Clover factory. Picture: FINANCIAL MAIL
Clover factory. Picture: FINANCIAL MAIL

As the clock ticks down to the conclusion of international consortium Milco’s acquisition of Clover in May, all eyes are now on the conditions likely to be attached to the transaction.

As the outrage that initially met the R4.8bn deal appears to have subsided, the focus now shifts to its shape and form. 

The transaction elicited strong reaction from the pro-Palestinian lobby group Boycott, Divestment and Sanctions SA (BDS) and trade union Food and Allied Workers’ Union (Fawu) because the consortium is led by Israeli company Central Bottling Company (CBC), owner of the Coca-Cola franchise in Israel.

It was this outrage that prompted black-owned and managed investment group Brimstone, the consortium’s SA partner, to walk away from the deal. Brimstone, which was set to own 15% of Clover after the conclusion of the sale, dropped the bombshell several weeks after the deal was announced in early February.

Without the benefit of knowing what went on behind the scenes, Brimstone’s decision came across as a knee-jerk reaction to pressure. But that is water under the bridge now. Brimstone has confirmed it will no longer be taking up the 15% interest and has until December 31 to find a BEE entity to replace it in the consortium. The 15% interest in the deal is worth R726m.

The deal must still receive regulatory approvals. These include from the Competition Commission, the JSE and the Takeover Regulation Panel, the body established under the Companies Act to regulate certain transactions.

It is the Competition Commission that elicits the most interest. This has nothing to do with the deal failing the competition hurdle.

The public interest considerations are now set to take centre stage in the transaction. Section 12A of the Competition Act requires the country’s competition authorities to consider both the impact of a proposed merger on competition and whether such a merger can be justified on public interest grounds.

The act requires the competition authorities to specifically consider the effect of a transaction on an industry, employment, small businesses and the ability of national industries to compete in international markets.

Recent history shows that the department of economic development does not let deals of this size go through without extracting public interest undertakings.

In a country battling high unemployment, the department often intervenes in mergers on public interest grounds. The Massmart/Walmart and AB InBev/SABMiller deals come to mind. In these transactions, the department secured a range of public interest concessions.

For instance, to get its $100bn takeover of SABMiller over the line, AB InBev agreed to a R1bn investment over five years in areas such as agriculture as well as enterprise and supplier development. The multinational also undertook that there would be no job losses as a result of the deal.

Similarly, the Walmart/Massmart deal included the establishment of a Massmart supplier development fund. This was meant to counter the possible loss of jobs and sales by local suppliers.

Fawu, which opposed the Walmart and AB InBev deals, has already raised its public interest concerns about the Clover transaction and has taken them to the commission.

Other than the participation of CBC, the union has also slammed the deal because it would result in the sale of the country’s only major dairy company. Danone, Nestle and Parmalat are all foreign-owned.

Fawu is also concerned about potential job losses as a result of the transaction.

The competition authorities have a duty to interrogate these and other concerns. Fawu’s concerns will have to pass the authorities’ test.

In its 2011 decision on the Walmart merger, the Competition Tribunal said its job in merger control is not to make the world a better place, but “only to prevent it becoming worse as a result of a specific transaction”.