COMESA, COVID-19, East Africa, FAQ

COMESA retains 30-day merger notification requirement during COVID pandemic, but loosens some rules

The COMESA Competition Commission (CCC) has, along with several other competition-law enforcers on the African continent, issued new guidance on timing and other implications relating to the COVID-19 pandemic.  The text of the official announcement is below:  

CCC-Notice-4-of -2020

NOTICE OF INTERIM MEASURES IN MERGER REVIEW OF THE COMESA COMPETITION COMMISSION DUE TO THE COVID-19 PANDEMIC

The COMESA Competition Commission (the Commission) is aware that these are unprecedented, uncertain and challenging times for undertakings and other stakeholders. In view of this, the Commission wishes to notify the general public and all interested parties that as a result of the global Covid-19 pandemic it has issued the following interim processes for merger reviews under the COMESA Competition Regulations (the Regulations) and the COMESA Competition Rules (the “Rules”).

  1. Receipt of Merger Notifications

Parties to a Merger are encouraged to submit all notifications and filing of mergers and acquisitions electronically including certified copies of filings. This therefore means that the parties shall not be expected to submit the hard copies within the specified 7 days under the COMESA Merger Assessment Guidelines. The hard copies may still be submitted by the parties at a later date when it is possible under the circumstances.

  1. Notification of a Merger following a Decision to Merge by the Parties

Pursuant to Article 24 (1) of the Regulations, parties to a merger should notify the Commission within 30 days of the decision to merge. The Commission takes cognizant that due to restrictions of movements and lockdowns in most countries as a result of the CoVID-19 Pandemic, some parties may not be able to gather all the information to enable them complete the notification within the 30 days period provided under Article 24(1) of the Regulations. The Commission is cognizant that section 5 of the Guidelines provides for the notification process and gives guidance to what amounts to a complete notification. During this temporal period, the Commission shall consider the initial engagement with the parties as the beginning of the notification process which shall be considered complete once all the information is submitted. It follows therefore that as long as the parties have engaged the Commission on the notification process, they shall not be penalized for failure to submit complete information within 30 days of the parties’ decision to merge.

  1. Consultations and Meetings

The Commission has suspended onsite investigations and face-to-face meetings with regard to merger investigations. However, consultations and meetings shall continue to be held through teleconferencing facilities until the situation normalises.

  1. Investigation Period of 120 Days

The Commission observes that under the current situation, it may not be able to complete its assessment of mergers and acquisitions that has been notified and yet to be notified in accordance with the 120 days stipulated under Article 25 (1) of the Regulations. This is due to travel bans and lockdowns in most Member States. These conditions shall affect the Commission’s engagements with various relevant stakeholders who are essential in the consultative process adopted by the Commission pursuant to Article 26 of the Regulations. Therefore, the merging parties should take note that the 120 days investigation period may be extended in some cases pursuant to Article 25 (2) of the Regulations as it may not be practicable to complete the assessment within 120 days under the circumstances.

If you wish to seek further details and/or clarifications on any aspect of this Notice, you may get in touch with Mr. Willard Mwemba, Manager, Mergers and Acquisitions, on +265 (0) 1 772 466 or via email at compcom@comesa.int and/or wmwemba@comesa.int.

Further, note that the Commission may update and revise this notice from time to time.

 

George K Lipimile

Director & Chief Executive Officer

 

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Corona, Uncategorized

CORONA AND COMPETITION LAW: MINISTER PATEL AT THE FOREFRONT IN FIGHT AGAINST COVID-19 IN SOUTH AFRICA

By Charl van der Merwe

Global markets are in turmoil and governments around the globe are under increased strain to prevent the spread of the Covid-19 virus whilst maintaining necessary services. A key concern in South Africa and elsewhere has been the availability of key supplies and the capacity of the health care and other infrastructure system to meet the unprecedented demand.

In order to alleviate these concerns, South African Minster of Trade and Industry and Competition (DTIC) has moved to publish Regulations in terms of Section 78 of the South African Competition Act 89 of 1998 (Competition Act):

  1. exempting industry players in certain sectors from prosecution for conduct in contravention of Sections 4 and 5 (Act) (Block Exemptions); and
  2. prohibiting excessive pricing (and ensuring sufficient supply) by firms selling key supplies (Pricing Regulations);

Traditionally, exemptions in terms of the Competition Act were granted through application to the Competition Commission, based on the specific grounds as defined in section 10 of the Competition Act. In terms of the Competition Amendment Act, application for a block exemption can also be made directly to the Minister.

Related to the exemption process in terms of the Competition Act, is the powers of the Minister to publish directions under the recent Regulations issued in terms of section 27 (2) of the Disaster Management Act (GN 318 of 18 March 2020). In this regard, Regulation 10(6) provides that the Minister may issue directions to:

  1. protect consumers from excessive, unfair, unreasonable or unjust pricing of goods and services during the national state of disaster; and
  2. maintain security and availability of the supply of goods and services during the national state of disaster.

Block Exemptions

Block Exemptions have been published by the Minster in terms of section 10(10) of the Competition Act which provides that the Minister may, after consultation with the Competition Commission (SACC), issue regulations in terms of section 78, exempting a category of agreements or practices from the application of sections 4 and 5 of the Competition Act.

As at the date of writing, Block Exemptions have been granted to the Healthcare Sector, the Banking Sector and Retail Property Sector.

Health Care Sector

The exemption include a range of industry players, including healthcare facilities, pharmacies, medical suppliers, medical specialist, pathologists and laboratories, and healthcare funders.

Exemptions are fairly novel in South African competition law, although the National Hospital Network (NHN) has for many years now operated under an Exemption in terms of which it is permitted to engage in collective bargaining, global fee negotiations and centralized procurement (The NHN is a non-profit co-operative venture that is controlled by its members, a group of independent private hospitals who run medical establishments such as day clinics, sub-acute facilities and psychiatric facilities). The Exemption was renewed by the SACC for a further 5 year period in November 2018.

The Block Exemption will similarly allow industry players to coordinate on procurement of supplies, transferring equipment and coordinating the use of staff. In effect, the Block Exemption extends and broadens the scope of the exemption enjoyed by the NHN to include state and private healthcare.

While this move is certainly a welcome one to ensure that South Africa is able to effectively deal with the spread of Covid-19, its effect on competition in this market will be most interesting. The health care sector, and particularly large private sector players (Private Health Care), has long been in the cross-hairs of the SACC, with many enforcement actions, heavily contested merger control proceedings and most recently, the market inquiry into the private healthcare sector conducted and concluded by the SACC. Concentration and Coordination has been key to the debate.

Allied to this and according to industry expert, Avias Ngwenya of Nortons Inc, these measures are effectively a forced trail run of the South African Government’s recently proposed and highly criticized National Health Insurance (NHI) which, he believes will test the ability of private healthcare to provide healthcare services to the state.

While the Exemptions will apply only for so long as the state of disaster remains in effect, the effects of these measures on the industry is likely to endure for some time and will reform the debate around the future of health care in South Africa.

Banking Sector

The Block Exemption published in favour of the Banking Sector is aimed at exempting category of agreements or practices between Banks, Banking Association of South Africa and/or Payments Association of South Africa from the application of sections 4 and 5 of the Act and promoting cooperation between these industry participants to mitigate damages and to ensure the effective continuance of banking infrastructure. In this regard, industry participants are to coordinate and agree on, inter alia:

  1. operation of payment systems and the continued availability of notes at ATMs, branches and businesses;
  2. debtor and credit management to cater for payment holidays and debt relief (including limitations on asset recovery and the extension of further credit terms).

Retail Property Sector

The Block Exemption in respect of the Retail Property Sector applies only to retail landlords and designated retail tenants (required to shut down in terms of the national shut down currently in place) and aims to provide a framework for cooperation between industry participants in respect of payment holidays and rental discounts and limitations on the eviction of tenants. The Block Exemptions also seek to cater for cooperation on limitations to the restrictions placed on tenants to protect their viability during the nation disaster, likely to allow tenants to alter of expand their product or service offerings to fall within the category of businesses or services exempt from the restrictions currently enforced by Government, thereby ensuring alternative income and increased capacity on key products and services.

The Block Exemptions in respect of the Banking and Retail Sectors provide welcome relief to small businesses who have been hard hit by the restrictions put in place both locally and internationally. This is a key object and concern of the government and, in particular the DTIC who have placed small and medium business at the centre of competition policy in an effort to ensure greater participation by historically disadvantaged individuals in South Africa. This has been evident through the amendments to the Competition Act and recent conditions which have been imposed on large international mergers. The DTIC is, therefore, intent to ensure that these efforts are not effectively nullified by the emergency measures put in place to prevent the spread of the Covid-19.

Block Exemptions have not been widely utilised in South Africa. To the extent that the measures introduced by the Block Exemptions are effectively implemented, however, the use and application of the process of exemptions under the Competition Act may become a more prominent feature of the South African competition law process. The nature of emergencies are such that they expedite the implementation of historical process which were otherwise untouched or contested as the counterfactual has changed.

It is already evident that more and more industries affected by the Covid-19 will apply for or be granted block exemptions to ensure that they are able to effectively avert the negative effects associated with disruptions caused to the business and economy. Examples of these include the Grocery Retail and/or Fast Moving Consumable Goods Sectors, Security Sector and more.

Price Regulation

The Pricing Regulations, most interestingly was published by the Minster in terms of the Combination of the Competition Act, the Consumer Protection Act 61 of 2008(2008) and the Disaster Management Act (2002) and apply only to the ‘key supplies identified in the Pricing Regulations and will remain in effect only for so long as Covid-19 remains a ‘national disaster’.

Section 8(3)(f) of the Competition Act provides that in determining whether a price is an excessive price (for purposes of section 8(1)),  it must be determined whether that price is higher than a competitive price and whether such difference is unreasonable, determined by taking into account any regulation published by the Minister in terms of Section 78.

Now, in terms of the Pricing Regulations a price will be considered an excessive price for purposes of Section 8(1) of the Competition Act where, during this period of national disaster, a price increase:

  1. does not correspond to or is not equivalent to the increase in the costs of providing that goods or service; or
  2. increases the net margin or mark-up on that good or service above the average margin or mark-up for that good or service in the three month period prior to 1 March 2020.

Notably, Section 8 applies only to dominant firms.

In addition to the above, the Pricing Regulations contain a similar assessment for the consideration of what is termed unconscionable, unfair, unreasonable and unjust price increases in the Consumer Protection Act. While it is likely that what constitutes an excessive price under the Competition Act will also constitute an unreasonable price increase for purposes of the Consumer Protection Act, the opposite may not be true. The Consumer Protection Act is enforced by a different authority in South Africa and case precedent has been quite limited, compared to the competition authorities.

The Pricing Regulations also cover quantities and the restrictions on sale to maintain equitable distribution and curb stockpiling. No mention is made of the Competition Act or Consumer Protection Act in these paragraphs, although they should also be considered in the broader context of competition policy and what the Pricing Regulations seek to achieve. Although South African competition policy is not ordinarily concerned with discrimination at the final consumer level, in terms of the Pricing Regulations, retailers are effectively required to ration the quantity sold, as the normal economic mechanism, whereby suppliers sell to those parts of the demand curve with a sufficient willingness to pay, is suspended.

The penalty provisions of the Pricing Regulations require prosecution in terms of the underling legislation, being the Competition Act and Consumer Protection Act respectively as these sanctions exceed the powers given to the Minister in the Disaster Management Act. The Pricing Regulations state that subject to the further specific provisions of the respective pieces of legislation, a failure to comply with the Pricing Regulations may attract a fine of up to R1 000 000 and/or a 10% of a firms turnover and imprisonment for a period not exceeding 12 months (depending on the applicable legislation). In terms of the Competition Act, only cartel conduct under section 4(1)(b) attracts criminal liability.

The Minister has recently announced that 11 firms are currently under investigation for allegedly contravening the provisions of the Competition Act and/or Consumer Protection Act in a manner prohibited by the Pricing Regulations.

While these rather drastic measures are necessary and the Minster and SACC should be commended for their swift action, the effects of these measures are set to leave a lasting impression on competition law and the precedent arising out of the investigations and subsequent referrals in terms of these Pricing Regulations.

The Disaster Management Act provides that the declaration of a national state of disaster can terminate after the expiry of 3 months or upon notice in the Government Gazette by the Minister before the expiry of 3 months. The Minister can nonetheless extend such a period for one month at a time. Accordingly, the Disaster Management Act offers little certainty on how and when the measures implemented will come to an end.

Temporary measures tend to have a nasty habit of outlasting emergencies.

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AAT, mergers, public-interest, Uncategorized

PepsiCo/Pioneer merger: Minister Patel approves the Deal

In one of the few megamergers of the 2019/2020 season, the South African Competition Tribunal approved, subject to a wide range of public interest related conditions, PepsiCo’s acquisition of South Africa’s largest FMCG producers, Pioneer Foods.

In predictable fashion, this was not the type of transaction which would escape the attention of Minister Patel (who oversees the portfolio of the competition agencies). Despite not being a transaction which raises any competition concerns (i.e. there being no substantive overlap in product portfolios) and no material public interest concerns, the merger was an acquisition by a major international producer, PepsiCo and Minister Patel has openly expressed his intention to involve himself in acquisitions by foreign firms in an effort to extract a “socio-economic” tax from the merging parties. This was first seen in the Massmart/Walmart deal in 2012 but more recently in the AB-InBev/SAB and SAB/Coca-Cola mergers.

Competition lawyer, Michael-James Currie points out that a noteworthy difference between the legislative environment in terms of which the PepsiCo/Pioneer merger was assessed are the amendments to South Africa’s Competition Act. Under the new merger regime, public interest standards have been elevated, as a test, so as to be on par with the traditional competition analysis. Furthermore, the public interest grounds which the competition authorities are mandated to take into account have been expanded and now specifically include ownership levels among historically disadvantaged persons (commonly referred to as BBBEE policies in South Africa – Broad-Based Black Economic Empowerment).

The Competition Tribunal’s reasons are noteworthy. In a transaction of this magnitude, the Tribunal did not provide any reasons or findings as to the assessment of the merger. There was no analysis as to the relevant markets nor an assessment of the negative effects that the merger may have on the public interest factors.

The Tribunal’s reasons jump straight to the conditions ostensibly on the basis that the merging parties, the Competition Commission and Minister Patel had “agreed” to the conditions and, therefore, there was no reason to assess the transaction and the Tribunal could go ahead and rubber stamp the terms of the agreement.

Based on the majority of the conditions imposed, it is safe to assume that the transaction raised no material competition or public interest concerns. Notwithstanding that the transaction raised no adverse effects, the conditions imposed on the merger include:

  1. The creation of a BBBEE Workers Trust which will receive at least R1.6 billion (USD 10.6 million) in equity and the appointment of a non-executive director to the PepsiCo board together with voting rights of 12.9% in lieu of the equity for a period of 5 years;
  2. Employment:
    1. A moratorium on merger related retrenchments for a period of 5 years;
    2. An undertaking to maintain the aggregate levels of employment for 5 years; and
    3. An undertaking to create 500 direct new employment opportunities and 2500 indirect employment opportunities over the next five years.
  3. An undertaking to invest a cumulative amount of R5.5 billion (USD180 million) in production capacity over the next five years.
  4. Promote procurement from local suppliers and producers;
  5. Maintain all sales and distribution agreements currently in place for a period of two years;
  6. Contribute at least R600 million (USD60 million) to the creation of a development fund to be used for education, small medium enterprise development and agriculture programs.

Despite the substantial conditions imposed on the merger, Minister Patel surely finds himself in a catch twenty two. On the one hands, Minister Patel is a socialist at heart and has very much focused his efforts on utilising the Competition Act and authorities to promote industrial policy action and advance socio-economic objectives. Now, both as Minister of Trade and Industry and in light of President Cyril Ramaphosa’s drive to attract foreign direct investment, Minister Patel needs to tread a far more intricate line than ay previously the case (under President Jacob Zuma’s reign).

On the one hand, large foreign mergers present Minister Patel with a golden opportunity to extract non-merger specific public interest commitments – which merging parties often acquiesce to in order to preclude protracted litigation. On the other, Minister Patel needs to ensure that South Africa’s message to the rest of the world is that we would welcome foreign investment with open arms.

John Oxenham says that while it is perhaps regrettable that the Competition Tribunal did not grapple fully with the extent to which these types of conditions would have been objectively justifiable in terms of the new merger control regime or whether they amount to an overreach. While the Tribunal typically does not dedicate substantial resources to evaluating mergers when there is no dispute between the parties – and understandably so – the Tribunal should be mindful of rubber-stamping approvals of this nature. The message that this decision sends to foreign firms seeking to invest in South Africa is certainly not a warm and inviting message. The lack of analysis and objective justification for the conditions sends a strong message to merging parties that the most important aspect for purposes of obtaining merger approval is to engage and reach settlement terms with Minister Patel.

When the executive becomes the gatekeeper to merger control approvals (or competition law enforcement more generally), this very rapidly blurs the distinction of the separation of powers.

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AAT exclusive, COMESA, mergers

Pepsi / Pioneer deal carefully eyed by East African merger authorities

As reported by AAT here last month, the PepsiCo / Pioneer Foods mega deal has caused the parties to agree to a number of conditions imposed by the South African Competition Commission, despite there being no material overlap between the parties which give rise to any legitimate competition concerns.

Now, COMESA has joined the field, with its Competition Commission likewise reviewing the transaction’s effect on the common market under its jurisdiction, pursuant to Notice 39/2019.  The Competition and Tariff Commission of Zimbabwe will likely provide its confidential input as to the transaction to the CCC.  According to local news outlets, the proposed U.S. $1.7 billion takeover by American conglomerate giant Pepsi has sent Zimbabwean and other local and regional competitors “into panic mode.”

In the specific context of the Zimbabwean non-alcoholic beverage market, local beverage producer Varun Beverages sells Pepsi’s brands and already enjoys significant tax benefits from its “special economic zone” status.  The local competitors’ concern is that, if Varun also obtains the full rights to distribute all of Pioneer’s FMCG products, it will put smaller rivals at a disadvantage.

Taken together with other regional taxation incentives (in Zambia, Varun had temporarily been granted a deferment of value-added tax and excise duty for five years, which was however reversed upon a finding of likely illegality), the impact may indeed affect the competitiveness of Varun’s rivals.  However, it remains to be seen whether the Pepsi/Pioneer deal itself has any material adverse competitive effects overall, as this is the transaction under review after all, comments legal practitioner Andreas Stargard.  “Besides, merger reviews pursuant to established antitrust law concern themselves not with the welfare of competitors, but with the maintenance of overall competition in the total relevant market.  Just because some rival is hurt does not make the deal anti-competitive per se,” says Stargard.  Moreover, there are major competitors still to reckon with, such as Delta brands, which has historically dominated the Zimbabwean market, and only recently lost market share to Varun, which has budgeted US$150 million in investments over the next five years.  “These investments and the increased rivalry between a potentially strengthened Varun and the existing market leader Delta may actually be considered pro-competitive indicators by the competition regulators, such as the CCC and the Zim authorities,” concludes Stargard.

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AAT, price discrimination, Uncategorized

South Africa News Alert: Price Discrimination and Buyer Power Provisions brought into effect.

On 13 February 2020, exactly a year since the price discrimination and buyer power provisions were signed into law, President Ramaphosa and Minister Patel have brought into effect the operation of the amended section 9 of the South African Competition Act (price discrimination) as well as section 8(4) (buyer power provisions) together with the respective Regulations.

Both provisions are aimed at ensuring that small or medium owned businesses or firms controlled by historically disadvantaged persons are able to “participate effectively” in the market.

While the buyer power provisions are largely consumer protection provisions – which require large firms to impose fair trading terms vis-a-vis their smaller customers, the amended section 9 of the Act has material ramifications not only for large suppliers but consumers as well.

At the heart of section 9, is a prohibition of volume based rebates/trading terms. While the Act permits for certain efficiency based pricing differentials (provided they are proportionate and reasonable), suppliers are prohibited from competing purely based on quantities. Low margins high volume type strategies would in many instances be prohibited – with the concomitant imposition of administrative penalties.

The motivation behind the amendments is to assist smaller players participate in the market. A noble objective. Although it seems quite apparent that those in support of the amendments have not fully recognized, appreciated or cared about the unintended consequences which are likely to flow from section 9.

Pro-consumer welfare pricing strategies may, under the amended Act, be outlawed. So while the counter factual is that certain small businesses may benefit, is this an industrial policy victory if consumer welfare is diminished? Hardly.

Although section 9 and section 8(4) where brought into effect on the eve of President Ramaphosa’s State of the Nation Address – certainly not coincidental – a challenge to the rationality of section 9 seems most likely.

The Competition Commission’s price discrimination draft guidelines expressly preclude any considerations to the level of efficiency of downstream customers or any impact (good or bad) on consumer welfare).

Seriously concerning stuff and large suppliers (across all industries) should take note of these amendments with urgency.

 

 

 

 

 

 

 

 

 

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BRICS, Grocery Retail Market Inquiry, mergers, public-interest, South Africa

South Africa: PepsiCo acquisition of Pioneer recommended for approval, at a price!

On 11 February 2020, the South African Competition Commission (SACC) recommended that PepsiCo’s acquisition of Pioneer Foods, be approved, subject to a number of conditions.

Despite there being no material overlap between the parties which give rise to any competition concerns, the Commission has proposed substantial public interest related conditions – including the establishment of an enterprise development fund and a BBBEE deal worth R1.6 billion in order to spread ownership among historically disadvantaged persons.

It is not yet confirmed whether the merging parties have agreed to these conditions although I strongly suspect that they have so as to avoid third party intervention.

The Commission has, as per its media release, recommended that the Tribunal approves the merger subject to several public interest commitments including:

(i) A moratorium on merger related retrenchments for a certain period;

(ii) The creation of additional jobs at the merged entity;

(iii) Significant investment in the operations of the merged entity, the agricultural sector and the establishment of an enterprise development fund; and

(iv) A B-BBEE transaction to the value of at least R1.6 billion that will promote a greater spread of ownership and participation by workers / historically disadvantaged South Africans.

Many of our readers will recall that the AB InBev/SAB and SAB/Coca-Cola mergers in 2016 were only recommended for approval by the SACC (in the face of Minister Patel’s intervention in these mergers) following the merging parties’ commitment to establish similar development funds. Further, Minister Patel (responsible for the executive portfolio which overseas the competition authorities) has on a number of occasions expressly indicated that he will look to intervene in large mergers by foreign firms in order to extract additional commitments to advance socio-economic objectives.

Those who monitored the AB InBev/SAB transaction will recall that executives of the merging parties engaged Minister Patel directly and negotiated the “public interest” conditions. A transaction of that nature, two of the world’s largest beer manufacturers, took approximately 6 months to obtain final approval in South Africa. Approval which included approximately a R1 billion “development fund”.

Prior to this merger, SAB and Coca-Cola had engaged with the SACC for approximately 18 months in order to obtain approval. After AB InBev acquired SAB, SAB also offered a supplier development and agreed to pay R600 million to this fund. The transaction was approved shortly thereafter. This was despite the Commission not having identified any material competition concerns.

While the merging parties may have consented to these conditions in an effort to avoid protracted hearings before the adjudicative bodies, the blatant extortion of foreign firms seeking to invest in South Africa is concerning and certainly does not assist or support President Ramaphosa’s foreign investment drive. Minister Patel has been prone to utilising market inquiries in an effort to address perceived high levels of concentration in the market (despite the vast unintended consequences of destabilizing those industries, sectors and private firms who are actually sustainable in challenging economic times and offer consumers great products and prices). It would be interesting to have a market study commissioned that attempts to quantify the amount of “lost foreign investment” into South Africa as a result of the political climate, interference and policy uncertainty. The number of jobs and spinoff benefits from that foreign investment is likely to substantially exceed any “supplier development fund” benefits which Patel seems to be vindicated in extracting from those firms who are actually prepared to invest in South Africa. Such a study wouldn’t even be particularly difficult to conduct. Survey foreign firms and ask how interested would they be to invest in South Africa if the merger filing fee for multinational foreign firms was lets say R1 billion (USD65 million)? South Africa would have to be a very attractive environment to operate in to justify that sort of commitment.

 

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AAT, East Africa, Kenya, mergers, Uncategorized

KENYA: AIRTEL//TELKOM KENYA MERGER CONDITIONS TAKEN ON APPEAL

By Ruth Mosoti

In December 2019, the CAK approved the merger between two Kenyan telecom firms, Airtel and Telkom Kenya, subject to a number of wide ranging conditions.

The merging parties, however, were not satisfied with the conditions and have decided to take the CAK’S decision on review to the Competition Tribunal. Kenya’s Competition Tribunal was fully constituted and became operational in May 2019 after four members were appointed to the panel.

In terms of  the Kenyan Competition Act, any party aggrieved by a decision of the CAK in relation to a merger has 30 days to file for a review of that merger before the Tribunal. The 30 days period commences from the date the CAK’s decision is published in the gazette. Accordingly, although the merger was formally approved in October 2019, the merging parties had to wait until December 2019 for the gazette, containing the CAK’s decision, to be published before a notice for review could be filed.

The Tribunal has a broad range of powers and may overturn, amend or confirm the decision of the CAK. The Tribunal may also, if it considers it appropriate to do so, refer the matter back to the CAK for reconsideration of certain issues.

Turning to the conditions themselves, one of the contentious conditions relates to having the spectrum revert back to the government upon expiry of the merging parties’ license.

This is concerning as it is the Communications Authority of Kenya that issues and renews licences. The spectrum allocation by Communication Authority is an asset in the hands of the holder. Assuming that the spectrum is being utilized in accordance with the licence, ordinarily renewal is guaranteed.

The CAK’s decision that the license must revert back to the government is concerning as it seems to overlap with the Communications Authority’s mandate. John Oxenham, a director of Primerio, says that the interplay and conflict between the roles of competition and communications agencies are not unique to Kenya. In South Africa there have also been a number of issues which have raised as to which agency is best suited to assess ‘competition law matters’. A memorandum of understanding between the South African Competition Commission and the Independent Communications Authority of South Africa (ICASA) has been concluded in an effort to ensure consistency and enhanced collaboration between the two agencies in this regard.

The CAK’s conditions in this merger seem to be at odds with the CAK’s approach adopted in previous matters. For instance, when Yui exited the Kenyan market, both Airtel and Safaricom acquired Yu’s assets (including licenses). Although Safaricom had a larger chunk of the 2G spectrum, the CAK did not seem to take Safaricom’s market size into account when these assets were acquired. Perhaps the CAK appreciates that there was a missed opportunity.

This is will be the Tribunal’s first opportunity to review the CAK’s decision relating to a  merger and it will be interesting to see how robustly the Tribunal scrutinizes the CAK’s decision with reference to economic evidence. As competition lawyer Michael-James Currie points out, unfortunately, the CAK does not publish detailed reasons which underpin its decisions and it is, therefore, often difficult to fully appreciate the CAK’s reasoning or assess whether the CAK’s decision is sufficiently supported by the underlying evidence. Hopefully the Tribunal’s reasons in this matter will be more comprehensive, thereby contributing positively to creating precedent.

Currie also points out that the CAK imposed a public interest condition relating to a moratorium of any merger specific retrenchments for a two year period. The merging parties are appealing this condition as well and have proposed that the moratorium be reduced to 12 months. The role of public interest factors in merger control has been materially influenced by the South African merger control regime where employment related conditions are a common feature in merger conditions. Moreover, two year moratoriums is usually the ‘benchmark’ standard although moratoriums ranging from 3-5 years have also been imposed on parties in South Africa. It will be interesting to gauge the Tribunal’s approach to public interest factors and whether we will see a unique approach to the assessment of such conditions or whether the Tribunal is likely to follow the South African approach.

[Ruth is a Primerio competition law practitioner based in Nairobi, Kenya.]

 

 

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