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How Competition Law Will Affect You and Your Business

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Our Competition Act is without doubt one of the most significant pieces of legislation to have hit the South African commercial scene in the past few years. It applies, with very few exceptions, to all economic activity in or which has an effect in South Africa, and impacts on any business that operates or has an effect in South Africa. The legislation also has real teeth as the penalties for not complying are heavy and may be a very substantial fine.

The Act essentially aims to ensure that our markets remain as competitive as possible and, for this reason, prohibits collusive (in other words collaborative) or anti-competitive conduct between competitors, and also between a business, its suppliers and customers. Agreements or activities which involve price-fixing, setting minimum resale prices or the dividing markets by means of customers, suppliers, regions or products are specifically prohibited.

If you are a dominant business in a market, there are extra restrictions on you. For example, you may not prevent one of your suppliers from also supplying goods to your competitor. You may also not try to persuade one of your customers not to buy from one of your competitors.

Perhaps the most far-reaching provisions of the Act relate to mergers - in other words where two businesses combine into one. Where the businesses are substantial, the Competition Commission must be notified that the merger is planned and must approve the merger. If there is no approval, the merger may not go ahead. In determining whether a particular merger needs' approval, there is a fairly technical test which must be applied:

First, is the transaction a "merger"? Bear in mind that the concept of "merger" is broadly defined in the Act and may cover the purchase of a business, the purchase of shares, the conclusion of a voting pool agreement between shareholders or even the granting of a right to vote a majority of votes at a general meeting of a company or a right to appoint or veto the appointment of a majority of directors to the board of a company.

Second, do the parties to the transaction comply with the following financial threshold requirements:

If the answer to both questions is yes, then the transaction will require approval from the competition authorities.

A recent introduction into our competition legislation is the idea of a small merger. This is a merger which falls below the thresholds set out above. Small mergers do not require the approval of the competition authorities, but carry the risk that, if not approved, they may be investigated and ultimately unwound (in other words undone) after the transaction has gone through.

A decision to approve or prohibit a merger will only be taken once the authorities have considered both the anti-competitive effects and the public interest implications of the merger. Interestingly, in our law, public interest factors such as employment issues could be used to stop an otherwise justified merger, or save an otherwise anti-competitive merger.

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