Merger Control 2023

Relevant Authorities and Legislation

Who are the relevant merger authorities?

In South Africa there are three specialised competition law enforcing bodies, each tasked with distinct functions, namely the Competition Commission (“Commission”), the Competition Tribunal (“Tribunal”) and the Competition Appeal Court (“CAC”), established to implement the merger control regime in South Africa.

The Commission is the body tasked with investigating intermediate and large mergers (and small mergers if these are notified, either voluntarily or by request of the Commission). After considering a small or intermediate merger, the Commission must approve the merger, with or without conditions, or prohibit the merger. The Commission is not authorised to make a determination in relation to large mergers and must, after the investigation, refer the large merger, together with a written recommendation, to the Tribunal for adjudication.

The Tribunal is an adjudicative body that may hear appeals from or review any decision of the Commission that may be referred to it. The Tribunal must consider the recommendations of the Commission on large mergers and, after a public hearing, approve the merger with or without conditions or, alternatively, prohibit the merger. The Tribunal can also reconsider a merger decision of the Commission in respect of small or intermediate mergers if a party requests it to do so.

The CAC has a similar status to the South African Supreme Court of Appeal, and may review any decision of the Tribunal, or consider an appeal from the Tribunal in respect of a final decision, other than a consent order, or any of its interim or interlocutory decisions that may be taken on appeal.

A decision of the CAC can be appealed to the Constitutional Court if where the issue involved is about the interpretation, protection or enforcement of constitutional rights and obligations, or the matter raises an arguable point of law of general public importance. In the Mediclinic decision ([2023] 1 CPLR 2 (CC)), in determining jurisdiction, the Constitutional Court said “the case is essentially about whether access to private health care services would be impeded, enhanced or unaffected by the merger. It involves the interpretation, protection and actualisation of this constitutional right and therefore implicates the constitutional right of access to health care services. Arguably, it also concerns the obligation of the State to respect, promote, protect and fulfil this right as well as a court’s obligation to promote the spirit, purport and objects of the Bill of Rights when interpreting legislation.”

The Minister of Trade, Industry and Competition (“Minister”) is notified of mergers by the Commission, and the Minister is entitled to participate in merger proceedings in order to make representations on any public interest ground. The Minister also has an automatic right to intervene in small mergers. In terms of the Competition Act, the Minister and the Commission are permitted to appeal a merger decision by the Tribunal to the CAC.

What is the merger legislation?

The merger control regime in South Africa is regulated by Chapter 3 of the Competition Act, 1998 (“Competition Act”), as amended. The Competition Act was significantly and substantively amended with effect from 12 July 2019. There are certain provisions of the Competition Amendment Act, 2018 (“Amendment Act”) which were enacted in July 2019 and February 2020, although there are still a few sections of the Amendment Act which have not yet come into effect, which are dealt with in further detail below.

Whilst the Competition Act stipulates the merger notification requirements, the merger thresholds are set out in the Determination of Merger Thresholds and Method of Calculation Notice, published in Government Gazette Number 40902 on 9 June 2017.

Is there any other relevant legislation for foreign mergers?

There is no separate foreign investment control legislation; however, the Amendment Act, although this section is not yet in operation, introduces a requirement that mergers involving a foreign acquiring firm, which may have an adverse effect on the national security interests of South Africa, be notified to a committee constituted by the President of South Africa.

In this respect, the Amendment Act provides that the committee will consider and decide, within 60 days of receipt of a notice of the merger, whether the merger involving a foreign acquiring firm may have an adverse effect on the national security interests of South Africa. This time period can be extended by the President. Once the proposed amendments have come into effect, the Commission and the Tribunal will not be able to consider a merger if the foreign acquiring firm has failed to notify the committee. Furthermore, where the committee has prohibited a merger, any decision made by the Tribunal or the Commission approving the merger will be automatically revoked. These provisions are not yet in force and require the publication of regulations first.

Is there any other relevant legislation for mergers in particular sectors?

All sectors are subject to the provisions of the Competition Act (except for certain banking mergers). South African legislation requires additional industry specific notifications to other regulators for mergers in particular sectors, including the insurance, banking, gambling, and mining and telecommunications industries. Certain transactions must be considered and approved by the Black Economic Empowerment Commission.

Is there any other relevant legislation for mergers which might not be in the national interest?

Aside from the provisions in the Amendment Act regulating mergers involving a foreign acquiring firm that may have an adverse effect on the national security interests of South Africa (not yet in force), there is no other specific legislation regulating mergers which might not be in the national interest. However, the Competition Act does require the Competition Authorities to consider the impact of a merger on the public interest, and conditions imposed will often take the impact on national interest into consideration. Notably, in March 2023, onerous public interest conditions were imposed on Heineken-Distell (case number LM136Dec21) including a cumulative expenditure of ZAR10 billion over five years to maintain or grow the aggregate productive capacity of the current production and manufacturing operations in South Africa, investment of ZAR3.8 billion for a new greenfield brewery and ZAR 1.7 billion for a greenfield maltery in South Africa, commitments regarding local procurement, establishment of a new supplier development fund in which the parties will contribute ZAR 400 million over five years for investment in small and medium-sized enterprises (“SME”) and suppliers controlled by historically disadvantaged persons (“HDP”), contribution of ZAR 200 million to a localisation and growth fund, investment of ZAR175 million to support tavern owners, establishment of an innovation, research and development hub for the African region, establishment of 6% employee share scheme, a moratorium on retrenchments (apart from a maximum of 166 employees above a certain grade level), maintenance of the headcount, adopting a policy of fair wages and ensuring a safe and dignified work environment. This matter provides an insight into the objectives of the competition authorities in South Africa (“Competition Authorities”) in respect of public interest.

It is common in transactions in South Africa for conditions relating to the increase of HDP ownership to be imposed even in circumstances where there is no negative effect on HDP ownership.

Transactions Caught by Merger Control Legislation

Which types of transaction are caught – in particular, what constitutes a “merger” and how is the concept of “control” defined?

A transaction is automatically notifiable as a merger to the Competition Authorities if it falls within the definition of a merger in terms of the Competition Act, and if the monetary thresholds for compulsory notification are met.

A merger is defined in section 12(1) of the Competition Act as the direct or indirect acquisition or establishment of control over the whole or part of the business of another firm. Mergers can be achieved in any manner, including through:

• the purchase or lease of the shares, interest or assets of the other firm in question; or
• any form of amalgamation or combination with the other firm in question.

Section 12(2) of the Competition Act provides a list of the circumstances in which a person will acquire control of a firm. This includes where a person beneficially owns more than 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, and/or if the acquiring firm is able to appoint or veto the appointment of a majority of the directors of the firm.

The Tribunal has previously found that the list mentioned in section 12(2) of the Competition Act is not exhaustive. The Tribunal stressed that whether control is in fact acquired is a factual question. The fact that a transaction may not give the acquiring firm more than a 50% shareholding in the target firm does not mean that there has not been a change in control.

In the Distillers case (case number 08/CAC/May01), the CAC stated that: “[T]he Act was designed to ensure that the competition authorities examine the widest possible range of merger transactions to examine whether competition was impaired and this purpose provides a strong pro-pointer in favour of a broad interpretation of the Act...For this reason the purpose of merger control envisages a wide definition of control, so as to allow the relevant competition authorities to examine a wide range of transactions which could result in an alteration of market structure and in particular reduces the level of competition in the relevant market.”

This approach is embodied in section 12(2)(g) of the Competition Act, which refers to a person acquiring control when he or she “has the ability to materially influence the policy of the firm in a manner comparable to a person who, in ordinary commercial practice, can exercise an element of control referred to in paragraphs (a) to (f)” of the Competition Act.

The CAC has made some useful remarks regarding the ambit of section 12(2)(g) in the Caxton decision (case number 136/ CAC/Mar15):

• the “policy” that is being materially influenced must relate to issues of strategy, which is usually guided by the board or the shareholders;
• the issue of “materiality” of influence relates to the range of matters over which the power extends, rather than the decisiveness of each matter; and
• “ability” refers to both a power to do something and a power to prevent something from being done.

In Ethos (case number [2003] 2 CPLR 371), the Tribunal held that:

• more than one party can simultaneously exercise control over a company for the purposes of section 12 of the Act;
• a firm can, at the same time, be subject to joint control and sole control;
• in circumstances where a firm is subject to both joint and sole control, if the firm notified sole control to the Competition Authorities and sole control formed the basis of the approval decision, no subsequent notification is required if the acquirer later acquires an unfettered right; and
• a change from joint to sole control triggers the obligation to notify the transaction.

In Hosken Consolidated Investments (case number 154/CAC/ Sept17), the CAC found that where a firm has already received merger approval for the sole control of another firm by virtue of section 12(2)(g) of the Competition Act, for example, and no other shareholder has any form of control or decisive influence, that firm will not need to re-notify a merger if it crosses the so-called “bright line” (i.e. by acquiring more than 50% of the shares, for example). This position was confirmed by the Constitutional Court (CCT296/17) [2019] ZACC 2 in February 2019.

Can the acquisition of a minority shareholding amount to a “merger”?

Yes, the acquisition of a minority shareholding can amount to a merger, as defined in the Competition Act, if the minority shareholding is coupled with minority protection rights that will confer control on the acquirer or if it, in fact, acquires control (see question 2.1 above).

The Competition Authorities have previously found that a minority shareholder that has the ability to approve or veto matters of strategic importance, such as the hiring or firing of senior employees and the approval of the target firm’s budget or business plan, for example, will result in the minority shareholder acquiring section 12(2)(g) control.

Are joint ventures subject to merger control?

The definition of a merger in section 12(1) of the Competition Act does not expressly mention joint ventures; however, joint ventures are not exempted from any portion of the Competition Act. Therefore, if the joint venture results in a firm acquiring control over all or part of another firm’s business, it will be considered a merger and will require notification if the thresholds are met. As such, depending on the way in which a joint venture is structured, it may constitute a merger.

In light of the uncertainty on which joint ventures ought to be subject to merger control in South Africa, the Commission issued a non-binding practitioner update which sets out the enforcement approach the Commission is likely to adopt in respect of investigating joint ventures. The practitioner update includes examples of joint venture structures which may trigger notification, such as where two or more firms jointly form a new entity for a specific purpose, or where two or more firms acquire joint control over an existing firm or business.

The practitioner update is available at: https://www.compcom.co.za/practice-notes/.

What are the jurisdictional thresholds for application of merger control?

As noted above, in order for a transaction to constitute a merger, there must firstly be an acquisition of control. Mergers are classified as small, intermediate or large, based on the financial thresholds for notification.

Small mergers do not need to be notified to the Commission and may be implemented without approval, unless the Commission specifically requests notification within six months of implementation, or the merging parties decide to voluntarily notify the small merger. The Commission has released Guidelines on Small Merger Notification which provides the circumstances in which small mergers should be notified to it. Please refer to question 2.7 below for further details on the guidelines.

Intermediate and large mergers require notification to the Commission by the merging parties and may not be implemented until approval has been received from the relevant competition authority.

An intermediate merger is one where the “combined figure” is ZAR600 million or more and the asset value in South Africa, or the turnover value in, into or from South Africa, of the target firm (depending on which is the highest) in the preceding financial year is equal to or more than ZAR100 million.

A large merger is one where the asset value in South Africa, or the turnover value in, into or from South Africa, of the target firm (depending on which is the highest) in the preceding financial year is equal to or more than ZAR190 million, and the “combined figure” is ZAR6.6 billion or more.

The “combined figure” is the combined asset values in South Africa, or turnover values in, into or from South Africa, of the acquiring firm (being the primary acquiring firm, its controllers (up to the ultimate controlling entity) and all subsidiaries in the group) and the target firm in their respective preceding financial years or the assets of the one and the turnover of the other, whichever combination reaches the highest figure.

Importantly, both legs of the inquiry must be met. Thus, if the asset/turnover value of the target firm is ZAR100 million or more, but the combined figure is less than ZAR600 million, one would be dealing with a small merger which would not be automatically notifiable. Similarly, if the combined figure is ZAR600 million or more, but the asset/turnover value of the target firm is less than ZAR100 million, the merger is a small one.

Does merger control apply in the absence of a substantive overlap?

All transactions that meet the definition of a merger and fall within the financial thresholds for an intermediate or large merger must be notified to the Competition Authorities, even in the absence of a substantive overlap.

In what circumstances is it likely that transactions between parties outside your jurisdiction (“foreign-to-foreign” transactions) would be caught by your merger control legislation?

A foreign-to-foreign transaction is notifiable if it is a merger, as defined (see question 2.1), and meets the financial thresholds for automatic notification (see question 2.4). It is not necessary for the acquiring firm or target firm to have a physical presence in South Africa for notification to be triggered. Sales made by the acquiring firm or target firm into South Africa will be sufficient to trigger a notification requirement if the financial thresholds are met.

Please describe any mechanisms whereby the operation of the jurisdictional thresholds may be overridden by other provisions.

Section 18(2)(a) of the Competition Act prevents the Competition Authorities from making a decision if the merger constitutes an acquisition of shares for which permission is required in terms of section 37 of the Banks Act, 1990 (“Banks Act”), or a transaction for which consent is required in terms of section 54 of the Banks Act or section 29 of the Co-operative Banks Act, 2007 (“Co-operative Banks Act”). In these circumstances, the Minister of Finance must certify that the merger is a merger which is contemplated in section 18(2)(a) of the Competition Act and it is in the public interest that the merger is subject to the jurisdiction of the Banks Act or the Co-operative Banks Act.

Since the Minister of Finance will need to certify that the merger falls within the jurisdiction of the Banks Act or Co-operative Banks Act, the merger must, as a matter of course, be notified to the Competition Authorities. The filing fee will, however, be refunded if the Competition Authorities are not entitled to make a decision in respect of the merger.

Also as noted, the Commission has six months from the implementation of a merger that does not meet the financial thresholds to request a notification.

In September 2022, the Commission released its Final Guidelines on Small Merger Notification (“Guidelines”). In terms of the Guidelines, the Commission identified that there are concerns that potentially anti-competitive acquisitions in digital or technology markets are escaping regulatory scrutiny because they take place at an early stage in the life of the target firm before it has generated sufficient turnover or accumulated physical assets that would meet the thresholds for automatic notification. The Commission is concerned that these acquisitions may substantially prevent future competition with incumbents or lessen competition through strengthening the portfolio of dominant companies.

In terms of the Guidelines, the Commission requires notification of small mergers where:

• at the time of entering into the transaction any of the firms are subject to an investigation by the Commission (or are respondents to pending proceedings referred by the Commission to the Competition Tribunal); or
• in circumstances where the acquiring firm’s turnover or asset value exceeds R6.6 billion and at least one of the following criteria is met for the target firm:
  • the consideration for the acquisition or investment exceeds R190 million; or
  • the consideration for the acquisition of a part of the target firm is less than R190 million but the value the target firm is R190 million or more.

If a party to a proposed transaction meets any of the above criteria (which is not limited to digital or technical markets), parties are advised to seek legal advice on whether it should voluntarily inform the Commission of the small merger.

The Guidelines can be accessed here https://www.compcom.co.za/wp-content/uploads/2022/09/FINAL-GUIDELINES-ON-SMALL-MERGER-NOTIFICATION_.pdf.

Where a merger takes place in stages, what principles are applied in order to identify whether the various stages constitute a single transaction or a series of transactions?

Whether a merger implemented in stages constitutes a single transaction will ultimately depend on the factual position. Provided that the intermediary steps are all part of the same transaction and cannot be commercially disconnected, the Competition Authorities are likely to consider that the various stages constitute a single transaction.

The timing applicable to the implementation of the various stages plays an important role. The Tribunal has, in a number of decisions, approved the acquisition of joint control (by virtue of the acquisition of a minority shareholding together with minority protection rights) and sole control (by virtue of the acquisition of the remaining shares through the exercise of a call option to be exercised in the future), provided that the call option was exercised within an 18-month period.

To the extent that the call option was not exercised within the relevant period, which is ultimately determined at the Competition Authorities’ discretion, the acquisition of the remaining shares would need to be separately notified and approved before exercising the call option.

Notification and its Impact on the Transaction Timetable

Where the jurisdictional thresholds are met, is notification compulsory and is there a deadline for notification?

In terms of section 13A of the Competition Act, a party to an intermediate or large merger must notify the Commission of that merger.

There is no legislated time period within which the parties to the merger must notify the Commission; however, an intermediate or large merger cannot be implemented until the merger has been approved with or without conditions by the relevant competition authority.

Please describe any exceptions where, even though the jurisdictional thresholds are met, clearance is not required.

The Commission has issued a practitioner update to advise practitioners on their approach to the application of merger provisions to risk mitigation in respect of financial transactions, available at: https://www.compcom.co.za/wp-content/uploads/2017/11/PRACTITIONER-UPDATE-4-RISK-MITIGATION-TRANSACTIONS.pdf.

Whilst risk mitigation techniques (for example, where a bank or state-owned finance institution acquires control over a business as a result of default by the debtor) fall within the ambit of the merger control provisions, the Commission recognises that the principal objective of risk mitigation techniques is to secure the interests of the financier in the finance transaction and to enable the financier to recoup the capital advanced to the debtor. In most instances, the intention is not to retain the investment but rather to on-sell it.

Therefore, in terms of certain risk mitigation transactions, namely the general exercise of a security interest, sale and leaseback transactions and government concessions in infrastructure development, where a bank or state-owned finance institution acquires an asset or controlling interest in a firm, in the ordinary course of its business in providing finance based on security or collateral, the Commission has adopted the approach that it would not require notification of the transaction at the point at which the asset is acquired. Similarly, if on default by the firm, the bank or state-owned finance institution takes control of the asset or controlling interest in that firm with the intention to safeguard its investment or on-sell it to another firm or person to recover its finance, a notification would not be required. If, however, the bank or state-owned finance institution fails to dispose of the assets or the controlling interest within a period of 24 months, notification is required on the expiry of the 24-month period.

Where a merger technically requires notification and clearance, what are the risks of not filing? Are there any formal sanctions?

The Competition Act stipulates that penalties of up to 10% of the annual turnovers in, and exports from, South Africa in the preceding financial year can be imposed on the parties to a merger for failing to give notice of the merger or implementing without approval. In practice, penalties for failing to notify or gun jumping are much lower than those imposed for other contraventions of the Competition Act.

The notifiable merger cannot be implemented without the required approval and, as such, the parties could also be ordered to unwind the merger. The Commission has issued guidelines on the methodology for calculating administrative penalties for failing to notify or prior implementation, which are available here: https://www.compcom.co.za/wp-content/uploads/2020/04/42337_29-3_NationalGovernment-Compcom-Guidelines-FTN-and-PI.pdf.

The Competition Authorities can order that the transaction be unwound, declare void any provision of the agreement, or order divestiture of certain assets.

Is it possible to carve out local completion of a merger to avoid delaying global completion?

The Competition Act does not deal specifically with carve-out arrangements in order to avoid delaying global completion.

In practice, however, arrangements of this nature have been successfully implemented in various transactions in the past, on the basis that the Competition Act extends only to “all economic activity within, or having an effect within” South Africa. It is therefore arguable that, to the extent that South Africa can be “carved out” from the implementation of the merger elsewhere, no contravention of the Competition Act will arise (because the implementation of the merger in other jurisdictions will have no “effect” in South Africa).

Importantly, whether a carve-out is practically possible will ultimately depend on the business arrangements in South Africa. Where activities are conducted through subsidiaries or divisions located in South Africa, a carve-out is more practical than in circumstances where sales are made into South Africa and the transaction is a share-sale.

Depending on the specific structure, it may, therefore, be challenging to implement a carve-out structure that is defensible.

At what stage in the transaction timetable can the notification be filed?

Notification can be made to the Commission at any time, but prior to the implementation of the transaction. It is permissible to submit a merger filing on a term sheet or draft agreement; however, the material terms of the transaction should be settled.

The Competition Authorities will consider and approve the transaction that is notified. Accordingly, if any material terms change after approval has been obtained, depending on the nature of the amendments, a new notification may be required.

What is the timeframe for scrutiny of the merger by the merger authority? What are the main stages in the regulatory process? Can the timeframe be suspended by the authority?

The Competition Act prescribes different time periods for the review of intermediate and large mergers.

The Commission has up to 60 business days to review intermediate merger filings. In terms of the Competition Act, the Commission has an initial 20-business-day period to investigate an intermediate merger; however, this review period may be extended by the Commission (and usually is extended) for a further period of up to 40 business days subsequent to the issuance of an extension certificate. If, on the expiry of the 20-business-day period, or the extended period, the Commission has not issued any certificate evidencing its determination, the Commission will be deemed to have approved the proposed merger.

In contrast, there is no time limit for the review of large mergers. The Commission has an initial 40-business-day period within which to review the transaction and make a recommendation to the Tribunal. This period may, however, be extended for up to 15 business days at a time for an unlimited number of times. In the event that the Commission requires an extension, it must apply to the Tribunal. In practice, the Commission requests an extension from the parties which obviates the need for a formal application to the Tribunal, unless the parties refuse to grant the extension.

Once the Commission makes its recommendation to the Tribunal, a pre-hearing must be scheduled within 10 business days, although this period too can be extended.

The Tribunal must then hold a hearing to consider the proposed transaction. During this hearing, interested parties (for example, competitors, customers or employees/trade unions) may be granted the opportunity to make submissions in respect of the transaction. All merger hearings are public. The timetable for the procedures leading up to and the actual hearing of the matter by the Tribunal will be scheduled at the pre-hearing referred to above and will largely depend on the availability of the Tribunal panel members.

After the hearing, the Tribunal must decide whether to confirm or overrule the recommendation of the Commission. The Tribunal must approve, approve subject to conditions or prohibit the merger within 10 business days from the end of the hearing and, within 20 business days thereafter, issue written reasons for its decision and publish a notice of its decision in the Government Gazette (publication used by the government as an official way of communicating to the general public).

A decision of the Tribunal can be appealed to the CAC by the merging parties, the Commission and the Minister.

The time periods will run without interruption, unless a notice of incomplete information or a demand for corrected information is issued. In these circumstances, the notification requirements will not have been met and the time periods will only start running on the day following receipt of the outstanding or corrected information.

Is there any prohibition on completing the transaction before clearance is received or any compulsory waiting period has ended? What are the risks in completing before clearance is received?

A notifiable merger must be approved before it is implemented (see question 3.3 above).

Where notification is required, is there a prescribed format?

Yes, a merger notification must be made in the prescribed manner and form.

A joint merger filing must be made by one of the parties and must include:

• A Form CC4(1), which must declare whether the merger is small, intermediate or large. The Form CC4(1) is accompanied by schedules 1 and 2 and includes the following information:
  • Schedule 1: Identification of the acquiring or target firms, and of all trade unions or employee representatives of the primary acquiring and target firms.
  • Schedule 2: A summary of the effect of the proposed merger on employment.
• A Form CC4(2) statement of merger information for each of the primary acquiring firm and the primary target firm. The Form CC4(2) is accompanied by schedules 3 to 6 and includes the following information:
  • Schedule 3: Identification of the party filing the notice, including details of all controllers and subsidiaries and financial information.
  • Schedule 4: Details of the proposed transaction.
  • Schedule 5: Details of the activities of the party filing the notice and information on customers and competitors.
  • Schedule 6: Information on any business relationships between the acquiring and target firms.

Whilst not strictly necessary, a competitiveness report providing a detailed market analysis is usually submitted to the Commission.

The Commission has issued a guideline document of the information which it requires in these forms and schedules, as well as the required supporting documents. In practice, it may issue a notice of incomplete filing if the information specified in the guideline is not fully provided.

Copies of the relevant forms are available at: http://www.compcom.co.za/forms/.

Is there a short form or accelerated procedure for any types of mergers? Are there any informal ways in which the clearance timetable can be speeded up?

There is no fast-track process or short-form notification available to merging parties. The Commission has, however, published service standards applicable to the mergers and acquisitions division. The 2015 Mergers & Acquisitions Service Standards explain that the Commission will categorise mergers into three phases, ranging from non-complex to very complex. Depending on the categorisation, the Commission aims to complete its review within the following time frames:

• Phase 1 (non-complex): The Commission will aim to review a phase 1 merger within 20 business days. These are mergers in which there is little or no overlap between the activities of the merging parties, no public interest issues and a simple control structure.
• Phase 2 (complex): The Commission will aim to review a phase 2 merger within 45 business days. These are mergers between direct or potential competitors, or between customers and suppliers, where the merging parties have a combined market share of more than 15% or where public interest issues arise.
• Phase 3 (very complex): The Commission will aim to review a phase 3 merger within 60 business days for an intermediate merger and 120 business days for a large merger. Phase 3 mergers are likely to result in substantial prevention or lessening of competition (including any transactions where the combined market share of the merging parties is more than 30%).

Who is responsible for making the notification?

In terms of section 13A of the Competition Act, a party to an intermediate or large merger must notify the Commission of that merger. In other words, a filing must be made by all relevant acquiring firm(s) and target firm(s).

Rule 27 of the Rules for the Conduct of Proceedings in the Competition Commission (“Commission’s Rules”) states that for a joint merger notification, a single filing must be made by one of the primary firms (i.e. either the acquiring or target firm). There are circumstances where separate merger notifications may be provided, such as in the instance of a hostile takeover. Rule 28 of the Commission’s Rules provides the procedure to follow for separate merger notifications.

Are there any fees in relation to merger control?

The Competition Authorities charge merging parties a fee for analysing a merger. The filing fee for an intermediate merger is ZAR165,000 and, for a large merger, ZAR550,000. No VAT is payable.

If a small merger is notified to the Commission, no fee is payable.

The filing fee must be paid (and cleared in the Commission’s account) on the day that the merger notification is submitted in order for the filing to be complete and for the review period to start running.

What impact, if any, do rules governing a public offer for a listed business have on the merger control clearance process in such cases?

The Competition Act does not contain any specific provisions in relation to public offers; the normal procedures will apply. There are, however, special rules for public offers addressed by the Takeover Regulations Panel.

Will the notification be published?

Prior to submitting the notification to the Commission, the parties must provide a copy of the non-confidential version of the merger filing to any registered trade union representing a substantial number of the employees, or an employee representative of the acquiring and target firms.

In addition, as part of its investigation, the Commission will engage with third parties in order to obtain their views on the proposed transaction. The fact of the transaction will be disclosed but third parties do not ordinarily receive copies of the filing. If a request to inspect the filing is made, the merging parties are usually informed and a non-confidential version is made available to the third party.

The fact of the transaction is also published on the Commission’s website, and the decision is published in the Government Gazette and a summary of the decision in the Commission’s media releases and other publications, such as its Annual Report.

Where the transaction constitutes a large merger, a public hearing will take place and the non-confidential reasons for the decision will be published on the Tribunal’s website.

No information that has been claimed as confidential (unless the Commission or Tribunal makes a decision that the information is not confidential) can be made available to any third party or included in any publication.

Substantive Assessment of the Merger and Outcome of the Process

What is the substantive test against which a merger will be assessed?

The Competition Authorities must determine “whether or not a merger is likely to substantially prevent or lessen competition”.  The Competition Authorities must also determine whether the merger can or cannot be justified on substantial public interest grounds.  This is addressed in more detail in question 4.3 below.

The Competition Authorities seek the relevant facts that will enable them to establish the likely impact of a proposed merger on competition in the relevant market(s).  Therefore, the Competition Authorities will need information regarding the structure of the transaction, as well as the markets being affected (usually, the product and geographic markets in which the activities of the merging parties overlap).  The factors that the Competition Authorities will consider are:

• the actual and potential level of import competition in the market;
• the ease of entry into the market, including tariff and regulatory barriers;
• the level and trends of concentration, and history of collusion, in the market;
• the degree of countervailing power in the market;
• 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 the business of a party to the merger or proposed merger has failed, or is likely to fail;
• whether the merger will result in the removal of an effective competitor;
• the extent of ownership by a party to the merger in another firm or other firms in related markets;
• the extent to which a party to the merger is related to another firm or other firms in related markets, including through common members or directors; and
• any other mergers engaged in by a party to a merger for such period as may be stipulated by the Commission.

In most instances where a merger has been prohibited on the basis that it will lead to a substantial prevention or lessening of competition, this has been as a result of the merger creating or entrenching a dominant position, or where the parties to the merger have been involved in cartel conduct that may be exacerbated by the merger.

To what extent are efficiencies taken into account?

If the Competition Authorities conclude that the proposed transaction is likely to substantially prevent or lessen competition in the relevant market(s), the Competition Authorities must consider whether the merger is likely to result in any technological, efficiency or other pro-competitive gain, which will outweigh the effects of the lessening or preventing of competition.  Even if the merger cannot be justified on these grounds, the Competition Act requires the Competition Authorities to determine whether the merger can be justified on substantial public interest grounds (see question 4.3).  Anti-competitive mergers are rarely approved solely on efficiency grounds.

In the large merger between Tongaat-Hulett and Transvaal Suiker Beperk (case number 83/LM/Jul00), the Tribunal found that an efficiency gain contemplated in the Competition Act is one that may compensate for the anti-competitive consequences of a merger that otherwise falls foul of the Competition Act.  This may include “new products or processes that will flow from the merger of the two companies, or that identifies new markets that will be penetrated in consequence of the merger, markets that neither firm on their own would have been capable of entering, or that significantly enhances the intensity with which productive capacity is utilised ”.  The Tribunal stressed that the above is by no means a closed list, but merely demonstrates that the efficiencies which were put forward by the merging parties fell outside the ambit of what is required to be demonstrated and fell into the ambit of “firm level commercial gain”.  In light of the difficulty in demonstrating that the pro-competitive gains outweigh the anti-competitive effects, in most instances, merging parties are amenable to accepting conditions aimed at addressing the anti-competitive effects.

Are non-competition issues taken into account in assessing the merger?

The impact of a merger on the public interest is a key consideration in assessing a merger in South Africa and has equal weighting in the merger review process as set out in question 4.1 above.

When determining whether a merger can be justified on public interest grounds, the Competition Authorities must consider the effect that the merger will have on:

• a particular industrial sector or region;
• employment (this relates to employment within the merging parties but also any impact on employment in the supply chain or otherwise potentially affected by the merger.  The Commission will look at any retrenchments or effects on employment before the merger to determine whether these were in fact related to the merger);
• the ability of small and medium businesses, or firms controlled or owned by historically disadvantaged persons, to effectively enter into, participate in and expand within the market;
• the ability of national industries to compete in international markets; and
• the promotion of a greater spread of ownership, in particular to increase the levels of ownership by historically disadvantaged persons and workers in firms in the market.

The Competition Authorities have imposed onerous conditions on merging parties where the merger had a substantial impact on the public interest.  Some of the most onerous conditions imposed to date include those imposed on AB InBev and SAB (case number 211/LM/Jan16), such as that a ZAR1 billion development fund be set up to support smallholder farmers and promote enterprise development, commitments by AB InBev to support the participation of small craft-beer producers in domestic markets, economic empowerment and access by small brewers to fridges and cooler space.

More recently, onerous conditions were imposed on Heineken-Distell (case number LM136Dec21) including a cumulative expenditure of ZAR10 billion over five years to maintain or grow the aggregate productive capacity of the current production and manufacturing operations in South Africa, investment of ZAR3.8 billion for a new greenfield brewery and ZAR 1.7 billion for a greenfield maltery in South Africa, commitments regarding local procurement , establishment of a new supplier development fund in which the parties will contribute ZAR 400 million over five years for investment in SMEs and HDP controlled suppliers, contribution of ZAR 200 million to a localisation and growth fund, investment of ZAR175 million to support tavern owners, establishment of an innovation, research and development hub for the African region, establishment of 6% employee share scheme, a moratorium on retrenchments (apart from a maximum of 166 employees above a certain grade level), maintenance of the headcount, adopting a policy of fair wages and ensuring a safe and dignified work environment.

In Burger King (case number IM053Aug21), although the matter was initially prohibited by the Commission based on non-competition issues, it was ultimately approved subject to significant public interest conditions including the creation of a 5% employee share scheme, investment of ZAR500 million in capital expenditure, establishment of 60 new outlets, increasing the number of historically disadvantaged employees by at least 1,250, improvement of Burger King’s B-BBEE scorecard and divestiture of a part of its supply chain to a historically disadvantaged entity.

The Competition Authorities have, in a number of mergers, imposed conditions to increase ownership by HDPs, even in circumstances where there is no negative effect on HDP ownership.

The Commission has issued Guidelines regarding the assessment of public interest factors in mergers, available at: https://www.compcom.co.za/wp-content/uploads/2017/11/Gov-Gazette-Public-Interest-Guidlines.pdf. 

What is the scope for the involvement of third parties (or complainants) in the regulatory scrutiny process?

As part of the Commission’s investigation of a merger, it will, as a matter of course, liaise with customers, competitors and employees (usually through a trade union or employee representative) of the merging parties.

Any third party can provide information to the Commission, which the Commission will consider; however, if the third party seeks to formally participate in the merger process, a notice of intention to participate will need to be filed.  In large mergers, parties can apply to the Tribunal to intervene in proceedings.

In addition to third parties, the Minister must file a notice of intention to participate within 10 business days of receipt of the merger notification if the Minister wishes to participate in small, intermediate or large merger proceedings.  In practice, the time periods are not strictly adhered to.  The Minister’s representations must be received before the Commission makes a decision, in respect of a small or intermediate merger, or a recommendation in the case of a large merger.

Once a party has indicated their intention to participate, they will be entitled to make representations at a Tribunal hearing, if applicable, and will be entitled to reasonable access to the record, subject to any confidentiality ruling (see question 4.6).  In practice, the legal representatives of the intervening parties sign relevant confidentiality undertakings which enable the legal representatives to have sight of the confidential information to appropriately advise their clients.

What information gathering powers (and sanctions) do the Competition Authorities enjoy in relation to the scrutiny of a merger?

In terms of Rule 31 of the Commission’s Rules, the Commission can request additional information from the merging parties.  This can either be done through making an informal request for information, or in terms of section 13B(2) of the Competition Act, requiring the parties to provide information by serving a demand for information.  In practice, information is usually gathered from the merging parties in terms of informal requests for information.

The Commission can, at any time during an investigation, summon any person who is believed to be able to furnish any information on the subject of the investigation, or to have possession or control of any book, document or other object that has a bearing on that subject, to appear before the Commissioner, or a person authorised by the Commissioner, to be interrogated.  This power can be used to gather information from the merging parties or third parties.  In practice, this tool is not necessary to gather information from the merging parties as it is in their best interest to provide the information to enable the Commission to finalise its merger investigation.

Failure to attend when summoned constitutes an offence in terms of the Competition Act.  If convicted, the person that failed to attend or provide information may be liable for a fine or imprisonment for a period of six months, or both.

During the regulatory process, what provision is there for the protection of commercially sensitive information?

Any person, when submitting information to the Competition Authorities, may identify information that is confidential information.  Confidential information is defined in the Competition Act as “trade, business or industrial information that belongs to a firm, has a particular economic value, and is not generally available to or known by others”.
Once information has been claimed as confidential, the Commission is bound by the claim and cannot disclose the confidential information to any third party (this does not include the Minister, the Tribunal or the CAC) until a final determination has been made.  The Commission may determine itself whether information is confidential and if it finds that information is confidential, make an appropriate order concerning access to the information.  As mentioned in question 4.4, this is usually achieved by signing appropriate confidentiality undertakings.  The Commission may not make a determination in terms of confidentiality without considering the claimant’s representations and without giving the claimant notice of its intention to make the determination.  A person claiming confidentiality over information submitted that is aggrieved by a decision of the Commission can refer the decision to the Tribunal who may confirm or substitute the Commission’s determination.  In practice, confidentiality of information is taken very seriously by the Competition Authorities and Commission employees will be subject to criminal sanctions for unauthorised disclosure.

The End of the Process: Remedies, Appeals and Enforcement

How does the regulatory process end?

After consideration of a merger, the Commission or the Tribunal, as the case may be, must issue a certificate approving the merger, approving the merger subject to conditions or prohibiting the merger.

In the case of an intermediate merger, the Commission must publish a notice of the decision in the Government Gazette.  No written reasons for the decision are usually published in the Gazette; however, a non-confidential summary of the decision is usually published in the Commission’s media releases and other publications, such as its Annual Report.  Confidential written reasons are provided to the merging parties.

If the transaction is a large merger, the decision will similarly be published in the Government Gazette.  Written reasons are also prepared, and the non-confidential reasons are published on the Tribunal’s website.

Where competition problems are identified, is it possible to negotiate “remedies” which are acceptable to the parties?

The Commission has the power to unilaterally impose conditions on the merging parties, but in practice, the Commission works with the merging parties in order to arrive at remedies (structural or behavioural) which are suitable to address the identified concerns.

For small and intermediate mergers, where an agreement cannot be reached, the Commission may impose conditions in an intermediate merger.  If the remedies are not acceptable to the parties, they can apply for the Tribunal to reconsider the decision.

In a large merger, the Commission will make a recommendation on the remedies which ought to be imposed, usually by agreement with the parties.  The Tribunal will, however, be required to make a final determination.

In global mergers, the Commission will, as a matter of course, liaise with Competition Authorities in other jurisdictions early on in the process in order to better understand whether concerns have been identified in any other jurisdiction.  Whilst the Commission may consider remedies imposed in other jurisdictions, such remedies will only be imposed in South Africa if the same theory of harm is identified.  In addition, in light of South Africa, remedies aimed at protecting public interest, such as employment, may be imposed, which may not similarly be required in other jurisdictions.

To what extent have remedies been imposed in foreign-to-foreign mergers?

Where a merger will give rise to competition law or public interest concerns, remedies are imposed regardless of whether or not the transaction involves local players or is a foreign-to-foreign merger.

The likelihood of remedies being imposed may be higher in a foreign-to-foreign merger in light of the Competition Authorities’ protectionist approach to the local economy.
Extensive remedies have been imposed over the years and include the creation of substantial funds to promote small businesses (ZAR200 million in the Walmart/Massmart merger (case number 110/CAC/Jul11), ZAR1 billion in the AB InBev/ SAB merger (case number 211/LM/Jan16) and ZAR400 million in Heineken-Distell (case number LM136Dec21)), a moratorium on retrenchments, undertakings to maintain pre-merger employment levels, capex investment, re-hiring of retrenched employees, ensuring local procurement is maintained or increased, divestiture of parts of the business to historically disadvantaged entities and undertakings to increase ownership by historically disadvantaged individuals.

As noted above, in Burger King (case number IM053Aug21), a number of public interest conditions were imposed including the creation of an employee share scheme, investment of ZAR500 million in capital expenditure, establishment of 60 new outlets, increasing the number of historically disadvantaged employees by at least 1,250, improvement of Burger King’s B-BBEE scorecard and divestiture of a part of its supply chain to a historically disadvantaged entity.  Similar onerous conditions were imposed in Heineken-Distell (case number LM136Dec21) including investment of ZAR 10 billion in capital expenditure, investment in new a greenfield brewery and greenfield maltery, conditions aimed at enterprise and supplier development, localisation and growth, establishment of an employee share scheme, moratorium on retrenchments (apart from 166 employees above a certain employee grade level), maintenance of headcount, adopting a policy of paying fair wages and ensuring safe and dignified work.

The new foreign merger regime proposed by the Amendment Act will likely see even more onerous conditions imposed on foreign acquiring firms.

At what stage in the process can the negotiation of remedies be commenced?  Please describe any relevant procedural steps and deadlines.

There is no specified time period within which negotiation of remedies commences.  It will, however, only be necessary for discussions to start once a theory of harm has been identified by the Commission.

In light of the fact that the Commission has a limited time period within which to consider an intermediate merger, where parties are aware that the proposed merger may give rise to competition or public interest concerns, remedies may be offered upfront by the parties to avoid any last-minute rush and the potential for remedies to be imposed, rather than agreed.

There are no specific procedural steps which are followed in the negotiation phase.

If a divestment remedy is required, do the Competition Authorities have a standard approach to the terms and conditions to be applied to the divestment?

Divestment is not a common remedy in South Africa and is usually only imposed where there is a direct horizontal overlap in concentrated markets.  Divestment was, however, imposed for BEE reasons in Burger King (case number IM053Aug21), where the Competition Authorities were of the view that there are sufficient public interest concerns to require a divestment in order to promote a greater spread of ownership in South Africa.  Parties do, however, often agree to divestment as a remedy.  For example, in Heineken-Distell (Case No. LM136Dec21) Heineken agreed to divest of its local Strongbow business and brand to a licensee.  Given the severity of the remedy, it is rarely imposed by the Tribunal, and when it is imposed by the Tribunal as a remedy, it must be confirmed by the CAC.

The approach followed in determining whether a divestment remedy is required is fact specific and, particularly in agreed divestments, may include specific conditions as to the identity or nature of possible purchasers, for example.

In the intermediate merger between Monsanto and Bayer (case number IM057May17), the Commission found that the proposed merger resulted in a potential overlap of two similar products offered by Bayer and Monsanto.  In order to remedy this concern, the Commission imposed a condition that Bayer sell a certain trait and the associated herbicide, as well as divest its cotton seed business.  In addition, the condition required that the purchaser of the technology must commercialise the technology and its products in South Africa or, alternatively, oblige the potential purchaser to license the divested business to a South African third party should the purchaser be unable to do so.

It was agreed in the Monsanto/Bayer merger that an independent third-party trustee would be appointed to oversee the divestiture process.

Can the parties complete the merger before the remedies have been complied with?

The merger can be implemented provided that it does not result in a breach of any of the remedies imposed.

If the merger is not capable of implementation without breaching an imposed remedy, the remedy will first need to be complied with.

Conditions to a merger usually specify time periods for compliance with particular conditions.

How are negotiated remedies enforced?

The conditions to the merger usually include monitoring mechanisms such as submitting an annual affidavit to confirm and/ or a compliance report.  The Commission can also proactively check that conditions are being adhered to and may conduct a spot inspection to determine compliance.

If a firm has breached an obligation attached to a merger decision, the merger decision may ultimately be revoked by the Commission or the Tribunal, as the case may be, after certain procedures are followed.

In addition, an administrative penalty of up to 10% of the annual turnovers in, and exports from, South Africa in the preceding financial year can be imposed for implementing a merger in contravention of a decision of the Commission or the Tribunal.

Will a clearance decision cover ancillary restrictions?

Merger clearance will not provide immunity from prosecution where a restraint in a merger agreement constitutes a prohibited practice.

It is common for the Commission to consider the restraint as part of its merger review, and where the Commission has concerns, the merger is usually approved subject to a condition that the restraint be amended, for example, by reducing the duration.

In light of the fact that parties are not exempt from prosecution by virtue of the fact that the merger agreement was included in the merger notification, if there are any concerns, this should be highlighted so that the Commission can consider the relevant provisions.  If the restraint is specifically considered, it is unlikely (although not impossible) that the Commission will seek to prosecute the parties at a later date.

Can a decision on merger clearance be appealed?

In the case of an intermediate merger, the merging parties can bring an application for reconsideration to the Tribunal.

A decision of the Tribunal, whether a large merger decision or reconsideration decision, can be appealed to the CAC and thereafter to the Constitutional Court if a constitutional or an arguable point of law of general public importance arises.

Usually, the merging parties will appeal a decision if the decision is unfavourable, and it is also possible for a third party or the Minister to appeal to the CAC if they participated in the Tribunal proceedings.

The CAC is entitled to set aside the decision of the Tribunal, amend the decision or confirm the decision.  The Minister is permitted to apply for leave to appeal even if they did not participate in the merger proceedings or on grounds other than public interest grounds. The Commission also has a right of appeal.

What is the time limit for any appeal?

In the case of a small or intermediate merger, an application for reconsideration must be filed within 10 business days after the Commission issues its decision.

In the case of a large merger, an appeal to the CAC must be filed within 20 business days after notice of a decision of the Tribunal has been made.

Is there a time limit for enforcement of merger control legislation?

There is no time limit within which the Competition Authorities can enforce the merger control provisions.

In the case of a small merger, which is not automatically notifiable, the Commission can require the parties to notify the Commission of the small merger within six months after the small merger is implemented.  After that period, the Commission cannot require the parties to notify the small merger.

Miscellaneous

To what extent do the Competition Authorities liaise with competition authorities in other jurisdictions?

The Commission has a number of Memorandums of Understanding with various regulators globally.  They include, among others, the eSwatini Competition Commission, the Administrative Council for Economic Defense of Brazil, the Competition Commission of Mauritius, the Federal Antimonopoly Service, the Competition Authority of Kenya, the Directorate-General for Competition of the European Commission, BRICS Competition Authorities, the Namibian Competition Commission and the Egyptian Competition Authority.

It is common in global mergers for the Commission to liaise with other competition regulators and for information to be shared.  In some instances, waivers will be requested; however, usually, the exchange takes place in terms of the Memorandums of Understanding which permit the exchange of non-confidential information.

What is the recent enforcement record of the merger control regime?

The Commission publishes its results annually, covering the period of 1 April to 31 March each year.  According to the Commission’s results for the year ending 31 March 2022, it received 295 merger notifications, with 297 finalised in the period under review.  The majority of the mergers finalised were approved without conditions (216).  However, 74 mergers were approved subject to conditions and five were prohibited.

Are there any proposals for reform of the merger control regime?

Substantial amendments were introduced to the Competition Act in July 2019.  It is not known when the foreign investment provisions in the Amendment Act will come into force.  The Commission is in the process of updating the merger filing forms to incorporate the amendments which came into force in July 2019.  The new provisions have been addressed in the preceding questions.