The Competition Appeal Court (CAC) overturned the decision of the Competition Tribunal to conditionally approve Oceana's acquisition of Foodcorp's Glenryk brand together with its small pelagic fish allocation fishing quota.
This transaction concerned two iconic canned pilchard brands in South Africa - Oceana's Lucky Star and Foodcorp's Glenryck. Foodcorp wished to sell its fishing operations to Oceana because it considered them no longer core to Foodcorp's future business strategy, and because the Department of Agriculture, Fisheries and Forestry (DAFF) had threatened to revoke certain of Foodcorp's fishing rights (quota) as a result of its reduced empowerment shareholding. This threatened the survival of Foodcorp's fishing business, including its Laaiplek processing facility where approximately 1000 people are employed.
Foodcorp proposed to sell its fishing business, including its quota and fish processing plants, to Oceana. DAFF fully supported the transaction. However, as Oceana's Lucky Star enjoys approximately 73% market share, the combination with Glenryck with 8% market share would result in a very dominant player in the downstream canned pilchards market. The parties proposed excluding the sale of the Glenryck brand from the transaction (which brand would either be retained by Foodcorp or sold to a third party).
The Commission investigated the proposed transaction and found that it resulted in horizontal effects in relation to the harvesting, processing and marketing of pelagic fish products (pilchards). In addition, the Commission found that access to sufficient local quota is vital to the support of a canned pilchards brand, and therefore the disposal of Glenryck without access to Foodcorp's quota would lead to the removal of an effective competitor from the market. The Commission therefore approved the transaction subject to a condition that Glenryck be disposed to a third party, together with Foodcorp's pelagic fish quota.
This condition fundamentally undermined the business case for the transaction. The merging parties therefore requested that the Tribunal reconsider the Commission's decision. Before the Tribunal, the merging parties argued that access to quota was not required in order to sustain a viable canned pilchards brand in the market. Evidence showed that Oceana's own quota equates to less than a third of its total pilchard requirements for Lucky Star, with the remainder being contracted from other local quota holders and more than 60% of its requirements sourced from imported pilchards. The acquisition of Foodcorp's quota would therefore only marginally reduce Oceana's reliance on imports. In addition, it was shown that retailers' own brands (in particular Shoprite) are the fastest growing competitors in the canned pilchards market, yet they do not have any local quota of their own and rely heavily on imported pilchards. During the Tribunal hearing it further emerged that Bidfish, a subsidiary of the Bidvest Group, was willing to acquire Glenryck without any fishing quota, and presented evidence that it could support Glenryck with its own quota from Namibia and compete against Lucky Star. Despite this evidence, the Tribunal agreed with the Commission's assessment and confirmed the condition requiring the parties to dispose of the Glenryck brand, together with the Foodcorp quota.
The merging parties therefore appealed the Tribunal's decision to the CAC. In a judgment issued by Victor AJA on 19 December 2014, the CAC found that in view of the evidence presented by the merging parties (which was not refuted by the Commission's evidence) the Tribunal had drawn inferences from speculative evidence, and ultimately led to conclusions that were not based on the facts.
The CAC therefore overturned the Tribunal's decision and approved Oceana's acquisition of the Foodcorp fishing business, subject to a condition proposed by the merging parties that Foodcorp retain and continue to operate the Glenryck brand in accordance with good business practice and, in the event of the subsequent sale of Glenryck, Foodcorp shall notify the Glenryck sale to the Commission if required.
The CAC also emphasised that the transaction had a significant public interest consideration that should have been taken into account, in that the continued existence of the Foodcorp fishing business (under Oceana) would result in the survival of the Laaiplek processing facility and employment for approximately 1000 employees in a highly impoverished region, who otherwise would likely have been retrenched.