The recent decision issued by the Competition Tribunal (the “Tribunal”) in the Metropolitan/Momentum merger on 9 December 2010 has, no doubt, sparked interest and discussion in competition law practices around the country.

The Tribunal‟s decision, which approved the large merger subject to a limited moratorium on retrenchments to be made by the merging parties, has served to beef up the competition law jurisprudence dealing with employment issues in the context of public interest. But has the Tribunal, in what appears to be a landmark decision, gone too far in its quest to protect the public interest?

The transaction, which involved a merger between Metropolitan Holdings Limited (“Metropolitan”) and Momentum Group Limited (“Momentum”), companies with diversified interests within, inter alia, the broader financial services sector was found by the Tribunal to be unlikely to substantially prevent or lessen competition in any of the markets within which the parties‟ activities overlapped.

The Tribunal‟s only concern arose as a result of the number of potential retrenchments resulting from the merger. The merging parties, in their merger notification documents submitted to the competition authorities, indicated that as a worst case scenario, the merger may result in a „net‟ amount of 1000 retrenchments made up of senior management, middle management, junior management, semi-skilled employees and unskilled employees. Apart from a consideration of certain factors that would potentially ameliorate the effect of the number of retrenchments made such as natural attrition, retraining, redeployment, offers of early retirement and business growth, the merging parties were unable to provide greater certainty on the number of retrenchments that would, in fact, be made post-merger. Such certainty, it was submitted, would require greater analysis, planning and the sharing of information which would traverse terrain associated with the pre-implementation of a notifiable merger prior to receiving competition law approval (a competition law contravention).

The Tribunal, spurred on by the National Education Health and Allied Workers Union (which trade union, interestingly, only represented 6.3% of the total workforce of Momentum), laid down a two step process to be followed by merging parties once a substantial public interest concern is raised, which represents a substantial shift from previous cases on this issue. Merging parties are now required to show that: “(a) a rational process has been followed to arrive at the determination of the number of jobs to be lost, i.e. that the reason for the job reduction and the number of jobs proposed to be shed are rationally connected; and (b) the public interest in preventing employment loss is balanced by an equally weighty, but countervailing public interest, justifying the job losses and which is cognisable under the Competition Act, No. 89 of 1998 (as amended) (the ”Competition Act”).”

The Tribunal held that the merging parties had failed to satisfy the aforementioned burden and accordingly, approved the merger subject to a moratorium on retrenchments being made for a period of two years post-merger. The moratorium was limited in that it excluded from its ambit the retrenchment of “senior management” as defined by the merging parties in their documents. Pursuant to a variation application by the merging parties requesting clarification on certain terms contained in the Tribunal‟s order, the Tribunal agreed with the merging parties that such moratorium applied only to retrenchments based on the merged entities‟ operational requirements and excluded voluntary retrenchments and voluntary early retirement packages.

This decision appears to bestow on merging parties facing duplicated employment positions in the context of a synergistic merger, the obligation to retain certain semi-skilled and unskilled employees regardless of its effect on the efficiency and financial health of the company post-merger, which, oddly enough, seems to run counter to the principles of the Competition Act.

What is clear from this decision is that given the current economic climate in which we find ourselves and taking into account South Africa‟s social evils, the Tribunal has decided to place a greater burden on merging parties when a merger is likely to result in job losses.

Merging firms will now need to conduct a more extensive analysis when it is clear that a merger may result in substantial public interest employment concerns, while somehow ensuring that they do not enter into the terrain of pre-implementing a merger or initiating other employment processes thereby contravening labour law.

In the circumstances, merging parties facing the possibility of potential retrenchments and substantial public interest concerns would be wise to obtain competition law advice in the planning and negotiations of their mergers.