HOSTILE TAKEOVERS AND MERGER FILING REQUIREMENTS – THE END OF THE TARGET FIRM’S ABILITY TO EMPLOY DILATORY TACTICS?

On 5 January 2024, the Competition Commission (“the Commission”) published draft guidelines on the filing of merger notifications for hostile transactions (“the Draft Guidelines”). The Commission identified a need for a document setting out its approach in such transactions as hostile takeovers, by their very nature, are often adversarial and lack the normal cooperation between a Target and Acquiring Firm which is essential to ensuring that a timely and complete merger filing takes place.

In instances where the relevant monetary thresholds are met, firms cannot implement merger transactions without first obtaining the Competition Authorities’ approval – obtaining such approval starts with the submission of a complete merger filing. A merger notification can take place in one of three ways:

1. a joint filing can be made by the Acquiring Firm and Target Firm – this is the process most often used;
2. either the Target Firm or Acquiring Firm can apply to the Commission for permission to submit separate filings – this will often be needed in the case of hostile takeovers; and
3. finally, in instances where a separate filing is being frustrated, an application can be brought by one of the firms (usually the Acquiring Firm) to separately but unilaterally file a merger application on behalf of both the Target Firm and Acquiring Firm.

In instances where both firms are desirous of the transaction taking place, they will cooperate and file a joint notification. However, where a hostile takeover is involved, the Target Firm may not wish to cooperate and can unduly frustrate and delay the notification process – although the Competition Act, 89 of 1998 (“the Act”), makes provision for separate filings, it does not make provision for a time period within which the Commission must render a decision in respect of a request to submit separate merger filings. Hostile takeovers may be particularly time sensitive and, as the merger investigation process cannot commence until a complete merger notification has been made, being able to utilise a process such a separate merger filing (or unilateral merger filing) is of utmost importance in such cases.

The first hurdle to overcome is the question as to whether or not there is a “merger” – in hostile takeover situations, the Target Firm is likely to argue that there is no merger. In the Draft Guidelines, the Commission makes it clear that, at the very least, there should be an offer from the Acquiring Firm which sets out the price and terms and conditions of the proposed transaction. If the Commission finds that the proposed transaction can be said to constitute a “merger”, the next step is to consider whether permitting separate filings will be reasonable and just in the circumstances. The Draft Guidelines sets out the following factors that will be taken into account:

1. prejudice to the Target Firm should a separate filing be permitted;
2. ability of each firm involved in the transaction to submit a meaningful separate filing;
3. implications for the firms who may need to provide information to the Commission during the investigation;
4. implications for third parties who may need to provide information to the Commission during the investigation;
5. implications for the Commission and its resources should investigation commence;
6. whether merger control will be effective, for example, where conditions are attached to approval; and
7. any other factor which may be deemed relevant by the Commission.

Should separate filings be permitted, the Commission will share submissions made by the Target / Acquiring Firm with the other firm and will impose strict timelines to ensure that the process is not unnecessarily delayed. Where the Target Firm (or Acquiring Firm) fails to comply with the timelines as set out in the Commission’s direction, the other firm can – within 10 business days from the date as directed by the Commission – bring an application for permission to file on behalf of the delaying firm.

It is clear that providing strict timelines for compliance with a direction to file separate merger notifications will hamper a Target Firm’s ability to unduly delay the merger notification process – however, the Draft Guidelines do not provide a time period within which the Commission must render a decision as to whether separate filings will be allowed and a Target Firm’s refusal to cooperate may therefore still result in some delay to the merger filing process (the extent of such delay will depend on the speed with which the Commission deals with applications to permit separate filings).

The draft Guidelines are available here: https://www.compcom.co.za/wp-content/uploads/2024/01/49975-05-01-TradeIndCompetition-PUBLISHED-GAZETTE.pdf

Misha van Niekerk

Senior Associate | Attorney

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