Yes. There have been at least five mergers that have been prohibited since January 2021. The prohibited mergers include the transactions described below.

a) A merger wherein a sunflower seed and soybean crushing and oil refinery company and a global agribusiness and logistics company sought to acquire a company which controls a soybean crushing plant, through a joint venture, on the grounds that:

• the merger was likely to result in a substantial lessening of competition through coordinated effects due to the structural link between the two acquiring entities which would allow them to coordinate their conduct;
• the significant collective market shares attributable to the parties to the joint venture and the low likelihood of their conduct being constrained by competitors;
• high barriers to entry and a likelihood of the erosion of countervailing buyer power post-merger; and
• public interest grounds, such as the merger leading to increases in the prices of soybean, which would lead to an increase in the input costs for the production of chicken feed, and consequently, increase the price of poultry, being the primary source of protein for South African consumers.

b) A merger between the largest retailer of building materials and products and the second largest retailer of building materials and products, that is also active in the wholesale supply of building material and hardware products to retailers, on the grounds that:

• it would result in the removal of an effective competitor with the potential to expand and compete effectively in the market;
• the merger would afford the merging parties the ability to unilaterally increase prices or change trading terms in several geographic areas where competitors are unable to constrain them; and
• the merger would likely strengthen the buyer and bargaining power of the merged entity. This would allow the merging parties to squeeze the margins of their suppliers and exclude their rivals from competing effectively or growing or expanding in their respective geographic market (townships or rural areas).

c) A merger involving the acquisition by a private equity of multinational chain of fast food restaurants on the basis that it would result in a substantial decrease in ownership by HDPs. The transaction was the first prohibition by the Commission solely on public interest grounds. Following the prohibition, the merging parties and the Commission engaged in relation to further public interest commitments that the parties were prepared to offer. Upon consideration of the prohibition by the Tribunal, which was not opposed by the Commission, the Tribunal approved the transaction subject to the conditions that had been offered by the merging parties.

d) Merger involving one of the largest hospital groups in South Africa and the owner of two multi-disciplinary hospitals in the country, which was prohibited on the grounds of substantial competition concerns.

e) A merger wherein a producer of sodium cyanide attempted to acquire a sodium cyanide business as a going concern which was the only producer of liquid cyanide in South Africa, on the grounds that the merger was likely to result in a substantial prevention or lessening of competition due to inevitable post-merger price increases that would be detrimental to customers, particularly in gold mining sector.

No.

The submission of a merger notification is suspensory and mandatory in South Africa where the notification thresholds are met. A penalty of up to 10% of annual turnover in South Africa and exports from South Africa for the preceding year may be imposed on each party to the merger for a first offence and up to 25% for a repeat offence. In practice, the penalties are usually lower than this.

In May 2021, the Tribunal confirmed a consent agreement between the Commission and Kagiso Media Investments. In 2011, Kagiso Media Investments obtained 100% ownership in Mediamark, but only notified the Commission in 2019. The merger was subsequently approved and the consent agreement was concluded, which imposed an administrative penalty of ZAR 1,699,500 (approx. USD 113,351).

In July 2021, the Tribunal confirmed a consent agreement between the Commission and ETG Agro Products, after ETG Agro Products admitted to a prior implementation of a merger in 2013. The merger was subsequently approved. A penalty of ZAR 1,000,000 (approx. USD 66,687) was imposed. 

The submission of a merger notification is suspensory and mandatory in South Africa.

On 29 June 2018, the Tribunal confirmed a settlement agreement between the Commission and RTT Group (Pty) Ltd for the breach of public interest merger conditions. The breach specifically related to the failure to notify their employees (and subcontractors) of the conditions to the merger approval within five days of the merger approval date, and the failure to provide the Commission with an affidavit confirming that the obligations under the conditions were complied with. An administrative penalty of ZAR 75,000 (approx. USD 5,002) was agreed to in the settlement.

In the case of Goldfields Limited v Harmony Gold Mining Company Limited, the CAC held that the Tribunal had the power to interdict and prevent the implementation of a merger, and to compel notification where there was a breach of the Competition Act’s requirement to notify. In this case, the court interdicted Harmony from exercising any of the voting rights associated with the shares it had acquired as a result of the early settlement agreement, which it had failed to notify.

Section 3 of the Competition Act states that the Competition Act applies to all economic activity within, or having an effect within South Africa, provided the threshold requirements are met. Physical presence is thus not a requirement. The test is if the acquirer or target has assets or derives a turnover in South Africa, in which case, notification is required. However, absent this jurisdictional nexus there is no requirement to notify.

Yes. The types of conditions that the authorities have imposed include:

a) divestiture orders;

b) obligations to continue to procure from SMMES or entities controlled by HDPs;

c) setting up a development fund to facilitate entry into or participation within a market;

d) the imposition of a moratorium on retrenchments for a certain period of time post-merger;

e) obligations to provide training and other assistance (e.g., career guidance, counselling etc.) to employees who are retrenched as a result of a merger;

f) obligations to pay for relocation costs employees would incur from the target businesses moving to a different province post-transaction. In exceptional circumstances, the merger parties are also obliged to consider the provision of travel assistance or permit work-from-home arrangements for those employees;

g) obligations to continue supplying customers on certain agreed terms for a period of time post-merger; and

h) commitments to invest in manufacturing facilities with a view to increasing export capacity.

In March 2020, the Tribunal approved the merger between PepsiCo and Pioneer Foods, which marked the first major transaction with remedies aimed at promoting a greater spread of ownership by workers. The merger was subject to a host of conditions that benefit workers and HDPs, including a Broad-Based Black Economic Empowerment (“BEE”) ownership plan, that entailed the provision of common stock in the acquiring firm, to its workers, to the value of ZAR 1 billion (approx. USD 93,436,000).

Yes. In the case of Distillers Corporation (South Africa) Ltd v Bulmer (SA) (Pty) Ltd, the contention that the Competition Act was only concerned with ultimate or unitary control was rejected. The CAC found that more than one form of control (such as direct or indirect) can be exercised at the same time, and that the definition of a merger should be construed widely. In this case, the CAC found that the merging parties were separate legal entities pre-merger and, therefore, the transaction fell within the definition of a merger, as contemplated in section 12(1) of the Competition Act, as there was a lack of a “common controlling mind” prior to the merger. As such, an obligation to notify was triggered. What can be concluded from this case is that, a change in control occasioned by a change in direct or indirect shareholding could be notifiable as a merger.

Yes. Please refer to the response above.

Since January 2021, there have been a number of mergers which have been approved subject to public interest conditions. That being said, below, we have highlighted three novel and interesting transactions, which highlight the overarching approach local competition authorities have taken in imposing public interest conditions.

a) The acquisition of the direct personal lines insurance business currently underwritten by Hollard Holdings (Pty) Ltd by Dotsure limited was approved subject to three primary public interest conditions. This transaction showed an interesting approach taken by the Tribunal, in respect of relocation of employees, given that post-transaction the target business would be relocated to another province (i.e., from Johannesburg, Gauteng, to George, Western Cape). The public interest conditions were as follows:

1. Employment: The parties will not retrench or relocate any employees for a period of 24 months. Should the need arise to retrench employees after the 24-month period, the merger parties were obliged, for an additional 24-month period, give preference to any affected employees in relation to any vacancies.
2. Relocation of employees: The parties will pay relocation costs in relation incurred by employees. In exceptional circumstances, the parties will also consider the provision of travel assistance or permit work-from-home arrangements during the 24 months, post-merger. To the extent that it is reasonably practical and commercially viable, the merger parties undertake to provide voluntary severance packages (“VSPs”) to affected employees who are unable to relocate after the 24-month period. The parties will, subject to compliance with the Labour Relations Act, offer VSPs to the affected employees before making a final decision on the employees to be retrenched.
3. Employee share scheme: The parties will set up an employee share scheme, within five years, that will give workers an opportunity to benefit and participate in the ultimate ownership of the merged entity.

b) The acquisition of Pure Pharmacy Holdings by Dis-Chem Pharmacies (“Dis-Chem”) was approved subject to various conditions, including public interest conditions. The public interest conditions related to:

1. limiting the number of potential retrenchments to a maximum of 37 employees, i.e., 13 positions likely to be affected due to duplications and 24 store employees that may be retrenched as a result of potential store closures of three lossmaking retail pharmacy stores,
2. offering affected employees future employment, should there be future vacancies in the merged entity; and
3. a condition that Dis-Chem increase its local procurement by a significant margin over the next five years. This is to ensure that SMMEs and firms owned by HDPs in the value chain are supported and remain competitive.

c) The acquisition of Burger King (South Africa) (“BKSA”) and Grand Foods Meat Plant by ECP Funds IV was approved on reconsideration subject to public interest conditions which related to the following:

1. Expansion commitment: the merging parties made a commitment to invest no less than ZAR 500,000,000 (approx. USD 33,385,505) in aggregate capital expenditure; opening at least 60 new Burger King outlets in South Africa; employing no less than an additional 1,250 HDPs as permanent employees of BKSA; 
2. Local supplier development: a commitment to fostering, developing, and strengthening local production of supply inputs, local procurement, and the development of South African businesses in general, and HDIs in particular. This will be done through a concerted focus on BKSAs Enterprise and Supplier Development Element of the BEE Codes initiatives and consequently improving its BEE scorecard;
3. Employee share ownership scheme: a commitment to establish an employee share ownership program for an effective 5% interest in BKSA that will allow all employees of BKSA to benefit; and
4. Disposal of the meat plant: a commitment that the merged entity will sell the meat plant and conclude a supply agreement with the purchaser of the plant.

The acquisition of BKSA and Grand Foods Meat Plant by ECP Funds IV was initially prohibited solely on the basis of public interest concerns. The transaction was prohibited on the basis that the acquiring entity, which has no ownership by HPDs is acquiring firms that are controlled by an empowerment entity, with 68% ownership by HDPs, thus decreasing ownership by HDPs to 0%. As such, the Commission reasoned that the transaction would have a negative effect on the promotion of a greater spread of ownership, particularly by HDPs. Thus, the Commission found that the merger could not be justified on substantial public interest grounds. This was the first transaction to be prohibited solely on public interest grounds. This decision was subsequently taken to the Tribunal for consideration, where the transaction was ultimately approved subject to certain public interest conditions, as described in more detail in the above response. 

Greenfield or joint venture mergers are not specifically mentioned in the Competition Act, but are subject to the same merger review regime as other transactions. Thus, where a joint venture acquires control over the whole or part of an existing business (which could include part of the business or assets of any of the parties to the joint venture), notification will be required subject to the merger notification thresholds.

Please indicate whether there are any circumstances in which non-controlling minority share acquisitions that have been found to constitute a notifiable merger and the basis for this.

No. A minority acquisition will only constitute a merger if it results in an acquisition of control. It bears emphasising that certain minority protections may confer control for competition law purposes (e.g., the ability to approve or veto strategic decisions, ability to appoint or veto the appointment of a majority of the board etc.). Absent an acquisition of control, minority acquisitions are not notifiable.

The Commission is only entitled to “stop the clock” if it believes that a document filed in respect of a merger contains false or misleading information and must then issue a demand for corrected information, which demand must be confirmed by the Tribunal. The effect of the demand is that:

1. even if the initial period or an extension had already begun, the parties to the merger will not have fulfilled their notification requirements until that corrected information has been filed to the satisfaction of the Commission; and
2. the initial period for that merger begins anew on the day following the date on which the party concerned files replacing information to the satisfaction of the Commission.

There is no publicly available information of any instances where the Commission has stopped the clock to date.

Hold separate arrangements are not specifically dealt with in the Competition Act. Having said that, the Commission is generally open to ring-fencing arrangements that are structured to prevent delays in the implementation of a multijurisdictional transaction. Typically, the ring-fencing arrangement takes the form of a “hold separate” undertaking that is provided by the merging parties to the Commission. In terms of this, the parties undertake that the South African target business would be ring-fenced and held separately from the acquiring firm and global merged entity until a merger decision is issued by the Commission. Having said that, it bears emphasis that the target’s business in South Africa must be managed separately from the businesses of the merged firm (i.e., post-global closing, there must be no management control that flows through from the acquiring firm or the merged entity to the target’s business in South Africa while the ring-fencing arrangement is in place).

In principle, sequential closing in the context of global transactions may be possible as long as it does not result in a direct or indirect change in control over the target’s South African businesses pending receipt of clearance in South Africa.