Summary of Judgment

1. Introduction

These proceedings concerned the conditional approval of a large merger by the Competition Tribunal of South Africa under the merger control regime in the Competition Act 89 of 1998. The Tribunal considered whether the proposed transaction was likely to substantially prevent or lessen competition in any relevant market and whether it raised any material public interest concerns.

The primary acquiring firm was Main Street 1878 Proprietary Limited (“Main Street 1878”), described as a newly incorporated joint venture vehicle established for purposes of the transaction. Post-transaction it would be jointly controlled by Safmarine (51%) and Grindrod Holdings South Africa (49%). Safmarine formed part of the A.P. Moller-Maersk group, while Grindrod Holdings South Africa formed part of the Grindrod group.

The primary target firms were Maersk Inland business, Grindrod Intermodal business, and Ocean Africa Container Lines business (collectively referred to in the reasons as “the Transferred Firms”). The decision described Maersk Inland and Grindrod Intermodal as active in container depot services, trucking services, and warehousing services, and Ocean Africa Container Lines as active in container feeder shipping and port terminal services.

From a procedural perspective, the matter came before the Tribunal following an investigation and recommendation process conducted by the Competition Commission. The merger was heard on 24 May 2022, an order was issued the same day, and reasons were issued on 31 May 2022. The Tribunal ultimately approved the merger subject to conditions, principally directed at addressing risks associated with information exchange.

2. Material Facts

Main Street 1878 was a newly formed entity created to acquire and hold the Transferred Firms. After implementation, Main Street 1878 would be jointly controlled by Safmarine and Grindrod Holdings South Africa, with the shareholding split recorded as 51% and 49% respectively. Safmarine was controlled within the A.P. Moller-Maersk corporate structure, while Grindrod Holdings South Africa was controlled by Grindrod Limited, a JSE-listed company with no single controlling shareholder.

The transaction contemplated that Main Street 1878 would acquire Maersk Inland from APM Terminals South Africa, and would acquire Grindrod Intermodal and Ocean Africa Container Lines from Grindrod South Africa. Post-transaction, the Transferred Firms would be controlled by Main Street 1878 (and indirectly by the two joint controllers).

The Commission’s competitive assessment proceeded on the basis that there was a horizontal overlap between the activities of the Transferred Firms in relation to (i) inland transport trucking services, (ii) container depot services, and (iii) warehousing services. The reasons further recorded that there was no overlap between the joint controlling shareholders and the joint venture in relation to freight forwarding services and customs clearance services in South Africa, because those shareholder activities would continue to be operated independently from the joint venture.

The Commission did not find evidence of a vertical overlap between the activities of the Transferred Firms themselves. However, it identified a vertical relationship between the joint venture’s services and the needs of Maersk, in that Maersk required (among other things) feeder container shipping, port terminal services, container depot services, and warehouse services which would be offered by a transferred firm (identified in the reasons as Grindrod Intermodal). The Commission’s market inquiry accordingly included both horizontal and vertical dimensions.

On the market definition adopted for analysis, the Commission assessed depot services in Durban, Cape Town, and Gqeberha; warehouse services in Durban and Johannesburg; inland trucking services on a national basis; and the upstream market for deep-sea container liner shipping services on a national basis. On the evidence it accepted, the Commission found that post-merger market shares would remain below 35% in each of the regional depot markets considered, and that the relevant markets were fragmented, enabling customers to switch with relative ease.

A material factual consideration was that Maersk Inland did not supply the open market, but only provided the relevant services to Maersk or to the A.P. Moller Holding group. The reasons also recorded that Grindrod would continue to provide certain services independently (through entities identified in the reasons) that would compete with services offered by the Transferred Firms.

Third-party concerns were raised by at least two stakeholders whose identities were redacted in the published text. One stakeholder indicated that Grindrod Intermodal was its largest vendor for full container storage and related services, and expressed concern about capacity constraints and neutrality post-merger. Another stakeholder expressed concern that combining a large international shipping liner with a significant South African provider of logistics services would increase pricing pressure and create incentives to promote and/or bundle services, potentially disadvantaging independent depot and transport providers.

On public interest facts, it was recorded that there were 761 employees serving the Transferred Firms who would transfer to the joint venture in terms of section 197 of the Labour Relations Act 66 of 1995, and that the merger would not result in job losses. NUMSA raised concerns about salaries and benefits, but the merging parties stated that the transaction would not lead to material changes to retirement funding. The Department of Trade, Industry and Competition raised concerns about the spread of ownership by historically disadvantaged persons and workers, to which the merging parties responded with information about Grindrod’s ownership profile and B-BBEE status and the indirect effect of the transaction on B-BBEE shareholding in the combined venture.

3. Legal Issues

The central legal questions concerned the application of the Competition Act 89 of 1998 merger test, namely whether the proposed large merger was likely to substantially prevent or lessen competition in any relevant market and, if so, whether conditions could address the harm. This required the Tribunal to consider market structure and competitive effects in relation to the horizontal overlaps and vertical relationships identified by the Commission.

A further legal issue concerned whether the merger created a material risk of coordinated effects, including whether the joint venture could facilitate collusion or coordinated conduct, particularly in light of the vertical relationship between the joint venture’s services and Maersk’s upstream activities.

Relatedly, the matter raised the question whether the transaction increased the risk of anti-competitive information exchange between the joint controllers (A.P. Moller-Maersk interests and Grindrod interests), especially in adjacent service areas said to be operated outside the joint venture, including freight forwarding and customs clearance services.

The Commission also analysed foreclosure risks, raising issues of input foreclosure (whether rivals could be denied access to the joint venture’s services) and customer foreclosure (whether rivals could be denied customers due to the upstream market position of Maersk). These issues required an assessment of both factual market power and the economic incentives to foreclose.

In addition to competition effects, the Tribunal was required to consider public interest factors recognised in the merger regime. The decision addressed public interest in relation to employment and the promotion of a greater spread of ownership, including ownership by historically disadvantaged persons.

Overall, the dispute primarily concerned the application of legal standards to economic and commercial facts, involving evaluative judgments regarding likely competitive effects, the sufficiency of competitive constraints, and the appropriateness of conditions to mitigate information exchange risks.

4. Court’s Reasoning

The Tribunal’s reasoning proceeded from the Commission’s analytical framework, which distinguished between horizontal effects, vertical effects, and the risk of coordinated effects. On unilateral effects arising from horizontal overlaps, the Commission concluded (and the Tribunal accepted) that the merger was unlikely to result in significant competitive harm because the merged entity would not be dominant in the relevant markets and the market shares remained below the thresholds identified in the reasons, including remaining under 35% in the assessed depot service regions.

A further factual consideration supporting the absence of significant unilateral effects was the role of Maersk Inland, which the reasons described as not supplying these services to the open market but instead supplying only Maersk or the A.P. Moller Holding group. In addition, the Tribunal accepted that independent competitive constraints would remain because Grindrod would continue to provide competing services outside the transferred businesses and because customers retained options among multiple alternative suppliers in fragmented markets.

On coordinated effects, the Commission considered the possibility that the vertical relationship between the joint venture and Maersk could facilitate collusion by enabling monitoring of prices and punishment of deviation in the deep-sea container liner business. The Commission, however, found that the joint venture would not operate as an effective monitoring or punishment mechanism for upstream collusion, primarily because the joint venture would predominantly supply services to Maersk and would face competition from other vertically integrated participants.

The Tribunal’s reasons treated information exchange as the principal competition-related risk requiring remedial intervention. The Commission assessed whether the joint venture could become a conduit for the sharing of competitively sensitive information between A.P. Moller-Maersk and Grindrod that could facilitate coordination in other adjacent markets, particularly freight forwarding and customs clearance services offered outside the joint venture. The Commission sought an undertaking aimed at appointing directors to the joint venture who were not involved in the operations of the parent companies in the relevant markets, alongside non-disclosure protections, but concluded (on the merging parties’ representations) that the firms lacked sufficient personnel to effect that structural separation.

In place of the initially sought approach, the Commission imposed an information exchange condition. As recorded, this condition required the merging parties to offer an undertaking to appoint employees to the joint venture who were not involved in the operations of A.P. Moller-Maersk and Grindrod businesses dealing with freight forwarding and customs clearance services, and required the joint venture’s board to provide confidentiality undertakings together with an information exchange policy designed to prevent the sharing of competitively sensitive information between the joint controllers.

On foreclosure, the Commission applied a two-stage assessment for input foreclosure, considering ability and incentive. It found input foreclosure unlikely because the joint venture would have market shares of less than 35% in all relevant markets assessed and because, on the Commission’s findings, the joint venture already predominantly provided services to Maersk (with the proportion of business from Maersk recorded but redacted in the published reasons). Customer foreclosure was similarly rejected as unlikely, in part because Maersk’s share of overall container volumes into and from South Africa was recorded as relatively modest (with the precise figure redacted), limiting its ability to confer market power that would materially foreclose rival service providers.

The Tribunal also addressed third-party concerns about neutrality, capacity constraints, and the potential competitive impact of bundling. It recorded the merging parties’ responses, including their stated intention to continue supplying third-party customers (including third-party shipping lines) and their position that bundling or combined service solutions already existed in the market and would not be materially altered by the merger. The reasons did not indicate that these third-party concerns, as presented, displaced the Commission’s overall conclusion on competitive effects.

On public interest, the Tribunal accepted that there would be no merger-specific job losses because employees would transfer under section 197 and the Commission found no unfavourable effect on employment. In relation to spread of ownership, the Tribunal noted the DTIC’s concerns and accepted the explanation that Grindrod’s HDP ownership would, through its 49% stake in the joint venture, extend indirect B-BBEE ownership into Maersk Inland, which did not have such shareholding pre-transaction. The Commission’s quantified observation in this regard, including the post-transaction effective B-BBEE shareholding figure mentioned in the reasons, was treated as supporting the conclusion that no adverse public interest outcome arose on this factor.

5. Outcome and Relief

The Tribunal conditionally approved the proposed large merger. It concluded that the transaction was unlikely to substantially prevent or lessen competition in any relevant market and that it raised no further public interest concerns requiring prohibition or additional remedies beyond the imposed condition.

The relief granted was approval subject to conditions attached to the order, with the reasons identifying an information exchange condition aimed at preventing the sharing of competitively sensitive information between the parent groups through the joint venture structure, particularly in relation to freight forwarding and customs clearance activities conducted outside the joint venture.

The reasons did not record any order as to costs, and none appears to have been made in the published text.

Cases Cited

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

Legislation Cited

Competition Act 89 of 1998, including section 12A(3)(e) as referenced in relation to the public interest factor concerning the spread of ownership.

Labour Relations Act 66 of 1995, section 197.

Rules of Court Cited

No rules of court were cited in the Tribunal’s published reasons.

Held

The Competition Tribunal held that the proposed transaction, whereby Main Street 1878 would acquire Maersk Inland, Grindrod Intermodal, and Ocean Africa Container Lines and thereafter be jointly controlled by Safmarine and Grindrod Holdings South Africa, was unlikely to substantially prevent or lessen competition in any relevant market assessed.

The Tribunal further held that, while the merger raised a potential risk of anti-competitive information exchange between the joint controllers (particularly relating to freight forwarding and customs clearance services operated outside the joint venture), that concern was appropriately addressed through a condition requiring confidentiality undertakings and an information exchange policy and the appointment of joint venture employees not involved in the relevant parent-company operations.

The Tribunal also held that the merger did not raise additional public interest concerns on the evidence before it, including in relation to employment (given the section 197 transfer and the absence of job losses) and the spread of ownership (given the indirect extension of B-BBEE shareholding into a business that previously lacked such shareholding).

LEGAL PRINCIPLES

The decision applied the principle that a large merger is to be assessed by reference to whether it is likely to substantially prevent or lessen competition in any relevant market, having regard to competitive effects analysis that may include horizontal overlaps, vertical relationships, and the likelihood of unilateral and coordinated effects.

It applied the approach that a merger in markets with fragmented competitive structures, the presence of multiple alternative suppliers, and post-merger shares below levels indicative of dominance is less likely to result in unilateral effects, particularly where customers have the ability to switch providers.

It applied the principle that vertical relationships can raise risks of coordinated effects and can potentially facilitate collusion through improved monitoring or punishment mechanisms, but that such risks must be evaluated against the factual ability of the merged structure to serve as an effective monitoring tool and the presence of competitive constraints, including other vertically integrated rivals.

The decision also applied the principle that merger control may address risks of anti-competitive information exchange through behavioural remedies. Where structural separation (such as segregated directors) is not feasible on the facts, the Tribunal accepted the use of conditions requiring confidentiality undertakings, information exchange policies, and restrictions on personnel involvement to prevent the flow of competitively sensitive information between parent firms via a joint venture.

Finally, the decision applied the principle that merger approval must include consideration of public interest factors, including employment effects and the promotion of a greater spread of ownership, and that the Tribunal may approve a merger where evidence indicates no merger-specific job losses and where ownership considerations do not reveal adverse effects (and may indicate positive spillovers), on the facts placed before it.