Abstract

Keywords

Foreign Direct Investment (FDI); corporate takeovers; mergers; foreign acquirer; national security threats; 5G wireless technology.

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1 Introduction

This article submits that the regulation of the interaction between takeovers and mergers1 vis a vis technology must carefully balance opposing notions. On the one hand, the regulation must be designed to enable or to promote the achievement of takeovers, because the restructuring of companies through such transactions is in the interests of economic growth2 and technological advancement.3 On the other hand, the regulatory regime must be sensitive to the ever-increasing need to protect national security interests, especially, from veiled threats unique to parties or entities that possess technological sophistication and are leaders in the unfolding Fourth Industrial Revolution (the 4IR). In this article the scope of the 4IR includes technology, artificial intelligence (AI) and all internet-related systems.4 Undeniably, the 4IR is important for the sustained wellbeing and progress of national economies, inter alia for e-banking, e-commerce, for virtual meetings which have accelerated into becoming the "new normal" in this COVID-19 era, and for 5G wireless technology, the roll-out of which is underway.5 However, where technology-based mergers are contemplated by a foreign acquirer the transactions are potentially problematic from the perspective of national security interests, since the resulting entity or newly merged company may potentially use unorthodox means to gather and share sensitive data of citizens or its activities may involve espionage.6

In South Africa the Competition Amendment Act 18 of 2018 (the Amendment Act) through section 18A recently integrated the standard of the interests of national security into the criteria of merger control as a way of mitigating the unique potential mischiefs arising in the context of acquisitions by foreign companies trading in among goods technology, sensitive data and internet-related materials. This article assesses the South African framework for the protection of the interests of national security by comparing it with its counterparts in the United States of America (the US) and the United Kingdom (the UK). It is submitted that the satisfactory protection of national security interests in the South African merger control context requires, among other things, adopting separate primary legislation and regulations designed to supplement section 18A of the Amendment Act. The article further proposes the establishment of an independent Committee named the Committee on Investment and National Security (CINS) to investigate and decide on the fate of such takeovers rather than vesting such powers in the executive arm of Government.

This article is divided into six parts. Immediately after this introduction, the article discusses the policy rationales behind 4IR-related mergers. This is followed by an exploration of the unique potential mischiefs which arise in the context of the 4IR-related takeovers. The article then focusses on isolating the potential lessons from the US and the UK merger control regimes which can be used to strengthen section 18A of the Amendment Act. Further, the article considers whether the inclusion of section 18A of the Amendment Act into South Africa's merger assessment criteria is appropriate and adequate in the protection of the interests of national security. Lastly, this paper ends with some proposals aimed at strengthening the protection of the interests of national security interests provided under the South African merger control framework, which include proposing the adoption of a new legislative and institutional framework.

2 Rationales for internet and technology-related takeovers

The 21st century has birthed the 4IR era, which features various internet-related and technological inventions and developments, and thereby transformed the broader socio-economic and political environment in communities and nations globally, including the manner of conducting business, education, banking, travel and accessing information.7 Global financial markets incessantly respond to developments in the 4IR age inter alia through the sharp market share and share price gains of the internet

and technology-related companies like Amazon, Tesla, Microsoft, Facebook, Netflix Inc and Alphabet (the owner of Google) as opposed to the significant drops in market share and share price of historically powerful grocery conglomerates like Walmart.8 Salutary achievements in the area of AI include the production of computer programmable virtual agents with the ability to converse with human beings and complete human tasks, like Amazon's "Alexa" and/or Apple's "Siri".9 Currently there is a project aimed at the manufacturing of self-driving cars, which is already in the testing phase.10 Also, 5G technology is in the rollout phase around the globe, led by companies such as Qualcomm, Huawei and ZTE.11 Some advantages of 5G technology commonly referred to include the internet of things for smarter cities,12 fast data uploads and downloads, and the fact that it allows more devices to simultaneously connect to mobile internet through the radio spectrum.13 Even before the full roll-out of 5G globally, big internet-tech companies including those in the US, China, Finland and South Korea have already commenced research and development (R&D) towards inventing the 6th Generation (6G) Wireless with a possible roll-out in around 2030.14

Against the background of the virtues identified above connected to internet-tech based developments, it is argued that internet-tech foreign takeovers have the potential of being a significant boon for various stakeholders in the host country.15 Internet-tech takeovers have the potential of improving the technological expertise and output essential for market relevance and competitiveness in the 4IR age.16 Furthermore, internet-tech related takeovers can potentially attract global expertise into the host country, since relevant experts tend to settle in technology-rich jurisdictions.17

3 Unique mischiefs related to internet-tech takeovers

Inextricably connected to internet and technology are complex legal issues that ought to be addressed through effective regulation.18 One of the serious concerns in the 4IR era is the potential of threats to sensitive (personal) data security. Should we be worried, and/or should we conclude that no-one is safe in the 4IR age? Such queries arise against the backdrop of the myriad fissures in the protection of sensitive data that include the recent Experian (a credit agency) data security breach scandal that exposed about 24 million South Africans' and 800 thousand South African companies' sensitive data to criminal expropriation by hackers.19 The Facebook data debacle is another recent scandal that saw over 87 million Facebook consumers' data being misappropriated by the now-disestablished British political consulting firm Cambridge Analytica and a consequent ruling by the US Federal Trade Commission (FTC)20 directing Facebook Inc. to pay a fine of about US$5 billion (£4 billion) for its lack of transparency and lax consumer data protection.21 Further, in his testimony before the US Congress the Facebook founder and Chief Executive Officer (CEO), Mr Mark Zuckerberg, admitted that Facebook had failed to adequately protect its users' data against third parties.22 In yet another related story, WhatsApp Inc, a global company that offers services that include cheap instant mobile messaging and calling, was acquired for USD 19 billion by Facebook in 2014.23 Recently widespread fears arose after WhatsApp sent out a notice of controversial changes in its privacy policy in January 2021 that effectively allows the company to access and share its over two billion clients' private data with the parent company, Facebook, and third parties to enable unsolicited advertising.24 In November 2011 the US House of Representatives

Permanent Select Committee on Intelligence (the Committee on Intelligence) held an inquiry into the alleged counterintelligence and security threat(s) posed by the Chinese telecommunications companies (Huawei and ZTE) in doing business in the US markets.25 Some allegations made by the Committee on Intelligence included that the Chinese Communist Party was actively involved in Huawei and ZTE, that the companies lacked transparency, that there was a possibility of the sharing of private and confidential information in addition to the possibility of wanton cyber-attacks on the US.26 The Committee on Intelligence recommended how the US must deal with Huawei and ZTE and for the particular purposes of this article, it was resolved that the Committee on Foreign Investment in the United States (the CFIUS) is obliged to prevent the implementation of takeovers or mergers involving Huawei and ZTE based on national security concerns.27

Against the backdrop of the potential mischiefs identified above, takeovers by foreign acquirers ought to be screened for possible national security threats, especially when such investments are of a kind with the examples flagged below.28 For example, national security concerns are typically heightened in scenarios where the foreign acquirer's takeover overtures pertain to investments in critical technology, critical infrastructure, citizens' sensitive data and supplies of military, energy and nuclear equipment.29 Takeovers of this nature are typically linked to other mischiefs that include the possibility of espionage, counterintelligence, the inappropriate expropriation of private data, and R&D-related and intellectual property (IP) theft for the benefit of the "hostile" country.30

4 Merger control in the US and UK

The merger control regimes in the US and the UK alike acknowledge that both the competition-economics based criteria and public interest (including national security interests) ought to be considered when accepting, conditionally approving or rejecting takeovers that involve a foreign acquirer.

Although this article focusses only on the protection of national security interests in merger control, it is important to provide a brief overview of competition-economics based merger assessment as a means of putting merger control into context. In the US, section 7 of the Clayton Antitrust Act of 1914 prohibits takeovers that substantially lessen competition in a relevant market.31 If the acquisition is certain to lead to unfair competition, then section 5 of the Federal Trade Commission Act applies.32 The 1914 Clayton Act was later amended by the Hart Scott Rodino Act (the HSR Act).33 Under the HSR Act the parties to takeover transactions must file pre-merger notifications to the US Antitrust Department of the Department of Justice (DOJ) and the FTC.34 For the duration of the period35 when the DOJ and the FTC are investigating the nature of the merger the merging parties must stand still, even though the investigation may take several months.36 Moreover, the US assesses mergers on national security concerns as will be discussed below.37

Similarly, under the UK's scheme of merger control the Enterprise Act38 provides for merger control on a pure competition-law based standard and also on the grounds of public interest. Notably, the Competition and Markets Authority (the CMA) is the regulatory body that is empowered by the Enterprise Act to examine takeovers in a competition-economics related context.39 From the UK national law perspective, it is not mandatory for the parties to a takeover to submit a filing to the CMA but they can voluntarily make such a filing.40

4.1 National security and Takeovers: Regulatory responses in the US

As a response to the above concerns, the Foreign Investment Risk Review Modernisation Act of 2018 (the FIRRMA) was enacted in 2018 and replaced the Foreign Investment and National Security Act of 2007 (the FINSA).41 Contrasting views have been expressed on what the "hidden agenda" behind the FIRRMA is. On the one hand, the Trump administration and policymakers argued that the FIRRMA aims at safeguarding US technology, whereas on the other some sceptics are convinced that FIRRMA strategically targets Chinese investment trends.42 This article shies away from detailing the aforementioned debate but focusses on whether the FIRRMA adequately protects the national security interests of the US in scenarios where the contemplated takeovers have the potential of posing national security threats, especially through the exercise of powers by the CFIUS, Congress and the President. In summary, FIRRMA expanded the jurisdiction of the CFIUS to "covered transactions"43 that relate to critical infrastructure,44 critical technologies,45 and the sensitive personal data of US citizens.46 Through its Chairperson the CFIUS has the power to suspend a proposed or pending covered transaction that may pose a risk to the national security of the US after review or investigation of the covered transaction in question.47 In addition, the CFIUS may at any time during the review or investigation of a covered transaction refer the transaction to the President.48 If the aggrieved parties want to challenge the action or finding of the CFIUS under the FIRRMA, they can do so only by means of a civil trial in the United States Court of Appeals for the District of Columbia Circuit and ordinarily the decision of the President cannot be subjected to review or appeal.49 Generally, under the judicial review, most of the documentation on national security interests is classified and the review is presented ex parte in camera and kept sealed by the court.50 It is submitted that this judicial review is skewed towards the President and the CFIUS, thus

technically making the decisions of the President and the CFIUS on national security concerns final.

However, it is submitted that the review of takeovers on national security grounds is sound legal policy. The former US President, Mr Barack Obama, blocked his first takeover for national security reasons upon recommendation by the CFIUS in 2012.51 In terms of the President's decision, Ralls International (Ralls), a Delaware based company owned by two Chinese nationals, was compelled to divest itself of four wind farm acquisitions based on national security reasons.52 The rationale for making the order to divest was that the target companies had wind farms on restricted areas that included sensitive airspace and a bombing zone.53 The parties challenged the decision of the President in the District of Columbia Circuit Court, where the court held that FINSA did not bar judicial review of the President's decision per se, but that since the parties had failed to challenge President Obama's reason that the transaction would constitute a national security threat, the court upheld the decision.54 The narrative advanced in this study is that arguably there is a downside in having the President of a country, "a politician", possess and exercise powers to allow or block an investment, even if based on national interests. It is submitted that given that politicians typically make "politically correct" decisions that are aimed at appeasing voters (as a means of securing re-election) and their political party members, the President's decisions may not be rational per se.

Recently the then US President, Donald Trump, blocked the proposed US$117 billion takeover of Qualcomm, a US company, by Broadcom, a Singapore-based company, inter alia after allegations had been made by the CFIUS and the US Deputy Assistant Secretary of Investment Security (Aimen N Mir) that Broadcom was linked with the Chinese companies

Huawei and ZTE.55 When the Broadcom-Qualcomm takeover proposal was rolling, the deal received very close monitoring, since various intelligence agencies in the US claimed that implementation of the deal could lead to national security risks including spying on US citizens by the Chinese government.56 The monitoring intensified to investigation and review by the CFIUS after Qualcomm's board filed a voluntary notice to the CFIUS on the proposed hostile takeover. Notably, the call by Qualcomm for US government intervention was flagged as "unusual" because the filing of a notice ordinarily occurs only after a takeover deal has been agreed upon and is usually made by the acquirer.57 Some US legislators (political actors) supported the CFIUS investigation of Broadcom's proposed takeover.58 After its investigation the CFIUS pointed out three areas of concern: First, the takeover would have interfered with Qualcomm's position as a leading company in the area of 5G technology development and standard-setting.59 Second, the CFIUS cited national security concerns, especially that the takeover would weaken the position of Qualcomm as a trusted superior technology leader, thus opening opportunities for untrusted companies like Huawei.60 Third, the CFIUS alleged that the takeover would disrupt the supply relationship between Qualcomm and the US government.61 Broadcom averred that it was in the process of re-domiciling to Delaware, thus resulting in the CFIUS lacking jurisdiction over the transaction.62 However, even before the formal completion of the CFIUS review President Trump ordered an immediate and permanent termination of the Broadcom takeover on the basis that there was "credible evidence" that Broadcom had the potential of becoming involved in activities that would impair national security.63 It is submitted that, regarding the granting of unfettered powers to politicians either to accept or block takeovers, the decision by President Trump to block the merger even before the formal completion of the investigation64 into the proposed takeover is at least questionable.

Furthermore, it is submitted against the backdrop of the action by President Trump before a full investigation by CFIUS,65 that the President's decision after disregarding the takeover review process was "populist" and its correctness is at least questionable. Some argue that the CFIUS has become a barrier to foreign companies investing in the US, and to technology transfers.66 However, it is submitted that it is imperative to strengthen the position of national security "watchdogs" like the CFIUS in takeover transactions through providing resources, be they human and or financial, as well as the legal space for them to discharge their duties effectively.67 It is further submitted that there is a need for reconsideration and or rethinking of the US President's powers, especially along the lines of allowing at least some level of judicial review of the President's verdict in the context of takeovers that are deemed to have national security implications.68 However, the takeover regulation regime must also recognise that the President should not be obliged to disclose classified details during the review proceedings where such disclosure may pose a danger to US national security.69 The argument advanced here is founded, in part, on the fact that presidents are political figures, a fact which creates a danger that most of their decisions might be politically motivated as opposed to being rational.70

4.2 The UK takeover regulation and national security concerns

Notably, in the UK the Enterprise Act confers upon the Secretary of State (the SOS) the powers to intervene in a proposed merger on the grounds of public interest.71 The SOS may give an intervention notice to the CMA if s/he believes that one or more public interests could possibly arise in the

context of the proposed merger.72 The specific public interests that warrant such an intervention notice are provided for in section 58 of the Enterprise Act.73 Notwithstanding that one of the specified public interests is national security, the Enterprise Act does not provide a definition of what constitutes national security.74 Currently, since a new amendment of the Enterprise Act came into force on 11 June 2018 the SOS can intervene in takeovers on national security grounds if the target trades in any of three specified sectors: (i) the development or production of items for military and civilian use; (ii) quantum technology; or (iii) computer processing units.75 It is submitted that the lack of statutory definition and specification of the characteristics of what constitutes national security is an unsound legal policy as it is contrary to the principle that the law ought to be clear and certain.

In October 2017, as part of an effort to update the law and align it with the trends in the regulation of new technology and data-rich companies, a Green Paper on National Security and Infrastructure Investment was issued to provide bases for a review of the national security implications that arise from investment in general and foreign takeovers in particular.76 Some of the concerns highlighted were that technology and data-rich companies are often accused of engaging in espionage (especially because they harvest and store personal data) or of engaging in sabotage, especially through investments having to do with the military use and technology sectors.77 A White Paper on National Security and Infrastructure Investment was subsequently issued in July 2018 and it proposes the extraction of the national security interest test from the public interest considerations under the Enterprises Act.78 Consequent to the proposed removal of the national security test from the said public interest considerations, it is suggested that there should be new and separate primary legislation devoted to managing national security concerns in the context of takeovers and investment in

general.79 The White Paper suggests that the new statute ought to establish a new procedure for the assessment of the national security factor and that the CMA should pause its competition-based evaluation of the proposed takeover pending the outcome of the national security appraisal.80 It is suggested in the White Paper that only when it is deemed necessary and in proportionate circumstances should the government be given powers to block a takeover on the grounds of national security, which would terminate the ongoing competition assessment.81 It is submitted that in circumstances where national security concerns and competition-related benefits compete, the law must require the CMA to approach the SOS to discuss the prospects of accepting with conditions a takeover that potentially raises national security concerns but is otherwise good for competition in the UK. It is submitted here that the idea of placing the national security provision into a separate and devoted statute is a salutary one. It is aligned with similar US regulation and it has the potential of clarifying the complex terminology surrounding national security for interested parties including legal practitioners. It is further submitted that the Enterprise Act and the SOS still effectively function as the relevant takeover statutory and institutional framework in the UK, as discussed above. While neither the Green Paper nor the White Paper82 constitutes the existing law of the UK, they have persuasive value in the context of the discussion presented in this article and clearly show that the UK policymakers have identified the need for reforming the law on merger control, particularly the aspects pertaining to the interests of national security.

5 Infusing national security concerns into South Africa's merger control regime

The South African takeover regulation regime recognises that lowering the hurdles against takeover transactions is necessary for the promotion of

economic growth.83 However, the procedure for the approval or rejection of a merger must avoid or at least reduce the adverse impact on the broader stakeholders' interests; including market competition, public interest and national security interests.84 More specifically, it is the norm that for a merger proposal to be successful in the South African context it must first meet the requirements stipulated under the Companies Act85 and Companies Regulations,86 and then subsequently the merger must pass regulatory scrutiny under section 12A of the Competition Act 89 of 1998 (the Competition Act or the 1998 Act). This was the position before the introduction of section 18A of the Competition Amendment Act (the Amendment Act).87

Scrutiny under the section 12A merger control provision in the 1998 Act was and is still purely competition-economics based and public interests based.88 In terms of the new section 18A of the Amendment Act, the protection of national security interests has now been infused into the merger control regime. It will operate as a new and parallel merger evaluation yardstick that complements the pre-existing assessment criteria under section 12A of the 1998 Act. It should be noted here that in terms of its scope, this article seeks to interrogate South Africa's merger control regime only in terms of whether it carefully balances the competing interests of promoting the need for foreign internet-tech related takeovers and the effective protection of related national security interests.89

Notably, the national security provision is triggered when a proposed merger involves a foreign acquiring firm.90 Keet postulates that already the South African literature presents inconsistency in defining the extent of the scope of national security.91 It is submitted that what constitutes a national security threat is a "slippery determination" making it difficult to have certainty in defining national security interests since, "like an accordion", its character changes on a case by case basis.92 In agreement with Oxenham et al, it is submitted that to have such a position of uncertainty in the law is problematic and may result in lengthy review periods, manipulation or the inflation of national security interests, thereby irrationally restricting potentially competition-friendly and/or legitimate takeovers.93 Thus, it is submitted that when formulating a South African prototype definition of national security, lessons can be drawn from the US, especially through the incorporation of an instructive open-ended definition that resembles that used in US merger control.94 Such a definition together with the identified characteristics of what constitutes national security concerns could operate as a guideline to both the institutional regulators and the acquirers and, in turn, provide much-needed certainty in the applicable law.95 It is further submitted that the suggestion of a uniquely South African definition of what

constitutes national security interests is inspired by the fact that what constitutes national security varies from one jurisdiction to another.96

Section 18A of the Amendment Act bestows on the President a peremptory duty to constitute a Committee (hereafter referred to as the Section 18A Committee) responsible for assessing whether a merger proposed by a foreign acquirer has the potential to adversely affect the national security interests of the Republic.97 The Section 18A Committee must be comprised of Cabinet Ministers and other public officials.98 The President is also required to identify and publish in the Gazette a list of national security interests of the Republic, including the markets, industries, goods or services, sectors or regions that must be notified to the Section 18A Committee by the foreign acquiring party to a takeover.99 It is submitted that by design section 18A of the Amendment Act has given the President powers that have a critical element of elasticity and that enable the President to capture and designate what constitutes national security interests on a case-by-case basis, thus making the procedure for scrutinising mergers and their possible outcomes highly unpredictable.100 However, because the scope of national security interests is wide,101 some may applaud the flexibility built into the operation of the regime on the basis that the prescription of a rigid list of what constitutes national security interests may be detrimental to the efficacy and credibility of the regulatory framework. In addition, others may argue that the rapid evolution of 4IR102 is making it impossible or at least difficult to enact precise and easily ascertainable hard law rules.

The Amendment Act provides an open-ended list of factors that the President must consider when determining what constitutes the interests of national security for the purposes of the Amendment Act.103 In the context

of this article's narrow focus on internet-tech related takeovers, it is submitted that the absence of a definition of what constitutes sensitive technology potentially undermines the substance and spirit of the section 18A provision in that without such a definition there is a possibility that the President as a political appointee may subject affected mergers to purely populist considerations in exercising the far-reaching powers. One may argue that the decision of the former US President, Mr Donald J Trump, to reject the Broadcom-Qualcomm takeover on national security grounds, while the national security interests-threats appraisal by the CFIUS was still ongoing,104 is confirmation that presidents could be preoccupied with populist agendas rather than policy when exercising the powers conferred on them in the merger control context. This supports the concern raised earlier in this article regarding the danger of bequeathing unfettered powers to determine the fate of a merger to the President and executive arm of government. Currently the other relevant factors that the President also considers in ascertaining the effect of the proposed merger on national security include the security of infrastructure, as characterised by a list of processes, systems, facilities and networks.105 It is submitted that from the acquirers' perspective, unless there is a clear description of the contents of instances of such infrastructure, it would be difficult to establish the "exact" meaning of all those descriptors.106

Furthermore, the President must issue regulations governing (a) the notification, processes, procedure and timeframes to be followed by the Section 18A Committee and (b) access to confidential information concerning the merger.107 Section 13A(1) prompts the foreign acquiring firm to simultaneously notify the Competition Commission (the Commission) and the said Section 18A Committee if the contemplated merger relates to the list of national security interests as identified by the President.108 Thence, the Section 18A Committee must within 60 days after receipt of the above notice from the foreign acquirer or an extended period agreed to by the

President upon good cause shown, consider and decide whether the merger harms national security interests.109 The Section 18A Committee may seek advice from the Commission, any relevant regulatory authority or any public institution when considering a merger.110 Oxenham et al lament the policy rationale behind requiring the Section 18A Committee111 to consult the Competition Commission, especially given that it is difficult to comprehend how the Commission will be of assistance in the management of merger-related national security issues.112 This article recommends that where different verdicts are reached by the Competition Authorities and the Section 18A Committee, the Section 18A Committee's decision should prevail. However, the Competition Authorities must be allowed to consult with the Section 18A Committee.113

Section 18A of the Amendment Act,114 obliges the President to appoint a Section 18A Committee responsible for assessing proposed mergers on national security interests; however, it is not clear whether such a Section 18A Committee is an ad hoc committee or not. It is submitted that it would have been desirable that the Committee be permanent rather than ad hoc and be equipped with permanent employees and ex officio experts who would intermittently assist the Committee with specific tasks, to ensure consistency and certainty in its decision making. However, a literal interpretation of section18A appears to make it peremptory for the President to appoint Ministers in their ex officio capacity to membership of the Committee.115 This raises more questions than answers. For instance, what will happen to the ex officio Committee members when a new Government comes into power? or when a new President takes over? or when a cabinet

reshuffle takes place? It is submitted that for the sake of continuity, independence from politics or populism, effectiveness and service to the best interests of the broader South African community as well as in line with the recommendations of the United Nations Conference on Trade and Development (the UNCTAD).116 In agreement with the suggested criteria put forward by Oxenham et al when recommending the "proper" manner of appointing the Competition Tribunal members, it is submitted that the section 18A Committee ought to have its members appointed through a public interview system and the appointees should be on fixed-term contracts that can be terminated only in terms of the existing employment laws.117 The establishment of the section 18A Committee is acceptable. The main concern in this article is the composition of the Committee.

It is submitted that the above innovations recently incorporated into the 1998 Act through the insertion of section 18A of the Amendment Act are plausible. In agreement with Oxenham et al, it is submitted that endowing the executive branch of government with unfettered powers to recommend, approve or reject takeovers, as provided for under section 18A of the Amendment Act, may subject economics to the populist agendas of politicians.118 In addition, tasking the President with identifying and publishing a list of national security interests in the Gazette from time to time appears to be at odds with the requirement that the law must be certain, since there is a possibility that the President, having sole discretion in the matter, might expand or shrink these national security interests on a case-by-case basis.119 Given the nature of takeovers that implicate national security interests, this article argues that it is preferable to establish an expert Advisory Committee named the Committee on Investment and National Security (the CINS) that would investigate and make recommendations to the President120 on matters related to national security interests in the context of takeovers involving a foreign acquirer. The CINS ought to be tasked with the evaluation of all takeovers involving foreign

persons as acquirers.121 This proposal sharply differs from the provision of section 18A,which empowers the President to set up a Committee which comprises of Ministers and a number of public sector officials who are largely political heads without requisite expertise on mergers.122 More specifically, the CINS should comprise of members from the State Attorney's Office, the Office of the President, the Reserve Bank of South Africa, the National Director of Public Prosecution, the State Intelligence Office. It should include professionals from the following Departments (including Director Generals): Department of Finance (chair); Department of Science and Innovation; Department of Defence; Department of Home Affairs; Department of Trade, Industry and Competition, and it should also include academic specialists. The Committee would be responsible for investigating and assessing tech-related merger implications for national security interests.123 The CINS ought to engage in a two-staged inquiry involving the determination of whether any serious national security threats are posed by a particular takeover. If the answer is in the affirmative, then the CINS will require the acquirer to make submissions on the reasons why the takeover should be approved. The second leg of the inquiry will then require the CINS to make a final determination by considering the submissions of the interested parties including the Competition Authorities124 and the foreign acquirer. This is a complete departure from the current position under section 18A(9), which is queried by Oxenham et al, on why the Section 18A Committee should seek advice from the

Competition Authorities.125 Given that matters of national security are notoriously sensitive and of paramount importance, it is submitted that the CINS ought to be approached by the Competition Authorities and not vice versa.126 Oxenham et al lament that the 60-day review period on national security interests raises the possibility of the extension of the merger review period arguing, that it would result in unpredictable outcomes.127 This is so because the Commission can proceed with investigations of the merger only after the Section 18A Committee has approved of the merger, which may take up to 60 days. It is submitted that such mischief can be curtailed by ensuring that the Competition Authorities and the CINS evaluations run concurrently.128 Another point of contention is that, like its US counterpart, section 18A of the Amendment Act does not provide for an appeal and/or review recourse for the foreign acquirer.129 Keet suggests that regardless of the inevitable loss of time and the associated legal costs, the High Court is probably the best candidate to consider such an appeal and/or review.130 However, contrary to Keet's submission, this article argues that given the classified and confidential nature of national security concerns, it is preferable to create a special appeal forum for the CINS' decisions that will be vested with both appeal and review powers, where the parties make further submissions and the appeal forum's final determination is recommended to the President as a final decision.

It is submitted that a national security provision pertaining to foreign investment and takeovers must be anchored in a primary statute and regulations which enshrine the national security interests and related matters.131 It is further submitted that although the insertion of the new

national security provision into the Competition Act is commendable, the provision in question is flawed. This is especially so if one considers that the President must publish a list of national security interests in the Government Gazette on a case-by-case basis. The resulting legal fragmentation and inconsistency is untenable. Accordingly, the above submission partially differs from the proposal of Oxenham et al and Keet for the complete removal of the national security provision from Competition legislation and the enactment of another statute altogether in line with the US regime and the UK proposals on national security interests protection in the context of takeovers.132 This article argues that section 18A of the Amendment Act can function as a secondary provision that must subsist with other dedicated primary national security interests legislation and regulations. Such primary legislation could be named the Foreign Investment Review and Control Act (the FIRCA). Regarding the textual scope of this legislation, it is submitted that given the confidential and classified nature of national security interests, it is probably advisable not to exhaustively elaborate the security concerns in the statute in order to ensure space for some level of secrecy and thereby enable the thwarting of the efforts of foreign players (especially those emanating from hostile countries) aimed at circumventing the law. Further, the detailed functions of the CINS and the President would be clarified under the FIRCA.

6 Conclusion

Ideally, internet-tech takeovers are essential if South Africa is to be competitive in this 4IR era. However, States must be vigilant in allowing technology-related investments, especially those emanating from foreign companies. This is so because some foreign companies may invest in a country with unorthodox objectives that may be inconsistent with national security interests. For example, the US adopted the FIRRMA in 2018 as a statute aimed at protecting the national security interests of the US in the context of internet-tech takeovers and or other investments that involve a foreign acquirer. The FIRRMA is enforced through institutions like the CFIUS and the US President. Similarly, in the UK national security interests in the context of takeovers that involve a foreign acquirer are protected

through merger control in terms of the Enterprise Act, and the SOS is responsible for enforcement. Likewise, in South Africa section 18A of the Amendment Act has incorporated national security interests into the merger control regime applicable when a takeover involves a foreign acquirer. Incorporating the national security provision into the South African merger control law is plausible and in line with takeover control regulations in other progressive jurisdictions like the US and the UK that already have in place such provisions relating to the interests of national security. However, as discussed above, this study contests the rationality of some of the presidential powers and the composition of the Section 18A Committee established to review foreign mergers in South Africa. It is submitted that South Africa should instead create a CINS with a composition different from that of the Section 18A Committee, and that CINS should be tasked with the evaluation of all takeovers involving a foreign acquirer. This CINS would be empowered to make a recommendation to the President to accept or reject a merger with or without conditions. Remarkably, due to the complexity and the unprecedented growth of technology and the related threats to national security, the US has established a stand-alone statutory and institutional framework that ensures protection against unique threats to national security emanating from mergers and other forms of FDI. Current discussions on law reform in the UK have also recognised the need for excising the national security interests-provision from the Enterprise Act and enacting primary legislation exclusively dedicated to curbing threats to national security related to takeovers and other types of FDI. Hence, in line with the new trends in both the US and the UK, this article argues that in South Africa there is a compelling need to harmonise the fragmented national security interests provisions and the President's Gazette publications into an overarching primary statute to be named the Foreign Investment Review and Control Act and accompanying regulations that will supplement section 18A of the Amendment Act.

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Biggs AK, Scheepers CB and Botha MM "The Influence of Post-2008 Legislation on an Acquisition that Turned Hostile: A South African Case Study" 2017 S Afr J Bus Manage 47-61

Cassim et al Contemporary Company Law

Cassim FHI et al Contemporary Company Law 2nd ed (Juta Cape Town 2012)

Cassim 2008 SA Merc LJ

Cassim MF "The Introduction of the Statutory Merger in South African Corporate Law: Majority Rule Offset by the Appraisal Right (Part 1)" 2008 SA Merc LJ 1-32

Correia et al Financial Management

Correia C et al Financial Management 8th ed (Juta Cape Town 2015)

Davids, Norwitz and Yuill 2010 Acta Juridica

Davids E, Norwitz T and Yuill D "A Microscopic Analysis of the New Merger and Amalgamation Provision in the Companies Act 71 of 2008" 2010 Acta Juridica 337-371

Davies and Worthington Gower's Principles of Modern Company Law

Davies PL and Worthington S Gower's Principles of Modern Company Law 10th ed (Sweet & Maxwell London 2016)

Department for Business, Energy and Industrial Strategy National Security and Investment

Department for Business, Energy and Industrial Strategy National Security and Investment: A Consultation on Proposed Legislative Reforms (Department for Business, Energy and Industrial Strategy London 2018)

Gullifer and Payne Corporate Finance Law

Gullifer L and Payne J Corporate Finance Law: Principles and Policy 3rd ed (Hart Oxford 2020)

Keet 2018 Without Prejudice

Keet W "Should a Competition Authority Monitor National Security?" 2018 Without Prejudice 14-15

Korman 2017 J Bus & Tech L

Korman BA "The Corporate Game of Thrones and the Market for Corporate Control" 2017 J Bus & Tech L 165-191

Luiz 2010 SA Merc LJ

Luiz SM "Using a Scheme of Arrangement to Eliminate Minority Shareholders" 2010 SA Merc LJ 443-452

Oxenham, Currie and Stargard 2019 Journal of European Competition Law and Practice

Oxenham J, Currie MJ and Stargard A "Changing South Africa's Competition Law Regime: A Populist Departure from International Best Practices" 2019 Journal of European Competition Law and Practice 232-240

Piscitelli 2019 CoRe

Piscitelli G "Public Interest in Merger Control Systems in the EU and US: A Comparative Analysis of the Uneasy Relationship between Merger Control and Public Interest" 2019 CoRe 380-391

Posadas 2017 Fordham Intell Prop Media & Ent LJ

Posadas DV Jr "After the Gold Rush: The Boom of Internet of Things, and the Bursts of Data-Security and Privacy" 2017 Fordham Intell Prop Media & Ent LJ 69-108

Reville 2020 CJRL

Reville T "Rice Paddies on the White House Lawn: CFIUS and the Foreign Control Requirement" 2020 CJRL 114-168

Rogers and Ruppersberger Investigative Report

Rogers M and Ruppersberger D Investigative Report on the US National Security Issues Posed by Chinese Telecommunications Companies Huawei and ZTE (Permanent Select Committee on Intelligence, US House of Representatives Washington DC 2021)

Shields 2018 J Marshall L Rev

Shields J "Smart Machines and Smarter Policy: Foreign Investment Regulation National Security and Technology Transfer in the Age of Artificial Intelligence" 2018 J Marshall L Rev 279-308

Veilleux 2019 Cardozo Arts & Ent LJ

Veilleux J Jr "'Alexa, Can You Buy Whole Foods?' An Analysis of Intersection of Antitrust Enforcement and Big Data in the Amazon-Whole Foods Merger" 2019 Cardozo Arts & Ent LJ 481-512

Westbrook 2019 Marq L Rev

Westbrook AD "Securing the Nation or Entrenching the Board: The Evolution of the CFIUS Review of Corporate Acquisitions" 2019 Marq L Rev 643-699

Xiaoming and Jiawen 2018 China International Studies

Xiaoming P and Jiawen C "Trump's Economic Security Strategy and its Implications" 2018 China International Studies 148-164

Case law

Japan-Alcoholic Beverages II WT/DS8/R, WTDS10/R, WTDS11/R

Ralls Corporation, Appellant v Committee on Foreign Investments in the United States et al, Appellees (United States Court of Appeals, District of Columbia Circuit) (unreported) case number 13-5315 of 15 July 2014

Legislation

Basic Conditions of Employment Act 75 of 1997

Clayton Antitrust Act, 1914

Companies Act 71 of 2008

Competition Act 89 of 1998

Competition Amendment Act 18 of 2018

Constitution of the Republic of South Africa, 1996

Critical Infrastructure Protection Act 8 of 2018

Defence Act 42 of 2002

Enterprise Act, 2002

Enterprise Act 2002 (Turnover Test) (Amendment) Order, 2018

Enterprise and Regulatory Reform Act, 2013

Federal Trade Commission Act, 1914

Foreign Investment and National Security Act, 2007

Foreign Investment Risk Review Modernisation Act, 2018

Hart Scott Rodino Antitrust Improvements Act, 1976

Labour Relations Act 66 of 1995

Promotion of Access to Information Act 2 of 2000

United States Constitution

USC Title 15 – Commerce and Trade

Government publications

Companies Regulations, 2011

EU Merger Regulation 139/2004

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List of Abbreviations