The COMESA Competition Regulations (the Regulations) were promulgated to resolve, inter alia, the challenges of cross-border merger regulation. In the article last year, we identified some of these challenges. We looked at the uncertainty on the merging parties raised by suspensory and non-suspensory merger control regimes and determined if the Regulations had resolved this uncertainty.
In this article, we shall look at two other challenges encountered by the merging parties in cross-border merger regulation, namely:
- voluntary and mandatory merger control procedures; and
- the waiting periods after notification.
We shall determine whether or not the Regulations have resolved these challenges.
Mandatory versus voluntary merger notification systems
Merger control procedure is not uniform in the COMESA member states. Some member states have a voluntary merger control system while others have a mandatory merger control system. For example, Mauritius has a voluntary merger review regime whereas most member states of COMESA require mandatory notification of mergers once the notification requirements are met. The Mauritian competition legislation provides that a merger is subject to review by the competition authority where:
- all the parties to the merger supply or acquire goods or services of any description, and following the merger, the merged entity will supply or acquire 30 per cent or more of all those goods or services in the market;
- prior to the merger, one of the parties to the merger alone supplies or acquires 30 per cent or more of goods or services of any description on the market; and
- the competition authority has reasonable grounds to believe that the creation of the merger situation has resulted in, or is likely to result in, a substantial lessening of competition within any market for goods or services.
At first instance, the reading of the preceding bullet points may suggest that merger notification is mandatory where it meets the conditions laid down in the competition legislation. However, several officials from the Competition Commission of Mauritius have confirmed that Mauritian merger regime is voluntary.2 The competition statute provides that only mergers that substantially, or are likely to substantially, lessen competition will fall under the ambit of the law and subject to remedy under the act. The statute further provides that if the commissioners determine that an enterprise has been party to a merger situation which has resulted, or is likely to result, in a substantial lessening of competition within a market for goods or services, the commission may give the enterprise such directions as it considers necessary, reasonable and practicable to mitigate, restrict or prevent any substantial lessening of competition or likely substantial lessening of competition and its effects.
In the case of an implemented merger, the Competition Commission of Mauritius may require the merged entity to:
- divest itself of such assets as are specified in the direction within the period so specified in the direction; or
- adopt, or to desist from, such conduct, including conduct in relation to prices, as is specified in the direction as a condition of maintaining or proceeding with the merger.
None of the provisions above in the Mauritian competition statute appears to expressly state that merger notification is voluntary in Mauritius. However, such a practice may have been promulgated from the lack of express requirement that parties to a notifiable merger must notify such mergers to the competition authority before implementing the merger, as is the case in most competition statutes which have mandatory notification requirements.
Mauritius is not the only COMESA member state with a voluntary merger review regime. Malawi also has a voluntary merger review regime as clarified by the High Court of Malawi, in the ex parte matter In re the State and the Competition and Fair Trading Commission, miscellaneous case No. 1 of 2013 (application for judicial review). Before this judgment, the Competition and Fair Trading Commission (CFTC) of Malawi took the approach that merger notification was mandatory in Malawi. However, confusion still remains even in the wake of the court judgment. Mr Richard Chiputula, the head of the mergers and acquisitions department at CFTC, has succinctly observed that the view that the regime is voluntary comes from the fact that the wording of the relevant provisions is silent on whether it is mandatory or voluntary. Section 35 of the Competition and Fair Trading Act (CFTA) creates an offence for anyone who consummates a merger without authorisation from the CFTC if that merger would likely have negative effect on competition. Further, section 35(2) makes mergers consummated without this authorisation null and void. One may be tempted to think that if it is an offence to engage in a merger that leads to a substantial lessening of competition and indeed, if such mergers are null and void, then it makes logic and common sense that the mergers should be notified to the CFTC to make a determination on whether they would have such a consequence.
According to Mr Chiputula, their interpretation of section 35 is that the determination of whether a merger would have negative effect on competition or not rests with the CFTC and the authority cannot make a determination without information. Hence, the parties are required to provide relevant information to the CFTC for assessment. Therefore parties are under obligation to notify any transaction particularly that the CFTA does not provide thresholds for. Mr Chiputula submitted that some legal practitioners have interpreted section 36 of the CFTA as providing for voluntary notification. However, according to Mr Chiputula, the CFTC’s interpretation of section 36 is that it refers to persons who may submit a notification to the CFTC as opposed to the notifiability of transactions.
The author agrees with the views of Mr Chiputula on this point. Section 36 of the CFTA reads that any person may apply to the CFTC for an order authorising that person to effect a merger or takeover. It does sound that any person with an interest to a merger may make application to the authority but not that the merger transaction itself is subject to the word ‘may’. This debate for now is academic in any case, as the law in Malawi as it stands is that merger notification is voluntary.
To reconcile the two divergent interpretations, the CFTC has taken a position that parties can choose to notify or not, but the CFTC as a regulator can require parties to notify any transaction where it suspects the transaction may infringe section 35. The CFTC strongly believes that the High Court of Malawi erred in its ruling on this subject. In Mr Chiputula’s view, the court ruling provides that the CFTC does not have the mandate to require parties to notify a transaction. Others have argued that court ruling therefore nullifies the CFTC’s mandate over mergers.
It does not, however, appear true that the High Court ruling nullified the CFTC’s mandate on mergers. It appears difficult to comprehend such an outcome from the honourable court judgment. What the court settled in the view of the author is that parties are not obliged to notify a merger, but it is up to the CFTC to review these mergers if they threaten to harm the competitive structures of markets. Such parties may be summoned to submit information for these purposes. It would be interesting to see the outcome of the appeal on this court judgment. The current status is that merger notification in Malawi is voluntary pursuant to the aforementioned court judgment.
What, then, is the challenge of the voluntary versus mandatory merger notification for the merging parties? At first instance, it may appear as if this poses no challenge. As a matter of fact, even after reviewing the subject, the challenges do not appear serious. However, a few comments can be made regarding the subject.
The existence of both regimes presents troubling concerns for merging parties. Firstly, sometimes it is not conspicuously the situation that criteria for notification in a voluntary merger notification regime is met, as is the case with Malawi, for example. In this case, the merging parties may have to take a great deal of risk due to the uncertainty surrounding the merger regimes in such jurisdictions. Should the parties go ahead and implement such a merger which is then determined to be a notifiable merger, legal, financial and practical trouble may ensue. The wording of some legislation like the Malawi competition legislation is not very clear if this would be treated as an infraction of the law for failure to notify a notifiable merger. For these purposes, it would be worthwhile to look at section 35 of the CFTA again which provides that:
1. Any person who, in the absence of authority from the Commission (CFTC), whether as a principal or agent and whether by another enterprise, or his agent, participates in effecting:
(a) a merger between two or more independent enterprises;
(b) a takeover of one or more such enterprises by another enterprise, or, by a person who controls another such enterprise,
where such a merger or takeover is likely to result in substantial lessening of competition in any market shall be guilty of an offence.
2. No merger or takeover made in contravention to subsection (1) shall have any legal effect and no rights or obligations imposed on the participating parties by any agreement in respect of the merger or takeover shall be legally enforceable.
What amounts to a substantial lessening of competition cannot be determined as an exact science and with mathematical precision as observed in the preceding sections. No matter how competition authorities may stress the importance of objective consideration of mergers, there is still some degree of value judgments and subjective considerations in merger assessment. It is this factor that may lead to a competition authority and the merging parties to arrive at different conclusions regarding the notifiability of a merger in a voluntary merger review regime. In the case of Malawi, such a development may be worrying as section 35(1)(b) of the CFTA does give an indication that a merger which is deemed notifiable, if implemented without notification, would lead to a trespass of the law and would attract the consequent sanctions. Further, such a merger would immediately be deemed illegal, meaning all the contracts it would have engaged in with various third parties would be rendered illegal and unenforceable. This is a very alarming thought and a nightmare for parties to find themselves in.
The Mauritian competition legislation appear to be clearer on whether the parties would be liable for trespassing the law should the Competition Commission of Mauritius determine that the merger is in fact notifiable after notification. The legislation focuses on remedying the situation as opposed to imposing sanctions. However, remedying the situation post-merger may also have undesirable consequences. The legislation has provided that one of the ways through which the remedy would be implemented is through divestiture. Divestiture may be a very costly undertaking post-merger and a lot of contracts undertaken by the merged entity may have to be renegotiated, otherwise there is a risk of them being frustrated by to the possibility of the formation of new legal entities that may be created after the divestiture. Every businessman, lawyer and indeed every student of commercial law understands the ominous consequences of frustrated contracts.
The risk of divestiture is very real, as it is possible for the Competition Commission of Mauritius and the parties to arrive at a different conclusion. This is because the merger notification thresholds in Mauritius are vague and opaque, ie, they are not based on objective criteria, they are based on market shares. The Mauritian competition legislation makes a merger transaction subject to notification if the merged entity’s minimum market share is 30 per cent. To determine this market share, there is the need to conduct an assessment and determine the relevant market, a process which is not always objective and free from trouble. Therefore, due to value judgments, merging parties may define their relevant market very widely so that their market shares are diluted and avoid notification. On the other hand, there may be temptation from the competition authorities to define the market narrowly and capture as many mergers as possible. Therefore, for purposes of certainty, there is a need to have an objective and verifiable criteria of determining merger notification thresholds and international best practice favours turnover values in this regard.
In the Common Market, the situation is even more troubling as some member states have competition laws but appear not to have provisions to require merging parties to notify their transactions either voluntarily or mandatorily for purposes of merger control. The example cited for this purpose is the Egyptian competition legislation (Law on the Protection of Competition and the Prohibition of Monopolistic Practices). Article 19 of this law provides, inter alia, that:
Persons whose annual turnover of the last balance sheet exceeded one hundred million pounds shall notify the Authority upon their acquisition of assets, proprietary or usufructuary rights, shares, establishment of unions, mergers, amalgamations, appropriations, or joint management of two or more persons according to the rules and procedures set forth in the Executive Regulations of this Law.
A detailed diagnosis of the above provision suggests that Egypt does not regulate mergers or, simply put, does not require notification for purposes of merger control. It is neither a voluntary nor mandatory merger notification regime. However, it does require post-notification of mergers where the parties’ annual turnover pre-merger exceeds 100 million Egyptian pounds not for the competition regulation of mergers it appears.3 One wonders why such should appear in a competition statute if it is not for competition purposes. This lack of clarity in the Egyptian law has in fact raised confusion in the market on whether Egypt requires merger notification. Some analysts and commentators4 have even gone to the extent of reporting that Egypt has defied the jurisdiction of the Regulations by calling for merger notifications. This view is flawed as Dr Amira Abdelghaffar, an official from the Egyptian Competition Authority and a board member of the COMESA Competition Board has confirmed that Egypt has no merger control regime and that merger transactions notified with the COMESA Competition Commission ought not be notified with the Egyptian Competition Authority. However, this confusion already shows the burden the parties have to go through when considering where to notify their transactions.
A careful review of the foregoing analysis of voluntary and mandatory regimes reveal that uncertainty is the most worrying factor. Similar to this is the trouble of identifying which jurisdictions are mandatory and those that are voluntary. This can sometimes take a lot of time and indeed has cost implications and may delay the final implementation of the transaction.
Have the Regulations resolved this challenge?
To the extent that the Regulations create a ‘One-Stop-Shop’, the challenges posed by voluntary and mandatory regimes has been resolved as transactions that have a regional dimension have to be notified only with the COMESA Competition Commission. This therefore ensures clarity over what exactly the parties need to do and reduces the burden of having to identify jurisdictions where merger notification is voluntary or mandatory. The parties to a cross-border merger which satisfies the regional dimension requirement would have to comply only with the procedure under the Regulations, thereby eliminating the uncertainty caused by different notification systems in the member states.
This subject is closely related to suspensory and non-suspensory matters discussed in previous articles. However, under this section, the waiting periods are not discussed with specific focus on the uncertainties that they raise in terms of the which jurisdictions suspends the transactions pending review and those which do not, or what would be the case where the merging parties implement a transaction notified under the Regulations that are non-suspensory but later the transaction is referred to a member state whose national competition law mandates the merging parties to suspend their transactions pending review. The context here is what effect, if any, would waiting periods (ie, periods between notification and decision issued in a suspensory regime) have on the transaction and merging parties.
It is not a secret that waiting periods in some jurisdictions may be so long that it leads to cost implications on a transaction, in terms of falling shares on the stock markets which are uncertain of the transaction until determination, financial cost in terms of retaining attorneys until a merger is disposed of and costs resulting from lost merger synergies pending review if it is unnecessarily long. One astonishing example of a country outside the Common Market with very long waiting periods is India. In India, a merger transaction is suspended for 210 days within which the Competition Commission of India should clear the merger, otherwise it is considered approved by operation of the law or effluxion.5 Within the Common Market, countries like Zambia,6 Kenya7 and Malawi8 have waiting periods of 90, 60 and 45 days respectively. Countries like Swaziland and Zimbabwe have evidently unusual provisions with respect to waiting periods. The Competition Act No. 8 of 2007 under section 35(3) provides that the Swaziland Competition Authority shall, within a reasonable time after the receipt of an application or date on which the applicants provide the information sought by the Swaziland Competition Authority if the date is latter, make an order concerning an application for authorisation of a merger or takeover. The foregoing implies that the period for merger review in Swaziland is indefinite and the determination is at the discretion of the Swaziland Competition Authority. This situation creates a huge degree of uncertainty in the market, which is not appropriate for business. Similarly for Zimbabwe, section 34(a) of the Zimbabwe Competition Act read together with Statutory Instrument 270 of 2002, particularly section 5 on ‘Determination of Notification’, show that the legislation does not provide for statutory maximum time periods for reviewing a merger. This creates a deeply worrying concern that should be addressed.
Astonishingly, even the EU Merger Regulations (EUMR) have relatively long review periods. Article 10 of the EUMR provides time limits for each phase, ie, 25 working days for the first phase which can in some cases be extended to 35 working days, and an additional 90 working days for the second phase which can be extended in a number of situations. These review periods are alarming especially coming from an advanced jurisdiction like the EU. When the European Commission commenced operations, it was heavily criticised for its review periods of a maximum of a 120 days coupled with its earlier interpretation that these were working days.9 It is strange to know that most critics on this came from the EU itself, ie, EU-based lawyers among others. Note that in the EU, the days are not calendar days but actually working days, which can extend to six months of reviewing a merger in some circumstances. This is not only strange but also inconsistent with international best practice, with all due respect to this advanced merger control regime.
Suffice to mention here that the determination of the time period allowable for merger review is also not an exact science clothed with mathematical precision. The author has not come up with any document or paper that has prescribed what the time period for review of a merger should be. It depends on a number of factors like nature and complexity of the transaction, the nature and development of markets among others. Therefore, the view that the above waiting periods are long is drawn from experience and the responses of the interviewees. The view of the author is that the time periods should not be more than 50 days10 and there should be a safeguard for reasonable extension should circumstances demand such a situation. Experience has shown that most mergers are not injurious to the process of competition and should be cleared within a relatively short period of time. Merger approvals are in most cases a condition precedent to the conclusion of a merger either by operation of law or through contract. Unnecessary delay in the review of a merger by a competition authority may lead to time-sensitive factors like financing arrangements to be jeopardised and ultimate collapse of a merger case.
Having multiple authorities reviewing a transaction does not make matters any better. It means the waiting periods may even be extended as different authorities may issue decisions at different times depending on the time the transaction was notified to the respective authorities. It does appear that with the challenges of multiple notifications observed and analysed above, it not possible to completely synchronise the timing of notifications to different competition authorities.
Another observed challenge as regards the different waiting periods in different jurisdictions is that competition authorities that have not issued a decision on a merger transaction are, to a great extent, under pressure and undue influence to conclude and arrive at a similar decision in the same merger case. This may result in lack of objectivity and due consideration on the examination of the merger. Such an outcome is irreconcilable with the fundamental objectives of merger review and may result in arriving at erroneous decisions with harmful consequences on the competition landscape of a given relevant market. Related to this matter, similar views were held by The Financial Times editorial which stated that if every country looks at every deal, then not only will the increased bureaucracy mean cost and delay, but the country with the toughest antitrust interpretation of a particular transaction will make a de facto decision for everybody else.11
The author should mention here that this particular challenge is not only on the merging parties but on competition authorities, and in most cases initiated by the merging parties who refer to other competition authorities that have made a decision and refer to the actual decision itself. The merging parties put significant pressure on the competition authorities to arrive at the same conclusion, forgetting that merger examination and determination is fact dependent and it is not usually the case that different competition authorities will arrive at the same decisions. This is because the markets under their review in the same merger may present all the characteristics of a distinct market and other peculiarities.
Have the Regulations resolved this challenge?
Within the context of the COMESA merger control framework, the Regulations appear to have resolved this challenge. Firstly, the fact that the merging parties do not have to notify multiple competition authorities means that there are not several staggered waiting review periods, as the only review period is that under the Regulations. Secondly, the time periods under the Regulations as interpreted in the guidelines compare very well with international best practice and in some cases are much better than some waiting periods under the national competition authorities and other jurisdictions like India and the EU cited above. In practice, the COMESA Competition Commission do complete the assessment of mergers way below the maximum 120 days12 permissible under article 25 of the Regulations. A review of the COMESA Competition Commission’s records informs the research that the average number of days its takes the commission to conclude a Phase I merger is 26 while it is 94 for Phase II mergers. The interpretation in the guidelines that the COMESA Competition Commission can seek extension from the board, but just for a maximum of 30 days, gives comfort to the merging parties that such extension would not be unreasonable. Section 6.1 of the guidelines provides that pursuant to article 25(2) of the Regulations, the Commission may extend the period of review with the approval of the COMESA Competition Board so long as all such extensions do not cumulatively exceed 30 days. The COMESA Competition Commission will provide prior notice of an extension to the notifying party. The obligation to seek permission from the board13 provides further comfort that the extension would not be arbitrary and for reasons of getting around the COMESA Competition Commission’s incompetence of completing the assessment of the merger within the allowable time.
Lastly, the fact that notification is made only to the supra-national competition authority for merger with a regional dimension, there is no undue influence to conclude the transaction and arrive at a similar decision once one national competition authority has concluded the assessment of a transaction and issued a decision. It should be noted that this risk is still real as regards the relationship between competition authorities outside the Common Market and the COMESA Competition Commission, though this is not the focus of attention of the research.
1 This article is drawn from the author’s PhD thesis.
2 Among these are the former officials of the Authority namely; Ms Sandya Booluck and Mr Rajeev Hasnah. Mr Deshmook Kowlesur, the chief executive officer of the Competition Commission of Mauritius confirmed this position at the Media Workshop held by the Competition Commission of Mauritius in Port Louise, Mauritius on 20 March 2017.
3 This position has been confirmed by Dr Amira Abdel Ghaffar, the senior legal researcher at the Egyptian Competition Authority and the Mr Mahmoud Momtaz, the head of the economic case handling division.
4 The Antitrust Source. February 2016. Volume 15 Issue 3: Resolving Concerns with the COMESA Competition Law Regime.
5 Section 31(11) of the Indian Competition Law 2002, as amended. It should be observed here that the 210-day review period by far exceeds the ICN best practice note.
6 In Zambia, the maximum period may reach 120 days as the CCPC may where it has reasons to do so extend the time for review for 30 days. What amounted to days was a subject of dispute between the CCPC and the parties in Zambia. The CCPC contended that the days were working days while the parties contended that the days were calendar days. The CCPC’s interpretation meant that in effect, the CCPC had more than six months to review a merger transaction. This period was extremely long. Although, in practice, the CCPC rarely exhausted all the time, this possibility was alarming to business. This dispute was later resolved by referring to Zambia’s General Provisions Interpretation Act Cap 2 of the Laws of Zambia, which guided that such days are calendar days.
7 Time periods in Kenya can reach 180 days as the law provides for an extension of 60 days where the authority has reason to believe that this is required. Section 44 of the Act provides that the Competition Authority of Kenya shall consider and make a determination in relation to a proposed merger of which it has received notification within 60 days of the date on which the Competition Authority of Kenya receives that notification or if the authority requests further information, within 60 days of the date of receipt by the authority of such information, or if a hearing conference is convened, within 30 days of the date of the conclusion of the conference. Where the Competition Authority of Kenya is of the opinion that the period referred to above should be extended due to the complexity of the issues involved, it may before the expiry of that period by Notice in writing to the undertakings involved extend the relevant period for a further period, not exceeding 60 days, specified in the Notice. A careful observation of the foregoing raises worrying concerns. It is not that the Competition Authority of Kenya can elect to extend the time period allowable for review on the basis of an opinion. This is not right. The opinion should be a sound and reasoned opinion on the basis of objective factors of law and fact. Further, a careful calculation of the days in consideration reveals that the maximum time period may even reach a total of 180 days, which by reasonable standards is long for merger review.
8 The time periods under the Malawi legislation appear to be very reasonable and probably an indication and inspiration of what should inform international best practice. Section 39(1) of the Malawi Competition and Fair Trading Act, 1998, provides that the Competition and Fair Trading Commission of Malawi shall, within 45 days of receipt of an application or the date on which the applicants provide the information sought by the commission if that date is later, make an order concerning an application for authorisation of a merger or takeover. Further, there is no room for extending the time period for reviewing mergers. An interview with Richard Chiputula, the director of mergers and acquisitions at the validation workshop of the COMESA Competition Restrictive Business Practice and Abuse of a Dominant Position Guidelines on 20 May, 2017 in Victoria Falls Town of Zimbabwe supported this view. Mr Chiputula stated that the days contemplated under the Act are calendar days and that the Act does not provide for extension but the clock can be stopped when the parties are asked to provide additional information.
9 Since October 2015, the European Commission interprets the days under article 25 to be calendar days. See the definition of ‘day’ in the guidelines.
10 Note that Jonathan Galloway views the 210 day period of suspending a merger in India pending review to be unnecessarily long. See Jonathan Galloway: Convergence in International Merger Control, Volume 5 Issue 2 pp 179–192.
11 ‘Editorial: Antitrust explosion’, The Financial Times, 28 July 2008.
12 The 120 days period for review are consistent with international best practice. Note that the median total review period in the IMLD database is 122 calendar days in a sample of 76 countries. Further the introduction of an expedited process in the Guidelines through a phased review system allows transactions that do not raise competitive concerns to be cleared fairly quickly.
13 The Board of Commissioners in terms of the institutional set up of the COMESA Competition Commission is independent from the commission and is the Supreme Policy Body of the Commission pursuant to article 13 of the Regulations. It also plays an adjudicative role in cases where there are disputes between the COMESA Competition Commission and the merging parties. Due to this independence, there is comfort on the merging parties that the COMESA Competition Board shall be impartial in making decisions as regards the request by the commission to extend the time for review under article 25. Such extensions must be based on objective and reasonable grounds.