SOUTH AFRICA: An Introduction to Competition/Antitrust

An increased focus on public interest factors in assessing mergers in South Africa

In February 2019, the Competition Amendment Act was signed into law. Potentially the most significant amendment related to the amendment of sections 12A(1) and 12A(3), which obliges the South African Competition Commission to not only consider whether a merger would substantially prevent or lessen competition in a particular market, but also to consider the effect a merger will have on public interest factors, such as: a particular industrial sector or region (section 12A(3)(a)); employment (section 12A(3)(b)); the ability of small and medium businesses or firms controlled or owned by historically disadvantaged persons, to effectively enter into, participate in, or expand within the market (section 12A(3)(c)); the ability of national industrial to compete in international markets (section 12A(3)(d)); and the promotion of a greater spread of ownership to increase the levels of ownership by historically disadvantaged persons (HDPs) and workers (s12A(3)(e). 

On 20 March 2024, the Competition Commission published its final revised Public Interest Guidelines (the Guidelines) relating to merger control.  Although the Guidelines are non-binding, the Guidelines are useful in the sense that they provide insights into the approach the Commission is likely to adopt when evaluating a proposed transaction against each of the public interest grounds set out in section 12A(3) of the Competition Act.   

The Guidelines reinforce the principle that competition and public interest considerations have an equivalent weighting and are equal in status from a merger assessment point of view.

One of the most notable provisions of the Guidelines relates to the Commission’s interpretation of section 12A(3)(e). Section 6.5.2 of the Guidelines provide that the Commission considers that section 12A(3)(e) imposes a positive obligation on merging parties to promote or increase a greater spread of ownership, in particular by historically disadvantaged persons (HDP) and/or workers in the economy. The Guidelines state that the requirement to promote a greater spread of ownership is applicable to all mergers that have an effect in South Africa.

The Guidelines also include an express provision that transactions involving foreign acquiring and/or target firms are not excluded from the obligation to promote a greater spread of ownership. In particular, section 6.5.6 of the Guidelines state, “for avoidance of doubt, mergers involving an acquiring firm/s and a target firm/s registered outside of South Africa and notifiable in South Africa are subject to section 12A(3) of the Act more generally, and section 12A(3)(e)in particular.”

Remedial measures

In circumstances where a merger results in a dilution of HDP and/or worker ownership or fails to promote a greater spread of ownership as contemplated in section 12A(3)(e), the Commission will consider the following types of remedies, which would usually be tendered by the merger parties in the form of conditions:

• Establishing an Employment Share Ownership Programme (ESOP), which must hold a minimum range of 5 to 10% of the equity of the merged entity and must represent a broad base of workers, as opposed to a few highly skilled workers;

• The sale of a minimum range of between 5% to 25% of the equity of a merging party or the merged entity to one or more HDPs;

• Direct share ownership schemes in terms of which workers will acquire shares in a merging party or the merged entity, at no cost to workers for a reasonable period post the merger’s implementation;

• Divestiture of a business or assets of a merging party or the merged entity to HDP purchasers within a reasonable period post the implementation of the merger; and

• Community or other investment trusts that hold shareholding in an operational firm, for the benefit for HDP beneficiaries.

The Commission’s increased emphasis on the public interest factors, particularly in relation to the applicability of section 12A(3)(e), means that merger parties should ensure that a proposed transaction is justifiable on both competition and public interest grounds.