On 21 February 2018, the Competition Tribunal (Tribunal) confirmed a consent agreement as agreed by the Competition Commission (Commission), Macsteel Services Centres SA Proprietary Limited (Macsteel), and Unique Ventilation & Support Systems Proprietary Limited (UVSS) in respect of the implementation of a notifiable merger prior to the approval of the Commission. This conduct (prior implementation) is in contravention of sections s13(A)(1) and s13(A)(3) of the Competition Act, 1998 (Act).

The respondents, Macsteel and UVSS had notified a transaction to the Commission in terms of which Macsteel would acquire 50% of the shares in UVSS and consequently acquired joint control of UVSS and its subsidiaries (Unique Camp Engineering and Ventilation Proprietary Limited (UCEV) and Ventilation and Support Africa Proprietary Limited (VSA)). The Commission unconditionally approved this transaction.

However, the Commission had earlier investigated Macsteel and UVSS following a complaint lodged by Videx Wire Products Proprietary Limited, alleging that UVSS - known then as Ricoco Proprietary Limited (Ricoco) - had acquired control over Brokrew Industrial Proprietary Limited (Brokrew) and UCEV without the requisite competition approval. Videx also alleged that Macsteel and two Olevano brothers were the shareholders of UVSS.

Brokrew, a manufacturer and installer of finished steel products was a long-standing customer of Macsteel. Brokrew was placed in liquidation and owed a debt to Macsteel to the tune of over R22 million. Unique Clamp Trust (UCT) sought to acquire Brokrew to complement its existing business since its subsidiaries sold mining ventilation support products to customers similar to or the same as Brokrew. One of the Olevano brothers approached Macsteel for funding, which Macsteel agreed to with the view of potentially recovering some of the debt owed to it by Brokrew. UCT was selected as the preferred bidder to acquire Brokrew after a bidding process by liquidators. Mr Olevano and Macsteel then agreed that Brokrew would be acquired through UVSS (then Ricoco). Macsteel also agreed to Mr Olevano’s request for assistance with various administrative tasks relating to the Brokrew acquisition.

The Commission continued its investigation stemming from the initial allegation by Videx of prior implementation.

The Commission’s investigation found that the conduct of the merging parties prior to receiving approval of the transaction amounted to a contravention of s13(A)(1) and s13(A)(3) of the Act. Macsteel was found to have been involved in the operations and affairs of UVSS prior to the notification and approval of the transaction in the following ways:

  • Representatives of Macsteel were involved in the discussions and provided recommendations regarding the changing of the companies’ names within UVSS;
  • Macsteel engaged the shareholder of UVSS regarding the structuring of the acquisition of Brokrew by UVSS (through a special purpose vehicle that UVSS would purchase);
  • Macsteel nominated two directors to the board of the then Ricoco – who in turn appointed Macsteel as company secretary and KPMG as auditors. (The respondents argued that the representatives of Macsteel were removed before any decision affecting the business of Ricoco was taken);
  • Macsteel’s Chief Financial Officer at the time of the UVSS acquisition of Brokrew was involved in the day-to-day operations of UVSS; and
  • A representative of Macsteel performed the company secretarial functions and provided administrative support to UVSS in its daily operations.

Acknowledging that some of the conduct outlined above may have constituted prior implementation and thus a contravention of the Act, the respondents agreed with the Commission to pay a settlement amount of R1 million as a penalty.

Given that the decision is a settlement and was not contested, it does not shed any light on how the mitigating and aggravating factors set out in s59(2) of the Act were applied during settlement negotiations.

The competition authorities view prior implementation harshly. This is indicative in the Commission’s draft Guidelines for the Determination of Administrative Penalties for Failure to Notify a Merger and Implementation of Mergers Contrary to the Competition Act (Guidelines). Although the Guidelines have yet to be finalised, its provisions propose maximum penalties as high as R5 million in respect of a failure to notify intermediate mergers and R20 million for failing to notify larger mergers (provided these figures do not exceed the limit of 10% of a firm’s annual turnover as stipulated in the Act). Presumably there has been no application of the Guidelines’ proposed methodology of determining an appropriate administrative penalty in this decision. Once the Guidelines are in place, it will be interesting to see how the methodology proposed is applied.