COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM165Jan22/ INT016Apr22
In the intervention application between:
AFRICA DATA CENTRES SA DEVELOPMENT
(PTY) LTD
Applicant
and
DIGITAL TITAN (PTY) LTD First Respondent
TDE INVESTMENTS (PTY) LTD Second Respondent
COMPETITION COMMISSION OF SOUTH AFRICA Third Respondent
In the large merger between Case No: LM165Jan22
DIGITAL TITAN (PTY) LTD Primary Acquiring Firm
and
TDE INVESTMENTS (PTY) LTD Primary Target Firm
Panel: Y Carrim (Presiding Member)
A Wessels (Tribunal Member)
S Goga (Tribunal Member)
Heard on: 12 May 2022
Order Issued on: 17 May 2022
Reasons Issued on: 23 May 2022
REASONS FOR DECISION
Introduction
[1] This matter concerns an intervention application filed by Africa Data Centres
SA Development (Pty) Limited (“ADC”), seeking to participate in the large
merger proceedings before the Tribunal under case number LM165Jan22 in
terms of section 53 of the Competition Act, 89 of 1998, as amended (“the Act”).
[2] The large merger proceedings relate to Digital Titan (Pty) Ltd (“Digital Titan”)
acquiring most of the issued share capital of TDE Investments (Pty) Ltd (“TDE”)
which will give it a controlling shareholding in Terarco Data Environment (Pty)
Ltd (“Terarco”).
[3] ADC sought to be admitted as an intervenor in the Tribunal’s consideration of
the larger merger between Digital Titan and TDE (“the proposed transaction”)
on competition and public interest concerns. The application was opposed by
the merging parties only as to scope.
[4] The Tribunal after hearing ADC's application granted it limited participation
rights on some of the grounds it had advanced in support of its intervention on
17 May 2022.1 The order is attached hereto as annexure A.
[5] ADC has now asked that this Tribunal provide it with reasons for not granting it
intervention rights for one of its potential theories of harm, namely, that the
proposed transaction will lead to the elimination of the acquiring firm as a
potential efficient competitor in the relevant South African data centre market.
[6] These are the reasons for our decision.
1 Attempts had been made by this Tribunal to facilitate an agreed basis for intervention between the
parties at a prehearing on 6 May 2022 with little success. The matter was then argued on 12 May
2022 before a full panel.
Background
[7] On 13 April 2022, the Competition Commission (“Commission”) referred the
proposed transaction between Digital Titan and TDE to the Tribunal and
recommended that the proposed transaction be approved subject to certain
public interest conditions.
[8] The Commission is of the view that the proposed transaction is unlikely to
substantially prevent or lessen competition in the market for the provision of
data centre services in South Africa and its public interest concerns were
satisfied as to a condition relating to a greater spread of ownership.
[9] The Commission's investigation involved extensive engagements with the
merging parties, its customers, competitors and other stakeholders. Other than
ADC, no customer or competitor of the merging parties raised any concerns
with the proposed transaction. The Commission had concluded that ADC's
concerns were not substantiated.
[10] ADC sought to intervene in the Tribunal proceedings and for the right to:
10.1. attend pre-hearing conferences, if any are held before the merger
hearing;
10.2. have access to, and to inspect, the third respondent’s record in respect
of the merger proceedings including, all documents, memoranda,
reports, minutes of meetings, letters, electronic correspondence and
other documents which relate to the merger proceedings and, in
particular –
10.2.1. all submissions made by the first and second respondents
(“the merging parties”);
10.2.2. any additional documents filed by the merging parties;
10.2.3. any additional information and/or submissions received
from third party market participants (including the
customers and competitors of the merging parties);
10.2.4. any internal competitive analyses;
10.2.5. any internal economic analyses;
10.2.6. the results of its investigation into and assessment of the
proposed merger;
10.2.7. any report furnished by the third respondent’s investigative
team to the third respondent’s EXCO ahead of the meeting
held on 11 April 2022;
provided that any confidential information contained in the third
respondent’s record and/or the additional documents shall, unless
otherwise directed by the Competition Tribunal, be disclosed only to the
applicant’s legal representatives and economic experts and on the
condition that they provide appropriate undertakings to respect and
protect their confidentiality.
10.3. request the Competition Tribunal to direct, summon and/or order any
person to appear at the merger hearing and/or to produce any
documents relevant to the merger proceedings;
10.4. participate in any interlocutory proceedings in respect of the merger
hearing;
10.5. adduce oral and documentary evidence at the merger hearing;
10.6. have access to, and to inspect, any documentary evidence placed before
the Tribunal;
10.7. cross-examine any of the witnesses appearing on behalf of the merging
parties and/or any other participants in the merger hearing; and
10.8. present argument at the merger hearing.
[11] The merging parties opposed the application but in the interests of progress in
arriving at a merger decision, opposed it only to the extent that it was too wide,
that ADC sought to supplant the Commission's role in merger proceedings for
example in citing public interest grounds and that its participation ought to be
limited to the ADC-specific concerns namely that the proposed transaction will
have an impact on ADC specifically and not the industry as a whole. The
merging parties also asked that the procedural scope of intervention should be
strictly limited to the ADC-specific concerns.
Analysis
[12] ADC initially sought to intervene on a number of grounds as listed above. At
the hearing ADC conceded that its public interest grounds were probably more
related to competition concerns. Its oral submissions focussed on two essential
concerns that seemingly would affect it directly, namely its ability to compete
for hyper-scale customers and input foreclosure. It persisted with its request for
intervention on the grounds of the removal of a potential competitor and put up
a draft order to the Tribunal recording its amended case.2
[13] Section 53 of the Act provides for the right to participate or intervene in a
hearing. Section 53 expressly grants rights of participation in relation to three
types of procedures, namely: restrictive practices, exemption applications and
mergers. In each of these procedures, the Act recognises specifically named
persons as participants and then also recognises a residual or general class of
persons who have a material interest if the Tribunal grants them permission to
intervene.
[14] In terms of section 53(c)(v) the Tribunal may recognise any party as a
participant in merger proceedings. Typically, customers and competitors are
considered to be parties who may have a material interest in a merger either
because of direct experience with the merging parties or their knowledge of
market dynamics and parameters of competition in a particular market.
market dynamics and parameters of competition in a particular market.
2 Provided by Nortons Inc to the Tribunal on 12 May 2022.
[15] However, the mere fact that a party seeks to intervene in merger proceedings
does not entitle it to be admitted with intervention rights to such an extent to
supplant the role of the Commission. Whether or not it is admitted as a
participant and the extent of such participation is matter of the Tribunal's
discretion. As stated in Anglo-American Corporation Medical Scheme v the
Competition Commission and Others, the Tribunal exercises a judicial
discretion in determining whether to grant participation and the extent of such
participation.3
[16] The Tribunal in its discretion is entitled to limit parties' rights of intervention both
in respect of scope and procedure. In Cornucopia v the Competition
Commission and Others, 4 the Tribunal denied the intervenor participation
rights because it had failed to show that it will be able to provide any value or
assistance to the Tribunal in its deliberations. 5 In Comair Ltd v the
Competition Commission and SAA, 6 the Tribunal permitted Comair to
participate in complaint proceedings but delineated Comair's extent of
participation. In Caxton and CTP Publishers and Printers Ltd and Media 24
(Pty) Ltd and Others,7 the Tribunal allowed the applicants to intervene but on a
limited basis. An intervention application was brought in the large merger
between Thabong Coal (Pty) Ltd and South32 SA Coal Holdings (Pty) Ltd,8 and
was denied as the intervenors had failed to show either that they have a
material interest in the merger proceedings or that they will be able to assist the
Tribunal in its consideration of the merger. In that matter, the Tribunal
confirmed its approach that it may permit a third party to intervene in merger
proceedings only if it has shown a material and substantial interest in the
matter, or if it has shown that it can provide evidence of its ability to assist the
Tribunal in the merger proceedings.9
3 04/CR/Jan02 at pg. 9. See also Anglo South Africa Capital (Pty) Ltd and others v Industrial
3 04/CR/Jan02 at pg. 9. See also Anglo South Africa Capital (Pty) Ltd and others v Industrial
Development Corporation of South Africa and another 2004 (6) SA 196 (CAC) at 202-3 where the
Competition Appeal Court confirmed that this was an exercise of the Tribunal's discretion.
4 105/LM/Dec04.
5 Cornucopia para 34.
6 83/CR/Oct04.
7 Case number: 019232.
8 LM144Jan20/INT130Sep20.
9 Ibid pg. 8, para 24.
[17] Ultimately the Tribunal exercises its discretion by having regard to the interests
of the applicant and the extent to which it can assist the Tribunal in its
deliberations, bearing in mind that the Commission is still the dominis litis in
Tribunal proceedings, whether these are merger or complaint referrals.10
[18] The Tribunal in exercising its discretion was mindful that the Commission had
conducted a thorough investigation after which it found that the transaction did
not give rise to any competition concerns. Other than ADC, a direct competitor
of the target firm, no other third party had raised any concerns. However, ADC
is a direct competitor of TDE, and it did have an interest in the outcome of the
merger (as conceded by the merging parties). A significant concern for ADC
was the global or regional footprint of the merged entity which in its view would
impact adversely on ADC's ability to compete for hyper-scale customers.
[19] The Tribunal was of the view that ADC as a competitor could possibly assist
the Tribunal in gaining insights into the nature of competition in the relevant
markets as argued by it at the hearing and potential theories of harm in relation
to ADC’s business.
[20] However, it was less clear what additional insights ADC could provide on
potential entry by the acquiring firm absent the proposed transaction. ADC’s
concerns regarding barriers to entry generally are not helpful to the Tribunal,
given the evidence put up by the merging parties which was not disputed, that
new entrants are able to build capacity at the same or higher standards as
compared to competitors already in the market. Moreover, existing players,
including ADC, were in the process of increasing their capacity in the national
market.11
[21] When considering an application for intervention by a direct competitor the
Tribunal also has to guard against merger proceedings of this sort, where the
Commission is present and has not identified any competition concerns, being
Commission is present and has not identified any competition concerns, being
unduly protracted by the participation of a competitor who might be incentivised
10 Barnes Fencing Industries (Pty) Ltd & Dunrose (Pty) Ltd v lscor Limited (Mittal SA) & others, Case
No 08/CR/Jan07.
11 Paragraph 60.1 and 60.2 of Answering Affidavit.
to delay merger proceedings if it was concerned about the impact of a
transaction on its own market position.
[22] There was no need for ADC to duplicate the role of the Commission who will
be able to assist the Tribunal in its deliberations on all other matters.
[23] Moreover, the Tribunal still retains its inquisitorial powers in merger
proceedings to call for more evidence or to require the Commission to
investigate further any aspect of the proposed transaction that it sought to be
fully ventilated.
[24] In considering all of these factors, the Tribunal exercised its discretion to allow
ADC to intervene on the following issues/theories of harm:
24.1. that the proposed transaction will bring about anti-competitive network/
conglomerate effects in the relevant South Africa data centre market by
virtue of the fact that it will enable the target firm’s data centre business
to offer hyper-scale and other customers (including, international cloud
and cloud application providers, mobile operators, content distribution
networks etc.) a global footprint which cannot feasibly be replicated by
ADC (and other competitors) in the market, which will result in a
substantial lessening or prevention of competition in the relevant market;
and
24.2. that the proposed transaction will give rise to input foreclosure in that
customers of ADC (and of other data centre providers) will be foreclosed
from access to the target firm’s NAP Africa internet exchange on the
basis and terms that they currently enjoy.
Conclusion
[25] In light of the above, we conclude that ADC be recognised as a participant in
the large merger proceedings before the Tribunal on the limited scope as
provided in our order.
23 May 2022
Ms Yasmin Carrim Date
Mr Andreas Wessels and Ms Sha’ista Goga concurring
Tribunal Case Manager: Juliana Munyembate
For the Applicant: Adv Jerome Wilson SC instructed by Nortons Inc
For the First and Second
Respondents:
Adv Steven Budlender SC instructed by
Bowmans and ENS Africa