Merger Analysis in South Africa
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Merger Analysis in South Africa Lizel Blignaut +27 13 394 3295. Merger Review. The Commission’s task is to evaluate the impact of a merger on markets and the public interest. South African Merger Review. Categories of mergers Small Intermediate Large

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Merger Analysis in South Africa

Lizel Blignaut

+27 13 394 3295

Merger Review

The Commission’s task is to evaluate the impact of a merger on markets and the public interest.

South African Merger Review

Categories of mergers




Commission decides on small and intermediate mergers, whilst the Tribunal adjudicates over large mergers

Merger tests

  • The first test is whether the merger is likely to substantially prevent or lessen competition.

  • If a substantial prevention or lessening of competition is found, then the second test is to determine whether the effect can be outweighed by technological, efficiency or pro-competitive gains.

  • Regardless of the outcome of the above, the third test entails an evaluation on whether the merger can or cannot be justified on public interest grounds.

Competitive assessment

Step 1: Define the relevant market

  • Purpose of a market definition: Sets the “stage” where competition takes place

  • Product, geographic, functional and temporal dimensions

  • Use the hypothetical monopolist test to determine the boundaries.

  • Factors considered when defining a product market

    • Demand side issues

    • Look at the characteristics of products, functional interchangeability, quality, target customers, convenience, consumer preferences, substitution

    • Sources of information: interviews with customers and competitors, substitution costs/ switching costs, price patterns (convergence, divergence), price elasticities

    • Supply side

  • Defining the geographic market

    • Hypothetical monopolist, chains of substitution

  • Players enter new geographic area

  • The pricing strategies of players

  • Imports

Competitive assessment

Step 2: Market share and concentration levels

Sources of market share

  • Turnover values or volumes

  • Productive capacity

    Using HHI and CR information

    Changes in HHI and CR’s

    Categories of phase 1 cases

  • Transactions where one of the parties is a new entrant into the market, like management buy-outs or where the parties to the merger are not in the same geographic market, and where the transaction raises no vertical concerns.

  • Where the parties are in the same relevant market and their combined market share is below 15%,

  • Where the parties are in the same relevant market and their combined market share is above 15%, but:

  • The post-acquisition HHI is below 1000 points.

  • Where the post-merger HHI is between 1000 – 1800 but the increase in HHI is below 100 points.

  • Where the post-merger HHI is above 1800 but the increase thereof is less than 50 points.

Competitive assessment

Step 3: The theory of harm

  • Unilateral effects (horizontal mergers)

    • Market power

    • Elimination of an effective competitor

  • Co-ordinated effects (horizontal and vertical mergers)

    • Ability to collude, market structure, number of players

    • Flow of information, detecting cheating

  • Foreclosure (vertical mergers)

    • Input or customer

  • Portfolio effects (conglomerate mergers)

Competitive assessment

Step 4: Factors considered when assessing the strength of competition in the relevant market

  • Actual and potential levels of import competition (Gold markets, Namitek/ Altech matter)

  • Ease of entry, tariff, regulatory barriers, contestability of the market (SAA/ Air Tanzania)

  • Trends in concentration, history of collusion (Banks/ Compcorp transaction)

  • Degree of countervailing power (TCCC/ Valpre, Just Juice)

  • Dynamic characteristics of the market, growth, innovation, product differentiation (IT; Computershare)

  • Nature and extent of vertical integration: foreclosure, collusion

  • Failing firm arguments (JD/ Profurn matter)

  • Removal of an effective competitor (Massmart/Moresport)

Weighing of efficiency gains

  • Evaluation of technological, efficiency or other pro-competitive gains

  • Defence of an anti-competitive merger

  • Efficiencies must be quantifiable, sustainable, attainable by no means other than the merger

  • Total welfare concept vs consumer welfare concept

Public interest evaluation

  • Public interest issues

    • Effect of the merger on industrial sector or region

    • Effect on employment (Arvin Industries (“Arvin”) and Zeuna Starker (“Zeuna”)

    • Effect on small businesses and previously disadvantaged persons to become more competitive (Sasol Oil (Pty) Ltd and Exel Petroleum (Pty) Ltd, Anglovaal Mining and Harmony Gold Mining by Ubuntu Consortium)

    • Effect on the ability of national industries to compete in international markets

Case study: Arvin Zeuna Starker

  • The Commission found that the merger was unlikely to substantially prevent or lessen competition in any market.

  • The Commission, however, found that the merger has negative effects on employment and on the Ga-Rankuwa region (126 job losses, 31 new jobs in Cape Town).

  • The Commission therefore, approved the merger subject to the following conditions:

Arvin Zeuna Starker conditions

  • Retrenchment packages, severance pay and retraining

  • The employer must provide counseling

  • The merging parties must offer employment to 31 employees who are directly affected by the relocation

  • Relocation benefits must be paid

  • Report on the progress of the implementation of these conditions

Case study: LNM Iscor

  • Trade unions raised concerns about possible job losses resulting from the merger

  • Foreign ownership of Iscor raised

  • Job losses in Iscor since restructuring after 1990’s

  • Efficiency drives had lead to job losses

  • LNM’s retrenchment history examined

  • Commission came to the conclusion that the rationalisation process in Iscor had been ongoing and is separate from the merger

  • The retrenchments are not merger specific

Questions and discussion

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