The Minister Of Economic Development And Others vs Walmart Stores Inc. and Others

THE COMPETITION APPEAL COURT OF SOUTH AFRICA: PRESS RELEASE, MARCH 9, 2012

The Competition Appeal Court today dismissed an application by the Ministers of Economic Development, Trade and Industry and Agriculture, Forestry and Fisheries who sought to review and set aside a decision of the Competition Tribunal in which the acquisition by Walmart Stores Inc. of 51% of the ordinary share capital of Massmart Holdings Limited (the merger) had been approved with conditions.   At the same time the Court upheld, in part, an appeal by the South African Commercial, Catering and Allied Workers Union (SACCAWU) against the order of the Tribunal.

The Ministers argued that they did not enjoy a fair hearing before the Tribunal when it decided to approve the merger between Walmart and Massmart. They contended that the Tribunal had erred in refusing to order the merging parties to discover a range of documents which had been sought by them and which, in their view, were wholly material to the determination of the merger.  Further, the Tribunal had erred in making certain scheduling decisions with regard to the oral hearing which then precluded the parties which opposed the merger from fully and adequately ventilating their concerns and in making sufficiently comprehensive submissions concerning the conditions to which the approval should have been made subject.

The court held, in evaluating these submissions, that the applicable test to determine the review application was not what the court might have done itself in making decisions about scheduling of a hearing and discovery of documents but what a reasonable decision maker, within the context of the mandate of the Tribunal, its workload, the available time and its expertise, would have so done. The court held that the Tribunal’s ruling had not been inflexible. Thus, if during the course of the hearing, the Ministers had considered that their case was severely compromised, they could have brought their concerns expressly to the attention of the Tribunal or launched an immediate application for review before this Court. The court also held that it was not unreasonable for the Tribunal to schedule the hearing in the manner that it had done. Hence, neither of these arguments justified the setting aside of the Tribunal’s decision and therefore referring the entire merger back to the Tribunal for a rehearing.

In dealing with the appeal against the approval of the merger, the court held that there was insufficient evidence to conclude that the public interest concerns set out in the Act, in particular, the merger’s effect on employment and on small and medium sized businesses, was sufficient to refuse the approval of the merger. The evidence indicated that consumers will benefit from lower prices and that these lower prices may, in turn, generate greater job creation than the job losses that may result from the merger. The court was not able to determine this question with precision but it was able to conclude, on the probabilities, that there was insufficient evidence to conclude that the detrimental effects of the merger would outweigh the clear benefits, to consumers which had been accepted by the various experts, who testified before the Tribunal, including the economic expert who testified on behalf of the Ministers.

The court also rejected the argument that SACCAWU was entitled to a condition that Massmart would become the subject of a closed shop agreement and that there should be group centralised bargaining. It found that these were issues which were the subject of the outcome of collective power between Massmart and SACCAWU. SACCAWU could not obtain these protections through competition law, in circumstances where it would not be able to obtain these claims as of right in terms of labour law. Although SACCAWU had raised significant concerns about Walmart’s labour policies (particularly in the USA), these concerns were well catered for by South African labour law and the independent institutions that adjudicate labour disputes.

The court held in favour of SACCAWU that 503 workers who had been retrenched were entitled to reinstatement.  The court justified this conclusion on the basis that the circumstances in which these workers had been retrenched from Massmart were so closely linked to the merger and its timetable that the suggestion that the decision to retrench had been taken some 6 - 8 years earlier was unsustainable. The evidence indicated that the retrenchment was sufficiently ‘merger specific’ to justify the reinstatement of these workers. The court also accepted that, although the merger should be approved, there were legitimate concerns about the effect of the merger on small producers and therefore consequent effects on employment. While it rejected the proposal that there should be a limit placed on Massmart’s ability to import goods in that this would create distortions and would be extremely difficult to implement, the court recognised that the provisions of the Act required measures to be taken to safeguard the public interest concerns as provided in the Act and,in particular, those regarding small producers.

Whereas the Tribunal had accepted without qualification the proposal of the merging parties to establish a programme aimed at the development of local South African suppliers, funded in the amount of R100-million by the merged entity, the court found that there was insufficient detail as to how such a condition would operate and whether it would fulfil the statutory requirements of the protection of the public interest. Accordingly, the court held that a study should immediately be commissioned by three experts, representing SACCAWU, the ministers, and the merging parties. The three experts must be appointed within one month of this order, and will then have a further two months to produce a report for the consideration of this court as to the best means by which South African small and medium sized suppliers could participate in  Wal-Mart’s global value chain and thereby ensure that benefits from this mergerwill flowto this important sector of the economy. Once this report has been completed the parties will have an opportunity to react thereto. The court will then be empowered to formulate the mandate and the conditions by which such a fund or similar proposal would operate, thereby ensuring the advancement of the public interest concerns, of the Act; in particular those of small and medium sized business and employment.

Read the full judgement of the Competition Appeal court judgement here (pdf).