SOUTH AFRICA

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Content last updated: 18-01-2021

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  • Merger Control Regime
  • Merger Screening
  • Merger Filing

1. Supranationality

1.1 Membership of Supranational Organization

1.1.1 Is the jurisdiction a member of/party to a supranational jurisdiction?

No.

1.1.2 Is the jurisdiction itself a supranational jurisdiction?

No.

1.1.3 If the answer to Section 1.1.1 and/or 1.1.2 above is in the affirmative, what are the implications hereof?

Not applicable.

2. Nature of merger control regime

2.1 Mandatory or voluntary

2.1.1 Is filing mandatory or voluntary?

Mandatory.

2.2 Suspensory effect

2.2.1 Must completion of the transaction await clearance by the relevant authorities?

Transactions in South Africa are classified as either small, intermediate or large, based on the South African turnover and assets of the undertakings concerned. See Section 2.3.1 of the Merger Screening Schedule.

Intermediate and large transactions must await clearance by the Competition Commission before completion.

1. What type of transactions are caught by the merger control regime?

1.1 Concentrations

1.1.1 Type of transactions that are caught by the merger control rules?

A transaction is caught by the merger control rules if it, directly or indirectly, brings a change of control over the whole or part of the business of another “firm”, including a person, partnership, or trust, resulting from:

a) amalgamation or other combination; or

b) acquisition or lease of shares, interest, or assets of the other firm in question.

1.2 Joint ventures

1.2.1 What types of joint ventures are caught by the merger control rules?

The merger control rules apply to the following kinds of joint ventures:

a) the formation of a new joint venture where one or more parties to the joint venture contribute(s) existing business assets; or

b) one or more parties acquire joint control over an existing business.

South African merger control rules do not distinguish between full-function and non-full function joint ventures.

Identifying the target and acquiring firms will depend on the transaction structure.

The creation of a greenfield joint venture (to which the undertakings concerned are not contributing an existing business or business assets) are not caught by the merger control rules.

1.3 Definition of "control"

1.3.1 How are the concepts of "control" and "change of control" defined?

The Competition Act lists the below examples of what constitutes control. The list is non-exhaustive and the Competition Appeal Court defines "control" in the widest possible meaning so as to allow the relevant competition authorities to examine a wide range of transactions which could result in an alteration of the market structure.

the beneficial ownership of more than 50% of the share capital;

the entitlement to vote a majority of the votes that may be cast at a general meeting, or the ability to control the voting of a majority of those votes;

the ability to appoint or veto the appointment of a majority of the directors;

for registered holding companies, over a subsidiary as defined in the Companies Act;

for trusts, the ability to control the majority of the votes of the trustees, to appoint the majority of the trustees or change the majority of the beneficiaries of the trust;

for close corporations, owning the majority of the members' interest or control of the majority of members' votes in the close corporation; or

the ability to materially influence policy in a manner comparable, in ordinary commercial practice, to the forms of control listed above.

1.4 Minority shareholdings

1.4.1 Are minority and other interests less than control caught by the merger control rules?

Yes, minority interests are caught if they provide the acquirer with the ability to exercise material influence on the target.

This has to be decided on the facts in each case taking all

circumstances into account. Material influence can be de jure in the form of acquisition of the majority of the voting rights or through special rights; or de facto based on a historic pattern of attendance at annual general meetings.

A convention has developed based on the application of the EU Competition Law Merger Control Guidelines in terms of which certain minority protections (veto rights) are treated as a form of material influence. In particular, the ability to veto the approval of the budget and business plan, appointment or dismissal of senior management, or key investment decisions

in the ordinary course of business would typically confer control. More generally, veto rights that go beyond those purely designed to protect the financial investment of the minority shareholder will need to be analysed in context to determine whether material influence is conferred.

The Competition Commission does not require notification of acquisitions of interests that do not amount to control.

2. Establishing jurisdiction for notification of mergers

2.3 General thresholds

2.3.1 Threshold(s) for when a concentration must be notified under the general merger control regime?

In South Africa, mergers are divided into small, intermediate, and large transactions. Intermediate and large transactions are required to be notified.

The Competition Commission investigates both intermediate and large transactions, but it only makes the decision as to whether to approve the transaction in intermediate transactions. Large transactions are decided on by the Competition Tribunal after a public hearing.

Thresholds for intermediate transactions:

  • the combined turnover in South Africa of the undertakings concerned was at least ZAR 600,000,000 but below ZAR 6,600,000,000 in the last financial year, and the target’s turnover, or its assets, in South Africa exceeded ZAR 100,000,000 in the last financial year; or
  • the combined assets in South Africa of the undertakings concerned were valued at least ZAR 600,000,000 but below ZAR 6,600,000,000 in the last financial year, and the target’s annual turnover, or its assets, in South Africa exceeded ZAR 100,000,000 in the last financial year; or
  • the combined value of the acquirer’s turnover in South Africa and the target’s assets in South Africa were at least ZAR 600,000,000 but below ZAR 6,600,000,000 in the last financial year; or
  • the combined value of the acquirer’s assets in South Africa and the target’s turnover in South Africa was at least ZAR 600,000,000 but below ZAR 6,600,000,000 in the last financial year.

Thresholds for large transactions:

  • the combined turnover in South Africa of the undertakings concerned was at least ZAR 6,600,000,000 in the last financial year, and the target’s turnover, or its assets, in South Africa exceeded ZAR 190,000,000 in the last financial year; or
  • the combined assets in South Africa of the undertakings concerned was at least ZAR 6,600,000,000 in the last financial year, and the target’s turnover, or its assets, in South Africa exceeded ZAR 190,000,000 in the last financial year; or
  • the combined value of the acquirer’s turnover in South Africa and the target’s assets in South Africa was at least ZAR 6,600,000,000 in the last financial year; or
  • the combined value of the acquirer’s assets in South Africa and the target’s turnover in South Africa was at least ZAR 6,600,000,000 in the last financial year.

The Competition Commission of South Africa has jurisdiction to require that a small merger be notified within 6 months of completion if the Competition Commission considers that the transaction may substantially prevent or lessen competition or cannot be justified on grounds of public interest. The Competition Commission also has jurisdiction to require that a small transaction be notified if any of the parties (or the companies in their groups) is subject to an investigation or a complaint referral by the Competition Commission.

2.3.2 For each threshold, can the threshold be triggered by only one undertaking having local turnover?

Yes, the thresholds can be triggered by only one undertaking having turnover in South Africa, but only if the target has turnover or assets in South Africa.

2.3.3 For each threshold, can the threshold be triggered without any undertaking having local turnover?

Yes, the thresholds can be triggered without any party having local turnover if the target has sufficient assets in South Africa.

2.3.4 Are there any circumstances where transactions falling below these thresholds may be still investigated?

Yes. The Competition Commission of South Africa has jurisdiction to require that a small merger be notified within 6 months of completion. See Section 2.3.1 above.

2.4 Other national thresholds for ex ante merger control (e.g. sector-specific rules)

2.4.1 Relevant thresholds for sector-specific or other ex ante merger control rules?

There are no sector-specific rules.

2.4.2 Are any such schemes mandatory or voluntary?

Not applicable.

2.5 Foreign-to-foreign mergers

2.5.1 Do any exemptions, special thresholds etc. apply to foreign-to-foreign mergers, i.e. where none of the undertakings concerned is domiciled in the jurisdiction?

"Foreign-to-foreign" transactions are caught by the South African merger control rules only if the target has assets or turnover in or into South Africa. If the target has no assets or turnover in or into South Africa, the transaction is not caught.

3. Calculation and allocation of turnover, asset value, transaction value etc.

3.1 Relevant turnover

3.1.1 How is turnover defined (e.g. is income from other sources than "ordinary activities to be included, and how are rebates, taxes, internal turnover etc. treated)?

Turnover is defined as the gross revenue recorded in the undertakings’ income statement, arising from the sales of goods and services in, into, or from South Africa and the use by others of the undertaking's assets yielding interest, royalties, and dividends, excluding:

   i. any amount that is properly excluded from gross revenue in accordance with IFRS;

  ii. taxes, rebates, or any similar amount calculated and paid in direct relation to revenue, as for example, sales tax, value added tax, excise duties, and sales rebates

3.1.2 Identification and link to any official rules, guidance etc. on how to calculate turnover?

Guidance can be found in the Competition Commission’s guidelines: GN 216 of 6 March 2009:  Determination of merger thresholds and method of calculation (Government Gazette No. 31957):

https://www.wylie.co.za/wp-content/uploads/Determination-of-Merger-thresholds.pdf

3.2 Relevant period for calculation of turnover

3.2.1 Which financial year(s) is relevant for the calculation of turnover?

The audited annual report for the end of the immediately previous financial year prior to the transaction is relevant for the calculation of turnover.

If audited annual reports are not available, financial reports must be prepared in accordance with IFRS principles. The Competition Commission generally accepts internal accounts prepared in accordance with the IFRS.

3.2.2 Should adjustments be made for e.g. divestitures, acquisitions, closings and other changes of the economic reality of the undertaking concerned made after or during the relevant financial year?

Adjustments must be made for any divestitures/acquisitions made during/after the latest financial year. Turnover stemming from such divested/acquired assets should be excluded/included.

3.3 Relevant undertakings for the calculation of turnover

3.3.1 The undertakings whose turnover is taken into account?

Turnover must be calculated on a consolidated group basis.

3.4 Geographical allocation of turnover

3.4.1 The principles for the geographical allocation of turnover?

Turnover includes sales into South Africa from another country and sales to another country from South Africa.

3.5 Valuation and allocation of assets

3.5.1 The principles for valuation and allocation of assets?

Assets must be calculated on a consolidated group basis based on the gross value of the undertakings’ assets as recorded on their balance sheets for the end of the financial year immediately preceding the transaction.

Guidance can be found in the Competition Commission’s guidelines: GN 216 of 6 March 2009:  Determination of merger thresholds and method of calculation (Government Gazette No. 31957):

https://www.wylie.co.za/wp-content/uploads/Determination-of-Merger-thresholds.pdf

3.6 Calculation of other thresholds

3.6.1 The principles for calculation of metrics for other thresholds (e.g. transaction value, market share, share of supply etc.)?

Not applicable.

3.7 Special rules

3.7.1 Do any special rules or principles apply to the calculation, allocation etc. of turnover, assets etc. for specific undertakings (e.g. State-owned undertakings, investment funds, credit and financial institutions, insurance companies, financial holding companies, others)?

For banks and insurance companies, turnover includes those amounts of turnover required by the IFRS to be included in an income statement, but excluding turnover arising from non­current assets and from foreign currency transactions.

3.7.2 Does any exemptions apply?

No.

3.8 Currency conversion

3.8.1 The exchange rate applied and applicable exchange rate date for conversion of the value of turnover and assets of undertakings in other jurisdictions?

The Competition Commission recommended in a 2010 Practice Note that an average exchange rate based on the latest audited annual reports be used.

1. Practical information

1.2 Deadlines for filing

1.2.1 Are there any mandatory deadlines for filing, and, if so, how these are calculated?

There is no mandatory deadline for filing.

1.2.2 Are there any sanctions for not filing within the deadlines?

Not applicable.

1.2.3 What are the sanctions for not filing a notifiable transaction?

Failure to notify a notifiable transaction, as well as implementation of a prohibited transaction, are sanctionable by a fine of up to 10% of the annual turnover in South African of each of the target, acquirer, and seller.

The undertakings concerned are generally jointly and severally liable for the imposed fine.

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and last updated on 18-01-2021 by

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