30 June 2010 by

Failure to consult with employees results in merger conditions

The Tribunal recently issued its reasons for approving, with conditions, the merger between Wispeco and Sheerline. Sheerline is a distributor of aluminium products and is also involved in the design and development of such products. Wispeco, likewise, is involved in the production and distribution of aluminium products. The merger created overlaps at various levels of the aluminium supply chain. Following a detailed analysis of possible horizontal, co-ordinated and vertical effects, the Tribunal found (partly on the basis that Sheerline was a declining competitive force) insufficient evidence that the merger would substantially prevent or lessen competition. 

However, South Africa's merger notification regime requires the authorities to consider not only competition, but also the public interest, when assessing a merger. Although the Commission agreed with the merging parties that the contemplated job losses at Sheerline were not merger specific, an intervening trade union disputed the adequacy of the consultation process. The Tribunal has, on previous occasions, held that proper consultation is an essential part of the public interest consideration, particularly where job losses are contemplated post merger. By failing to engage in further consultation with the union, the Tribunal held that the merging parties had failed to meet their obligations. As a result and in lieu of postponing the matter to allow for consultations, the Tribunal required the merged entity not to make any merger-related retrenchments for a period of one year. In addition, any retrenchments for operational reasons must be notified to the Commission along with an explanation.

The Tribunal appears to be increasingly sympathetic to employees and unions that intervene in merger proceedings. It is clear that where job losses are envisaged post-merger, this will have to be sensitively managed by merging parties to avoid complications before the Tribunal.

Chris Charter, Director, Competition
Scarlate Nkiwane, Associate, Competition
 

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