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Merger Control

Overview

Chapter 3 of the Competition Act 89 of 1998 (Competition Act) contains provisions that deal with mergers. The aim of these provisions is to ensure that the various markets in the economy are functioning competitively and efficiently. Specifically, merger regulation targets commercial transactions that may result in the substantial prevention or lessening of competition in the relevant markets.

The merger control provisions of the Competition Act require the parties to a merger transaction to notify the transaction to, and seek the approval of, the competition authorities if it fulfils certain requirements. The first requirement is that the transaction constitutes a "merger" as defined in the Competition Act. The second requirement is that the value of the merger transaction exceeds the financial thresholds prescribed by the Minister of Trade and Industry in a government gazette.

Once a transaction is notified, the competition authorities evaluate the following factors in deciding whether the merger should be approved:

  • whether the merger will substantially lessen or prevent competition in the relevant market;
  • whether the merger will give rise to any technological, efficiency or other pro-competitive gains which outweigh any anti-competitive effect arising from the merger; and
  • whether the merger may be justified on substantial public interest grounds.

What is a merger?

A "merger" is defined in the Competition Act as the (direct or indirect) acquisition or establishment of control by a firm/s over the whole or part of the business of another firm.

A person is deemed to control a firm if that person, for example:

  • beneficially owns more than one half of the issued share capital of the firm;
  • is entitled to vote 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 policy of the firm.

Financial thresholds

Once a transaction is classified as a "merger", it is notifiable only if the turnover/asset value thresholds are exceeded. These thresholds are calculated with reference to the turnovers/asset values (whichever is greater) of (i) the acquiring group together with the target firm and its subsidiaries; and (ii) the target firm and its subsidiaries. The turnovers/asset values must be derived in, into or from South Africa for the preceding financial year.

A distinction is made between a "small merger", an "intermediate merger" and a "large merger" as follows:

  • A "small merger" is where the combined turnovers/asset values of the acquiring group and the target firm is below R600m and where the target firm’s turnover/asset value is below R100m.
  • A "large merger" is where the combined turnovers/asset values of the acquiring group and the target firm exceeds R6.6bn and where the target firm’s turnover/asset value exceeds R190m.

An "intermediate merger" is where the combined turnovers/asset values of the acquiring group and the target firm and the target firm’s turnover/asset value falls between these lower and higher thresholds.

Annual turnover or assets  Large Merger  Intermediate Merger  Small Merger 
Merger Group > R6.6 billion R600 million - R6.6 billion < R600 million 
Target Firm > R190 million R100 million - R190 million  < R100 million

Notification

A small merger does not need to be notified to the Competition Commission (Commission) except in the following two circumstances:

  • if within six months of the implementation of the merger, the Commission requires notification on the basis that in its opinion the merger may substantially prevent or lessen competition or cannot be justified on public interest grounds; and
  • if at the time of entering into the transaction, any of the merging parties (or firms within their group) are subject to an investigation by the Commission, or are involved in proceedings before the Competition Tribunal (Tribunal), relating to "prohibited practices" . In such a situation, the merging parties must inform the Commission of the proposed transaction and the Commission will decide whether it must be notified.

An intermediate or large merger must be notified to the Commission and may not be implemented until it has been approved, with or without conditions, by the relevant competition authorities.

Merger control considerations

In assessing whether a merger will substantially lessen or prevent competition in the relevant market, the competition authorities must consider a number of factors (listed in the Competition Act) which serve to assess the strength of competition in the relevant market and the probability that after the merger the firms in the market will behave competitively or in a collusive manner.

Even if a merger is likely to substantially prevent or lessen competition, the competition authorities can approve it if the merger:

  • is likely to result in a technological, efficiency or other pro-competitive gain which is greater than the negative effects of the merger; or
  • can be justified on public interest grounds. After evaluating all of the above factors, the Commission decides whether the merger should be approved unconditionally, approved subject to specified conditions, or prohibited.

Time periods

In the case of intermediate mergers, the Commission investigates and decides the merger. The Commission must decide the merger within 20 business days of receiving the merger notification. The Commission may extend this period by up to a further 40 business days. If no decision is made, the Commission is deemed to have approved the merger. If the Commission does not give an unconditional approval or prohibits an intermediate merger, the merging parties can request the Tribunal to consider the merger.

In the case of large mergers, the Commission investigates the merger and makes a recommendation to the Tribunal, which then decides the merger. The Commission must make its recommendation to the Tribunal within 40 business days of the notification but the Tribunal may extend this period on application by the Commission for periods of 15 business days at a time. There is no statutory prescribed period for the Tribunal to decide a large merger.

Merger filing fees

Type of Merger Notification fee  
Small Merger Rnil
Intermediate Merger   R150 000
Large Merger R500 000

Failure to notify a merger

An administrative penalty of up to 10% of the turnover of the merging parties may be imposed in the event of:

  • a failure to notify a merger;
  • an implementation of a prohibited merger;
  • an implementation of a merger in a manner contrary to a condition for approval imposed by the competition authorities; or
  • an implementation of a merger without the approval of the competition authorities, as required by the Competition Act.

The Tribunal may also order divestiture of a firm’s assets and, it would seem, any shareholders’ shares in such firms.