According to South Africa’s Competition Tribunal, any public-interest concerns over the merger between listed retailer Edgars Consolidated Stores (Edcon) and Topics, regarding cheap clothing imports from China and the effect on local employment, cannot be cured by the imposition of a merger condition on a single firm.
This was one of the Competition Tribunal’s reasons behind its unconditional approval of the Edcon-Topics merger on June 13, the body said in a statement on Tuesday. Edcon is acquiring 100% of the issued shares in Rapid Dawn and Topics. Rapid Dawn is the holding company of clothing retail chain Topics.
Unveiling its reasons behind the approval, the tribunal said the merger raises no competition concerns, while noting that the issue of rising unemployment in the clothing and textile industry, as raised by the South African Clothing and Textile Workers Union (Sactwu), is a “sector-wide phenomenon” that has to be addressed at the aggregated level with the “appropriate instruments”.
The tribunal noted that the only areas of overlap between the businesses of Topics and Edcon are the retail market in respect of ladieswear, ladies’ footwear and cellular products. Since the cellular-products market is a highly competitive market with many players, it is unlikely that the transaction would substantially prevent or lessen competition in this market.
It is also evident from the information supplied, it said, that there remain several large competitors in the ladieswear and ladies’ footwear markets. It is thus highly unlikely that the transaction would have a negative effect on competition in the relevant markets.
Sactwu, in its submissions, raised both competition and public-interest concerns. However, its representative conceded that its concerns were mainly with the public-interest implications of the transaction.
Sactwu feared that as a result of the transaction, the upstream supplier market would shrink while a large and growing Edcon, instead of entering into partnerships to assist in innovation, design and training in building a strong local supplier market, would rather choose to import more from China.
Edcon’s approach to procurement, claimed Sactwu, would lead to an increase in unemployment in the manufacturing sector, especially in the Western Cape.
The tribunal said it was clear, however, that Sactwu’s concerns with the employment effects of the merger resided less with the relatively small number of jobs lost in direct consequence of the transaction than with the larger question of Edcon’s alleged support for imported merchandise.
“If this is indeed so, then Sactwu has chosen a bad example on which to mount its case,” observed the tribunal. “Edcon procures a larger proportion of its merchandise locally than does Topics.
“This is perhaps why Sactwu refrained from recommending that the tribunal impose a condition to ameliorate the job loss that it believed to be consequential upon Edcon’s growing presence in the clothing and footwear retail trade combined with its alleged preference for imported merchandise.
“An obvious condition would be one that sought to cap Edcon’s purchases of imports, at least in the target firm. However, the tribunal would approach the imposition of such a condition with considerable circumspection and this for two reasons.
“Firstly, a condition of that sort goes to the very heart of anti-trust’s concern with the welfare of consumers. If Edcon favours international over domestic suppliers, it is presumably because the company believes that it can procure higher-quality and/or lower-priced merchandise on the international market.
“As long as the retail market is competitive — and our view is that — then a significant part of the benefits of these lower prices and superior-quality commodities must be passed on to consumers, including working people.
“While we agree with Sactwu that this is cold comfort to those whose inability to find employment condemns them to very low levels of consumption, there is considerable evidence to suggest that the past 20 years have witnessed a significant growth in the purchasing power of previously disadvantaged consumers.
“This is clearly the outcome of a great many factors, but there is no gainsaying the role played by lower interest rates and product prices over the period.
“Secondly, a condition such as this could not be imposed on a single company in the clothing retail sector. Were we to impose a ceiling on Edcon’s international purchases, this would advantage Edcon’s competitors, who would be free to import without restraint,” the Competition Tribunal concluded. — I-Net Bridge