As the dust settles on the market's response to the Competition Commission's prohibition of the Burger King merger on public interest grounds, it is important to reflect on the future role of public interest in mergers across Africa.
Webber Wentzel recently participated in Informa Connect's Competition Law Africa conference. The conference was the first of its kind and brought together regulators, businesses, practitioners, academics and other stakeholders across the continent. The conference highlighted the integral role competition law plays in the day-to-day operations of businesses and its growing prominence in Africa.
Shawn van Meulen, a partner in Webber Wentzel's competition law practice, moderated a session on public interest and other non-traditional competition law considerations. Five important takeaways are set out below:
Public interest is here to stay - merger parties must be cognisant that public interest will continue to play a prominent role in merger proceedings
Many jurisdictions in Africa with active competition law regimes make provision for the assessment of public interest considerations in their legislation – in particular, the effect of the proposed merger on employment and small and medium firms in the market. Since these provisions form part of the mandate of many competition authorities, potential investors must understand the varying "on-the-ground" dynamics in different jurisdictions and be prepared to potentially contribute to national policy priorities such as job creation and infrastructure development. Although South Africa has been the most active in the application of public interest provisions, several countries have also begun to approve mergers subject to conditions such as retrenchment moratoriums, and local procurement and ownership commitments.
Public interest will be used as means to address Africa's unique challenges
There must also be a recognition that public interest has a more fundamental role to play in addressing the incomparably high levels of inequality, poverty and unemployment across the continent. Africa also faces challenges of high barriers to entry in certain markets, the majority of the population being excluded from economic opportunities and the prevalence of state-owned enterprises. As seen in major deals that have taken place in the continent such as the
AB InBev/SAB and
PepsiCo/Pioneer mergers, investors may be asked to contribute to alleviating these challenges through development funds, job creation and commitments to support local businesses.
The need for clarity and predictability in merger transactions
As public interest considerations become increasingly important, the expansion of their scope becomes more difficult to predict. For example, since the new provisions of the South African Competition Amendment Act came into effect, which focus on B-BBEE ownership and the inclusion of smaller market participants in value chains, the manner in which the competition authorities will apply these new provisions is not always certain. For example, although the merger parties made several other public interest commitments, the Burger King merger was prohibited solely on the basis of a reduction in HDP ownership. While some public interest conditions are imposed in response to specific market circumstances, there is a need for competition authorities keep guidelines updated and for detailed merger reports and decisions to be published and made publicly available.
Preparation is key
It is advisable for parties to start thinking about potential public interest conditions while negotiating the transaction. Strategic business plans and board resolutions are amongst the documents submitted when filing a merger application. Merger parties must be aware that competition authorities will scrutinise these documents and may use future strategic plans as a basis to frame commitments that will be suited for the particular market. Merger parties must also be alive to how other market participants may respond to the transaction and should anticipate the possibility of intervention by third parties such as competitors, suppliers and customers. In some jurisdictions across Africa, other sector regulators may also want to assess the merger, particularly in regulated sectors such as banking, insurance, and telecommunications.
Engagement should not be left until the last minute
In the context of the Burger King prohibition, the South African Competition Commissioner remarked that the merger parties' approach to addressing the public interest concerns was "too little, too late". Although the right time to engage with the competition authorities depends on the circumstances of each case, it is always best for the parties to start considering any public interest issues and proactive engagement early in the process. Merger parties must be alive to market dynamics – in no overlap, uncomplicated mergers, engagement might not be necessary. However, in larger, high-profile deals or where there are issues affecting HDP ownership, other smaller market participants or employment issues – strategizing early on how to address such issues will ultimately allow for a smoother and quicker merger approval process.