All you need to know about public interest grounds in company mergers

The Competition Commission recently published the Revised Public Interest Guidelines related to merger control. But what are the public interest grounds and why does it have an impact on how the Commission assesses mergers?

First, let me explain how the public interest grounds came about. In February 2019, the Competition Act 89 of 1998 (“the Act”) was amended by the Competition Amendment Act, No. 18 of 2018 (“the Amendment Act”). The main objectives of the Amendment Act were to deal with the high levels of concentration and the racially skewed spread of ownership of firms in the South African economy. It is during this process that the public interest provisions in merger control were amended to specifically include public interest grounds to address ownership, control, and support of small businesses and firms owned or controlled by historically disadvantaged persons (HDPs).

This means that during merger assessments our team of analysts must initially determine whether or not the merger is likely to substantially prevent or lessen competition. Under the Amended Act, our analysts also review each merger not only in terms of the effect it will have on competition in the market, but also thoroughly evaluates the merger’s effect on each individual public interest ground. When determining whether a merger can or cannot be justified on public interest factors, the Competition Commission must consider the effect that the merger will have on a particular industrial sector or region, employment, the ability of small and medium businesses, or firms controlled or owned by HDPs to effectively enter into, participate in or expand within the market, the ability of national industries to compete in international markets; and 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.

Let’s unpack each public interest ground. When assessing the likely effect of a merger on a particular industrial sector or region, the Commission will consider the effect of the merger on development, environmental sustainability and employment in a particular industrial sector or region of South Africa, amongst others. In terms of the effect on employment, the Commission requires merger parties to declare all potential retrenchments that are being considered at the time of the merger or retrenchments that have been implemented from the time of the initiation of merger discussions to the date of filing, irrespective of whether the parties contend that these are due to the merger or due solely to operational reasons.

In addition, our analysts will determine whether the merger has an effect on entry conditions or expansion opportunities within a market, preventing or allowing training, skills upliftment, and development in the industry that will contribute or deter small and medium businesses owned by HDPs. The Commission will also consider, amongst others, the nature/structure of the industry and the market dynamics within the industry, including at a global level, and the nature of competition and the market position of the firm in the domestic economy.

The Commission will determine the effect of the merger on each public interest element arising from the merger. Thereafter, the Commission will determine the merger’s net effect on the public interest. If a merger results in a negative effect on a particular public interest factor, the Commission will require remedies that specifically address the negative effect identified (e.g., a negative effect on employment should be addressed by a remedy that addresses the employment harm and not, for instance, by a remedy positively advancing another public interest factor).

In is noteworthy to mention that the Commission remains committed to conducting our merger assessment with the highest standards of transparency, integrity, and compliance. We have therefore drafted guidelines that provide reference and more information to the public, businesses, and the legal fraternity by outlining the Commission’s approach to public interest grounds outlined above. The Revised Public Interest Guidelines became effective Wednesday, 20 March 2024, the date of their publication in the Government Gazette. These Guidelines are intended to indicate the approach that the Commission may adopt and the type of information the Commission may require when evaluating the public interest grounds in section 12A (3) of the Act.

Merger analysis is inherently dependent on the facts of a specific case, but it is our belief that the guidelines will pave the way towards fostering greater understanding of the public interest grounds as they relate to merger assessments.

Siya Makunga is spokesperson for the Competition Commission of South Africa. The views expressed in this article are not that of Mzansi Agriculture Talk.

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