Ministerial meddling in mergers

Intervention by economic ministry outside proper competition channels yields R1 billion employment fund

As reported yesterday, AB InBev has agreed to a R1bn ($69m) fund to buoy the South African beer industry and to “protect” domestic jobs.  It is widely seen as a direct payment in exchange for the blessing of the U.S. $105 billion takeover of SABMiller by InBev — notably occurring outside the usual channels of the Competition Authorities, instead taking place as behind-closed-door meetings held between the parties and the Minister for Economic Development, Ibrahim Patel, and his staff.

Patel talks.jpgAs we reported earlier this week, the previously granted extension of the competition authorities’ review was “widely suspected that the request for the extension is due to intervention by the Minister of Economic Development, in relation to public interest grounds. Although there is no suggestion at this stage that Minister Patel is opposing the deal, the proposed intervention does highlight bring into sharp focus the fact that multinational mega-deals face a number of hurdles in getting the deal done.”
AAT has reported previously on “extra-judicial factors,” as well as the interventionism by the current ministry.  This latest deal struck by Mr. Patel and the parent of famed Budweiser beer includes a promise by the parties to preserve full-time employment levels in the country for five years after closing, according to AB InBev.  Moreover, the companies pledged to provide financial help for new farms to increase raw materials production of beer inputs like hops and barley.
The minister is quoted as saying: “This transaction is by far the largest yet to be considered by the competition authorities and it’s important that South Africans know that the takeover of a local iconic company will bring tangible benefits.  Jobs and inclusive growth are the central concerns in our economy.”
ABInbev

The holy trinity of InBev’s beers

Our editors and contributing authors have reported (and warned) on multiple occasions that the extra-procedural behaviour of the economic minister effectively side-lines the competition agencies, thereby eroding the perceived or real authority of the Competition Commission and the Tribunal.  Says Andreas Stargard, a competition law practitioner with a focus on Africa:
“This ‘unscripted’ process risks future merger parties not taking the Authorities seriously and side-stepping them ex ante by a short visit to the Minister instead, cutting a deal that may be in the interest of South Africans according to his ministry’s current political view, but certainly not according to well-founded and legislatively prescribed antitrust principles.  The Commission and the Tribunal take the latter into account, whereas the Minister is not bound by them, by principled legal analysis, nor by competition economics.”
This is especially true as the current deal involves the takeover of SABMiller, an entity that controls 90% of South Africa’s beer market.  From a pure antitrust perspective, this transaction would certainly raise an agency’s interest in an in-depth investigation on the competition merits — not merely on the basis of job maintenance and other protectionist goals that may serve a political purpose but do not protect or assure future competition in an otherwise concentrated market.
Says one African antitrust attorney familiar with the matter, “What may be a short-term populist achievement, racking up political points for Mr. Patel and the ANC, may well turn out to be a less-than-optimal antitrust outcome in the long run.”
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Beer cartels: First fine sought in Mauritius leniency matter

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Precedential leniency case yields initial fine

The Competition Commission of Mauritius (“the Commission”) has recommended fines of approximately €487,000 and €158,000 be imposed on Phoenix Beverages Ltd (PLB) and Stag Beverages, respectively, for their involvement in a cartel.

This is the country’s first cartel investigation to be made public, and the first time a party has used its leniency programme.

Phoenix and Stag have been accused by the Commission of colluding to divide the Mauritian and Madagascan beer markets between the two manufactures. The alleged agreement between the parties involved Stag leaving the Mauritian market, allowing Phoenix to dominate the country’s beer market.

Phoenix applied for leniency prior to the 24 May 2014 deadline and consequently received reduced fine.  Both companies assisted the Commission with its investigation.

The Executive Director of the CCM, Mrs. Kiran Meetarbhan, said:

“Many jurisdictions have developed programs that offer leniency because of the many benefits that flow from having them. In line with international best practices, the CCM has not lagged behind in developing a leniency program that has been reinforced so as to grant full amnesty to the first reporting firm in addition to offering judicial security to informants.

This investigation triggered our first leniency application since the CCM’s inception. This is also the first cartel investigation which I have launched in my capacity as Executive Director for which I have recommended financial penalties in addition to other measures to address competition concerns.

I wish to commend the main parties’ approach in this investigation which has revealed a true spirit of cooperation.  Leniency programs create powerful incentives to enterprises to race to self-report at an early stage. Evidence can thus be obtained more quickly, and at a lower direct cost, compared to other methods of investigation, leading to prompt and efficient resolution of cases. This case provides a perfect example of the manner in which a leniency application coupled with the active cooperation of the main parties have led to the successful completion of the investigation within a remarkable three months’ timeline.

The fine[] recommended on Phoenix Beverages Ltd takes into account its leniency application, absent which, the fines would have been higher. Phoenix Beverages Ltd took advantage of the amnesty provisions, which lapsed on 24th May 2014. We cannot stress enough the importance of the leniency programme with regards to collusive agreements.

Several factors help to free an economy from the malicious effects of a collusive agreement including a strong political support towards fighting cartels and a resilient commitment to equip the competition agency with the appropriate legislative framework and adequate financial resources. The Government has signified its intention to further empower the Competition Commission in order to better fight cartels. This was announced by the Prime Minister in his address to the Nation this year.”