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The
Merger Control
Review
Law Business Research
Fifth Edition
Editor
Ilene Knable Gotts
The Merger Control Review
e Merger Control Review
Reproduced with permission from Law Business Research Ltd.
is article was #rst published in e Merger Control Review - Edition 5
(published in July 2014 – editor Ilene Knable Gotts).
For further information please email
The
Merger Control
Review
Fifth Edition
Editor
Ilene Knable Gotts
Law Business Research Ltd
ix
EDITOR’S PREFACE
Pre-merger competition review has advanced signi!cantly since its creation in 1976 in
the United States. As this book evidences, today almost all competition authorities have a
noti!cation process in place – with most requiring pre-merger noti!cation for transactions
that meet certain prescribed minimum thresholds. Given the ability of most competition
agencies with pre-merger noti!cation laws to delay, and even block, a transaction, it is
imperative to take each jurisdiction – small or large, new or mature – seriously. China,
for instance, in 2009 blocked the Coca-Cola Company’s proposed acquisition of China
Huiyuan Juice Group Limited and imposed conditions on four mergers involving non-
Chinese domiciled !rms. In Phonak/ReSound (a merger between a Swiss undertaking and
a Danish undertaking, each with a German subsidiary), the German Federal Cartel O"ce
blocked the entire merger even though less than 10 per cent of each of the undertakings
was attributable to Germany. It is, therefore, imperative that counsel for a transaction
develops a comprehensive plan prior to, or immediately upon, execution of the agreement
concerning where and when to !le noti!cation with competition authorities regarding the
transaction. In this regard, this book provides an overview of the process in 45 jurisdictions,
as well as a discussion of recent decisions, strategic considerations and likely upcoming
developments. #e intended readership of this book comprises both in-house and outside
counsel who may be involved in the competition review of cross-border transactions.Some common threads in institutional design underlie most of the merger review
mandates, although there are some outliers as well as nuances that necessitate careful consideration when advising clients on a particular transaction. Almost all jurisdictions either already vest exclusive authority to transactions in one agency or are moving in that direction (e.g., Brazil, France and the UK). #e US and China may end up being the exceptions in this regard. Most jurisdictions provide for objective monetary size thresholds (e.g., the turnover of the parties, the size of the transaction) to determine whether a !ling is required. Germany, for instance, provides for a de minimis exception for transactions occurring in markets with sales of less than €15 million. #ere are some jurisdictions, however, that still use ‘market share’ indicia (e.g., Bosnia and Herzegovina, Colombia, Lithuania, Portugal, Spain, Ukraine and the UK). Most jurisdictions require
Editor’s Preface
x
that both parties have some turnover or nexus to their jurisdiction. However, there are some jurisdictions that take a more expansive view. For instance, Turkey recently issued a decision !nding that a joint venture (JV) that produced no e%ect in Turkish markets was reportable because the JV’s products ‘could be’ imported into Turkey. Germany also takes an expansive view by adopting as one of its thresholds a transaction of ‘competitively signi!cant in&uence’. Although a few merger noti!cation jurisdictions remain ‘voluntary’ (e.g., Australia, Singapore, the UK and Venezuela), the vast majority impose mandatory noti!cation requirements.
#e potential consequences for failing to !le in jurisdictions with mandatory requirements varies. Almost all jurisdictions require that the noti!cation process be concluded prior to completion (e.g., pre-merger, suspensory regimes), rather than permitting the transaction to close as long as noti!cation is made prior to closing. Many of these jurisdictions can impose a signi!cant !ne for failure to notify before closing even where the transaction raises no competition concerns (e.g., Austria, Cyprus, India, the Netherlands, Romania, Spain and Turkey). Some jurisdictions impose strict time frames within which the parties must !le their noti!cation. For instance, Cyprus requires !ling within one week of signing of the relevant documents and agreements; and Hungary, Ireland and Romania have a 30-calendar-day time limit from entering into the agreement for !ling the noti!cation. Some jurisdictions that mandate !lings within speci!ed periods after execution of the agreement also have the authority to impose !nes for ‘late’ noti!cations (e.g., Bosnia and Herzegovina, India and Serbia). Most jurisdictions also have the ability to impose signi!cant !nes for failure to notify or for closing before the end of the waiting period, or both (e.g., United States, Ukraine, Greece, and Portugal). Brazil issued its !rst ‘gun jumping’ !ne this year. In Macedonia, the failure to !le can result in a misdemeanour and a monetary !ne of up to 10 per cent of the worldwide turnover.
In almost all jurisdictions, very few transactions undergo a full investigation, although some require that the noti!cation provide detailed information regarding the markets, competitors, competition, suppliers, customers and entry conditions. Most jurisdictions that have !ling fees specify a &at fee or state in advance a schedule of fees based upon the size of the transaction; some jurisdictions, however, determine the fee after !ling or provide di%erent fees based on the complexity of the transaction. For instance, Cyprus is now considering charging a higher fee for acquisitions that are subjected to a full Phase II investigation.
Most jurisdictions more closely resemble the European Union model than the US model. In these jurisdictions, pre-!ling consultations are more common (and even encouraged); parties can o%er undertakings during the initial stage to resolve competitive concerns; and there is a set period during the second phase for providing additional information and for the agency to reach a decision. In Japan, however, the Japanese Federal Trade Commission (JFTC) announced in June 2011 that it would abolish the prior consultation procedure option. When combined with the inability to ‘stop the clock’ on the review periods, counsel may !nd it more challenging in transactions involving multiple !lings to avoid the potential for the entry of con&icting remedies or even a prohibition decision at the end of a JFTC review. Some jurisdictions, such as Croatia, are still aligning their threshold criteria and process with the EU model. #ere remain some jurisdictions even within the EU that di%er procedurally from the EU model. For instance, in Austria the obligation to !le can be triggered if only one of the involved undertakings has sales
Editor’s Preface
xi
in Austria as long as both parties satisfy a minimum global turnover and have a sizeable combined turnover in Austria.
#e role of third parties also varies across jurisdictions. In some jurisdictions (e.g., Japan) there is no explicit right of intervention by third parties, but the authorities can choose to allow it on a case-by-case basis. In contrast, in South Africa, registered trade unions or representatives of employees are even to be provided with a redacted copy of the merger noti!cation and have the right to participate in merger hearings before the Competition Tribunal, and the Tribunal will typically permit other third parties to participate. Bulgaria has announced a process by which transaction parties even consent to disclosure of their con!dential information to third parties. In some jurisdictions (e.g., Australia, the EU and Germany), third parties may !le an objection to a clearance decision.
In almost all jurisdictions, once the authority approves the transaction, it cannot later challenge the transaction’s legality. #e US is one signi!cant outlier with no bar for subsequent challenge, even decades following the closing, if the transaction is later believed to have substantially lessened competition. Canada, in contrast, provides a more limited time period of one year for challenging a noti!ed transaction (see the recent CSC/Complete transaction). Norway is a bit unusual, in that the authority has the ability to mandate noti!cation of a transaction for a period of up to three months following the transaction’s consummation.
It is becoming the norm in large cross-border transactions raising competition concerns for the US, Canadian, Mexican and EU authorities to work closely together during the investigative stages, and even in determining remedies, minimising the potential of arriving at diverging outcomes. Regional cooperation among some of the newer agencies has also become more common; for example, the Argentinian authority has worked with Brazil’s CADE, which in turn has worked with Chile. Competition authorities in Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Montenegro, Serbia, Slovenia and Turkey similarly maintain close ties and cooperate on transactions. Taiwan is part of the Asia-Paci!c Economic Cooperation Forum, which shares a database. In transactions not requiring !lings in multiple EU jurisdictions, Member States often keep each other informed during the course of an investigation. In addition, transactions not meeting the EU threshold can nevertheless be referred to the Commission in appropriate circumstances. In 2009, the US signed a memorandum of understanding with the Russian Competition Authority to facilitate cooperation; China has ‘consulted’ with the US and EU on some mergers and entered into a cooperation agreement with the US authorities in 2011. #e US also has recently entered into a cooperation agreement with India.
Although some jurisdictions have recently raised the size threshold at which !lings are mandated, others have broadened the scope of their legislation to include, for instance, partial ownership interests. Some jurisdictions continue to have as their threshold test for pre-merger noti!cation whether there is an ‘acquisition of control’. Many of these jurisdictions, however, will include as a reportable situation the creation of ‘joint control’, ‘negative (e.g., veto) control’ rights to the extent that they may give rise to de jure or de facto control (e.g., Turkey), or a change from ‘joint control’ to ‘sole control’ (e.g., EU and Lithuania). Minority holdings and concerns over ‘creeping acquisitions’, in which an industry may consolidate before the agencies become fully aware, have become the focus of many jurisdictions. Some jurisdictions will consider as reviewable acquisitions in which only a 10 per cent or less interest is being acquired (e.g., Serbia for certain !nancial and
Editor’s Preface
xii
insurance mergers), although most jurisdictions have somewhat higher thresholds (e.g., Korea sets the threshold at 15 per cent of a public company and otherwise 20 per cent of a target; and Japan and Russia at any amount exceeding 20 per cent of the target). Others use as the benchmark the impact that the partial shareholding has on competition; Norway, for instance, can challenge a minority shareholding that creates or strengthens a signi!cant restriction on competition. Several agencies in the past few years have analysed partial ownership acquisitions on a standalone basis as well as in connection with joint ventures (e.g., Canada, China, Cyprus, Finland and Switzerland). Vertical mergers were also the subject of review (and even resulted in some enforcement actions) in a number of jurisdictions (e.g., Canada, China, Sweden and Taiwan). Portugal even viewed as an ‘acquisition’ subject to noti!cation the non-binding transfer of a customer base.
For transactions that raise competition issues, the need to plan and to coordinate among counsel has become particularly acute. As discussed in the last chapter, International Merger Remedies, it is no longer prudent to focus merely on the larger mature authorities, with the expectation that other jurisdictions will follow their lead or defer to their review. In the current environment, obtaining the approval of jurisdictions such as Brazil and China can be as important as the approval of the EU or US. Moreover, the need to coordinate is particularly acute to the extent that multiple agencies decide to impose conditions on the transaction. Although most jurisdictions indicate that ‘structural’ remedies are preferable to ‘behavioural’ conditions, a number of jurisdictions in the past year have imposed a variety of such behavioural remedies (e.g., China, the EU, France, Netherlands, Norway, South Africa, Ukraine and the US). #is book should provide a useful starting point in navigating cross-border transactions in the current enforcement environment.
Ilene Knable GottsWachtell, Lipton, Rosen & KatzNew YorkJuly 2014
390
Chapter 36
SOUTH AFRICA
Lee Mendelsohn and Lebogang Phaladi 1
I INTRODUCTION
e Competition Act, 89 of 1998 (Competition Act) requires mergers (de"ned as the
acquisition or establishment of control by one or more "rms over the whole or part of
the business of another "rm) that meet the prescribed monetary thresholds to be noti"ed
to and approved by the South African competition authorities prior to implementation.
In reaching a decision as to whether a noti"ed merger may be implemented in
South Africa, the competition authorities will assess the impact of a proposed transaction
on both classic competition issues, as well as public interest issues, an approach that is
likewise being adopted by a number of other countries across Africa.
Brie#y, merger reviews under the Competition Act require the assessment of:
a whether the merger is likely to lead to a substantial prevention or lessening of
competition;
b if so, whether there are technological, e$ciency or pro-competitive gains directly
from the implementation of the proposed merger that would outweigh its anti-
competitive e%ects; and
c irrespective of the above-mentioned analysis, whether the merger can or cannot be
justi"ed on public interest grounds, which requires a consideration of the impact
of a proposed merger on a particular industrial sector or region; employment;
the ability of small businesses, or "rms controlled by historically disadvantaged
persons, to become competitive; and the ability of national industries to compete
in international markets.
1 Lee Mendelsohn is a director and Lebogang Phaladi is an associate at ENSafrica (Edward
Nathan Sonnenbergs).
South Africa
391
In assessing whether a transaction is likely to lead to a substantial prevention or
lessening of competition as contemplated in (b) above, the Competition Commission
(Commission) will assess the strength of competition in the relevant markets as de"ned,
and the probability that the "rms in the market will behave competitively or cooperatively
following the proposed transaction, taking into account any factor that is relevant to
competition in that market. Section 12A(2) of the Competition Act proposes a non-
exhaustive list of factors that can be considered in such analysis:
a the actual and potential level of import competition in the market;
b the ease of entry into the market, including tari% and regulatory barriers;
c the level and trends of concentration, and history of collusion, in the market;
d the degree of countervailing power in the market;
e the dynamic characteristics of the market, including growth, innovation and
product di%erentiation;
f the nature and extent of vertical integration in the market;
g whether the business or part of the business of a party to the proposed transaction
has failed or is likely to fail; and
h whether the proposed transaction will result in the removal of an e%ective
competitor.
Although the merger control regime and the enforcement thereof in South Africa is still
in the development stages relative to counterparts in the United States and European
Union, over the past year the South African competition authorities have continued to
demonstrate an amenability to the development and implementation of creative, #uid
solutions in the context of merger transactions, remaining ever-mindful of commercial
imperatives underpinning the process.
II YEAR IN REVIEW
e most recent o$cial "gures released by the Commission2 indicate that, during 2013,
approximately 324 mergers were noti"ed: 68 large, 223 intermediate and 33 small
mergers.3 Interestingly, for the "rst time since the inception of the Competition Act,
this was the "rst year in which the authorities did not prohibit any merger transactions.
Of the mergers assessed by the Commission during 2013, approximately 278 were
unconditionally approved, 37 were conditionally approved and the balance of the
mergers were withdrawn due to lack of jurisdiction. ese "gures reveal a distinct
increase in terms of the number of transactions noti"ed to the Commission (324 in
2013, compared with 291 noti"ed in 2012), as well as a sharp decrease in the number
of transactions ultimately prohibited by the competition authorities (zero in 2013,
compared with eight prohibitions in 2012). A contributing factor to the reduction
in prohibitions is the apparent welcoming by the competition authorities of nuanced
remedies put forward by merging parties designed to address anti-competitive and public
2 Information extracted from the Commission’s Annual Report for the 2012/2013 "nancial year.
3 During the year of review, the Commission "nalised 327 merger transactions.
South Africa
392
interest concerns, while simultaneously managing the commercial imperatives of the
merging parties. Ultimately, it would appear that the competition authorities are seeking
to strike a balance between the interests of the merging parties as well as the interests of
competition policy in general.
is #uid approach to merger control is demonstrated in a number of mergers
assessed by the competition authorities during the year in review (a few of which will
be discussed in more detail below) where the competition authorities have, inter alia,
adjusted their approach to timelines, public interest considerations, merger de"nition, as
well as the analysis thereof, in an attempt to develop solutions.
i Aspen Nutritionals/Pfizer Infant Nutrition Business4
e Aspen/P!zer merger followed the approval by the Competition Tribunal (Tribunal)
of the South African leg of the global merger between Nestlé SA and P"zer Nutrition
in February 2013 subject to a number of conditions, including that Nestlé divest P"zer
Nutrition’s South African business to a purchaser to be approved by the Commission.
Pursuant to a competitive bidding process, Nestlé identi"ed Aspen as a suitable
purchaser given, inter alia, its extensive experience in the infant nutrition market.
However, the merging parties faced signi"cant di$culty in securing competition law
approval for the transaction given that the merger comprised a ‘three-to-two merger’. In
general terms in South Africa, three-to-two mergers typically attract close scrutiny from
competition authorities due to an informal presumption that anti-competitive outcomes
are likely to arise from an increase in concentration in already concentrated markets.
To counter this, the merging parties presented evidence that the structural change
in the broader infant nutrition market would not lead to a substantial prevention or
lessening of competition in the relevant market, on the basis that Aspen and P"zer
Nutrition brands were not each other’s closest competitors, but that both were close
competitors to Nestlé and would remain so post-transaction. In essence, the parties
argued that there would essentially remain two major players in each of the higher-end
and mainstream segments and that a stronger Aspen (achieved by virtue of the merger)
would be better placed to compete against Nestlé.
After considering detailed factual and economic evidence (including testimony
from customers, competitors, and industry and economic experts), the Tribunal found
no evidence that the transaction would be likely to lead to anti-competitive e%ects.
Accordingly, it approved the transaction on an unconditional basis.
e Aspen/P!zer transaction is an example of the Tribunal’s vigour in seemingly
problematic mergers. e Tribunal looked hard for a basis to prohibit the transaction
but, because it could not "nd evidence to support its suspicion of an anti-competitive
outcome, ultimately approved the merger.
4 Aspen Nutritionals, a division of Pharmacare Limited/"e South African Infant Nutrition Business
of P!zer Inc Case No:107186.
South Africa
393
ii Zeder Financial Services/Agri Voedsel5
Zeder, an investment holding company, held a less than 50 per cent interest in Agri
Voedsel. Zeder sought to continue purchasing shares in Agri Voedsel as and when they
became available for sale with a view to increasing its shareholding therein beyond
50 per cent (thereby acquiring sole control), albeit that Zeder was unable to identify
the exact date upon which it would acquire su$cient further shares to do so. Zeder
thus made application to the Tribunal to approve an acquisition of control by it on a
prospective basis. e Tribunal found that the proposed transaction would not result in
a substantial lessening or prevention of competition; nor would this transaction raise
any public interest concerns. Accordingly, the main consideration was whether Zeder
was legitimately able to make application to the competition authorities at that stage
to acquire sole control over the whole or the part of a business of another "rm at an
inde"nite point in future.
It is self-evident that Zeder pre-emptively sought competition law approval to
implement its acquisition of control so as to ensure that it was not in breach of the
provisions of the Competition Act at a later stage. From the perspective of the competition
authorities, however, the timing of the ultimate implementation of the merger is likely to
signi"cantly a%ect the competition law analysis pertinent thereto.
Accordingly, and no doubt mindful of these considerations, the Tribunal, in
agreement with the Commission, adopted a measured approach in granting approval for
the transaction to proceed, subject to the following conditions:
a the approval of the proposed transaction shall apply for a period of 12 months
from the approval date; and
b should Zeder not acquire control over Agri Voedsel within the prescribed
period, Zeder shall again apply to the competition authorities for approval of the
transaction before implementing the acquisition.
iii Stefanutti Stocks/Energotec6
Stefanutti Stocks, a multidisciplinary construction "rm, sought to acquire Energotec, a
division of First Strut, involved in the installation of electrical solutions primarily within
the petrochemical industry.
Energotec was, at the time of the submission of the merger noti"cation, under
provisional liquidation, which was likely to result in imminent job losses. Accordingly, the
competition authorities agreed to signi"cantly fast track the consideration of the proposed
transaction, and scheduled the merger hearing before the Tribunal for later on the same
day on which the Commission received the merger noti"cation. Notwithstanding the
fact that the competition authorities had less than 24 hours to assess the likely impact
of the proposed transaction, it was established that the implementation thereof would
not substantially lessen or prevent competition in a relevant market, and would salvage
Energotec and result in the retention of more than 600 jobs that would otherwise be lost.
5 Zeder Financial Services Limited/Agri Voedsel Limited Case No: 018432.
6 Stefanutti Stocks Propriety Limited/Energotec (a division First Strut) Proprietary Limited Case No:
017590.
South Africa
394
e merger was accordingly approved subject to the merging parties not retrenching any
employees for merger-speci"c reasons for a period of two years from the date of approval
of the merger.
is transaction demonstrates the willingness on the part of the competition
authorities to act swiftly to ensure that the competitive and public interests for which
provision is made are safeguarded to the greatest extent possible.
iv AgriGroupe/Afgri7
In the context of the merger between AgriGroupe and Afgri, the Commission received
submissions from a number of third parties, including the Economic Development
Department (EDD), which raised concerns regarding the impact of the merger on the
ability of small businesses or "rms controlled or owned by historically disadvantaged
persons to become competitive. In particular, such third parties sought information as
to whether, post-merger, there was an incentive for AgriGroupe to discontinue various
forms of assistance that Afgri provided to small farmers or farms owned by historically
disadvantaged individuals. Despite these submissions, the Commission concluded that
the merger was unlikely to substantially prevent or lessen competition, and further did
not raise any public interest concerns. e Commission recommended the unconditional
approval of the merger.
During the hearing, the Tribunal indulged the parties that had made submissions
to the Commission by asking whether they wished to make any further submissions.
ird parties made oral submissions to the Tribunal, following which the EDD informed
the Tribunal that it had engaged with Afgri in an e%ort to address the concerns raised
by it and other government departments. After this, the EDD and Afgri concluded an
agreement that deals with, inter alia, the provision of loans to emerging farmers from
the Land Bank, the enrolment of participating emerging farmers in a development
programme, grain storage discounts to qualifying emerging farmers, technical support
and advice to the governmental departments on alternative storage facilities and potential
retrenchments. e agreement, more speci"cally, creates a fund called the Afgri Fund,
which will make an aggregate amount of 90 million rand available over four "nancial
years to be utilised in accordance with the provisions of the agreement. e agreement
is to be implemented over a period of four years, commencing on the date of approval
of the proposed transaction by the Tribunal. e competition authorities approved the
proposed transaction subject to the imposition of the above-mentioned conditions.
III THE MERGER CONTROL REGIME
To determine whether a transaction is noti"able to the competition authorities in South
Africa, it must be established whether:
a the competition authorities have jurisdiction over the proposed transaction;
b the proposed transaction comprises a ‘merger’ as de"ned in Section 12 of the
Competition Act; and
7 AgriGroupe Holdings Proprietary Limited/AFGRI Limited Case No: 017939.
South Africa
395
c the proposed transaction meets the merger thresholds, as contemplated in the
Competition Act and the regulations promulgated thereunder (Government
Notice 216 of 2009).
i Jurisdiction
e point of departure when assessing the impact of South African competition law on a
particular transaction is to establish whether the transaction in question falls within the
jurisdiction of the South African competition authorities. In terms of Section 3(1) of the
Competition Act, the provisions thereof apply to all economic activity ‘within, or having
an e%ect within’ the Republic of South Africa.
ii !e definition of a merger
e Competition Act de"nes a ‘merger’ as the direct or indirect acquisition or
establishment of direct or indirect control, by one or more "rms, over the whole or part
of the business of another "rm.
iii Merger thresholds
In the event that the South African competition authorities enjoy jurisdiction and the
transaction satis"es the de"nition of a ‘merger’ as set out in Section 12 of the Competition
Act, one must then establish whether the transaction in question constitutes a small,
intermediate or large merger; only the latter two statutorily require mandatory noti"cation
and approval from the competition authorities prior to their implementation.
Intermediate mergers are de"ned as those mergers where the combined annual
turnover or assets (whichever is greater) in, into or from South Africa of the acquiring
"rms and the target "rms is valued at or above 560 million rand, and the annual turnover
or assets (whichever is greater) in, into, or from South Africa of the target "rm is valued
at or above 80 million rand. If the annual turnover or asset value of the parties to the
merger falls below either of these monetary thresholds, the transaction will be a small
merger.
Large mergers are de"ned as mergers where the combined turnover or assets
(whichever is greater) in, into, or from South Africa of the acquiring "rms and the target
"rms is valued at or above 6.6 billion rand, and the annual turnover or assets (whichever
is greater) in, into, or from South Africa of the target "rm is valued at or above 190
million rand.
Intermediate and large mergers must be noti"ed to and approved by the
competition authorities before they are implemented. Small mergers need not be
noti"ed to the Commission as a matter of course. In two circumstances, small mergers
will require certain action to be taken. e "rst is where a party to a small merger, or
any entity within the group of companies to which a party to a small merger belongs, is
under investigation or being prosecuted by the competition authorities for a prohibited
practice. In such case, the merging parties must inform the Commission of their merger.
ey need not "le a merger noti"cation unless called upon to do so by the Commission,
and unless and until they are so required, the parties may proceed to implement their
merger. e second circumstance is where the Commission itself calls for a noti"cation
of a small merger (which it may do within six months of the implementation of the small
South Africa
396
merger if it is of the view that the merger substantially lessens or prevents competition, or
cannot be justi"ed on public interest grounds). In such event, the merging parties must
cease any further implementation of their merger, and must notify the Commission in
the standard form and obtain approval before implementation resumes.
iv Penalties
In terms of Section 59(1)(d)(iv) of the Competition Act, if the parties to a merger have
proceeded to implement either an intermediate or large merger without the approval
of the competition authorities, the Tribunal may impose an administrative penalty not
exceeding 10 per cent of a "rm’s annual turnover in South Africa and its exports from
South Africa in the preceding "nancial year.
In addition to the foregoing, if a merger is implemented contrary to the
Competition Act, the Tribunal may:
a order a party to the merger to sell any shares, interest or other assets it has acquired
pursuant to the merger; or
b declare void any provision of an agreement to which the merger was subject.
v Process and decision-makers
Small and intermediate mergers are investigated and decided by the Commission. In
the case of large mergers, the Commission investigates the likely e%ect of the merger
on competitive conditions and the public interest and makes a recommendation to the
Tribunal. e Tribunal then convenes a public hearing, hears oral evidence and legal
arguments where necessary and makes a decision. Decisions of the Commission may
be referred to the Tribunal for reconsideration. Tribunal rulings may be appealed or
reviewed by the Competition Appeal Court (CAC). With leave of that Court, a further
appeal lies to the Constitutional Court in circumstances where constitutional issues or
matters of national importance arise.
vi Time periods
No time periods in which the "ling of a merger notice with the Commission must be
made are prescribed by the Competition Act or the Rules for the Conduct of Proceedings
in the Commission.
However, as stated above, parties to an intermediate or large merger may not
implement such a merger without the prior approval of the competition authorities.
In terms of Sections 14 and 14A of the Competition Act, in the case of a large
merger, there is no statutory maximum number of days for the competition authorities
to "nalise the process:
a the Commission has 40 business days to consider and refer such large merger to
the Tribunal. e Tribunal may extend this period for an unlimited number of
times by no more than 15 business days at a time. In other words, in complex
mergers, the Commission may seek to extend its 40-business-day period for as
long as may be required by it to complete its analysis of the merger. is initial
period for analysis by the Commission (i.e., before its recommendation is made
to the Tribunal) can run to in excess of eight months in complex cases;
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397
b within 10 business days of the referral to it of a large merger, the Tribunal must
schedule a pre-hearing meeting or hearing. is period may be extended; and
c within 10 business days of the hearing, the Tribunal must approve or prohibit
the merger and, within 20 business days thereafter, must issue the reasons for its
decision.
e hearing process may also be long, particularly where there are interventions or where
oral evidence is required to be led.
In the case of an intermediate merger, the Commission has an initial period of 40
business days to consider the merger and make a decision whether to approve (with or
without conditions) or prohibit it. e Commission may unilaterally extend the above
period by a further 20 business days.
vii Submission of a merger filing to the competition authorities
Merger procedures and formalities
A copy of the merger noti"cation (with all con"dential information removed) must be
provided to:
a any registered trade union that represents a substantial number of employees; or
b the employees concerned or representatives of the employees concerned, if there
is no such registered trade union.
A merger "ling is not complete (and the relevant time periods do not begin to run)
until the relevant trade union or employee representatives have been served with a non-
con"dential version of the merger noti"cation.
In terms of Section 44 of the Competition Act, a person, when submitting
information to the Commission, may identify any information that is con"dential. Any
such claim must be supported by a written statement explaining why the information
is con"dential. Con"dential information means any trade, business or industrial
information that belongs to a "rm, has a particular economic value, and is not generally
available to or known by others.
e merger "ling fee (payable to the Commission) in the case of a large merger is
350,000 rand and, in the case of an intermediate merger, 100,000 rand. No "ling fee is
payable in the case of a small merger that is required to be noti"ed.
Composition of a merger filing
e merger noti"cation to be submitted to the competition authorities is composed of
the following documents.
Statutory forms
ese forms detail, inter alia:
a the identity of the acquirer and the target and their holding, subsidiary and
associated companies;
b the identity of trade unions or employee representatives of the acquirer and the
target;
c a description of the transaction;
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398
d "nancial information pertaining to the acquirer and the target;
e the nature of the business activities of the acquirer and the target, their market
shares and the market shares of their competitors;
f the identities of the customers of the acquirer and the target; and
g any pre-existing business relationships between the acquirer and the target.
Statutory documents
Various documents must be submitted to the Commission as a part of every merger
"ling. ese include:
a the agreement upon which the transaction is premised (either in "nal form or the
most recent draft);
b the most recent audited annual "nancial statements of the acquirer and the target;
c any minutes, documents, resolutions, presentations or summaries prepared for
the board of directors of each of the acquirer and the target in respect of the
proposed transaction;
d the most recent budget, business plan or forecast of each of the acquirer and the
target; and
e the most recent report submitted by each of the acquirer and the target to the
Takeover Regulation Panel (where applicable).
Great care must be exercised in the preparation of all correspondence, memoranda, and
– most importantly – presentations to the boards and various committees of the merging
parties for the purposes of assessing the transaction. Far greater weight is given by the
competition authorities to these contemporaneous registering of intent and expected
e%ect than is given to the carefully constructed arguments made in the competitiveness
report prepared for the purposes of encouraging approval of the transaction.
Competitiveness report
In most matters, the merging parties must prepare a competitiveness report, which is an
analysis of the impact of competition in the relevant market or markets.
A comprehensive competitiveness report will contain, at least, a detailed
assessment and application of the factors set out in Section 12A(2) of the Competition
Act (discussed above) to the merger under scrutiny.
IV OTHER STRATEGIC CONSIDERATIONS
i Oversight of competition authorities
Oversight responsibility of the competition authorities is now vested in the EDD. Under
the direction of the Minister of Economic Development, Ebrahim Patel, the EDD has
been more interventionist than the Department of Trade and Industry had previously
been.
ii Heightened focus on public interest issues
Public interest focus remains an important consideration in the South African merger
control process. is increased focus has manifested itself in increased involvement in
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mergers by trade unions and government, and also in the attitude of the competition
authorities themselves, which have given ever greater time and attention to these matters
than was previously the case, as re#ected in the sample of merger transactions discussed
above.
iii Merger review process
A large merger hearing or reconsideration of a decision by the Commission in an
intermediate merger before the Tribunal is a quasi-trial, the extent and duration of which
is directly linked to the complexity of the matter; the competition law or public interest
concerns raised, or both; and the degree of opposition to the merger (whether from the
Commission or third parties).
A hearing in relation to a relatively benign merger, for instance, can be over in
a matter of minutes, and the merging parties will receive their clearance certi"cate in
respect of the approval of the transaction usually within a day or two of the hearing.
e hearing of a particularly challenging transaction in South Africa has been
known to last for several months, with a number of short periods of evidence and
argument during that time. e Tribunal has, however, successfully signi"cantly curtailed
the time taken and amount of evidence led even in complex mergers, and hearings are
now conducted in a far more streamlined, disciplined manner. During the hearing
period, counsel are called upon to submit legal arguments, factual and expert evidence
is led, witnesses are cross-examined, etc. e hearing of a complex merger will also likely
be preceded by a discovery process and various interlocutory proceedings (including
challenges to claims of con"dentiality by the merging parties).
e merger hearing is an open process that attracts much interest from the press.
e inner workings of the merging parties are scrutinised through an analysis of e-mails,
memoranda, presentations, etc. It is a time-consuming, costly and invasive process.
Importantly, the merging "rms are e%ectively sterilised from other corporate activity
(other than ordinary business, which can continue as usual) from the date of "ling until
the date on which the merger proceedings are "nalised.
Any person can, in terms of Section 13B of the Competition Act, "le any relevant
information with the Commission in respect of a merger. Should a person raise concerns
regarding the outcome of a merger or implore the Commission to prohibit a merger
or approve a merger with conditions, the Commission will investigate and analyse the
nature and validity of claims made and consider such in the overall examination of the
merger.
e right to participate in Tribunal merger hearings is automatically conferred
upon the parties to the merger, the Commission, trade unions or employee representatives
that have indicated their intention to participate, and the Minister8 if he or she has
8 ‘Minister’ is de"ned as the Minister of Trade and Industry in Section 1 of the Competition
Act. However, the competition authorities have recently been moved from the Minister of
Trade and Industry’s portfolio to the Minister of Economic Development’s portfolio. As such,
while this has not been amended in the Competition Act, it is now the Minister of Economic
Development that will participate in merger hearings.
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400
indicated an intention to participate formally. In addition, any person that has a material
interest in the merger may apply to intervene. In e%ect, a contested hearing will occur
where interveners participate or the Commission or one or more unions oppose the
merger.
Although third parties wishing to participate need to apply to be admitted as
interveners, the Tribunal will allow wide scope for intervention, except where the merging
parties can de"nitively demonstrate that the third party’s intentions are dishonourable
(that the aim is not the furtherance of competition but some other personal gain or
interest of the third party).
Extensive discovery proceedings (akin to those that occur in civil trials) are not
only allowed but are, in fact, encouraged by the Tribunal, which sees such processes as
a unique opportunity to expose the true rationale for the merger and the likely future
conduct of the merged entity, if the merger is allowed. After lengthy and invasive discovery,
witness statements (factual and expert, including from economists) are "led. ereafter, a
hearing involving examination and cross-examination of witnesses is scheduled.
A lengthy, invasive and time-consuming process – usually involving senior
management – will ensue in all contested scenarios.
e South African merger regime has been criticised for the fact that it is open to
abuse by parties wishing to employ dilatory tactics with the aim of delivering commercial
blows to competitively innocuous transactions. In a large merger, interveners are able
to substantially delay "nalisation of the South African merger process by raising alleged
anti-competitive and contrary-to-public-interest outcomes that are likely to result from
an implementation of the merger. While these allegations, if unfounded, are ultimately
likely to be exposed for what they are, an intervener in a large merger is likely able to
delay a transaction, albeit for far shorter periods than was previously the case in South
Africa.
e Tribunal is increasingly aware of the need to balance the proper ful"lment
of its mandate to analyse mergers, pursuant to an inquisitorial process, against the
need of merging parties to close their transactions with some measure of promptness.
e Stefanutti transaction is a perfect case in point, where the Tribunal undertook to
consider and approve the merger within less than 24 hours to ensure that the commercial
imperatives of the merging parties were not negatively a%ected by the regulatory process.
V OUTLOOK AND CONCLUSIONS
e year in review has revealed the competition authorities’ #uid approach to merger
transactions, seemingly to ensure that the regulatory requirement on the part of the
merging parties to comply with the provisions of the Competition Act does not negatively
a%ect the commerciality of the transactions that come before it. e sample of cases
discussed above reveals a pragmatic and #exible approach to merger control review by
the increasingly sophisticated South African competition authorities.
Going forward, it is anticipated that public interest considerations (particularly
employment) will continue to attract scrutiny from the competition authorities,
with most transactions being approved subject to a moratorium on merger-speci"c
retrenchments for a period of two years post the implementation thereof.
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401
Of course, given the trend in merger review over the past year, it is also likely
that the competition authorities will continue to encourage free debate between the
Commission, the merging parties and other industry bodies or third parties that may be
a%ected by the implementation of a merger so as to ensure that solutions are developed
and implemented that address merger-speci"c competitive and public interest concerns,
while remaining cognisant of the commerciality underpinning such transactions.
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Appendix 1
ABOUT THE AUTHORS
LEE MENDELSOHN
ENSafrica (Edward Nathan Sonnenbergs)
Lee Mendelsohn is a director at ENSafrica and heads up the !rm’s anti-trust/competition department. She has 18 years’ experience and specialises in merger control, enforcement and exemptions, compliance and compliance training.
She has acted for the Competition Commission, as well as various major local and international companies across numerous and varied industries.
Ms Mendelsohn’s enforcement practice experience includes cartel and other horizontal practice investigations and prosecutions as well as vertical practice investigations. She also has experience dealing with all manner of investigations, prosecutions, price discrimination matters and abuse of dominance matters. She has taken responsibility for matters under investigation by the Competition Commission, being prosecuted before the Competition Tribunal, and on appeal or review to the Competition Appeal Court
and the Supreme Court of Appeal.
In the mergers sphere, she has been involved in complex horizontal and vertical
mergers, unsolicited bids, conditions compliance, appeals and reviews before the
Commission, Tribunal, Appeal Court and Supreme Court of Appeal.
Ms Mendelsohn has been the lead professional in extensive compliance audits,
compliance training programmes, employee amnesty initiatives, dawn raid training,
document creation and management techniques and other company policy compliance
programmes.
She is the author of numerous articles and has presented at various domestic
and international conferences. She has also lectured at the University of Cape Town’s
competition law course and is the managing editor of Butterworths Competition Law Reports. She is also a regular contributor to the Business Law and Tax Review and co-
authored the South African chapter in the 2010 edition of the Private Competition Enforcement Review.
About the Authors
504
She is recognised as a leading lawyer by the following reputable rating agencies and
their publications: Chambers and Partners Global Guide to the World’s Leading Lawyers 2014, 2013, 2012 – Competition (South Africa); Euromoney Expert Guides – Guide to the World’s Leading Competition and Antitrust Lawyers 2014 – Competition (South
Africa); !e International Who’s Who of Competition Lawyers & Economists 2014, 2013 –
Competition (South Africa); IFLR1000 2014, 2012 – Competition (South Africa); Legal 500’s guide to outstanding lawyers 2014, 2013, 2012 – Competition (South Africa);
Best Lawyers 2013, 2012 – Competition (South Africa); Euromoney’s Expert Guides
– World’s Leading World’s Leading Women in Business Law 2013 – Competition and
Antitrust (South Africa); PLC Euromoney’s Best of the Best 2013 (top 30) – Competition
(South Africa); Global Competition Review – Competition; Guide to the World’s Leading Women in Business Law 2012 – Competition (South Africa); Guide to the World’s Leading Competition/Antitrust Lawyers and Economists 2012 – Competition (South Africa); and
PLC Which Lawyer? 2012 – Competition (South Africa).
She is a member of the Law Society of the Northern Province’s sub-committee
for competition law.
LEBOGANG PHALADI
ENSafrica (Edward Nathan Sonnenbergs)
Lebogang Phaladi is an associate in the competition/anti-trust department at ENSafrica.
He has acted for various companies both local and international in, inter alia, the mining,
steel, media, retail, forestry, insurance and !nancial services sectors.
His experience includes advising on the noti!ability and compilation of merger
transactions to the competition authorities in various jurisdictions including South
Africa, Botswana, Kenya, Malawi, Namibia, Zambia and the regional regulatory body
COMESA.
His experience further extends to advising on abuse of prohibited practices, dawn
raids, compliance training and education programmes in relation to South African
competition law. He has conducted compliance audits and due diligence investigations
of various corporate entities. He has written articles for the Business Law and Tax Review
and is a contributing editor to the Butterworths Competition Law Reports.
ENSAFRICA (EDWARD NATHAN SONNENBERGS)
150 West Street, Sandown
Sandton
Johannesburg
South Africa
Tel: +27 11 269 7600
Fax: +27 11 269 7899
www.ensafrica.com
