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Massmart/Walmart still in limbo

Johannesburg - The merger conditions for Massmart Holdings [JSE:MSM] and international retail giant Walmart International (Walmart) could cost the retail groups more than they currently anticipate. Moreover, they have to wait a couple of months for final approval of the conditions of the transaction.

On Friday the Competition Appeal Court in Cape Town buttered its bread on both sides in deciding on the dispute between the retail groups, the trade union Saccawu and various government departments.

In mid-2011 the Competition Tribunal gave the green light for Walmart to acquire a 51% controlling stake in Massmart, subject to various conditions. Massmart is the second-largest retailer in Africa and well known for shops like Game, Dion Wired, Makro, Builders Warehouse and Masscash.

This decision however elicited angry opposition from the departments of economic development, trade & industry and agriculture, forestry & fisheries, as well as from trade union Saccawu. In their application for leave to appeal the departments demanded, inter alia, that the R16.5bn transaction be reviewed and set aside.

The court however rejected their application and ruled that the appellants had submitted inadequate proof that the disadvantages of the merger outweighed its advantages.

The request that Massmart’s importation of products be restricted was rejected. In fact, Judge Dennis Davis said, inter alia, that the available information showed that consumers would benefit from lower prices.

Saccawu’s demands were noted – such as for the reappointment of 503 workers who had been laid off at the time of the companies' negotiations, concern about the effect of the merger on small enterprises, and job creation.

The court ruled that greater clarity was required regarding the R100m supply development programme – which is one of the conditions of the deal – before a relevant decision could be given.

Davis said that there was insufficient information about how it would operate and whether it would comply with legal requirements for the protection of public interest.

Massmart, Saccawu and the government departments now each have to appoint a representative within the next month to put together a report on how the programme can be optimally implemented.

This report has to be completed within two months, after which the Appeal Court will decide whether the requirements are adequate. Massmart and Walmart will have to bear the costs of the investigation. This also means a possible increase in the size of the fund.

Economic development Minister Ebrahim Patel, after the verdicts had been delivered, told the media that the report would determine the size of the fund. According to Webber Wentzel partner Janine Simpson, who represents Walmart, it is possible that the court could order that the amount be increased.

Massmart chief executive Grant Pattison said the retail group was positive about cooperation with the different parties to develop local suppliers.

The American Chamber of Commerce in South Africa (AmCham SA) welcomed the decision that the deal should not be set aside.

AmCham SA president Donna Oosthuyse said that the chamber believed that the decision allows Walmart to go ahead with its investment and expansion in Africa, sending a positive message to existing and foreign investors that South Africa is in favour of trade, investment and tourism.

John Oxenham, a director at legal firm Nortens, however cautions that it could have unwelcome consequences if it should appear that the Appeal Court is trying to placate everyone.

This places the emphasis on considerations that are in the public interest, he said. Consequently companies considering a merger will in future have to ensure that they give this matter proper attention from the outset and thus prevent interference by government departments or derailment of the timeframe by unions.

Simpson reckons the court was fairly critical about the tribunal because it had not adequately used its investigative powers. This could mean that in future the tribunal needs to adopt a much more investigative role towards mergers..

 - Sake24

For more business news in Afrikaans, go to Sake24.com.

 
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