SOUTH AFRICA: GUIDELINES ON SMALL MERGER NOTIFICATION
Last week the Competition Commission (Commission) issued Final Guidelines on Small Merger Notification. However on 28 September 2022, the Commission issued a revised version of these guidelines (Guidelines) – here.
The Guidelines come into effect on 1 December 2022.
By way of background:
In terms of the Competition Act 89 of 1998, as amended (Competition Act), only those transactions classified as intermediate and large mergers require mandatory notification. Mergers classified as small, fall below the prescribed financial thresholds, and there is no obligation on merging parties to notify.
However, in terms of section 13(2) of the Competition Act, a party to a small merger may voluntarily notify the Commission of that merger at any time and in terms of section 13(3), the Commission may call for the notification of a small merger within six months from the date of implementation if, in the Commission’s opinion, the merger may substantially prevent or lessen competition, or the merger cannot be justified on public interest grounds.
In the case of a small merger notified to the Commission voluntarily, the merging parties are not precluded from closing the merger prior to clearance, while in circumstances where the Commission has called for the notification of a small merger, no further steps may be taken to implement the small merger until competition approval is received.
The Commission expressed concern that certain small mergers with potential anti-competitive effects may escape competition law scrutiny because they fall below the thresholds for mandatory notification and, therefore, published a guideline on small merger notification in 2009 (here). In terms of this guideline, the Commission suggested that parties to a small merger inform it of that merger if those parties or firms within their larger groups are subject to an investigation by the Commission, or are respondents to pending proceedings before the Competition Tribunal (Tribunal), in respect of a prohibited practice.
Over the last few years, the Commission has, in particular, become concerned that mergers in the digital space are escaping regulatory scrutiny due to acquisitions taking place at an early stage in the life of the target, and before sufficient turnover is generated to trigger the thresholds for mandatory merger notification. It is in this context that the Commission has issued the revised Guidelines.
In terms of the Guidelines, the Commission retains its previous guidance to parties to notify all small mergers in which, at the time of entering into a transaction, any of the firms or firms within their group:
- are subject to an investigation by the Commission relating to a prohibited practice/s; or
- are respondents to pending proceedings before the Tribunal in respect of a prohibited practice/s.
In addition, the Guideline suggests that the Commission be informed of all small mergers and share acquisitions:
- where the acquiring firm’s annual turnover or asset value exceeds ZAR 6.6 billion (~EUR/USD 370 million) in the preceding financial year; and
- the consideration (or purchase price) for the acquisition or investment exceeds ZAR 190 million (~EUR/USD 10.5 million) or
- the consideration for the acquisition of a part of the target firm is less than ZAR 190 million but ‘effectively values’ the target firm at ZAR 190 million or more.
The Guideline provides that where the above criteria are met, merging parties are required to inform the Commission, in writing, of their intention to enter into the transaction. Within 30 business days thereafter, the Commission will indicate, in writing, whether or not a full merger notification (in the prescribed manner and form) is required.
The Competition Act does not impose an obligation on parties to a small merger to inform (by way of letter) or notify (in the prescribed manner and form) the Commission of any small merger. Further, while any person interpreting or applying the Competition Act is required to consider guidelines issued by the Commission, guidelines are not binding, are subordinate to the Competition Act and do not have the force of law. No penalty is payable if firms elect not to notify a small merger that meets the criteria set out in the Guidelines.
The potential advantages and disadvantages of proactively notifying the Commission of transactions which fall below the intermediate merger thresholds should be carefully weighed up.