Kenya recognises supremacy of COMESA merger control regime

As part of a package of reforms, the supremacy of the COMESA merger control regime has finally been recognised in Kenya with the effect that COMESA mergers no longer need to be notified to the Competition Authority of Kenya (CAK). In addition, formal exclusion thresholds have been introduced removing the need to notify every transaction involving a Kenyan entity to the CAK. While these amendments are welcome, the reforms are not all good news due to a lack of clarity on new thresholds and a material increase in filing fees.

The reforms are set out in the Competition (General) Rules 2019 (the Rules), which came into effect on 6 December 2019. The Rules contain amendments to a range of the CAK’s functions under the Competition Act No 12 of 2010 (the Act). The reforms to merger control regime have been long awaited having been in draft form since 2018.

The immediate impact of the Rules is to recognise the supremacy of the COMESA merger control regime. Historically, the CAK insisted on a domestic merger filing even where a merger met the requirements of the COMESA Competition Regulations (the Regulations) and had been notified to the COMESA Competition Commission (CCC). These duplicate filings were required as the Regulations needed to be domesticated in Kenya. In terms of the Rules, where a merger meets the COMESA thresholds, parties no longer need to submit a domestic filing to the CAK. The parties are only required to inform the CAK that a transaction has been notified to the CCC within 14 days of the COMESA filing.

Another significant aspect of the Rules is the introduction of exclusion thresholds in Kenya. As background, prior to the adoption of the Rules, every transaction involving a Kenyan entity effectively needed to be notified to the CAK either for authorisation or exclusion as no minimum thresholds for exclusion had previously been set. In this regard, the Kenyan merger control regime is relatively unique in requiring transactions below the thresholds for authorisation to be notified for exclusion by the CAK. This is distinct from many regimes (such as Nigeria and South Africa) where the authority may call for a non-notifiable merger to be notified only if it is potentially problematic.

The Rules address this shortcoming by introducing thresholds for mergers to be automatically excluded from the Kenyan merger control regime. In addition to COMESA mergers, the Rules set out that mergers are automatically excluded if the parties’ combined turnover or assets in Kenya is less than KES 500m (approx. USD 5m).

Further, the Rules set out new thresholds for mergers that must be notified to the CAK for authorisation. Mergers must be notified if one of the following thresholds is satisfied:

• First Leg - the parties’ combined turnover or assets in Kenya is equal to or greater than KES 1bn (approx. USD 10m) and the target’s turnover or assets in Kenya exceeds KES 500m,
• Second Leg - the acquirer’s turnover or assets in Kenya exceeds KES 10bn (approx. USD 100m) and the parties are in the same market or can be vertically integrated and the transaction does not meet the COMESA thresholds,
• Third Leg - if the transaction is in the carbon-based mineral sector and the value of the reserves, the rights and the associated assets to be held as a result of the transaction exceed KES 10bn, or
• Fourth Leg - the parties operate in COMESA, the combined turnover or value of assets does not exceed KES 500m and two-thirds or more of their turnover or value of assets is generated or located in Kenya.

Aspects of the thresholds are not clear and introduce uncertainty in terms of the scope of the Kenyan merger control regime. While some of the other legs also require clarity, the second leg is particularly confusing. As an illustrative example only, in not requiring any level of target turnover / assets in Kenya, the second leg could lead to the Act having extra-territorial effect. While the Rules state that foreign mergers must have a ‘local connection’ to be notifiable, it is not clear how trivial the target’s Kenyan activities must be in order to fall outside of the Kenyan merger control regime. Further, in using a construct with little or no parallel to other regimes, it is not clear whether the target must be in the same product and/or geographic market and whether the target can only be theoretically vertically integrated with the acquirer or must reflect the parties’ intentions.

In terms of additional thresholds, the Rules set out that parties must apply for exclusion from the CAK where either of the following thresholds are satisfied:

• the parties’ combined turnover or assets in Kenya is between KES 500m and KES 1bn, or
• all transactions involving firms engaged in prospecting in the carbon-based mineral sector (irrespective of asset value).

The Rules codify the existing practice that the CAK must respond to an application for exclusion within 14 days.

In addition, while there are still no fees for applications for exclusion, the Rules increase the filing fees applicable to transactions notifiable to the CAK for authorisation:

The new filing fees represent a 100% increase from the previous ones. Albeit that the previous fees had been in effect since 2014, it could be questioned whether the increase in filing fees reflects the CAK’s forecasted loss of revenue arising from COMESA mergers no longer needing to be notified to the CAK.

Taken as a whole, the reforms are welcome in removing the unnecessary bureaucracy of both re-notifying a transaction triggering a COMESA filing to the CAK and of notifying each and every transaction involving a Kenyan entity to the CAK irrespective of the size of its activities. The reforms are however not all good news as, in addition to the material increase to filing fees, the uncertainty in the new thresholds was avoidable through more comprehensive guidance in the Rules. In the absence of such guidance, pre-notification engagement with the CAK on individual transaction will need to be considered.