Off the Shelf Investments 56 (RF) (Pty) Ltd v Chevron South Africa (Pty) Ltd (LM232Nov17) [2018] ZACT 101 (11 November 2018)

Key Facts

Issues

• The Commission concluded there is no overlap in the activities of OTS and CSA. OTS, as an investment holding company, does not compete with CSA in the petroleum value chain, and the merger is unlikely to affect competition.
• The Commission reviewed the merging parties' tendered conditions, including investments in the Western Cape refinery, local procurement, BEE scorecard improvements, and a development fund. These conditions were deemed sufficient to address public interest issues.
• CSA retirees were concerned about the termination of their 75% medical aid subsidy. CSA agreed to continue all contractual obligations, including the subsidy, for the lifetime of the beneficiaries and to meet with retirees periodically.
• The Branded Marketers raised issues regarding future relationships, supply stability, brand management, and rebranding. OTS committed to not altering existing contracts detrimentally, covering rebranding costs, and maintaining regular engagement to build trust.
• The Commission evaluated whether the merger would lead to retrenchments and determined that OTS must maintain at least the current number of employees for five years. Additionally, OTS must encourage third parties in the value chain to expand employment where possible.

Holdings

• The Economic Return Ratio for retailer-owned stations must be maintained or increased, particularly for smaller and black-owned retailers.
• OTS must establish a R215 million development fund over 5 years to support small and black-owned businesses in CSA's value chain.
• OTS must maintain or increase local procurement of goods and services as a proportion, and prohibit substitution of local suppliers with offshore ones.
• CSA must increase its B-BBEE scorecard rating by two levels (from Level 4 to Level 2) within 2 years.
• OTS must procure inputs locally in South Africa wherever practically possible and feasible.
• OTS must ensure investments in CSA's terminals and logistics infrastructure do not negatively impact refinery production.
• CSA must maintain a baseline number of independently owned service stations and give preference to small businesses, especially black-owned businesses.
• OTS must invest R6 billion over 5 years to develop the Western Cape refinery, in addition to CSA's current investment plans.
• OTS will maintain its head office in South Africa.
• OTS must increase LPG supply to black-owned businesses by over 15% after current contracts expire, with CSA also increasing international LPG imports.

Remedies

• OTS must establish a development fund of approximately R215 million over a period of 5 years to support Small Businesses and Black-owned Businesses involved in CSA's value chain.
• OTS undertakes that any further investments in CSA's terminals and logistics infrastructure in South Africa will not have a negative impact on the production of the CSA refinery, addressing concerns raised by the DOE.
• OTS procures that CSA will not substitute current, local, South African owned suppliers with off-shore suppliers of goods or services.
• OTS shall ensure that CSA maintains a baseline number of independently owned service stations, as per the public interest conditions.
• CSA shall use all reasonable endeavours to increase its current Broad Based Black Economic Empowerment scorecard rating by two levels, from level 4 to level 2 within 2 years as part of the merger conditions.
• OTS must ensure that the Economic Return Ratio earned by retailer-owned stations is maintained or increased, particularly benefiting smaller and black-owned retailers, as part of the merger conditions.
• OTS is required to maintain its head office in South Africa as part of the public interest conditions for the merger approval.
• OTS has committed to invest R6 billion over a period of 5 years to develop the Western Cape refinery, in addition to CSA's current investment plans.
• Where independently owned service stations are established, CSA shall give preference to Small Businesses, especially black-owned businesses, as part of the merger conditions.
• OTS is required to procure inputs locally within South Africa, wherever practically possible and feasible, as part of the merger conditions.
• Through the Development Fund, OTS must increase its level of LPG supply to Black-owned Businesses by over 15% after current contracts expire, as part of the merger conditions.

Legal Principles

Cited Statute

Judge Name

• Medi Mokuena
• Norman Manoim
• Andiswa Ndoni

Passage Text

• We approve the proposed transaction subject to a detailed set of public interest conditions, attached hereto marked as 'Annexure A'. The imposed set of conditions adequately addresses any public interest concerns arising from the proposed transaction.
• The Commission concluded that the merging parties' tendered conditions, including those agreed with the Government departments, address all potential public interest concerns - particularly in relation to the effect of the proposed transaction on employment, small business (BEE) and certain concerns related to CSA's retired employees.
• As already indicated above, the merging parties agreed to the approval of the proposed transaction subject to the full set of tendered conditions, which we have imposed with certain enhancements thereto. We conclude that the imposed conditions collectively adequately address any public interest concerns arising from the proposed transaction.