Exclusivity concerns must be merger-specific

2 Sep 2014 2 min read Article

In two separate merger decisions, issued by the Competition Tribunal (Tribunal) days apart, the Tribunal deviated from the Competition Commission's (Commission) recommendations that the transactions concerned be conditionally approved.  Instead, the Tribunal unconditionally approved both transactions.  In both cases, the Commission recommended that the mergers in question be approved subject to the removal of exclusivity provisions in contracts.

In the case of Resilient Properties (Proprietary) Limited / NAD Property Income Fund (Proprietary) Limited, the Commission's concerns arose from lease exclusivity provisions in favour of anchor tenants in shopping malls.  However, these exclusivity provisions were negotiated and in force prior to the negotiation of the transaction.  As such, the Tribunal found that the recommended condition regarding removal of these provisions sought to remedy a concern that was not merger-specific.  The Tribunal found that "the clauses in the lease exist pre-merger and the implementation of the merger does not alter that situation."  As a parting remark, the Tribunal noted that, in seeking to remedy to impact of such clauses on competition, "enforcement through the prohibited practice regime is the more effective tool."

Similarly, in the case of ABSA Bank Limited and Bytes Technology Group South Africa (Proprietary) Limited, the Commission expressed its concerns with exclusivity provisions in the relevant franchise agreements, indicating that such clauses would have a foreclosing effect, thereby resulting in a restriction of competition.  The Commission accordingly recommended that the exclusivity provisions in the franchise agreements be removed.  The Tribunal disagreed with the proposed condition on the basis that the exclusivity clauses were contained in pre-existing agreements and as such, the concerns raised were not merger specific.  The Tribunal further noted that "[i]t is further inappropriate for antitrust issues to be implemented through the back door by means of merger control.  Other avenues are available to the Commission to investigate any concerns arising from the exclusivity clauses in question…"

From these decisions, two points are deserving of emphasis.  The first is an observation that the Commission appears to be more vociferously interrogating exclusivity provisions in contracts due to their potentially restrictive impact on competition.  The second is that such concerns (raised in the merger regulation context) are better suited to being investigated under the prohibited practice sections of the Competition Act - while they may arise within the context of the consideration of a merger, regard must be had to whether the concerns are merger-specific.

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