The Competition Tribunal has approved a merger involving Food Lover’s Market subject to conditions aimed at promoting ownership by historically disadvantaged persons (“HDPs”) in the KwaZulu-Natal (“KZN”) grocery retail market as well as supplier development conditions.
The transaction
FLM SA (Pty) Ltd (“FLM SA”), owned by Food Lovers Holdings (Pty) Ltd (“FLH”), intends to acquire 51% of the shareholding of (i) Everfresh Market Ballito (Pty) Ltd t/a Food Lover's Market Ballito; (ii) Riverbend Trade and Invest 11 (Pty) Ltd t/a Food Lover's Market Arbour Crossing; and (iii) Everfresh Market Hillcrest (Pty) Ltd t/a Food Lover's Market The Crescent (collectively, “the target firms”).
FLH is the holding company and franchisor in respect of Food Lover’s Market.
The target firms conduct franchised stores under the acquiring group’s Food Lover’s Market chain of corporate and franchised stores.
HDP ownership
The Competition Commission (“the Commission”), which investigates large mergers before referring such to the Tribunal for a decision, was of the view that the merger does not raise any competition concerns. However, it found that the proposed transaction does not promote a greater spread of ownership i.e. neither the acquiring group nor the target firms have any HDP or worker ownership. It therefore requested the merging parties to provide remedies and the merging parties agreed to certain conditions.
Tribunal’s order and reasons
The Tribunal’s order and reasons are publicly available on
https://www.comptrib.co.za/case-detail/20210. In summary, after assessing the proposed transaction, the Tribunal concluded that the merger is unlikely to substantially prevent or lessen competition in any relevant market in South Africa. However, the Tribunal approved the merger subject to the following public interest-related conditions as tendered by the merging parties:
Conditions
FLM SA must ensure that three of the stores that it will open in the KZN region in the next five years will have a significant HDP component i.e. the stores will either be wholly owned and operated by HDP franchisees or co-owned by FLM SA (as to 51%) and a HDP joint venture partner (as to 49%).
To this end, FLM SA has identified corporate stores that it intends to develop in KZN and has furthermore outlined suitable areas for franchising opportunities in KZN.
Regarding the corporately owned stores to be developed, one must be owned and operated through a joint venture arrangement with a HDP partner, who will likely come from FLM SA’s KZN employee base. Although FLM SA will provide the start-up costs, the HDP partner will enjoy equal rights of participation in the joint venture and will also be an owner-manager of the business.
In terms of franchised stores identified, FLM SA must ensure that two stores are owned and operated by a HDP franchisee, in accordance with certain provisions outlined in the merger conditions.
To the extent that FLM SA will open additional franchised stores in the KZN region in the next five years, it will endeavour to ensure that the ownership structure contributes to the main objective set out in the conditions.
Supplier development
FLM SA must ensure that the stores it is acquiring in this merger continue to procure from existing small and medium-sized businesses and HDP suppliers for a period of five years from the merger implementation date, provided that these suppliers meet FLH’s minimum listing requirements.
