Public interest takes centre stage in merger analysis

The prohibition of Grand Parade’s divestiture of Burger King South Africa by the Competition Commission due to a lack of black ownership and its recommendation to approve the divestiture of Sasol’s air separating units business with a range of public interest conditions once more highlights the importance of the public interest grounds in merger control assessment. It would be prudent for dealmakers to consider the public interest grounds listed in section 12A(3) of the Competition Act and to involve competition law experts at an early stage when deciding on the structure of transactions where merger approval is needed.

The acquisition by ECP Private Equity of Burger King raised no competition concerns, but the Commission found that the merger would have a substantial negative effect on the promotion of a greater spread of ownership by historically disadvantaged persons. HDPs currently own approximately 68% of Burger King and the merger would have resulted in the removal of ownership by HDPs. This appears to be the first merger where the Commission has blocked a transaction solely on the grounds of a lack of black ownership. Keep in mind that the competition authorities are in terms of section 12A(3)(e) of the Competition Act required to consider the effect of a merger on HDP ownership. The Commission was not prepared to approve the transaction despite other public interest commitments by ECP and Grand Parade including introducing HDP ownership within 24 months and an increase in capital expenditure and employment. The Commission’s decision does not provide any guidance on what it would consider to be an “acceptable level of black ownership” but it appears that any transaction where there is a dilution of black ownership could face opposition from the competition authorities.

The Commission’s recommendation to approve the purchase of Sasol’s air separating units business by Air Liquide Large Industries contains a range of public interest conditions that were agreed to following discussions with the Department of Trade Industry and Competition (Minister Patel). These conditions include commitments to the reduction of carbon emissions, upskilling of employees, entering into transactions to promote ownership by HDPs, procuring inputs from SMEs and businesses owned by HDPs and making surplus oxygen available to customers in the healthcare sector. Some of these conditions arguably fall outside the scope of the public interest grounds listed in section 12A(3) of the Competition Act and it will be interesting to see whether the Competition Tribunal will interrogate the conditions when it decides whether the merger.

These decisions also shed some light on the Commission’s approach to the anticipated changes to the merger filing forms where parties will be required to provide detailed information on whether a merger will result in a promotion of a greater spread of ownership by HDPs (and if not, the reasons for this); whether employee share schemes are in place; and the extent of employee participation at board level.