New Kenya domestic merger thresholds proposed, limiting notifications

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.

 

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South Africa: Merger Thresholds and Filing Fees Increased

As of 1 October 2017, the recently revised merger thresholds which were published by way of Government Gazette will become effective.

The large merger thresholds have remained unchanged, however, the thresholds for an intermediate merger (which requires mandatory merger notification if met) have been amended as follows:

The combined threshold has been increased to R600 million (approx.US$46 million) R560 million).  The combined threshold for an intermediate merger relates to either the combined turnover of the merging parties’ South African specific turnover or the merging parties combined asset value in South Africa.

The lower merger threshold (i.e. the target’s thresholds) for an intermediate merger has also been increased from R80 million to R100 million (approx. US$7.6 million) For purposes of the lower merger threshold, however, either the turnover or the asset value of the target entity is utilised.

The large merger thresholds remain unchanged with a combined threshold of R6.6 billion (approx. US$500 million) and the target’s threshold at R190 million (approx.US$14.6 million)

For purpose of both the intermediate and large merger thresholds, any combination of the South African specific turnover or asset value of the merging parties which exceed the thresholds will require a mandatory merger notification. In other words, the combined large merger threshold will be met if the acquiring firm’s asset value combined with the target firm’s turnover exceeds R6.6 billion.

In addition to the merger thresholds, the merger filing fees have also been increased and the new filing fees are:

  • Intermediate merger: R150 000
  • Large merger: R500 000

The merger thresholds were previously revised in 2009 and as John Oxenham, Director of Primerio Ltd., comments “increasing the target’s thresholds for purposes of an intermediate merger will assist in ensuring that transactions which are highly unlikely to result in any anti-competitive effects are subject to the merger control process“. Oxenham also points out that it is noteworthy that the filing fees have increased by 50% in respect of intermediate mergers and more than 40% for large mergers.

In addition to the mandatorily notifiable thresholds, Michael-James Currie notes that “the South African Competition Commission may call for the notification of any transaction which does not meet the intermediate merger thresholds (i.e. a small merger) within 6 months after the transaction has been implemented should the Commission be of the view that the small merger raises competition or public interest concerns“.

[For legal advice, please contact a Primerio representative]

 

Raising merger notification thresholds

Namibia fine-tunes its M&A review

By AAT guest author Anne Brigot-Laperrousaz

Under the Namibian Competition Act (the “Act”), which came into law in April 2003, the term “merger” covers all three common types of M&A activity, as well as joint ventures; above certain thresholds, a merger becomes compulsorily notifiable.  On December 21, 2015, the Namibian Ministry of Industrialisation, Trade and SME Development, in accordance with the powers conferred upon it under s43(1) and (2) of the Act, published a notice containing remarkable changes to the thresholds triggering the application of the merger regulations under the Act and thereby a compulsory notification.

Former thresholds

The previously applicable government notice on the determination of those thresholds, dated December 24, 2012, had established the following triggering values:

  • The combined assets, or combined annual turnover in, into or from Namibia of the acquiring and target undertakings exceed N$20 million (US$1.578 million, based on the Bank of Namibia 2015 average exchange rate)

or

  • The annual turnover of one of the undertaking plus the assets of the other undertaking exceed N$20 million

or

  • The asset value or the annual turnover in, into or from Namibia of the target undertaking exceeds N$10 million (US$ 789,000)

Revised thresholds

John Oxenham, an Africa practitioner with advisory firm Pr1merio, notes that  “[t]he December 2015 Government notice raised those thresholds by 50%, i.e. N$30 million and N$15 million respectively (US$ 2.367 and 1.1835 million). Furthermore, the revised notice sets out a two-tier calculation of the triggering thresholds, with two cumulative values to be considered,” as follows:

  • First, the combined assets, on the one hand, or annual turnover, on the other hand of the involved entities;
  • or, the cumulated value of the assets of one entity, and of the annual turnover of the other.
  • Yet even if one of those values exceeds N$30 million, the operation need not be notified if either the asset value of the annual turnover of the transferred undertaking is equal to or valued below N$15 million.

In other words, M&A targeting relatively small firms will not need to be notified, no matter how large the acquiring entity may be.

Yet the new notice maintains the possibility for the enforcement agency, the Namibian Competition Commission (the “Commission”), which came into operation in December 2008, to demand notification of a merger falling below those thresholds, if it considers it necessary to deal with the merger in terms of the Act.

namibiaAlthough the rationale of this provision is relatively clear, its phrasing raises questions as to the way it should be implemented. It is reasonable to believe that this regulation simply aims at allowing the Commission to investigate in all cases it deems useful. Indeed, the purpose of the thresholds is to sort out the potentially hazardous operations, as a form of “pre-selection” so as to avoid obstructing the Commission. But those thresholds should not bear the adverse consequence of preventing the Commission to exercise its control when it has reasonable grounds to consider that a “smaller” operation may cause harm to competition.

The notice lacks explicitly stated and pre-determined factors that could lead the Commission to such a finding, a loophole that arguably leaves way for arbitrary decisions. This goes against international best practices, as reaffirmed once again in a 2005 OECD report, considering that the criteria to determine whether a merger must be notified should be clear and objective.

Furthermore, it is unclear how the Commission could determine that a “small” merger needs to be notified, prior to any investigation. If this regulation simply requires the firms to provide the Commission with the information that would be asked in case of a mandatory notification, it is regrettable to make this unnecessary detour instead of recognising the Commission’s powers to request relevant documents and information as part of its general investigatory function.

As for the modification of the thresholds themselves, recent commentaries have praised the initiative, describing it as a “positive development”.

The explanatory note accompanying the Government notice referred, in particular, to the Recommended Practices of the International Competition Network (the “ICN”), together with comparative studies and analysis of the past efficiency of the thresholds’ level, as the basis for this reform.

Indeed, one of the first recommendations of the ICN is that “merger notification thresholds should incorporate appropriate standards of materiality as to the level of ‘local nexus’ required for merger notification”. The first comment of the ICN working group on this recommendation states that “each jurisdiction should seek to screen out transactions that are unlikely to result in appreciable competitive effects within its territory”. In particular, the material sales or assets level within the territory shall be important enough to justify the additional transaction costs entailed by the obligation to notify the operation.

In the case of Namibia in particular, a UNCTAD peer review conducted in 2014, while acknowledging the “fairly good competition law as enshrined in the Competition Act”, recommended a revision of the Namibian merger control. In particular, the UNCTAD report advocated for a review upwards of merger notification thresholds. In that regards, the Commission’s initiative is much welcome. Indeed, the UNCTAD report praised the Act for taking into account special requirements of the country’s economy, characterised by small undertakings. Arguably, the revised thresholds go a step further in this positive direction.

Conclusion

The public statistics on the Commission’s achievements show that since its setting up in 2009, the Commission’s M&A division has handled over 200 mergers. In November 2015, the Commission announced that it received a total of 60 merger notifications, of which 48 were approved during the current financial year of 2015/2016. The announced total value or purchase consideration for these merger notifications was about N$23,2 billion, and N$19,2 billion for the 48 approved mergers. Yet since “about 99%” of the total purchase consideration paid during the first quarter was one transaction, the relevance of the revised thresholds appears clearly.

Slow-going M&A statistics in COMESA before anticipated threshold revision

COMESA Competition Commission logo

Strong numbers from early 2014 did not hold up

After posting a record three merger notifications in January, the COMESA Competition Commission has seen its M&A filing statistics decline to zero in February and merely one in March.

As we have reported here (optimistic for 2014) and here (pessimistic on 2013 statistics), COMESA’s notified M&A deals have seen erratic ups & downs.  Not surprising, perhaps, if one considers the exquisite confusion that has reigned since the inception of the young antitrust authority about filing thresholds and fees.

The current ebb in notified deals (despite the record set in January) reflects, in our view, the impending end of the current “zero-threshold” regime in COMESA, which was foreshadowed by The CCC’s head of mergers, Willard Mwemba, back in late February 2014.  Quite understandably, parties to ongoing transactions are willing to risk “flying under the radar” if the agency has de facto admitted that the zero-dollar filing threshold is unworkable in practice.

We are curious to see what impact the vacuum of the pending revision to the COMESA merger rules will have on filing statistics going forward, until a more sensible threshold is set by the agency.  For now, with the latest notification #4/2014 (fertilizer and industrial products acquisition by Yara International ASA of OFD Holdings Inc.*) the stats look like this:

* we note that in the notice, the CCC erroneously set the deadline for public comment prior to the notice date itself, namely as “Friday, 28th February, 2014.”

competition law antitrust Africa

COMESA CCC M&A filing statistics as of March 2014

COMESA merger rules to change in April 2014 at the earliest

COMESA Competition Commission logo

Breaking news: A senior source at the COMESA Competition Commission (“CCC”), has confirmed that the CCC is currently finalising proposed amendments to the Regulations.

The amendments being debated seek to change, crucially, the applicable thresholds for merger notifications to the CCC and to clarify the definition and (potentially lower?) amount of the administrative notification fees.

For the amendments to come into force, they require approval from the COMESA Council of Ministers.  The Council convenes once a year, now likely in February.  The source adds that, as the amendments will only be finalised toward the end of February, an extraordinary session of the Council of Ministers will likely need to be convened to consider the amendments to the Regulations.  Such an extraordinary session may take place in April 2014.  The amended Regulations will only become enforceable upon approval by the Council.

That is, the way things are looking today, any change to the COMESA merger rules will occur in half a year at the earliest

In practical terms, this means that the dual dilemma of the “zero-threshold contagion” and the inordinately high filing fees currently affecting the CCC’s merger-control regime (and resulting in rather low merger-notification statistics of less than one per month) will continue to hamper the young agency and its customers for the foreseeable near-term future.

We will report back once we have additional details on the precise language of the proposed amendments.