Primedia ltd

Basis for the Court’s decision on review

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Basis for the Court’s decision on review

[8] In our February decision we noted that the merger between Primedia and Nail, which was the primary transaction which triggered the obligation to notify it as a merger in terms of section 12(1) of the Act, brought in its wake, the acquisition of an indirect interest by Primedia, in a company called Kaya FM (Pty) Ltd, which in turn owns a radio station operating in Gauteng, known as Kaya FM.4

[9] It remains common cause that there is no competition concern about the direct acquisition of Nail and so we need not go into this aspect.5 The issue is the effect of the indirect acquisition– where Primedia, via New Africa Investments Ltd (“Nail”), acquires the right to vote Nail’s 24.9% stake in Kaya FM. Although Primedia will be able to vote the full 24,9%, its economic interest in Kaya FM is less extensive, amounting to at most 18,17% of the station’s equity; the balance of the economic interest is held by Capricorn.6

[10] When the matter came before us by way of reconsideration the issues were limited to the consequences of the indirect acquisition by Primedia of a stake in Kaya FM through its acquisition of control of Nail. Expressed more simply, the alleged significance of the merger from a competition perspective is that although Nail’s stake in Kaya FM remains unchanged, the ownership of Nail has changed. This is alleged to have competition consequences because the Nail stake is now owned, and to the extent that this may prove material, controlled, by a company that owns radio stations that may be considered to compete with Kaya FM.

[11] Although radio stations compete for both listeners and advertising, it was common cause in this hearing that any competition concerns that might arise, would be in the market for advertising. The Commission and AME analysed the advertising markets implicated by the merger, defined them narrowly, and found them to be highly concentrated and composed of few firms, some with interlocking interests, and accordingly, recommended prohibition. Primedia defined the markets much more widely and concluded that no competition interest was at stake, but in the alternative, suggested that to the extent that it was, the conditions that it had proposed would take care of the concerns without the need for a prohibition. 7

[12] In our February decision we concluded that the stake being acquired by Primedia indirectly, as a result of the Nail transaction, did not amount to it being able to control Kaya FM either solely or jointly. We stated:

Given this conclusion, it is unnecessary for us to consider, whether, if it had acquired control, this would lead to an anticompetitive outcome.”8

[13] We did not for this purpose conduct a substantive analysis ( i.e. the analysis contemplated in section 12A of the Act) save for analysing the possibility of joint control, where certain assumptions about the market needed to be made to test various theories of control.

[14] We were criticised by the Court on review for this approach, and for conflating the issue of control, a jurisdictional issue, with the substantive enquiry mandated by section 12 A, the section that deals with the evaluation of a merger. As the Court expressed it:

The question for the Tribunal was all about control. Manifestly control 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 nature and scope of control which fourth respondent [Primedia] 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.”9 (Our emphasis)

[15] The Court goes on later to refer to an article by two United States academics and states: 10

Significantly for the purpose of this dispute, O’Brien and Salop comprehensively show that the previous assumption developed by Areeda and Turner that “a non-controlling interest has no intrinsic effect [threat] to competition at all’ was incorrect...”11

[16] The Court goes on to cite O’Brien and Salop’s article again with approval, in particular their thesis that different forms of partial ownership can have different effects depending on “ specific financial interests, corporate governance and market power 12 Since the Court has placed so much emphasis on this article, and by implication adopted its analysis, we will first examine what the authors state in relation to partial acquisitions in the context of the present case and then apply two of their scenarios to the facts of this case as a form of section 12A substantive analysis. In so doing we will be examining whether under a unilateral effects scenario, the acquisition of a non-controlling stake in a rival firm may have anticompetitive effects or whether under a co-ordinated effects analysis, the acquisition would strengthen an existing co-ordination or increase the likelihood that the firms would co-ordinate.

[17] As will become clear during our analysis, we have proceeded on the assumption that Primedia is not able to control Kaya FM. That was our finding in our February decision, and although we have been urged that we are not bound to hold to that decision, we find no reason to depart from it. What is novel, and was not available to us at the time of our February decision, is a recent United Kingdom case13 in which the question of what amounts to control was considered; here the acquirer’s shareholding was at a similar level to that of Primedia in this case, and yet the UK Competition Commission found that a merger had been established, because the acquirer had acquired ‘material influence’ over the target. The notion of ‘material influence’ is to be found in section 12(2)(g) of our Act, one of the provisions which sets out when a person is deemed to control another firm. Because of the factual and legal similarities to the present case, we have considered whether, in the light of the UK approach, we should reconsider our approach to the question of control.

[18] Although we find the reasoning of the U.K.Commission in that case persuasive, we show why the facts on which it based its decision, are not present in this case, and hence we see no reason to alter our February conclusion that Primedia will not be able to control Kaya FM. This discussion follows after our discussion of the substantive issues.

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