Kenya to introduce financial thresholds for merger notification

Presently, all mergers in Kenya, irrespective of their value, require mandatory notification to the Competition Authority of Kenya (CAK). Upon notification, the CAK assess the merger and advises whether the merger is one which will be excluded from a full investigation (meaning the merger can be implemented in Kenya), or one which qualifies for a full investigation (meaning that further information will be required and a deeper investigation of the merger will be conducted). Whichever way it goes, the parties incur the costs of filing a notification and experience delays caused by the CAK’s assessment of the notification (since implementation prior to approval is prohibited).

The CAK’s new proposal to merger notifications is set out below.

Mergers exempt from notification

Merger notification is not required where the parties to the merger have a combined annual turnover and/or gross asset value in Kenya, whichever is the higher, of below 500 million Kenyan Shillings (KSh).

Converting this value to South African rands (R), equates to only some R60 million. This value is a stark contrast to the minimum combined threshold of R600 million applicable in South Africa (plus the additional hurdle that the South African target firm on its own must have a value of R100 million). It nevertheless does offer some reprieve, particularly in situations where merger parties are concluding a purely South African transaction (that is, one involving only South African firms), and it is found that during the preceding financial year, the South African target firm sold some products from South Africa directly to customers in Kenya. Under the current Kenyan law, the South African firms would need to notify their merger to the CAK, regardless of the fact that the Kenyan sales may have been entirely negligible. In terms of the proposed new law, only if the combined value of these sales exceed KSH 500 million, will the merger become notifiable in Kenya.

Mergers may be excluded from notification

Merger transactions between undertakings which have a combined annual turnover or gross asset value in Kenya of between KSH 500 million and KSH 1 billion may be considered for exclusion. This means that the undertakings will still need to notify the CAK of their merger. The CAK will then decide whether to approve the merger or call for a full investigation. The CAK will now have 14 days to make this decision.

Full mergers subject to notification

It is mandatory to notify a merger where the target firm has an annual revenue or gross asset value of KSH 500 million, and the parties’ combined annual turnover and/or gross asset value, whichever is the higher, meets or exceeds KSH 1 billion.

Notwithstanding the above, where the acquiring firm has an annual revenue or gross asset value, whichever is the higher, of KSH 10 billion, and the merger parties operate in the same market and/or the merger gives rise to vertical integration, then regardless of the value of the target firm, mandatory notification to the CAK is required. An exception to this rule is that if the merger transaction meets the thresholds for notification in the Common Market for Eastern and South Africa (COMESA), then the CAK will accede to the jurisdiction of the COMESA Competition Commission (COMESA Commission) and no merger filing will be required in Kenya.

By way of explanation, Kenya is a member state of COMESA. The COMESA Commission came into operation during 2014, and is a regional competition authority having jurisdiction over competition law matters within its nineteen member states (comprising Zambia, Zimbabwe, Swaziland, Mauritius, Kenya, Burundi, Comoros, DRC, Djibouti, Eritrea, Ethiopia, Libya, Madagascar, Rwanda, Seychelles, Sudan, Uganda, the Republic of Egypt and Malawi). The CAK and COMESA Commission have reached an understanding in terms of which, among others, merger notifications triggered in Kenya and COMESA should be notified only to the COMESA Commission. In other words, there is no need for businesses to make dual-filings.

Interestingly, Kenya is also a member state of the East African Community (EAC) and, in April 2018, the East African Community Competition Authority (EACCA) became operative. The EACCA is charged with investigating competition law matters within its five partner states (comprising Burundi, Kenya, Rwanda, Tanzania and Uganda (South Sudan is not yet fully integrated into the EAC)). The CAK and EACCA have not entered into any memorandum of understanding similar to the one between the CAK and COMESA Commission, and it remains to be seen how merger transactions implicating both Kenya and the EAC will be treated.