Put your drink down: Fair Competition Commission threatens to un-do Diageo beer deal

Bloomberg’s reports in an article published today that Tanzania’s Fair Competition Commission is threatening to undo the previously-approved merger between Nairobi-based East African Breweries Ltd.’s and Serengeti Breweries Ltd., alleging that the conditions laid out in the 2010 approval of the deal had not been honoured by the parties.

Apparently, notice was given to EABL in late April: “The commission has issued a notice of an intention to revoke its own decision with respect to the merger against EABL.”

EABL is majority-owned by Diageo Plc and is the largest regional brewer, whereas Serengeti was the #2 player pre-merger.  The FCC conditioned its approval on

(1) Diageo’s sale of a 20% stake in rival Tanzania Breweries Ltd., (2) compliance with a requirement that Serengeti achieve “potential growth that is well beyond the level it was able to achieve previously,” (3) the obligation to continue promoting Seregenti’s corporate identity for five years post-merger, (4) an agreement not to shutter any of Seregenti’s existing plants without prior FCC approval, and (5) the submission of annual progress reports of compliance with the investment strategy plan submitted during the application of the merger.

At issue in the current challenge by the Commission is condition no. 2, i.e., the growth-target requirement imposed on the parties.  Competition-law experts are puzzled by the FCC’s imposition of said condition, said John Oxenham of the Africa-focused Primerio consulting firm:

“Forcing a company to divest itself of a rival unit prior to acquiring a target entity is commonplace, and so is the requirement that certain brands must be maintained post-acquisition.  But it is highly unusual in my view to see a revenue growth-target imposed on merging parties by a government antitrust enforcer.”

While noting that he had not seen the precise wording of the “potential growth” condition imposed by the FCC in 2010, “[h]ow does the regulator account for outside macro-economic factors, increased competition from other players, and similar third-party effects that are outside the control of the merging entities?“, said Oxenham.

We wish to observe that the FCC’s web site itself has no update on the topic.  Its most recent press release is from 2014 and the last newsletter that is available online dates from 2013.

Competition Regulation & the ‘spaghetti bowl’ of regional African integration

AAT the big picture

Professor Tchapga on competition legislation in a future regionally integrated Africa

AAT’s own contributing author and Primerio consultant, Professor Flavien TCHAPGA has drafted a paper for the African Economic Conference in Johannesburg.  The conference is organized each year by AfdB, UNECA & UNDP.

We are proud to present his paper here (written in French), which is entitled “Perspective de la régulation concurrentielle des marchés dans la future zone de libre échange continentale en Afrique : Enjeux et défis“.

The concise and eminently readable expose deals with the current and proposed competition regulation in the growing African free-trade area.  It provides a comprehensive overview of, and new insights into, the ‘spaghetti bowl’ of African regional integration and the necessary (yet little developed) competition regulation that must go along with it.

We invite our readership, especially the francophone and francophile contingent, to download and peruse Professor Tchapga’s work.  His prior related work, also published here, has been on developing effective competition policies in Africa and on the inherent tension this effort faces, focused on the member countries of CEMAC and WAEMU.

Short-term sights in favour of long-term gains: Patel’s industrial policies risk effective competition in South Africa

AAT the big picture

By Michael Currie

Discarding any objectivity and international best practice, the Minister of Economic Development, Mr. Ebrahim Patel, has once again expressed his desire to use the South African Competition Commission (“SACC”) as an agency to actively promote the government’s industrial policies.

Speaking at a media briefing, Patel told journalists that the focus of the Economic Development Department would be to grow “black ownership of new industry in South Africa and using state funding to grow the work of black entrepreneurs”.[1]

Minister Patel

Patel said the intention of using the SACC to launch a market inquiry into the retail sector was to “ensure that we’ve got a competitive sector, but also an inclusive sector”. This statement and the decision to institute a market inquiry into the retail sector is, at least at this stage, problematic for two reasons. Firstly, the retail sector is arguably one of the most competitive sectors in South Africa, and any barrier to entry into the sector is a natural consequence of a highly competitive market. Furthermore, Patel identified exclusivity clauses (which are popular provisions inserted into lease contracts between mall anchor tenants and the developers) will be one of the issues that the inquiry will look into. Patel, unfortunately, overlooked the fact that there has already been an investigation relating to these clauses. At the conclusion of the investigation, the SACC found that there is not sufficient evidence of anti-competitive impact, resulting from these clauses, and thus the SACC refrained from referring the matter to the South African Competition Tribunal (“SACT”).[2] This thus begs the question, whether it is necessary to institute a market inquiry with regard to the issue of exclusivity clauses and expose the industry to intensive and unnecessary costs?

In an article written by Mfundo Ngobese in the official newsletter of the SACC, Ngobese responds to an article written by John Oxenham and Patrick Smith, presented at the Eighth Annual Conference on Competition Law, Economics and Policy titled “What is Competition Really Good For?”. The main focus of Ngobese’s article is evaluating the merits of an argument put forward by Oxenham and Smith: that the Competition Authorities should engage in a balancing exercise between the short term impact on public interest issues (such as employment) versus the long term benefits that are associated with effective competition (such as increased economic growth which leads to more jobs created).

Public Interest Test

This brings us back to Patel’s decision to use public interest as the main ground on which a market inquiry into the retail sector should be instituted. The decision to launch a market inquiry based on the anti-competitiveness of exclusivity clauses is simply untenable in light of the SACC’s findings in respect of a previous investigation into the issue, as well as the fact that the retail industry is highly competitive.[4] Using any ‘anti-competitive’ argument as justification for launching this particular market inquiry, would amount to nothing more than a ‘fishing expedition’ by Patel and the Authorities.

The broad public interest grounds which are increasingly becoming prevalent as Patel transcends into the competition arena, coupled with the ill-defined rationale, guidelines and justifications behind the use of public interest grounds in competition review, is contributing significantly to uncertainty in the South African economy.

This ‘uncertainty’, that surrounds doing business in South Africa was recognised by African National Congress (ANC) stalwart Mathews Phosa.  The former ANC Treasurer and Mpumalanga premier identified corruption, inconsistent government policies, and other factors as root causes of investors’ growing reluctance to invest in South Africa:

Policy stability leads to political, social and economic uncertainty. Policy stability in contrast created an “investment friendly culture where every investor feels protected and free to do business”.

While businesses in the retail industry (and indeed businesses across the board) in South Africa, are desperately seeking certainty, Patel is seeking a ‘second bite of the cherry’.

The second issue with Patel’s reason for instituting the market inquiry relates to him wanting to achieve an “inclusive retail sector” and how to bring more “black South Africans into the sector”. While transformation in the economy is certainly an important issue that needs to be addressed in South Africa, it is the manner and form in which such transformation takes place, which is concerning. In this regard, the SACC is patently not the appropriate institution to ensure that there are sufficient black-owned businesses in the retail sector.

Confused Motives

Patel seems to have, unfortunately, conflated the objectives and role of his own department, with the objectives and purpose of the SACC. This comes at a time when other political meddling has led to the resignation of the National Director of Public Prosecutions, Mxolisi Nxasana, who quit his post on Sunday, after almost a year of politically-motivated wrangling and formal investigations being initiated and ultimately dropped by President Jacob Zuma.

Former NPA head Mxolisi Nxasana, forced to resign due to political pressure.

The influence that Minister Patel has had on the SACC’s policy is undoubtedly evident when one evaluates the increased reliance of the South African Competition Authorities to impose stringent conditions in approving mergers.[5]

In justifying the use of public interest grounds in competition law, the Competition Authorities may point out that South Africa’s Competition Act, 89 of 1998 (the “Act”) permits and requires public considerations to be taken into account. However, the use of public interest grounds should not, as seems to be the case, be seen as independent issues unrelated to competition which is to be considered in isolation of the purpose of the Act.[6] The Competition Authorities’ purpose, as set out in Section 2 of the Act is to “promote and maintain competition in the Republic…”. It is likely that Patel views the following two subsections which state that competition must be maintained or promoted to:

promote employment and advance the social and economic welfare of South Africans” (Section 2(c)); and

“promote a greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged persons” (Section 2(f))[7]

as the basis for his increased reliance on pushing his Department’s policy objectives through the channels of the SACC. However, placing an overly zealous reliance on these two subsections, fundamentally misconstrues the purpose and function of competition law.

Subsections (c) and (f) quoted above are not self-standing provisions; they are qualified by the general purpose of the Act. Furthermore, by viewing or placing greater reliance on these provisions as self-standing provisions, one would run into an inconceivable difficulty when considering section 2(a), which states as a further objective of the Act (and the purpose of the promoting competition) is to promote the “efficiency, adaptability and development of the economy”. At least from a Section 2 perspective, public interest considerations, at best, have to be reconciled with competition issues.

Market inquiries have often been used very successfully as an investigative tool by a number of competition agencies, especially in Europe. However, a market inquiry requires significant resource expenditure by both the SACC and the market participants and often casts a bad shadow over the relevant industry to the detriment of companies who have not engaged in any anti-competitive conduct. Market inquiries should thus be used sparingly and only when there is significant concern that a particular market is not functioning in a competitive manner. A market inquiry should certainly not be used as a means to affect change in the industry in order simply to suit the objectives of the Government.

There is a further institutional concern which must be noted, and that is that the SACC has, like all institutions, limited resources. In order to function as an efficient and formidable competition law agency, the SACC should ensure that what limited resources are available, is best utilised to achieve a competitive market environment in South Africa.

Before even engaging in policy discussions, as those that Patel is pushing for, it would firstly be necessary to ensure that the SACC has the requisite expertise to deal with policy agenda’s which are far broader than pure competition law. There are already institutions, as Patel has recognised, whose responsibility it is to promote economic growth and to address transformation within the economy.[8] It is not the responsibility of the Competition Authorities to address these issues as directly as has been the case in recent years.[9]

The need for transformation and the promotion of black industrialists is an issue to be addressed by the Government, however, it seems that there is a general lack of regard to competition concerns when Government departments form their policies. A good illustration of this is the significant criticism levelled at the new agreement struck between South African Airways (“SAA”) and the Department of Trade and Industry (“DTI”), which will see SAA redirect R10 billion rand of procurement spending to “black industrialists” (“SAA Agreement”).[10]

While this may appear to be a noble policy, the question remains whether new “black industrialists” are coming into existence, or whether existing “black industrialists” are simply going to make substantial profits at the expense of true development.

The SAA Agreement, which requires, without anything more, that a certain amount of supplies (fuel) be purchased from specific suppliers (‘black suppliers’) strikes at the heart of competition. Effectively certain existing competitors are being excluded in order to favour other competitors. In no way does this promote ‘transformation’ within the industry as the existing barriers to entry remain.

From a competition point of view, the benefit of having healthy competition in the commercial aviation market seems to have been overlooked by the DTI. Apart from the direct benefit that flows from actual cheaper air tickets, the knock-on benefits of stimulating the leisure tourism seems to have been overlooked.

While acknowledging that the SAA decision taken by the DTI is not directly linked to competition law, the disregard that the DTI appears to have to competition in the aviation industry is in stark contracts to the to the Competition Authorities in Botswana who have launched a market inquiry into the aviation sector (although notably with the focus being on unscheduled flights), due to having recognised the importance that the price of flight tickets may have on the tourism industry and the benefits that would flow from boosting the tourism industry.

Considering that SAA is battling financially, and is highly dependent on State bailouts, it is baffling that the State’s primary objective is not to ensure that SAA operates viably and competitively, before risking such competitiveness in favour of a policy which is quite frankly, difficult to justify as there is no evidence that such policies actually achieve genuine transformation or promote economic growth.[11]

One can’t help but notice the irony when it comes to the Government’s social and transformation policies. The Government, and Patel in particular, consistently ignore well established economic principles and the benefits that flow from healthy competition in the economy, in favour of promoting short-sighted top-down “transformative industrial policies”, rather than spending the scarce resources on promoting and developing South Africa from a bottom-up approach.

For instance, poor service delivery in South Africa has a significant detrimental economic and social impact on South Africa. Why improving service delivery does not appear to be high on the radar of the Department of Economic Development or the DTI, is surprising if the objectives of these departments are to promote ‘black businesses’, as the areas which are most severely affected by poor service delivery are generally areas where there is a high percentage of black persons living, who form part of the lower income brackets. In other words, areas where the promotion of small businesses and healthy competition would be most valuable to any social development objectives.

Unfortunately, however, a recent report issued by the Institute of Race Relations stated that the highest incidence of recent public protests in relation to poor service delivery, took place in areas were the most “fruitless and wasteful government expenditure” took place.[12]

Recent statistics show that South Africa’s unemployment rate is increasing, bringing into question whether the policy intervention that Patel has been championing over the past 6 years, is indeed yielding the positive results envisioned by the Government. While the purpose of this article is not to evaluate and criticise all policy interventions, the point to be made is that the effectiveness of policy intervention to advance socio-economic interests in the South Africa is in no way proving effective. While there may be a number of reasons for failing policies, it appears worrying that politicians such as Patel are prepared to risk the independence, efficient functioning and objectives of the Competition Authorities, which are ultimately to promote competition in the market, in order to promote industrial policies when there is so much uncertainty whether such policies will truly ensure long term benefits for the Country as a whole.

Two recently issued reports, namely, the Boston Consulting Group (BCG) Report and the IMD World Development Report, succinctly confirm the concerns and issues which are addressed in this article.

The BCG Report evaluates the reasons for South Africa’s stagnant economic growth. The report acknowledges that it is a necessity to improve education and healthcare and reduce unemployment to advance growth; however, the report importantly states that:

There is no hiding from the fact that short-term self-interested behaviour has been prevalent; that the emphasis in South Africa has been on cutting the pie rather than growing it.”[13]

This statement could not be truer if one considers Patel’s disregard of well established benefits that flow from a competitive environment, in favour of promoting industrial policies. The following statement by Adam Ikdal on the poor leadership in South Africa, corroborates this papers view:

a concerted program of execution is essential. In many instances this may mean putting the greater good ahead of the individual or institutional interests.”[14]

The IMD World Competitiveness Report (IMD Report) not only complements the BCG Report, but essentially confirms the views of this paper, with empirical evidence. The IMD Report indicates that South Africa has dropped from a ranking of 37 in 2012 to 53 in 2015 on a list of the world’s most competitive countries. The IMD Report not surprisingly, identified South Africa’s infrastructure shortfall, poor service delivery and lack of education and skills as some of the major contributors to South Africa’s slip down the rankings.

Crucially the director of the IMD World Competitiveness Centre, Arturo Bris, identified what sets the top performing countries apart from the others. This is what Bris had to say, which is essentially, the basis upon which the criticism identified in this paper is levelled at Patel’s policy objectives:

Productivity and efficiency are in the driver’s seat of a competitiveness wagon. Simply put, business efficiency requires greater productivity and the competitiveness of countries is greatly linked to the ability of enterprises to remain profitable over time”.[15]

In conclusion, we note that both transformation and fostering economic growth is an objective of the South African Government. This is, however, no justification for abandoning the tried and tested benefits that flow from a competitive market, in favour of promoting short-term industrial policies such as Patel is doing. Should the SACC adopt Patel’s industrial policies as part of their policy objectives, the SACC ultimately risks its independence and may effectively become an ‘umbrella institution’ under which any industrial policy agendas are driven. This would be an undesirable and intolerable outcome, and one which the South African Competition Authorities need to carefully guard against.


[1] http://www.fin24.com/Economy/Patels-focus-is-on-black-industrial-growth-20150512

[2] Competition Commission News Letter, Edition 51, January 2015.

[3] Competition Commission News Letter, Edition 51, January 2015.

[4] See footnote1.

[5] We have dealt with this aspect of merger control in more depth in previous articles, please see the following link.

[6] To illustrate the extent that public interest considerations are used by the Competition Authorities, the last intermediate merger that was approved unconditionally was in 2008. Since then, there have been 14 mergers that have been approved subject to conditions. As to large mergers, approximately 10 of the most recent 40 mergers that have come before the Competition Tribunal, 5 have been approved subject to conditions. It should be noted that it is the SACC that reviews intermediate mergers, while large mergers are reviewed bu the Competition Tribunal.

[7] Sections 2(c) and (f) of the Competition Act, 89 of 1998.

[8] For example the Industrial Development Corporation.

[9] See the AfriGroup Holdings (Pty) Ltd and Afgri Ltd merger where the South African Competition Tribunal (“SACT”) Acknowledged that the merger poses no horizontal or vertical competition law concerns. Despite reaching such a conclusion, the SACT, approved the merger on condition that an agreement reached by the parties in terms of which Afgri would contribute R90 million over four years, to a development fund for small farmers via the provision of loans, training and grain storage discounts. Similar burdensome conditions are becoming all the more prevalent in merger control, and are often self-imposed by the SACT and are not agreed upon by the parties as was the case in Afgri.

[10] The Business Day, 26 May 2015, page 14.

[11] The Business Day, 26 May 2015, page 14.

[12] http://www.polity.org.za/article/protests-linked-to-fruitless-wasteful-government-expenditure-irr-2015-05-26

[13] Financial Mail, May 21- May 27, 2015 pg 27.

[14] Financial Mail, May 21- May 27, 2015 pg 27.

[15] http://www.engineeringnews.co.za/article/power-problem-features-in-south-africas-fall-in-2015-competitiveness-ranking-2015-05-27/rep_id:3182 (accessed 28 May 2015).

Banks in hot $$$: Another regulator investigates currency manipulation

south_africa

Banks in hot $$$: Another regulator investigates currency manipulation

The South African Competition Commission (“SACC”) has recently commenced an investigation into several banks and financial institutions for allegedly price-fixing in relation to the ‘Bid and Ask’ amounts, and consequently the ‘Bid-Ask spreads’, which the institutions allegedly make available make available for foreign exchange currency trading derivatives; specifically: Spot Trades; Forwards and Futures.

The SACC stated that the banks and financial institutions named, BNP Paribas SA, Barclays Plc’s African operations, JP Morgan South Africa, Investec and a unit of Standard Chartered Plc provided, have allegedly colluded to synchronize trades when quoting prices to customers seeking to buy or sell foreign currencies through the use of electronic messaging software utilized for currency trading.

The SACC investigation currently relates only to currency exchange trades involving South African Rand (ZAR). the SACC alleges that the conduct has the consequence of devaluing the ZAR with the following concomitant effects:

  • Foreign currencies exciting the country;
  • Local inflation in South Africa increasing as the cost of foreign imports into the Republic of South Africa increases e.g., oil; raw materials; steel etc.

Competition Commission of Mauritius Launches Investigation into Cross-Border Money Transfers

mauritius

On 06 May 2015, the Competition Commission of Mauritius (“CCM”) identified the potential restrictive business practice which may exist between The Western Union Company (“Western Union”) and MoneyGram International Inc (“MoneyGram”) as a result of exclusive agreements (“Agreements”) put in place between the two companies.

The Agreements are purportedly entered into separately between the two companies and certain agents, which in turn, potentially prohibit the Agents from supplying competing services to their clients (the Agreements are not entered into between the two firms themselves, and thus do not constitute horizontal agreements) . These Agreements could have the further anti-competitive effect of creating a barrier to entry and possible foreclosure effects.

The CCM has indicated that they have not reached a conclusion yet as to whether these Agreements are in fact anti-competitive. It will also have to be seen whether there are any efficiency arguments would could possible justify such an exclusionary act (if the conduct does in fact breach any provision of the Competition Act, 2007 (the “Act”)).

As far as potential remedies are concerned, the conduct mentioned above could potentially fall under one of two main categories. The CCM could either view the Agreements as constituting “Other restrictive agreements” and/or “Monopoly situations” in terms of Section 45 or 46 of the Act, respectively.

A monopoly will be deemed to exist, in terms of the Act, if one enterprise provides at least 30% of the goods or services on the relevant market or, 70% of the goods or services on the relevant market are provided by 3 or fewer enterprises.

A monopoly situation may be subject to review if the CCM has reasonable grounds to believe that the enterprise(s) are engaging in conduct which: “Has the object or effect of preventing, restricting or distorting competition; or In any other way constitutes exploitation of the monopoly situation.”

As far for the possible penalties and/or remedies that may be imposed for breaching either Section 45 or 46, no financial penalties may be imposed by the CCM for violations of these two sections. Thus, in terms of the Act, the only type of vertical conduct which could lead to a financial penalty being imposed, is what is commonly known as ‘minimum price resale maintenance’. Thus, unlike many other African countries such as South Africa, a company who abuses its dominant position will not be exposed to financial liability, despite such conduct having substantial anti-competitive effects (provided such a company does not engage in horizontal agreements, bid-rigging or collusion or minimum resale agreements).

An infringement relating to Section 45 or 46 could only result in the CCM issuing directives, which have as their purpose, the objective of restoring competition in the market, and are not to be seen as being punitive in nature.

Proliferation of active multi-nation competition regimes continues

6-member East African Community (EAC) to finalise competition law amendments

The EAC, a regional intergovernmental organisation comprising Burundi, Kenya, Rwanda, Tanzania, Uganda and South Sudan, is said to be drafting amendments to its thus-far essentially dormant regional fair Competition Act (dating back to 2006, EAC Competition Act 2006, 49 sections) to address antitrust concerns in the region.  The EAC’s legislative body is in the final stages of completing its work on the East African Community Competition (Amendment) Bill (2015).

In a 2010 paper, Alloys Mutabingwa (then Deputy Secretary General of the EAC Community Secretariat) writes:

As the EAC begins the implementation of the Common Market, one is pushed to wonder, which kind of competition do we currently have in the East African Community? Is it the kind of competition that constantly pushes companies to innovate and reduce prices? Does it increase the choice of products and services available to EAC consumers? Or, is it the type of competition that is defined by companies colluding to highjack the market? The answer lies somewhere in the middle but one thing is certain, with the intensification of competition in the EAC there will be frictions between companies across the region as they seek to gain advantage over their competitors.

In this short and worthwhile read, he stresses the importance of having a multi-national competition framework vs. a purely domestic network of independent enforcers.  Mr. Mutabingwa uses the example of the merger case of East African Breweries and South African Breweries, in which the Kenyan and Tanzanian competition authorities were “allowed by law to handle national practices only.”

According to an October 2014 article, “statistics show that the EAC’s total intra-regional trade soared from $2 billion in 2005 to $5.8 billion in 2012, while the total intra-regional exports grew from $500 million to $3.2 billion in the period under review.”  The  piece quotes an EAC competition official as saying that the enforcement agency would be online by December 2014.

In addition to the EAC efforts, a report also states that the head of economic affairs of the Tanzanian Fair Competition Tribunal (FCT), Nzinyangwa Mchany, recently emphasised the importance of member-state level enforcement, such as that of the country’s FCT and FCC, “to increase efficiency in the production, distribution and supply of goods and services to Tanzanians,” especially in economies that were centrally planned until only a few decades ago, and which have had to struggle with the ill after-effects of unregulated trade liberalisation and privatisation of state-owned enterprises.

Legislative action threatens to enlarge public-interest scope of merger review

south_africa

The Potential Impact on Public Interest Considerations of the Labour Relations Amendment Act

The recently enacted Labour Relations Amendment Act, 6 of 2014 (the “LRAA”) has potentially increased the scope and role employment, as a specified public interest ground listed in Section 12A of the Competition Act, 89 of 1998 (the “Act”), could have on merger reviews in South Africa.

Section 12A of the Act places an obligation on the South African Competition Authorities to (the “Authorities”), when evaluating a merger, to consider the impact that a proposed merger will have on a number of public interest grounds which are listed in the Act.

The Authorities have become increasingly proactive in imposing conditions on approved mergers, which aims to alleviate their concerns in relation to the potential impact that a proposed merger may have on any of the public interest grounds.

The most often relied upon public-interest ground is employment. In 2015 alone there have been five large mergers that have been approved, subject to conditions in relation to employment. [1]

When assessing the impact that a proposed merger will have on employment, the most crucial factor is the potential immediate retrenchments that may result from the merger.

Previously, the impact that a merger may have on employees who were on ‘fixed term’ employment contracts would not be a significant factor as the employment contract, it could be argued, was in any event to come to an end. However, the LRAA has now changed the position somewhat in this regard, as an employer may no longer conclude fixed term contracts with employees for a period of 3 months, unless the nature of the work to be performed is for a definite or limited duration, or there is another justifiable reason for concluding a fixed term contract.

Should the requirements for concluding a fixed term contract for a period of longer than three months not be met, such an employee will be deemed to be employed for an indefinite term.

Thus, for companies who make use of fixed term employment contracts (that are concluded for a period longer than three months), the scope and the potential negative impact (in the eyes of the Authorities) that a proposed merger will have on employment, could be significantly broader than previously the case.

[1] Delatrade 83 (Pty) Ltd and The JHI Retail Division of JHI Properties (Pty) Ltd and LP Manco, The Property Management Business of Liberty Holdings Ltd; Sasfin Bank Limited and Fintech (Pty) Ltd; Bytes People Solutions a Division of Bytes Technology Group South Africa (Pty) Ltd and Inter-Active Technologies (Pty) Ltd; Dimension Data (Pty) Ltd and The Following Three Business Divisions of Mweb Connet (Pty) Ltd: Mweb Business, Optinet Networks and Optinet Services; Shoprite Checkers (Pty) Ltd and The Assignment of Certain Leases and the Employment of Employees of Final Selected Stores OR Ellerines Furnitures (Pty) Ltd

Finally: One step forward for COMESA merger enforcement? New rules, new commissioners

COMESA old flag color

Clarification or not?

Amended Rules for Merger Notification

Repealing the oft-criticised original 2012 Rules on the Determination of Merger Notification Threshold, the COMESA Board of Commissioners approved on March 26, 2015 the new set of Amended Merger Rules. These are ostensibly meant to permit parties and their legal counsel a more meaningful determination of filing fees, notification thresholds, and calculation of parties’ revenue (and asset) valuation.  Whilst many legal news outlets have reported (uncritically, as we fear) a high-level summary of these Rules, AAT undertook a critical review of them, and finds that many of the previously-identified flaws persist.

Filing Fee

The question of what parties had to pay in administrative fees to be permitted to file a merger notification with the Competition Commission was always in question (see here for AAT summaries of the issue).  We have reported on examples of fees that came dangerously close to the original $500,000 maximum limit.  Since then, the agency’s “Explanatory Note” (which still has a visible link on the Commission’s web site, but which happens to be an essentially “dead” web page, other than its amusing headline: “What is merger?“) attempted to clarify, and indeed informally change, the filing fee from a 0.5% figure to 0.01% of the parties’ annual COMESA-area turnover.

COMESA explanatory note

Where the filing fee stands now is, honestly, not clear to AAT.  While other sources have reiterated the revised fee of 0.1% with a maximum of $200,000, we fail to see any information whatsoever about the filing fee in the (partial set, containing only ANNEX 2 of) the Amended Rules made available by COMESA on its site, despite their title containing the term “fees”.  We have been able to determine, through some internet sleuthing on the COMESA site, that a document marked clearly as “DRAFT” does contain references to 0.1% and $200k maximum fees.

We note that we have now seen three different turnover percentage-based filing fees from COMESA: 0.01%, 0.1%, and 0.5%, as well as several different maxima.  Which shall govern in the end remains to be seen.  We do not envy those parties that have filed with COMESA and have paid the half-million dollar fee within the past 2 years, as we doubt they are entitled to restitution of their evident overpayment.

AAT predicts that this is where things will land, at 0.1% and $200,000, once the good folks at COMESA get around to actually editing the document and finalising their own legislation, so that practitioners and parties alike may have an original, statutory source document on which to rely

Our previous AAT advice has been very clear to companies envisaging a filing with COMESA: wait until the Commission and the Board clarify the regime in its entirety.  Do not file for fear of enforcement, because there is little if any enforcement yet, and the utter lack of clarity – apparently even within the agency itself – on the actual thresholds and other rules provides ample grounds for a legal challenge to the “constitutionality,” if you will, of the entire COMESA merger regime

Combined $50 million revenue threshold

What the 5-page document does show, however, is the new notification threshold embodied in Rule 4, which defines the threshold as follows:

Either (or both) of the acquiring and/or target firms must ‘operate’ [defined elsewhere] in at least two COMESA member states and have (1) combined annual turnover or assets of $50 million or more in the COMESA common market, AND (2) in line with the EU’s “two-thirds” merger rule, each of at least 2 parties to the merger must have at least $10 million revenue or assets within the COMESA zone, unless each of the merging parties achieves 2/3 or more of its aggregate revenue within one and the same member state.

The likewise-revised Form 12, the mandatory filing form, which is available in a scanned format (we hope this will be remedied and provided in more legible and native-electronic format soon by the secretariat) here, reflects the rules changes.  It must be submitted at a minimum within “30 days of the merging parties’ decisions [sic] to merge.”  The Competition Commission mus t make a decision within 120 days of receipt of (a complete) notification.

Interestingly, if the same two firms enter into multiple transactions within a 2-year period are to be treated “as one and the same merger arising on the date of the last transaction.” (See Rule 5, in a likely-misidentified subsection that is confusingly entitled 1.2.). Mimicking the EU Merger Regulation and Consolidated Jurisdictional Notice, the revised COMESA rules likewise contain special provisions for determining the revenues or assets of financial institutions (and their individual member-state branches’ income) as well as insurance companies.

Parents, sisters, subs: included.

Parent, sister and subsidiary entities are included in the revenue determination of the purchaser, to no surprise.  However, unlike what has been reported in the media, again we fail to see the (entirely logical) exclusion of the target parent’s turnover in calculating total revenues, other than in section 3.16 of the August 2014 Guidelines (which provides: “the annual turnover and value of assets of a target undertaking will not, for the purposes of these Guidelines, include the annual turnover or value of assets of its parents and their subsidiaries under Section 3.15)(d)where, after the merger is implemented, such parents are not parents of (i) the target undertaking if it remains after the merger, or (ii) the merged undertaking in the case of an amalgamation or combination“).

We observe the obvious: the Guidelines have no binding legal effect.

The Amended Rules do however provide that state-owned enterprises do not have to include their “parental” governmental revenues; for instance, if a state-owned airline like Air Tanzania were to acquire its counterpart, such as Air Mauritius, in a hypothetical COMESA-reportable transaction, the parties would not be required to report the full tax income or other revenues of the Tanzanian and Mauritian governments, respectively, but only those of the actual state-owned entity and its subsidiaries.

COMESA's 18th Summit in Ethiopia

18th COMESA Summit in Ethiopia

Four New Commissioners

As AAT reported previously, the Addis Ababa COMESA summit also saw the election and confirmation of four new Competition Commissioners.  We now have the full listing of the members, including the 4 new* ones (listed below in italics), whose term is for three years:

New 2015 Commissioners Origin
Ali Mohammed Afkada Djibouti
Amira Abdel Ghaffar* Egypt
Merkebu Zeleke Sime* Ethiopia
Francis Kariuki Kenya
Matthews Chikankheni Malawi
Georges Emmanuel Jude Tirant* Seychelles
Thabisile Langa Swaziland
Patrick Okilangole* Uganda
Chilufya Sampa Zambia

COMESA antitrust authority swears in 4 new commissioners

COMESA out of service

Four new Commissioners sworn in – while COMESA’s own site fails to make announcement

We do not commonly report on news from the Seychelles here on AAT, but today, the Office of the President of the Seychelles has in fact beat AAT (as well as the COMESA Competition Commission itself (!)) to it: as the Office reports, the 18th COMESA Summit, held on 30th March 2015 in Addis Ababa, (a city that I have fallen in love with, by the way), saw the swearing-in of four new COMESA Competition Commissioners.

The summit also saw the swearing in of Mr. George Tirant, Chief Executive Officer of the Seychelles Fair Trading Commission. Mr. Tirant was appointed as a commissioner on the COMESA Competition Commission, alongside representatives from Egypt, Uganda and Ethiopia.

We have not yet identified the other new members that were sworn in this week, but in admitting so we note in the same breath that it is surprising for the authority itself not to have this relevant item anywhere on its site, neither in the News category nor anywhere else.  Indeed, the reader looks in vain for even a cursory Press Release announcing that 4 new Commissioners were seated for a new term of 3 years each. COMESA’s site still shows the outdated list of its Commissioners (copied below the photo below).

Irregular?  Perhaps.  But then again, we are used to outages and unfortunately much worse from the COMESA Competition Commission web site.

AAT notes that, in addition to the four new competition commissioners, the 19-country IGO also welcomed new:

  • Judge President and Judges of the Appellate Division of the COMESA Court of Justice
  • Principal Judge and Judges of the First Instance Division of the COMESA Court of Justice
  • the COMESA Committee of Elders
COMESA's 18th Summit in Ethiopia
COMESA’s 18th Summit in Ethiopia

[Outdated] List of Commissioners from Comp Comm web site:

  1. Commissioner Alexander Juvensio Kububa : Chairperson of the Board of Commissioners and former Chief Executive Officer of the Competition and Tariff Commission of Zimbabwe.
  2. Commissioner Mathews Chikankheni: Vice Chairperson of the Board of Commissioner and President of the Malawi Confederation of Chamber of Commerce and Industry.
  3. Commissioner Ali Mohamed Afkada: Inspector General des Services Judiciarisés’ de Djibouti.
  4. Commissioner Daniel Phillip Gappy – Former Chief Executive Officer of Fair Trading Commission of Seychelles and Chief Executive Officer of Seychelles Licensing Authority.
  5. Commissioner Rajeev Hasnah: former Deputy Director of Competition Commission of Mauritius.
  6. Commissioner Francis Kariuki: Director General of Competition Authority of Kenya.Commissioner Rajeev Hasnah:  Chief Economist and Deputy Executive Director of the Competition Commission of Mauritius.
  7. Commissioner Thabisile Pearl Langa’: Chief Executive Officer of Swaziland Competition Commission.
  8.  Commissioner Rostom Omar: Former Legal Counselor of Egyptian Competition Commission.
  9. Commissioner Chilufya Sampa: Chief Executive Officer of Competition Commission of Zambia

New COMESA merger approvals: stats and details

COMESA Competition Commission logo

COMESA publishes new Merger decisions

In the past week, the COMESA Competition Commission published the following decisions in its most recent merger cases, resulting from the CCC’s 14th meeting:

  • Case 1/15: Cannon (insurance) – decision time: 176 days – 4 member states affected.
  • Case 2/15: ImproChem (water treatment) – decision time: 166 days – 12 member states affected.
  • Case 3/15: Chlor Arkali (food-grade salt) – decision time: 135 days – 3 member states affected.

…and from its 15th meeting:

  • Case 4/15: Telkom SA (information and telecom technology) – decision time: 11 days (!) – 10 member states affected
  • Case 5/15: Platform Specialty Products (fungicides, herbicides, and insecticides) – decision time: 112 days – 9 member states affected

Of note are the following:

  1. The record time11 calendar days — in which the CCC resolved the Telkom transaction in favor of the South African provider, which aquired a BBBEE entity, despite the fact that the affected geographies encompassed 10 COMESA member states.
  2. The average time it took for the CCC to clear these 5 transactions was 120 days from notification to decision.
  3. All 5 notified transactions were unconditionally approved.
  4. The voting Commission members were, in all cases, Chilufya Sampa (Zambia), Thabisile Langa (Swaziland), and Alexander Kububa (Zimbabwe).

Finally, we observe that none of these merger matters presumptively benefitted from the upward-adjusted threshold (>$5 million), as they date to a pre-Assessment Guidelines era (see also here).

AAT’s updated COMESA merger statistics are thus as follows:

 COMESA merger stats 3-2015