The Competition Commission of South Africa recently published pre-merger filing consultation guidelines, which set out a framework for voluntary, informal, non-binding and confidential pre-merger consultations with the Commission prior to the submission of a merger filing, something not previously available in South Africa, unlike certain other jurisdictions, including the EU. The consultation process aims to improve the efficiency of the merger review assessment for complex mergers.
Pre-merger filing consultations are not automatically available for any merger
The guidelines make clear that the pre-merger consultation process is only available to mergers classified as Phase II or Phase III mergers, typically those where the parties’ activities may overlap and the merger will likely result in high post-merger market shares or where the proposed merger may otherwise give rise to competition and/or public interest concerns. Ultimately, the Commission retains the discretion to determine whether a particular merger is appropriate for a pre-merger consultation.
The Commission recommends that the process may be useful for mergers:
- raising complex competition issues, including acquisitions by large players of unique assets (such as essential infrastructure), mergers that create or enhance dominance or co-ordinated effects of the merging parties in the relevant markets, mergers involving dominant firms or firms with high market shares in concentrated markets giving rise to input or customer foreclosure risks and mergers giving rise to the merged entity having ‘unmatched’ buyer power and the ability to use that power to substantially lessen competition in the relevant market;
- raising complex public interest issues, including mergers that have an impact on employment or do not promote a greater spread of ownership; and
- arising from business rescue bidding processes or involving firms in financial distress.
Although the process can be informal, a formal written request for a pre-merger consult is required
A formal written request for a pre-merger consult must be submitted to the Commission and must include:
- the relevant documentation outlining features of the proposed transaction (pre-merger consultations will not be convened for hypothetical or academic queries);
- details of the merger parties’ or seller’s own competition assessment of the complexity of the proposed merger;
- details of the merger parties’ or seller’s queries;
- information about who from the merger parties or seller will be in attendance at the consultation; and
- proposed dates and times for the consultation within 10 business days following the request.
Any firm or authorised representative of a firm proposing to enter into a merger that raises complex competition and/or public interest issues may request a pre-merger consultation. The Commission has discretion to agree to the consultation and engage in more than one consultation on the same query.
While legal advisors may be present during the consult, the Commission recommends that at least one commercial/business representative be present to provide realistic, accurate information.
Pre-merger filing strategy is key for greater deal certainty
In the case of complex mergers, deep work must be done prior to the submission of a merger filing to develop the merger filing strategy, including (i) assessing the potential competition or public interest issues that may arise; (ii) determining the level of detail required to present the merger accurately and attractively, and identifying what information will be required and is available from the parties to do so; and (iii) if remedies are likely going to be required to address any of the issues, determining what the business appetite is for these remedies and where the boundaries lie. We have seen firsthand how this preparation can shorten regulatory timelines, increase deal certainty, and reduce the risk of last-minute surprises.
For the past few years, the impact of a transaction on the promotion of a greater spread of ownership has been a key focus area of the Commission and has had the potential to cause significant delays and remedies to be thrust together in haste. It is encouraging that the Commission expressly accepts, in these guidelines (as the Competition Appeal Court has held), that the assessment of public interest must be a holistic exercise, and that other remedies may be accepted in lieu of ownership remedies where ownership remedies are not possible. What remedies may be acceptable to both the merging parties and the Commission must be factored into the pre-merger filing strategy and will likely be addressed in pre-merger consults.
Conclusion
Pre-merger consults present another tool which could be used by firms in their pre-merger filing strategy to potentially reduce delays and enhance deal certainty. It appears that similar (if not more) deep work will be required to engage in a meaningful and helpful pre-merger consultation process.