Investors involved in cross border merger transactions in Africa should note that, depending on their existing investments and the activities of a target company, they may have to comply with the merger regimes of up to three different competition regulators.
The East African Community (EAC) Competition Authority is expected to be established in the near future. This means that investors will have to comply with the regulations of this new competition authority in addition to existing national competition regimes, and COMESA merger notification obligations.
The regional competition regulator for the Common Market for Eastern and Southern Africa (COMESA), is made up of 19 member states, and was established to enforce the COMESA Competition Regulations across the common market. The EAC is a regional intergovernmental organization of the Republics of Burundi, Kenya, Rwanda, South Sudan, Uganda and the United Republic of Tanzania. All EAC member states are also members of COMESA, except for South Sudan and Tanzania.
Competition authorities in Africa have focused largely on merger control. In future companies investing or acquiring businesses in these jurisdictions might be obliged to notify three separate regulatory bodies, pay three separate filing fees and allow for the approval times across three separate regulatory regimes before their transaction can be approved.
For example, if a company in the US intends to acquire a company in Kenya with business activities in other African countries, the transaction may soon have to be notified in Kenya, and in COMESA and the EAC competition authority, as Kenya is a member of both. This can be frustrating to businesspeople who may consider that these regulators are essentially doing the same job.
The good news is that if there is not a competition issue at a local level, there is unlikely to be one at a regional level. However, complications may arise. For instance, if the Kenyan target company has a subsidiary in Ethiopia or Uganda and the subsidiary is dominant there, the transaction may raise a competition issue at a regional level, even if there is not a competition issue locally. The interesting thing is that in such a case, the transaction could face regulatory challenges in the EAC although Uganda itself has no domestic competition law. This will likely hold up the review and regulatory approval of the transaction.
Foreign M&A teams need to ensure they are aware of the various merger filing requirements before the transaction begins, because if a competition or public interest issue is identified by any of the competition authorities, time-sensitive deals could be held up for a significant period of time as some regimes provide for lengthy review periods or do not have deeming provisions for merger approval once the regulator runs out of time to review the transaction.
It is therefore imperative that companies transacting in Africa prepare for the potential added administrative burden, time and cost of dealing with up to three competition regulatory bodies.
Investors also need to be aware of the filing fees for each of the authorities. For example, filing fees are now 0.1% of the value of the parties’ combined turnover or assets in the COMESA region (whichever is the higher), subject to a cap of $200,000. The merger filing fees in Kenya are based on the combined turnover or assets of the merging parties. If the turnover is between KES1bn and KES50 bn, then the fees will be one KES1m. Anything above KES50bn attracts a filing fee of KESm. The fees for the EAC Competition Authority have not yet been made known and it is hoped that they will aim to avoid the heavy criticism that some competition law regimes in Africa have experienced for disproportionately high filing fees.
In addition, merger approval can take up to 120 days with COMESA, although thankfully, COMESA is a non-suspensory regime. Interestingly, the EAC Competition Authority has 45 days within which to provide a decision on a notified merger and if such a decision is not provided, the parties may proceed to implement the transaction. This is a welcome development although 45 days as an upper limit seems to be ambitious in the cross-border context. However, even in jurisdictions which do not have deeming provisions for approvals, we have found that the regulators are open to ideas that could legitimately help expedite the review process or to ring-fencing subsidiaries in exceptional cases.
With regards to the regulators, a Memorandum of Understanding between the competition regulatory bodies in Africa would be beneficial in that it would enable merging parties to be clear on which regulator to notify in which situation. This would help to streamline investment in one of the world’s most active investment destinations, and untangle the spaghetti bowl effect created by overlapping membership of countries to different regional economic communities.
Investors should be aware that although some countries in Central Africa may not have active competition laws or regulators in place, the regional body, CEMAC, has recently begun enforcing the regional merger control regulations.
Xolani Nyali is a Senior Associate at Bowman Gilfillan Africa Group
As originally appears: https://www.africaglobalfunds.com/opinion/cross-border-merger-transactions-in-east-africa