New Development of Interest
Five Merges Prohibited by the competition commision in October 2017
During October 2017, the Competition Commission (Commission) prohibited five mergers. The prohibitions involved companies in the agricultural and healthcare sectors. Since the beginning of 2017, the Commission has prohibited 11 mergers in total - a high number compared to previous years. Businesses currently engaging in mergers, particularly in any of the Commission's priority sectors, must be cognisant of the reasons for the recent string of prohibitions and need to ensure that these types of concerns are sufficiently addressed in their merger notifications.
Three of the proposed mergers were in the agricultural sector and involved the same consortium of companies. The primary acquiring firm is owned by a consortium comprising of companies that are all active in the agricultural sector and produce products such as wheat, edible oils and sunflower seeds. In terms of the proposed mergers, the primary acquiring firm intended to acquire three separate companies, all of which are also active in the agricultural sector. The Commission found that: (i) the merging parties would hold multiple shareholding interests and cross-directorships in the adjacent markets, which may facilitate coordination; and (ii) the target firms are likely to be platforms for information exchange.
The two other prohibited mergers involved Netcare Hospitals Group (Pty) Ltd and Netcare Property Holdings (Pty) Ltd (collectively referred to as Netcare). In the first merger, Netcare intended to acquire the Akeso Group (Akeso). The Commission found that the proposed merger will result in significant combined market shares and a significant change in market structure in the provision of mental healthcare services in a local market in Gauteng. The Commission also called upon Netcare to notify a merger that had already been implemented with Lakeview Hospital, a multidisciplinary private hospital. The Commission prohibited the merger on the basis that: (i) there is a horizontal overlap between the activities of the merging parties in the provision of multidisciplinary private healthcare services in the Benoni area; (ii) tariffs are likely to generally increase significantly once the Lakeview Hospital adopts the Netcare tariff schedule; and (iii) the merger results in the removal of the Lakeview Hospital as an effective competitive constraint in the Benoni area.
Agribusiness, Food & Beverage: Updates and Developments
In the agribusiness, food and beverage sector, there are two developments of interest:
- The Competition Tribunal (Tribunal) has conditionally approved the merger between the Public Investment Corporation SOC Ltd (PIC), in its capacity as the representative of the Government Employment Pension Fund (GEPF), Unemployment Fund and Compensation Fund, and Afgri Poultry t/a Daybreak Farms (Pty) Ltd (Daybreak). The Tribunal approved the merger subject to conditions relating to cross-directorships and information sharing in the poultry value chain. In addition, conditions have been imposed to the effect that a portion of the PIC's newly acquired shareholding in Daybreak must be divested to a BEE third party.
- The Tribunal has conditionally approved a merger in terms of which the South African Distilleries and Wines (SA) Ltd (SADW), controlled by Distell Group Ltd, will gain sole control over Lusan Holdings (Pty) Ltd (Lusan). As a result of the acquisition of sole control, SADW will obtain control over Alto wine farm and Uitkyk wine farm, both of which are currently owned by Lusan. The Tribunal approved the merger subject to a number of conditions, including a moratorium on retrenchments for a specified period.
Financial Services: Updates and Developments
In the financial services sector, there are two developments of interest:
- The Tribunal has conditionally approved the acquisition by Firefly Investments 326 (Pty) Ltd (Firefly) of Bayport Financial Services 2010 (Pty) Ltd (BFSSA). Firefly is a wholly-owned subsidiary of the GEPF, and has investments in various classes of assets including equities and property. BFSSA is a non-banking financial entity specialising in the provision of unsecured personal loans. As a result of the concern raised by the Commission that the PIC has multiple minority shareholding interests in several entities which compete with BFSSA, the merger was approved subject to the condition that there be no cross-directorships in relation to the directors appointed to the PIC to the Board of the target firm, as well as those appointed in the entities which compete with BFSSA.
- Discovery Ltd has announced that NewDisc Ltd (to be renamed Discovery Bank Ltd) has been granted a banking licence in South Africa. The company has confirmed that the grant of the banking licence is subject to specific regulatory conditions, including conditions relating to the proposed shareholding in the bank and approval of the South African competition authorities.
Healthcare: Update On Investigation Against Pharmaceutical Companies
Further to our June update (available here), the Commission has decided to withdraw the investigation against Aspen Pharmacare Holdings Ltd (Aspen) and Equity (Pty) Ltd (Equity). In June 2017, the Commission launched investigations against Roche Holding AG, Genentech Inc., Pfizer Inc., Equity, and Aspen for alleged abuses of dominance and excessive pricing in the supply of specific cancer medicines in South Africa. The Commission found that excessive pricing cases cannot be sustained against Aspen and Equity. The Commission's investigation revealed that: (i) in relation to Aspen, the revenues attributable to Myleran, Alkeran and Leukeran are very low; and (ii) in respect of Equity, the drug, Xalkori Crizotinib, is not registered in South Africa. The Commission is continuing with its investigations of the other pharmaceutical companies.
Leisure: Tribunal Issues Reasons for Decision in Hosken and Tsogo Sun Merger
Further to our September update (available here), the Tribunal has issued reasons for its decision to dismiss an urgent application by Hosken Consolidated Investment Ltd and Tsogo Sun Holdings Ltd regarding a proposed transaction with Niveus Investment Ltd. In its decision, the Tribunal stated that an advisory opinion from the Commission is not binding in nature, and that notification of a transaction to the Commission is a jurisdictional requirement for the Tribunal to exercise its functions. Accordingly, the Tribunal concluded that since the applicants have not notified their transaction, the Tribunal lacks jurisdiction, and therefore the applicants ae not entitled to approach the Tribunal directly for the order that they seek.
Retail: Updates and Developments
In the retail sector, there are four developments of interest:
- The Commission has initiated an investigation against Vodacom Group (Pty) Ltd (Vodacom) for abuse of dominance. The Commission's investigation pertains to an exclusive four-year contract between the National Treasury and Vodacom, in terms of which Vodacom is the sole provider of mobile telecommunication services to government. Previously, all government departments could purchase mobile telecommunication services from any mobile network operator. The Commission has stated that it has reasonable grounds to suspect that the exclusive contract may constitute an exclusionary abuse of dominance by Vodacom.
- The Tribunal has confirmed a consent agreement between the Commission and SBS Household Appliances t/a SMEG (Pty) Ltd (SMEG). SMEG has admitted that it engaged in the practice of minimum resale price maintenance in contravention of the Competition Act 89 of 1998. The Commission found that SMEG had instructed the complainant not to sell a product at a cheaper price than other retailers, failing which, SMEG would stop supplying the complainant with any products. The Tribunal imposed an administrative penalty of ZAR 100,000.00 and noted that despite the serious nature of the offence, the conduct was limited to a single complainant based in Pietermaritzburg, KwaZulu-Natal and was therefore was retailer specific and limited in scope.
- The Tribunal has conditionally approved a merger between Fidelity Security Services (Pty) Ltd (Fidelity) and Analytical Risk t/a 2RM Security (2RM). Fidelity's business includes monitoring and response, cash-in-transit services, guarding and electronic solutions, whereas 2RM features in the broader private security sector. The Tribunal approved the merger subject to a moratorium on retrenchments for a definite period.
- The Tribunal hearing involving the long-running matter between Computicket (Pty) Ltd (Computicket) and the Commission began on 4 October 2017. Computicket is alleged to have engaged in anticompetitive behaviour relating to exclusive long-term contracts that it concluded with inventory providers in the entertainment industry. In terms of the contracts, vendors are not allowed to sell tickets through any other ticketing service.
Sport: Football Agents Investigated for Price Fixing
The South African Football Intermediaries Association (SAFIA) and 36 of its members are alleged to have engaged in price fixing and / or fixing of trading conditions. The case has been referred by the Commission to the Tribunal for prosecution. SAFIA is a body consisting of sports agents who negotiate transfer fees and contracts on behalf of soccer players and coaches. Following its investigation, the Commission found that: (i) as agreed to by SAFIA and its members, a fixed 10% commission fee is charged for the negotiation and conclusion of new contracts, transfer contracts and renewal contracts; (ii) SAFIA and its members charge players and coaches a standard 20% commission fee for the negotiation and conclusion of new commercial contracts and renewal of those contracts; and (iii) SAFIA is being used as a platform for collusion
Angola: Angolan President Announces That Competition Law Is on the Cards
The President of Angola has announced that the Angolan government will submit to parliament a proposal for a competition law to bring an end to monopolies and other imperfections in the country's market. It is intended that the legal framework will facilitate the operation of companies, which promote free enterprise and competition. The President also stated that he would pay special attention to companies that face difficult situations, as they guarantee employment, the sustainability of families and keep the economy running.
Botswana: New Ceo of the Botswana Competition Authority Appointed
Ms. Tebelelo Pule has been appointed CEO of the Botswana Competition Authority (BCA) by the Minister of Investment, Trade and Industry. Ms Pule, who has been the acting CEO since April 2016, has said that key priorities during her tenure would be enforcement, advocacy, prioritisation of the BCA’s activities, and building collaborations with international partners.
Comesa: Comesa Encourages Diplomats to Advocate for Competition Policy
The Second Diplomatic Conference on Competition and Trade, organised by COMESA, was recently held in Zambia. The theme for the conference was "Enhanced Integration through Competition, Investment and Development". The conference highlighted the importance of competition law and encouraged diplomats, including ambassadors and High Commissioners accredited to COMESA, to advocate for the implementation of regional integration in their respective countries. It was noted that only 10 out of the 19 Member States of COMESA have operational national competition authorities - while the rest have enacted competition laws, the competition authorities are not yet operational.
Namibia: Namib Mills Facing Fine for Abuse of Dominance
The Namibian Competition Commission (NCC) has requested that the Windhoek High Court declare that Namib Mills has been abusing its dominant position in the wheat flour market and should pay a penalty of N$ 51 million (approximately ZAR 51 million) for contravening the Namibian Competition Act 2 of 2003. The NCC is alleging that loan agreements that Namib Mills has concluded with 54 bakeries includes a clause stating that the bakeries should buy their wheat flour only from Namib Mills. The NCC is concerned that this requirement is allowing the company to preserve its dominant position. The matter has been postponed, and a case management hearing will take place in December 2017.
Swaziland: Commission Approves Merger Subject to Public Interest Condition
It has been reported that the Swaziland Competition Commission (SCC) has approved four mergers over the last three months. One of the four mergers was approved subject to public interest conditions. The merger involved the acquisition of operational assets and specific trading liabilities from Unitrans Swaziland (Pty) Ltd, Unitrans Agricultural Services (Pty) Ltd and South Investment (Pty) Ltd by Southern Star Logistics (Pty) Ltd. This merger was approved subject to conditions that the merger parties should, for three years: (i) honour the current contractual commitments with customers; (ii) submit annual statistics on market shares; and (iii) submit detailed annual rates adjustments.
Zambia: Zambia Sugar Fined for Unfair Pricing
The Competition and Consumer Protection Commission (CCPC) Board of Commissioners has fined Zambia Sugar PLC (Zambia Sugar) a penalty fee of ZMW 76,725,650 (approximately ZAR 107 million) for price discrimination and unfair pricing. Following a four year investigation, it was revealed that Zambia Sugar had engaged in unfair pricing against selected household sugar users as well as price discrimination among industrial sugar users, household sugar users and further, between the domestic household sugar users and regional household sugar users. Zambia Sugar has been ordered to formulate competitive prices for both industrial and household sugar sold on the domestic market.
Australia: Major Competition Law Reforms Pending
Two significant bills have been passed by Australia's parliament in August and October 2017 respectively - the Competition and Consumer Amendment Competition Policy Review Bill (Policy Bill) and the Competition and Consumer Amendment (Misuse of Market Power) Bill 2017 (Market Power Bill). The Policy Bill envisages amendments to provisions relating to, amongst others, cartel conduct, concerted practices, resale price maintenance, and merger control. The Market Power Bill will introduce a revised test for the misuse of market power.
European Union: Updates and Developments
- Antitrust officials from the European Commission (EC) have carried out unannounced inspections in a number of member states concerning online access to bank account information by competing service providers. The EC is concerned that the companies involved may have engaged in anti-competitive conduct aimed at excluding non-bank owned providers of financial services by preventing them from gaining access to bank customers' account data, despite the fact that the respective customers have given their consent to such access.
- The EC has confirmed that it carried out unannounced inspections at the premises of car manufacturers in Germany. The inspections are related to the EC's concerns that several German car manufacturers may have violated EU antitrust rules that prohibit cartels and restrictive business practices. The EC has also confirmed that the recent raids relate to an inspection carried out at the offices of a car manufacturer in Germany. Subsequently, BMW confirmed that the EC conducted an inspection at its premises in connection with cartel allegations against five German car manufacturers.
United Kingdom: Updates And Developments
In the United Kingdom, there are three developments of interest:
- The Competition Appeal Tribunal has found in favour of the Competition and Markets Authority (CMA), upholding its fine on Balmoral Tanks Ltd (Balmoral) and three other companies for illegally exchanging price information at a meeting held in 2012. Balmoral was fined GPB 130,000 (approximately ZAR2.4 million) for taking part in this unlawful information exchange. The CMA has stated that the case highlights that exchanging competitively sensitive confidential information with competitors, even at a single meeting, can be a breach of competition law, and that a business (and its representatives) must leave meetings, such as the one in this case, and make explicit its refusal to take part in a cartels.
- The CMA has launched three further investigations in relation to concerns of possible collusion and abuse of dominance in the pharmaceutical industry. Concordia International Corp. (Concordia) subsequently announced that the CMA is investigating new issues in relation to the United Kingdom (UK) pharmaceutical sector, and that Concordia's international segment and certain of its products are part of the inquiry.
- The UK government has proposed new merger system rules with the aim of protecting its national security. The proposed rules would allow government to check on deals with businesses that have a turnover of GBP 1 million (approximately ZAR 18.5 million) or more. The proposed rules would mainly affect export controls and companies that are making military and dual-use products, and parts of the technology sector.
United States of America: New Competition Bills Introduced
United States Senator, Amy Klobuchar, has introduced two new bills, the Consolidation Prevention and Competition Promotion Act of 2017 (CPCPA Bill) and the Merger Enforcement Improvement Act (MEIA Bill). The two bills propose drastic changes to the review of mergers under competition laws. Some of the changes proposed by the MEIA bill include an adjustment of fees paid by buyers in transactions requiring a Hart-Scott-Rodino filing. The CPCPA Bill would change the current legislation's prohibition of mergers that “substantially” lessen competition to one that prohibits those mergers that only “materially” lessen competition or “lower quality, reduce choice, reduce innovation, exclude competitors, increase entry barriers or increase price.”
Our Recent Work
Kutana Steel (Pty) Ltd and Saint-gobain Pipelines South Africa (Pty) Ltd Merger Unconditionally Approved
The Commission has unconditionally approved the merger whereby Kutana Steel (Pty) Ltd (Kutana Steel) intends to acquire Saint-Gobain Pipelines South Africa (Pty) Ltd (SGPL).
Daryl Dingley and Cara du Plessis represented SGPL.
Kutana Steel is a wholly owned subsidiary of Kutana Capital (Pty) Ltd (Kutana Capital). The Kutana Group is an investment company that targets investments in a diverse range of business segments such as media, telecoms, IT, property, financial services, industrial products and agricultural and food services. SGPL is a manufacturer of cast iron products. SGPL manufactures and supplies cast iron cookware and industrial castings.
The Commission found that the proposed merger is unlikely to substantially lessen or prevent competition and did not raise any public interest concerns.
Libstar Operations (Pty) Ltd and Sonnendal Dairies (Pty) Ltd Merger Conditionally Approve
The Tribunal has conditionally approved the large merger between Libstar Operations (Pty) Ltd (Libstar) and Sonnendal Dairies (Pty) Ltd (Sonnendal).
Shawn van der Meulen and Cara du Plessis represented the merger parties.
Libstar is a holding company, controlled by private equity funds, and controls a number of companies in South Africa. The Libstar Group manufactures and distributes consumer products in the food and beverage, household and personal care industries, as well as providing various food and beverage solutions. Sonnendal is a manufacturer and distributor of dairy and related products.
The Tribunal approved the merger subject to the condition that the restraint of trade imposed upon the seller is limited to the Western Cape province, as this is where Sonnendal is predominantly active.
Main Street 1522 (Pty) Ltd and Main Street 1523 (Pty) Ltd and Ahead Trading (Pty) Ltd and Six Sense Marketing (Pty) Ltd Merger Unconditionally Approved
The Tribunal has unconditionally approved the large merger whereby Main Street 1522 (Pty) Ltd and Main Street 1523 (Pty) Ltd, ultimately controlled by Sanlam Life Assurance Ltd, will acquire the KFC businesses (comprising 28 KFC outlets in the Western and Northern Cape) from Ahead Trading (Pty) Ltd (Ahead Trading), and the marketing business (which performs marketing functions for the outlets operated by Ahead Trading as well as a few other businesses that operate KFC franchises) from Six Sense Marketing (Pty) Ltd (Six Sense) operating in the Western and Northern Cape
Robert Wilson and Andriza Liebenberg represented the merger parties.
The Tribunal found that the proposed merger is unlikely to substantially lessen or prevent competition and did not raise any public interest concerns.