Merger rules in South Africa clarified for ‘indivisible transactions’

Anthony Crane and Andrew Attieh of Pinsent Masons in Johannesburg were commenting after the South African Competition Commission recently released draft new guidelines for public comment on so-called ‘indivisible transactions’.

Like in many other jurisdictions, South Africa operates a merger control regime where it requires certain mergers – classed as ‘intermediate’ or ‘large’ mergers – to be notified to the Competition Commission before they complete. The regime also enables the voluntary notification of ‘small mergers’ that do not meet the thresholds for mandatory notification, while the Competition Commission also has powers to require small mergers to be notified to it within six months of those deals being implemented on competition or public interest grounds.

A merger must be notified when one or more firms directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another firm and it meets the monetary thresholds for notification as an intermediate or large merger.

For large mergers, that threshold is where the combined turnover and asset value of the entities is at least 6.6 billion South African rand ($360m) and where turnover and asset value of the target company on its own is at least 190m rand ($10.3m). For intermediate mergers, the threshold is where the combined turnover and asset value of the entities is at least 600 million South African rand ($32.6m) and the target’s turnover and asset value is at least 100m rand ($5.4m).

The draft guidelines prepared by the Competition Commission address cases where a business seeks to complete two or more mergers which could be classed as ‘indivisible’ from one another to the extent that they be considered a single transaction. In the case of a series of small mergers, it may be that if they are ‘indivisible’ then they would fall subject to mandatory notification, whereas in other cases there may be some advantages for businesses to file multiple mergers under a single notification – such as to save on administrative burdens and filing fees.

Crane and Attieh said the Commission’s scope to consider transactions indivisible is quite wide.

Crane said: “While the guidelines are not binding, they do provide an indication of how the Commission will interpret such transactions, and they indicate that the Commission views its discretion as relatively wide.”

Attieh added: “If parties implement a set of transactions which are later found to be indivisible, the parties may attract a penalty not exceeding 10% of their annual turnover in South Africa during their preceding financial year.”

In its draft guidelines, the Competition Commission said that the indivisibility of a transaction may occur on a factual or legal basis, or both. It said it recognises both forms of indivisibility for the purposes of determining whether multiple transactions should be notified under a single merger filing.

The Commission said it will consider a series of factors as part of a holistic assessment when determining the indivisibility of transactions. The factors it listed, which it said are non-exhaustive, include the nature of the transaction structure; the relationship between the transactions; the interdependence of the transactions – whether one transaction could be carried out without the other transactions; and the rationale underlying the multiple transactions.

Other factors to be weighed into the assessment include whether the transactions will be implemented simultaneously under same agreement; whether there are multiple acquiring firms, under common shareholding, acquiring the same target firm or firms; whether there are multiple target firms with common shareholders/sellers; and whether there are multiple acquiring firms in terms of a single agreement, such as may be the case in respect of property transactions and consortium arrangements.

The extent to which transactions involve a similar competitive and public interest assessment and whether similar conditions are likely to be applicable to the transactions, is a further relevant factor the Competition Commission cited, as is whether a single notification is aimed at circumventing applicable merger notification filing fees.

It said: “If a transaction meets the requirements of indivisibility, the Commission will assess the transaction under a single merger notification. However, if a transaction does not meet the requirements of indivisibility, the Commission may require merging parties to file the transactions separately.”

The draft guidelines were open to consultation between 28 June and 26 July. Publication of the final guidelines is expected in the coming weeks.