On 28 June 2024, the Competition Commission published Draft Guidelines under section 79(1) of the Competition Act to address its approach towards 'indivisible transactions.' These guidelines are aimed at providing clarity on how multiple transactions can be evaluated as a single merger filing. In this article, we explore the key elements of the Draft Guidelines and the rationale behind their publication, offering insight into their potential impact on merger control in South Africa. 

Notification requirements 
In terms of the Act, the normal requirements for the notification of a merger transaction to the Commission are that the transaction must constitute a merger as defined in the Act and that the transaction must meet the prescribed monetary threshold to be notifiable. The Draft Guidelines were prepared by the Commission to guide the likely approach that the Commission will follow when evaluating whether ‘indivisible transactions’ can be filed with the Commission in terms of the Act. 

Understanding indivisible transactions
An ‘indivisible transaction’ refers to multiple transactions which can be notified and assessed under a single merger filing. It is recognised by the Commission, in terms of the Draft Guidelines, that a transaction can be both factually indivisible and/or legally indivisible. 

Relevant case law
When considering the indivisibility of a transaction, the following case law is relevant:

Crown Gold Recoveries (Pty) Ltd, the Industrial Development Corporation of SA Ltd / Khumo Bathong Holdings (Pty) Ltd (Khumo) (31/LM/May 02) [2002] ZACT 38 (the “Crown Gold Case”):

In the Crown Gold Case, the Commission simultaneously approved two separate transactions, namely:

1. The acquisition of Crown Gold Recoveries (Pty) Ltd (“Crown Gold”) by the Industrial Development Corporation of South Africa (“IDC”).
2. The subsequent acquisition of Crown Gold by Khumo Bathong Holdings (Pty) Ltd (“Khumo Bathong”) from IDC.

The approval by the Commission of the separate transactions as an indivisible transaction was based thereon that the first transaction concluded between Crown Gold and IDC was merely to facilitate the conclusion of the eventual take-over of Crown Gold by Khumo Bathong. Therefore, the separate transactions constituted a single indivisible transaction, both legally and factually.

Peermont Holdings (Pty) Ltd v LCI (Overseas) Investments (Pty) Ltd (LM059Jun19) [2019] ZACT 63 (the “Peermont Case”):

In the Peermont Case, the Tribunal approved a large merger transaction that related to the following two transactions:

1. In terms of the first transaction, Emerald Safari Resort (Pty) Ltd (“Emerald”), which was controlled by LCI (Overseas) Investments (Pty) Ltd (“LCI”) as its majority shareholder, concluded share repurchase agreements with its remaining shareholders, in terms of which Emerald bought back all of the issued shares held by the respective remaining shareholders. The aim of the first transaction was that LCI would become the sole shareholder of Emerald, holding 100% of the issued shares in the company. The first transaction was referred to as the “minority transaction”.
2. In terms of the second transaction, Peermont Holdings (Pty) Ltd was to acquire all the shares in LCI and thereby take over control of LCI. The second transaction was referred as the “majority transaction”.

The parties held that both transactions constituted one indivisible transaction, as it would not be possible for the parties to conclude the majority transaction without first concluding the minority transaction. Therefore, both transactions were both legally and factually indivisible and, in light thereof, the transaction was unconditionally approved by the Tribunal.

Factors determining indivisibility in the draft guidelines
The Draft Guidelines set out the factors which the Commission will take into consideration in determining if multiple transactions should be treated as an indivisible transaction as follows:

• The nature of the transaction structure.
• The relationship between the various transactions.
• The interdependence of the transactions.
• The rationale underlying the multiple transactions.
• Whether each of the transactions will be implemented simultaneously under the same agreement.
• Whether there are multiple acquiring firms, under common shareholding, acquiring the same target firm(s).
• Whether there are multiple target firms with common shareholders and/or sellers.
• Whether there are multiple acquiring firms in terms of a single agreement.
• Whether the transactions involve a similar competitive and public interest assessment and whether similar conditions are likely to apply to the transactions; and
• Whether the single notification is aimed at circumventing the applicable filing fees.

Key considerations from the draft guidelines
Several not-so-obvious factors which may be singled out for further elaboration, are: 

The rationale underlying the multiple transactions

It is necessary to ascertain why multiple transactions are concluded simultaneously, as a merger inherently impacts the interests of stakeholders, market dynamics and intended collaborations between the parties. Therefore, it must be considered if it is necessary for multiple transactions to be concluded simultaneously and constitute one indivisible transaction, or if the transactions should be concluded separately and be implemented independently of one another. 

Whether there will be effective merger control

Merger control, dealt with in terms of chapter 3 of the Act, amongst others, aims to address racial disparities in respect of ownership of South African firms and seeks to ensure an increase in ownership among workers or historically disadvantaged persons in South Africa. Earlier this year, the Commission also published guidelines amending public interest provisions to make provision for public interest considerations that actively address ownership, control, as well as the support of small businesses and firms owned or controlled by historically disadvantaged persons.

Whether there are multiple acquiring firms, under common shareholding, acquiring the same target firm(s)

In considering the abovementioned, it will be relevant to consider the case of Sandown Motor Holdings (Pty) Ltd and McCarthy Limited and Others (33/LM/May 02) [2002] ZACT 66 in which the Commission treated six separate transactions as an indivisible transaction based on the contention that each of the transactions involved the same four firms who were sellers and buyers in respect of the transactions and that the underlying rationale for each of the transactions remained the same.

Whether the transactions involve a similar competitive and public interest assessment and whether similar conditions are likely to apply to the transactions:

The assessment and conditions should be read with section 12A of the Act, as amended, in terms of which –

a. the competition and the public interest assessment of a transaction should not outweigh each other and must be equal.
b. a determination must be made as to whether the merger is justifiable on substantial public interest grounds, regardless of the outcome of the competition assessment of a transaction; and
c. The effect of a merger on each individual public interest ground must be assessed to overall determine whether the merger will be justifiable based on substantial public interest considerations.

Assessing indivisible transactions
Having regard to the factors set out above and as further contemplated in the Act, indivisible transactions intended to form a single merger filing should be properly structured to align with the above. In terms of the Draft Guidelines, the indivisibility of a transaction is not determined by a single factor but rather, by considering each of the factors as set out in the Draft Guidelines as part of the Commission’s holistic approach to determining indivisibility. Furthermore, in terms of the Draft Guidelines, if the Commission is satisfied that a transaction meets the requirements of indivisibility, the transaction may be assessed under a single merger notification. If a transaction does not, however, meet the requirements of indivisibility, the merging parties may be required to file the transactions separately and pay separate filing fees.

In conclusion, the Draft Guidelines on indivisible transactions provide valuable insight into how the Competition Commission intends to approach multiple transactions that may be viewed as a single merger filing. By outlining the factors that determine indivisibility and referencing relevant case law, the Draft Guidelines offer a framework for businesses to structure their transactions in alignment with the Competition Act. However, as the guidelines are not yet binding, the Commission retains discretion in its final assessments. Until the guidelines are finalised, merging parties must remain vigilant in considering both legal and factual indivisibility when notifying the Commission to avoid potential challenges or additional filing requirements. 


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