SA Competition Appeal Court approves Massmart and Wal-Mart deal

9 March 2012

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11 March 2012 | Adam Leach

The benefits to consumers from the takeover of retailer Massmart by Wal-Mart outweigh the potentially negative effects on local manufacturers, according to the South African Competition Appeal Court.

On Friday the Court rejected an appeal to prevent the takeover brought by the South African Commercial, Caterers and Allied Workers Unions (SACCAWU) over what it called a “procedurally flawed” hearing by the Competition Tribunal, which approved the merger in June. This is the second appeal against the decision to allow the deal to proceed.

A key element of the SACCAWU challenge to the merger was that if it went through, Wal-Mart would shift purchasing away from local manufacturers in favour of lower cost products from China, damaging the local economy. Ruling on this point, the judges concluded the consumer benefits were as compelling despite the potential damage to local producers and workers.

In their ruling Judges Davis and Zondi said: “Having analysed this evidence, the Tribunal concluded that, notwithstanding a legitimate concern which had been raised with regard to the effect of the merger upon local producers and jobs, the possible consequent job losses had to be weighed ‘against the consumer interest in lower prices and job creation at Massmart’.”

Further to this, the Court ruled it was not possible to impose specific local procurement conditions to the deal due to a lack of data on Massmart’s previous levels of local procurement. In favour of the merging parties, it ruled the commitment by Wal-Mart to establish an R100 million (US$13.3 million) local buying programme was “both appropriate, proportional and enforceable”.

In order to strengthen the impact of the fund, the Appeal Court ruled Wal-Mart must fund a study, to completed within three months and to include a SACCAWU expert on the research panel, to identify appropriate means by which “local South African suppliers may be empowered to respond to the challenges posed by the merger and thus benefit”.

The judges also ruled Wal-Mart must reinstate 503 Massmart workers who were “retrenched” (dismissed from their positions) in 2009 and 2010, and take account of their prior years of service. In addition, it must agree to not dismiss any Massmart workers for a period of two years, unless voluntarily agreed by the worker, and honour the existing labour agreements Massmart holds.

Massmart-Wal-Mart welcomed the court’s decision. SACCAWU welcomed the decision to reinstate the 503 workers but said they would consider the judgement carefully before deciding how to respond next week.

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