Impactful public interest conditions are now a dominant feature in getting deals approved by the South African Department of Trade Industry and Competition (DTIC), and the independent competition authorities.
Whenever required to consider a merger, the competition authorities must be satisfied that the transaction passes both a competition and public interest test. These assessments are co-equal and independent. Based on recent amendments to the legislation, the Minister of the DTIC has a right to make representations on any public interest ground and may participate as a party to merger proceedings.
In this matter, the transaction did not raise any competition concerns.On the issue of public interest, whilst the merger parties had undertaken not to engage in any merger-related retrenchments, the Competition Commission (Commission) and DTIC sought further assurances in this regard, ostensibly based on the fear that DP could engage in cost-cutting measures post-merger which may impact jobs. There was apparently also a concern that there would be a minimal dilution of shareholding by black employees as a direct result of this merger. To address these concerns, the merger parties committed to:
(1) Enterprise and Supplier Development and Corporate Social Responsibility:
Increasing its enterprise and supplier development expenditure in South Africa; its spend on corporate social responsibility initiatives and on training and development of black persons; and its procurement expenditure targets in various categories as defined in the relevant codes of good practice published in terms of the Broad-Based Black Economic Empowerment Act No 53 of 2003, as amended.
Within two years of implementing the transaction, establishing an ESOP for an effective 5% interest in Imperial Logistics South Africa Group (Pty) Ltd (ILSA), a subsidiary of Imperial, through an employee trust, for the benefit of Imperial employees (excluding top or senior management). The value of the 5% is to be determined by an independent and suitably qualified valuer, appointed by the merged entity, which appointment must be approved by the Commission.
The following essentialia were agreed to: Imperial employees will not be required to pay to participate in the ESOP; the ESOP shareholding should not substitute the existing HDP shareholding in ILSA; and prior to the establishment of the ESOP, the merged entity will consult with the Commission on the finer details of the proposed ESOP (it will also not implement the final ESOP prior to the Commission’s written approval).
For three years from the approval date, and subject only to disposals made in the normal course, Imperial will maintain at least the same number of employees in South Africa as at the approval date. In addition, there will be no merger related retrenchments for a period of 3 years from the implementation date of the merger.
(4) Capital Expenditure:
Over a four-year period, incurring no less than R2.1 billion of capital expenditure in Imperial’s South African operations.
Based on its recent efforts, the DTIC and competition authorities appear to be fashioning a unique merger control model, with an enhanced focus on protecting against any diminution (and in some instances purely achieving an enhancement) of public interest.
Only time will tell whether merger decisions will remain sources of impactful remedies to guard against merger-specific public interest harm. An agenda pushed too hard may lead to foreign investors recoiling at, what may start to appear to be, unwarranted rent-seeking.
What is clear is that careful up-front consideration of the public interest in deal structuring is no longer negotiable.