Competition Commission’s public interest guidelines may deter investment in SA
Amendments try to use law to deal with high levels of concentration and skewed ownership spread
The Competition Commission has published draft amended public interest guidelines relating to merger control, which are aimed at providing clarity to businesses and practitioners on its approach to the assessment of the public interest factors under the merger control provisions in the Competition Act.
While the guidelines will not have the force of law, they are aimed at articulating the commission’s approach to the merger control process in SA. They flow primarily from the amendments to the Competition Act passed in 2019, which introduced a specific requirement that the competition regulators consider the effect of a merger on the promotion of a greater spread of ownership with respect to historically disadvantaged people and workers within markets.
The 2019 amendment implicated an important imperative confronting SA society, in circumstances where the economy remains materially unequal and characterised by skewed ownership as a consequence of apartheid legislation that inhibited black people from participating in the SA economy.
The 2019 amendments to the Competition Act introduced a new aspect to competition law enforcement in SA, one that attempts to use competition law to deal with the high levels of concentration and skewed spread of ownership in the SA economy.
In circumstances where the government endeavours in the area of other legislative and related interventions have been seen as not sufficiently addressing changes in the nature of ownership or fostering meaningful empowerment within the SA economy, the government has turned to merger regulation to achieve these outcomes.
There is no question that appropriate measures to address inequality within the SA economy must be strongly supported. However, there are legitimate concerns that the use of merger regulation for this purpose is an inappropriate tool and will not achieve meaningful results. Measures to address the public interest should be undertaken through legislation of true general application (such as through various pieces of empowerment legislation dedicated to achieving this important objective).
Using individual mergers on a piecemeal basis to extract empowerment and ownership outcomes that only apply to the merging parties and not other participants within the sector, will likely be ineffective and undermine meaningful and economically incentivised investment in the economy, potentially undermining the public interest in the medium to long term. It could also materially increase direct or indirect costs, and uncertainty, of doing business in SA.
These concerns are worsened by the interpretation of the law that the guidelines appear to support, which does not align with a consideration of the public interest as expressed in the Competition Act. The commission’s approach, reflected in the guidelines, aggravates the existing uncertainty and is more likely to undermine investment in SA, especially if applied in an inflexible manner.
The guidelines make little effort to engage with the substantive and complex issues that will result from the approach set out in the guidelines, to foster confidence in the integrity of the commission as an independent regulator and reflect a meaningful engagement on the issues, including potential unintended consequences that may undermine the public interest.
The guidelines are intended to apply to all mergers, and all mergers are seen as being subject to the requirement that the merger promote a greater spread of ownership. According to the guidelines, a failure to do so may render the merger unjustifiable on public interest grounds.
This approach, which entails a “positive obligation” on the part of merging parties even where a merger raises no competition or public interest concerns, creates an interpretive challenge that is inconsistent with the Competition Act and has not been considered by the Competition Tribunal or the courts. The approach deviates from that adopted by the competition authorities in the past and by regulators around the world, and this in circumstances where merger assessment generally involves considering whether a merger “makes things worse” — as opposed to an obligation on the part of merging parties to “make things better” — especially where such obligations do not apply to other firms within the sector.
The guidelines are also intended to apply to mergers taking place outside SA and with limited “SA-centricity” — arguably reinforcing the disincentive to invest in SA and contributing to underinvestment in the country.
Counter-intuitively, the guidelines may also devalue the existing interests held by historically disadvantaged shareholders, especially if as the guidelines suggest such shareholdings may need to be “replaced” on a like-for-like basis in certain instances. Where such replacements cannot be found, historically disadvantaged shareholders may not be able to realise the value of their investments.
The commission’s intended “one-size-fits-all” merger approach is inappropriate and may have the unintended consequence of deterring investment in SA and the related benefits that accompany such investments, including potentially undermining both the competition outcomes and the public interest the competition legislation is intended to promote.
The commission should be encouraged to engage meaningfully with each merger on a case-by-case basis and in a manner that promotes the SA economy as a whole, in particular to support job creation. A rigid approach as contemplated by the guidelines will undermine the integrity of the commission and foster perceptions of arbitrariness.
• The authors are with Bowmans SA.
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