Changes: when is a filing no longer a filing?
THERE is some South African jurisprudence about what comprises a “merger or proposed merger” and the jurisdictional requirement for notifying a merger to the competition authorities.
What has only been partially considered in South African competition law, however, is what changes can be made to the structure and/or terms of a notified merger after notification but before approval and/or after approval but before implementation.
This question arose in the approval process regarding the proposed merger between Vodacom and Neotel. On July 18 2014, Vodacom and Neotel filed a joint merger notification with the Competition Commission in respect of Vodacom’s intention to acquire all of the shares of Neotel.
On December 7 last year, Vodacom advised that it was pursuing a restructured transaction, in terms of which it intends to acquire the majority of Neotel’s assets related to its fixed-line business as a going concern, but excluding Neotel’s licences.
The original merger sought approval for the acquisition of control by Vodacom over all of the business activities of Neotel. The revised transaction will see Vodacom acquiring certain of the businesses of Neotel. Put differently, the revised transaction will see Vodacom acquire a subset of the assets and businesses contemplated in the original merger notification. No assets or businesses not included in the original merger filing are to be acquired.
Vodacom and Neotel argued that the revised transaction structure did not require re-notification as the commission had already investigated a “greater” transaction than that which was now being pursued. It was clear, however, that there was opposition to this position from interveners in the original merger proceedings, and, for practical reasons only, Vodacom and Neotel voluntarily elected to re-notify the transaction.
The Vodacom-Neotel deal aside, in essence, in order to determine if re-notification is required, merging parties must determine if the acquiring and target firms are the same; and the original notified transaction is substantively the same or “less” than the revised transaction. To the extent that the competition authorities’ investigation of and reasons for approval (whether conditional or unconditional) of a proposed transaction remain unaffected by a restructure, then the proposed transaction remains, in substance, the same and should not require renotification and approval prior to its implementation. However, although not a closed list, if the restructured proposed transaction:
Is “greater/more” than that which was previously notified (for example it includes additional assets/shares or confers an additional form of control on the acquiring firm/s);
Includes a different acquiring firm/s or target firm/s;
Is only implemented on a significantly later date than that on which approval was granted;
Includes terms/conditions which may affect the competition authorities’ assessment of the proposed transaction on competition or public interest grounds; then the merger is likely to need to be re-notified to the competition authorities.
In the merger between CA Sales and SMC Brands, the Competition Tribunal required the parties to renotify their transaction on the basis that market circumstances in the industry had significantly changed from the time of notification to the time of implementation.
Another example is the merger between Zeder Financial Services and Agri Voedsel. The commission recommended and the Competition Tribunal held that the merging parties would be required to renotify the proposed transaction if the acquiring firm did not acquire sole control over the target firm within 12 months.
In this regard, it was the intention of the acquiring firm to purchase control-conferring rights over the target firm, but it could only do this when shares became available for sale.
It is clear that merging parties must aim to notify their transactions (taking into account the relevant time periods for approval) at the time at which they intend to implement — and not months or years in advance. Doing so may increase the risk of a re-notification being required.
Parties cannot materially amend the terms to the agreement, whether relating to the parties to the proposed transaction, the extent of what is being acquired or the form of control which is to be exercised, without there being some risk of a re-notification requirement.
Simply put, it is clear that the question of re-notification is one of substance over form.
The question of re-notification of a proposed merger is one of substance over form
Lee Mendelsohn is a director and Kirsty van den Bergh an associate in ENSafrica’s competition department.