Competition Commission keeps an eye on small mergers
25/05/2009

Certain small mergers could run into trouble as a consequence of new rules and guidelines. Parties to these mergers should get legal advice early on.

On 1 April 2009 the increased merger thresholds, issued by the Minister of Trade and Industry, came into effect (See our newsflash “Increase in merger thresholds”).

A number of mergers that would previously be classified as intermediate or large mergers will now be classified as small mergers and will therefore no longer require mandatory notification.

Business was pleased with the move to increase merger thresholds but the Competition Commission has raised concerns that certain anti-competitive mergers could now escape regulatory scrutiny.

At the moment, the Commission may call for notification of small mergers if it is worried about competition or the public interest.

In an effort to address its concerns, the Commission has issued a Guideline on Small Merger Notifications. This indicates that the Commission will require notification of all small mergers between parties that meet the following criteria:

• at the time of entering into the transaction any of the firms, or firms within their group, are subject to an investigation by the Competition Commission in terms of Chapter 2 (dealing with prohibited practices) of the Competition Act;
• at the time of entering into the transaction any of the firms, or firms within their group, are respondents to pending proceedings referred by the Competition Commission to the Competition Tribunal in terms of Chapter 2 of the Competition Act.

The guideline further advises parties to small mergers that meet the above criteria to voluntarily inform the Commission, in writing, of their intention to enter into the transaction. They should provide the Commission with information regarding the parties, the proposed transaction and the markets in which the parties compete. The Commission will consider the information and inform the parties whether a merger filing will be required. The guideline does not indicate a time period within which the Commission will respond.

Given the procedure prescribed in the guideline, it seems that the Commission will not require a merger filing in respect of all small mergers that meet the criteria set out in the guideline. It does seem that, where a transaction meets the criteria and the parties fail to adopt the prescribed procedure, the Commission will call upon the parties to notify the merger. Parties to small mergers that meet the criteria could therefore still escape notification by following the prescribed procedure.

Section 13 (4) of the Competition Act provides that where the Commission calls upon parties to a small merger to notify it of that merger, the parties may take no further steps to implement the merger until the merger has been approved. It will give rise to a sticky situation where parties are required to stop implementation of a merger halfway.

Even where a small merger does not fall within the criteria set out in the guideline, it is apparent that the Commission would exercise the discretion contained in Section 13 (3), namely to require notification.

There are a number of possible approaches to be followed by parties to small mergers. They should give careful consideration to voluntarily notifying the Commission of their intention of doing so prior to entering into the transaction. The appropriate approach in each case will depend on a number of factors and clients would be wise to obtain legal advice early on to ensure that they are well prepared for whatever may arise.

Jac Marais
Adams & Adams
Senior Associate
Jac-M@adamsadams.co.za