Businesses have anxiously been seeking clarity on the application of public interest conditions in merger transactions. It is anticipated that the Competition Commission's draft public interest guidelines for mergers will provide some clarity on its approach to public interest considerations in the context of merger regulation.
The South African Competition Commission (the Commission) released the Draft Revised Public Interest Guidelines (Draft Guidelines) on the first day of its 17th Annual Competition Law, Economics and Policy Conference. These draft guidelines are intended to indicate the approach that the Commission may adopt and the type of information the Commission may require when evaluating the public interest factors in section 12A(3) of the Act.
Since the amendment of the Competition Act (89 of 1998) a few years ago, the public interest component of merger regulation has achieved particular prominence. Over the 2021/22 financial year, at least a quarter of all mergers were approved subject to public interest conditions. As a result, businesses have been eager for clearer guidance from the competition authorities on when public interest conditions will be applied and how these conditions should be structured.
Merger control in South Africa is, in part, governed by the public interest considerations set out in section 12A(3) of the Competition Act. These considerations must be read alongside and given equal weight to the traditional assessment of a merger's effect on competition in the relevant market. Section 12A(3) provides that, when determining whether a merger can be justified on public interest grounds, the competition authorities must consider the effect that the merger will have on:
The section 12A(3)(e) requirement, introduced via a legislative amendment in 2019, that a merger must promote a greater spread of ownership by historically disadvantaged persons (HDPs) and workers, has been the subject of much scrutiny. HDPs are defined in the Act as a category of individuals who were disadvantaged by unfair discrimination based on race, prior to the enactment of the Interim Constitution, including organisations that are controlled by HDPs.
While the Draft Guidelines discuss the Commission's approach to each public interest consideration, potential merger parties will be particularly interested in the Commission's interpretation of section 12A(3)(e), and how it interacts with the rest of the considerations.
At the outset, the Commission makes it clear that section 12A(3)(e) enjoys a unique status amongst the other public interest considerations as it is the only consideration to impose a positive obligation on merging parties. Accordingly, the starting point of the Commission's merger assessment will be that all mergers are required to promote a greater spread of ownership. The Commission is explicit in noting that "a lack of promotion of ownership levels will not be considered to be responsive to this provision".
The applicability of section 12A(3)(e) to mergers with a neutral effect on HDP and/or worker ownership (particularly foreign-to-foreign mergers) has been a grey area in the Commission's application of section 12A(3)(e). The Draft Guidelines seek to provide clarity by stating that the obligation to promote or increase a greater spread of ownership pertains to all mergers having an effect in South Africa. This suggests that mergers between two foreign-owned firms with limited South African operations may be required by the Commission to promote a greater spread of HDP and/or worker ownership.
Although the Commission's guidelines, once adopted, will not have the status of enforceable legislation, they nevertheless provide a clear indication of how the Commission is likely to approach the public interest element of merger regulation in South Africa, and how it intends to marry the transformational imperatives that underscore the Competition Act with the requirement for greater certainty in merger regulation. We will be publishing a series of articles examining each aspect of the Draft Guidelines in further detail.
Interested parties have until Thursday, 9 November to submit comments on the Draft Guidelines. Webber Wentzel's team of competition law experts are available to discuss and assist with the submission of public comments.
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