event, mergers

Conference news: Merger enforcement & emerging antitrust regimes

Our good friends at CONCURRENCES will be hosting the third instalment of their global antitrust conference next Thursday, September 23rd:
 
The 2021 edition of Concurrences annual “Global Antitrust Hot Topics” conference will be held online, with a series of 3 webinars from Tuesday, September 21st to Thursday, September 23rd.

The third and last webinar will take place on Thursday 23 September from 3:30pm CEST / 9:30am EDT with a panel focusing on key issues for in-house counsel in global antitrust, merger enforcement and emerging regimes.

The conference will then close with a virtual reception where speakers and participants will be able to exchange their thoughts on this 9th edition.

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Speakers will include:

Hanna Danwall
Head of Competition Law
Carlsberg

Nick Hendon
Vice President Mergers & Acquisitions
Olin

Antoine Chapsal
Managing Principal
Analysis Group

John Oxenham
Director
Primerio International

David Cardwell
Partner
Baker Botts

FREE REGISTRATION (CONFERENCE)

Following the 3rd panel, Concurrences is inviting you to the closing reception of this conference. It will allow you to exchange views with the participants and speakers involved in the different webinars of this edition.

This reception will take place via the platform Remo. During this virtual event, you will be able to speak or chat with other attendees and navigate from table to table on a virtual hotel floor.


This virtual panel will also be the opportunity for you to interact with the speakers during the live Q&A session at the end of the panel discussion. 
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COMESA, fines, Madagascar, Malawi, mergers, Telecoms

Mergers: 1st failure-to-notify penalty — Helios now gets what Akzo avoided in 2017

The COMESA Competition Commission (“CCC”) is stepping up to the plate in 2021, and nobody can deny it. The days of ignoring the CCC’s jurisdiction over M&A deals, joint ventures, and even anti-competitive agreements in the Common Market for Eastern and Southern Africa are decidedly over, as the antitrust enforcer has significantly increased its presence and visibility in the legal and business communities over the past 6 months.

In its latest bid to be considered by the antitrust community to rank among the leading African competition-law agencies, the CCC has issued its first-ever failure-to-notify fine on mobile-phone infrastructure providers Helios Towers Limited (“Helios Towers”), Madagascar Towers S.A (“Madagascar Towers”) and Malawi Towers Limited (“Malawi Towers”) for failure to notify the transaction within the prescribed 30-day time period under Article 24(1) of the COMESA Competition Regulations of 2004. Helios Towers is a UK-based telecommunications company, listed on the LSE and a constituent of the FTSE 250 stock index; it operates in the Democratic Republic of Congo within the COMESA region.

COMESA Competition Commission logo

As we previously reported in 2017 (here and here), to AAT’s knowledge the only other reported transaction that came close to being fined for a failure to be notified by the merging parties was the paints deal between Akzo Nobel and Sadolin / Crown Paints: “In that transaction, the parties boldly proclaimed that the CCC simply did not have any statutory jurisdiction at all,” says attorney Andreas Stargard, an expert in African competition law. Indeed, four years ago, Akzo’s spokespeople flatly claimed that their deal fell “outside the CCC’s purview,” as “[w]e do not have a merger going on; we are a fully independent plant, so COMESA does not come into the picture at all.”

The COMESA’s CID observed that the Parties should have filed their merger notification on 22nd April 2021 in accordance with Article 24 (1) of the Regulations, but breached it.

Interestingly, as to the comparatively low amount of the fine, the CCC took into account significant mitigating aspects pursuant to Article 26(6), including these five considerations:

  • The breach was unintentional;
  • The delay in filing did not yield any “discernible advantage” to the Parties;
  • The breach did not result in any loss or harm in the market;
  • The Parties cooperated with the Commission from the time they were engaged leading to the merger being notified on 2nd July 2021 following their initial engagement; and
  • The Parties have no record of contravention with the Regulations.

Therefore, the CCC merely imposed a 0.05% fine (instead of the statutory maximum under Art. 24(5) of 10% of the parties’ turnover in the preceding calendar year in the common market). AfricanAntitrust.com confirmed this 0.05% figure with a CCC executive, clarifying that this percentage amounted to a fine of U.S. $102,101. Mr. Stargard noted his understanding that the CCC’s positioning of this fine at the extremely low end of the permissible spectrum denotes not only the parties’ significant cooperation and other mitigating factors, outlined above, but also represents a nod by the Commission to the fact that this is the first-ever enforcement action of its kind, and therefore “should not set a precedent in both substance and amount.”

The Parties may appeal the decision (available to AAT readers here) to the full Board of Commissioners in accordance with Article 15(1)(d) of the Regulations as read together with Rule 24 (e) of the COMESA Competition Rules of 2004.

The Commission’s Registrar, Ms. Meti Disasa, stated that “the fine was the first of a kind for breach of the Regulations. The Commission therefore wishes to remind Undertakings in the Common Market to be cautious of the prescribed timeline for notifying mergers in under Article 24 (1) of the Regulations.” Ms. Disasa warned undertakings operating in the Common Market “to comply with all other parts of the Regulations especially with respect to anti-competitive conduct as the Commission shall henceforth not take lightly any breaches of the regional competition law,” according to the CCC’s press release, also noting that “the decision to fine has no impact on the Commission’s assessment of any competitive effects of the merger, which is still ongoing.”

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Uncategorized

Mozambican Competition Authority Issues Ministerial Decree to Amend Merger Filing Fees

By Nicola Taljaard

On the 16th of August 2021, the Competition Authority of Mozambique (“CRA”) made certain vital amendments to its merger filing fees as per Decree no. 77/2021 (“Decree”). The amendments come at a crucial time considering the recent operationalisation of the CRA in Mozambique and long period of time for which the filing fees remained exorbitantly high. Until recently, the fees were inordinately high compared to both the neighbouring countries of Mozambique, as well as those on the broader global spectrum. The amendments consequently hold potential for improvement of the steadily strengthening African mergers and acquisitions market, and it is expected that similar developments will continue to follow.

It is provided in the Decree that the applicable filing fees are now 0.11% of the turnover in the year before filing with a maximum filing fee value of 2.25 million Meticais (approx. R530 000 as the exchange rate stands on 25 August 2021). Before this amendment was passed, Ministerial Decree no. 79/2015 set the applicable filing fee as an exceptionally high 5% of the turnover in the year before filing. This position was highly controversial, and potentially dissuaded potential investors.

An issue which remains unresolved following the publication of the Decree is that of the relevant companies’ turnover. Although the legislative procedure intended to clarify exactly which companies’ turnover should be used to determine the notification fee, it has failed to do so. However, upon interpreting Article 12 of the Competition Law Regulation systematically, it may be concluded that the turnover applicable to the transaction is that realised in Mozambique in the preceding financial year by all of the companies who are party to the deal. Such an interpretation is also consistent with common practice.

As of the 23rd of August, the Decree officially entered into force, an consequently should be applied by the CRA to cases both pending and upcoming, insofar as the filing fee has not yet been paid. This rationale is based on Resolution no. 1/2021 which stipulates that notification is only fully effective once payment of the filing fee has occurred. Thus, various notifications which have been submitted to the CRA, but not yet finalised with the relevant payment due to concerns regarding the high notification fees, are predicted to be paid for and processed in accordance with the modified rates soon.

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AAT exclusive, Big Picture, China (PRC), dominance, South Africa

China tells Africa: ‘Monopolies bad!’

In an interesting twist, a representative of the last properly remaining centralised economy (the People’s Republic of China) has admonished African nations (specifically South Africa, where he acts as Ambassador) to enhance competition-law enforcement against dominant firms, including Western tech giants.

We observe that his statement is an “interesting” twist, because the Editor was taught over the years in several (perhaps faulty?) history lessons that the PRC itself had been inarguably heavily reliant on government-run monopoly companies for decades.

But let’s cut to the chase of what Mr. Xiaodong is actually saying: his thesis, not exactly ground-breaking in antitrust circles, can be summarised succinctly as “excessive power and influence of technology giants hinder innovation and competition and increases economic inequality.” There!

With regards to the applicability of his thesis to South Africa, the ambassador notes that “Antimonopoly practices also exist in SA. The control over data fees and food prices imposed by big corporations here has safeguarded consumers’ rights and interests. Monopolistic actions in the platform economy is also a matter of grave concern for SA’s Competition Commission. No country can turn a blind eye to the negative externality of the emerging digital economy.”

Image credit: Shutterstock

“Negative externalities…” sound very much like proper Western antitrust-economics-speak. Interesting. However, there is of course an ulterior motive behind this little lesson in competition economics from his excellency, the honorable ambassador. It comes at the end of his “opinion” piece: China would like to do more business in Africa, strengthen its ties, and deepen its influence (including in the area of education – beware!)… In the diplomat’s own words: “China’s high quality economic development brings greater opportunities for Africa’s development. … And China’s current cumulative investment in SA has exceeded $25bn, creating more than 400,000 jobs directly and indirectly in the region and making big contributions to SA’s economic and social development.”

Curious news, perhaps not so much any more after digging deeper. Especially when the interested reader googles (oh yes, coincidentally using that same FAANG company’s services that Mr. Xiadong’s diatribe indirectly disparages here) the simple search term “China – Africa“, the latest news from today’s South China Morning Post is that “China seeks to expand influence in Africa with more digital projects…” — nice coincidence.

Well, now readers of AAT know.

China wants to “share the achievements of digital technology with Africa to promote interconnectivity”

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Uncategorized

UPDATE: Nigeria Federal Competition and Consumer Protection Commission Publishes Revised Merger Filing Fees

By Jemma Muller and Nicola Taljaard

On 2 August 2021, the Federal Competition and Consumer Protection Commission (“FCCPC”) made important amendments to the filing fees prescribed in the Merger Review Regulations, 2020 (“Regulations”). The amendments provide much needed clarification with regards to fees payable regarding the filing of a merger in Nigeria, particularly where the merger involves a global acquisition. These amendments come at a crucial time as Nigeria’s merger control regime is fast becoming one of the more active on the African continent.

The amendments clarify that the calculation of the filing fees in respect of transactions which involve a global acquisition is only the turnover attributable to the local component in Nigeria. In other words, where previously it was not clear whether the filing fee was to be calculated on the entire consideration of the global transaction, the amendments clarify that it is only the turnover of the Nigerian component (i.e. the parties’ Nigerian derived turnover) of the transaction which should be used.

The amendments also provide clarity in respect of the turnover which should be used for purposes of calculating the filing fee in respect of Private Investment Entities. The turnover for Private Investment Entities is clarified to be the combined turnover of the Fund (in Nigeria) as well as the target.

Other notable changes to the calculation of merger filing fees include the following:

  • The percentages used for purposes of calculating the applicable filing fee for the first N500 million increased from 0.3% to 0.45% in respect of both the consideration of the transaction as well as the last combined annual turnover;
  • The percentages used for purposes of calculating the applicable filing fee for the next N500 million increased from 0.225% to 0.4% in respect of both the consideration of the transaction as well as last combined annual turnover; and
  • In respect of any sum above N1 billion, the percentage applicable to the consideration of the transaction increased from 0.15% to 0.35%, while the percentage in respect of the annual turnover component decreased quite significantly from 0.75% to 0.35%.

Primerio director, Michael-James Currie, says that these amendments are welcomed as they bring filing fees in Nigeria in line closer in line with international best practice and is likely to positively contribute to the Nigerian merger control regime.

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meddling, MergerMania, public-interest, South Africa

Revisiting the Burger King prohibition: [Unintended] Consequences & [Possible] Reconsideration

By Joshua Eveleigh

On the 1 June 2021, the South African Competition Commission (SACC) released its media statement announcing the prohibition of ECP Africa’s proposed acquisition of Burger King (South Africa) and Grand Foods Meat Plant Pty (Ltd) from Grand Parade Investments.   AAT published a note on this precedent-setting decision here.

Despite finding that the acquisition would not have any likely effect of substantially lessening or preventing competition, the transaction was prohibited as it would result in the merged entity having no ownership by historically disadvantaged persons (HDPs) and workers. In its media statement, the SACC states that both Burger King SA and Grand Foods Meat Plant form part of an empowering entity in which HDP’s have 68% ownership. This ownership stake would decrease to 0% if the transaction were to be approved. In this regard, Tembinkosi Bonakele, chairperson of the SACC, states:

“You had an entity that had quite an impressive transformation profile, and all of that was going to disappear at the stroke of a pen with this transaction.”

Unsurprisingly, Grand Parade Investments, as well as the general public, have responded to the SACC’s decision with discontent.

The topical concerns regarding the prohibition of the acquisition include:

  1. The unintended, prejudicial impact upon black shareholders of sellers / target companies; and
  2. The equally detrimental deterrence of foreign direct investment (FDI) into the Republic of South Africa.

i. Harm to HDP shareholders

Grand Parade Investments had supposedly been attempting to sell Burger King and Grand Foods Meat Plant for a period of 18 months in order to settle debts and pay dividends to its black shareholders, whom had reportedly not received dividends for a number of years. Furthermore, the shareholders would incur even greater harm upon the SACC’s media statement as Grand Parade Investments share price would plummet by 10%, making future dividend payouts ever less likely.

Bonakele argues that the Competition Act cannot waiver in its goal of transformation purely because of the prejudicial impact that a decision may have on individuals.

“This is about the system, it is not about individual shareholders. We are not really concerned about the immediate impact on Joe Soap today, that’s not the criteria.

ii. Deterring FDI

The decision of the SACC raises varying concerns for foreign investors, and understandably so. The key concerns can be encapsulated into the following: certainty, timing and costs.

Firstly, merger review is subject to ever-evolving standards. In this regard, foreign investors cannot approach a merger with full certainty as to whether it will be approved or not. Moreover, continually changing standards presents increased opportunities of opposition from competition authorities which furthers investor uncertainty. Secondly, subsequent to changing standards and increased opposition, the timing of proposed mergers is significantly lengthened. Lastly, the imposition of non-competition conditions on transactions incurs significant costs on the burden of investors.

These principles of certainty, timing and costs can be considered as the essential elements of a sound merger regime. Ultimately, the SACC’s decision of prohibition strikes at the balance of South Africa’s merger regime by introducing great uncertainty, prolonged timing and greater costs  – all of which present themselves as significant areas of concern for foreign investors.

In response to these FDI concerns, Bonakele states that South Africa’s democratic sustainability is of paramount importance and that foreign investors must consider the long-term effects that exclusionary investments would have on the Republic, particularly in regard to transformation and empowerment:

“But it’s not like empowerment imperatives are less important than FDI.”

A potential for reconsideration?

A window for reconsideration of the proposed acquisition presents itself where the merging parties present a better offering of HDP ownership. Bonakele suggests that this is potentially on the table as the parties to the agreement have continued engagement despite the SACC’s decision.

Therefore, the proposed acquisition may eventually find approval where ECP Africa and Grand Parade Investments agree on an improved HDP empowerment plan, of which the SACC is satisfied.

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Conclusion

In essence, the SACC’s decision to prohibit the proposed acquisition of Burger King (South Africa) and Grand Foods Meat Plant by ECP Africa has had prejudicial effects upon the seller’s black shareholders.

Further, the decision presents concern for foreign direct investment by striking at the essential elements of a sound merger regime, namely: certainty, timing and costs.

However, the chairperson of the SACC has now noted that the SACC may change its initial decision upon the improvement of empowerment considerations between the parties to the transaction.

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Uncategorized

SOUTH AFRICA: EXEMPTIONS TO AID CONSUMERS DURING AND AFTER RIOTS

By Charl van der Merwe and Gina Lodolo

On 15 July 2021, Ebrahim Patel, the Minister of Trade Industry and Competition, published a block exemption for the supply of essential goods (“Exemption”), which came into effect on the day of publication and is granted until 15 August 2021, unless extended or withdrawn.

The Exemption is aimed at allowing conduct that would usually fall foul of Section 4 and 5 of the Competition Act 89 of 1998, as amended (“Act”) due to the conduct being a restricted horizontal (conduct between competitors) or vertical (conduct between suppliers and customers) practice.

The authority to grant exemptions is derived from section 10(10) read with section 78(1) of the Act. Section 10(10) of the Act states that the “Minister may, after consultation with the Competition Commission, and in order to give effect to the purposes of this Act as set out in section 2, issue regulations in terms of section 78 exempting a category of agreements or practices from the application of this Chapter”.

These specific Exemptions were granted in light of the recent riots in South Africa, which have caused massive losses at retail level as well as supply chain shortages and disruptions.  The purpose of the Exemption is to prevent a shortage of essential goods within South Africa, especially to poorer households and small businesses. These Exemptions apply to suppliers of essential goods. Essential goods are defined to mean: “basic food and consumer items, emergency products, medical and hygiene supplies (including pharmaceutical products), refined petroleum products and emergency clean-up products. Essential goods include the final good itself as well as all inputs in the supply chain required for the production, distribution and retail of the essential goods” (“Essential Goods Suppliers”).

The Exemption provides that Essential Goods Suppliers may communicate and coordinate with each other to ascertain the loss of stock, the gravity of shortages and their location as well as availability of stock in particular areas to gauge the ability of different Essential Goods Suppliers to supply to areas that are experiencing shortages and have a higher demand, including supply to smaller businesses.

Essential Goods Suppliers may also coordinate on inputs, stock expansion or capacity and equitable distribution between Essential Goods Suppliers. Coordinated distribution of essential goods to different geographical areas within South Africa will be allowed if connected to anticipated shortages of a type of essential good or an anticipated shortage of essential goods in a specific area.

The Exemption contains express provisions to monitor all conduct in terms of the Exemption. Essential Goods Suppliers must keep minutes of all meetings and communication and such minutes, as well as written records of agreements must submitted to the Competition Commission.

The Exemption will provide welcomed relief but is not without risk. Communications between competitors as well as customers/suppliers pose various difficulties not only from a competition law perspective, but also from a commercial perspective. Conduct and exchanges of information in terms of the Exemption may have lasting consequences. It is imperative that firms are fully aware of the perils of so engaging in terms of the Exemption, particularly regarding meeting minutes and the positive duty, in terms of case precedent, to distance yourself from potentially anti-competitive conduct.

Finally, the Exemptions do not allow price-fixing and collusive tendering, nor do they authorize discussions on pricing of essential goods. Firms should be aware that price-gauging is still prohibited in terms of the Consumer and Customer Protection and National Disaster Management Regulations and Directions issued on 19 March 2020.

Primerio Director, Michael-James Currie, says that the Commission published a report following the exemptions granted during the Covid-19 State of Disaster confirming the positive effects that collaboration between competitors can have in certain instances. This calls into question whether the “characterization” test ought to be recognized as a substantive defence to hardcore cartel conduct cases in South Africa.

These Exemptions can be accessed at: https://www.gov.za/sites/default/files/gcis_document/202107/44854gon616.pdf

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Uncategorized

Webinar Alert: Zambian Competition Law Enforcement Trends and Due Process

Join Primerio director Michael-James Currie and Primerio’s Zambia in-country partner Mweshi Mutuna, when they speak to the head of the Zambian CCPC’s restrictive practices division, James Chalungumana on 23 June 2021 at 3pm CET.

Registration is free. Follow the links below to register.

https://lnkd.in/dPifc67

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Big Picture, consumer protection, event, South Africa, Zambia

Competition Law Africa conference 2021 / this Tuesday

The Informa Competition Law Africa conference is back with a vengeance this year, albeit still held virtually due to the pandemic.

The overview can be found here, and the more detailed agenda here.

Speakers include South African enforcer Hardin Ratshisusu, COMESA chief Willard Mwemba, the OECD’s competition expert Frederic Jenny, Mahmoud Momtaz, head of the Egyptian competition authority, Lufuno Shinwana, senior legal counsel on competition issues for Anheuser-Busch Inbev, Ntokozo Mabhena, Anglo American’s Legal Advisor, and Maureen Mwanza, head of legal for the Zambian CCPC.

Primerio partner, Andreas Stargard, will host the afternoon panel on Vertical Restraints, interviewing Okikiola Litan, Senior Counsel, Commercial and Competition Law, with Coca-Cola Hellenic Bottling Company.

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AAT exclusive, meddling, MergerMania, mergers, public-interest, South Africa

Precedent-Setting Decision: Burger King Acquisition Prohibited Purely on Public Interest Grounds

By Charl van der Merwe

The South African Competition Commission (SACC) made headlines with its first prohibition of an intermediate merger that was based solely on public-interest grounds.

Emerging Capital Partners (ECP), a private equity firm founded in the US, was to acquire all Burger King assets from South African Grand Parade Investments, a South African majority black owned entity. 

The SACC, while finding that the proposed transaction will have no actual impact on competition, prohibited the transaction on the basis that the transaction will have a substantial negative effect on “the promotion of greater spread of ownership, in particular to increase the levels of ownership by historically disadvantaged persons” (HDPs).

The SACC found that the merger would lead to a 68% reduction in the shareholding of HDPs in the target entity.

As John Oxenham, director at Primerio points out, “public interest” considerations have long been a feature of competition law in South Africa, particularly in relation to merger control. In this regard, mergers, which may otherwise be deemed problematic, could be ‘justified’ on public interest grounds. Public interest, while initially limited to employment, was first informally expanded through notable mergers such as Walmart/Massmart (2011) and AB Inbev/SAB (2016) where public interest conditions were imposed related to empowerment and ownership, through agreement by the merging parties.

The Competition Amendment Act, which largely became effective in 2019, formally expanded the recognised public-interest factors contain in Section 12A(3) of the Competition Act to include the “promotion of a greater spread of ownership, in particular to increase the levels of ownership by historically disadvantaged persons and workers in firms in the market”. Further, the public-interest element was elevated to a separate and self-standing assessment, which must be assessed as an integral part of the merger assessment.

While the Competition Act, as amended, has made provision for mergers to be assessed and prohibited on pure public interest grounds since July 2019, the Burger King merger is the first merger to be prohibited on this basis.

SACC Commissioner, Tembinkosi Bonakele noted that the SACC had no choice but to recommend that the merger be prohibited as, clearly, the merger would result in a reduction of HDP ownership from 68% to 0%, which the SACC believes is substantial. This concern was raised with the merging parties, who were unable to address the concern in a suitable manner.

Regarding the broader impacts of the decision on investment and merger control in South Africa, Bonakele noted that the SACC is merely a statutory agency obliged to impose the law as it currently stands and, according to the Bonakele, there is no uncertainty regarding the transformation objectives which had been introduced to the Competition Act. The SACC is clear on its mandate in terms of the Competition Act, as amended, and will continue to implement such mandate.

The legal basis for the decision is clear, however, as is the case with any new legislation, implementation thereof less so. At the time of the enactment of the amendments to the Competition Act, it was well recognised that the practical implementation of these provisions will be critical and that it may lead to significant unintended consequences – including adverse effects on consumer welfare and even broader public interest. Primerio director, Michael-James Currie points out that, ironically, HDP-owned target firms might be negatively prejudiced by this criterion, as the pool of potential buyers is limited (and hence the value) if non-black owned firms are not able to successful acquire the target’s business.

It is not clear, at this stage, what the assessment in the Burger King merger entailed, what evidence was put forward by the parties and what the relevant counterfactual may have been. It is also not clear whether the transaction presented pro-competitive elements which outweigh the adverse effect on public interest – similar to what is required in terms of public interest where a merger may have an adverse impact on competition. The SACC confirmed, however, that the transaction was ultimately prohibited after ECP failed to adhere to requests to proffer conditions relating to shareholding and empowerment.

The SACC has the power to assess and prohibit intermediate mergers. Accordingly, the SACC’s prohibition can only be challenged by way of a request for consideration, to be filed by the merging parties, to the South African Competition Tribunal. The SACC opined, however, that unless the acquiring firm is prepared to make concession to remedy the public interest concerns, the decision is unlikely to be overturned.

Grand Parade has been vocal in its dissatisfaction of the prohibition. The matter will be highly contested, and it is not uncommon for transactions to be approved on a request for consideration to the Tribunal.  Furthermore, any decision by the Tribunal is likely to be taken on appeal to the Competition Appeal Court and likely also the Constitutional Court.

The Burger King decision, regardless of its eventual outcome, will leave a lasting precedent and shape merger control proceedings in South Africa going forward.

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