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 https://www.comptrib.co.za/case-detail/19790  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
 
Employment
 
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:
 

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: