Githu hands dealmakers reprieve in war with Comesa over mergers

The Competition Authority of Kenya (CAK) has won the first round in the battle to control acquisition of shares, interest or assets among local firms, ending two months of uncertainty for dealmakers.

Attorney-General Githu Muigai has given CAK the green light to act as the sole agency with mandate to clear local mergers and acquisitions (M&A), temporarily shielding local firms from the Comesa antitrust laws.

Under the regional laws, Comesa Competition Commission (COCC), an agency set by the Comesa secretariat, was scheduled to assume the regulation of business practices within the 19-member trading bloc.

“After consultations regarding the commencement of Comesa Competition Regulation (CCR), with the Attorney-General… we are justifiably inclined to advise that competition regulation has not changed,” CAK’s director-general Wang’ombe Kariuki says in a letter addressed to his COCC counterpart George Lipimile.

Mr Lipile’s office had in an earlier letter directed all corporate dealmakers within Comesa to start complying with CCRs from January 14, touching off a turf war that prompted CAK to seek Prof Muigai’s legal counsel early last month.

(Read: Conflict of local and Comesa laws holds up firms’ mergers)

The letter, written by COCC’s M&As Willard Mwemba read in part: “Mergers with regional dimension concluded after January 14 without being notified with the (Comesa) Commission shall be null and void and without legal effect.”

Under the Comesa antitrust laws any firm engaging in M&A, including those which are largely national but whose impact in the market was likely to extend beyond national borders, was to seek clearance from the Comesa body.

The CAK does not charge for application for M&As and it only takes 60 days to finalise such transactions. COCC was to charge Sh42.5 million as processing fees and dealmakers were to wait for 120 days before concluding transactions.

Smaller firms which could not raise the Sh42.5 million were to be charged 0.5 per cent of the combined annual turnover or combined value of assets spread within Comesa.

Once COCC’s approval was obtained, the dealmakers were to proceed with the transaction without seeking permission from national competition authorities of the countries involved. Prof Muigai cites lack of cooperation framework as the ground for allowing CAK to disregard the January directive.

In particular, Comesa antitrust body did not gazette CCRs and failed to give national competition bodies within the bloc adequate period for adopting new regulations.

“The CCRs do not provide for commencement date and therefore the notice identifying January 14 as commencement date should have been published in the regional Gazette Notice,” Mr Kariuki said.
He referred to article 47 of the Kenyan Constitution which requires adequate notice before such commitments are undertaken.

In addition to COCC, the five member states of East African Community came up with the EAC Competition Authority in 2010 which is yet to start operations. Once operational, the EAC antitrust body will not levy charges on M&As but will process M&A applications within 45 days.

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, implies that the regional competition bodies have primary jurisdiction over any industry whose operations transcend national borders with respect to anti-competition trade practices, and mergers and acquisitions.

In his letter to COCC, Mr Kariuki promised to cede authority to the regional body once the legal framework is established.

“We wish to assure you that the Authority is willing to continue to engage with COCC in ensuring that CCRs are operationalised within the set thresholds and their spirit,” Mr Kariuki said.

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