Hosken Consolidated Investments Limited And Ors. V. The Competition Commission

South Africa

02.10.2017

MRTP/ Competition Laws

Merger approval is a "once off' affair

Effects of an acquisition of control are considered, when approval of merger is sought and obtained and cannot be revisited once it has been determined

In facts of present case, prior to 2014 Tsogo Sun Holdings Limited (‘Tsogo’) was subject to the joint control of Hosken Consolidated Investments Limited (HCI) and SABMiller plc (SABMiller). In 2014 SABMiller announced that, it was divesting itself of its shareholding in Tsogo which would have the effect of leaving HCI as the sole controller of Tsogo. In the same year, HCI sought merger approval from the competition authorities for the acquisition by HCI of sole control of Tsogo. The Commission and the Tribunal evaluated the merger on the basis that, HCI would acquire and exercise sole control over the gaming of Tsogo. The Tribunal unconditionally approved the merger on that basis. Pursuant to this merger approval, HCI increased its shareholding in Tsogo to approximately 47.5 per cent, thereby exercising sole control over Tsogo within the meaning of Section 12(2) (g) and (c) of the Competition Act, 1998.

The Tribunal concluded that, there was no live dispute between the parties that required its intervention. The Tribunal stated that, the applicants approached the Commission for an advisory opinion. They were not required to do so but the fact that they did suggest that there was some doubt in their minds whether their transaction ought to be notified. The Commission provided an advisory opinion which the applicants concede is not binding on them. Aggrieved by the findings, HCI and Tsogo launched present appeal contending that, the Tribunal should have found that, it has jurisdiction to grant declaratory relief sought by HCI and Tsogo on the same legal basis that it has jurisdiction to interdict the implementation of notifiable mergers and to order their notification to the competition authorities for approval under the Act and in particular in terms of Section 27 (1) (d) of the Act. The primary thrust of HCI and Tsogo's attack against the Commission's advisory opinion is that the proposed transaction constitutes the further implementation of a merger approval previously granted to HCI to acquire sole control of Tsogo and that, even if the proposed transaction involves an acquisition of an additional instance of control within the meaning of Section 12(1), HCI and Tsogo have already obtained approval for such acquisition of control in the form of the 2014 merger approval.

2014 Tsogo decision led to the acquisition of sole control by HCI over Tsogo. At that time, Commission and the Tribunal conducted a merger assessment in terms of Section 12A of the Act. It was aware that, in time HCI would exert sole control over the gaming interests of both Tsogo and Niveus. At the same time, HCI also enjoyed sole control of Niveus' gaming interests. HCI and Tsogo have a legal interest in the declaratory relief as it relates to whether there is a legal obligation to notify the competition authorities about the proposed transaction. There is a live dispute between the Appellants and the Respondent regarding the notification of transaction.

The merger that, was approved unconditionally by the Tribunal in the 2014 Tsogo decision was the acquisition of sole control by HCi over Tsogo. HCI was granted approval to, and did in fact, acquire sole control of Tsogo following the 2014 merger approval, pursuant to its increased shareholding in Tsogo of 47.5 per cent. By virtue of that shareholding, HCI acquired sole control of Tsogo in terms of Section 12(2)(g) and Section 12(2)(c) of the Act. HCI currently exercises sole control of Tsogo. There is no further acquisition of establishment of control that is brought about by its acquisition of over 50 percent of the shares in Tsogo within the meaning of Section 12(2) (a) of the Act and this is a further implementation of an existing sole control structure which was approved by the Tribunal in 2014 and which permitted HCI to conduct the operations of Tsogo as it saw fit. Section12(2) therefore does not list different kinds of control, each of which is separately notifiable but illustrates different ways in which control might be acquired within the meaning of Section 12(1) of the Act. Once sole control has been approved and acquired in one of the ways contemplated in Section 12(2), it does not require separate approval if it is subsequently implemented in one of the other ways contemplated in Section 12(2). Merger approval is thus a "once off' affair.

The proposed transaction does not constitute a notifiable merger because the competition authorities have previously approved the acquisition of sole control of Tsogo in 2014 by HCI, and because HCI already exerts sole control of Tsogo pursuant to the 2014 merger approval. The effects of an acquisition of control are considered and determined, when the approval of the merger is sought and obtained which is done on a forward-looking assessment of the likelihood of competition harm and the public interest and cannot be revisited once it has been determined. Tribunal has the jurisdiction to grant declaratory relief. The requirements for the exercise of that jurisdiction are met and that the proposed transaction in present case does not amount to a notifiable merger under the Act.

Regarding issue of urgency, HCI and Tsogo have predicated urgency on the fact that, proposed transaction involves a series of inter-connected transactions between three listed companies with the purchase price to be discharged by a combination of cash and shares. The long stop date for regulatory approval on the agreement was originally 30 September 2017 and the parties are currently seeking to negotiate a brief extension of this date. They assert that, there is an urgent need for regulatory certainty regarding the notifiability of the proposed transaction prior to the expiry of the long-stop date. Consistent with the urgency of this matter, HCI and Tsogo have sought to achieve certainty regarding their legal obligations with all due expedition.

Appeal Court declared that, the proposed transaction in terms of which Hosken Consolidated Investments Limited will increase its shareholding in Tsogo to more than 50 per cent and will consolidate all of its gaming interests (other than its sports betting and lottery interests) under Tsogo Sun Holdings Limited, an entity over which it exerts sole control pursuant to a decision of the Tribunal in 2014, by transferring such gaming interests owned indirectly by one of its subsidiary companies, Niveus Investments Limited to Tsogo Sun Holdings Limited, does not require approval by the completion authorities in terms of the merger control provisions of the Competition Act 89 of 1998.

Tags : Merger Declaratory relief Grant Jurisdiction

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