Category: BRICS

COMESA publishes explanation of first two merger approvals & receives 4th deal filing

Posted on by andreasstargard

COMESA Competition Commission logo

The COMESA Competition Commission (“CCC”) has finally shed some light on the substantive merger analysis it undertook in its first two notified (and now cleared) transactions.

The full text of the reasoning is just below…  Any light that COMESA sheds on its merger review process, which has thus far been shrouded in complete obscurity from the moment a deal is notified until the agency’s final decision, is a step in the right direction.  The CCC must strive to be transparent in its operations and review process, especially in light of the widespread criticisms of its high filing fees, opaque guidelines, and zero-dollar filing thresholds, which have plagued the CCC since it became operational in January 2013.

It is commendable that the CCC has published its reasoning behind clearing the first two notified mergers, and one should hope that the Commission will do likewise for all future matters.  That said, the CCC’s summary is not a detailed reasoned analysis that rises to the level of, for instance, a European DG COMP merger Decision, and it is thus presumably non-precedential.  In principle, we think that the CCC hits the right analytical notes in terms of defining markets, evaluating entry barriers, and estimating the competitiveness of each market.  However, the substantive market definitions as they are laid out by the Commission, such as “generic pharmaceuticals” or “home communications products,” appear unorthodox and, to say the least, rather broad.  That said, we are not privy to details of the transactions or the facts underlying them, so…

In other COMESA merger ews, the CCC published its 4th merger notification, filed by Cooper Tire (U.S.) and Apollo (India).

FULL TEXT OF CCC RELEASE:

COMESA Competition Commission approves Mergers between:

  1. 1.      Koninklijke Philips Electronics N.V. and Funai Electric Company Limited and
  2. 2.      Cipla India and Cipla Medpro South Africa Limited.

The COMESA Competition Commission (‘the Commission’) on 22nd and 23rd July approved under the COMESA Competition Regulations (‘the Regulations’) the proposed merger between Koninklijke Philips Electronics N.V. and Funai Electric Company Limited (Philips/Funai) and the merger between Cipla India and Cipla Medpro South Africa Limited (Cipla India/Cipla Medpro) respectively.

  1. 1.      Merger between Koninklijke Philips Electronics N.V. and Funai Electric Company Limited

Funai, is a limited liability company incorporated in Japan and listed on the Tokyo stock exchange with its corporate seat in Osaka and address at 7-7-1 Nakagaito, Osaka, Japan. Funai is engaged in the development, manufacture, marketing and distribution of information and communication equipment, such as DVD and Blu-ray Disc-related products, LCD-television and receiver related products. Funai furthermore has a global sales system that consists of overseas subsidiaries in the United States, Europe and Asia. Funai and its subsidiaries did not have any business interests or assets of any nature whatever in the COMESA region. They accordingly had no market share or turnover in any market in the COMESA region.

Philips is organized into three main divisions: Philips Lifestyle, Philips Healthcare and Philips Lighting. Philips Consumer Lifestyle carries on a business consisting of designing, manufacturing and selling lifestyle entertainment products in the categories audio, video and multimedia, home communication and accessories. Philips’ Lifestyle Entertainment business group (“the Business”), which was the target for purposes of the merger, is headquartered in Hong Kong and forms part of the Philips Consumer Lifestyle Division. The Business designs, develops, manufactures and sells lifestyle entertainment products including audio video multimedia products (home audio, headphone, speaker and in-car audio), video related products (like portable audio players, portable video players and home media player), home communication products (DECT phone) and accessories (like batteries, cables/connectors, storage products, portable chargers for cell phones and antennae) (“Consumer Electronics”).

The Commission delineated the relevant product market into 3 namely Audio Multi-media Products, Video Multi-media Products and Home Communications Products. The relevant geographical market was determined as the Common Market[1]. The Commission determined that the relevant markets were very fragmented due to a large number of competing brands that were being sold in the Common Market. It was further realized that the relevant market had over the recent years exhibited insignificant entry barriers. The Commission further determined that the merger would not result in the removal of any competitor from the relevant market. This is because Funai and Philips had never competed in the relevant market pre-merger. Further it was observed that the transaction shall enhance the achievement of consumer needs and choice in the Common Market.

Based on the foregoing, the Commission determined that the acquisition of Philips by Funai was not likely to substantially prevent or lessen competition and it would not be contrary to public interest in accordance with Article 26 (1) and 26(3) of the Regulations respectively. Further, the assessment of the merger revealed that it was compatible with Article 55 of the COMESA Treaty in that it did not negate the objectives of free and liberalised trade. The COMESA Treaty is premised on the attainment of full market integration. Market integration means that there should be free movement of goods and services in the Common Market and the assessment of the merger revealed that the merger shall not lead to the frustration of free movement of goods and services. The merger was therefore approved unconditionally.

  1. 2.      Merger between Cipla India and Cipla Medpro South Africa Limited

Cipla India is primarily a generic pharmaceutical manufacturing company. Cipla India’s nature of business is in key therapy areas which include cardiovascular, children’s health, dermatology and cosmetology, diabetes, HIV/AIDS, infectious disease and critical care, malaria, neurosciences, oncology, ophthalmology, osteoporosis, respiratory, urology, and women’s health. Cipla India supplies (primarily through distributors) products to the Common Market. Cipla Medpro manufactures and distributes scheduled and over the counter human pharmaceutical products, various veterinary, agricultural and nutritional products and provides healthcare solutions and support and specialised consulting and actuarial services to both open and restricted medical schemes, medical scheme administrator and managed care organisations

The Commission determined the relevant market to be the supply of generic pharmaceutical products in the Common Market. The Commission determined that the same market concentration would remain post merger as the parties did not compete in the Common Market before the merger. The Commission further observed that import competition was very rife in this market as most of the drugs sold in this market were imported. This would therefore give competitive discipline to the merging parties and restrain them from behaving in an anti-competitive manner.

The Commission observed that the transaction would not result in the removal of any competitor from the relevant market as generally the parties were not competing pre-merger. The Commission however observed that the relevant market had both structural and regulatory barriers to entry. The main structural barriers to entry were the costs of establishing a distribution network and availability of funds for research and development. The regulatory barriers to entry included the various registration processes that a firm needed to undertake before it could supply the products in the Common Market.

The Commission concluded that the acquisition of Cipla Medpro by Cipla India was not likely to substantially prevent or lessen competition and it will not be contrary to public interest in accordance with Article 26 (1) and 26(3) of the Regulations respectively. Further, the assessment of the merger revealed that it was compatible with Article 55 of the COMESA Treaty in that it did not negate the objectives of free and liberalised trade. The COMESA Treaty was premised on the attainment of full market integration. Market integration means that there should be free movement of goods and services in the Common Market and the assessment of the merger revealed that the merger shall neither lead to the frustration of free movement of goods and services nor the foreclosure of the markets in the Common Market. The merger was therefore approved unconditionally.

[1] Common Market is composed of the 19 Member States of COMESA.

Pioneer Hi-Bred completes acquisition of South African seed company

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South African seed business Pannar and DuPont seed unit Pioneer Hi-Bred finally overcame regulatory roadblocks to Pioneer’s majority stake acquisition in the pan-African seed business of Pannar.  They have completed the acquisition.

The world’s #2 seed producer, Pioneer, now owns 80% of Pannar after closing of the transaction.  The deal had been long in the making, as it was announced almost three years ago, in September 2010.  Yet, the parties failed to convince the South African Competition Commission of the neutrality of its competitive effects on the South African seed market, which is estimated at $450 million.  The Commission rejected the deal, sending the parties back to the drawing board (and to several rounds of appeals before the South African appellate courts and tribunals).

The business rationale for Pioneer is a three-way race with competitors: according to Pioneer’s deal statement, there are approximately 75 million acres (or 30 million hectares) available for corn / maize production on the African continent.  And with a rapidly growing population and economies, African nations, their cattle, and their consumers will constitute ready buyers for maize and corn-derivative products.

First 2 COMESA merger notifications unconditionally approved

Posted on by andreasstargard

COMESA old flag color

The COMESA CCC has approved (without any commitments) two notified mergers, as it announced on its web site today.  They are the first of their kind, with at least one additional notification currently pending.

The two deals, including the first-ever notification to the COMESA Competition Commission (“CCC”) of the Philips/Funai Electric transaction, lay the groundwork, in principle, for future COMESA merger reviews. That said, the approval notices (here and here) come without any elaboration of the reasoning or competitive & economic analysis undertaken to clear the mergers, unfortunately.  The second deal involved pharmaceutical companies Cipla Limited and Cipla Medpro South Africa (Proprietary) Limited.

We will report more later, as we learn additional facts surrounding these transactions and their CCC review procedure.

South African Constitutional Court rules on appropriate test for class action relief for damages

Posted on by oxenhamjmj

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ZA Constitutional Court broadens ambit of class-action relief

As previously reported, the Supreme Court of Appeal (the “SCA”) handed down two judgments, in November 2012, in respect of the certification of a class in respect of a number of class actions against three bread producers arising from an investigation by the Competition Commission into price fixing and market allocation in respect of various bread products. The appeals were brought by a bread distributor in the Western Cape (the “distributor” application) and by a number of organisations in relation to a so-called “consumer” class action for damages after their applications were dismissed by the Western Cape High Court (the “WCHC”).

The distributors and consumers sought, separately and on appeal to the SCA, to certify three classes, one in respect of the distributors and two in relation to the consumer case. The consumers sought a certification of two classes: Class 1 – all persons who purchased the bread of the three Respondents in the Western Cape Province during the period 18 December 2006 to 6 January 2009; and Class 2 – all persons who purchased the bread of the three Respondents in Gauteng, Free State, North – West or Mpumalanga Province during the period 1 September 2999 to 6 January 2009. The respondents in the appeal were three bread producers, namely Pioneer Foods, Tiger Consumer Brands Limited and Premier Foods Limited.

The SCA upheld the appeal only in relation to the certification of consumer Class 1, and dismissed the consumer Class 2 certification application as well as the certification of the distributor’s class. In a landmark decision, the SCA held that class actions should be recognised, not only in respect of constitutional claims, but also in any other case where access to justice in terms of Section 34 of the Constitution recognized that it would be the most appropriate means of litigating the claims of the members of the class. The decision, per Wallis JA, laid down criteria for class action claims (these included certification, a class definition, a cause of action, a triable issue, common issues of fact or law and a representative who did not have a conflict). Furthermore, in highlighting the importance of the certification process, it set out further requirements that should be met in order to succeed with an application for certification of a class.

The distributors subsequently sought leave to appeal the decision of the SCA. Today, on 27 June 2013, the Constitutional Court handed down a judgment upholding the appeal against the SCA’s distributor decision. The majority judgment, written by Jafta J, stated that the standard for determining whether to permit the certification of a class is to determine whether the institution of the class action, while taking account the requirements laid down by Wallis JA, is in the “interests of justice.”  Accordingly, the requirements for seeking class action relief have been diluted somewhat and greater discretion is given to the court which will consider the certification application, as “[a]ccess to courts is fundamentally important to our democratic order.”

The Court admonished trial courts not to limit certification only to those cases in which strictly all factors enunciated in the Bread decisions were present:

“These requirements must serve as factors to be taken into account in determining where the interests of justice lie in a particular case.  They must not be treated as conditions precedent or jurisdictional facts which must be present before an application for certification may succeed. The absence of one or another requirement must not oblige a court to refuse certification where the interests of justice demand otherwise.”

In a separate concurring judgment, Froneman J noted that the development of the common law to make provisions for class actions in non-constitutional matters was a valuable contribution to the law and provided courts with flexible guidelines to apply in applications for the certification of class actions. Froneman J was, however, of the opinion that the test applied by the SCA was too stringent in not recognising opt-in class relief and secondly in finding that the distributor did not have a legally tenable claim due to the pass-on problem in competition matters.

The Constitutional Court, in the distributor case, has also broadened the ambit of class action relief in recognising opt-in class actions (rather than simply the opt-out class actions accepted by the SCA) and by lowering the threshold required for certification more generally.  On the pass-on front, it also viewed the existence of cognisable damages suffered by intermediate bread distributors – and not only end-user consumers – as “potentially plausible” (echoing somewhat the U.S. Supreme Court in Twombly).

All of the above will have ramifications for future competition-law damages actions.

South Africa: MultiChoice may face competition authorities for abuse of dominance

Posted on by oxenhamjmj

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On Digital Media (“ODM”), owner of TopTV, has filed a complaint with the South African Competition Commission (“Commission”) against the Naspers controlled company, MultiChoice (which owns DStv as well as SuperSport) alleging abuse of dominance.

ODM alleges that SuperSport unfairly refused to share rights to all Premier Soccer League (“PSL”) matches from 2011 until 2016 with ODM. ODM submits that there is “not another sports broadcaster in the world today that enjoys a similar level of dominance to that of SuperSport” and has accused MultiChoice of contravening the Competition Act 89 of 1998 (“Act”) by refusing to give it access to, what ODM believes, is an “essential facility”, when it is feasible to do so.

The ODM complaint was lodged with the Commission several months ago following a statement made in parliament by Communications Minister Dina Pule, that the Minister would issue a policy directive to the Independent Communications Authority of South Africa to address competition in the broadcasting sector.

Commission spokesman, Keitumetse Letebele, said that the complaint is still being processed by the Commission’s screening unit who will write a recommendation to the Commissioner to either drop the case or pursue further investigation.

Class Actions in South Africa?

Posted on by andreasstargard

Nortons Inc., together with the South African Chamber of Commerce and Industry (SACCI) and the Mandela Institute at Wits School of Law, have gathered together a panel of experts to discuss the judgment in Pioneer Foods last year and the effects it has on South Africa’s jurisprudence & business community.

The seminar is entitled: “A new class – the problems and promises of class action litigation in South African law” and runs from 8:00 am – 4:30 pm on Wednesday, 12 June 2013, in Johannesburg at the Wits School of Law (map).

For more information, a full schedule, and to RSVP & sign up,

please visit the event page here.

Background:

On 29 November 2012, Judge Wallis of the Supreme Court of Appeal (the “SCA”) handed down judgment in The Trustees of The Children’s Resource Centre / Pioneer Foods (Pty) Limited & Others. The case related to the certification of a class in respect of a number of class actions against three bread producers arising from an investigation by the Competition Commission into price fixing and market allocation in respect of various bread products (the “Bread class action litigation”).

The appeals were brought by a bread distributor in the Western Cape and by a number of organisations in relation to a so-called “consumer” class action for damages after their applications were dismissed by the Western Cape High Court (the “WCHC”).

In its decision the SCA held that class actions should be recognised, not only in respect of constitutional claims, but also in any other case where access to justice in terms of Section 34 of the Constitution required that it would be the most appropriate means of litigating the claims of the members of the class. The SCA then laid down the requirements for such an action, commencing with the need for certification by the court at the outset, before even the issuing of summons. For this purpose, the SCA set out the following criteria before a court could certify a class action:

  • there must be an objectively identifiable class;
  • a cause of action must exist which raises a triable issue;
  • there must be common issues of law and fact that can appropriately be dealt with in the interests of all members of the class;
  • there must be appropriate procedures for distributing damages to the members of the class; and
  • the representatives must be suitable to conduct the litigation on behalf of the class.

The SCA found that the appellants’ case had changed during the course of the litigation; and it held that their definition of the proposed class was over-broad and the relief they sought inappropriate. However, Wallis JA held that their claim was potentially plausible and, as this was the first time that the SCA had laid down the requirements for bringing a class action, it was appropriate to afford the appellants an opportunity to remedy the flaws in their papers in compliance with these new requirements. Accordingly, the SCA remitted the matter back to the WCHC.

ArcelorMittal, Telkom, now Sasol? “Excessive pricing” case going to trial in South Africa

Posted on by andreasstargard

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Settling the South African Competition Commission’s case against alleged collusion in the polypropylene market [for no less than R111 million] back in 2010 was not to be the end of Sasol‘s long antitrust journey in the polymers world.

The S.A. Competition Tribunal is hearing the excessive-pricing portion (which was not settled) of the Commission‘s claims against the refining & steel giant this month.  The relevant legal underpinning of the case is the provision against excessive pricing by a dominant firm.  Precedent has declared prices excessive that “bear no reasonable relation to the economic value of the good or service” at issue.  Pheeew.  Facts.  Economics.  Nice.  Looks like a coming battle of the experts to me…

By comparison, in the U.S., antitrust law of course does not forbid “excessive pricing.”  While setting and reaping apparently high prices may be indicative of monopoly power, such acts are not in themselves anti-competitive or illegal in the States.  In Verizon v. Trinko, the U.S. Supreme Court held famously that:

The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system. The opportunity to charge monopoly prices—at least for a short period—is what attracts “business acumen” in the first place; it induces risk taking that produces innovation and economic growth.

Interestingly, there is a notable history of failures in the area of ‘excessive pricing’ complaints in South Africa, as well, despite the statutory legitimisation of the cause of action.  In the prior ArcelorMittal and Telkom cases, the Commission and/or Tribunal lost in the end, either at trial or on appeal to the Competition Appeal Court.  That Court had found, in the ArcelorMittal case, that the antitrust watchdogs could not use the ‘excessive pricing’ provision of the statute to combat perceived anti-competitiveness in the “market structure rather than price level.”

We will, of course, report on the ongoing trial and ultimate outcome of this high-profile case, as it unfolds.

South Africa targets private healthcare sector in CC’s ‘market investigation’

Posted on by andreasstargard

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As reported today by Reuters and SA MoneyWeb, the South African government has announced that the South African Competition Commission will launch an investigation into the private healthcare sector. This is part of a larger initiative to conduct so-called “market inquiries,” on which we previously reported here and here, and which are a direct consequence of the March 2013 effective date of the South African Competition Amendment Act of 2009.

The Economic Development Minister Ebrahim Patel said that “[v]arious stakeholders have raised concerns about pricing, costs and the state of competition and innovation in private healthcare.”

Likely affected companies are all major players in the healthcare industry, including providers such as Life Healthcare, Mediclinic International and Netcare Ltd.

Dutch suit against “paraffin mafia” cartel moves forward

Posted on by andreasstargard

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A Dutch district court has set what some believe may be a new landmark precedent in the area of private cartel enforcement in the European Union, including against South African company Sasol.

The case is what appears to be a fairly straight-forward “follow-on” civil action, i.e., a complaint brought in civil court by injured parties (or those who acquired those parties’ rights to sue) that is based entirely on a European Union Commission decision condemning illegal cartel activity within the common EU market.

My neighbors on the Avenue Louise here in Brussels, CDC (Cartel Damages Claims), had bought the rights to sue from various purchasers of paraffin wax and lodged the complaint against the “paraffin mafia” (Shell’s words, quoted by Neelie Kroes – also see here) in September 2011. The 13-year cartel (1992-2005)** may well result in sizeable civil damage awards (Sasol’s reduced EC fine alone was 318 million €) once the procedural and jurisdictional hurdles have been cleared. And this most recent ruling goes a long way in doing so. The key “procedural issues” that had to be resolved first were whether all of the cartel members could be sued in the Netherlands, even though not all of them operated in that country, and whether the pending EU court appeals against the 2008 Commission decision effectively stayed the parallel civil proceedings in the Dutch court.

The court ruled in favour of the plaintiff group on both accounts, holding that all cartelists could be sued together for damages in the jurisdiction in which any one of their fellow co-conspirators has its seat [here, that would notably be Royal Dutch Shell, ironically the cartel’s whistle-blower that escaped the EC ruling with a zero-€ fine] . That is, even though purported ring-leader Sasol or any of the other [non-Dutch] alleged cartelists may not have had any operations in the Netherlands, they can still be subject to a full-blown civil lawsuit there. In effect, the ruling says that the European Union’s antitrust decisions, combined with the civil protections afforded EU companies and citizens, creates a de facto long-arm statute, reaching beyond the traditional geographic jurisdictional boundaries.

In addition, it held that a pending appeal against an EC cartel decision should not result in an automatic stay of any civil proceedings, as this would unduly curtail the fundamental right to seek compensation of injured parties under EU law.

While I don’t read Dutch — and therefore cannot analyse the actual decision of the NL royal court — I trust that CDC summarised its findings accurately, even though the company clearly has a stake in this and thus a likely bias.

** According to Neelie Kroes’s speech, the cartelists initially met at the “Blue Salon” at a Hamburg hotel bar (my home town, coincidentally). I have a feeling it was this place — it’s always fun to visualise cartel activity in the flesh, just like “The Informant” did for moviegoers in 2009…:

Blauer Saal Kempinski Hamburg

Ironic? S.A. & Russia to “influence” platinum market “without cartel”

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Russia south_africa

South Africa and Russia plan to “influence” global platinum market “without cartel” — [it escapes the author how this is possible].

Russia and South Africa, who together hold approximately 80% of worldwide platinum reserves, have signed a provisional agreement to co-ordinate efforts to control the global platinum market. Details of the plan emerged at the fifth summit of emerging economies of Brazil, Russia, India, China and South Africa (“BRICS”), held in Durban, South Africa last week.

South Africa is the world’s largest producer of platinum, controlling approximately 70% market share, whilst Russia is the world’s top palladium producer, accounting for approximately 40% of the palladium market; Russia notably also holds a further 10% of the platinum market. The two countries jointly possess almost complete market dominance over platinum. The only other significant reserve of platinum that has been extracted outside of Russia and South Africa is in Canada’s Yukon territory, accounting for approximately 3% of the worldwide reserves. In recent years, platinum producers have faced rising production costs and a drop in prices, due to poor demand for the metal.

Therefore, as Russian Natural Resources Minister Sergey Donskoy explained the purpose of the provisional agreement, “Our goal is to co-ordinate our actions accordingly to expand the markets. The price depends on the structure of the market, and we will form the structure of the market.”

South African Mining Minister Susan Shabangu confirmed the plan with Russia, saying: “We’re not really controlling the market” and “We want to contribute without creating a cartel, but we want to influence the markets.” The South African Department of Trade and Industry Director-General, Lionel October, said, in support of other comments by Shabangu that “We will give access to minerals and then incentivise companies to add value locally.”

Russia and South Africa’s plans may be derailed due to competition concerns, however.  For example, previous attempts at consolidation within the platinum industry have raised red antitrust flags and were ultimately abandoned. In 1996, Lonmin and Gencor lost an appeal against a European Commission decision blocking the planned merger of their South African platinum mines (Case No. IV/M.619, Commission decision of April 24, 1996). This was the first E.C. decision prohibiting a merger on collective dominance grounds. The Court of First Instance (now called the EU’s General Court) upheld the decision of the Commission, validating its concerns that the merger would result in collective global platinum market dominance (Case T-102/96).