Walmart on unfamiliar terrain

2011-05-14 11:28

The government, especially Minister for Economic Development Ebrahim Patel, has been criticised for its intervention in the Competition Authority’s consideration of Walmart’s $2.4 billion (about R17 billion) takeover bid for Massmart Holdings.

Advocate David Unterhalter (SC), who represents Massmart and Walmart, said the intervention was out of the ordinary as a specific company was being targeted.

One would accept that policy initiatives would be applied to a certain sector or the economy in general, said Unterhalter.

“These are specific interventions which are based on specific action which are aimed at determining how a single private institution should do business,” he said.

“Here is a minister who is saying I like company X and because of this I’m going to make life easier for him and I don’t like company Y, so I’m going to make life hard for him.”

Unterhalter on Friday took issue with the government’s approach during his cross-examination of the government’s economist, James Hodge of Genesis Analytics.

He wanted Hodge to tell him whether this was the appropriate foundation for policy formulation.

Hodge sidestepped and argued that there were specific issues applicable to this transaction which necessitated intervention.

Observers said Walmart had never before encountered this much aggression and hostility in a country it had expanded into.

Hodge compiled a report on behalf of Patel’s Department of Economic Development, Dr Rob ­Davis’ department of commerce and industry and the department of agriculture. They oppose the transaction.

The department and various trade unions, one of them the clothes and textile union, Sactwu, of which Patel was the secretary-general, are asking for intervening conditions to protect work opportunities and local manufacturers.

Meanwhile, Cosatu has indicated that it will strike if the transaction goes through without conditions being approved.

According to Unterhalter, Hodge’s report argues that these interventions are part of the ministers’ public mandate.

Hodge hit back by saying he did not represent the government nor speak on its behalf.

His report stressed concern over the transaction’s effect on public interest. Public interest is one of the criteria the tribunal must consider when it decides whether or not to approve a merger.

Hodge denied that there was any attempt to undermine the independence of the tribunal.

The hearing before the tribunal was characterised by a hostile ­approach from advocate Rafik Bhana SC, who represented the three government departments.

Competition experts have ­expressed concern over what is ­increasingly looking like direct interference in certain transactions to fit in with economic policy.

“The situation is incredibly worrying,” a legal practitioner in competition circles said to City Press.

“Competition authorities are now being used to force unusual conditions on foreign companies.”

The government’s reaction to the controversial Kansai transaction, in which the Japanese paint giant took over the South African paint company, Freeworld, flickered the warning lights.

Patel openly admitted that he was the driving force behind the proposed intervening conditions for the transaction.

A well-known person in competition circles who wished to remain anonymous, said there were initially many question about Patel’s interest in the competition authority. Patel is the authority’s political head.

“He wants to use competition law as an instrument to get companies to agree to the terms he wants. He is the gatekeeper. He has the key and the company has to give him reasons to open the gate.”

His message is that he will inform companies of the rules they must follow to come into the ­country.

“Foreign companies need to jump over a government hurdle to get their transaction approved. This is a very dangerous signal ­being sent out.”

The competition expert said there were various countries that approached conditional transactions very carefully.

The ideal would be to create an institution that considers transactions without any political agendas. “Foreign companies look at South Africa and don’t see an institution like that. They see a minister who has to be appeased.”

This situation takes the country back to the days when companies had to negotiate with the chairperson of the former competition council behind closed doors, the expert said. “We have reason to be worried,” he added.

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