Sandvik Aktiebolag plc v DSI Underground Holdings S.a.r.l (LM003Apr21) [2021] ZACT 44 (7 June 2021)

75 Reportability

Competition Law

Brief Summary

Competition Law — Merger Approval — Sandvik Aktiebolag plc acquiring DSI Underground Holdings S.à.r.l. — The Competition Tribunal approved the merger between Sandvik and DSI, which involved Sandvik acquiring 100% of DSI's shareholding and a joint venture, subject to conditions regarding employment. The merger presented a horizontal overlap in the market for hard rock bolts, but the Tribunal found no substantial competition concerns as the merged entity's market share increase was below 2%. The Department of Trade, Industry and Competition raised employment concerns, leading to a condition that no retrenchments would occur in South Africa for 24 months post-merger approval. The Tribunal concluded that the merger would not substantially prevent or lessen competition or negatively impact public interest.

Comprehensive Summary

Summary of Judgment

1. Introduction

These proceedings concerned the approval of a large merger under the Competition Act 89 of 1998 before the Competition Tribunal of South Africa. The matter came before the Tribunal following a recommendation by the Competition Commission in terms of section 14A(1)(b) of the Act.

The primary acquiring firm was Sandvik Aktiebolag plc (“Sandvik”), and the primary target firm was DSI Underground Holdings S.à.r.l. (“DSI”). The transaction also involved Sandvik acquiring 100% of the shares in a South African joint venture between DSI and Frank Calandra Inc referred to as the “Jennmar JV”, with the result that Sandvik would, post-merger, solely control DSI and the Jennmar JV.

In procedural terms, the merging parties applied to the Competition Commission for merger approval on 29 March 2021. The merger was then dealt with by the Tribunal (following referral/request for consideration in terms of the Act), with the matter heard and decided on 7 June 2021. On that date, the Tribunal issued an order conditionally approving the merger and directing that a Merger Clearance Certificate be issued.

The general subject-matter of the dispute concerned whether the merger would substantially lessen or prevent competition in any relevant market and whether it raised adverse public interest concerns, particularly regarding employment, as contemplated by section 12A(3) of the Act.

2. Material Facts

Sandvik was described as a global engineering group and a publicly listed Swedish company not controlled by any shareholder. It controlled several firms in South Africa and was predominantly active locally in the provision of mining and rock solutions, as well as manufacturing and machining solutions.

DSI was a company incorporated in Luxembourg and, through its subsidiaries in South Africa, was active in manufacturing and supplying specialised ground control products to the South African underground mining and geotechnical industries. The DSI-related entities operating in South Africa were identified in the record as firms controlled by the Jennmar JV.

The transaction entailed Sandvik acquiring 100% of the shareholding in DSI. In addition, Sandvik would acquire 100% of the shares in the South African joint venture (the Jennmar JV). As a result, Sandvik would obtain sole control of both DSI and the Jennmar JV following implementation.

On the competition assessment, the Commission identified a horizontal overlap between the merging parties in the market for the provision of hard rock bolts in South Africa. However, the Commission found that the merged entity’s accretion in that overlap was below 2%, and the Tribunal recorded that this raised no competition concerns.

On the public interest assessment, the Department of Trade, Industry and Competition (DTIC) raised employment concerns, specifically that the merging parties had not made an absolute commitment to protect jobs. The DTIC requested a condition that there should be no merger-related retrenchments in South Africa for 24 months after approval. The merging parties agreed to an employment-related condition, and the Tribunal approved the merger subject to conditions (set out in an annexure) providing, in substance, for a moratorium on merger-related retrenchments for a defined period after implementation and further employment-related undertakings thereafter.

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 it would have a negative impact on public interest considerations contemplated in section 12A(3) of the Competition Act.

The dispute primarily concerned the application of law to fact within the merger control framework. The competition assessment required an evaluative determination of whether the identified overlap and market accretion gave rise to competition concerns. The public interest assessment required a value-laden evaluation of whether the employment-related concerns warranted the imposition of conditions and, if so, what form those conditions should take within the statutory framework.

4. Court’s Reasoning

The Tribunal approached the matter within the statutory merger assessment framework under the Competition Act, taking into account both competition effects and public interest considerations. The Tribunal recorded the Commission’s analysis of the merging parties’ activities and the identification of a horizontal overlap in the market for hard rock bolts in South Africa.

In applying the competition principles to the facts, the Tribunal accepted the Commission’s conclusion that the merged entity’s accretion would be below 2% in the overlapping market. On the facts as recorded, that level of accretion was treated as insufficient to support a finding that the merger was likely to substantially lessen or prevent competition. The Tribunal therefore concluded that the transaction was unlikely to substantially prevent or lessen competition in any relevant market.

The Tribunal then considered public interest aspects under section 12A(3), focusing on employment. It recorded that the DTIC raised concerns due to the absence of an absolute job protection commitment. The Tribunal further recorded that the DTIC requested a condition providing that no merger-related retrenchments be implemented in South Africa for a period of 24 months following approval, and that the merging parties agreed to the condition. The Tribunal’s assessment reflected that the public interest concerns could be addressed through conditions rather than by prohibition.

On this basis, the Tribunal concluded that the merger was unlikely to have a negative impact on public interest considerations contemplated by section 12A(3), provided that the agreed conditions were imposed. The Tribunal accordingly approved the merger subject to the detailed employment-related conditions set out in the attached annexure, including monitoring and compliance mechanisms.

5. Outcome and Relief

The Tribunal approved the merger in terms of section 16(2)(b) of the Competition Act subject to conditions. It also directed that a Merger Clearance Certificate be issued in terms of Competition Tribunal rule 35(5)(a).

The conditions imposed included an employment moratorium, providing that the merging parties would not retrench employees in South Africa as a result of the merger for the defined Moratorium Period, together with defined exclusions (such as voluntary separation, ordinary-course resignations/retirements, misconduct dismissals, and retrenchments unrelated to the merger). The conditions further required certain compliance and reporting steps, including notification of the implementation date and the circulation of conditions to employees and (where applicable) unions and employee representatives, supported by affidavits and annual compliance affidavits for specified periods.

The order did not record any separate or specific order as to costs.

Cases Cited

No cases were cited in the Reasons for Decision provided.

Legislation Cited

Competition Act 89 of 1998 (as amended)

Labour Relations Act 66 of 1995 (as amended)

Rules of Court Cited

Competition Tribunal rule 35(5)(a)

Rule 39 of the Rules for the Conduct of Proceedings in the Competition Commission

Rule 37 of the Rules for the Conduct of Proceedings in the Competition Tribunal

Held

The Competition Tribunal held that the proposed acquisition by Sandvik of control over DSI (and the acquisition of sole control over the Jennmar JV) was unlikely to substantially prevent or lessen competition in any relevant market, given that the identified horizontal overlap in hard rock bolts reflected an accretion of below 2% and did not raise competition concerns on the facts recorded.

The Tribunal further held that the merger would not have a negative impact on public interest considerations under section 12A(3), provided that employment-related conditions were imposed. The merger was therefore approved subject to conditions, including a moratorium on merger-related retrenchments for a defined period following implementation and related compliance undertakings.

LEGAL PRINCIPLES

The Tribunal applied the principle that merger assessment under the Competition Act requires consideration of both competitive effects and public interest factors, with public interest including employment-related considerations as contemplated in section 12A(3) of the Act.

The decision reflected the application of the principle that where a merger presents no material competition concerns (on the facts recorded, a minimal market accretion in the overlap), approval may nonetheless be made subject to conditions designed to address public interest risks, including employment protections.

The Tribunal also applied the principle that merger approval conditions may include monitoring and compliance mechanisms, including obligations to notify the Commission of implementation, circulate conditions to affected stakeholders, and provide periodic affidavits confirming compliance, with alleged breaches to be dealt with under the applicable procedural rules referenced in the conditions.