Walmart-Massmart deal approved with conditions

The Competition Tribunal on Tuesday approved the merger between Walmart and South African retailer Massmart Holdings (MSM) subject to conditions.

“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. The merging parties contend that the merger will indeed be good for competition by bringing lower prices and additional choice to South African consumers,” the tribunal said.

“We accept that this is a likely outcome of the merger based on Walmart’s history in bringing about lower prices. However the extent of this consumer benefit is by no means clear — Walmart itself has not been able to put a number to this claim, only that it is likely,” it added.

Retail giant Walmart in November made a R16.5-billion cash offer to acquire 51% of Massmart at R148 per Massmart share — a smaller stake than the initial 100% offer in September, but one that would see Massmart retain its listing on the JSE.

In heads of argument submitted to the tribunal on May 16, it was pointed out that the imposition of restrictions and conditions on Walmart would violate Article III of the General Agreement on Tariffs and Trade.

Jeremy Gauntlett SC, acting for the merging parties, said the tribunal “does not have the power to exempt South Africa from international law obligations”.

He said that 503 retrenchments announced by Massmart were not related to the merger.

Had job cuts been a part of Walmart’s policy, it would have sought to lay off more staff on acquiring Massmart. He pointed out that the 503 job cuts made up a mere 1,6% of Massmart’s total 30 000 staff complement.

Unions, small businesses and the government had expressed concerns about the deal, saying it could lead to cheap imports, which would result in job losses and harm small South African businesses.

‘Interests of unions’
Gauntlett said Walmart was prepared to commit to no retrenchments for two years, and that the merged entity would honour all labour agreements to which Massmart was a party.

He said Massmart and Walmart would also commit to spending R100-million to develop local South African suppliers over the next three years.

The project would be carried out with the advice of a committee in which the unions and government could participate. The Competition Commission would be advised annually about it.

However, Paul Kennedy SC, representing the South African Commercial Catering and Allied Workers’ Union (Saccawu), one of the groups opposing the merger, said Walmart’s commitments did not go far enough.

He said the tribunal should decline permission for the deal to go ahead, and that if it could not do so, it should impose enforceable conditions on Walmart.

Kennedy said there was justification for the negative perceptions that existed about Walmart’s labour relations.

“Walmart does not promote the interests of unions or their members,” he said.

David Unterhalter SC, who also presented closing arguments for Walmart and Massmart, said the imposition of any conditions on Massmart would give its rivals an unfair advantage.

In its heads of argument, the Competition Commission, which had previously recommended that the merger be allowed to go ahead without conditions, submitted that the merger go ahead.

Local jobs
However, because of new evidence placed before the tribunal in the first week of May, it recommended that Massmart reinstate the 503 retrenched workers and that Massmart, under Walmart ownership, be forced to honour existing agreements with trade unions for the next three years.

Rafik Bhana SC, who presented the government’s closing arguments, said its concerns did not arise from the fact that Walmart was a foreign company, but rather from concerns over its policies related to procurement.

He said that if Walmart was a country, it would be China’s eighth largest trading partner. He said that between 1995 and 2006 imports on Walmart shelves had substantially increased.

He said Walmart’s belief in low prices governed its procurement policies and that there was a substantial public interest in the deal and its effects.

“It would be fanciful to suggest that the concerns are anything but substantial,” he said.

Paul McNally SC, who submitted closing arguments on behalf of the South Africa Clothing and Textile Workers’ Union, said Massmart would not simply seek to reduce the cost of those products it already imported, but also those it procured locally.

He said his client accepted that there would be lower prices as a result of the acquisition, but that these would come at the expense of local jobs.

He said Walmart’s “sheer size is such that it needs to have its unlimited power curbed”.

He suggested that Massmart should be forced to maintain the current rand value of local content for the next five years. He said this was “workable and would not restrict Massmart’s future growth”. — I-Net Bridge, Sapa


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