When evaluating a merger, the Competition Commission and/or the Competition Tribunal (Tribunal) (collectively referred to as the competition authorities), examine several aspects to determine whether a merger will significantly diminish or hinder competition within a relevant market. In addition to this, the competition authorities are obligated to take into account wider public interest elements, including the proposed merger's effects on employment, small businesses, and the ability of historically disadvantaged individuals or firms to engage in the market.
In 2018 the Competition Amendment Act which amended the Competition Act 89 of 1998 (Act) assigned the competition authorities with a transformation mandate in addition to its role as a competition/anti-trust regulator. The Competition Amendment Act introduced new public interest grounds such as section 12A(3)(e) “the promotion of a greater spread of ownership, in particular to increase the levels of ownership by historically disadvantaged persons and workers in firms in the market”. As a result of the amendments and the Tribunal’s decisions in other cases, the burning question amongst many business people and investors has been whether public interest considerations outweigh the competition considerations. Section 12(1A) of the Act says that even where a merger does not raise competition concerns, competition authorities are still obliged to determine whether or not the merger can be justified on substantial public interest grounds.
The Tribunal has provided some much-needed guidance. In the Epiroc Holdings case the Tribunal noted that when conducting a public interest analysis under section 12A(3) of the Act, a holistic approach is required. This means that the various public interest factors mentioned in section 12A(3) must be individually evaluated, and subsequently, if needed, balanced against each other to determine the overall impact on the public interest resulting from the merger.
The Tribunal noted that whilst this previously expressed approach pre-dates the amendments to section 12A, it does not believe that the amendments affect the holistic approach to be followed in an assessment. Therefore, even if, on a consideration of all the evidence, a merger would have a substantial negative effect insofar as section 12A(3)(e) is concerned, such effect might be mitigated or outweighed by positive effects in relation to one or more of the other factors listed in section 12A(3). In the Epiroc Holdings case, the Tribunal found that the significant reduction in HDP ownership that resulted from the proposed merger was balanced against the establishment of an ESOP to promote worker ownership and the positive public interest effects brought about by the merger in relation to the other factors listed in section 12A(3).
As highlighted in the Epiroc Holdings case, it is important to bear in mind that the increase of HDP ownership is not the only public interest consideration. The assessment of public interest considerations is case-specific and will depend on the nature of the merger and its potential effects on the economy and society at large.
If the competition authorities find that a merger might harm any of the public interest factors significantly, they may impose conditions on the merger or even prohibit it. While competition considerations are central to analysing a merger, public interest considerations play an essential role in the approval or rejection of a merger in South Africa. The competition authorities strive to strike a balance between promoting competition and safeguarding broader public interest objectives.
As such, in response to the burning question: no! Competition authorities are unlikely to prohibit a merger SOLELY because there will be a decrease in HDP ownership but it is important to note that the competition authorities will consider the overall impact of public interest considerations resulting from a merger.