South Africa: South African Merger Review Procedures Deserve Attention

Last Updated: 11 September 2008
Article by Heather Irvine

Despite the international sub-prime crisis and a slowing South African economy, a significant number of mergers have been notified to the South African competition authorities this year. Practitioners in South Africa have suggested that the Competition Act should be amended in order to facilitate a simpler and more efficient merger approval process. Unfortunately, however, the Competition Amendment Bill recently presented to Parliament by the Department of Trade and Industry focuses on enforcement (particularly in relation to cartels and complex monopolies) and makes hardly any mention of the procedures in terms of which merger transactions are cleared by the competition authorities.

The Competition Tribunal's website indicates that it reviewed 57 large mergers between January and July this year (compared with 48 during the same period last year). The Competition Commission's merger filing case numbers reflect that more than 3800 proposed transactions have been notified to date. Although the competition authorities maintain that their review periods are generally in line with international benchmarks, there are fears that their increased workload may impact on their ability to review transactions efficiently and speedily. Clearly, timing is of the essence in many commercial transactions, for example, in the context of cross-border, private equity and black economic empowerment deals.

Some while ago, the Department of Trade and Industry proposed raising the monetary thresholds for compulsory notification set out in regulations to the Act. These have not been adjusted since 2001, and so as deal values have increased over the past 5 years, so have the number of merger transactions requiring notification. Raising the thresholds would mean that fewer deals have to be reviewed by the competition authorities. This amendment to the regulations to the Act is expected to be published soon, although there is no clarity yet on what the amended thresholds might be.

There are a number of ways in which the merger review process could be streamlined. Firstly, provision should be made for 'short-form' merger filings and streamlined review paths. At present, although the Commission has published Fast-Track Guidelines for the expedited review of uncomplicated mergers, this procedure only applies to intermediate mergers which meet the fairly narrow criteria set out in the guideline. There is no fast-track procedure for large mergers, even if they clearly do not pose any competition law or public interest concerns. Ideally, only mergers which raise substantial competition law or public interest concerns should be notified in terms of the 'long-form' filing and be subject to detailed review by the Tribunal. The Commission should thus decide on all uncomplicated acquisitions, even if the deal value classifies them as large mergers. The Tribunal should, however, retain oversight over the review path which each transaction follows, and could require transactions filed using the short-form filing to be converted to a long-form filing, if necessary.

South Africa should also introduce a formal pre-merger notification procedure, so that parties can obtain a formal view from the Commission on whether a proposed transaction may pose serious competition concerns, and deal with them, prior to notifying their transaction. It might also be feasible for South Africa to introduce a 'safe harbour' or 'de minimis' exception, similar to that afforded to the United Kingdom's Office of Fair Trading (OFT) in terms of the Enterprises Act. This exception permits the OFT to decide not to refer a transaction to the UK Competition Commission if it believes that the market concerned is not of sufficient importance to justify a referral. This would avoid merger reviews where the costs involved would be disproportionate to the size of the market affected by the transaction.

The drafters of the South African Competition Act recognised that effective merger control plays an essential role in maintaining healthy competition in the South African economy. At the same time, however, lengthy and costly merger review procedures may stifle deal-making and reduce efficiency-enhancing merger activity. They can also frustrate foreign investors. It is thus hoped that the DTI will also give careful consideration to amendments to the merger provisions of the Act in the near future.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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