Clone of A deal is a deal, except in South Africa

Operating internationally is full of pitfalls and political peculiarity, as Walmart has again discovered in South Africa where various government officials are attempting to wring additional concessions from the company related to its acquisition of Massmart.

There’s nothing wrong with that, except the deal, first announced nearly a year ago and subsequently approved by shareholders and regulators, closed in June. Nevertheless, South Africa’s ministers of economic development, trade and industry and agriculture, forestry and fisheries protested the nation’s Competition Tribunal’s approval of the merger and asked that it be set aside on the grounds that the tribunal acted irregularly with regard to matters of documents presented during the discovery process and the scheduling of decisions.

“The tribunal erred in making the discovery order by failing to order the merging parties to discover all the documents sought by the applicants,” read a filing submitted to the competition appeals court by the ministers. “The tribunal erred in making the scheduling decision in that they precluded the parties who opposed the merger, or had otherwise intervened, including the applicant, from fully and properly ventilating their concerns and their submissions on the condition to which any approval should be subject.”

Walmart and Massmart obviously disagreed and on Aug. 2 issued the following response:

“Massmart and Walmart note the media statement issued by the Ministers of Economic Development, Trade and Industry, and Agriculture, Forestry and Fisheries, following a media conference held at the Union Buildings earlier today.

The statement appears to delve into territory that the Competition Appeal Court has been called upon to adjudicate in the Ministers’ review application currently serving before the court. It presents as fact various propositions that were argued before, and rejected by, the Competition Tribunal during the course of the hearing into the transaction. In addition, the statement appears to express the opinion that the tribunal’s decisions and proceedings were flawed, even though the application before the Appeal Court has yet to run its course.

Out of deference to the legal proceedings currently underway, Massmart and Walmart cannot comment publicly in relation to issues that have yet to be determined by the Appeal Court. In the interim, we are using the time available under the Appeal Court rules to prepare our answer to the Ministers’ review application. This will be filed and made available in due course.

Importantly, the undertakings volunteered by the merging parties during the Tribunal hearing constituted a gesture of good faith in an endeavor to address the anxieties expressed by the interveners. Despite our consistent position that the transaction did not warrant the imposition of any conditions from a legal perspective, it was, in many respects, intuitive for Massmart and Walmart to volunteer these conditions as they were representative of our intentions.

Indeed, from an employment perspective, we realized that the transaction would accelerate Massmart’s investment in growth, resulting in the creation of approximately 15 000 jobs in retail over the next five years, a view that we reaffirmed in an open letter to South Africans. Furthermore, a review of Walmart’s international operations will reveal a demonstrable track record of developing local suppliers in the markets within which it operates, not least because this makes commercial sense.

During the tribunal hearings the merging parties were especially sensitive to the concerns raised about local suppliers and the need to grow suppliers in South Africa. A healthy base of local suppliers is undoubtedly good for our supply chain, consumers and the local economy. Therefore to facilitate local supplier development, Massmart and Walmart volunteered to establish a program aimed at the development of local South African suppliers, funded in an amount of R100 million. This undertaking was described by the tribunal in its reasons for approving the transaction as “a more positive response to the domestic procurement concern. Instead of insulating local industry from international competition for a period, it seeks to make local industry more competitive to meet international competition.” This is in contrast to the conditions around local procurement quotas proposed by the interveners which will serve to introduce an “unjustified asymmetry” into the competitive domain within which the merged entity operates.

To give further effect to our commitment to local supplier development we recently appointed Mncane Mthunzi, with executive responsibility for supplier development. In addition Massmart and Walmart have expressed publicly, that we anticipate spending approximately R60 billion over 5 years on FMCG products, most of which will be procured from local suppliers.

We welcome the opportunity to deliver our perspective in the rigorous, inclusive and inherently fair framework of the Competition Act, during the forthcoming Appeal Court proceedings. Equally, we will gladly work in partnership with all stakeholders to contribute positively to job creation in SA.”