Merger Controls First Edition - J Sagar Associates

Webber Wentzel South Africa
this point was always difficult, but specifically referred to a company’s par value shares. With the move in the new
Companies Act to do away with the concept of par value shares, this question will occupy legal minds for some time to
come. The development has implications for transactions involving preference shares in particular, which has been a
favourite mechanism used in structuring debt transactions, and it is envisaged that the Commission will need to issue a
practice note to deal with the matter.
The Commission has never issued formal guidelines on the substantive aspects of its merger control functions. It has
however occasionally issued “Practitioner Updates” explaining its approach to various procedural issues, such as the
application of the Competition Act’s provisions and regulations to joint ventures, but has not issued a Practitioner Update
in several years.
Industry sectors reviewed
As mentioned above, many mergers notified occur in the property industry, and most of these are non-problematic. As
South Africa is a country with a large agricultural sector and a significant mining industry, there are often mergers in these
sectors too. Otherwise there is a spread of mergers across many sectors of the economy.
General industries/sectors identified in large merger notifications for the period 1 June 2010 to 30 June 2011*
INDUSTRY / SECTOR NO. OF MERGERS DECIDED
Property 18
Financial Services & Products 11
Mining 4
Food & Food Products / Retail /
Agriculture
11
Logistics & Transportation 2
Construction & Engineering 2
Leisure & Entertainment 3
Pharmaceutical & Healthcare 2
Other 5
*The Competition Commission’s website does not provide information regarding sectors or industries in small and
intermediate merger notifications.
Although it is not always appropriate to do so, the competition authorities use the information gained from merger
investigations to further their knowledge of problematic practices in industries. They scrutinise most closely mergers
taking place in industries which are under investigation. At present these include the construction, agro-processing,
financial services and retail industries.
It is noteworthy that some investigations into prohibited practices have been precipitated by information gleaned from a
merger notification. Very recently yet another example arose, as the Commission announced that it was conducting an
investigation into the newspaper industry arising from a merger notification involving the newspaper industry in KwaZulu-
Natal.
Remedies
The competition authorities can approve a transaction unconditionally or subject to conditions. As might be expected,
they prefer to impose structural rather than behavioural remedies. A particular competition concern relates to information
sharing between competitors, and conditions are often imposed on mergers to avoid that risk. Thus several cases over the
past year involving cross-shareholdings were approved only subject to the condition that there be strictly separate board
representation. Other conditions will be dealt with below.
Key policy developments
The South African competition regime is unusual for practitioners in developed economies in that the authorities must
take into account not only competition factors but also public interest factors. This is a balancing exercise in which the
authorities look at the effect of the merger on a particular industrial sector or region, on employment, on the ability of
small businesses and firms owned by historically disadvantaged persons to become competitive, and on international
competitiveness. Although it has not yet occurred, a merger could theoretically be prohibited if the public interest concerns
are very significant and outweigh the competition benefits thereof.
Given the high unemployment rate in South Africa, a particular focus for our competition authorities for many years has
been the effect of a transaction on employment. In the past year this concern has intensified and either conditions are
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