IN THE COMPETITION APPEAL COURT
CAC Case No. 68/CAC/MAR/07
Tribunal Case No. 39/AM/May06.
In the matter between
AFRICAN MEDIA ENTERTAINMENT LIMITED Applicant.
And
DAVID LEWIS NO First Respondent
NORMAN MANOIM NO Second Respondent
YASMIN CARRIM NO Third Respondent
PRIMEDIA LIMITED Fourth Respondent
CAPRICORN CAPITAL PARTNERS
(PROPRIETARY) LIMITED Fifth Respondent
NEW AFRICA INVESTMENTS LIMITED Sixth Respondent
THE COMPETITION COMMISSION Seventh Respondent
_____________________________________________________________________
JUDGMENT: 19 NOVEMBER 2007
DAVIS JP
Introduction.
[1] The applicant has approached this Court to review and set aside a decision of the
Competition Tribunal (‘the Tribunal’) to approve a merger between fourth, fifth and
sixth respondents. It also seeks an order substituting the order of the Tribunal with
one which would prohibit the merger.
The factual background
[2] The facts of this case have been meticulously set out in the decision of the Tribunal.
Given this exposition and the limited nature of this application, I intend to provide a
summation of the facts.
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[3] Fourth and fifth respondents entered into an agreement to acquire all the ordinary and
issued ‘N’ shares of sixth respondent The only relevant asset that sixth respondent
holds is a 24.9% equity stake in Kaya FM (Pty) Ltd which in turn controls and
operates a radio station, Kaya FM.
[4] In terms of an agreement between fourth and fifth respondents, fourth respondent
acquired an economic interest of 73% in sixth respondent, with the two parties having
equal voting rights. Fourth and fifth respondents agreed further that fourth
respondent would manage the media assets of sixth respondent which effectively
meant that through the acquisition of sixth respondent and, in terms of this agreement,
fourth respondent would control the 24.9% shareholding so acquired in Kaya.
[5] The merging parties notified this transaction to the seventh respondent (‘the
Commission’) as constituting an intermediate merger. The Commission investigated
the merger and concluded it would lead to an increase in fourth respondent’s market
power in Gauteng and it would both facilitate co-ordinate behaviour between fourth
respondent and Kagiso Media Limited which controls Jacaranda, a competing radio
station, and hence reduce competition between the radio stations owned by fourth
respondent, being Highveld FM, Radio 702 and Kaya FM. The reasoning of the
Commission is reflected in the following passage from its report of 28 April 2006:
‘Considering the above factors the Commission is of the view that the merged
firm will be able to behave to an appreciable extent independently of its
customers and competitors. From the information provided Kaya FM is an
important competitive force in the relevant market and the product offering of
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the Primedia radio stations and Kaya FM are highly substitutable. The
Commission has found that this market is highly concentrated with very few
opportunities to switch between commercial radio advertising stations in
Gauteng.
Although the SABC radio stations can be considered as substitutes for
regional radio stations in Gauteng for certain customers the Commission
found that regional customers are not able to substitute to SABC stations from
regional radio stations.
In this market Primedia is regarded as a major player and holds a significant
portion of the market. According to the Commission the parties do not face
any significant competitive constraints other than from Jacaranda and YFM.
The Commission views Kaya FM as an important role player in this market
and has the ability to grow significantly and be able to significantly constrain
the current market participants.
The Commission is of the view that the merger will entrench the market
power that Primedia already has and eliminate an effective competitor.
Considering the above the Commission is of the view that the transaction is
likely to cause significant adverse unilateral effects.’
[6] In contrast to this conclusion, the Commission originally considered that its concerns
could be addressed by the imposition of behavioural conditions and accordingly
approved the merger subject to conditions.
[7] The merging parties then submitted a request to the Tribunal to reconsider the
conditional approval granted by the Commission. The merging parties submitted that
the merger should be approved unconditionally or, in the alternative, approved
subject to revised conditions they tendered. When the matter was argued before the
Tribunal, the Commission submitted that, on further investigation, it was concluded
that the merger was likely to result in both unilateral and coordinated anti-
competitive surplus and accordingly the merger should be prohibited outright.
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The Tribunal’s decision.
[7] The Tribunal began its substantive inquiry by examining the respective shareholdings
in Kaya:
Shareholder Percentage
Nail 24.9%
Shanike 24.9%
Thebe Convergent Technologies 45.2%
Motsamai 5%
[8] The Tribunal posed the question as to how fourth respondent, by way of its
shareholding in sixth respondent, could exercise control over Kaya after the merger
when sixth respondents’ rights as a shareholder remained unaltered. Prior to the
merger, there was no basis to conclude that sixth respondent had exercised control
over Kaya, as defined in the Competition Act 89 of 1998 (‘the Act’).
[9] The opposition parties to the merger submitted to the Tribunal the merger would lead
to a change in incentives among the shareholders in Ka ya and that there was a greater
possibility of coordination of behaviour so that fourth respondent would exercise a
measure of indirect control over Kaya , either on its own or through joint control with
one or more of the other shareholders.
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[10] The Tri bunal rejected the argument that fourth respondent, in any wa y, could
exercise sole control over Kaya because ‘it can o nly vote 24.9% of the votes at
shareholders and a board meeting (sic). This does not give it either a majority of
votes or the power t o veto a resolution or require its consent for a resolution to be
valid. S imply put, Nail can be ignored at both shareholder and board level’ (para
65). The Tribunal concluded that there was no evidence that fourth respondent could
exercise sole control over Kaya FM in terms of s 12(2)(g) of the Act.
[11] The Tribunal then raised a further question : ‘Whether any of the other shareholders
have an incentive to co -operate with it?’, a positive answer to which may have lead
to the conclusion that Kaya could be controlled jointly by fourth respondent with ‘one
or more others’.
[12] In this regard, the Tribunal considered three possibilities:
(i) Coordination will be lead by fourth respondent over advertising prices and that
together with Kagiso M edia, this w ill enable the three key commercial music
stations in Gauteng, Highveld, Kaya and Jacaranda to raise advertising rates
without a fear of loss of advertisers to remaining stations which might defeat the
strategy. Examining the evidence the Tribunal conclud ed: ‘S ince Kaya on all
evidence is a more likely threat to Highveld than it is to Jacaranda, it is hard to see
why Kagiso M edia has an inte rest in coordinating with Prim edia in the Gauteng
market presently’.
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(ii) Kagiso Medi a and fourth respondent will coordinate the positioning strategy of
the three stations to ensure that they minimize competition between one another
and in a sense constitute a form of market division. In this regard , the Tribunal
referred to a board presentation by Kagiso Media which describ ed Kaya and
Jacaranda ‘ as a powerful combined force against competitors especially
Highveld’. The Tribunal concluded on the basis of this evidence that :
‘The implication being that each is well situated to attack the crown jewel of
Primedia from a differ ent vantage point. This suggests that Kagiso Media has
little to gain and much to lose from co -ordination over station strategy, since it is
Highveld that has the most to lo ose and it the most to gain. Whilst the merger
may give Pri media some say in the direction of Kaya there is no reason why
Kagiso Media would have any incentive to position Kaya away from Highveld if
that became a strategic choice facing the station’ (para 78).
(iii)Coordination will not take place amongst the radio stations but could tak e place
amongst the owners being Ka giso Media, Caxton and fourth respondent who
would divide up o pportunities in the market as and when they arose as to ensure
that there is an alloca tion of opportunity among them. In this regard, the Tribunal
stated:
‘But this prospect of deal making does not, prima facie, constitute anti -
competitive activity – it might be some form of market division, but not so self -
evidently for us to conclude that the only motive is anti-competitive as opposed to
simple bargaining between owners with incomplete control over assets.’ (para 78)
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[13] On the basis of this analysis, the Tribunal concluded as follows:
‘We conclude that there is insufficient evidence to suggest that the acquisition
of the Nail stake will give Primedia joint c ontrol with any other shareholder
over the business of Kaya FM. At best c o-ordination to give rise to joint
control is a possibility but it is not a probability’. (para 79)
[14] The Tribunal therefore found that fourth respondent’s acquisition of a stak e in Kaya
FM by way of a shareholding in sixth respondent would not give it sole or joint
control over Kaya. The Tribunal found it unnecessary to consider, whether if it had
acquired control, this would lead to an anti -competitive outcome. In its decision, the
Tribunal considered the merger in terms of section 16(1)(a) of the Act and approved
the merger unconditionally in terms of section 16(2)(a) thereof.
The issues on appeal.
[15] Two central questions were required to be determined by this Court, being
1 The right of an intervener to review merger approvals;
2 The submissions that the Tribunal failed to assess whether or not the merger
was likely to substantially prevent or lessen competition as was required of it
in terms of section12 A(1 ) read in the light of the factors listed in section 12
A(2) of the Act and accordingly whether this omission rendered the decision
of the Tribunal reviewable.
[16] A third leg of the argument concerned the question as to whether this Court should , if
the review succeeded, substitute the order of the Tribunal with its own order which
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would prohibit the merger. During argument , Mr Campbell, who appeared together with Mr
Wesley on behalf of the applicants, abandoned this leg of the case and contended that,
were applicant to succeed upon review , the matter should be referred back to the
Tribunal for further consideration.
The right of an intervene r to apply for a review of the decision of the Tribunal to
permit the merger.
[17] Mr Gauntlett, who appeared together with Mr Snyc kers on behalf of fourth and fifth
respondents, referred to the decision in Competition Commission v Distillers
Corporation (SA) Ltd and Another [2004] 1 CPLR 14(CAC) to support his
submission that an intervening party may not bring an application to review an
approval of a merger by the Tribunal. In Distillers, the Tribunal had approved the
merger of respondent subject to certain conditions. The C ommission subsequently
filed a notice of appeal in which it sought to have the decision of the Tribunal set
aside by the Court. T he question arose as to whether the Commission had locus
standi to appeal against the Tribunal’s decision.
[18] The Court referred to section 17( 1) of the Act which regulates which parties may
appeal to the Court against Tribunal merger proceedings: :’Within 20 business days
after notice of a decision by the Competition Tribunal in terms of section 16, an
appeal from that decision may be made to the Competition Appeal Court subject to its
rules, by:
(a) any party to the merger; or
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(b) a person who, in terms of section 13A(2), is required to be given notice of the
merger, provided the person had been a participant in the proceedings of the
Competition Tribunal’.
[19] Section 13A(2) provides that ‘in the case of an intermediate or large merge r, the
primary acquiring firm and primary target firm must each provide a copy of the
merger notification to: (a) any registered trade union that represents a substantial
number of its employees; or (b) the employees concerned or representatives of the
employees concerned, if there are no such registered trade unions’.
[20] After an analysis of this section, Malan AJA held : ‘It follows that the Commission
does not enjoy a right to appeal against the merger decision of the Tribunal in terms
of section 17( 1) of the Act. H aving specifically stipulated two categories of persons
as having this right, it is clear that the Legislature intended such right of appeal to be
limited to these two categories of persons: expression unius est exclusio alterius ’
(para 4).
[21] Mr Gauntlett submitted that this finding could not be reconciled with the recognition
of a right of an intervening party in a merger to approach this court to review a
decision regarding a merger. This Court had decided that section s 61 and 17 of the
Act had t o be read together so that only parties identified as potential appellants in
section 17 were, ‘affected by’ the Tribunal’s decision as contemplated in section 61 ,
which in turn gave parties, defined as affected, a right to appeal or to bring a review.
10
[22] Section 61(1) of the Act provides that ‘ a person affected by a decision of the
Competition Tribunal may appeal against, or apply to the Competition Appeal Court
to review, that decision in accordance with the Rules of the Competition A ppeal
Court if, in terms of section 37, the Court has jurisdiction to consider that appeal or
review that matter ’. Section 17 gives to the concept of ‘affected’ by a decision
regarding a merger. Only parties as set out in section 17 can appeal a merger
decision. A ccordingly, Mr Gauntlett submitted that it made no sense to say that a
party may not be affected by a decision and hence could not appeal it but could be
affected by a decision if it wished to review it.
[23] Section 61 (1) of the Act may we ll not be a model of drafting clarity. Insofar as
merger proceedings are concern ed, it would be difficult to argue that any party
outside of those set out in section 17 could appeal a decision of the Tribunal ,
notwithstanding that the phrase ‘affected by a decision of the Competition Tribunal ’
was employed in section 61 as opposed to a specific reference to section 17.
However section 61(1) is a general provision, with regard to appeals and accordingly,
the catch phrase ‘affected by a decision of the Com petition Tribunal ,’ was
presumably employed for that purpose.
[24] But with regard to review powers s ection 61 is not the only relevant provision and
cannot be read on its own. Section 37(1) of the Act empowers this Court to review
‘any decision of th e Competition Tribunal’ . Furthermore, in terms of section
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53(1)(c), the Tribunal is empowered to grant a right to a hearing to ‘any other
person’ whom the Competition Tribunal recognised as a participant .
[25] In this case , the applicant was recog nised as a participant by the Tribunal acting
within the power granted to it in terms of section 53 . It would be an anomalous
situation if the other parties as set out in section 53(1)(c) of the Act were entitled to
bring a review application of a decision of the Tribunal with regard to a merger but
that any other person recognised as a participant (my emphasis) would not be so
entitled to bring a similar application on the basis that it was not affected by a
decision of the Tribunal . Manifestly , once it becomes recognised as a participant in
the proceedings, it was affected by a decision of the Tribunal and accordingly section
61(1) must apply to it . that is the clear impact of the words as employed in section
61(1) and it is the meaning that is most congruent with the principle of legality, being
that a party affected by a decision should be entitled to bring a review application.
[26] Such an interpretation follows the decision to admit the applicant as a participant and
therefore to have equal statu s to other participant s. It is also congruent with section
33 of the Republic of South Africa Constitution Act 108 of 1996 which provides that
everyone has the right to administrative action that is lawful, reasonable and
procedurally fair. The interpret ation which I have therefore given to section 61 read
together with section 53 of the Act is congruent with the Constitution , in particular
section 33 and section 34 which encapsulates a principle of legality , the latter which
would be eroded by the inability of a recognised participant to proceedings to bring,
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what would otherwise be a justifiable application , for review of such proceedings in
which they had been granted the status of a participant. This finding in no way
disturbs that of this Court in Distillers which was concerned with the question of an
appeal.
The Review Application.
[27] Much of the attack on the reasoning of the Tribunal was based upon submissions that
the Tribunal’s decision was materially influenced by an error of law . It was argued
that the Tribunal had misconstrued its powers and the nature of the discretion it was
granted in merger control as mandated by section 12 A of the Act. Accordingly, the
decision was reviewable, particularly in terms of section 61(2)(d) of the Promotion of
Administrative Justice Act 3 of 2000 (‘PAJA’), namely that its decision was
materially influenced by an error of law. In Glaxo Welcome(Pty) Ltd v Terblanche
NO and Others [2001-2002] CPLR 48(CAC) at 54 Selikowitz AJA dealt
comprehensively wi th the review jurisdiction of this Court. He found that ‘the
Tribunal’s decisions , although judicial in nature, are administrative decisions.
Further this Court must exercise its review powers in accordance with the normal
common law principles of j udicial review which now derive their force from the
Constitution…..’
[28] In order to determine whether the Tribunal’s decision to approve the merger was
materially influenced by an error of law, it is necessary to examine the essential
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architecture pertaining to the evaluation of a merger; in particular section 12 A(1)
and (2) of the Act which read thus:
(1) Whenever required to consider a merger, the Competition Commission or
Competition Tribunal must initially determine whether or not the merger is lik ely to
substantially prevent or lessen competition, by assessing the factors set out in
subsection (2), and
(a) if it appears that the merger is likely to substantially prevent or lessen
competition, then determine –
(i) whether or not the merger is likely to resu lt in any technological,
efficiency or other pro -competitive gain which will be greater than,
and offset, the effects of any prevention or lessening of competition,
that may result or is likely to result from the merger, and would not
likely be obtained if the merger is prevented; and
(ii) whether the merger can or cannot be justified on substantial public
interest grounds by assessing the factors set out in subsection (3)
(2) When determi ning whether or not a merger is likely to substantially prevent or
lessen competition the Competition Commission or Competition Tribunal must assess
the strength of competition in the relevant market, and the probability that the firm in
the market after the merger will behave competitively or co -operatively, taking into
account any factor that is relevant to competition in that market including –
(a) the actual and potential level of import competition in the market;
(b) the ease of entry into the market, including tariff and regulatory barriers;
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(c) the level and trends of concentration, and history of collusion in the market.
(d) the degree of countervailing power in the market;
(e) the dynamic characteristics of the market, including growth, innovation and
product differentiation,
(f) the nature and extent of vertical integration in the market;
(g) whether the business or part of the business of a party to the merger or
proposed merger has failed or is likely to fail ;and
(h) whether the merger will result in the removal of an effective competitor
[29] This Court has prev iously set out its approach to these sections to the Act . See
Schumann Sasol (SA) (Pty) Ltd v Price’s Daelite (Pty) Ltd [2001-2002] CPLR 84
(CAC )at 87:
:
‘Section 12A provides for definite stages in the inquiry which it mandates. In the first
place the Commission or the Tribunal must determine whether the merger is likely to
substantially prevent or lessen competition. In making such a determination the
Competition Tribunal must assess the strength of competition in the relevant market
and the probabilit y that , after the merger, the firms in the market will behave
competitively or co -operatively. In making this assessment consideration must be
given to the non-exhaustive list of factors set out in section 12A(2) which are relevant
to the assessment of co mpetition in that market. This initial inquiry may be termed
the threshold test. The test must be applied to the relevant market which is the actual
market and not a hypothetical or idealized market….(Emphasis added).
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The case made out by applicant and seventh respondent
[30] The case made out both by applicant and the seventh respondent was that the
Tribunal had failed to assess:
(i) The specific market relevant to the determination of the merger;
(ii) The strength of competition in the identified relevant market;
(iii) The probability that firms in the relevant market (which is not limited to
shareholders of Kaya) would behave competitively or co-operatively;
(iv) The factors set out in section 12A(2) of the Act.
[31] Both Mr Campbell and Mr Unterhalter , who appeared together with Mr Maenetje on
behalf of seventh respondent , located the basis for the review in the failure of the
Tribunal to take rele vant factors into account in its assessment of the merger . Both
counsel submitted that the essential reasoning of the Tri bunal was that, in the absence
of sole or joint control of Kaya by fourth respondent post the merger, there was no
need to assess the extensive evidence which had been presented on the merits of the
transaction, all of which related to the factors for assessment as mandated in terms of
section 12A. By approaching the matter in this way , the Tribunal had made a
decision which was materially influenced by an error of law.
[32] As Mr Campbell submitted, section 12A requires the Tribunal to make an assessment
as to the strength of competition in the relevant market as a pre cusor to an
assessment of the probabilities that firms in the market will behave competitively or
16
co-operatively after the merger. T he proper test, in his view, is to ascertain whether
the merger will alter the dynamics within the market as a whole, resulting in more co-
operative behaviour or less competitive behaviour. By limiting its enquiries to the
determination of control, the Tribunal disregarded all the other incentives and reasons
as to why a merger may precipitate a change of behaviour from competition to co -
operation.
[33] The applicant and the Commission contended that the relevant market for the merger
is the Gauteng regional market for the supply of high income listeners t o advertisers
on radio stations. In this market , Radio Highveld, 702 Talk Radio, Kaya FM target
similar listeners . T hey all service the upper LSM market in English and in
Johannesburg (Gauteng). All three stations compete with one another, they all targe t
similar audiences in the same area, Johannesburg, and similar advertisers advertise on
all three radio stations. Accordingly , advertisers use these stations collectively and
interchangeably.
[34] The evidence of Mr Hodge , an expert witness called on behalf of the applicant ,
indicated that Radio Highveld was dominant in the market in terms of the advertis ing
revenue generated. Kaya is a competitor for such advertising as it has a substantial
number of LSM 6-10 listeners. Currently it attracts a number of advertisers similar to
those who advertise on Highveld; 80% of Ka ya’s advertisers by revenue al so
advertise on Highveld and on Radio 702 74%.
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[35] Based on this information Mr Hodge concluded ‘Using advertising revenue data we
show that Primedi a’s stations, 702 and Highveld are dominant and the addition of
Kaya FM causes a rise in HHI that suggests a significant reduction in competition.
Secondly, we explore the competitive dynamics of this market and demonstrate that
Kaya FM is particularly w ell placed to challenge the dominance of Primedia’s
Highveld Stereo in the relevant market. Finally, we show that the regulatory
environment implies there is no realistic possibility of entry by another independent
into the market.’
[36 Mr Unterhalter submitted that the evidence deriv ed from the market revealed it to be
concentrated before the merger and that it would become even more concentrated as a
result of the merger , even if a broader definition of the market was employed to
include two further radio stations, YFM and Classic FM
[37] Mr Unterhalter referred to the evidence of an expert economist who testified on
behalf of the Commission , Dr Roberts. Dr Roberts examined concentration levels
both for a narrow and wider market and concluded thu s: ‘The wide market is again
going through the same exercise, bu t adding in 5FM and YFM and computing the
market shares you are seeing, the time listened to each of the stations and computing
the market shares and the HHI’s and again it doesn’t change our conclusion that the
merger at least have a substantial increase in concentration.
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[38] In Mr Unterhalter’s view, the concentration levels reported by Dr Roberts re quired
the Tribunal to apply far closer scrutiny on the likely anti -competitive effects of the
merger because, as defined, the market revealed serious regulatory barriers to
entry. T here was no significant countervailing power on the part of the advertisers
when it came to radio advertising . Kaya FM presented the only effective competiti ve
constraint on Highveld, even, if only in the future. As a result of the merger, it would
be extremely difficult for advertisers to ‘buy around’ Highveld.
The Merging Party’s Case
[39] Mr Gauntlet t wisely conceded that an analysis of the applicable ma rket was a
necessary component to the statutorily mandated enquiry required to be undertaken
by the Tribunal. As Mr Unterhalter wryly remarked, it would have been difficult to
have adopted a different approach , given that vast record built up at hearings
conducted between 15 March to 25 April 2006 which had concentrated
predominantly on contentions regarding the applicable market. Rather , Mr Gauntlett
submitted that while the decision of the Tribunal may not have been a model of
jurisprudential clarity , (he correctly observed that, given the Tribunal’s extr emely
heavy case load, forensic precision in the formulation of its decisions could not
always be expected) , a reasonable reading of the decision illustrated that the
Tribunal had examined the market as a central component in its reasoning.
[40] In this connection, Mr Gauntlett referred to the following paragraph from the
Tribunal’s decision.
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‘[T]he co-ordination will be led by Primedia over advertising prices and that
together with Kagiso Media t his will enable the three key commercial music
stations in Gauteng, Highveld, Kaya and Jacaranda, to raise advertising rates
without a fear of loss of custom to remaining stations that would defeat this
strategy.
Primedia disputes this. It argues that a su fficient number of stations remain in
the Gauteng area to render co -ordination ineffective, as advertisers would
switch to either the SABC stations o r to other private st ations such as Classic
FM and YFM and so the price rise would not be sustainable.
This is extremely difficult to predict and we have not been given any
information from either side of the debate to be able to take a firm view of the
probabilities. What we have to concern ourselves with is not whether the
market is ripe for the possibility of an effective co-ordination, but whether the
merger will enhance or lead to such a prospect. It is by no means clear that
co-ordination is in the interests of Kagiso Media. Their prime asset is
Jacaranda – more than most stations it would appear to ben efit from any
upward rate move by Highveld if advertisers were to move elsewhere. To the
extent that Primedia wanted post merger , to induce Kaya into a rate high,
Kagiso Media may not have an interest in moving up with them in order to
benefit Jacaranda. What is less clear because of the indirect way in which
Kagiso .Media has its interests in Kaya, is its real economic stake. We know
Primedia’s economic stake at the moment is 18%. Makana in one document,
in the amendment application before Icasa, refle cts Kagiso’s interest at 12.5%
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but in another, this is reflected as 6.2%. Whichever is correct Primedia will
have a greater economic interest in Kaya, than does Kagiso Media. Neither of
them has an interest in Kaya gaining at the expense of their more va luable
asset. Jacaranda and Hi ghveld respectively. Since Kaya on all evid ence is a
more likely thre at to Highveld than it is to Jacaranda, it is hard to see why
Kagiso Media has an interest in c o-ordinating with Primedia in the Gauteng
market presently.’
[41] In this passage, the Tribunal acknowledged that it was difficult to predict the nature
of the future market and furthermore , accepted that Highveld, Jacaranda and Kaya
formed the basis of the market. Mr Gauntlett contend ed that this passage revealed
that the Tribunal had indeed taken account of the market , being the se three radio
stations in Gauteng . It had based its decision on this foundational assumption. Mr
Gauntlett also submitted that the main case against the merger had been based on the
assumption that fourth respondent was to acquire Kaya, that Kaya was a potential
future competitor of Highveld and that there wer e concentration problems in this
potential future market to be occupied by Highveld and Kaya that would render it
rational for fourth respondent to steer Kaya away from , rather than towards Highveld
in such a market. The Tribunal accepted that it was difficult to predict the nature
and scope of a future market . It then sought to engage with the possibility of
effective co-ordination between the parties, given that, at best for fourth respondent, it
would have control of 24.9% of the shareholding of Kaya.
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[42] Mr Gauntlett also made much of the cross examination of Mr Hodge by his junior Mr
Snyckers during the hearing bef ore the Tribunal . Mr Hodge was asked ‘if you don’t
have control by the acquiring firm, there is no alteration incentive of the acquired
firm correct? to which Mr Hodge answered in the affirmative. For these reasons , Mr
Gauntlett submitted that any objective reading of the evidenc e placed before the
Tribunal and its own assessment of such evide nce as contained in its reasons, would
justify the conclusion that the merger and its effects had been properly considered and
ruled upon by the Tribunal. Its finding about control was decisive of the dispute. The
Tribunal concluded: ‘If a firm cannot control anothe r then it is unli kely to be ab le to
alter its behaviour to produce anti -competitive effe cts of a merger. This situation
must be contrasted to one in whic h a firm can still influence a competitive posture of
another but has this influence irrespective of the merger’. The Tribunal went on to
hold that even if ‘the theories of harm that the Commission and AME contend for –
Primedia is anxious to protect the pricing power of its major asset Highveld and is
anxious to prevent Kaya from emerging as a competitor for the station…..Without the
ability to exercise even disproportionate control this remains at present an
unachievable goal’.
Evaluation.
[43] The essence of the attack against the Tribunal’s decision was that it had misconstrued
the mandated enquiry and mis understood the nature and limits of its discretion in
terms of section 12A. In short, the attack upon the Tribunal’s decisi on was based on
the submission that it only examined whether fourth respondent acquired sole or joint
22
control of Kaya. Having found that this would not serve as a result of the merger, it
ceased its enquiry because ‘if a firm cannot control another then it is unlikely to be
able to alter its behaviour to produce anti-competitive effects qua merger.’
[44] In this regard Mr Campbell placed some emphasis upon the following exchange
between the Tribunal and counsel for the merging parties:
CHAIRPERSON Can I just ask you? B ut if we are with you on the question of
control, we don’t even get to the examination of the competition issues. Is that your
contention?
ADV GAUNTLETT: Well I would have thought, Chair, that they are two lines of
inquity for you. You would have to look at them together.
CHAIRPERSON: Why?
ADV GAUNTLETT Well I am not sure what hypothesis you are putting.
CHAIRPERSSON: The hypothesis is that if, Primedia did not acquire…if by
acquiring control of NAIL, Primedia did not thereby acquire control of Kaya, would
we be getting to the competition issues at all or not?
ADV GAUNTLETT: No, we submit that that wouldn’t be so. I am sorry I
misunderstood…” (my emphasis)
[45] The point of this reference was that the question posed by the Tribunal fitted with the
approach it ultimately adopted to the mandated enquiry, one in which the test for
control was conflated with a holistic enquiry envisaged by the Act.
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[46] In its analysis of sole control, the Tribunal found: ‘there is no evidence that Primedia
can exercise sole control over Kaya FM by virtue of section 12(2)(g) .’ This provision
states that a person controls a firm if it has the ability to materially influence the
policy of the firm in a manner comparable to a person who in ordinary commercial
practice can exercise an element of control a s set out in the balance of th e section.
This section is a gateway section: it asks of the Tribunal that it examine whether
‘one or more firms directly or indirectly acquire or establish a direct or indirect
control over the whole or part of the business of another firm’ . This is a first order
question the answer to which is necessary to determine the existence of a merger.
Only when it has established that a merger , as defined, constitutes the transaction
before the Tribunal, is there a need to examine the factors set out in section 12A.
[47] Section 12 defines a merger; Section 12 A deals with the competitive considerations
and evaluations of a merger a s defined. In this case the Tribunal had jurisdiction, in
that it was accepted that there was a merger. The reason why this was common cause
between the parties is comprehensively set out in the Tribunal’s decision . There is no
need to recapitulate.
[48] Once that determination is made, the enquiry shifts to one in terms of section 12 A of
the Act. The Tribunal however focused exclusively upon the question of control
rather than dealing expressly and comprehensively with the considerations in Section
12A. Once the merger had been determined to be the tran saction, the question arose
as to whether the merger was ‘likely to substantially prevent or lessen competition ’
24
The Tribunal failed to appreciate the distinction between the two separate enquiries
provided for in the Act.
[49] This problem is not on ly the case with its enquiry into sole control. The Tribunal
went on to consider joint control . It concluded that fourth respondent would not be
able to exercise joint control over Kaya. It ass essed whether a ny of the other
shareholders of Kaya would ha ve had any incentive to co -operate with fourth
respondent. It concluded that the case for co -ordination had been given less attention
by the Commission and the applicant . No clear theory for the rationale for co -
ordination had been suggested It then assessed, as has been set out in this judgment,
the three possible forms of coordination which had been put forward by the
Commission and dismissed each in turn. In doing so , it sought to assess the
likelihood of fourth respondent exercising joint control of Kaya together with the
other shareholders in Kaya.
[50] This entire assessment was undertaken in the context of and for the purposes of
assessing the likelihood of fourth respondent exercising joint control of Kaya together
with the other shareholde rs. It was never a comprehensive assessment of t he
likelihood of co-ordination after the merger, taking into account the relevant market,
the competitive dynamics within the market and any or all of the factors set out in
section 12 A (2).
25
[51] The question for the Tribunal was all about control. Manifestly c ontrol per se is
relevant to determining whether a merger exists and thus whether the Tribunal has
jurisdiction to examine the transactions in terms of the factors set out in section 12 of
the Act. Once a merger exists , the Tribunal must focus its enquiry into whether the
merger is likely to substantially prevent or lessen competition. Again the question of
the nature and scope of control which fourth respond ent could exercise over Kaya is
an important consideration in this part of the enquiry. But alone it is insufficient. The
mandated enquiry had to be undertaken within the broader context of the market and
the dynamics within such a market.
[52] An examination of the record will reveal tha t there was extensive evidence which
covered:
(1) the relevant geographic and product market
(2) concentration levels within the relevant market and effect thereof
(3) regulatory barriers to entry
(4) the absence of significant countervailing power on the part of the advertisers
insofar as radio advertising is concerned.
(5) Whether the merger would result in the removal of an effective competitor , being
Kaya FM
[53] Much evidence was devoted to the implications and determination of the Herfindahl-
Hirschman Index (‘HHI’) its application to market concentration and, in particular, to
a modified version of the HHI Index developed by Daniel O’Brien and Steven Salop
“Competitive Effects of Partial Ownership: Financial Interest in Corporate Control”
26
2000(67) Antitrust Law Journal 559. Significantly, for the purpose of this dispute ,
O’Brien and Salop comprehensively show that the previous assumption d eveloped by
Areeda and Turner that ‘a non controlling acquisition has no intrinsic effect to
competition at all’ was incorrect (Phillip Areeda and Donald Turner Antitrust Law
(1980) at 322)
[54] The thrust of O’Brien and Salop’s argument in this connection is that [a] full merger
is a special case of a“partial” investment of 100% , that gives the acquiring firm
complete control. Partial ownership ‘forces the analyst to grapple with the question of
the degree of control or influence that partial owners have over managers, how partial
ownership translates into control or influence and how this influence translates into
competitive effects’ at 563.
[55] In extending the conventional HHI analysis of a change of ownership upon market
concentration to partial ownership, O’Brien and Salop have sought to develop a
modified HHI. As they write:
‘The HHI index of concentration is used in used in antitrust as a rough screen
for gauging the effect .of a merger on competitive incentives. Although the
HHI sometimes gets treated as an arbitrary measu re of concentration, it has a
theoretical underpinning industrial organizational economics. In the Cournot
oligopoly model of quantity competition among firms producing
homogenous products and protected by entry barriers the HHI is related to the
margin between the market price and cost. That Cournot model can be
27
extended to take into accou nt partial ownership interest under different
assumptions regarding corporate control’. 595.
[56] In developing a formula for the increases in the MHHI, O’Brien and Salop correctly
note that this can be used to evaluate the competitive effects of partia l ownership
acquisitions in the same way that the increases in the HHI are used in merger
analysis’. 596.
[57] The implications of using the HHI Index and therefore by analogy , the MHHI Index
are set out succinctly in Massimo Motta Competition Policy and Practice (2004) at
235:
Other things being equal, the larger the number of independent firms operating after
the merger the less likely it is to be detrimental to consumers . The intuition for this
result is straight forward, as the ability of merging firms to exert market power clearly
depends on the number of rivals. In the case of a merger to monopoly, for instance,
the new firm will not face any restraint from competitors in its pricing decisions. At
the other extreme, in an industry which is extre mely fragmented and in which each
firm has only tiny market shares, the impact of a merger on the market price will be
irrelevant.
This gives us a rationale for using a concentration index, such as the Herfindahl
Hirschman Index (HHI), as a first screeni ng device for the unilateral effects of
28
mergers .Ceteris paribus, we should worry more about a merger in an industry which
is highly concentrated than about one which occurs in a fragmented industry’.
[58] An examination of t he O’Brien and Salop analysis reveals that both the existing
financial interests and the nature of corporate governance are important in the
determination of the effects of partial ownership, viewed within a particular market.
Briefly stated , different forms of partial ownership can ha ve different competitive
effects depending on specific financial interests, corporate governance and market
structure. Hence the mandated enquiry extends beyond an exclusive examination of
control as it appears in s12 of the Act ; s12A requires this i nquiry particularly
because market structure needs to be taken into account in the determination of the
likelihood that even a 24% shareholding may have an anti competitive effect.
[59] Dr Roberts’ evidence which was not challenged under cross examinati on revealed
significant concentration levels in the defined market. For this reason , the
acknowledged existence of a concentrated market an d the nature of the acquisition
required the Tribunal to engage in a careful scr utiny of the likely anti-competitive
effect upon the market and not simply to conclude that in the absence of sole or joint
control it could complete its enquiry as mandated in terms of section 12A.
[60] In summary, the Tribunal co nflated the question of control to be determined in
section 12 with the enquiry that , having so determined that the re was a merger, the
latter substantially prevented or lessen ed competition in the defined market as
29
mandated by section 12A . The decision of the Tribunal was thus predicated on a
material error of law.
[61] Mr Gauntlett submitted that it would be wrong to so conclude because the Tribunal
had been granted a legislative discretion to determine whet her a merger should be
approved. That discretion was exercised by an expert regulatory agency and sh ould
accordingly be treated with deference. See in this regard Cora Hoexter
Administrative Law in South Africa (2007) at 138 -139. T his Court accepted this
principle in TWK Agriculture Ltd . v The Competition Commission (unreported
decision CAC of 7 Augus t 2007). Nothing in this decision should be construed to
undermine or diminish the adherence to the approach to deference as set out in TWK,
supra. However, there cannot be deference to a decision predicated on so material an
error of law. Bad law in this kind of case prevents good economics from being
employed.
[62] However, the respect and deference owed to the Tribunal means that it is not for this
Court to make the determination as to whether the merger should be approved or not.
The Tribunal is still best placed in the light of this judgment to assess all of the
evidence placed before it and determine afresh whether the merger should be
approved.
[63] For this reason, it would be inappropriate for this Court to substitute its own decision
for that of the Tribunal without the benefit of the Tribunal’s obvious expertise in this
30
regard. It is for the Tribunal, unfettered by a mistake of law, to engage in the
mandated enquiry in terms of s 12A.
ORDER.
[64] 1. The decision of the first three res pondents to unconditionally approve the merger
between the fourth, fifth and sixth respondents under case number CT39/AM/May 06.
is reviewed and set aside.
2. The determination as to whether the proposed merger between the fourth, fifth and
sixth respondents should be approved and, upon what basis , is referred back to the
first three respondents for an expeditious consideration and determination.
3 Fourth and fifth respondents are ordered jointly and severely , the one paying the
other to be absolved , to pay the applicant’s costs of this application , including the
costs incurred by the employment of two counsel.
MAILULA and TSHIQI AJJA agreed.