Section 12 of the Competition Act, Act 89 of 1998 (herein the ”Act”) stipulates that a merger can occur in more ways than one, and specifically when one or more firms, directly or indirectly, acquires or establish direct or indirect ‘control’ over the whole or part of the business of another firm. Accordingly, a merger can occur by any of the following means:
- The purchase or lease of shares;
- The purchase of an interest or assets;
- An amalgamation / combination with another firm.
To establish whether the transaction constitutes a merger, one must determine whether ‘control’ was established / acquired and how the transaction is categorised (i.e. a small-, intermediate- or large merger transaction). Section 12(2) of the Act provides us with a list of scenarios that will constitute the acquisition of ‘control’. Most commonly the acquisition of more than half of the issued share capital of a firm.
However, the concept of ‘control’ is expanded in section 12 of the Act to include the right to appoint or veto the appointment of the majority of the directors of an entity and even extends to the right to materially influence the policy of a firm. This may include, for example, a minority shareholder’s right to veto material strategic decisions or policies in the firm.
The establishment of control, from a competition law perspective should be carefully considered, not only in a tradition sale and purchase transaction, but also in during a scheme of arrangement or an alteration of shareholders’ rights.
Per example, a shareholder may hold 45% of the total issued share capital of a firm, with the right or ability to approve the firm’s budget and major capital expenditures and control or appoint designated service providers. Despite being a minority shareholder, the aforementioned will constitute ‘control’ for purposes of the Act.
However, the Act provides for two requirements for a transaction to be notified to the competition authorities. The first being the establishment of ‘control’ as discussed and the second being that the merger must either be an intermediate or a large merger.
This is determined with reference to certain financial thresholds prescribed by the Act. The thresholds relate only to the size of the merging parties. The transaction value or purchase price has no bearing on the determination.
Should the value of the proposed merger equal or exceed R600 million, calculated by either combining the annual turnover of both firms or their assets, and provided the annual turnover
or asset value of the target firm is at least R100 million, it will constitute an intermediate merger, notifiable to the Competition Commission prior to implementation.
Merger thresholds as at 1 October 2017
|Thresholds||Combined turnover / Asset value||Target turnover / Asset value|
|Lower threshold||R 600 million||R 100 million|
|Higher threshold||R 6’6 billion||R 190 million|
All transactions that fall within the ambit of the definition of a ‘merger’ and which transactions pass the threshold tests for an intermediate or large merger must be notified to the competition authorities. Small mergers do not have to be notified to the competition authorities, unless the parties to the transaction elect to do so.
However, should the competition authorities be alerted to competition concerns by consumers or competitors and which is brought about by a small merger transaction, the competition authorities may, in its discretion require the parties to notify the merger prior to implementation / or within 6 (six) months of the date that the merger was effected.
For more information about our Corporate and Commercial Law Services, contact:
Derek Brits (LLB, LLM, HDip. Tax)
T: (012) 361 5001
M: (082) 451 6535 E: email@example.com
Derek specialises in private equity mergers and acquisitions and is experienced in transactional work. Derek also advises on aspects of the Companies Act, Competition Act and corporate tax structures.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)