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Mirror, mirror on the wall

Apr 6,2022

How to position Black ownership in future mergers

by Ahmore Burger-Smidt, Director and Head of Data Privacy and Cybercrime Practice and member of the Competition Law Practice, and Siyabonga Galela, Candidate Attorney

Merger regulation is an attempt to proactively regulate the structure of the economy in order to ensure that markets function optimally. Herein the Competition Act, 1998 (“Competition Act”) expressly enjoins the competition authorities to have regard to public-interest factors when adjudicating mergers.

In Distillers Corporation (SA) Ltd and Stellenbosch Farmers Winery Group Ltd,[1] the Competition Tribunal (“Tribunal”) remarked that just as a public interest ground may justify the prohibition of a merger even if that merger does not have an anti-competitive effect, a public interest ground may also play a role in resurrecting a merger that may be anti-competitive.[2]

There can be no doubt that section 12(1A) of the Competition Act requires the competition authorities, when considering whether a merger is likely to substantially prevent or lessen competition, makes it peremptory for the Competition Commission (“Commission”) to consider whether the merger can or cannot be justified on substantial public interest grounds, regardless of the outcome of the competitive assessment.

Therefore, even if it means that a transaction does not raise competition concerns, competition authorities will be obliged to determine whether or not the merger can be justified on substantial public interest grounds. This was explicitly argued by the Commission in the ECP Africa Fund/Burger King merger[3] which transaction the Commission aimed to block, but which was subsequently approved by the Tribunal.

On 23 March 2022, the Commission confirmed its prohibition of a proposed merger in which the Corruseal Group (Pty) Ltd (“Corruseal”) intended to acquire Neopak (Pty) Ltd (“Neopak”). Neopak and Corruseal are both active in the recycled-paper value chain. The Commission prohibited the transaction on the basis that the merger would likely result in a substantial prevention or lessening of competition.

According to the Commission, the merged entity would have the ability to act unilaterally by, for example, raising prices of recycled containerboard and refusing to supply competitors of Corruseal – who also rely on Neopak for the provision of recycled containerboard. In addition, the Commission found that the increase in concentration brought about by the proposed merger is of particular concern given that the upstream market (at the paper manufacturing level) is already highly concentrated, and has a history of cartel investigations. Corruseal is a 100% HDP-held entity.

Indeed, the competition authorities will question a merger that results in the creation of a dominant entity in the relevant market. In the Tongaat-Hulett Group Limited merger,[4] the Tribunal expressed its reluctance to entertain “arguments that insist that a precondition for the successful international competition is the domination of the domestic market.”[5] Instead, the Tribunal proved to be more inclined to adopt the view that “the most aggressive and successful international competitors are those who face robust competition at home.”[6]

Be that as it may, the Tribunal will be inclined to allow a merger where the merged entity, although presenting the prospect of dominance in the domestic market, will be better equipped to compete more effectively in the international markets as a so-called ‘national champion.’ For example, in the Nampak Ltd/Malbak Ltd[7] merger, the Tribunal approved a merger involving firms in the packaging sector that had overlapping activities on the basis that the merged entity would be able to compete more effectively for the business of multi-national customers. In this merger approval, the Tribunal made its decision based on evidence of the scale of operations required to compete within the market.

In as much as the Corruseal-Neopak transaction may have led to increased concertation in the market, the public-interest benefits of the transaction, insofar as the merger would have led to 100% BEE equity presents a significant public interest aspect.

Considering the above, it is submitted that where a merger transaction does raise competition concerns, competition authorities are obliged to determine whether or not the merger can be justified on substantial public interest grounds. Can one be criticized for expecting the competition authorities to justify a transaction, even one that is found to present substantial competition concerns, based on substantial public interest grounds?

The Competition Act provides in section 12A(3)(e) for “the promotion of a greater spread of ownership, in particular, to increase the levels of ownership by historically disadvantaged persons and workers in firms in the market.” It is hard to exceed 100% HDP ownership.


[1] (08/LM/Feb02) [2003] ZACT 15 (19 March 2003).
[2] (08/LM/Feb02) [2003] ZACT 15 (19 March 2003). at para 214.
[3] ECP Africa Fund IV LLC and Others / Competition Commission of South Africa (IM053Aug21) [2021] ZACT (29 November 2021).
[4] Tongaat-Hulett Group Limited and Transvaal Suiker Beperk, Middenen Ontwikkeling (Pty) Ltd, Senteeko (Edms) Bpk, New Komati Sugar Miller’s Partnership, TSB Betuursdienste Case No. 83/LM/Jul00.
[5] Tongaat-Hulett Group Limited and Transvaal Suiker Beperk, Middenen Ontwikkeling (Pty) Ltd, Senteeko (Edms) Bpk, New Komati Sugar Miller’s Partnership, TSB Betuursdienste Case No. 83/LM/Jul00 at para 116.
[6] Tongaat-Hulett Group Limited and Transvaal Suiker Beperk, Middenen Ontwikkeling (Pty) Ltd, Senteeko (Edms) Bpk, New Komati Sugar Miller’s Partnership, TSB Betuursdienste Case No. 83/LM/Jul00 at para 116.
[7] Case No. 29/LM/May02.

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