AAT exclusive, COMESA, merger documentation, MergerMania, mergers

M&A Breaking News: Regional Antitrust Enforcer Aligns Merger Rule with European Union Principles

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”).

  1. 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 COMESAFurther, 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:

  1. 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
  2. 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:

  1. Both the acquiring firm and target firm can operate in at least two Member States;
  2. The acquiring firm can operate in at least two Member States, while the target firm can operate only in one Member State; or
  3. 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.

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AAT exclusive, COMESA, commissioners, East Africa, mergers, new regime, personnel

COMESA seeks replacement for CCC’s Dr. Lipimile

The COMESA Competition Commission has announced that it is accepting applications for the position of Director of the CCC until the end of October.  Says Andreas Stargard, an antitrust practitioner with Primerio Ltd.:

“The post is currently held by Dr. George Lipimile, the agency’s first and, therefore by definition, most influential chief.  Dr. Lipimile has certainly steered the comparatively young Commission into the right direction during its formative years, notably overseeing a complete makeover of the merger-notification procedure early on in the process, after much criticism of the initial system.

We are curious to see who will replace him in March 2021, as Dr. Lipimile’s term expires at the end of February.  Will it be a true competition-law expert, or will it be a politically-motivated appointment made by the COMESA Secretariat, pushing for someone who is more of a trade lawyer or, worse, economic protectionist.  What the CCC needs now to continue gaining international recognition and respect (from its peer agencies, as well as from commercial parties!) is a qualified antitrust attorney who understands the law & economics aspect of competition practice, and who will apply these principles neutrally throughout the COMESA region!”

Dr. Lipimile

George Lipimile, CEO, COMESA Competition Commission

Back in 2015, we quoted Mr. Stargard as follows, suggesting a path forward for the agency:

“If the CCC steps up its enforcement game in the non-transactional arena, it could become a true force to reckon with in the West.  I can envision a scenario where the CCC becomes capable of launching its own cartel matters and oversees a full-on leniency regime, not having to rely on the ‘follow-on enforcement’ experience from other agencies abroad.  The CCC has great potential, but it must ensure that it fulfills it by showing principled deliberation and full transparency in all of its actions — otherwise it risks continued doubt from outsiders.”

It remains to be seen who the Director’s replacement will be and which of these topics will dominate her or his agenda, if any.  The Director’s term is for 5 years, offering a salary of between $70,000 and $83,000.  Details on the opening can be found here.  Only Member State nationals can apply.  Interestingly, COMESA member states’ antitrust enforcers likewise posted the announcement on their individual web sites:

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AAT exclusive, COMESA, COVID-19, Meet the Enforcers, mergers, notification, public-interest

COMESA antitrust enforcer holds COVID seminar

 

Willard Mwemba

Dr. Mwemba of the CCC

The COMESA Competition Commission (“CCC”) hosted a live webinar today on the impact of COVID-19 on merger regulation and enforcement within the common market in the COMESA region.  The seminar was aptly sub-titled “Challenges and Way Forward,” and the CCC representatives, in particular Dr. Willard Mwemba, did indeed lay out the problems faced by them and the measures proposed and taken to alleviate them.

COVID-related business and national competition agency closures have led to “significant delays in information gathering” from NCAs, third parties, and merger parties themselves.

CCC has relaxed the hard-copy filing requirements for merger notifications.

The concept of non-competition factors (i.e., the public-interest element) was also raised, as there is a “growing debate on whether the pandemic may necessitate changes in [the] substantive assessment of mergers, e.g., towards more lenient consideration of failing firms.”

That said, the CCC emphasized that its adjustment to enforcement actions should not be construed as any weakening of competition principles taking place.  The harmonization and coordination among the COMESA member countries’ agencies and the CCC remain a critical element of the operation of the single market.

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Appellate Review, Kenya, mergers, Telecoms

Kenya’s Competition Tribunal: Airtel/Telkom merger generates first decision

By Ruth Mosoti, Esq. (Primerio Ltd. Kenya practice head)

On 4th May 2020, the Kenyan Competition Tribunal made its first decision after considering the application for review of the Airtel-Telkom merger where they contested 7 out of 8 the conditions imposed. The competition Act allows the tribunal to look at the merits of the Competition Authority’s (CAK) decision therefore and has power to confirm, modify or reverse any order issued either partially or wholly. In this particular decision the Tribunal did exercise all these powers.  The decision of the Tribunal was guided by whether CAK’s decision promoted or protected effective competition in the telecommunications sector, enhanced the welfare of the Kenyan people and prevented unfair and misleading conduct throughout Kenya among other things.

First, the Tribunal confirmed the condition set in relation to employment. This public interest consideration varies on a case by case basis hence the difference in its application. In some mergers CAK has limited the retention of employees to 12 months and in others it is limited to 3 years. In this particular case, it was limited to 2 years. The tribunal agreed that due to the specialized nature of the industry and the presence of only two players in that market post-merger, then the condition imposed in regard to employment was justified.

Ruth Mosoti (author)

Secondly, the 2 conditions in relation to spectrum licensing and management were varied in their entirety primarily because it was found that CAK had no basis to interfere with licensing conditions imposed by the Communications Authority. It was their view that the Communications Authority was the competent authority to govern the licensing terms and, in the event, that there are any competition concerns then, these two regulators would consult. The imposition of these two conditions were deemed to be unnecessary. It was emphasized that competition law is there to protect competition and not competitors.

Thirdly, the condition on restricting entering into any sale agreement was modified to bring clarity. As imposed by CAK any form of sale was prohibited which was found to be blanket, therefore unreasonable. The Tribunal clarified that the merged entity would be able to enter into sale agreements in the ordinary course of business however the merged undertaking cannot be sold for a period of 5 years. In addition to this, the condition of audit in case the merged undertaking became a failing firm was done away with because CAK failed to justify why it applied the “failing firm doctrine” post-merger. In any event should this happen, the Tribunal reasoned that this would require approval from CAK therefore an unnecessary condition at this point.

The conditions in relation to contracts managed by Telkom on behalf of the government were retained however the tribunal clarified that this was not to interfere with the freedom of contract between the Kenyan government and the merged entity. While it is unconceivable how the government would agree to preferential terms while entering into these contracts without offending the law (this would be to my understanding that you pay for a government service/product depending on who you are which would be outright discriminatory)

Lastly, imposing a requirement for annual reports to CAK with no time limit was not justified. The appellants asked for 2 years and the Tribunal obliged. This was based on the fact that most of the conditions imposed on the merged entity after the review would lapse after 2 years therefore the tribunal deemed two years to be a justifiable time frame to comply with the 8th condition.

The Tribunal’s take on the procedural issues raised by the appellants is quite interesting. On the issue as to what constituted a “fair administrative process”, it was of the opinion that CAK had accorded the appellants adequate notice and opportunity to respond. To contextualize this, the appellants received a notice of a proposed decision and had a meeting on 25th October 2019, the Appellants contested these conditions and on the same date after the meeting, CAK sent amended conditions. The appellants advocates asked for time to consult their clients on the amended conditions.  The CAK however went ahead to issue a notice of determination on 31st October 2019 which was 6 days later. CAK’s position on this was that the board having sat, the decision issued on 31st October 2019 was final. This being the case, the only avenue available to the Appellants was to challenge it before the tribunal. The position by the tribunal that the Appellants had been given adequate time to challenge procedural fairness bearing in mind that the 30 days were to lapse on 24th November 2019 is baffling at best.

In conclusion, this decision being the first of has accorded practitioners an insight as to how CAK arrive at its decisions as well as the considerations of the tribunal in case of appeals. We now look forward to its determination of the other appeals in relation to RTPs before it.

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AAT, mergers, public-interest, Uncategorized

PepsiCo/Pioneer merger: Minister Patel approves the Deal

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

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

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

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

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

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

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

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

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

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

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

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AAT exclusive, COMESA, mergers

Pepsi / Pioneer deal carefully eyed by East African merger authorities

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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AAT, East Africa, Kenya, mergers, Uncategorized

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

By Ruth Mosoti

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

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

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

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

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

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

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

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

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

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

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

 

 

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AAT exclusive, East Africa, Egypt, mergers, Transportation

Egyptian taxi saga: antitrust watchdog reverses course on $3.1 billion Uber acquisition

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AAT, East Africa, fines, Kenya, mergers, Uncategorized

Enforcement Update: Kenya Competition Authority imposes administrative penalty for gun-jumping (prior implementation of a merger)

  • update by Michael-James Currie

In September 2019, the Competition Authority of Kenya (CAK) formally penalised two merging parties for having implemented a transaction without having obtaining the requisite prior regulatory approval.

The trigger for mandatory notification in this case was a change from joint control to sole control when Patricia Cheng acquired an additional 50% of the shareholding in Moringa School.

The maximum penalty which may be imposed for prior implementation is 10% of the parties’ combined turnover in Kenya. In this case, the CAK imposed a nominal penalty (approximately USD 5000) in light of the parties having voluntarily notified the CAK of their failure to obtain prior approval, having co-operated with the CAK’s investigatory agency and after having subsequently assessed the transaction, the CAK concluded that the merger was unlikely to have any adverse effects on competition and would have positive public interest benefits.

The public interest benefits included the fact that the school would offer coding technology to over 1000 students and employees over 100 staff members.

In light of the mitigating factors, the CAK found that the penalty was balanced taking into account principles of deterrence and proportionality of the infringement.

The case is noteworthy not only because it signals a clear message from the CAK that the prior implementation of mergers will attract penalties (which are likely to increase substantially as firms ought to have greater awareness of the merger control regime in Kenya) but also confirms that a move from sole to joint control of an entity or, as in this case, a move from joint to sole control, requires mandatory notification to the CAK.

The CAK has one of the most effective merger control regimes in Africa and is increasingly becoming a more robust competition agency from an enforcement perspective.

[Michael-James Currie is a competition lawyer practising across the majority of sub-Saharan African jurisdictions]

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