Here’s the law that’s tying merger deals in knots

For years, the competition authorities have quietly got on with their jobs, approving hundreds of mergers annually, most without conditions or fuss. Then every so often along comes a mega-merger and they’re dragged into the excoriating spotlight, igniting tales of woe and their terminally declining standards.

That’s what happened with Vodacom’s R13.2bn bid to acquire a co-controlling 30%-40% stake in Maziv, the parent of fibre broadband operator Vumatel. The deal was filed with the Competition Commission in December 2021 and slowly wended its way through the system. By August 2023, the commission recommended that it be prohibited, setting off a battle that has landed in the Competition Appeal Court.

It was always going to be problematic, given that the country’s largest mobile operator wanted to acquire a co-controlling stake in one of South Africa’s top fibre infrastructure operators.

While Vodacom claimed the deal would benefit consumers – including the oft-repeated promise of improved access for millions in underserved areas – the commission was not persuaded. It found the deal would substantially lessen competition, particularly in the 5G fixed-wireless and fibre markets.

By all accounts, the commission’s decision was not slapdash. The deal involved complex horizontal and vertical competition concerns in a rapidly changing market. One insider tells Currency that the commission’s assessment was particularly detailed, with a high level of granularity required even for the initial market definition exercise.

More than 20 information requests were issued, some of which were so detailed that the merger parties took more than three months to respond. Thereafter, there were lengthy processes of engagement, discussion, refinement and so on.

While some later reached settlements with the merging parties, several intervenors remained when the case went before the Competition Tribunal – including rain, Frogfoot, MTN and Telkom, all of which gave evidence for the commission. 

Information overload

As a shorthand for the complexity of the case, the record of engagement with third parties – including regulators, firms and industry associations – ran to 7,614 pages. This excludes its engagements with the merging parties.

The tribunal’s hearing took place over 26 days between late May and the end of September. The final written submissions were received on October 16 2024. The full merger record spans an astounding 21,944 pages.

In October last year, the tribunal endorsed the commission’s recommendation to block the deal.

Given the mountain of documentation tribunal member Andreas Wessels had to wade through, it’s hardly surprising that it took five months to release the reasons for the decision.

Presumably, Wessels was determined to leave no stone unturned or provide any of the merging parties and intervenors with scope for a review.

In a nutshell (his report is apparently 350 pages long), Wessels concluded: “The proposed transaction’s anti-competitive effects will be permanent. The merger-specific public interest benefits of the proposed transaction, on the other hand, are limited in duration and do not outweigh its negative competition effects that relate to various relevant markets and that will ultimately impact millions of South African consumers who will increasingly in the future be making use of data/internet services.”

He also noted that the merging parties’ commitments to underserved areas had been made previously and were not merger specific.

Hostile environment

It was a remarkably brave decision, given the hostility that had been growing steadily since the commission’s initial recommendation. Hostility came not only from business and the legal fraternity – who claimed it reflected the government’s fundamentally anti-business stance – but, surprisingly, also from the minister of trade, industry and competition, Parks Tau.

In a loose sense, Tau could be considered the boss of the competition authorities. He had participated in the tribunal’s proceedings in the matter and had talked up the merging parties’ commitment to boosting investment and growth of fibre and mobile connectivity in South Africa.

What seems to be overlooked in all the indignation about the unwillingness to make Vodacom even more powerful is the mobile phone industry’s history of consumer abuse.  A track record characterised by outsized profits and behaviour unlikely to inspire confidence that even greater market power would result in more consumer-friendly outcomes.

Despite the complexity of the case, the decision and the time taken have triggered the usual round of chatter about the pending demise of the competition authorities.

Well, there’s no doubt they are taking strain. Tensions with Mondo Mazwai, the Competition Tribunal chair since 2019, have resulted in several key employees quitting in recent years. They have not been replaced.

Perhaps more damaging is that the tribunal has been missing a third permanent member for over a year. That’s down to Tau, who’s responsible for making the appointment.

There are also signs of capacity issues at the commission, with perhaps too much of the limited resources being devoted to market inquiries (which are excellent) rather than mergers and restrictive practices.

Could be better

The overall picture may be clouded by a handful of high-profile controversial cases such as Vodacom-Maziv; Heineken-Distell; Burger King-ECP Africa; AB InBev-SABMiller, and Walmart-Massmart, but the overall stats look quite impressive.

Merger activity has rebounded strongly since the Covid slump, with the commission finalising 319 mergers in the 2024/25 financial year – a return to pre-pandemic levels.

Most investigations are completed swiftly: over the past five years, more than half were concluded within 40 business days, and in most years, more than 90% were finalised within 60 days. Even in slower periods like 2023/24, 89% of cases were wrapped up in under 60 days, and over 90% within 80. 

Since 2020/21, the commission has prohibited or recommended prohibition in just 11 cases – five intermediate, five large and one still pending before the tribunal. Only three prohibition recommendations were made in the past two years.

In 2024, the tribunal heard 150 cases and issued 171 rulings.

So, not many signs of a train wreck in those figures. Still, ask almost anyone involved, and they’ll tell you things could be better.

New era of horse trading

It turns out the biggest challenge is not so much limited resources, it’s the law. Specifically, section 12A of the Competition Act. That’s the public interest section, which allows a merger to be blocked or approved on the basis of its impact on a particular region or industrial sector, employment and the ability of small businesses or firms controlled by historically disadvantaged persons to become competitive.

In the early days of the “new” competition authorities, it was kept in the background. The focus instead was on whether the merger was likely to “substantially prevent or lessen competition”.

That all changed in 2009 when then president Jacob Zuma appointed former trade unionist Ebrahim Patel as minister of a newly created department, the impressive sounding economic development department.

Evidently, seeing the potential the competition authorities offered to intervene in economic development, Patel succeeded in dragging it out of the beefy department of trade and industry, and into his otherwise sparse department.

There was no looking back for Patel, who zoned in on Section 12A for its seemingly infinite ability to generate horse-trading opportunities. He essentially set up a “12A tollgate” at which merging parties would negotiate how much they would hand over to make the deal happen. It was generally a long-drawn-out process.

Recall Walmart-Massmart, AB InBev-SABMiller, Heineken-Distell and Burger King’s acquisition by ECP Africa.

It’s not just the horse-trading opportunities created by 12A; the section also adds scope for third parties to intervene in the merger process. So, it’s not only customers, competitors and employees who can participate in the commission’s investigation, it’s anyone with a gripe and lots of money to pay lawyers to make their public interest case.

This brings us around to an often-overlooked reason why so many cases seem to drag on so long. As the Vodacom case demonstrates so well, the act entitles many parties to be heard, and most, including competitors, have no interest in ensuring a speedy process. And, by the way, who knows a lawyer who will tell you in one paragraph what he can tell you in 10?

So, speeding up the pace at which cases are processed will require effort from more than the competition authorities. The lawyers and companies who use and abuse the process also need to come to the party.

The encouraging news, of course, is that the new minister doesn’t seem as focused on horse-trading. That should speed things up a bit.