S.A. Competition Tribunal confirms 2 new settlements

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South Africa’s highest governmental competition authority, the Competition Tribunal, has approved two settlement agreements reached by the lower Competition Commission with Air Products South Africa and MVA Bricks / MVA Stene, respectively.

These relate to collusive behaviour in various business sectors, including the building sector which had been investigated by the antitrust watchdog for an extensive period of time.

The former settlement requires Air Products to pay a penalty of almost R2.8 million (about USD300,000) for purported market allocation between it and Sasol Chemical Industries in the industrial gases market. The undertaking published a press release, noting that:

“Air Products has agreed to amend the suite of agreements with Sasol to remove any provisions that contravene the Competition Act; to develop, implement and monitor a (renewed and enhanced) competition law compliance programme incorporating corporate governance designed to ensure that its employees, management, directors and agents do not engage in future contraventions of the Competition Act; and to refrain from engaging in anti-competitive conduct in the future.

“Air Products intends to implement further internal measures to inculcate an increased awareness of the Competition Act and to ensure compliance with the competition laws of South Africa going forward, to ensure that no further inadvertent contraventions of the Competition Act take place.”

The latter settlement with MVA Bricks calls for a R672 565 penalty for collusion between MVA and Aveng Africa in the market for generic paving blocks.

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COMESA receives first global merger notification

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Once more, big news out of southern Africa. According to a notice published on COMESA’s web site, the Competition Commission (“CCC”) has received its first merger filing. And it is not merely any old filing — rather, two large global consumer electronics players, Philips and Funai, are the parties to this virginal transaction being notified to the CCC. As the notice points out in its aptly-named (yet somehow almost ‘cute’, if there is such a thing as cute in competition law) title, it constitutes “Merger notice no. 1”.

With the CCC numbering these filings sequentially (based on all appearances), one can’t help but wonder how many more of these notices will we see in the near future? Will the number reach 2 or 3 digits in the first year of operation of this young competition watchdog? After all, as we pointed out previously on this blog, the scope and reach of the (suspensory!) COMESA merger regime are extremely broad and would presumably cover hundreds of transactions similar to the now-notified first deal…

As background to the transaction, neither party apparently operates on its own in the COMESA jurisdictional countries. They merely have sales via distributors and remote agents. An article in the Kenyan paper “Daily Nation” mentions that the parties had announced in January (right around the time that COMESA’s CCC became operational) that Philips would be selling its remaining audiovisual business to Funai as part of a changing business strategy.

Here’s the upshot for antitrust lawyers and parties to future transactions with a potential impact in any of the COMESA member states: the mere fact of this notification legitimizes the entire COMESA regime. This is all the more true, as the parties are two global and important players, with presumptively excellent legal competition counsel (who must have advised that a filing with the CCC would be required, if not advantageous).

My take: The fact that this rather important (and moreover rather remote, for COMESA jurisdictional purposes!) deal constitutes “Merger notice no. 1” is an absolute stroke of luck for the CCC. It lends serious credibility to its legitimacy.

Public interest criteria and competition law

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The S.A. Competition Commission‘s Trudi Makhaya (LinkedIn and Twitter) posits in this opinion piece in the South African “Business Day that an effective antitrust / competition-law policy can be seen “as an exercise in ’embedded autonomy’.”

Anti-competitive restraints, due to cartels or monopolistic overcharges or output restrictions, have a (relatively) more serious effect on poorer elements of the country’s economy than on the wealthier parts of society, Makhaya argues.  This fact is reflected in the SACC’s “prioritisation framework“, which represents one of the policy tools used by the South African competition authorities that is decidedly outside the “traditional” (read: occidental, euro-U.S. centric) approach to antitrust matters.  In the latter, solely economic (as opposed to social) factors are deemed to play a role that merits the attention by the enforcement agencies.

In a recent roundtable interview with Global Competition Review, AfricanAntitrust.com‘s own editor, John Oxenham, pointed out a parallel facet of merger review in South Africa, stating: “More often developing regimes face difficulties in ensuring their legitimacy or face glaring socio-economic challenges when considering antitrust issues. In South Africa for instance, historical imbalances continue to force the government on a broad-based growth path. The particular public interest criteria which are found in merger control and which the South African authorities are enjoined to use in merger control have, somewhat uniquely, been utilised by South African government departments in intervening in cross-border mergers.”

In light of the eurozone’s economic turmoil and the United States’ rather stagnant emergence (if any) from its recession, the notion of social / public-interest criteria in antitrust law are quite a timely subject.  We are eager to hear our readers’ opinions on this topic…

Competition Authority of Kenya wrests right to control M&A from COMESA.

(See also our prior reporting here: https://africanantitrust.com/2013/01/31/kenyan-competition-authoritys-comesa-jurisdiction-questions/)

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The Competition Authority of Kenya (“CAK”) has won the first round in its apparent jurisdictional battle against COMESA to control acquisition of shares, interest or assets among local firms, ending two months of uncertainty as to who the regulatory authority was for dealmakers. Kenyan Attorney General Githu Muigai has given the CAK the authority to act as the sole agency with the mandate to administer and clear local Kenyan mergers and acquisitions.

This power purports to shield, at least temporarily, local firms from the COMESA competition laws. Under the multi-state competition regime, firms engaging in certain mergers and acquisitions with an effect in two or more member states are required to seek clearance from COMESA’s Competition Commission, a process that comes with significant costs and time delays not expected to the same extent with the CAK procedure.

South African market-inquiry provision comes into effect

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President Jacob Zuma has signed the market inquiry provisions of the South African Competition Amendment Act of 2009 (“Amendment Act”) into force today, 8 March 2013.

The president set 1 April 2013, as the date on which section 6 of the Amendment Act will become effective.

Section 6 empowers the S.A. Competition Commission (“Commission”) to conduct an inquiry into the general state of competition in any market in South Africa, without referring to specific prohibited conduct or a particular firm.  Under this provision, the Commission may initiate a market inquiry when it has reason to believe that any features of an identified market may be distorting or restricting competition in that market, e.g., where a market is not functioning optimally, but where no prohibited conduct, such as cartel activity, has been identified.

Section 6 also regulates how the Commission may conduct such market inquiries.  More specifically, the Commission may use its powers to request information from firms but may not use its search and seizure (i.e., dawn raid) powers to gather information for a market inquiry.

At the conclusion of the market inquiry, the Commission must publish its findings and may also make recommendations to the Minister of Trade and Industry or other regulatory authorities relating to any competition matters identified.

COMESA’s “opening hours”: clarifying timing rules

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As to the timing of submissions, COMESA’s Competition Rule 3 provides that when a time period runs out on a weekend or holiday (Saturday, Sunday or other day the CCC is closed) the submission may be made the following day (not a Saturday, Sunday or other closure day).  The Competition Regulations do not have any parallel provision regarding timing.

     So do the Rules govern the Regs?

According to an official from the CCC, the Rules are promulgated pursuant to the Regulations.  As they are designed to facilitate the operation of the Regulations, the Rule 3 computation of time is likewise applicable to the Regulations (where not otherwise specified).

Therefore, no need to file prior to the expiration on a weekend day — rather, file immediately afterwards.

Clarification of COMESA merger regime filing fee

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Yesterday, on 26. February 2013, the COMESA Competition Commission issued new guidance relating to the amended merger notification requirements, as follows. Note especially the clarification on the “higher of / lower of” filing fee issue that AfricanAntitrust.com had previously reported on, correcting several law firm client alerts, which had falsely described the fee as the “higher of” the two thresholds:

INTERPRETIVE MEANING OF THE NOTIFICATION FEE PURSUANT TO RULE 55(4) OF THE AMENDED COMESA COMPETITION RULES

Rule 55(4) of the amended COMESA Competition Rules reads as follows:

“Notification of a notifiable merger shall be accompanied by a fee calculated at 0.5% or COM$ 500000, or whichever is lower of the combined annual turnover or combined value of assets in the Common Market, whichever is higher”. The interpretation of the above provision is that the COM$500,000 is the maximum fee payable for merger notification.

1. When a merger is received, the COMESA Competition Commission (‘the Commission’) will first calculate 0.5% of the combined turnover of the merging parties.

2. The Commission will then calculate 0.5% of the combined value of assets of the merging parties.

3. The Commission will then compare results in 1 and 2 above and get the higher value.

4. The Commission will then compare this higher value to the COM$500,000. If the higher value is lower than the COM$500,000, the Commission will consider the higher of either the combined assets or turnover as a notification fee. If either the combined assets or turnover is higher than COM$500,000, then the latter shall be the notification fee.

The example below illustrates this:

• Company A proposes to acquire 100% of the assets of Company B. Both operate and have sales in at least two COMESA member states. Company A has turnover (within COMESA) of $15 million; Company B has turnover of $10 million. One-half of one percent of their combined turnover is equal to $125,000 (i.e., $25 million X 0.5%).

• Company A has assets (within COMESA) of $7 million; Company B has assets of $3 million. One-half of one percent of their combined assets is equal to $50,000 (i.e., $10 million X 0.5%). $125,000 (turnover) is the higher of the two figures in steps 1 and 2.

• Since the higher value of the assets vs. turnover (i.e., $125,000) is lower than $500,000, the filing fee is $125,000.

S.A. Clears 3-to-2 Infant Nutrition Merger with Remedies

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The South African Competition Tribunal has green-lighted the almost $12bn (R106bn) Nestlé/Pfizer deal, which will combine the largest and 3rd-largest infant-nutrition companies in the South African republic, leaving competitor Aspen in second place.

The conditions imposed by the Tribunal echo those accepted by the E.U., the Australian and other authorities, which require the merged entity to license certain of its brands to independent third parties, for up to 10 years post-closing, in order to stimulate and maintain a competitive marketplace.

To seasoned antitrust practitioners, certain aspects of the deal ring a bell — although the outcome is diametrically different (except for Mexico, where the transaction has been rejected thus far by the authorities): I speak of the Heinz/Beech-Nut U.S. deal in 2000, where the FTC blocked the deal. In the agency’s view at the time, the only competitive constraint, according to the FTC, was the Gerber company, which would have been the sole effective remaining competitor. For a retroactive analysis on this, see here for one of the voting Commissioner’s point of view. The FTC promptly sued to block the 3-to-2 “Baby Food” deal, as it became known in the antitrust world, and ultimately prevailed both at the court level and, in the end result, with the parties’ abandonment of the merger while an appeal was pending.

In conclusion, it appears that the efficiencies defence, creative design of remedies (e.g., licensing), and overall agency outlooks have changed in more than a decade, after all.

Family feud: Which S.A. agency gets the first bite at the apple?

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Why is the South African government flexing its anti-fraud and corruption laws in the long-running investigation of potential bid-rigging in the construction sector, when it could perhaps more straightforwardly apply its competition law — and only that — to the alleged offences?  In its role as the antitrust watchdog, the SA Competition Commission has been attempting to induce guilty co-conspirators to seek leniency or corporate immunity from prosecution for cartel offences under the country’s Competition Act in exchange for information on rigged bids for construction projects.

Corporate leniency is one thing — personal liability for fraud or other racketeering charges is quite another…  Individual employees or directors of the leniency applicants should beware the double jeopardy they are exposed to, personally, when their employers ink settlements with the CC: The National Prosecuting Authority is not using the country’s civil-offence based competition law to pursue the alleged wrongdoing, even though the accusations raised by them would fall rather neatly within the category of prohibited horizontal agreements among competitors (i.e., cartel conduct).  Rather, the prosecution is applying the Prevention and Combating of Corrupt Activities Act, which — unlike the Competition Act — criminalises the illicit behaviour that allegedly took place.

On the policy side, had the as-of-yet dormant Competition Amendment Act 2009 come into force and the competition law therefore criminalisation “teeth”, we here at AfricanAntitrust.com are wondering whether we’d be seeing parallel, ongoing dual-agency investigations on a scale such as this — or rather an initial battle for jurisdiction between the CC and the NPA’s Hawks?  The S.A. family feud between the twin siblings, fraud laws and antitrust? The purely legal question of “double jeopardy”, raised above, would doubtless also figure in the debate who gets to enforce which law(s).  One of the CC’s public-relations managers, Trudi Makhaya, recently hinted at the potential for greater enforcement powers of the Competition Commission, mentioning the “pending amendments to the Competition Act”. For now, the so-called Construction Fast Track Settlement Project will have to keep churning out non-criminal settlements with offenders.

This specific post will serve as a lead-up into the broader arena of criminalisation of antitrust law, which we will cover soon in its own category.  It brings with it fascinating questions beyond those raised here (including, for instance, the potential for dis-incentives to corporate executives to seek leniency).

As always, we welcome your opinion — this is a question that will sooner or later have to be answered.