New Merger Guidelines fail to revise Rules flaw, but adjust notification threshold upwards

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COMESA publishes new Merger Assessment Guidelines, uses back-door defintion to adjust threshold to >$5 million

On Friday, the COMESA Competition Commission published its 2014 Merger Assessment Guidelines, available here in PDF.  They finally replace the prior Draft Guidelines, which the agency’s Willard Mwemba had predicted would be finalised no later than June 2014.  The new final version fails to put a formal end to the technical zero-dollar notification threshold, but — through a back-door definition of what it means to “operate” in the COMESA region — does achieve the practical effect of terminating what AAT has dubbed the “zero-threshold contagion” – i.e., any transaction between parties with any turnover/revenue whatsoever within the common market of COMESA used to be notifiable.

We invite our readers to take a look at the entire document.  Rather than having the COMESA Board meet and re-draft the actual Rule, the CCC appears to have taken the short-cut solution of ex parte “Commission consider[ation]” of what it means for a company to “operate” in the organisation’s jurisdiction.  Section 3.9 re-defines “operat[ion]” of a COMESA company as follows:

3.9 The Commission considers that an undertaking only “operates” in a Member State for purposes of Article 23(3)(a) of the Regulations if its operations in that Member State are substantial enough that a merger involving it can contribute to an appreciable effect on trade between Member States and restriction on competition in the Common Market. For these purposes, the Commission considers that an undertaking “operates” in a Member State if its annual turnover or value of assets in that Member State exceeds US $5 million.

However, it notably maintains all references to the “Rules on Notification Threshold,” which continue to specify a “U.S. $ zero” threshold:

3.4 The Commission’s Board prescribed such threshold with Council approval in the Rules on Notification Threshold, the scope of which is also limited to mergers having a “regional dimension”(Rule 3). According to the Rules on Notification Threshold currently in force, the threshold of combined annual turnover or assets for the purposes of Article 23(4) is exceeded if:
(a) the combined worldwide aggregate annual turnover or the combined worldwide aggregate value of assets, whichever is higher, of all undertakings to the merger in the Common Market equals or exceeds US $ zero; and
(b) the aggregate annual turnover or the aggregate value of assets, whichever is higher, of each or at least two undertakings to the merger in the Common Market equals or exceeds US $ zero.

It is not as though the CCC’s staff were unaware of the critiques levied against their zero-threshold regime.  Mr. Mwemba stated back in February 2014 that the agency had been setting “the wheels in motion for the threshold to be raised.”  The Commission has been eportedly working with the World Bank’s International Finance Corporation to determine what the proper notification thresholds should be.  AAT also understands that other antitrust advisors — including former FTC Commissioner, Chairman, law professor and competition-law conference mainstay Bill Kovacic — were helping the young enforcement agency to design a more workable and internationally respected merger-review regime.

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

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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.”

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COMESA CCC M&A filing statistics as of March 2014

The end of the zero-threshold contagion?

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COMESA Competition Commission‘s head of mergers foreshadows end of zero-threshold regime

Will the Commission soon find a cure to the contagion that has made the agency’s merger control the subject of heavy criticism by antitrust practitioners and and even ridicule by fellow enforcers? Willard Mwemba claims the agency has – after over a year of operating under the zero-threshold rule – “set the wheels in motion for the threshold to be raised.”  The Commission is reportedly working with the World Bank’s International Finance Corporation to determine what the proper notification thresholds should be.

We previously had this to say in November of last year:

[T]he 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.

Depending on how swiftly the agency and its advisors at the IFC get things done – and the amendments actually get approved – it appears that our timing forecast was fairly accurate  (“COMESA merger rules to change in April 2014 at the earliest“).