Tag Archives: Competition Commission South Africa

Antitrust, Cheaper Beer, and the First Global Brewery (the South African Chapter)

By Francisco Beneke*

The price of beer is currently one of the hottest antitrust topics at the global stage. The largest merger the beer market has ever seen has been met with various attitudes from competition authorities around the world depending on, partly, the relative positions of the firms in each national or regional market. Today I focus on South Africa’s recent developments.

The Global Context

The USD$107 billion purchase of SABMiller by AB InBev is the third largest transaction in history. It will create what the media has dubbed the first truly global brewery and will account for half of the industry’s profits around the world. It already received antitrust clearance subject to (very tough) conditions in the EU, and it is still under review in other big markets such as the US and China. In the former, the Justice Department is believed to be close to a decision that involves SABMiller’s divestiture of its joint venture with Molson Coors. An almost identical divestiture has also taken place in China ahead of the MOFCOM’s decision in order to set the ground for the approval.

According to the media, the merger’s main focus is not the largest markets where the two brewers have substantial overlaps but the smaller Latin American, Asian, and African countries where either of the companies enjoy close-to-monopoly positions. This view is consistent with the approach of the merging parties of quickly proposing important asset divestitures in the US and China.

The merger has different implications in every market in which it is or has been subject to antitrust review. However, there are some particularities in the South African chapter, home country of one of the merging parties, that we are not going to see in many places around the world.

A Quick Dive into South African Merger Law

The Competition Commission of South Africa issued last Tuesday a press release in which it gives a detail of the several conditions under which it has recommended to the Competition Tribunal the approval of the merger. Before we get into the details, a quick primer on South Africa merger law is in order.

South Africa has an institutional design in which the prosecuting and adjudicative entities are separated. The prosecuting entity is the Competition Commission, who in the case of large mergers only has the power to recommend to the Competition Tribunal whether to approve or block a transaction. The merger can be enjoined if it will substantially lessen competition or if it cannot be justified on public interest concerns (article 12a, (2) and (3) of the Competition Act). In the case of the second category of considerations, the Minister of Economic Development can intervene in the proceedings before the Tribunal (article 18 of the Competition Act). In the present case, the Commission recommended that the merger go forward but, as mentioned above, under certain conditions.

Public Interest Considerations in the South African Beer Market

What makes the analysis of the deal so particular in the case of South Africa is the role public interest considerations play. People that are not familiar with South African merger law could have a hard time getting their heads around a condition that obliges the merged entity to present plans for the advancement of black people within the company or the establishment of a USD$63.6 million fund to promote local agriculture of hops, barley, and corn. One of the most striking conditions is that the merged entity has committed itself in perpetuity not to lay off any employee as a result of the merger.

The conditions regarding the agricultural promotion fund and not laying off employees in duplicate positions were the result of a previous agreement with the Minister of Economic Development. Some critics of the South African merger regime argue that the involvement of this government official brings uncertainty to potential merging parties. In the case in point, even if one disagrees with the uncertainty argument, it is undeniable that the Minister’s intervention was substantial.

One of the most important issues regarding the justifiability of the public interest clause is whether the remedies imposed are effective. In the present case, the no lay-offs condition lies on weak grounds and the fund is at least debatable.

Market regulation always has a way around. In this case, the resulting entity’s drive to lower costs can lead it to get creative in ways to lay off workers without it looking as if it was with the mere purpose of cutting costs. The supervision of this condition will inevitably turn the South African competition authorities in labor law judges because they will have to rule whether there were grounds to fire an employee. That is, the Competition Tribunal will have to determine whether the grounds of the lay-off are valid or if they are only an excuse. This is just one way to get around the condition and it reveals how costly it can be for the Commission to monitor its compliance.

The compliance with the fund may not be an issue because at a first glance it looks pretty straightforward. The effectiveness can still be compromised if the money is not spent well. The debate around development aid is applicable here. Many critics, such as William Easterly of NYU, have charged against aid programs that pour money into a problem with no tangible benefits.[1] Others, such as Jeffrey Sachs of Columbia University, are strong advocates of aid as a tool to avoid a poverty trap.[2]

There is not enough information so far on the specificities of the agricultural fund to make a prediction on how effective it will be for the development of local farmers. One component it should have is the gathering of information and the design of a study to measure its impact, independently from who bears the cost of such an assessment. This will be key in ensuring that the condition will not only impose the burden to burn money on a program with no real benefits to the South African society.

Competition Concerns

There is not much information on the significance of AB InBev’s position in the South African market, only that it does have a presence through a contract with a local distributor. Some of the conditions recommended by the Commission do involve horizontal and vertical conduct remedies. I will not go into detail in the analysis because Amine will fill you in the details next week with a post that complements what we have talked about here and with more information on the Minister of Economic Development’s intervention in the proceedings.

The Road Ahead

The proceedings before the Competition Tribunal have started and we will have to wait on the final word on the matter. Some argue that the Tribunal usually takes the Commission’s recommendations on merger control, but, as our colleagues from African Antitrust point out, there are some proposed remedies to which AB InBev and SABMiller have not agreed, and we could therefore see some litigation instead.

*Co-editor, Developing World Antitrust

@Paco_Beneke

[1] William Easterly, Why Aid Doesn’t Work. http://www.cato-unbound.org/2006/04/02/william-easterly/why-doesnt-aid-work

[2] Jeffrey Sachs, The End of Poverty: Economic Possibilities for Our Time. Penguin Books; Reprint edition (February 28, 2006).

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Antitrust News from the Philippines, South Africa and Morocco: A New Comer, a Non-Conventional Merger Decision and Germany Offers Guidance

By Amine Mansour*

During last days, Francisco and I were very busy due to a huge workload. However, many important developments in the DW antitrust arena occurred.

1/– Philippines nears introduction of its first comprehensive competition Law.  Recently, the Senate President indicated that the Congress will pass the Act (will be known as Fair Competition Act of 2014) before yearend. This is close to became true as the text was approved on Second reading by the senators. Philippines is the last country from the ASEAN six majors to adopt a competition law (Indonesia and Thailand in 1999, Singapore in 2004, Vietnam in 2005 and Malaysia 2010). Introducing a Competition bill has become a pressing issue in Philippines giving its regional commitments. In 2015, ASEAN countries will implement the ASEAN Economic Community (regional economic integration) which calls in its Master Plan (ASEAN Economic Community Blueprint) for countries to undertake several actions in the field of competition and in particular “Endeavour to introduce competition policy in all ASEAN Member Countries by 2015“.

In substance however, the text comprises not only prohibitions on anti-competitive agreements and abuse of dominant position but introduces also a merger control regime. The wording of some provisions suggests that the drafters were inspired by the EU competition law model. In support of this position, we can, for instance, note the existence of the object/effect alternative in the article laying down the prohibition of anti-competitive agreements. Also, the exemption mechanism is somehow similar to article 101 (3) TFEU even if it does not include all the four conditions. Similarly to article 101 TFEU, the assessment of anti-competitive agreements under the Fair Competition Act of 2014 will thus consist of two different parts. Other developments confirm the preference given to the European model, but without going into too much detail (we will soon come up with a very detailed article on the Act) a quick overview of the text clearly points toward another victory for the European model of competition.

2/ In south Africa, The Competition Commission (CompetC) has identified in the merger Shoprite/Ellerines a public interest concerns relating to the situation of the 308 post-merger workers of the target company (Ellerines). Following this, it has recommended to the Tribunal making the approval of the merger conditional upon the retention of the remaining employees.  Naturally, the Tribunal agreed, yesterday, with this proposal and approved the merger on the condition that all post-merger workers will be employed by the acquiring firm Shoprite. Such decision does not come as a surprise. Article 12A (3) of the Competition Act clearly stipulates that: ” When determining whether a merger can or cannot be justified on public interest grounds, the Competition Commission or the Competition Tribunal must consider the effect that the merger will have on (…) (b) employment (…)“. But probably the most striking fact is that, the CompetC and Tribunal both have to assess a merger on the ground of public interest even if it appears that the notified operation does not give rise to any competition concerns. So this is probably why employment and other public interest issues are so often raised in merger cases in South Africa (for some very recent cases see here and here and also this one). Taking into account those precisions, what we have been highlighting as a very special case is not that special given the very nature  of article 12A of the Competition Act and somehow the Act itself which, inter alia, calls in section 2 relating to the purpose of the Act for the promotion and maintenance of competition in the Republic” in order (…) to promote employment and advance the social and economic welfare of South Africans (…)“.

3/ In Morocco, the Decree n° 2.14.652 which is an implementing regulation of the new law n° 104-12 on Freedom of Prices and Competition was adopted on the first of December (Her for Arabic readers). In this context, the Moroccan Competition Council (MCC) and German Federal Enterprise for International Cooperation (GIZ) launched a support program aiming at assisting the Moroccan institution in its effort to implement the newly adopted text. It is the second such project, after a twinning project , funded by the EU and implemented in 2009 between the MCC and the Bundeskartellamt for the purpose of strengthening the capacity of the Moroccan regulator.

*Co-editor, Developing World Antitrust

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