Revised Practice Note Regarding the Commission’s Interpretation of the Term “operate” Under the COMESA Competition Regulations and the Application of Rule 4 of the Rules on the Determination of Merger Notification Thresholds and Method of Calculation

CCC-Notice-4-of-2023

The COMESA Competition Commission (the “CCC”), having received several queries from merging parties, their legal representatives and other stakeholders in relation to the application of certain merger control provisions, hereby issues this revised Practice Note to guide the interpretation of the term “operate” under the COMESA Competition Regulations, 2004 (the “Regulations”) and the COMESA Competition Rules, 2004 (the “Rules”) and the application of Rule 4 of the Rules on the Determination of Merger Notification Thresholds and Method of Calculation (the “Rules on the Determination of Merger Notification Thresholds”).

1. Interpretation of the Term “Operate”

Article 23 of the Regulations establishes the jurisdiction of the CCC to assess mergers having a regional dimension. Under the aforementioned Article, the term “operate” is central to its application. Article 23 is invoked when “…both the acquiring firm and target firm or either the acquiring firm or target firm operate in two or more Member States…”.

Whilst the Regulations have not defined the term ‘operate’, paragraph 3.9 of the COMESA Merger Assessment Guidelines, 2014 (the “Merger Guidelines”) states that, for purposes of Article 23 (3)(a) of the Regulations, an undertaking is considered to operate in a Member State if its operations in that Member State are substantial enough for a merger  to have an appreciable effect on trade between Member States and restrict competition in the Common Market. Further, the Merger Guidelines state that “…an undertaking operates in a Member State if its annual turnover or value of assets in that Member State exceeds US$ 5 million…”.

It should be noted that at the time the Merger Guidelines became applicable, the prescribed merger notification thresholds envisaged under Article 23(3)(b) of the Regulations, were set at US$ 0. This effectively meant that all merger transactions satisfying the regional dimension requirement of Article 23(3)(a) of the Regulations were required to be notified to the CCC, irrespective of the magnitude of the merging parties’ operations in the Common Market. In line with the Regulations’ objectives, the CCC sought to only capture those mergers likely to affect trade between Member States and restrict competition in the Common Market. As a result, the Merger Guidelines attached a quantitative definition to the term ‘operate’, to mean the turnover or value of asset in a Member State to be at least US$ 5 million.

All stakeholders are hereby informed that following the enactment of the Rules on the Determination of Merger Notification Thresholds in 2015, the definition of the term ‘operate’ under paragraph 3.9 of the Merger Guidelines is no longer applicable. For the purpose of determining whether or not a merger is notifiable to the Commission or whether or not an undertaking operates in the Common Market, the extent and magnitude of the turnover derived by or value of assets of the undertaking in a Member State is immaterial (i.e., even if turnover or value of asset is below $5 million) in so far as the notification thresholds are met”. The CCC, therefore, will no longer apply the quantitative criteria set out under Paragraph 3.9 of the Merger Guidelines in determining the operation of undertakings in Member States. Hence, for purposes of merger notification in line with Article 23 of the Regulations, all stakeholders should refer to Rule 4 of the Rules on the Determination of Merger Notification Thresholds which stipulates that:

        “Any merger where both the acquiring firm and target firm, or either the acquiring or the target firm,           operate in two or more Member States, shall be notifiable if:

1. the combined annual turnover or combined value of assets, whichever is higher in the Common Market of all parties to a merger equals to or exceeds US$50 million; and
2. the annual turnover or value of assets, whichever is higher, in the Common Market of each of at least two of the parties to a merger equals or exceeds US$10 million,  unless each of the parties to a merger achieves at least two-thirds of its aggregate turnover or assets in the Common Market within one and the same Member State.”

2) Application of Rule 4 of the Rules on the Determination of Merger Notification Thresholds

Rule 4 is cumulative and must be satisfied in its entirety for a merger to be notified to the CCC. Accordingly, the CCC shall apply Rule 4 as follows:

Firstly, Regional Dimension must be satisfied. This is contained in the chapeau of Rule 4 which requires the merging parties to operate in at least two COMESA Member States. Further, it gives the following alternative scenarios under which merging parties can operate in Member States namely:

1. Both the acquiring firm and target firm, each can operate in at least two Member States;
2. The acquiring firm can operate in at least two Member States, while the target firm can operate only in one Member State; Or
3. The target firm can operate in at least two Member States, while the acquiring firm can operate only in one Member State.

Hence, the CCC shall consider the Regional Dimension to be met where at least one of the parties to the merger operates in at least two COMESA Member States. Therefore, in instances where there are only two parties to the transaction, that is, one acquiring firm and one target firm, whereby one of the parties does not operate in at least one of the Member States; this transaction will not be notifiable.

Regional Dimension will therefore be met once any of the above scenarios is satisfied and if they are, the next step is to confirm whether Rule 4(a) is satisfied. Rule 4(a) must be satisfied by confirming that either the combined annual turnover or combined value of assets in the Common Market of all the parties to the merger is at least USD 50 million. The CCC will choose the higher value between the combined turnover and the combined value of asset, and verify whether it meets the thresholds.

As an illustration, party A intends to acquire party B. Party A derives turnover of USD 40 million and holds an asset value of USD 25 million in the Common Market. Party B derives turnover of USD 20 million and holds an asset value of USD 30 million in the Common Market. For purposes of considering Rule 4(a), it is noted that the parties’ combined annual turnover in the Common Market (USD 60 million) is higher than their combined asset value (USD 55 million). The annual combined turnover will therefore be considered for purposes of confirming whether Rule 4(a) is satisfied, in which case, the Commission shall proceed to consider Rule 4(b).

To satisfy Rule 4(b), it should be demonstrated that the annual turnover or the value of asset, whichever is higher, of each of at least two of the parties to the merger in the Common Market is at least USD 10 million. The application of either annual turnover or value of asset under Rule 4(b) shall be adopted independent of the measure used under Rule 4(a). The CCC will choose the higher value between the annual turnover and the annual value of asset for each party in the Common Market, and verify whether it meets the thresholds.

In the example provided, regard shall be had to each party’s turnover or value of asset, whichever is higher, in the Common Market. Therefore, for party A, turnover will be the relevant measure against which the threshold will be applied as its turnover is higher than its value of asset, whilst Party B’s value of asset will be considered as it is higher than its turnover.

The final step in applying Rule 4 is to confirm if the 2/3 exemption rule applies. It is important to note that the 2/3 exemption rule is flexible to allow considering either asset values or turnover independent to that used in 4(a) and 4(b). It follows therefore that as long as each party to the transaction achieves 2/3 of its aggregate turnover or value of assets in one and the same Member State, the merger transaction does not fall within the jurisdiction of the CCC but under the scope of any national competition law where the notification requirements are met. For purposes of emphasis, as long as either the aggregate value of assets or aggregate turnover of each of the parties to the transaction is achieved in one and the same Member State, the exemption is triggered regardless of the measure used in 4(a) and 4(b).

This Practice Note also addresses the interpretation of Rule 4(a) and 4(b) of the Rules on the Determination of Merger Notification Thresholds. The CCC wishes to clarify that the Rules on the Determination of Merger Notification Thresholds have not made any reference to a target firm or acquiring firm with regard to the USD 50 million and USD 10 million thresholds. The Rules have referred only to “parties”. Therefore, it is possible that the thresholds may be met by only the acquiring firm(s) or the target firm(s) in particular where there is more than one acquirer and/or targets to the transaction.

This Practice Note replaces Practice Note 1 of 2021 which was issued on 13 February 2021 and suspended on 8 August 2022

Click here to download CCC Notice 4 of 2023 Regarding the Commission’s Interpretation of The Term “Operate” under the COMESA Competition Regulations and the Application of Rule 4 of the Rules on the Determination of Merger Notification Thresholds and Method of Calculation

Practice Note Regarding Engagements With the COMESA Competition Commission, Relevant Authority in Member States and Merging Parties With Regard to Notified Mergers

CCC-Notice-3-of-2023

Article 23 of the COMESA Competition Regulations 2004 (the “Regulations”) require the mandatory notification of notifiable mergers to the COMESA Competition Commission (the “Commission”). A notifiable merger is one where both the acquiring firm or the target firm or either the acquiring firm or the target firm operate in two or more Member States and the thresholds prescribed under Article 23(3)(b) of the Regulations are met. Such transactions are notified and assessed by the Commission under the one-stop-shop principle which requires mergers meeting the regional dimension criteria to be notified to the Commission only, and that it is examined and decision on the compatibility of the merger with the Regulations be made by the Commission only.

Upon receipt of a merger notification and before embarking on an inquiry to assess the competitive effects of the same, the Commission is required under Article 26(6) of the Regulations to give notice of the transaction to all affected Member States.  Notification is made by the Commission to the National Competition Authority or the Relevant Authority to which the responsibility for the subject of competition matters is assigned in the affected Member State (“Relevant Authority”).

Article 7 of the Regulations mandates the Commission to facilitate the exchange of relevant information and expertise with Member States. Pursuant to Article 7 of the Regulations, upon notification to an affected Member State, the Commission has a working arrangement with the Relevant Authority which mandates the latter to collect any information (verbal or recorded in written, electronic or any other form), on behalf of the Commission, from any party, including the merging parties’ subsidiaries, branches, affiliates, related parties or other entities directly or indirectly controlled by them operating in its territory.

In the spirit of the one-stop-shop principle, information gathered by the Relevant Authority is however not intended for the latter’s decision on the notified transaction with regard to its compatibility with the Regulations. Information gathered by the Relevant Authority is meant to feed into the examination of the notified transaction by the Commission under the Regulations.

The Commission therefore wishes to advise all stakeholders to cooperate with the Relevant Authority where the latter seeks information from the merging parties’ subsidiaries, branches, affiliates, related parties or other entities directly or indirectly controlled by them operating within its territory. The foregoing notwithstanding, it is important that the Commission is copied in the correspondence between the Relevant Authority and the undertakings concerned to avoid duplication of activities. This will assist in the efficient and effective examination and disposal of notified transactions before the Commission.

For any further details and/or clarifications on any aspect of this Practice Note, please contact the undersigned on +265 (0) 1 772 466 or by email at compcom@comesa.int.

This Practice Note is effective from the date of publication on the Commission’s website. The Commission may withdraw or update this Practice Note but in no case shall it do so without notifying stakeholders of the withdrawal or revision.

Meti Demissie Disasa
Registrar
COMESA Competition Commission
 
Click here to download the Practice Note Regarding Engagements with the COMESA Competition Commission, Relevant Authority in Member States and Merging Parties with regard Notified Merger.

Notice of Closure of the Office of the Registrar on Official Holidays in the Year 2023

CCC Notice No. 1 of 2023

NOTICE IS HEREBY GIVEN THAT the COMESA Competition Commission (“Commission”) shall observe the official holidays recognized by the host country, the government of Malawi. Consequently, the Commission would like to notify all its esteemed customers that the Office of the Registrar would be closed in the Year 2023 on the following dates:-

The Commission would like to remind the concerned persons that the closure of the Office of the Registrar would alter the computation of time by the Commission in accordance with Rule 3 (2) of the COMESA Competition Rules which read as follows:

“Where the time prescribed by or allowed under these Rules for doing an act or taking a proceeding expires on a Saturday or Sunday or on a day on which the office of the Registrar is closed, the act may be done or the proceeding may be taken on the first day following that is not a Saturday, Sunday or day on which that office is closed.”

The Registrar

COMESA Competition Commission

5th Floor, Kang’ombe House

P.O. Box 30742

Lilongwe 3, Malawi

Office Phone: +265 (0) 1 772466

Email: mdisasa@comesa.int or compcom@comesa.int

Click here to download the Notice of Official Holidays

Revised Guidance on Engagement With the COMESA Competition Commission on Merger Filings

CCC-Notice-2-of-2023

 It is hereby notified that the COMESA Competition Commission (the “CCC”) has decided to withdraw with immediate effect its ‘Notice of Interim Measures in Merger Review of the COMESA Competition Commission due to the COVID-19 Pandemic (CCC_Notice_4_of_2020 (comesacompetition.org)’.

The Notice was issued during the COVID-19 outbreak to facilitate parties’ compliance with the COMESA Competition Regulations (the “Regulations”) in relation to notification requirements and to allow the CCC to remain effective whilst adapting to new conditions. The CCC is pleased to observe the significant economic recovery within the Common Market and abroad, which has contributed to removal of strict lockdowns and other restrictions.

The CCC therefore wishes to inform stakeholders that it has resumed onsite investigations and face-to-face meetings with regard to merger investigations.

The CCC has noted that the amended approach to the application of Article 24(1) of the Regulations pursuant to the 2020 Notice has been widely utilized by merging parties. Article 24 (1) of the Regulations require parties to a notifiable merger to notify the CCC within 30 days of a decision to merge. Pursuant to the 2020 Notice, this obligation was relaxed, with the CCC treating the initial engagement with the parties as the beginning of the notification process. Parties were therefore not penalized for failure to submit a notification within 30 days of the parties’ decision to merge if the initial engagement with the CCC was effected within the 30-day period. The CCC has observed that this approach has been beneficial both for merging parties, and for the CCC in monitoring non-compliance with Article 24(1) of the Regulations.

In view of the foregoing, the CCC has decided to maintain this pragmatic approach, until further notice and any amendment to the Regulations. Parties are therefore informed that the CCC shall continue to consider the initial engagement with the parties as the beginning of the notification process, and notification shall be considered complete once all the required information is submitted. As long as the parties have engaged the CCC on the notification process within the 30-day period, they shall not be penalized for failure to submit a notification within 30 days of the parties’ decision to merge. The above shall not apply where there are unreasonable and unexplained delays in the parties’ submission of a complete notification. [emphasis]

The CCC has also decided to maintain the use of electronic notifications and filing of mergers and acquisitions, until further notice. Parties will therefore not be penalised for non-submission of hard copies. The CCC reserves the right to request for hard copy of the notifications, where the circumstances so require.

If you wish to seek further details and/or clarifications on any aspect of this Notice, you may get in touch with the Registrar, on +265 (0) 1 772 466 or via email at compcom@comesa.int.

This Notice is effective from the date of publication on the CCC’s website. The CCC may withdraw or update this Notice as required but in no case shall it do so without notifying the stakeholders of the withdrawal.

Meti Demissie Disasa

Registrar

COMESA Competition Commission

5th Floor, Kang’ombe House

P.O. Box 30742, Lilongwe 3, Malawi

Office Phone: +265 (0) 1 772466

Email: compcom@comesa.int

Click here to download CCC Notice 2 of 2023: Revised-Guidance on Engagement of the COMESA Competition Commission on Merger Filings.

Notice of Closure for 2022 Festive Holidays

CCC/NOTICE/2/2022

It is hereby notified that the COMESA Competition Commission (the “Commission”) will be officially closing for the 2022 festive holidays as from Wednesday 21 December 2022 to Tuesday 10 January 2023 and will reopen on Wednesday 11 January 2023.

Kindly take note that during this period, the Office of the Registrar of the Commission will be closed for notification of transactions. With regard to transactions already notified or filed and under consideration, the computation of time during this period will be adjusted in accordance with Rule 3(2) of the COMESA Competition Rules which reads:

“Where the time prescribed by or allowed under these Rules for doing an act or taking a proceeding expires on a Saturday or Sunday or on a day on which the office of the Registrar is closed, the act may be done or the proceeding may be taken on the first day following that is not a Saturday, Sunday or day on which that office is closed.”

The Commission wishes all its stakeholders a Merry Christmas 2022 and Happy New Year 2023.

The Registrar

COMESA Competition Commission

5th Floor, Kang’ombe House

P.O. Box 30742

Lilongwe 3, Malawi

Office Phone: +265 (0) 1 772466

Email: mdisasa@comesa.int or compcom@comesa.int

www.comesacompetition.org

Click here to download the Notice of Closure of 2022 Festive Holidays