On 30 October 2017, the Competition Appeal Court found that Hosken Consolidated Investments Limited (“HCI”) does not require any further merger approvals from the competition authorities in relation to the proposed transaction in terms of which it will transfer certain of the gaming assets of one of its subsidiary’s (Niveus) into the Tsogo Group in which it holds a 47.5% shareholding. It exerts sole control over both of these entities.
Several years ago, HCI applied to merge with Johnnic and pursuant to the approval of this transaction by the Competition Authorities, it acquired joint control of Tsogo Sun Holdings Limited (“Tsogo”). Subsequently, HCI sought approval from the competition authorities in 2014 for the acquisition of sole control over Tsogo when SABMiller decided to exit its investment in Tsogo. At the time, HCI intended (ultimately) to acquire more than 50% of the shares in Tsogo. Both the Commission and the Tribunal evaluated the merger on the basis that HCI would acquire and exercise sole control over Tsogo, and the Tribunal unconditionally approved the merger on that basis.
Shortly after receiving that merger approval, HCI increased its shareholding in Tsogo to approximately 47.5% and acquired sole control over Tsogo.
HCI now decided that it wished to combine certain gaming interests currently held in one of its subsidiaries, Niveus Investments Limited, into the Tsogo Group and as a result of this transaction its shareholding in Tsogo will increase to over 50%, i.e. the same outcome contemplated in the 2014 merger approval.
Out of an abundance of caution, HCI approached the Commission in 2017 to simply obtain confirmation that no further approvals were required. However, the Commission took the view that the transaction had to be notified in order to determine whether or not the structure of the market has changed and whether or not the proposed transaction raises public interest issues such as employment and because it argued that a party crossing the 50% threshold had to notify the transaction whether or not it already exerted sole control.
The Appeal Court’s ruling
The Competition Appeal Court’s judgment indicated that parties are entitled to approach the Tribunal for declaratory relief in appropriate cases (the Court noted that “the power should be exercised sparingly”).
In addition, the Competition Appeal Court helpfully clarified that in instances where a company has previously applied for and been granted approval to acquire sole control in respect of another firm, then there is no need for the party in question to seek approval from the competition authorities again, if it increases its shareholding in the relevant firm. In this regard, the Competition Appeal Court held that its view, “the Commission cannot require the notification of a transaction based on a reason that it wishes to assess the implications of such transaction. It is important to emphasise that the effects of an acquisition of control are considered and determined when the approval of the merger is sought and obtained which is done on a forward-looking assessment of the likelihood of competition harm and the public interest and cannot be revisited once it has been determined.”
Nortons Inc. acted for HCI, Tsogo and Niveus in relation to the competition law proceedings.