Summary of Judgment

Introduction

These proceedings concerned a large merger before the Competition Tribunal of South Africa in which the Tribunal was required to decide whether to approve, prohibit, or approve with conditions a proposed acquisition of control.

The primary acquiring firm was Super Group Holdings Proprietary Limited (referred to in the reasons as “Super Group Holdings”), part of a wider corporate group controlled by Super Group Limited, a company listed on the Johannesburg Stock Exchange. The primary target firms were RSC Consulting Services Proprietary Limited (“RSC”) and Clean Tech 360 Proprietary Limited (“Clean Tech”).

The matter was heard on 22 December 2022, and the Tribunal issued an order on the same date conditionally approving the transaction. The Tribunal’s reasons were subsequently issued on 26 January 2023.

The general subject-matter of the dispute was whether the proposed acquisition—structured as the purchase of 51% of the issued share capital in each of two target firms—raised any competition concerns (including potential portfolio or bundling effects) and whether any public interest considerations (notably employment and the spread of ownership through an employee share ownership plan (ESOP)) required conditions.

Material Facts

Super Group Holdings is a South African firm within a group that provides supply chain management services, operates vehicle dealerships, and provides fleet leasing and management. Its supply chain activities include the planning and management of sourcing, procurement, transport, and warehousing of goods and services. The Tribunal referred to Super Group Holdings together with its subsidiaries as the “Acquiring Group.”

RSC and Clean Tech are South African firms. RSC provides services including audit and verification of stock, integrity and accuracy audits, and inbound and outbound distribution-related services, including the outsourcing of employees for stock-taking functions. Clean Tech provides an outsourced, technology-based cleaning solution, including commercial and hospitality cleaning and employee management.

The proposed transaction entailed Super Group Holdings acquiring 51% of the issued share capital of each of RSC and Clean Tech, thereby acquiring control over both target firms.

A material structural fact addressed by the Tribunal (through the Commission’s analysis) was that there was one acquiring firm and more than one target firm, requiring an assessment of whether the transaction constituted one indivisible transaction. The target firms were owned by the same shareholders, and the sale of each target firm was conditional upon the other. The reasons also recorded that the target firms did not operate in the same line of business as each other, and that Clean Tech’s turnover and assets did not meet the threshold for notification if acquired alone, which contributed to the Commission’s conclusion that the combined sale constituted one indivisible transaction.

On competition effects, the material facts accepted for assessment were that the Acquiring Group’s activities (freight logistics and related supply chain services) did not directly overlap with RSC’s stock-taking and related outsourced services, and did not overlap with Clean Tech’s commercial cleaning services in a manner suggesting horizontal competition. Nonetheless, because RSC’s services could be complementary to logistics offerings, the Commission considered whether the transaction might create bundling/portfolio effects.

On public interest, the merging parties submitted that the transaction would not cause retrenchments. The reasons recorded that employees of the target firms would be retained as employees of subsidiaries of Super Group, supporting the conclusion that the merger was unlikely to negatively impact employment.

As to the spread of ownership, the reasons recorded that Super Group was 68.18% black owned and 24.72% black women owned, while the target firms had no black ownership. During the Commission’s investigation, the Minister of the Department of Trade, Industry and Competition requested commitments relating to an ESOP for workers of the target firms and initiatives to promote broad-based black economic empowerment (B-BBEE). The Acquiring Group indicated it had plans to implement an ESOP via an employee trust to acquire a shareholding at Super Group Holdings level, and the Commission engaged the parties on the proposed ESOP terms, including the ESOP shareholding percentage and the employee qualifying period. Certain numerical details of the ESOP shareholding and qualifying period motivation appear omitted/redacted in the published reasons.

Legal Issues

The central legal questions were whether the proposed transaction was likely to result in a substantial prevention or lessening of competition in any relevant market, and whether any public interest concerns arose that warranted conditions.

The Tribunal also had to address an anterior structural question relevant to the filing and assessment of the merger, namely whether the acquisition of two separate target firms by a single acquirer constituted one indivisible transaction, given the conditionality and ownership structure described.

The dispute primarily concerned the application of law to fact within merger control, including an evaluative assessment of potential portfolio/bundling effects where the merging parties were not direct horizontal or vertical competitors. It also required a value-laden evaluative judgment on appropriate public interest conditions, particularly the acceptability of the proposed ESOP parameters as motivation for merger approval subject to conditions.

Court’s Reasoning

On the indivisibility issue, the Commission’s reasoning—accepted and reflected in the Tribunal’s reasons—proceeded from the fact that the two target firms were owned by the same shareholders and that the sale of each was conditional upon the other. Although the target firms were not active in the same line of business, and although Clean Tech on a standalone basis did not meet notification thresholds, the conditional and linked nature of the sale supported the conclusion that the transaction should be treated as one indivisible transaction for purposes of merger assessment.

On competition, the Tribunal’s reasons recorded that the Commission identified no direct horizontal or vertical overlaps. The Acquiring Group operated in broad freight logistics and supply chain services, while RSC provided stock-taking and outsourced stock-taking labour, and Clean Tech provided commercial cleaning services. The Commission found that Super Group and RSC did not share the same direct competitors and did not compete directly, and that Clean Tech’s services were not interchangeable with those of Super Group.

Despite the absence of direct overlap, the Commission considered whether the transaction could lead to bundling or portfolio effects, because certain services supplied by RSC could be complementary to the logistics services typically offered by a larger logistics provider. The Commission’s investigation focused on how, in practice, logistics companies often subcontract parts of warehouse and distribution-centre functions—such as stock counting—to specialist smaller firms (including firms like RSC and others identified in the reasons). The reasons further recorded a finding that large distribution logistics companies already utilized such niche service providers and were expected to continue to do so after the merger. On that basis, the Tribunal concluded that the transaction was unlikely to result in anti-competitive portfolio effects and would not substantially prevent or lessen competition in any relevant market.

On public interest and employment, the Tribunal relied on the parties’ submission that the merger would not lead to retrenchments, together with the indication that employees of the target firms would be retained within subsidiaries of Super Group. This supported the conclusion that the merger was unlikely to have a negative impact on employment.

On the spread of ownership and the ESOP condition, the Tribunal noted the Minister’s request for an ESOP benefiting the target-firm workers and for details of B-BBEE initiatives within the target firms. The reasons recorded that the Acquiring Group already planned an ESOP to be implemented through an employee trust acquiring a shareholding at Super Group Holdings level. The Commission had requested enhancements to the proposed ESOP terms (including increasing the ESOP shareholding to 5% and reducing the qualifying period from five years to two years), but ultimately recommended approval subject to the parties’ planned conditions. The Tribunal then undertook its own evaluative engagement with the ESOP condition, requested further motivation for the proposed ESOP shareholding quantification and the five-year qualifying period, and recorded that it was satisfied with the parties’ submissions. The transaction was therefore approved subject to conditions attached as Annexure A.

Outcome and Relief

The Tribunal conditionally approved the large merger whereby Super Group Holdings would acquire control (51% shareholding) over RSC Consulting Services Proprietary Limited and Clean Tech 360 Proprietary Limited.

The relief granted was an approval subject to conditions, recorded as being contained in “Annexure A” to the order. The reasons indicate that the conditions related to an ESOP (as part of the public interest assessment), although the full text of the conditions was not reproduced in the body of the reasons provided.

No separate or specific costs order was set out in the reasons provided.

Cases Cited

No cases were cited in the reasons provided.

Legislation Cited

No legislation was expressly cited in the reasons provided.

Rules of Court Cited

No rules of court were cited in the reasons provided.

Held

The Tribunal held that the proposed acquisition of control by Super Group Holdings over RSC and Clean Tech was unlikely to substantially prevent or lessen competition in any relevant market. It further held that the merger did not raise public interest concerns requiring prohibition, and that employment would not be adversely affected on the record before it.

The Tribunal approved the merger subject to conditions (Annexure A), following consideration of public interest issues relating to the spread of ownership through an employee share ownership plan and after being satisfied with the merging parties’ motivation regarding the ESOP structure and qualifying period.

LEGAL PRINCIPLES

The decision applied the principle that a merger may be assessed as an indivisible transaction where multiple target firms are owned by the same shareholders and the sale of each is conditional upon the other, even if the targets operate in different lines of business and one target might not be notifiable on a standalone basis.

It applied the principle that the absence of direct horizontal or vertical overlaps does not end the competitive assessment, because a merger can still raise portfolio or bundling concerns where the acquirer’s offerings and the target’s services are complementary and may be supplied together. The assessment in such circumstances turns on market realities, including whether customers can and do source the complementary services separately and whether rivals are likely to be foreclosed.

It further applied the principle that merger approval may appropriately be made conditional to address public interest considerations, including employment effects and the promotion of a broader spread of ownership through mechanisms such as an ESOP, and that the Tribunal may require and evaluate further motivation on the design features of such conditions (including shareholding levels and qualifying periods) before confirming them as acceptable.