Summary of Judgment

1. Introduction

The matter concerned large merger proceedings before the Competition Tribunal of South Africa, in which the Tribunal was required to determine whether to approve, prohibit, or approve with conditions a proposed acquisition in the private education sector.

The acquiring firm was Curro Holdings Limited (“Curro”), a JSE-listed company operating a nationwide group of private schools. The target firms were The Independent School Business of Heronbridge College (“HeronBridge College”) and Heronbridge Estate Proprietary Limited (“HeronBridge Estate”), the latter owning the immovable property from which HeronBridge College operates and also conducting a separate retreat facility business.

Procedurally, the Competition Tribunal issued an order on 22 September 2021 conditionally approving the merger, and the document summarised here contains the Tribunal’s reasons for decision. The Competition Commission (“Commission”) investigated the transaction and presented its competitive and public interest assessment to the Tribunal, including proposed conditions. The Tribunal considered both the Commission’s analysis and the agreed conditions when deciding the matter.

The general subject-matter of the dispute was whether the proposed transaction would likely substantially prevent or lessen competition in any relevant market for private schooling in the relevant geographic area, and whether it raised public interest concerns, particularly regarding employment effects and the spread of ownership.

2. Material Facts

Curro was described as a public company listed on the JSE and controlled by its largest shareholder, PSG Financial Services (Pty) Ltd (holding 60%), which is in turn wholly owned and controlled by PSG Group Limited. For purposes of the competition analysis, the Tribunal treated PSG and its subsidiaries collectively as the Acquiring Group, and considered Curro’s activities in private education as the relevant operational footprint.

Curro operated a large network of private schools across South Africa, with representation in all nine provinces, operating across 76 campuses (177 schools) and enrolling about 59 967 learners. The Tribunal highlighted that Curro had 38 schools in Gauteng, which was of specific relevance given the location of the target school.

HeronBridge College was a private Christian school located in Fourways, Johannesburg North, Gauteng, and it offered education from pre-preparatory (Grades 0000–R) through preparatory (Grades 1–7) to college/high school (Grades 8–12). HeronBridge College had approximately 1 305 students enrolled. It was wholly owned and controlled by a South African not-for-profit company, HeronBridge College NPC, whose members were nine individuals.

HeronBridge Estate was not controlled by any firm and had dispersed shareholding among twelve individuals holding non-controlling stakes. HeronBridge Estate owned the immovable property on which HeronBridge College operates, and it also conducted a separate retreat facility business offering accommodation and conference/meeting facilities.

As to employment facts, the merging parties disclosed that in 2020, 24 members of teaching and administrative staff at HeronBridge College had been retrenched. The Tribunal recorded the explanation advanced to the Commission that these retrenchments were linked to declining enrolments and fee non-payment, exacerbated by Covid-19, and the Commission treated these retrenchments as operational and not merger-specific.

On a forward-looking basis, the Tribunal recorded that retrenchments were contemplated (and partially already implemented) in relation to the Retreat business, with the information before the Commission indicating that seven of 17 retreat employees had already been retrenched, and that 13 out of 17 were likely to be retrenched. The merging parties attributed these retrenchments to the retreat business being loss-making and continuing to be so, with the Commission’s investigation indicating that these retrenchments were not merger-specific and likely connected to the effects of the Covid-19 pandemic.

Regarding ownership spread, it was common cause on the record that neither HeronBridge College nor HeronBridge Estate had shareholders regarded as historically disadvantaged persons (HDPs). Curro’s public ownership profile was described as having HDP voting rights of 7.9% and HDP economic interest of 8.3%, which the merging parties relied upon to contend that the transaction would improve HDP ownership relative to the targets’ position.

3. Legal Issues

The central legal questions were whether the proposed merger was likely to substantially prevent or lessen competition in any relevant market, and if so, whether any anti-competitive effects were outweighed by pro-competitive gains (the Tribunal ultimately accepted the Commission’s conclusion that substantial lessening of competition was unlikely). A further set of legal questions concerned whether the merger raised public interest concerns, particularly regarding employment, and whether conditions were required to address those concerns.

The dispute was primarily an application of law to fact. The Tribunal was required to evaluate market definition indicia used by the Commission (product segments in private schooling and a local geographic catchment), assess evidence and submissions about competitive proximity and constraint, and then apply the statutory merger assessment framework to determine likely competitive effects. The public interest assessment also involved evaluative judgment about the significance of employment risks and what conditions would be appropriate and proportionate in the circumstances.

4. Court’s Reasoning

In assessing competition, the Tribunal summarised the Commission’s identification of horizontal overlaps in the provision of private education within a 15 km radius of HeronBridge College, across four related product market frames: pre-preparatory schooling, preparatory schooling, college/high school, and combined schools. Within that radius, the Commission identified six Curro schools as relevant reference points: Cooper College, Curro Academy Riverside, Curro Castle Douglasdale, Land of Oz, Meridian Cosmo City, and Northriding College.

The Tribunal recorded that the Commission tested the closeness of competition using multiple factors, including the portfolio of offerings (such as level of schooling provided, whether the school is traditional or religious, and aspects of curriculum and recreational activities), fees charged, internal documents, and third-party views. On this analysis, the Commission concluded that Curro and HeronBridge College were not close competitors and were unlikely to constrain each other materially within the relevant geographic area.

The Tribunal emphasised that the Commission’s conclusion rested substantially on differentiation, particularly in pricing and positioning. HeronBridge College’s fees were generally higher than Curro’s fees “in most cases,” which the Commission treated as an indicator that the merging parties might be targeting different customers. The Commission’s analysis suggested that only Cooper College and Land of Oz might be more plausible competitors to HeronBridge College on fee comparisons, though Cooper College was only active from Grade R upwards. The Tribunal also recorded the Commission’s assessment of school type and orientation, noting that HeronBridge College was a Christian school, whereas the identified Curro schools were traditional schools, and that only Cooper College and Northriding College were combined schools comparable in structure to HeronBridge College.

The Tribunal further accepted the Commission’s reliance on third-party market feedback, recording that competitors of HeronBridge College did not appear to view Curro’s schools as significant competitors. It also noted the Commission’s estimation of market shares based on the number of learners in schools within the 15 km radius, which produced a range of [35–45]% across the identified markets; however, the Commission also considered an alternative approach treating Cooper College as the only plausible close competitor (given the Cambridge curriculum and fee proximity), resulting in estimated post-merger shares of less than 20% in the relevant markets. The Tribunal accepted the Commission’s overall conclusion that, taken together, the transaction was unlikely to substantially prevent or lessen competition, and stated that it had no reason to disagree.

The Tribunal then addressed “merger creep” concerns raised by the Commission in relation to Curro’s acquisition history. It recorded that Curro’s last notifiable acquisition was in 2012 (Woodhill College) and that Curro had entered into seven small merger acquisitions in the previous five years. The Tribunal accepted that, while Curro’s post-merger position in Gauteng (39 schools, and an estimate of 5% of all private schools in Gauteng) did not appear significant in itself, the Commission should continue to monitor potential future creeping acquisition concerns.

On public interest, the Tribunal focused primarily on employment effects. It accepted the Commission’s view that the 2020 retrenchments at HeronBridge College were operational and not merger-specific, including on the basis of information indicating that internal discussion about retrenchments preceded merger discussions between Curro and HeronBridge. For the Retreat business, while the Commission’s investigation suggested contemplated and partial retrenchments were not merger-specific (and related to losses and Covid-19 impacts), the Commission nevertheless sought protections against merger-related retrenchments, and the DTIC expressed concern about the vulnerability of employees to extended unemployment or underemployment.

The Tribunal recorded that the Commission and the merging parties agreed to employment-related conditions which the Tribunal imposed. These conditions were directed at mitigating any potential negative employment effects attributable to the merger by establishing a 36-month moratorium on merger-related retrenchments for defined “Affected Employees” and requiring Curro to use reasonable endeavours, over a 24-month period, to give preference to specified retrenched retreat employees for vacancies within Curro schools in Gauteng (including HeronBridge College and HeronBridge Estate), subject to suitability criteria.

Regarding ownership spread, the Tribunal recorded the Commission’s conclusion that the transaction was unlikely to have a substantial negative effect on the promotion of a greater spread of ownership, particularly given the comparison between the targets’ absence of HDP shareholding and Curro’s stated HDP voting and economic interest percentages.

5. Outcome and Relief

The Competition Tribunal conditionally approved the large merger whereby Curro would acquire HeronBridge College’s independent school business and 100% of the issued share capital in HeronBridge Estate.

The approval was granted subject to employment-related conditions, including a 36-month prohibition on merger-related retrenchments of “Affected Employees” and a 24-month preferential consideration obligation (on a reasonable endeavours basis) for certain retrenched retreat employees in relation to vacancies within Curro’s Gauteng schools, subject to qualifications, skills, experience, and job requirements.

No separate costs order was recorded in the reasons provided.

Cases Cited

No cases were cited in the reasons provided.

Legislation Cited

Labour Relations Act

Rules of Court Cited

No rules of court were cited in the reasons provided.

Held

The Tribunal held that the proposed transaction was unlikely to substantially prevent or lessen competition in any relevant market identified by the Commission, including the provision of private education within a 15 km radius of HeronBridge College across pre-preparatory, preparatory, high school, and combined-school segments.

The Tribunal further held that potential negative public interest effects relating to employment were appropriately addressed by the imposition of employment-related conditions, and that the merger was unlikely to have a substantial negative effect on the promotion of a greater spread of ownership.

LEGAL PRINCIPLES

The merger assessment applied a framework in which horizontal overlaps are evaluated through market segment identification and an assessment of likely competitive constraint, including consideration of geographic proximity, the closeness of competition between suppliers, and competitive conditions such as differentiation in offerings and price/fee structures.

In evaluating competitive effects, the decision reflected that evidence of product differentiation (including school type, religious/traditional orientation, curriculum, and amenities) and price differentiation (fee structures) may support a conclusion that firms are not close competitors, even where they operate within the same broad sector and within a defined local radius.

The decision also reflected that market share estimates may depend materially on the identification of the most relevant competitive set, and that alternative share calculations (based on narrower competitive proximity assumptions) may inform the overall competitive effects assessment.

On public interest, the decision applied the principle that retrenchments should be assessed to determine whether they are merger-specific or attributable to operational requirements unrelated to the merger, while also recognising that conditions (such as moratoria and preferential hiring endeavours) may be imposed to mitigate potential merger-related employment risks, particularly in circumstances of broader economic vulnerability.