Competition Law Part 4

Question 1

What is a merger?

Answer 1

A merger occurs when 2 or more firms
which previously operated independently of one another, combine in such a manner that their decision making is unified.

Question 2

What are economies of scale and economies of scope?

Answer 2

Economies of scale:The ability to produce more in a short period of time at lower cost

Economies of scope:When a firm can produce a variety of products

Question 3

What are the benefits of mergers?

Answer 3

• The development of new products
• Lower Production Costs and Lower Prices for Consumers)
• The preservation of employment, where the target firm is a failing firm facing liquidation and closure

Question 4

What is the difference between horizontal,vertical and conglomerate mergers?

Answer 4

-Horizontal mergers
Merger between firms that are competitors.

-Vertical mergers
“upstream” or downstream” firms

-Conglomerate mergers
Operate in unrelated markets

Question 5

Why must mergers be regulated?

Answer 5

Potentially a merger can impact on the structure of the market, in that an anti-competitive structure, that may enable the abuse of the consumer, may be created

Question 7

What are the disadvantages of mergers?

Answer 7

a)a merger between the only two rivals in a market may result in the creation of monopoly, leading to higher prices for consumers .

b)A merger between a manufacturer and distributor/supplier, where the manufacturer acquires the distributor with the result that the distributor is no longer available to provide distribution services to other manufacturers post-merger: input foreclosure

c)A merger between a manufacture and customer, where post-merger the customer decides to sources all its input from its upstream parent company: customer foreclosure. Customer foreclosure weakens competition in the upstream market.

Question 8

How to determine if mergers are notifiable?

Answer 8

1.Juridiction:does the competition act apply according to sec 3?
2.Legal definition of a merger
3.What is the merger classification in terms of the thresholds
4.S13A of the comp act states that intermediate and large mergers must notify the commission

Question 9

What is the sec13A merger notification provision to other parties?

Answer 9

In the case of an intermediate or a large merger, the primary acquiring firm and the primary target firm must each provide a copy of the notice contemplated in subsection (1) to-
(a) any registered trade union that represents a substantial number of its employees; or
(b) the employees concerned or representatives of the employees concerned, if there are no such registered trade unions.

Question 10

Which parties can participate in meregr hearings according to sec 53(c) of the Comp Act?

Answer 10

Section 53(c) determines that these would be:
(i) any party to the merger;
(ii) the Competition Commission;
(iii) any person who was entitled to receive a notice in terms of section 13A (2), and who indicated to the Commission an intention to participate, in the prescribed form;
(iv) the Minister, if the Minister has indicated an intention to participate; and
(v) any other person whom the Tribunal recognised as a participant.’

Question 11

What is the factual and counterfactual situation?

Answer 11

-The counterfactual situation is the situation that exists prior to the meregr

-Thefactual situation is the situation that exists after the merger takes place

Question 12

What is the role of the relevant market in the Medicross Health Care Group v Prime Cure Holdings case?

Answer 12

: the assessment of the effects of the merger on competition must be preceded by a proper definition of the relevant market.

Question 13

What is the definition of a merger according to sec 12(1)(a) of the act?

Answer 13

one or more FIRMS DIRECTLY or INDIRECTLYacquire/establish DIRECT or INDIRECT CONTROL over the whole or
PART OF A BUSINESS of another firm

Question 14

How are mergers achieved according to section 12(1)(b) of the act?

Answer 14

May be achieved in ANY manner including
purchase or lease of:
shares
an interest
assets
amalgamation or other combination

Question 15

When does a person control a firm according to section 12(2) of the act?

Answer 15

(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
(c) is able to appoint or to veto the appointment of a majority of the directors of the firm;
(d) is a holding company, and the firm is a subsidiary of that company
(e) a firm that is a trust, has the ability to control the majority of the votes of the trustees,to appoint the majority of the trustees or to appoint or change the majority of the beneficiaries of the trust
( f ) a close corporation, owns the majority of members’ interest or controls directly or hasthe right to control the majority of members’ votes in the close corporation

Question 16

What is the sec 12(2)(g) catch all provision regarding whetehr control can be exercised in a firm?

Answer 16

A fim is deemed to be controlled if:
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 ).

Question 17

What did the **Ethos Private Equity Fund v Tsebo Outsourcing **case state regarding control and merger notification?

Answer 17

Acquisition of more than 50% of the issued share capital of a company involves crossing a “bright line” and is notifiable notwithstanding shareholder arrangements inter se (joint control to sole control)

Question 18

What did the **Caxton v Media 24 **case state regarding exercisng control and merger notification?

Answer 18

if bright line control (notified or pre-existing) form of control is fettered and then becomes unfettered, this is a change in the quality / nature of control and must be notified -assess each case on its own merits

Question 19

Do firms need to notify the CC multiple times for merger approval according to the Hosken Consolidated Investments v Competition Commision case?

Answer 19

If you have de facto control (s 12(2)(g)) and notify a de jure acquisition of control (e.g. above 50% shareholding), then even if you only acquire this later (e.g. after 2 years) and in a different manner than initially envisaged, you do not need to re-notify (but must adhere to statements made and conditions imposed in the original merger filing).

Question 21

Can a market turnover be attributable to an asset according to the Edgars Consolidated Stores case?

Answer 21

The book debt in the Edcon included certain information concerning the client base which formed the subject of the book. One important piece of information was whether the a particular client was a member of a loyalty scheme.

This acquirer of the book debt would accordingly not only get access to the debt but also to the customers underlying the debt. Access to such customers in this way swayed the Tribunal to regard the acquisition of the book as the acquisition of a business to which a turnover could be attributed.

Question 22

What is the amplified test inndetrmining whether a merger is for the whole or part of the business?

Answer 22

Amplified test:
is it an identified set of activities and structures which can now be identified as a separate business undertaking and which could be pursued by the transferee?

Question 23

What are the 2 factors for a merger to require notifcation according to the Tiger Equity case?

Answer 23

(i) The transaction must comply with a definition of “merger” as contained in s 12 (1) of the Act; and (ii) The relevant financial thresholds must be met.

Question 24

What are the effects of thresholds on merger notification?

Answer 24

1.small merger - NOT notifiable unless at behest of Commission within 6 months of
implementation
2.intermediate merger:notifiable to, and must be approved by, the Commission
unlawful to implement prior to approval
3.large merger :notifiable to the Commission, and must be approved by the Tribunal, unlawful to implement prior to approval

Question 25

What are merger implications?

Answer 25

Intermediate: Filing Fee is R165 000+merger is affected after 60 business days

Large:Filing Fee is R550 000+meregr is affected within 3-4 months

Question 26

What is the S12A merger consideration?

Answer 26

Whenever required to consider a merger, the Competition Commission must initially determine whether or not the merger is likely to substantially prevent or lessen competition, by assessing the factors set out in subsection (2), and

if it appears that the merger is likely to substantially prevent or lessen competition, then determine
(a) whether or not the merger is likely to result in any technological, efficiency or other pro competitive gain which will be greater than, and offset, the effects of any prevention or lessening of competition

Question 27

What is the S12(1A) merger justification?

Answer 27

The Competition Commission must also determine whether the merger can or cannot be justified on substantial public interest grounds by assessing the factors set out in subsection (3).

Question 28

What are the S12A(3) public interest grounds for merger justifcation?

Answer 28

the effect that the merger will have on—
(a) a particular industrial sector or region;
(b) employment;
(c) the ability of small and medium businesses, or firms controlled or owned by historically disadvantaged
persons, to effectively enter into, participate in or expand within the market
(d) the ability of national industries to compete in international markets;
e) the promotion of a greater spread of ownership, in particular to increase the levels of ownership by historically disadvantaged persons and workers in firms in the market.

Question 29

What are the factors in Sec 12A(2) that are used to assess must assess the strength of competition in the relevant market, and the probability that the firms in the market after the merger will behave competitively or cooperatively when considering if a merger will lessen competition?

Answer 29

(a) the actual and potential level of import competition in the market;
(b) the ease of entry into the market, including tariff and regulatory barriers;
(c) the level and trends of concentration, and history of collusion, in the market;
(d) the degree of countervailing power in the market;
(e) the dynamic characteristics of the market, including growth, innovation, and product differentiation;
( f ) the nature and extent of vertical integration in the market;
(g) whether the business or part of the business of a party to the merger or proposed merger has failed or is likely to fail;
(h) whether the merger will result in the removal of an effective competitor.
(i) the extent of ownership by a party to the merger in another firm or other firms in related markets;
(j) the extent to which a party to the merger is related to another firm or other firms in related markets, including through common members or directors; and
(k) any other mergers engaged in by a party to a merger for such period as may be stipulated by the Competition Commission.’

Question 30

What is the efficiency defence for merger justification?

Answer 30

S 12 A(1)-whether or not the merger is likely to result in any technological, efficiency or other pro-competitive gain which will be greater than, and offset, the effects of any prevention or lessening of competition, that may result or is likely to result from the merger, and would not likely be obtained if the merger is prevented (merger specific)

Question 31

What are the efficiency defences identified in the Tongaat-Hulett case?

Answer 31

-New products or processes that will flow from the merger of the two companies, or that identifies new markets that will be penetrated in consequence of the merger,

-markets that neither firm on their own would have been capable of entering, or that significantly enhances the intensity with which productive capacity is utilised.

Question 32

What are the remdies available for the imposition of the merger?

Answer 32

Remedies can be
-Unilaterally imposed by CA or mutually agreed.
-Structural eg Divest of business or part thereof
-Behavioural eg limit retrenchments; provide skills training; establish a development fund etc;

Non-compliance- approval of merger is revoked