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
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