRD, from NIL and will, post-merger, control CRF through Namane
Logistics. The acquisition therefore effectively entails a shift from
joint to sole control.
[13]
In terms of the rationale, NIL, in compliance with its mandate
to exit its investments after [...] years, has decided to sell its
shares and claims in CRD. Consequently, the ultimate owners of CRD
Holdings are, in line with the Umbrella Shareholder's Agreement,
exercising their pre-emptive rights to purchase shares held by NIL in
CRD, through Namane Logistics.
[14]
Further to the above, the CEO
of Namane Logistics, John Schoeman, explained the rationale as
follows:
[4]
"[l]t's
a
matter of
increasing its BEE status... as well as black women owned status
...[which] will assist in Crossroads being more
competitive or being
able to secure further contracts."
[15]
Mr Schoeman further indicated
that by virtue of acquiring an additional 43% in CRD, Namane
Logistics would be adding an additional
43% black ownership to the
company itself.
[5]
Impact
on competition
[16]
The Commission found that there is a horizontal overlap only
insofar as the Namane Group already has a shareholding in CRD.
Further,
the Commission found that there is a pre-existing vertical
relationship between the merging parties, in that CRD provides coal
transport services to the Namane Group.
[17]
In consideration of the pre-existing vertical overlap between
the merging parties, the Commission found that the Namane Group is
a
small player in the market for the production and sale of coal, with
a market share of approximately 1%. The Commission also
found that
the merged entity will continue to face competition from major
players in the market, such as BHP, Billiton Energy Coal
South
Africa, Anglo American Thermal Coal and Xstrata Coal.
[18]
The Commission further concluded that the vertical
relationship between the merging parties is unlikely to result in
foreclosure
since the target firm renders coal transport services to
the Namane Group and does not transport coal for any third parties.
[19]
Insofar as the horizontal overlap is concerned, the Commission
was of the view that the proposed transaction will not result in any
market share accretion or change the structure of any relevant market
since the Namane Group, through CRD Holdings, already exercises
joint
control over the target firm. The acquiring group is therefore
increasing its shareholding from 55.5% to 98.5%. The Commission
therefore concluded that the proposed transaction is unlikely to
substantially prevent or lessen competition in any relevant market.
Public
interest
[20]
The merging parties asserted
that the proposed transaction will have no adverse effect on
employment. In particular, they indicated
that there will be no job
losses as a result of the merger.
[6]
[21]
On the contrary, so the merging
parties averred, the proposed transaction is likely to have a
positive effect on employment, since
the Namane Group is in the
process of developing multiple coal mines that will result in
additional coal production capacity being
added to its current coal
production within South Africa.
[7]
[22]
As a matter of transparency, the merging parties disclosed
that there had been 100 pre-merger retrenchments at the target firm
due
to economic hardships. In particular, the merging parties
submitted that these retrenchments were triggered by a loss of
business
from some of the target firm's major clients.
[23]
Further to the above, the merging parties submitted that a
reduction in labour force was therefore necessary in order to ensure
its survival and not as a result of the proposed transaction.
[24]
The Commission, having regard to the merging parties'
strategic documents, was satisfied that the retrenchments occurring
between
March 2017 and November 2018, were contemplated well before
engagements regarding the proposed transaction commenced between the
merging parties. Accordingly, the Commission concluded that the
pre-merger retrenchments at CRD were not linked to the proposed
transaction.
[25]
During its investigation, the Commission found that a section
189A notice had been sent out, by CRD, to its employees, employee
representatives and relevant trade unions, on 10 July 2019. CRD
explained that it was currently in consultations with staff regarding
the potential need to retrench an additional 100 employees, based on
operational requirements.
[26]
In this regard, the merging parties clarified that discussions
with employees are still ongoing and that no retrenchments had taken
place as yet. They did, however, indicate that the affected employees
are likely to be in Gauteng, Rustenburg, Kimberly, Port Elizabeth,
East London, Cape Town and Durban. They further stipulated that the
retrenchments may impact drivers, general workers/assistants,
supervisors, contract managers, admin clerical staff, mechanics and
other workshop staff and warehouse staff.
[27]
The merging parties explained that the anticipated
retrenchments are as a result of a steady decline in the target
firm's Fuel and
Bulk Channel business, with a number of routes being
curtailed. Further, the parties averred that these potential
retrenchments
are in no way related to the exit of NIL and the
internal restructuring by the remaining shareholders in the target
firm.
[28]
In its determination of the merger specificity of the
anticipated retrenchments, the Commission considered the logistical
nature
of the company. In particular, the Commission found that the
target firm is highly dependent on acquiring and maintaining
contracts
with its respective clients. Consequently, some contracts
may come to an end and are not renewed for various reasons.
Accordingly,
the Commission noted that a firm like CRD might find
itself in an excess of employees after a contract comes to an end and
it may,
in an attempt to continue running a viable business, be
forced to let some employees go.
[29]
The Commission therefore concluded that, given the nature of
CRD's business and the recent loss of contracts by the target firm,
the anticipated retrenchments are for operational reasons and are
unlikely to be merger specific.
[30]
At the hearing, the Tribunal
queried whether Namane Logistics would be opposed to the imposition
of a condition requiring that there
be no merger related
retrenchments.
[8]
It was further suggested that the
merging parties provide a list of anticipated retrenchments (which
would act as a baseline), indicating
the number of retrenchments, the
positions held, the locations and the gender of the employees that
are expected to form part of
the anticipated retrenchments.
[9]
Following the finalisation of their
consultation process, the acquiring firm is then expected to provide
an affidavit, signed by
the CEO of the acquiring firm at the time,
listing the number of
actual
retrenchments.
[10]
[31]
The merging parties indicated
that they would be in a position to uphold the commitments imposed
upon them.
[11]
Conclusion
[32]
In light of the above, we approved the proposed transaction
subject to the set of public interest conditions, attached hereto
marked
as
"Annexure A".
In our view, these
conditions adequately address any public interest concerns that may
arise from the proposed transaction.
Ms
Yasmin Carrim
20
September 2019
DATE
Mr
Enver Daniels and Mr Andreas Wessels concurring
Case
Manager: Helena Graham
For
the merging parties: Heather Irvine of Falcon & Hume Attorneys
Inc.
For
the Commission: Zintle Siyo and Mogau Aphane
IN
THE COMPETITION TRIBUNAL OF THE REPUBLIC OF SOUTH AFRICA
Case
Number: LM067JUL19
In
Re the large merger between:
NAMANE
LOGISTICS (PTY) LTD
("NAMANE'')
Acquiring
Firm
And
CROSSROADS
DISTRIBUTION (PTY) LTD
("CRO") Target
firm
CONDITIONS
1.
DEFINITIONS
The
following expressions shall bear the meanings assigned to them below
and cognate expressions bear corresponding meanings -
1.1
"Acquiring
Firm"
means Namane Logistics (Pty) Ltd;
1.2
"Approval
Date"
means the date referred to in the Tribunal's merger
Clearance Certificate (Form CT10);
1.3
"Commission"
means the Competition Commission of South Africa;
1.4
"Competition
Act"
means the
Competition Act No. 89 of 1998
, as amended;
1.5
"Competition
Authorities"
mean the Commission and the Tribunal;
1.6
"Commission
Rules"
mean the Rules for the Conduct of Proceedings in the
Commission;
1.7
"Conditions"
mean these conditions;
1.8
"Days"
mean business days, being any day other than a Saturday, Sunday
or official public holiday;
1.9
"Implementation Date"
means the date on which
the Proposed Transaction is implemented by the Merg_ing Parties;
1.10
"LRA"
means the
Labour Relations Act 66 of 1995
;
1.11
"Merging
Parties"
mean the Acquiring Firm and the Target Firm;
1.12
"Proposed
Transaction"
means the acquisition of a 43% shareholding in
the Target Firm by the Acquiring Firm, as set out in greater detail
in the joint
competitiveness report and Schedule 4 to Form CC 4(2) of
the Acquiring Firm, submitted to the Commission as part of the merger
filing;
1.13
"Target
Firm"
means Crossroads Distribution (Pty) Ltd; and
1.14
"Tribunal"
means the Competition Tribunal of South Africa.
2.
CONDITIONS
2.1
The
Target Firm shall not retrench any employees as a result of the
Proposed Transaction for a period of 3 (three) years from the
Implementation Date.
2.2
For
the sake of clarity, retrenchments do not include (i) voluntary
retrenchment and/or voluntary separation agreements; (ii) voluntary
early retirement packages; (iii) unreasonable refusals to be
redeployed in accordance with the provisions of the LRA; (iv)
resignations
or retirements in the ordinary course of business; (v)
retrenchments lawfully effected for operational requirements
unrelated to
the Proposed Transaction; and (vi) terminations in the
ordinary course of business, including but not limited to dismissals
as
a result of misconduct or poor performance.
2.3
The
Target Firm shall circulate a copy of these Conditions to all
employees of the Target Firm and their trade unions.
2.4
On or
before the Approval date, the Merging Parties shall submit to the
Competition Authorities a list of each employment position
in the
Target Firm which is potentially affected by the retrenchments
contemplated in the
Section 189A
Notice provided to affected staff in
the Target Firm on 10 July 2019
("the
Section 189A
Notice").
This list must specify the gender and geographic location of each
employee holding each such potentially affected employment position
as at the Approval Date.
2.5
Within
10 (ten) business days of the consultations in terms of the
Section
189A
Notice being concluded and retrenchments being effected by the
Target Firm in terms of that
Section 189A
Notice, the Merging Parties
shall submit to the Competition Authorities an affidavit deposed to
by the Managing Director of the
Target Firm which confirms and
provides:
2.5.1
the
name, job description, gender and geographic location of each
employee of the Target Firm who has been retrenched as a result
of
the operational requirements of the Target Firm, as set out in the
Section 189A
Notice;
2.5.2
that
these retrenchments were based on the operational requirements of the
Target Firm set out in the
Section 189A
Notice and are not related to
the Proposed Transaction;
2.5.3
a
description of the operational requirements of the Target Firm that
lead to the retrenchments; and
2.5.4
that
all employees of the Target Firm and their trade unions have been
notified of these Conditions, in accordance with clause 2.3.
3.
MONITORING OF COMPLIANCE WITH THE CONDITIONS
As
proof of compliance with the condition set out in clause 2.1, the
Target Firm shall submit an affidavit deposed to by the Managing
Director of the Target Firm on each anniversary of the Implementation
Date, during the 3 (three) year period that this condition
remains in
place.
4.
VARIATION
The
Merging Parties and the Commission may at any time, on good cause
shown, apply to the Tribunal for the Conditions to be lifted,
revised
or amended.
5.
BREACH
In
the event that the Commission receives any complaint in relation to
non-compliance with the Conditions, or otherwise determines
that
there has been a breach by the Merging Parties of the Conditions, the
breach will be dealt with in terms of Rule 37 of the
Tribunal Rules
read together with Rule 39 of the Commission Rules.
6.
GENERAL
7.1.
All correspondence in relation to the Conditions shall be submitted
to the following email address:
mergerconditions@compcom.co.za.
[1]
Namane Resources also controls Namane
Commodities (Pty) Ltd, Namane Mining Properties (Pty) Ltd and Namane
Oil and Gas (Pty) Ltd.
[2]
CIH is an investment holding company
with interests in various sectors, including, Healthcare, ICT, Power
and Energy, Mining,
Logistics and Infrastructure.
[3]
CRD
also controls CRD Investments (Pty) Ltd, Crossroads Distribution
East Africa Ltd and Xroads (Pty) Ltd.
[4]
Transcript, p16 lines 23 - 25 and p17
lines 1 - 8.
[5]
Mr Schoeman explained that CRD is a
100% black-owned entity, with 40% female participation.
[6]
See Record, p11.
[7]
As above.
[8]
Transcript, p31 lines 3-10.
[9]
Transcript, p3l lines 18-23.
[10]
Transcript, p3l lines 20-23.
[11]
Transcript, p3l lines 24-25; p32
lines 1- 2.