An AAT-exclusive first report on this — somewhat stunning — development follows below. More details to be published once they become available in a new post…
On August 8th, 2022, the CCC officially announced the formal withdrawal of its Practice Note No. 1 of 2021, which had clarified what it meant for a party to “operate” in the COMESA common market. The announcement mentions that it will (soon? how soon?) be replaced with a revised Practice Note — a somewhat unusual step, in our view, as the revised document could have, or should have, been published simultaneously with the withdrawal of the old one. Otherwise, in the “interim of the void,” legal practitioners and commercial parties evaluating M&A ramifications in the COMESA region will be left with no additional guidance outside the bloc’s basic Competition Regulations and Rules.
Of note, “this clarifying policy document did not stem from the era of Dr. Mwemba’s predecessor (CCC 1.0 as we are wont to call it), but it was already released under Willard’s aegis as then-interim director of the agency,” observes Andreas Stargard, a competition lawyer at Primerio Ltd. He continues: “Therefore, we cannot ascribe this most recent abdication to a change in personnel or agency-leadership philosophy, but rather external factors, such as — perhaps — the apparently numerous inquiries the CCC still received even after implementation of the Note.”
The COMESA Competition Commission (“CCC”) issued new guidance today in relation to its application of previously ambiguous and potentially self-contradictory merger-notification rules under the supra-national COMESA regime. As Andreas Stargard, a competition practitioner with Primerio notes:
“Thisnew Practice Noteissued by Dr. Mwemba is an extremely welcome step in clarifying when to notify M&A deals to the COMESA authorities. Specifically, it clears up the confusion as to the meaning of the term ‘to operate’ within the Common Market.
Prior conflicts between the 3 operative documents (the ‘Rules’, ‘Guidelines’, and the ‘Regulations’) had become untenable for practitioners to continue without clear guidance from the CCC, which we have now received. I applaud the Commission for taking this important step in the right direction, aligning its merger procedure with the principles of established best-practice jurisdictions such as the European Union.”
BREAKING NEWS: The COMESA Competition Commission (“CCC”) issued new guidance today in relation to its application of previously ambiguous and potentially self-contradictory merger-notification rules under the supra-national COMESA regime. As Andreas Stargard, a competition practitioner with Primerio notes:
“This new Practice Note issued by Dr. Mwemba is an extremely welcome step in clarifying when to notify M&A deals to the COMESA authorities. Specifically, it clears up the confusion as to the meaning of the term ‘to operate’ within the Common Market.
Prior conflicts between the 3 operative documents (the ‘Rules’, ‘Guidelines’, and the ‘Regulations’) had become untenable for practitioners to continue without clear guidance from the CCC, which we have now received. I applaud the Commission for taking this important step in the right direction, aligning its merger procedure with the principles of established best-practice jurisdictions such as the European Union.”
The full text of the new Guidance is as follows:
PRACTICE NOTE ON THE COMMISSION’S APPLICATION OF THE TERM “OPERATE” UNDER THE COMESA COMPETITION REGULATIONS AND THE “APPLICATION OF RULE 4 OF THE RULES ON THE DETERMINATION OF MERGER NOTIFICATION THRESHOLDS AND METHOD OF CALCULATION”
February 11, 2021
CCC – MER – Practice Note 1 of 2021
The COMESA Competition Commission (the “Commission”), having received several queries from merging parties and their legal representatives in relation to the application of certain merger control rules, hereby issues this practice note on its application of the term “operate” under the COMESA Competition Regulations, 2004 (the “Regulations”) and the COMESA Competition Rules, 2004 (the “Rules”) and its approach to the application of Rule 4 of the Rules on the Determination of Merger Notification Thresholds and Method of Calculation (the “Rules on the Determination of Merger Notification Thresholds”).
Application of the Term “Operate”
Article 23 of the Regulations establishes the jurisdiction of the Commission to assess cross-border mergers where the term “operate” is central to the application of Article 23 of the Regulations which, inter alia, applies where “…both the acquiring firm and target firm or either the acquiring firm or target firm operate in two or more Member States…”.
The Regulations have not defined the term operate. However, paragraph 3.9 of the COMESA Merger Assessment Guidelines of 2014 (the “Merger Guidelines”) states that an undertaking is considered to operate in a Member State for purposes of Article 23 (3)(a) of the Regulations if its operations in that Member State are substantial enough that a merger can contribute to an appreciable effect on trade between Member States and restrict competition in COMESA. Further, the Merger Guidelines state that “…an undertaking operates in a Member State if its annual turnover or value of assets in that Member State exceeds US$ 5 million…”.
It should be noted that at the time the Merger Guidelines became applicable, the prescribed merger notification thresholds envisaged under Article 23(3)(b) of the Regulation, were set at US$ 0. This effectively meant that all merger transactions satisfying the regional dimension requirement of Article 23 (3)(a) of the Regulations were required to be notified to the Commission, irrespective of the magnitude of the merging parties’ operations in the Common Market. In line with the Regulations’ objectives, the Commission sought to only capture those mergers likely to affect trade between Member States and restrict competition in the Common Market. As a result, the Merger Guidelines attached a quantitative definition to the term ‘operate’, as meaning the turnover or value of asset in a Member State to be at least US$ 5 million.
All stakeholders are hereby informed that following the enactment of the Rules on the Determination of Merger Notification Thresholds, the definition of ‘operate’ under paragraph 3.9 of the Merger Guidelines in no longer applicable as the Rules take precedence over the Guidelines. In view of this, paragraph 3.9 of the Guidelines has been rendered ineffective with the coming into force of Rule 4 of the Rules on the Determination of Merger Notification Thresholds. Therefore, for purposes of merger notification in line with Article 23 of the Regulations, all stakeholders should be referring to Rule 4 of the Rules on the Determination of Merger Notification Thresholds which stipulates that:
“Any merger where both the acquiring firm and target firm, or either the acquiring or the target firm, operate in two or more Member States, shall be notifiable if:
the combined annual turnover or combined value of assets, whichever is higher in the Common Market of all parties to a merger equals to or exceeds US$50 million; and
the annual turnover or value of assets, whichever is higher, in the Common Market of each of at least two of the parties to a merger equals or exceeds US$10 million, unless each of the parties to a merger achieves at least two-thirds of its aggregate turnover or assets in the Common Market within one and the same Member State.”
2. Application of Rule 4 of the Rules on the Determination of Merger Notification Thresholds
Rule 4 applies to merger transactions that satisfy both the “Regional Dimension” and “Notification Thresholds” requirements under Article 23 of the Regulations. Rule 4 is cumulative and must be satisfied entirely before a merger is notified to the Commission. Rule 4 is therefore applied as follows:
Firstly, Regional Dimension must be satisfied. This is contained in the chapeau of Rule 4 which requires the merging parties to operate in at least two COMESA Member States. Further, it gives three alternative scenarios under which merging parties can operate in Member States namely:
Both the acquiring firm and target firm can operate in at least two Member States;
The acquiring firm can operate in at least two Member States, while the target firm can operate only in one Member State; or
The target firm can operate in at least two Member States, while the acquiring firm can operate only in one Member State.
Regional Dimension will therefore be met once any of the three scenarios is satisfied and if they are, the next step is to confirm whether Rule 4(a) is satisfied. Rule 4(a) must be satisfied by confirming that either the combined annual turnover or combined annual assets in the Common Market of all the parties to the merger equals to at least US$ 50 million. The option to use combined annual turnover or combined annual asset shall depend on the higher amount of the two total values.
Assuming the Regional Dimension and Rule 4(a) is satisfied, the next step is to confirm whether the merging parties satisfy Rule 4(b). To satisfy Rule 4(b), it should be demonstrated that the annual turnover or annual asset, whichever is higher, of each of at least two of the parties in the Common Market is at least US$ 10 million. Whether to use annual turnover or annual asset depends on the higher of the two. It should also depend on the measure (turnover or asset) used in Rule 4(a).
As an illustration, assume annual combined turnover is higher than annual combined asset under Rule 4(a). This shall mean annual combined turnover will be adopted under Rule 4(a). Therefore, proceeding to Rule 4(b) shall mean confirming whether the annual turnover of each of at least two of the parties in the Common Market is at least US$ 10 million.
The final step in applying Rule 4 is to confirm if the 2/3 exemption rule holds. Given that Rule 4 must be applied in its entirety, the 2/3 exemption rule must also be read in conjunction with the preceding limbs in establishing the thresholds i.e. Rule 4(a) and Rule 4(b). For both the collective and individual thresholds requirements under Rule 4(a) and 4(b), it is the higher value of the turnover derived or asset value held which must be considered. In this regard, the 2/3 rule is meant to apply once the higher value has been established. It would be contrary to the principles and spirit of the 2/3 rule to rely on a different financial criterion to exempt a notification than the criterion used to establish a notification requirement under first two limbs of Rule 4.
FCCPA in effect – but not quite, as FCCPC not yet fully operational
As AAT reported previously, the landmark Federal Competition & Consumer Protection Act (FCCPA) that suddenly went into effect in Nigeria earlier this year has not quite been operationalised. Notably, the agency that is supposed to be tasked with enforcing the FCCPA, the Federal Competition & Consumer Protection Commission (FCCPC) is currently “undergoing construction”, so-to-speak. An African competition-law practitioner with Primerio notes that “apparently there has been some political wrangling around the constituents of the FCCPC’s Board,” which is unsurprising, to say the least. One might be inclined to say, Plus ça change, plus c’est la même chose…, as politics has always played a major role in Nigerian enforcement.
That said, the AAT editor does understand that, at a minimum, the Director General of the existing Consumer Protection Council, Babatunde Irukera, will serve in some capacity with the FCCPC — it is unknown whether the remaining 5 CPC commissioners will likewise continue to act for the FCCPC or not. (Screenshots of his Twitter account below, indicating a full-blown transition from the CPC to the FCCPC).
One indication of the lack of the FCCPC’s operational status when it comes to mergers is that its web site (presumably soon to be http://fccpc.gov.ng/) still yields an error message. Another is a recent joint statement issued by the SEC and its yet-to-be-established counterpart, which provides in relevant part as follows:
In order to ensure continuing and seamless commercial transactions and market operations, SEC and FCCPC have come to a mutual understanding with respect to these transactions within the transition period, which pursuant to this notice commences immediately, and shall remain in force until otherwise discontinued by further Advisory or Guidance.
During this transition period, starting today, May 3rd, 2019:
All notifications or fillings will be reviewed under existing SEC Regulations, Guidelines and Fees.
Notifications will be filed at FCCPC OR SEC/FCCPC Interim Joint Merger Review Desk at SEC.
All applicable fees will be paid to the FCCPC.
SEC and FCCPC will jointly review notifications and FCCPC will convey decisions with respect to the notifications.
Notifications previously received by SEC, but yet to be decided, will be subject to the interim process above and FCCPC will convey the decisions accordingly.
We will update AAT’s readership with new intel as soon as it becomes available. For the time being, the status quo remains largely intact. Says Andreas Stargard, an antitrust practitioner:
“For now, merger parties should proceed as before, namely: analyse your transaction under the Investment & Securities Act (ISA), and file with either the SEC or the FCCPC — some advise to file with the SEC for the time being, if applicable, as the lack of full operational status of the FCCPC does not bode well for procedural thoroughness or guaranteed document retention in this early phase. That said, if your transaction has a longer time horizon, with closing potentially several months down the road, your counsel should take into account the very real possibility of there being a notification under the FCCPA, even if none was required under the ISA. I expect the FCCPC to set merger notification thresholds very soon.”
Osayomwanbor Bob Enofe, an academic and proponent of the Nigerian competition law notes, however, that the current interim arrangement “only suggests to me that the SEC currently leads, concerning merger enforcement in Nigeria, rather than clarifying that the FCCPC is not existent (especially given the transitional period established by the two Commissions).” He continues: “The erstwhile CPC might be revamped to reflect a more competition-law cognisant staff base,” noting that “various competition law offences now exist in Nigeria,” of which cartel conduct is punishable not only my monetary fines but also criminally under the FCCPA.
The first-ever COMESA-sponsored competition law workshop focussed solely on the business community, currently underway in Nairobi, Kenya, stretches the capacity of the Hilton conference room where it is being held.
The event’s tag line is “Benefits to Business.” Especially now, with the African continent sporting over 400 companies with over $500m in annual revenues, the topic of antitrust regulation in Africa is more pertinent than ever, according to the COMESA Competition Commission (CCC).
The head of the Zambian competition regulator (CCPC), Dr. Chilufya Sampa, introduced the first panel and guest of honour. He identified the threats of anticompetitive last behaviour as grounds for he need to understand and support the work of he CCC and its sister agencies in the member states.
With COMESA trade liberalisation, the markets at issue are much larger than kenya or other national markets. The effects of anticompetitive conduct are thus often magnified accordingly.
The one-stop shop nature of the CCC’s merger notification system simplifies and renders more cost-effective the transactional work of companies doing business in COMESA.
The Keynote speaker, Mr. Mohammed Nyaoga Muigai, highlighted the exciting future of the more and more integrated African markets, offering new challenges and opportunities. He challenged the audience to imagine a single market of over 750 million consumers. Companies will have to think creatively and “outside the box” in these enlarged common markets.
His perspective is twofold: for one, as a businessman and lawyer, but also as a regulator and board chairman and member of the Kenyan Central Bank. Effective competition policy (and access to the legal system) allows to prepare the ground for the successful carrying out of business in the common market. Yet, businesses must know what the regulatory regime actually is. Therefore, the duty of lawyers is to educate their clients about the strictures and requirements of all applicable competition law, across all COMESA member states.
After a group photo, the event continued with an informative presentation by Mr. Willard Mwemba on key facts that “companies should know” on merger control in the (soon enlarged to 21 member states, with the imminent addition of Tunisia and Somalia) COMESA region, starting with its historical roots in COMESA Treaty Article 55 and continuing through the current era since 2013 of the CCC’s regulatory oversight.
He provided relevant merger statistics, jointly with Director of Trade affairs, Dr. Francis Mangeni, which were of great interest to the audience, followed by a discussion of substantive merger review analysis as it is undertaken by the Commission. The benefits of the “one-stop-shop” characteristic of CCC notification versus multiple individual filings were extolled and individual past M&A cases discussed.
AAT will live-update the blog as the event progresses.
Dr. Sampa, as head of the Zambian CCPC and a former CCC Board member, emphasized the importance for companies to have functioning and well-implemented antitrust compliance programmes in place.
A spirited discussion was had relating to the 30% market share threshold the Commission utilises to evaluate triggers for launching antitrust conduct investigations. Primerio’s Andreas Stargard argued for COMESA’s consideration of an increase in this trigger threshold to 40%, proposing that:
“Especially in an already concentrated market (where players possess majority shares anyway), a low initial share threshold is of little to no additional enforcement value. On the contrary, a low threshold may hamper vigorous competition by smaller to midsize competitors or newer entrants, who wish to grow their (previously innocuous) smaller share of the market but are simultaneously held back in their growth efforts by trying not to cross the 30% barrier so as not to attract the attention of the Commission.”
There was also an issue raised regarding private equity and non-profit / “impact investors” and the like having to bear the burden of notifications and ancillary fees in cases that are otherwise unobjectionable almost by definition (since the investors are not present on the market of the acquired entities in which they invest). Dr. Mangeni indicated that the CCC will investigate and consider whether a proposed change in the applicable Rules to account for this problem may be advisable in the future.
The CCC’s chief legal advisor, Ms. Mary Gurure, presented on conflict of laws issues within the COMESA regime, harmonisation of laws, and CCC engagements with individual member states on these issues.
Crucially, she also mentioned a novel initiative to replicate a COMESA-focused competition enforcer network, akin to the ECN and ICN groupings of international antitrust agencies.
The conference concluded with a business lawyer panel, in which outside counsel and in-house business representatives voiced their perspectives, largely focusing on the issue of merger notifications. These topics included the (1) burdens of having to submit certified copies of documents, (2) high filing fees (particularly in light of relatively low-value deals being made in the region), (3) comparatively low notification thresholds (e.g., the $10m 2-party turnover limit), (4) remaining, if minimal, confusion over multiple filing obligations, (5) questions surrounding the true nature of the “public interest” criterion in the CCC’s merger evaluation, which could benefit from further clarification via a Guideline or the like, and (6) the importance of predictability and consistency in rulings.
Panellists also commented on the positive, countervailing benefits of the one-stop-shop nature of the CCC, as well as highlighting the friendly nature of the COMESA staff, which permits consensus-building and diplomatic resolutions of potential conflicts.
Mr. Mwemba concluded the event by responding to each of the panel members’ points, noting that forum-shopping based on the costs of filing fees reflected a misguided approach, that the CCC may consider increasing filing thresholds, and that the CCC’s average time to reach merger decisions has been 72 (calendar) days.
Under the Namibian Competition Act (the “Act”), which came into law in April 2003, the term “merger” covers all three common types of M&A activity, as well as joint ventures; above certain thresholds, a merger becomes compulsorily notifiable. On December 21, 2015, the Namibian Ministry of Industrialisation, Trade and SME Development, in accordance with the powers conferred upon it under s43(1) and (2) of the Act, published a notice containing remarkable changes to the thresholds triggering the application of the merger regulations under the Act and thereby a compulsory notification.
The previously applicable government notice on the determination of those thresholds, dated December 24, 2012, had established the following triggering values:
The combined assets, or combined annual turnover in, into or from Namibia of the acquiring and target undertakings exceed N$20 million (US$1.578 million, based on the Bank of Namibia 2015 average exchange rate)
The annual turnover of one of the undertaking plus the assets of the other undertaking exceed N$20 million
The asset value or the annual turnover in, into or from Namibia of the target undertaking exceeds N$10 million (US$ 789,000)
John Oxenham, an Africa practitioner with advisory firm Pr1merio, notes that “[t]he December 2015 Government notice raised those thresholds by 50%, i.e. N$30 million and N$15 million respectively (US$ 2.367 and 1.1835 million). Furthermore, the revised notice sets out a two-tier calculation of the triggering thresholds, with two cumulative values to be considered,” as follows:
First, the combined assets, on the one hand, or annual turnover, on the other hand of the involved entities;
or, the cumulated value of the assets of one entity, and of the annual turnover of the other.
Yet even if one of those values exceeds N$30 million, the operation need not be notified if either the asset value of the annual turnover of the transferred undertaking is equal to or valued below N$15 million.
In other words, M&A targeting relatively small firms will not need to be notified, no matter how large the acquiring entity may be.
Yet the new notice maintains the possibility for the enforcement agency, the Namibian Competition Commission (the “Commission”), which came into operation in December 2008, to demand notification of a merger falling below those thresholds, if it considers it necessary to deal with the merger in terms of the Act.
Although the rationale of this provision is relatively clear, its phrasing raises questions as to the way it should be implemented. It is reasonable to believe that this regulation simply aims at allowing the Commission to investigate in all cases it deems useful. Indeed, the purpose of the thresholds is to sort out the potentially hazardous operations, as a form of “pre-selection” so as to avoid obstructing the Commission. But those thresholds should not bear the adverse consequence of preventing the Commission to exercise its control when it has reasonable grounds to consider that a “smaller” operation may cause harm to competition.
The notice lacks explicitly stated and pre-determined factors that could lead the Commission to such a finding, a loophole that arguably leaves way for arbitrary decisions. This goes against international best practices, as reaffirmed once again in a 2005 OECD report, considering that the criteria to determine whether a merger must be notified should be clear and objective.
Furthermore, it is unclear how the Commission could determine that a “small” merger needs to be notified, prior to any investigation. If this regulation simply requires the firms to provide the Commission with the information that would be asked in case of a mandatory notification, it is regrettable to make this unnecessary detour instead of recognising the Commission’s powers to request relevant documents and information as part of its general investigatory function.
As for the modification of the thresholds themselves, recent commentaries have praised the initiative, describing it as a “positive development”.
The explanatory note accompanying the Government notice referred, in particular, to the Recommended Practices of the International Competition Network (the “ICN”), together with comparative studies and analysis of the past efficiency of the thresholds’ level, as the basis for this reform.
Indeed, one of the first recommendations of the ICN is that “merger notification thresholds should incorporate appropriate standards of materiality as to the level of ‘local nexus’ required for merger notification”. The first comment of the ICN working group on this recommendation states that “each jurisdiction should seek to screen out transactions that are unlikely to result in appreciable competitive effects within its territory”. In particular, the material sales or assets level within the territory shall be important enough to justify the additional transaction costs entailed by the obligation to notify the operation.
In the case of Namibia in particular, a UNCTAD peer review conducted in 2014, while acknowledging the “fairly good competition law as enshrined in the Competition Act”, recommended a revision of the Namibian merger control. In particular, the UNCTAD report advocated for a review upwards of merger notification thresholds. In that regards, the Commission’s initiative is much welcome. Indeed, the UNCTAD report praised the Act for taking into account special requirements of the country’s economy, characterised by small undertakings. Arguably, the revised thresholds go a step further in this positive direction.
The public statistics on the Commission’s achievements show that since its setting up in 2009, the Commission’s M&A division has handled over 200 mergers. In November 2015, the Commission announced that it received a total of 60 merger notifications, of which 48 were approved during the current financial year of 2015/2016. The announced total value or purchase consideration for these merger notifications was about N$23,2 billion, and N$19,2 billion for the 48 approved mergers. Yet since “about 99%” of the total purchase consideration paid during the first quarter was one transaction, the relevance of the revised thresholds appears clearly.
A number of African jurisdictions have recently published guidelines relating to merger control (which we have reported here on Africanantitrust). During 2015, Malawi’sCompetition and Fair Trading Commission (“CFTC”, whose web site appears to be down at the time of publication (http://www.cftc.mw), followed suit and published Merger Assessment Guidelines in 2015 (“Guidelines”) in order to provide some guidance as to how the CFTC will evaluate mergers in terms of the Competition and Fair Trading Act (“Act”).
Most significantly, the Guidelines have not catered for mandatorily notifiable merger thresholds which is unfortunate as most competition agencies as well as advocacy groups have recognised that financial thresholds is an important requirement to ensure that merger control regimes are not overly burdensome on merging parties.
Furthermore, the COMESA Competition Commission, to which Malawi is a member, published merger notification thresholds in 2015 in line with international best practice. It would be encouraged that the CFTC considers likewise publishing thresholds.
Other than the absence of any thresholds, the Guidelines contain substantively similar content to most merger control guidelines insofar as they set out the broad and general approach that the CFTC will take when evaluating a merger. We have, however, identified the following interesting aspects which emerge from the Guidelines which our readers may want to take note of:
The CFTC is entitled to issue a “letter of comfort” to merging parties. A letter of comfort is not formal approval, but allows the merging parties to engage conduct their activities as if approval has been obtained. Therefore, once a letter of comfort has been obtained, the parties may implement the merger. In terms of the Guidelines, a letter of comfort will only be issued once the CTFC is satisfied that any should their investigation reveal any potential competition law concerns, that those concerns will be able to be sufficiently addressed by merger related conditions. It is not clear whether a letter of comfort will be issued before the merger has been made public and therefore it is also unclear what the role of an intervening third party will be once a letter of comfort has been issued.
The merger filing fee is 0.05% of the combined turnover or assets of the enterprises’ turnover. The Guidelines do not specify that the turnover must be derived from, in, or into Malawi, although it is likely that this is indeed what was intended.
The Act and Guidelines make provision for what is becoming a common feature of developing countries competition laws, namely the introduction of so-called “public interest” provisions in merger control. The Guidelines, however, indicate that the CFTC does not consider these public interest provisions in quite as robust manner as the authorities do other countries including, inter alia, South Africa, Namibia, Zambia and Swaziland. In terms of the Guidelines, any public interest advantages or disadvantages is just one of the factors that the CFTC will consider, together with the traditional merger control factors. It is thus unlikely that a pro-competitive merger would be blocked purely on public interest grounds although this is notionally possible.
The Guidelines set out the following factors, combined with figures that are likely to be utilised when evaluating market concentration, which if exceeded, may increase the likelihood of the merger leading to a substantial lessening of competition:
Market Shares: 40% for horizontal mergers and 30% for non-horizontal mergers;
Number of firms in the market;
Concentration Ratios: CR3- 65%; or
The Herfindahl-Hirschman Index (“HHI”): HHI between 1000-2000 with delta 259; or HHI above 200 with delta 150. For non-horizontal mergers a merger is unlikely to raise competition concerns if the HHI is below 2000 post-merger.
To answer our rhetorical question in the title above: We don’t believe so. For the merger junkies among our readership, here is AAT’s latest instalment of “COMESA MergerMania” — AfricanAntitrust’s occasional look at merger matters reviewed by the young multi-jurisdictional competition enforcers in south/eastern Africa. (To see our last post on COMESA merger statistics, click here).
COMESA publishes new Merger Filings, still fails to identify dates thereof
As nobody else seems to be doing this, let us compile the latest news in merger notifications to the COMESA Competition Commission. Prior to doing so, however, we observe one item of utility and basic house-keeping etiquette, which we hope will be heeded in future official releases by the agency: Please note the dates of (and on the) documents being issued. Using the date as a ‘case ID’ is insufficient in our view — the CCC’s current PDF pronouncements invariably remain un-dated, a practice which AAT deplores and which simply does not conform to international business (or government) standards. So: please date your press releases, opinions, decisions, and notifications on the documents themselves.
We observe that the matters below have not yet been assigned final “case numbers” (at least not publicly) in the style typical of the CCC decisions in the past, namely sequential numbers per year, as they are currently under investigation and have not yet been decided.
We also note that one notification in particular appears to have been retroactively made in 2014, even though it is identified as merger no. 3 of 2015 (Gateway), a peculiarity we cannot currently explain. Likewise, AAT wonders what the “44” stands for in its case ID (“12/44/2014”), we surmise it’s a typo and should be “14” instead.
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.
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.
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.
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:
The event included a session on “various elements of knowledge management systems,” for which the the South African Competition Commission was selected to serve as an exemplary agency. The Namibia Competition Commission presented a plan for implementing the Report’s recommendations. This plan will form part of the agency’s overall strategic planning framework “Smart enforcement, smart advocacy and smart research” that is to be launched by June 2015.
In attendace was, among others, the country’s Deputy Minister of Trade and Industry, Tjekero Tweya. Participants were invited to attend two round tables discussions on the intersection and complementarities of competition policy and consumer protection; and strengthening cooperation between different government bodies to improve competition enforcement in Namibia.
Can Report avert devolution of merger-control regime into extrajudicial “fairness” criteria?
Substantively, AAT welcomes further and deeper discussion of true antitrust/competition law issues in Namibia wholeheartedly. We reported last year that a crucial revision of the Namibian competition law includes consumer-protection provisions that would potentially bar M&A deals not only on pure antitrust grounds but also on a more broadly defined “unfairness” basis.
The cited Report contains two relevant statistics, showing the relatively young enforcement agency’s workload in absolute terms as well as in relative (merger vs. other enforcement work) numbers:
New AAT interview series highlights individual African competition enforcers
In the first instalment of our new Meet the Enforcers series, we speak with Rajeev Hasnah, CFA, who is a sitting Commissioner of the COMESA Competition Commission. In our exclusive interview, we discuss the CCC’s merger review practice, its revised Guidelines, young history and achievements, and seek practitioner guidance.
You are an economist by training and currently a sitting COMESA Competition Commissioner. As the young agency is about to celebrate its 2nd anniversary, what do you consider to be the CCC’s biggest achievement to date?
According to me, it is the fact that the CCC is effectively enforcing the COMESA Competition Regulations since it started operating in January 2013. It is indeed a commendable achievement given that the current Board of Commissioners sworn-in in October 2011. In 2012, the CCC worked on the drafting of the guidelines, in consultation with various stakeholders, and under the advice of other competition experts.
The institution also established a good working relationship with national authorities across COMESA and beyond, and proved its credibility and effectiveness as a regional competition authority within the business and legal communities globally. The rather high number of merger notifications with a COMESA dimension already adjudicated to-date (around 50) is testimony to the success of the CCC being an effective competition law enforcer in its still early days.
Comparing the CCC merger review in practice with that of other competition enforcement agencies worldwide, where do you see the key differences?
Nowadays it is getting harder to talk about differences in any field of economic activity in this increasingly globalised world. In my view, the key principles and the application of the Competition Law in the COMESA region do not differ significantly either from that of the national authorities or other major jurisdictions across the globe. The assessment of “substantial lessening of competition” as the underlying fundamental test in merger reviews is at the core of the evaluation conducted by the CCC as well.
Does the multi-national nature of the CCC (akin to the European Commission) make the substantive work more difficult?
It is definitely not an easy feat to enforce the COMESA Competition Regulations across 19 different countries, each with its own economic, legal and cultural environments. Yet, under the leadership of the current Chairman, Alex Kububa and Director/CEO of the CCC, George Lipimile, a good working relationship and collaboration has been established with the different national authorities across the COMESA region, which facilitates an effective enforcement of the Competition Regulations. This also ensures that the CCC has a good perspective of the individual local realities, which is no doubt a key element to assess the impact on competition at the regional level.
What prompted the re-drafting of the CCC Merger Guidelines, and why was the indirect path of an administrative guidelines interpretation of the verb “to operate” chosen to elevate the review thresholds, as opposed to increasing the thresholds in the underlying Rules themselves?
It is not uncommon that an authority reviews its guidelines as it gains experience in enforcing the law. Any changes or further clarifications are geared toward ensuring that the business and legal communities as well as competition economics experts have a good understanding of how the Regulations are enforced by the CCC. This indeed shows that the CCC stands ready to ensure an improved clarity of its enforcement of the Competition Regulations among its key stakeholders.
The relevant paragraphs defining the verb “to operate” in the Merger Guidelines, should not be construed as a review of the merger notification thresholds per se. The latter has its own procedures regarding any likely review. The definition in the Merger Guidelines is rather to ascertain whether the said undertaking is construed to be effectively operating in a Member State or not.
Do you have advice for African practitioners counselling their clients on whether or not to notify a merger to the CCC?
Taking into consideration the rise in the enactment and enforcement of a competition policy regime across various jurisdictions and at the level of regional trading blocs as well, one can safely say that a competition authority is here to stay and to enforce the law as prescribed.
One of the key considerations in doing business is a proper assessment of the risks the undertaking faces or could potentially face and the implementation of a suitable actionplan to deal with these risks. I believe that non-notification of a notifiable COMESA dimension merger to the CCC should not be construed as carrying a low probability of being detected by the CCC and certainly not a low impact one for the undertaking.
What is your view about the elevation of non-competition assessments above those of pure competition tests in merger review? Is it good for the adjudication of competition matters generally?
Some jurisdictions consider public interests as important, while some don’t. This is normally provided for or not in the respective laws, and whichever is the case, as adjudicators, we need to follow what is prescribed in the Regulations.
It is also important to note that in practice, the enforcement of competition law can be defined as being the conduct of economic analysis within a legal framework. Both the economic analysis and legal framework evolve accordingly in line with the development of the jurisdiction’s economy. We can take the examples of more mature competition policy regimes which started with the consideration of non-competition issues in merger review, to then afterwards moving to assessing only competition matters. As such, each jurisdiction has its own specificities that it needs to take into consideration, though these are bound to evolve with time.
By way of background, how did you get into antitrust/competition law & economics?
I am an economist and a Chartered Financial Analyst (CFA) by training, and prior to joining the antitrust world I was an investment professional. Four years ago I had the choice between acquiring experience in private equity or joining the nascent competition law enforcement team of the Competition Commission of Mauritius as its Chief Economist/Deputy Executive Director, working with the then Executive Director, John Davies. I chose the latter for its excellent combination of applied microeconomics and law.
What was the path that took you to working for competition enforcement agencies?
I started as a macroeconomist working in London for an economic consultancy firm in the city, where I was advising traders and asset managers. I then moved on to financial investing in an investment management firm and to corporate finance in one of the largest conglomerates in Mauritius. So I came to the antitrust world as a business/investment practitioner with a strong background and experience in applied economic and financial analysis.
Having seen the world from the private sector side, I acquired an edge in the application of competition economics in my previous role as a Chief Economist/Deputy Executive Director and as a current Commissioner at the COMESA Competition Commission.
What skills would you encourage regional African practitioners focus on for purposes of developing antitrust advocacy in the COMESA region?
Having previously led the Competition Culture project for the International Competition Network (ICN) Advocacy Working Group (AWG), I am now one of the strong proponents of the importance of advocacy to develop and maintain a strong competition culture within society.
Ensuring that advocacy activities are properly designed and tailored to meet the requirements of the target group is crucial. Equally important is to ability to communicate in a very simple and easy to understand language, adapted to meeting the target audience’s expectations.