Competition Commission Proposes Revised Notification Thresholds For Small Mergers

At a glance

• The Competition Commission (Commission) has published draft amendments to the Small Merger Guidelines (Draft Guidelines), proposing revised thresholds for small mergers that the Commission should be informed of.
• The Draft Guidelines represent an increase of the thresholds contained in the Guidelines on Small Merger Notification published in 2022.
• According to the Commission, the amendments are aimed at ensuring that potentially anti-competitive acquisitions do not escape regulatory scrutiny where the target firm is acquired before generating sufficient turnover or accumulated assets.

Under the Draft Guidelines, merger notification is expected where the acquiring firm’s turnover or asset value alone exceeds the large merger threshold of R9,5 billion (being the new large merger combined threshold) and, in relation to the target firm, either (i) the consideration for the acquisition or investment exceeds R280 million or (ii) the consideration for the acquisition of a part of the target firm is less than R280 million but effectively values the target firm at R280 million or more.

This represents an increase from the Guidelines on Small Merger Notification published in 2022, under which merger notification was expected where the acquiring firm’s turnover or assets were valued at least R6,6 billion and, in relation to the target firm, either (i) the consideration for the acquisition or investment exceeded R190 million or (ii) the consideration for the acquisition of part of the target firm was less than R190 million but effectively valued the target firm at R190 million or more.

The Draft Guidelines also retain the existing requirement that the Commission must be informed in writing of a small merger where, at the time of entering into the transaction, any of the merging parties or firms within their group is subject to a Commission investigation or is a respondent to pending proceedings referred by the Commission to the Competition Tribunal in terms of Chapter 2 of the Competition Act 89 of 1998 (Competition Act).

According to the Commission, the amendments are aimed at ensuring that potentially anti-competitive acquisitions do not escape regulatory scrutiny where the target firm is acquired before generating sufficient turnover or accumulated assets that would trigger mandatory merger notification, particularly in cases where the target firm’s valuation is driven by its future growth potential. In particular, there are concerns that potentially anti-competitive acquisitions in digital or technology markets are escaping regulatory scrutiny due to the acquisitions taking place at an early stage in the life of the target before they have generated sufficient turnover or accumulated capital and physical assets that would trigger mandatory merger notification as set by the turnover or asset thresholds.

Guidelines issued in terms of the Competition Act are not binding in terms of section 78(4) of the Competition Act, but any person interpreting or applying the Competition Act must take them into account. Although they do not create new legal obligations, they provide a useful indication of the Commission’s policy approach to the notification of small mergers and the circumstances in which it is likely to exercise its powers under the Competition Act. Where parties decide to implement a small merger which falls within the small merger guidelines, they should appreciate the risk that the Commission may, after the fact, require the merger to be notified in terms of section 13 of the Competition Act and that the merger may be prohibited and subsequently unwound.