1. What is the COMESA merger control regime?
COMESA stands for the Common Market for Eastern and South Africa. There are currently 19 Member States in COMESA (Burundi, Comoros, The Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia and Zimbabwe).
The COMESA merger control regime is thus a supra-national merger control regime overseen by the COMESA Competition Commission (CCC).
2. For how long has the merger regime been operating?
In the Treaty establishing COMESA, the COMESA Council of Ministers, comprising a government ministers from each of the Member States, was given the task of adopting competition regulations. This it did in December 2004. These Regulations include provisions covering both anti-competitive practices and merger control.
However, it was only on 14 January 2013 that the CCC announced publicly, without prior notice, that it had begun to operate in its role as a competition authority.
3. When a merger filing is necessary?
The Regulations provide for a combined test including (i) an Operation Test and (ii) a Turnover Test.
Under the Operation Test, which is widely defined, either the acquirer and/or the target must operate in at least two COMESA Member States. “Operations” is currently broadly understood as including not only physical presence but also any revenue generation.
Under the Turnover Test, the merging parties must in combination achieve a certain turnover or have a certain level of combined assets within the COMESA region. Currently, the US$ combined turnover and assets thresholds are set to zero.
This means that, for the moment, any merger meeting the Operation Test must be notified to the CCC.
4. What is the timing for notification and for review by the CCC?
The filing must be made within 30 days following the decision to merge. The “decision to merge” is not further defined and the Regulations do not say if the clock is counted in business days or calendar days, which raises a considerable amount of uncertainty.
The CCC has 120 days to review the merger but it can extend this period without limitation in time.
As the draft merger assessment guidelines appear to confirm, notification to the CCC is not suspensory and parties may close the transaction after filing without waiting for prior clearance, subject to the risk that remedies will be imposed or the transaction ultimately prohibited.
5. What are the consequences of not filing when necessary?
The CCC has the power to impose a fine of up to 10% of the merging parties’ turnover in the COMESA region, which is very high by international standards. In practice, at this early stage of the regime, the CCC has indicated that it would first ask the parties to make a filing before imposing any sanction.
6. Is there a filing fee?
There is a very high filing fee. Although the wording in the Regulations is not clear, the CCC has clarified that the filing fee is 0.5% of the parties’ combined COMESA assets or turnover but capped at US$500,000, which is also very high by international standards.
7. Does a filing to the CCC under the COMESA merger control regime exclude any other merger filings in one or more COMESA Member States?
In the CCC’s view, its control over a merger falling within the scope of the Regulations is a one-stop-shop for the merging parties for the COMESA region. This would mean that no other national Competition Authority of any COMESA Member State should review the merger in addition to the CCC.
However, the Regulations are unfortunately not explicit on this point, and several national Competition Authorities of COMESA Member States which have their own merger control regime have rejected the principle of the CCC’s exclusive jurisdiction. Kenya has raised the strongest voice against the one-stop-shop mechanism but Egyptian Ministers are also considering the issue.
It can only be hoped that the principle of the one-stop-shop will soon prevail, as having to file concurrently to the CCC and to one or several other national Competition Authorities of the COMESA region would place companies under a significant burden in terms of time, effort and costs, as well as raising the risk of potentially conflicting decisions.
8. Do any other significant issues arise from the COMESA merger control regime?
There are several issues with the COMESA regime, in addition to the zero turnover threshold, the lack of a sufficient local nexus due to the broad interpretation of the Operations Test and the uncertainty regarding the exclusive jurisdiction of the CCC over mergers falling within the scope of the COMESA merger control regime.
One issue relates to the interpretation of Article 3 of the Regulations, which limits the application of the Regulations to transactions having an appreciable effect on trade between COMESA Member States and which restrict competition in the COMESA.
Companies and their advisors could legitimately consider that a transaction which meets one of the Operations Test criteria still does not have an appreciable effect on trade between Member States. That might be the case, for example, where the target has no presence (assets or revenue) in the COMESA and only the acquirer, with no local presence but with only revenue generation, has operations in two COMESA Member States.
The CCC’s position seems to be that it is not up to the companies or to their advisors to take a position on the applicability of Article 3 of the Regulations and that a transaction meeting the Operations test must be filed. This position has been widely criticised and clarifications are awaited.
Another issue is the question of the jurisdiction of the COMESA Court of Justice over decisions adopted by the CCC and possibly confirmed by the Board of Commissioners (under appeal procedures which are not detailed in the Regulations). The Draft Guidelines issued by the CCC indicate that the COMESA Court of Justice would have the power to review a Board’s decision, but only with regard to matters of law.
9. How much is the COMESA merger control regime being used?
So far, as at 30 October 2013, there are nine merger filings in the public domain, and four clearance decisions.
10. Is the regime expected to change?
The CCC has called for an international consultancy on the Regulations, Draft Guidelines and interpretations of the rules. The review should be completed by the end of April 2014. Very recently, the CCC has confirmed that the merger control regime aspects of the Regulations will be reviewed separately, presumably because of the scope of the issues to be considered. Amendments to the regime are therefore unlikely until after that review is complete.
Companies that trade or carry on business in Eastern or Southern African countries, and that are contemplating a merger transaction, as well as companies contemplating an acquisition or disposal in the region, must consider the need to notify the transaction to the CCC.
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Simmons & Simmons’ Africa group, which is carefully monitoring developments on this issue, can assist in the merger control analysis and filing.
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