18 May 2016 by Competition Alert

The question of merger related retrenchments remains cause for speculation

Merger control policy in South Africa is becoming increasingly preoccupied with public interest considerations and the possibility of merger-related retrenchments is chief among them.

The Commission’s draft Guideline on Public Interest in Mergers (published 21 December 2015) provides that the Commission should only be concerned about job losses that are merger specific, in other words, that the job loss is causally related to, or results, or arises from the merger.

The Guidelines stipulate that all proposed retrenchments should be disclosed in a merger filing, along with evidence as to why such job losses are not merger specific (ie, would occur even absent the merger). However, whether post-merger job losses are in fact merger specific can give rise to differences in opinion and is increasingly a point of debate between merging parties and the Commission during an investigation. A reality often overlooked is that merging parties may not be in a position to give a comprehensive, empirical account of the potential effect on employment – which the Commission then takes to be in dereliction of filing obligations, and cause to impose strict conditions limiting the right to impose retrenchments.

The Tribunal in Tegeta Exploration and Resources (Pty) Ltd and Optimum Coal Mine (Pty) Ltd and others (LM212Jan16) conditionally approved the merger of coal mining assets where certain of the target firms were in business rescue. A particular concern facing the target firms was the potential impact of renegotiations with Eskom in regard to a supply contract. It was common cause that the fate of the mines, and thus the employees, were intertwined with the outcome of negotiations with Eskom, and also that the outcome was not related to the merger.

Given that the merging parties could not with certainty ascertain the likely number of job losses, the Commission defaulted to a blanket moratorium on merger related retrenchments. The merging parties accepted this proposal on the basis that the merger did not create any significant redundancies requiring retrenchments and that any job losses likely would be due to the Eskom situation and not as a result of the merger. The Commission, however, sought to clarify its condition to apply not only to merger-related redundancies but also to job losses occasioned by a change in business policy.

The obvious difficulty with treating a change in business policy as a merger-related cause for job losses is the speculation as to whether such a change in policy could not be a rational response to economic conditions that could equally be embarked on absent the merger.

In rejecting the Commission’s contention for a broader interpretation of merger specificity, the Tribunal was cautious to point out that such an interpretation makes sense only where there is clear evidence of an imminent change in policy that reasonably leads to an apprehension of retrenchments – absent such circumstances a moratorium on merger related retrenchments should be narrowly couched to refer to redundancies only.

Such a view is commendable, as a more restrictive one would effectively preclude a merged entity from freely developing its business strategy at any time post-merger.

Written by Chris Charter and Bheki Nhlapho

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