Misha van Niekerk | Senior Associate and Attorney | Competition Law Department | Adams and Adams | mail me |
The Competition Commission (the Commission) has released proposed amendments to its guidelines to small merger notification, which are set to take effect after 7 June 2021.
The guidelines have been introduced to address the commission’s concerns regarding the increasing acquisitions of new innovative companies by established players, particularly in the digital markets.
Potential anti-competitive transactions
Due to the general timing of the acquisitions, which often occur at the early stages of a small business’s entry into the market, these acquisitions tend to escape regulatory scrutiny.
The concern is that potentially anti-competitive transactions often slip through the cracks in this way as the target firms have not yet generated sufficient turnover to trigger merger notification in terms of the relevant thresholds.
In terms of section 13 of the Competition Act 89 of 1998 (the Act) large and intermediate merger transactions require mandatory notification and approval by the competition authorities.
Preventing or lessening competition
Small mergers (transactions falling below the lower threshold) do not require mandatory notification, but the commission may – up to six months following implementation – require notification of such merger if, in the opinion of the commission, the merger may substantially prevent or lessen competition and cannot be justified on public interest grounds.
To curb the rise of potentially anti-competitive transactions proceeding unchecked, the commission will now require the notification of all small mergers which meet any of the following criteria:
- At the time of entering into the transaction, any of the firms (or entities forming part of the group) are subject to an investigation by the commission in terms of Chapter 2 of the Act.
- At the time of entering into the transaction, any of the firms (or entities forming part of the group) are respondents to proceedings referred by the commission to the Competition Tribunal in terms of Chapter 2 of the Act.
Turning to the dynamic digital market, the commission will further require that it be informed of all small mergers, where either the acquiring firm, the target firm, or both, operate in one or more digital markets, on condition that at least one of the following criteria is met:
- The consideration for the acquisition or investment exceeds R190 million provided the target firm has activities in South Africa;
- The consideration for the acquisition of a part of the target firm is less than R190 million but effectively values the target firm at R190 million (for example, the acquisition of a 25% stake at R47.5 million) provided the target firm has activities in South Africa and, as a result of the acquisition, the acquiring firm gains access to commercially sensitive information of the target firm or exerts material influence over the target firm within the meaning of section 12(2)(g) of the Act;
- At least one of the parties to the transaction has a market share of 35% or more in at least one digital market; or
- The proposed merger results in a combined post-merger market share at which the merged entity gains or reinforces dominance over the market in question, as defined by the Act.
In order to avoid contraventions of the Act and the consequences that follow, parties to small transactions meeting the above criteria need to make submissions to the commission prior to entering into such transactions.
How your business could be affected
Our competition law team invites you to contact us should your business require advice or assistance regarding a small transaction that falls within the scope of the amended guidelines.
Large mergers are transactions that are above the higher threshold – where the target firm’s turnover / gross asset value is R190 million or more and the combined turnover/asset value of the target and acquiring firms exceeds R6.6 billion.
Intermediate mergers are those transactions which fall below the higher threshold but exceed the lower threshold – where the target firm’s turnover / gross asset value is R100 million or more and the combined turnover/asset value of the target and acquiring firms is more than R600 million.
Chapter 2 of the Act contains prohibitions against restrictive horizontal practices (between actual or potential competitors, including cartel conduct), restrictive vertical practices (between firms at different levels of the supply chain) and abuses of dominance.
The commission, upon notification of such a contravention has the authority to investigate, prosecute and refer to the Tribunal, any prohibited practice.