Brief Summary

Competition Law — Merger Approval — Conditional approval of merger between Hatfield Holdings (Pty) Ltd and Summit Auto Trading South Africa (Pty) Ltd, Summit Auto Investments (Pty) Ltd, and Triumph South Africa (Pty) Ltd — The Competition Tribunal approved the merger following a recommendation from the Competition Commission, subject to specific conditions regarding the employment of retrenched employees — The Tribunal held that the merger would not substantially lessen competition in the market and was in line with the provisions of the Competition Act, 1998.

Comprehensive Summary

Summary of Judgment

1. Introduction

These proceedings concerned the approval of a large merger under the Competition Act 89 of 1998. The Competition Tribunal was required to consider a transaction in which Hatfield Holdings Proprietary Limited (Hatfield, the acquiring firm) would acquire control of the business of Summit Auto Trading South Africa Proprietary Limited (SATSA, the Target Business), as well as Summit Auto Investments Proprietary Limited (SAI) and Triumph South Africa Proprietary Limited (Triumph) (collectively, the target firms).

The merger was notified to the Competition Commission on 13 August 2021 in terms of Chapter 3 of the Act. Following the Commission’s investigation and recommendation, the matter came before the Tribunal in terms of section 14A(1)(b). The Tribunal heard and decided the matter on 26 October 2021, issuing an order that the merger be approved subject to conditions and directing that a Merger Clearance Certificate be issued.

The general subject-matter of the dispute concerned whether the proposed acquisition would be likely to substantially prevent or lessen competition in any relevant market and whether it raised any public interest concerns, particularly in relation to employment and the spread of ownership by historically disadvantaged persons.

2. Material Facts

Hatfield was described as operating VW, MAN, and Audi branded dealerships. Its dealerships sold new and used passenger vehicles, new light commercial vehicles, and certain used heavy commercial vehicles, and they provided after-sales services and OEM parts and accessories. Hatfield also acted as an intermediary for certain finance and insurance support services, selling a limited set of motor risk policies underwritten by Guardrisk.

The Target Business comprised 22 motor vehicle dealerships, repair centres, and service centres operating from 11 sites, and selling, repairing, and maintaining vehicles of various brands including Fiat, Ford, Haval, Honda, Isuzu, Jeep, Mazda, Opel, Renault, and Suzuki. The Tribunal recorded that the Target Business did not carry VW, Audi, or MAN brands, and that certain ancillary business units formed part of the sale.

SAI acted as an intermediary in finance and insurance support services for customers of the Target Business, including selling certain motor risk policies, as well as service and maintenance plans. Triumph held the sole distribution rights for Triumph-branded motorcycles in South Africa and operated in wholesale distribution and retail (including sales of motorcycles, parts, and servicing), and derived income from related policies.

The transaction structure included (i) Hatfield purchasing the Target Business as a going concern from SATSA, and (ii) subject to pre-emption rights not being exercised, Hatfield acquiring a 50% shareholding interest held by Summit Auto SA Proprietary Limited in SAI and Triumph.

On competitive effects, the Commission found horizontal overlaps and vertical overlaps that it assessed as de minimis, and the Tribunal recorded its agreement with the Commission’s assessment of vertical effects. The Commission ultimately derived market shares for the sale of new passenger and light commercial vehicles both nationally and within an 80 km radius of the Target Business in Gauteng. Using NAAMSA vehicle sales data, the Commission found the merged entity would have a post-merger market share of less than 5% nationally and less than 10% regionally, and that competitors contacted in Gauteng raised no concerns.

On public interest (employment), the merging parties stated that no retrenchments would arise as a result of the merger. They disclosed that in June and July 2020, Hatfield retrenched 64 employees and the Target Firms retrenched 112 employees, attributing these retrenchments to the COVID-19 pandemic, the National State of Disaster, and lockdown restrictions causing a decline in sales. The Tribunal recorded that documents showed discussions about the transaction commenced during February 2021, and the transaction was first discussed by the SAHSA board on 30 April 2021, approximately a year after the retrenchments. The Commission found no evidence linking the 2020 retrenchments to the merger, and the Tribunal recorded that a trade union contacted did not raise concerns relating to the merger.

The Tribunal further recorded that the Commission engaged the merging parties on conditions aimed at mitigating job losses by providing preference to retrenched employees when vacancies arise, and that the merging parties agreed. The Tribunal noted that, as at 7 September 2021, Hatfield had rehired 15 retrenched employees and the Target Firms had rehired 18.

On the spread of ownership, the Tribunal recorded submissions that Hatfield was 25.1% black-owned, while the Target Business had 4.4% B-BBEE shareholding, and that the transaction would increase HDP ownership in the Target Business. The Commission did not reach a conclusion on these submissions, and the Tribunal recorded its conclusion that the transaction did not amount to a worsening of the spread of ownership.

3. Legal Issues

The central legal questions were whether the proposed merger was likely to substantially prevent or lessen competition in any relevant market (the substantial lessening or prevention of competition test) and, if not, whether it nonetheless raised public interest concerns requiring conditions.

The dispute required the Tribunal to apply the statutory framework of the Competition Act to the factual record assembled by the Commission and the merging parties. The competition analysis involved an application of law to fact, including market characterisation and assessment of competitive constraints. The public interest assessment required an evaluative determination on employment effects and the spread of ownership, and whether conditions were appropriate to address any identified public interest concerns.

4. Court’s Reasoning

The Tribunal recorded that the Commission found both horizontal and vertical overlaps, but assessed the vertical overlaps as de minimis, and the Tribunal agreed with that conclusion. The Tribunal therefore focused on the horizontally overlapping activities identified by the Commission, namely the retail sale of new and used passenger vehicles and light commercial vehicles, and the provision of aftermarket parts and services.

In relation to used vehicles, the Tribunal accepted the Commission’s reliance on “case precedent” that treated the used vehicle market as competitive, involving multiple channels (including corporate dealerships, individual dealers, and private sales, including internet sales), and that used-vehicle customers were not geographically constrained. The Tribunal recorded that it had previously confirmed this approach and did not adopt a different view in this matter, with the result that the Commission did not assess the used vehicle market further.

In relation to new passenger and light commercial vehicles, the Tribunal recorded that Hatfield operated in Gauteng and sold VW, Audi, and MAN vehicles, while the Target Business operated in both Gauteng and KwaZulu-Natal and sold a range of brands that did not overlap with Hatfield’s brands. The Commission did not conclude a definitive geographic market but assessed effects nationally on a worst-case basis. The Tribunal also recorded prior precedent suggesting geographic markets around an 80 km radius in Gauteng and potentially at least 100 km in other provinces, but the decisive reasoning was that the Commission assessed market shares both nationally and within an 80 km radius of the Target Business in Gauteng.

On the aftermarket and related services, the Tribunal summarised the Commission’s approach that after-sales services for new vehicles are shaped by warranties and service/maintenance plan arrangements, and that after warranty expiry customers may use independent service providers. The Tribunal recorded the Commission’s reference to the Automotive Guidelines, under which OEMs and/or approved dealers are recommended to make original spare parts available through sales and distribution to independent service providers where required for service, maintenance, or repair. In respect of used vehicles or vehicles no longer under warranty, the Commission identified numerous independent suppliers and service providers, and therefore treated the market as competitive and did not assess it further. The Tribunal did not depart from this assessment.

On motor risk policies, the Tribunal recorded that these policies were sold at the point of sale and associated with financing, and that the merging parties only sold such policies to their own customers for the brands they sold. On that basis, the Commission concluded there was no overlap, and it did not assess the market further.

The Tribunal accepted the Commission’s quantitative assessment of competitive effects in the market for new passenger and light commercial vehicles, relying on NAAMSA data. The Tribunal recorded that the merged entity’s market shares would be below 5% nationally and below 10% regionally (within an 80 km radius), and that competitor enquiries yielded no concerns. On this basis, the Tribunal concluded the merger was unlikely to substantially prevent or lessen competition.

Turning to public interest, the Tribunal addressed employment by distinguishing between (i) retrenchments that might arise because of the merger, and (ii) retrenchments that occurred previously due to external conditions. The Tribunal recorded the merging parties’ position that no merger-related retrenchments were expected, and it accepted the Commission’s evidentiary assessment that the 2020 retrenchments were attributable to COVID-19-related restrictions and occurred about a year before merger discussions began. The Tribunal further recorded that the Commission found no evidence linking those retrenchments to the merger.

The Tribunal then addressed the Commission’s engagement with the merging parties on conditions designed to promote employment outcomes by requiring the maintenance of a database of retrenched employees, notification of vacancies, and a preference mechanism where relevant criteria are met. The Tribunal stated that it had considered the proposed conditions and found that they promoted the public interest and yielded positive effects on the employment public interest ground.

On the spread of ownership, the Tribunal recorded the merging parties’ submissions that the transaction would increase black ownership in the Target Business through Hatfield’s ownership structure. While the Commission did not reach a conclusion, the Tribunal’s stated conclusion was that the transaction did not worsen the spread of ownership.

5. Outcome and Relief

The Tribunal approved the merger, concluding that it was unlikely to substantially prevent or lessen competition in any relevant market and that it would not have a negative public interest impact.

The approval was granted subject to conditions attached in Annexure A, principally addressing employment-related public interest considerations through measures to inform and give preference to specified retrenched employees when vacancies arise during a defined period.

The Tribunal ordered that a Merger Clearance Certificate be issued in terms of Competition Tribunal Rule 35(5)(a). The documents provided did not reflect any distinct order as to costs.

Cases Cited

No specific cases were cited by name or with formal law report citations in the Reasons for Decision; the Tribunal and Commission referred generally to “case precedent” without identifying particular authorities.

Legislation Cited

Competition Act 89 of 1998 (as amended), including section 14A(1)(b), section 16(1), section 16(2)(b), section 16(3), section 19, section 26, and section 27(2).

Rules of Court Cited

Competition Tribunal Rules for the Conduct of Proceedings in the Tribunal, including Rule 35(5)(a) and Rule 37.

Rules for the Conduct of Proceedings in the Competition Commission, including Rule 39.

Held

The Competition Tribunal held that the proposed acquisition by Hatfield of the Target Business and of shareholding interests in SAI and Triumph was unlikely to substantially prevent or lessen competition, given the Commission’s findings of limited overlaps, de minimis vertical effects, low post-merger shares in the assessed markets, and the absence of competitor concerns.

The Tribunal further held that, although historical retrenchments had occurred at the merging parties during 2020, there was no evidence that these retrenchments were merger-related. It accepted and endorsed public interest conditions directed at assisting previously retrenched employees to access future vacancies over a 24-month period after implementation.

LEGAL PRINCIPLES

The Tribunal applied the principle that merger assessment under the Competition Act requires consideration of whether a transaction is likely to substantially prevent or lessen competition, with market assessment focusing on those segments where the evidence indicates potential competitive effects, and permitting limited or no further analysis where the record supports a conclusion that a segment is competitive and unconcentrated.

The Tribunal applied the approach that, in assessing competitive effects, it is permissible to adopt a conservative or “worst-case” analytical frame for geographic scope where appropriate, and to rely on empirical indicators such as market share estimates derived from industry sales data, alongside market feedback such as competitor responses.

The Tribunal applied the principle that the public interest inquiry includes assessing whether job losses are merger-specific, and that where public interest concerns arise (or where protective measures are warranted), merger approval may be granted subject to behavioural conditions designed to promote employment outcomes, coupled with reporting and monitoring mechanisms administered through the Commission and the Tribunal’s procedural rules.

Hatfield Holdings (Pty) Ltd v Business of Summit Auto Trading South Africa (Pty) Ltd and Others (LM064Aug21) [2021] ZACT 73 (26 October 2021)