The Competition Tribunal approved the Walmart-Massmart deal weeks ago, but have only now explained how and why they gave the green light.
Walmart’s acquisition of a majority stake in Massmart raised no competition concerns, but did raise some public interest issues, the Competition Tribunal said on Wednesday.
“It does raise certain public interest concerns, but these concerns are adequately remedied by the imposition of the conditions submitted as undertakings by the merging parties,” the tribunal said in a statement on its reasons for approving the deal.
The tribunal conditionally approved the deal on May 31, but only gave its reasons for this on Wednesday.
“Walmart does not compete with Massmart in South Africa and its only presence in the country is a small procurement arm that sources local products for its stores globally.
It couldn’t hurt
“In light of the above, we find that the transaction would not substantially prevent or lessen competition in any of the markets that Massmart presently operates in.”
However, the Competition Act says a merger may still be prohibited or subject to conditions, on the grounds of public interest.
“Unless the merger is the cause of the public interest concerns, we have no remit to do anything about them. Our job in merger control is not to make the world a better place, only to prevent it becoming worse as a result of a specific transaction,” the tribunal said.
In this case, the merging parties offered to undertake various steps to protect the public interest.
Unions were concerned that the merger would lead to job losses and that this had already started happening with some retrenchments last year.
“There is no evidence from the internal documents of the merging parties that retrenchments at Massmart are contemplated as a consequence of the merger,” the tribunal found.
“On the contrary, there is evidence that suggests, given the expansionist ambitions of Massmart, the group expects employment to grow between 2011 and 2013.”
The parties, however, gave an undertaking not to retrench staff for two years after the merger.
It was also agreed that the status of the South African Commercial Catering and Allied Workers’ Union as the largest representative union within the merger entity would not be challenged for a period of three years.
The tribunal said it appeared the unions were demanding centralised bargaining and a closed shop.
However, it found that Massmart’s approach to these two issues was a policy formulated before the merger and not influenced by a possible merger with Walmart.
The tribunal was wary of imposing labour conditions that should “be thrashed out at the bargaining table”.
“Protecting existing rights is legitimate, creating new rights is beyond our competence.”
Thus it found “the creation of additional rights not presently enjoyed by unions is neither merger-specific nor appropriately part of our limited public interest mandate in respect of effects on employment”.
Another issue raised during competition proceedings was that Walmart’s substantial bargaining power, and access to cheap imports, could harm local procurement.
The tribunal said it was likely that the merged entity would change its procurement patterns, but it was not clear by how much.
“The problem is that the concern raised in relation to local procurement/imports is also associated with important benefits for consumers.
“A possible loss of jobs in manufacturing of an uncertain extent must be weighed up against a consumer interest in lower prices and job creation at Massmart.”
It’s too darn hard
The South African Clothing and Textile Workers’ Union proposed that after the merger Massmart’s local procurement level should be kept at the same level as it was before the merger for a certain amount of time.
But the tribunal said this would be too complex to implement.
“Further the conditions will contradict the major objective of competition regulation—to secure lower prices—the procurement conditions would likely affect the merged entity’s ability to provide customers with the lowest possible prices.”
Instead, the tribunal found the merging parties remedy of spending R100-million over three years on a local supplier programme, was more acceptable.
“Instead of insulating local industry from international competition for a period, it seeks to make local industry more competitive to meet international competition.”
The merging parties made various undertakings about local procurement and labour conditions during the hearings, which they eventually agreed should be made conditions for the approval of the deal.
For this reason, the undertakings would be enforceable.
“Non-adherence can lead to serious consequences for the merger, which is an illustration of their commitment ... and an indication that it is not, in consequence, a public relations gesture.”—Sapa