Capitau Investments Management Ltd v New Foodcorp Holdings Pty Ltd (112/LM/Dec12) [2013] ZACT 33 (8 May 2013)
- Citation
- [2013] ZACT 33
- Status
- Judgment
- Jurisdiction
- South Africa
- Court
- Competition Tribunal
- Panel
- Norman Manoim, Yasmin Carrim, Merle Holden
- Case number
- 112/LM/Dec12
More details
- Court
- Competition Tribunal
- Panel
- Norman Manoim, Yasmin Carrim, Merle Holden
- Case number
- 112/LM/Dec12
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
The Tribunal found that the proposed merger does not raise significant competition concerns in either vertical or horizontal markets, as alternative competitors remain and the overlaps are minor. However, due to the history of collusion in the relevant markets, the Tribunal determined that a public merger condition is necessary to prevent anti-competitive information exchange between Remgro and Unilever, regardless of the shareholders agreement. The Tribunal held that private arrangements cannot replace public enforcement, and thus elevated the obligations in the shareholders agreement to a formal merger condition. The merger was approved subject to this condition, with no public interest concerns or impact on employment identified.
Court disposition
Merger conditionally approved subject to a formal condition preventing anti-competitive information exchange.
Orders
- The merger between Capitau Investments Management Limited and New Foodcorp Holdings Pty Ltd is approved subject to the condition set out in the Annexure to the reasons for decision.
- The merging parties must adhere to the obligations preventing information exchange for as long as they have a direct or indirect interest in Unilever South Africa, regardless of amendments to the shareholders agreement.
02
Material facts
Parties
Capitau Investments Management Limited
Applicant Counsel: Chris CharterNew Foodcorp Holdings Pty Ltd
RespondentAmounts and remedies
- Combined Market Share in Mayonnaise Market: ZAR 8
- Combined Market Share in Salad Dressing Market: ZAR 2
03
Procedural history
Posture
Merger Application / Decision on Approval
04
Questions and positions
Legal issues
- 01
Whether the proposed merger between Capitau Investments Management Limited and New Foodcorp Holdings Pty Ltd raises competition concerns in relevant markets.
- 02
Whether vertical or horizontal overlaps resulting from the merger would lead to foreclosure or anti-competitive effects.
- 03
Whether the existing shareholders agreement sufficiently prevents information exchange between competitors.
- 04
Whether a public merger condition is required to prevent anti-competitive information exchange.
Party arguments
- Applicant
- The merging parties argued that the transaction would not result in significant competitive concerns as there are alternative competitors in all relevant markets. They contended that vertical overlaps are insignificant and that Remgro's non-controlling interest in Unilever does not create a horizontal overlap of concern. They further submitted that the shareholders agreement contains a clause preventing directors from sitting on competing boards, which is sufficient to prevent information exchange.
- Respondent
- The Commission argued that while the vertical relationships arising from the merger are not significant enough to incentivize foreclosure, the risk of information exchange between competitors remains a concern due to past collusion in the relevant markets. The Commission was satisfied with the clause in the shareholders agreement but indicated that it would have imposed such a condition if it were not present, to ensure public enforcement and prevent anti-competitive information exchange.
05
Court’s reasoning
Legal principles
- 01
Competition Act, 89 of 1998
Merger conditions may be imposed to prevent anti-competitive information exchange between competitors, especially in markets with a history of collusion.
- 02
Remgro Limited vs. Venfin Limited: Case No: 54/LM/Jul09
Private contractual arrangements cannot substitute for public enforcement mechanisms in merger control.
06
Ratio, limits and disposition
Ratio decidendi
The Tribunal found that the proposed merger does not raise significant competition concerns in either vertical or horizontal markets, as alternative competitors remain and the overlaps are minor. However, due to the history of collusion in the relevant markets, the Tribunal determined that a public merger condition is necessary to prevent anti-competitive information exchange between Remgro and Unilever, regardless of the shareholders agreement. The Tribunal held that private arrangements cannot replace public enforcement, and thus elevated the obligations in the shareholders agreement to a formal merger condition. The merger was approved subject to this condition, with no public interest concerns or impact on employment identified.
Obiter and limits
- The Tribunal noted that the Commission's investigation into vertical issues was thorough and agreed with its conclusions regarding the lack of significant incentive or ability to foreclose rivals.
- The Tribunal emphasized that the existence of a private shareholders agreement is insufficient for public enforcement purposes, as amendments or non-enforcement could leave the Commission without remedies.
- The Tribunal observed that the merging parties' undertaking to elevate the shareholders agreement obligations to a merger condition aligns with best practice in merger control.
Court disposition
Merger conditionally approved subject to a formal condition preventing anti-competitive information exchange.
- The merger between Capitau Investments Management Limited and New Foodcorp Holdings Pty Ltd is approved subject to the condition set out in the Annexure to the reasons for decision.
- The merging parties must adhere to the obligations preventing information exchange for as long as they have a direct or indirect interest in Unilever South Africa, regardless of amendments to the shareholders agreement.
Source and reliance status
Competition Tribunal
This page organises the available record for research. Confirm quotations, current status, and subsequent treatment against the official source before relying on the case.
Judgment reading view
Judgment text
The complete available source text.
Competition Tribunal
Judgment
COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 112/LM/Dec12
016113
In the matter between:
Capitau Investments Management Limited ......................................Acquiring Firm
And
New Foodcorp Holdings Pty Ltd .................................................................Target Firm
Panel : Norman Manoim (Presiding Member), Yasmin Carrim (Tribunal Member) and Merle Holden (Tribunal Member)
Heard on : 25 April 2013
Order issued on : 25 April 2013
Reasons issued on : 08 May 2013
Reasons for Decision
Approval
On 25 April 2013, the Competition Tribunal (“Tribunal”) conditionally approved the merger between Capitau Investment Management Limited (“Capitau”) and New Foodcorp Holdings (Pty) Ltd (”Foodcorp Holdings”) in respect of which Capitau and Rainbow Chicken Limited (“Rainbow”) will indirectly acquire 76.1% of the ordinary share capital in
Foodcorp Holdings. The reasons for conditionally approving the proposed transaction follow below.
Parties to the transaction
The primary acquiring firm is Capitau which is controlled by Rainbow, which in turn is controlled by Remgro Limited (“Remgro”).
Remgro also has a non-controlling stake in Unilever South Africa (Proprietary) Limited (“Unilever”).1
Rainbow is the holding company of three principal operating subsidiaries namely: Rainbow Farms (Proprietary) Limited (“Rainbow Farms”), Vector Logistics (Proprietary) Limited (“Vector”) and RCL Group Services (Proprietary) Limited (‘RCL Group Services”). These subsidiaries enable Rainbow to operate as a vertically integrated chicken producer.
The primary target firm Foodcorp Holdings which is the sole controller of Foodcorp (Proprietary) Limited (“Foodcorp”) a group of businesses engaged predominantly in the production, marketing and distribution of food products from basic essentials such as maize meal to top end desserts and convenience meals.
Rationale for the transaction
The transaction will provide an attractive investment opportunity for Remgro to realise its strategy to develop a portfolio in food and reduce its dependence on chicken, a cyclical business which has recently faced significant import competition.
Relevant markets and impact on competition
Vertical issues
The Commission submitted that the proposed transaction would give rise to vertical overlaps in the following markets:
Market for fresh and frozen chicken products,
Market for fishmeal, which is used as an input in the production of animal feed,
Market for bran, which is a by-product of the wheat milling process to produce flour,
Market for defatted maize germ and maize oil are by-products in the milling of maize for human consumption,
And market for the production and distribution of sugar.
After assessing the above-mentioned markets, the Commission came to the conclusion that there would be no competitive concerns as there were alternative firms that would continue to compete with the merged entity post merger in the various markets. In addition to this, in most of these markets the purchases between the merging parties were so insignificant that any likelihood of customer foreclosure was unlikely.2
The Commission’s investigation into the vertical issues was very thorough and we agree with its conclusions that the vertical relationships that arise are not significant enough to give rise to an incentive or an ability to foreclose rivals in either upstream or downstream markets.
Horizontal issues
There are no overlaps between the activities of Rainbow and those of Foodcorp. However, Remgro, Rainbow’s parent and which is the ultimate acquiring firm, owns shares in another food producer, Unilever, which entitles it to board representation on the Unilever board. Unilever produces salad dressing and mayonnaise as does Foodcorp. The merging parties point out that Remgro does not have a controlling interest in Unilever and that the combined market shares for the firms for these two products are insignificant.3
Further the merging parties point out that in terms of concerns over information exchange, a clause exists in the present shareholders agreement between Unilever and Remgro, which prevents Remgro from appointing a director to sit on the Unilever board, who sits on a competitor board.
The Commission was satisfied that this clause was sufficient to regulate any possible information exchange between the firms. At the hearing we asked the Commission whether it would have imposed such a condition if it was not contained in the shareholders agreement. The Commission said it would.
Condition Imposed to Transaction
Due to the high rate of past collusion in the markets where the merging parties are active a condition to prevent information exchange is appropriate. In this respect we agree with the approach taken by the Commission that information exchange is a potential harm occasioned by the merger. Notwithstanding the apparent present low market shares of the merging parties this concern still justifies the imposition of a condition.
Where we depart from the approach of the Commission is its satisfaction that the existence of the parties’ private arrangement to prevent information exchanges contained in the shareholders agreement suffices to replace the need for a condition. We cannot rely on the provision in the shareholders agreement to usurp what should be the proper function of public enforcement because if the parties do not enforce the agreement or amend it, there is no remedy available to the Commission to enforce its adherence. Hence the undertaking has been made a condition for the approval of the merger.
The merging parties undertook to furnish a condition to this effect which is similar to one imposed on Remgro in another merger.4 We are satisfied that the terms of the condition are sufficient to prevent information exchange between the two competing boards.5
In terms of the condition the merging parties elevate the obligations contained in the shareholders agreement to a merger condition and to adhere to that for so long as they have an indirect or direct interest in Unilever SA and regardless of any amendments to the shareholders’ agreement or the status of that agreement from time to time.6
There were no public interest concerns, and the proposed transaction had no effect on employment.7
CONCLUSION
We approve the proposed merger with the condition set out in the Annexure to these reasons.
____ 08 May 2013
Norman Manoim DATE
Yasmin Carrim and Merle Holden concurring.
Tribunal Researcher: Caroline Sserufusa
For the merging parties: Chris Charter of Cliffe Dekker Hofmeyer
For the Commission: Thelani Luthuli
1For more on Unilever SA, see merger record para 5.3.6, page 63, in the merging parties’ Competitiveness Report.
2See Commission Report para 10, page 64.
3In the mayonnaise market the combined market shares for the merging parties is 8%, and in the salad dressing market their combined
estimated market share is 2% (See page 19 and 21 of Merger Record).
4Remgro Limited vs. Venfin Limited: Case No: 54/LM/Jul09
5See Transcript para 20, page 6.
6See Transcript para 5, page 11.
7See merger record para 22, page 83.
5
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