Trou­ble in store

US union chal­lenges ‘dis­crim­i­na­tory’ de­fence in op­pos­ing deal

Finweek English Edition - - COMPANIES&MARKETS -

WAL­MART IS BE­ING disin­gen­u­ous in say­ing an ap­proval with con­di­tions for its ac­qui­si­tion of South Africa’s Mass­mart would be “dis­crim­i­na­tory”. That’s the stance of the United Food & Com­mer­cial Work­ers’ In­ter­na­tional Union (UFCW) – the United States union ad­vis­ing SA trade union Sac­cawu in op­pos­ing the deal. Michael Bride – UFCW’s deputy or­gan­is­ing di­rec­tor for global strate­gies – says else­where world­wide Wal­mart has sup­ported “dis­crim­i­na­tory” mea­sures when it stands to ben­e­fit. It should there­fore be amenable to ac­cept con­di­tions for ac­quir­ing Mass­mart if it’s con­sis­tent with its prac­tices.

Bride con­tends Wal­mart’s Bri­tish sub­sidiary – Asda – has sup­ported Bri­tain’s Competition Com­mis­sion’s highly con­tested reg­u­la­tions aimed at pre­vent­ing dom­i­nance by one su­per­mar­ket chain in a par­tic­u­lar area. The com­mis­sion mulled the reg­u­la­tory frame­work af­ter its in­ves­ti­ga­tions into Bri­tain’s gro­cery mar­ket found ad­verse ef­fects on competition aris­ing from the ex­is­tence of highly con­cen­trated lo­cal mar­kets for larger gro­cery stores, re­sult­ing in re­duced choice and detri­men­tal ef­fects on prices, qual­ity, range and ser­vice. Bri­tain’s Tesco – which stands to be worse af­fected by the pro­posed “competition test” due to its size and scale – has no­tably con­tested those mea­sures.

Else­where in the United States, Wal­mart has con­ceded to con­di­tions ap­pli­ca­ble to it alone in its quest to set up out­lets in ma­jor cities as it strug­gles with stag­nant like-for- like sales. Pro­fes­sor Nel­son Licht­en­stein, of the Univer­sity of Cal­i­for­nia – who has writ­ten ex­ten­sively on Wal­mart and who is one of the wit­nesses lined-up by Sac­cawu – says Wal­mart agreed to con­di­tions, such as build­ing its stores with union labour, pay­ing higher wages to its work­ers and in­creas­ing its med­i­cal aid con­tri­bu­tion for its em­ploy­ees to open out­lets in big cities, such as New York and Chicago.

Wal­mart and Mass­mart have been re­luc­tant to sign a bind­ing pledge com­mit­ting Mass­mart to a min­i­mum per­cent­age of South African pro­cure­ment af­ter the ac­qui­si­tion, say­ing such a pledge would dis­ad­van­tage the merged en­tity be­cause it would have con­di­tions that don’t ap­ply to its com­peti­tors.

Wal­mart says there are no sim­i­lar­i­ties be­tween the Asda and Mass­mart cases. In a state­ment it says: “Keep­ing in mind that in the UK a plan­ning sys­tem es­sen­tially op­er­ates a ra­tioning sys­tem via ‘per­mits to trade’ in lo­cal mar­kets, Asda ac­knowl­edged it is not in any­body’s in­ter­est for most or all of these per­mits to be grabbed by one player in a lo­cal mar­ket…

“This sit­u­a­tion is there­fore dif­fer­ent to SA, in that there have been no con­di­tions placed on Asda specif­i­cally or ex­clu­sively; but Asda has sup­ported the in­tro­duc­tion of the competition as­sess­ment, which it be­lieves is a pro­por­tion­ate mea­sure that will as­sist the UK econ­omy to fur­ther em­bed – in a sen­si­ble way – the foun­da­tions for fur­ther competition and choice for con­sumers.”

SA’s Competition Com­mis­sion rec­om­mended in Fe­bru­ary this year the trans­ac­tion be ap­proved, with no con­di­tions at­tached. The deal is likely to get the fi­nal nod from SA’s Competition Tri­bunal.

How­ever, lat­est ruc­tions be­tween the merg­ing par­ties and in­ter­est groups sug­gest an ap­proval with­out con­di­tions is likely to be con­tested at the Competition Ap­peals Court. An­a­lysts have warned the com­mit­ment to a min­i­mum per­cent­age of lo­cal pro­cure­ment could sink the deal, say­ing it would put Mass­mart in an “un­ten­able sit­u­a­tion” be­cause it would be fight­ing with one hand tied be­hind its back.

Bride says the con­di­tions sought wouldn’t be in per­pe­tu­ity, but should reg­u­late the man­ner in which Wal­mart deals with South African sup­pli­ers. “We be­lieve that would cre­ate an in­cen­tive for Wal­mart to work with those lo­cal sup­pli­ers to help them be­come efficient and sus­tain­able.”

Licht­en­stein says in many coun­tries where Wal­mart op­er­ates detri­men­tal ef­fects have far out­weighed the ben­e­fit of cheap prices. “SA would be wise to treat this merger with great cau­tion.”

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