Our clients are often concerned about the Competition Commission and implications for their merger or acquisition (M&A) transaction. Firstly, we can reassure you that not all transactions fall within the realm of the Competition Commission’s domain, and secondly, even if it does, the Competition Commission is not there to stop commercial transactions, but rather to regulate them to ensure that the public is not unfairly prejudiced by such a transaction.
In this article we aim to shed more light on which transactions would fall within the ambit of the Competition Commission and if so, what requirements then need to be met in respect of an M&A transaction.
Understanding the requirements of the Competition Act 89 of 1998 is vital to assessing whether to notify the Competition Commission regarding an M&A transaction. As the Competition Act aims to prevent collusion and anti-competitive conduct, the Competition Commission, as the M&A watchdog, aims to ensure that M&A transactions don’t reduce or discourage healthy competition or prejudice consumers. That said, the Competition Commission is not concerned with every transaction, and the first step is always to assess whether a specific M&A transaction requires the approval of the Competition Commission.
Section 12 of the Competition Act determines that a merger occurs when one or more firms directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another firm. The term ‘firm’ in this context includes not only companies and close corporations, but also a person, partnership, or a trust. The control element is a vital aspect to be considered as obtaining control can be seen as able to influence the direction or control of a business. Accordingly, the Competition Act determines that ‘control’ can include:
- Acquiring more than one half of the issued share capital in the target firm;
- Acquiring majority votes for a general meeting in a target firm;
- The ability to appoint or veto the appointment of a majority of the directors; and/or
- Acquiring some or other ability to either influence or materially change the policies in the target firm.
If the control element is met, then the next step is to determine in which of the following three categories established by section 11 of the Competition Act, the transaction falls:
- Small merger - transactions where the combined assets or annual turnover of the acquiring firm and target firm, or the target firm’s assets or annual turnover, are below the prescribed thresholds.
- Intermediate merger - transactions where the combined asset or annual turnover of the acquiring firm and target firm is equal to or exceeds R600 million, and the target firm’s assets or annual turnover equals or exceeds R100 million.
- Large merger - transactions where the combined annual turnover of the acquiring firm and target firm equals or exceeds R6.6 billion, and the target firm’s assets or annual turnover equals or exceeds R190 million.
Where a merger falls into the intermediate or large merger category, the Competition Act requires that a compulsory notification be lodged with the Competition Commission. Small mergers are therefore exempted from such notification, although voluntary notification by the parties is encouraged.
To notify the Competition Commission of a merger, the acquiring and/or target firm are required to complete and submit the prescribed forms setting out details of the M&A transaction. Any failure or default to notify the Competition Commission, or alternatively implementing the merger without it being approved by the Competition Commission, may result in severe consequences which can include hefty administrative penalties.
For a Competition Commission notification submission, the parties are required to pay a once-off filing fee with proof of payment to accompany the submission. Such filing fee can range anywhere between R165,000.00 to R550,000.00 and is non-refundable regardless of the outcome.
The submission of the notification can be done by means of a physical submission to the Competition Commission at their Pretoria offices or by electronic submission. Such submission must include a merger notice, statement of merger with ancillary supporting documents as well as the various compulsory undertakings such as a joint competition report. All firms forming part of the M&A transaction shall have the option to submit a declaration with their application to the Competition Commission which shall specify certain information and/or documentation which forms part of the application and which the parties deem to be strictly confidential in nature.
For small and intermediate mergers, a certificate shall be issued by the Competition Commission either approving the merger entirely or alternatively approving it subject to certain conditions. For large mergers, the Competition Commission shall evaluate the merger and thereafter furnish the Competition Tribunal as well as the Minister of Trade and Industry with its recommendations and findings. For large mergers, the final decision however rests in the hands of the Competition Tribunal and not the Competition Commission itself.
The above should make it clear that the submission to the Competition Commission is critical and that all parties involved must submit the duly completed copies of the merger forms and schedules, as well as any relevant registered trade unions or employee representatives where necessary.
The Competition Commission also has the ability to revoke its own decision to approve or alternatively conditionally approve a merger. The latter may transpire in the instance where the decision was based on inaccurate information or where approval was obtained by means of deceit or a firm breached an obligation attached to a decision.
Although the above process can be intimidating even for sophisticated business owners, comfort can be taken in knowing that experienced competition advisors will certainly help make the process understandable and manageable. Give us a call and let’s help make your competition mountain a mole hill!
Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy has been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s).