Ten frequently asked questions: South African merger control

1. What transactions are required to be notified to the Competition Authorities?

A transaction is automatically notifiable as a merger to the competition authorities in South Africa (“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.

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, if the acquiring firm is able to appoint or veto the appointment of a majority of the directors of the firm, and/or if the acquiring firm is able to materially influence the policy of the firm (negative control).

The Competition Appeal Court (“CAC”) has made some useful remarks regarding the ambit of negative control:

• 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.

The Competition Tribunal (“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. The merger control provisions are broadly interpreted to allow the Competition Authorities to examine a wide range of transactions.

The Tribunal has 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.

2. What are the thresholds for application of merger 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 Competition Commission (“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 (“Guidelines”) which provide that the Commission must be notified 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 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 effectively values the target firm at R190 million or more.

This is, however, only a guideline and is not binding.

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.

3. Does the jurisdiction have a mandatory or suspensory merger regime?

The merger regime is mandatory.

An intermediate or large merger cannot be implemented until the merger has been approved with or without conditions by the relevant competition authority.

4. Can penalties be imposed for failure to notify or prior implementation?

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

5. What filing fees are payable to the Competition Authorities?

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.

6. What is the timeframe for scrutiny of a merger?

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).

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.

7. What competition test do the Competition Authorities use when assessing a merger?

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.

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.

8. Do the Competition Authorities assess the impact on public interest?

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.

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 (“SMEs”), or firms controlled or owned by historically disadvantaged persons (“HDPs”), 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.

In June 2021, in Burger King (case number IM053Aug21), the Commission originally prohibited the acquisition of Burger King (South Africa) and Grand Foods Meat Plant (Pty) Ltd (Grand Foods) by ECP Africa, based solely on public interest grounds. The merging parties filed an application for reconsideration with the Tribunal, and the merger was subsequently approved, by agreement with the Commission, subject to certain 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 Broad-based Black Economic Empowerment (“B-BBEE”) scorecard and divestiture of a part of its supply chain to a historically disadvantaged entity.

In March 2023, 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.

It is common in transactions in South Africa for conditions relating to the increase of HDP ownership to be imposed.

9. In what circumstances can a merger decision be revoked?

A decision of the Competition Authorities can be revoked if (a) the decision was based on incorrect information for which a party to the merger is responsible; (b) the approval was obtained by deceit; or (c) a firm concerned breached an obligation attached to the decision. Once a decision to approve a transaction is revoked, the Competition Authorities may prohibit a transaction even if the legislated time periods for a decision may have lapsed.

10. What is the confidentiality regime in the jurisdiction

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 of Trade, Industry and Competition, 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 any appropriate determination concerning access to that information. 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.

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.

It is important to consider the impact of the proposed transaction on both competition and the public interest at an early stage of a deal. If you have any queries, please contact Norton Rose Fulbright’s competition team for advice. In addition, you can refer to our detailed Frequently Asked Questions available here.