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Thorts - African mergers still face regulatory hurdles
Thorts - African mergers still face regulatory hurdles
Published Date: 2018-11-09 | Source: DealMakers | Author: Heather Irvine | Comments
One of the most significant hurdles for acquisitions in Africa remains regulatory clearances and, in particular, the need to gain approval from competition authorities.
Africa is home to a number of established and well-resourced competition authorities with jurisdiction to review proposed mergers and acquisitions, including in South Africa (where the Competition Commission has been in operation since 1999); Zambia (where the Competition and Consumer Protection Commission, previously the Zambia Competition Commission, was established in 1997) and Tanzania (where the Fair Competition Commission of Tanzania was established in 2003). Mergers are actively monitored and reviewed by competition regulators in Kenya, Botswana, Namibia and Mauritius. Competition authorities in Swaziland, Zimbabwe, Madagascar, Malawi, Egypt, Morocco, Tunisia and Algeria are increasingly active. New authorities are due to commence merger reviews in Angola and Mozambique, and amended competition legislation is in the pipeline in Botswana and Nigeria.
Regional bodies like the COMESA Competition Commission (CCC) also conduct merger reviews. The CCC, which commenced operation in January 2013, is constituted by a treaty between the Comesa states (Burundi, Comoros, The Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Somalia, Sudan, Swaziland, Tunisia, Uganda, Zambia and Zimbabwe). It has jurisdiction to review mergers that affect two or more states in the Common Market and which meet certain financial thresholds. This body was intended to create a "one-stop-shop" - like the European Commission - for investigation and clearance of mergers with a regional impact. However, some of its member states, including Zambia, Swaziland, Zimbabwe, Kenya, Mauritius and Egypt, already have their own established competition authorities in terms of national legislation. They were slow to give effect to the COMESA treaty in their local law, with the result that some local regulators insisted on separate merger filings (and additional merger filing fees) in addition to a filing in COMESA. This is still happening in Kenya, despite vociferous objections from merging parties. It remains a significant challenge from a timing and cost perspective, especially since so many COMESA merger transactions have a significant Kenyan dimension.
More regional competition law authorities have been established, including in the East African Community (EAC) (which includes the Republic of Burundi, Kenya, Rwanda, United Republic of Tanzania, and the Republic of Uganda) and the Economic Community of West African states (ECOWAS) (it has fifteen member countries, located in the Western African region). There has been significant confusion about whether these authorities have begun active enforcement, and clear communication to the business community and their lawyers about what the rules are, has been lacking. As they begin actively enforcing their powers, the cost of compliance will only increase.
Overlapping merger jurisdiction also creates challenges from a deal timetable perspective. For example, merging parties are not required to wait for a COMESA clearance before implementing their merger but the local competition laws of several member states - including in Kenya and Tanzania - make it an offense punishable by a substantial fine to implement a merger before it is cleared.
On the other hand, there is no regional merger review body in the Southern African region despite substantial amounts of regional trade and integration. Consequently, it is not uncommon for merging parties to be forced to prepare and lodge different merger filings, using different sets of merger forms, in South Africa, Namibia, Swaziland and Botswana - even if the merger raises no competition law concerns at all. There are no formal procedures for African authorities to share confidential information or to standardise their analysis, although this does happen to some extent on a bilateral basis. The South African Commission has attempted to facilitate greater regional co-operation through concluding memoranda of understanding with the Swaziland Competition Commission, the Competition Commission of Mauritius, the Competition Authority of Kenya and the Namibian Competition Commission but it is unclear whether these MOUs are contributing to more efficient merger reviews.
Many countries in Africa require that merger transactions be assessed to determine whether they impact on the "public interest", as well as competition in relevant markets. Conditions addressing merger related impacts - like job losses, a foreign acquisition of a national champion, an impact on national security (or other matters of national interest like preserving an iconic brand or preserving media plurality) - are now relatively common in South Africa, Namibia and Kenya, and increasingly also feature in Zambia, Tanzania and COMESA. Traditional economic analysis of whether a merger will have horizontal or vertical effects is relatively predictable. However, public interest objections to mergers may be hard to predict and scope ahead of lodging a merger filing, and are sometimes raised by third parties, like government departments or trade unions, well after a merger has been filed. Trade unions in particular are quick to participate in merger investigations if they think they can secure advantages like improved wages and working conditions, even though these issues may not be merger specific, and sometimes ought rather be the subject of collective bargaining or dispute in the labour courts, or enforcement by other government departments.
For example, in the recent Sibanye-Stillwater/Lonmin Plc merger, the Commission accepted that the merging parties had low market shares in the relevant international markets and the merger did not give rise to any competition concerns. However, the Commission recommended a condition that Sibanye embark on three short-term mining projects to avoid retrenchments and implement an Agri-Industrial Community Development Programme in the Rustenburg area. The Commission also recommended that Sibanye continue to honour the existing arrangements with the BEE Bapo ba Mogale Community, give effect to contracts with Lonmin's existing historically disadvantaged suppliers, and procure from new historically disadvantaged suppliers. Debate about public interest conditions with regulators and third parties - including government departments - not only increases the cost of doing the deal but can significantly hold up transactions. Long delays spook shareholders and staff (a good example is the Vodacom/Neotel transaction, which collapsed before clearances from the competition authorities and the telecommunications regulator, ICASA, could be obtained). This has led some merging parties to actively engage with government and regulators at an early stage of planning their transactions, in order to agree on public interest conditions - but even so, it took global brewing giant Anheuser-Busch InBev nearly seven months to gain clearance from the competition authorities in South Africa for its acquisition of iconic South African brewer SAB. More recently, two separate bids to acquire the Chevron business in South Africa by Sinopec and a B-BBEE consortium were recommended for approval by the Tribunal after the parties negotiated a framework agreement with the Economic Development Department (EDD) to address public interest concerns like preservation of jobs after the merger; the continuation with CSA retirees' medical aid subsidy; the establishment of a development fund focused on, amongst other things, the development of small businesses and black-owned businesses; maintenance of B-BBEE shareholding post-merger; and a commitment to a significant investment in refinery capacity.
Many African leaders, including most recently, President Ramaphosa, have stepped up their efforts to attract investment in order to increase growth and stimulate jobs and development. These efforts should be supported by the simplification and streamlining of the merger review process, both at a national and a regional level. National and regional authorities should simplify their procedures and strive for efficient and transparent merger reviews. Wherever possible, transactions which raise no competition law concerns should be fast-tracked for approval. Investigations of public interest concerns should be limited to those which are merger-specific, and should be dealt with in a predictable fashion that does not unduly delay transactions.
Swift and predictable merger clearance processes are essential if Africa wants to be seen as a more attractive destination for investment.
Irvine is a Partner with Falcon & Hume.
This article first appeared in without prejudice, DealMaker's sister publication
DealMakers is SA's M&A publication.
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