Wednesday, 24 April 2013

RSA: LES Workshop - The value of IP in divestments and acquisitions

As part of today's LES workshop entitled "The value of IP in divestments and acquisitions" which will take place at 3pm today at the offices of AECI in Woodmead Sandton (for more details email send an email here or here) I have been invited by Dr. Madelein Kleyn to comment on this recent ruling by the Competition Tribunal of South Africa on the purchase by Nestle of Pfizer's infant nutrition business.

Briefly, Nestle purchased Pfizer's infant nutrition business across 15 countries. In 9 of those countries the merger was unconditionally accepted, in 1 the conditions were minor and in the remaining 5, conditional approval had to be sought. This ruling arose out of concerns raised by South Africa's Competition Commission which treated the transaction as a 3-2 merger, which means that approval is difficult to obtain because, in general terms, it may have the effect of materially reducing the competitive environment in RSA. Indeed the Commission wished for a complete divestiture of the business (including the trade marks) by Nestle as a condition to the merger so as to maintain the current competitive position.

The reason why this particular ruling is interesting is because the alternative remedy put forward by Nestle to the Commission to secure its approval entailed some fancy footwork around the trade marks. This remedy  has its origin in Europe and involves an exclusive licence to a third party followed by a black out period by Nestle and a re-branding provision.

Most often the IP issues in a merger approval involve patents because it is a positive monopoly right that has the effect of totally excluding a party from a market. It is rare that brands are treated in such a way, generally because the view is that a trade mark does not prevent trading but simply using a brand name. In other words, rebranding is always an option and, from a competition point of view, therefore rarely a material concern. Afro Leo has always felt that such a view underestimates the value of a brand not only in lowering market entry but in establishing market entrance altogether.

The fact that almost the entire ruling centered around issues with branding, black out periods, licensing, split ownership and re-branding is therefore recognition that trade mark issues are important and relevant to merger approvals. That said, Afro Leo has several questions on the effect of the ruling (which approved the merger) that he hopes will elicit some discussion in his cameo this afternoon with the experienced and knowledgeable Dr Kleyn, who is leading the workshop. The workshop has been promoted through LES with this abstract:

"Without a doubt, critical failures and significant achievements can be made before, during and after an M&A transaction with regard to IP (technology and brands). The intention of this presentation is to point out some of the risks and opportunities that may arise. Too often the unforgiving deadlines and enormous workload characterised by an M&A transaction make it difficult to stand back from the activity and look at the so-called “big picture”; the benefits of being prepared and forewarned are inestimable. The presentation will include a discussion on practical implications of merging with another big brand including phase out and migration of goodwill – rebranding; running competing brands out of the same stable; splitting brands; co-branding issues and relevance of competition law"

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