Summary of Judgment

1. Introduction

These proceedings concerned the approval of a large merger before the Competition Tribunal of South Africa, following an investigation and recommendation by the Competition Commission. The matter took the form of merger control proceedings in which the Tribunal was required to decide whether the proposed transaction was likely to substantially prevent or lessen competition in any relevant market and whether it raised any public interest concerns.

The primary acquiring firm was Special Purpose Acquisition Partnership III (an en commandite partnership) (“Spap III”). The Tribunal identified Capitalworks Private Equity Fund II (“CWPE II”), managed and/or advised by Capitalworks Private Equity Advisor (Pty) Ltd (“Capitalworks Advisors”), as the ultimate acquiring firm. The primary target firm was Rosond Holdings (Pty) Ltd (“Rosond”), a private company providing drilling, exploration, and related services to the mining and exploration sectors across Africa.

Procedurally, the Tribunal approved the merger on 16 October 2019, with reasons issued on 6 November 2019. The reasons record that the Tribunal considered the Commission’s competition assessment and also raised specific concerns during the hearing relating to pension fund risks and black economic empowerment (BEE) implications, which were addressed by the merging parties through explanations and assurances.

The general subject-matter of the dispute was whether the acquisition by Spap III (linked to CWPE II) of a significant minority interest in Rosond—together with minority protection rights conferring control—should be approved, having regard to competition effects and public interest factors (notably employment, pension fund security, and BEE).

2. Material Facts

Spap III was described as a newly incorporated entity that did not, at the time, control any firm and did not conduct operations. Its ultimate controller, CWPE II, was described as a mid-market private equity fund making investments across a diversified portfolio, including entities operating in fields such as precast concrete products, yacht manufacturing, property, management consulting, mining interests, insurance broking, and poultry production.

Rosond was described as providing surface exploration, underground drilling, and geotechnical engineering services to mining and exploration industries throughout Africa. Rosond’s group included entities involved in drilling and logistical operations, with in-house manufacturing and maintenance capacity for drilling equipment and machinery.

The transaction involved Spap III acquiring 40.5% of the shares in, and claims of, Rosond held by Capitalworks Private Equity Fund I (“CWPE I”) and the Crave Ribeiro Family Trust. Although framed as a minority shareholding, the Tribunal recorded that Spap III would acquire control of Rosond post-merger by virtue of minority protection rights attached to the shares.

As to pre-merger control and ownership structure, the Tribunal recorded that Rosond was already jointly controlled, including by CWPE I, and that the ultimate controller pre-merger was Capitalworks. A key factual premise accepted in the competition assessment was that the transaction did not introduce a new ultimate controller outside of Capitalworks; rather, it entailed an internal shift within the Capitalworks fund structure from CWPE I to CWPE II, with Capitalworks remaining the ultimate controller.

On public interest facts, the Tribunal noted from the merging parties’ documents that Rosond’s defined benefit pension fund (DB Fund) was in deficit, had been closed to new members since 2013, and that new employees were allocated to a defined contribution fund. The Tribunal treated this as raising a potential risk to existing and potential beneficiaries if the deficit worsened post-merger. At the hearing, the merging parties indicated that Rosond management and Capitalworks were implementing a plan with the Financial Services Board (FSB) aimed at reducing the deficit, that the company had become cash positive, and that it had been making increased contributions toward reducing the deficit.

The Tribunal also recorded concerns arising from documents indicating that a new BEE partner would be sought and that Rosond’s BEE shareholding would be restructured. The documents suggested that the existing BEE structure was “underwater,” with the loan owing to Fund I exceeding the fair value of shares held in the BEE trust, and that a contemplated mechanism involved calling up shares held as security to settle the loan. At the hearing, the merging parties explained that the intended changes were aimed at improving Rosond’s position and would be guided by mining charter requirements, and that the intention was to increase the empowerment of BEE investors (described as improving returns or ownership, with an indicated improvement of 10%).

3. Legal Issues

The central legal questions for determination were whether the proposed merger was likely to substantially prevent or lessen competition in any relevant market, and whether the merger could be justified or prohibited based on public interest considerations traditionally assessed in merger control.

The dispute primarily concerned the application of competition-law standards to the facts identified by the Commission and assessed by the Tribunal. In relation to competitive effects, the inquiry was largely factual and predictive (market structure, overlaps, and likely market impact), while the public interest inquiry involved an evaluative assessment of risk and assurances relating to employment, pension fund consequences, and BEE ownership/structure.

A further implicit issue addressed in the reasoning was whether a transaction resulting in “control” via minority protection rights—despite a 40.5% shareholding—altered the competitive landscape or control structure in a way material to merger analysis, given that Capitalworks was described as the ultimate controller both pre- and post-merger.

4. Court’s Reasoning

On competition, the Tribunal proceeded from the Commission’s assessment of the parties’ activities to identify whether the merger created horizontal overlaps or vertical relationships. The Commission concluded, and the Tribunal accepted, that the only horizontal overlap arose to the limited extent that the Capitalworks Group, through CWPE I, already held a shareholding in Rosond before the merger. The Commission found no vertical relationship arising from the transaction, and the Tribunal did not identify any contrary basis on the record.

In evaluating competitive effects, the Commission’s reasoning (endorsed by the Tribunal) emphasised two main considerations. First, the transaction was not expected to change market structure in Rosond’s areas of activity, and the analysis relied on the estimated post-merger market shares in the identified segments (surface exploration, underground drilling, and grouting), which were stated to be below specified thresholds in each segment. Secondly, the Commission considered the control structure, finding that it would remain unchanged in the relevant sense because Capitalworks was the ultimate controller before the merger and would remain so after the merger. The Tribunal expressly agreed that the transaction did not raise competition concerns on these bases.

On public interest, the Tribunal accepted the Commission’s conclusion that the merger did not raise public interest concerns, including in relation to employment, on the basis that the transaction was not expected to generate duplication leading to job losses. However, the Tribunal independently interrogated two specific public interest-related risks flagged by the documents: the DB Fund deficit and the potential effect of BEE restructuring.

Regarding the DB Fund, the Tribunal treated the existence of a deficit as a potential risk to beneficiaries and sought comfort that the merger would not adversely affect pensioners or current members. The merging parties’ explanation—namely that Rosond and Capitalworks were actively reducing the deficit pursuant to a plan developed with the FSB, supported by improved cash position and increased contributions—was treated as responsive to the Tribunal’s concern. The Tribunal accepted the assurance that efforts would continue post-merger, and that adverse pension impacts were not expected.

Regarding BEE, the Tribunal’s concern was directed at whether contemplated restructuring might dilute BEE ownership or undermine related objectives. The Tribunal recorded the merging parties’ explanation that the restructuring was intended to improve Rosond’s BEE position because the existing structure was under strain, that changes would be guided by mining charter requirements, and that the intention was to enhance empowerment outcomes for BEE investors. In light of these explanations and assurances, the Tribunal indicated that it was satisfied that the transaction did not raise public interest concerns.

The Tribunal’s reasoning culminated in a combined conclusion: the transaction was unlikely to harm competition in any relevant market, and the asserted public interest risks (employment, pensions, and BEE) did not warrant intervention given the explanations provided and the circumstances described.

5. Outcome and Relief

The Tribunal approved the large merger unconditionally between Special Purpose Acquisition Partnership III and Rosond Holdings (Pty) Ltd.

No conditions were imposed. The reasons as provided do not record any separate or special costs order.

Cases Cited

No cases were cited in the provided reasons for decision.

Legislation Cited

No legislation was expressly cited in the provided reasons for decision.

Rules of Court Cited

No rules of court were cited in the provided reasons for decision.

Held

The Competition Tribunal held that the proposed acquisition by Spap III of a 40.5% interest in Rosond (with minority protection rights conferring control) was unlikely to substantially prevent or lessen competition in any relevant market, in circumstances where the transaction produced no material change in competitive structure and did not create problematic horizontal or vertical effects.

The Tribunal further held that the merger raised no public interest concerns, including in relation to employment, and that concerns regarding Rosond’s defined benefit pension fund deficit and the contemplated BEE restructuring were sufficiently addressed by the merging parties’ explanations and assurances.

LEGAL PRINCIPLES

Merger approval in large merger proceedings requires an assessment of whether a transaction is likely to result in a substantial prevention or lessening of competition, including through analysis of horizontal overlaps, vertical relationships, market structure, and the nature of control.

A transaction may confer control not only through majority shareholding but also through minority protection rights attached to a minority stake, and merger analysis may consider whether such a change in control has material competitive consequences.

Merger control also entails a public interest evaluation, which may include the anticipated effect on employment and broader stakeholder impacts. Where the record discloses plausible public interest risks—such as potential adverse consequences for pension beneficiaries or possible dilution of empowerment objectives—the Tribunal may interrogate these risks and evaluate party assurances and contextual factors in concluding whether public interest concerns arise.