| 5.1. | A contravention of failure to notify is committed where: |
| 5.1.1. | the transaction constitutes a merger under the Act; |
| 5.1.2. | the transaction meets the thresholds for notification under the Act; and |
| 5.1.3. | the parties have failed to notify the Commission of the transaction as is required by section 13A(1) the Act. |
| 5.2. | A contravention of prior implementation is committed where at the point of implementation: |
| 5.2.1. | the transaction constitutes a merger under the Act; |
| 5.2.2. | the transaction meets the thresholds for notification under the Act; and |
| 5.2.3. | the parties implement the merger without prior approval from the Commission, the Tribunal or the CAC, as the case may be (whether or not the merger has been notified to the Commission). |
| 5.3. | Failure to notify and prior implementation can take various forms such as when a firm acquires control in terms of section 12(2) of the Act, in a transaction which amounts to a notifiable merger, but the firm fails to obtain the approval of the Commission and/or the Tribunal for that transaction. Section 12(2) provides that a firm controls another firm, if that firm: |
| 5.3.1. | beneficially owns more than one half of the issued share capital of the firm; |
| 5.3.2. | is entitled to vote a majority of the votes at a general meeting of a firm, or has the ability to control the voting of the majority of those votes, either directly or indirectly or through a controlled entity of that person; |
| 5.3.3. | is able to appoint or veto the appointment of the majority of the directors of a firm; |
| 5.3.4. | is a holding company and the firm is a subsidiary of that company under section 1(3)(a) of the Companies Act; |
| 5.3.5. | in the case of 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; |
| 5.3.6. | owns the majority of members' interests or controls directly or has the right to control the majority of members' votes in a close corporation; or |
| 5.3.7. | 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 as described in the paragraphs above. |
| 5.4. | The Tribunal has held that the instances of a change of control set out under section 12(2) of the Act is not an exhaustive list.10 Acquisition of control is a factual and legal question. |
Instances of failure to notify and prior implementation
| 5.5. | The following list contains examples of instances where the conduct of parties has been regarded as a contravention of failure to notify and/or prior implementation: |
| 5.5.1. | The acquisition of 30% of the issued share capital of a company and the accompanying right to veto strategic decisions of the shareholders of that company, if those strategic decisions are sufficiently material to confer material influence in terms of section 12(2)(g) of the Act.11 |
| 5.5.2. | The increase of shareholding from 22% to 28% and the accompanying right to veto certain strategic decisions of the company, if those strategic decisions are sufficiently material to confer material influence in terms of section 12(2)(g) of the Act.12 |
| 5.5.3. | The acquisition of a 50% share in a company due to the mistaken belief by the merging parties that the relevant turnover/asset values of the merging parties are below the minimum notification thresholds for the transferred firm as prescribed by the Act.13 |
| 5.5.4. | The acquisition of 49% of the issued share capital of a company, irrespective of the right to appoint the majority of the directors in the company, coupled with control in the form of section 12(2)(c) of the Act.14 |
5.5.5. The acquisition by two wholly-owned subsidiaries of certain properties and the failure to notify those acquisition due to the mistaken belief that the transactions amounted to two small mergers.15
| 5.5.6. | The acquisition of part of a business of a company such as its book debts which included, amongst others, all of the following; the target firms’ customer base, the rights to its subsequent debts, the right to require it to trade on credit, and control over subsequent debtor management and information.16 |
| 5.5.7. | Where the acquiring firm engages in the day-to-day operations of the transferred firm prior to approval of the competition authorities being obtained. 17 |
| 5.5.8. | Where the merging parties market themselves as a single entity prior to approval of the competition authorities being obtained.18 |
| 5.5.9. | Where the acquiring firm changes the name of the transferred firm, and if this amounts to the exercise of material influence over the transferred firm. |
| 5.5.10. | Where there is integration or consolidation of the operations of the merging parties. |
| 5.5.11. | Where the acquiring firm becomes involved in the making and/or execution of strategic decisions such as: |
| 5.5.11.1. | targeting markets for the transferred firm to pursue; |
| 5.5.11.2. | developing new products or services; |
| 5.5.11.3. | influencing the ordering of raw materials; |
| 5.5.11.4. | amending procurement policies; |
| 5.5.11.5. | becoming involved in customer relations; |
| 5.5.11.6. | pricing or terms to be offered to customers; |
| 5.5.11.7. | influencing the targeting or servicing of certain customers; or |
5.5.11.8. marketing and production of certain products lines or services;
except to the extent that such conduct constitutes engaging in planning steps in respect of post-merger integration (without such planning being implemented prior to merger approval being obtained).
| 5.5.12. | Where the merging parties agree on the allocation of customers for sales to be made prior to merger approval being obtained. |
| 5.5.13. | Where the acquiring firm receives profits or other payments connected with the performance of the Transferred firm. |
| 5.5.14. | Where the acquiring firm appoints directors to the board of the transferred firm in circumstances where the acquiring firm will be acquiring control, such that it affords the acquiring firm the ability to materially influence and thus control the transferred firm. |
| 5.5.15. | Where there is a contractual clause in a sale agreement requiring the acquiring firm to make full or partial payment of the purchase price in advance for the target firm, which is non-refundable and amounts to material influence. This will exclude cases of deposits in escrow and trust accounts, break-up fee clauses or other similar arrangements. |
| 5.5.16. | In addition, parties may be found to have contravened the provisions in section 13A(1) of the Act when an exemption has been granted allowing for notification to take place, but the exemption then expires. For example, the Commission’s Practitioner Update Issue 4 on risk mitigation financial transactions as amended),19 allows financial services institutions (which include registered banks and stateowned finance institutions) registered in terms of the Banks Act 94 of 1990 to acquire control over a debtor’s business assets for a period of twenty four (24) months without notifying the Commission. |
| 5.6. | The abovementioned instances do not constitute an exhaustive list of instances of failure to notify and/or prior implementation but merely serves as guidance on instances where the Commission may find that certain conduct contravenes section 13A(1) and/or 13A(3) of the Act. |
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| 10 | See Bulmer SA (Pty) Ltd and Seagram Africa (Pty) Ltd / Distillers Corporation SA Limited and others case nos. 94/FN/Nov00 and 101/FN/Dec00 at page 13, Caxton and CTP Publishers and Printers Limited v Naspers and Others (CT16/FN/Mar04) at para 23, Hosken Consolidated Investments Ltd and another v Competition Commission [2017] 2 CPLR 519 (CAC) at para 57. |
| 11 | Competition Commission v Deican Investments (Pty) Ltd and New Seasons Investments Holding (Pty) Ltd (FTN151Aug15 / Competition Commission v Dickerson Investments (Pty) Ltd and Nodus Equity (Pty) Ltd (FTN127Aug15) |
| 13 | Competition Commission / Structa Technology (Pty) Ltd and others (83/LM/Nov02) |
| 14 | Competition Commission v WBHO Construction (Pty) Ltd and Edwin Construction (Pty) Ltd (69/AM/Oct10) |
| 15 | Competition Commission / Pangbourne Properties and 2 Other (016246) |
| 16 | Competition Commission / Edgars Consolidated Stores Limited and others (95/FN/Dec02 |
| 17 | Settlement agreement: Competition Commission v Dunlop Industrial Products (Pty) Ltd and Another (018688) |
| 19 | The Commission’s Practitioner Update, Issue 4 (as amended). See also Competition Commission v Standard Bank of South Africa Ltd (FTN228Feb16). |
