Category: Extra-judicial Factors

AB InBev/SABMiller: SA conditional approval

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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

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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

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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

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“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

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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.”

Namibian Competition Act to be Amended

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By Michael-James Currie

The Namibian Competition Commission (“NaCC”) has recently confirmed that the NaCC has submitted proposals to the Ministry of Industrialisation, Trade and SME Development (“Ministry”) relating to possible amendments to the Namibian Competition Act.

namibiaAAT does not yet know exactly what the nature and scope of the proposed amendments are, although the NaCC has indicated that the current Act, which was promulgated in 2003, is out of date and does not sufficiently cater for Namibia’s context (relating both to Namibia’s economic and socio-economic environment).

Furthermore, the NaCC has indicated that the amendments are aimed at increasing the NaCC’s enforcement capabilities and address ‘loopholes’ in the current Act.

In this regard, Minister Calle Schlettwein under whose portfolio the NaCC falls, stated that: “I am made to understand that in the years ahead, the Commission will focus on moving forward as a highly competent and equipped market regulator, especially in addressing market distortions on monopolistic and collusive behaviour and inefficiencies on price formation processes in the country that impact on the consumer welfare and the broader structure of the economy.  To this end, its activities are to be driven by the adoption of a National Competition Policy as well as revisions to the Competition Act.”

As Andreas Stargard notes, ‘[i]t would not be surprising if the proposed amendments related to “complex monopolies” and the introduction of criminal sanctions for cartel conduct,’ as this would be in line with the amendments made to the South African Competition Act (although not yet in force).  “Moreover, the Namibian commission will also likely cater for so-called ‘public interest’ elements in its enforcement strategy, as we have seen in several African jurisdictions.”  Stargard’s law partner at Pr1merio, John Oxenham, likewise emphasises “the strong ties between the two respective competition authorities” in southern Africa:

“The NaCC has often taken the lead from the South African competition authorities in respect of the interpretation and enforcement of competition law matters. The Namibian Competition Act is also largely moulded around the South African Competition Act.”

The strong links between the two respective authorities culminated in the signing of a Memorandum of Understanding under the heading, “In the field of competition law, enforcement and policy”MOU-COMPETITION-COMMISSION-SOUTH-AFRICA-and-NAMIBIAN-COMPETITION-COMMISSION

The spokesperson for the NaCC has said that “the aim of the review is to strengthen the enforcement capabilities and machinery of the commission and to close loopholes that exist within the current law.  Our Competition Act is similar, in many ways, to that of South Africa and the amendment thereof will only raise our standards to international best practices but within the context of Namibia.”

Schlettwein is on record as saying: “I am made to understand that in the years ahead, the Commission will focus on moving forward as a highly competent and equipped market regulator, especially in addressing market distortions on monopolistic and collusive behaviour and inefficiencies on price formation processes in the country that impact on the consumer welfare and the broader structure of the economy.

“To this end, its activities are to be driven by the adoption of a National Competition Policy as well as revisions to the Competition Act.”

In sum, given that the proposed introduction of a “complex monopolies” offence and criminal sanctions in South Africa has led a number of practioners in that country questioning the constitutionality or the practicality of the these amendments, it will be interesting to see whether the NaCC takes these concerns into consideration assuming we at AAT are indeed correct that these are the amendments which the NaCC is also proposing to introduce.

The Big Picture: Market-Sector Inquiries in Africa

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AAT the big picture

Market Inquiries in Africa – An Overview

By AAT guest author, Michael-James Currie.

Most African jurisdictions with competition laws have included provisions in their respective legislations that allow the competition authorities to conduct market inquiries.

Market inquiries have proved to be useful tools for competition agencies in numerous jurisdictions, particularly in Europe, and is becoming a common and increasingly popular tool amongst an number of African agencies as well.

Despite the benefits that may flow from a market inquiry, it is important that competition agencies appreciate and have due regard to the costs associated with such inquiries. Market inquiries are very time consuming and onerous for market participants and should be used sparingly. Having said that, the focus of market inquiries in most African jurisdictions tend to be on markets which the relevant authorities have identified as having a large impact on consumers.

In other words, socio-economic considerations appear to be a significant factor during the screening process used in deciding whether to institute a market inquiry. Sectors such as food, healthcare and banking (at an individual consumer level) are some of the common industries which have been ‘prioritised’ or identified as important sectors.

While the number of market inquiries which have been concluded on the African continent is limited, as competition agencies gain more expertise and confidence in their mandates, there is likely to be a significant increase in the number of market inquiries instituted and firms conducting business in Africa, particularly within ‘priority’ sectors, should be cognisant of this.

We set out below a brief overview of the market inquiries which are currently being conducted in the various African jurisdictions.

South Africa

There are currently three market inquiries which are underway, one into the private healthcare sector and the other into the grocery retail market. The third market inquiry is in the liquefied petroleum gas sector.

The private healthcare inquiry was launched on the basis that cost of private health care in South Africa is a concern to the competition authorities. A revised statement of Issues for public comment was announced on 11 February 2016 and comments are to be submitted by 11 March 2016.

The grocery retail inquiry is focussed largely on the stricture of the market and the ability of smaller or informal retailers to compete, but will also address issues such as “long term lease” clauses (which has already been adjudicated upon by the Competition Tribunal).

The third market inquiry is into the LPG which was launched in August 2014 is expected to conclude in March 2016.

The only previous market inquiry concluded in South Africa was into the banking sector. This inquiry was conducted on an informal basis as there were no formal legislative powers bestowed on the competition authorities to conduct market inquiries.

Swaziland

The Swaziland Competition Commission (SCC) announced in January 2016 that a market inquiry has been launched into the retail banking sector. The SCC stated that retail banking service offered to consumers, micro and medium enterprises remained the most important sub-sector of banking. It is, however, the ‘current account’ which is the central product to be used as the starting point for the inquiry.

Zambia

On 1 February 2016, the Zambian Competition Authority (CCPC) announced that it will be conducting a market inquiry into the vehicle towing industry. While the CCPC indicated that it wishes to understand the “conditions of competition in the market”, although the inquiry came about as the CCPC had received numerous complaints from consumers that emergency towing operators were charging high prices. It remains to be seen whether this inquiry is focused predominantly on competition-law issues, or rather consumer-protection laws.

Botswana

The Competition Authority in Botswana (CA) is currently underway with a market inquiry into the grocery retail sector, focusing on shopping malls and in particular, the impact of long term exclusivity leases on competition in the market.

COMESA

Consistent with the competition authorities of South Africa and Botswana, the COMESA Competition Commission (“CCC”) has also launched an investigation into the impact that shopping malls have on competition. The CCC announced that it will carry out their inquiry by taking samples from the member states.

We have previously published articles on the announcement of this market inquiry on AAT which can be accessed by clicking on the following link: https://africanantitrust.com/category/market-study/

Kenyan cabbies complain: The Uber competition saga reaches East Africa

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Uber Africa: Increased competitiveness not a boon for entrenched monopolies

new multi-part seriesContinuing our AAT multi-part series on innovation & antitrust we turn once again to the ubiquitous “Sharing Economy” we are witnessing not only in the United States and Europe but also on the African continent…

“The taxi industry is in the midst of a crisis. Once protected by a regulated monopoly of the commercial passenger motor vehicle transportation market, the industry now faces increasing competition from a new type of transportation service—ride-sharing. The emergence of companies like Uber, the most successful ride-sharing company, threatens to eliminate the taxi industry’s stronghold on the ground transportation market and possibly the industry itself.” (Erica Taschler, Institute for Consumer Antitrust Studies, in “A Crumbling Monopoly: The Rise of Uber and the Taxi Industry’s Struggle to Survive“)

April 14, 2015 Associated Press file photo, Nairobi, Kenya

Today, the Taxi Cab Association of Kenya announced protests against the “unfair competition” its members face from ride-sharing giant Uber, according to the organisation’s chairman, Josphat Olila.  This is no news for folks in London, Brussels, Hamburg, or Washington — places where the taxi-medallion-capped brethren of Nairobi’s cabbies have all long ago gone through the protest phase against the rising tide of the “new economy’s” novel way of hailing cars.  Examples abound, and all involve more or less refined antitrust arguments.

Andreas Stargard, an attorney with Africa competition advisors Primerio, sums it up as follows: “The pro-competitive notion of innovation-plus-price competition is perhaps best understood by looking at the views of two leading antitrust agencies, the FTC and the European Commission.   Both have articulated simple and sound arguments for striking the right balance between regulatory limits for the protection of passengers, as well as allowing innovative technologies to enhance the competitive landscape and thereby increasing transportation options for riders.  In antitrust law, more options usually equal better outcomes.”

U.S.

Here is what the U.S. Federal Trade Commission had to say in 2013 about the D.C. taxi commission’s ‘unfair competition’ argument against ride-sharing services:

“The staff comments recommend that DCTC avoid unwarranted regulatory restrictions on competition, and that any regulations should be no broader than necessary to address legitimate public safety and consumer protection concerns.  … [T]he comments recommend that DCTC allow for flexibility and experimentation and avoid unnecessarily limiting how consumers can obtain taxis.”

Crucially, the Kenyan cabbies’ argument that Uber should be banned is based on price competition from Uber’s lower fares.  One of the main tenets of competition law is: lower prices are good for consumers (in general), as long as service quality remains the same.  With Uber in the mix, quality arguably increases beyond the sad status quo of smelly and difficult-to-hail cabs: for one, users now are able to know when and where their car arrives, quality control via Uber’s policies and check-ups is available, convenient electronic billing & dispute resolution exists, etc.

Let’s go back to the FTC’s public comments and see their take:

“Competition and consumer protection naturally complement and mutually reinforce each other, to the benefit of consumers. Consumers benefit from market competition, which creates incentives for producers to be innovative and responsive to consumer preferences with respect to price, quality, and other product and service characteristics. As the U.S. Supreme Court has recognized, the benefits of competition go beyond lower prices: ‘The assumption that competition is the best method of allocating resources in a free market recognizes that all elements of a bargain – quality, service, safety, and durability – and not just the immediate cost, are favorably affected by the free opportunity to select among alternative offers’.”

EU DG COMP

Former Competition Commissioner Neelie Kroes would agree wholeheartedly with the above, and indeed said in 2014 that she was “outraged at the decision by a Brussels court to ban Uber.”  In her personal op-ed piece, published on the EU Commission’s web site under the catchy title “Crazy court decision to ban Uber in Brussels“, she poignantly had this to tell the Belgian Mobility Minister who signed off on the Uber ban:

“This decision is not about protecting or helping passengers – it’s about protecting a taxi cartel.  The relevant Brussels Regional Minister is Brigitte Grouwels. Her title is “Mobility Minister”.  Maybe it should be “anti-Mobility Minister”. She is even proud of the fact that she is stopping this innovation. It isn’t protecting jobs Madame, it is just annoying people!”

We wonder what would happen if Neelie Kroes were Kenyan government minister…

Kenya: Keep prices high and ‘foreign’ competition out?

The Kenyan Taxi Association does not see it that way, just like its D.C. counterpart did not some 3 years ago.  However, D.C.’s streets are still full of old-fashioned cabs, and Uber — while popular — is still far from blowing out the light shone by the once-prized cabbie medallions…

Still, the Kenyan association claims that between 4,000 and up to 15,000 taxi drivers face job extinction due to lower prices charged by Uber, which has been active in Nairobi since the beginning of 2015.  Again, the “lower price” argument is a red herring under even the most basic application of competition economics, which shows that innovation-based price competition is ultimately pro-competitive and good not only for the end consumer but also the industry’s development as a whole.

Sadly, antitrust law — even in a fairly developed competition-law jurisdiction like Kenya — does not always prevail (again, see the occidental examples of Brussels, Hamburg, London, or even Baltimore, where the cabbies ironically sued Uber in an antitrust lawsuit, alleging that the so-called ‘Surge Pricing’ mechanism amounts to per se illegal price-fixing…).

The Kenyan taxi-cab organisation not only claims that the livelihoods of its members are at stake, but also “questioned the protocols followed by the foreign investors behind Uber, saying they were not consulted before the service provider entered the market,” according to an article in the Kenyan Daily Nation.  The association’s spokesman is quoted as saying: “We have loans to service, families to feed, children to educate and other responsibilities to cater for and we are not ready to leave the transport industry to a foreigner and render [ourselves] jobless while we are in a democratic republic.”

So in the end, the ‘unfair taxi competition’ argument devolves into xenophobia and mistrust.  Sadder yet, Kenya’s Uber fight has now taken a violent turn: Yesterday, an Interior Ministry spokesman said that there had been reports of attacks on Uber drivers, which are being investigated.

AAT of course deplores the resort to violence and trusts that neither it nor the upcoming protests will impede the progress of competitiveness in Kenya, a country that otherwise prides itself on encouraging competition (see CNBC Africa video on “East African competitiveness”).  The sole glimmer of hope we see consists of the closing line of the Daily Nation piece, which notes that “[t]he drivers have also promised to come up with their own version of Uber to connect taxi drivers in the country.”  That is what innovation is all about: Uber innovates, others copy (be it Lyft or the Kenyan cabbies), and everyone is better off in the final analysis.

 

Coca-Cola/SAB Miller merger prompts onerous conditions

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Coca-Cola/SAB Miller merger prompts onerous conditions

Written by Jenna Foley, AAT contributor

The agreement between The Coca-Cola Company, SABMiller and Gutsche Family Investments to combine their soft-drink bottling operations in Southern and East Africa has been met with the proposal of onerous merger conditions. The new bottling company, Coca-Cola Beverages Africa, will bottle 40% of Africa’s Coca-Cola beverages with operations in 12 countries. Minister of Economic Development, Ebrahim Patel has, after considering the public interest issues in mergers, expressed concern on the effect of the merger on small businesses, supplier industries, employment and investment.

Section 12A(3) of the Competition Act (89 of 1998) prescribes that, “when determining whether a merger can or cannot be justified on public interest grounds, the Competition Commission or the Competition Tribunal must consider the effect that the merger will have on –

  • a particular industrial sector or region;
  • employment;
  • the ability of small businesses, or firms controlled or owned by historically disadvantaged persons, to become competitive; and
  • the ability of national industries to compete in international markets.”

The Competition Commission (the “Commission”), on the advice of Minister Ebrahim Patel, has recommended that the merger only be approved subject to a list of onerous conditions. One of these conditions stipulate that the merging parties invest R650m to support the development of black-owned retailers, small suppliers and developing farmers. Taking into account the above-mentioned section of the Competition Act it is yet to be determined how the R650m investment was calculated or the specific justification of such an onerous condition. In addition, other recommended conditions include requirements on employment and black economic empowerment (BEE) as well as allowing retailers who are given Coca-Cola branded fridges free of charge to stock the fridges with products made by rival companies.

The Commission’s concerns have arisen despite the merging parties’ consideration for public interest issues. The proposed merger, according to the Commission, is said to have a negative impact on employment and BEE. This has been expressed even though the merging parties have undertaken not to retrench employees as a result of the merger, except for 250 identified employees. In addition the parties have made a commitment to increasing their BEE shareholding. The Commission has further expressed concern about the negative effect the merger will have on suppliers, namely the weakening of their negotiating position, despite the merging parties’ undertaking to buy certain products (tin cans, glass and plastic bottles, packaging crates and sugar) from local suppliers.

In light of the above, the Commission’s recommended conditions to the Competition Tribunal, on the advice of Patel, seem far-reaching, leaving the merging parties with a heavy burden of complying with such onerous conditions.  The recommendation to apply these burdensome conditions has caused delays and the proposed merger has not yet been finalised.

Competition & the Public Interest

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The public-interest saga continues: South African antitrust & inclusiveness

More on the revised Guidelines for the public-interest assessment in southern African’s largest economy… By AAT guest author Anne Brigot-Laperrousaz.

In December 2015, the South African Competition Commission (the “Commission”) issued revised guidelines for the assessment of public interest provisions in mergers (the “Guidelines”). This document is a further step in a long process aiming at ensuring better efficiency in the Commission’s evaluation of mergers. One of the main rationale is that informed parties will be able to anticipate the documentation and data to be transmitted to the Commission in view of obtaining its approval. Transparency, predictability and clarity, all of them fundamental aspects of legal certainty, shall result in reduction of delays and enhancement of legitimacy of the Commission’s decisions.

In January 2015, the Commission issued a first draft of those Guidelines, open to comment by stakeholders. Several bodies answered positively to this initiative, including law firms (Bowman Gilfilan, Baker & McKenzie, …), companies (Vodacom, Tabacks), international associations (International Bar Association) and policy research centers (UK Center for Competition Policy). The December 2015 Guidelines are the result of this broad enquiry, and the final version open to comments until the 29th January 2016.

Public-interest considerations abroad

Firstly, the international perspective on public interest considerations in the assessment of mergers might offer an interesting insight to the question.

In Europe, at Community level, the EU Merger Regulation (the “EUMR”) prevents the European Commission to assess non-competition considerations in its analysis of the proposed transaction. Indeed, Article 2 EUMR sets out a test based exclusively on the potential “significant impediment to effective competition”, and the available remedies when the merger might result in such an impediment.

Yet Article 21(4) EUMR allows interventions of Member States to protect three determined types of public interests, namely, public security, plurality of the media and prudential rules. Exceptionally, the European Commission may allow a national measure aimed at protecting a different legitimate interest, although this procedure is rarely used. In any case, the measures taken shall be compatible with the general principles and provisions of European Union law.

A major difference between EU and US competition laws is that the former was meant to serve as a tool to achieve a State union, whereas the latter intervened in an already federated region. This feature arguably plays a significant role in the importance attached to further political aims in the elaboration of the competition framework, although this feature did appear at the first stages of the US.

Two US institutions are today in charge of reviewing the competitive effects of mergers: the Antitrust Division of the US Department of Justice, and the Federal Trade Commission. Those two institutions act as competition regulators, focusing exclusively on the competition aspects of targeted operations. Other public policy interests, related to specific sectors, might be analysed and taken into account under the responsibility of other US agencies, such as the Federal Communication Commission or the Federal Reserve and the Federal Deposit Insurance Corporation. Such agencies therefore act as sector or industry regulators.

To the extent that the South African Competition Act (1998) (the “Act”) gives a particularly important role to public interest criteria in merger controls, the need for transparency and clarity in the Commission’s assessment mergers is all the more crucial.

south_africaZA: The integration of stakeholders’ comments by the Competition Commission

As for the general observations on the January 2015 guidelines, some constants remain in most of the stakeholders’ commentaries.

This is so in particular as regards evidential requirements, that is, the type and nature of information that would generally be required from the merging parties. Although the Guidelines do provide a relatively detailed and insightful perspective on the Commission’s methodology in assessing mergers, it does not appear that they answer this recurrent request, even in the form of non-exhaustive references to specific documents.

Tembinkosi Bonakele, the South African Competition Commissioner, had the following to say on the topic, when interviewed for AAT’s Meet the Enforcers:

It is important that BRICS countries weigh-in on this important debate. There is a divergence of views amongst many antitrust practitioners on the compatibility of antitrust issues with public interest issues, but everyone accepts that there are public interest issues. The conference will deepen and broaden perspectives on the matter. …

 

Tembinkosi-Bonakele-Profile-PicThe South African competition authorities were established as a package of reforms to transform the unequal South African economy to make it economy inclusive and ensuring that those who participate in it are competitive.

Through engagements such as the BRICS conference we’re able to discuss with our BRICS counterparts how to make our economies, which are similar, more efficient, competitive and inclusive.

A second concern regards the issue of “balancing” competition and other public policy interests. The different nature of those matters, implying various qualitative and quantitative methods of assessment, arguably makes this task “inherently arbitrary”. This is even more so in presence of the broad and general principles addressed by the Act, and that the Guidelines arguably ought to determine and circumscribe. In their revised version, although some further precisions on the process and the determining factors of the Commission’s assessment have been added, some grey areas remain. For instance, some commentators have highlighted the fact that as regards the effect of the merger on a particular industrial sector or region, the Commission “may consider any public interest argument in justification of the substantial negative effect arising as a result of the merger on an industrial sector or region” (Guidelines, §7.2.4.2). It is our view that this wording is all too broad and undetermined to provide useful guidance to practitioners, and ensure a transparent and consistent analysis by the Commission. Not to mention that, as noted by the International Bar Association, the Act limits the Commission’s jurisdiction in evaluating public interest matters in merger reviews. This reference to “any public interest” arguably overlooks the Commission’s limited jurisdiction. Unfortunately, this comment does not seem to have been taken into account in the drafting of the revised version.

The same analysis can be made of the use of such concepts as causality, for example, which is not clearly defined. Furthermore, the Guidelines often provide for the possibility to prove that the effect “results or arises from” the merger, together with the requirement of a causal link, undermining the precise and strict legal requirements that are entailed by the notion of causality (see §7.2.2.1). In other instances, the Commission will merely “consider whether the employment effects are in any way linked to the intentions […] of the acquiring group”, which broadens unreasonably the scope of analysis.

Overall, when considering the clarifications that were called for in various submissions from stakeholders, it appears that in most cases, where the comments have been echoed in the revised Guidelines, the drafting committee has hidden the difficulties rather than going further in its analysis.

For instance, several commentators have expressed their surprise at the principle stated in the January 2015 version of the Guidelines, in the section dedicated to the general approach to assessing public interest provisions, that when the Commission found that the public interest effects were neutral, it would balance the negative and positive effects (§6.6). Indeed, the concept lacked clarity, and does not appear in the revised Guidelines.

Yet, some more substantial comments, in that they pointed to more potentially noxious loopholes, have apparently been disregarded. This is the case of the consequences of the finding of negative competition and public policy effects, a situation where the Commission does not seem to consider the possibility to justify and find remedies. It appears that the result would be a forthright prohibition of the transaction, even if other ways could have existed.

More generally, the perspective on the matters at stake seems to be rather hostile. For instance, in cases where negative public interest effects have been identified, the Commission “may consider imposing remedies or prohibiting the merger depending on the substantiality of the public interest effects”. It may be considered that a more relevant criterion might have been the existence and efficiency of potential remedies, rather than the substantiality of the negative effects at stake. Indeed, although the substantial character of the adverse effects might be a suitable criterion to set the standard of analysis, it does not easily justify to disregard possible remedies, which seems to be the result of the present wording.

Similarly, the Guidelines seem to set the existence of a positive competition finding as a threshold to its analysis. It has been advocated that a more suitable logic would be that the starting point is the absence of any prevention or lessening of competition, which would be more in line with both the Act and the role it affords to public policy concerns, and international best practice.

Conclusion

As noted by the International Competition Network, “the legal framework for competition law merger review should focus exclusively on identifying and preventing or remedying anticompetitive mergers. A merger review law should not be used to pursue other goals”.

Since the introduction of public policy issues in merger control is broadly considered to require cautiousness and measure, it is questionable if the revised Guidelines abide by this general principle of predictability and transparency as regards those matters. Although clear efforts have been made, the public policies at stake do not appear to have been sufficiently identified and articulated with what should remain the fundamental purpose of merger control, that is, the competitive effects of the transaction at stake.

That is particularly so in view of the nature of the Commission, which has no particular expertise in the public policy matters that it his charged to assess. As it is the case in other jurisdictions, such as the UK, it may be useful to create the possibility for the Commission to obtain input from other specialised government agencies or department, although through a transparent and public process which would prevent any diversion of the Act and the Commission’s purposes.