Zeder Financial Services Ltd v Agrico Machinery (Pty) Ltd (09/LM/Jan12) [2012] ZACT 45; [2012] 2 CPLR 554 (CT) (29 June 2012)
- Citation
- [2012] ZACT 45
- Status
- Judgment
- Jurisdiction
- South Africa
- Court
- Competition Tribunal
- Panel
- Yasmin Carrim, Andiswa Ndoni, Takalani Madima
- Case number
- 09/LM/Jan12
More details
- Court
- Competition Tribunal
- Panel
- Yasmin Carrim, Andiswa Ndoni, Takalani Madima
- Case number
- 09/LM/Jan12
On this page
Professional case brief
Research organized from the available case record
01
Holding and result
The Tribunal found that there is no overlap in the activities of the merging parties, as Zeder Financial Services Ltd does not have a controlling interest in companies involved in the same market as Agricol Holdings Ltd. The restraint of trade clause initially set at six years was deemed excessive given the high entry barriers and limited market participants in the seeds market. The Tribunal accepted the Commission's recommendation to reduce the restraint period to three years, which was agreed to by the parties. No significant public interest concerns, including employment effects, were identified. The transaction was approved subject to the condition that the restraint of trade period be limited to three years.
Court disposition
The merger is conditionally approved subject to the restraint of trade period being limited to three years.
Orders
- The acquisition by Zeder Financial Services Ltd of Agricol Holdings Ltd is approved subject to the condition that the restraint of trade period imposed on Agrico Machinery (Pty) Ltd is limited to three years.
- The parties must comply with the conditions set out in Annexure 'A'.
02
Material facts
Parties
Zeder Financial Services Ltd
Applicant Counsel: Susan MeyerAgrico Machinery (Pty) Ltd
Respondent03
Procedural history
Posture
Merger Application / Conditional Approval
04
Questions and positions
Legal issues
- 01
Whether the proposed merger would substantially prevent or lessen competition in the relevant market.
- 02
Whether the restraint of trade clause in the merger agreement is justified and reasonable.
- 03
Whether the transaction raises any significant public interest concerns, particularly regarding employment.
Party arguments
- Applicant
- Zeder Financial Services Ltd argued that Agricol Holdings Ltd is a sound investment that complements its existing agricultural portfolio. The applicant maintained that the transaction would not negatively affect competition, as there is no overlap in the activities of the merging parties. The applicant also agreed to reduce the restraint of trade period from six years to three years, as proposed by the Commission.
- Respondent
- Agrico Machinery (Pty) Ltd submitted that the transaction would allow it to focus on its core business of irrigation and mechanisation and simplify its group structure. The respondent accepted the reduction of the restraint of trade period to three years and asserted that the transaction would not have a significant effect on employment.
05
Court’s reasoning
Legal principles
- 01
Section 16(2) of the Competition Act, 89 of 1998
A merger may not be approved if it is likely to substantially prevent or lessen competition, unless conditions can be imposed to address such concerns.
- 02
Competition Tribunal precedent
Restraint of trade clauses in merger agreements must be reasonable in duration and scope to avoid unjustified anti-competitive effects.
- 03
Section 12A(3) of the Competition Act, 89 of 1998
Public interest considerations, including the effect on employment, must be assessed in merger proceedings.
06
Ratio, limits and disposition
Ratio decidendi
The Tribunal found that there is no overlap in the activities of the merging parties, as Zeder Financial Services Ltd does not have a controlling interest in companies involved in the same market as Agricol Holdings Ltd. The restraint of trade clause initially set at six years was deemed excessive given the high entry barriers and limited market participants in the seeds market. The Tribunal accepted the Commission's recommendation to reduce the restraint period to three years, which was agreed to by the parties. No significant public interest concerns, including employment effects, were identified. The transaction was approved subject to the condition that the restraint of trade period be limited to three years.
Obiter and limits
- The Tribunal noted that high entry barriers in the seeds market warrant careful scrutiny of restraint of trade clauses in merger agreements.
- The Tribunal emphasised the importance of ensuring that merger conditions do not unjustifiably frustrate future market entry by competitors.
Court disposition
The merger is conditionally approved subject to the restraint of trade period being limited to three years.
- The acquisition by Zeder Financial Services Ltd of Agricol Holdings Ltd is approved subject to the condition that the restraint of trade period imposed on Agrico Machinery (Pty) Ltd is limited to three years.
- The parties must comply with the conditions set out in Annexure 'A'.
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:09/LM/Jan12
[013912]
In the matter between:
Zeder Financial Services Ltd …...............................................................Acquiring Firm
And
Agrico Machinery (Pty) Ltd in
Respect of Agricol Holdings Ltd …........................................................Target Firm
Panel : Yasmin Carrim (Presiding Member) Andiswa Ndoni (Tribunal Member)
Takalani Madima (Tribunal Member)
Heard on : 28 March 2012
Order issued on : 28 March 2012
Reasons issued on : 29 June 2012
Reasons for Decision
Approval
On 28 March 2012 the Competition Tribunal (“Tribunal”) conditionally approved the acquisition by Zeder Financial Services Ltd of Agricol Holdings Ltd. The Tribunal’s reasons for approving this transaction are set out below.
Parties and their activities
The primary acquiring firm is Zeder Financial Services Ltd (“ZFS”), a public company incorporated in accordance with the laws of the Republic of South Africa. ZFS is controlled by Zeder Investments Ltd (“Zeder”) which is ultimately controlled by PSG Group Ltd (“PSG”). Zeder does not control any firm.1 ZFS controls Zeder Investments Corporate Services.
ZFS is an investment holding company and does not sell any products or provide any services. Zeder is a holding company and does not sell any products or provide any service. It has investments in companies that are active in agricultural, food, beverages and related sectors. PSG is an investment company that invests in companies that provide a wide selection of financial services and products.
The primary target firm is Agricol Holdings Ltd (“Agricol”), a public company incorporated in accordance with the laws of the Republic of South Africa. Agricol is 65.9% controlled by Agrico Machinery (Pty) Ltd (“AM”).The remaining shares in Agricol are held by ZFS (25.1%) and Individuals and Trusts(9%). Agricol wholly owns Salok (Pty) Ltd (“Salok”) and Agricol (Pty) Ltd (“Agricol Company”).
Agricol is a holding company and does not provide any products or services. Through Salok and Agricol Company, it is involved in plant breeding, production, international trade, processing and distribution of seeds.
Description of the transaction
This transaction entails an increase in shareholding by ZFS in Agricol from 25.1% to 90%. On completion of the proposed transaction ZFS will have sole control over Agricol.
Rationale for the transaction
ZFS submitted that Agricol is a sound investment and will complement the other Agri investments in the Zeder portfolio. AM submitted that this transaction will enable it to focus on its core business (irrigation and mechanisation) and further facilitate a simplification of the AM Group structure.
The relevant market and impact on competition
The Commission found that there is no overlap between the activities of the merging parties because the acquiring group does not have a controlling interest in companies that are involved in activities similar to those of the target firm. Although there is no overlap in the activities of the merging parties, the Commission investigated whether this transaction is likely to give rise to some form of anti-competitive behaviour as the parties have entered into a restraint of trade in the merger agreement which restrains AM from re-entering the seeds market for a period of six years.
The Commission’s investigation revealed that entry barriers in the seeds market are high and that there are a few market participants in this market with relatively high market shares. Based on these findings the Commission proposed that the period of the restraint be reduced to three years instead of the six year period initially entered into by the merging parties, which the Commission found to be too long, unjustified and likely to frustrate re-entry by AM. The merging parties agreed to the Commission’s proposal and submitted a signed agreement reflecting the reduction of the restraint period to three years.
Public interest
The merging parties submitted to the Commission that the proposed transaction will not have any significant effect on employment.
Conclusion
The proposed transaction is unlikely to result in a substantial prevention or lessening of competition as there is no overlap in the activities of the merging parties. With respect to the restraint of trade period, we agree with the Commission that a three year period is an acceptable period for the restraint. Accordingly, we approve the transaction subject to the attached Annexure “A” conditions.
____ 29 June 2012
Yasmin Carrim Date
Andiswa Ndoni and Takalani Madima concurring.
Tribunal researcher: Ipeleng Selaledi
For the merging parties: Susan Meyer of Cliffe Dekker Hofmeyr Inc.
For the Commission: Xolela Nokele
1Zeder has non-controlling interest in the following firms: Kaap Agri Ltd, Capevin Holdings Ltd, MGK Business Investments Ltd, Overberg Agri Ltd, Capespan Group Ltd, Tuinroete Agri, Suidewes Beleggings Ltd, NWK Ltd, OVK Bedryf Ltd and Thembeka OVB Holdings.
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