Merger-related employment conditions stifling efficiencies

© Sebastian Duda – za.fotolia.com

The two year moratorium imposed by the Tribunal essentially prevents the merged entity from retrenching any employee as a result of the merger. The irony is that the very reason for the merger is the general decline in the carton and label industry with the resultant operational and pricing pressures having already forced a number of industry players to either consolidate their operations or undertake radical rationalisation.

The merger will enable the acquiring group to leverage its expertise and experience in the paper and board market to achieve economies of scale and thus realise efficiencies within the Cartons & Labels Business, but any job losses as a result of the merger may not be permitted for a two year period. Absent the merger, both parties would be entitled to reduce employment numbers for operational reasons in terms of the Labour Relations Act.

Protective stance

There is no doubt that the competition authorities are often faced with the difficulty of attempting to harmonise the promotion of consumer welfare through cost saving against job losses occasioned by retrenchments. However, one has to deliberate whether this protective stance of the competition authorities insofar as employment is concerned is not dampening the realisation of efficiencies and synergies which should naturally arise from a merger.

What seems to be a clearly emerging trend is that every merger transaction which has any negative effect on employment will be extremely closely scrutinised by the competition authorities and may result in conditions being imposed. These transactions are also likely to take significantly longer to investigate and be decided.