Med­dling mud­dies merger method Why the eco­nomic de­vel­op­ment min­is­ter’s in­ter­ven­tion in the SABMiller-AB InBev merger is cause for con­cern.

Finweek English Edition - - OPINION - Editorial@fin­week.co.za is the DA’s shadow min­is­ter of eco­nomic de­vel­op­ment.

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

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