Walmart/Massmart merger legislation sufficiently robust to protect interests of all stakeholders
Jul 20th 2011, 15:48
In line with the revised parliamentary portfolio committee hearing rules announced by the Chairperson of the portfolio committee at the start of proceedings yesterday, Massmart CEO Grant Pattisonâ€™s submission before parliament today dealt primarily with the competition approval process, while highlighting some of the merger benefits.
â€śI want to bring to your attention some of the benefits of the Massmart-Walmart merger in addressing some of the challenges our country faces. These include the creation of 15 000 jobs within five (5) years in the merged entity; the expenditure of approximately R60-billion on food, most of which will be procured from local suppliers and (our commitment to) working closely with local manufacturers, suppliers and black-owned businesses,â€ť said Pattison.
Focussing on the competition approval process, Pattison said the merging parties had experienced the process as rigorous and one that generates a high level of involvement from all interested stakeholders.
â€śIt is our opinion that the existing legislation and enforcement mechanisms are more than sufficient in regulating mergers and their potential effects on employment, the economy, small business and manufacturing. All stakeholders are well represented and are afforded sufficient opportunities for their concerns to be addressed,â€ť he said.
Pattison added that opportunities exist to finesse the process, for example, tightening the definition of public interest to balance public interest issues with competition considerations.
Grant Pattison's Oral Submission:
Honourable Chairperson, Members of the Portfolio Committee on Economic Development and other Members of Parliament present.
1. I would like, at the outset, to express my gratitude to the Portfolio Committee for the clarification given by the Honourable Chairperson at the start of the hearings yesterday, as to the parameters of the hearings into the Walmart/Massmart transaction. Now that we understand the rules of the hearing, it is evident that our written submission traverses territory that is now beyond the scope of the rules allowed by this committee. For the record, our written submission was prepared in accordance with the advertisement placed by Parliament in the media, the terms of which have since been clarified and narrowed.
2. We also noted how the Ms Coleman was obliged to enforce the rules with various participants in these hearings thus far and will accordingly limit our comments to the prescribed rules of this Committee. We will therefore not refer to the contents of our written submission.
3. My comments today focus on the merger process and how this process addresses issues of employment, industrial and economic development and local manufacturing. This, to my mind, is a useful exercise and, given our own recent experience, I am certainly happy to share with the committee in the hope that this will assist with your deliberations.
4. The point of departure is that mergers in South Africa are highly regulated, particularly in the context of listed companies. Various regulatory authorities have jurisdiction in these circumstances, including the Takeovers Regulation Panel, the Johannesburg Stock Exchange, the Reserve Bank, the National Treasury and, specifically, the Competition Commission and the Competition Tribunal. Also, merging parties have to comply with the provisions of the Companiesâ€™ Act, enforced by the Courts. In addition to the formal processes described above, informal interaction and social dialogue with stakeholders is a natural consequence which runs parallel to the formal process.
5. In our experience, the process is rigorous and generates a high level of involvement from all interested stakeholders. These stakeholders are provided with various opportunities to have their say, including through the formal Competition Commission investigation, the Competition Tribunal public hearing, shareholder approval meetings and the informal social dialogue encouraged by the process. The competition process can take as long as 12 months from submission of the requisite merger notification to the Competition Commission.
6. The Commissionâ€™s investigation process is inclusive and inviting of widespread participation. In fact, the Commission seeks out submissions and, as such, it is not generally necessary for a participant to have an apparent direct stake in the matter. For example, anyone can make a submission to the Commission by way of a simple letter or even oral submissions on its own accord, with or without invitation from the Commission. There is certainly no need for interested parties to incur substantial costs in making submissions as they do not have to be made through legal representatives.
7. In addition, the public hearing before the Tribunal is both transparent and inclusive, with the Tribunal able to play an inquisitorial role by itself asking relevant questions and seeking the input of appropriate parties, including experts, rather than passively adjudicating.
8. We must also not underestimate the continuing role that the competition authorities will play in enforcing the provisions of the Competition Act in the post-merger environment. The Competition Act is comprehensive in prohibiting anti-competitive behaviour such as predatory pricing, attempts at market foreclosure, and other abuses of dominance. Even individuals or small businesses can trigger an investigation by simply making a complaint to the Commission or bringing impugned conduct to its attention.
9. Thus, our overall view is that the process works. However, our experience shows that the process can be finessed by making some improvements. Most importantly, the process must be predictable, both in terms of procedure and timing.
10. The Competition Act provides that mergers must be assessed in accordance with two broad criteria: the impact the merger will have on competition; and the impact the merger will have on public interest considerations.
11. Public interest in the Competition Act focuses on addressing employment concerns; the effect of the merger on firms owned by historically disadvantaged individuals; the impact of the merger on a particular industrial sector or region; and the ability of national firms to compete internationally. However, the actual wording employed in the Act is perhaps too loose and does not give adequate guidance to how public interest issues should be balanced with competition considerations.
12. The role of employee representatives in merger proceedings also needs to be clarified. For instance, it is not clear whether the participating Trade Union is doing so in the interests of its constituent members employed by the merged entity or whether it is fulfilling a broader mandate in relation to all of its members â€“ both within and outside of the merged entity, within and outside the industry, and within and outside the country.
13. While the competition law proceedings are certainly comprehensive and inclusive, there is perhaps a need for more vigilant policing of those who are entitled to and do participate. Failing this, the ability to frustrate legitimate transactions through employing delaying tactics may very well scupper the transaction. In addition, such tactics are often used to leverage a negotiating position.
14. There also seems to be a misperception that the competition authorities cannot rely on other authorities such as the Labour Court, the National Treasury, the Department of Labour and the Department of Trade and Industry, amongst others. The implication is that the Competition Commission is being asked to impose conditions that are already covered by our robust regulatory environment.
15. It is our opinion that the existing legislation and enforcement mechanisms are more than sufficient in regulating mergers and their potential effects on employment, the economy, small business and manufacturing. All stakeholders are well represented and are afforded sufficient opportunities for their concerns to be addressed.
16. We believe that the Portfolio Committee should be cognisant of the perceptions of foreign investors on the attractiveness of South Africa as an investment destination.
17. Before I conclude, Madame Chairperson, I want to bring to your attention some of the benefits of the Massmart-Walmart merger in addressing some of the challenges our country faces. These include:
â€˘ The creation of 15 000 jobs within five (5) years in the merged entity;
â€˘ The expenditure of approximately R60-billion on food, most of which will be procured from local suppliers.
â€˘ Working closely with local manufacturers, suppliers and black-owned businesses.
18. In conclusion, I thank the Honourable Chairperson and the Committee for the opportunity to address you on these issues. This concludes my oral submission and I am happy to answer any questions you may have.
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