New merger filing fees and thresholds effective 1 October 2017 and further amendments to the calculation of thresholds published for public comment
On Friday 15 September, the South African Minister of Economic Development, Mr Ebrahim Patel, published official government notices confirming changes to the merger notifiability thresholds and the merger filing fees payable to the South African Competition Commission for large and intermediate merger notifications. These changes will come into effect on 1 October 2017.
The thresholds for notifiability of intermediate mergers only are now set at a higher level. For intermediate mergers, the lower threshold (which is calculated with reference to the higher of the total asset value or turnoverof the target firm) has increased from ZAR 80 million to ZAR 100 million. The higher threshold (which is calculated with reference to the combined asset value or turnover, whichever combination is the higher, of the acquiring firm and the target firm) has increased from ZAR 560 million to ZAR 600 million. The merger thresholds for large mergers remain unchanged.
According to Leana Engelbrecht, Senior Associate in the Competition & Antitrust Practice at Baker McKenzie in Johannesburg, South Africa, “The revised thresholds are likely aimed at ensuring that the South African competition authorities are charged with considering only material transactions. The competition authorities have likely noticed that the current thresholds do not appropriately filter out a sufficient number of immaterial transactions (especially in light of the economic changes that have occurred over the past eight years since the current notifiability thresholds came into force).”
“The fact that the large merger thresholds remain unchanged may indicate that the Competition Commission believes that it is appropriately conducting more extensive investigations that are subject to approval by the Tribunal, in respect of transactions that meet the large merger thresholds,” she notes.
In addition, the merger filing fees payable for intermediate and large mergers will also increase on 1 October 2017. For intermediate mergers, the filing fees will increase from ZAR 100 000 to ZAR 150 000. For larger mergers, the filing fees will increase from ZAR 350 000 to ZAR 500 000.
“These amendments were likely also necessitated by economic changes over time, changes in currency value and to appropriately align with the costs incurred by the Commission and Tribunal in considering mergers,” explains Engelbrecht.
Engelbrecht notes that the Minister also published a notice inviting interested parties to comment on a proposed amendment to the method of calculation of merger notifiability thresholds.
“The method of calculation was previously based on Generally Accepted Accounting Practices (“GAAP”) – an accounting system that is widely becoming less popular as there is a move to using uniform accounting standards internationally. One proposed amendment aims to do precisely that, by amending the method of calculation of the merger notification thresholds to now be based on international financial reporting standards (“IFRS”)- in accordance with the approach in terms of the Companies Act, 2008,” she notes.
She says that a further amendment pertains to a clarification that the valuation of assets and the determination of turnover must be based on the financial figures contained in the financial statements for the immediately previous financial year preceding the merger (either audited or unaudited but calculated in accordance with IFRS).
“This amendment is likely proposed due to the current regulations being unclear on whether the immediately preceding annual financial statements should be used (whether audited or not) or whether the last audited annual financial statements should be used,” Engelbrecht explains.
A further amendment is that the inclusion of any acquisition of a business, interest in a business or investment in a company, that occurs between the end of the preceding financial year and the merger, as assets or turnover to be considered for purposes of determining whether the merger thresholds are met (in respect of either the asset value or as it relates to turnover generated from the particular investment). Previously, the determination notice only required that the acquisition of subsidiary companies in this period be included in the asset value calculation.
Interested parties are invited to comment on these proposed amendments by 15 October 2017.