Automated Summary
Key Facts
The Competition Tribunal of South Africa conditionally approved British American Tobacco Holdings South Africa (BAT Holdings SA)'s acquisition of Twisp (Pty) Ltd on 13 August 2019. The Commission initially recommended prohibition (25 July 2018) based on the theory that BAT (via its South African subsidiary BATSA) would eliminate Twisp as a potential competitor in the e-cigarette market. However, the Commission later revised its position after market testing, acknowledging five existing competitors (e.g., Vape King, IQOS) constrained Twisp. The Tribunal imposed five-year behavioral conditions to prevent exclusionary conduct, including prohibitions on exclusive retail agreements and limiting BAT's allocated visible space for Reduced Risk Products (RRPs) to 70%. A two-year moratorium on merger-related retrenchments was also mandated to address public interest concerns.
Issues
- Whether the merger between British American Tobacco Holdings SA and Twisp would create or enhance the ability of the merged entity to engage in exclusionary conduct (e.g., limiting rivals' access to retail space, using incentives to control product visibility) in the sale of Reduced Risk Products (RRPs) including e-cigarettes and heat-not-burn products in South Africa.
- Whether BAT's dominant position in the cigarette market (over 60% market share) would be leveraged post-merger to foreclose competitors in the RRP market through exclusive agreements, shelf space control, or other anti-competitive practices.
- Whether the proposed merger would result in retrenchments of BATSA employees, and if so, whether a two-year moratorium on merger-related retrenchments is necessary to protect public interest.
Holdings
- Two-year moratorium on merger-related retrenchments to protect public interest.
- Conditional approval of the merger with behavioral remedies to prevent exclusionary conduct in RRP markets.
Remedies
- The Tribunal imposed a two-year moratorium on retrenchments directly related to the merger. This condition prohibits the merging parties from retrenching employees in contemplation of or as a result of the transaction, covering all employees including those under fixed-term contracts. The moratorium excludes voluntary separations, early retirements, redeployments, resignations, and lawful terminations. It was introduced to address concerns about potential job losses following the acquisition of Twisp's sales representatives and BATSA's planned retrenchments.
- The Competition Tribunal conditionally approved the transaction subject to a five-year set of behavioral conditions. These include prohibitions on exclusive agreements with retailers or retail space owners for RRP sales, limits on allocating more than 70% of visible space for RRPs to the merged entity, and restrictions on tying RRP sales to traditional cigarette purchases. Specific conditions also address preventing retailers from prohibiting rival RRP suppliers from bidding for retail slots, displaying promotional materials, or receiving employee support. These remedies aim to mitigate potential portfolio/conglomerate effects arising from BAT's dominance in cigarettes and Twisp's position in e-cigarettes.
Legal Principles
The Competition Tribunal applied principles of merger control and competition law to assess the proposed acquisition, focusing on potential anti-competitive effects such as exclusionary portfolio effects and barriers to entry. The court imposed behavioural conditions to mitigate risks of post-merger market dominance and unfair retail space allocation practices.
Cited Statute
- Consumer Protection Act
- Labour Relations Act
Judge Name
- AW Wessels
- Enver Daniels
- Prof Imraan Valodia
Passage Text
- However, on 29 March 2019, the Commission wrote to the Tribunal indicating that 'having considered discovery made in the above matter and the witness statements filed' it no longer intended recommending a prohibition of the proposed transaction.
- We approved the proposed transaction subject to the condition that the merging parties shall not retrench any employees in contemplation of the proposed merger or as a result of the proposed merger for a period of two years from its implementation date.
- The Tribunal made further enhancements to the merging parties' tendered conditions inter alia by adding a definition for 'Visible Space' to allow for and assist with enforcement of the conditions.