Merger Thresholds Increase but Planning Still Essential

It is always advisable to determine whether a proposed merger may pose concerns from a competition law perspective early in the planning stages, even if the transaction falls below the thresholds for compulsory notification to the competition authorities. In the heat of negotiation, dealmakers tend to forget that objections by competitors, suppliers and customers can severely delay and even derail transactions which have been months and millions in the planning. The monetary thresholds for compulsory notification of mergers in South Africa will increase on 1 April 2009. An intermediate merger will now only have to be notified if the turnover or asset value of the target firm is R80 million (currently R30 million), and the assets or turnover of the target and acquiring firms together amounts to more than R560 million (currently R200 million). A large merger will only be notifiable if the turnover or assets of the target firm exceed R190 million (currently R100 million) and the "combined figure" is R6,6 billion or more (currently R3,5 billion). However, the Commission may require a ‘small merger’ which falls below these thresholds to be notified. The parties then cannot take any further steps to implement it until the Commission has reviewed the merger filing and approved the merger. If it raises substantial competition law or public interest concerns (for example, because it will result in significant job losses), the Commission may impose suitable conditions or even prohibit the merger. The Commission has required a number of small mergers to be notified, and has even prohibited some of these transactions. For example, in 2005, the Commission prohibited the proposed acquisition by STRATE Limited of Ultra Registrars because of concerns about the impact the transaction would have on the transfer secretarial market. Although far fewer mergers and acquisitions will now require compulsory notification as an intermediate or large merger because of the higher thresholds, the Commission is expected to improve its capacity to detect small mergers, by, for example monitoring press reports and companies own announcements through SENS. The Commission also relies on competitors and customers of merging parties to alert it in the event that they become aware of potentially anticompetitive mergers which fall below the thresholds for compulsory notification. The possibility that a proposed transaction may have to be notified as a small merger therefore needs to be taken into account and managed in planning the transaction timetable. It may be possible to restructure the proposed transaction prior to it being reviewed by the Commission. Alternatively, parties may be in a position to offer conditions which address potential competition law concerns, and thereby speed up the review and approval process.

Parties to mergers should accordingly work with their competition law advisors from the first talk of a transaction, even if does not meet the thresholds, in order to ensure that the process runs as smoothly as possible.