SA Competition Act officially amended – serious consequences for businesses

South Africa has amended its antitrust laws, first introduced to the country in 1998 via its Competition Act.  Parliament ratified the amendments (which still have to be rubber-stamped by the National Council of Provinces, a mere formality) yesterday over the serious objections of the opposition parties.  The new law will give significant interventionist powers to the Minister for Economic Development, Ebrahim Patel, as well as introduce lower (or even reversed) burdens of proof for the Competition Commission (SACC) to make its case, after a long-running string of court losses and appellate defeats has seen the SACC’s track record weakened, observers say.

As reported on AAT Monday, a panel of Africa-focussed competition specialists had just recently convened in Johannesburg, warning the South African business community about the high probability of the Bill’s passage, as well as addressing the adverse effects the Bill will have on doing business in South Africa as a medium to large size market player (measured in market share, not merely revenue) or simply as a foreign-owned corporate.

Minister Patel speaks

Minister Patel

Interviewed yesterday in Cape Town, where the Amendment Act was ratified by South Africa’s Parliament, Primerio competition practitioner Andreas Stargard commented: “As we foreshadowed at our conference less than a week ago, the likelihood of the Bill passing was high.  Political, populist pressure was simply too strong for this amendment — which had been introduced as a so-called ‘prioritised bill’ that could be fast-tracked — not to pass.  We view the likely effects of it as a serious departure from commonly accepted best practices in the international world of antitrust law, as we outlined to our clients at the Johannesburg conference.  I will be curious to hear what Commissioner Bonakele’s comments on these critiques will be at Friday’s conference at New York University“, referring to an event sponsored by NYU and Concurrences, at which the SACC Commissioner is expected to deliver a panel speech later this week.

Commenting on the purported social transformational goals, South African competition partner John Oxenham adds: “There is a relentless push from government (not only Mr. Patel) to use the Competition Act as a tool to speed up its broader social and transformation goals.  The underlying reasons for this Amendment are rather straightforwardly conceded by the current, and arguably presently fluctuating, administration: the Bill was ostensibly designed not to enhance competitiveness in the traditional antitrust sense, but rather to address so-called market concentration and perceived unequal ownership patterns in the SA economy.”

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South Africa Competition Tribunal: Merging Parties Penalised for Failure to Comply with Public Interest Conditions

By Michael-James Currie

On 29 June 2018, the South African Competition Tribunal (Tribunal) penalised the RTO Group R75 000 for failing to comply with the Tribunal’s conditional merger approval in respect of two companies now within the RTI stable, Warehouseit and Courierit. The Tribunal approved the large merger in August 2015.

In terms of the Tribunal’s merger approval, a moratorium on merger specific retrenchments for a two year period was imposed – now a frequently imposed public interest related condition by the competition agencies in South Africa.

RTI, however, was penalised not for retrenching any employees during this window but for failure to adhere to the monitoring obligations as set out in the Tribunal’s conditional approval certificate.

In this regard, the merging parties were obliged to notify their employees (and Courierit’s subcontractors) of the conditions to the merger approval within five days of the merger approval date. The merging parties were also obliged to provide the Competition Commission with an affidavit confirming that the obligations in terms of the conditions had been complied with.

By way of a consent order, RTI admitted that it failed to comply with its monitoring obligations and agreed to pay an administrative penalty for breaching the Tribunal’s conditional merger approval.

Although there have been a limited number of cases in respect of which an administrative penalty has been imposed for a breach of the merger conditions, this case demonstrates the importance of fully complying with the terms set out by way of a conditional merger approval.

Furthermore, although notifying the employees of the relevant conditions may not have been a particularly onus obligation, merging parties should take particular cognisance of monitoring and reporting obligations when negotiating conditions with the Competition Commission. Merging parties understandably place greater emphasis on the substantive aspects of the conditions and may underestimate the reporting obligations related thereto – particularly if conditions are being negotiated at the eleventh hour (which is not uncommon).

While there are mechanism’s available to merging parties to remedy any patently unworkable aspects contained in merger approval conditions, it is advisable to ensure that the conditions are practical and capable of being adhered to in full prior to being finalised – assuming the merging parties have that luxury.

[Michael-James Currie is a South African based competition lawyer and practices across Sub-Saharan Africa]

COMESA competition workshops underway (#CCCworkshop)

CCC workshop participants

Events focus on media & business community’s understanding of competition rules and practical workload of CCC

Media

For two days this week, COMESA will hold its 5th annual “Regional Sensitization Workshop for Business Reporters“, focussed on provisions and application of the COMESA competition regulations and trade developments within the 19-country common market.

Over 30 journalists from close to a dozen countries are expected to participate in the event, held in Narobi, Kenya, from Monday – Tuesday.

AfricanAntitrust.com will cover all pertinent news emerging from the conference.  We will update this post as the conference progresses.

Speakers include a crème de la crème of East African government antitrust enforcement, including the CCC’s own Willard Mwemba (head of M&A), the CCC’s Director Dr. George Lipimile, and the Director and CEO of the Competition Authority of Kenya, Francis Wang’ombe Kariuki.  Topics will include news on the rather well-developed area of of mergerenforcement, regional integration & competition policy, as well as the concept of antitrust enforcement by the CCC as to restrictive business practices, an area that has been thus far less developed by the Commission in terms of visibility and actual enforcement, especially when compared to M&A.  We previously quoted Director Lipimile’s statement at a 2014 conference that, since the CCC’s commencement of operations “in January, 2013, the most active provisions of the Regulations have been the merger control provisions.”

Andreas Stargard, a competition practitioner, notes:

“We have been impressed with the Commission’s progress to-date, but remain surprised that no cartel cases have emerged from the CCC’s activities.  We believe that the CCC has sufficient capacity and experience now, in its sixth year of existence, to pursue both collusion and unilateral-conduct competition cases.

Personally, I remain cautiously optimistic that the CCC will, going forward, take up the full spectrum of antitrust enforcement activities — beyond pure merger review — including monopolisation/abuse of dominance cases, as well as the inevitable cartel investigations and prosecutions that must follow.”

The media conference will conclude tomorrow evening, June 26th.

Business Community

COMESA Competition Commission logoThe second event, also held in Nairobi, will shift its focus both in terms of attendees and messaging: It is the CCC’s first-ever competition-law sensitization workshop for the Business Community, to take place on Wednesday.  It is, arguably, even more topical than the former, given that the target audience of this workshop are the corporate actors at whom the competition legislation is aimed — invited are not only practicing attorneys, but also Managing Directors, CEOs, company secretaries, and board members of corporations.  It is this audience that, in essence, conducts the type of Mergers & Acquisitions and (in some instances) restrictive, anti-competitive business conduct that falls under the jurisdiction of Messrs. Lipimile, Mwemba, and Kariuki as well as their other domestic African counterparts in the region.

The inter-regional trade component will also be emphasized; as the CCC’s materials note, “we are at a historical moment in time where the Tripartite and Continental Free Trade Area agreements are underway. The objective of these agreements is to realize a single market. Competition law plays a vital role in the realization of this objective, therefore its imperative that journalists have an understanding of how competition law contributes to the Agenda.”

#LiveUpdates from the #CCCworkshop

Kenya perspective

Boniface Kamiti, the CAK representative replacing Mr. Kariuki at the event, noted that Africa in general and including the COMESA region “has a weak competition culture amongst businesses — which is why cartels are continuing in Africa, and the level of M&A is not at the level one would expect.”  This is why media “reporting on competition advocacy is very important, to articulate the benefits of competition policy and how enforcement activities further its goals, so the COMESA countries may be able to compete with other countries, including even the EU members, at a high level.”

He also highlighted — although without further explanation — the “interplay between the COMESA competition laws and those of the member countries; most people are not aware of that!”  This comment is of particular interest in light of the prior jurisdictional tension that had existed between national agencies and the CCC in the past regarding where and when to file M&A deals.  These “teething issues are now fully resolved”, according to Dr. Lipimile, and there are neither de iure nor any de facto merger notification requirements in individual COMESA member states other than the “one-stop shop” CCC filing (which has, according to Mr. Mwemba, reduced parties’ M&A transaction costs by 66%).

On the issue of restrictive trade practices (RTP), the CAK reminded participants that trade associations often serve to facilitate RTP such as price-fixing cartels, which are subject to (historically not yet imposed, nor likely to be) criminal sanctions in Kenya. It also observed that (1) manufacturers’ resale price maintenance (RPM) would almost always be prosecuted under the Kenyan Competition Act, and that (2) since a 2016 legislative amendment, monopsony conduct (abuse of buyer power) is also subject to the Act’s prohibitions.

Concluding, the CAK’s Barnabas Andiva spoke of its “fruitful” collaboration with the CCC on ongoing RTP matters, noting the existing inter-agency Cooperation Agreement. Added Mr. Mwemba, “we have approximately 19 pending RTP cases.”

CCC leadership perspective:  Nudging Uganda and Nigeria towards competition enforcement

CCC_Director

George Lipimile, CEO, COMESA Competition Commission

Dr. Lipimile took up Mr. Kamiti’s “weak African competition culture” point, noting the peculiar regional issue that “between poverty and development lies competition” to enhance consumer welfare.

He took the audience through a brief history of antitrust laws globally, and encouraged journalists to explain the practical benefits of “creating competitive markets” for the population of the COMESA region at large.

He called on Uganda and Nigeria to — finally — enact a competition law.  (AAT has independently reported on Uganda and also the EAC’s emphasis on its member nations having operational antitrust regimes.  We observe that Uganda does have a draft Competition Bill pending for review; a fellow Ugandan journalist at the conference mentioned that there has been some, undefined, progress made on advancing it in the Ugandan legislature.)  Dangote — the vast Nigerian cement conglomerate (see our prior article here) — and Lafarge played exemplary roles in Lipimile’s discourse, in which he commented that “they do not need protecting, they are large”, instead “we need more players” to compete.

Importantly, Dr. Lipimile emphasized that protectionism is anti-competitive, that “competition law must not discriminate,” and that its goal of ensuring competitive market behaviour must not be confused with the objectives of other laws that are more specifically geared to developing certain societal groups or bestow benefits on disadvantaged populations, as these are not the objectives of competition legislation.

The CCC also called on the press to play a more active role in the actual investigation of anti-competitive behaviour, by reporting on bid rigging, unreported M&A activity, suspected cartels (e.g., based on unexplained, joint price hikes in an industry), and the like.  These types of media reports may indeed prompt CCC investigations, Lipimile said.  Current “market partitioning” investigations mentioned by him include Coca Cola, SABMiller, and Unilever.

He concluded with the — intriguing, yet extremely challenging, in our view — idea of expanding and replicating the COMESA competition model on a full-fledged African scale, possibly involving the African Union as a vehicle.

CCC workshop participants

2018 CCC workshop participants

COMESA Trade perspective

The organisation’s Director of Trade & Commerce, Francis Mangeni, presented the ‘competition-counterpart’ perspective on trade, using the timely example of Kenyan sugar imports, the cartel-like structure supporting them, and the resulting artificially high prices, noting the politically-influenced protectionist importation limitations imposed in Kenya.

Dr. Mangeni opined that the CCC “can and should scale up its operations vigorously” to address all competition-related impediments to free trade in the area.

CCC Mergers

Director of M&A, Mr. Mwemba, updated the conference on the agency’s merger-review developments. He pointed to the agency’s best-of-breed electronic merger filing mechanism (reducing party costs), and the importance of the CCC’s staying abreast of all new antitrust economics tools as well as commercial technologies in order to be able to evaluate new markets and their competitiveness (e.g., online payments).

As Mr. Mwemba rightly pointed out, most transactions “do not raise competition concerns” and those that do can be and often are resolved via constructive discussions and, in some cases, undertakings by the affected companies. In addition, the CCC follows international best practices such as engaging in pre-merger notification talks with the parties, as well as follow-ups with stakeholders in the affected jurisdictions.

Key Statistics

Year-to-date (2018), the 24 notified mergers account for approximately $18 billion in COMESA turnover alone. Leading M&A sectors are banking, finance, energy, construction, and agriculture.

In terms of geographic origination, Kenya, Zambia, and Mauritius are the leading source nations of deal-making parties, with Zimbabwe and Uganda closely following and rounding out the Top-5 country list.

The total number of deals reviewed by the CCC since 2013 amounts to 175 with a total transaction value of US $92 billion, accounting for approximately $73.7 billion in COMESA market revenues alone. (The filing fees derived by the Commission have totaled $27.9 million, of which half is shared with the affected member states.)

All notified deals have received approval thus far. Over 90% of transactions were approved unconditionally. In 15 merger cases, the CCC decided to impose conditions on the approval.

Are the 2017 PPPFA Regulations Misaligned? Can Competition Law Assist?

By Mitchell Brooks, AAT guest author

If one looks at the 2011 Preferential Procurement Policy Framework Act (PPPFA) Regulations, the Regulations provide two ratios to be used in determining a tender award. The two point systems are the 90/10 and the 80/20 ratios. The 90/10 ratio indicates that 90 out of 100 points are to be awarded based on the price of the bidder and 10 out of 100 points are to be awarded based on “special goals”[1]. Since the commencement of the 2011 PPPFA Regulations, special goals have primarily been allotted to BEE status levels.

slide_1Turning to the 2017 PPPFA Regulations, in which the above-mentioned ratios have been maintained, regulation 4 provides for pre-qualification criteria for preferential procurement. Interestingly, according to regulation 4(1)(a) of the 2017 Regulations, an organ of state may stipulate a minimum B-BBEE status level for tenderers. Furthermore, regulation 4(2) deems any tender in contravention of pre-qualification criteria unacceptable. In essence, the pool of bidders can be reduced significantly by requiring all bidders to possess as a B-BBEE Contribution level 1 despite primary legislation only allowing B-BBEE to be taken into account at a maximum threshold of 80/20. Therefore, it is hard to understand why the allocation of points to special goals is capped at 20 points whereas there is no maximum level allocated to the minimum pre-qualification criteria. Arguably, pre-qualification criteria in this regard are open to abuse in oligopolistic markets with few suppliers.

If one views this legal framework holistically, it may seem that the points allocation in the PPPFA is capable of being somewhat circumvented. In other words, the importance attached to a tenderer’s B-BBEE status level may be increased immensely if a level 1 or 2 B-BBEE status level is stipulated as a minimum pre-qualification criterion. On the other side of the coin, the significance of price may be undermined, rendering a competitive tendering process ineffective in securing value-for-money. This suggests the 2017 Regulations are misaligned in that the purpose of the 80/20 split is unclear when read with regulation 4.

In an effort to restrain pre-qualification criteria restricting a large pool of bidders, a bidder may ask whether a dominant public entity, for example, a monopolistic entity such as Eskom, would contravene section 8(c) of the Competition Act if the pre-qualification B-BBEE status level is set too high. Does it qualify as an exclusionary act which is likely to affect competition in the particular market? This falls part of a larger looming question, at what point does pre-qualification criteria by dominant parastatals become anticompetitive in terms of the Competition Act and how will Competition Law interact with procurement? Section 217 of the Constitution of South Africa does not provide a clear answer but it does suggest that competition may have an important role to play going forward.

[1] section 2(1)(e) of the Preferential Procurement Policy Framework Act Regulations 2011

[2] Competition Act 89 of 1998

Competition forum highlights antitrust enforcement, international cooperation

South Africa signs cooperation agreements with Russia and Kenya

Leading government officials presented their respective countries’ accomplishments in the antitrust arena at the 10th annual Competition Law, Economics & Policy Conference in Cape Town yesterday.

south_africaThe attendees ranged from the SA Minister of Economic Development, Ebrahim Patel, and the Commissioner of the Competition Commission, Tembinkosi Bonakele, to their Russian and Kenyan counterparts.  Kenya Competition Authority director general Francis Kariuki emphasised the officials’ desire to remove barriers to trade.  He was quoted as saying he looked forward to exchanging information on cross-border cartels, which affect both the South African and Kenyan economies: tsar_200“We have regional economic communities and regional trade. There are some infractions in South Africa which are affecting Kenya and vice versa. We want to join hands to do market enquiries and do research. This will inform our governments when they come up with policies.”

On the inside-BRICS front, the SA Commission signed an MoU with Russia, adding to Russia’s “rich and diverse bilateral agreements portfolio.”  The MoU is described as focussing particularly on pharmaceutical and automotive sectors, in which pending or future sectoral inquiries would see information-sharing between the Federal Antimonopoly Service (FAS) of Russia and the SACC, according to the FAS deputy chief Andrey Tsarikovskiy.

Patel talksMister Patel’s keynote address showed the glass half-full and half-empty, focussing in part on the need to “scale” the South African agency activity up to the level of the “success story” of domestic competition enforcement and its large caseload (quoting 133 new cartel cases initiated in the past year).

Never one to omit politicisation, Mr. Patel noted the perceived parallels he saw between South African history of concentrating economic power in the hands of a minority, raising indirectly the issue of public-interest concessions made in antitrust investigations, including M&A matters.  Mr. Patel clearly sees the SACC’s role as including a reduction in economic inequality among the populace, rather than being a neutral competition enforcer guided solely by internationally recognised legal antitrust & economic principles.  Both he and Commissioner Bonakele drew parallels between their anti-cartel enforcement and a purported reduction in the SA poverty rate of a whopping four tenths of a percent.

 

 

AB InBev/SABMiller: SA conditional approval

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.

south_africaFrom 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.

“The WRAP” from last month – a new semi-serial publication

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)

The Coca Cola bottlers merger & the costs of placating third parties in merger control

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.

south_africaThe 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.

Patel talks.jpgThe 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.

Patel signature on 73AMinister 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.

 

Developments in South African Merger Control: Ministerial Interventionism and the Impact on Timing & Certainty

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.

John Oxenham and Wendy

John Oxenham

Ministerial meddling in mergers

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.

Patel talks.jpgAs 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.”
ABInbev

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.”