24 October 2012 by

Competition Commission approves South African leg of global merger – subject to South African job preservation conditions

The Competition Commission has recommended to  the Competition Tribunal that it approve the South African leg of the multi-jurisdictional global merger between Glencore and Xstrata, subject to a condition relating to job-preservation. Given that the merger would have been notified in other jurisdictions (including Europe and China) the Commission limited its investigation to the impact in the local South African market and presumably left it to other jurisdictions to consider any global impact. 

This is according to Chris Charter, Director in the Competition practice at Cliffe Dekker Hofmeyr. He says, “It likely that the Commission would be reluctant to impose conditions in South Africa that were not on all fours with those imposed elsewhere, unless there was a very clear domestic risk.”  Although the merger gave rise to horizontal and vertical overlaps in South Africa (Glencore and Xstrata both mine coal, while Glencore also provides coal trading services for Xstrata), “any risks to competition would only impugn the merger if the Commission determines that they are “substantial”, which is the test set out in the Act”, Charter explains.

“On the domestic front, it seems that customers for thermal coal are relatively few, and possess countervailing power.  The Commission would have spoken to all the customers to ascertain whether there were any concerns that could be linked to the merger (although customers always have concerns, these are not always merger-specific).  It also seems that these customers have outside options beyond the merging parties,” says Charter. 

Charter says that if the merger were not multinational with other jurisdictions also considering the transaction, the Commission may have raised more issues. 

“As it is, the Commission’s investigation was, I believe, quite lengthy and so one can hardly say it has been rubber stamped.. 

“What is interesting to note,” he says, “ is the Commission’s admonishment to the Government to perhaps consider addressing some structural problems in the local coal market (not merger specific) through other mechanisms open to it (such as the Minerals and Petroleum Resources Development Act as well as within the paradigm of the New Growth Plan). 

“This is in keeping with the Commission’s advocacy role and is also the right way around in comparison the Walmart saga – in other words, it is fitting that the competition authorities feed into the State’s other industrial policy measures rather than the State using the competition regime to drive its industrial policy; in that way, the Commission remains independent but involved in broader policy issues.  That said, the fact that the Commission has weighed in on the broader issues is an illustration of how notifying a merger can have consequences beyond the specifics of the merger itself.”

Charter explains that on the public interest issues raised (employment) this is very much in keeping with the Commission’s existing policy to protect workers in the face of merger-specific retrenchments. 

“As has been typical, the Commission seems preoccupied with protecting low-level or unskilled workers, perhaps in the belief that they are more vulnerable and less likely to find employment elsewhere (or have sufficient resources to tide them over to the next job).  What is becoming clear is that any job losses will be treated as a public interest issue warranting conditions,” he says. 

Charter notes that, based on previous cases, “I would expect the Tribunal to follow the recommendation, provided that it is happy with the formulation of the condition regarding employment and assuming it does not believe the Commission’s investigation to be materially defective. 

“From what I gather, the Commission has addressed key theoretical concerns in its recommendation.  However, if there are third parties that wish to intervene (such as customers who raised concerns and feel that the Commission has not addressed them, or trade unions) then the Commission’s recommendation may be challenged and the Tribunal will need to make a call which may deviate from the recommendation,” he adds.

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