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Coca-Cola Beverages did breach merger conditions, Competition Appeal Court rules

The blow to CCBA comes hot on the heels of it announcing this week that the Coca-Cola Company was delaying what would have likely been the biggest new listing on the JSE this year, that of CCBA, until next year.

The blow to CCBA comes hot on the heels of it announcing this week that the Coca-Cola Company was delaying what would have likely been the biggest new listing on the JSE this year, that of CCBA, until next year.

Published Jun 23, 2022

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The Competition Appeal Court (CAC) has ruled that Coca-Cola Beverages Africa (CCBA), via its subsidiary, was in breach of merger conditions over the retrenchment of 368 bargaining unit employees in 2019.

The Competition Commission said in a statement yesterday that it welcomed the decision of CAC handed down on June 17 to uphold an appeal that CCBA was in breach of merger conditions when its subsidiary, Coca-Cola Beverages South Africa, retrenched workers in 2019.

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“The matter ultimately relates to two mergers involving Coca-Cola, which were approved with conditions in May 2016 and September 2017, which conditions sought to provide protection to employees who are members of the bargaining unit, from being retrenched as a result of the mergers,” the commission said.

In September 2021 the Competition Tribunal ruled in favour of CCBA, which the commission subsequently appealed.

“The CAC ruled that there was an apparent breach of the merger conditions, the Notice of Apparent Breach was correctly and reasonably issued and the retrenchments were merger-specific. A cost order was granted against CCBA,” it said.

It is not clear how big a penalty CCBA has to stump up.

When asked about the cost order yesterday, commission spokesperson Siyabulela Makunga said: “The commission will reconcile the total costs for the appeal and lawyers’ fees, and this will undergo a taxing process.

“At this stage, the commission has not made a decision on whether it will pursue the revocation of the administrative penalty. Our focus is the reinstatement of the matter.”

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The CCBA had argued that retrenchments were necessitated, at the time, as a result of the macro-economic climate, the imposition of the sugar tax, and the large raw material price increases, in particular the price of sugar.

CCBA stated that the retrenchments were required in order to mitigate the losses attributable to the sugar tax, and to ensure CCBSA’s continued profitability.

The CAC had accepted that the adoption of the “causal connection” or “the principal reason” test advanced by CCBA and the Tribunal, respectively, could be prejudicial and would significantly erode the safeguards afforded to employees by section 12A (3) of the act through merger conditions against merger-specific retrenchments.

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The CAC endorsed the test in BB Investment v Adcock Ingram Holdings (2014), which states that “merger specific” means conceptually “an outcome that can be shown, as a matter of probability, to have some nexus associated with the incentives of the new controller”, as being an objective and sound test, because the focus is on demonstrable outcomes rather than the subjective attitude or intention of the merging parties.

The blow to CCBA comes hot on the heels of it announcing this week that the Coca-Cola Company was delaying what would likely have been the biggest new listing on the JSE this year, that of CCBA, until next year.

The Coca-Cola Company first announced in April last year that it planned to sell a portion of its shareholding in CCBA via an initial public offering (IPO), with listings on the JSE and Amsterdam.

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The decision to delay the listing comes at a time of falling global equity investor sentiment as low global growth, rising interest rates, increasing inflation and geopolitical uncertainty from the conflict in Ukraine and Covid-19 lockdowns in China are driving down global equity prices.

BUSINESS REPORT

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