The African regional regulator, the COMESA Competition Commission (CCC), has published finalised Merger Guidelines today, 31 October. These provide much-needed clarification on its merger notification requirements. The Merger Guidelines (which are effective from the date of publication) are likely to be a welcome development for businesses operating in the region. The most significant clarification brought about by the Merger Guidelines is:¹
- that merger control by the CCC only concerns mergers capable of having a "regional dimension" and must be carried out with a view to regulating only those capable of having "an appreciable effect on trade between member states and which restrict competition";²
- that in terms of meeting the "regional dimension" test - which requires both the acquiring and target undertaking or either of them to "operate" in two or more Member States - this requirement is necessary, but not sufficient on its own, for a merger to be notifiable, more specifically:
- at least one merger party must "operate" in two or more Member States - but in order to "operate" in a Member State an undertaking's group annual turnover in that Member State for the most recent financial year must exceed US$ 5 million; and
- the "regional dimension" test will not be met if:
- a target undertaking does not operate in a Member State; and/or
- more than 2/3 of the annual turnover in the Common Market of each of the merging parties is achieved or held within one and the same Member State;
- the introduction of a formal and structured "comfort letter" request procedure (where parties can apply for an 'exemption' from mandatory notification which may be granted at the CCC's discretion)³ - specifically providing that in the absence of countervailing factors, the CCC will not require mandatory notification of mergers in circumstances where more than 2/3 of the annual turnover in the Common Market of each of the merging parties is achieved within one and the same Member State. The CCC may also consider the combined annual turnover of the merging parties in the Common Market; and
- that the 120 day period for merger reviews (and all other periods in the Act and the Regulations) refers to calendar (and not working) days.
Although many hoped that the filing fee would be reduced and that financial thresholds (above zero) would also accompany the publication of the finalised Merger Guidelines; these types of revisions need to be approved by the COMESA Council of Ministers and may not be amended through guidelines. The Council of Ministers has not yet approved any amendments to the filing fee and revised financial thresholds, but these may be approved in February 2015. Regarding these developments Nkonzo Hlatshwayo, a partner in our competition practice had the following to say: "The COMESA Competition Commission is to be commended for taking action to address the difficulties faced by business in seeking to comply with the merger notification requirements as set out in the Act and the Regulations. The finalised and published merger assessment guidelines of 2014 go a long way to ensuring that only transactions of substance will be notified to the Commission and this is how it should be. Transactions that have no nexus to the COMESA region ought not to detain the Commission. In addition, the formal introduction of the "Comfort Letter" procedure creates an element of transparency as all parties who require such a Letter now know what the requirements are. In the past, practitioners were unsure what factors the Commission would take into account in order to issue a "Comfort Letter". Others were not even aware of the existence of such a facility."
COMESA QUICK FACTS:
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Which states are COMESA Member States?
Burundi, Comoros, the Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia and Zimbabwe.
What types of mergers must be notified to the CCC?
A "merger" as defined requires mandatory notification to the CCC if:
- "both the acquiring and target firm or either the acquiring or target firm operate in two or more COMESA Member States" and the merger will have "an appreciable effect on trade between member states and … restrict competition"; and
- the turnover / assets of the merging parties meet prescribed financial thresholds - currently set at zero.
Is COMESA a 'one-stop-shop' or are notifications to domestic authorities still required?
The CCC considers itself a 'one-stop-shop' that has exclusive jurisdiction in respect of mergers that fall within its jurisdiction. The Regulations do not, however, expressly exclude the jurisdiction of the domestic competition authorities. Some Member States continue to require filings, notwithstanding the fact that a merger notification has been filed with the CCC. Only three COMESA Member States with competition authorities have to date expressly recognised the CCC as a one-stop shop - namely, Swaziland, Zambia and Zimbabwe.
What are the filing fees?
A filing fee of 0.5% of the merging parties' combined annual turnover or combined value of assets in the Common Market (whichever is the higher) is payable. The fee is capped at US$500,000.
When must a merger be notified?
The parties must notify the CCC within 30 days of the parties 'decision to merge'.
Can a merger be implemented prior to approval?
Yes. The merger control regime is non-suspensory.
What are the consequences of not filing?
A merger will have no legal effect and will be legally unenforceable. The CCC may also impose a penalty of up to 10% of the merging parties' turnover in the COMESA Common Market.