On 13 March 2013, it was announced that Philips Electronics and Funai Electric have lodged the first application for merger control review with the supra-national COMESA Competition Commission (CCC), since the vesting of merger review powers in that body in January this year. Practitioners hope that this review, which in many ways can be seen as a test case, will help clarify several key aspects of COMESA's newly introduced merger control practices and procedures.

The COMESA Competition Commission

COMESA is the Common Market for Eastern and Southern Africa. It was formed in 1994 with a view to promoting economic development, as well as peace and security in the region. Currently it comprises 19 member states.[1] While the COMESA secretariat is based in Lusaka, Zambia, the CCC has its seat in Lilongwe, Malawi.

Although COMESA has had a theoretical competition law dimension for many years, enforcement only went live earlier this year, on 14 January 2013. The CCC's mission is to "monitor, investigate, detect, make determinations or take action to prevent, inhibit and/or penalise undertakings whose business activities appreciably restrains competition within the Common Market". Its remit covers merger regulation and antitrust enforcement in cases that have cross-border elements within the COMESA region.

The CCC is therefore breaking new ground. Only a minority of its member states currently have competition laws on their national statute books, and even fewer have active competition enforcement agencies. Furthermore, while antitrust regulation has been established in several COMESA member states, actively enforced merger control remains rare. Perhaps as a result of the limited experience in COMESA member states, many uncertainties surround the new rules, in terms of both procedure and substance.

One-stop shop

The COMESA framework suggests a 'one-stop shop' for merger review, which could give it the exclusive power to review mergers that fall within its jurisdiction. However, some member states, most notably Kenya, have not yet fully accepted that COMESA rules will take precedence over their national laws. In addition, COMESA's rules allow member states to request the power to review deals that they believe will disproportionately affect competition in their home jurisdiction.

It remains to be seen how this issue will develop in practice but, at the present time, it cannot be ruled out that COMESA and its member states will claim concurrent roles in reviewing mergers.

Qualifying transactions

Transactions qualify for notification if they involve the "direct or indirect acquisition or establishment of a controlling interest by one or more persons in the whole or part of the business of . . . [an]other person", however achieved. "Controlling interest" is defined broadly, to include "any control whatsoever over the activities or assets of undertaking", though no further guidance is given. As such, while standard mergers and acquisitions are clearly covered, it is not clear to what extent joint ventures, minority shareholdings and acquisitions of other rights of control will fall within COMESA's remit.

Jurisdictional thresholds

COMESA's jurisdictional thresholds are both broad-ranging and unclear, which means they have the potential to catch a significant number of transactions.

As a starting point, any merger or acquisition in which both the acquiring firm and target firm, or either the acquiring firm or target firm, operate in two or more COMESA member states, is subject to review. At this stage, it is not clear whether import sales alone are sufficient to trigger a notification requirement, or whether the parties need to have a local presence (such as a subsidiary, branch or fixed assets).

There are no financial thresholds applicable under the COMESA merger control regime. Although COMESA's laws allows for de minimis thresholds based on turnover and assets, these have formally been set at zero.

On the other hand, the applicable rules also suggest that COMESA merger control may only apply to transactions which have an appreciable effect on trade between member states and which restrict competition in the common market. While it is not clear how this will be applied in practice, it may exempt a number of transactions from notification requirements.

Fees

The fees for filing a notification with COMESA are unusually high. The fee is 0.5% of the parties' combined annual turnover in the COMESA region, and is capped at an amount equivalent to USD $500,000.[2]

Timing

Mergers are required to be notified within 30 days of the "decision to merge". At this stage, it is unclear what the triggering event for a merger review would be. While under most regimes, the trigger is the signing of the merger or acquisition agreement, under others an earlier event (such as the signing of a letter of intent or heads of terms) may suffice.

The CCC has 120 days from receipt of a completed notification to review a notified merger, though this period can be extended. There is no official shortened review period for deals that do not raise competition concerns.

Documentary requirements

COMESA has prescribed a standard form for the notification of mergers. Information requirements are extensive, and considerable certification and notarisation procedures are likely to be required. There is no short-form notification for deals that do not raise competition concerns, though it is conceivable that waivers may be granted.

Suspensive effect

For the moment, it is not clear if the COMESA regime allows parties to close a deal without clearance. The applicable regulations are silent on this point. However, the current version of the notification form states that "any notifiable merger carried out in contravention of…the Regulations shall have no legal effect and no rights or obligations imposed on the participating parties by any agreement in respect of the merger shall be legally enforceable in the Common Market". The CCC also asserts that it has the power to block or unwind unlawful mergers.

The above arguably suggests that deals can be closed prior to clearance without penalty, but at the parties' own risk -- though again this remains uncertain.

Penalties

Parties who fail to notify COMESA about a notifiable transaction may be fined up to 10% of their turnover in the COMESA region.

Substantive review

The substantive threshold for review is "whether or not the merger is likely to substantially prevent or lessen competition". This may be offset by appropriate "technological efficienc[ies] or other pro-competitive gain[s]", or may be "justified on substantial public interest grounds". Mergers may also be prohibited if they are likely to "result in, or strengthen a position of dominance contrary to the public interest".

Conclusion

In many ways modelled on the European Union merger control procedure, COMESA appears to have been conceived as a one-stop shop for merger control clearance in the region.

While there is much to be said for supra-national merger control, there are a number of difficulties and crucial uncertainties under the COMESA regime that need to be ironed out, especially given its potentially very broad scope of operation.

Pending further clarifications, companies may question whether it is advisable to notify transactions to COMESA, even if the jurisdictional thresholds are met. It is to be hoped that the Philips/Funai deal will give valuable guidance on how the newly-established procedures will be implemented.