AG Githu Muigai speaks at a past function in Nairobi. He has advised firms to only seek approval for mergers and acquisitions from the Competition Authority of Kenya. FILE
What you need to know:
The Comesa Competition Commission (CCC) warns firms that merging without its approval will draw heavy penalties.
CCC has also sought to clarify the rules on fees and implementation of mergers, which were causing hesitation by firms seeking tie ups due to their vagueness.
The competition regulatory agency for the Common Market for Eastern and Southern Africa (Comesa) has warned that companies which enter into cross-border mergers and acquisitions without its approval face heavy penalties or reversal of the transactions.
The Comesa Competition Commission (CCC) has been seeking to assert its authority over international mergers and acquisitions that happen within the trading bloc but has caused confusion for firms that were previously only required to apply for approval from their national regulators.
Attorney- general Githu Muigai in March advised local companies to only seek approval for such deals from the Competition Authority of Kenya (CAK), but the Comesa agency has stood firm on its demand, causing fear among transaction advisors.
“While the early indications are that the Comesa Competition Commission will apply its new powers pragmatically, it is hoped that certain issues will be clarified quickly so that the new regime does not harm the emergent Comesa Common Market,” says UK-based law firm Clifford Chance in an advisory note circulated to its international clients.
“It has long review periods, unclear standstill obligations, potentially high filing fees and no jurisdictional thresholds.” The CCC laws, which came into force on January 14, require mandatory filing for all cross-border deals but to save on time they do not prohibit implementing or closing a merger prior to clearance.
The Comesa agency has also sought to clarify the rules on fees and implementation of mergers, which were causing hesitation by firms seeking tie ups due to their vagueness when looked at alongside the local anti-competition laws.
“The CCC has confirmed that closing prior to clearance will not result in penalties, but doing so will expose the parties to the risk that the CCC later finds the transaction to be anticompetitive and imposes remedies or orders it to be unwound,” said Clifford Chance in the note.
The CCC has also said that the filing fee will be whichever is lower between (Sh42.5 million) $500,000 or 0.5 per cent of the merging parties’ combined turnover in the Comesa region( or 0.5 per cent of their combined assets in that region, whichever is higher).
While this means that filing fees will never exceed $500,000, it will reach that maximum wherever the parties have combined turnover or assets in the Comesa region of more than $100 million.
There is no minimum financial threshold for mergers stipulated though, meaning that approvals must be sought irrespective of the size of the transaction.
“Accordingly, purchasers with substantial sales or operations in Comesa will face high fees even when acquiring targets with only minor activities in the region The maximum fee is almost twice as high as the next most expensive regime, the US, which applies a (Sh23.8 million) $280,000 fee, payable per transaction for deals involving assets or voting securities with a value of more than (Sh60.3 billion) $709.1 million,” the Clifford Chance briefing note says.
The Competition Authority of Kenya (CAK), from which local firms have to seek approval before mergers and acquisitions, in March sought the clarification from Mr Muigai on which between national and regional regulations is superior to the other.
Mr Muigai gave CAK the green light to act as the sole agency with mandate to clear local mergers and acquisitions, with CAK notifying Comesa of this position.
Under the Comesa anti-trust laws however, any firm engaging in mergers and acquisitions, including those which are largely national but whose impact in the market was likely to extend beyond national borders, is to seek clearance from the CCC.
Contacted by the Business Daily over the matter, CAK director-general Wang’ombe Kariuki said the Kenyan position was unchanged.
“We shall be issuing a more comprehensive statement after seeing any new developments, but our position remains that Kenya’s laws on mergers and acquisitions have not changed,” said Mr Kariuki.
The Competition Act 2010 extends CAK’s authority to regional deals which are deemed to affect competition in the domestic market.
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.
The risk of deals being rescinded however remains a reality, according to advocate James Kamau, a managing partner at Iseme, Kamau & Maema Advocates, who noted that the Comesa regulations form part of the Kenyan law as per the Constitution.
