Ignorance of the law does not excuse private parties from competition assessments

The Competition and Consumer Authority (CCA) of Botswana has the power to investigate any merger implemented without notification and approval retrospectively, and issue decisions to ensure competition prevails in the market(s) concerned, including directing the parties to rid themselves of any shares, interest or other assets acquired in the merger or to take steps necessary to restore the state of competition prior to the merger. Competition assessment in merger transactions is essential for the protection of public interest. This blog highlights factors considered in assessing mergers and the remedies provided for under the competition law of Botswana in instances where a merger is not notified to the CCA. These decisions serve as a strict deterrent to private interests who deliberately or otherwise disregard the law and continue with the implementation of a notifiable merger without approval by the regulator.

A merger, especially a horizontal one between competitors operating in the same market can result in the elimination of or substantial lessening of competition or acquisition of market power by the merged entity or a third party to the detriment of the economy and consumers. It is imperative for parties to a notifiable merger to seek regulatory approval prior to implementation of the transaction. It does happen that certain private parties for one reason or the other fail to notify the regular of their plans to merge. To address this, the Competition and Consumer Authority (CCA) has retrospective powers to investigate any merger implemented without notification and approval and issue a decision to ensure competition prevails in the market concerned, including directing the parties to rid themselves of any shares, interest or other assets acquired in the merger or take any other steps necessary to restore the state of competition prior to the merger

Background

In 2016 Gabz FM made the CCA aware of the acquisition of 28.73% shares in Mmegi Investment Holdings (Pty) Ltd (Mmegi) by Universal House (Pty) Ltd (Universal) through a sale that took place in 2013. Gabz FM noted that Universal having control over them and their competitor Duma FM was anti-competitive and requested that the CCA investigate the transaction. The CCA directed the parties to notify the transaction and upon investigation the following was established:

• The acquisition had granted Universal control of two private commercial radio stations out of three or two out of four commercial radio stations in Botswana;

• The merged entity would acquire a dominant position and alter the competition landscape in the market;

• The merged entity would substantially lessen competition or restrict trade or the provision of services or endanger the continuity of services in the market; and

• There was likely to be negative effects on media diversity and plurality, increased prices, reduced consumer choice, quality services and innovation.

For these reasons, the CCA declared the merger anti-competitive, rejected it and found that the only suitable remedy was a divestiture of all the acquired shares to a person or enterprise without any affiliation to Universal.

It is important to highlight for erring parties that though this was a non-notified merger, upon discovery by the CCA, the applicable competition assessments were still carried out. The merger was rejected because it was likely to result in the prevention or substantial lessening of competition, alter the market structure and impose negative effects on media diversity and plurality in the commercial radio broadcasting services market. The CCA ordered a divestiture of all the shares acquired by Universal in Mmegi within three months of the decision. 

Enforcement of the decision

The CCA has powers to investigate non-compliance with its decisions where it has reasonable grounds to believe there is no reasonable excuse for non-compliance. The CCA invoked these powers when the parties failed to comply with its decision within the stipulated period. The CCA found that the parties did attempt to dispose the shares, albeit, at almost double the initial purchase price. As a final investigative step, the CCA moved to value the shares and the value price per share was below the initial purchase price and significantly below the proposed price. The CCA sort an order for the shares to be disposed at the value price at the Competition and Consumer Tribunal.

The Tribunal concurred that Universal cannot be permitted to dispose of the shares itself at a price of its choosing or at a gain because it acquired them unlawfully, a divestiture through a divestiture trustee was imposed. Universal appealed this decision and the High Court found that by ordering a divestiture through a trustee, the Tribunal, a creature of statute had acted ultra vires its powers, because within the confines of its powers, it was only permitted to order the parties to comply with the CCA’s decision as is. This established that, for purposes of ensuring compliance with the CCA’s decisions, the Tribunal could not change or amend decisions to render them effective and enforceable. The CCA learnt to be thorough in imposing conditions and terms of compliance as there is no remedy to correct ambiguity. The matter was reverted to the CCA and the Tribunal for enforcement and Universal has since appealed the decision, and it is pending.

Conclusion

While it is vital that decisions of adjudicating bodies must be effective and enforceable, the CCA’s failure to specify the manner in which the shares ought to be disposed rendered the decision ambiguous and open to interpretation by the parties. This is a key lesson the CCA learnt and was able to overcome by its move to value the shares and reduce the ambiguity in enforcement. Additionally, the Competition Act has since been amended to impose a fine on enterprises implementing a merger without prior notification and approval by the CCA. The Competition Act now imposes up to ten percent of the consideration or the combined turnover of the parties for simply implementing a merger in secrecy, a welcome move for not only can such a contravening transaction be reversed but the parties will be fined for their transgressions.

At the core of competition law enforcement is deterrence, the CCA may never be able to compel parties to comply with the decision, but the effects of its notoriety have been the voluminous business inquiries the CCA receives where enterprises are uncertain their transaction meets the threshold for notification. No one wants the inconvenience that comes with erring transactions and the negative media coverage thereof.

Disclaimer: The opinions expressed above are those of the author and do not reflect the official position of the Competition and Consumer Authority of Botswana.

References

1. Merger decision No.10 of 2017, Mmegi Investment Holdings (Pty) Ltd and Universal House (Pty) Ltd

2. Metlhaetsile Leepile and another v The Competition Authority and 12 others MAHGB-000874-19

3. Universal House (Pty) Ltd v Metlhaetsile Leepile and 4 others CTHGB-000753-19

4. Universal House (Pty) Ltd v The Competition and Consumer Authority and another CCT/MER/01/2002

5. Competition and Consumer Authority v Universal House (Pty) Ltd and another CCT/MER/01/2002

6. Universal House (Pty) Ltd v Competition and Consumer Authority and another CAHGB-000069-23

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Author's bio

Goitsemodimo Tseladikae is currently the Manager, Legal Services at the CCA. She is an attorney with 16 years experience, eight of which have been in competition, consumer and trade law. She was the lead counsel in the first successfully referred competition law case; the 4 Banner Group case against four wholesalers. She was also co-counsel in the GABCON case in 2018 (second successful case for the CCA). Ms Tseladikae was key in developing the investigation process map for the Consumer Protection Division. She is currently studying towards a Global Master’s in Business Administration (Law) with the University of London. She holds a Diploma in Economics for Competition Law from Kings College, London, a certificate in Risk Management Principles & Practice from Stellenbosch University and an LLB from the University of Botswana.