On 4 April 2025, the Competition Commission of South Africa ("the Commission") published its final Guidelines on Internal Restructuring. These Guidelines clarify how the Commission will determine whether a transaction is an 'internal restructuring' transaction, and outline scenarios where such a restructuring could trigger merger notification and approval requirements prior to implementation of the transaction.
The key in determining whether a transaction is a merger, is to assess whether there is a change in control. This stems from the definition of a merger which states that "a merger occurs when one or more firms directly or indirectly acquire or establish control over the whole or part of another firm's business."
To assess whether a transaction constitutes a notifiable merger, the following considerations apply:
- Is there a change in control over 'the whole or part of a business'? This could include the sale of assets, or the sale of any income-generating asset.
- Are the monetary thresholds, that determine whether a transaction is regarded as an intermediate or large merger, met?
- Are the 'small merger guidelines' which could require notification, even if the transaction value falls below the prescribed monetary thresholds, applicable?
Historically, internal restructuring was not regarded as a 'merger' on the basis that it did not trigger a change in control. This position changed in the 2001 case of Distillers Corporation (SA) Ltd and Another v Bulmer (SA) Ltd and Another when the Competition Appeal Court ("CAC") found that internal restructurings within a group of companies could trigger a merger notification. The CAC confirmed that the definition of a merger may even include transactions between a company and its wholly owned subsidiary. This means that even where the restructuring is within the same group, it may require notification and approval if it results in a different entity gaining control over the business or its assets.
Section 12(2) of the Competition Act provides a non-exhaustive list of circumstances in which control may be acquired, primarily focusing on transactions between companies and other firms. The Commission's Guidelines on Internal Restructuring confirm that the list will apply in a similar manner to internal restructurings. If the ultimate controller changes as a result of internal restructuring, the Commission may require notification of transactions that alter the control rights of minority shareholders within a group of firms.
When determining whether a transaction constitutes an internal restructuring or requires notification, the Commission will assess:
- if the proposed restructuring falls within the instances listed in section 12(2)(a) – (g);
- if the proposed restructuring results in a loss or gain of any form of negative control by one or more of the firms within the group of firms ("external shareholder"); or
- if an external shareholder's minority rights conferring control will be changed by the transaction.
If an internal restructuring changes the control rights of firms within the group of firms, the transaction may be deemed notifiable to the Commission and may not be implemented before approval. Failure to notify the Commission of a notifiable merger constitutes a contravention of the Competition Act, which may attract significant fines.
Minority shareholder rights that confer 'control' include veto rights related to strategic matters of the target firm, such as budgets, business plans, and the appointment and removal of managers or directors. Ordinary minority investment protections, like decisions to apply for the listing or trading of securities, are not deemed to confer control.
Each transaction must be considered on a case-by-case basis. While the Commission's Guidelines are not binding, they must be considered when interpreting and applying the Competition Act. Parties contemplating internal restructuring should consider whether such transactions may trigger a notification to the Commission.
If companies are uncertain whether a notification is required following an internal restructuring, Adams and Adams is available to provide comprehensive advice and assistance, alternatively, to approach the Commission for an advisory opinion, as per the Regulations for Non-Binding Advisory Opinions, 2024.
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.
