In order to trigger a notifiable transaction, the transaction must be considered a merger in terms of the Competition Act 89 of 1998 (“the Act”). The second requirement is whether the transaction meets the financial thresholds.
Control
A merger is defined in section 12 of the Act 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.” It is important to understand whether control has been established.
Section 1(2) of the Act provides that a party enjoys control over a firm if that person:
“(a) beneficially owns more than one half of the issued share capital of the firm;
(b) is entitled to vote a majority of the votes that may be cast at a general meeting of the firm, or has the ability to control the voting of a majority of those votes, either directly or through a controlled entity of that person;
(c) is able to appoint or to veto the appointment of a majority of the directors of the firm;
(d) is a holding company, and the firm is a subsidiary of that company as contemplated in section 1(3)(a) of the Companies Act, 1973 (Act No. 61 of 1973);
(e) in the case of a firm that is a trust, has the ability to control the majority of the votes of the trustees, to appoint the majority of the trustees or to appoint or change the majority of the beneficiaries of the trust;
(f) in the case of a close corporation, owns the majority of members’ interest or controls directly or has the right to control the majority of members’ votes in the close corporation; or
(g) has the ability to materially influence the policy of the firm in a manner comparable to a person who, in ordinary commercial practice, can exercise an element of control referred to in paragraphs (a) to (f).”
Critically, the Act applies to all economic activity within or having an effect within South Africa. This means that foreign-to-foreign transactions may be subject to merger approval in South Africa should the companies’ activities have an effect within South Africa.
Monetary thresholds
Mergers can be categorised according to their size into small, intermediate and larger mergers. In terms of Section 13A(3) of the Act, the merger parties are prohibited from implementing intermediate and large mergers prior to obtaining approval from the South Africa competition authorities. Should the merger parties fail to first seek the necessary approval, and instead take steps to implement the merger, they may be found guilty of prior implementation and the Competition Tribunal may impose a maximum penalty of up to 10% of a firm’s annual turnover in terms of section 59(1)(d)(i) of the Act.
For an intermediate merger:
- the target firm has turnover or assets (whichever is the higher) of at least R100 million (the target threshold); and
- the acquiring and target firms have combined turnover or assets (whichever combination is the higher) of R600 million or more (the combined threshold).
For a large merger:
- the target firm has turnover or assets (whichever is the higher) of at least R190 million (the target threshold); and
- the acquiring and target firms have combined turnover or assets (whichever combination is the higher) of R6.6 billion or more (the combined threshold).
Should the merger not meet the monetary thresholds, it may be classified as a small merger which is dealt with in section 13 of the Act. Parties can voluntarily notify the Competition Commission (“Commission”) but generally notification is not required unless, within six months after a small merger is implemented, (i) in the opinion of the Commission, the merger may substantially prevent or lessen competition; or (ii) cannot be justified on public interest grounds. Furthermore, notification of small mergers may be required in terms of the Commission’s revised guidelines on small mergers which include, inter alia, digital markets.
Should you require any advice on your proposed merger or acquisition, wish to establish whether you are required to notify the Commission of your transaction, or require advice on preparing documents in the proposed transaction, we are able to assist you.