When does a transaction constitute a merger?

02 February 2023

We currently find ourselves in a post pandemic world. A fragile world for some; and a world full of opportunity for others. As a businessperson or entrepreneur you might be considering expanding your business, the scale on which you manufacture, or perhaps extend your product range. In order to achieve your goal, you might have to use a new manufacturing facility and as a result conclude a new agreement. Under these circumstances one has to be aware of when such an agreement will qualify as a merger under the Competition Act 89 of 1998 (hereinafter referred to as the Act).

Section 12(1)(a) of the Act stipulates that for the purposes of this Act, a merger occurs when one or more firms directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another firm. From section 12(1)(a) it is clear that a merger is a transaction that involves a change in control. Control, in terms of section 12(1), is presumed to exist in the instances listed in section 12(2)(a) – (g) of the Act. Here it is important to note that the provisions of your agreement will directly determine which of the instances listed in section 12(2)(a) – (g) will trigger the presumption of control. This needs to be carefully considered.

Furthermore, section 12(1)(b) of the Act stipulates that a merger contemplated in paragraph (a) may be achieved in any manner, including through (i) purchase or lease of the shares, an interest or assets of the other firm in question; or (ii) amalgamation or other combination with the other firm in question. For the purpose of this article, it is pointed out that a merger may be achieved by the purchase or lease of an interest or assets. From a practical point of view, this can include manufacturing facilities.

From the above example it is clear how easily a transaction might constitute a merger. For this reason, it is essential to consult a legal practitioner in order to make an informed decision when you would like to expand your business.

Our team at KEBD has experience in mergers and acquisitions and will be glad to assist you.

By Jacques Opperman (Candidate Legal Practitioner) | Corporate and Commercial Department


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