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Telkom SA Ltd and Another and Praysa Trade 1062 (Pty) Ltd (81/LM/Aug00) [2000] ZACT 43 (6 October 2000)
.RTF of original document
COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 81/LM/Aug00
In the large merger between:
Telkom SA Ltd
and
TPI Investments
and
Praysa Trade 1062 (Pty) Ltd
_____________________________________________________________________
Reasons for Decision
_____________________________________________________________________
APPROVAL
1.
On 2 October 2000 we approved the merger between Telkom SA Ltd (“Telkom”), TPI Investments and Praysa Trade 1062 (Pty)
Ltd [the name of which is to be changed to Telecommunications Facilities Management Company (Pty) Ltd] (“TFMC”) with
conditions. Our reasons for approving this merger appear below.
THE MERGER TRANSACTION
2.
This merger is part of the process of the restructuring of state assets. The state holds seventy (70) percent of the issued share
capital of Telkom. The remaining thirty (30) percent of Telkom’s issued share capital is held by Thintana Communications LCC,
a company registered in the United States. Through this merger Telkom is selling off parts of its non-core assets.
3.
TPI Investments (formerly known as Lexshell 409 Property Holdings (Pty) Ltd) is a wholly-owned subsidiary of TPI Holdings. The shareholders
of TPI Holdings are Real Africa Durolink Investment Bank Limited, Rebserve Ltd and African Life Properties (Pty) Ltd each of whom
hold 33,3% of the entire issued capital of TPI Holdings.
4.
TFMC is a wholly owned subsidiary of Newshelf 593 (Pty) Ltd whose shareholders are Rebserve Ltd and WS Atkins International Ltd who
hold 55% and 45% of its issued share capital, respectively. Rebserve is a South African company active in, inter alia, the provision of facility management services. WS Atkins is a major British based multinational. Atkins is active in the provision
of facility management services in many countries across the world. This is, however, Atkins’ first foray into the South African
market.
5.
Four agreements constitute the merger, two between Telkom and TPI Investments and two between Telkom and TFMC. Telkom is selling to
TPI Investments approximately 1400 immovable properties (“the property sale agreement”) and in terms of a separate agreement
will be leasing back some of the properties sold to TPI (“the lease agreement”). TFMC is acquiring as a going concern
the business conducted by Telkom’s Facilities Infrastructure Operations and Property Asset Management divisions, including
transfer of the staff, (“sale of business agreement”). Telkom and TFMC have also entered into an exclusive Facilities
Management Agreement (“FMS agreement”) in terms of which TFMC will provide Telkom with the services previously undertaken
by the Facilities Infrastructure Operations and Property Asset Management divisions. This agreement includes the servicing of the
properties to be leased by Telkom from TPI Investments in terms of the lease agreement referred to above.
BACKGROUND
6.
This matter was initially set down for hearing on 6 September 2000. The day before the hearing COSATU sent a letter on behalf of the
Communications Workers Union (“CWU”), one of its affiliates, requesting that the hearing be postponed to allow them to
consult with the merging parties on the merger. At the hearing the parties to the transaction agreed to a limited postponement although
they argued that commercial considerations necessitated an expeditious resolution of the matter. We postponed the hearing until 27
September 2000. In addition to the employment concerns of the unions we requested that on resumption of the proceedings on 27 September
2000 the merging parties address us on the exclusive nature of the FMS agreement which provided that, firstly, TFMC would offer its
services only to Telkom and, secondly, that TFMC would be the sole provider of these services to Telkom.
7.
Soon after the postponement CWU requested the merging parties to supply it with certain information including their business plans,
financial statements and financial projections. The merging parties refused to give this information on the basis that it was not
necessary for them to supply this information for purposes of the merger proceedings. They claimed that members of CWU had already
been supplied with all information necessary for them to make an input into the merger proceedings. Furthermore, they claimed adequate
consultation had already occurred between the Union members and the merging parties. As a result of concerns raised during the consultation
process they had already included clauses in the FMS agreement to secure employment for Telkom employees transferred to TFMC as part
of that agreement. These clauses prohibit TFMC from retrenching any of the transferred employees for a period of twenty (20) months
from the effective date of the merger.
8.
On 21 September 2000 we received a letter from legal representatives of Infracom (Pty) Ltd, a company that provides certain consultant,
project and facilities management services to Telkom. Infracom had a contract with Telkom regarding the supply of certain of these
services, which expired at the end of September 2000. The contract provided that on expiry Telkom was obliged to afford Infracom
an opportunity to tender with other firms for the rendering of these services. They were concerned that the FMS agreement covered
the services that Infracom provided to Telkom and therefore precluded them from tendering for the supply of these services as envisaged
by the contract between themselves and Telkom.
9.
Infracom claimed that they were concerned that the FMS agreement may constitute a prohibited practice in terms of the Act and a breach
of the existing contract between itself and Telkom. Infracom also gave notice of its intention to participate in the hearing as a
party having a material interest in the matter. No formal application to intervene was made by Infracom.
10.
When our hearing resumed on the 27th September both CWU and Infracom requested that we order the merging parties to give them give them access to substantial information
relating to the business of the merging parties.
11.
At the hearing CWU moderated the request for information that had been contained in its earlier letter to the parties and confined
itself to requesting the following information:
a.
The complete version of the statement of merger information CC 4 (3) submitted by Telkom to the Competition Commission;
b.
The sale of business agreement;
c.
Telkom’s business plan;
d.
The business plan of TPI Investments and TFMC in respect of the transferred undertakings;
e.
Telkom's intermediate financial projections;
f.
The identity of the owners of the acquiring companies; and
g.
A cost benefit analysis of the transaction.
12.
In addition CWU requested a postponement of ten days to allow it an opportunity to participate adequately in a postponed hearing after
having sight of the above documents. In the event that we decided to approve the merger CWU made three other prayers in the alternative.
Firstly that we amend a clause in the sale of business agreement that gave Telkom the right to purchase back the business sold to
TFMC in the event of a termination of the contract to provide that Telkom was obliged to do so. Secondly that all obligations in
respect of employees in the sale of business agreement be enforceable as a term of each employees contract with the relevant employer
in the event of a breach of any of the obligations. Lastly, we were requested to order that the merging parties recognize CWU as
a collective bargaining representative of the Telkom employees who are to be transferred to TFMC in terms of the sale of business
agreement.
13.
Infracom for its part requested us to order that it be entitled to have sight of the FMS agreement, the joint venture agreement setting
up TFMC and a copy of the Commission’s recommendations to the Tribunal. In addition it requested a postponement of the proceedings
to allow it an opportunity to make submissions on those documents.
14.
In response to the submissions of Infracom the Commission pointed out that both parties had been aware of the transaction and its
implications for them for some time and had decided not to make any representations. The Commission stated that they had contacted
CWU to get its views on the merger, especially on its employment implications, but had not received any input. Regarding the application
by Infracom the Commission also submitted that there was no reason why Infracom could not have submitted its views on the merger
at an earlier date. Notice of the merger was published in the Government Gazette in July 2000 and any party with an interest in the
merger had been free to make submissions to the Commission from that time.
15.
The merging parties opposed both CWU’s and Infracom’s application for access to additional information and for a postponement.
16.
Regarding CWU’s submissions the merging parties argued that the Unions were already in possession of all information necessary
for them to determine the employment implications of the merger. They already had been given copies of the sections dealing with
the protection of employees in the sale of business agreement and in the FMS agreement. The parties submitted that this was adequate
information for CWU to determine the impact of the merger on employment and they were not entitled to further information. Furthermore,
the parties had embarked on a consultation process on the merger and CWU members had most of the information relating to the merger.
The further information requested was relevant only to the viability of the businesses of the merging parties. The merging parties
submitted that the future viability of businesses was not one of the factors that the Tribunal was entitled to consider in merger
proceedings.
17.
Regarding the request for a postponement by CWU, the merging parties referred to a record of consultations with members of CWU and
submitted that there had been ample opportunity for CWU to make representations before the hearing.
18.
The merging parties queried, without formally opposing, Infracom’s right to participate in the hearing in the absence of a formal
application to intervene. The merging parties submitted that in these proceedings the Tribunal was not entitled to consider the question
of whether or not there are prior or existing rights between Telkom and Infracom. This was a question for a civil court to decide.
The Tribunal is only entitled to consider factors listed in Section 16(3) of the Act. The parties also revealed that, in any event,
there were negotiations in process between themselves and Infracom regarding a possible future role for Infracom in the provision
of those services that it currently provided to Telkom.
19.
The parties opposed Infracom’s application for a postponement on the grounds that they had had adequate opportunity to make
representations and chose not to. In addition they claimed that there were commercial considerations to be taken into account. The
funds for the sale of business transaction have to be raised by the parties in the capital market. Current favourable interest rates
may change and, moreover, it is generally difficult to raise finance in the latter half of November and in December. These factors
mean that a further delay could mean that the merger never materializes or that the cost of undertaking the merger would be considerably
increased.
20.
We found that we were entitled to permit participation in merger proceedings by an interested party at any time. Furthermore, proper
consideration of the transaction would not be served by refusing Infracom the right to participate in the proceedings. Our decision
to allow Infracom to participate was also influenced by the fact that Infracom’s concern was based on the exclusive nature
of the FMS agreement, an issue we had raised during the hearing on 6 September 2000. Accordingly it was not a new issue to which
merging parties had to respond.
21.
However, we denied both applications for additional information. We were firmly of the view that while the private interests of the
parties may well have been served by the information requested much of it had precious little, if any, connection to the matters
within the purview of the Competition Act. The information already submitted by the parties adequately covered those matters of concern
that were relevant to the administration of the Act. Moreover, there had been ample opportunity for dialogue between the parties
on the one hand, and CWU and Infracom on the other, before the hearing.
22.
We deal with CWU’s application first. Our view was that CWU could make an assessment of the impact of the merger on employment
without access to the parties’ business plans, their intermediate financial projections, or a cost benefit analysis of the
transaction. The identity of the owners of the acquiring companies is a matter of public record and this request is hard to understand.
Furthermore, the parties provided CWU with all clauses dealing with employee protection in the sale of business agreement and we
were not convinced that CWU needed access to the whole agreement to make a meaningful assessment of the employment implications of
the merger. The evidence before us suggested that the merging parties had adequately consulted with CWU members regarding this merger.
23.
With regards to Infracom’s application we were of the view that it was fully aware of the implications of the contract for its
business, having been engaged in discussions with the parties. In any event we were not convinced that their request for information
was necessitated by genuine competition concerns on their part. The legal representatives of the merging parties characterized Infracom’s
request for further information as a fishing expedition on its part, an attempt to gain access to commercially valuable information
and to use any postponement of these proceedings to leverage their as yet unsuccessful negotiations with TFMC for a share of the
contract. Harsh as this criticism may be, when seen in the context of the unfathomable objection raised by Infracom to the merger
on competition grounds, and the lateness of their intervention, we suspect it is not unfounded. Nevertheless, however skeptical we
may be of the motives of Infracom we must consider the substance of their request for information.
24.
We are satisfied that Infracom was fully informed as to the exclusivity clauses contained in the agreements, the scope of the services
and the duration of the agreements (as these aspects were canvassed in their correspondence and subsequent submissions to us), for
them to have adequately made representations to us on their issues of concern, insofar as these were relevant to our proceedings.
Infracom had also met with TFMC to discuss the agreement, a further indication that the material terms were well known to them. Granting
them access to any further information would not have assisted them any further in articulating their submissions to us, but would
have compromised the confidential information of the merging parties.
25.
We accordingly denied the application for postponement by both Infracom and CWU. The request for a postponement was made so that the
parties could consider further information that they requested we release to them. Having denied the application for access to further
information there was no reason for us to give a postponement.
26.
Having denied the two applications for further information and a postponement we accordingly invited the various parties to address
us on the substantive merits of the proposed transaction, relying on the information already in their possession.
THE COMPETITION ANALYSIS
