Bloomberg’s Felix Njini reports in an article published today that Tanzania’s Fair Competition Commission is threatening to undo the previously-approved merger between Nairobi-based East African Breweries Ltd.’s and Serengeti Breweries Ltd., alleging that the conditions laid out in the 2010 approval of the deal had not been honoured by the parties.
Apparently, notice was given to EABL in late April: “The commission has issued a notice of an intention to revoke its own decision with respect to the merger against EABL.”
EABL is majority-owned by Diageo Plc and is the largest regional brewer, whereas Serengeti was the #2 player pre-merger. The FCC conditioned its approval on
(1) Diageo’s sale of a 20% stake in rival Tanzania Breweries Ltd., (2) compliance with a requirement that Serengeti achieve “potential growth that is well beyond the level it was able to achieve previously,” (3) the obligation to continue promoting Seregenti’s corporate identity for five years post-merger, (4) an agreement not to shutter any of Seregenti’s existing plants without prior FCC approval, and (5) the submission of annual progress reports of compliance with the investment strategy plan submitted during the application of the merger.
At issue in the current challenge by the Commission is condition no. 2, i.e., the growth-target requirement imposed on the parties. Competition-law experts are puzzled by the FCC’s imposition of said condition, said John Oxenham of the Africa-focused Primerio consulting firm:
“Forcing a company to divest itself of a rival unit prior to acquiring a target entity is commonplace, and so is the requirement that certain brands must be maintained post-acquisition. But it is highly unusual in my view to see a revenue growth-target imposed on merging parties by a government antitrust enforcer.”
While noting that he had not seen the precise wording of the “potential growth” condition imposed by the FCC in 2010, “[h]ow does the regulator account for outside macro-economic factors, increased competition from other players, and similar third-party effects that are outside the control of the merging entities?“, said Oxenham.