Merger Controls First Edition - J Sagar Associates

South Africa
Lesley Morphet & Desmond Rudman
Webber Wentzel
Overview of merger procedure and trends
When considering how a merger will be assessed in South Africa, one must first understand the authority structure which
prevails. All notifiable mergers are assessed by the Competition Commission (“the Commission”), but only mergers which
meet the financial thresholds for large mergers progress to the Competition Tribunal (“the Tribunal”) for a decision.
Decisions of the Commission are reached in private, whereas the Tribunal holds formal hearings where evidence is led in
public, and only confidential information is withheld from the general public. Interested third parties can make submissions
to the Commission, which no doubt informs their thinking in reaching a decision regarding an intermediate merger, but in
large merger proceedings they can apply to intervene formally, and if given full participation rights they may lead and
cross-examine witnesses, submit evidence, and generally participate in full in the process. This enables the Tribunal to
have access to a wide range of views to assist it in informing its decision, although it is wary of interveners who might
have their own agenda to derail the merger. Decisions of the Tribunal may be taken on appeal to the Competition Appeal
Court, although only parties to the merger may appeal. This has led to a trend where disgruntled parties who do not have
a right of appeal have taken matters on review to the Competition Appeal Court. This entity is the highest court of appeal
with respect to competition-related matters, although the Supreme Court of Appeal has in the past reaffirmed its residual
jurisdiction in appropriate cases, and there is also a possibility that matters may be taken on appeal to the Constitutional
Court in future.
The South African competition regime is peremptory - if the transaction amounts to a merger as defined, and meets the
thresholds of either an intermediate or a large merger, it must be notified for approval, and may not be implemented until
approval has been obtained. As one might expect, in the early years of the current competition regime there were some
cases relating to prior implementation, but these have not featured large on the radar screen for some years. However,
recently there have been a couple of cases where firms were fined for failing to notify a transaction before implementation.
The competition authorities have made it clear that, whereas in the past they took a lenient approach to bona fide failures
to notify, they will now closely interrogate whether the parties were indeed bona fide, or whether their failure to notify
was negligent or wilful, and have cautioned that fines may well increase from the relatively modest (less than R1 million)
levels of the past. They will also look to fine both the acquirer and the target, whereas in the past the fine has been imposed
on the acquirer. Note that the maximum allowable penalty is 10% of turnover in, and exports from, South Africa.
The legislation applies to all economic activity within, or having an effect within, South Africa. Accordingly, international
transactions are notifiable to the South African competition authorities if the parties have activities in South Africa, or
even if only the target has activities in, or sales into, South Africa. Parties in international transactions in which the South
African leg is relatively small often want to close the transaction before clearance has been obtained from the competition
authorities in South Africa. However, there is no formal mechanism in South African competition law for doing so where
closing the international transaction results in control over the acquired business in South Africa passing to the acquirer.
The Commission has historically also been reluctant to accept “hold-separate” or “warehousing” arrangements as ways to
ring-fence the South African business of the target pending clearance in South Africa. More recently (in the last year or
so), the Commission has been more accepting of such arrangements and has informally sanctioned ring-fencing structures
that either retain the seller’s control over the target business in South Africa pending approval or ensure that the target
business is managed as an independent and separately identifiable business within the acquiring firm until approval is
obtained. In share purchase transactions, the acquired shares in the South African target could also possibly be held in
escrow by a third party on behalf of the purchaser in the interim period, although this type of arrangement is arguably not
permissible in terms of the Competition Act.
As there is mandatory notification for mergers that reach the requisite thresholds, the Commission and the Tribunal review
many mergers that raise no competition concerns. Furthermore, there is no “short form” filing available for non-complex
mergers - the same forms are used, although the Commission accepts less detailed information and supporting
documentation. Whilst one might have anticipated that the Tribunal would review more complex transactions, because
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