Joint media statement by the Ministers of Agriculture, Forestry and Fisheries, Economic Development, and Trade and Industry on the Competition Appeal Court's decision in the Walmart/Massmart merger case

9 Mar 2012

The Competition Appeal Court handed down a unanimous judgment on the Walmart / Massmart merger today in relation to the review and appeal applications brought by the Ministers and the trade unions.

The Appeal Court imposed the following condition, rather than remitting the merger back to the Competition Tribunal:

• the merging parties must commission a study on how local suppliers can respond to the effect of the merger. This is to be conducted by three experts, appointed by the Ministers, the trade unions and merging parties. The experts must be appointed within one month and must file a report within two months thereafter.
• the merged entity is required to reinstate 503 employees (the Competition Tribunal simply accepted the undertaking by the merging parties to give  them preferential employment opportunities)

The Appeal Court upheld two further conditions which were imposed by the Competition Tribunal:

• no retrenchments based on operational requirements for two years from the effective date of transaction
• the merged entity must honour existing labour agreements and not challenge SACCAWU's position for three years

Views on judgment

The legal team of government is currently studying what is a detailed and lengthy judgment.

The Ministers have examined the judgment and offer preliminary views thereon.

The Ministers welcome the recognition by the court of the importance of public interest considerations in assessing any merger, in particular those relating to small business and employment in supply-chains. This has been at the heart of government's case during all the legal proceedings in this matter.

The judgment handed down today by the Competition Appeal Court provides an innovative mechanism to address those concerns, with provision that the matter returns to the Competition Appeal Court within three months of today's judgment.

In the judgment, the court found that there were valid concerns regarding the impact of the merger.

In paragraph 158, the Court held: "...the introduction of the largest retailer in the world to the South African economy may pose significant challenges for the participation of South African producers in global value chains which, as the evidence indicates within the retailing sector, is dominated by Wal-Mart. Failure to engage meaningfully with the implications of this challenge posed by globalisation can well have detrimental economic and social effects for the South African economy in general and small and medium sized business in particular."

The Ministers agree with this observation.

The court found that the legislation applies a clear public interest consideration that the competition authorities must apply, and that this public interest test has not yet been met.

In paragraph 162 and 163 it says:

"Given Wal-Mart's size and expertise ... the proposal for a condition which would seek to enhance the participation of South African small and medium size producers in particular, in global value chains which are dominated by Wal-Mart so as to prevent job losses, at the least, and, at best, to increase both employment and economic activity of these businesses protected under s 12 A must form part of the considerations which this Court is required to be taken into account in considering a merger of this nature....This flows from the model for competition law chosen by the legislature and in particular as set out in s 12 A. It also forms part of the mandate given to the Tribunal and, on appeal, to this Court, when faced with the inquiry as to whether a merger should be approved."

The court found that the conditions that were imposed by the Competition Tribunal had not been sufficiently interrogated in the process to date.

Accordingly, the court directed that a study be conducted by experts nominated by government, Walmart and the trade unions, which must, in terms of paragraph 2.1.4 of the order:

"... determine the most appropriate means together with the mechanism by which local South African suppliers may be empowered to respond to the challenges posed by the merger and thus benefit thereby. The study shall be conducted by three experts, one to be appointed by SACCAWU, another by the merging parties and a third by the three government Ministers. These experts must be appointed within one month of the delivery of this judgment. The study must be completed within three months of the delivery of this judgment. The report shall then be made available to the merging and intervening parties who shall have a further month after submission therefore, to submit any affidavit evidence which they wish to place before this Court, of which account must be taken in the formulation of the condition as to the programme to be established for the development of local South African suppliers. In particular, the study shall canvass the best means by which South African small and medium sized suppliers can participate in Wal-Mart's global value chain training programmes that might be established to train local South African suppliers on how to conduct business with the merged entity and Wal-Mart and the costs which would reasonably be incurred in so far as the development of such a programmes is concerned. The costs of this study shall be paid for by the merging parties."

The Court has not ruled out the possibility of a referral of the matter back to the Competition Tribunal as part of the process of finalising appropriate conditions.  In particular, it concluded at paragraph 168 that "a variation of the proposal put up by the merging parties is justified."

The Ministers believe that their involvement in this merger has been crucial in raising public interest issues arising from this merger and having them considered by the competition authorities. The Ministers have achieved their objective in this phase of the proceedings and look forward to the next phase concluding the terms and conditions applicable to the merger, so that the matter may be brought to a close.

Government will now finalise the name of an expert who can be nominated and look forward to the crafting of appropriate conditions that meet the test of preventing deindustrialisation and job losses caused by the merger.

Basis for application to Competition Appeal Court 

South Africa's Competition Act expressly requires the competition authorities to consider not only whether a proposed merger will lead to a substantial prevention or lessening of competition in South Africa, but also the impact of the transaction on the "public interest". The Act is also substantially concerned with creating opportunities for employment, broadening the basis of ownership and advancing the prospects of small medium and micro enterprises (SMMEs).

The Competition Act expressly permits the Minister to participate properly in large transactions such as this one. Hence the active participation of government in the appeal process.

In its participation in the appeal by SACCAWU to the Competition Appeal Court, the Ministers of Economic Development, Trade & Industry and Agriculture, Forestry and Fisheries argued that the Competition Tribunal failed to take into account the enormity of the likely impact of the proposed merger on the South African economy, which would result in the closure of many SMMEs and firms owned by historically disadvantaged individuals and erode the country's manufacturing base if adequate conditions were not put in place. 

Experts have determined that a 10% shift to imports by Walmart/Massmart could result in up to 40 000 manufacturing jobs being lost in South Africa. The Ministers believed that the conditions imposed by the Competition Tribunal were insufficient to address these concerns. In particular, the R100 million supplier development fund tendered by Walmart and which was accepted by Tribunal was not proportionate to the likely impact of a substantial shift to imports by the merged entity.

The Ministers' participation in the appeal to the Competition Appeal Court was also based on the fact that the Tribunal, in its findings, limited the extent of its powers in terms of the Competition Act. The Tribunal viewed its role in determining public interest concerns in mergers very narrowly, stating that its position in merger control is "not to make the world a better place, only to prevent it becoming worse."  The Tribunal simply accepted the conditions offered by the merging parties.

As part of the application to review the Competition Tribunal's decision, the Ministers requested the Competition Appeal Court to remit the matter back to the Competition Tribunal and to allow a proper ventilation of all public interest issues arising out of this merger. The Ministers' review application revealed serious flaws in the Competition Tribunal's process, including the inadequacy of the Tribunal's order relating to the discovery of documents by the merging parties ahead of the hearing and the time allowed for witnesses to make oral submissions.

Next steps

The departments need to study the judgment in greater detail and consult their legal representatives.  In particular, the Ministers will give careful consideration to the nature of the mechanism required to empower local South African suppliers to respond to the challenges posed by the merger. 

The Ministers look forward to working with the merging parties in this process going forward.

Statement issued by the Ministers of Agriculture, Forestry and Fisheries, Economic Development; Trade and Industry

Statement issued by Department of Agriculture, Forestry and Fisheries, Economic Development Department, GCIS and Department of Trade and Industry (the dti), March 9 2012

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