SIYABULELA MAKUNGA | Guidelines to understand public interest grounds in company mergers

The Competition Commission recently published the revised public interest guidelines related to merger control.

But what are public interest grounds? And why does it impact on how the commission assesses mergers?

In February 2019, the Competition Act 89 of 1998 was amended by the Competition Amendment Act, No. 18 of 2018. 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 SA economy.

It was during this process that the public interest provisions in merger control were amended to 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, the commission's analysts must determine whether the merger is likely to substantially prevent or lessen competition.

Under the amended act, the analysts also review each merger not only in terms of the effect it will have on competition in the market, but also 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 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 HDPs and workers in firms in the market.

When assessing the likely effect of a merger on a particular industrial sector or region, the commission will consider the effect on development, environmental sustainability and employment, among others things.

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. This is regardless of whether the parties contend that these are due to the merger or due to operational reasons.

In addition, commission 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 that will contribute or deter small and medium businesses owned by HDPs.

The commission will also consider the nature and 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. 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.

The commission remains committed to conducting merger assessment with the highest standards of transparency, integrity and compliance. The commission has, 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.

The guidelines became effective in March and were gazetted. These guidelines indicate the approach the commission may adopt and the type of information the commission may require when evaluating public interest grounds.

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

Makunga is spokesperson for the Competition Commission of South Africa