The South African Competition Commission has since the beginning of 2017 prohibited eleven intermediate mergers and has recommended that four large mergers be prohibited. This number is substantially higher than 2016, when the Commission prohibited three intermediate mergers and recommended that one large merger be prohibited. For the period end of September to October 2017, the Commission prohibited five mergers.
This note will briefly look at two important and interesting trends that followed from the prohibitions of proposed mergers in South Africa since the beginning of 2017.
A move to take "coordinated effects" of the proposed merger into account
The first trend in the prohibition of mergers is a move to look at the "coordinated effects" of a proposed merger (a change in the market structure which better facilitates tacit collusion). In this regard the Commission adopted a policy favouring less concentration in markets and looking at a history of collusion in the market.
The approach taken by the Commission indicates its intention to use the theory of coordinated effect as a tool to curb further concentration of markets (which has recently been the subject of vigorous debate in South Africa). The focus on the history of collusion may be due to several factors, including the increased workload of the cartels division, pointing to the need to interrogate potential future coordination.
A good example is the stringent approach by the Commission in the proposed merger to form a joint venture between three container liner shipping businesses, which required competition approval from several countries, including South Africa.
In contrast to overwhelming global approval of the proposed merger, the South African Commission prohibited the merger, based on its finding that previous collusive conduct in other countries indicated that this market was conducive to coordination and that further structural linkages would be created by this merger. The Commission also found that an adjacent market, the car carrier market, may also be affected by the merger and may create 'a platform for coordination' in the adjacent market.
Higher degree of scrutiny if the proposed merger is in a priority sector
A further trend is that Commission has over the last few years identified certain priority sectors and several Market Inquiries (for example the Retail Market Inquiry, Private Healthcare Inquiry, LPG Inquiry, Data Services Inquiry, and others) have been undertaken. As a general rule it can be expected that a proposed merger of parties conducting business in any of these sectors could anticipate a higher degree of scrutiny by the Commission.
Two of the mergers which were prohibited during the end September to October 2017 period, were in the healthcare sector (private hospital market) and the background thereof is briefly as follows:
- In the Netcare case, Netcare (operating a private hospital network in South Africa and the UK and being active in operating a primary care network and medical emergency services) intended to acquire Akaso Group (owning mental health hospitals located throughout South Africa). The Commission prohibited the merger on the basis that the proposed merger would result in significant combined market shares in the provision of mental healthcare services in a local market in Gauteng, with the merged entity likely to exercise market power. Post-merger Netcare would have the highest number of mental healthcare beds and would likely be in a strong position to increase tariffs. As there were no workable remedies submitted that could alleviate the competition concerns, the Commission recommended to the Tribunal that the merger be prohibited.
- The Commission also required Netcare to notify a merger that had already been implemented with Lakeview Hospital, a multidisciplinary private hospital. The Commission prohibited the merger on the basis that (i) there is a horizontal overlap between the activities of the merging parties in the provision of multidisciplinary private healthcare services in the Benoni area; (ii) tariffs are likely to generally increase significantly once the Lakeview Hospital adopts the Netcare tariff schedule; and (iii) the merger results in the removal of the Lakeview Hospital as an effective competitive restraint in the Benoni area.
Parties who intend to notify mergers in South Africa should take note of the reasons for these recent prohibitions and trends and should ensure that these aspects are sufficiently addressed in their merger notifications.
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.