On 9 October 2012, the Competition Appeal Court held that global retail giant Wal-Mart must establish a R200 million South African supplier development fund in order to acquire local retailer Massmart.
In a long awaited decision, the Appeal Court ruled that the fund was necessary to ameliorate the effect of the merger in South Africa and increased the amount determined by the Competition Tribunal by R100 million. Massmart must pay a maximum of R200 million, to be spent over five years, into a fund which must be established within four months of the date of the order. The fund’s purpose will be to devise funding projects which minimize the risk posed by the merger to South African suppliers and protect existing and potential micro, small and medium producers of South African products who are - or may be - caused harm by Wal-mart’s entry into South Africa. It should also enable them to take advantage of Wal-mart’s global value chain, and incentivise Massmart to purchase products from South African producers over and above products that it would in any event purchase.
Massmart must administer this fund, but it will be advised on the means and mechanisms to fulfil its objects by an advisory board composed of representatives of the merged firm as well as the Ministers, SACCAWU and the South African Small and Medium Enterprise Forum. Massmart and the advisory board must report annually to the Competition Commission, which has a significant oversight role to ensure that the fund fulfils its objectives. External auditors must prepare financial statements for the fund, which are also to be submitted to the Commission.
The decision highlights that in exercising their powers to assess the effect of a merger on the public interest in terms of section 12(3) of the Competition Act, the South African competition authorities will investigate the broader effects of merger transactions on the South African supply chain, and where appropriate, impose conditions which are intended to preserve employment in South Africa. However, the Appeal Court’s decision emphasises that conditions need to be merger-specific and carefully crafted. The Competition Act cannot be employed as a surrogate for a coherent industrial policy which deals with the many challenges posed to the South African economy by globalisation - these need to be addressed by a comprehensive policy designed by the State.
Local and foreign investors need to give careful consideration to whether their transactions raise any potential public interest issues in South Africa at an early stage of planning their transactions. If so, the merging parties need to fully address these issues in their merger filings and where appropriate offer suitable conditions, particularly in circumstances where a swift clearance is required.
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