Revised guidelines a critical framework for merger analysis
The South African Competition Commission has published its final revised Public Interest Guidelines (guidelines) relating to merger control. The guidelines serve to clarify the commission’s stance on public interest factors as set out in the Competition Act 89 of 1998 (as amended) (Competition Act).
There are pivotal updates and key insights that require the attention of parties seeking merger approval from the commission. Although these are nonbinding in principle, they do provide a useful guide on the commission’s stance in relation to public interest assessment of mergers.
In assessing mergers before it, the commission is also legislatively required to consider the impact that a particular merger will have on public interest considerations set out in section 12A(3) of the Competition Act. These considerations are the impact a merger will have on (i) a particular industrial sector or region (ii) employment (iii) ability of small and mediumsized firms that are owned or controlled by historically disadvantaged persons, to effectively enter or expand within a market (iv) the ability of national industries to compete in international markets, and (v) the promotion of a greater spread of ownership by historically disadvantaged persons (HDPs).
ASSESSMENT
The guidelines outline that in evaluating a merger’s impact on public interest, the commission will first conduct an assessment of each public interest factor individually, discerning whether the merger is likely to have a positive or negative effect on each then consider whether the effect is merger-specific; and only if so, will it consider whether the effect is substantial. Where a determination is made that only positive public interest benefits arise from a particular merger, they are merger-specific and substantial, the enquiry into those factors understandably ends.
However, if the commission concludes that if a specific public interest aspect is adverse, specific to the merger and significant, it will require remedies to address the negative impact. In cases where rectifying the negative impact on that particular public interest aspect isn’t feasible, the commission might weigh alternative public interest aspects of equal significance that counterbalance the identified negative impact.
Although the guidelines introduce several new provisions, perhaps the most notable and somewhat controversial provision relates to the fact that all mergers will be subject to the requirement that the merger promotes a greater spread of ownership.
OBLIGATION
According to the guidelines, a failure to do so may render the merger unjustifiable on public interest grounds. This imposes a positive obligation on the merging parties to increase the levels of ownership by HDPs or workers (typically through ESOPs) (potentially both). This is a controversial and onerous provision in our view. We say so because this requirement appears to find application irrespective of the fact that the merger does not raise any public interest concerns.
The critical question that arises is whether or not the guidelines, particularly the HDP provision, will water down or undermine the holistic approach that is often taken in terms of which the public interest considerations or factors are weighed and considered holistically as opposed to on an individual basis.