For multinationals seeking approval for mergers in SA, navigating competition law requires a deeper understanding of the commercial and economic impact of public interest considerations on the transaction, in particular employee share ownership plans (ESOPs).
An ESOP is a programme initiated by a business that offers employees the opportunity to acquire shares or a similar ownership interest in the business for which they work. The Competition Commission views schemes of this nature as measurable instruments for advancing economic inclusion, particularly when structured to benefit historically disadvantaged employees. The commission’s intensified focus on public interest considerations has therefore made these schemes a strategic imperative.
With the guidelines gazetted in 2024 mandating measurable increases in black and worker ownership, even mergers with no competition concerns face rejection if they fail this test. This article examines why ESOPs are no longer a compliance formality but a critical tool to align shareholder ambitions with national transformation goals.
Public interest considerations have gained decisive traction in SA’s competition regime. The Competition Act of 1998 explicitly requires assessing both pure competition effects and public interest effects.
The public interest guidelines gazetted in 2024 demand that every notified merger, regardless of its competitive impact, demonstrate a measurable increase in black or employee ownership. The commission’s stance is clear: no uplift in transformation equals harm to the public interest. That means mergers with zero competition concerns can be prohibited solely on public interest grounds. ESOPs have shifted from “nice-to-have” to non-negotiable for approval.
Recently, in the Canal+/MultiChoice merger the commission took the view that the transaction is “unlikely to substantially lessen competition”, but nevertheless imposed public interest related conditions, including “an increase in the shareholding of historically disadvantaged persons and workers”. The merger confirms that even competitively neutral mergers require transformative ownership structures to clear regulatory hurdles.
The commission’s approach mirrors broader policy shifts. The adoption of ESOPs has seen an increase over the years, reportedly affecting more than 211,000 employees since 2019, including historically disadvantaged people. The department of trade, industry & competition has indicated that beneficiaries have received dividend payments totalling about R3.3bn through Esops, with about 98 such plans established and 27 in process since 2023.
Beyond compliance
Far from being mere compliance exercises, Esops serve two vital purposes. They address public interest considerations by directly increasing black and worker ownership percentages; and they unlock long-term benefits by enhancing employee retention and productivity and aligning workforce incentives with shareholder goals.
Beyond compliance, ESOPs address SA’s dual challenges of economic inequality and low worker empowerment. For multinationals this isn’t just about ticking boxes; it’s about securing social licence to operate in a market where transformation delays can derail deals.
To pass commission scrutiny ESOPs must be carefully designed. There are numerous critical factors. Existing BEE ownership will need to be assessed to see how the ESOP interacts with the target’s current BEE shareholding, to avoid the unintended dilution of pre-existing black ownership. The tax structure implications will also need to be considered for both employees and the merged entity, and vesting periods will have to be clearly defined to ensure long-term employee participation.
SA’s competition landscape demands equal scrutiny in addressing public interest in competition analysis. For multinationals this means proactive ESOP integration into merger planning and collaboration with experts to balance shareholder returns and transformation goals. The message is clear: no ESOP equals no deal.
Companies that embed ESOPs early in transaction structuring will not only secure approvals but also build more inclusive, sustainable businesses. Worker ownership is no longer optional — it’s fundamental to building an inclusive economy. For multinationals this represents both a compliance challenge and an opportunity to demonstrate long-term commitment to SA's development and transformation goals.
• Tlhong is director of competition law at TGR Attorneys.
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