There is an increasing tendency by South African competition authorities to consider more carefully the transactions in which the potential for the dissemination of competitively sensitive information between firms is heightened.
Competition authorities in South Africa and worldwide are careful about the type of inform-ation that is shared, the intention behind a particular piece of information and the parties involved. It is, therefore, crucial to correctly identify which shared information will have anti- competitive outcomes.
“Information sharing among competitors might have the effect of reducing or removing uncer- tainty regarding these firms’ operations in the relevant market(s), which could lead to restrictions on competition when companies become aware of their competitors’ market strategies, modes of operation and future business plans, among others.
“In this regard, information sharing among competitors should accordingly be avoided,” law firm Cliffe Dekker Hofmeyr senior associate Lerisha Naidu says.
“On January 23, the Com-petition Tribunal, in the large merger between Absa Bank and the Private Label Store Card Portfolio of Edcon, issued its reasons for approving the transaction subject to con- ditions designed to minimise the potential for coordinated effects postmerger,” Naidu explains.
She says that premerger, certain business services supplied by the merging parties, namely those relating to the provision of unsecured credit, had overlapped horizontally.
This is because Absa is party to a joint venture with Wool-worths Financial Services (WFS) which offered certain types of unsecured credit products and,
posttransaction, Absa would acquire the right, title and interest to the accounts and receivables relating to the Edcon portfolio, which offers substitutable products and services to WFS.
According to Section 4(1)(b) of the Competition Act of 1998, an agreement between, or a concerted practice by firms, or a decision by an association of firms, is prohibited if it is between parties in a horizontal relationship and if it involves any of the following restrictive horizontal practices: directly or indirectly fixing a purchase or selling price, or any other trading conditions; dividing markets by allocating customers, suppliers, territories, or specific types of goods or services; or collusive tendering.
There is a concern that inform- ation exchange facilitates collusion, which is in contra- vention of section 4(1)(b). Although the Competition Commission of South Africa has investigated several recent cases of alleged cartel activity, resulting in numerous fines having been paid, these fines have been paid as part of consent orders, or settlement agreements by the alleged wrongdoers.
Naidu notes that the commission regarded Absa’s post-transaction interest in the WFS and Edcon portfolios as a potential platform for the exchange of competitively sensitive inform-ation, such as pricing, marketing policies and commercial strategies, between Edcon and WFS through Absa. This could, in turn, substantially prevent or lessen competition.
The tribunal in this case held that the acquiring firm was acquiring “more than a bare asset that would enhance its com- petitive position” in the relevant market and, hence, the merger was notifiable to the commission.
The commission says this case is significant because direc- tion was given by the tribunal in terms of what constitutes the “whole or part of a business”, as stipulated in Section 12 of the Competition Act.
The tribunal noted that the acquiring firm intended to secure the book debt of the target firm because it provided access to a significant client base, which was likely to boost Edcon’s market share.
“The Competition Tribunal agreed with the commission’s findings and imposed a set of behavioural conditions, pertain- ing to the implementation of ringfencing measures designed to prevent anticompetitive information exchange and monitoring conditions,” she adds.
In respect of the competition authorities being notified of transactions, the authorities are inclined to ensure that firms with interests in competing entities have mechanisms in place to ensure that any mergers do not create a platform for the sharing of competitively sensitive information between competitors, the commission notes.
When notifying the commission of transactions, firms must, therefore, be aware of the level of scrutiny that the commission might subject such transactions to, whether it will increase the ability of competing firms to interact with each other directly, or through a parent company.
“In this light, it is important for acquiring firms that seek to acquire interests in competing entities to implement measures and proactively adopt policies and procedures that ensure the likelihood of information exchange posttransaction is obviated,” says Naidu.
The commission states that it is crucial for competition author-ities to consider the rationale behind the information exchange and the intention of the parties participating in the information exchange. Each instance will need to be considered in light of the industry and market as a whole, taking into account the relevant facts. It is not the inten- tion of competition policy to outlaw information exchange, but rather to ensure that the information exchanged does not give rise to anticompetitive outcomes.