Case Note: Tiger Equity (Pty) Ltd and Murray & Roberts (Pty) Ltd / Competition Commission Case 01974
The South African Competition Tribunal has made a very useful decision regarding the practical approach in determining whether a merger arises by way of a number of firms acquiring what would be joint control over a target firm.
The decision confirms an approach commonly adopted by practitioners – that for competition law purposes, joint control generally requires an agreement between two or more shareholders. That agreement may be exercised positively or ‘negatively’, by way of a right of veto, in relation to certain strategic decisions of the firm. An agreement between shareholders on issues involving the governance or shareholder structure of the firm is not enough to constitute such control.
In the Tiger Equity merger, the Tribunal found that no such agreement existed. The result was that the acquiring firm was not controlled by any one shareholder.
The case follows the European Commission Guidance on Merger Regulation which sets out that joint control for these purposes must reflect agreement on a common approach to the firm’s strategy, such as a requirement for agreement (or a right of veto) over budgets or business plans. It is the event of a change in that control which requires competition authorities to review the firm’s possible future behaviour and how it may impact upon relevant markets.
Two other common situations which arise for practitioners are (a) whether the establishment of a 50 /50 shareholding or interest holding in a firm, without specific agreement on future strategies, could also be regarded as joint control and (b) whether the loss of a position of joint control – say by a former joint controlling party selling its shares, requires notification for merger approval. The short answers based upon various decisions of the Competition Tribunal and practice of the Commission are (a) yes, and (b) no – because the Act requires notification of the acquisition or establishment of control, not the loss thereof.
It is not common that the Commission’s approach, in determining when mergers arise, or when an obligation to notify a merger arises, is questioned and ventilated before the Tribunal. The cost, time delay and effort is often not worth the candle at the end of the day. Firms might find that compliance, even over compliance is the path of least resistance. However the guidance given by the Tribunal in this case is likely to assist the Commission and practitioners in future.