Summary of Judgment

1. Introduction

This matter concerned a large merger notified under the Competition Act 89 of 1998 (as amended) and considered by the Competition Tribunal of South Africa. The proceedings were merger-control proceedings in which the Tribunal was required to determine whether to approve, conditionally approve, or prohibit the proposed transaction on competition and public-interest grounds.

The primary acquiring firm was Royale Energy Proprietary Limited (Royale Energy), forming part of the Royale Energy Group, which is described as a wholly owned subsidiary of the PGC Group, the investment arm of POPCRU Trust and the Police and Prisons Civil Rights Union. The primary target firm was FuelEx Proprietary Limited (FuelEx), together with the firms it directly and indirectly controlled (collectively referred to in the reasons as the “Target Group”).

The Tribunal recorded that it conditionally approved the merger on 19 October 2022, and it furnished its reasons for decision dated 14 November 2022. The Competition Commission investigated the merger, assessed competition and public-interest effects, engaged with market participants and stakeholders, and placed its conclusions before the Tribunal for determination.

The general subject matter of the dispute was whether Royale Energy’s acquisition of sole control over FuelEx and its subsidiaries would be likely to substantially prevent or lessen competition in relevant fuel markets, and whether the transaction raised public-interest concerns, particularly regarding employment and the spread of ownership by historically disadvantaged persons (HDPs). A key feature of the public-interest assessment arose from FuelEx’s assertion that it was financially distressed and had previously commenced voluntary business rescue proceedings.

2. Material Facts

Royale Energy was described as an energy company operating in the wholesale, retail, marketing, storage, and distribution of petroleum products, including petrol, diesel, and illuminating paraffin, within South Africa. The reasons recorded that, while Royale Energy itself did not control other firms, its controlling company (Royale Energy Group) wholly owned and controlled several entities, including Freightcor Logistics Solutions (Pty) Ltd, Viva Oil (Pty) Ltd, Royale Gas (Pty) Ltd, and certain terminal and property-related entities within the broader Royale Energy structure. Royale Energy was also described as having bulk and terminal storage facilities, pipeline access, trucking capacity, and a retail footprint.

FuelEx was described as a private company incorporated in South Africa, controlled 74% by CJF Holdings, with Febmax holding the remaining 26%. FuelEx controlled various subsidiaries, including entities involved in transport and property, and it held interests in firms in Namibia and Eswatini, as well as other group companies. The Target Group’s activities were described as including the wholesale, marketing, storage, and distribution of bulk petroleum products, including diesel, petrol, illuminating paraffin, jet fuel, heavy furnace oil, lubricants, and related products, with nationwide delivery capability.

The transaction was structured as an acquisition by the acquiring group of 100% of the issued shares in the Target Group from CJF Holdings and Febmax. Post-transaction, Royale Energy would acquire sole control over FuelEx and its subsidiaries as contemplated by section 12(2)(a) of the Competition Act.

The acquiring group’s stated rationale was to advance a diversification strategy and socio-economic development plans aimed at energy access across Living Standards Measurement levels, and to leverage synergies arising from FuelEx’s existing infrastructure, including assets and distribution capabilities in Gauteng and the Western Cape. The Target Group, for its part, stated that it was financially distressed, and that its board had resolved to commence voluntary business rescue proceedings on 22 September 2021.

On market definition, the Commission did not make a final determination on the exact relevant market. It nevertheless assessed competitive effects on the national markets for the wholesale and distribution of petrol, diesel, and illuminating paraffin. Using total litres supplied as a measurement basis, the Commission found the merged entity would have low post-merger market shares with a small accretion in each assessed market. Competitors and customers contacted during the investigation did not raise concerns and indicated that the markets were fragmented and that customers had alternative suppliers.

On public interest—specifically employment—the parties submitted that the merger would not result in retrenchments, and the Target Group’s employees were represented by the United Association of South Africa (UASA). However, the record also noted that the FuelEx business rescue plan contemplated potential retrenchments (the figure of 76 employees was referenced), and UASA sought clarity and requested a 24-month moratorium on retrenchments from the approval date. The merging parties responded that they would no longer proceed with the retrenchments contemplated in the business rescue plan and that the proposed merger would save the jobs that were previously at risk. UASA subsequently withdrew participation after its concerns were addressed. The Department of Trade, Industry and Competition (DTIC) sought a condition related to offering employment opportunities to retrenched workers for three years, but the merging parties contended that this was moot because retrenchments would not proceed. The Tribunal recorded that the parties assured it that workers would not be retrenched and that the parties agreed to a condition providing for a two-year moratorium on retrenchments from the implementation date.

On ownership spread, the acquiring group was described as 100% owned by historically disadvantaged persons through POPCRU Trust (via the PGC Group), while the Target Group had 26% HDP shareholding (via Febmax) and no employee share ownership plan (ESOP). The Commission considered that the merger would not dilute HDP ownership and would place the Target Group within a firm that is 100% HDP-controlled.

3. Legal Issues

The central competition issue was whether the proposed acquisition of sole control would be likely to substantially prevent or lessen competition in any relevant market, given that the parties’ activities overlapped horizontally in the wholesale and distribution of certain petroleum products. This required an evaluative assessment of the competitive effects of the merger, informed by market definition (even if left open), market shares, and evidence from competitors and customers.

A further issue concerned the public-interest assessment, particularly whether the transaction would have a negative effect on employment in South Africa and whether it would adversely affect the spread of ownership by historically disadvantaged persons. The employment inquiry involved applying public-interest considerations to the factual context that the Target Group had commenced business rescue and had, in that process, contemplated retrenchments which were not presented as merger-specific.

Overall, the dispute primarily concerned the application of legal standards to facts and an evaluative judgment based on the Commission’s investigation and stakeholder engagement, including whether conditions were necessary to address possible adverse public-interest effects.

4. Court’s Reasoning

On competition, the Tribunal recorded the Commission’s finding that the merger created a horizontal overlap because both groups operated in the wholesale and distribution of petrol, diesel, and illuminating paraffin. The Commission found no vertical overlap. Although the Commission did not reach a final conclusion on the precise relevant market, it assessed the merger in national markets corresponding to the overlapping products, consistent with prior Tribunal decisions referenced in general terms in the reasons.

The Commission’s assessment relied on estimated market shares calculated with reference to total litres supplied. It found that the merged entity would have low market shares post-merger and that the accretion attributable to the transaction would be small in each of the assessed markets. The Commission also tested the market outcomes by contacting competitors and customers. The absence of complaints or concerns, combined with indications that the markets were fragmented and that customers had alternative suppliers, supported the conclusion that the transaction was unlikely to materially change competitive conditions. On this basis, the Tribunal recorded its finding that the merger was unlikely to substantially prevent or lessen competition in any relevant market.

On public interest and employment, the Tribunal considered the parties’ position that there would be no retrenchments, but it also engaged with the fact that FuelEx’s business rescue plan had contemplated retrenchments. The Tribunal recorded that UASA had raised concerns based on the business rescue plan and sought clarity as well as a moratorium. It further recorded that the merging parties responded by stating that the contemplated retrenchments would not proceed and that the merger would instead save the affected jobs. With UASA’s concerns resolved, its participation was withdrawn.

The Tribunal also took into account DTIC’s requested condition relating to suitable employment opportunities for retrenched workers, but noted the merging parties’ response that this was moot in light of the undertaking that the retrenchments would not be implemented. The Commission’s view, as recorded, was that the business rescue retrenchments were not merger-specific and that employment concerns were unlikely to arise if the contemplated retrenchments did not occur. The Tribunal nonetheless recorded concern about the potential employment impact should retrenchments go ahead, and it noted that the parties assured the Tribunal that workers would not be retrenched. That assurance was operationalised through an agreed condition: a moratorium on retrenchments for two years from the implementation date.

On the spread of ownership, the Tribunal considered the HDP ownership positions of both the acquiring group and the target group. It recorded the Commission’s conclusion that there would be no dilution of HDP shareholding and that the Target Group would become part of an entity that is 100% HDP-controlled. The Tribunal noted that the merger would significantly increase the aggregate percentage of HDP ownership, and it found no evidence that the merger would result in a lower spread of ownership by other measures. It therefore concluded that the transaction was unlikely to have a negative impact on the spread of ownership.

5. Outcome and Relief

The Competition Tribunal conditionally approved the large merger in which Royale Energy would acquire sole control over FuelEx in terms of section 12(2)(a) of the Competition Act.

The approval was subject to a condition agreed to by the merging parties, recorded in the reasons as a two-year moratorium on retrenchments from the implementation date, aimed at addressing potential public-interest concerns about employment should the business rescue retrenchments otherwise proceed.

The reasons for decision did not record any separate or additional order as to costs.

Cases Cited

No specific case authorities were identified by name and full citation in the provided reasons for decision.

Legislation Cited

Competition Act 89 of 1998 (as amended), section 12(2)(a)

Rules of Court Cited

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

Held

The Tribunal held that the proposed transaction was unlikely to substantially prevent or lessen competition in any relevant market, given the limited post-merger market shares and accretions, the absence of competitor and customer concerns, and the Commission’s assessment of the overlapping wholesale and distribution activities in petrol, diesel, and illuminating paraffin.

The Tribunal further held that the transaction was unlikely to have a negative effect on public interest in relation to the spread of ownership, since the acquiring group was 100% HDP-owned and the merger would not dilute HDP ownership. In relation to employment, the Tribunal accepted the parties’ assurance that the business rescue retrenchments would not proceed and imposed (by agreement) a two-year moratorium on retrenchments from implementation to address the residual risk of job losses.

LEGAL PRINCIPLES

The decision applied the principle that a merger involving an acquisition of sole control is assessed under the Competition Act with reference to whether it is likely to substantially prevent or lessen competition, including where there is a horizontal overlap between the merging parties’ activities. In conducting this assessment, the decision reflected the use of market-share evidence (here measured by litres supplied) and qualitative market testing through engagement with competitors and customers as indicators of likely competitive effects, particularly where the Commission considered markets to be fragmented and market shares to be low.

The decision further applied the principle that merger control under the Act includes a public-interest assessment, in which employment effects and ownership spread are relevant considerations. Where employment risks may arise from circumstances such as a target firm’s business rescue process, the Tribunal’s approach in this matter reflected that such risks can be addressed through merger conditions, including agreed moratoria on retrenchments, especially where there is concern that job losses could occur even if not strictly merger-specific.

Finally, the decision reflected that, in assessing the spread of ownership, the Tribunal may consider whether HDP ownership will be diluted or enhanced by the transaction, and may conclude there is no adverse effect where the merger results in the target becoming part of a group with increased HDP control and there is no evidence of a reduction in ownership spread by other measures.