South Africa is leading the wpi field internationally
-case Anglo American/Kumba : a large mining house, Anglo American, was seeking to acquire Kumba, a newly formed mining entity. the Industrial Development Corporation intervened to persuade the Tribunal that Kumba should be prohibited or approved subject to conditions to allow for joint control by historically disadvantaged persons. The Tribunal did not accept these arguments, considering it not necessary in the circumstances
-In Vodafone Group/Venfin: objections were raised to the acquisition of a South African company by a foreign shareholder, on the basis that should rather be sold to a BEE(black economic empowerment) acquirer. the Tribunal declined
– Walmart, the American giant, sought to acquire control over Massmart, a local group….gov and tas intervened….on issues of employment and procurement…. the Cat ordered the establishment of a supplier development fund to enhance capacity of local suppliers…. ‘any supplier development must lead to sustainable improvements for smes, or firms owned by historically disadvantaged individuals, and those with labour-intensive practices’
– when ABInbev acquired SABMiller, a rival beer manufacturer, was approved subject to extensive wpi conditions, to: maximise local production and sourcing of inputs; support and promote small beer producers; invest in capacity development of new emerging and commercial farmers; and invest in enterprise development
SETTLEMENTS
Interestingly, the cmA include pi grounds in settlement agreements between parties accused of engaging in prohibited practices….. eg: the six leading building companies signed an agreement with cma, in settlement of outstanding potential claims against them, relating to infrastructure projects. The settlement included financial contributions for developmental projects, and commitments to promote transformation and ownership by black South Africans in the sector
cma enquiries
The Cma inquiry found that :
-exclusive lease agreements, denied SMEs the opportunity to position themselves in malls [where most consumers do their shopping], which had detrimental effects on historically disadvantaged entrepreneurs.
-SMEs are discriminated in trading practices
Pursuant to that enquiry, the Cma reached settlements, terminating exclusive lease agreements, and is pressing hard for a code of conduct, to prevent exploitation of SMEs.
–the CMA can recommend divestitures to the CAT. a mechanism by which large companies could be broken up, to promote competition.
SOUTH AFRICA WPI GUIDELINES
THE Cma must balance whether the merger is likely to substantially prevent or lessen competition….if so, cma must balance whether there are any technological, efficiency or pro-competitive gains that would outweigh….two lines of pi enquiry:
1/following from a negative competition finding: cma will balance whether there are any pi grounds that justify the approval of the anti-competitive merger.
2/ following from a positive competition finding: Cma must balance whether the merger raises any substantial negative pi effects:
(a) a particular industrial sector or region
(b) employment
(c) the ability of small businesses, or firms controlled or owned by historically disadvantaged persons, to become competitive; and
(d) the ability of national industries to compete in international markets
(a) THE EFFECT ON A PARTICULAR INDUSTRIAL SECTOR OR REGION
cma considers the entire value chain within the relevant sector or region….. cma steps:
Step 1:
to determine the likely effect of the merger on the industrial sector or region:
a. impact on local production or manufacturing, for example, closure of existing local production facilities or opening of new production facilities and/or substitution of locally produced goods with imports
b. impact on local or regional supply chains, including termination of supply or development of local supply chains
c. impact on significant social projects and upliftment programs that contribute to upliftment of the region or sector
d. impact on local resources or inputs, for example, whether the merger results in the movement or diversion of local resources to international markets or the creation of opportunities to beneficiate local resources
e. impact on regional sustainability; and f. impact on public policy goals.
Step 2:
whether the likely effect on the industrial sector or region is merger specific, the Commission [causally related]
Step 3:
whether the likely effect on the industrial sector or region is substantial, the Commission will consider:
a. the importance and strategic nature of the relevant products to the sector or region, and of the sector or region to the broader economy
b. the importance to a sector or region of the identified social projects and upliftment programs undertaken by the firms
c. the extent of the effects on the sector and related sectors in the entire value chain; d. whether the sector in question involves or influences any constitutionally entrenched rights
e. whether the merger impedes or contributes towards any public policy goals that are relevant to that sector or region; and/or
f. the importance of a firm to the sector or region and the benefits that flow from that firm to that sector or region.
cma consider as substantial:
a. where the effects arising from the merger’s impact upon the primary market under consideration are far reaching and flow beyond that market and sector
b. The merger impedes or contributes towards public policy goals that would have far reaching consequences for the sector as a whole
c. The effect on the region would threaten that region’s livelihood and sustainability or would allow for its continued livelihood and sustainability
d. Where the sector under consideration is one where the goods or services traded involve or influence constitutionally entrenched rights
e. The effect must be of such magnitude and scale that if allowed, would be irreversible and cannot be undone
Step 4:
where there is a negative competition finding, allow the merging parties to provide information or arguments on whether the likely negative effects can be justified…eg: merger-specific investment and/or job creation in the same or another sector or region.
Step 5:
to consider remedies to address any substantial negative public interest effect on the industrial sector or region. Possible remedies that may be considered include:
a. continued investment into the domestic supply chain
b. maintaining or expanding local production facilities;
c. the obligation to continue supply to local producers;
d. the obligation to continue sourcing from local suppliers.
(b). THE EFFECT ON EMPLOYMENT
Step 1:
The merging parties must declare all potential retrenchments…the Commission will consider, inter alia:
a. the direct effect on employment within the merging parties.
b. the overall nature of the transaction, including the extent of overlap and duplication in the merging parties’ activities, the rationale of the transaction, and the intention of the parties relating to employment and the target business as well as any plans to create further employment opportunities within the merged entity.
c. the likely indirect effect of the merger on the general level of employment in a particular industrial sector or region. whether the merger impacts on the level of employment post-merger due to job creation or loss of job opportunities, duplications, cost-cutting measures, cancellation of supply/distribution arrangements, and/or relocation of offices, plants and facilities
Step 2:
to determine whether any effect on employment is specific to the proposed merger [= cma will decide whether the retrenchments or employment creation would have occurred, absent the merger]: retrenchment proceedings ,proposed or initiated, [by the merging parties] must be reported to cma
Step 3:
to determine whether the likely effect on employment is substantial, it must consider:
a.the number of employees likely to be affected relative to the affected workforce
b. the affected employees’ skill levels, and possibilities for redeployment within the merged entity….cma excludes management employees from the affected number of employees, if they have alternative employment prospects in the short term
Step 4:
if the merger is to be cleared, cma allows the merging parties to determine whether a likely negative effect can be justified
a. whether a rational process has been followed to arrive at the determination of the number of jobs to be lost; that is, whether there is a rational link between the number of jobs proposed to be shed and the reasons for the job losses/reduction
b. whether the merger specific substantial job losses are justified by an equally weighty and countervailing public interest
c. whether the merging parties have provided full and complete information to the Commission and sufficient information to the employees to enable them to consult fully on all issues.
Where the merging parties submit a pi justification for the job losses, cma may accept the following:
a. the merger is required to save a failing firm. Such information should generally be submitted in conjunction with a failing firm defence
b. the merger is required because the firms will not be competitive unless they can lower their costs to be as efficient as their competitors and these can only be attained by employment reduction through the merger; or
c. the merger will lead to lower prices for consumers because of the merged entity’s lower cost base and this lower cost base can only come about or is materially dependent upon the proposed employment reduction
Step 5:
cma may impose these remedies [to address any likely substantial negative effect on employment]:
a. capping the number of job losses; staggering the number of job losses over a period of time;
b. placing a moratorium on job losses for a period of time;
c. providing funding to reskill affected employees in order to improve their prospects
d. of obtaining alternative employment within a short period of time; providing counselling and guidance on applying for alternative employment
e. obliging the parties to re-employ or give preference to affected employees should f. positions become available; and creating jobs as proposed by the merging parties
(c). TO ASSESS THE ABILITY TO BECOME COMPETITIVE, OF SMEs THAT ARE CONTROLLED OR OWNED BY HISTORICALLY DISADVANTAGED PERSONS (HDPs)…. the Commission will follow this steps:
Step 1:
to determine the likely effect on the ability of SMEs and HDIs to become competitive, the commission will consider:
a. entry conditions or expansion opportunities within a market including raising or lowering barriers to entry or expansion;
b.prevents or grants access to key inputs, pricing and supply conditions with respect to volume, discounts, quality, and services that are defensible having regard to prevailing market circumstances;
c.denies or grants access to suppliers;
c. prevents or allows training, skills upliftment and development in the industry
d. denies or grants access to funding for business development and growth
Step 2:
the Commission will determine whether the identified effect on SMEs and HDIs is causally related to, or results / arises from the merger
Step 3:
a. whether the affected SMEs or HDIs are impeded from or allowed to compete in the relevant market such that their impediment restricts or participation promotes dynamic competition, innovation and growth in the market;
b.whether such impediment limits the growth and expansion of SMEs and HDIs and their participation in the relevant market or adjacent markets.
c.whether their ability to compete allows them to expand in the relevant market or adjacent markets
d.whether any effect on SMEs or HDIs has a secondary effect on other public interest factors such as employment and the industrial/sector or region.
The Commission will consider the following as substantial:
a. Where a merger has the effect of restricting or promoting dynamic competition by significantly impeding or allowing the development and expansion of SMEs and HDIs that exert a competitive constraint in relevant markets; or
b. Where the merger significantly impedes or promotes the expansion of SMEs and HDIs in adjacent markets and/or resulting in other public interest concerns or benefits
Step 4:
with regards of the merger’s potential for SMEs and HDIs to become competitive: if there is a negative finding, substantiate any likely positive effects to justify the approval of the merger, or, if there is a positive finding, whether any likely negative effect can be justified
If there are negative effects on SMEs and HDIs, the Commission will consider whether there is any public interest justification , to offset them, eg: lower prices for consumers, expansion to new product ranges and more choice for consumers, investment in new plant or local industry or region
Step 5:
possible remedies to address the substantial negative effect on the ability of SMEs and HDIs to become competitive: The Commission will consider:
a. establishing a supplier development fund for technical and financial support and assistance of SMEs and HDIs; establishing skills development and training programs; and/or
b. obliging parties to continue access and supply.
(d). THE ABILITY OF NATIONAL INDUSTRIES TO COMPETE IN INTERNATIONAL MARKETS
Step 1:
to determine the likely effect of the merger on the ability of national industries to compete in international markets, the Commission will consider the following factors, amongst others:
a. the nature/structure of the industry,
b. the market dynamics within the industry;
c.the nature of competition and the market position of the firm in the domestic economy;
d.the ability of firms to compete in regional and global markets;
e.whether a change in productive capacity is required in order for the merged firm to compete globally against other firms;
f. the policy considerations that are relevant to the sector;
g. the strategy of the merging firms in relation to international competition; and
h. the impact on local consumers for both intermediate and final products
Step 2:
to determine whether the likely effect on the ability of national industries to compete is merger specific, the Commission will consider the extent to which, absent the merger, the merging firms would be able to compete in international markets.
The Commission will pay particular attention to whether economies of scale or increased production could have been attained without the merger
Step 3:
to determine whether the likely effect on the ability of national industries to compete in international markets is substantial, the Commission will consider, amongst other factors:
a. the role and importance of the national industry in the South African market;
b. the role and importance of the national industry or sector in the international market/s;
c. the relative structure and size of the national industry or sector by international standards;
d. the extent of the effect on the sector should the national industry’s ability to compete in international market/s be hindered; and
e. whether the merger impedes on any related public policy goals and relevant industrial policies in relation to the national industry in question.
Step 4:
if there is a negative finding (5.5 above), substantiate any likely positive effects to justify the approval of the merger, or whether any likely negative effect, if there is a positive finding (5.6 above) can be justified:
Where the ability of national industries to compete in international markets will result in significant positive economic effects/benefits that flow back to the domestic economy, the Commission will regard it to be substantial….egs: investment in the domestic economy, job creation opportunities, the introduction of improved/advanced technologies and better quality/service, amongst others
Step 5:
Where balancing the potential benefits to the domestic economy (pi and efficiencies), outweigh the potential negative competition effects, or where the merger raises substantial negative effects on the ability of national industries to compete in international markets, the Commission may consider imposing remedies:
a. obliging merging parties to invest within a specified time period;
b. obligation to create jobs;
c. obligation to introduce new products and technology; and
c. training, re-skilling or skills upliftment programs.