Akzo rejects CCC notification request, claims no ‘failure-to-file’ in paint deal

Paint giant goes on offensive against COMESA request for retroactive merger filing

By AAT Editors

As AAT first reported here on Sept. 26, the COMESA Competition Commission has launched its first failure-to-file investigation into an M&A transaction (here, likely, a licensing deal), specifically involving Dutch commercial paint giant AkzoNobel and paint brand “Sadolin“.

Today’s news, reported in local Ugandan media, is that AkzoNobel’s Director for Decorative Paints in Sub-Saharan Africa, Johann Smidt, made strong comments at the “relaunch” of Sadolin Uganda, claiming that Akzo’s reassignment of the Sadolin brand name & distribution network to Crown Paints East Africa falls outside the CCC’s purview.”  This sentiment was echoed by Crown’s CEO, Rakesh Rao, saying that “[w]e do not have a merger going on; we are a fully independent plant, so COMESA does not come into the picture at all.

Competition lawyers caution that, on occasion, a business person’s notion of what constitutes a “notifiable transaction” can be at odds with the legal definition thereof, says Andreas Stargard,  an antitrust attorney with Primerio Ltd.

“Whilst they may not be a classic ‘merger’ or ‘acquisition’ in the eyes of the business people, certain types of exclusive licensing agreements or even patent or other IP [intellectual property] assignments may very well fall within the purview of competition regulators, including the COMESA Comp Com.,” said Stargard.

The facts surrounding the transaction itself are by all accounts, fairly confounding.  As best as one can interpret the media reports, the former AkzoNobel license agreement was one with an entity called “Sadolin East Africa” (SEA).  However, upon the purchase of SEA by Japanese company Kansai Plascon (AKA “Plascon Uganda” in the region), Akzo cancelled the agreement and has now entered into a new replacement license with Crown Paints (AKA Regal Paints).  It is the cancellation and reassignment that, according to two letters sent by the CCC on September 19th and 25th, requesting that the companies make retroactive merger-notification filings to bring them into belated compliance with the COMESA merger regime.

For now, we know that Akzo remains defiant (presumably basing its critical position on advice of legal counsel), with its local director stating that “whatever we have done to date has been within the laws of this country and this region”.

While some of Akzo’s statements were presumably vetted by antitrust counsel, others are at odds with a “good” antitrust story and appear to be less-carefully made proclamations: Akzo has said that “we believe that we are going to improve competition because we have a new player who is introducing a new product and an existing player, who is Sadolin and we will continue to be here,” yet its director also noted “that the war of words between Sadolin and Plascon had eaten into their market share and that this had influenced their quick agreement with Crown paints”.

As attorney Stargard observes, “it is usually not considered to be an effective antitrust defence to claim that a competitor has ‘eaten into your market share’, and that your actions that are now under investigation were motivated by said competition…”

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M&A news: First publicly reported failure-to-file accusation in COMESA

Commission goes after Dutch paint manufacturer in Uganda in supra-national enforcement action threat

By AAT staff

The African expansion saga of Japanese paint manufacturer Kansai continues, albeit not in Southern Africa (after having travailed through a hostile takeover of South African paint company Freeworld Coatings and obtaining a majority stake in Zimbabwean competitor Astra Industries in 2010 and 2013, respectively): the current Kansai-related antitrust story is a COMESA one, which comes to us from East Africa.

As was reported back in 2013 in industry publication CoatingsWorld, Kansai had set its sights on expanding into Eastern Africa as well, focussing on the Sadolin brand (formerly owned by AkzoNobel and since its private equity buy-out produced under a continuing AkzoNobel licence and under the parent label Crown Paints).

This has now changed, says competition attorney Andreas Stargard with Primerio Ltd.: “Recently, the COMESA Competition Commission had become aware of press reports that AkzoNobel had withdrawn its Kansai/Sadolin licence in Uganda (a COMESA member state) and effectively entered into — or planned to enter into — a new agreement with an unnamed ‘local producer’.”

Mr. Stargard, who practices competition law with a focus on African companies and jurisdictions, points out that the COMESA merger-notification regime requires a mandatory filing under certain conditions, such as those affecting 2 or more member states and involving businesses with at least $10m in combined regional revenues.

“Whilst the COMESA review is non-suspensory (meaning the parties must notify, but can go ahead and implement the transaction prior to the termination of the CCC’s antitrust review), the notification itself is mandatory.  A failure-to-file can result in significant fines of up to 10% of combined turnover, as well as the regional annulment of the merger within the COMESA countries.

This is what has now happened with Mr. Lipimile’s Sept. 19th letter to AkzoNobel: the CCC chief warned the company that it would risk voiding any contracts if it failed to make a ‘curative’ retroactive filing by yesterday, Monday, 25 September 2017.”

The CCC’s letter to the Dutch paint giant reads in relevant part: “Kindly be informed that the COMESA competition commission has become aware through the media that Akzo Nobel Powder Coatings has entered into sales, manufacturing and distribution agreements with a local paint manufacturer in Uganda.  I wish to inform you that, mergers and any other forms of agreements between competitors are required to be notified to the Commission….without such notification, and subsequent approval by the Commission, such transactions are null and void ab initio and no rights or obligations imposed on the participating parties shall be legally enforceable in the Common Market.”

As to the likelihood of any notification having been made — or at least made satisfactorily and completely —  Andreas Stargard observes that:

“By any antitrust lawyer’s standards, scrambling to make a filing within less than a week, as seems to be required by George’s letter here, is a tall order — merger notifications usually require significant preparatory work, including data analysis, document collection, and interviews with the business people to advance to a final ‘filing’ stage.  To do so in 6 calendar days is extremely difficult.”

He concludes that, “as COMESA is still a relatively young regime in terms of merger filings — with few resources at hand to manage notifications in and of themselves, much less enforcement actions — we expect that the CCC and the parties will somehow arrive at an amicable settlement in this matter.”