South African Competition Tribunal approves merger in record time of 4 hours

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The South African Competition Tribunal received notice of, heard and approved the acquisition by construction firm, Stefanutti Stocks (Pty) Ltd, of Energotec, which is a division of First Strut (Pty) Ltd, and approved the merger within four hours of receiving the Competition Commission’s recommendation.

The Tribunal approved the deal on the basis that Energotec, and ultimately First Strut, are in a precarious financial condition (under liquidation).  The parties explained to the Commission and Tribunal that If the merger had not been approved the 667 staff employed by Energotec would have lost their jobs. The parties also relied on the failing firm jusitfication. As a condition for the approval of the merger however the Tribunal ordered that, for a period of 2 years from the date the merger is implemented, Stefanutti Stocks must limit retrenchments resulting from the merger to 16 employees.  This type of public interest condition has become common in South Africa.

It was stated by the parties that the deal will enable the acquirier to offer a more comprehensive service to its clients, making this an attractive opportunity for the construction firm.

The Competition Commission had concluded that the merger was unlikely to cause a substantial lessening of competition. The only customer affected by the transaction, Sasol, had provided support for the deal.

The matter provides useful precedent for future failing firm merger cases.

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

COMESA Competition Commission logo

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

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

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

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

FULL TEXT OF CCC RELEASE:

COMESA Competition Commission approves Mergers between:

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

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

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

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

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

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

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

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

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

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

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

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


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

Pioneer Hi-Bred completes acquisition of South African seed company

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

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

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

First 2 COMESA merger notifications unconditionally approved

COMESA old flag color

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

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

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

South Africa: Telkom fined again…

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South Africa’s Competition Tribunal had a busy week last week tasked with considering the proposed penalties for the various construction companies and also confirming the second significant administrative penalty on South Africa’s incumbent provider of fixed line telecommunication services, Telkom.  In terms of the second order, Telkom has agreed to pay an administrative penalty of R200m and committed to separate its wholesale and retail divisions, in order to reduce the wholesale and retail prices of its products to the value of R875m over five years.

Telkom, was previously before the Tribunal in relation to a further abuse of dominance matter and was fined R449m.  Telkom had appealed the finding but recently withdrew its appeal against the fine which related to allegations of an abuse of dominance in the telecommunications market between 1999 and 2004, a period in which it was a monopoly provider of telecoms facilities in the country. The fine was much less than the R3bn that the commission had initially requested.

In relation to the second order, the Commission found (following receipt of a significant amount of information from Telkom’s downstream competitors) that Telkom had engaged in a so-called “margin squeeze” by billing licenced operators excessive fees for bandwidth and for a product called IPLC (international private leased circuit). The pricing was set at levels that precluded cost-effective competition with Telkom’s retail internet access and services available via a leased line or ADSL access.

In terms of the settlement, Telkom has agreed to reduce prices on specific product lines that had been implicated in the complaints before the commission over the next three financial years, with no increases in the final two years in which the agreement remains in place.

Telkom has also committed itself to a weighting of 70% price reduction in its wholesale division and 30% in its retail division to eliminate any margin squeeze while ensuring that wholesale products savings are passed on to the benefit of its consumers.

It will also embark on a roll-out of strategic points of presence in the public sector at its own cost and discuss the specific needs of state departments with the Department of Communications.

Botswana opens probe into pay-TV provider MultiChoice

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According to Botswana publication Mmegi, the domestic competition authority** has opened a probe into business practices surrounding MultiChoice’s so-called “bouquets” of pay-TV programs.  (Personally, I’d call it a bundle or package.  Maybe the local euphemism authority could look into the “bouquet” moniker, as well).

The paper reports that MultiChoice has over 6 million Botswanan customers (one of whom purportedly filed the formal complaint with the competition authority) and “has maintained a stranglehold” on the pay-TV segment.  The complaint appears to focus on pricing and dominance abuses by the provider.  There is also a South African probe into MultiChoice’s alleged abuse of a dominant position, as we reported last month.

**That’s their official link, but it seems to be parked, or dead.  Ironically, the competition authority’s Facebook page (!) appears live and well.  Here’s a photo of, presumably, the staff.

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

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ZA Constitutional Court broadens ambit of class-action relief

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

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

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

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

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

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

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

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

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

Soccer fields, SRAM, and Sotheby’s? Fast-track settlements in ZA construction probe yield €113m

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What do soccer stadiums, LCD panels, and lysine** have in common?  Price-fixing might be one answer.  Record antitrust fines might be another, closely related, response.

The South African Competition Commission (“Commission”) has obtained settlements of 1.5 billion rand or about €113 million with up to 15 construction companies.  This constitutes, by our reckoning, a new record for the Commission.

The fast-track settlement procedure used by the agency (in all but 3 cases, in which the accused firms chose not to pursue fast-tracking) shortened the time necessary to reach finality on the deals.  It also allows the Commission to free up its manpower resources to work on other matters, since maintaining full-fledged investigations in all of the now-settled cases would have been a long and arduous process for all parties involved — as we reported previously on AfricanAntitrust.com here and here, the scope of the ZA construction-sector bid-rigging investigation has ballooned beyond even the wildest dreams of enforcers.

The Commission’s press release sheds further light on the breakdown of the fines per party, covering conduct since September 2006 in over 300 instances of bid-rigging:

constructionfines

Post-scriptum: The fines, although record-setting, are lower than expected by investors.  Consequently, shares in the affected undertakings have soared 1-3%, as reported by BusinessReport here.

** Sorry – I strayed a bit from the original alliterative title here.  (Otherwise, I could not have made the “record fines” point…)

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

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

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

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

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

Antitrust in Mozambique? …could have stayed in COMESA.

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We know it’s a somewhat brusque title for a “new competition regime” post.
But we must ask ourselves: Why is the República de Moçambique now joining the growing cadre of countries with a competition-law regime** — almost exactly half a year after COMESA instituted its own competition rules?

That’s a rhetorical question, of course.  Mozambique notably decided to leave the (then-21 member state) COMESA organisation in 1997, after barely 3 years of membership.

The new Mozambique Competition Law, no. 10 / 2013 will become effective by 11 July 2013, with implementing rules to be finalised in the fall, which will guide the newly-established Autoridade Reguladora da Concorrência (Competition Regulatory Authority).  It is the result of a 6-year long process of designing and establishing a competition policy that began in 2007 with a domestic legislative push in this direction and a subsequent May 2008 draft competition law proposed by an E.U. study sponsored by the European Development Fund.  It remains to be seen whether the ARC will formally join the Lusophone Competition Network of Portuguese-speaking antitrust jurisdictions or not.

While the final version of the imminent Mozambiquan competition law includes a (suspensory!) merger notification regime, it is likely that deal enforcement will initially take a back seat to monopolisation/abuse-of-dominance issues, as the competitive landscape in the Mozambiquan economy is characterised less by mergers-to-monopoly rather than by formerly state-owned enterprises, now privatised, that tend to exert potential market dominance.

Details, details…

Depending on the severity of any infringement, a 1 to 5% prior-year turnover fine, as well as the potential for a criminal antitrust offence anticipatorily included in the law, all serve to cause market participants to tread more cautiously in the future.

(Oh, lest we forget to mention it, especially in the context of the fining scale:  the national flag of Mozambique sports a Kalashnikov AK-47 assault rifle, with bayonet attached.  We do not think that this is indicative of the country’s future antitrust enforcement style, but we do believe that Mozambique may be the only competition-law jurisdiction with a fully-automatic gun as a state symbol.)

The law goes into effect the second week of July 2013 (see our Countdown Timer at the bottom right of this page), for those who keep track…

Mobile communications as likely target?

We here at AfricanAntitrust.com predict that the comparatively large (and seemingly concentrated) mobile-phone market in Mozambique may soon see an investigation into abuses of dominance under the new law.  There are several million mobile subscribers vs. less than 100,000 landlines country-wide — yet, only 2 mobile providers exist, mCel & Vodacom.

** as to the “growing cadre”, how many jurisdictions are there nowadays?  The International Competition Network has about 111 member jurisdictions, which is indicative of the lower bound, but there are surely additional ones (e.g., COMESA, which is not a member of the ICN), so the total figure should be >112…