Brief Summary

Competition Law — Merger Approval — Conditional approval of a merger between AFGRI Agri Services (Pty) Ltd and Senwes Limited to acquire certain assets and businesses of Hinterland Holdings (Pty) Ltd — Transaction involves a demerger of a joint venture established in 2013 — No horizontal overlap identified as both acquiring firms do not own retail outlets or fuel stores outside of the joint venture — Competition Commission found no substantial prevention or lessening of competition, with the transaction likely to enhance competition — Public interest concerns regarding employment addressed, with assurances of no retrenchments or negative impacts on employment terms.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceeding was a merger control matter before the Competition Tribunal of South Africa, concerning the approval of a proposed transaction notified under the Competition Act 89 of 1998. The Tribunal considered the transaction on the basis of the Competition Commission’s investigation and recommendations, and issued reasons for its decision after granting approval.

The primary acquiring firms were AFGRI Agri Services (Pty) Ltd (“AFGRI”) and Senwes Limited (“Senwes”). The primary target firms were described as (i) certain assets and businesses owned by Hinterland Holdings (Pty) Ltd and its subsidiaries (in relation to AFGRI’s reacquisition of assets previously contributed to a joint venture) and (ii) AFGRI’s 50% shareholding in Hinterland Holdings (Pty) Ltd (in relation to Senwes’ acquisition of sole control).

The procedural history reflected that the present transaction was a demerger (or unwind) of a joint venture that had originally been formed in 2013 and had been approved by the Tribunal subject to conditions. The current demerger was notified as a single transaction because the underlying agreements (including a termination agreement and ancillary sale agreements) were interdependent and cross-conditional.

The general subject-matter of the dispute concerned whether this demerger would likely result in a substantial prevention or lessening of competition, and whether any public interest issues—particularly employment—required the imposition of conditions. The Tribunal ultimately conditionally approved the transaction on 17 September 2020, with reasons issued on 20 October 2020.

2. Material Facts

AFGRI and Senwes were the two shareholders in a joint venture formed in 2013, known as Hinterland Holdings (Pty) Ltd (the “Hinterland JV”), in which each held 50%. When forming the JV, AFGRI contributed 37 agricultural requisites stores, fuel retail stores, and two wholesale businesses supplying agricultural equipment and products. Senwes contributed 26 requisites stores. Hinterland thereafter operated through retail entities (Hinterland SA and Hinterland Fuels), together with immovable properties linked to retail outlets and fuel stations.

The transaction comprised two connected parts. First, AFGRI would reacquire certain assets and businesses that were originally its own contributions to the joint venture (described as the former AFGRI retail store businesses, former AFGRI retail fuel businesses, and associated immovable properties). These Target Hinterland Businesses consisted of 33 retail outlets and 27 retail fuel stores located in Mpumalanga, KwaZulu-Natal, Gauteng, and the Free State. Second, Senwes would acquire AFGRI’s 50% interest in the Hinterland JV, resulting in Senwes obtaining sole control over the remaining businesses of the JV.

The Tribunal treated the arrangements as a single notified transaction because the agreements were interdependent, and because the parties’ contractual arrangements governing the JV would cease upon approval and implementation. The net effect was that AFGRI would cease to be a shareholder in Hinterland, and Senwes would continue operating the remaining Hinterland business.

On the competition facts accepted by the Commission and adopted by the Tribunal, AFGRI and Senwes did not own any retail outlets or fuel stores other than those contributed to the Hinterland JV. On that basis, the Commission concluded there was no horizontal overlap created by the demerger.

A limited vertical aspect was considered in relation to Prodist, described as an agricultural requisites wholesaler supplying downstream retail outlets and fuel stores. Prodist would remain with Senwes post-transaction. The Commission considered that, as at the time of the original 2013 JV approval, the existence of alternative upstream wholesalers and downstream customers meant foreclosure concerns were unlikely, and found that the competitive landscape had not materially changed.

On public interest facts, the merging parties undertook that there would be no retrenchments attributable to the transaction. The Tribunal recorded that employees transferring back to AFGRI would do so on terms and conditions no less favourable than before, as contemplated by section 197(3) of the Labour Relations Act 66 of 1995. A union, NUFBWSAW, raised concerns about the potential effect of the transfer on employees’ participation in the Bargaining Council for the Grain Industry, and sought conditions including a multi-year moratorium on retrenchments and continued membership of the union and bargaining council.

The Commission noted that certain strategic documents had contemplated retrenchments at the JV’s wholesale and shared services functions, although the parties provided an unequivocal undertaking that retrenchments would not occur as a result of the merger. For certainty, the approval was made subject to a two-year moratorium on retrenchments of defined employees, subject to specified exceptions.

Regarding ownership by historically disadvantaged persons, the Tribunal accepted the parties’ submission that the transaction would not reduce HDI ownership overall, particularly given changes proposed in the shareholding of the fuel business and the existing empowerment shareholding within the AFGRI group.

3. Legal Issues

The central legal questions were whether the proposed demerger was likely to result in a substantial prevention or lessening of competition, including any input or customer foreclosure effects arising from vertical relationships, and whether approval should be conditioned on public interest grounds, particularly employment-related concerns.

The dispute primarily concerned the application of law to fact. The Tribunal was required to assess, on the factual record presented through the Commission’s investigation and the parties’ submissions, whether the transaction raised competition concerns (horizontal or vertical) and whether public interest considerations warranted conditions. The imposition of conditions also involved an element of evaluative judgment, particularly in deciding whether an undertaking was sufficient or whether a formal moratorium condition was necessary for certainty.

4. Court’s Reasoning

On competition, the Tribunal accepted the Commission’s finding that the demerger produced no horizontal overlap, because neither AFGRI nor Senwes would hold agricultural requisites stores or fuel stores outside those already contained within the JV structure. The transaction was characterised as a restructuring that separated assets between the two former joint venture partners, rather than a consolidation of competing assets.

The Tribunal also addressed the potential vertical effect arising from Senwes’ continued ownership of Prodist, a wholesaler supplying agricultural requisites. The Commission’s analysis—adopted by the Tribunal—proceeded on the basis that alternative wholesalers existed upstream and that the competitive landscape in Prodist’s market had not materially changed since the JV’s original approval. The presence of competitors such as Gold Medal, Agri-net, Matis, and L&G Tool was relied on by the Commission to support the conclusion that foreclosure was unlikely. On that reasoning, the Tribunal accepted that the transaction was unlikely to result in either input foreclosure or customer foreclosure.

The Tribunal further accepted the Commission’s view that neither party was likely to face altered incentives that would lessen competition, because each would continue to face competition from third-party stores in their respective geographic areas. It accepted the Commission’s assessment that the demerger could, to an extent, reduce unilateral effects associated with joint venture operation and thereby potentially increase competition relative to the JV structure, and stated that it found no reason to disagree.

On public interest, the Tribunal considered employment effects and the union submissions. It recorded the parties’ position that there would be no retrenchments as a result of the transaction and that the transfer of employees would occur in accordance with section 197(3) of the Labour Relations Act, preserving terms and conditions of employment. However, in light of the Commission’s observation that internal strategic documents had contemplated retrenchments at certain functions, the Tribunal accepted the Commission’s approach of imposing a condition for certainty.

The Tribunal imposed a two-year moratorium on retrenchments of defined employees, while clarifying that certain categories of terminations (including resignations, retirements, dismissals for misconduct or poor performance, and retrenchments unrelated to the merger) were excluded from the restriction. It treated NUFBWSAW’s further concerns about bargaining council participation as not merger-specific, noting that employees’ transfer would be governed by section 197 and that AFGRI had not belonged to the bargaining council before the merger.

5. Outcome and Relief

The Tribunal conditionally approved the proposed transaction.

The relief took the form of approval subject to conditions, most notably a two-year moratorium on retrenchments of the defined employee group from the approval date, subject to specified exclusions. The conditions also included compliance and monitoring measures, including circulation of the conditions to employees, the filing of affidavits confirming such circulation, notification of the implementation date, and annual affidavits confirming compliance during the moratorium period.

No separate order as to costs was recorded in the reasons.

Cases Cited

Hinterland JV Merger, Competition Tribunal of South Africa, Case No: 87/LM/Sep12.

Legislation Cited

Competition Act 89 of 1998 (as amended).

Labour Relations Act 66 of 1995 (as amended), with specific reference to section 197(3).

Rules of Court Cited

Rules for the Conduct of Proceedings in the Competition Commission and Rules for the Conduct of Proceedings in the Competition Tribunal.

Competition Tribunal Rule 39, read together with Competition Tribunal Rule 37.

Held

The Tribunal held that the demerger of the Hinterland joint venture, consisting of AFGRI’s reacquisition of certain contributed businesses and assets and Senwes’ acquisition of AFGRI’s 50% shareholding in Hinterland, was unlikely to result in a substantial prevention or lessening of competition. It accepted that there was no horizontal overlap because the acquiring firms did not own relevant retail outlets or fuel stores outside those within the JV structure, and it further accepted that vertical foreclosure concerns associated with Prodist were unlikely given the continued availability of alternative wholesalers and the unchanged competitive landscape.

On public interest, the Tribunal held that the transaction should be approved subject to conditions addressing employment-related concerns. While the parties provided an undertaking that there would be no merger-related retrenchments and employee transfers would comply with section 197(3) of the Labour Relations Act, the Tribunal accepted the need for a formal condition to provide certainty. It therefore imposed a two-year moratorium on retrenchments of defined employees, together with monitoring and reporting obligations.

LEGAL PRINCIPLES

The decision applied the principle that merger assessment requires consideration of whether a transaction is likely to lead to a substantial prevention or lessening of competition, including through horizontal overlaps and vertical foreclosure theories, assessed against the competitive constraints present in the relevant markets. Where there is no horizontal overlap and where credible evidence indicates sufficient alternative suppliers or customers in vertically related markets, a merger is less likely to raise foreclosure concerns.

The Tribunal also applied the principle that merger control in South Africa includes evaluation of public interest factors, including employment. Even where merging parties provide assurances on employment impacts, the Tribunal may impose conditions to ensure certainty and to address risks identified in the record, particularly where internal documents or other materials indicate that employment reductions had been contemplated. The conditions may be framed as time-bound moratoria with defined exceptions and may include monitoring mechanisms enforced through the Tribunal’s rules on breach proceedings and compliance reporting.

AFGRI Agri Services (Pty) Ltd and Another v Certain Assets and Businesses by Hinterland Holding (Pty) Ltd and its Subsidiaries and Another (LM083Aug20) [2020] ZACT 30 (20 October 2020)