Summary of Judgment

1. Introduction

These proceedings concerned the approval of a large merger under the Competition Act 89 of 1998. The matter served before the Competition Tribunal of South Africa, which considered a recommendation by the Competition Commission and issued an order approving the transaction.

The Primary Acquiring Firm was Imperial Capital Limited, a wholly owned subsidiary of Imperial Logistics Limited (a JSE-listed entity with widely held shares). The Primary Target Firm was Deep Catch Namibia Holdings (Proprietary) Limited (also referred to in the reasons as Deep Catch Holdings Namibia Proprietary Limited), a Namibian-incorporated firm. The transaction entailed Imperial (through Imperial Capital) acquiring the entire issued share capital in Deep Catch, resulting in sole control post-merger.

The procedural history recorded that the merger was filed with the Competition Commission on 10 August 2021, and then placed before the Tribunal in terms of the merger control provisions of the Act (including a referral in terms of section 14A). The Tribunal heard the matter on 26 October 2021 and issued its order and reasons on the same date, approving the merger without conditions and directing that a Merger Clearance Certificate be issued in accordance with the Tribunal’s rules.

The general subject-matter of the dispute was a competition-law assessment of a vertical relationship between (i) the target’s activities in the wholesale supply (and distribution) of certain fast-moving consumer goods and (ii) the acquiring group’s activities in contract logistics/transportation services for such goods, together with an assessment of public interest considerations under the Act.

2. Material Facts

Imperial Capital was described as a South African-incorporated company controlled by Imperial Logistics Limited, a widely held JSE-listed firm. The acquiring group controlled several operational subsidiaries across the SADC region, with a substantial portion of South African operations being held directly by Imperial.

Deep Catch was described as a Namibian-incorporated firm, jointly controlled pre-merger by Deutsche Investitions-Und Entwicklungsgesellschaft mbH (DEG) and Guinea Fowl Investments Forty-One (Pty) Ltd. Post-merger, the acquiring group would obtain 100% control of the target.

The acquiring group was characterised as a logistics firm providing route-to-market solutions incorporating sourcing, sales, distribution, and marketing strategies, and managing the movement of goods across locations using multiple transportation modes. For purposes of the competition assessment, the acquiring group’s activities of relevance were its transportation solutions to FMCG, conducted through divisions including Fast n Fresh (Pty) Ltd and Kobus Minaar Vervoer (Pty) Ltd.

The target group specialised in the importation (into Namibia and South Africa), exportation (from Namibia and South Africa), wholesale, and distribution of perishable products within SADC, operating through wholesale trade, distribution, and cold storage divisions.

On the competitive overlap, the Commission identified a minor vertical relationship. The acquiring group provided transportation services for fresh, frozen, and ambient FMCG. The target group was active upstream as a wholesale supplier of fresh, frozen, and ambient FMCG, but it utilised third parties for transportation and did not make use of the acquiring group’s services.

For its competitive analysis, the Commission assessed two national markets. The first was the upstream national market for the wholesale supply of fresh, frozen, and ambient FMCG, in which the target group participated. The Commission found that the target group accounted for less than 2% of this upstream market and faced competition from other players identified in the reasons, including Hume, Mop Foods, Merlog, and FedMeats.

The second was the downstream national market for the provision of contract logistics for fresh, frozen, and ambient FMCG, in which the acquiring group participated. The Commission found that the acquiring group accounted for less than 35% of this downstream market and faced competition from firms including Hestony, HFR, and Unitrans.

In relation to foreclosure effects, the Commission recorded that the target group had outsourced its contract logistics requirements to other third parties and did not have contract logistics capabilities itself. It was also recorded that the merging parties submitted that upstream competitors of the target group did not utilise the acquiring group’s contract logistics services for the relevant FMCG categories, and that the merged entity did not have extra capacity to assume the logistics services then being provided to the target group by third parties.

On public interest facts recorded by the Tribunal, the transaction was found not to raise public interest concerns and to have a positive impact on the spread of ownership. The reasons recorded that 57.51% of the acquiring group’s equity was held by historically disadvantaged persons, including 23.38% held by black women, and that the acquiring group had an employee share ownership programme with a shareholding of 8.58%.

3. Legal Issues

The central legal question was whether the proposed merger was likely to substantially prevent or lessen competition in any relevant market, as contemplated by the merger control provisions of the Competition Act, and, if so, whether it should be approved subject to conditions or prohibited. This required an assessment of competition effects in markets identified as relevant to the transaction.

Because the overlap was vertical in nature, the principal competition issues were whether the merger created a material risk of vertical foreclosure, specifically input foreclosure (foreclosing downstream rivals from upstream supply) or customer foreclosure (foreclosing upstream rivals from downstream access to customers/logistics channels), assessed with reference to the parties’ positions in the upstream and downstream markets.

A further legal question was whether the merger raised any public interest concerns under the Act, and whether any public interest factors supported conditional approval or prohibition. The issues thus involved the application of legal standards to economic facts, including evaluative judgments on likely competitive effects.

4. Court’s Reasoning

The Tribunal’s reasoning proceeded from the Commission’s assessment of the parties’ activities and the competitive landscape. It accepted the framing that the transaction presented a minor vertical overlap, because the acquiring group supplied transportation/contract logistics services relevant to FMCG, while the target group operated upstream as a wholesaler of those FMCG categories.

In assessing likely competitive effects, the Tribunal reflected the Commission’s market delineation into an upstream wholesale supply market and a downstream contract logistics market, both at national level. The Commission’s market share findings featured prominently in the assessment. The target group’s upstream share was recorded as below 2%, which the Commission treated as indicative that the merged entity would not have a meaningful ability to foreclose access to inputs in the upstream segment, given its limited position and the presence of other suppliers.

On input foreclosure, the Commission’s reasoning (as adopted in the Tribunal’s reasons) emphasised that the merged entity would not likely have the ability to engage in anticompetitive input foreclosure because it did not have a substantial upstream market position. The analysis therefore focused on customer foreclosure, given the acquiring group’s more notable presence in the downstream contract logistics market.

On customer foreclosure, the reasoning turned on the target group’s logistics procurement model and its scale within the relevant downstream market. The Commission found that the target group outsourced contract logistics and lacked its own logistics capability. Even on an assumption that the merged entity might insource the target’s logistics requirements post-merger, the Commission concluded that foreclosure effects were unlikely to be significant because the target’s business was recorded as accounting for very little within the downstream transportation/logistics market for the relevant FMCG categories.

The Tribunal’s reasons also recorded the merging parties’ submissions that the target’s upstream competitors did not currently utilise the acquiring group’s contract logistics services and therefore would not likely be foreclosed from services they did not use. In addition, it was recorded that the merged entity did not have extra capacity to take over the logistics services then being provided by third-party providers to the target group. These considerations supported the conclusion that the merger was unlikely to substantially lessen competition.

On public interest, the Tribunal accepted the Commission’s view that the transaction raised no public interest concerns. The reasons noted that the merger had a positive ownership-spread effect, given the extent of historically disadvantaged ownership in the acquiring group (including black women’s shareholding) and the existence of an employee share ownership programme. On the basis of these considerations, the Tribunal concluded that the transaction did not warrant conditions on public interest grounds.

5. Outcome and Relief

The Competition Tribunal unconditionally approved the merger in terms of section 16(2)(a) of the Competition Act. It ordered that a Merger Clearance Certificate be issued in terms of Competition Tribunal Rule 35(5)(a). No conditions were imposed, and the reasons recorded that the transaction was unlikely to substantially prevent or lessen competition and raised no public interest concerns.

The Tribunal’s standard notice further recorded that the Tribunal has authority in terms of section 16(3) of the Competition Act to revoke an approval in specified circumstances, including where approval was granted on the basis of incorrect information attributable to a merging party, obtained by deceit, or where a condition attached to approval is breached (although this approval was not conditional). The notice also recorded that an appeal to the Competition Appeal Court may be brought within 20 business days. The order as reproduced did not record a separate costs order.

Cases Cited

No reported cases were cited in the Tribunal’s reasons.

Legislation Cited

Competition Act 89 of 1998 (including sections 14A, 16(1), 16(2)(a), 16(3), and 27(2), and Chapter 3).

Rules of Court Cited

Competition Tribunal Rule 35(5)(a).

Held

The Tribunal held that the proposed acquisition by Imperial Capital Limited (as part of the Imperial group) of the entire issued share capital of Deep Catch Namibia Holdings (Proprietary) Limited was unlikely to substantially prevent or lessen competition in any relevant market, including on a vertical foreclosure theory.

The Tribunal further held that the merger raised no public interest concerns and, accordingly, approved the transaction without conditions and directed the issuance of a merger clearance certificate.

LEGAL PRINCIPLES

The decision applied the principle that a large merger must be assessed to determine whether it is likely to substantially prevent or lessen competition, including by evaluating the parties’ positions in relevant markets and considering whether any competitive harm is likely to arise.

In relation to vertical mergers, the decision applied an assessment framework focusing on the likelihood of foreclosure effects, distinguishing between input foreclosure and customer foreclosure, and evaluating foreclosure risk with reference to market shares, the structure of supply and procurement, and the practical ability of the merged firm to alter pre-merger trading patterns.

The decision also applied the principle that merger approval requires consideration of public interest factors under the Competition Act, and that where a merger raises no public interest concerns (or is recorded as having positive ownership-spread attributes), this may support unconditional approval where competition concerns are also not established.