Press Releases

Metropolitan and Momentum - 9 December 2010

OUTCOME OF COMPETITION TRIBUNAL HEARINGS on 9 DECEMBER 2010

(Following is a guideline for journalists. The information can be used but please do not quote Kasturi Moodaliyar or the Tribunal)

1. Proposed Large Merger between Metropolitan Holdings Limited and Momentum Group Limited

Background

On 14 October 2010 the Tribunal announced the approval of the merger between Metropolitan Holdings Limited (Metropolitan) and Momentum Group Limited (Momentum) subject to conditions. The merging parties applied for a variation to the conditions imposed by the Tribunal in respect of clarifying the definition of the term retrenchments and to better define the class of persons falling into the category of senior employees.

Today the Tribunal releases its reasons for the decision and the variation application.

Reasons

The Tribunal held that there are no competition concerns arising in any of the potential relevant markets affected by the proposed merger. There was only one public interest concern being the effect the merger will have on employment.

The Tribunal held that where there is substantial employment loss the evidentiary burden shifts to the merging parties to justify the loss. In doing so, the Tribunal identified the following elements which must be taken into consideration:

(1) a rational process has been followed to arrive at the determination of the number of jobs to be lost, i.e. that the reasons for the job reduction and the number for jobs proposed to be shed are rationally connected; and

(2) the public interest in preventing employment loss is balanced by an equally weighty, but countervailing public interest, justfiying the job loss and which is cognisable under the Act.

The Tribunal illustrated that there may be possible public interest justifications that might flow from prior competition inquiry. For example, competing public interest considerations under the Act, or other competition related public interest concerns where the merger: is required to save a failing firm; is required, because pre-merger, the merging firms will not be competitive unless they can lower their costs to be equally as efficient as their rivals and only the merger can bring about these savings through the contemplated employment reduction; or will lead to lower prices for consumers because of the merged firms lower cost base and that this lower cost base can only come about or is materially dependent upon, the contemplated employment reduction.

The merging parties estimated that the merger will lead up to a net amount of 1000 retrenchments. The Tribunal stated that it was common cause that none of the merging parties are failing and are in fact sucessful businesses and that this figure was arrived at in an arbitrary manner and that the merging parties failed to demonstrate that there was a rational connection between the efficiencies sought from the merger and the job losses claimed to be necessary to the merger.

The Tribunal emphasised that even if the merging parties make a good efficiency argument for job losses, this efficiency gain must, if the job losses are substantial, be justified on a ground that is public in nature to countervail the public interest in preserving jobs. Evidence suggested that the driving reasons for the merger was to persuade shareholders that they would get an increased rate of return by savings not driven by growth through more aggressive pricing in the form of lower premiums to consumers. The Tribunal did not find any evidence of aggressive marketing strategies such as projections of market share increases, repositioning of products and the niche markets where these cost savings would translate into greater market share growth.

In arriving at its decision the Tribunal indicated that the parties did not discharge the evidentiary burden of proving the two elements to justify the employment loss.

The Tribunal found that there is no reason to prohibit the merger for this reason where the adverse effect on competition can be remedied by appropriate conditions.

The Tribunal found that the conditions on the merger imposed by it adequately remedy the substantial public interest concerns. The conditions places a moratorium on all merger related retrenchments for a period of two years. The moratorium excludes senior employees and does not exclude voluntary retrenchments or other forms of incentives for employees to resign such as early retirement packages, where the methods chosen are non-coercive.

Issued By:

Kasturi Moodaliyar
PR Consultant: Competition Tribunal(TEMP)
Cell: + 27 (0) 83 399 6005
E-mail: moodaliyar@gmail.com

On Behalf Of:

Lerato Motaung
Registrar: Competition Tribunal
Tel: (012) 394 3355
Cell: +27 (0) 82 556 3221
E-Mail: LeratoM@comptrib.co.za