Merger clearance in South Africa is not easy, nor quick. That may be a take-away from observing the recent clearance by the South African authorities of the DowDuPont global merger of equals covering markets for agricultural products, material sciences and chemicals as well as specialized health and electrical products. The merger was cleared some 15 months from the date of filing and then subject to detailed conditions.
We know that each merger will present its own features and issues. But, as in other multinational mergers considered by the competition authorities, certain points arise from the present merger to be considered by those who may be involved in similar transactions.
First, it is important to understand the counterfactual and theory of harm you are dealing with. The counterfactual, a term used to describe the likely position the relevant markets would be in absent the merger, is a necessary and legislatively mandated tool for merger evaluation. For the authority to determine whether the proposed merger will substantially lessen or prevent competition, it must understand fully what the market would look like without the merger. The Commission can then evaluate the merger based upon a theory of harm appropriate to the circumstances. This means they will assess what possible harm to competition will arise from the merger.
If the counterfactual is not clear, or is based upon speculation only, the theory of harm cannot be substantiated. Moreover, in that case, any remedies which are proposed – whether by the parties or the Commission – to address the theory of harm cannot be properly evaluated. This is far from an exact science, especially as one is seeking to predict future behaviour of the parties and others, in markets which are dynamic and environments which change.
One aspect the Commission was called upon to evaluate in the DowDuPont merger was Dow’s potential future entry into the South African maize seed market. Consideration of a counterfactual of potential entry into a market might raise a question of whether there would have been improved competition absent the merger. That however is not the correct test. As the Tribunal has noted in a previous matter, mergers are not required ‘to make the world a better place’. Rather the test is to evaluate whether the merger under consideration will substantially adversely affect the relevant markets. So an assessment that the merger is likely to lead to a substantial lessening of competition in a market, will usually lead the Commission to ask the parties to consider and make proposals which address the theory of harm identified. Thus requiring remedies to deal with a theory of harm based upon a possible future entry into a market may quickly lead to considerations and undertakings not contemplated at all by the parties.
Practical tip: When filing the merger, consider all the possible concerns the authority may have and address these in the submissions.
Secondly, contesting the Commission’s theory of harm is time and resource intensive. In the case of large mergers there are no effective time limits for the investigations and evaluation by the Commission. This can mean that due to global closing deadlines, the parties may be obliged by circumstance into compromise settlements on remedies to address the Commission’s theory of harm.
Practical tip: Identify the possible issues early and consider remedies the parties could live with under compromise.
Thirdly, the Commission has ongoing and close contact with anti-trust authorities in other jurisdictions, but continues to act independently. The fact than an issue has been resolved in one way in another jurisdiction, no matter how important, does not mean that it can or will be resolved in the same manner before the South African authorities. These authorities will, correctly, insist and do what is correct for the South African economy and its peoples. This includes taking into account the impact of the merger upon the public interest, especially employment and possible growth and development of different sectors.
Practical tip: Understand the imperatives and concerns which are peculiar to South Africa and ensure that remedies address the unique South African features of the market.