Back to Menu

The Competition Commission and BEE

I. The Competition Commission’s Mandate

The Competition Commission is an independent statutory body established under the Competition Act (No. 89 of 1998). Its primary mandate is to:

  • Promote and maintain competition in South Africa.
  • Investigate and evaluate restrictive business practices, abuse of dominance, and mergers.
  • Prevent anti-competitive behavior that harms consumers or the economy.
  • Take action to remedy anti-competitive situations.

II. Merger Notification Thresholds: When is Approval Required?

Not all mergers and acquisitions require notification to and approval by the Competition Commission. The Competition Act sets out specific thresholds that determine whether a merger is notifiable. There are two categories of mergers:

  • Intermediate Mergers: These require notification to the Competition Commission, which then investigates and makes a decision (approval, approval with conditions, or prohibition).
  • Large Mergers: These require notification to the Competition Commission, which investigates and makes a recommendation to the Competition Tribunal. The Tribunal then makes the final decision.

The thresholds are based on the combined assets or turnover of the merging firms, and the assets or turnover of the target firm. There are two alternative tests, and if either test is met, the merger is notifiable:

A. Intermediate Merger Thresholds:

A merger is classified as an intermediate merger if either of the following two tests is met:

  • Test 1 (Combined Assets/Turnover AND Target Assets/Turnover):
    • The combined annual turnover or asset value of the acquiring firm and the target firm in, into, or from South Africa is valued at R600 million or more;
    • AND
    • The annual turnover or asset value of the target firm in, into, or from South Africa is valued at R100 million or more.
  • Test 2 (Combined Market Share): This test is less frequently used. It looks at the combined market share of the merging parties. If the combined market share post-merger is between 15% and 25%, and the increase in market share resulting from the merger is more than 3%, the merger is generally considered intermediate, unless the combined assets/turnover and target assets/turnover fall below the thresholds in Test 1.

B. Large Merger Thresholds:

A merger is classified as a large merger if either of the following two tests is met:

  • Test 1 (Combined Assets/Turnover AND Target Assets/Turnover):
    • The combined annual turnover or asset value of the acquiring firm and the target firm in, into, or from South Africa is valued at R6.6 billion or more;
    • AND
    • The annual turnover or asset value of the target firm in, into, or from South Africa is valued at R190 million or more.
  • Test 2 (Combined Market share): If the combined market share of the merging parties is above 25% and the increase in market share is equal or above 1%, the merger is generally considered large, unless the combined assets/turnover and target assets/turnover fall below the thresholds in Test 1.

Important Notes on Thresholds:

  • “In, into, or from South Africa”: The thresholds apply to turnover or assets generated within South Africa, exported from South Africa, or imported into South Africa.
  • “Control”: The concept of “control” is crucial. The Competition Act defines control broadly, and it’s not just about majority shareholding. It can include the ability to materially influence the policy of a firm.
  • Annual Review: The Minister of Trade, Industry and Competition can adjust these thresholds periodically. It’s essential to check the latest regulations.

III. The Intersection with B-BBEE

As explained in the previous version, the Competition Commission’s primary focus is competition, but the Competition Act also requires it to consider “public interest” factors, including the impact on B-BBEE ownership.

Section 12A(3) of the Competition Act specifically mandates the consideration of the effect of a merger on the ability of small businesses and firms controlled or owned by historically disadvantaged persons (HDIs) to become competitive.

IV. How the Competition Commission Assesses B-BBEE in Mergers

The process is essentially the same as described before, but it only applies to mergers that meet the notification thresholds:

  1. Notification: Parties to a notifiable merger (one that meets the thresholds above) must notify the Competition Commission. The notification form requires detailed information about the B-BBEE ownership of the merging parties.
  2. Assessment: The Commission assesses the merger’s impact on B-BBEE ownership (positive, negative, or neutral).
  3. Conditions: If the Commission finds a negative impact on B-BBEE ownership, it may prohibit the merger or, more commonly, impose conditions to mitigate the negative effect (e.g., divestiture, commitments to increase B-BBEE ownership, ESOPs, supplier development).

V. Examples of Competition Commission Interventions

Here are some examples of cases where the Competition Commission has considered B-BBEE ownership in mergers, with URLs to relevant documents:

  • Example 1: EOH Abantu / Cornastone Enterprise Systems merger (2016)
    • Background: EOH, a large IT company, proposed to acquire Cornastone. The Commission found that the merger would result in a significant dilution of B-BBEE ownership.
    • Outcome: The Commission approved the merger conditionally. EOH was required to increase its B-BBEE ownership to a certain level within a specified period. This was a significant intervention to ensure that the merger did not undermine B-BBEE objectives.
    • URL: https://www.compcom.co.za/wp-content/uploads/2020/01/EOH-ABANTU-PROPRIETARY-LIMITED-AND-CORNASTONE-ENTERPRISE-SYSTEMS-PROPRIETARY-LIMITED-019762.pdf (This is the Competition Tribunal’s order, which confirms the Commission’s conditions. The reasons of the Commission are usually referenced within the Tribunal’s order, providing more context)
  • Example 2: Mediclinic / Matlosana Medical Health Services merger (2018)
    • Background: The merger would reduce the HDP ownership in the target hospital.
    • Outcome: The Competition Tribunal approved the merger with conditions that the merged entity shall implement an ESOP with an effective 5% shareholding for the benefit of historically disadvantaged employees.
    • URL: https://www.comptrib.co.za/cases/merger-case-details/1935 (A brief summary and the Tribunal Order Number can be found. The full reasons are often available on request)
  • Example 3: Burger King South Africa acquisition (2021)
    • Background: Emerging Capital Partners (ECP), a private equity firm, was selling its majority stake in Burger King South Africa (BKSA) and Grand Foods Meat Plant to an entity called, Tadeu-B. The Commission was concerned that post-merger, there would be no black ownership.
    • Outcome: The Commission approved the merger with conditions requiring the acquiring firm to, within 5 years of the implementation date, increase the HDP shareholding to an effective interest of at least 30%, establish an ESOP for its employees for an additional effective interest of no less than 5%, and increase the value of goods procured from BEE-compliant suppliers.
    • URL: https://www.compcom.co.za/wp-content/uploads/2021/08/Commission-Approves-Burger-King-Acquisition-with-BEE-and-Employment-Conditions.pdf (This is the Commission’s press release.)
  • Example 4: Heineken Beverages RF / Distell Group merger (2023)

VI. Conclusion

The Competition Commission plays a crucial role in the South African economy, both in promoting competition and in ensuring that mergers and acquisitions do not undermine B-BBEE objectives. Businesses involved in mergers must carefully assess whether their transaction meets the notification thresholds. If it does, they must be prepared to provide detailed information about their B-BBEE ownership and potentially address any concerns the Commission may have about the merger’s impact on transformation. Failure to notify a notifiable merger can result in significant penalties. This demonstrates the importance of integrating both competition law and B-BBEE considerations into any merger planning.

Chapter: Verification & the B-BBEE commission:
Chapter: Sector codes:
Scroll to Top