Lessons drawn from the Constitutional Court in the Coca-Cola Appeal

By Brandon Cole

In a pivotal decision issued on April 17, 2024 by the Constitutional Court of South Africa, the case of Coca-Cola Beverages Africa (Pty) Ltd against the Competition Commission has reshaped our understanding and enforcement of post-merger conditions in business transactions.  Stemming from a 2016 merger that led to the creation of “Coca-Cola Beverages South Africa” (out of four separate entities), the case underlines the complexity of adhering to merger conditions imposed to safeguard fair competition and operational continuity.

The merger was initially green-lit with certain conditions focused on preventing job losses (“retrenchments”) and on harmonizing employment terms across the new entity.  Despite these protective measures, certain challenging economic conditions, including a sugar tax and rising input costs, compelled Coca-Cola to undertake some retrenchments. This action sparked a legal challenge from the Food and Allied Workers Union (FAWU), asserting a breach of the stipulated merger conditions that underlay the transaction’s approval by the antitrust authorities.

Central to the dispute was the interpretation of how merger conditions are enforced and reviewed under the South African Competition Act.  The crux was whether Coca-Cola’s retrenchments violated the merger-specific conditions or were justified by external economic pressures. The Competition Tribunal, tasked with adjudicating the challenge, initially ruled in favour of Coca-Cola, recognizing the broader economic factors at play. However, this decision was overturned by the Competition Appeal Court, which led to Coca-Cola’s subsequent appeal to the Republic’s Constitutional Court.

The Constitutional Court’s decision clarified several crucial aspects regarding the enforcement of merger conditions:

Nature of review: The Court differentiated this review from ordinary administrative actions, focusing on whether Coca-Cola substantially complied with the merger conditions rather than strictly adhering to them without regard for external circumstances.

Causal connection: The Court criticized the narrow focus of the Appeal Court on the direct causality between the merger and retrenchments. Instead, it supported a more holistic approach that must consider all relevant factors impacting business decisions post-merger.

Implications for business strategy: The judgment emphasized the importance for businesses to thoroughly plan and document their strategies when complying with merger conditions. This is essential to demonstrate substantial compliance, especially when external economic factors might compel deviations from the expected course.

This landmark judgment highlights the dynamic nature of post-merger conditions and their enforcement, illustrating that adherence to these conditions must consider both the intended protective measures and the practical realities faced by businesses. For companies undergoing mergers, this case serves as a critical reminder of the need to balance merger obligations with agile business responses to external challenges.

The insights derived from the Coca-Cola Beverages Africa case provide valuable lessons for businesses and legal practitioners involved in mergers and acquisitions, especially in terms of planning, executing, and justifying actions taken in relation to merger conditions.