The importance of public interest factors in South African merger control

By Tabacks Commercial Team

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Recently introduced amendments to the Competition Act, highlight the need for companies planning to make strategic acquisitions in South Africa to consider the potential public interest effect their transaction may have in relation to transformation and market concentration objectives.

Important considerations include the impact on the reduction in market concentration as well as protection and stimulation of growth by small and medium businesses controlled by historically disadvantaged persons.

The merger control provisions in the Competition Act require the competition authorities to investigate not only whether a proposed transaction will result in a substantial lessening or prevention of competition in South Africa, but also whether it will impact negatively on various public interest factors.

Prior to the amendments, the public interest factors to be considered included the effect that the merger will have on (i) employment, (ii) a particular industrial sector or region; (iii) the ability of small businesses or firms controlled by historically disadvantaged persons to become competitive and (iv) the ability of national industries to compete in international markets.

Through the amendments, the position has changed with the public interest considerations being expanded to include an evaluation of (1) the ability of small and medium businesses controlled by historically disadvantaged persons to participate and expand within a market and (2) the promotion of a greater spread of ownership by such persons. These changes will result in the competition authorities elevating the public interest analysis to cater for such evaluations and consequently adopting a more robust assessment.

The amendments illustrate that firms making acquisitions in South Africa must give proper consideration to the public interest concerns that the merger may potentially raise. This is particularly true if the proposed transaction hinders the ability of small and medium businesses controlled by historically disadvantaged persons to participate in the affected markets or it results in a decrease in the levels of ownership by such persons.

It is therefore essential to determine at an early stage whether such negative effects arise and the extent to which they can be justified if the parties wish to obtain clearance of the acquisition.