Lewis has fallen short in its bid to oppose the deal that will see Pepkor acquire Shoprite’s furniture business assets for R3.2bn, after the Competition Appeals Court closed the door on its attempt to invoke competition law to block the transaction.
In April, the Competition Commission recommended the deal to the Competition Tribunal on condition that jobs would not be lost and the merged business would increase procurement from local furniture suppliers.
Lewis, a leading player in the SA furniture business, applied to the tribunal to be an intervening party in the deal, one of the biggest in the sector in the past decade, arguing it was in a position to assist the tribunal as it considered the antitrust elements of the transaction.
The tribunal, the final authority on merger & acquisition deals, granted Lewis’ application to intervene as a participant in the transaction, first announced a year ago.
In its legal papers, Lewis argued that it was in a “position where it will be able to assist the tribunal in its truth-seeking function as it is a national furniture retailer that has been actively involved in the retail furniture industry for many years and, therefore, is uniquely positioned to assist the tribunal in providing insights and evidence into the nature of competition in the sector”.
‘Significant and material evidence’
The JSE-listed group also told the tribunal that it would be able to shed light on how the “proposed merger is likely to influence subsequent competition postmerger and how it likely negatively affects customers of the merger parties”.
The tribunal was swayed by these reasons, concluding that “Lewis ought to be admitted as an intervener in these proceedings on the basis that it demonstrated its ability to provide significant and material evidence on the nature of competition in the market”.
Pepkor and Shoprite, the largest listed companies in their respective industries, took umbrage at the tribunal’s decision, telling the Competition Appeals Court that this amounted to the tribunal “outsourcing” its public function to Lewis on this matter.
The merging parties argued before the court that the tribunal’s decision had far-reaching consequences and had the effect of running a parallel process similar to that of the commission’s role in merger hearings.
‘Privatisation of the merger function’
Pepkor and Shoprite backed its accusation that the tribunal had outsourced the functions of the commission to Lewis by granting the latter rights to participate in all prehearing conferences, full discovery rights and the right to require the tribunal to summon people and documents.
“This constitutes a privatisation of the merger function that the legislature assigned exclusively to the commission and the tribunal,” Pepkor and Shoprite’s counsel told the Competition Appeals Court.
Last week the court sided with Pepkor and Shoprite, falling short of saying Lewis was unduly trying to delay the deal and frustrate its rivals.
So-called Stalingrad legal tactics have no place in a merger inquiry.
— Full bench ruling
“A merger inquiry by virtue of the nature of a proposed merger transaction should be conducted expeditiously. Absent such an approach, mergers are less likely to take place in SA, even where the proposed merger advances the goals of the act and hence the inclusive growth of the economy,” a full bench of the court ruled in a reportable judgment.
“So-called Stalingrad legal tactics have no place in a merger inquiry. The tribunal needs to balance this danger against the advantages of acquiring knowledge, which otherwise it would not possess in the determination of the ultimate outcome of its merger hearing.
“This is especially important in cases such as the present where the intervener is a competitor of the merging parties, who may be advancing its own commercial interests.”
Shoprite is selling its furniture business — including OK Furniture and House & Home — to Pepkor as it believes it lacks the scale to compete effectively in this sector compared with its core food business.
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