10 September 2011

A new approach to prior implementation of mergers

Parties to a notifiable merger under the Competition Act (the Act) may not implement the merger until it has been approved, with or without conditions, by the competition authorities. Failure to give the requisite notice to the competition authorities as prescribed by the Act may result in the imposition of an administrative penalty.

Over the past 10 years various firms have implemented mergers in contravention of the provisions of the Act, resulting in fines being levied by the Tribunal ranging from R1 (Dorbyl and Structa Technologies) to R500,000 (Tiso and Nail). During 2010, the Commission indicated that it had developed a more robust approach to dealing with these contraventions, which the Commission stated will result in effective prosecution. According to the Commission, the high incidence of firms claiming non-compliance with the Act as a result of a bona fide error was unacceptable as the Act had been in operation for 10 years.

This more robust approach was evident in the latter half of 2010, where the Commission entered into a record consent agreement for such a transgression for fines of R1,000,000 and R100,000 to be levied on the acquiring firm and target firm respectively. The imposition of these fines also indicates that the Commission is minded to penalise both the acquiring and target firms. Under the Act all parties to a merger are obliged to notify the Commission of the proposed merger, therefore, according to the Commission, the parties should be held jointly liable for the offence.

While a high penalty sends a strong signal to the market that contraventions of the Act will not be tolerated, it may also result in firms preferring to hide in the tall grass after discovering a failure to notify. However, such an approach, if uncovered, will result in potentially higher penalties, as voluntary notification of the transgression and subsequent cooperation by the parties are two key mitigating factors the Commission is likely to consider when prosecuting prior implementation cases.

Nick Altini, Director, Competition

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