ARTICLE
17 April 2024

Merger Control: Revised Public Interest Guidelines — An Emphasis On HDPs' Participation In The South African Economy

Ai
Andersen in South Africa

Contributor

Andersen in South Africa is a Legal, Tax and Advisory firm offering a full range of value-added and cost-effective services to their corporate and commercial clients. They are a member firm of Andersen Global, an international entity surrounding the development of a seamless professional services model providing best in class tax and legal services around the world.
On 20 March 2024, the South African Competition Commission ("Commission") revised its public interest guidelines relating to merger control ("Guidelines").
South Africa Corporate/Commercial Law
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On 20 March 2024, the South African Competition Commission ("Commission") revised its public interest guidelines relating to merger control ("Guidelines").

Background

The Guidelines are a natural progression of the legislature's objectives to consider certain public interests in the context of merger control. At the heart of this objective has been and remains the free and full participation of historically disadvantaged persons ("HDPs") in the economy – a matter envisaged in the preamble to the Competition Act, 1998 ("Act"), as far back as its enactment.

The additional public interest factors

The 2019 amendments to Section 12A(3) of the Act added certain additional factors required to be taken into account when the Commission or the Competition Tribunal ("Tribunal") conducts its public interest assessment of a merger.

The assessment currently comprises assessing the effect of the merger on each of the following:

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

The "Burger King" merger forewarning

In June 2021, the Commission issued its first ever prohibition of a merger on the ground that it would result in the merged entity having no ownership by HDPs and workers, despite finding that the acquisition would not have any likely effect of substantially lessening or preventing competition.

While that merger was subsequently approved with conditions by the Competition Tribunal, the position taken then by the Commission demonstrated an important turning point in the previously holistic approach adopted by the Commission in the assessment of all the public interest factors in the context of merger control.

The Guidelines expand on all the public interest factors

While the briefing note to the Guidelines places an emphasis on the legislature's objectives with regard to protecting and advancing the interests of HDPs in the context of merger control, the Guidelines set out the Commission's likely general and specific approach to assessing the effect of a merger on each of the public interest factors mentioned above.

Additionally, the Guidelines set out in what circumstances the Commission would likely consider the effect of a merger on each public interest factor to be "substantial". Consequently, it would seem that any adverse effect of a merger would need to be regarded as substantial in order to trigger the concern of the Commission. This seems to be the likely case regarding the adverse effects or impacts of a merger on various matters specified in the Guidelines such as local economic conditions, the environment, social projects and upliftment programmes, industrial policies or best practices, local manufacturing, public procurement, and the retrenchment of employees. The position regarding increased HDP and worker ownership spread is, however, pertinently distinguished in the Guidelines.

Positive obligation to advance greater HDP ownership spread

The Guidelines express that the Commission considers that section 12A(3)(e) confers a positive obligation on merging parties to promote or increase a greater spread of ownership, in particular by HDPs and/or workers in the economy. This sets this public interest factor apart from the others.

In applying this aspect of the Guidelines, it seems likely then that the Commission may prohibit a merger, or permit it subject to potentially onerous conditions in order advance greater HDP and/or worker ownership spread, despite there being no other substantial adverse effect on any other public interest factor whatever. This is certainly not a stretch of the imagination considering the Commission's ground-breaking stance taken back in June 2021 without reference to the Guidelines or its predecessor.

Conclusion

While the Guidelines are not binding on the Commission, the Tribunal or the Courts, any person interpreting or applying section 12A (3) of the Act must take the Guidelines into account.

Merging parties affected by the Act are advised to take note of the likely impact of the Guidelines when preparing their merger filing. Time will tell as to how the Commission interprets and applies the Guidelines when it undertakes a public interest assessment of a merger.

Based on the above, it seems likely that the Commission will in future be keenly focused on the assessment of whether or not a merger promotes or increases a greater spread of HDP and worker ownership, despite the absence of any competition concerns or any other public interests concerns, such that it may prohibit the merger or permit the merger subject to potentially onerous conditions.

For the full framework of the Guidelines, click here.

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.

ARTICLE
17 April 2024

Merger Control: Revised Public Interest Guidelines — An Emphasis On HDPs' Participation In The South African Economy

South Africa Corporate/Commercial Law

Contributor

Andersen in South Africa is a Legal, Tax and Advisory firm offering a full range of value-added and cost-effective services to their corporate and commercial clients. They are a member firm of Andersen Global, an international entity surrounding the development of a seamless professional services model providing best in class tax and legal services around the world.
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