Meddling muddies merger method Why the economic development minister’s intervention in the SABMiller-AB InBev merger is cause for concern.
since 2009, economic development minister Ebrahim Patel has increasingly intervened in large mergers on “public interest” grounds. That is his right in terms of the Competition Act. However, in the absence of a standardised public interest test, this mounting ministerial meddlesomeness has had several negative consequences.
Firstly, it has undermined the independence, integrity and effectiveness of the Competition Commission and Competition Tribunal. Secondly, it has created a climate of unpredictability for merging firms (especially multinationals) around the timing, cost and certainty of concluding mergers. Thirdly, it has served to prioritise socioeconomic policy considerations – often industrial or “developmental” – over competition.
Delivering his budget speech in Parliament last month, Patel was visibly pleased to report back on his intervention in the merger between brewing giants SABMiller and AB InBev.
Only five days previously, Patel announced that he had brokered with AB InBev an “agreed approach” to the competition authorities on various public interest issues. In terms of the agreement, AB InBev will invest R1bn to develop local smallholder farmers and enterprises in the supply chain. Additionally, the Belgian brewer has undertaken not to retrench any workers as a result of the merger.
In effect, this constitutes something akin to a gentlemen’s agreement between Patel and AB InBev CEO, Carlos Brito. Some commentators have hailed the approach as a template for others to follow. It has been contrasted with the adversarial relationship between Patel and merging parties in the much-delayed deal that would create the world’s largest bottler, Coca-Cola Beverages Africa.
Yet there are distinct disadvantages to Patel inserting himself as chief cook in the former instance, and chief bottle washer, as it were, in the latter.
It is not a politician’s role to act as player and referee (even less so, match fixer) in large mergers serving before the competition authorities. Doing so weakens their institutional autonomy. It is difficult for regulators to perform their statutory functions without fear, favour or prejudice when their political overseer presents them with an “agreed approach” as a fait accompli.
Effective regulation thrives on clear and predictable institutional rules and administrative processes, not backroom deals between individuals. By conducting parallel investigations and negotiations, and arbitrarily imposing his own opaque modus operandi in merger interventions from the Walmart-Massmart deal in 2011 onwards, Patel has ridden roughshod over what should be transparent procedures.
In acceding to Patel’s conditions, AB InBev was no doubt hoping to wrap up the merger before July, so that it could receive the $1.5bn dividend payable by SABMiller to its shareholders in August.
Those hopes might yet be dashed by the Food and Allied Workers’ Union (Fawu), which still wants to extract its pound of black economic empowerment flesh.
What won’t be lost on any intervening body – whether it is Patel or Fawu – is that time is money for merging parties. This may incentivise obstructive and vulturine interventionism on the pretext of public interest; what former Competiton Tribunal head, David Lewis, described as third parties hanging around, “highwayman fashion”, at a narrow pass. Conversely, in the long run, it may disincentivise foreign investment.
In his budget speech, Patel emphasised that his interventions were “not isolated actions”. Instead, they were part of a “coherent strategy” by government to ensure a better fit between the “legitimate interests of shareholders” in mergers and the public interest on “jobs, industrialisation, empowerment and small business development”.
Yet, there is a real danger in the minister, or the competition authorities, using competition regulation to pursue an array of economic policy objectives (that may or may not be merger specific) in the guise of public interest. For one thing, it is hardly conducive to the kind of policy certainty that the antitrust roleplayers seek.
Sometimes, it can be downright counterproductive. As Investec economist Brian Kantor has argued, by fixating on job retention in merger approvals, the competition authorities have made the economy “less efficient and competitive” than it could be.
The real public interest lies in long-term employment growth, which mergers can help to achieve over time by continuously allocating and reallocating workers to more efficient purposes.
The so-called public interest focus on preventing retrenchments is in fact a “private interest”; it only exacerbates existing labour market rigidities that hamstring job growth.
What all of this suggests is the need for more specific and less discretionary guidelines for the assessment of public interest provisions in mergers, and a reinforcement of the competition authorities’ independence. Hopefully, such measures will form part of the proposals for wider public consultation that Patel announced in his budget speech.
It is not a politician’s role to act as player and referee (even less so, match fixer) in large mergers serving before the competition authorities.
Ebrahim Patel Minister of economic development