At today’s CCC Business Reporter Workshop, Senior M&A Analyst Sandya Booluck presented major plans to amend the regional trading bloc’s merger-control regime.
The most notable part of this “complete overhaul” of the CCC regime will be the likely change from the current non-suspensory to a suspensory merger notification scheme.
Says Primerio Ltd. antitrust counsel Andreas Stargard: “This change is, of course, still subject to approval by the CCC Board and the COMESA Secretariat Council of Ministers, but it is likely to pass in my personal opinion. This is especially true since, as former CCC Head Lipimile pointed out at today’s session, this change was in fact demanded by several of the NCAs of the COMESA member states, also in view of the Art. 24(8) referral procedure. It thus presumably enjoys broad support from the bloc’s leadership and will obtain a passing vote before the end of 2023!”
In a relatively rare northwestern excursion on the continent, we are reporting today that the Moroccan competition authority (the Competition Council, or “CC”) based in Fez, which has operated only since late 2018, issued its first-ever gun-jumping fine to Swiss construction/chemicals firm Sika Aktiengesellschaft. Sika will have to pay (unless it exercises its right to a judicial appeal of this inaugural MCC decision, which it appears the company has waived and agreed to pay the) approx. $1m in fines, per the recent Article 19 fining decision made on April 28, 2022.
The underlying conduct consisted of Sika’s May 2019 acquisition of 100% of the capital and voting rights of its French competitor, Financière Dry Mix Solutions SAS, with business activities in and economic ties to Morocco, via its “Sodap” in-country subsidiary. Sika – the largest construction chemicals firm worldwide, according to its own marketing materials – likewise conducts business in Morocco, in addition to 100 other countries globally.
According to the MCC, the parties purportedly failed to notify the transaction pursuant to the mandatory provisions in Arts. 12-14 of the Moroccan competition act (Loi no. 104-12 of 2014) and thus caused the MCC to open its first gun-jumping investigation, leading to this — not insignificant — fine that has now been issued by the Council. The original liability finding was made previously, in MCC decision n°134/D/2021 (dated 6th December 2021).
Under the domestic merger-control regime, a notifiable transactions exists when:
two or more previously independent undertakings merge;
one or more persons, already controlling at least one undertaking, acquire, directly or indirectly, whether by purchase of securities or assets, by contract or by any other means, control of the whole or parts of one or more undertakings; and
one or more undertakings acquire, directly or indirectly, whether by purchase of securities or assets, by contract or by any other means, control of the whole or parts of one or more other undertakings.
To avoid similar mishaps from happening in the future, the MCC — in collaboration with the General Confederation of Moroccan Enterprises (CGEM) — held a conference and issued a legal compliance guide for businesses active in Morocco in January 2022. The MCC’s president, Ahmed Rahhou, expressed his hope that the Guidebook would “allow companies to avoid being in breach of the law and to know their rights and duties especially in terms of competition law.”
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.
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.
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.
The Competition Authority of Kenya (“CAK”) recently issued a press release on its two decisions to reject exemptions applications under sections 25 and 26 of the Kenyan Competition Act 12 of 2010. The CAK rejected applications by WOW beverages (a leading distributor in the alcoholic beverages industry) and the Institute of Certified Public Secretaries (a professional body, hereafter “ICPS”).
WOW beverages filed an exemption application to the CAK, which would have allowed it to secure contracts with seven international suppliers to import and distribute exclusively 214 premium wine and spirit brands in Kenya. WOW beverages argued that the proposed exclusive contracts were necessary to protect its investment and would protect consumers from defective products, and guarantee accountability in the event that such products enter the Kenyan market. The CAK rejected this argument stating: “The Authority [CAK] is of the opinion that parallel imports, through legal channels, are likely to bring more benefits to Kenyan consumers, including the enhancement of intra-brand competition which often leads to lower prices.”
The CAK’s decision on the application brought by ICPS (which was one of the first professional bodies to attempt to obtain an exemption to set fee guidelines) made it clear that there was no evidence to suggest that fixing prices for auditing services will improve the profession or prevent its decline and, instead, it is likely to eliminate the incentive to offer quality services. Interestingly, the CAK went a step further to state that “price fixing by professional associations extinguish[es] competition with no plausible public benefits” and went on to warn other professions that “the decision to reject the institute’s exemption application sends a strong message to professional bodies that fee guidelines decrease competition, reduce innovation and efficiencies, and limit customer choices”. This likely follows from the recent increase in exemption applications brought by other professional bodies in Kenya such as the Institute of Certified Public Accountants of Kenya and the Law Society of Kenya (which has a remuneration order). The CAK’s decisions on these applications are likely to be published in short order.
With increased awareness of competition law in Kenya, more entities are applying to the CAK for exemptions primarily to ensure that they are not found to be engaging in anticompetitive conduct, where the penalty can be up to 10% of the turnover of the entity.
According to practicing Kenyan antitrust lawyer, Ruth Mosoti, the CAK has powers to allow an entity to engage in what would ordinarily be considered anticompetitive conduct. The Act provides a framework on how such applications are to be determined “but, most importantly, the benefits must outweigh the competition concerns and meet the public-interest requirement. The competition authority also appears to put great emphasis on espousing international best practices. It is therefore important when one is making such an application to ensure that the same is backed by international best practices.”
Andreas Stargard, Ms. Mosoti’s colleague at Primerio Ltd., echoes her sentiments. He notes that the CAK follows in the well-tread footsteps of other international competition enforcers, which have dealt with antitrust exemption applications for decades: “Similar to the European Commission in its past rulings on meritless Article 101(3) exemption requests, the CAK has diligently applied common-sense competition principles in these two recent cases.” Stargard advises that other companies or trade groups wishing to seek reprieve from the Kenyan Act should consider certain key factors first before approaching the CAK:
First, ask yourself whether the proposed conduct for which you seek an exemption contributes to improving something other than your own bottom line (such as innovation that benefits others, or efficiency or a reduction in emissions, etc.), and consider whether consumers at large receive share of the resulting benefits.
In addition, just as with traditional joint-venture analysis, be prepared to articulate how the proposed agreement or restriction is absolutely indispensable to obtaining these benefits and accomplishing the stated economic goal.
Finally, seek competent legal advice from experts, who will be able to provide a professional evaluation whether or not the agreement you seek to exempt is likely to qualify under the criteria of sections 25 and 26 of the Act — or whether the CAK will rule against it, finding that an exclusivity clause or or restriction you seek will more likely than not eliminate competition.
The Competition Authority of Kenya (“the CAK”) has issued a new proposal introducing financial thresholds for merger notifications which will exempt firms with less than 1 billion Kenyan Shillings (KSh)(approximately US$10 million) domestic turnover from filing a merger notification with the CAK.
Currently, it is mandatory to notify the CAK of all mergers, irrespective of their value. According to Stephany Torres of Primerio Limited, this may deter investments in Kenya as the merger is subject to delays and additional transaction costs for the merging parties while the CAK assesses it.
In terms of the new proposal notification of the proposed merger to the CAK is not required where the parties to the merger have a combined annual turnover and/or gross asset value in Kenya, whichever is the higher, of below KSh500 million (about US$5 million or South African R60 million).
Mergers between firms which have a combined annual turnover or gross asset value, whichever is the higher, in Kenya of between KSH 500 million and KSH 1 billion may be considered for exclusion. In this case, the merging parties will still need to notify the CAK of the proposed merger. The CAK will then make the decision as to whether to approve the merger or whether the merger requires a more in depth investigation.
It is mandatory to notify a merger where the target firm has an annual revenue or gross asset value of KSh 500 million, and the parties’ combined annual turnover and/or gross asset value, whichever is the higher, meets or exceeds KSh 1 billion.
Notwithstanding the above, where the acquiring firm has an annual revenue or gross asset value, whichever is the higher, of KSH 10 billion, and the merging parties operate in the same market and/or the proposed merger gives rise to vertical integration, then notification to the CAK is required regardless of the value of the target firm. However, if the proposed merger meets the thresholds for notification in the supra-national Common Market for Eastern and South Africa (“COMESA”), then the CAK will accede to the jurisdiction of the COMESA Competition Commission (“CCC”) and the merging parties would not have to file a merger with the CAK.
COMESA is a regional competition authority having jurisdiction over competition law matters within its nineteen member states, of which Kenya is one.
It is worth mention that Kenya is also a member state of the East African Community (“the EAC”). As AAT reported recently, the East African Community Competition Authority (“the EACCA”) became operational in April 2018 and its mandate is to investigate competition law matters within its five partner states (Burundi, Kenya, Rwanda, Tanzania and Uganda). There is no agreement between the CAK and EACCA similar to the one between the CAK and CCC, and it uncertain how mergers notifiable in both Kenya and the EAC will be dealt with.
Merger filings in Africa remain costly and cumbersome
By AAT guest contributor Heather Irvine, Esq.
The Common Market for Eastern and Southern Africa Competition Commission (COMESA) recently announced that it has received over US$3 million in merger filing fees between December 2015 and October 2016.
About half of these fees (approximately $1.5 million) were allocated to the national competition authorities in various COMESA states. However, competition authorities in COMESA member states – including Kenya, Zambia and Zimbabwe – continue to insist that merging parties lodge separate merger filings in their jurisdiction. This can add significant transactional costs – the filing fee in Kenya alone for a merger in which the merging parties combined generate more than KES 50 billion (about US $ 493 million) in Kenya is KES 2 million (nearly US $ 20 000). Since Kenya is one of the Continent’s largest economies, significant numbers of global transactions as well as those involving South African firms investing in African businesses are caught in the net.
Merging parties are in effect paying African national competition authorities twice to review exactly the same proposed merger. And they are not receiving quicker approvals or an easier fling process in return. Low merger thresholds mean that even relatively small transactions, often with no impact on competition at all, may trigger multiple filings. There is no explanation for why COMESA member states have failed to amend their local competition laws despite signing the COMESA treaty over 2 years ago.
Filing fees are even higher if a proposed cross-border African merger transaction involves a business in Tanzania or Swaziland– the national authorities there have recently insisted that filing fees must be calculated based on the merging parties’ global turnover (even though the statutory basis for these demands are not clear).
The problem will be exacerbated even further if more regional African competition authorities, like the Economic Community of West African States (ECOWAS) and the proposed East African Competition authority, commence active merger regulation.
Although memoranda of understanding were recently signed between South Africa and some other relatively experienced competition regulators on the Continent, like Kenya and Namibia, there are generally few formal procedures in place to harmonise merger filing requirements, synchronise the timing of reviews or align the approach of the regulators to either competition law or public interest issues.
The result is high filing fees, lots of duplicated effort and documents on the part of merging parties and the regulators, and slow merger reviews.
If African governments are serious about attracting global investors, they should prioritise the harmonisation of national and regional competition law regimes.
Parties Start Discussing Business Practices with COMESA’s CCC
As AAT reported recently — see “Growing Pains: From One-Trick Pony to Full-Fledged Enforcer?” — the COMESA Competition Commission (CCC) has begun to move from being a pure merger-control administrator to becoming a full-fledged antitrust enforcer. The CCC issued a Notice calling on firms to notify the CCC of any agreements (both historic and forward-looking) that may be anti-competitive, for the purpose of having such agreements ‘authorised’ or ‘exempted’ under Article 20 of the COMESA Competition Regulations. (More details on that regime are in our June article, referenced above.)
AAT has now learned that several companies have taken the agency up on its Exemption proposal: Andreas Stargard, a competition practitioner with Primerio Ltd. observes that the CCC’s announced “leniency ‘window’ to incentivise firms to come forward and obtain an exemption” has closed at this point in time, although he expressed doubt that the relatively short one-month period was sufficient and will likely be extended. Says Stargard: “We are seeing several parties, both global & local companies, who are beginning to take the CCC’s non-merger enforcement seriously. These undertakings are considering to obtain advance clearance of their business practices under the Commission’s Notice procedure.” One such example, he adds, is Kenya’s financially embattled Eveready East Africa: it has reportedly sought CCC approval of its agreements with international manufacturers for the importation and distribution within the COMESA common market of their diverse products, ranging from batteries to fountain pens to Clorox-brand chemicals. The Commission has invited “general public and stakeholders” for comments according to its formal statement.
In light of these developments, Stargard advises that:
“multi-national firms operating within COMESA or jointly with a COMESA-based importer or other domestic business partner should consider engaging counsel to evaluate their practices, and if they may fall within Article 16 of the Regulations, consider approaching the CCC for an authorisation letter.”
Merger filings still dither, but YTD numbers now tentatively promise to exceed FY2015
Making sense of the COMESA Competition Commission’s merger notification site is no easy undertaking. The perplexing nature of its case-numbering system mirrors perhaps only the level of confusion surrounding the CCC’s original merger threshold and notification-fee guidelines (e.g., see here on that topic).
As we pointed out here, the merger statistics (as they had been released as of January 2016) for 2015 were disappointingly low. In today’s post, please note that we are upgrading those numbers, however, to reflect additional material now made available on the official CCC web resource, reflecting 3 additional filings, bringing the year-end total for FY2015 to 18. Three of those were “Phase 2” cases. In addition, according to the CCC, there were 3 supplemental cases in which “Comfort Letters” were issued to the parties.
For year-to-date 2016 statistics, the numbers look analogous, albeit somewhat higher than the 2015 slump — that is to say, still diminished from the 2013-2014 height of COMESA ‘mergermania’, during which (mostly international) counsel took the confusion surrounding the CCC notification thresholds to heart and erred on the side of caution (and more fees), advising clients to notify rather than not to (65 in the 2 years), or to seek Comfort Letters, which also were issued in record numbers (19 total for the 2-year period)… With that said, the agency is now up to 16 merger cases, with 2 Second-Phase matters on deck.
COMESA Competition Commission Expands Enforcement Ambit from Merger Control to Conduct —
CCC Seeks Information on “Potentially” Anti-Competitive Agreements
By AAT Senior Contributor, Michael-James Currie.
Breaking News: The COMESA Competition Commission (CCC) has issued a notice (the “Notice”) calling on firms to notify the CCC of any agreements (both historic and forward looking) that may be anti-competitive, for the purpose of having such agreements ‘authorised’ or ‘exempted’ in terms of Article 20 of the COMESA Competition Regulations (the “Regulations”).
In terms of Article 20 of the Regulations, agreements which are anticompetitive may be exempted by the CCC if such an ‘anticompetitive agreement’ contributes positively to the ‘public interest’ to the extent that the public interest benefit outweighs the anti-competitive effect.
In terms of the CCC’s notice 1/2013, the following agreements may well be considered to be in the public interest when evaluating whether an anti-competitive agreement or concerted practice should be exempted:
Joint research and development ventures;
Specialisation agreements; and
As to the agreements or concerted practices which may be anti-competitive, the Notice refers specifically to the restrictive business practices listed in Article 16 of the Regulations which states that:
“The following shall be prohibited as incompatible with the Common Market:
all agreements between undertakings, decisions by associations of undertakings and concerted practices which:
(a) may affect trade between Member States; and
(b) have as their object or effect the prevention, restriction or distortion of competition within the Common Market.”
It should be noted that Article 16 is deliberately drafted broadly so as to prohibit conduct which has as its “object” the prevention, restriction or distortion of competition. Certain conduct, such as price fixing, fixing of trading terms or conditions, allocating suppliers or markets or collusive tendering may be considered as having as its ‘object’ the distortion or restriction of competition in the market. Accordingly, firms who have engaged in this type of conduct may be held liable in the absence of any evidence of an anti-competitive effect (whether actual or potential).
Says Andreas Stargard, a competition practitioner with Primerio Ltd., “[t]he CCC’s notice is a clear sign that the agency is gathering momentum in its efforts to detect and prosecute anticompetitive practices within the member states — and is going beyond its ‘one-trick pony’ status as a pure merger-control gatekeeper. We anticipate a more active role by the CCC in conduct investigations and presumptively also enforcement actions, as opposed to its previous rubber-stamping activity of approving transactions with a COMESA community dimension (and concomitant collection of vast filing fees).”
The web of MoU’s recently concluded, which have as their primary objectives the facilitation of information exchanges and cooperation between competition agencies, is certainly a significant stride made to assist the authorities, including the CCC, in detecting and prosecuting anticompetitive practices which may be taking place across the African continent.
A further indication of the CCC’s growing appetite and confidence to identify anticompetitive practices is that the CCC has announced that it is conducting a market enquiry into the grocery retail sector. This is the first market inquiry to be conducted by the CCC.
In terms of the CCC’s Notice, firms who have not yet notified the CCC of agreements which may be anticompetitive, have approximately one month to do so. In other words, the CC has offered a leniency ‘window’ to incentivise firms to come forward and obtain an exemption in respect of agreements already implemented which may be in contravention of Article 16 of the Regulations.