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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM092Aug22
In the matter between:
Clover S.A. Proprietary Limited Primary Acquiring Firm
and
The Milk Procurement Business of Dairy Farmers of
South Africa Proprietary Limited
Primary Target Firm
Approval
[1] On 1 December 2022, the Competition Tribunal conditionally approved the large merger
in which Clover S.A. Proprietary Limited ("Clover S.A”), acquired the business and
assets used or owned by Dairy Farmers of South Africa (Pty) Ltd (“DFSA”) in relation to
the procurement and supply of regular raw milk to Clover ("Milk Procurement
Business").
[2] The reasons for the conditional approval follow.
Panel : Yasmin Carrim (Presiding Member)
: Andiswa Ndoni (Tribunal Member)
: Fiona Tregenna (Tribunal Member)
Heard on : 01 December 2022
Order issued on : 01 December 2022
Reasons issued on : 19 December 2022
REASONS FOR DECISION
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Parties to the transaction and their activities
Primary acquiring firm
[3] Clover S.A. Proprietary Limited ("Clover S.A”) is directly controlled by Clover Proprietary
Limited (“Clover”), which is ultimately controlled by Central Bottling Company Limited.
[4] Clover S.A is a branded consumer goods company in the food and beverage industry,
with subsidiaries in South Africa, Botswana, Namibia, and eSwatini. Its focus is on the
manufacturing and supply of dairy products, soy products, olive oil, peanut butter and
mayonnaise and the production of non -alcoholic beverages as well as sales,
merchandising and distribution of consumer goods.
[5] Clover S.A also procures raw Ayrshire milk and organic milk as an input for certain of
its products. The merging parties confirmed that Clover SA does not currently engage
with farmers directly regarding the procurement of regular raw milk. This is because
100% of its raw milk procurement is supplied by the Milk Procurement Business (the
Target Firm in this instance).
Primary target firm
[6] The business and assets used and owned by Dairy Farmers of South Africa (Pty) Ltd
(“DFSA”) in relation to the procurement and supply of regular raw milk to Clover S.A
(“the Milk Procurement Business”). The Milk Procurement Business does n ot control
any firms.
[7] The Milk Procurement Business provides procurement of raw regular milk to Clover S.A
in South Africa (including in relation to concentrated regular raw milk and pasteurised,
thermised and standardised milk), and the subsequent supply of such products as
inputs to Clover. The Milk Procurement Business provides these services only to Clover
S.A.
[8] The Milk Procurement Business procures regular raw milk from milk producers
(predominantly located in KwaZulu Natal, Eastern Cape, and the Hig hveld) which
involves transport and logistical services; raw milk quality and field services; and certain
administrative, financial and contract management services, relating to the collection
administrative, financial and contract management services, relating to the collection
and supply of regular raw milk procured from producers.
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Proposed transaction and rationale
[9] In terms of the proposed transaction Clover S.A is acquiring the Milk Procurement
Business. Post-merger, Clover S.A will have sole control over the Milk Procurement
Business.
[10]
[11]
Relevant market and impact on competition
[12] The Commission found that Clover Group is the only customer of the Milk Procurement
Business and Clover Group procures 100% of its regular raw milk from the Milk
Procurement Business. Hence the Commission is of the view that the proposed merger
is unlikely to raise any foreclosure concerns as the Milk Procurement Business does
not have any other customers.
[13] The Commission is also of the view that the merger is unlikely to alter the structure of
the market as the merger will result in Clover Group replacing DFSA as the owner of
the Milk Procurement Business because the Clover Group will take over all the supply
agreements concluded between the Milk Procurement Business and the farmers.
[14] The Commission also enquired about Clover S.A.’s plans post-merger, especially with
regards to the milk producers (farmers). The merging parties submitted that Clover
Group will continue to procure from milk farmers who are currently supplying the Milk
Procurement Business. Essentially, what this means is that Clover will procure its own
regular raw milk, through the milk contracts and/or delivery agreements which will be
ceded by DFSA to Clover.
[15] In light of the above, we are of the view that the proposed transaction is unlikely to
substantially prevent or lessen competition in any market.
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Public interest
[16] The merging parties submit ted that DFSA commenced a section 189A process on
25 April 2022, prior to the commencement of negotiations with Clover regarding the
proposed transaction on 23 May 2022, and it was unrelated to the proposed transaction.
[17] The merging parties further submitted that 52 employees at the Target Firm were
retrenched in the past 12 months and that these retrenchments were unrelated to the
proposed transaction.
[18] The Commission engaged with an employee representative of the merging parties
during the site visit who co nfirmed that
[19] The Commission found that the pre-merger retrenchments at DFSA were contemplated
before the discussions about the present transaction for operational reasons and were
unlikely to be merger specific.
[20] FAWU, AMITU and Inqubelaphambili Trade Union (“ITU”) and the DTIC raised
concerns regarding pre-merger retrenchments and employment.
[21] To remedy these concerns the Unions and the DTIC proposed that the merging parties
provide retrenched employees an opportunity to apply for vacancies that may become
available for a period of 3 (three) years from the implementation date using the contact
details provided by each of the retrenched employees to the merged entity. The merging
parties accepted the condition.
[22] Furthermore, the Commission requested the merging parties to consider a moratorium
on employment for a period of 5 (five) years. The merging parties submitted that they
were willing to undertake
not to retrench any employees of the Milk Procurement Business as a result of the
proposed transaction for a period of 3 (three) years and the Commission accepted this
condition.
[23] The DTIC, had also requested the Commission to engage with the merger parties with
a view to institute conditions requiring the acquiring firm to maintain existing milk
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procurement contracts with both HDP and SME suppliers for a period of 5 (five) years
from the merger approval date as well as making raw milk that is surplus to its own
production requirements available to competitors.
[24] The merging parties indicated that they were amenable to the DTIC’s proposed
conditions, and the DTIC thus accepted the merger parties’ conditions.
[25] The Commission accordingly recommended that the merger be approved on these two
conditions.
[26] In the course of the Tribunal proceedings, the DTIC confirmed they had no further
concerns and would not participate in our proceedings. We did receive written
submissions from the unions, namely ITU, GIWUSA and FAWU. GIWUSA and FAWU
were represented by Novus Risk. Only Novus Risk (on behalf of GIWUSA and FAWU)
participated in the Tribunal proceedings.
FAWU’s main concerns were:
26.1. The duration for the retrenchment moratorium should be extended to a period of
5 (five) years post-merger;
26.2. Harmonising wages and/or salaries, employment conditions, working conditions
and benefits in the merged entity for all employees transferred to the Clover
Group. Further to that, to establish and keep records of all employees who were
retrenched before the commencement of the merger negotiations. This is
inclusive and but not limited to employees retrenched for operational
requirements. These employees should be given first preference for re -
employment at the merged entity to apply for vacancies that may be come
available for a period of 3 (three) years from the date; and
26.3. Implementation of an Employees Share Ownership Scheme (“ESOP”) of 10% in
an unencumbered equity to be facilitated through a Trust for the benefit of all
employees at the merged entity to th e exclusion of certain employees at
management level. The 10% equity shall be the total value of the merged entity
and fully funded by the merging parties. An ESOP transaction shall be
implemented within 24 months post-merger.
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[27] At the hearing these concern s were ventilated, and the merging parties have since
indicated that Clover is willing to extend the moratorium period from 3 (three) years to
5 (five) years.1 The Commission and FAWU had no objection to this and the proposed
condition was revised accordi ngly. These revised conditions are attached hereto as
Annexure “A”.
[28] Further, with regard to harmonizing the working terms and/or giving first preference for
re-employment at the merged entity to previously retrenched workers, we were of the
view that this is a section 197 of the Labour Relations Act 1995 as amended, transfer
of employees, thus the employment terms will remain the same. Further,, accepted that
they would provide previously retrenched employees an opportunity to apply for
vacancies that may become available, as a condition of the merger during its
negotiations with the Commission.
[29] With regard to the potential ESOP, the merg ing parties submitted that
As a result of this we
agreed with the merging parties that there was no scope for a potential ESOP in this
matter.
[30] FAWU indicated at the hearing that it had accepted the merging parties ’ submissions
and would not persist with its suggestions.
Effect on greater spread of ownership
[31] The effective HDP in the Milk Procurement Business will be reduced by from
to following the implementation of the proposed transaction. Given the
dilution, the Commission requested the parties to consider the certain remedies.
However, in response to the Commission’s request, the merging parties indicated that
. Moreover, the parties submitted that the proposed
1 Page 6 of the transcript.
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transaction therefore allows the HDP shareholders of the Milk P rocurement Business
to receive some value and that the merged entity will have an HDP shareholding of at
least
[32] The merging parties had further agreed to the condition that Clover S.A will invest
in skills development and in enterprise development over a period of
five years.
[33] In considering whether the conditions proposed by the merging parties outweigh the
dilution and promote the greater spread of ownership as contemplated in section
12A(3)(e) of the Act, the Commission considered
The Commission then
considered the quality of the HDP shareholdings in the Milk Procurement Business and
found that
Lastly, the Commission
considered the sustainability of the business model of the Milk Procurement Business;
and the merging parties indicated that the Milk Procurement Business
The Commission found that competitors
of Clover have their own in-house milk procurement business and rarely used
independent intermediaries such as the Milk Procurement Business.
Conclusion
[34] In light of the above, we conclude d that the proposed transaction is unlikely to
substantially prevent or lessen competition in any relevant market. In addition, no public
interest issue s arise from the proposed transaction. Accordingly, we approve d the
proposed transaction on the conditions attached hereto as Annexure “A”.
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19 December 2022
Ms Yasmin Carrim Date
Prof. Fiona Tregenna and Ms Andiswa Ndoni concurring.
Case Managers : Kameel Pancham and Theodora Michaletos
For the Merging Parties : Jean Meijer and Sandhya Foster of Herbert
Smith Freehills South Africa LLP
For the Commission : Zintle Siyo and Themba Mahlangu