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Tribunal Approves Milco / Clover Merger After Merging Parties Improve Conditions

The Tribunal has today approved the merger involving Milco SA (Pty) Ltd (Milco) and Clover Industries Ltd (Clover) subject to a range of employment, local procurement of bulk juice concentrate, and information sharing conditions.

Employment effects

The Tribunal initially had concerns with the merging parties’ tendered employment-related conditions in terms of which 516 workers would be retrenched as a result of the completion of Project Sencillo, a Clover project underway to ensure the better utilisation of its assets (factories, production lines, warehouses and trucks), the completion of which is expected to take up to five years. The merging parties further tendered to not retrench any employees as a result of the completion of Project Sencillo for a period of two years from the implementation date of the proposed transaction.

The Competition Commission (Commission) concluded that the planned retrenchments as a result of Project Sencillo were substantial. It also concluded that it could be inferred that these retrenchments were related to the proposed merger i.e. merger-specific. The merging parties, however, disputed the Commission’s inference drawn and argued that these planned retrenchments were operational and totally unrelated to the proposed transaction.

The Commission recommended the conditional approval of the proposed transaction, accepting the merging parties’ tendered conditions, including the 516 retrenchments subject to a two-year moratorium, given that the merged entity would also create jobs (discussed below).

The General Industries Workers Union of South Africa (GIWUSA), the Food and Allied Workers Union (FAWU) and the Inqubelaphambili Trade Union (ITU) all raised concerns, inter alia, regarding the effects of the proposed transaction on employment in South Africa, specifically in relation to the planned retrenchments as a result of Project Sencillo. The Tribunal allowed the unions to make both written and oral submissions and to put questions to the merging parties’ witnesses.

In relation to the creation of new jobs, the merging parties tendered that the merged entity shall in the five year period following the implementation date, create 550 new permanent employment positions at Clover through the expansion of Project Masakhane, a Clover project to increase its distribution reach into previously under- and unserved areas including the increase of Clover’s delivery points at the bottom-end of the market. These new positions will consist mostly of sales representatives, drivers and van assistants.

The Tribunal required evidence to be led regarding, inter alia, the above mentioned large number of planned retrenchments as a result of Clover’s Project Sencillo. It also required various employment-related data from Clover.

The Tribunal questioned the methodologies used by Clover to arrive at its “worst-case scenario” Project Sencillo retrenchment numbers. It was specifically concerned that certain mitigating factors that would lower the ultimate number of required retrenchments (such as existing vacancies, natural attrition, potential relocations / transfers of employees, etc.) were not taken into account in Clover’s calculations.

However, while the Tribunal hearing was ongoing, the merging parties agreed to lower the number of planned retrenchments as a result of Project Sencillo from the original 516 job losses to a maximum of 277 jobs, after updating the numbers and further considering a range of mitigating factors as suggested by the Tribunal. The Tribunal accepted these new figures, but in its final imposed conditions increased the moratorium on the retrenchments as a result of the completion of Project Sencillo from the original two-year period from the implementation date to a three-year period.

Other employment-related conditions agreed to by the merging parties and imposed by the Tribunal include:

  • The merged entity shall not retrench any employee in South Africa as a result of the merger. This undertaking does not extend to, inter alia, voluntary separation arrangements, voluntary early retirement packages and the retrenchments arising from the completion of Project Sencillo, as discussed above.
  • The merged entity will contribute reasonable relocation and training costs for the affected employees that successfully apply for a vacant / new position in Project Masakhane. The merged entity will cover the cost of such training up to a total of R5 million and the cost of relocation up to a total of R5 million.
  • All affected employees will be offered the opportunity to apply for, and will receive preference, in relation to any new / vacant Clover position (including for any vacant / new position created by Project Masakhane).
  • If an affected employee elects not to apply for any Clover positions, the affected employee will receive a severance package of two weeks’ remuneration per completed year of service, a pro-rata bonus (where applicable in terms of Clover’s policy), a pro-rata long service bonus (where applicable in terms of Clover’s policy) and pro-rata leave due (where applicable in terms of the Clover’s policy).

The trade unions, with regards to the above mentioned 550 new Project Masakhane jobs, raised concerns over potential differences in the employee benefits of Project Masakhane positions when compared to other Clover positions. Following these concerns raised by the unions, the merging parties agreed to a condition that the employee benefits of permanent employees in Project Masakhane will be substantially similar to all other Clover permanent employees taking the job grade into consideration. These benefits are: medical aid, retirement fund, group scheme, spouse and trauma insurance, housing allowance, meal allowance, 13th cheque, long service bonus, maternity leave, family responsibility leave, sick leave and annual leave.

Given the 550 new permanent jobs created as a result of Project Masakhane over a five year period, the significant reduction in the number of the Project Sencillo planned retrenchments (from 516 jobs to a maximum of 277 jobs) subject to a three-year moratorium, read with all the other employment-related imposed conditions, the Tribunal was satisfied that the proposed transaction will not have an overall adverse effect on employment in South Africa.

Local procurement of juice concentrate for three years

To remedy concerns raised by certain South African suppliers to Clover of bulk juice concentrate, the merged entity agreed to, for three years from the implementation date of the transaction, continue to procure its required volumes of bulk juice concentrate from local suppliers.

The Tribunal initially had certain concerns with the merging parties’ formulation of the proposed local procurement remedy that in the Tribunal’s view would have made the proposed remedy ineffective. However, the merging parties redrafted the condition and that cured the Tribunal’s concerns.

Other union concerns

GIWUSA alleged that The Central Bottling Company (which is part of the acquiring group), through its wholly owned Central Company for Sales and Distribution, has violated international law by operating in illegally occupied Palestinian territories and has contributed to Israel’s commission of human rights abuses. However, these concerns fall outside of the Tribunal’s jurisdiction.

GIWUSA ultimately, at the end of the hearing, argued that the proposed transaction should be prohibited.

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