LEX Africa member lodges first-ever COMESA merger filing – May 2013
The COMESA Competition Commission (CCC) is a regional competition authority created to regulate mergers, anti-competitive practices (like cartels and abuses of dominance) and consumer protection in the Common Market for Eastern and Southern Africa (COMESA).
COMESA consists of 19 member African states namely Burundi, Comoros, the Democratic Republic of Congo, Djibouti, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, Zimbabwe, Egypt and Malawi.
The CCC commenced operations on 14 January 2013. This has very significant implications for transactions and organisations doing business in COMESA member states.
LEX Africa member Werksmans director Pieter Steyn and his team lodged the first ever merger filing under the COMESA regulations in respect of the acquisition by Funai Electric of Philips’ Lifestyle Entertainment business group.
The implementation of the COMESA merger control regulations raised several legal and practical questions, including –
- whether the CCC is a “one stop shop” for the entire COMESA region so that filings with national authorities are not necessary if a filing is made to the CCC. Some national regulators (most notably in Kenya) have challenged this. Until this issue is resolved it will not be clear whether filings must be lodged both with the CCC and with national regulators. In some member states (like Zimbabwe), the regulations may first have to be formally adopted by the local legislature to be effective in thst state. Multiple filings will add to the costs of and delay transactions and also raises the unfortunate possibility of conflicts between the CCC and national regulators;
- the merger filing thresholds are zero, meaning that all mergers regardless of size are notifiable to the CCC if the acquiring entity, the target entity or both of them “operate” in two or more COMESA member states. The CCC’s view is that “operations” are not limited to a physical presence and sales turnover from COMESA states is sufficient. The strict wording of the regulations implies that a CCC filing could be triggered even if the target business being acquired is outside the COMESA region. However it is arguable that the regulations themselves limit the CCC’s jurisdiction only to transactions having an appreciable effect on trade between COMESA member states and restricting competition in the COMESA Common Market;
- the filing fee payable to the CCC is 0.5% of the combined annual turnover or combined value of assets of the merging parties in the COMESA region and is capped at USD500,000. No method is prescribed for calculating turnover and assets but it is understood that gross turnover must be taken into account. A question remains whether the COMESA turnover and assets of the whole acquiring group must be taken into account or just the assets and turnover in the COMESA member state where both the acquiring firm and target firm operate. The USD 500 000 amount is high by world standards and could have a chilling effect on smaller transactions especially given the zero merger filing thresholds;
- the regulations require filings to be made to the CCC within 30 days of the “decision to merge”, which is not defined but arguably includes (but is not necessarily limited to) signature of an agreement. This causes uncertainty and failure to file within such period renders the transaction void in the COMESA region and allows the CCC to impose a penalty of up to 10% of either or both the merging parties’ COMESA annual turnover. It remains to be seen how the CCC will apply this provision in practice – it appears that the CCC may decide on a policy not to impose a penalty for a late filing as long as the transaction is in fact notified;
- whether a transaction may be implemented before the grant of CCC approval. There is no express prohibition in the regulations so it appears that this is permitted although the parties will have to assess and accept the risk that the CCC may prohibit or impose unpalatable conditions to its approval. The CCC argues that a notifiable merger may not be implemented before a filing is made but there is no support for this view in the express wording of the regulations.
Werksmans has found the CCC to be approachable and to have adopted a fairly pragmatic approach in regard to several logistical and related issues. One example is the acceptance of electronic filings (although time periods only start from the date the hard copy filing is lodged).
The CCC has also recently published guidelines for public comment which is a welcome development which will clarify the CCC merger filing process.
Pieter Steyn, a director of Werksmans Attorneys, Chairperson of LEX Africaand Vice Chair of the Antitrust Committee of the International Bar Association (IBA). Pieter is the chairperson of an IBA working group which made submissions to the CCC on the COMESA regulations and draft guidelines.