Foreign investors may be hesitant to transact in South Africa in light of growing uncertainty in the Competition Commission's (CC's) approach to approving commercial transactions.
The CC, established in 1999, has shown inconsistencies in its application of policy. In recent years, the CC and the Department of Trade, Industry and Competition (DTIC) have chosen to become involved in some transactions, but not others. These mergers usually involve large, multinational foreign firms looking to expand their geographic footprint on the continent (for example, the AB InBev/SABMiller and PepsiCo/Pioneer mergers), or large local firms looking to consolidate their operations to realise efficiencies. In some cases, this has led to transactions being held up by long debates over issues such as employment and employee share schemes, while others receive approval without a hitch. The inconsistency around which mergers may be targeted and how long negotiations with the authorities and DTIC may take also has cost consequences for investors. Legal advisors are finding it difficult to predict timelines, the cost implications of the transaction and legal costs.
The South African Competition Act was one of the first in the world to legislate that public interest grounds must also be considered by the competition authorities when assessing whether to approve a merger. This includes, among other things, evaluating the impact of the transaction on employment, the ability of small businesses to participate and expand within markets, and the promotion of a greater spread of ownership. It is also widely accepted that these public interest objectives are embedded in the preamble of the Competition Act and that this type of government intervention in significant commercial transactions can help protect jobs and narrow inequality. While many recognise that competition law can be used as a means to achieve these public interest objectives, the CC's and DTIC's unpredictable approach to merger control has gone hand in hand with accusations that it is overextending its reach in the name of public interest concessions.
While industrial, social welfare and competition policies work together to achieve positive outcomes, the requirements of the role of merger parties to achieve broader socioeconomic outcomes in certain industries must be clearly articulated.
In a positive move to address some of these concerns, the minister of trade, industry and competition recently announced that in February 2023, the DTIC will be publishing regulations setting out how the DTIC works with merger parties to craft public interest conditions. The minister is hopeful that these regulations (or guidelines) will address many of the questions merger parties have regarding public interest conditions. It should be noted though that while this document is intended to regulate interactions with the DTIC, a new set of CC public interest guidelines is also urgently needed since most of the negotiations on these issues is run by the CC.
Legal practitioners are also hopeful that as the new competition commissioner, Doris Tshepe, takes the helm at the CC (replacing Tembinkosi Bonakele after almost a decade in the role), a more "business friendly" approach is adopted, given her private practitioner background. Facilitating more frequent and transparent discussions among key stakeholders and the authorities on key issues may also be important in driving growth and policy consistency.
In the interim, merger parties should start considering any public interest issues and consider proactive engagements early in the merger process with both the DTIC and the CC. Strategic business plans and board resolutions may be used as a basis to frame future commitments. Merger parties must also be alive to how other market participants may respond to the transaction and should anticipate the possibility of intervention by third parties such as competitors, suppliers and customers.
This article was originally edited by, and first published on, www.lexology.com/commentary
