Massmart CEO Grant Pattison. Picture: FINANCIAL MAIL
Massmart CEO Grant Pattison. Picture: FINANCIAL MAIL

THE competition authorities went beyond their mandate when granting protection to the South African Commercial, Catering and Allied Workers Union (Saccawu) in the merger of Walmart and Massmart, according to a new case note in a South African law journal.

The article by Jessica Staples, an associate at law firm Bowman Gilfillan; Mike Holland, a lecturer at the Gordon Institute of Business Science, and Jannie Rossouw, a professor at Unisa’s department of economics, explores the public interest issues considered when the Competition Appeal Court imposed certain conditions on Walmart’s takeover of Massmart early last year.

The court confirmed the decision of the Competition Tribunal to approve the R16.5bn transaction in which Walmart acquired 51% of Massmart, which owns the likes of Game, Makro and Builders Warehouse. The issue came before the court after the Ministers of Economic Development, Trade and Industry, and Agriculture, Forestry and Fisheries appealed against the tribunal’s ruling to allow the transaction.

The court also confirmed the tribunal’s ruling that the merger be subjected to conditions after concerns around employment and procurement were raised.

These conditions included that Walmart and Massmart should continue to honour existing labour agreements and that the status of Saccawu as the largest representative union in the new merged entity should remain intact for at least three years. This protected status of Saccawu is problematic, according to the case note.

“Although the status quo at the time of the proceedings was that Saccawu was recognised as the largest representative union, witnesses during the proceedings indicated that it did not in fact meet the thresholds for statutory recognition in certain divisions,” the case note said.

“[The condition] intrudes into issues more appropriately dealt with in employment law and provides Saccawu’s position within the merged entity with protection that it did not enjoy before the merger.

“By imposing a condition that extends beyond their public interest mandate the competition authorities have created the potential for a number of negative consequences to arise from the Walmart condition.”

These include opposing the basic principles of competition as Saccawu is granted a monopoly position and raising the cost of production and prices. The position ensured for Saccawu could also harm the interests of employees, who should be entitled to freely select the union they feel will best protect their interests in the workplace.

“The Walmart condition raises significant concerns in that it does not provide for the possibility of a change in Saccawu’s position in the merged entity or for altering the merged entity’s obligations in these circumstances. This could prejudice both the interests of the employees and the merged entity’s business,” the note said.

“Taking the public interest too far: Walmart Stores Inc v Massmart Holdings Ltd” is to be published in volume 25, number 1 of the SA Mercantile Law Journal.

This article was first published in Sunday Times: Business Times