Merger Control

The Competition Act 89 of 1998 (as amended) (“Act”).

The Act introduced the establishment of a foreign direct investment regime. In this regard, section 18A(1) mandates the President of South Africa to establish a Committee to consider whether transactions which involve foreign acquiring firms “have an adverse effect on the national security interests” of South Africa.

Section 18A(3) of the Act mandates the President of South Africa to publish a list of national security interests in South Africa in which a merger involving a foreign acquiring firm must be notified.

To date, however, the President has not constituted a Committee in terms of section 18A(1) or published any list of national security interests. Accordingly, South Africa’s foreign direct investment regime is not yet active.

South Africa’s competition authorities consist of:

• the Competition Commission (the “Commission”);
• the Competition Tribunal (the “Tribunal”); and
• the Competition Appeal Court (the “CAC”).

In respect of merger control, the Commission is mandated to investigate and consider whether a notified transaction:

• is likely to result in a substantial lessening or prevention of competition; and
• can or cannot be justified on public interest grounds.

The Commission has the mandate to investigate, consider and approve, conditionally approve or prohibit transactions which are characterised as either ‘small’ or ‘intermediate’ transactions. These different transaction categorisations are discussed in more detail below.

Where the Commission conditionally approves or prohibits a small or intermediate transaction, an aggrieved party may approach the Tribunal to consider the Commission’s decision.

In respect of large mergers, the Commission will investigate and issue its recommendation on whether a transaction should be approved, conditionally approved or prohibited. This recommendation is thereafter referred to the Tribunal for adjudication.

The CAC is a specialist court which considers appeals or applications for review against decisions of the Tribunal.

Under section 12(1)(a) of the Act, a merger occurs when there is a ‘change of control’ over the whole or part of the business of another firm.

The Act provides that a merger may take numerous forms, including:

• the purchase or lease of the shares, an interest or assets of a firm; or
• the amalgamation or other combination with another firm.

Importantly, a transaction is mandatorily notifiable to the Commission only where:

• there is a change of control; and
• the relevant monetary thresholds are met.

Section 12(1) provides various instances of ‘control’ – specifically where a firm or person:

1. Beneficially owns more than one half of the issued share capital of the firm;
2. is entitled to vote a majority of the votes that may be cast at a general meeting of the firm, or has the ability to control the voting of a majority of those votes, either directly or through a controlled entity of that person;
3. is able to appoint or to veto the appointment of a majority of the directors of the firm;
4. is a holding company, and the firm is a subsidiary of that company;
5. in the case of a firm that is a trust, has the ability to control the majority of the votes of the trustees, to appoint the majority of the beneficiaries of the trust;
6. in the case of a close corporate, owns the majority of members’ votes in the close corporation; or
7. 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 and element of control described in (a) to (f)

Section 12(2)(g) of the Act, adopts a material influence test as opposed to a decisive influence test. Accordingly, where the acquisition of a minority interests confers on an acquirer the ability to “materially influence the policy” of the target, such acquisition may be regarded as a ‘change in control’. Should the financial thresholds also be met, such acquisition will be mandatorily notifiable to the Commission.

In interpreting section 12(2)(g) of the Act, the Tribunal has adopted an interpretation that is consistent with the approach of the European Commission. In this regard, for the purposes of establishing joint control, the veto rights of the minority shareholder must:

• pertain to strategic decisions on the business policy of the entity; and
• be more than mere veto rights aimed at safeguarding the financial interests of investors.

The Act does not specifically refer to joint ventures.

The general practice, however, is that a joint venture is mandatorily notifiable to the Competition Commission if it:

• amounts to a change of control;
• exceeds the financial thresholds; and
• is of a lasting basis.

Foreign-to-foreign transactions which have an effect in South Africa and exceed the financial thresholds are mandatorily notifiable to the Commission.

In South Africa, transactions are:

• categorised as either small, intermediate or large transactions; and
• determined on the basis of the turnover and/or asset value of the merging parties in, into or from South Africa from the merging parties’ preceding financial year.

The financial thresholds in respect of intermediate and large transactions are as follows.

Where a transaction does not meet the financial thresholds of an intermediate transaction, it is regarded as a small transaction.

There are no exemptions.

Notification to the Commission is mandatory in respect of intermediate and large mergers.

Small mergers do not require notification to the Commission unless requested by the Commission within six months of implementation of the transaction. Where, however, the acquirer’s turnover or asset value exceeds ZAR 6.6 billion, the Commission must be informed of the small merger prior to its implementation.

The Commission’s non-binding advisory opinion service is not active.

In this regard, the Department of Trade, Industry and Competition published Draft Regulations on the Proposed Regulations on Non-binding Advisory Opinions for public comment on 22 December 2023.

The Commission does, however, extend informal guidance on compliance with the Act.

The acquiring firm and the target firm(s) are both responsible for the filing.

In the case of hostile takeovers, Rule 28 caters for a separate filing. In the event of a separate filing, either of the merging parties should approach the Commission to obtain permission to file separate notifications of the merger.

• Small mergers: N/A.
• Intermediate mergers: ZAR 165,000.
• Large mergers: ZAR 550,000.

In making a notification to the Commission, the notifying party must complete the standard statutory forms – that is:

• Merger Notice Form CC4(1); and
• Statement of Merger Information Form CC4(2) for both the acquiring firm and the target firm(s).

Merger notifications are also accompanied by a market and competition report to assist the Commission in its review.

The Competition Commission requires certain compulsory statutory documents for the purposes of a complete filing, which include the following:

• the latest documents underlying the transaction in question;
• board minutes, reports and presentations prepared for the proposed transaction;
• the most recent annual financial statements;
• most recent business plans;
• the most recent report provided to the Securities Regulation Panel;
• proof of service on trade unions; and
• proof of payment of the filing fee.

For intermediate and large mergers, the merging parties must notify prior to implementation of the transaction.

Section 13(2) of the Act provides that the Commission may require parties to a small merger to notify the Commission within six months of implementation.

Yes.

The Commission and/or Tribunal must approve or conditionally approve the transaction before it can be implemented.

Section 13(3)(a) of the Competition Act prohibits the implementation of a merger which meets all thresholds of an intermediate or large merger prior to receipt of the necessary approval.

Notification of the filing is not necessarily published by the Commission. Only the decision is published and parties are given an opportunity to redact portions due to claims for confidentiality prior to publication of the decision by the Commission.

The South African merger review regime consists of both a competition assessment and a public interest assessment. Importantly, both assessments are weighted equally.

In respect of the competition assessment, section 12A of the Competition Act sets out the analytical framework for the competitive assessment of mergers as follows:

• Is the merger likely to substantially prevent or lessen competition in the relevant markets?
• If it appears that the merger is likely to substantially prevent or lessen competition in the relevant markets:
• • can these anti-competitive effects be outweighed by technological, efficiency or other pro-competitive gains; and
  • can the merger be justified on substantial public interest grounds by assessing certain factors set out in the act?

In respect of the public interest assessment, the Commission will assess the impact that the proposed transaction will have on:

• a particular industrial sector or region;
• employment;
• the ability of small and medium-sized businesses (SMMEs) or firms controlled or owned by historically disadvantaged persons (HDPs) to effectively enter into, participate in or expand within the new 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 HDPs and workers in the firms in the market.

There are different timing considerations in respect of the review of intermediate and large mergers:

• Intermediate merger: The Commission must approve, conditionally approve or prohibit the proposed merger within 20 business days of filing. However, if the intermediate merger is classified as a Phase 3 (complex) merger, the Commission has a finite merger review period of 60 business days.
• Large merger: The Commission has a merger review period of 40 business days which may be extended in 15-business-day increments upon:
• • approval from the merging parties; or
  • application to the Tribunal.
• Following the Commission’s recommendation filing at the Tribunal:
• • within 10 business days, the registrar at the Tribunal must schedule the beginning of the hearing of the referral or the beginning of a pre-trial conference. This period may be extended by a further 10 business days by the chair of the Tribunal or any further period by the chair, with the consent of the primary acquiring and target firms;
  • after the hearing of the referral, the Tribunal must issue its determination within 10 business days by way of a certificate; and
  • within 20 business days of the issuing of the certificate, the Tribunal must issue its written reasons.

There are no special dispensations to expedite the merger review process.

There is no simplified process.

The Commission does cooperate with competition authorities in other jurisdictions, particularly in the case of multi-jurisdictional merger filings. Locally, the Commission is likely to have a memorandum of understanding with other sectoral regulators to regulate any conceivable concurrent jurisdictional issues.

The Commission may, in terms of section 13B(2) of the Act, require any party to a transaction to provide additional information in respect of the transaction.

Yes, section 13B(3) of the Act provides that “any person, whether or not a party to or a participant in merger proceedings” may file any document, affidavit, statement or other relevant information in respect of that merger to participate in the review process.

Additionally, section 18(1) of the Act provides that the minister of the Department of Trade, Industry and Competition may also make representations on any public interest ground.

There are no provisions which specifically provide for carve-outs. The Commission can be engaged on an ad hoc basis regarding possible carve-outs, provided that the implementation does not have an effect in South Africa.

See question 4.1.

No.

In considering the effect of a transaction of competition, the Commission is not constrained to any particular theories of harm. In this regard, the Commission will consider the effects of the proposed transaction in light of horizontal and vertical overlap concerns more generally, including:

• coordinated and non-coordinated effects;
• customer foreclosure; and
• supplier foreclosure.

The Commission is mandated to consider the effect that a proposed transaction will have on the public interest factors identified in section 12A(3) of the Act. These factors include the effect on:

• employment;
• SMMEs; and
• HDPs.

The Commission may impose structural remedies, behavioural remedies and public interest remedies which address any identified substantial lessening or prevention of competition.

These remedies are largely negotiated. If a party is aggrieved by any remedy, it may take the Commission’s decision on consideration to the Tribunal.

There is no strict timeframe within which the Commission will consider remedies.

In intermediate mergers, however, it can be expected that negotiations in relation to remedies will occur sooner than during larger merger reviews, given the Commission’s finite review period.

The Commission is not constrained in imposing competition and/or public interest-related remedies on foreign-to-foreign transactions.

The extent of competition remedies on foreign-to-foreign transactions may include divestitures, among other things.

Public interest-related remedies are far reaching and may include, but are not limited to:

• moratoriums on retrenchments;
• commitments to increase capital expenditure over a defined period;
• increased procurement commitments towards:
• • small and medium-sized businesses (SMMEs); and
  • historically disadvantaged persons (HDPs);
• the establishment of empowerment funds to facilitate the participation of SMMEs and HDPs in the market; and
• ownership commitments, including:
• • the divestiture of shareholding to HDPs; and/or
  • the implementation of employee share ownership programmes.

In respect of small and intermediate mergers, an aggrieved party may approach the Tribunal to consider the Commission’s decision to conditionally approve or prohibit the transaction. This request must contain a statement indicating:

• whether the party seeks to have the merger prohibited, approved without conditions or approved with conditions; and
• if the merger has been conditionally approved, what conditions the party is prepared to accept.

On appeal, the Tribunal will give consideration to all facts and evidence. In practice, this may necessitate the leading of factual and expert witnesses.

Parties can also appeal a decision of the Tribunal to the CAC and thereafter to the Constitutional Court.

Third parties can:

• intervene in a proposed merger transaction by applying for intervention rights; and
• if those intervening rights are granted, make submissions to the Tribunal.

Where third parties have formally been involved in the proceedings as an intervenor, they may appeal or review the Tribunal’s decision to the CAC.

• A fine of up to 10% of the merging parties’ South African-derived turnover can be imposed; and
• The Commission has the authority to:
• • unwind the acquisition;
  • deem any term of the agreement invalid; or
  • order the firms to divest certain assets.

The Commission must approve the transaction before it can be implemented.

Section 13(3)(a) of the Act prohibits the implementation of a merger which meets all thresholds of an intermediate or large merger prior to receipt of approval from the competition authorities.

The transaction cannot close until it has been approved by the relevant authority. Implementation that takes place prior to approval constitutes ‘prior implementation’ or ‘gun jumping’.

The Commission/Tribunal may:

• impose a fine of up to 10% of the merging parties’ combined annual turnover in South Africa and exports from South Africa;
• order the transaction to be unwound;
• deem any term of the agreement to be invalid; or
• order the firms to divest certain assets.

The Commission will require the merging parties to provide feedback on the implementation of the merger remedies at regular intervals.

The Commission is increasingly focused on the public interest. When determining whether a merger can or cannot be justified on public interest grounds, the Commission or 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.

Following amendments to section 12A of the Act, the commission and Tribunal now have additional public interest factors to consider when determining whether a merger should be granted. Mergers will now be assessed taking into account additional factors such as:

• the impact of the mergers;
• the ability of small and medium-sized businesses or firms owned by historically disadvantaged persons (HDPs) to effectively enter, participate in or expand within the market; and
• the promotion of a greater spread of ownership by HDPs and workers in firms in the market.

Public interest considerations are afforded the same weight as traditional competition factors by the Commission.

In terms of developments anticipated in the next 12 months:

• new guidelines are to be finalised for ‘indivisible transactions’; and
• the Commission intends to strengthen its cooperative relationships with international competition authorities.

Parties should consider dealing with public interest considerations upfront and in the same robust manner as they would when dealing with potential competition concerns, and not only engage reactively.