Merger notification rules in Africa are unclear, lawyer says

New merger notification rules could become a costly burden for companies operating in 19 countries in eastern and southern Africa, warns John Bodrug, a partner at Davies, Ward Phillips & Vineberg LLP.

The new regulations — implemented in January by a supranational organization called the Common Market for Eastern and Southern Africa (COMESA) — will add uncertainty to mergers and acquisitions in the region and require companies to plan in advance, argues Bodrug, a Toronto-based partner in the law firm’s Competition and Foreign Investment Review practice.

COMESA — a pan-African group created by a treaty in 1993 — is made up of Burundi, Comoros, the Democratic Republic of the Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia and Zimbabwe.

The group recently set-up a Competition Commission to decide whether a proposed merger or acquisition will prevent or lessen competition within member states.

But the new requirements pose a number of challenges and the rules are unclear, Bodrug argues. For a start, eight of the 19-member countries in COMESA have their own merger notification regimes, which could create conflicts over jurisdiction, he says. “In some cases, it appears that competition authorities in both COMESA and a member state are asserting jurisdiction over the same merger,” he continues.

In addition, under COMESA’s competition rules — the financial threshold at which companies with assets or revenues in two or more of the African member states must notify the group of an impending transaction — has been set at zero.  

“In most jurisdictions, you have a fairly significant dollar threshold for assets or revenues in the jurisdiction before the parties have to file a notification, but with a zero-dollar threshold, it’s potentially quite challenging to confirm whether a notification obligation exists,” he says. For example, a merger filing to Canada’s Competition Bureau is not required if the acquired entity has less than $80 million in assets or revenues in Canada.

Bodrug also says that it remains to be seen whether the COMESA Competition Commission “will take the position that a mining company that merely owns land or mineral rights in two or more member states — but otherwise has no operating mines in COMESA — would satisfy the notification threshold because it operates in such states.”

Filing fees have been set at the lesser of a) US$500,000 or b) the lower of 0.5% of the parties’ combined turnover, or 0.5% of the parties’ combined assets in the COMESA region.

And companies who don’t meet the Competition Commission’s filing requirements in time can be slapped with a penalty of up to 10% of their combined annual turnover in COMESA, he adds. Companies must file notification of a “decision to merge” within 30 days, he says, but it is unclear when the clock starts ticking on a proposed transaction. For example, he says it could be triggered by a board decision “even before a merger agreement is executed.”

Bodrug notes that he didn’t learn of the new notification regime until it came into effect in January, and says companies “don’t want to be discovering this at the eleventh hour.”

“What is important for Canadian mining executives to know is that there is a lot of uncertainty regarding the new regulations,” he says. “You have to factor in the COMESA regime early in your merger-planning process in order to avoid surprises.”