Competition is a healthy part of growing business. However, what happens when a merger puts a market at risk by threatening that competition? Ramsay Webber looks at the Act, and how it affects and protects competition.
Mergers are regulated by Chapter 3 of The Competition Act 89 of 1998 (“the Act”). Merger regulation ensures that the markets within the economy are operating in a competitive manner and specifically target those commercial transactions that threaten to either prevent of or the lessen competition in the markets.
A merger, as defined in section 12(1)(a) of the Act, occurs when a person or one or more firms directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another firm. A firm or a person exercises control over another firm if that firm or person:
- Beneficially owns more than half of the issued share capital of a firm or company;
- Is entitled to exercise a majority of the votes that may be cast at a general meeting of the firm
- Is able to appoint or veto the appointment of the majority of the directors of the firm; or
- Has the ability to materially influence the policies of the firm.
Chapter 3 of the Act provides that if the transaction constitutes a merger as it is defined in the Act and the merger exceeds the financial thresholds below those prescribed by the Minister of Trade and Industry in the Government Gazette then the parties to the merger are obliged to notify the competition authorities and pursue their approval of the transaction.
Financial thresholds distinguishing a “small merger” from an “intermediary merger” and a “large merger”:
- A small merger: The combined turnover/asset values of the acquiring firm or group and the target firm is below R560 million and where the target firm’s turnover/asset value is below R80 million.
- A large merger: The combined turnover/asset values of the acquiring firm or group and the target firm exceeds R6.6bn and where the target firm’s turnover/asset value exceeds R 190mill.
- An intermediary merger: The combined turnover/asset values of the acquiring firm or group and the target firm’s turnover/asset value falls between the lower and the higher of these thresholds above.
Small mergers, barring two exceptions do not need to be notified to the competition authorities. The two exceptions are as follows:
- If within six months of the merger the Commission is of the opinion that the merger may substantially lessen or prevent competition or that it cannot be justified on public interest grounds; or
- If at the time of entering into the transaction, any of the merging parties are subject to an investigation by the Commission or are involved in proceedings before the competition tribunal.
In the above situations the merging parties must inform the Commission of the proposed transaction and the Commission can decided whether it requires to be notified.
Intermediary and large mergers are obliged to be notified to the Competition Commission and may not be implemented until the merger is approved without conditions.
In assessing whether a merger will substantially lessen or prevent competition in the market the competition authorities take into consideration a number of factors to determine the strength of competition in the relevant market and the probability of the firms in the market behaving competitively post-merger or whether they will engage in collusive behaviour.
If a merger is, however, likely to result in a technological, efficiency or alternative pro-competitive gain which is greater than the negative effects of the proposed merger or if the merger can be justified on public interest grounds then the competition authorities may approve the merger even if it results in the substantial lessening or prevention of competition in the relevant market.
Recent decisions of the Commission:
On 16 September 2015 the Commission recommended to the Tribunal that the following proposed large mergers be approved without conditions:
- Investec Bank Limited and Ferro South Africa (Pty) Ltd;
- Sun International (South Africa) Limited and GPI Slots Proprietary Limited;
- Fortress Income Fund Limited and Capital Property Fund Limited ;
- Rockwood Fund I and Enviroserv Holdings (Pty) Ltd; and
- Delta Property Fund Ltd and Orthotouch Ltd.
For assistance with mergers, acquisitions and all allied business issues, please contact Ramsay Webber Attorneys on 011 778 0600 or firstname.lastname@example.org