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Explained: Mergers And Acquisitions

The definition of a merger as outlined in the Fijian Competition and Consumer Commission Act 2010 (FCCC Act 2010) is wide, covering several different types of transactions and arrangements including
04 Jun 2018 14:06
Explained: Mergers And Acquisitions

The definition of a merger as outlined in the Fijian Competition and Consumer Commission Act 2010 (FCCC Act 2010) is wide, covering several different types of transactions and arrangements including different levels.

The most obvious example of a merger or acquisition is where a corporation proposes to buy a majority of shareholdings or a significant minority shareholding in another corporation.

A merger assessment would include the purchase of assets such as businesses, plant and equipment, intellectual property or the formation of a joint venture.

The determination of whether a merger exists for the purposes of Section 72 and 73 of the FCCC Act 2010 is based on qualitative and quantitative criteria.

These criteria include considerations of both law and facts.

It stipulates, therefore, that a merger may occur either on a legal or on a de-facto basis.

Mergers can bring many benefits to Fijian economy by making it possible for firms to be more efficient and innovative.

However, some mergers also have the potential to lessen or likely to lessen the competition which would be detrimental to consumers.

The FCCC Act 2010 prohibits any person from acquiring the assets of a corporation or shares in a corporation, if that acquisition would have, or would be likely to have, the effect of substantially lessening competition in a market.

While considering any merger application, FCCC ensures that the ‘substantial lessening of competition test’ and assessment is undertaken.

Mergers that substantially lessen or is likely to lessen competition in a market are illegal under the FCCC Act 2010, unless they are fully assessed to be otherwise and authorised by FCCC.

All the merger applications and clearance are processed by FCCC under Section 72 and

Section 73 of the FCCC Act 2010.

If FCCC has concerns that a merger may substantially lessen competition or there is a likely indication of lessening competition where the firms have not sought clearance or authorisaton, FCCC may investigate that merger.

If, following FCCC’s investigation, it is ascertained that the merger is likely to substantially lessen competition in the market, the FCCC may take appropriate enforcement action under the Act.

 

Why apply for merger authorisation?

A person who obtains merger authorisation from the FCCC obtains statutory protection from legal action under section 72 of the FCCC Act 2010 for the proposed acquisition.

That is, while the merger authorisation is in force, the person to whom authorization applies will be able to acquire the relevant shares or assets without risk of the FCCC or third parties taking legal action against them for a contravention of section 72 of the Act.

 

Who can apply for merger authorisation?

Any person proposing to acquire shares or assets where that acquisition would or might breach section 72 of the FCCC Act 2010, may apply for merger authorization to FCCC.

Parties may wish to obtain legal advice on whether a proposed merger or acquisition would or might breach section 72 of the FCCC Act 2010, and whether they should consider applying for merger authorisation.

The FCCC cannot provide legal advice, although it is able to provide general guidance on issues.

 

Pre-lodgment discussions with FCCC

The applicants can contact FCCC for informal discussion and guidance before lodging their applications for assessment by FCCC.

These discussions will enable applicants to outline their proposals to FCCC, and to ensure they provide all relevant information and documents with their application.

During discussions, FCCC cannot suggest arguments in support of an application or the likely outcome of an application.

However, FCCC can assist by explaining in general terms the issues that applicants should address in their applications, and the various steps in the FCCC’s assessment process.

 

Lodging of application with FCCC

The FCCC Act 2010 requires that for an application to be valid it must be:

  1. a) In a form approved in writing by the FCCC.
  2. b) Accompanied by any other information or documents requested by FCCC; and
  3. c) Accompanied by the fee as prescribed by FCCC.

 

FCCC is required to assess the validity of an application within ten (10) business days of receiving the full application.

An application for merger authorisation will be assessed more efficiently and effectively if the information and evidence provided in the application is comprehensive.

The level of detail and the type of information required for an application to be valid will differ depending on the nature and complexity of the issues raised by the proposed acquisition.

 

FCCC assessment of a merger

Competition is viewed by FCCC as a process of rivalry between firms seeking to win business over time by offering them a better deal.

Rivalry creates incentives for firms to cut price, increase output, improve quality, enhance efficiency, or introduce new and better products because it provides the opportunity for successful firms to take business away from competitors, and poses the threat that firms will lose business to others if they do not compete successfully.

The focus of FCCC’s analysis is on evaluating how the competitive incentives of the merger parties and their competitors might change as a result of the merger.

The starting point is to define the relevant market, then review the changes in the market structure resulting from the merger.

This is done for pre and post-merger where number of factors are considered holistically

 

Advise to the traders and business

If you are thinking of buying another business or controlling assets or shares, you must notify FCCC of the same.

It would be prudent that you visit FCCC for discussions if you are not clear whether you should apply for FCCC’s clearance or not.

If through the monitoring process FCCC identifies that any business has engaged in merger or acquisition without proper approval and clearance of FCCC, it will have no option but to take administrative measures to remedy the conduct.

Feedback:  maraia.vula@fijisun.com.fj

 

 

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