The supranational merger control regime of the Common Market for Eastern and Southern Africa ("COMESA") has been fully operational since 14 January 2013. The COMESA merger control regime is largely governed by the COMESA Competition Regulations 2004 ("Regulations") and is enforced by the COMESA Competition Commission ("CCC"). On 26 March 2015, significant amendments to the COMESA merger control regime were adopted by the COMESA Council of Ministers. They entered into force on the same day.
The amendments to the COMESA merger control regime draw upon the experience acquired during the 2 years of application of the initial regime. They are welcome in that they address some of the issues that the initial regime left open (for an overview of these issues, please see our previous client briefing available here). In particular, the amendments have introduced reasonable notification thresholds and decreased the amount of filing fees.
In this client briefing we take a look at the recent amendments to the COMESA merger control regime, and provide views as to their impact for firms doing business in Eastern and Southern Africa.
- What is COMESA?
- Overview of the amendments to the COMESA merger control regime
- Assessment of the amendments to the COMESA merger control regime
1. What is COMESA?
COMESA is a supranational organisation of 19 Eastern and Southern African States, namely: Burundi, Comoros, Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia and Zimbabwe.
2. Overview of the amendments to the COMESA merger control regime
The amendments to the COMESA merger control regime are limited to the following three areas: (i) the introduction of notification thresholds, (ii) the reduction of filing fees, and (iii) the reduction of administrative burden.
Introduction of notification thresholds: Under the initial COMESA merger control regime, notification thresholds were set at zero. On 31 October 2014, Merger Assessment Guidelines were published in which relatively low notification thresholds were introduced. Since 26 March 2015, the following new notification thresholds apply.
Any merger or acquisition (defined as a direct or indirect acquisition of a controlling interest), where both the acquiring firm and the target firm, or either the acquiring firm or the target firm, operate in two or more COMESA Member States, require a notification to the CCC if the following cumulative conditions are met:
- the combined annual turnover or combined value of assets (whichever is higher) of all parties in COMESA equals or exceeds US$50 million; and
- the annual turnover or value of assets (whichever is higher) of each of at least two of the parties in COMESA equals or exceeds US$10 million.
However, in circumstances where each of the parties achieves at least 2/3 of its COMESA annual turnover or assets in one and the same Member State, a COMESA filing will not be required and national filings may be required instead.
The Council of Ministers also adopted on 26 March 2015 detailed rules as regards the calculation of turnover and the valuation of assets. Rules regarding the calculation of turnover largely mirror the EU rules.
Filing fees: The percentage used in the calculation of filing fees has been reduced from 0.5% to 0.1% of the combined turnover or combined value of assets of the parties within COMESA. In addition, the maximum filing fee has been reduced from US$500,000 to US$200,000.
Reduction of administrative burden: Documents submitted together with the notification which are difficult to certify due to their nature and/or size, e.g. technical reports, no longer need to be certified.
3. Assessment of the amendments to the COMESA merger control regime
The amendments to the COMESA merger control regime are welcome in that they address most of the concerns raised by the business community in respect of the initial regime.
The introduction of clear notification thresholds, which appear to be inspired by the EU notification thresholds, reduces the legal uncertainty as to whether a transaction is caught by the COMESA merger control regime.
Further, requiring each of at least two parties to the transaction to have turnover or assets in COMESA of at least US$10 million reduces the scope of jurisdiction of the COMESA merger control regime by excluding transactions which, a priori, have no or only minimal impact on COMESA. The increase of these thresholds compared to those set out in the Merger Assessment Guidelines published on 31 October 2014 (i.e. from US$5 million to US$10 million) is welcome in that the thresholds appear more realistic and now aim at catching companies with a more significant level of turnover within COMESA.
The introduction of the 2/3 rule, similar to the EU rule, clarifies to a certain extent the interplay between the COMESA merger control regime and the domestic merger control regimes of COMESA Member States. Indeed, it is now clear that, where each party achieves more than 2/3 of its annual turnover in one and the same COMESA Member State, no notification to the CCC is required. However, the uncertainty remains as regards transactions that do not satisfy the 2/3 rule and trigger a filing requirement under both the COMESA merger control regime and one or more of the domestic regimes. For example, in such a situation, we understand that the Kenyan competition authority would require a parallel filing to be made.
The reduction of filing fees, both in respect of the percentage used to calculate the fee and of the maximum amount of the fee, is also welcome.
Before the amendment was introduced, the fee for notifying a transaction to the CCC was disproportionately large: it was calculated as the higher of 0.5% of the combined annual turnover or combined value of assets of the merging parties in COMESA, capped at a maximum of US$500,000. This meant that any merger where the combined assets or turnover of the merging parties within COMESA was greater than US$100 million would attract the maximum fee of US$500,000, which is far higher than the maximum fees applicable in countries such as the UK (where the maximum is currently GB£160,000 – by comparison, it is noted that the EU does not have any filings fees at all for notifications to the European Commission under the EU merger control regime). With the new rule, the maximum fee is more than halved (US$200,000) and only comes into play in respect of transactions where the combined assets or turnover of the parties within COMESA exceed US$200 million.
Any attempt to reduce the administrative burden on merging parties is of course welcome. However the amendment could have gone further by removing the requirement for certified documents altogether.
Further, it remains to be seen in practice how the criteria of "nature" and "size" of the documents will be interpreted. This may generate uncertainty as to which documents should be certified, and, in turn, this may result in delay in the notification process.
The introduction of clear – and raised – notification thresholds coupled with a reduction of filing fees addresses the concerns raised by the business community that the thresholds for merger notification were set at zero and that, at the same time, significant filing fees of up to US$500,000 were payable.
Although the amendments to the COMESA merger control regime are welcome, one may regret that the COMESA Council of Ministers did not go further with the reform, in particular as regards the simplification of the notification process and the timetable of the review process. Although the timetable for obtaining clearance has been clarified in the Merger Assessment Guidelines published on 31 October 2014, it is still not subject to any legal maximum period, which must be factored into the transaction planning and the drafting of the transaction documents.
COMESA is emerging as an important jurisdiction for merger control and companies doing international deals with an African nexus or significant African activities that could meet the relevant thresholds should be aware that a merger control analysis will be necessary to assess whether the COMESA regime is triggered and a notification ought to be made.