Joint ventures (JVs) are not defined in the Competition 89 of 1998 however, general principles of competition regulation are applied in determining whether the formation or expansion of a JV constitutes a notifiable transaction.
In 2001, the Competition Commission (“the Commission”) issued a non-binding practitioner’s update: “the application of merger provisions of the Competition Act 89 of 1998, as amended, to joint ventures”, for guidance.
The Commission defined a JV in the Practitioner’s Update as “a separate business enterprise over which two or more independent parties exercise joint control, and is created for a specific purpose”.
The commercial reasons why parties may wish to form a JV are diverse and may include pooling of resources, efficiencies and to mitigate risks and costs. The Commission acknowledges that JVs may also be established for research and development, production, distribution, purchasing, advertising and promotion, and networking.
JVs and notifiable mergers Section 12 of the Competition Act defines a merger as “when one or more firms directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another firm”.
A similar assessment of mergers is applicable to join ventures: i.e. does the formation of the JV result in one firm or person having control over the business of another? The next phase of the assessment involves a monetary thresholds test (for information on the thresholds please refer to our previous article on merger notification).
Once it is established that there is a change of control and that the transaction meets the monetary threshold test, the ‘merger’, despite it being a JV by structure, will be considered notifiable. The merger parties must notify the Commission of the proposed transaction (the JV) by completing the relevant prescribed forms (which can be found on the Commission’s website) and making payment of the merger filing fee which varies depending on whether the proposed transaction is considered an intermediate or large merger.
The Commission would then commence its assessment of the proposed transaction by considering whether the proposed transaction would lead to co-ordinated effects. It would be important during the merger filing for the parties to explain the rationale behind transaction and if there are any possibilities of co-ordinated effects to offer remedies. For example, there could be a concern of information sharing and the parties would need to put practical measures and solutions in place to adequately address the potential of those risks.
It should be noted that even if the JV does not, in the parties’ assessment or the assessment of the Commission, the parties conduct may still be subject to the Competition Act and must ensure that they do not fall foul of its provisions, for example, by engaging in prohibited practices (sections 4, 5, 8 and 9).
If you need assistance in assessing your JV or in notifying the Commission, reach out to us today.