Constitutional Court clarifies key issues in relation to merger control
In essence, the Constitutional Court upheld a decision of the Competition Appeal Court (with a limited qualification) and largely dismissed the Commission’s appeal against the Competition Appeal Court’s decision.
Prior to 2014, Tsogo Sun Holdings Limited was subject to the joint control of Hosken Consolidated Investments Limited (“HCI” – via various controlled entities) and SABMiller. In 2014, SABMiller announced that it wished to divest of its interests in Tsogo and, as such, HCI sought approval from the Competition Authorities for the acquisition of sole control over Tsogo. Its acquisition of sole control was approved unconditionally. Accordingly, HCI’s beneficial shareholding increased to 47.61% (HCI had intended to increase its shareholding to above 50%).
At the time it notified the transaction to the Competition Authorities, HCI held a majority shareholding in Niveus, which principally held HCI’s non-casino gaming interests. The Competition Authorities expressly considered the combination of the gaming interests of Niveus with those of Tsogo and held that the full combination of these assets would not give rise to a substantial prevention or lessening of competition.In December 2016, HCI announced the 2017 intra-group transaction through which it intended consolidating its gaming interests which were held in Niveus, into the Tsogo Group and, as a result, its shareholding in Tsogo would also increase to over 50%.
Out of courtesy and caution, HCI approached the Commission to confirm that no further merger approvals were required. The Commission issued an advisory opinion stating that a party moving from 47% to more than 50% crossed a bright line of control and must therefore notify the transaction. The Commission also said that because of the time which had elapsed since the 2014 transaction was approved, notification was required in order that the Commission could confirm whether the structure of the market had changed or the proposed transaction raised public interest issues such as employment.
As a result, the parties approached the Tribunal for a declarator. The Tribunal held firstly, that there was no live dispute and it could not grant a declarator and secondly, in any event, that notification was required.
The Competition Appeal Court overturned the Tribunal’s decision.
The Constitutional Court’s judgment
The Commission argued that the Tribunal was correct in finding that it could not issue a declarator because there was no live dispute between the parties. The Constitutional Court held that the existence of a live dispute is not a pre-requisite for the granting of a declarator and, in any event, that “the mere fact that parties had a difference of opinion regarding an important jurisdictional issue suggests that there was a live dispute”. Accordingly, it held that the Tribunal could in these circumstances grant a declarator. The Constitutional Court’s finding in this regard is not predicated on there being an advisory opinion, but is predicated on the fact that there was a difference of opinion between the Commission and the parties in relation to “an important jurisdictional issue”.
The Constitutional Court endorsed the Tribunal’s once-off principle and held that once a firm has acquired sole control of another firm, there is no requirement to notify any enhancement of the quality of its control. Basson AJ held:
|“Requiring an entity to notify a further transaction in circumstances where it has previously notified a merger for the acquisition of de facto control merely because the nature of control transmutes to a different form of control, is not only unduly formalistic, but also burdensome.”|
Accordingly, the Constitutional Court unanimously held that the 2017 transaction was not notifiable as it did not constitute a merger and that the proposed transaction formed part of the 2014 merger approval.
Following from the SOS judgment and as argued by HCI’s legal team, the Constitutional Court affirmed that the Commission’s powers of investigation are not limited to investigating notified mergers and, therefore, while parties are not required to notify subsequent transactions which are not mergers, the Commission may investigate whether subsequent transactions would undermine compliance with any conditions imposed on the approval of the merger or contradict any assurances provided by the merger parties in obtaining the initial approval. For example, if the merger parties had assured the competition authorities that the initial merger would not have had any negative impact on employment, then the Commission would be entitled to investigate to confirm that subsequent transactions did not undermine the initial assurance. The Constitutional Court added this clarification to the Competition Appeal Court’s judgment.
The Nortons Inc. team represented HCI and Tsogo in this matter.