Concerns about the Competition Commission’s investigations into the effect mergers have on employment, prolonging the merger process, is a hot topic among lawyers in the mergers and acquisitions (M&A) field. However, the Commission’s M&A division manager Maarten van Hoven says that these concerns are unfounded.
“One should look at the bigger picture. The investigation into the effect on employment is part of the Commission’s mandate. The number of transactions (mergers) with extensive investigation into the effects on employment is quite small, compared with the number of transactions filed with the Commission. A complaint can only be justified if it constitutes a significant amount of transactions.”
However, Van Hoven says that, in instances where investigations are prolonged because of public interest, investigations should not be viewed as a delay or an unnecessary function of the Commission.
He says that mergers generally have an effect on employment, because they are often motivated by an efficiency benefit. For example, it is likely that employees’ job functions could overlap in either of the firms involved in the merger, therefore, by reducing the number of employees, the company will decrease overhead costs and improve its efficiency.
He explains that South African competition law is unique in that provision is made in the Competition Act No 89, of 1998, for the investigation into the effect mergers have on employees.
“This is called a public interest aspect and we are required to investigate because we are mandated by legislation,” says Van Hoven.
Negative circumstances surrounding mergers include the retrenchment of people with a low skills base. It is difficult for such individuals to obtain new employment, which is of concern given South Africa’s high unemployment rate.
When transactions have a significant effect on employment, the Commission would consider imposing remedies to ameliorate the effect of the transaction on employment. One such remedy is to request that parties provide funding to enable affected employees to be trained or skilled in order to improve their chances of being re-employed or provide them with the opportunity to start their own business.
Although he points to mergers having a positive aspect, whereby a company employs more people, there are many instances where the merger does not have a significant impact on employment. But in cases where employees are affected, parties are obliged to provide the Commission with a worst-case scenario.
“Trade unions will be engaged in such a process, causing it to be prolonged. Although their participation has never had a significant effect, there might be singular cases where a transaction has dragged on for longer than expected, by either parties involved or the Commission,” says Van Hoven.
In terms of deadlines, he says that companies cannot impose deadlines on the Commission as it has a statutory deadline, which includes both competition and public interest analyses.
Though firms often have imposed deadlines, either because of an order by the Securities Regulations Panel or a JSE deadline. “We try and accommodate these deadlines wherever we can, but we will never be bound by the parties’ own internal deadline.”
The Commission’s deadline is established once it is notified of the companies’ intent to merge.
“Unions are allowed to participate and note their intentions to participate, especially where transactions affect employees. Although, I believe that trade unions do not delay mergers, as they have a right to participate in the process, and I think practitioners and merging parties need to appreciate that,” says Van Hoven.
He believes that the level of cooperation that exists between trade unions and com- panies often determines the outcome of investigations. When gold-miner Harmony Gold acquired JSE-listed Pamodzi Gold, the effect on employment was significant.
“About 3 000 employees were identified for retrenchment, but the parties entered into an agreement with the trade union, which approved of the transaction from day one. The union encouraged the conclusion of the transaction because the company was in liquidation and there were payments that had to be made to employees who were in extreme distress.”
In other cases, Van Hoven believes that this type of cooperation does not exist, leaving the Commission responsible for establishing the likely effects on employment.
In the case of Harmony Gold, the Competition Tribunal imposed a condition on the approval of the merger, in that the agreements entered into with the trade unions were a condition of the merger, which compelled parties to re-employ a significant number of employees over a period.
“I often recommend that firms determine the worst-case scenario and engage with trade unions in advance. I have found that the level of consciousness, with regard to the effect mergers have on employees, is more prevalent with privately owned firms than with publicly owned firms. Firms need to be more conscious of the effect mergers have on employees and find remedies for where [they do] have a significant impact.”