Caxton and CTP Publishers and Printers v Media 24 Proprietary Limited

• Jurisdiction: South Africa
• Judge: Davis JP and Rogers AJA and Boqwana AJA
• Judgment Date: 25 November 2015
• Docket Number: 136/CAC/March 2015
• Hearing Date: 17 September 2015
• Court: Competition Appeal Court

Boqwana AJA (Davis JP and Rogers AJA concurring)

Introduction

[1]

On 10 March 2015, the appellant ('Caxton') brought an urgent application before the Competition Tribunal ('the Tribunal') seeking an order that the first to fourth respondents ('the respondents') notify the competition authorities of the acquisition, by the first respondent ('Media 24'), of sole control of the second

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respondent ('Novus'), which would arise if a restated management agreement ('new agreement') concluded between the fourth respondent ('Retief'), Novus and Media 24 on 23 February 2015 was brought into effect or otherwise implemented. The new agreement, which was in substitution of a management agreement dated 6 October 2008 ('old agreement'), was to be effective upon the listing of Novus on the JSE Limited ('JSE') which was scheduled to take place on 26 March 2015.

[2]

Caxton also sought an order prohibiting the respondents from taking any further steps to implement the acquisition of sole control by Media 24 over Novus; bringing into effect or otherwise implementing the new agreement; and entering into any other transaction or arrangement in which the operational management control of Novus that was enjoyed by Retief was relinquished or transferred to any other party, until such time as the Tribunal or this Court has approved the merger.

[3]

The application was heard by the Tribunal on 20 March 2015 and dismissed on 23 March 2015 with no order as to costs. Reasons for the dismissal were provided on 17 April 2015.

[4]

Novus has listed on the JSE. As a result the appellant seeks an order for the notification of the merger and costs of the appeal.

The Tribunal's decision

[5]

The Tribunal adopted the approach that the transaction set out in the new agreement did not constitute a merger (as defined in the Competition Act 89 of 1998 ('the Act')). While it found that Media 24 and Retief held joint control over Novus' business affairs under the old agreement, it concluded that Retief had not in fact exercised his power of control under that agreement. He and Media 24 simply paid lip service to it. Accordingly, his powers of control were not materially diminished by the 2015 new agreement. It went on to hold that:

'Mr Retief's small economic interest in Novus, his status as a non-executive director, and his imminent retirement, all point it to being unlikely for him to be able to constrain Media 24 in any meaningful way. In the absence of facts in support of any of the potential indicators of Mr Retief exercising control powers as discussed above,

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we are constrained to conclude that both Media 24 and Mr Retief have been paying lip service to the Management Agreement.

We find therefore that the 2015 agreement does not limit Mr Retief's powers any more than the 2008 agreement. Whilst the change in mechanisms in the respective agreements dilutes Mr Retief's influence to some degree, this dilution is so insignificant that it neither amounts to a relinquishing of any type of joint control power that he previously had or the acquisition of sole control by Media 24.Since we cannot conclude on the facts before us that the restated agreement constitutes a merger, we find that Caxton has not established a clear right...'

[6]

Caxton contends that the Tribunal's decision was wrongly premised. It argues that the control that Retief possessed under the old agreement was of the kind described in s 12(2)(g) of the Act which merely requires a person to have the ability to materially influence the policy of the firm (as conferred on him contractually). In its view whether he in fact exercised that power (in practice) did not matter.

Factual background

Novus' Group structure

[7]

Novus was formerly known as Paarl Media Group (Pty) Ltd ('PMG'). It is a member of the Naspers group, the biggest publisher in South Africa. Prior to the implementation of the transaction now under consideration Media 24, a subsidiary of Naspers Ltd, held all the shares in PMG. Certain of the businesses owned by PMG's operating subsidiaries, including the printing business, were originally owned by Retief. Media 24 acquired a majority shareholding in Retief's PMG businesses and merged its own printing business with his. This made PMG and its subsidiaries ('the PMG Group') the largest printing business in the country.

[8]

Since October 2008, the heatset business [1] of the PMG Group was held in a subsidiary company called Paarl Media Holdings (Pty) Ltd ('PMH') with its

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coldset printing business [2] housed in another subsidiary, Paarl Coldset (Pty) Ltd ('PCS'). Retief family entities (initially family trusts, later a company called Adbait (Pty) Ltd ('Adbait')) retained a small shareholding in these two subsidiaries.

[9]

Caxton, as a publishing and printing company, considers itself a competitor of both Media 24 and Novus.

The old agreement

[10]

The 2008 restructuring gave rise to a need for an entrenched continued 'operational independence' between the PMG Group's printing businesses and Media 24's publishing businesses. On 6 October 2008 Retief, the Retief family entities [3] , the PMG Group and Media 24 concluded a management agreement in terms of which Retief was appointed as non-executive chairman of the PMG Group. His powers of control were set out in clause 3.4 of this agreement.

[11]

It is common cause that Novus was jointly controlled by Media 24 and Retief, for the purposes of s 12(2) of the Act. I deal with these provisions later in the judgment.

[12]

Clause 3.4 of the agreement provided the following:

'3.4

Notwithstanding the Shareholders Agreements insofar as it may be applicable but subject to the fiduciary duties of the members of the Board and that Retief discharges his duties in compliance with the Act [the Companies Act, No 61 of 1973] and the laws in relation to directors and chairmen of companies, it is hereby agreed that:

3.4.1

Retief shall, in consultation with Exco, have authority to appoint and dismiss the CEO as well as the Chief Financial Officer of the Group, provided that Exco shall be entitled to request Retief to initiate a dismissal process of the CEO on reasonable grounds and provided further that where the matter concerns the CEO he/she shall be excluded from the deliberations of Exco;

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3.4.2

Retief shall have primary authority and responsibility to oversee and supervise the CEO who shall in turn be responsible for the overall day to day management of the Group (including the appointment and dismissal by the CEO of the Managing Directors of the respective Business Units of the Group in consultation with Retief), and the CEO shall be primarily answerable and report to Retief subject to ultimate accountability of the CEO to the Board;

3.4.3

Retief shall procure that the CEO formulate and prepare in consultation with Retief the consolidated annual budget and consolidated business plan of the Group from time to time for submission to the Board for approval;

3.4.4

Retief shall monitor the implementation by the CEO of the above-mentioned approved budget and business plan during each financial year of the Group or part thereof falling within the period of his appointment (which, for the avoidance of doubt, will include the monitoring of the financing policy of the Group and its capital expenditure programme);

3.4.5

It is intended that Retief shall exercise his duties and responsibilities in terms of this agreement and arrange the conducting of the business of the Group on the basis of operational independence in principle from the Board, Media 24 and the Shareholders, provided that it is exercised in consultation with the Board and further subject to his ultimate responsibility to the Board;

3.4.6

Retief shall in consultation with the Board, primarily be responsible for the planning and implementation of the strategic direction of the Group;

3.4.7

Retief shall have the authority and responsibility to implement and ensure compliance with sound and generally accepted corporate governance policies by the Group (which, for the avoidance of doubt, will include the establishment of, and consulting with, an audit committee and such other committees the Board may deem necessary); provided that it is understood that such policies shall be implemented

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as required by the Act and not serve as a motivation to impair the operational independence in principle of Retief as contemplated in clause 3; and

3.4.8

if any of the terms and conditions of the printing agreements need to be amended in any respect (including, without limitation, the pricing mechanisms), it shall be done in consultation with Retief despite not being a contracting party to the aforesaid printing agreements.'

[13]

As can be seen from these clauses of the agreement, Retief had a wide variety of powers conferred upon him. Some of the powers possessed had to be exercised 'in consultation with' the Board or its Executive team or the Chief Executive Officer ('CEO'). It is common cause that this meant that these powers had to be exercised with the concurrence of both parties. [4] This effectively gave each party a veto over any exercise of these powers. An example of those powers is in clause 3.4.1 where Retief had the power 'in consultation' with Exco to appoint and dismiss the CEO and the Chief Financial Officer ('CFO') of the PMG Group. He however had primary authority and responsibility to oversee and supervise the CEO in terms of clause 3.4.2.

[14]

Clause 3.4.3 gave Retief powers to prepare with the CEO the Group's...