Has the Public Interest Factor in South Africa’s Merger Guidelines Gone Too Far?
Revisions to the Competition Commission’s public interest merger guidelines are sowing ambiguity in the country’s business and legal communities—with potentially significant consequences on South Africa’s economy.
In March 2024, South Africa’s Competition Commission published its Revised Public Interest Guidelines Relating to Merger Control (Guidelines). The Commission states that its approach when assessing the likely public interest effect of a merger is to assess each public interest factor separately; if the Commission determines that the merger has a substantial effect on that factor, it will consider conditions to remedy that effect.
For instance, a deal involving a UK-based institutional investor buying a local Black-owned firm will likely have a negative effect on the public interest factor relating to the promotion of a greater spread of ownership. In this case, the Commission would require remedies from the merging parties, such as introducing worker ownership programs.
Though seemingly straightforward, the Commission’s approach conflicts with the practice and guidance of the country’s two other competition authorities: the Competition Tribunal (Tribunal) and Competition Appeal Court (CAC). Both have previously explained that the public interest evaluation is holistic: the different public interest factors are assessed separately and then, if necessary, weighed against each other to arrive at a net conclusion on the public interest effects of the merger.
This distinction is important, and critics argue the Commission’s new approach could have a chilling effect on innovation, investment, and growth. As Supreme Court of Appeal Judge David Unterhalter said last year, a key concern is that South Africa has “started to allow public interest to consume almost the entirety of what merger control is about.”
While the Guidelines are not binding on the Tribunal or the CAC’s interpretation of the Competition Act, there are broader fears that these Guidelines put the Competition Act’s more balanced approach at risk.
Merger Control in South Africa: An Overview
The purpose of merger control in South Africa is to ensure that markets are open and inclusive and sustain effective competition.
The Competition Act (as amended in 2018) provides two legal standards for evaluating mergers. The first is a competition standard, which prohibits mergers that are more likely to substantially prevent or lessen competition unless outweighed by efficiency or public interest gains. This assessment is focused on competition, not competitors, and is designed to ensure that markets stay open to competition wherever it comes from.
To ensure that markets are inclusive, however, the public interest standard allows a merger to be approved or prohibited based on whether it is justified (or not) on public interest grounds, despite the determination on the competition standard.
In practice, the competition analysis is done first—and separately—by all three South African competition institutions. Separating the public interest analysis from a competition one offers upsides including the ability to observe trade-offs between efficiency and public interest.
The Tribunal’s holistic approach to public interest also allows one to observe trade-offs between the different public interest factors. A merger could lead to significant job losses (a negative effect) but also economic growth in a region (a positive effect) and an internationally competitive merged firm (a positive effect). In such a case, the Tribunal’s approach requires an internal reconciliation of three public interest factors before coming to a net conclusion.
Another critical feature underpinning the robust and objective nature of South Africa merger control is its independence from government.
The Tribunal and Commission are enjoined by the Competition Act to be independent, impartial, and free from political influence. The minister of Trade, Industry and Competition in South Africa participates as a party before the Commission or Tribunal to make representations on public interest grounds. For instance, in both the Wal-Mart/Massmart merger and recent Vodacom/Maziv merger, the minister participated before the Commission and made submissions on public interest factors.
Unhappy with the Commission’s decision, the minister appeared before the Tribunal and made representations on public interest considerations. Unhappy with the decision of the Tribunal, the minister approached the CAC. Tribunal and CAC hearings are held in open court.
This independence is hardwired into the statutory regime and deeply embedded in longstanding practice. This crucial piece of institutional governance design has earned the South African competition enterprise a strong reputation for high-quality independent decision-making.
Large Merger Actions Increase Due to Public Interest Standard
In measuring merger enforcement activity, consider the ratio of the number of large merger actions (mergers approved with conditions and prohibited mergers) to the number of large merger filings (the merger enforcement rate) (Figure 1).
Driven by public interest conditional approvals, the merger enforcement rate increased after 2010 and has continued to trend upward. The descriptive statistics, by themselves, shed little light on whether merger enforcement is adequate, too lenient, or too aggressive. Also, the numbers say nothing about whether the right cases are being challenged.
Figure 1: Large merger filings and actions (top) and large merger enforcement rate (bottom), per year, 2000–2022
Why Merger Parties Have Not Challenged the Commission’s Approach
In merger control, evidence-based decisions are up to the Commission (in small and intermediate mergers) and Tribunal (in large mergers). The Commission recommends a decision to the Tribunal in large mergers. Merger parties can review and reconsider decisions of the Commission at the Tribunal and Tribunal decisions at the CAC.
While the Commission’s Guidelines are at odds with the Tribunal’s guidance, merger parties have not challenged the Commission’s interpretation at the Tribunal thus far. They have opted instead to bargain with the Commission. Typically, this results in an agreement—before going to the Tribunal—between the Commission and merger parties on public interest undertakings and conditions to address concerns.
While merging parties have perhaps done this to avoid protracted litigation, the practice has limited the Tribunal’s right to interfere with the conditions. It has also prevented the Tribunal or CAC from setting important jurisprudence on the limits of public interest considerations in merger control.
The Debate Continues
Critiques of the Commission’s new Guidelines show little sign of slowing down.
In a recent article, Judge Dennis Davis, former judge president of the CAC, called the Guidelines an overambitious application of the Competition Act, arguing that “the Commission thus no longer seeks to engage with a holistic approach to assessing the impact of a merger on the public interest. All too often rent seeking, rather than the promotion of an inclusive economy, has been the consequence of the application of this approach.”
On the other hand, supporters of the Commission argue that critics are raising a false concern without any robust evidence or having brought any legal challenges to illustrate that the Commission has adopted flawed economic and legal reasoning.
Tensions between different competition authorities on this front are ongoing. In the recent Epiroc Holdings SA merger, the Tribunal noted that it did not believe that the 2018 amendments to the Competition Act impacted the holistic approach to be followed in the assessment.
Whether the Commission’s approach is proportionate or not, clarity matters to the investment and business community. Uncertainty, then, presents a barrier to getting deals done. Free, open, inclusive, and competitive markets offer powerful opportunities for innovation and value creation—as well as benefits for workers, consumers, and the broader economy.
While the Commission has broad discretion to determine which cases it pursues (and how it pursues them), flawed and erroneous economic and legal reasoning in decisions creates a daunting hurdle to effective merger control. The resulting harm goes beyond the effects in individual cases to chilling competition and investment. None of this is what the Competition Act intends. However, the cure for this problem lies not in further legislative direction but from judicial interpretations from the Competition Tribunal and Competition Appeal Court that define the scope and limits of merger regulation and set boundaries for the Commission’s work.
