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South African Competition Commission gives the ‘go-ahead’ for Massmart’s R1.63 billion sale to Shoprite:

posted 1 year ago

On 20 May 2022, the South African Competition Commission (“Commission”) recommended that the Competition Tribunal (“Tribunal”) approve the merger between Shoprite Supermarkets (Pty) Ltd (“Shoprite”) and Massmart Holdings Limited (“Target Business”). The merger involves an acquisition of multiple grocery, liquor and wholesale “Massfresh stores” operating under the Massmart Rhino and Cambridge brands.

Concerns were raised in relation to the supply of grocery goods in the retail sector both nationally and in certain local markets. The Commission did not raise issues in relation to the wholesale sector.

The rationale submitted to the Commission in respect of the proposed transaction was that the various Masscash entities had been performing at a sub-standard level for numerous years. As the Target Business was not an essential component of Massmart, it was able to dispose of it in its totality.

Following its merger review, the Commission concluded that there was not sufficient evidence to come to the conclusion that smaller competitors are in direct competition with the larger national stores. It further concluded that by virtue of the Target Business being a national grocery chain, and in light of the meagre quantity of such national grocery chains in the market, the impact of the merger was likely to elevate concentration levels in relation to grocery contributions by nationwide chains.

The Commission concluded in its recommendation that, apart from the merging parties, competition in the wholesale low-income sector was limited with only two other national grocery chains competing. Accordingly, the Commission concluded that the proposed transaction would certainly raise competition concerns.

In light of the prevailing public interest concerns, the Commission placed significant emphasis on the potential consequences for the Target Business, which but for the merger would likely exit the market. In essence, the rapidly deteriorating financial performance of the Target Business and the expected loss of about 7000 jobs justified the Commission’s conclusion that the public interest criteria in favour of the proposed transaction outweighed the likely negative competition concerns. In an effort to avoid conditions, the merger attempted to assuage the Commission’s potential competition-related apprehensions by proffering remedies to promote competition in the extremely concentrated local grocery sector. The Commission was somewhat satisfied by this attempt, however, additionally required the merging parties to agree to a large set of public interest remedies intended to weigh against the concerns raised in relation to the Target Business’s potential departure from the market.

In short, the public interest commitments include that:

  1. The Shoprite Group would design and implement programmes aimed at enhancing employment opportunities after the merger, ensuring that jobs are not lost as a result of the merger;
  2. A scheme of employee share ownership is affected in favour of the merging parties’ employees;
  3. Shoprite Checkers would significantly enhance its local procurement, and furthermore invest in the development of over 1000 HDP students and the like;
  4. Shoprite Checkers would keep procuring from the HDP and SMME suppliers of the Target Business; and
  5. The merged firm would aid HDP and SMME retailers, suppliers and small businesses in their value chain to strengthen and expand.

Of significance to South Africa’s broader approach to merger control, the Commission expressly noted would be more beneficial than not to approve the merger from a public interest perspective.  



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