The Competition Act 89 of 1998 ("Competition Act") regulates mergers between firms in a relevant market. Mergers are notifiable when there has been a change of control of a target firm to an acquiring firm and if the transaction meets the thresholds for mandatory merger notification. The competition authorities then assess the merger on certain specific merger considerations when approving (with or without conditions) or rejecting that merger.
A common question arising in South African merger and acquisition transaction concerns the applicability of the merger control provisions of the Competition Act to mergers where the aggregate transaction consideration payable is nominal or zero. This issue is raised often in complex corporate restructurings, internal reorganisations and acquisitions.
Factors to Consider
Control considerations: The first leg of assessment is whether the transaction results in a change of control. This assessment involves analysing factors such as voting rights, the ability to appoint or veto the appointment of a majority of the directors, and the ability to influence the target's business decisions. The consideration payable for the transaction does not feature in this assessment.
Threshold considerations: Once a change of control has been established, the second leg of assessment is whether the transaction meets the monetary thresholds for compulsory notification as an intermediate or large merger. If so, the transaction must be notified to the competition authorities. Again, the consideration payable for the acquisition does not feature in this assessment.
Merger considerations: Once the merger is notifiable and duly notified, the competition authorities assess the competitive consequences of the merger by considering various complex factors that assess whether (i) the merger is likely to substantially prevents or lessens competition and, if so, considering various factors that assess whether the merger is likely to result in any technological, efficiency or other pro-competitive gain which will be greater than, and offsets, the effects of any prevention or lessening of competition, that may result or is likely to result from the merger, and would not likely be gained if the merger is prevented; and (ii) whether the merger can or cannot be justified on substantial public interest grounds. Again, the consideration payable for the transaction does feature in any of these assessments.
Practical Implications
While the Act indeed sets monetary thresholds for mandatory notification of mergers these ought not therefore to be confused with the consideration payable for the merger. Mergers are not assessed on the basis of the consideration payable for the merger. The amount of the consideration payable for the transaction is therefore irrelevant from a merger control perspective.
Businesses contemplating transactions with a nominal or zero value should therefore carefully assess whether their transactions are notifiable. Failure to comply with merger control requirements can result in several undesirable consequences including significant administrative fines, merger invalidity and personal and/or criminal liability in certain instances.
Our Commercial team advises on whether transactions are notifiable under the Competition Act and assists in preparing the necessary filings with the Competition Commission, and thereby avoiding any of the undesirable consequences that follow upon a failure to compulsorily notify a transaction.
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.
