The Competition Tribunal (“the Tribunal”) has today conditionally approved the merger involving Thabong Coal (Pty) Ltd (“Thabong Coal”) and South32 SA Coal Holdings (Pty) Ltd (also known as “SAEC”), two of South Africa’s largest suppliers of coal.
The transaction has been approved subject to a range of conditions relating to employment, the exchange of competitively sensitive information, the establishment of an Employee Trust, a Community Trust and the divestiture by SAEC of certain (pending) mining rights.
Post-merger SAEC will be owned by a black-owned and controlled South African company. The merger will advance greater black ownership since Seriti is an approximately 90% black-owned South African company. The transaction will furthermore enable employees and communities in the affected areas to in future benefit from the transaction by providing employees and communities with a free and unencumbered shareholding in SAEC, as well as benefit junior miners through the divestiture condition.
In reaching its decision, the Tribunal considered submissions by the Competition Commission and the merging parties, as well as the Phola Community’s submissions on public interest issues, specifically in relation to the Community Trust. The Tribunal had earlier allowed the Phola Community to intervene in the proceedings.
Due to Eskom being the largest consumer of thermal coal in South Africa and concerns regarding the large increases in the per unit price paid by Eskom for coal in recent years, the Tribunal utilised its inquisitorial powers to summons Eskom representatives tasked with coal procurement to give evidence during the proceedings.
Detailed reasons for the Tribunal’s decision will be issued in due course. This will include factual evidence given by the Eskom representatives and representatives of the merging parties.
A public version of the conditions will be published on the Tribunal’s website at www.comptrib.co.za
. Below, is a brief summary of the conditions:
Except for 25 affected skilled employees (whose positions have been identified as being potentially duplicative), the merged entity will not retrench any permanent or fixed-term contract employees as a result of the merger for a period of 24 months from the merger implementation date.
Conditions have been imposed to ensure that there is no sharing of competitively sensitive information as a result of the proposed transaction. The conditions state that for as long as the shareholders of Seriti are entitled to appoint or nominate representatives to the board of directors of Seriti, Seriti Coal, and other Seriti Coal operating subsidiaries and/or of SAEC they shall ensure that their respective representatives on such board(s) are not the same person serving or appointed on any board or management committees of any holding companies and/or any affiliate companies of the shareholders of Seriti which are involved/active in the supply of coal.
The Employee and Community Trust
The transaction entails the acquisition of shareholdings by a Community Trust and an Employee Trust on a “carried interest” basis. This means that the shares will be issued to qualifying employees and host communities at no cost to them and free of any encumbrance.
The Employee Trust and the Community Trust each shall acquire ordinary shares constituting five percent of the issued share capital of SAEC pursuant to the implementation of the merger.
The beneficiaries of the Community Trust shall reside in the "Affected Areas”, being the areas which are adjacent to the operational mines of SAEC and being the relevant “host communities” for the purposes of the Mining Charter. At least 85% of the beneficiaries will be historically disadvantaged individuals who will benefit from the trust activities (as listed in the Trust Deed).
At least one of the individuals to be appointed as trustee to the Community Trust shall be a person who has been nominated by the communities in the Affected Areas (through the Community Consultative Forum structure established by Seriti/Thabong).
Thabong will furthermore procure that the trustees of the Community Trust engage with the communities in the Affected Areas (through the Community Consultative Forum structure established by Seriti/Thabong) to identify appropriate trust activities which are suitable for the Community Trust to undertake and/or fund.
Thabong will also, within nine months of the implementation date of the transaction, (i) procure that the trustees of the Community Trust identify the initial activities and/or projects to be undertaken for the benefit of the beneficiaries of the Community Trust and (ii) finalise, and/or procure that the trustees of the Community Trust finalise, the further appointments of trustees of the Community Trust.
Thabong shall procure that SAEC divests any pending or awarded prospecting right(s) and/or mining right(s) associated with the Leandra Project to a suitable purchaser within a certain divestiture period, subject to the receipt of all relevant regulatory approvals.
The Leandra Project is a large thermal coal project located approximately 100 km east of Johannesburg on the Gauteng / Mpumalanga border region and which comprises what are known as the following areas: “Leandra Gauteng”, “Leandra Leeuwkop”, “Leandra Mpumalanga”, “Leandra Balance of Delmas” and “Leandra Winterhoek”.
The purchaser of the abovementioned mining rights shall be independent and shall not directly or indirectly be affiliated or related to either of the merging parties and shall include junior miners. A purchaser which meets the following requirements shall enjoy preference: employee participation (5%); community participation (5%); youth participation; the participation of BEE controlled junior miners (being smaller scale miners operating in the domestic market); and BEE female participation (5%).
Undertakings by Seriti
The merging parties’ undertakings in relation to the public interest include that Seriti will continue to provide an opportunity to historically disadvantaged suppliers to continue to supply to it in terms of the Mining Charter and that Seriti intends that SAEC will comply with its statutory duties in terms of the relevant provisions of the Mineral and Petroleum Resources Development Act (“MPRDA”) relating to social and labour plans.