By Wikus Steyl

One plus one makes three: That is the special alchemy of a merger or an acquisition.

For many attorneys, mer­gers and acquisitions might seem like a branch of the law that is in the purview of a select group of attorney firms.

This article provides basic guidance on what a merger involves and, hopefully, demonstrates that, just like the South African bush is not dominated by the ‘Big Five’ only, mergers can also be undertaken by smaller firms.

What is a merger?

While a firm may build market power through unilateral conduct, the easiest way for a firm to establish or enhance its market power is by acquiring or merging with other firms.

Section 12(1)(a) of the Competition Act 89 of 1998 (the Act) states that a merger occurs when one or more firms directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another firm. This may be achieved through the lease or purchase of the shares, an interest or assets of the target firm, or an amalgamation or other combination with the other firm.

This definition covers horizontal, vertical and conglomerate mergers.

Briefly, these can be defined as follows:

• Horizontal mergers: The merger of two or more companies that are in direct competition with each other and which share the same product lines and markets.
• Vertical mergers: Where a customer and a company, or a supplier and a company, merge.
• Conglomerate merger: Where two or more companies that have no common business areas merge.

It is, however, the acquisition of control that is decisive and s 12(2)(a) to (g) of the Act define at length the different categories of control.

Briefly, control is acquired, inter alia, when a firm –

• owns more than half of the issued share capital of another firm; or
• has majority votes in general meetings of another firm or has the ability to control the voting of a majority of those votes; or
• can appoint or veto the appointment of the majority of the directors; or
• has the ability to materially influence the policy of the firm.

Types of mergers

• Small:

A merger or proposed merger with a value at or below R 560 million and the annual turnover or asset value of the target firm is below R 80 million.

• Intermediate:

A merger or proposed merger with a value of between R 560 million and R 6,6 billion and the annual turnover or asset value of the target firm is between R 80 million and R 190 million.

• Large:

A merger or proposed merger with a value at or above R 6,6 billion and the annual turnover or asset value of the target firm is at least R 190 million.

The Competition Commission’s (the commission’s) website contains a merger threshold calculator, which assists in determining if a merger or proposed merger is small, intermediate or large.

Merger filing

Only in the event of intermediate and large mergers or proposed mergers, is it compulsory that the commission be notified thereof.

Section 13(1) of the Act sta­tes that a party to a small mer­ger is not required to notify the commission of that merger unless, and within six months after the implementation of the merger, the commission, as it is entitled to do in terms of subs (3), requires the parties to the merger to notify the commission thereof if, in the opinion of the commission, that merger –

• may substantially prevent or lessen competition; or
• cannot be justified on public interest grounds.

The commission has, however, published a notice stating that it will require notice of a small merger if, at the time of entering into the transaction, any of the parties or firms within their group are –

• subject to an investigation by the commission into prohibited practices; or
• respondents to pending proceedings referred by the commission to the Competition Tribunal relating to prohibited practices.

Should the commission act in terms of subs (3), a party to the merger may not take further steps in the implementation of the merger until it has wholly or conditionally been approved by the commission within 20 business days after all parties to the merger have complied with the commission’s notification requirements.

The commission may extend the period it has to consider the proposed merger by a single period of no more than 40 business days, in which case the commission must issue an extension certificate to any notified party; or the commission must issue a certificate approving, either conditionally or unconditionally, the merger; prohibiting the implementation of the merger; or declaring the merger to be prohibited.

If the commission does not issue its certificate within the initial 20-business-day period or on the expiry of an extension period, the merger must be regarded as having been approved.

In instances of intermediate or large mergers, a joint merger notification in terms of r 27 of the commission’s rules (the rules) or a separate filing in terms of r 28 must be made. Rule 28 deals with instances such as hostile takeovers and will not be discussed here.

Rule 27 requires that a merger notification in form CC4(1) be filed with the commission, which must declare the names of the primary acquiring and target firm and whether the merger is small, intermediate or large.

A statement of merger information in form CC4(2) must also be filed for each primary acquiring firm and the primary target firm, together with, but not limited to –

• a complete set of shareholders and their respective shareholding, including minority shareholders for the primary acquiring firm and of any firm that directly or indirectly controls the primary acquiring firm (a detailed organogram of the primary acquiring firm and its group will be useful);
• strategic documents of the merging parties in relation to the affected markets, such as business plans, marketing documents, high-level strategic presentations and board minutes; and
• non-confidential versions of forms CC4(1), CC4(2) and the report on competition, if submitted.

The notifying party must provide proof of delivery of copies of the forms to every other party to the merger and, in terms of s 13A of the Act, to any registered trade union representing a substantial number of its employees; alternatively, if there are no such registered trade unions, employee representatives.

In terms of r 27(2), the prescribed merger filing fee of R 100 000 for intermediate mergers and R 350 000 for large mergers must be paid to the commission before the date of filing of the forms.

A case number, together with the date of receipt, will be issued to the notifying party.

Should the filing be incomplete, the commission may, within five business days after receiving a large merger notification, or within ten business days after receiving notification of any other merger, deliver a notice of incomplete filing in form CC13(2) or a notice of complete filing on form CC13(1).

If neither form CC13(1) nor CC13(2) is delivered in this period, the filing will be deemed to be complete.

As most of the information provided to the commission will be confidential, the merging parties are advised to claim confidentiality by completing form CC7.

On completion of its investigations of small and intermediate mergers, the commission will issue its approving or prohibiting certificate.

If the merging parties do not agree with the commission’s decision, they can appeal to the Competition Tribunal and, thereafter, if still not satisfied, to the Competition Appeal Court.

In terms of s 16(2) and (3) of the Act, the commission, in the event of a large merger, will send its recommendation to the Competition Tribunal, the Minister of Trade and Industry and the merging parties, and the Competition Tribunal will take the final decision on the matter. If the merging parties do not agree with the tribunal’s decision, they can appeal to the Competition Appeal Court.

Conclusion

This article is not an exhaustive list of merger requirements, but should, as stated above, show that mergers can be taken on by smaller firms with the assistance and guidance of the Act, the rules and the commission.

Wikus Steyl LLB (UP) Cert in Business Rescue (LEAD and Unisa) is an attorney at Savage Hurter Louw & Uys Inc in Johannesburg.

This article was first published in De Rebus in 2013 (July) DR 24.