The Competition Tribunal has approved the merger that will see Cape Forests Products acquire MTO Forestry and PG Bison Southern Cape (PGBSC), and has cleared the transaction with enhanced conditions after a hearing.

Cape Forests is a newly established holding company jointly controlled by manufacturer PG Bison and Wild Peach Investments.

MTO operates softwood plantations in the Southern Cape, producing pine sawlogs for internal use and for sale to third-party sawmills. It operates the MTO George sawmill in the Western Cape and the MTO Longmore sawmill in the Eastern Cape.

PGBSC similarly operates a softwood plantation in the Western Cape, producing pine sawlogs for its Thesen sawmill in the Western Cape. It supplements its demand for sawlogs by buying sawlogs from third-party plantations, including from MTO.

Further, a newly ring-fenced company MTO community special purpose vehicle has been incorporated to hold a significant but minority interest in Cape Forests for the benefit of a community trust yet to be established.

The beneficiaries of the community trust will be communities located within MTO Forestry’s forestry operations, including in Tsitsikamma, Longmore, Outeniqua, Garcia and Jonkershoek, the tribunal says.

Following a hearing and further engagement on the proposed conditions, the tribunal imposed an enhanced set of merger conditions governing the supply of sawlogs, transparency, employment and broader public interest considerations.

A central feature of the imposed conditions is a minimum supply commitment of sawlogs to third-party customers in the Western Cape for five years following the merger.

The merged entity will make available a minimum of 155 000 m³/y of sawlogs to third-party customers, it says.

As part of this condition, specified sawlog volumes are being made available each year to existing customers on the same terms and conditions as their existing supply contracts.

The merged entity also committed that the quality and prices of each class of sawlogs supplied to its existing contract customers will be no less favourable than the quality and prices that are applied to the merged entity’s own sawmilling operations.

Additionally, 80 000 m³/y must be made available to third-party customers by means of open market tenders in the first year after the merger.

Thereafter, this amount will increase to 90 000 m³/y for the remaining four-year period, the tribunal says.

Cape Forests will also introduce a second-round bidding process as part of the open market tender system whereby all bidders will be afforded an opportunity to revise and improve their bids.

The second round bidding process will be in place for five years from the merger date.

The company will publish each previous year’s average tender price for sawlogs, disaggregated by grade and size, for the next five years following the merger implementation date, within 30 days from the conclusion of a particular year’s open market tender process.

Cape Forests also undertakes to publish a wood flow forecast that sets out the anticipated volumes of sawlogs that are likely to be made available in the next upcoming open market tender.

The forecast must be provided at least six months before the start of the relevant open market tender process.

After this initial five year supply period, Cape Forests will publish a nonbinding indicative five-year forecast reflecting the potential projected volumes which may be made available as part of the open market tender system for the following five-year period.

Additionally, in each year of the second five-year period, it will provide indicative nonbinding annual updates on its website of the sawlog volumes that are likely to be available in relation to the open market tender in each given year, the tribunal's conditions stipulated.

Further, Cape Forests shall not retrench any employees of MTO or PGBSC as a result of the merger for a period of 36 months from the merger implementation date. The company will also maintain an average headcount of at least 591 employees across the Thesen Sawmill and Cape Forests’ operations for three years following the merger’s implementation.

Cape Forests will ensure that permanent employment opportunities will be offered to 120 existing part-time employees at the MTO George Sawmill and Thesen Sawmill operations as and when such opportunities arise across any of Cape Forests’ operations over the next three years after the merger.

All redeployed employees, which are the employees who will be redeployed into the broader operations of Cape Forests following the closure of the MTO George Sawmill, must be provided with sufficient reskilling and retraining for any change in roles which may be occasioned as part of the redeployment within Cape Forests’ operations, says the tribunal.

Meanwhile, the merged entity has committed to achieving at least a Level 3 broad-based black economic empowerment rating within three years from the implementation date. It will also spend a specified amount each year for employee training and development for five years from the merger.

Additionally, Cape Forests will expand its current socioeconomic initiatives undertaken in local communities surrounding the MTO operations to the communities surrounding its PGBSC operations over a three-year period, the tribunal says.

These programmes will include food security, relating to the establishment of community food gardens and small-scale crop farmers, and education and teacher training initiatives to increase learning opportunities for information and communications technology and digital skills to teachers, school children and unemployed youth.

It will also establish a small business entrepreneur, and a small, medium-sized and microenterprise (SMME), incubator programme aimed at increasing the presence of SMME operators within forestry operations.

Further, the Tribunal stipulates that Cape Forests must publish a non-confidential version of the merger conditions on the newly merged entity’s website within ten days of the merger’s implementation and which must remain available for 12 months.