A recent Competition Tribunal decision provides some guidance on policies to be adopted in guarding against information exchange. This, in particular where pre-merger, firms related to an acquiring group have representation on the boards of firms that compete in the same or similar markets as a target firm.
The exchange of information between competitors or potential competitors may amount to, or facilitate, conduct which is outright prohibited by the Competition Act, No 89 of 1998, as amended (Competition Act) by constituting price fixing, market division, or collusive tendering. Information exchange could also lead to anti-competitive effects which effects may not outweigh any pro-competitive benefits of the arrangement concerned.
In particular, information exchange which makes a market more transparent can be problematic as this could result in increased co-ordination between competitors and may ultimately lead to a substantial prevention or lessening of competition.
Cross directorships in competing firms can create elements of transparency and directors serving on the boards of competing firms can create platforms for the cross pollination of sensitive information.
In the merger involving RTT Group (Pty) Ltd (RTT), Courierit SA (Pty) Ltd and one other (Target Firms), the Competition Commission considered whether the merger would result in cross-directorships and potentially facilitate co-ordination between competing firms. This was based on the facts that:
- the Government Employees Pension Fund represented by the Public Investment Corporation SOC Limited (GEPF/PIC), an indirect shareholder of RTT, had board representation in various non-controlling portfolio companies (Portfolio Firms). These Portfolio Firms are involved in the broader logistics market; and
- pursuant to the merger, the GEPF would be entitled to appoint directors to the boards of the Target Firms, which firms are involved in the market for the provision of courier services and warehousing services.
The Commission was therefore of the view that the Target Firms compete with the Portfolio Firms in the broader logistics market and this would give rise to a potential for information exchange.
In light of the Commission’s concerns, the merger was conditionally approved.
The parties did not raise any objections to the imposition of conditions and specifically agreed as follows:
- members appointed by the PIC to the board of the Target Firms cannot also serve on the board of Portfolio Firms;
- members who previously served on the board of Portfolio Firms cannot be appointed to the board of the Target Firms, until at least a year has lapsed following that board member having ceased to be a board member of the Portfolio Firms;
- the PIC will ensure that its investments in the Target Firms are housed in a division distinct from the division(s) in which its investments in the Portfolio Firms are held, with adequate security and confidentiality safeguards guarding against information exchange;
- to the extent that the PIC representatives on the board of the Target Firms have access to competition sensitive information of the Target Firms, the PIC representatives should ensure that such information is only reported on to the investment committee of the PIC in confidence and on an aggregated basis;
- the PIC board representatives should sign confidentiality undertakings confirming that the sensitive information will be protected and submit same to the Commission; and
- the PIC will notify the Commission of any change in the identity of the PIC representatives serving on the board of the Target Firms.