New draft guidelines spell out when minority rights amount to control requiring merger notifications.
The Competition Commission has issued draft guidance on when minority investment protections will be regarded as conferring control and therefore potentially trigger merger filings when investing or exiting investments.
The commission said the guidelines have been prepared to guide parties on the approach it is likely to adopt in assessing a transaction that would relate to the acquisition of minority shareholder protections.
The guidelines further state that a clear distinction must be drawn between minority protections that confer control and those that do not do so. Both protections are aimed at protecting the investment of a minority shareholder.
“The commission notes that there may be instances where a firm does not acquire a majority shareholding. For example, there may be instances where a minority shareholder may acquire control through veto rights or minority protections which confer control depending on the nature and the content of the veto rights or minority protection,”
it said.
“The commission may still require notification of a transaction resulting in a change of control of minority shareholders.”
According to the guidelines, below-50% shareholdings will no longer automatically fall outside merger control if rights grant strategic influence, including vetoes over business plans, budgets, or key leadership decisions.
Some of the minority protections that are control-conferring according to the guidelines include approving or vetoing the appointment or dismissal of key executives.
The other rights that enable a minority shareholder to exercise a form of “control” include, for example, the right to approve and/or veto the company’s strategy, business plan or budget.
Experts at corporate law firm Baker McKenzie said due to scrutiny tightening and uncertainty around notification thresholds, deal teams should closely assess governance rights early and consider advisory engagement with the commission to safeguard timelines and regulatory certainty.
Angelo Tzarevski and Clara Hansen from Baker McKenzie said the guidelines are a significant evolution in the merger control landscape.
“South Africa’s Competition Commission is sharpening its focus on hidden forms of control in corporate deals. Newly issued draft guidelines make clear that even small shareholdings can amount to the acquisition of ‘control’ if minority rights enable influence over strategic decisions of a firm and that such transactions may require merger approval,”
they said in a note.
“The guidelines provide examples of minority protections and do and do not confer control. As scrutiny increases, heightened diligence on shareholder rights and appropriate engagement with the regulator will be essential to avoid delays and maintain transaction certainty.”
Heather Irvine, a partner at Bowmans, said the guidelines aim to guide investors on the circumstances in which the commission will regard the acquisition of minority shareholding as conferring “control” and, therefore, potentially triggering notification as a “merger” in South Africa.
“The guidelines are generally aligned with the approach taken to date by the Competition Tribunal and Competition Appeal Court, as well as international practice, particularly the European Commission’s consolidated jurisdictional notice on the control of concentrations between undertakings,”
she said.
Source: Business Day
