Shoprite gets green light to buy some Massmart stores but must leave some for independent retailers

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The Competition Tribunal has approved Shoprite's acquisition of certain Massmart stores. But it wants ten stores identified as "highly problematic" to be sold to parties not related to Shoprite.
The Competition Tribunal has approved Shoprite's acquisition of certain Massmart stores. But it wants ten stores identified as "highly problematic" to be sold to parties not related to Shoprite.
  • The Competition Tribunal has approved Shoprite's acquisition of certain Massmart stores with conditions.
  • It wants ten Massmart stores identified as "highly problematic" to be sold to independent third parties not related to Shoprite.
  • The conditions came after Pick n Pay, Spar, and Saccawu argued for a prohibition of the merger.
  • For more stories, go to the News24 Business front page.

The Competition Tribunal has approved Shoprite's proposed acquisition of certain Massmart-owned supermarkets, wholesalers and liquor stores. It also gave Shoprite the go-ahead to buy Massmart's Massfresh business too, but with a lot of conditions.

Shoprite initially made an offer to buy 56 grocery stores from Cambridge Food and Rhino Cash and Carry and 43 adjacent liquor stores earlier this year. It also wanted to buy 10 wholesale cash and carry stores, 2 wholesale liquor stores, Massfresh and Fruitspot. It made an offer of R1.36 billion to Massmart. The Competition Commission recommended that the Tribunal approve the deal in May.

The Tribunal announced on Sunday that after a three-day merger hearing and various information requests, it has approved the proposed transaction with certain conditions to address identified competition and public interest concerns, including a conditionn that Massmart divest from ten stores identified as "highly problematic". 

Two of Shoprite's competitors, Pick n Pay and Spar; and the South African Commercial Catering and Allied Workers Union (Saccawu) raised concerns during the Tribunal's hearing. The Tribunal said they wanted the authorities to prohibit the acquisition.

  • Click here to see Shoprite's share price and other company information.

A non-confidential version of the conditions will be available on the Tribunal website in due course. But among other things, it wants some of the targeted "highly problematic stores" to be sold to other retailers not related to Shoprite, and some preferably to black retailers.

When the Competition Commission passed the case to the Tribunal, it identified ten "Highly Problematic Stores" among those Shoprite wanted to buy. These include Cambridge Botshabelo; Cambridge Thaba Nchu; Cambridge Nkandla; Cambridge Ladybrand; Cambridge Mitchells Plain; Rhino Qumbu; Cambridge Nongoma; Cambridge/Savemoor Tembisa; Rhino Ulundi; and Cambridge Evaton.

So, the Commission recommended franchising of the 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. However the Tribunal approved the merger on condition that Massmart will divest from all ten stores.

"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. The purchaser(s) must be an independent third party(ies) unrelated to Shoprite," wrote the Tribunal in a statement.

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.

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

Other conditions relate to employment. The Tribunal ordered that there should be no retrenchments resulting from the merger. All employees of the stores Shoprite is buying will move from Massmart to Shoprite on the same or better terms they enjoyed at their previous employer, including wages and benefits. In addition, Shoprite Group undertakes to create additional permanent employment opportunities at its local operations.

The Shoprite Group will also establish and implement the Shoprite Employee Share Ownership Programme within 60 days of the merger, which will hold 40 million shares in the company at no cost to employees.  But employees must have been employed by the Shoprite Group for a minimum specified period to become part of that scheme.

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.

On localisation, 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 transaction, Massmart's spokesperson said the approval 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," said the spokesperson.

After a rigorous 19-month long assessment of the transaction by the competition authorities, Massmart said it is now focussed on working closely with Shoprite to ensure the smooth and efficient transfer of all affected staff members and assets.

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