Brief Summary

Competition — Merger approval — Unconditional approval of acquisition of Main Street 904 (RF) (Pty) Ltd by The Boleng Trust — The Boleng Trust, representing historically disadvantaged persons, seeks to consolidate shareholdings in Assore Limited — Commission finds no horizontal or vertical overlap in market activities of merging parties, indicating no competition concerns — Public interest considerations satisfied as transaction will not negatively impact employment and will enhance B-BBEE shareholding, increasing HDP ownership in Assore from 23.1% to 26.1% post-transaction.

Comprehensive Summary

Summary of Judgment

1. Introduction

These proceedings concerned an intermediate/large merger (as applicable in Tribunal practice) notified under the Competition Act 89 of 1998, in which the Competition Tribunal of South Africa was required to decide whether to approve the acquisition of Main Street 904 (RF) (Pty) Ltd by The Boleng Trust.

The acquiring firm was The Boleng Trust (“Boleng Trust”), a South African trust established to hold an equity interest in Assore Limited for the benefit of its beneficiaries, who are local communities surrounding Assore’s mining operations and who are historically disadvantaged persons (HDPs) as contemplated in section 3(2) of the Competition Act. The target firm was Main Street 904 (RF) (Pty) Ltd (“MS 904”), a special purpose vehicle within Assore’s broad-based black economic empowerment (B-BBEE) structure.

The Tribunal unconditionally approved the transaction on 28 September 2021, and these reasons for decision were issued on 29 September 2021. The Tribunal’s determination followed an investigation and recommendation by the Competition Commission, which assessed both competition and public interest considerations.

The general subject-matter of the dispute was not a conventional market-facing consolidation, but rather the reconfiguration and consolidation of B-BBEE shareholding vehicles associated with Assore, including questions about whether the transaction could adversely affect competition or public interest factors such as employment and the greater spread of ownership, particularly ownership by HDPs.

2. Material Facts

Boleng Trust was described as a trust with six trustees, not controlled by any firm, and whose trustees themselves did not control other firms. Its beneficiaries were HDP communities surrounding Assore’s mining operations, and its purpose was to hold equity in Assore for the benefit of those communities.

Boleng Trust held 51% of the shares in Main Street 350 (Pty) Ltd (RF) (“MS 350”), which held 100% of the shares in Main Street 460 (Pty) Ltd (RF) (“MS 460”). The judgment treated these entities as part of the relevant shareholding structure through which B-BBEE participation in Assore was implemented.

MS 904 was a South African private company jointly controlled by: Fricker Road Trust (“FRT”) at 51%, Assore Employee Trust (“AET”) at 49%, and Assore by virtue of holding preference shares in MS 904. FRT’s beneficiaries included HDP communities around Assore’s mining operations, while AET’s beneficiaries were Assore’s South African employees. Post-transaction, MS 904 would be renamed Assore Communities SPV.

The proposed transaction formed part of a broader, simultaneously notified internal restructuring of Assore’s operations (the “Assore Restructure”), described as independent in the sense that the parties submitted that the acquisition would proceed whether or not the broader restructure was implemented. The transaction, as characterised by the Tribunal’s reasons, contemplated the consolidation of Boleng Trust’s and FRT’s indirect shareholdings in Assore and the segregation of participation based on the beneficiary groups represented (communities versus employees).

On the competition facts, MS 904 was treated as a special purpose vehicle and not active in any market. The Commission found, and the Tribunal accepted, that there was no horizontal overlap because neither party provided substitutable products or services, and no vertical overlap because the parties were not active at different levels of a value chain relevant to a market.

On public interest facts, the merging parties gave an unequivocal undertaking that the transaction would not result in retrenchments or negatively affect employment. The Commission recorded that neither Boleng Trust nor MS 904 had employees.

The Commission assessed the transaction’s impact on the greater spread of ownership, focusing on B-BBEE shareholding, dividend flows, and trustee views. It found that, post-transaction (in the context of the restructure), the relevant communities SPV would increase its shareholding in Assore from 16.1% to 18.2%, and that the interest held by HDPs in Assore would increase from 23.1% to 26.1%.

The Commission also assessed equity value, indebtedness, and dividends. While certain Rand amounts were redacted in the published reasons, the Commission’s findings (as recorded) were that the gross equity value of the increased percentage interest post-transaction was lower than pre-transaction, but that the transaction substantially reduced the debt burden associated with the HDP shareholding. The Commission found a material reduction in debt, quantified as an overall reduction of approximately 73%, and concluded that the net equity value held by HDPs remained similar pre- and post-transaction despite the reduction in gross equity value.

The Commission further found that annual dividend flows to the relevant trusts would increase post-transaction, and that the lower indebtedness would accelerate the period within which the trusts could begin receiving unencumbered dividends (i.e., dividends not absorbed by debt repayment). The mines were said to have an estimated life to 2050, supporting the Commission’s view that beneficiaries could gain sustained benefit from the revised structure.

A further factual element considered was that, as part of the restructure, Assore would unbundle certain subsidiaries—African Mining and Trust Company (Pty) Ltd, Ore & Metal Company, and Assore Treasury Company (RF) (collectively, the “Unbundled Entities”). The Commission evaluated whether the HDP beneficiaries would be negatively affected by no longer indirectly owning these entities and found that the merging parties did not hold direct shares in them and did not receive dividends directly from them. It also considered information that a substantial portion of dividend flows to the Assore group was derived from the mines, rather than the Unbundled Entities, and that post-restructure shareholders would receive a greater share of mine-derived dividends given changes in Assore’s operational footprint.

The trustees’ views were canvassed through the chairperson, who emphasised maximising distributions to beneficiaries and described the trade-off between equity participation and dividend output. The trustees considered the reduction of indebtedness significant and viewed continued investment in the South African mining assets as preferable to exposure to the international activities associated with the Unbundled Entities.

Finally, the Commission found that, whereas pre-transaction the merging parties’ ordinary shareholding did not entitle them to appoint directors to Assore’s board, post-transaction the Communities SPV would be entitled to appoint two directors, and an employees SPV would be entitled to appoint one director, which was viewed as enhancing beneficiary participation and oversight on issues including dividends, job security, and skills development.

No material factual disputes were identified in the reasons as between the parties, the Commission, and the Tribunal. The Tribunal’s reasons proceeded on the basis of the Commission’s factual investigation and the information supplied by the merging parties and advisers.

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 whether it could be justified or prohibited having regard to public interest considerations under the Competition Act.

The competition assessment turned primarily on the application of law to largely uncontested facts, namely whether there were horizontal or vertical overlaps capable of raising competitive harm in markets in which the firms were active. Because MS 904 was characterised as a SPV with no market activity, the enquiry was directed at whether the structure nonetheless produced cognisable overlaps or foreclosure risks.

The public interest assessment similarly involved applying statutory public interest considerations to the transaction’s anticipated effects. The issues included whether the merger had any negative impact on employment and whether it adversely affected, or instead promoted, the greater spread of ownership, particularly ownership by HDPs, a factor expressly recognised in the Act and specifically referenced in the reasons through section 12A(3)(e).

To the extent the Commission and Tribunal evaluated indebtedness, dividend flows, and governance rights (board representation), the assessment entailed an evaluative judgment about the overall direction and materiality of changes in ownership outcomes for HDP beneficiaries.

4. Court’s Reasoning

On the competition assessment, the Tribunal accepted the Commission’s analysis that the transaction did not raise competition concerns because the merging parties were not active in substitutable product or service markets and were not positioned at different levels of a relevant supply chain. The Tribunal treated the target as a special purpose vehicle with no independent market operations, which supported the conclusion that the acquisition could not reasonably be expected to alter competitive constraints in a market.

In relation to public interest and employment, the Tribunal recorded the merging parties’ undertaking that the transaction would not result in retrenchments or harm employment, and accepted the Commission’s observation that neither the Boleng Trust nor MS 904 had employees. On the facts as assessed, the Tribunal agreed that the merger posed no employment-related public interest harm requiring conditions.

The Tribunal’s reasons gave substantial attention to the public interest factor of greater spread of ownership. The Commission’s approach, which the Tribunal endorsed, did not equate public interest assessment solely with the nominal percentage of B-BBEE ownership. Instead, it considered the combined effect of the restructure and transaction on the quality and accessibility of economic benefits to HDP beneficiaries, including the impact of debt encumbrance and the likelihood of beneficiaries receiving meaningful dividend flows over time.

A key component of the reasoning was the reconciliation of two findings that might otherwise appear in tension: the Commission recorded a reduction in the gross equity value associated with the post-transaction shareholding, while also finding that the transaction materially reduced the debt burden attached to HDP interests, leaving net equity value broadly similar. The Commission treated the reduction in indebtedness as financially significant, because it improved the prospects of beneficiaries receiving dividends without those flows being absorbed by financing obligations.

The Commission also weighed the anticipated increase in dividend flows and the faster projected repayment of remaining debt, noting that beneficiaries only reap full financial rewards once debt has been repaid. It considered the long expected life of mine as relevant to the duration over which beneficiaries could benefit from unencumbered dividends, thereby evaluating public interest in a forward-looking manner consistent with the statutory enquiry.

The Tribunal further accepted the Commission’s assessment regarding the unbundling of certain subsidiaries. The Commission’s reasoning, as adopted, was that the loss of indirect exposure to the Unbundled Entities did not materially prejudice HDP beneficiaries, particularly where dividends to shareholders were predominantly derived from the mining operations that would remain within the relevant structure, and where dividends from the Unbundled Entities were largely retained rather than distributed.

Finally, the Commission’s engagement with trustees and its consideration of post-transaction board representation were treated as relevant to whether the transaction advanced meaningful ownership participation. The Tribunal accepted that enhanced board appointment rights could improve the trusts’ ability to participate in governance decisions impacting beneficiaries, including dividend policy and socio-economic outcomes, and regarded this as consistent with the public interest objective in section 12A(3)(e) concerning HDP ownership in a “firm in a market.”

On the totality of these considerations, the Tribunal agreed with the Commission that the transaction was unlikely to harm competition and did not negatively affect public interest; rather, it formed part of a simplification and consolidation intended to place B-BBEE shareholders closer to income-generating assets while reducing financial risk.

5. Outcome and Relief

The Competition Tribunal unconditionally approved the acquisition of Main Street 904 (RF) (Pty) Ltd by The Boleng Trust.

No merger conditions were imposed. No separate costs order was recorded in the reasons.

Cases Cited

No case law was cited in the reasons for decision.

Legislation Cited

Competition Act 89 of 1998 (South Africa), including section 3(2) and section 12A(3)(e).

Rules of Court Cited

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

Held

The Tribunal held that the proposed acquisition was unlikely to substantially prevent or lessen competition because the target was a special purpose vehicle not active in any market, and there were no horizontal or vertical overlaps between the merging parties.

The Tribunal further held that the transaction did not have a negative impact on public interest, including employment (given the absence of employees and the undertaking regarding retrenchments) and the greater spread of ownership by HDPs, where the Commission’s analysis indicated increased HDP percentage ownership, materially reduced debt encumbrance, improved dividend prospects, and enhanced governance participation through board appointment rights.

LEGAL PRINCIPLES

The Competition Tribunal applied the principle that merger approval under the Competition Act requires an assessment of whether a transaction is likely to substantially prevent or lessen competition in a relevant market, including consideration of whether there are horizontal overlaps (substitutable products or services) or vertical relationships (activity at different levels of a value chain) capable of creating competitive harm.

The Tribunal also applied the principle that merger control entails a distinct enquiry into public interest factors, which may include employment effects and the promotion of a greater spread of ownership, particularly by historically disadvantaged persons, as contemplated in section 12A(3)(e). In applying this principle, the Tribunal endorsed an evaluative assessment that considers not only nominal ownership percentages but also the economic realities affecting beneficiary participation, including the extent of debt encumbrance, expected dividend flows, and governance rights that may influence the practical enjoyment of ownership.

The reasons further reflect the approach that where a transaction forms part of a broader restructuring, the public interest assessment may permissibly consider the merger’s role in facilitating outcomes relevant to statutory public interest goals, provided the evaluation remains grounded in the record before the Commission and Tribunal and does not identify competition or public interest harm warranting conditions.

Boleng Trust v Main Street 904 (RF) (Pty) Ltd (LM040Jul21) [2021] ZACT 63 (23 September 2021)