Competition Law & Antitrust Law

In terms of Section 12 of the Competition Act, 1998 (‘Competition Act’), a merger occurs when 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 merger may occur through a purchase or lease of shares or assets, joint ventures and/or pure amalgamation of firms/businesses.

– A merger is notifiable to the Commission if it meets the following three criteria:

a) Jurisdiction test – the merger must constitute economic activity within, or having an effect within, South Africa;

b) Control test – the merger must constitute a ‘merger’ as defined in section 12 of the Competition Act; and 

c) Threshold test – the merger must meet the thresholds of assets and turnover values established in the Competition Act.

The Competition Act applies to all economic activity within, or having an effect within, South Africa.

A person controls a firm if that person:

• owns more than 50% of the issued share capital of another firm; and / or
• has majority votes in general meetings; and / or
• can appoint or veto the appointment of majority directors; and / or
• has the ability to materially influence the policy of the firm.

• A merger must be notified when the following thresholds are met:
  • Lower threshold: Combined turnover/Asset value R600m : Target turnover/Asset Value R100m
  • Higher threshold: Combined turnover/Asset value R6.6b : Target turnover/Asset Value R190m

– The financial threshold analysis considers the higher of the gross turnovers or gross asset values of:

a) the acquiring group (i.e., the immediate acquiring firm and all firms it controls, firms that control it, and all other firms controlled by its controllers) and the target firm and any firms it controls (Combined Value); and

b) the target firm (including any firms it controls) (Target Value), as recorded in the firms’ most recent year-end financial statements.

– The Competition Act draws a distinction between a ‘small merger’, an ‘intermediate merger’ and a ‘large merger’ as follows:

a) a small merger is where the Combined Value is less than the lower combined threshold of R 600 million in, into or from South Africa and/or the Target Value is less than the lower target threshold of R100 million in, into or from South Africa;

b) an intermediate merger is where the Combined Value equals or exceeds the lower combined threshold of R600 million in, into or from South Africa and the Target Value equals or exceeds the lower target threshold of R100 million in, into or from South Africa; and

c) a large merger is where the Combined Value equals or exceeds the higher combined threshold of R6.6 billion in, into or from South Africa and the Target Value equals or exceeds the higher target threshold of R190 million in, into or from South Africa.

• In the case of a small merger, the Commission has an initial period of 20 business days within which it must investigate and decide on the merger (i.e., approve, prohibit, or conditionally approve the merger). However, the Commission can extend this period for up to (but no longer than) 40 business days. The Commission typically does extend the initial period for the full further period, although it does not follow that the Commission will only make its decision known at the end of 60 business days from date of the application being filed (c. 3 months).
• In the case of an intermediate merger, the Commission has an initial period of 20 business days within which it must investigate and decide on the merger (i.e., approve, prohibit, or conditionally approve the merger). However, the Commission can extend this period for up to (but no longer than) 40 business days. The Commission typically does extend the initial period for the full further period, although it does not follow that the Commission will only make its decision known at the end of 60 business days from date of the application being filed (c. 3 months).
• In the case of a large merger, the Commission must investigate the merger and make a recommendation to the Competition Tribunal (‘Tribunal’) within 40 business days. However, the Commission may apply to the Tribunal for one or more extensions of up to 15 business days at a time. Merger parties would usually agree to one or two such applications, after which they might oppose further applications. The Tribunal will allocate a hearing date only after the Commission has made its recommendation. The timing and duration of the hearing will depend on the Tribunal’s roll and the issues that must be considered.

A statutory filing fee of R550,000 is payable to the Commission for a large merger, and R165,000 for an intermediate merger. No filing fee is payable for a small merger which the Commission requires to be notified.

According to the new guidelines, the Commission must be informed in writing before implementation of all small mergers which meet any of the following criteria:

• at the time of entering into the transaction any of the firms, or firms within their group, are subject to an investigation by the Commission in terms of Chapter 2 of the Act;
• at the time of entering into the transaction any of the firms, or firms within their group, are respondents to pending proceedings referred by the Commission to the Competition Tribunal in terms of Chapter 2 of the Act;
• mergers and share acquisitions where the acquiring firm’s turnover or asset value alone exceeds the large merger combined asset/turnover threshold (which is currently R6.6 billion) and at least one of the following criteria are met for the target firm:
  • the consideration for the acquisition or investment exceeds the target firm asset/turnover threshold for large mergers (currently R190 million); and 
  • the consideration for the acquisition of a part of the target firm is less than the R190 million threshold but effectively values the target firm at R190 million or more.

The revised guidelines respond to increased concerns that acquisitions of new, innovative companies in digital markets may be escaping regulatory scrutiny due to the acquisitions taking place at an early stage in the life of the target companies. The guidelines will further address concerns that target companies may be acquired before they have generated sufficient turnover or accumulated capital assets to trigger mandatory merger notification.

Small mergers do not require mandatory notification, but in terms of Section 13(3) of the Competition Act, the Commission has a discretion to require – up to six months after a small merger has been implemented – that it be notified and approved by the Commission. In this regard, the Commission may do so where a merger could substantially prevent or lessen competition or cannot be justified on public interest grounds. Merging parties may not take further steps to implement such a merger until it has been approved or conditionally approved.

According to the Commission’s Rules, either the primary acquiring firm or the primary target firm can make a joint filing in terms of Rule 27 or a separate filing in terms of Rule 28. Rule 28 caters for instances where joint notification is not possible such as hostile takeovers. It should be noted, however, that in the case of a separate filing, either of the merging parties should approach the Commission to obtain permission to file separate notifications of the merger.

A joint merger notification must be made in a single filing by one of the primary firms, and must include:

a) A merger Notice in Form CC4(1), which must declare the names of the primary acquiring and target firm and whether, in the opinion of the filing firm, the merger is small, intermediate or large;

b) For each of the primary acquiring firm and the primary target firm, a Statement of Merger Information in Form CC4(2);

c) All documents required as stipulated on each form including:

• A complete list of shareholders and their respective shareholding, including minority shareholders, for the primary acquiring firm and of any firm that directly or indirectly controls the primary acquiring firm; and
• Strategic documents of the merging parties in relation to the affected markets including, but not limited to, the following: business plans, marketing documents, high-level strategic presentations and board minutes;

d) A non-confidential version of the forms CC4(1), CC4(2) and the report on competition if submitted; and

e) In an attempt to move to a paperless filing system, the Commission also encourages the merging parties to file electronically and include a CD of the merger filing.

In terms of the Commission Rule 30(1) within 5 business days after receiving a Merger Notice filed in respect of a merger declared to be a large merger, or within 10 business days after receiving a Merger notice filed in respect of any other merger, the Commission may deliver to the filing firm a Notice of Incomplete Filing, Form CC13(2). The initial period for consideration of the proposed merger will not begin until the merging parties have satisfied all notification requirements set out in the Form CC13(2). The Commission may deliver a Notice of Complete Filing, Form CC13(1). However, if neither Form CC13(1) nor Form CC13(2) is delivered within the statutory period, the filing will be deemed to be complete.

To claim confidentiality over information that is submitted to the Commission, the merging parties must complete the Form CC7 – confidentiality claim. In terms of the instructions on the Form CC7 a table (from column 1 to 5) indicating which information is confidential, why it is considered confidential information, which persons are restricted to access it, etc. is required.

In terms of Section 12A(2)(a) – (h) of the Competition Act, the Commission needs to evaluate the following factors to assess the strength of competition in the relevant market/s and determine whether the merger will result in any change in the competitive landscape that could substantially prevent or lessen competition in the relevant market/s:

• the actual and potential level of import competition in the market;
• the ease of entry into the market, including tariff and regulatory barriers (a merger is unlikely to create or enhance market power or to facilitate its exercise if entry into the market is timely, that is within a period of two years in most markets, likely to be profitable for new entrants and sufficient to return market prices to their pre-merger levels);
• the levels and trends of concentration (this is usually undertaken in the assessment of market shares and the calculation of the Herfindahl-Hirschman Index or HHI’s which is basically the sum of the squared market shares of merging parties and their competitors in the relevant market/s) and history of collusion, in the market;
• the degree of countervailing power in the market (that is the bargaining strength that the buyer has vis-a-vis the seller in commercial negotiations due to its size, commercial significance to the seller and its ability to switch to alternative suppliers);
• the dynamic characteristics of the market, including growth, innovation, and product differentiation;
• the nature and extent of vertical integration in the market;
• whether the business or part of a business of a party to the merger or proposed merger has failed or is likely to fail. It should be noted that the onus is on the merging parties to invoke the doctrine of the failing firm; and
• whether the merger will result in the removal of an effective competitor.

• Ownership – whether the transaction maintains certain levels of HDP ownership and sets up employee share ownership schemes;
• Employment – considerations on retrenchments, creation of new jobs, commitments to maintain aggregate employment levels and training commitments (including setting up learnerships and providing bursaries);
• Procurement – considerations on procurement of products from local small, micro and medium-sized enterprises (SMMEs) and HDP suppliers; and
• Investment – considerations on investments in local initiatives, programmes to support and develop SMMEs and firms controlled by HDPs, training, the creation of new outlets/facilities and reskilling.

In case of intermediate and small mergers, upon completion of the merger investigation, the Commission will issue a certificate approving the merger, approving the merger subject to conditions, or prohibiting a merger. In terms of Section 16(1)(a) of the Competition Act, if the Commission takes a decision, with which the merging parties do not agree, they can appeal the decision before the Tribunal. If the decision that is taken by the Tribunal is still agreeable to the merging parties, they can appeal before the Competition Appeal Court.