The merger related to the provision of short-term hotel accommodation. Pre-merger, Southern Sun Hotel Interests held a 50% shareholding in The Cullinan Hotel and exercised joint control with Liberty Holdings Limited (“Liberty”) over The Cullinan Hotel. Southern Sun Hotel Interests acquired an additional 10% shareholding in the Cullinan Hotel from Liberty, thus increasing its shareholding in the joint venture to a majority interest of 60% and thereby acquiring sole control of The Cullinan Hotel.
The Tribunal approved the merger without any conditions. Nortons Inc. represented Southern Sun Hotel Interests in this transaction.
The Commission’s main document on the “stakeholder engagement meeting last week states as follows regarding its theories of harm:
[I]n order for the market inquiry to make determinations, it has developed a set of ideas or hypothesis about how harmful competitive effects might arise in the relevant markets under consideration. These ideas are generally referred to as “theories of harm”.
‘It is important to emphasise that these theories of harm are simply hypotheses, or tools, that will enable us to identify whether there are features or a combination of features that may prevent, distort, or restrict competition in the private healthcare markets. Theories of harm are not findings of harm; but are simply analytical tools to guide our analysis. They will be deepened and revised as the inquiry’s thinking develops,’ adds former Chief Judge Ngcobo.
Public comments, and timetable
The agency is “inviting stakeholders to make further comments” on its theories of harm, noting that:
The inquiry is set to follow a very precise and tight administrative timetable which is mindful of the timelines for gathering information including an invitation for written submissions, public hearings, site visits, seminars, and workshops and conducting surveys. Broadly, key milestones will include the issuing of information requests no later than 01 August 2014. The first round of public hearings will take place between 01 March 2015 to 30 April 2015 then from May 2015, the inquiry will analyse and review the information gathered. Presently, the panel aims to make provisional findings and recommendations available for public comment in October 2015.
Revelations from Bonakele’s interview with CNBC Africa
South African interim Competition Commissioner Tembinkosi Bonakele called his agency, the Competition Commission (“Commission”), a “kind of reactive” enforcement body, aiming primarily to uncover cartel conduct. In an interview with CNBC Africa‘s “Beyond Markets” segment, journalist Nozipho Mbanjwa asked the acting Commissioner tough questions on the Commission’s enforcement tactics, legislative mandate, fines imposed, the adequacy of the Commission’s capitalization, and whether the South African antitrust watchdog was, in fact, a “toothless dog.”
Bonakele held his ground, referring multiple times to the Commission’s recent successes, including the construction cartel, the bread case, cooking oils, and other “basic products” matters on which he said his agency would place the largest focus going forward.
The Acting Commissioner
Some of the highlights from the interview:
Bonakele is “quite satisfied” with the agency’s funding and performance of its 180 staff, but may ask for “more funding” specifically for the Commission’s sectoral health-care inquiry.
The Commission will focus its cartel-busting efforts on sectors in the basic products category such as foods and health-care.
The Commission will “definitely appeal” its loss of the SABMiller abuse-of-dominance matter, a “very tricky kind of offence in terms of competition law” according to Bonakele. He said he did “not like” the 7-year long duration of the SABMiller saga, but felt compelled to extend the matter by bringing the case before the Competition Appeal Court.
On the much-malignedMultiChoice broadcaster, Bonakele called the company a “monopoly created by legislation” in a regulated market, and deferred to parliament to rectify the situation.
The Commission receives approximately 30% of its funds from revenues that are the result of merger filing fees.
The South African publication The Citizen also reported the most recent ICASA attack, noting the alleged “restrictive horizontal practices involved collusion and certain competitor agreements and practices, while restrictive vertical practices involved certain customer or supplier arrangements.”
Johannesburg – The Independent Communications Authority of South Africa has recently requested the Competition Commission to investigate a possible restrictive horizontal practice between the South African Broadcasting Corporation (SABC) and MultiChoice. This follows an agreement entered into between the two parties in July 2013 whereby the SABC would have to provide a 24-hour news channel on MultiChoice’ DSTV platform.
News reports at the time indicated that the agreement also contained an obligation relating to set-top-box control in which the SABC is alleged to have agreed that it will transmit its free-to-air channels without encryption.
In the context of the ongoing public dispute between e.tv and MultiChoice over whether free-to-air TV services should utilise set-top-box control, the question arises as to whether the agreement between the SABC and MultiChoice, as it affects the issue of set-top-box control, may constitute a form of restrictive horizontal practice in the television market.
ICASA has requested both the SABC and MultiChoice to provide a copy of the agreement but both parties have failed to honour that request. This failure has made it difficult for the Authority to verify the claim put forward by MultiChoice that `any contractual obligation upon the SABC to continue to transmit its free-to-air channels in the clear (i.e. without encryption) is an incident of the distribution arrangements agreed upon by the SABC and MultiChoice. Such obligation, as indicated forms part of an agreement between parties in a vertical relationship and is not, as alleged, a horizontal restrictive practice’.
As the issue of restrictive horizontal practices falls within the scope of Section 4 of the Competition Act, the Authority has requested that the Competition Commission open an investigation into this matter.
Dawn Raids Rattle South African Consumer-Goods Brands
The South African Competition Commission (“Commission”) has confirmed that it has conducted such a dawn raid operation at Unilever South Africa (Pty Ltd) (“Unilever”) and Sime Darby’s respective South African offices during the morning of 03 April 2014.
Unilever is one of the largest fast-moving consumer goods companies in South Africa. Unilever’s business activities include laundry, skincare and cleansing, margarine, deodorants, household care, tea, hair care and ice cream. Household names which form part of the Unilever group include Sunlight, Knorr, Lipton, Ola and Omo.
Sime Darby is a Malaysia-based multinational company involved in sectors such as plantation, industrial equipment, motors, property and energy & utilities, with operations in more than twenty countries. It is the world’s top palm oil planter. Its South African operation, namely Sime Darby Hudson & Knight (Pty) Ltd, is located in Boksburg and it produces and sells premium fats and oils to bakery, food service industry and food manufacturers predominantly in South Africa.
“The Commission believes that the information that will be obtained from today’s operation will enable the Commission to determine whether or not Unilever SA and Sime Darby have indeed engaged in collusive conduct,” Acting Commissioner Tembinkosi Bonakele said.
The Commission has indicated that this raid forms part of an ongoing investigation into collusive conduct in the product markets for the manufacture and supply of edible oils and baking fats to both wholesale and retail customers. The Commission has further indicated that it has reasonable grounds to believe that employees of Unilever and Sime Darby have information which is relevant to the investigation.
The last dawn raid was conducted on 06 May 2010 at the premises of four electrical cables manufacturers and suppliers based in Gauteng province, South Africa. The various premises were searched by the Commission on suspicions of price fixing, market allocation and collusive tendering. This was done subsequent to a complaint initiated by the Commissioner on 16 March 2010 against Aberdare Cables (Pty) Ltd, Alvern Cables (Pty) Ltd, South Ocean Electric Wire Company (Pty) Ltd and Tulisa Cables (Pty) Ltd.
Sections 46 to 49A of the South African Competition Act of 1998 (“Competition Act”) empowers the Commission to conduct surprise search and seizure visits and to carry out so-called “dawn raids” to a firm’s business premises in order to inspect documents and interview staff where an infringement of competition law is suspected.
The Commission is empowered to enter any such premises when a judge or a magistrate has issued a warrant. Although a warrant is usually an essential requirement to ensure that a dawn raid is conducted in accordance with the law, the Competition Commission does have the power to enter and search a premises without a warrant, in exceptional circumstances.
If the Commission has reason to believe that a firm is in contravention of provisions of the Competition Act, or is in possession of information relating to a matter that is under investigation, the Commission’s investigators have the authority to enter into the firm’s premises in order to inspect and request copies of documents, ask for information in relation to any documents, take notes and interrogate employees, search and examine computer data and remove evidence from the premises. In particular, officials may examine files, reports and emails. The Competition Commission is entitled to confiscate computer hard drives. They may also take copies of documents.
UPDATE: 23-April-2014:
Based on reporting in a BDLivestory, the Commission has said that it “is too early for the commission to say what data or documents were seized. Information and data are being analysed,” noting that it “believes that information that will be obtained from (the) operation will enable (it) to determine whether or not Unilever SA and Sime Darby have indeed engaged in collusive conduct,” acting commissioner Tembinkosi Bonakele said. “However, as part of any investigation, we also wish to urge anyone, be it business or individuals, with further information to come forward and assist the commission in concluding this investigation.”
Acting competition commissioner Tembinkosi Bonakele. Picture: FINANCIAL MAIL
South African Breweries distribution case dismissed
The Competition Tribunal of South Africa has dismissed a monopolization case brought by the Competition Commission against South African Breweries (“SAB”). The Tribunal held that the Commission brought insufficient evidence to find that SAB acted in violation of the Competition Act. Particularly in light of the significant resources which the Commission expended on the matter, it is a disappointing loss for the agency.
The Commission had alleged that SAB’s distribution system prevented competition between firms that distributed SAB-branded beers, but the Commission made no case against 90 per cent of SAB’s distribution and focused its case on the system of appointed distributors. This would account for only 10 per cent of SAB’s method of beer distribution. The Commission claimed that SAB has a market share of about 90% of ‘clear beer’ in South Africa. It went on to claim that SAB restricted competition between its distributors as SAB would appoint distributors and allocate exclusive territories.
The Tribunal held that the distributors appointed by SAB were not adequately independent to be in competition with each other and therefore their conduct could not be seen as being restricted. The Tribunal held that SAB’s conduct did not amount to unjustified discrimination.
The decision marks the first occasion that the Tribunal has dealt with the treatment of non-compete restraints in dual distribution arrangements in South African competition law. In deciding the matter, the Tribunal also introduced the novel concept of a “separate basic economic unit“. This concept operates as a measure used to assess the level of independence distributors have from their suppliers, which means that there must be a certain level of independence between a supplier and a distributor in order to contravene the Act.
There has been no indication that the Commission intends to appeal the Tribunal’s dismissal.
The South African Competition Commission (the Commission) has recently referred its findings of cartel conduct against Alvern Cables, South Ocean Electric Wire Company (SOEW), Tulisa Cables, and Aberdare Cables who are all suppliers of power cables, to the Competition Tribunal (Tribunal). The Power cables include products such as house wire, surface twin and earth wire and are generally made from, amongst other things, copper, aluminium, polyethylene, steel tape and galvanised wire. These power cables are used to distribute electricity to residential and commercial users.
The Commission found that between 2001 to at least 2010, the firms directly or indirectly fixed the selling prices of power cables to wholesalers, distributors and original equipment manufacturers. The Commission, in its referral, is requesting that the maximum penalty of 10% of the annual turnover of the companies should be imposed.
Acting Commissioner Tembinkosi Bonakele had some interesting remarks regarding the matter: “We have been working tirelessly to thwart any effort that goes to undermine South Africa’s global position that provides value to businesses. Our steadily growing economy can ill-afford rogue business practices” This from the same individual who defended the right of Government to intervene on the ill-defined “public interest” criterion in high-profile merger investigations, thus subjecting them to lengthy and costly reviews.
It is noteworthy to mention that amongst the affected customers who bought these products, were the Bidvest Group (Voltex Group), ARB Holdings Ltd; Universal Cables (Pty) Ltd, Trinity Cables CC, Powermac, Paragons and South Atlantic Cables and Electrobase. It is a small group of companies, with a great amount of resources, which could mean that civil damages might be instituted if the alleged cartel members are found guilty before the Tribunal.
Furthermore, the first class action matters based on competition law contraventions which are currently before the high courts of South Africa will be finalsised by the time the cable cartel proceedings have been finalised before the Tribunal, which means there would be a clear picture of the situation where distributors and end consumers institute damages claims simultaneously against the same parties.
In what can only be described as a significant step backwards in ensuring that the more established of the emerging economies enforce the application of sound and established (e.g., ICN) best practices in relation to merger remedies, AAT has discovered that the much publicised acquisition of South Africa’s AFGRI by international private investment group AgriGroupe has recently been subjected to a private side deal between the South African Government and the merging parties, sidestepping the Commission’s jurisdiction and decision-making competence. According to its terms, Afgri is obligated to make available R90 million (US$9m, over four years) to certain South African farmers & enrol emerging farmers in development programmes and assist poultry farmers.
Minister’s side deal replaces Competition Act merger remedies
There is little doubt that these forced conditions constitute matters best handled by the relevant antitrust regulator as proper remedies in a merger-control proceeding. At the outer limit, relevant departments such as the Department of Water, Forestry and Fisheries might have input into them. Yet, it appears that these conditions are purely negotiated by the Minister of Economic Development – the same office that sacked the prior chairman of the Competition Commission, Shan Ramburuth, and which has been subjected to criticism of meddling in the independent authority’s affairs.
Minister Patel
Following the questionable intervention of various South African Government departments in Walmart’s acquisition of Massmart (which is, as we have previously noted, the origin of the non-competition merger remedies), it appears that the same departments have in effect sought to force the merging parties into agreeing to perform services on behalf of the Government in exchange for the departments’ non-intervention before the Competition Tribunal proceedings.
Following a pattern…
Heather Irvine, counsel for the merging parties, confirmed that the “merger was approved (with the agreement as a condition) after the Tribunal hearing yesterday.” She points out that “this agreement was voluntarily entered into by the merging parties in a spirit of goodwill and as a demonstration of Afgri’s commitment to growing the African food sector, not because of concerns about any public interest issues in terms of the Competition Act,” pointing to the transcript to be made available shortly. We appreciate counsel’s confirmation that the side agreement was reached entirely outside the confines of the SA Competition Act between the ministry and the parties.
It is apparent that since Minister Patel has assumed his role as Minister of Economic Development (an “activist, interventionist and micromanaging minister,” according to the former Competition Tribunal chairman David Lewis), the competition authorities’ independence has been undermined (see some of our prior articles here and here). In particular, the merger process is little more than a means by which the South African Government seeks to extract from merging parties a series of additional unwarranted (industrial policy) conditions. It is in our view a highly problematic development. In sum, the S.A. merger review process remains a highly contentious issue and while the parties in this case sought to placate Government, others may not be as willing.
The telecoms are at it again, and MTN and Vodacom find themselves close together once more. Last October, we reported on their being jointly targeted by competitor Cell C for predatory “on-net” pricing. Today, the two top market players are both eyeing additional spectrum for high-speed LTE/4G wireless service — an asset that can potentially be obtained much more swiftly by acquiring an existing firm owning such spectrum, rather than ex ante licensing or bidding at public auction for frequency band… At the moment, Vodacom is attempting a 100% share acquisition of smaller rival Neotel — a deal that might include valuable frequency.
In a South African Tech Central report, MTN’s group CEO is quoted as saying that he would refrain from “automatically” challenging any such acquisition by his main rival:
Asked if MTN would object to a deal between Vodacom and Neotel at the Competition Commission, MTN Group CEO Sifiso Dabengwa said that the operator would not automatically do so. “The issue here is you can’t take a position because of where you are [in the market],” he said. “It has to be principled, no matter which side you’re on.”
It does not take a clairvoyant to see what is behind MTN’s self-imposed restraint: equal hunger for additional spectrum – and acquisitions – which it does not want to stifle by raising rash arguments of anti-competitive effects of the Vodacom/Neotel deal…
New head of mergers fills final “core” position according to Bonakele; replaces Ramburuth-appointed predecessor
New head of mergers at SA Competition Commission (Source: LinkedIn)
Following the by now fairly predictable fault lines of the Ramburuth-vs.-[others] staffing game at the Competition Commission, the agency’s crucial Mergers & Acquisitions division now also has a new head. As of March 1, Hardin Ratshisusu is filling the post of Divisional Manager, after his predecessor Ibrahim Bah‘s departure in December last year created a three-month hiatus.
Bah, having worked at the Irish antitrust regulator for a while*, had been with the South African authority on-and-off since 2008, but had been Divisional Manager only for less than a year, holding the post since January 2013. His successor Ratshisusu is likewise a former M&A veteran of the agency, having begun his career at the Commission as early as 2004 and with the division since December 2007 as a Senior Merger Analyst. He also has recent private-practice experience outside government, which we view as a welcome feature on his C.V., in addition to his historical M&A expertise.
Mr. Ratshisusu’s self-description on his LinkedIn profile (with 22 endorsements from others as to M&A) is as follows:
“In the formative years, I started off as an enumerator for SA’s 2001 Census and then a research assistant at the University of Venda, whilst doing my post-graduate studies. I have since worked in the regulatory environment having held various positions at the Competition Commission of South Africa including being Senior Merger Analyst, Acting Divisional Manager of the Mergers and Acquisitions Division and Technical Consultant/Adviser to the Deputy Commissioner. I also had a stint in the economic regulatory division of Neotel (Pty) Ltd. This has given me exposure to a number of industries, including, construction, telecommunications, broadcasting, mining, chemicals, retailing and property. I now have expertise, garnered at both operation and strategic levels, in competition and regulatory economics, strategy, and governance.”
Mr. Ratshisusu’s appointment comes at a time of staffing difficulties at the authority, including most recently the departure of a senior Deputy Commissioner. In its official release, the Commission’s Acting Commissioner Tembinkosi Bonakele is quoted as emphasizing the agency’s focus on getting past its recent personnel woes:
“I am pleased that we have now completed the task of filling all vacancies for the heads of the Commission’s core divisions. This will allow us to focus on fulfilling our strategic priorities”
We take it that any remaining open seats on the Commission’s org chart are, by logical inference, to be deemed “non-core” to the functioning of the agency.
The Acting Commissioner: Focusing on “strategic priorities”, such as the healthcare inquiry and other enforcement
* Mr. Bah co-authored an amusingly-titled mergers paper while at the Irish Competition Authority: “The Curious Tale of Pigs, Papers and Peru: Media Mergers in Ireland“. It should not come as a surprise that AfricanAntitrust.com’s editors have a faible for anything that contains alliterations…
African Antitrust & Competition Law 