The COMESA Competition Commission (CCC) is a supranational regulator, charged, in terms of the COMESA Competition Regulations (the Regulations), with enhancing regional economic integration among the 19 Member States of the Common Market for East and Southern Africa (COMESA) by promoting fair competition and securing consumer protection. On Friday, 31 October 2014, the CCC published its long-awaited Merger Assessment Guidelines, in which it seeks to augment and clarify a number of the provisions of the Regulations that have been the subject of some criticism and debate between practitioners and the regulator. At the same time, the CCC has addressed a number of topics that are less controversial but in respect of which, given the novelty of the regional regulatory regime, the CCC has not, previously enunciated clear policies. A significant feature of the Guidelines is an attempt to clarify and refine the category of transactions in regard to which notification is required. The Regulations provide that a merger is notifiable where:
- either or both of the acquiring firm and the target firm operate in two or more Members States; and
- the threshold of combined annual turnover or assets prescribed in terms of the Regulations is exceeded.
The threshold is currently set at US$0, which has the effect that technically many transactions are notifiable. Through the Guidelines, the CCC has attempted to narrow the application of these provisions to those which, as required by the Regulations, have "an appreciable effect on trade between Member States and which restrict competition" by indicating that it will regard a merger as notifiable only if:
- at least one merging party operates in two or more Member States;
- a target undertaking operates in a Member State; and
- not more than two thirds of the annual turnover in the region of each of the merging parties is achieved or held within one and same Member State.
The threshold itself has not been amended as an amendment to the Rules of the CCC would be required. However, in terms of the Guidelines, any undertaking will only be considered to "operate" in a Member State if it has an annual turnover in that Member State exceeding US$5 million. In calculating the turnover and assets of any undertaking for the purposes of compiling a filing, or deciding whether a filing is required, the notifying parties add together the turnover and assets of:
- the undertaking concerned;
- its subsidiaries;
- its parents; and
- other subsidiaries of its parent.
In addition, the Guidelines provide clarity as to the types of transactions that the CCC considers as notifiable mergers. In this regard:
- In definition of a "merger" in the Regulations, a "merger" is defined as the "direct or indirect acquisition or establishment of a controlling interest" by the acquiring party in the target. The CCC has defined "control" as the ability to exercise a "decisive" influence over the target;
- The establishment of a joint venture will not be considered to be a merger unless the joint venture is capable of sustainable long-term operation as an autonomous entity;
- An acquisition of assets will only be a "merger" where the assets concerned constitute the whole or part of a business.
A practice, previously informally adopted by the CCC, was to allow parties to request and obtain "comfort letters", exempting them from filing complete notifications, allowing the CCC to dispose, in a way that is less costly and time consuming for the merging parties, of mergers that are technically notifiable in terms of the Regulations but in truth will not have "an appreciable effect on trade between Member States" and will not "restrict competition". Hogan Lovells has successfully used this practice on behalf of clients, which was the subject of a previous update, has now been formally recognised and adopted as a general practice in the Guidelines. Another significant feature of the Guidelines is the introduction of a two-phase merger review process, whereby mergers that do not raise significant issues and can be easily determined may be reviewed within a period of 45 days, while those which raise more complex issues will be subject to a more thorough review process and may take up to the full 120-day period provided for by the Regulations. The publication of the Guidelines is a welcome development, and is likely to go a long way in assisting enterprises and their advisors and in ensuring that only those mergers that the Regulations are intended to control, and which in fact have "an appreciable effect on trade between Member States and … restrict competition" are subjected to detailed analysis by the CCC.