The Competition Tribunal has conditionally approved the notified large merger in terms of which Dorstfontein Coal Mines (Pty) Ltd (“DCM”) will acquire sole control of the businesses of Bochabela Mining (Pty) Ltd (“Bochabela”) and SBS Mining (Pty) Ltd (“SBS”) as going concerns.
Context
DCM and its controlling group operate several underground and one opencast coal mine in Mpumalanga, supplying coal to the domestic and international markets. Bochabela and SBS provide contract mining services at DCM’s Dorstfontein mining complex. The complex comprises the Dorstfontein West underground coal mine and the Dorstfontein East combined underground and opencast operation.
The Competition Commission recommended the approval of the merger subject to employment-related conditions agreed with the merger parties.
Two labour unions participated in the Tribunal proceedings, expressing concerns about the transaction’s potential impact on workers and their benefits. The National Union of Mineworkers (“NUM”) and the Association of Mineworkers and Construction Union (“AMCU”), representing Bochabela and SBS employees, opposed the merger, arguing that it was not in the interest of workers.
The proposed merger would result in the employees of Bochabela and SBS being transferred to Katlego Coal (Pty) Ltd (“Katlego Coal”), DCM’s holding company and controller. The unions raised concerns regarding the ability of Katlego Coal to pay severance benefits to these transferred employees in the event that they may be retrenched by Katlego Coal post-transfer.
AMCU proposed certain employment-related conditions, which were imposed in part, while NUM ultimately contended that the proposed transaction ought to be prohibited.
The Tribunal engaged extensively with the Competition Commission, the merger parties and the unions on the employment concerns and potential employment-related conditions. It ultimately approved the transaction subject to an enhanced set of conditions, as set out below.
Conditions
Application of section 197 of the Labour Relations Act
Following submissions by the unions, the merger parties agreed that Katlego Coal will be regarded as the acquiring firm in order to ensure compliance with the Labour Relations Act and to ensure the automatic transfer of SBS and Bochabela employees to Katlego Coal. The Tribunal’s order states:
“The original agreement entered into among the Merger Parties contemplated that DCM would acquire the assets of the Target Firms and that the employees of the Target Firms would be transferred to Katlego Coal. This transaction structure gave rise to a debate about the application of section 197 of the LRA.
In order to resolve the debate and ensure the automatic transfer of the employees to the Katlego Coal in accordance with section 197 of the LRA, the SBS and Bochabela Target Businesses (including the assets and the employees of the Target Firms) will cumulatively be acquired by Katlego Coal. Consequently, Katlego Coal will be regarded as being the Acquiring Firm in this merger.
The Merger Parties shall ensure that the Target Firms’ assets are transferred to the Acquiring Firm and the employees of the Target Firms are transferred to the Acquiring Firm in terms of section 197 of the LRA.”
Moratorium on merger related retrenchments
The Tribunal imposed a three-year moratorium on any merger-related retrenchments resulting from the proposed transaction. During this period, no employees may not be retrenched as a result of the merger. The conditions also include labour law compliance undertakings:
“Where the Merger Parties retrench any employee in South Africa during the Moratorium period, the retrenchment will be presumed to be as a result of the Merger, unless the Merger Parties demonstrate otherwise.
The Merger Parties undertake that the Acquiring Firm will comply with applicable labour legislation and implement a relevant labour law compliance programme. This undertaking is binding on the Merger Parties, and the Commission can request compliance reports from time to time to ascertain compliance with the undertaking.”
Retrenchment entitlement benefits
The imposed conditions further provide for the establishment of an escrow fund to secure the payment of the severance benefits of the employees that will be transferred from SBS and Bochabela to Katlego Coal, in the event of retrenchments, for operational reasons or otherwise, within five years of the merger:
“Within 5 (five) Business Days of the Implementation Date, the Merger Parties will transfer to an escrow agent and instruct it to hold in trust, in an interest-bearing account, for a period of 5 (five) years, a sum of money equivalent to the Target Firms employees' minimum legally entitled severance benefit as contemplated by section 41(2) of the Basic Conditions of Employment Act (No. 75 of 1997), which severance benefit will be measured as at the Implementation Date.
Should the Acquiring Firm retrench any of the employees of the Target Firms, for operational reasons or otherwise, within a period of 5 (five) years from the Implementation Date, the Acquiring Firm will utilise the funds and interest held in escrow as contemplated… above, in order to pay out the employee severance benefits due to the Target Firms' employees who will be retrenched. For the avoidance of doubt, the funds held in trust by the escrow agent as contemplated… above can be used solely for the purpose of this clause…
… On the fifth anniversary of the Implementation Date, the Acquiring Firm will be relieved of its obligation to hold the Target Firms' employees minimum severance benefits in trust and can instruct its appointed escrow agent to refund any remaining balance held in trust to the Acquiring Firm, together with any interest which has accrued to the Acquiring Firm while the funds were held in trust.”
The Tribunal’s reasons will follow in due course.