Sika AG, incorporated in Switzerland, controls Sika Kenya Limited, a supplier of, inter alia, chemical admixtures and construction materials.

Skyscraper, incorporated in Luxembourg, controls Master Builders Solutions Kenya Limited (MBS Kenya), a manufacturer of construction chemicals.

Sika AG’s acquisition of control over Skyscraper triggered an indirect change in control of MBS Kenya.

The Competition Act of Kenya (Competition Act) defines a “merger” as:

“[A]n acquisition of shares, business or other assets, whether inside or outside Kenya, resulting in the change of control of a business, part of a business or an asset of a business in Kenya in any manner and includes a takeover”.

Merging parties whose combined turnover or assets, whichever is higher, is over KES 1 billion are required to seek approval from the CAK prior to implementing a proposed transaction.

The transaction between Sika AG and Skyscraper met the statutory definition of a merger as well as the threshold for mandatory notification.

Penalty imposed by the CAK

Penalties for failing to notify a notifiable merger can be severe. The Competition Act provides that:

“[A]ny person who implements a merger without approval commits an offense and shall be liable on conviction to imprisonment for a term not exceeding five years or to a fine not exceeding KES 10 million, or both.”

In the alternative, the CAK may “impose a financial penalty in an amount not exceeding 10% of the preceding year’s gross annual turnover in Kenya of the undertaking or undertakings in question”.

The transaction between Sika AG and Skyscraper was implemented in Kenya in May 2023 following the closure of the global transaction. In October 2023 (i.e. some five months after implementation), the parties self-reported that the merger in Kenya was implemented following the close of the global deal, while noting that the merger had not been cleared by the CAK.

In calculating an appropriate penalty, the CAK considers mitigating and aggravating factors in arriving at a final penalty percentage, which can be up to 10% of annual turnover.

The Consolidated Administrative Remedies and Settlement Guidelines (Guidelines) provide that aggravating factors include inter alia, the impact of the contravention; the duration of the conduct and public interest concerns; and that mitigating factors include co-operation, whether the parties are first-time offenders and other public interest, efficiency, and consumer benefits.

Regarding the mitigating factors in this matter, the CAK noted that a significant consideration was the parties’ co-operation. The parties proactively and voluntarily reported the nonconformance, furnished the CAK with all requested information, and co-operated to reach a settlement. The parties had also not been subject to previous enforcement action. Further, the transaction contributed to foreign direct investment, ensured job retention, and increased consumer choice through enhancement of the merged entity’s international and regional competitiveness.

As a result, the CAK ordered that the merged entity pay a penalty of KES 17,492,795 (approximately ZAR 2,4 million) for contravening the Competition Act.

Conclusion

In a global deal, it is often complex to determine which jurisdictions trigger merger notifications. Merger notification obligations can be activated outside of the domiciles of the transacting parties and thresholds for notification can be met based on export sales alone, even without the merger parties owning an operating company on the ground.

This decision from the CAK highlights the importance of merging parties taking advice from competition lawyers early on and prior to engaging in any closing steps. Although the CAK only imposed a penalty in this case, many jurisdictions have the power to unwind a transaction and, in some jurisdictions (including Kenya), cater for the possibility of imprisonment.