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- Merger Control Regime
- Merger Screening
1.1 Membership of Supranational Organization
1.1.1 Is the jurisdiction a member of/party to a supranational jurisdiction?
Kenya is a member of the African Economic Community (AEC).
1.1.2 Is the jurisdiction itself a supranational jurisdiction?
1.1.3 If the answer to Section 1.1.1 and/or 1.1.2 above is in the affirmative, what are the implications hereof?
As a member of the African Economic Community (AEC), Kenya is subject to the supranational authority of the Common Market for Eastern and Southern Africa (COMESA), which is a free trade area and is one of the pillars of the AEC.
This means that if the concentration meets the turnover thresholds applicable for COMESA’s merger control regime, the concentration must be notified to COMESA and Kenya is precluded from applying its own domestic merger control rules to the transaction.
However, this is not entirely supported by national law in every member state.
In member states where there is no established domestic competition authority there is generally not an issue, but in states where there is a competition authority, the issue becomes more complex and risky, since undertakings may face significant penalties for failing to notify a domestic authority.
Kenya, for instance, explicitly requires domestic notification.
Only some other domestic authorities have confirmed that domestic notification is not required if COMESA is notified.
1. What type of transactions are caught by the merger control regime?
1.1.1 Type of transactions that are caught by the merger control rules?
Any transaction, irrespective of size, which has the effect of being a “merger” is subject to notification and prior approval by the Kenyan competition authority.
A “merger” is defined as an acquisition of shares, business or other assets, whether inside or outside Kenya, resulting in change of control of a business, part of a business or an asset of a business in Kenya in any manner, including takeovers.
In particular, it involves any transaction that results in direct or indirect acquisition or establishment of direct or indirect control over the whole or part of the business of an undertaking by one or more undertakings. The Competition Act provides a non-exhaustive list on how a merger may be achieved including:
- a purchase or lease of shares, an acquisition of an interest, or a purchase of assets of another undertaking;
- the acquisition of a controlling interest in a section of the business of an undertaking capable of itself being operated independently;
- the acquisition of an undertaking under receivership by another undertaking either situated inside or outside Kenya;
- the acquisition by whatever means of the controlling interest in a foreign undertaking that has a controlling interest in a subsidiary in Kenya;
- in the case of conglomerates, the acquisition of the controlling interest of another undertaking or in a section of the undertaking being acquired capable of being operated independently;
- vertical integration of businesses, and
- the exchange of shares between or among undertakings that result in substantial change in ownership structure through whatever strategy or means adopted by the concerned undertakings or by an amalgamation, takeover or any other combination with the other undertaking.
1.3 Definition of "control"
1.3.1 How are the concepts of "control" and "change of control" defined?
A person ‘controls’ an undertaking if that person:
- beneficially owns more than half of the issued share capital or business or assets of the undertaking;
- has the ability to control the majority of the votes at the general meeting, either directly or through a controlled entity of the undertaking;
- is able to appoint, or to veto the appointment, of a majority of the directors of the undertaking;
- is a holding company, and the undertaking is a subsidiary of that company;
- in the case of the undertaking being a trust, has the ability to control the majority of the votes of the trustees or to appoint the majority of the trustees or to appoint or change the majority of the beneficiaries of the trust;
- in the case of the undertaking being a nominee undertaking, owns the majority of the members’ interest or controls directly or has the right to control the majority of members’ votes in the nominee undertaking; or
- has the ability to materially influence the policy of the undertaking in a manner comparable to a person who, in ordinary commercial practice, can exercise an element of control referred to in the points above.
Minority interests, board and management representations, contractual arrangements and other interests are captured where a person exercises ‘control’ as contemplated above.
The competition authority will not ordinarily view an acquisition of a minority interest below 20 % of the voting securities of an undertaking held only for the purpose of passive investment without exercising influence over the affairs of the undertaking as an exercise of ‘control’.
2. Establishing jurisdiction for notification of mergers
2.3 General thresholds
Merger filing is needed if any of the following thresholds are met:
- the combined assets or turnover of the undertakings concerned was at least KES 1,000,000,000 in Kenya in the last financial year, and the asset or turnover of the target exceeded KES 500,000,000 in Kenya in the last financial year; or
- the assets or turnover of the acquirer exceeded KES 10,000,000,000 in Kenya in the last financial year, and the merging parties are in the same market or can be vertically integrated (if the transaction meets the COMESA Competition Commission’s merger notification thresholds, filing with COMESA is needed instead); or
- the COMESA Competition Commission merger notification thresholds are met and at least 2/3 of the turnover or assets of the undertakings concerned is generated or located in Kenya.
The parties may apply to be exempt from notification if the combined assets or turnover of the undertakings concerned is between KES 500,000,000 and KES 1,000,000,000.
COMESA members: Burundi, the Comoros, the Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Sudan, Swaziland, Seychelles, Uganda, Zambia and Zimbabwe.
COMESA Competition Commission merger notification thresholds:
- at least one of the undertakings concerned operates in at least two member states and has assets or turnover in each of those members states exceeding USD 5,000,000; and
- a target undertaking operates in a member state; and
- the combined assets or turnover of the undertakings concerned in the common market is at least USD 50,000,000; and
- the assets or turnover of each of at least two of the undertakings concerned is at least USD 10,000,000 in the common market; and
- 2/3 or more of the assets or turnover in the common market of each of the undertakings concerned is not held or achieved within one and the same member state.
2.4 Other national thresholds for ex ante merger control (e.g. sector-specific rules)
In the carbon-based mineral sector, if the value of the reserves, the rights and the associated assets to be held as a result of the merger exceed KES 10,000,000,000.
The parties may apply to be exempt from notification.
The banking, insurance, ICT and air services industries are subject to sector-specific legislation that limits the extent to which non-Kenyan citizens can own undertakings licensed in Kenya.
3. Calculation and allocation of turnover, asset value, transaction value etc.
3.3 Relevant undertakings for the calculation of turnover
3.3.1 The undertakings whose turnover is taken into account?
The undertakings whose turnover is taken into account are the merging companies, their holding companies, subsidiaries and other associated companies in the preceding year.
3.5 Valuation and allocation of assets
3.5.1 The principles for valuation and allocation of assets?
The undertakings whose assets are taken into account are the merging companies, their holding companies, subsidiaries and other associated companies in the preceding year.
and last updated on 20-03-2020 by
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