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IDC Anglo American (1) (46/LM/Jun02) [2002] ZACT 53 (26 September 2002)

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COMPETITION TRIBUNAL

REPUBLIC OF SOUTH AFRICA

Case No.’s.: 45/LM/Jun02

and 46/LM/Jun02

In the matter between:

Industrial Development Corporation of South Africa Ltd Applicant

and

Anglo-American Holdings Ltd Respondent

in the large mergers between:

Anglo American Holdings Ltd

and

Kumba Resources Ltd

and

Anglo South Africa Capital (Pty) Ltd

and

Anglovaal Mining Ltd

________________________________________________________________

Reasons for decision: intervention application

________________________________________________________________

1. On 19 September 2002, I heard an application brought by the Industrial Development Corporation of South Africa Limited ( IDC) to intervene in the two-abovementioned merger proceedings.¹ The application was opposed by the merging parties, but not by the Competition Commission. I heard oral submissions from the legal representatives of the merging parties and the IDC. The merging parties also forwarded me written heads of argument on the following day, which I have considered. I decided to allow the IDC to intervene and at the request of the parties gave my ruling on 20 September 2002. I have now been asked to give the reasons for my decision, which follow.

Background

2. Although there are two different acquiring firms in the two transactions they are both ultimately controlled by the same firm, Anglo American plc. Indeed, the parties state that part of the rationale for the merger is the synergies that can be brought about from combining control of the respective iron ore interests of Avmin and Kumba. The Commission have recommended to us in terms of section 14 A of the Act, that we approve both mergers without conditions. Both the Department of Mineral and Energy (the ‘DME’) and the Minister of Trade and Industry have expressed support for the mergers in written submissions to the Commission.

3. The only opposition to the mergers, that we are aware of thus far, has come from the IDC. No other party to date has indicated an intention to intervene

4. The IDC, in its application, has indicated that it wishes to make submissions concerning the effects of the mergers on the iron ore market.

5. In its motivation the IDC states, inter alia, that –

• The merger will increase the barriers to entry in the iron ore market;

• The merger will make it more difficult for persons from historically disadvantaged groups to participate in the iron ore market;

• The merger will affect the long term pricing arrangement between Iscor and Kumba; and

• The merger will have an affect on the domestic iron ore market in relation to pricing, export potential, and the over exploitation of resources.

6. It, therefore, wishes to make representations on these issues in view of its conclusion that the merger is –

   1. likely to substantially prevent or lessen competition in the market; and

   2. not in the public interest.

7. The two mergers we are concerned with are substantial transactions. This much is expressed by the DME in their submission, who put it as follows:

“Although, at face value, one might suspect that there could be a threat to competition in the market through Anglo monopolising production and sales of iron, manganese and zinc as a result of the share acquisitions, we believe the status quo will not change significantly for reasons that appear in the following analysis of the diagrams, figure 1 and figure 2, attached to this letter.”²

General approach to intervention by parties in merger cases.

8. Under the Competition Act the legislature has recognised that whilst mergers may be transactions between private parties their effects are wider than just the parties’ interests and hence an elaborate schema has been developed under the Act for merger regulation. In large mergers, such as the one we are concerned with presently, the Commission, after an investigation, in terms of section 14 A, makes a recommendation to the Tribunal as to whether the merger should be approved, approved conditionally or prohibited. The Tribunal is not bound to follow this recommendation and must exercise an independent and informed discretion.³

9. This repeated scrutiny provided by this schema indicates that large merger decisions were not ones, which the legislature considered could be taken lightly. Indeed there is a constant theme throughout a number of sections of the Act that the effects of mergers are considered to be matters of great importance. So for instance in the preamble to the Act the need for a credible competition law and institutions is justified inter alia in order to:

“regulate the transfer of economic ownership in keeping with the public interest”

10. Again in section 2 of the Act the multiple reasons for promoting and maintaining competition are reiterated. I will not repeat them here other than to observe how broad these considerations are, ranging from the promotion of efficiency to promotion of a greater spread of ownership.

11. In section 12 A, which sets out the substantive considerations to be taken into considering a merger, again a wide range of criteria feature, ranging from purely competition criteria to efficiency gains and the defined public interest criteria.

12. The legislature, both in the elaborate procedures it has imposed for large mergers and the demanding objectives it has set in the preamble and sections 2 and 12 A, clearly intended that merger scrutiny was to both thorough and wide ranging. Given this context and the burden which the Tribunal assumes in merger adjudication, we should approach the standing of intervenors in our proceedings in a manner that befits this context, which suggests that we would benefit, given the range of considerations that we have to take into account, from hearing debate and alternative points of view.

13. It is against this backdrop, of the purpose of our function in merger adjudication, that I must approach the interpretation of the procedural provisions that regulate intervention in the Act and the Rules.

The Act

14. Obviously the Act must be the first point of departure. Section 53 deals with the right to participate in a hearing and, in its structure, distinguishes between three different types of procedure, namely, restrictive practices, exemption applications and mergers. All three procedures recognise the rights of specifically named persons as participants and then in each section recognise what I shall call a residual or general class of persons who participate if allowed to do so by the Tribunal. For mergers this is set out in section 53(1) (c) which provides as follows:

“If the hearing is in terms of Chapter 3 –

1. any party to the merger;

2. the Competition Commission;

3. any person who was entitled to receive a notice in terms of section 13A (2) and who indicated to the Commission an intention to participate, in the prescribed form;

4. the Minister, if the Minister has indicated an intention to participate; and

5. any other person whom the Competition Tribunal recognised as a participant;” (My emphasis)

15. Subparagraph (v) is the relevant one for our purposes. What is notable is that it sets out no criteria for persons in the residual class to have to meet in order to be entitled standing. In this respect the person in the residual class in a merger proceeding is placed on a different footing to a person in a restrictive hearing where the criteria is expressed as follows in the last sub-paragraph in section 53(1)(a):

1. ‘(iv) any other person who has a material interest in the hearing, unless, in the opinion of the presiding member of the Competition Tribunal, that interest is adequately represented by another participant, but only to the extent required for the complainant’s interest to be adequately represented;” (My emphasis)

16. In its treatment of the residual class for the purpose of section 3 the legislature makes no reference to the requirement that the person must have a material interest or that ‘the interest is not adequately represented by another participant’. Thus the legislature clearly provided a less demanding threshold for intervention in merger proceedings as compared with restrictive practice and exemption proceedings.⁴

17. With this in mind I now examine the Tribunal Rules.

The Rule

18. Rule 46 is the rule that provides for intervention. It states:

“(1) any time after an initiating document is filed with the Tribunal, any person who has a material interest in the relevant matter may apply to intervene in the Tribunal proceedings by filing a Notice of Motion in Form CT 6, which must –

1. include a concise statement of the nature of the person's interest in the proceedings, and the matters in respect of which the person will make representations; and

2. be served on every other participant in the proceedings.

(2) No more than 10 business days after receiving a motion to intervene, a member of the Tribunal assigned by the Chairperson must either –

1. make an order allowing the applicant to intervene, subject to any limitations –

1. necessary to ensure that the proceedings will be orderly and expeditious; or

2. on the matters with respect to which the person may participate, or the form of their participation; or

(b) deny the application, if the member concludes that the interests of the person are not within the scope of the Act, or are already represented by another participant in the proceeding.

19. Since a merger recommendation from the Commission is an initiating document as defined in the Rules, this rule would seem to be the procedural extension of section 53. What creates some difficulty is the reference to the fact that the intervenor must be a person who has a material interest. As I observed earlier this requirement is not present in the Act in relation to merger proceedings although it is there in relation to the residual class in restrictive practice cases. In the Acmed decision⁵ I noted the potential conflict between the Act and the Rule in relation to a complainant’s application to intervene in a restrictive practice case and I observed that the Rule should not be read to encroach upon a right granted by statute.

20. In order to apply the Rule in harmony with the Act the words material interest should not be interpreted in a manner that sets the threshold for intervention too high. To do so would seem to encroach on a statutory right in terms of section 53(1)(c)(v) granted to a party to intervene if the Tribunal recognises it.

21. There is a second reason for justifying a reading down of material interest. The new structure of the Act since the amendments incorporated in the Competition Second Amendment Act⁶ were designed to move issues of standing from the Rules, where they had been previously, into the Act. The Rules therefore must not be construed in a manner in which they create standing - this is the purpose of section 53. Indeed the Tribunal’s discretion to make rules in terms of the Act is confined to the manner and form of participation in its proceedings not the issue of standing. This we observed in the Distell case, where we stated in relation to another rule:

Whilst the Act is silent on the aspect of who has standing to bring such applications it does not delegate the issue of standing to the rules. On the contrary as we see in section 21(4), the section in terms of which rules are made, on the issue of participation, the rules must be confined to “ manner and form”⁷. An interpretation of Rule 42(3) as a rule that grants standing would thus be ultra vires the Act. We reject this interpretation of Rule 42(3) in favour of an interpretation that is both intra vires the Act and makes sense of why a special procedure was expressly provided for the Commission.⁸

22. Rule 46 could be interpreted in a manner that restricts the right granted in section 53 of the Act. As I have indicted the Act provides two reasons for not favouring such an interpretation. The words material interest must therefore be given an expansive interpretation so that the rule can be harmonised with the Act. It is of course trite law that a Rule must be interpreted subject to a statute. It cannot be used to either cut down or enlarge the meaning of a section in a statute.⁹

23. In my view on this approach the IDC certainly has a sufficient interest to be allowed to intervene in these proceedings.

24. However even if I am wrong in suggesting the words material interest should be given a broad interpretation, I consider that even on an ordinary meaning of these words, with Rule 46 read as it were divorced from its statutory context, the IDC have shown a material interest in these proceedings for reasons I elaborate upon in the next section.

Material Interest

25. The IDC has a 14 % interest in Kumba one of the parties to the merger. It also has an 8.8% interest in Iscor, which is Kumba’s major customer for its iron ore in the domestic market.

26. The IDC also has a representative on the Board of Kumba.

27. For this reason coupled with the fact that it is a statutory body with a public mandate on issues of industrial development, the IDC contends it has a material interest in the proceedings.

28. The merging parties deny that the IDC has established a material interest in these proceedings and advance a number of arguments to support their proposition.

29. They argue, following some European cases, that a party seeking to intervene must demonstrate that the merger effects it “by reason of certain attributes which are peculiar to it by reason of a factual situation which differentiates it from all other persons and distinguishes them individually in a manner akin to the merging parties.”¹⁰

30. The European cases the parties seek to rely on for this interpretation are dealing, not with the right to intervene in merger proceedings, but an interpretation of Article 173 of the Treaty of Rome which provides inter alia for the right of persons to appeal to the Court of Justice in respect of decisions, which cast in the language of the Treaty, are not “ addressed to that person”. The fourth paragraph of that provision allows this class of person to have standing if a decision although not addressed to them, is of “direct and individual concern to them”.¹¹

31. Thus the decisions are not in point as not only do they relate to a different procedure, (the right to appeal against another decision, and hence commence a new proceeding, as opposed to the right to participate in an ongoing proceeding) but also have different statutory language. The one decision relied upon is Plaumann v Commission ¹². In a gloss on this decision in the case of Kruidvat BVBA v Commission of the European Communities – the Advocate General has stated in interpreting the words ‘another person’ in Article 173, the Court “ had pronounced itself in favour of the ‘broadest possible interpretation’.

32. Thus if any principle does emerge from the European case law, it is that when construing language about standing, afford the broadest possible interpretation.

33. The merging parties go on to argue that the IDC’s shareholdings in Kumba and Iscor do not give it an interest in the proceedings. Iscor, they say, has indicated it is not opposed to the transaction and that Kumba is a party to the notification. They argue that following the well-known rule in Foss v Harbottle¹³ the shareholder should not be allowed to assert a right, which is for its company to assert. In the absence of Iscor or Kumba as intervenors, the IDC as their shareholder, they argue, cannot enjoy that right. In my view it is inappropriate to follow that principle in our proceedings without risk to their detriment. In the first place the shareholder is not instituting a separate proceeding, which their company has not. All the shareholder seeks is a right to participate in a proceeding already before us. In many merger cases minority shareholders of a merging firm may have a valuable perspective to offer us in circumstances where their interests are different to those of their board of directors. If we were to follow Foss v Harbottle in the rigid fashion suggested by the merging firms we would deprive ourselves of hearing from a valuable constituency. Participation in merger proceedings by intervenors is not simply about their right to vindicate their interest. It is also about allowing the Tribunal to benefit from hearing the point of view of parties who have an interest in the relevant matter. Hence the permissive language of section 53(1)(c)(v). When viewed from this perspective, the significance of the fact that it is the shareholder rather than the company itself that is seeking to intervene becomes less compelling.

34. The IDC s’ interests in these companies, which they own as a proxy for the public since they are not a private investor, are considerable. It is the largest domestic shareholder in Kumba and one of the largest shareholders in Iscor.

35. However the IDC’s interest goes further than that of a mere shareholder. It is not simply an investment company. Its statutory role, as an institution to finance industrial development, has public policy implications.

36. Section 3 of the Industrial Development Corporation Act 22 of 1940 sets out its objectives as follows:

“The objects of the corporation shall be-

1. with the approval of the Minister to establish and conduct any industrial undertaking;

2. to facilitate, promote, guide and assist in the financing of-

1. new industries and industrial, or ancillary or related economic, undertakings; and

2. schemes for the expansion, better organization and modernization of and the more efficient carrying out of operations in existing industries and industrial, or ancillary or related economic, undertakings,

to the end that the economic requirements of the Republic may be met and industrial development within the Republic, the Southern African region and the rest of Africa may be planned, expedited and conducted on sound business principles;

3. to promote the economic empowerment of the historically disadvantaged communities and persons;

4. to foster the development of small and medium enterprises and co-operatives;

5. to promote employment-creating activities, particularly in underdeveloped areas;

6. to leverage foreign direct investment in South Africa, the Southern African region and the rest of Africa through the use of its international network and presence;

7. to encourage the creation of new knowledge-based industries and services and the establishment and growth of new technology-based firms; and

8. to enhance corporate governance so as to achieve business excellence.

37. In section four it is given certain powers to achieve these objectives, included in these is subsection (i) which states:

“to furnish technical and other assistance and expert and specialized advice, information and guidance,

and, generally, to enter into any contract and perform any act, whether within the Republic or elsewhere, which may be necessary for or incidental or conducive to the attainment of any of the objects of the corporation, or which are calculated directly or indirectly to enhance the value of the services which the corporation can render towards industrial development or ancillary or related economic activities within the Republic, the Southern African region and the rest of Africa.”

38. Subsection (k) indicates its interest in mid and downstream manufacturing activities:

“to consider investment proposals in large beneficiation projects such that the viability of mid- and downstream manufacturing activities is ensured;”

39. What is clear from this is that there is a large degree of correspondence between the IDC’s statutory concerns and the public interest issues set out in section 12A of the Act. Secondly that the industrial policy concerns whilst not specifically referring to competition concerns are intimately related to them and it would be hard to consider one without considering its impact on the other.

40. In viewing the statutory objectives of the IDC and taking into account the fact that the IDC is a shareholder in one of the firms that will undergo a change in control post the merger, as well as the fact that it is a large shareholder in a significant domestic customer of one of the firms, I cannot but conclude that it has established the fact that it has a material interest in the outcome of the merger proceedings.

Other issues raised by the parties.

41. The merging parties made much of two other issues; firstly the fact that the IDC did not participate in the Commission’s investigations and secondly the fact that the Minister its shareholder has expressed himself in favour of the transaction.

42. There is nothing in the Act or rule to suggest that an intervenor needs to have participated in the Commissions proceeding to acquire standing. Indeed the Rule explicitly states to the contrary when it says in the opening line of Rule 46 “ at any time”.

43. In any event third parties are not given notice of the filing of mergers as are employees and the Minister of Trade and Industry, who must in terms of the Act be notified.¹⁴ They cannot be expected to know when a merger has been filed with the Commission or what the stage of the Commission’s investigation is.¹⁵

44. Secondly, from section 53(1)(c) we can see where the legislature intended to impose such a limitation on a party, it has expressly done so as in the case of sub-paragraph (iii) in respect of employee rights. The absence of such language in paragraph (v) suggests that no such limitation was contemplated.

45. The rationale for denying their participation because of the role of the Minister is hard to follow. The Act does not give the Minister the monopoly of making representations on public interest grounds. All that it does is to give the Minister an automatic standing on these issues. This does not preclude anyone else, not expressly mentioned in terms of the Act, from making submissions on public interest grounds. It would be absurd for the legislature to have attached such importance to the public interest grounds and then limit the right to make representations on these points to only parties who are expressly identified.

46. In a similar vein the parties argue that the views of third parties are catered for in terms of section 13 B (3), which states that:

“Any person, whether or not a party to or a participant in merger proceedings, may voluntarily file any document, affidavit, statement or other relevant information in respect of that merger.”

47. The parties argue that as a corollary of this right given to third parties the right to intervene should be exercised more sparingly.

48. I do not think that the language of the section warrants this inference. It establishes a right for all persons, not merely third parties to file information during the course of a Commission investigation. It does not seek to distinguish third parties from anyone else; it expressly mentions the three classes of persons who are to enjoy this right viz. the parties to the mergers, participants in merger proceedings and other persons. The section if anything distinguishes notions of participation from the right to file information, and cannot be to mean that the right to participate is somehow attenuated because the right to file has been afforded.

49. The parties argue that the application to intervene is vague and embarrassing. Without commenting on whether this is an appropriate standard to apply, I cannot agree with this. The complaint that the IDC has failed to make out a separate basis for intervention in each merger is hard to comprehend given the stance taken by both the merging firms and the Commission to analyse the mergers together. Since we are being asked to assess the cumulative effects of these mergers it is legitimate for the IDC to approach the issue of intervention in the same way.

50. Finally the parties make certain arguments in terrorem. That if we are to permit intervention too easily, merger hearings will be overrun by mischief makers who would make there proceedings, intended to be expeditious, a mockery. In the three years that we have administered this Act we have considered a large number of mergers and we have not experienced any such problem. Where parties have sought to intervene, the merging parties have invariably not opposed this, and proceedings have been orderly.

51. Intervention in merger proceedings should not be made to appear more significant than it is. Merger proceedings are relatively informal and not characterised by pleadings or formal notices that have to be responded to. Intervention can range from the mere submission of argument, to leading witnesses, or having the right to cross- examine. No doubt this is another reason that the legislature did not see the need to raise the jurisdictional threshold in section 53 in relation to mergers in the same way as it has in restrictive practice cases, as I indicated earlier.

52. Granted the merging firms may have legitimate concerns about expediting proceedings but this can be addressed, not by denying the right to intervene, but by managing the nature of the extent of intervention. For this reason I have put this condition into my order.

Conclusion

53. I find that the requirement of material interest in Rule 46 must be given a broad interpretation in merger proceedings in order to reconcile the rule with the language of section 53 and the purposes of the Act.

54. I further find that even on an ordinary reading of material interest that the IDC has established this interest on two grounds, namely its holdings in Kumba and Iscor on the one hand and secondly its statutory role in the economy. Although taken cumulatively these grounds reinforce the material interest of the IDC, taken in isolation they would each on their own give them standing in terms of Rule 46.

55. In my opinion our hearings would benefit from hearing the representations of the IDC. If its arguments are specious, I have little doubt that the parties and the Commission will not be slow in pointing this out to us. On the other hand if they raise legitimate issues this is the last opportunity we have to hear them. Merger decisions, once taken, cannot be undone except at the instance of the merging parties or its employees, who are in any event not before the Tribunal in this matter- if we are to err, we should err on the side of opening our proceedings to participation, not closing them.¹⁶

___________ 26 September 2002

N.M. Manoim Date

Presiding Member

For the merging parties: Anthony Norton of Weber Wentzel Bowens

For the applicant: Christine Qunta of Qunta Incorporated