Conflict of local and Comesa laws holds up firms’ mergers

Corporate dealmakers are caught up in a turf war pitting the national competition authority and an agency set up by the Comesa secretariat to regulate fair business practices in the region.

Lawyers who handle mergers and acquisitions said they have held back a number of deals — which cannot be disclosed without breaching undertakings with clients — until a clarification is made on how the parallel competition rules should be complied with.

The Competition Authority of Kenya (CAK), citing numerous grey areas and conflict with its own laws, has written to the Attorney-General seeking his opinion on the extent to which the Comesa Competition Regulations (CCRs) are applicable in Kenya.

“We have sought to find out which one between national and regional regulations is superior and how long it can take us to domestic regional laws,” CAK’s director-general Wang’ombe Kariuki said on Monday.

The Comesa Competition Commission (COCC) which began its operations on January 14 would scrutinise mergers, investigate and adjudicate on competition and consumer issues and develop compliance strategies.

This means that among other things, it assumes jurisdiction over cross-border purchase (or lease) of shares, acquisition of interest or purchase assets.

“Mergers with regional dimension concluded after January 14 without being notified with the (Comesa) Commission shall be null and void and without legal effect,” Willard Mwemba, head of Mergers and Acquisitions (M&A) at Comesa Competition Commission (COCC) says in a letter to member states seen by the Business Daily.

The operations of the commission would affect all firms which are active in the 19 member states, both in the ordinary course of business and in the context of acquisitions.

Corporate lawyers caught up in the middle have criticised the provision saying the red tape would discourage mergers in the Comesa market.

“The provisions (CCRs) are ambiguous. Sanctions for noncompliance are just as draconian as existing national anti-trust laws,” local law firm Kaplan&Stratton said last Friday in its advice to clients.

The Competition Act 2010 extends CAK’s jurisdiction to practices outside Kenya which are deemed to affect competition in the domestic market and also provides that the national regulator would prevail in case of conflict with external bodies.

Article 3(2) of CCRs, however, suggests that the regional competition body has primary jurisdiction over an industry whose operations transcend national borders with respect to anti-competitive trade practices and mergers and acquisitions.

The national body wants local corporate lawyers to disregard the provisions of the Comesa commission until the AG clarifies their relationship with national laws.

“The status quo remains as per the Competition Act 2010 and we have advised corporate lawyers to proceed with transactions in the meantime,” said Mr Kariuki.

The interest by the regional competition regulators arises from Kenya being among the top markets for M&A deals in eastern Africa.

A report by Nixon Peabody, a Boston-based law firm which tracks global developments in the M&A, says 53 per cent of the 152 M&A deals completed in 2011 were between African nations.

The law firm identifies regional integration as well as economic and political stability as factors that are expected to turn East Africa into an attractive target for M&As.

The recent discovery of oil in Turkana is set to put Kenya at the heart of M&As as data specifies mining, banking, oil and gas, manufacturing and telecommunications as the sectors attracting consolidation activity.

In one of the recent examples of the Kenyan firms’ appetite for M&As, Centum Investment announced its acquisition of 45 per cent of Platinum Holdings Ltd.
In the oil segment, Puma Energy is currently negotiating a Sh25 billion deal to acquire a substantial stake in Kenol/Kobil.

With the arrival of the COCC, all M&As deemed to have impact beyond national borders would be subjected to the lengthy process even if all the firms involved are from the same country.

Local firms seeking to extend their footprint into the neighbouring markets through M&As would have to pay COCC up to Sh43 million and wait for four months (120 days) for cross-border acquisitions.

CAK does not charge for application for M&As and only takes two months (60 days) to finalise such transactions.

Similarly, the East African Community Competition Authority which was established in 2010 but is yet to start operations does not charge M&As parties and processes the applications within 45 days.

In case of smaller firms which cannot raise the Sh42.5 million application fees, COCC says the M&A would be fixed at 0.5 per cent of the combined annual turnover or combined value of assets spread within Comesa.

The lawyers have raised a red flag over possible conflict between the Comesa body and the national as well as regional competition policies and laws.

COCC, however, denied charges that it would enhance bureaucracy and make it harder, longer and more costly for firms to merge or acquire business in the region.

“To the contrary, the CCRs eliminate all these. Once notification is made to COCC; there is no need to make notifications in individual member countries where the same transaction is concluded,” said Mr Mwemba.

In the past, mergers involving more than one member state had to be notified to all the member states. This practice, Mr Mwemba said, was tedious and created uncertainties because different member states did not have uniform competition rules.

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