One of the aspects to consider when there is a merger of companies is whether notification of such merger must be given to the competition commission (“Commission”). The Competition Act No. 89 of 1998 (“Act”) governs when merger notification is required. This article will briefly examine when parties are required to give notification of a merger to the Commission.
The purpose of the Act is to promote and maintain competition in South Africa to among other things –
- provide consumers with competitive prices and product choices;
- ensure small and medium enterprises have an equitable opportunity to participate in the economy;
- promote a greater spread of ownership and promote ownership of previously disadvantaged persons; and
- detect and address market conditions which tend to impede, restrict or distort competition in relation to the supply or acquisition of goods and services.
A merger as contemplated by the Act may defeat this purpose. Resultingly, the Act requires that the Commission be notified of mergers in certain instances.
The Act defines a merger as the direct or indirect acquisition or establishment of direct or indirect control by one or more firms over the whole or part of the business of another firm (“Merger”).
A Merger can be achieved in any manner which includes a purchase of shares, an interest or assets of another firm or an amalgamation or combination with another firm.
The determination of whether a person must notify the Commission of a Merger depends on both the size of the Merger and a number of policy considerations. These are set out below in further detail.
Size of the Merger:
In terms of the regulation published on 6 March 2009, Determination of Merger Thresholds and Method of Calculation (“Regulation”), a Merger can be classified as a small, intermediate or large Merger depending on where it falls in relation to the thresholds currently set by the Regulation.
The Regulation sets 2 (two) thresholds, namely –
- a lower threshold whereby –
- the combined annual turnover in respect of the acquiring and transferred firms are above or below R600 million (six hundred million Rand);
- the annual turnover of the acquiring firm/s plus the assets of the of the transferred firms are valued at over or less than R600 million (six hundred million Rand);
- the annual turnover of the transferred firm plus the assets of the acquiring firm/s are valued at over or less than R600 million (six hundred million Rand); or
- the combined assets of the acquiring firm/s and the transferred firm/s are valued at over or less than R600 million (six hundred million Rand); and
- the annual turnover of the transferred firm or the asset value of the transferred firm is above or below R100 million (one hundred million Rand); and
- a higher threshold, whereby –
- the values at points 1 to 5.4 are set at R6.6 billion (six point six billion Rand); and
- the value at point 5 is set at R190 million (one hundred and ninety million Rand).
A small Merger is one that falls below the lower threshold (“Small Merger”), an intermediate Merger is one that falls between the lower and the higher threshold (“Intermediate Merger”) and a large Merger is one that falls above the higher threshold (“Large Merger”).
Section 13A of the Act requires that parties to an Intermediate Merger or a Large Merger –
- notify the Commission of such Merger (“Notice”); and
- provide a copy the Notice to –
- any registered trade union representing a substantial number of its employees; or
- should no registered trade union represent the employees, to the employees themselves.
An Intermediate or Large Merger may not be implemented prior to the approval of the Commission, the competition tribunal or the competition appeal court.
Section 13(3) of the Act states that Notice is not required for the implementation of a Small Merger, save for the following events –
- the Commission is of the opinion that the Merger may substantially prevent or reduce competition or cannot be justified on the grounds of public interest;
- at the time of entering into the transaction any firm or firms within the group of such firm are subject to an investigation by the Commission in relation to a prohibited practice as defined by the Act; or
- at the time of entering into the transaction any firm or firms within the group of such firm are respondents to pending proceedings referred by the Commission to the Competition Tribunal.
Should Notice of a Small Merger be required, such Small Merger may not be implemented until it has been approved or conditionally approved by the Commission.
In the event that a Merger substantially prevents or reduces competition in the market or is not justifiable in terms of public interest grounds, such Small Merger may require notification. This determination is based on the following public policy consideration.
In order to determine whether there is an undue reduction of competition in the market, the Commission will consider whether there are technological, efficiency or other pro-competitive gains which outweigh the reduced competition and assess the strength of the competition in such market.
Alternatively, the Commission will consider the public interest grounds which include the effect the Merger will have on an industry sector or region, employment, the ability of small, medium and firms owned by historically disadvantage persons to enter into, participate and expand in the market, the ability of South African industries to compete in international markets and promotion of the spread of ownership with a focus on increasing ownership by historically disadvantaged persons and workers in the market.
As set out above, in order for the Act to achieve its purpose of promoting and maintain competition in South Africa it requires notification for Intermediate, Large and some Small Mergers.
Such notification can be dependent on the size of the Merger or a more complex public policy consideration.
It is therefore important to assess, prior to entering into a Merger, whether notification is required. This ensures that the Merger is compliant with the Act and all the necessary steps, if any, are taken by the parties to the Merger.
VDMA’s team of experts is at your disposal for any assistance that you may require in implementing Mergers and overcoming the necessary regulatory hurdles for such successful implementation.
Published 19 January 2021