Shoprite directed by Competition Tribunal to let go of 10 Massmart’s stores in acquisition deal

SOUTH AFRICA – South African giant retailer Shoprite has received the green light from the Competition Tribunal to acquire the Massmart stores it had been eyeing, except 10 grocery stores under the Cambridge and Rhino Cash and Carry brands which the Tribunal has identified as “highly problematic”.

In addition, the Tribunal has stipulated a raft of conditions to be followed by both Shoprite and Massmart to ensure success of the deal, including conditions to address identified competition and public interest concerns.

Earlier in May, the Competition Commission approved Shoprite’s R1.36 billion (US$78.2m) offer for the Cambridge Food, Rhino Cash and Carry businesses comprising of 56 grocery stores, including 43 adjacent liquor stores; three Fruitspot business; Massfresh Meat business with a meat processing facility; and 12 Masscash Cash and Carry stores.

The excluded stores include Cambridge Botshabelo; Cambridge Thaba Nchu; Cambridge Nkandla; Cambridge Ladybrand; Cambridge Mitchell’s Plain; Rhino Qumbu; Cambridge Nongoma; Cambridge/Savemoor Tembisa; Rhino Ulundi; and Cambridge Evaton.

The Commission recommended franchising four of those highly problematic stores and a funding package to facilitate competition from one existing, high potential, black-controlled independent retail competitor for the remaining six.

“After considering the Commission’s recommendation and the submissions of the participating parties, the Tribunal ultimately approved the proposed merger on the basis that the ten Highly Problematic Stores must be divested by Massmart to a suitable purchaser/s within a specified period from the Tribunal’s approval of the merger,” stated the Tribunal.

It said the third parties must be small or medium-sized businesses or historically disadvantaged persons.

But they must have the necessary financial resources to acquire those stores and proven technical expertise to develop them into viable and competitive businesses where they are situated.

Until those buyers are found, Massmart must preserve and maintain the economic and competitive edge of those stores by providing the necessary funding to keep them trading and extending any supply and lease arrangements they have with it.

“Massmart must refrain from doing anything outside of the ordinary course of business that may alter the economic value or competitiveness of the Highly Problematic Stores or which could alter the commercial strategy in a significantly adverse way,” cautioned the Tribunal.

The Tribunal has provided for the appointment of a Trustee to monitor Massmart’s compliance with this.

Conditions to address public concerns

Forming part of the competition authority’s strict conditions for approving the merger are several public interest-focused conditions relating to employment, equitable ownership, support of local small businesses, and skills development.

With regard to jobs, Shoprite will be expected to absorb all of the employees of the stores it will be acquiring from Massmart. Further, the retailer will be required to create additional permanent employment at its local operations.

To support a greater spread of ownership, Shoprite will have to establish and implement an Employment Share Ownership Programme (ESOP) within 60 days of the merger implementation date.

“The ESOP will hold 40 million shares in Shoprite and employees’ participation will be by way of holding units, at no cost. Among others, employees will be required to have been employed by the Shoprite Group for a minimum specified period before being eligible to join the ESOP.”

Employees from the Highly Problematic Stores will immediately be eligible to join the scheme following implementation of the merger, provided that they have been employed at the Highly Problematic Stores for a minimum specified period.

For skills development, Shoprite will undertake to enroll students in its SMMEs mentorship program and the Government’s YES program.

“The Shoprite Group will also contribute a minimum specified amount to the Shoprite Academy annually, to enhance internal training and skills development within the Shoprite Group.”

On localization, Shoprite has committed to increasing its procurement of locally produced foods and will maintain the supply agreements with SMMEs, and suppliers from previously disadvantaged groups.

Shoprite also undertook to further invest in developing independent retailers, spaza shops, small farmers, and caterers, among other things.

Commenting on the Tribunal’s approval via an email statement, Massmart said it is pleased that the competition authorities have approved the merger 19 months after the process of assessing the transaction by the commission began.

“The approval of the transaction has saved 7 000 jobs. Had the transaction not been approved we would have closed the assets and entered into Section 189 consultations, and we were in fact preparing for this as a potential outcome,” a Massmart spokesperson said.

“Massmart is now focused on working closely with Shoprite to ensure the smooth and efficient transfer of all affected staff members and assets,” Massmart added.

The decisions followed a three-day merger hearing in which the merging parties; the Department of Trade, Industry and Competition (“the dtic”); two intervenors, namely Pick n Pay and Spar; and the South African Commercial Catering and Allied Workers Union (“SACCAWU”) participated.

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