Glencore and Xstrata

Competition Tribunal approves Glencore / Xstrata merger subject to employment conditions

The Competition Tribunal (Tribunal”) has today conditionally approved the merger between Glencore International plc and Xstrata plc. This means the merger may be implemented in South Africa.

Although the Tribunal issued its order today, full reasons for its decision will only be given at a later date. The Tribunal has however, given the public interest in the merger, issued a brief statement explaining the process and why it has made its decision.

“Following the conclusion of its investigation on 18 October 2012, the Competition Commission (“Commission”) recommended that the Tribunal approve the merger subject to a condition relating to employment. However, no condition was recommended relating to competition issues.

The Tribunal then invited interested parties to participate in its hearings. The National Union of Mineworkers (“NUM”) intervened to address concerns about merger-related retrenchments. Eskom Limited intervened over concerns that the merger would lead to increased input costs for its coal needs. Whilst Eskom did not oppose approval of the merger, it recommended that it be approved subject to conditions regulating the supply of coal to Eskom. The National Union of Metalworkers of South Africa (“NUMSA”) intervened to support Eskom in its concerns, specifically the negative effect of higher electricity prices on (energy-intensive) industry in South Africa and workers employed by such industries. The merging parties did not oppose these parties intervening but were opposed to the proposed coal supply conditions.

 At a pre-hearing on 16 November 2012, a timetable was agreed with the respective parties to provide for the hearing of witnesses. At a subsequent pre-hearing last year Eskom advised that it would not lead any witnesses, but that its competition concerns remained. Whilst it had filed a report prepared by an economic expert, it stated that it did not intend to lead its expert.

It is unusual for a party which applies to intervene not to take up the opportunity to present live testimony. For this reason the Tribunal directed that it wanted to hear evidence from an Eskom witness about its coal procurement concerns and to hear evidence from its economic expert. Eskom then prepared a witness statement from Ms. Kiren Maharaj, the Divisional Executive for the Primary Energy Division of Eskom, and agreed to make its expert available for the hearing. From their side, the merging parties had also prepared an expert witness report and, at the Tribunal’s request, agreed to make available for testimony executives from the respective merging firms.

For logistical reasons the hearing, which was meant to take place in December last year, was postponed to the 18th of January 2013 and set down to run for five days so as to accommodate the hearing of both the factual and expert witnesses.

At the commencement of the hearing on 18 January 2013, Eskom and the merging parties advised the Tribunal that they had reached a private agreement and that, as a result, Eskom was withdrawing as an intervenor in the merger proceedings.  As a result NUMSA also announced its withdrawal.

We were given sight of the agreement and it forms part of our record, but both parties have claimed confidentiality over its terms.

We directed that the fact of the agreement be made known during a public part of the hearing and that we would then consider its content during an in-camera hearing. In the public part of our hearing, counsel for the merging parties described the agreement’s terms as being largely about process and we would agree with this description.

During the in-camera hearing the contents of the agreement were discussed with submissions made by Eskom, the merging parties and the Commission.

After hearing these submissions, the Tribunal decided that notwithstanding the agreement, we still wished to hear from Ms Maharaj concerning Eskom’s concerns. The reason we did so is that the Tribunal is not bound by private arrangements and still has a statutory duty to consider whether the merger may be lead to anti-competitive effects or raise substantial public interest concerns.

Accordingly Ms Maharaj then gave evidence in public hearing. She responded to questions from Tribunal panel members and counsel for the merging parties on the coal supply by, respectively, Glencore and Xstrata and the firms in which they hold interests to specific Eskom power stations and the alternatives that are available to Eskom. After considering her testimony we have concluded that Eskom’s coal supply concerns, although legitimate, are not merger-specific, i.e. this merger is not the cause for the concerns. We will explain why we have come to this conclusion when we issue our reasons later.

For this reason, we have come to the conclusion that the merger will not have an anti-competitive effect and therefore we do not have to have regard to the significance of the private agreement reached between Eskom and the merging parties.

We were further advised at the hearing on 18 January 2013, that the merging parties and the NUM had reached agreement on a condition which would regulate employment loss that may come about as a result of the merger. This agreement is a slight modification of the one recommended by the Commission. We are satisfied that the condition is fair both to the affected employees and the merging parties.

In brief, the condition provides for a ceiling on the number of employees that may be retrenched as a result of the merger. No more than 80 skilled employees may be retrenched and the retrenchment process in respect of this class of employee may commence once the merger has been implemented by the merging parties.

In respect of the class of semi-skilled and unskilled employees, greater protection is provided. Following the effective date (i.e. the date of the last jurisdiction’s competition approval of the merger), the merging parties must conduct a review to analyse whether retrenchments from this class of employees are required. This review period, which will involve engagement with the unions concerned, must be completed within 90 days. If after this review has been concluded, it is determined that retrenchments are still required, then the merged firm may retrench, provided it does so only two years after the end of the review period; and no more than 100 employees from this class may be retrenched. What this means is that retrenchments, of unskilled and semi-skilled employees, if they have to take place, are postponed for at least two years and 90 days after the effective date.

For those semi-skilled and unskilled employees who are retrenched, a training fund has been established and each retrenched employee will be entitled to receive R10 000 towards an approved training course.”