COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM003Apr23
In the matter between:
EMIF II Investment Proprietary Limited Acquiring Firm
and
Vector Logistics Proprietary Limited
Target Firm
Panel: L Mncube (Presiding Member)
S Goga (Tribunal Member)
A Ndoni (Tribunal Member)
Heard on: 20 June 2023
Order issued on: 20 June 2023
Reasons Issued on: 13 July 2023
REASONS FOR DECISION
Approval
[1] On 20 June 2023, the Competition Tribunal (“Tribunal”) conditionally approved
the large merger wherein EMIF II Investment Proprietary Limited (“EMIF II
Investment”) intends to subscribe for 100% of the share capital of Vector
Logistics Proprietary Limited (“Vector Logistics”).
[2] Upon the implementation of the proposed transaction , EMIF II Investment will
solely control Vector Logistics and its subsidiary.
Parties to the transaction and their activities
Primary acquiring firm
[3] The primary acquiring firm is EMIF II Investment Proprietary Limited (“EMIF II
Investment”), a company incorporated in accordance with the laws of South
Africa. EMIF II Investment is a 100% indirectly owned subsidiary of A.P. Møller
Capital – Emerging Markets Infrastructure Fund II K/S (“EMIF II”), a Danish
limited partnership, acting through its manager, A.P. Møller Capital P/S
(“APMC”), a fund management company incorporated in terms of the laws of
Denmark.
[4] APMC is ultimately controlled by A.P. Møller Holding A/S (“APMH”), the holding
company of the A.P. Møller Holding group of companies, incorporated in terms
of the laws of Denmark.
[5] APMH is primarily active through A.P. Moller -Maersk A/S (“APMM”) in South
Africa, an integrated transport and logistics company. However, it is noted that
APMM and APMC are operated and managed completely separately. APMM
has no decision-making power over EMIF II and APMC’s investments, including
the investment taking place pursuant to the notified transaction (and APMC has
no control over APMM’s activities or investments). As such, although APMM and
APMC may be viewed as part of the same economic entity fo r merger control
purposes, they are legally, administratively and operationally separate entities.
[6] APMC controls numerous firms in South Africa, including Lumika Renewables
Proprietary Limited, Reunert Investment Company No 2 Proprietary Limited and
Terra Firms Solutions Proprietary Limited. Further, APMM, an affiliate of APMH,
controls the following fi rms in South Africa: APM Terminals IS Cape Town
Proprietary Limited, Maersk Logistics and Services South Africa Proprietary
Limited, Maersk South Africa Proprietary Limited (Maersk South Africa) and
Precool Cold Storage Proprietary Limited (Precool JV), amongst others.
[7] EMIF II Investment does not control any firms in South Africa. EMIF II Investment
[7] EMIF II Investment does not control any firms in South Africa. EMIF II Investment
and all firms controlling it are collectively referred to as the Acquiring Group.
Primary target firm
[8] The primary target firm is Vector Logistics Proprietary Limited (“Vector
Logistics”).
[9] Vector Logistics is currently wholly owned by RCL Foods Limited (“RCL Foods”),
which is in turn controlled by Remgro Limited (“Remgro”), a public company
listed on the stock exchange operated by the JSE Limited.
[10] In South Africa, Vector Logistics only controls Empty Trips Proprietary Limited
(“Empty Trips”).
Proposed transaction and rationale
Transaction
[11] The proposed transaction entails a subscription for 100% of the share capital of
Vector Logistics by EMIF II Investment, a 100% indirectly owned subsidiary of
EMIF II. As a result, EMIF II will indirectly acquire sole control of Vector Logistics.
Rationale
[12] The Acquiring Group submits that APMC manages EMIF II, a Danish limited
partnership which invests in Africa, South and South-East Asia in transport and
energy infrastructure. Within that, one of the strategies of EMIF II is to focus on
investments which enhance food security and reduce food waste. This
investment in Vector Logistics would fit well within the geographic focus and
sector focus, and also within the strategy.
[13] From the perspective of the Target Firm, it was originally acquired by Rainbow
Chicken Limited (now RCL Foods Limited) ( “Rainbow Chicken ”) in 2004 to
control, optimise and operate Rainbow Chicken’s outbound supply chain
function. Since then, Vector Logistics has grown significantly by expanding the
range of services provided and taking on a number of external customers
(retailers, food prod ucers and quick service restaurants). Vector Logistics has
further demonstrated its ability to grow acquisitively as in the case of the 2019
acquisition and subsequent integration of the Imperial Cold Chain Logistics
business, and acquisitions of stakes in entities in Botswana and Zambia. In
addition, several transformative initiatives have been implemented over time,
most recently, the acquisition of Empty Trips, a smart online digital freight
matching platform. The proposed transaction therefore seeks to secure an
matching platform. The proposed transaction therefore seeks to secure an
appropriate long -term shareholder of reference who can facilitate the
achievement of Vector Logistics’ key strategic objectives going forward whilst
simultaneously maintaining the critical role that Vector Logistics plays with
respect to food security in the various markets serviced.
Relationship between the parties
[14] The Competition Commission (“the Commission”) considered the activities of
the merging parties and found that both the Acquiring Group (through APMM)
and Vector Logistics are involved in the market for the provision of broad cold
chain logistics services.
[15] Despite the above, the Commission submitted that the proposed transaction
does not result in a horizontal overlap given that the merging parties do not
provide any services in competition with each other.
[16] In light of the above, we note that there is no horizontal overlap in the activities
of the merging parties.
Horizontal issues
[17] APMM is active in providing cold chain logistics services for chilled food products
(predominantly chilled export fruits and vegetables) while Vector Logistics , on
the contrary, provides integrated cold chain logistics to domestic customers.
[18] The Commission submitted that APMM focuses on serving customers who
require their goods to be chilled whil e Vector Logistics provides services
primarily to customers who provide their goods already frozen and require that
they remain frozen throughout the cold chain.
[19] Since the merger does not raise any competition concerns, we did not consider
it necessary to conclude on the precise scope of the relevant markets.
Public interest assessment
Effect on employment
[20] The merging parties submitted that the proposed transaction will not have any
detrimental or negative effects on employment. In this regard, it is submitted that
Vector Logistics will continue to operate as a standalone business post -
transaction. Further, EMIF II Investment undert ook that it will not affect any
merger-specific retrenchment of employees in South Africa at the Target Firm
for a one year period from the date of implementation of the notified transaction.
EMIF II Investment confirmed that it is willing for this undertaking to be made as
a condition to the approval of the transaction notified.
[21] EMIF II Investment does not have any employees in South Africa. The unionised
employees of Vector Logistics (including Empty Trips) are represented by the
National Union of Food Beverages Wine Spirits & Allied Workers
(“NUFBWSAW”) and the Transport Retail and General Workers Union
(“THORN”), while the employees not affiliated to any trade union are
represented by employee representatives. The Commission engaged with the
respective trade unions and employee representatives.
[22] The Vector Logistics employee representatives and NUFBWSAW and THORN
confirmed that they have been notified of the proposed transaction.
NUFBWSAW filed a notice of intention to participate raising various concerns,
including employment. NUFBWSAW submitted that the Commission should
impose a condition which restricts the merging parties from effecting any
voluntary or involuntary retrenchments within the next 10 years.
[23] The Commission also received a notice of intention to participate from the
Department of Trade, Industry and Competition (the “DTIC”) based on public
interest considerations. The DTIC acknowledge d the merging parties’
commitment to not affect any merger specific retrenchments in South Africa for
a period of one year, post implementation of the merger. However, the DTIC
submitted that the proposed transaction be approved subject to a 36 months
moratorium on retrenchments condition instead of the 12 months moratorium
proposed by the merging parties.
[24] The merging parties agreed to a 2 (two) year moratorium. The DTIC did not
make any further submissions relating to employment.
[25] Considering the above, the Commission concluded that the proposed
transaction is unlikely to have a negative effect on employment.
Effect on the spread of ownership
[26] The primary target firm, EMIF II Investment is indirectly wholly owned by EMIF
II, a Danish limited partnership, acting by its manager, APMC. There are no HDP
shareholders in EMIF II Investment.
shareholders in EMIF II Investment.
[27] Vector Logistics is currently wholly owned by RCL Foods and does not have any
direct HDP shareholding. As a JSE listed entity, RCL Foods’ shares are held by
various shareholders, including HDP shareholders. Similarly, Remgro
(controlling entity of RCL Foods) is a JSE listed entity which has various
shareholders, including HDP. The merging parties submit that it would be
impossible to accurately indicate how many HDP or BEE shareholders RCL
Foods and Remgro has with a view to determine how the proposed transaction
affects HDP ownership. RCL Foods has 20.89% HDP ownership, while Remgro
has 21.94% HDP ownership.
[28] The DTIC raised concerns with the proposed transaction in relation to the impact
of the proposed transaction on the promotion of a greater spread of ownership.
In particular, the DTIC is of the view that the merger filing is lacking in respect of
analysis of the substantial negative impact of the proposed transaction on
ownership by HDPs and broad -based black economic empowerment (“B -
BBEE”) in Vector Logistics, more generally. In this regard, the DTIC submitted
that the merging parties should promote HDP ownership p articipation in the
merged entity of at least 25% and with the inclusion/addition of workers through
an appropriate employees share ownership programme (“ESOP”) within three
(3) years.
[29] With regards to the impact of the proposed transaction on the promotion of a
greater spread of ownership by HDPs and workers, the merging parties submit
that the proposed transaction will generate indirect value for shareholders in
RCL Foods, as the consideration paid can be redeployed and better utilised by
RCL Foods in the best i nterests of its shareholders, including shareholders.
Further, the proposed transaction already provides significant public interest
benefits, including foreign capital flow to south Africa and future investments in
a strategic industry.
[30] Notwithstanding the above, the merging parties committed to establish an ESOP
for an effective % interest in Vector Logistics within two (2) years of the
implementation date of the proposed transaction, that will give all South African
employees of Vector Logistics and its subsidiaries an opportunity to benefit. The
DTIC did not make any further submissions relating to the promotion of a greater
spread of ownership.
[31] The Commission also received concerns from NUFBWSAW relating to previous
ESOPs implemented by RCL Foods/Vector Logistics ("the B-BBEE Schemes").
ESOPs implemented by RCL Foods/Vector Logistics ("the B-BBEE Schemes").
According to NUFBWSAW, Vector Logistics and its sister companies RCL
Foods and Remgro has had two ESOPs which NUFBWSAW claimed, have
“vanished without any trace”. Accordingly, the union requested an explanation
as to what happened to the ESOPs as it claimed that “employees are concerned
that their benefits from these two ESOPs had not been distributed.”
[32] During the Commission’s investigation, the merging parties submitted that there
has been extensive engagement with participating Vector Logistics employees
(including the relevant trade unions) regarding the status of the B -BBEE
Schemes. Vector Logistics employees have also been provided with all the
relevant information which according to the merger parties explained that any
benefit flowing to participating employees depended on the performance of the
RCL Foods share price. The merging parties detailed through various forms of
communication that the RCL Foods share price did not perform in line with
original expectations and as a result, the BEE Schemes were unable to deliver
any value to the participants . RCL Foods had hoped for the B -BBEE Schemes
to succeed, however, prevailing market conditions were such that the
performance of the B-BBEE Schemes was out of RCL Foods’ control.
Capex commitments
[33] In addition, the DTIC further submitted that the merger parties’ rationale for the
proposed transaction is at odds with key financial and other data referenced in
the merger filing documents (i.e., i) the projected capital expenditure (capex) to
net revenue ratio will decline by 50% between 2022 to 2026, and ii) the acquiring
group will seek to optimise operational efficiencies of the business to improve
profitability, with a view to exit the investment over the medium term. In this
regard, the DTIC submitted that the merging parties should commit to a R
capex spend in addition to projected replacement capex over five years.
[34] In this regard, the merging parties have committed that Vector Logistics shall,
over a period of five (5) years from the implementation date, to invest at least
R in additional capital expenditure to the projected replacement
capital expenditure by Vector Logistics as at the approval date. At least R
of the committed investment will be directed to firms owned or
controlled by HDPs, provided that the relevant goods and services are available
and of sufficient quality, and that it is commercially viable to do so, and that the
goods and services can be sourced on competitive terms.
[35] Given the above, the merger parties and the Commission submitted a set of
conditions to address the concerns.
Conclusion
[36] For the above reasons, we approve the transaction with conditions agreed to by
the merging parties.
13 July 2023
Prof Liberty Mncube Date
Ms Andiswa Ndoni and Ms Shaista Goga concurring
Tribunal Case Manager: Theodora Michaletos
For the Acquiring Group:
For the Target Firm:
Xolani Nyali, Sivuyise Lutshiti and Kayla Abrahams of
Bowmans Attorneys
Robert Wilson, Dudu Mogapi and Monde Mbali of
Webber Wentzel
For the Commission: Reabetswe Molotsi and Grashum Mutizwa