Section 12 A of the Competition Act 89 of 1998 suggests that a merger, which on the face of it is anti-competitive, can be justified on the basis of substantial public interest benefits and an otherwise pro-competitive merger can be prohibited on substantial public interest grounds.

The Competition Tribunal considers mergers in a number of stages. First, it considers whether the merger will substantially prevent or lessen competition. If it will, the Tribunal must determine if the anti-competitive effects are offset by any technological, efficiency or other pro-competitive gains. Whatever the conclusion, the Tribunal must consider the effect that the merger will have on:

  • a particular industrial sector or region;
  • employment;
  • the ability of small businesses, or firms controlled or owned by historically disadvantaged persons, to become competitive; and
  • the ability of national industries to compete in international markets

It appears from the case law to date that public interest considerations will not easily trump pure competition considerations.

In the Transvaal Suiker matter, the parties contended that the merger would have a positive impact on the Mpumalanga region in that the merged firm would continue to procure inputs from local suppliers; create 3000 additional jobs; enable the sale of certain sugar-producing land to small-scale growers from historically disadvantaged communities; and the ability of the merged firm to compete internationally would be enhanced. The Tribunal, however, concluded that these benefits were still not sufficiently substantial to outweigh the negative impact of the merger on competition, nor was it clear that these benefits would not occur in the absence of the merger.

As Section 13A(2) of the Act requires notification to employees or representative unions, who are entitled to make representations in the merger proceedings, employment is the public interest issue which has received the most attention to date. The Tribunal has nevertheless indicated a reluctance to impose conditions related to complex industrial policy, such as wage levels, employment conditions and collective bargaining structures. It has stressed that it should approach its public interest mandate with great circumspection, saying that the possibility of potential job losses as a result of a merger must be weighed against even greater potential job losses should the merger not be approved, or approved subject to freezing wage conditions in a failing firm. It has also warned parties that it would be improper for the notification forms to be "sugar-coated" merely to ensure a favourable reaction, while later in the process, less favourable facts are disclosed, especially in relation to retrenchments.

In the Harmony/Gold Fields merger approved in May 2005, the Tribunal imposed conditions on the merged entity, including:

  • restricting the total number of retrenchments as a result of the merger to 1000 employees (including "contract labour") during the 24 month period following the merger;
  • prohibiting retrenchments of employees below a certain grade;
  • obliging the merged entity to report compliance to the Commission within one month of the end of each quarter.

In summary, public interest factors appear unlikely to torpedo a pro-competitive merger or salvage an anti-competitive merger. However, the Tribunal examines public interest factors closely and is increasingly resorting to the imposition of conditions to ameliorate public interest concerns.

David Thompson is a director of commercial services law firm, Cliffe Dekker; Sasha Daniels is an associate of the firm.

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