Brief Summary

Competition — Merger approval — Media24 (Pty) Ltd and Novus Holdings Limited — Media24 conditionally approved to divest its shareholding in Novus from 66.5% to 19% — Transaction already implemented prior to approval — Tribunal addressed concerns of control and competition, concluding that proposed divestment would mitigate risks of input foreclosure and information exchange — Approval granted with conditions to ensure compliance with competition law and safeguard against potential anti-competitive practices.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings were a large merger determination before the Competition Tribunal of South Africa concerning the acquisition of control in a printing business and the regulatory consequences of that acquisition after it had already been implemented.

The parties were Media24 (Pty) Ltd as the primary acquiring firm and Novus Holdings Limited as the primary target firm. Media24 was described as ultimately controlled by Naspers Limited (together referred to as the Naspers Group), while Novus was a JSE-listed company at the time of the hearing.

The matter had an unusual procedural history. The Tribunal explained that the present notification arose from prior litigation about whether a management agreement constituted a merger and whether it had to be notified. The Competition Appeal Court had directed notification in terms of section 12(a) of the Competition Act. By the time the present merger proceedings were heard, the transaction had already been implemented and Novus had already been listed, but the merging parties proposed conditions that would result in Media24 effectively relinquishing control through a substantial divestiture.

The general subject-matter of the dispute concerned whether Media24’s acquisition of sole control over Novus (through the implementation of a management agreement connected to Novus’s listing) raised competition concerns (particularly input foreclosure and information exchange) and, critically, whether proposed conditions—most notably a divestiture down to a minority shareholding—would remove both de jure and de facto control, thereby addressing those concerns.

2. Material Facts

Media24 had historically acquired a joint controlling interest in the predecessors of Novus (Paarl Media Holdings (Pty) Ltd and Paarl Coldset (Pty) Ltd) in 2000. The rights of a key individual associated with the prior owners, Mr Lambert Retief, were reflected in a management agreement at that time. Over time, his involvement diminished, and restructuring of the family interest was contemplated.

In 2014, Media24 and the Retief interests entered into a further transaction in terms of which Media24 would acquire sole control over the Paarl entities. The Competition Commission recommended unconditional approval, and Caxton and CTP Publishers and Printers Limited was permitted to intervene, but the transaction was abandoned shortly thereafter. This abandonment was treated by the Tribunal as part of the relevant background to subsequent events.

Following the abandoned 2014 transaction, the Paarl Media Group was rebranded as Novus Holdings Limited and proceeded towards a JSE listing. As part of the listing-related arrangements, a Restated Management Agreement was implemented. In later litigation, Caxton contended that this Restated Management Agreement constituted a merger because it resulted in Media24 acquiring sole control. The Tribunal initially held that it did not constitute a change of control, but this was overturned on appeal, and the Competition Appeal Court directed that the transaction be notified.

By the time of the present proceedings, the transaction had already been implemented and Media24 held 66.5% of Novus. During the Commission’s investigation of the notified merger, two developments occurred which the Tribunal treated as significant in its evaluation. First, Mr Retief died in January 2017, which the Tribunal noted had implications for whether the Restated Management Agreement remained operative insofar as it conferred residual rights. Second, and more importantly for the merger assessment, Media24 proposed to divest its Novus shareholding from 66.5% to not more than 19%, described as an unbundling-based mechanism with the effect that Novus would be widely held after implementation.

The Tribunal treated as material the set of proposed conditions agreed between the merging parties and the Commission. These included that Media24 would divest to a maximum of 19% through an unbundling process, that the Restated Management Agreement would terminate, that printing contracts between the parties would be terminable on six months’ notice by Media24, and that Naspers would not appoint members to Novus’s executive committee or board (while Media24 could nominate a Novus board member subject to restrictions aimed at limiting information exchange risk).

3. Legal Issues

The central legal questions the Tribunal was required to determine concerned the competitive effects and control implications of a transaction in which control had already been acquired and implemented, but where the notifying parties proposed conditions that would eliminate control post-approval.

A key issue was whether, after the proposed divestiture to 19%, Media24 would relinquish de jure control and, separately, whether it could nonetheless retain de facto control. This required an application of the Competition Act’s control concepts to the particular facts, including shareholding structure, contractual rights, and governance mechanisms.

The Tribunal also had to determine whether the merger raised material competition risks of input foreclosure (in printing services markets relevant to publishing) and information exchange (through board representation and access to competitively sensitive information). These questions involved both the application of law to fact and evaluative judgments about likelihood, incentive, and ability.

Finally, the Tribunal considered whether any public interest concerns arose from the transaction, particularly relating to the potential impact of foreclosure on small and historically disadvantaged-owned community newspapers, as well as any positive public interest implications identified by the Commission.

4. Court’s Reasoning

The Tribunal’s approach was explicitly structured around the divestment condition. It reasoned that the move from a majority shareholding to a minority stake would remove de jure control, but it accepted that the possibility of de facto control could not be excluded merely from the percentage figure. The Tribunal therefore assessed the matter on two related bases: first, assuming Media24 might still retain some form of de facto control, whether competition and public interest concerns would arise; and second, whether the proposed conditions would in fact result in Media24 relinquishing de facto control as well.

On information exchange, the Tribunal accepted the concern that Media24’s ability to appoint directors to the Novus board could allow access to confidential information about rival publishers who used Novus’s printing services. It evaluated the parties’ undertakings and accepted that limiting appointments so that no operational publishing personnel from Media24 would sit on Novus’s board (and that existing operational appointees would be removed from operational committees) constituted an acceptable mitigation. The Tribunal characterised this as a compromise between reducing information-sharing risk and allowing Media24 to protect its investment even at 19%, while noting that a nominated director would still require support from other shareholders to be appointed.

On input foreclosure, the Tribunal recorded the Commission’s market framing, including a national market for gravure and heat-set printing and several regional markets for cold-set printing. The Tribunal noted that a potential concern was identified in the Eastern Cape cold-set printing market, where Novus’s share was high and where a key alternative supplier was at full capacity, indicating an ability to foreclose. The Commission’s theory of harm was that sole control could increase the incentive to foreclose printing services to competing newspapers because lost printing revenue could be outweighed by gains in advertising revenue for Media24’s publications.

The Tribunal accepted that the proposed divestiture to 19% addressed the foreclosure concern because other shareholders would be unlikely to permit a strategy that harmed Novus’s main business to the benefit of a minority shareholder. The Tribunal nonetheless recorded additional factual considerations advanced by the merging parties to support the conclusion that foreclosure was unlikely even absent divestiture, including the limited competitive overlap in publication frequency and the absence of evidence of foreclosure conduct historically, despite Media24’s involvement in Novus over time. The Tribunal treated these points as further supporting context rather than as the primary foundation for approval.

The Tribunal then engaged directly with de facto control and identified two principal channels through which it might persist despite a 19% shareholding. The first was contractual influence, particularly through printing contracts and any residual rights under the Restated Management Agreement. The Tribunal considered that the printing contract was significant to Novus’s revenues and therefore could confer leverage, but it accepted that this would be neutralised by the condition making printing contracts terminable on six months’ notice after the unbundling. It also accepted that termination of the Restated Management Agreement, including the removal of Media24’s contractual rights to appoint members to Novus’s board and executive committee, would address any residual contractual mechanisms of control.

The second potential channel was voting power at general meetings arising from shareholder apathy. The Tribunal evaluated evidence of historical AGM turnout at Novus and found that shareholder representation had been high, with an average of approximately 90% over the previous two years. It further accepted the merging parties’ explanation that turnout might increase after unbundling because Media24 would no longer be able to determine outcomes on its own, and because institutional investors (expected to hold many of the unbundled shares) typically attend general meetings. On this basis, the Tribunal concluded that the most probable scenario was that Media24 would forfeit not only de jure control but de facto control as well.

In its overall conclusion on control and competitive effects, the Tribunal reasoned that the divestment condition functioned as a “de-merger”, materially reducing Media24’s ability to control Novus through shareholding, contracts, or meeting dynamics. It further reasoned that even on the assumption of residual de facto influence, the reduction to 19% substantially reduced both the ability and incentive to foreclose.

On public interest, the Tribunal recorded the Commission’s concern that foreclosure could harm small community newspapers in the Eastern Cape (many owned by historically disadvantaged persons) by increasing costs and affecting viability in a high-unemployment province. However, given its conclusions on the effectiveness of the conditions and the resulting unlikelihood of foreclosure, the Tribunal treated these concerns as falling away. It also recorded a positive public interest effect identified by the Commission relating to benefits to shareholders of the Media24 Welkom Yizani B-BBEE share scheme. The Tribunal noted that the merger would not affect employment.

5. Outcome and Relief

The Tribunal conditionally approved the transaction between Media24 (Pty) Ltd and Novus Holdings Limited.

The relief took the form of approval subject to conditions, including a divestiture that reduced the Naspers Group’s shareholding in Novus to not more than 19%, termination of the Restated Management Agreement upon unbundling, printing contracts becoming terminable on six months’ notice by Media24, and restrictions on appointments to Novus’s governance structures aimed at limiting information exchange risks.

No costs order was recorded in the reasons provided.

Cases Cited

Caxton and CTP Publishers and Printers Limited and Media24 (Pty) Ltd and others, OTH225Mar15.

Caxton and CTP Publishers and Printers Limited and Media24 (Pty) Ltd and others, 136/CAC/March2015.

Caxton and CTP Publishers and Printers Ltd v Media24 (Pty) Ltd; Novus Holdings Ltd; Competition Commission, LM012Apr16/INT039May17.

Legislation Cited

Competition Act, No. 89 of 1998 (as amended).

Rules of Court Cited

Rules for the Conduct of Proceedings in the Competition Commission.

Rules for the Conduct of Proceedings in the Competition Tribunal.

Held

The Tribunal held that the proposed divestment to a maximum of 19% would remove Media24’s de jure control over Novus and, on the probabilities supported by the evidence on governance arrangements, contractual termination, and AGM voting patterns, would also remove de facto control.

It held that the conditions adequately addressed the Commission’s identified competition concerns relating to input foreclosure (particularly in the Eastern Cape cold-set printing market) and information exchange risks arising from board representation, and that the public interest concerns predicated on foreclosure risk therefore did not materialise on the Tribunal’s assessment.

LEGAL PRINCIPLES

The decision applied the principle that merger assessment under the Competition Act requires an evaluation not only of formal, shareholding-based (de jure) control but also the practical ability to influence policy and strategic direction (de facto control), which may arise through contractual rights, governance arrangements, and voting dynamics.

It applied the principle that competition analysis of vertical relationships may require assessment of ability and incentive to foreclose inputs, including consideration of market structure, capacity constraints of rivals, the profitability trade-off between upstream revenues and downstream gains, and whether remedies (such as divestiture and termination/alteration of key contracts) sufficiently remove the mechanism or incentive for foreclosure.

It further applied the principle that potential information exchange risks in transactions involving a supplier serving competing customers can be mitigated through governance-related conditions limiting the appointment of competitively sensitive personnel and thereby reducing the likelihood that confidential rival information would be accessible to the acquiring firm.

Finally, it applied the approach that public interest effects must be assessed on the facts as found, and where the underlying competition harm is sufficiently addressed by conditions, derivative public interest concerns (such as harm to small and historically disadvantaged-owned firms arising from foreclosure) may fall away, while positive public interest effects identified on the record may be noted.

Media24 (Pty) Ltd v Novus Holdings Limited (LM012Apr16) [2017] ZACT 52 (22 August 2017)