Significant Strides made to Promote Harmonisation across African Competition Agencies
By AAT Senior Contributor, Michael-James Currie.
In the past 12 months there has been a steady drive by competition law agencies in Africa to promote harmonisation between the respective jurisdictions.
The African regional competition authority, the COMESA Competition Commission (CCC), has entered into memorandum of understandings with a number of its nineteen member states. On 5 June 2016, it was announced that the CCC has further concluded MoU’s with the Swaziland Competition Commission as well as the Fair Trade Commission of the Seychelles.
On 7 May 2016, it was announced that nine members of the Southern African Development Community (SADC) have also entered into and MoU. These member states include South Africa, Malawi, Botswana, Swaziland, Seychelles, Mozambique, Namibia, Tanzania and Zambia.
The SADC MoU was based on the 2009 SADC Declaration on Regional Cooperation and Consumer Policies.
According to the South African Competition Commissioner, Mr Tembinkosi Bonakele, the MoU creates a framework for cooperation enforcement within the SADC region. “The MoU provides a framework for cooperation in competition enforcement within the SADC region and we are delighted to be part of this historic initiative,” said Bonakele.
Interestingly, although a number of the signatories to SADC MoU are not member states of COMESA (that is, South Africa and Namibia, who in turn, have a MoU between their respective competition authorities), Swaziland, Malawi and the Seychelles have existing MoU’s with the COMESA Competition Commission. Says Andreas Stargard, a competition practitioner with Primerio Ltd., “it will be interesting to see, first, whether there may be conflicts that arise out of the divergent patchwork of cooperation MoUs, and second, to what extent the South African Competition Authorities, for example, could indirectly benefit from the broader cooperation amongst the various jurisdiction and regional authorities.”
Part of the objectives of the MoUs to date has largely been to facilitate an advocacy role. However, from a practical perspective, the SADC MoU envisages broader information exchanges and coordination of investigations.
While the MoU’s are a positive stride in achieving cross-border harmonisation, it remains to be seen to what extent the collaboration will assist the respective antitrust agencies in detecting and prosecuting cross border anticompetitive conduct.
There may be a number of practical and legal hurdles which may provide challenges to the effective collaboration envisaged. The introduction of criminal liability for cartel conduct in South Africa, for example, may provide challenges as to how various agencies obtain and share evidence.
South African Competition Commission Concludes Investigation into the AB In-Bev/SABMiller deal and Recommends that the Merger be Approved Subject to Conditions
On 31 May 2016, the South African Competition Commission (SACC) recommended that that the Anheuser-Busch Inbev/ SABMiller merger be approved subject to various conditions relating to both competition and public interest concerns.
From a procedural aspect, the SACC’s recommendations are made to the South African Competition Tribunal, the adjudicative body ultimately responsible for approving a merger.
The SACC’s recommendations are not binding on the merging parties or the Tribunal. To the extent that the merging parties, or third parties, are concerned about the merger or the SACC’s recommendations, they may elect to participate in the hearing before the Tribunal.
In cases where neither the merging parties nor any third parties contest the SACC’s recommendations, the Tribunal usually rubber stamps the SACC’s recommendations.
We note that in terms of the SACC’s proposed recommendations, that the merging parties have made numerous undertakings to address the SACC’s concerns.
The following concerns and recommendations were proposed by the SACC:
A divestiture of SABMiller’s shareholding in the Distell Limited Group (a competitor of SAB in the cider market) within three years of the closing date of the transaction;
That no employees of the merged entity will be involved on the bottling operations of both Coca-Cola and PepsiCo and that no commercially sensitive information would be exchanged between employees in relation to these two soft drink entities;
AB Inbev will continue supplying third parties with ‘tin metal crowns’ in South Africa as AB Inbev will own the only ‘tin metal supplier’ in South Africa post merger for a period of 5 years;
AB Inbev should make at least 10% of its fridge space available, in small retail outlets or taverns, to competitors’ products to protect small beer producers;
The development of a R1 billion fund which will be used, inter alia, to develop barley, hops and maize output in South Africa;
No merger related retrenchments are to take place in South Africa, in perpetuity;
AB Inbev will continue to supply certain products to small beer producers;
AB Inbev will continue to ensure that it follows the same ratio of local production and will, itself, remain committed to sourcing products locally;
Undertakings to ensure that the merging parties will, within two years after closing the merger, propose to the Commission and Government its plan on how to maintain black participation in the company and preserve equity;
AB Inbev will continue to comply with the existing terms and conditions of the current agreements which exist between SABMiller and ‘owner-drivers’.
The merging parties have agreed to the majority of the conditions imposed on the merger. We note, however, that the SACC’s media statement does not make it clear that the merging parties have agreed to the divestiture recommendation. The merging parties have also not agreed to the proposed condition relating to a commitment to continue to supply small beer producers with hops and malt.
Accordingly, even in the absence of any third party intervention, this merger may still be contested before the Tribunal.
While the SACC’s official recommendations have not yet been published, it appears to us that a number of the concerns raised by the SACC relate to pre-existing concerns which are not merger specific. Furthermore, important aspect of the proposed recommendations, even those which have been agreed to between the parties, will be in perpetuity.
Furthermore, although what may appear to be a relatively innocuous proposed conditions which the merging parties shave agreed to, is that AB Inbev will respect the current existing contractual arrangements as between SABMiller and ‘owner drivers’. Approving a merger subject to such a condition poses an interesting conundrum. What happens in the event that there is contractual dispute between Ab-Inbev and owner drivers in the future? Will the Tribunal have jurisdiction to hear such disputes and could the merged entity be subject to penalties for breaching a condition of the merger, despite a contractual dispute which may have little if anything to do with the merger itself?
We have previously, here on Africanantitrust raised our concerns regarding the merger specificity of the R1 billion development fund. To access our previous article on this topic, please click here.
In our view, the Competition Tribunal should satisfy itself that the proposed conditions, even if agreed to between the merging parties, should address merger specific concerns and nothing more. A decision by the Tribunal is precedent setting and has an impact on the transparency and certainty of the merger control process in South Africa. When mergers are approved subject to conditions which go beyond merger specificity, uncertainty is created.
South African Antitrust Developments: a WRAP from the Comp-Corner
Issue 1 – May 2016
The editors and authors at AAT welcome you to our new semi-serial publication: “The WRAP.” In this first WRAP edition, we look back over recent months and provide an overview of the key recent developments which antitrust practitioners and businesses alike should take note of in respect of merger control and competition law enforcement.
As always, thank you for reading the WRAP, and remember to visit AAT for up-to-date competition-law news from the African continent.
–Ed. (we wish to thank our contributors, especially Michael Currie, for their support)
Tax Man Patel Strikes Again: Merger Conditions Going Beyond Antitrust
By Michael-James Currie
On 4 May 2016, it was announced that the merging parties to the SABMiller/Coca-Cola merger have agreed to establish a R850 million development fund in order to address public interest concerns raised by the Minister of Economic Development, Minister Patel.
The latest deal struck with Patel follows the R1 billion commitment from the merging parties in the SABMiller/AB-Inbev merger less than a month ago.
Collectively, these two commitments, which equate to R1.85 billion (or approximately U.S. $132 million), exceed the total administrative penalties which were paid by over 13 firms in the “construction cartel” (in 2013, the total penalties amounted to approximately R1.4 billion) which is regarded as the most significant and highly publicised cartel to be investigated and prosecuted by the Competition Commission to date.
A South African competition practitioner with knowledge of the recent cases observed that “[c]onsidering that there have been, in our view, no substantial arguments raised that either of the two mergers pose any substantial anti-competitive concerns, it appears absurd that to date, not a single administrative penalty imposed on a firm for hardcore cartel conduct matches the quantum which the respective merging parties have agreed to pay to get their deals done.” It further appears evident that the conditions imposed, although broadly described by the Minister as being necessary to address public interest concerns, are in fact at all merger specific.
In a clear move to placate Minister Patel and preclude further intervention by the Minister which may have the effect of delaying the merger, the merging parties in both mergers respectively, have agreed to these conditions. The timing of the two commitments are, however, illuminating.
The commitment made by the merging parties to the SAB/Coca-Cola merger, which was filed at the Competition Commission in March 2015, comes after the Competition Commission itself recommended that the merger be approved subject to an agreed R150 million development fund to help train and support historically disadvantaged farmers and suppliers. Despite the agreement reached with the Competition Commission and a confirmed hearing in May 2016 (effectively 14 months after the proposed transaction was filed) the merging parties have recognised the risk of further delays should Minster Patel intervene during the hearing proceedings.
In contrast, the in the SAB/AB In-Bev deal, the top executives met with Minster Patel soon after the deal was notified (albeit behind closed door discussions outside of the SACC’s merger-control process) in an attempt to pre-empt Minster Patel’s intervention. It is expected that the Competition Commission would, today, conclude its investigation and make its recommendations to the Competition Tribunal some four months after the this deal was filed at the competition authorities.
Minister Patel has expressed his satisfaction with the two ‘agreements’ as it is in line with his express commitment to target multinational deals, in particular, in order to promote government’s industrial policies and socio-economic objectives.
In the world of commercial negotiations and deal-making, the parties are, however, hardly in an equally bargaining position when before the competition authorities – a bargaining chip in Minister Patel’s favour which is no doubt aware of.
Whether the strategies adopted by the merging parties in respect of both the SABMiller/Ab-Inbev or the SAB/Coca-Cola merger will pave the way for the expeditious conclusion of the review process remains to be seen (although we would tend to think it certainly will in Patel’s absence from the hearings). The agreements will, however, certainly influence the Landscape of merger control in South Africa.
The precedent set by these two proposed mergers will no doubt result in greater uncertainty in South Africa’s merger control process as the message seems clear. If merging parties want to get a multinational deal concluded in South Africa and you are in Minister Patel’s sights, pay-up – irrespective of the merger specific effects of the deal.
As Andreas Stargard, a U.S.-based Pr1merio antitrust practitioner with a focus on Africa notes: “It will be interesting to see whether the Competition Tribunal, which is tasked with ultimately approving or prohibiting a large merger, will consider whether the interventionist conditions imposed by the current ministry and agreed to by the merging parties are in fact merger-specific.” Although the Tribunal is often reluctant to get involved in conditions which have been agreed to by the respective parties, the Tribunal should be cognisant of the fact that orders of the Tribunal are precedent setting and that imposing conditions to a merger which go beyond what is necessary in terms of the Competition Act as far as merger specificity is concerned, may be undesirable.
Both parties to both recent mergers have agreed to further public interest-related conditions pertaining to employment. In the SAB/Coca-Cola deal, the parties have further agreed to “maintaining employment at current levels for three years and not reduce jobs by natural attrition”, however, may retrench up to 250 “non-unionised” head office employees. Despite the intervention by Minister Patel (who formerly headed the Southern African Clothing and Textile Workers Union) and the Food and Allied Workers Union, it would appear completely outside the realm of competition policy if the Competition Tribunal imposes this condition, as effectively the competition authorities would be providing greater protection to trade union members as opposed to non-trade union members. A clearer indication of a complete lack of merger specificity may be hard to come by.
Price-fixers face up to 10 years prison time, starting May 1st
Prison time for executives is now firmly on the not-so-distant horizon in South Africa: As reported in some media outlets, the criminalisation of certain hard-core (and possibly lesser) antitrust offences is finally being implemented in the Republic — notably after more than 8 years of the relevant legislation technically being on the books.
We are referring to the “phased” implementation of the 2009 Competition Amendment Act. The legislation technically criminalised hard-core antitrust offences such as bid-rigging or price-fixing cartels. However, President Zuma has, until now, not yet implemented or effectively signed the criminal provision of the Act (section 73A) into law.
Enter his Economic Development Minister,Ebrahim Patel:
According to news reports, Mr. Patel announced today (Thursday), that the criminalisation of the price-fixing cartel offence would henceforth be enforced. Section 73A will be gazetted tomorrow, 22 April 2016, and hold the force of law from 1 May 2016. BDLive also reports that even the lesser “abuse of dominance” (or more commonly “monopolisation”) offence would be subject to the criminal penalties, but AAT is awaiting independent confirmation on this subject. As Andreas Stargard, a U.S.-based Pr1merioantitrust practitioner with a focus on Africa and experience counseling clients in criminal competition matters, explains:
“If Mr. Patel indeed made this statement, and I doubt this, it would signal a departure from the rest of the world’s antitrust regimes: It is highly uncommon to have the monopolisation offence constitute a criminal act — indeed I am aware of no jurisdiction where this is the case.
In the United States, the only conduct constituting a Sherman Act offence pursued by the DOJ as a potential felony involve so-called ‘hard-core’ violations. This would include horizontal price-fixing among competitors; territorial allocations; output allocations; and bid-rigging. The same holds true in the UK. That said, monopolisation or abuse of dominance is simply not among the criminalised antitrust violations elsewhere, and I’d be surprised if South Africa took this unusual path.“
We have since been able to confirm that the BDLive report incorrectly refers to abuse of dominance as being criminalised. AAT has obtained a copy of Mr Patel’s speech which provides clearly only for cartel conduct to be subjected to imprisonment:
“We are confident that because our work on cartels over the past five years has given clarity in the market on what collusion entails and what kind of acts falls within prohibited practices, we can now step up our efforts to the next level in our endeavor to combat corruption, cartels and anti-competitive conduct that raise prices and keep businesses and new entrants out of local markets.
Accordingly, government will tomorrow gazette a Presidential Proclamation that brings into effect certain sections of the Competition Amendment Act, with effect from 1 May 2016, which make it a criminal offence for directors or managers of a firm to collude with their competitors to fix prices, divide markets among themselves or collude in tenders or to acquiesce in collusion and they expose themselves to time in jail if convicted.”
The Patel announcements come ahead of his upcoming budget vote speech, and as he has shown in recent months, Mr. Patel is a proud advocate for tougher competition enforcement in the country. “We want to make sure that it just does not make sense to collude,” he is reported as saying today. This follows the Minister’s speech during the Parliament debate in February, where he announced that, “we will now introduce measures shortly to make it a criminal offence in any industry to collude and fix-prices. It will send a message to everyone that we mean business on stamping out corruption and collusion. We must build competitive strengths through innovation, not through sitting in rooms somewhere fixing tenders, prices and contracts.”
White-collar crime: it pays, but is getting riskier
We live in the era of the PanamaPapers, where the notion of white-collar business people going to jail is not an entirely unlikely outcome for some. Antitrust offences, however, have historically not been enforced worldwide as stringently as public corruption or tax-evasion matters, for instance. Key jurisdictions with criminalisation of competition offences remain few, notably the U.S. and the UK.
In South Africa, since at least 2014, both Competition Commissioner Tembinkosi Bonakele and Minister Patel have been engaging in discussions on how and when to implement the Act “to ensure that the necessary institutional capacity is available to apply the [criminal] amendments.” While some provisions (relating to the agency’s market-inquiry powers) went into effect in 2013, the criminalisation provisions remain unimplemented to date — but this is about to change.
During these negotiations, as reported on AAT, the minister and SACC admitted in a remarkable self-assessment that the Commission then lacked “the institutional capacity needed to comply with the higher burden of proof in criminal cases.” One notable aspect of potential discord lies in not only in the different standard of proof in civil vs. criminal matters (“more probable than not” vs. “beyond a reasonable doubt”), but perhaps more importantly can be found on the procedural side, preventing rapid implementation of the law: There has been historic friction between various elements of the RSA’s police forces and (special) prosecutorial services, and the power to prosecute crimes notably remains within the hands of the National Prosecuting Authority, supported in its investigations by the South African Police Service.
History & Legislative Background – and a bit of Advice from the U.S.
Starting in the spring and summer of 2008, the rumoured legislative clamp-down on corrupt & anti-competitive business practices by the government made the RSA business papers’ headlines.
During a presentation Mr. Stargard gave at a Johannesburg conference in September that year (“Criminalising Competition Law: A New Era of ‘Antitrust with Teeth’ in South Africa? Lessons Learned from the U.S. Perspective“), he quoted a few highlights among them, such as “Competition Bill to Pave Way for Criminal Liability”, “Tough on directors”, “Criminalisation of directors by far most controversial”, “Bosses Must Pay Fines Themselves”, “Likely to give rise to constitutional challenges”, and “Disqualification from directorships … very career limiting”.
Stargard, whose practice includes criminal and civil antitrust work, having represented South African Airways in the global “Air Cargo Cartel” investigations, also notes that international best-practice recommendations all highlight the positive effect of criminal antitrust penalties. For example, the OECD’s Hard-Core Cartel Report recommended that governments consider the introduction and imposition of criminal antitrust sanctions against individuals to enhance deterrence and incentives to cooperate through leniency programmes. Then-DOJ antitrust chief Tom Barnett said in 2008, the year South Africa introduced its legislation: “Jail time creates the most effective, necessary deterrent. … [N]othing in our enforcement arsenal has as great a deterrent as the threat of substantial jail time in a United States prison, either as a result of a criminal trial or a guilty plea.”
Mr. Stargard points out the following recommendations to serve as guide-posts for the Commission going forward in its “new era” of criminal enforcement:
Cornerstones of a successful criminal antitrust regime
Crystal-clear demarcation of criminal vs. civil conduct
Highly effective leniency policy also applies to individuals
Standard of proof must be met beyond a reasonable doubt
No blanket liability for negligent directors – only actors liable
Plea bargaining to be used as an effective tool to reduce sentence
Clear pronouncements by enforcement agency to help counsel predict outcomes
What lies ahead?
After 1 May, the penalties for violating Section 73A of the Competition Amendment Act will range from a period of up to 10 years in prison and/or a fine of up to R500 000.00. It appears that the introduction of criminal provisions will not have a retrospective effect, but will only apply prospectively from 1 May 2016 onward.
Robber barons…
The introduction of criminal sanctions for cartel conduct raise several constitutional concerns. It is likely that, in the event of the imposition of criminal sanctions, the constitutional validity of the relevant Competition Amendment Act provisions will be challenged. In particular, section 73A(5) of the Amendment Act, introduces a reverse onus on the accused, in that the onus for rebutting the Competition Tribunal of Competition Appeal Court’s conclusion rests with the accused in criminal proceedings. The reverse onus’ constitutional validity is questionable given the constitutional right to a fair trial and the right to be presumed innocent.
John Oxenham, also with Pr1merio, notes that the “criminalisation of cartel conduct is a development which needs to be carefully considered and well planned before its official introduction due to the imminent effects it will have on current South African competition law.” The successful prosecution of cartel conduct rests heavily on the efficiency of corporate leniency policies. The introduction of criminal sanctions and in turn the National Prosecuting Authority will undoubtedly have an effect on the current corporate leniency policies. It is important to consider granting the staff of a company applying for corporate leniency in relation to cartel activity ‘full immunity’ from criminal prosecution in order to encourage companies to come forward and not debilitate the very purpose of corporate leniency policies. The careful integration of criminal sanctions is therefore vital in ensuring that the very purpose of its introduction, namely to deter corruption and anti-competitive conduct, is achieved.
Update [22 April 2016]: As anticipated, the South African government gazetted [published] the official document starting the era of criminal antitrust enforcement under section 73A as of today, signed 18 April 2016:
“Partisanship can degrade the brand of the antitrust agencies, reduce their influence aboard, and discourage longer term investments that strengthen agency performance. Though difficult to quantify, these constitute a potentially serious, unnecessary drag on agency effectiveness”
(William Kovacic, “Policies and Partisanship in U.S. Federal Antitrust Enforcement” (2014) Antitrust Law Journal, Vol. 79 at 704).
In their article entitled “Developments in South African Merger Control – Ministerial Interventionism and the Impact on Timing & Certainty,” John Oxenham, Andreas Stargard, and Michael Currie argue that, while the existence of ‘public-interest’ provisions in merger control is an express feature in certain jurisdictions’ antitrust regimes, the manner and regularity with which they are applied remains a significant challenge both for antitrust practitioners and for their clients gauging certainty of their foreign investments.
A consideration of the developments in the South African context indicates the substantial risks associated with the manner in which antitrust agencies and governmental departments approach public interest considerations in merger proceedings.
Merging firms, particularly multinationals, need to be acutely aware of the challenges and risks associated with the use of public-interest considerations throughout merger-control proceedings in South Africa. Recent interventionist strategies have had a significant impact on two key features: the timing and cost of concluding mergers in the region.
The paper was presented at this year’s ABA Antitrust Spring Meeting, the largest competition-law focussed conference in the world, taking place annually in Washington, D.C. AAT’s readers have exclusive free access to the PDF here.
Intervention by economic ministry outside proper competition channels yields R1 billion employment fund
As reported yesterday, AB InBev has agreed to a R1bn ($69m) fund to buoy the South African beer industry and to “protect” domestic jobs. It is widely seen as a direct payment in exchange for the blessing of the U.S. $105 billion takeover of SABMiller by InBev — notably occurring outside the usual channels of the Competition Authorities, instead taking place as behind-closed-door meetings held between the parties and the Minister for Economic Development, Ibrahim Patel, and his staff.
As we reported earlier this week, the previously granted extension of the competition authorities’ review was “widely suspected that the request for the extension is due to intervention by the Minister of Economic Development, in relation to public interest grounds. Although there is no suggestion at this stage that Minister Patel is opposing the deal, the proposed intervention does highlight bring into sharp focus the fact that multinational mega-deals face a number of hurdles in getting the deal done.”
AAT has reported previously on “extra-judicial factors,” as well as the interventionism by the current ministry. This latest deal struck by Mr. Patel and the parent of famed Budweiser beer includes a promise by the parties to preserve full-time employment levels in the country for five years after closing, according to AB InBev. Moreover, the companies pledged to provide financial help for new farms to increase raw materials production of beer inputs like hops and barley.
The minister is quoted as saying: “This transaction is by far the largest yet to be considered by the competition authorities and it’s important that South Africans know that the takeover of a local iconic company will bring tangible benefits. Jobs and inclusive growth are the central concerns in our economy.”
The holy trinity of InBev’s beers
Our editors and contributing authors have reported (and warned) on multiple occasions that the extra-procedural behaviour of the economic minister effectively side-lines the competition agencies, thereby eroding the perceived or real authority of the Competition Commission and the Tribunal. Says Andreas Stargard, a competition law practitioner with a focus on Africa:
“This ‘unscripted’ process risks future merger parties not taking the Authorities seriously and side-stepping them ex ante by a short visit to the Minister instead, cutting a deal that may be in the interest of South Africans according to his ministry’s current political view, but certainly not according to well-founded and legislatively prescribed antitrust principles. The Commission and the Tribunal take the latter into account, whereas the Minister is not bound by them, by principled legal analysis, nor by competition economics.”
This is especially true as the current deal involves the takeover of SABMiller, an entity that controls 90% of South Africa’s beer market. From a pure antitrust perspective, this transaction would certainly raise an agency’s interest in an in-depth investigation on the competition merits — not merely on the basis of job maintenance and other protectionist goals that may serve a political purpose but do not protect or assure future competition in an otherwise concentrated market.
Says one African antitrust attorney familiar with the matter, “What may be a short-term populist achievement, racking up political points for Mr. Patel and the ANC, may well turn out to be a less-than-optimal antitrust outcome in the long run.”
S.A. Competition Tribunal imposes record fine for missed merger filing in healthcare
By AAT guest author Meghan Eurelle
On 7 April 2016, the South African Competition Tribunal (“Tribunal”) confirmed that merger parties Life Healthcare Group Proprietary Limited and Joint Medical Holdings Limited had entered into a consent agreement with record-breaking consequences. The two hospital groups admitted to not complying with the Competition Act, 1998 (“the Act”) by failing to notify the competition authorities of their merger and to obtain the required approval prior to the merger being implemented; and subsequently agreed to jointly pay an administrative penalty of 10 million Rand, or approximately U.S. $690,000. (Interestingly, the parties also conceded that they were guilty of fixing the price of services back in 2004 but the Tribunal dropped these charges.)
The R10-million administrative penalty is a record amount for gun-jumping, or the failure to notify the competition authorities of a merger. Previously, the highest penalty for a failure to notify was just over R1-million. The new record penalty follows numerous warnings by the Competition Commission (“Commission”) that it intended to materially increase penalties for failure to notify mergers — says Andreas Stargard, an antitrust practitioner with Pr1merio advisors, “South Africa has a suspensory merger-notification system, like most international antitrust regimes do. And unlike other African countries, such as Senegal or Mauritius, the domestic S.A. competition legislation prohibits transacting parties from effecting the transfer of control or beneficial ownership prior to obtaining clearance from the authorities.”
In terms of the Act, transactions that are defined as “intermediate mergers” and “large mergers” must be notified to the Commission and may only be lawfully implemented if it has been approved, with or without conditions, by the relevant competition authorities. Small mergers do not have to be notified in the ordinary course and may be implemented without approval unless required by the Commission.
Merger notification thresholds in South Africa remain as follows:
Acquiring and Target firm (merger group)
Target firm
Large Merger
Combined assets and/or turnover of at least R6.6-billion.
AND
Assets and/or turnover of at least R190-million.
Intermediate Merger
Combined assets and/or turnover equals or exceeds R560-million but is less than R6.6-billion.
AND
Assets and/or turnover equals or exceeds R80-million but is less than R190-million.
Small Merger
Combined assets and/or turnover of less than R560-million.
OR
Assets and/or turnover of less than R80-million.
In light of the above, it serves as an important reminder to parties that they ensure compliance with the competition authorities and the Act so as to avoid costly consequences.
Key competition-law conference features dedicated panel discussion on African antitrust developments
By Michael-James Currie
The 54th annual American Bar Association Antitrust Spring Meeting was held in Washington, D.C., during the second week of April 2016 and the AAT editors were there to ensure that we provide our readers with an update on the latest developments in relation to African antitrust issues, discussed during a panel held last Friday.
ABA Africa Panelists
Given that mergers hit a global all-time high last year with the total value of transactions amounting to over USD 4.6 trillion, merger control is certainly at the forefront of many antitrust practitioners. The interest in mergers and acquisitions has perhaps gained even further attention in light of the announcement this week that the USD160 billion Pfizer/Allergan global mega-deal has been officially abandoned, despite the transaction having already been filed before all the relevant competition agencies around the world. While the Pfizer/Allergan deal was called off as a result of new tax laws and therefore not as a result of antitrust issues directly, the deal did put multinational mega-deals firmly in the spotlight.
The Pfizer/Allergan deal is not the only mega-deal that faced significant government opposition. It was announced this week that Halliburton’s takeover of Baker Hughes, in a deal valued at USD 25 billion, is going to be strongly opposed by the U.S. DOJ.
It is, however, not only the U.S. Government that is having a significant impact on multinational deals, as evidenced by the Anbang Insurance and Starwood Hotels & Resorts deal, valued at USD 14 billion, which has also been abandoned after mounting pressure by the Chinese government.
From an African perspective, the South African Competition Commission just last week extended its investigation in the USD 104 billion SABMiller and Anheuser-Busch InBev merger. It is widely suspected that the request for the extension is due to intervention by the Minister of Economic Development, in relation to public interest grounds. Although there is no suggestion at this stage that Minister Patel is opposing the deal, the proposed intervention does highlight bring into sharp focus the fact that multinational mega-deals face a number of hurdles in getting the deal done.
‘Getting multinational deals through’ is a hot topic at the moment amongst antitrust practitioners and is and the ABA thought it beneficial to have a panel discussion dedicated purely to merger control issues across African jurisdictions. In particular, the panel addressed some of the key issues which merging parties need to consider, including inter alia issues relating to harmonisation across agencies, the role of public interest considerations, prior implementation and the need for upfront substantive economic assessments.
The panel consisted of a varied mix of panellists from both private practice and government, and included Pr1merio director John Oxenham (he is also a founding partner at South African based law firm Nortons Inc.), economist and former Commissioner of the COMESA Competition Commission (COMESA CC) Rajeev Hasnah (Rajeev was also a former commissioner of the Mauritius Competition Commission and is an economist for Pr1merio), manager of the South African Competition Commission office, Wendy Ndlovu, and Kenyan based external counsel Anne Kiunuhe (Anne practices at the law firm Anjarwalla & Khanna).
The panellists were tasked with addressing a variety of topics: we summarise below some of the key issues which the panellists highlighted, which merging parties, practitioners and antitrust agencies themselves (amongst whom Tembikosi Bonakele, the South African Competition Commissioner was present in the panel audience) should be cognisant of in relation to merger control in Africa.
John Oxenham and Wendy Ndlovu at ABA Spring Meeting 2016 in Washington, D.C.
John Oxenham
John pointed out that from a South African perspective, mergers undergo a robust evaluation by the Competition Authorities and that although the investigation of most large mergers is completed within 60-70 days, the fact that the Commission may request the Competition Tribunal for an extension of up to 15 business days at a time, may result in the investigation of certain mergers taking considerably longer. The risk of a merger being delayed is increased significantly due to the level of third party interventionism, particularly ministerial intervention on public interest grounds.
John advised that merging parties should consider the impact that a particular merger will have on the public-interest grounds upfront to avoid delays in the investigation period as a result of further requests for information from the Commission, or may even amount to an incomplete filing.
In respect of substantive economic assessments, John pointed out that a number of jurisdictions, including South Africa, Namibia, Zambia and to a lesser extent Botswana, requires a substantive upfront economic assessment. In this regard the South African Competition Commission is perhaps the most robust in its economic evaluation of a merger in light of the resources dedicated to its own in-house economic department as well as utilising external experts when necessary. John also highlighted the fact that the South African Competition Authorities rely on oral testimony and expert witnesses are often subjected to substantial and lengthy examination and cross examination before the Competition Tribunal.
On the topic of gun-jumping or prior implementation, John mentioned that the following jurisdictions are examples of countries which do not require notification prior to implementing the transaction – in other words, they are not suspensory:
Malawi
Senegal
Mauritius
Whereas the following countries do require notification prior to implementation (suspensory merger control jurisdictions):
South Africa
Swaziland
Zambia
Botswana
On harmonisation, John confirmed that in relation to public interest considerations in merger control, the South African competition authorities play a leading role on the African continent and pointed out that in addition to Kenya and Tanzania, Namibia also considers public interest considerations and that there is a substantial amount of collaboration and information sharing between the South African and Namibian competition authorities, as was the case in the Walmart/Massmart deal.
Despite the information sharing between agencies, John confirmed that there are rules in place to protect confidential and legally privileged information and that the South African competition authorities are cognisant and respectful of these provisions.
Rajeev Hasnah
Rajeev Hasnah, Pr1merio economist and former COMESA Competition Commissioner, and Anne Kiunuhe from Kenya
Rajeev noted the significant progress which the COMESA CC has made in relation to merger control by publishing financial thresholds for mandatorily notifiable transactions and specified filing fees, as well as publishing guidelines which clarify when a merger will have a sufficient regional dimension to fall within the COMESA CC’s jurisdiction.
On the topic of harmonisation, Rajeev discussed the challenges due to a lack of harmonisation between COMESA and its member states and noted that COMESA does not have exclusive jurisdiction in the cases which do fall within its jurisdiction. Parties, therefore, may find themselves being required to file a merger both before the COMESA CC as well as before the respective national authorities. A further challenge facing the COMESA CC is that there are 19 member states and consequently, the relevant geographic market is significant. Accordingly, often the national authorities are best placed to evaluate a merger and will therefore defer the evaluation of the merger to the relevant national authority.
On the role of economic assessments, Rajeev stated that an economic assessment underlies any merger evaluation and that both the Mauritius Competition Commission and the COMESA Competition Commission conducts a comprehensive economic assessment of a merger.
Wendy Ndlovu
When asked on what role public interest considerations play in merger control in terms of the South African competition regime, Wendy indicated that the framework of the Competition Act specifically requires the competition authorities to consider the impact that a merger may have on the four specified public interest provisions contained in the Act. Wendy confirmed that an evaluation of public interest considerations may both justify a merger despite the merger likely being likely to cause a substantial lessening or prevention of competition in the market, alternatively, public interest considerations may lead to a prohibition or the imposition of conditions on a merger which raises no competition law concerns and may in fact be pro-competitive.
Wendy recognised that there is a need, however, for greater certainty in respect to the manner in which the South African authorities evaluate public interest considerations and pointed out that the Competition Commission is likely to finalise and publish its guidelines on the public interest assessment in an effort to promote greater certainty.
On prior the issue of prior implementation, Wendy pointed out that merging parties need to be mindful of the consequences of gun-jumping and noted that the South African Competition Tribunal has imposed administrative penalties, as in the Netcare case, on parties for failing to notify a mandatorily notifiable transaction.
Anne Kiunuhe
Anne discussed the Competition Authority of Kenya’s (CAK) willingness to focus not only on merger control but has also identified the CAK’s increasing tendency to investigate and prosecute firms engaged in restrictive practices (as demonstrated by the recent dawn raids conducted by the CAK in the fertiliser industry). Despite the CAK’s growing confidence, Anne pointed out that in respect of merger control, the CAK is open to and in fact often relies on precedent from foreign jurisdictions when evaluating a merger. In particular, Anne noted that public interest grounds are specifically considered during the merger review procedure and that in this respect, the CAK largely takes the lead from the South African competition authorities.
From a practical perspective, Anne mentioned that the CAK usually requests a meeting with the merging parties soon after a transaction has been notified, and that usually representatives from the merging parties, along with local external legal counsel, should be present. The CAK prefers that the representatives present should be the best placed to answer or address the CAK’s queries. This often necessitates representatives from the parent company being present as opposed to representatives from the subsidiary entities only.
The direct contact between the CAK and the merging parties is quite different from the manner in which the COMESA CC evaluates mergers where the consideration of a merger is done solely on the papers and any communication between the COMESA CC and the merging parties is done through the merging parties’ local external counsel.
As to legislative developments, Anne pointed out that the merger regulations in Kenya now provide that for purposes of establishing a “change of control”, it is sufficient if the acquiring firm is able to materially influence the commercial decisions of the target firm. Accordingly, the acquisition of a minority shareholding for instance may constitute a change of control if the holders of such shares may for instance exercise veto rights.
On COMESA, Anne mentioned that the COMESA CC permits merging parties to seek a comfort letter when unsure as to whether a merger requires filing and that the use of comfort letters has been rather prevalent.
Conclusion
The role of public interest considerations in merger control was a dominant focus point throughout the panel discussion due to this unique aspect in a growing number of African jurisdictions merger control provisions.
Please click on the following link to access a an article on the role of public interest considerations in merger control in South Africa, which addresses in particular, the impact of ministerial intervention in merger proceedings and the concomitant impact which such intervention has on the costs, timing and certainty of merger proceedings.
March 2016 has been a busy month for the competition agencies of South Africa and Kenya respectively. Both agencies carried out search and seizure operations as a result of alleged collusion within various sectors of the economy. While the March dawn raids are not connected, the South African Competition Authority, as part of its advocacy outreach, provided training to the Competition Authority of Kenya relating to inter alia, search and seizure operations.
South Africa
On 23 March 2016, the South African Competition Commission carried out search and seizure operations in the automotive glass fitment industry, as part of its continued investigation into alleged collusion within this sector.
Accordingy to the SACC, the raid was carried out “at the Gauteng premises of PG Glass, Glasfit, Shatterprufe and Digicall as part of its investigation of alleged collusion. PG Glass and Glasfit are automotive glass fitment and repair service providers; Shatterprufe supplies PG Glass and Glasfit with automotive glass while Digicall processes and administers automotive glass related insurance claims on behalf of PG Glass and Glasfit.”
John Oxenham, founding director of Pr1merio, notes that “[t]his most recent dawn raid follows on from those carried out towards the latter part of 2014 and 2015 and confirms that the SACC has adopted a more robust approach to investigating alleged anti-competitive practices.” In this regard, Commissioner, Tembinkosi Bonakele, confirmed at the 9th Annual Competition, Law, Economics and Policy Conference in November last year that the Competition Commission has in the past two years, “conducted more dawn raids than those conducted in preceding years since the Competition Commission came into existence” (nearly 16 years ago).
For an overview of dawn raids and cartel investigations in South Africa, please see the following GCR Article.
Kenya
This month the Competition Authority of Kenya (“CAK”) conducted its first dawn raid. The search and seizure operations were carried out in respect of two fertiliser firms, Mea Limited and the Yara East Africa, based on the CAK’s suspicion of price fixing occurring between these two firms, who together control approximately 60% of the fertiliser market. The CAK conducted the raid in accordance with Section 32 of the Competition Act, 2011 which provides for the Authority to enter any premises in which persons are believed to be in possession of relevant information and documents and inspect the premises and any goods, documents and records situated thereon. This follows an inquiry which was launched last year by Kenyan competition authorities into what the CAK termed “powerful trade associations exhibiting cartel-like behaviour specifically targeting banks, microfinance institutions, forex bureaus, capital markets as well as the agricultural and insurance lobbies”. The fact that the CAK has carried out its first dawn raid demonstrates its growing stature.
The fertiliser industry appears to be a priority sector for a number of African jurisdictions as the CAK’s investigation into this sector follows the South African Competition Commission’s investigation into the fertiliser industry (which resulted in a referral before to the South African Competition Tribunal for adjudication some years back). In this regard,the South African Competition Commission’s spokesperson stated that the “fertiliser sector is viewed as a priority sector, due to the its importance as an input in the agricultural sector” (as reported here on African antitrust)
Zambia
Interestingly, the Zambian Competition and Consumer Protection Commission (“CCPC”) had, in 2012, conducted dawn raids at the premises of two fertiliser companies, as a result of alleged collusion within the industry.
On a Path to Harmonisation?
While there are a number of practical and legislative hurdles to effectively carrying out cross border search and seizure operations, it appears that cross border investigations may not be too far off. This is particularly so as the various agencies within the Southern African Region have identified similar priority sectors (as evidenced by both the investigations into the fertiliser sectors as well as the various market inquiries into the grocery retail sector).
According to the South African Competition Commissioner, Mr Tembinkosi Bonakele, the MoU creates a framework for cooperation enforcement within the SADC region. “The MoU provides a framework for cooperation in competition enforcement within the SADC region and we are delighted to be part of this historic initiative,” said Bonakele.
From a procedural aspect, the SACC’s recommendations are made to the South African Competition Tribunal, the adjudicative body ultimately responsible for approving a merger.
The latest deal struck with Patel follows the R1 billion commitment from the merging parties in the SABMiller/AB-Inbev merger less than a month ago.
The commitment made by the merging parties to the SAB/Coca-Cola merger, which was filed at the Competition Commission in March 2015, comes after the Competition Commission itself recommended that the merger be approved subject to an agreed R150 million development fund to help train and support historically disadvantaged farmers and suppliers. Despite the agreement reached with the Competition Commission and a confirmed hearing in May 2016 (effectively 14 months after the proposed transaction was filed) the merging parties have recognised the risk of further delays should Minster Patel intervene during the hearing proceedings.
Minister Patel has expressed his satisfaction with the two ‘agreements’ as it is in line with his express commitment to target multinational deals, in particular, in order to promote government’s industrial policies and socio-economic objectives.
We are referring to the “phased” implementation of the 2009 
We live in the era of the 
As we reported earlier this week, the previously granted extension of the competition authorities’ review was “widely suspected that the request for the extension is due to 
The R10-million administrative penalty is a record amount for gun-jumping, or the failure to notify the competition authorities of a merger. Previously, the highest penalty for a failure to notify was just over R1-million. The new record penalty follows numerous warnings by the Competition Commission (“Commission”) that it intended to materially increase penalties for failure to notify mergers — says Andreas Stargard, an antitrust practitioner with 
African Antitrust & Competition Law 