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Date of release: 28 April 2022
Employees to gain shareholding through Net1 SA and
Luxanio merger
The Competition Tribunal (“the Tribunal”) has released the public reasons for its decision to conditionally approve the large merger whereby Net1 Applied Technologies South Africa (Pty) Ltd (“Net1 SA”) intends to acquire Ovobix RF (Pty) Ltd (“Ovobix”) and Luxanio 227 (Pty) Ltd (“Luxanio”). After implementation of the proposed transaction, Net1 SA will control Ovobix and Luxanio.
The Tribunal approved the proposed transaction subject to a set of conditions including the establishment of an employee share ownership program (“ESOP”) for the benefit of workers. The Tribunal’s imposed conditions include a provision that Net1 Inc establish an ESOP for the benefit of workers of the merged entity to receive shareholding in Net1 Inc equal in value to at least 3% of the issued shares in Net1 Inc as at the implementation date of the proposed transaction, in accordance with certain ESOP design principles.
The public reasons can be accessed and downloaded from the Tribunal’s website at  Below is a summary and excerpts:
Competition assessment
The Competition Commission (”the Commission”), which investigates  large mergers before referring them to the Tribunal for a decision, ultimately concluded that the proposed transaction is unlikely to result in any competition concerns. The Tribunal has no reason to disagree with the Commission’s assessment and has concluded that the proposed transaction is unlikely to substantially prevent or lessen competition in any relevant market.
Public interest assessment
The merger parties confirmed that the transaction will not result in any retrenchments. There were pre-merger retrenchments at Net1 SA due to operational reasons unrelated to the merger. Considering the current economic climate and South Africa’s unemployment rate, the merger parties agreed to a condition for a 24-month period involving retrenched employees being given preference when vacancies become available in the merged entity within certain limitations.
Spread of ownership
The Commission found that the merger does not promote a greater spread of ownership by historically disadvantaged persons (“HDPs”) and workers in firms in the market, as the proposed transaction will result in a dilution of B-BBEE shareholding by 1.62%. To address this concern, conditions involving the establishment of an ESOP were proposed by the Commission and agreed to by the merger parties.
“The Tribunal sought clarity and further details from the parties regarding certain aspects of the tendered conditions relating to the ESOP, including issues such as: the level of shareholding allocation in Net1 Inc. to the ESOP; what costs, if any, there will be to the employees / beneficiaries regarding the ESOP; the funding arrangement; the criteria to be applied for qualification as a beneficiary and any exclusions that may apply; benefits that the beneficiaries will be entitled to; employee representation; and consultation processes.”
The merger parties subsequently enhanced the tendered ESOP-related conditions in certain respects. These amended ESOP-related conditions were acceptable to the Tribunal after motivation by the merger parties and the Commission.
Annexure B to the Tribunal’s imposed conditions deals with the ESOP design principles, including the ESOP’s structure, funding, cost to workers, governance, duration, participants, participation benefits and approvals required. These design principles provide, inter alia:
  1. All workers of the merged entity as at the ESOP establishment date who are not part of existing equity ownership and long-term incentive schemes at that date will be beneficiaries of the ESOP;
  2. Beneficiaries will be entitled to: (i) dividends to the extent that they are declared by Net1 Inc and in terms of an applicable trickle dividend to the ESOP; and (ii) capital growth/upside due to the vesting of the ESOP after 7 (seven) years;
  3. The ESOP shall be at no cost to the participants (the workers of the merged entity). For the avoidance of doubt, no cash outlay will be required to participate in the ESOP;
  4. The funding will entail notional vendor financing or a similar funding arrangement and other facilitation by Net1 Inc. The terms of the vendor financing will provide for a fixed trickle dividend rate, meaning that a portion of any dividends declared by Net1 Inc in respect of the shareholding of the ESOP trust will flow to the beneficiaries of the trust and the other portion will be utilised to service the vendor financing; and
  5. A balanced composition of Board of Trustees, including 1 (one) appointed by the merged entity, and 1 (one) appointed by workers and 1 (one) independent. The independent trustee will be recommended and appointed by the workers, subject to the candidate being acceptable to the merged entity.
Development initiatives
The merger parties also made commitments to supplier and enterprise development initiatives and socio-economic development investments. In terms of the Tribunal’s imposed conditions, Net1 Inc will make a combined contribution equivalent to R12 million in Net1 Inc's current financial year, to supplier and enterprise development initiatives, together with socio-economic development investments. These include:
  1. “R6 million (six million Rands) in supplier development contributions, involving providing working capital solutions, operating expenses support, and extending multiyear contracts where viable, to support the financial viability of, and potential job creation by, HDP owned SME suppliers to the merged entity;
  2. R3 million (three million Rands) in enterprise development contributions, involving operating expenses support and technical support to HDP owned SMEs that have the potential to graduate into the merged entity supply chain, or that can participate within the broader value chain in which the merged entity operates; and
  3. R3 million (three million Rands) in socio-economic development contributions, targeting the upliftment of the communities which the merged entity serves, and in particular to facilitate the provision of resources necessary to enable dignity, such as safe drinking water, and facilities for the disabled.”
Issued by:

Gillian de Gouveia, Communications Officer
On behalf of the Competition Tribunal of South Africa
Tel: +27 (0) 12 394 1383
Cell: +27 (0) 82 410 1195
Twitter: @comptrib
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