SUNBIZ

Tests In Mergers And Acquisition

The determination of whether a Merger or Acquisition exists for the purposes of Section 72 and 73 of the Fijian Competition and Consumer Commission Act 2010 (FCCC Act 2010) is
25 Jun 2018 13:37
Tests In Mergers And Acquisition

The determination of whether a Merger or Acquisition exists for the purposes of Section 72 and 73 of the Fijian Competition and Consumer Commission Act 2010 (FCCC Act 2010) is based on qualitative and quantitative criteria.

These criteria include consideration of both law and facts. It stipulates, therefore, that a merger or acquisition may occur either on a legal or on a de-facto basis.

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 or acquisition application, Fijian Competition and Consumer Commission (FCCC) ensures that the ‘substantial lessening of competition test’ is undertaken to determine forthcoming of the proposed merger or acquisition.

For the purposes of the substantial lessening of competition test in a merger context, a person can include two or more persons or corporations that are interconnected or associated.

 

Two corporate entities are interconnected if:

  1. a) One is a parent company and the other is a subsidiary;
  2. b) The two corporate entities are subsidiaries of the same parent company; or
  3. c) The two corporate entities are interconnected with other corporate entities that are themselves interconnected.

FCCC considers that a person (A) has a substantial degree of influence over another person.

  1. d) If person A has the ability to bring real pressure to bear on the decision-making process of person B.

This is because, if one party can substantially influence the activities of the other, it may not be appropriate to regard each of those parties as separate competitors in the market.

Whether a person has a substantial degree of influence over another is a question of fact.

 

In making assessment FCCC considers number of factors, including:

  1. a) The nature and extent of ownership links between the companies;
  2. b) The presence of overlapping directorships;
  3. c) The rights of one company to appoint directors of another;
  4. d) The nature of other shareholder agreements and other links between the companies concerned (including family or financial links); and
  5. e) The nature and extent of the communications between the persons, and the apparent influence of one person on the key strategic decisions of the other.

 

In relation to ownership links, a substantial degree of influence can arise at any level of shareholding.

Shareholdings of less than 50 per cent can still enable a person or corporation to influence the competitive behavior of another person or corporation.

In this respect, the spread of shareholdings in a corporation is relevant.

For example, a shareholder may have a substantial degree of influence on a corporation if it has a shareholding of 10 per cent in the corporation and the balance of the shareholding in the corporation is a mix of smaller shareholders.

 

Types of Mergers Considered by FCCC

Over the years, FCCC has considered horizontal mergers, vertical mergers and conglomerate mergers.

The process undertaken by FCCC while considering different Mergers are same, however, the information, data and evidences required for each of these Mergers differs.

The Horizontal Mergers involves actual or potential suppliers of substitutable goods or services, whereas Vertical Mergers involves corporation’s operating or potentially operating at different functional levels of the same vertical supply chain.

For example, where an enterprise that manufactures a particular good, merges with an enterprise that distributes or retails that good.

Because such a merger will not ordinarily increase concentration levels in a relevant market, they are less likely to raise competition concerns.

Such a merger may also give rise to significant efficiencies if properly managed.

The vertical mergers have been seen to potentially raise concerns if there is a sufficiently concentrated industrial structure at one or more of the related or integrated stages of production or distribution.

When FCCC investigates such a merger, it considers the following:

  1. a) Whether the merged firm has power in one market that could be leveraged into a vertically related market;
  2. b) Whether the target firm is a likely entrant into a vertically related market;
  3. c) Whether the merged firm will control access to an essential input; and
  4. d) Whether the vertical integration raises barriers to new entry.
    Further, the Conglomerate Mergers involves corporation’s that interact or potentially interact across several separate markets and supply goods or services that are in some way related to each other, for example, products that are complementary in either demand or supply.

It is imperative to understand that each type of merger has different dimension and the effects in the market and competition.

These mergers have the potential to affect competition in a different way and will therefore, be analysed differently by FCCC.

While some competition issues and theories of competitive harm may be considered in some cases, FCCC will continue to adopt tailored approach to a particular nature of the merger.

 

Advice to the Traders and Business

The businesses must inform FCCC if business is intending or has engaged in merger or acquisition.

It is advisable that you visit FCCC office to discuss and seek clarification if you feel you need more information on Merger or Acquisition.

Next Week read on Assessments of Mergers and Acquisitions

Feedback:  maraia.vula@fijisun.com.fj

 

 

Fiji Sun Instagram
Fiji Plus
Subscribe-to-Newspaper
error: