Clarification of COMESA merger regime filing fee

COMESA old flag color

Yesterday, on 26. February 2013, the COMESA Competition Commission issued new guidance relating to the amended merger notification requirements, as follows. Note especially the clarification on the “higher of / lower of” filing fee issue that AfricanAntitrust.com had previously reported on, correcting several law firm client alerts, which had falsely described the fee as the “higher of” the two thresholds:

INTERPRETIVE MEANING OF THE NOTIFICATION FEE PURSUANT TO RULE 55(4) OF THE AMENDED COMESA COMPETITION RULES

Rule 55(4) of the amended COMESA Competition Rules reads as follows:

“Notification of a notifiable merger shall be accompanied by a fee calculated at 0.5% or COM$ 500000, or whichever is lower of the combined annual turnover or combined value of assets in the Common Market, whichever is higher”. The interpretation of the above provision is that the COM$500,000 is the maximum fee payable for merger notification.

1. When a merger is received, the COMESA Competition Commission (‘the Commission’) will first calculate 0.5% of the combined turnover of the merging parties.

2. The Commission will then calculate 0.5% of the combined value of assets of the merging parties.

3. The Commission will then compare results in 1 and 2 above and get the higher value.

4. The Commission will then compare this higher value to the COM$500,000. If the higher value is lower than the COM$500,000, the Commission will consider the higher of either the combined assets or turnover as a notification fee. If either the combined assets or turnover is higher than COM$500,000, then the latter shall be the notification fee.

The example below illustrates this:

• Company A proposes to acquire 100% of the assets of Company B. Both operate and have sales in at least two COMESA member states. Company A has turnover (within COMESA) of $15 million; Company B has turnover of $10 million. One-half of one percent of their combined turnover is equal to $125,000 (i.e., $25 million X 0.5%).

• Company A has assets (within COMESA) of $7 million; Company B has assets of $3 million. One-half of one percent of their combined assets is equal to $50,000 (i.e., $10 million X 0.5%). $125,000 (turnover) is the higher of the two figures in steps 1 and 2.

• Since the higher value of the assets vs. turnover (i.e., $125,000) is lower than $500,000, the filing fee is $125,000.

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S.A. Clears 3-to-2 Infant Nutrition Merger with Remedies

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The South African Competition Tribunal has green-lighted the almost $12bn (R106bn) Nestlé/Pfizer deal, which will combine the largest and 3rd-largest infant-nutrition companies in the South African republic, leaving competitor Aspen in second place.

The conditions imposed by the Tribunal echo those accepted by the E.U., the Australian and other authorities, which require the merged entity to license certain of its brands to independent third parties, for up to 10 years post-closing, in order to stimulate and maintain a competitive marketplace.

To seasoned antitrust practitioners, certain aspects of the deal ring a bell — although the outcome is diametrically different (except for Mexico, where the transaction has been rejected thus far by the authorities): I speak of the Heinz/Beech-Nut U.S. deal in 2000, where the FTC blocked the deal. In the agency’s view at the time, the only competitive constraint, according to the FTC, was the Gerber company, which would have been the sole effective remaining competitor. For a retroactive analysis on this, see here for one of the voting Commissioner’s point of view. The FTC promptly sued to block the 3-to-2 “Baby Food” deal, as it became known in the antitrust world, and ultimately prevailed both at the court level and, in the end result, with the parties’ abandonment of the merger while an appeal was pending.

In conclusion, it appears that the efficiencies defence, creative design of remedies (e.g., licensing), and overall agency outlooks have changed in more than a decade, after all.

Family feud: Which S.A. agency gets the first bite at the apple?

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Why is the South African government flexing its anti-fraud and corruption laws in the long-running investigation of potential bid-rigging in the construction sector, when it could perhaps more straightforwardly apply its competition law — and only that — to the alleged offences?  In its role as the antitrust watchdog, the SA Competition Commission has been attempting to induce guilty co-conspirators to seek leniency or corporate immunity from prosecution for cartel offences under the country’s Competition Act in exchange for information on rigged bids for construction projects.

Corporate leniency is one thing — personal liability for fraud or other racketeering charges is quite another…  Individual employees or directors of the leniency applicants should beware the double jeopardy they are exposed to, personally, when their employers ink settlements with the CC: The National Prosecuting Authority is not using the country’s civil-offence based competition law to pursue the alleged wrongdoing, even though the accusations raised by them would fall rather neatly within the category of prohibited horizontal agreements among competitors (i.e., cartel conduct).  Rather, the prosecution is applying the Prevention and Combating of Corrupt Activities Act, which — unlike the Competition Act — criminalises the illicit behaviour that allegedly took place.

On the policy side, had the as-of-yet dormant Competition Amendment Act 2009 come into force and the competition law therefore criminalisation “teeth”, we here at AfricanAntitrust.com are wondering whether we’d be seeing parallel, ongoing dual-agency investigations on a scale such as this — or rather an initial battle for jurisdiction between the CC and the NPA’s Hawks?  The S.A. family feud between the twin siblings, fraud laws and antitrust? The purely legal question of “double jeopardy”, raised above, would doubtless also figure in the debate who gets to enforce which law(s).  One of the CC’s public-relations managers, Trudi Makhaya, recently hinted at the potential for greater enforcement powers of the Competition Commission, mentioning the “pending amendments to the Competition Act”. For now, the so-called Construction Fast Track Settlement Project will have to keep churning out non-criminal settlements with offenders.

This specific post will serve as a lead-up into the broader arena of criminalisation of antitrust law, which we will cover soon in its own category.  It brings with it fascinating questions beyond those raised here (including, for instance, the potential for dis-incentives to corporate executives to seek leniency).

As always, we welcome your opinion — this is a question that will sooner or later have to be answered.

COMESA MERGER FILING FORMS- FORM 12

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The COMESA Competition Commission has recently made available the relevant merger filing documentation and forms.  Complying with the requirements set out in Form 12 certainly appears, at first glance, to be relatively straightforward, however, contrary to what is stated in the COMESA Regulations, the Merger notification form appears to prohibit the closing of a transaction without approval (i.e., parties may not implement the merger or acquisition without the COMESA Commission approval).

The attempt to legislate by way of the notification documents further erodes  merger control certainty.  Given the extremely wide ambit of what constitutes a notifiable merger, the COMESA Commission will need to ensure that the contradiction contained in the merger filing forms is urgently rectified.

Nigerian antitrust?

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Today, AfricanAntitrust adds its voice to the steady, though infrequent, discussion surrounding the possibility of a Nigerian competition-law regime.

In our opinion, it is not a question of “if” but “when”, and perhaps more importantly, “how“?

“If”: it is a virtual certainty that sooner or later, the drivers of growth in the Nigerian economy (innovators, IPR owners and applicants, upstarts, and foreign investment) will succeed in their demands for an antitrust law to be enacted.

“When”: it’s been debated in Nigeria since at least 1988; there was another push in the right direction in 2002; and, since then, at least a steady trickle of intermittent calls for a central antitrust regulator, often coming loudest from the outside (as does this post). This general time line coincides with that of other developing or now emerging competition-law jurisdictions, and we believe it is now a question of years, not decades, until a Nigerian Sherman Act will see the legislative light of day. Our (admittedly unscientific) prediction is that Nigeria will have a competition-law regime prior to 2020. (Note: the latest of up to six bills introduced to date, the Competition and Consumer Protection Bill, has been languishing in the Nigerian Senate since 2009).

“How”: this is the kicker — the most interesting bit of the Groundhog Day story this would otherwise be and remain. The intriguing part about reigniting the discussion surrounding Nigerian antitrust law is that we now live in the age of COMESA and more importantly here, the COMESA CCC (Competition Commission).

This opens up new opportunities that may not have been envisaged by others in the 1990s or 2000s. For example: will the economies of West Africa band together and create a similar organisation, notably with “legal teeth”, which might include provisions for a centralised enforcement of antitrust? Will it be under the auspices of ECOWAS or UEMOA? A monetary union has been known to be an effective driver of ever-increasing competition-law enforcement elsewhere in the world (hint: Brussels)…

If the answer to these crucial questions is “no”, what are the consequences to the Nigerian economy? Will Nigeria continue on its path to outsider status when it comes to healthy economic regulation — despite its powerhouse status in sub-Saharan Africa? Will this add to the disincentive against increased foreign investment, akin to the prevalent oil and diesel-stealing that occurs ’round-the-clock and in the open? Will businesses — other than former state monopolies, now privatised and firmly in the hands of oligarchs, or cartelists — continue to accept being deprived of the economic fruit of their labour, without protection from certifiably anti-competitive behaviour? Will other state agencies continue to step in and act as quasi-enforcers of antitrust, as they have done in the past (the Air Cargo cartel is an example), filling the void of a central competition commission?

We are curious to hear our readers’ opinions.

Comment below or e-mail us directly (a.stargard [AT] primerio.international & j.oxenham [AT] primerio.international)

Helpful COMESA documentation

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The COMESA Competition Commission’s FAQ and business guide documents provide important information for corporations doing business in the organisation’s member states.

For even more insight into the COMESA antitrust regime — and its actual operation in real life — stay tuned for upcoming seminar information.

“How much for this merger filing?” – Clarifying the COMESA fees

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We have recently seen several articles and law firm client alerts incorrectly identifying the filing fee schedule of COMESA.  This post is designed to clarify and to provide accurate information to our readers.

Rule: The filing fee for a merger notification under the COMESA regime is the lower of:   [1]   500,000 COMESA-$,  or    [2]   0.5% of parties’ combined annual turnover or asset value within the COMESA market.

The confusion as to “higher of” vs. “lower of”, which has sprung up in many firm publications, may be due to the somewhat awkwardly worded language of the amendments to the original 2004 Competition Rules.  The amendments changed the text of Rule 55(4), dealing with the fee schedule and its calculation.

Example:  The two notifying parties have a combined turnover of 90m COM$ in the common market of COMESA.  In this scenario, 0.5% of 90m COM$ equals 450,000 COM$, which is lower than the maximum fee of 500,000.  Thus, the fee to be paid by the parties is 450,000 COM$.

As a rule of thumb, if the combined annual turnover/revenues/asset values of the notifying parties is 100 million COMESA-$, then the fee will be the maximum 500,000 amount.  Otherwise, it will be lower.

3 weeks until UAE competition law goes into effect

UAE
The first true antitrust law of the Emirates will come into force on 23 February 2013.  “Federal Law No. 4 of 2012” (not to be confused with legislation relating to nuclear safety of the same title) was passed by the United Arab Emirates (“UAE”) government last October 2012.

Akin to established competition laws as well as some of its recent pan-African counter-part legislation (e.g., the 2004 COMESA regional antitrust regime that finally went into effect in January 2013), its primary jurisdictional scope encompasses:

  • (1) cartel prosecution and limits on similar restrictive agreements
  • (2) unilateral conduct / abuse of dominance, and
  • (3) mergers and acquisitions.

As to M&A, unlike its COMESA sibling, the law — fortunately — will contain yet-to-be-determined thresholds that limit the notification requirements to deals above certain market shares or deal values.  Yet, the filing requirement is suspensory, and notifiable deals must therefore be put on hold until clearance is obtained from the Competition Regulation Committee (or presumably pre-authorisation has been received from the Ministry of Economy).  The period for review permitted under the law is up to 90 days plus a 45-day extension.

Penalties for breaches of the competition regime (items 1 and 2 above) include suspension of business activities and financial fines that range from AED 500,000 to 5 million [>$1.3m] or about 1m euros], with mandatory doubling of fines for recidivists; failure-to-notify mergers may result in similar fines, based on a 2-5% turnover scale or the same AED 500k-5m range, depending on ascertainability of turnover.

Notably, there are several key business segments excluded from the reach of the competition legislation, including SMEs, the financial and oil & gas sectors; telecoms; pharmaceuticals; and the provision of traditionally state-provided or funded activities (e.g., postal services, electricity, water, sewer, etc.).  Whether these rather far-reaching exclusions are in effect throwing the baby out with the bathwater remains to be seen…

The law also provides for a 6-month grace period.  This transitional period for companies to come into compliance, seek a waiver for non-compliance, or face prosecution under the law, will end on 23 August 2013.

Companies doing, or planning to do, business within the UAE may wish to review their existing business practices, market shares, competitive strategies, merger plans, and update their compliance programmes accordingly.

Kenyan Competition Authority Disputes COMESA Jurisdiction

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The Kenyan Competition Authority (CAK) has asked for formal guidance from the Kenyan Attorney General (and via his office from COMESA) as to notification requirements of mergers over which national competition authorities used to exercise exclusive or semi-exclusive jurisdiction.

John Oxenham, at Nortons in Johannesburg (South Africa) has said to Global Competition Review that the CCC would inevitably “encounter teething problems. However, it is clear that the landscape in relation to merger notifications across the region has been dramatically reinforced with COMESA coming into operation”.

COMESA member states have the procedural option of requesting a referral-“down” from the COMESA’s CCC (Competition Commission), once they gleaned that a notification has been submitted to the CCC and under circumstances that make it likely that the notified transaction may be harmful to competition within that member state’s market.

COMESA CCC now functional

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COMESA Fundamentals:

COMESA (Common Market for Eastern and Southern Africa) is a supra-national group of 19 sovereign African countries; it is the successor entity to the 1982 Preferential Trade Area Agreement among eastern and southern African nations.  For starters, here is a map of COMESA’s member states, which are as follows: Burundi, Comoros, the Democratic Republic of the Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, and Zimbabwe.

Notably absent from its membership is the largest economy of the region, namely South Africa.  Likewise, Tanzania is no longer a member, having left the bloc in 2000.

What is the competition-law relevance of COMESA:

Headquartered in Lusaka (Zambia), the 19 year-old organisation has recently upped the ante for companies engaged in commercial activities within the borders of COMESA member states…  It has created and activated the COMESA Competition Commission (the “CCC”).

The CCC, based in Lilongwe (Malawi), is tasked with supervising and enforcing competition-related matters within the bloc.  In this function, it may be compared to the Directorate General Competition (“DG COMP”) of the European Union, as a supra-national enforcement authority, specialised in antitrust / competition-law matters.  The CCC’s primary areas of responsibility are, unsurprisingly:

  1. Merger enforcement (using an “SLC” – substantial lessening of competition – test)
  2. Cartel conduct and other horizontal and potentially also vertical agreements
  3. Unilateral conduct (i.e., abuse of a dominant position in the market)

The COMESA Board of Commissioners is an appellate authority in relation to the CCC.  Companies may also maintain actions against COMESA member states before the Court of Justice, provided they have fully exhausted their national-court remedies.