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Caxton CTP Publishers and Printers Limited and Naspers Ltd / Electronic Media Network Ltd / Supersport International Holdings Ltd / Competition Commission (16/FN/Mar04) [2004] ZACT 25 (13 April 2004)
.RTF of original document
COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 16/FN/Mar04
In the matter between:
CAXTON AND CTP PUBLISHERS AND PRINTERS LIMITED
Applicant
and
NASPERS LIMITED
First Respondent
ELECTRONIC MEDIA NETWORK LIMITED
Second Respondent
SUPERSPORT INTERNATIONAL HOLDINGS LIMITED
Third Respondent
THE COMPETITION COMMISSION
Fourth Respondent
_____________________________________________________________________
Reasons
______________________________________________________________
Introduction
1.
The applicant has brought this application because it alleges that a scheme of arrangement in terms of which the first respondent
Naspers Limited (‘Naspers’) will acquire further shares in the second, Electronic Media Network Limited (“M-Net”)
and third respondent, SuperSport International Holdings Limited (‘SuperSport’) constitutes a merger, which should have
been notified to the Competition Commission. The applicant seeks an order from us declaring that the transaction constitutes a notifiable
merger.
Background
2.
The applicant is a listed company involved in the paper and printing industry and considers itself to be Naspers’ major competitor
in that industry. It alleges that the scheme of arrangement (the’ transaction’) constitutes a merger which raises competition
concerns that ought to be considered by the competition authorities. It is not necessary for us to consider whether these competition
concerns are valid. At this stage of the proceedings we are only called upon to consider whether the transaction is notifiable. Competition
concerns are only scrutinised if transactions are notifiable. It follows that the motive for a transaction, which may have a bearing on the question of whether the merger is anti-competitive,
has no relevance at this stage of the enquiry. For this reason we make no comment on whether Naspers’ stated rationale for
the merger is valid or whether the applicant has suggested a more probable alternative, an issue fiercely debated by the parties.
3.
Prior to the transaction, the structure of Naspers’ interest in M-Net looked like this.
Structure prior to the transaction
4.
In terms of the scheme of arrangement Naspers will purchase all the shares of the minority shareholders other than those of Johnnic
Communications Limited (‘Johncom’). As part of the scheme Johncom has an option to acquire up to 39.1% of the shares.
The date for that option to be exercised is after that of our hearing so we must consider what the permutation of shareholdings will
be if the option is exercised and if it is not.
5.
Thus, post merger, if Johncom does not exercise the option the structure would look like this:
Structure after transaction, Johncom not exercising its option
6.
Whether or not Johncom exercises the option post merger, Naspers’ total interest in M-Net will exceed 50%. If Johncom does not exercise the option Naspers’ direct and indirect interest will be 72.65%. This is made up as follows:
directly held by Naspers – 35.87%
indirectly through MNH98 – 26.33%
indirectly through Multi-Choice – 10.45%
7.
If Johncom does exercise the option Naspers’ direct and indirect interest will be 60.11%, made up as follows:
directly held by Naspers – 23.33%
indirectly through MNH98 – 26.33%
indirectly through Multi-Choice – 10.45%
8.
MNH98 will continue to own 52% of the shares in M-Net and thus its stake remains unchanged. Nor does the relationship between MNH98‘s
shareholders alter in any way as a result of the transaction.
9.
Naspers does not control MNH98, although it is the largest shareholder with a 50% interest. Naspers, Johncom and the Natal Witness
have entered into a shareholders’ agreement in respect of MNH 98, which also regulates their relationships in respect of M-Net.
Briefly, for our purposes, the salient points of this agreement are as follows:
•
Each shareholder is entitled to appoint at least one director to the board of MNH. The director in turn is entitled to a vote in proportion
to the interest of the shareholder who appointed the director. Thus the Naspers appointee could exercise 50 % of the votes at the
board.
•
A resolution of the directors, or of the shareholders, requires a 75% majority in order to be valid. Thus, Naspers cannot, without
the support of Johncom, have a resolution passed and vice versa.
•
As long as MNH controls more than 50% of M-Net and Naspers owns at least 25% of MNH, the shareholders must procure that
(i)
Naspers can appoint at least 25 % of the M-Net board and
(ii)
that no decision of the M-Net board can be taken without the approval of at least 75% of the directors.
•
No shareholder may hold more than 50% of the issued shares in MNH.
10.
The spirit of the shareholders’ agreement is mirrored in the Articles of Association of M-Net and SuperSport where we find consistent
provisions.
11.
Thus:
•
The articles of association provide that directors’ resolutions require the support of at least 75 % of the directors.
•
There can be no quorum without a representative of the company’s holding company i.e. MNH98.
12.
We are advised that the shareholders’ agreement will persist notwithstanding the scheme of arrangement.
13.
The common cause facts from these documents and arrangements are that Naspers does not have sole control of MNH98 but controls it
jointly with Johncom. It would appear from the facts that Naspers would still not enjoy sole control of MNH98 even if there were
no shareholders’ agreement. As noted, Naspers owns 50% of the shares of MNH98. Accordingly, even it were not constrained by
the terms of the shareholder’s agreement, in order for its will to prevail, it would still have to secure the support of one
of the other shareholders of MNH98 (that is, either Johncom or Natal Witness) and, as such, there is joint control over MNH98, with
or without the shareholders’ agreement.
14.
The facts of the case, in so far as we need to decide them, appear to be common cause. The difference is the legal interpretation
to be put on the state of affairs before and after the merger. In order to allege a change in control, the applicant relies on the
fact that Naspers has, through the aggregate of its direct and indirect interests, including those acquired as a result of this transaction,
an interest in M-Net amounting to at least 60.11%. The respondents allege that the status quo, in so far as control is concerned,
remains unaltered – prior to the merger MNH98 controlled M-Net and it continues to do so afterwards. The fact that Naspers
has increased its economic interest in M-Net in excess of 50% does not amount to the acquisition or establishment of control.
Procedural issues
15.
Initially the applicant sought relief in two parts. In terms of Part A, the applicant sought interim relief in the form of an interdict
to preclude the respondents from implementing the transaction, pending a final determination of whether the transaction constituted
a notifiable merger in terms of the Act.
16.
Part B concerned final relief. Here the applicant sought three prayers. Firstly, that the transaction be declared a notifiable merger,
secondly, that the first to third respondents be directed to notify the merger to the Commission and thirdly, to interdict the first
to third respondents from implementing the transaction pending final approval of the transaction, if any.
17.
After the application had been served the respondents provided the applicant with an undertaking in terms of which they agreed not
to proceed with the schemes of arrangement pending the outcome of the Tribunal hearing. Both parties agreed that as a result of this
undertaking we did not have to hear the application for interim relief i.e. Part A, and that, accordingly, the only relief we needed
to determine was that sought in Part B. In its answering affidavit Naspers agreed that in the event of a final determination that
the transaction is notifiable, it would abide by the statutory requirements.At the hearing, in response to a question from the chairperson, the parties agreed that in view of this subsequent undertaking we
only had to determine whether the merger was notifiable or not.
Analysis
18.
As we noted earlier, the only issue we are required to decide is whether the transaction constitutes a notifiable merger.
19.
In order for a transaction to be notifiable it must:
i.
Conform to the definition of a merger set out in section 12(1) of the Act; and
ii.
meet the required threshold for notification.
20.
It is common cause that if the transaction is a merger it would fall within the notification thresholds, so the only issue that remains
is whether it meets the definition of a merger.
21.
According to section 12(1)(a):
”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.”
22.
Section 12(2) then lists instances of when a person controls another firm.
“12(2) A person controls a firm if that person —
(a) beneficially owns more than one half of the issued share capital of the firm;
(b) is entitled to vote a majority of the votes that may be cast at a general meeting of the firm, or has the ability to control the
voting of a majority of those votes, either directly or through a controlled entity of that person;
(c) is able to appoint or to veto the appointment of a majority of the directors of the firm;
(d) is a holding company, and the firm is a subsidiary of that company as contemplated in section 1(3)(a) of the Companies Act, 1973
(Act No. 61 of 1973);
(e) in the case of a firm that is a trust, has the ability to control the majority of the votes of the trustees, to appoint the majority
of the trustees or to appoint or change the majority of the beneficiaries of the trust;
(f) in the case of a close corporation, owns the majority of members’ interest or controls directly or has the right to control
the majority of members’ votes in the close corporation; or
(g) has the ability to materially influence the policy of the firm in a manner comparable to a person who, in ordinary commercial
practice, can exercise an element of control referred to in paragraphs (a) to (f).”
23.
Previous decisions of the Competition Appeal Court (the ‘Court’) and the Tribunal have indicated that this list is not
to be viewed as exhaustive of all the possibilities for acquiring control, but rather in the language of the Court, that it lists
“instances” of where there is a change of control. There is thus room to argue that a change of control has taken place even where it has followed a form not provided for in section
12(2). We have observed before that the acquisition of a business by way of a sale of assets may be one such example.
24.
The relevance of this to the present application is that the applicant does not confine its assertion that there has been a change
of control, to the instances set out in section 12(2). It argues that even if those provisions are found to be inapplicable there
has still been a merger within the contemplation of section 12(1).
25.
We have no difficulty with this approach. The applicant has correctly applied past decisions and is entitled to assert that if a transaction
fails to find a label to fit in section 12(2) it may still be a merger if it falls within the definition of section 12(1)(a). As
we do not understand the Commission or Naspers to have challenged this aspect of the case, we need not deal with it further.
26.
As we have observed, the applicant relies on three sections of the Act for alleging that there has been a change of control. These
are sections 12(1)(a), 12(2)(a) and 12(2)(g). We will first consider the case made out in terms of section 12(2)(a).
Section 12(2)(a)
27.
Irrespective of whether or not Johncom exercises its option, it is common cause that after the transaction is implemented:
1.
Naspers’ economic interest in M-Net will exceed 50%; but
2.
Naspers’ direct shareholding in M-Net will not exceed 50%;
3.
MNH98 will continue to own and vote 52% of shares in M-Net i.e. will both own and be able to vote a majority of the M-Net shares;
4.
Shareholding arrangements in MNH98 remain unaltered.
28.
It is thus clear from these facts that MNH98 controlled M-Net, and will continue to do so post transaction. The applicant does not
dispute this. What the applicant does is to rely on some of our past decisions particularly that in Ethos Private Equity Fund IV / The Tsebo Outsourcing Group (Pty) Ltd (case no. 30/LM/Jun03) as authority for the following propositions:
•
That more than one party can exercise control over a firm simultaneously;
•
That the same party can simultaneously be regarded as a sole controller and a joint controller of a firm in respect of different ‘instances’
of control;
•
That if the same party which controlled a firm jointly later also acquired sole control, albeit simultaneously with the continued
joint control, this would amount to an obligation to notify in terms of the Act;
•
That if a party beneficially owns more than 50% of the issued shares of a firm it is deemed, by virtue of section 12(2)(a), to control
that firm regardless of whether they confer the right to vote the majority of shares in that firm.
29.
In Ethos the Tribunal explained why merger policy is not confined to an assessment of control via the legal form. We made the point that control
can also be exercised by virtue of a party’s economic leverage over another and that this formed the rationale for the language
of section 12(2)(a) which emphasises ownership of shares as something distinct from voting rights.
30.
The applicant argues that a logical extension of the policy issues identified in the Ethos case is to find that there has been acquisition of control where a party acquires a majority ‘interest’ in another, irrespective
of whether that interest is directly held or exercised by the acquirer.
31.
Naspers and the Commission argue that the distinction between the present case and Ethos is that in Ethos the acquirer directly owned the shares in question. Furthermore, they argue that as a matter of company law there is a settled and important distinction between
a beneficial ‘interest’ and beneficial ‘ownership’. Naspers may have acquired a majority interest but it
does not have majority ownership, and only the latter suffices for the purpose of section 12(2)(a), which as we have seen, makes
use of the word “ownership”, not “interest”.
32.
The applicant in response asserts that not only are the company law cases not settled, they are not in point in relation to a statute
that is concerned less with legal form than issues of control. Since the Act and the Court has recognised this takes a very broad view of control we should eschew any approach that slavishly follows
narrow conceptions of company law.
33.
We do not believe that in this decision we need resolve the debate about whether section 12(2)(a) is confined to beneficial ownership
or whether it can be extended to include a beneficial interest. That is because this is not the only issue that the applicant has
to succeed in to prove that there has been a change of control in terms of 12(2)(a).
34.
This case is not about how to add up shares, but rather when they can be counted for the purpose of establishing control. In other
words, what species of economic interest can legitimately be counted in order to decide whether the threshold in section 12(2)(a)
has been crossed? To succeed in extending the Ethos rule, the applicant has to establish two propositions. The first is that for the purpose of section 12(2)(a) beneficial ownership
is not confined to direct ownership by the putative controller, but may include an interest held indirectly via some other firm.
The second proposition is that one can include in one’s sums an indirect interest, even if the indirect interest is itself
not controlled by the putative controller. Both these propositions must hold in order for the applicant to succeed in terms of section
12(2)(a).
35.
In the present case, Naspers may have an interest of more than 50% in M-Net depending on how one does one’s sums. As we have
seen earlier, the applicant, by aggregating direct and deemed indirect holdings, arrives at a figure of above 50% as a result of
the transaction. But Naspers does not enjoy sole control of all of that interest. At least 26,5% of that, the MNH98 holding, remains
the subject of joint control. The transaction has not changed Naspers’ relationship to that interest. It is not subject to the sole whim of Naspers. Recall
that what the applicant is arguing is that there has been a change from sole to joint control in order to activate section 12(2)(a).
That Naspers may own a third more of M-Net shares does not detract from the fact that some of the shares that the applicant must
count to get the desired total remain subject to joint control. In our view there must be limits to the arithmetic of control. Let
us for the time being, assume in the applicant’s favour that indirect holdings may be counted. That does not end the matter.
The putative acquirer should, at the very least, on its own, control the indirect holding. If it does not, then it is not able to use the holding to exercise either political or economic control over
the whole interest, in the sense in which these terms were used in Ethos.
36.
Whilst Naspers’ interest in M-Net via MNH98 is not passive, it is nevertheless the subject of joint control. As we have already indicated, this is so because Naspers only owns 50% of the shares of MNH98 and, additionally, because of the restraints
imposed by the agreement in place between the shareholders of MNH98. The transaction does not alter its legal or economic relationship to this portion of its interest in M-Net. At least what the applicant
needed to show was that all of Naspers’ interest in M-Net was now post transaction subject to its sole control. It is, after all, advancing
a theory that Naspers has acquired sole control to assert why notification is required. It has not done this and therefore cannot
count the 26,5% in its sums. Without the 26.5% the change of control does not add up.
37.
Recall that we are dealing with a section whose primary purpose is to identify lines of control – to lump together interests
that are not controlled by the firm (because they are jointly controlled 