The long-awaited Common Market for Eastern and Southern Africa (COMESA) Merger Assessment Guidelines (the Merger Guidelines) were finally adopted in August 2014 and released on 31 October 2014.
COMESA is comprised of 19 countries: Burundi, Comoros, Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia and Zimbabwe.
The COMESA Competition Commission (CCC) began operations on 14 January 2013, at which point the supranational merger control regime also came into force. Since that time, however, a number of questions have arisen concerning the application of COMESA’s merger control rules. The new Merger Guidelines attempt to address several of these questions, including the notion of mergers and territorial nexii, pre-notification consultations and “comfort letters”, the notification process, assessments of mergers, merger assessment considerations, and analytical approaches and methodologies.
The two items of particular interest to investors in the COMESA region are the interpretation of the jurisdictional test used by the CCC to assess its jurisdiction and the comfort letter procedure in lieu of full notification.
One of the major concerns with COMESA rules is the undeniably broad reach of COMESA’s merger control jurisdiction. Under the COMESA competition regulations, transactions are caught if they have an “appreciable effect” on trade between COMESA Member States and restrict competition in the COMESA Common Market. As filing thresholds have currently been set at zero by the CCC’s Board, the result has been that any transaction where one party is active in two or more COMESA countries is reportable, and the actual size of the parties, the extent of their business in the COMESA region and the impact of the contemplated transaction do not matter.
This has generated great uncertainty for investors and exposed them to significant notification costs, as notifying parties must pay a filing fee of whichever is lower: 0.5 per cent of the merging parties’ combined annual turnover or assets in the COMESA region (whichever is higher), or US$500,000.
Appreciable Effect on Trade Between Member States
The Merger Guidelines provide a series of criteria to be used in order to assess the existence of an appreciable impact by the transaction on the COMESA Common Market for the CCC to have jurisdiction.
According to the Merger Guidelines, a merger will only be notifiable to the CCC if
- At least one merging party operates in two or more Member States. The Merger Guidelines also clarify that an undertaking will be considered to “operate” in a Member State if its annual revenue in that Member State exceeded US$5 million.
- The target undertaking operates in a Member State.
- It is not the case that more than 2/3 of the annual turnover in the Common Market of each of the merging parties is achieved or held within one and the same Member State.
These cumulative criteria will allow transactions that have only a marginal effect on the COMESA Common Market to avoid burdensome and costly filing obligations. It should, however, be noted that even if a merger is not notifiable to the CCC but is notifiable under relevant national rules, the parties will still have to comply with national competition laws by notifying the respective national competition authorities.
During recent months, the CCC has accepted in certain circumstances to provide notifying parties with “Comfort Letters”, thereby exempting from filing full notifications and paying the high filing fee certain transactions that fulfilled the COMESA jurisdictional thresholds but do not have an appreciable effect on trade on the COMESA Common Market.
The Merger Guidelines notably clarify the procedures applicable to Comfort Letters, which should allow companies active in the COMESA Common Market to better assess their merger control requirements and improve legal certainty.
More specifically, the Merger Guidelines confirm that an acquiring party may, alone or jointly with other parties, request a comfort letter stating that a merger is not notifiable because it would not have an appreciable effect on trade between Member States or restrict competition in the Common Market. The request should include any information and supporting documents that the party(ies) believe is necessary to evaluate the request.
The request must be received by the CCC no later than 30 days after the merging parties’ decision to merge, i.e., at the announcement of a public bid in the case of publicly traded securities, or at the conclusion of a definitive, legally binding agreement to carry out the merger, which may or may not be subject to conditions precedent.
Within 21 days after receipt of the comfort letter request, the CCC will provide the requesting party with one of the following:
- A comfort letter.
- A request for additional information or documents, in which case, the CCC will respond to the requesting party within 14 days of receiving the information or documents requested.
- A decision that a merger notification is required.
If the CCC decides that a notification is required, the submission of the comfort letter request to the CCC will be deemed submission of a notification as of the date on which the comfort letter request was submitted.
The Merger Guidelines state that the party(ies) that submitted the comfort letter request will be considered the notifying party(ies) and will be required within 30 days to supplement the comfort letter request by submitting a completed notification Form 12 and all supporting documents, or be deemed to have failed to make a timely notification. The CCC will calculate the filing fee and issue the invoice no later than seven days after the date the notifying party submits Form 12.
The Guidelines provide investors in the COMESA region with a useful tool until actual notification thresholds are set by the CCC Board. In effect, the Merger Guidelines provide a structured mechanism for engaging in pre-notification discussions with the CCC regarding mergers that lack an evident territorial nexus with the COMESA Common Market but are theoretically notifiable under the COMESA competition regulations, while better safeguarding their legal position and protecting them against potential penalties.
An important caveat regarding the relative legal security provided by the Merger Guidelines is that they cannot be relied on as a statement of law; they are simply a reflection of the views of the CCC at the time of their publication.