On July 12, the Competition Amendment Bill was introduced in Parliament, substantially revising the earlier version of the Bill. One of the most signiﬁcant changes is the introduction of a new Section 18A, which would allow for an additional review process for mergers that would have an adverse eﬀect on national security interests.
In addition to the competition authorities’ review process, a Committee constituted by the President, or a Cabinet Member to which the President delegates authority, would consider whether a merger involving a foreign acquiring ﬁrm has an adverse eﬀect on South Africa’s national security interests. The Committee would comprise Cabinet Members and other public oﬃcials appointed by the President.
The President is also tasked with publishing a list of national security interests, including the markets, industries, goods or services, and sectors or regions. In compiling that list, the President must have regard to a broad range of factors, including the eﬀect of a merger on “the supply of goods or services” to either citizens or government and the “economic and social stability of the Republic”.
It appears that a favourable decision by the Committee would be a pre-condition to a complete ﬁling with the Commission and the competition authorities would not be able to approve a merger if the Committee has prohibited it, eﬀectively ousting their jurisdiction to deal with such mergers.
The amendment speciﬁes that the Committee must make a decision to either approve the merger, with or without conditions, or prohibit it, within 60 days of notiﬁcation to it. The Committee may consult with the Commission during its deliberations and would submit its assessment report to the National Assembly.
The amendment contemplates that the President will issue regulations governing the processes and procedures of the Committee and access to information regarding the merger, which would no doubt clarify a number of open issues.
The factors that the President would take into account when determining national security interests are very broad, and include not only the typical interests of defence, foreign surveillance and terrorism, but also interests that are more indirectly related to national security.
It is not clear how parties would determine whether the merger they contemplate falls within the scope of the national security interests and if there is a materiality threshold — the present wording of “may have an adverse eﬀect on the national security interests of the Republic” is extremely broad.
The review period for aﬀected mergers will be signiﬁcantly extended, especially as there is an opportunity for the Committee to extend “upon good cause shown”.
Because “acquiring ﬁrm” is broadly deﬁned in the Competition Act, the scope of what is meant by a “foreign acquiring ﬁrm” may be over-broad. In particular, the amendment would capture mergers between foreign acquiring and foreign target ﬁrms and not only mergers between foreign acquiring and local target ﬁrms, even though foreign-to-foreign mergers usually have fewer direct implications for South Africa.
The grounds, criteria, methodology and supporting evidence for evaluation are all unknown. Another uncertainty is the type of remedy that may follow if the Committee identiﬁes a national security interest concern. This uncertainty might result in a disincentive to a broader category of investment than the drafters of the amendment intended.
National security interests are likely to be policy issues that have nothing to do with competition or the existing public interest grounds, and the provisions might therefore be misplaced in the Competition Act.
The amendment does not contemplate an appeal process — the decision of the Committee is eﬀectively ﬁnal, with unclear implications for global mergers.
Although the amendment in its current form appears to be very broad in scope, the Minister of Trade and Industry has indicated in a recent article that the section is intended to apply, for example, in the hypothetical case where a foreign arms manufacturer merges with or acquires a local arms manufacturer.
While similar review processes occur in other countries, including Canada, the United States and the United Kingdom — notably, in separate legislation to the competition legislation — typically the scope of those sections is limited by a materiality threshold and participation by the competition authorities. It seems that, under its current wording, the amendment might be capturing mergers with a wider net than necessary to achieve its purpose, although the Regulations might well remedy this concern.
The amendments are scheduled for debate in public hearings before Parliament on August 28 and 29, 2018.
This article was written on August 14, 2018
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