Summary of Judgment

1. Introduction

The matter concerned large merger proceedings before the Competition Tribunal of South Africa, in which the Tribunal was required to decide whether to approve a proposed merger transaction and, if so, whether any conditions were necessary to address competition and public interest concerns.

The primary acquiring firm was VKB Beleggings (Pty) Ltd (“VKB”) and the primary target firm was Griekwaland Wes Korporatief Limited (“GWK”). The Tribunal heard the matter on 21 December 2022, issued its order on 21 December 2022, and issued reasons on 9 January 2023.

The matter proceeded following an investigation by the Competition Commission, which identified certain horizontal overlaps between the merging parties’ activities and also engaged with public interest issues, including employment effects and the promotion of a greater spread of ownership. The Tribunal’s reasons record that the merger was conditionally approved, with the conditions directed at the identified public interest concerns.

The general subject-matter of the dispute was whether the acquisition by VKB of GWK (implemented through a scheme of arrangement and associated internal restructuring steps) would be likely to substantially prevent or lessen competition in any relevant market and whether it would have a negative effect on public interest considerations, particularly employment and ownership spread (including benefits to historically disadvantaged persons and employee ownership participation).

2. Material Facts

VKB was identified as the primary acquiring entity. The Tribunal recorded that VKB’s shareholding was held by various shareholders and that none had a controlling interest in VKB. VKB controlled (among others) VKB Landbou and VKB Agri Processors through an 85% shareholding, with the remaining 15% in each ultimately held by a B-BBEE trust established for the benefit of the respective employees.

The Tribunal identified VKB’s relevant business activities for purposes of the merger assessment as operating in grain storage and handling, grain trade and procurement, grain milling, retail trade (farming requisites), and agricultural finance.

GWK was described as a public company registered in South Africa, with interests held by various shareholders, and with no controlling shareholder. GWK controlled various firms in the GWK Group. It operated mainly in the Northern Cape and had diversified agriculture-related activities across divisions described as GWK Agri, GWK Farm Foods, GWK Trading, and Professional Services. For merger assessment purposes, the Tribunal identified the relevant GWK activities as mirroring those of VKB in grain storage and handling, grain trade and procurement, grain milling, trade retail, and agricultural finance.

Structurally, VKB would acquire the relevant GWK shareholder equity (excluding treasury shares and GWK mechanisation shares) by way of a scheme of arrangement under an implementation agreement. Post-implementation, GWK would become a wholly owned subsidiary of VKB and form part of the VKB group. The Tribunal recorded that there were pre-implementation internal restructuring steps within the GWK group that had to occur to enable implementation of the overall transaction, and that these steps were treated as one indivisible transaction, because the pre-implementation steps would not have been necessary absent the merger.

On the competition assessment, the Commission found that the transaction resulted in horizontal overlaps in the markets for grain storage and handling, grain trade and procurement, grain milling, trade retail, and agricultural finance.

In the grain storage and handling segment, the Tribunal recorded the geographic footprint information noted by the Commission. GWK’s grain storage facilities were mainly in the Northern Cape (with eight storage facilities), with one in the North West and two in the Free State. VKB had grain storage facilities in the Free State, seven in Limpopo, and three each in the Western Cape and Mpumalanga.

In grain trade and procurement (considered nationally), the Commission found that VKB and GWK had market shares of 5% and 3.5% respectively, resulting in a combined post-merger share of 8.5%.

In grain milling, the Tribunal recorded the Commission’s view that the parties’ combined post-merger share would be 8.5%, and that in submarkets for the manufacture and supply of maize meal, samp, and chop, the combined national share was recorded as 6.6%, with both firms described as minor players.

In retail trade of farming requisite products, the Commission noted a diverse set of competitors, including other agricultural companies (identified in the reasons), and recorded a commitment linked to preserving the existing trade retail footprint and not ceasing operations or closing outlets due to implementation of the merger.

In agricultural finance, the Commission concluded that the combined post-merger market shares would be less than 1% of all domestic credit extended, and less than 2.5% of all agricultural-related debt, and noted the presence of various other financial services providers.

On public interest, the Tribunal recorded that the merging parties submitted that the transaction would have no effect on employment, including that there would be no retrenchments or job losses for VKB employees as a result of the merger, and that no GWK employee or subsidiary employee would be retrenched as a result of the merger for 18 months post-merger. The trade union FAWU sought enhanced conditions, including a five-year moratorium and a headcount maintenance condition. The Tribunal recorded that the merging parties subsequently agreed to a 36-month moratorium on merger-related retrenchments across the VKB and GWK businesses, and that the Commission considered a three-year moratorium sufficient to address employment concerns.

The Tribunal further recorded concerns raised by the Commission and the Department of Trade, Industry and Competition (DTIC) regarding the greater spread of ownership, arising because it was unclear whether GWK employees would benefit from VKB’s pre-existing employee share ownership structure post-merger. In response, the merging parties committed that qualifying GWK employees would become beneficiaries of the VKB Landbou Trust or the VKB Agri Processing Trust. The Tribunal recorded the definition of qualifying employees as permanent employees employed by VKB (or GWK) for more than 12 months at the relevant VKB financial year-end, excluding senior management members who are not entitled to share in the proceeds of the employee share schemes.

The Tribunal also recorded an undertaking by the merging parties to facilitate financing through a Finance Fund intended to enable HDP farmers and other HDP entities to enter relevant agricultural markets. The reasons reflect that the commitment included a minimum funding amount and a 36-month period post-implementation, but the specific monetary figures appear redacted in the provided text.

The Tribunal recorded that the Commission found the absorption of GWK employees into VKB’s employee ownership trusts would positively promote the greater spread of ownership, and that the Finance Fund would support entry by HDP farmers and entities into agricultural markets in which the merging parties participate. The Tribunal recorded that there were no other public interest concerns.

3. Legal Issues

The central legal questions were whether the proposed transaction was likely to substantially prevent or lessen competition in any relevant market, given the identified horizontal overlaps, and whether the transaction would have a negative effect on public interest considerations requiring conditions.

The issues involved the application of law to fact. This included evaluating market information (including market shares and the presence of competitors) to determine likely competitive effects, and assessing whether the asserted and negotiated public interest commitments adequately addressed concerns about merger-related retrenchments and the promotion of a greater spread of ownership (including employee participation and support for HDP entities).

The Tribunal also had to make a value judgment in deciding whether the conditions ultimately agreed were adequate and appropriate to remedy the public interest concerns identified by the Commission and DTIC, particularly on the appropriate duration of a retrenchment moratorium and the structure of commitments relating to employee ownership and HDP financing.

4. Court’s Reasoning

In addressing competition, the Tribunal’s reasons reflect acceptance of the Commission’s analysis that, notwithstanding horizontal overlaps, the merger was unlikely to raise competition concerns due primarily to the limited combined market shares and the presence of other market participants.

For grain trade and procurement at a national level, the Tribunal recorded the Commission’s finding that the parties’ combined post-merger market share would be 8.5%, which was regarded as low, leading to the conclusion that the merger was unlikely to raise competition concerns in that market.

For grain milling, the Tribunal recorded the Commission’s assessment that the combined post-merger share of 8.5% was negligible, and that in the submarkets of maize meal, samp and chop, the combined national share of 6.6% also indicated that the parties were minor participants, supporting the conclusion that competitive harm was unlikely.

For trade retail, the Tribunal recorded the Commission’s reliance on the diversity of competitors and the broader market context, including the existence of a range of agricultural companies and other suppliers. The reasons further record the merging parties’ commitment to preserve the existing retail footprint, which supported the view that the merger would not lead to immediate withdrawal of outlets as an outcome of implementation.

For agricultural finance, the Tribunal recorded the Commission’s conclusion that combined shares were less than 1% of domestic credit extended and less than 2.5% of agricultural-related debt, and that the presence of other financial service providers meant the merger parties would not have a position likely to harm competition in that sector.

In respect of grain storage and handling, while the reasons describe the geographic distribution of facilities, the Tribunal’s ultimate conclusion was framed broadly: it concluded that the merger was unlikely to substantially prevent or lessen competition in any relevant market. The reasoning, as recorded, was consistent with the Commission’s overall competitive assessment that the overlaps did not translate into a material risk of competitive foreclosure or coordinated effects given the scale indicated by the market information.

On public interest, the Tribunal focused on two principal concerns: merger-specific retrenchments and the promotion of a greater spread of ownership. The Tribunal recorded FAWU’s submissions seeking stronger employment protections, and it noted that the merging parties agreed to a 36-month moratorium on merger-related retrenchments across the VKB and GWK group businesses. The Tribunal recorded the Commission’s view that a three-year moratorium was sufficient, and accepted that this condition addressed employment-related public interest concerns arising from the merger.

Regarding ownership spread, the Tribunal recorded the Commission and DTIC’s concern that it was unclear whether GWK employees would benefit from VKB’s existing employee ownership structures post-merger. The Tribunal’s reasoning recorded that the merging parties’ commitment to include qualifying GWK employees as beneficiaries of the VKB employee trusts would positively promote broader ownership participation. The Tribunal further recorded that the Finance Fund commitment would support market entry by HDP farmers and other HDP entities, and treated these commitments as responsive to the public interest issues identified.

The Tribunal recorded that the commitments addressing employment and ownership spread were made conditions of approval, and it stated that there were no other public interest concerns warranting intervention.

5. Outcome and Relief

The Tribunal conditionally approved the large merger between VKB and GWK.

The approval was granted subject to conditions annexed to the Tribunal’s order, directed at remedying concerns relating to merger-specific retrenchments (through a 36-month moratorium) and the promotion of a greater spread of ownership (through inclusion of qualifying GWK employees in VKB employee ownership trusts and the establishment/facilitation of the Finance Fund commitment for HDP participation, with the amount and certain details appearing redacted in the provided text).

No separate or additional relief is recorded in the provided reasons beyond conditional approval. The provided text does not reflect any distinct costs order.

Cases Cited

No cases are cited in the provided judgment text.

Legislation Cited

Competition Act 89 of 1998 (as amended)

Rules of Court Cited

No rules of court are cited in the provided judgment text.

Held

The Competition Tribunal held that the proposed transaction was unlikely to substantially prevent or lessen competition in any relevant market notwithstanding the horizontal overlaps identified by the Competition Commission.

The Tribunal further held that the merger would not have a negative impact on the public interest, provided that the parties’ commitments addressing employment protection and the greater spread of ownership were imposed as binding conditions of approval. On that basis, the merger was approved subject to the annexed conditions.

LEGAL PRINCIPLES

The Tribunal applied the principle that a merger with horizontal overlaps must be assessed to determine whether it is likely to substantially prevent or lessen competition in any relevant market, with reference to market structure indicators reflected in the record, including market shares and the existence of alternative competitors and suppliers.

The Tribunal also applied the principle that merger control requires consideration not only of competition effects but also of public interest considerations, and that where public interest concerns are identified, they may be addressed through merger conditions tailored to remedy those concerns, including conditions relating to merger-related retrenchments and measures that promote a greater spread of ownership and participation by employees and HDP entities.

The reasons further reflect the principle that where commitments are offered and accepted as conditions—such as a defined-duration moratorium on merger-related retrenchments and mechanisms to extend employee trust participation and support HDP entry—conditional approval may be appropriate where the merger is otherwise unlikely to harm competition and where no other public interest concerns remain.