Competition Law Part 4 Flashcards
What is a merger?
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.
What are economies of scale and economies of scope?
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
What are the benefits of mergers?
- 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
What is the difference between horizontal,vertical and conglomerate mergers?
-Horizontal mergers
Merger between firms that are competitors.
-Vertical mergers
“upstream” or downstream” firms
-Conglomerate mergers
Operate in unrelated markets
Why must mergers be regulated?
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
What are the disadvantages of mergers?
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.
How to determine if mergers are notifiable?
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
What is the sec13A merger notification provision to other parties?
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.
Which parties can participate in meregr hearings according to sec 53(c) of the Comp Act?
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.’
What is the factual and counterfactual situation?
-The counterfactual situation is the situation that exists prior to the meregr
-Thefactual situation is the situation that exists after the merger takes place
What is the role of the relevant market in the Medicross Health Care Group v Prime Cure Holdings case?
: the assessment of the effects of the merger on competition must be preceded by a proper definition of the relevant market.
What is the definition of a merger according to sec 12(1)(a) of the act?
one or more FIRMS DIRECTLY or INDIRECTLYacquire/establish DIRECT or INDIRECT CONTROL over the whole or
PART OF A BUSINESS of another firm
How are mergers achieved according to section 12(1)(b) of the act?
May be achieved in ANY manner including
purchase or lease of:
shares
an interest
assets
amalgamation or other combination
When does a person control a firm according to section 12(2) of the act?
(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
What is the sec 12(2)(g) catch all provision regarding whetehr control can be exercised in a firm?
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 ).
What did the **Ethos Private Equity Fund v Tsebo Outsourcing **case state regarding control and merger notification?
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)
What did the **Caxton v Media 24 **case state regarding exercisng control and merger notification?
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
Do firms need to notify the CC multiple times for merger approval according to the Hosken Consolidated Investments v Competition Commision case?
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).
Can a market turnover be attributable to an asset according to the Edgars Consolidated Stores case?
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.
What is the amplified test inndetrmining whether a merger is for the whole or part of the business?
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?
What are the 2 factors for a merger to require notifcation according to the Tiger Equity case?
(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.
