Wal-Mart's South Africa deal in court

Johannesburg:  South Africa's Competition Appeal Court began hearing a government lawsuit filed to compel regulators to review a decision allowing Wal-Mart Stores Inc. to buy control of Massmart Holdings Ltd.

The Competition Tribunal ruled on May 31 that the world's biggest retailer could proceed with the deal on condition no jobs are cut for two years and the companies set up a 100 million-rand (Dh45.5 million) fund to assist local suppliers and manufacturers. The government objected, saying the conditions were inadequate to protect the economy and prevent a surge in imports undermining manufacturing output.

Public interest grounds

"The question before court is whether the merger can or cannot be justified on public-interest grounds," Wim Trengove, the government's senior counsel, told the court. "The tribunal erred" by failing to place the onus on the companies to prove they wouldn't increase imports and destroy jobs.

Wal-Mart, based in Bentonville, Arkansas, paid 16.5 billion rand in June for a 51 per cent stake in Massmart, South Africa's biggest food and general-goods wholesaler. The US company outlined plans on June 26 to create 15,000 jobs in South Africa within five years and allocate most of an expected 60 billion rand in additional purchases of food or fast-moving consumer goods to local suppliers in that period.

In court papers filed in July, Economic Development Minister Ebrahim Patel, Trade and Industry Minister Rob Davies and Forestry and Fisheries Minister Tina Joemat-Pettersson said the transaction should be reconsidered because the tribunal's hearings were flawed.

The court challenge "focuses on the procedure that was adopted by the Competition Tribunal in making its decision", Heather Irvine, a director at law firm Norton Rose, which represents the government, told reporters in Cape Town yesterday. The retailers provided inadequate information about their product sourcing, meaning "the tribunal was unable to make a proper decision on the effects of the merger and what conditions should be imposed", Irvine said.

"Wal-Mart and Massmart are opposing both the appeal and the review," the retailers said in their court papers. "The tribunal's conditions more than adequately address every relevant public-interest consideration contained in the Competition Act."

The South African Commercial, Catering and Allied Workers Union has filed a separate appeal against the approval of the takeover of Johannesburg-based Massmart on the grounds that the tribunal failed to take adequate consideration of the public interest. The two applications are being heard simultaneously.

Should the court decide against referring the decision back to the tribunal, it may either uphold the approval of the takeover or rule that it should have been rejected or subjected to different conditions, Davies said.

Procurement Targets

At an investor meeting last week, Doug McMillon, Wal-Mart's international chief executive officer, said his company couldn't commit to specific procurement targets requested by the government.

"What we are happy to do is to invest and develop this local supplier base," McMillon said. A three-member panel headed by Judge Dennis Davis is hearing the appeal, which is scheduled to run until tomorrow and reconvene on October 24 if more time is needed. The court usually takes several weeks to deliver its rulings, which can be challenged in the Supreme Court of Appeal.