Summary of Judgment

Introduction

These proceedings concerned a large merger considered by the Competition Tribunal of South Africa under the Competition Act. The matter arose from a proposed acquisition in terms of which SPAP V Bidco Proprietary Limited (SPAP) intended to acquire 100% of the issued share capital in The Building Company Proprietary Limited (TBCo) from Pepkor Holdings Limited (Pepkor).

The Tribunal heard and decided the merger on 23 August 2024, issuing an order that conditionally approved the transaction on the same date. The Tribunal’s reasons for decision were subsequently issued on 20 September 2024. The Competition Commission had investigated the transaction and placed its competition and public interest assessment before the Tribunal for determination.

The general subject-matter of the dispute was whether the proposed transaction would be likely to substantially prevent or lessen competition in any relevant market, and whether it raised any public interest concerns (in particular, effects on employment and the spread of ownership by historically disadvantaged persons) requiring conditions to remedy or mitigate identified harm.

Material Facts

SPAP was the primary acquiring firm. The Tribunal accepted that SPAP was a special-purpose vehicle incorporated for purposes of the transaction and had no existing or prior commercial activities. SPAP was ultimately controlled by the Capitalworks Group, through specified private equity entities referred to collectively as CWPE III. The Capitalworks Group’s portfolio activities (through controlled companies) were described as spanning several sectors, including alcohol production and distribution, financial services, prepaid electricity token generation, vending and bill payment services, plastic compounding manufacturing and supply, and the manufacture and supply of engineering polymers.

TBCo was the primary target firm and was controlled by Pepkor, a JSE-listed public company. TBCo controlled several firms referred to as the Target Group, described as Pepkor’s building material division. The Target Group operated in the retail and wholesale of building supplies, hardware and related products, with operations expanding to 143 outlets throughout Southern Africa servicing the retail building and construction industry through various divisions.

The transaction entailed SPAP acquiring 100% of the entire issued share capital of TBCo. The Tribunal recorded that, post-merger, an Employee Share Ownership Programme (ESOP) would be in place holding 5% of the issued shares in TBCo, and a management team (drawn from the Target Group’s current management) would subscribe for 45% of the entire issued shares in TBCo.

On the competition facts, the Tribunal relied on the Commission’s assessment that there were no horizontal overlaps between the merger parties because the Capitalworks Group was not involved in the market for the retail and wholesale of building supplies, hardware and related products. The Tribunal also accepted that there were no vertical overlaps arising from the transaction.

On public interest facts, the Tribunal relied on the merging parties’ submission that the transaction would not result in retrenchments and would therefore have no adverse effect on employment. It was also material that employee representatives raised no concerns.

A key public interest fact accepted by the Tribunal was that the Capitalworks Group did not have ownership by historically disadvantaged persons (HDPs), whereas the Target Group had a portion (expressed in the reasons as a percentage that was not disclosed in the published text) of its shareholding held by HDPs. The Tribunal accepted the Commission’s view that the transaction would result in a dilution of HDP shareholding (again expressed with redacted percentages in the published reasons). To address this, the Tribunal relied on commitments described as requiring the establishment of an ESOP within 24 months from implementation, with the ESOP holding 5% of the issued shares in TBCo, and an additional commitment involving the sale of at least a specified (redacted) percentage of the issued share capital of one of the Target Group’s subsidiaries to an entity described in the reasons in incomplete/redacted terms (referred to as the “Disposal Commitment”).

The Tribunal recorded that no third parties, whether customers or competitors, expressed concerns about the transaction.

Legal Issues

The central legal questions before the Tribunal were whether the proposed large merger was likely to substantially prevent or lessen competition in any relevant market in South Africa, and, if not, whether it nonetheless raised public interest concerns that required the imposition of conditions for approval.

The dispute primarily concerned the application of law to fact. This included applying the statutory merger assessment framework to the Commission’s market findings regarding overlaps, and applying the public interest framework to the transaction’s likely effects on employment and the spread of ownership (particularly HDP ownership). To the extent that the Tribunal had to determine whether the proposed commitments sufficiently mitigated the identified dilution in HDP shareholding, the determination involved an evaluative judgment within the statutory public interest framework.

Court’s Reasoning

On the competition assessment, the Tribunal adopted the Commission’s approach of examining whether the merger created or enhanced market power through horizontal overlaps (where the merging parties compete in the same market) or vertical overlaps (where the parties operate at different levels of a supply chain in related markets). The Tribunal accepted the Commission’s factual finding that the acquiring group was not active in the Target Group’s relevant market, with the consequence that the transaction raised no horizontal overlaps. It further accepted that the transaction raised no vertical overlaps.

Based on the absence of both horizontal and vertical overlaps, the Tribunal concluded that the transaction was unlikely to substantially lessen or prevent competition in any market in South Africa. The Tribunal’s reasoning proceeded directly from the accepted market structure facts to the conclusion on competitive effects, without identifying any further competition theories of harm requiring adjudication.

On public interest, the Tribunal considered the statutory factors and focused on those raised by the evidence and submissions. In relation to employment, it accepted the merging parties’ submission that there would be no retrenchments, noted the absence of concerns from employee representatives, and concluded that there were no employment concerns arising from the transaction.

In relation to the spread of ownership, the Tribunal accepted that the transaction would dilute HDP shareholding because the acquiring group had no HDP ownership, whereas the Target Group had an element of HDP shareholding (quantified in the record but not reflected in the publicly available reasons). The Tribunal accepted the Commission’s view that this dilution amounted to a public interest harm that required mitigation. The Tribunal then evaluated the proposed remedies, namely the commitment to establish an ESOP within a defined period holding 5% of the issued shares in TBCo, together with an additional Disposal Commitment involving the sale of a minimum (redacted) portion of issued share capital of a Target Group subsidiary. It accepted the Commission’s view that these commitments sufficiently addressed the harm arising from the dilution in the spread of ownership.

Regarding other public interest considerations, the Tribunal recorded that it had received no evidence or submissions indicating adverse effects on the other factors listed in the public interest provisions, and it expressed satisfaction that the merger would not negatively affect those factors.

The Tribunal also relied on the absence of third-party concerns as contextual support for its conclusion that the merger did not raise additional competition or public interest issues requiring intervention beyond the condition imposed.

Outcome and Relief

The Tribunal approved the large merger conditionally. The conditional approval was based on the imposition of a condition contained in Annexure A to the Tribunal’s order dated 23 August 2024, which the Tribunal described as addressing the public interest concern identified in relation to the spread of ownership.

The published reasons did not set out a separate costs determination, and no costs order was recorded in the reasons.

Cases Cited

No cases were cited in the published reasons for decision.

Legislation Cited

Competition Act 89 of 1998, with specific reference to section 12A(3).

Rules of Court Cited

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

Held

The Tribunal held that the proposed transaction was unlikely to substantially prevent or lessen competition in any market in South Africa because it gave rise to no horizontal overlaps and no vertical overlaps on the facts presented.

The Tribunal further held that, while the merger raised a public interest concern relating to the dilution of HDP shareholding (given the acquiring group’s lack of HDP ownership and the target’s existing HDP shareholding), that concern was sufficiently addressed through the parties’ commitments, including the establishment of an ESOP (holding 5% of TBCo’s issued shares within 24 months) and an additional disposal commitment as recorded in the reasons, with certain quantitative details redacted in the publicly available text.

LEGAL PRINCIPLES

The Tribunal applied the principle that merger control requires an assessment of whether a transaction is likely to substantially prevent or lessen competition, which is commonly informed by whether the merger creates horizontal overlaps or vertical overlaps capable of generating anticompetitive effects in relevant markets.

The Tribunal also applied the principle that, even where no substantial lessening of competition is found, a merger must be assessed against public interest considerations recognised in the Competition Act, including effects on employment and the spread of ownership, and that conditions may be imposed to mitigate identified public interest harm.

Finally, the Tribunal applied the principle that where the evidence and submissions disclose no material adverse effect on the remaining public interest factors, and no third-party concerns are raised, approval may be granted subject to conditions addressing the specific public interest issue identified on the record.