Antitrust Alert: COMESA Amends Antitrust Rules Requiring Merger Filings in Eastern and Southern Africa
The COMESA Competition Commission (CCC) has announced new thresholds for determining whether a merger or acquisition transaction must be filed and obtain clearance through the CCC. COMESA is the 19-country Common Market of Eastern and Southern Africa (COMESA), whose largest members are Egypt and Kenya, and CCC is its regional competition authority. These merger control amendments provide more certainty for companies doing business in Africa, but these changes also may signal increased enforcement activity and still leave some questions unresolved. Although the amendments provide helpful guidance, they still do not resolve all the issues presented by the COMESA regime.
COMESA is a free trade area established under the 1994 COMESA Treaty. Its member states are Burundi, the Comoros, Democratic Republic Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, and Zimbabwe.
In 2004, the Council for COMESA adopted the COMESA Competition Regulations. The Regulations established the CCC, a merger control regime, and regulations prohibiting anticompetitive practices. Based in Lilongwe, Malawi, the CCC began accepting merger notifications in January 2013. Since then it has received over 30 notifications and published over 20 decisions. The CCC has not prohibited any notified transaction, nor has it imposed any penalties for failure to provide notice of a filing covered by its merger control regime. In March 2015, the Council for COMESA adopted a number of amendments to these regulations.
The amendments provide important guidance to parties doing business in the COMESA region, by establishing monetary thresholds for merger filings and lower filing fees. Under the amendments, a CCC merger filing is required if:
- At least one of the merging parties operates in two or more COMESA member states,
- The parties have combined turnover or assets in the COMESA Common Market of COM$50 million (USD $50 million) or more,
- Each of at least two parties has turnover or assets in the COMESA Common Market of COM$10 million (USD $10 million) or more, and
- The parties do not each achieve more than two-thirds of their COMESA-wide turnover within one and the same COMESA Member State.
Before these amendments, the monetary threshold for COMESA merger notifications was formally set at zero, such that any transaction involving parties to a transaction with any sales in two or more COMESA Member States was notifiable, regardless of the size of those in those states or in the region, so long as either the acquiring firm or target firm operated in two or more Member States. This threshold obviously caused the COMESA regime to cover some transactions with limited effects in the COMESA region. (According to interpretive guidelines adopted in August 2014 by the CCC, a merger party “operated” in a COMESA Member State if its annual revenue or gross assets in that Member State exceeded USD $5 million. Prior to the amendments, these guidelines were often a basis for not filing in COMESA, but the CCC nevertheless encouraged the merging parties to apply either jointly or individually for "comfort letters" to confirm that no filing and fees were required in light of the criteria contained in CCC guidelines.)
The new amendments also have reduced merger filing fees. Filing fees are now 0.1% of the greater of the value of the parties' combined turnover or assets in the COMESA Common Market, subject to a cap of COM$ 200,000 (USD $200,000). Prior to the amendments, filing fees were 0.5%, subject to a cap of COM$ 500,000 (USD $500,000).
The clarity from this announcement, not to mention the amendment’s lower thresholds, should be welcome news for companies operating in COMESA Member States or considering transactions involving the COMESA region.
Although the CCC describes itself as a “‘one stop shop’ for cross border transactions” in the COMESA region, it is not clear whether parties must still make parallel national notifications in Member States. Ten COMESA Member States have their own national competition authority (Egypt, Ethiopia, Kenya, Malawi, Mauritius, Rwanda, Seychelles, Swaziland, Zambia, and Zimbabwe). Authorities in at least some COMESA Member States have indicated that they may demand separate filings, including Egypt, Burundi, Kenya, Rwanda, and Uganda. Multiple filings can create additional burdens for merging parties and increase the risk of uncertainty, delay, and inconsistent decisions. Nevertheless, in some recent cases, parties have been able successfully to resolve attempts on the part of individual COMESA member states to assert jurisdiction over deals falling within the exclusive competence of the CCC, and thus avoid delays, by coordinating with the CCC and the national competition authorities.
The fact COMESA made these amendments also could signal increased enforcement activity against companies that fail to notify reportable transactions in COMESA. In response, the number of COMESA filings could increase even under the higher threshold. Failure to comply with these rules could lead to significant penalties such as fines (up to 10% of the parties’ revenues in the COMESA region), an order by the CCC to unwind a transaction, or a determination that the transaction has no effect within COMESA. Under the COMESA treaty, the member states are required to implement the CCC’s enforcement actions. The CCC continues to recognize that the parties may complete a deal prior to a decision being granted by the CCC. However, the CCC has cautioned that if a merger is implemented after the parties notify the CCC and the CCC prohibits the merger, they run the risk of having to undo the merger after the CCC’s decision is made. Therefore, the parties may decide, as a matter of practice, to make clearance by the CCC a contractual condition of closing, particularly in cases which may give rise to competition concerns in the region.
COMESA’s March 26 amendments can be found here: http://www.comesacompetition.org/?p=898#more-898.
For more information, please contact your principal Jones Day representative or the lawyer listed below.
Dr. Johannes Zöttl
Ashley Howlett, an associate in the Washington Office, assisted in the preparation of this Alert.
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