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______________ 09 May 2008

N. Manoim Date

Concurring: Y Carrim and D Lewis

Tribunal Researcher: J Ngobeni

For the merging parties / appellants : Adv. JJ Gauntlett SC and Adv. F Snyckers, instructed by Edward Nathan Sonnenbergs

For the Commission : Adv. DN Unterhalter SC and Adv. NH

Maenetje, instructed by AMMM Inc.

For the Intervenor : Adv. JWG Campbell SC and Adv. MA

Wesley, instructed by Zenwill Lacob Attorneys.

1 See decision of the CAC, African Media and Entertainment Limited v David Lewis N.O. and six others. Case No: 68/CAC/Mar07.

2 Section 14(1) (b).

3 See paragraphs 61-62.

4 This interest continues to be held by Nail to avoid the exercise of pre-emptive rights by the other shareholders as we explain more full in our February decision. In terms of Section 12(1) (a) of the Act “…a merger occurs when one or more firms directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another firm.”



5 The direct acquisition involves Capricorn and Primedia acquiring control of Nail. We are advised that the shares will be registered in the name of Capricorn, but will be beneficially owned by Capricorn Capital Partners Investment (Pty) Ltd a wholly owned subsidiary of Capricorn. Although Primedia and Capricorn will each own 50% of the rest of Nail, the arrangements in respect Kaya FM are an exception, and the split here is 73% to Primedia ( hence 18,17% effectively) and the balance to Capricorn. The agreement states that Primedia has the right to manage this interest. ( Clause 12) We make the assumption that this gives Primedia the right to vote this interest without the need to obtain the consent of Capricorn. (See merging parties, bundle page 3 paragraphs 5 and 8).

6 See page 64 of the merging parties’ Economic report.

7 These conditions which are set out in our February decision ( see Appendix 2) are designed to ensure that Nail’s right to appoint a director to the Board of Kaya FM is constrained in a manner to ensure that the director appointed is an independent director in a manner understood in company law. Primedia however was unwilling to waive the right Nail has to appoint a director in terms of the Kaya FM shareholders agreement.

8 See Tribunal February decision paragraph 80.

9 Paragraph 51 of CAC decision, supra.

10 See Daniel O’Brien and Steven Salop, “Competitive effects of Partial Ownership: Financial interest and Corporate Control”, Antitrust Law Journal, Volume 67, 2000, page 559.

11 Paragraph 53 of CAC decision, supra.

12 Paragraph 58 of CAC decision, supra.

13 See a report sent to Secretary of State, prepared by the Competition Commission which is titled “Acquisition by British Sky Broadcasting Group PLC of 17.9 per cent of shares in ITV PLC. See ://www.competition-commission.org.uk/rep_pub/reports/2007/535itv.htm

14 It seems that the term ‘partial’ derives from the language of section 7 of the Clayton Act, the United States primary merger review statute that forbids the acquisition of the “whole or any part of “….the stock or assets of a corporation.

15 In fairness to Areeda and Turner they appear to have been misunderstood on this point. They do not say that non-controlling acquisitions constitute no threat to competition , rather they are saying that they do not pose an ‘inherent’ threat, because unlike an acquisition of control they do not lead to the replacing of two independent firms with one controlling mind.9 (See Areeda and Turner , “Antitrust Law”, 1203 (d) (1980).

16 See O’Brien, supra, page 563.

17 See O’Brien, supra, page 571.

18 See O’Brien, supra, footnote 57.

19 The authors also posit another species of co-ordinated effect which they refer to as One-way control. Here the acquirer has enough power over the target to force the target to abide by the terms of the co-ordination and not to cheat, but the acquirer does not consider itself so bound and acts in its own self interest taking into account it has only a partial interest in the target. ( See O’Brien, supra page 583) On the facts of this case we have already found in our February decision that Primedia would not have such power and hence the scenario of one- way control does not arise for further analysis.

20 See O’Brien, supra, page 582.

21 The Commission would concede that a station cannot readily change its identity without causing confusion and cites as an example a youth station seeking to rebrand itself to target middle aged listeners. See Tribunal witness statement record page 234.

22 See Exhibit 10 page 2, Econex report entitled, “Response to Genesis and Johannesburg Economics”.

23 See Tribunal record, witness statements file, page 213. LSM stands for Living Standards Measure, an index used by marketers to differentiate people according to their living standards, using criteria such as degree of urbanization, ownership of cars and appliances, inter alia. Currently the LSM index is divided into ten segments with LSM 1 at the bottom and LSM10 at the top. See Exhibit 11, page 9, a Kaya document that quotes the SAARF.

24 See Tribunal record, witness statements file, report of Simon Roberts, pages 219 and 207. He refers to reports which suggest that the age profile for YFM is 16-24 and for 5FM 20-30. See page 207. He suggests that for Kaya and Highveld the age profiles are similar with 50% of their listeners being over 35. Kaya however in internal documents suggests listeners between 25-34 comprise 30% of their core market and that 68% are between 25-49. See Exhibit 11 page 3

25 We use the term demographically here loosely to include factors such as race, language, age and content.

26 See Tribunal record, Witness statement file, page 118.

27 See Appeal Court record, page 881.

28 Kaya went from 6 to 11, YFM from 12 to 18, and Highveld went from 23 to 28.Jacaranda also broadcasts into Limpopo and Mpumalanga hence its share decreased when the up weighting exercise was performed.

29 See footnote 33 below.

30 See Appeal Court record page 853, where after the exhibit is put to Roberts he states that “.. we see from the advertising side that this is a very concentrated market and the merger increases concentration.

31 (2x 38x11).

32 (38x11x19%).

33 For how the formulas are derived see O’Brien and Salop supra, page 595-6. For a silent financial interest, one multiplies the respective market shares of the acquiring and target firm by the percentage interest the acquiring firm has in the target firm; in a full merger, one multiples the two market shares by two. On the Salop/O’Brien formula if there was so-called Coasian joint control the result would be the same as for a full merger.

34 ( 2x42.8x10.55)

35 (25%x42.8x10.55)

36 (19%x 42.8x10.55). Note that the actual figure is 18, 17% we have rounded it off upwards.

37 See Appeal Court record, page 879. The assumptions around control also appear from Dr Roberts witness statement where he states, “The merging parties’ position is that they will not have control over Kaya FM given the size of the stake they are purchasing. We have not assessed these issues in any detail and draw from the Commissions’ analysis. …we understand the rationale to be that the merging parties seek to ‘turn Kaya around’ which can only be possible if they are effectively in control.” See Tribunal record witness statements page 234-5.

38 See Appeal Court record, page 879.

39 The Commission’s experts asked advertisers if they would switch to Metro, if Kaya or Highveld increased prices by a small but significant amount. They indicated they would not. The Commission observes that this is consistent with the posted rates data it looked at. (See Report of Johannesburg Economics, Tribunal record, witness statement file, page 210). When cross examined on this point by Primedia’s counsel, Roberts admitted the same exercise had not been performed as between Highveld and Kaya, because Kaya had not been included in the data set that they had access to. (See Appeal Court record, pages 908-911).See also Theron report, Tribunal record, witness statement file, page 17 where it is stated “No product market in this industry defined by the traditional SSNIP test will contain fully and perfectly substitutable products in a way that is sensitive to the real degree of attenuation of such substitutability that attends these markets ” They go on to state that it is far more meaningful to state propositions about relative relations between potential competitors than to make conclusions about absolute boundaries to markets. See Tribunal record, witness statement file, page 17.

40 See Appeal Court record, page 43 where he testifies that he does not have rate cards in his office.

41 See Theron report, Tribunal record, witness statement file, pages 57-8

42 Exhibit 11 page36.

43 Exhibit 11 pages 34-36 – these items are quoted randomly from the document and do not appear in any order.

44 See Simon Bishop and Mike Walker, “The Economics of European Law’, Second Edition (Sweet and Maxwell), page 262 read with remark on 260.

45 This approach finds support in Theron's report where she remarks “ … in other words, it is easier to ask whether A and B are more or less meaningful competitors in a market than say B and C, than to ask which competitors must be regarded as in the market and which as outside it.” See Tribunal record, witness file, page 17.

46 For more on this see Bishop and Walker, supra, pages 267-8.

47 See Moyane’s evidence, Appeal Court transcript, page 159

48 See Moyane’s evidence that Highveld regards Jacaranda and 5 Fm as its main competitors, Appeal Court transcript,155

49 See Exhibit 25 as well and see also the figures provided by Theron in her supplementary report where she does this calculation in respect of the Commission’s initial version of the narrow market and comes to the conclusion that the change in concentration would be 93.7.Exhibit 10 page 14 Table 11. When the Commission recalculated the figures for the narrow market, as found in Exhibit 32 set out above, Kaya FM and Highveld’s market shares increase, and on this scenario, the delta is around 200, However, as stated above, we reject the view that the market is composed only of Highveld, Jacaranda and Kaya.

50 Tribunal record, witness statement file, page 190.

51 See Hodge’s evidence, Appeal Court record, page 829 where he states, after being asked about whether diversion is not more likely to go to firms closer to the acquiring firm than to those that are far away, Hodge explains that one would have to know if the closest substitute had capacity e.g. during a drive time slot if it did not it was a factor to take into account but he then concludes his remarks by saying “ so the diversion ratio is not in any way going to be a very simple aspect to examine.”

52 The diversion ratio has been applied as tool for measuring the unilateral effects of mergers on firms selling differentiated products. (See O’Brien supra page 598). The authors explain that the diversion ratio “measures the amount of a firm’s sales that are diverted to the firm’s merger partner in response to a price increase, relative to the total substitution away from the firm. As a technical economic matter the diversion ratio is the ratio of the cross- elasticity of demand to the own elasticity of demand, multiplied by the ratio of the quantity of the firm to that of its merger partner. See O’Brien supra page 563 footnote 13.

53 See Theron’s report Tribunal record, witness statement file pages 57-8.

54 Tribunal record, witness statement file, page 190, where in discussing what Primedia factors into account in raising advertising prices pre-merger it weighs up the increase in revenue from the higher prices as against lost revenue from a reduction in demand. “The reduction in demand occurs as advertisers choose to go to other radio stations (e.g. Kaya) or choose not to advertise on radio at all.”

55 See O’Brien supra, 576

56 We do not have evidence comparing the profits of the stations, but in a letter to Icasa dated, 6 July 2004, Pheladi Gangwa the regulatory affairs manager for Highveld, gives some interesting comparisons. Highveld had at the time 1,3million listeners and generated revenue of R205, 2m. Kaya Fm had an audience of 1,1million and a revenue of R51, 7 million. (See Tribunal record merging parties bundle page 255.)Thus on these figures although Highvelds’ audience is only 18% higher than Kaya’s its revenues are nearly 400 % higher.

57 2006(2) CPLR 601 CT.

58 Extracts from Managing Director’s report – Radmark Board meeting held on 5 May 2005, Tribunal record, merging parties bundle, page 203.

59 See witness statement of Rivak Bunce, paragraphs 22-3. See Tribunal record witness statement bundle page 144.

60 For Kirsh, see Appeal Court transcript, page 389, and for Theron pages 663-4

61 See AME heads of argument in further written submissions paragraph 50.

62 See Roberts witness statement Tribunal record, witness file page 199. See also Kagiso Media Annual report 2007 page 26.

63 See Genesis report record page 191.

64 There is some suggestion in the internal documents that Kaya has been adversely affected when rates had risen as advertisers did not support stations considered marginal and so it seems when budgets were tight, favoured confining their expenditure to mainstream stations. In a Radmark document the managing director observes, “CG advised that the market was currently extremely difficult. Marginal stations like Kaya, were expected to be omitted from media schedules….Concern was expressed that Classic FM and Kaya would be adversely affected by recent rate adjustments.” See Extract from Managing Director’s report – Radmark board meeting on 4 December 2003. See Tribunal record, merging parties bundle page163.

65 Presentation to Kagiso Media board, dated 4 August 2004, entitled “Kaya audience growth and benefit to Kagiso Media.” See Tribunal record, Merging parties bundle page 248.

66 Primedia of course have to take care in their governance of their investment in Kaya. In terms of section 4(2) of the Act an agreement between firms in a horizontal relationship to engage in a horizontal restrictive practice may be presumed if any one of those firms has a substantial interest in the other, or they have at least one director or substantial shareholder in common, and any combination of those firms engages in a restrictive horizontal practice.

67 In our February decision we refer to documents that indicate that Kagiso’s financial interest in Kaya may be 12, 5%. See footnote 65 of that decision supra.

68 See our earlier discussion on Coasian joint control where we cite this passage from O’Brien and Salop. Note that the authors wryly remark in discussing this concept “Like most Coasian theoretical outcomes, however, this outcome faces the problem of real-world transaction costs.” See supra page 582.

69 See Ariel Ezrachi and David Gilo “EC Competition Law and the Regulation of Passive investments among competitors”. Oxford Journal of Legal Studies, Summer 2006 at 327, page 332.

70 Although both the Commission and AME raised co-ordinated effects in their original submissions during our first hearing, they did not loom large in their analyses, which were largely based on a unilateral effects theory, assuming control over Kaya FM by Primedia. Since our February decision and the findings of fact on control, the emphasis has understandably shifted in the arguments presently before us, and so co-ordinated effects as a theory, has found its way to centre stage. But it became as a result a theory in search of a factual substructure to support. Since the focus of the hearing was elsewhere, the theory has been left dangling in the air.

71 See paragraph 3.39

72 See report in Business Times on line dated February 22, 2008.( business.timesonline.co.uk )

73 In our economy the problem is less compelling than it might be in the US or European Union. The types of cases we have referred to in the comparative literature involve widely held companies where a rival has taken a small stake in terms of the size of the overall share capital but a stake that is typically larger than that of any other shareholder of the firm. In our economy widely held companies without any controlling ( in the Company Act sense) or materially influencing shareholder( in the Competition Act sense) are less frequent because our economy is smaller and institutional shareholders are more pervasive as controllers rather than as passive investors. The problem is non-existent in privately held companies where shareholders typically enter into agreements over control.

74 O’Brien and Salop, supra page 565.

75 O’Brien and Salop, supra page 566-7

76 Areeda and Turner would recognise that the absence of control is not a jurisdictional bar to the jurisdiction of the Clayton Act, owing to its language, but nevertheless, they warn of the practical problems when they caution that “Testing for prohibited effect is much more subtle, however, when control is neither attained or contemplated.” ( 1203 a) They go on later to observe that in contradistinction to a full merger, where independent competition is replaced by common control: “A non-controlling acquisition has no intrinsic threat to competition at all.”(1203(d)) Note that Areeda and Turner do not say that partial acquisitions do not have anticompetitive consequences. They would agree that they do, but they are sceptical about their susceptibility to adjudication. Partial acquisitions create for them adjudicative problems in two areas. One, we have noted in the earlier discussion on the O’Brien and Salop critique, is about the ability to quantify anticompetitive effects. The second is about material influence and how one can measure what is enough to constitute enough to influence either firms’ behaviour.

Their proposed solution is to have a per se rule as to what size of acquisition would constitute a substantial partial interest, ( they suggest at least more than 5%) and, once that has been determined, to state that the merger even though a partial merger be then analysed as if it were a full merger . Thus if a full merger between the firms would be condemned so should the substantial partial merger. Thus their solution eliminates adjudication over what constitutes material influence and the anticompetitive effects of possibly passive financial interests by creating presumptions. We do not have the luxury of this solution which would require an amendment to our legislation. What it does illustrate that even in jurisdictions where there is no statutory bar to assuming jurisdiction over transactions in the absence of proof of control, experienced commentators are reluctant about whether they should be adjudicated except in a small class of transaction for whom they would offer a per se rule, followed by a presumption, as opposed to an effects based test.

77 See O’Brien and Salop supra, 602

78 See Ezrachi and Gilo supra, 335.

79 See Ezrachi and Gilo supra, 337.

80 See Ezrachi and Gilo supra, 348. “Therefore rather than the ex ante monitoring involved in prior notification that is applied to transactions involving decisive influence, passive investments could be assessed by an ex post analysis. Moreover, the Commission’s power to conduct such an ex post analysis would only be available in the markets in which the level of concentration and the level of passive investment exceed a pre-defined threshold.”

81 See Antitrust Law Developments (third) American Bar Association, page 280, citing the Supreme Court Decision in Denver and Rio Grande Western Railroad Company v United States, 387 US. 485, 501, (1967) where the Court held, “a company need not acquire control over another company in order to violate the Clayton Act.”

82 See Areeda and Turnner Antitrust Law, paragraph 1203(b) (1980).

83 “The Act (15 U.S.C. 18a (i) (1)) provides that any action taken by the agencies, or failure to take action, shall not bar any future action by the agencies with the respect to the acquisition.”(See United States merger notification and procedures template, website of the International Competition Network.)

84 See Merging parties heads of argument dated 25 January 2008, paragraphs 14-15.

85 See AME’s heads of argument dated 25 January 2008, paragraph 11.

86 As we noted above in terms of the MHHI model the calculation of a passive financial interest has a different formula to the one for a full merger when one calculates the change in concentration.

87 See our February decision paragraph 80.

88 In argument before us counsel for Primedia appears to concede this fact. See page 95 of the Tribunal transcript, in the remittal proceedings, dated 30 January 2008.

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