28 July 2021 by and Competition Law Alert

Evolution of the merger filing requirements: What you need to know about the proposed changes

On 25 March 2021 the Minister of Trade, Industry and Competition published an invitation for commentary on, among other things, the Competition Commission merger filing forms. The proposed changes to the merger forms require detailed submissions by merger parties on substantive market-related aspects where a merger gives rise to horizontal overlaps and a significant combined market share, and on public interest considerations which address the recent amendments made to the Competition Act 89 of 1998 (Act).

It is evident from the proposed changes to the merger forms, and a recent decision emanating from the competition authorities, that greater focus will fall on section 12A(1A) of the Act, which provides that competition authorities “must also determine whether the merger can or cannot be justified on substantial public interest grounds.”

The change to the CC4(1) form, which was previously used to give employees and trade unions sufficient information in order to help them decide whether or not to participate in the merger proceedings, now encompasses a whole new section dealing with the effect of a proposed merger on all of the public interest concerns outlined in section 12A(3) of the Act.

This proposed section encompasses questions requiring the merging parties to deal with, for example, the proposed merger’s “impact on significant social projects and upliftment programs that contribute to upliftment of the region or sector” as well as its “impact on local resources or inputs, for example, whether the merger results in the movement or diversion of local resources to international markets or the creation of opportunities to beneficiate local resources”.

These types of questions will require the merging parties to provide extensive detail in their merger filings. This will involve an analysis of the various public interest factors in order not to jeopardise the merger approval.

The proposed amendments include a section dealing with the effects of a merger on the “ability of small and medium businesses (SMEs), or firms controlled or owned by historically disadvantaged persons (HDP), to effectively enter into, participate in or expand within the market”  and a section dealing with the effect of a proposed merger on “the promotion of a greater spread of ownership, in particular to increase the levels of ownership by HDPs and workers in firms in the market”.

Under the proposed amendments, merging parties are required to provide detailed submissions on how the proposed merger will raise or lower the barriers to entry for SMEs or firms owned or controlled HDPs and restrict or promote dynamic competition with respect to SMEs and firms owned or controlled by HDPs that exert a competitive constraint in relevant markets.

Under the proposed amendments dealing with the promotion of a greater spread of ownership, merging parties are required to make submissions on whether the proposed merger increases or decreases the levels of ownership by HDPs and workers in firms in the market. Theses should take into account, among other things, factors such as the broad-based black economic empowerment (B-BBEE) status of the seller, how the B-BBEE status of the purchaser will be affected by the proposed transaction, employee share schemes, board representation, etc.

An important consequence of the proposed amendments is that the merger filing process in South Africa will become more rigorous and the merging parties will be required to apply their minds to complex public interest considerations before submitting a complete merger filing.

Although an exact date on which the new forms will be published and implemented has not yet been announced by the minister, merging parties would be well advised to pre-emptively consider the types of issues that have been identified in the draft forms in order to avoid unnecessary delays in obtaining merger approval.

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