THE IMPACT OF COMPETITION LAW CHANGES/DEVELOPMENTS (INCLUDING THE PRACTICES AND POLICIES OF THE COMMISSION/TRIBUNAL) ON M&A ACTIVITY BY LULAMA MTANGA
The Impact of Competition Law changes/developments (including the practices and policies of the Commission/Tribunal) on M&A activity - with a specific focus on 2008 and also forward looking taking into account expected legislative changes. If possible mention actual company names/cases wherever possible to make it have real life application
As in previous years, the majority of the cases handled by the Commission in 2008 were merger cases. This may be set to change in 2009 as the DTI is in the process of increasing the asset and turnover thresholds that determine when mergers must be notified. Private equity funds and smaller investment companies are likely to be positively affected with far fewer of their transactions having to be notified in future.
The Competition Amendment Bill published by the DTI will give the Commission new powers to investigate mergers implemented without competition clearance (also known in the US as “gun jumping”). The Commission’s power will include the power to summon individuals to appear before it and submit documents, as well as conduct dawn raids on implicated firms, tools which are currently available only in the investigation of prohibited practices.
There has been an increased focus on the accuracy of merger submissions with serious consequences for a failure to disclose all relevant information to the competition authorities. In the merger between Vodacom Service Provider Company/Global Telematics and Glocell Services Provider Company despite requests by the Commission, Vodacom failed to provide board minutes relating to the acquisition of Glocell. The Tribunal later ordered the production of and received the minutes. The strategic rationale in the minutes differed markedly from that provided to the Commission in the merger filing. The Tribunal concluded that the minutes had been deliberately withheld. The Commission laid criminal charges against the Vodacom executive who signed the certificate of accuracy that accompanied the merger filing.
It is also clear that firms that are alleged to have engaged in anti-competitive conduct or who operate in markets where there have been findings of anti-competitive conduct are having a tougher time in securing clearance for mergers. In assessing whether a merger is likely to have anti-competitive effects, the Competition Act specifically mandates the competition authorities to take into account, inter alia, the history of collusion in that market.
In Cape Gate/Transvaal Gate, allegations had been made by Barnes Fencing of anti-competitive conduct in the various wire and wire product and fencing product markets. The Commission found that, but for the collusion in the upstream market for galvanized wire, Transvaal Gate would be an effective competitor in the downstream market. The merger was prohibited.
In the acquisition by Aveng of four steel reinforcing firms, the Commission found that the removal of these firms would increase concentration and was likely to make collusion easier to achieve or sustain. Further investigation revealed that there was widespread collusion, specifically in the market for reinforcing steel. This merger was also prohibited.
Mittal Steel faced similar consequences when it was forced to abandon the acquisition of Duferco.
In the Alstom Electrical/Current Electric merger, even though the merger was approved, the commission noted that there was history of collusion in a related market - the switchgear market, a bidding market with few firms with capacity supply switchgear. Previously, the Tribunal held that traditional bidding markets are less likely to result in co-ordinated effects.
The investigations into the construction, steel and related sectors, which are considered traditional bidding markets, has serious implications for mergers in these sectors and for bidding markets generally.
Notifiable transactions in certain sectors are also likely to come under scrutiny. In 2008, the Commission identified the food and agro-processing, infrastructure and construction, banking and intermediate industrial products as priority sectors. The rising prices and the uncovering of alleged collusive behaviour by companies in bread, milling, dairy and poultry has increased the Commission’s suspicions of collusion in the entire food value chain, thus bringing the food value chain under a spotlight.
In a nutshell, developments in 2008 signal a more aggressive approach by the competition authorities, including better co-operation across the different divisions of the Commission. This is a signal for companies to heighten their compliance programmes.
Lulama Mtanga is a director at Bowman Gilfillan.