The Competition Commission of South Africa (“Commission”) has extended the deadline for the submission of comments on the recently published draft Guidelines on the assessment of public interest provisions in merger regulation under the Competition Act 89 of 1998 (“the Act”).
Public interest clauses in competition law have been the cause of some controversy. Some argue that they have no place in competition law but should be dealt with by other social or policy agencies. Frédéric Jenny, chairman of the OECD’s competition committee, recently commented however that where these clauses are deemed necessary for local social and industrial policy reasons, it is perhaps more sensible for competition authorities to apply and interpret them in an economic context rather than other national regulators.
In line with this approach, the draft Guidelines provide an overview of the Commission’s analysis of mergers and the type of information considered by the Commission when assessing the public interest aspect of a proposed merger.
In terms of section 12A (3) of the Act, the Commission must consider the possible effects the proposed merger may have on the public interest, specifically:
- a particular industrial sector or region;
- employment;
- the ability of small businesses, or firms controlled or owned by historically disadvantaged persons, to become competitive; and
- the ability of national industries to compete in international markets.
The initial analysis is two-fold: first, the Commission must establish whether any positive effect in relation to any public interest grounds outweighs any anti-competitive effects. In theory, the Commission could approve an anti-competitive merger if the public interest grounds outweigh the anti-competitive effects and justify such an approval.
Second, the Commission is required to consider whether there are any substantial negative public interest effects that outweigh the pro-competitive effects of the merger.
The General Approach
The Guidelines set out the general approach the Commission will follow when analyzing the possible effect of a merger on the public interest grounds listed above.
The Guidelines categorize the General Approach into the following five sequential steps:
- determine the likely effect on the particular public interest;
- determine whether the alleged effect on a specific public interest is a result of that merger or is merger specific. In other words, is there a sufficient causal nexus between the merger and the alleged effect;
- determine whether these effects are substantial;
- consider whether the merging parties can justify the likely effect on the particular public interest; and
- consider possible remedies to address any likely negative effect on the public interest.
This is of course a Guideline, and the Commission has discretion as to the approach followed when implementing.
The Effect on Employment
The Commission has in recent decisions focused its attention on the protection and advancement of employment. By illustration, seven of the ten conditionally approved mergers in 2014 were subject to conditions relating to employment.
Merging parties are required to declare all contemplated retrenchments, whether these are due to the merger or alternatively due to operational requirements. In addition to the five step General Approach set out above, the Commission’s inquiry into whether the retrenchments are merger specific is double-barreled:
First, the Commission will consider factors such as the extent of the overlap in the merging parties’ activities, rational for the transaction and the intention of the parties relating to employment and the target business.
Second, the Commission will consider the effect on employment for the general level of employment in that particular industrial sector or region. This is a secondary inquiry and the Commission will place more weight on the first line of inquiry.
The inquiry is aimed at establishing a reasonable link of causality between the retrenchments and the merger – this is sufficient to prove that the retrenchments are merger related.
Further, the Commission will consider the number of employees that may be retrenched; their skill set; the likelihood of alternative employment being found; the nature of the sector of the business and the predominant nature of the acquiring firms’ business when establishing whether the anticipated effect on employment is substantial or not.
The onus rests on the merging parties to justify the effect of the merger on employment, with reference to the ‘rationality’ of the process which determined the figures for proposed retrenchments; whether the retrenchments are justified by an equally weighty and countervailing public interest argument and whether the parties have provided the Commission and the employees with sufficient information which enabled them to consult on all issues.