Business often talks about structural reforms to ignite growth, but a simple review of our economic regulators reveals a growth handbrake too often ignored. Take the Competition Commission for example. Fresh from having to concede it overreached embarrassingly in the name of public interest in the Burger King deal, we have another reminder that the commissions’ public-interest powers have blinded it to its core function in a deal involving Mediclinic that has onlookers asking serious questions about the country’s apex court too.
The vitals of this story are that Mediclinic sought to expand its geographic presence in Klerksdorp in about 2015. It already owns a multidisciplinary hospital in Potchefstroom. It found a willing seller in Matlosana Medical Health Services, which owns two multidisciplinary hospitals in Klerksdorp, the 185-bed Wilmed Park Hospital and the 62-bed Sunningdale Hospital.
In 2017 the Competition Commission blocked the deal and recommended that the Competition Tribunal also prohibit it on the grounds that it was likely to substantially reduce competition, enabling it to unilaterally raise prices. The tribunal upheld the commission’s recommendation two years later. The matter was referred to the Competition Appeal Court, where Mediclinic won.
It was then appealed to the Constitutional Court where, in what appears to be one of outgoing chief justice Mogoeng Mogoeng’s parting shots of social justice jurisprudence, the case was awarded to the commission in a majority judgment with a minority dissenting voice from justice Leona Theron with justice Sisi Khampepe concurring.
There was little debate that if Mediclinic acquired these two hospitals it would price in the same way it does in the rest of the group, and that prices would go up, but Mediclinic argued technology and efficiency gains would keep the price increases to less than 1%. The chief justice was firm in his decision that blocking the merger was justified in light of the section 27 right to healthcare in the constitution, which is a rather novel interpretation of the law.
Think of how this would play out elsewhere regarding other section 27 rights. Take housing for example. Citizens can wield that constitutional sword and demand the state fulfil that right, but if one applies this judgment it may also play out in a private context.
If you want to sell your apartment block to another apartment block owner and you happen to be offering low-cost apartments in an important area for commuters, the right to housing may come into play when the Competition Commission is adjudicating whether to allow the acquisition.
There has always been this division between a competition factor and a public interest factor. Now we seem to be suggesting that we need to consider impacts on individuals’ constitutional rights when interpreting concepts of competition law, which raises concerns because we have a fairly rigorous system of economic analysis and lots of tools in our economic toolbox that allow us to measure effects and predict them.
If one starts to assess these issues on an individual or intuitive basis that could undermine the sort of economic analysis we have seen to date, making it much more difficult for business to predict whether a deal will be cleared. This is the beast trade, industry & competition minister Ebrahim Patel has unleashed. And we are all the poorer for it.
The King’s Gambit
Last week’s surprise moves by Northam to in effect check Implats’s desire to build the world’s largest platinum group metals (PGM) company by ounces, has set in motion an interesting chess game in which a few moves are still possible for both players.
The transaction mechanics used by Northam are revealing. Northam offered a whopping 50% premium to the current RBPlats share price — equal to a total sum of R17bn, which will be settled through a combination of cash and shares.
Northam has also inserted a put-and-call option agreement that could in effect see its stake rising 36.1%. Clearly an offer to minorities is on the cards. Surely Northam did not purchase a 33% block with option rights and a right of first refusal beyond 35% to just hold a minority stake.
But the comments being made by RBPlats CFO Hanré Rossouw raise some serious questions about whose interests he is serving. It is public knowledge that he has a substantial shareholding in the company now worth about R150m. He will soon be leaving the company and the PGM industry to take up a position as Sasol’s new CFO.
When he thus raises issues with so-called “synergies” and says he was “surprised” by the Northam offer — a 50% premium, which is surely a good deal for RBplats’ shareholders — and so vociferously supports the Implats offer, it raises eyebrows.
Is there not a conflict of interests here to be the spokesperson and seemingly the “dealmaker” on behalf of RBP? Is he aligned with the company and the Bafokeng nation’s long-term interests?
• Avery, a financial journalist and broadcaster, produces BDTV’s Business Watch.
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