Rigorous competition law regimes are considered a great contributor to incentivising companies to compete on prices, improve the quality of their products and become more innovative, in order to retain or, better still, increase their market share. Many African countries now recognise these advantages and there has been an increase in the number of regimes in place across the continent. With Mozambique being the most recent addition, there are only a few left to join the list.
Within these regimes, mandatory merger notification obligations play an important role in that they require merging companies to proactively contemplate competition issues and also give the authorities an opportunity to scrutinise information relevant to the merger and its potential effect on competition. Having said that, merger notifications can be cumbersome, expensive (given the filing fees and legal costs payable), and often involve lengthy or indeterminate review periods. They mayalso create unnecessary regulatory hurdles because while some mergers warrant investigation by regulators, others may trigger filing obligations even where no competition issues arise.
The energy sector offers an example of this where an exploration license is bought in order to conduct exploration or for prospecting activities. In a number of jurisdictions, the exploration licenses’ value may exceed notification thresholds and merger notification obligations may be triggered even if exploration has not started or is at a very early stage and therefore not likely to have any meaningful effect on competition.
Many regimes in Africa do not provide for exclusions from merger notification obligations and many have relatively low merger notification thresholds. For example, Kenya currently has no thresholds for notifying meaning that all transactions that fall within merger control provisions of the legislation are notifiable. However, the Competition Authority of Kenya (the CAK) issued a guideline in 2013, Exclusion of Proposed Mergers from Provisions of Part IV of the Competition Act, No 12 of 2010, which allows for certain transactions to be excluded from notification, including those in the “carbon-based mineral exploration and prospecting” sector (meaning oil, natural gas or coal but excluding downstream retailing of these products) if “the value of the reserves, the rights and the associated exploration assets to be held as a result of the merger is below four billion shillings” (approximately USD43,451,600.00). This constructive approach of the CAK is commendable and in Africa it sets Kenya apart in relation to such transactions. Canada has taken a similar approach, while Pakistan strikes a balance by providing a general exemption for exploration rights but allowing the authorities to take jurisdiction if appropriate in certain circumstances.
On the other hand, the Competition Act, 89 of 1998 (the Act), in South Africa requires that any transaction which could be deemed a “merger” must be submitted to the competition authorities when the prescribed financial thresholds are met and where there is an “effect” in the country. A merger is considered to occur when “one or more firms directly or indirectly acquire or establish control over the whole or part of the business of another firm”. When it comes to explorations rights, if the rights to be acquired are considered an asset which constitutes “the whole or part of a business”, a merger filing will be required regardless of the impact (or lack thereof) on competition.
While South Africa’s competition legislation does not provide for exclusions that business may find helpful, the Tribunal is pragmatic in its approach to merger control. The case of Aquarius Platinum SA (Pty) Ltd/The Southern Booysendal Mining Right, Case No. 52/LM/Jul11 involved the acquisition of control of a mining right with the right itself being the “target”, despite any mining activities having been started. At the time of the merger notification, there was no competing activity to assess as production had not begun. However, the Tribunal held that there would be a future overlap once mining commenced. The Tribunal nonetheless approved the merger on the basis that even taking the future overlap into account, there would be no substantial prevention or lessening of competition.
In contrast, in Competition Commission/Edgars Consolidated Stores Ltd/Retail Apparel Group (Pty) Ltd, Case No: 95/FN/Dec02 (Edcon), the Tribunal considered assets where they are part of a business as opposed to merely a ‘bare’ asset under competition law. They found that acquiring a debtor’s book was effectively a merger given that the book debt constituted a “part of a business” in this case. They also offered helpful guidance as to assets acquired that are not “part of a business”. The Tribunal said that its decision in this case should not mean that the acquisition of a book debt would always constitute a merger but rather that its decision in this case was after in-depth analysis of the specific facts related to it.
The Tribunal’s approach here offers weight to the exclusion of notification of transactions where the asset being acquired is not the “whole or part of a business”. However, when it comes to acquiring control of exploration rights, it is less clear as to what this means. If, for example based on the Tribunals’ findings in the Edcon case, an exploration license is purchased for land that potentially could hold a natural resource in an exploitable form, then the transaction arguably falls within the definition of a “merger” if the thresholds are met, given the potential of the of the exploration rights to generate income at a later stage. On the other hand, it will only become clear if the resource is exploitable once exploration begins which means there is no certainty whether it will yield anything of a “business” nature. And even if some exploration has occurred to confirm the land does, in fact, contain natural resources, it can only really be stated that there is real “business” once production or exploitation has yielded any resources.
Regulators in Africa could look to Kenya’s pragmatic approach as a helpful direction to consider either in creating an exclusion from merger notification obligations or alternative, industry-specific thresholds. This would allow for their limited resources to be spent on investigating mergers which have more potential to impact competition.