Changes: when is a fil­ing no longer a fil­ing?

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - Lee Men­del­sohn & Kirsty van den Bergh

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.

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