SA’s competition law underwent a health check at a recent seminar hosted by law firm Bowmans in Sandton. Participants debated the extent to which public interest should be weighed against pure economic gain in mergers and acquisitions. The result: the verdict is still out.
Lawyers and economic development minister Ebrahim Patel, whose department oversees the country’s competition authorities, met head to head during the panel
discussions.
Patel says competition law is one of the fastest-growing areas of the SA economy.
Derek Lötter, head of Bowmans’ competition practice, says the minister is well known for using mergers and acquisitions for public policy purposes — especially regarding social inequality and the interests of workers.
Patel threw down the gauntlet to the legal profession, saying that while competition policy is traditionally used to strengthen competition in economies, he has heard it described as a way for the legal fraternity to boost billable hours.
Recent multibillion-rand penalties against steelmaker ArcelorMittal SA for price-fixing, and a collective of JSE-listed construction companies for collusion, has shown the way government is thinking.
SA has just introduced criminal sanctions for cartel behaviour, in line with the US, Germany, UK and Australia, though these have rarely been applied outside of the US.
This will send further shudders into the foundations of related industries such as construction, steel and cement, which have all been heavily penalised for collusive behaviour perfected under apartheid’s pyramid structures of monopoly ownership.
Not long ago, big companies in the construction sector held meetings to allocate tenders and monitor each other’s behaviour through a forum called The Party, attended by high-level executives. But the legal ground is shifting as government seeks greater inclusiveness in the economy. In other words, "The Party" is over.
Patel says there has been a public backlash against globalisation.
While this has lifted millions out of poverty, he says it has also created greater inequalities between rich and poor.
"Inclusion [in the economy] or lack thereof has become a central issue of our time," Patel says. And the public distrust of institutions has led to a "dangerous shift towards the politics of resentment and fear".
To this end, Patel says the Competition Act balances competition goals and issues of public interest. This means giant mergers, including between Massmart and Walmart, and SABMiller and AB InBev, have come with strict social conditions.
These take into account greater employment and the promotion of small businesses — especially through the inclusion of black South Africans — to align competition with broader industrial policies.
"[The department] does not take a view that there can be no job losses in any merger," Patel says.
But he says if a company’s philosophy is underpinned by such job losses, then the application of competition law has to consider this.
Some competition law practitioners argue that the notion of public interest has no legitimate role in the formulation of competition policy, or that it plays too big a part.
But Patel says the act provides for ministerial involvement: "There is broad agreement that public interest is a legitimate part of competition policy."
He says parliament wants the law rewritten to allow executive veto of mergers and acquisitions, as is the case in other jurisdictions. "But as government we have to have careful balance. If we are too involved there is investment risk," Patel says.
"So government rather looks into the act and sees what it can do better, rather than rewrite the law.
"This includes limiting retrenchments and promoting small and medium businesses within industry supply chains.
"A sharp distinction between public interest and competition is not so sharp in practice."
The SA steel market has collapsed in recent times, mainly due to cheap Chinese imports. Evraz Highveld Steel & Vanadium — once the country’s second-largest steel producer — has gone out of business.
Patel says ArcelorMittal SA is a company that has "predation in its DNA. We needed to find a way to deal with anti-competitive behaviour of upstream dominance ... in a way that did not destroy the company.
"Our remit has to be wide. I think we found a fair balance," he says, by retaining the group’s industrial capacity.
This "fair balance" has come with a R1.5bn competition commission penalty for price-fixing and a long-delayed broad-based black economic empowerment deal worth more than R2.2bn. It also comes with a promise to invest R4.6bn in upgrading plant and equipment.
"There is deep public concern about the levels of concentration in our economy," says Patel. This has led to the criminalisation of cartels from May 2016.
Rob Legh, chairman and senior partner at Bowmans, says SA is not unique in criminalising cartel behaviour. He says there is a worldwide trend towards a "political-social policy-based approach to competition law".
"It is about the massive concentration of power in quite a few hands. We are moving away from pure economic effect-based regulation," he says.
But he says SA has struggled for consistency when it comes to applying the law.
This has led to what he calls uneven precedents. These include reaching settlement before the cases are tested in law by the competition tribunal.
David Unterhalter, an advocate and specialist in competition law, says SA and the world are more complicated than they were when the Competition Act was first implemented. The idea was to bring competition law in SA into line with systems in developed countries.
This, he says, would address the rigid conditions under which the economy had existed under apartheid, bringing a more open economy and the benefits thereof.
But Unterhalter warns of government social overreach in mergers and acquisitions, especially when it comes to really big ones such as that of Walmart and Massmart.
"It’s a no-no to make a merger about public interest and residually about competition interest," he says.
This means focusing on what is clearly and specifically related to a merger, and properly respecting these boundaries. Unterhalter also says mergers are highly time-sensitive, and warns against "gaming" by any parties to a deal.
Norman Manoim, chairman of SA’s competition tribunal, says the pendulum is swinging towards the idea that mergers do trigger public interest. But, he asks, who should decide this issue?
This has pertinence in a globalised world. The US House of Representatives has, in the past, voted on national security grounds against the management of six major seaports by a company owned by Dubai’s government.
John Davies, partner at London law firm Freshfields Bruckhaus Deringer, says the UK has abandoned the general public interest test on mergers and acquisitions in favour of three pivotal considerations: national security, media diversity and economic stability as it relates to events such as the global financial crisis.
Manoim says in SA authority in competition law is mixed — in terms of there being a "judicialised" process.
Patel says parliament needs to make the call as to whether a merger is in the public interest.
He says even if the issues are not codified, this is better than "arbitrariness".
Unterhalter agrees with him.
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