Notifiability of a merger in South Africa

Provided by Mota Africa

Topics Competition & Antitrust Law | Mergers & Acquisitions

17 Oct 2022

Failure to notify the Competition Commission of South Africa (“Commission”) of a notifiable merger or implementing a notifiable merger before obtaining approval is a contravention of the South African Competition Act No. 89 of 1998 (as amended) (the “Competition Act”) and exposes the parties to administrative penalties as well as potential injunctions on implementation. Transacting parties need to be aware of the criteria set out below for the notifiability of mergers.

Introduction

In terms of the Competition Act, a merger is notifiable to the Commission if it meets the following three criteria:

jurisdiction test – the merger must constitute economic activity within, or having an effect within, South Africa;
control test – the merger must constitute a “merger” as defined in section 12 of the Competition Act; and
threshold test – the merger must meet the thresholds of assets and turnover values established in the Competition Act.

Legal principles in South African competition law

Jurisdiction

The Competition Act applies to all economic activity within, or having an effect within, South Africa.

Control test

In terms of section 12(1) of the Competition Act, a merger occurs 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. A merger can be achieved in any manner, including through the (i) purchase or lease of the shares, an interest or assets of the other firm in question; or (ii) amalgamation or other combination with the other firm in question. Section 12(2) sets out a list of situations in which a person will be deemed to control another firm; namely, where that person:

“(a) beneficially owns more than one half of the issued share capital of the firm;

(b) is entitled to vote a majority of the votes that may be cast at a general meeting of the firm, or has the ability to control the voting of a majority of those votes, either directly or through a controlled entity of that person;

(d) is a holding company, and the firm is a subsidiary of that company as contemplated in section 1(3)(a) of the Companies Act, 1973;

(e) in the case of a firm that is a trust, has the ability to control the majority of the votes of trustees, to appoint the majority of the trustees or to appoint or change the majority of the beneficiaries of the trust;

(f) in the case of a close corporation, owns the majority of members’ interest or controls directly or has the right to control the majority of members’ votes in the close corporation; or

(g) has the ability to materially influence the policy of the firm in a manner comparable to a person who, in ordinary commercial practice, can exercise an element of control referred to in paragraphs (a) to (f).”

(The “control test“)

Threshold test

The next step in a merger notifiability assessment is to determine whether the transaction exceeds certain prescribed financial thresholds. A transaction that does not exceed these thresholds, even if constituting a merger, does not need to be notified to, and may be implemented without the approval of the competition authorities. The financial threshold analysis considers the higher of the gross turnovers or gross asset values of:

the acquiring group (i.e. the immediate acquiring firm and all firms it controls, firms that control it, and all other firms controlled by its controllers) and the target firm and any firms it controls (“Combined Value“); and
the target firm (including any firms it controls) (“Target Value”),

as recorded in the firms’ most recent year-end financial statements.

The Competition Act draws a distinction between a “small merger”, an “intermediate merger” and a “large merger” as follows:

a small merger is where the Combined Value is less than the lower combined threshold of R600 million in, into or from South Africa and/or the Target Value is less than the lower target threshold of R100 million in, into or from South Africa;
an intermediate merger is where the Combined Value equals or exceeds the lower combined threshold of R600 million in, into or from South Africa and the Target Value equals or exceeds the lower target threshold of R100 million in, into or from South Africa; and
a large merger is where the Combined Value equals or exceeds the higher combined threshold of R6.6 billion in, into or from South Africa and the Target Value equals or exceeds the higher target threshold of R190 million in, into or from South Africa.

When entering into a transaction, parties need to apply all elements of notifiability of mergers. Mota Attorneys is available to assist in clarifying the elements set out above.