Key developments of the past year
36 What were the key cases, decisions, judgments and policy and legislative developments of the past year?
Trends and updates
In 2018, the Authority circulated draft rules and regulations to the public for review and comment. These include the Competition (General) Rules, 2018 (the General Rules), the Merger Threshold Rules, 2018 (the Threshold Rules) and the amended Consolidated Guidelines on the Substantive Assessment of Mergers under the Act.
The General Rules propose various changes to the existing regulatory landscape, in particular, it is proposed:
- that document submission to the Authority can be made by hand, registered letter or by electronic means;
- that the following transactions would not qualify as mergers for the purposes of having to conform with the Act:
- non-full-function joint ventures;
- the appointment of receivers, administrators or entry into arrangements with creditors that does not result into change of control; or
- certain acquisitions or leases of shares, interests or assets of another undertaking referred to the Act;
- that (i) restructurings and reorganisations within the same group, or (ii) mergers taking place entirely outside Kenya that had no local nexus shall not be subject to notification to the Authority;
- that in determining whether a merger has been implemented without an authorising order, the Authority may consider other facts including whether:
- there has been an actual integration of any aspect of the merging businesses, including, but not limited to, the integration of infrastructure, information systems, employees, corporate identity or marketing efforts;
- there has been placement of employees from the target undertaking to the acquiring undertaking;
- there has been an effort by the acquiring undertaking to influence or control any competitive aspect of the target undertaking’s business, such as setting prices, limiting discounts or restricting sales to certain customers or of certain products; or
- there has been an exchange of information between the merging parties for purposes other than valuation or on a need-to-know basis during due diligence;
- that the Authority reserved the right to require any transaction that has been excluded from the provisions of Part IV of the Act to seek approval even if it falls beneath the exclusion thresholds when it is highly likely that it will substantially prevent or lessen competition or restrict trade or raise public interest concerns;
- that the Authority may prescribe structural or behavioural remedies to address any detriment posed by a merger that is likely to substantially lessen competition in the post-merger market in Kenya or engage in discussions with an undertaking to the merger or any other relevant party or experts with a view to identifying structural or behavioural measures that would improve any effects of the merger on the public interest or competition in Kenya or any substantial part of Kenya; and
- that in the event that a merger is approved with conditions, the Authority may require the merged entity to submit a compliance report on the implementation of the conditions that were issued.
The Threshold Rules propose that the following mergers must apply for approval to the Authority as full mergers:
(i) where the merging undertakings have a minimum combined turnover or minimum combined assets (whichever is higher) of 1 billion Kenya shillings and the turnover or assets (whichever is higher) of the target undertaking is above 500 million Kenya shillings;
(ii) where, notwithstanding the thresholds set out in (i) above, the value of the turnover or assets (whichever is higher) of the acquiring undertaking exceeds 10 billion Kenya shillings, and the merging parties operate in the same markets or can be vertically integrated, except where the merging parties are required to notify the merger to the Common Markets for Eastern and Southern Africa Competition Commission (COMESA);
(iii) in the carbon-based mineral sector, where the value of the reserves, the rights and the associated assets to be held as a result of the merger exceeds 10 billion Kenya shillings; or
(iv) where the merging parties are required to notify the merger to COMESA, the transaction meets the thresholds set out in (i) above, and two-thirds or more of the merging parties turnover or assets (whichever is higher) is generated or located in Kenya.
The Threshold Rules propose that the following transactions may be considered for exclusion by the Authority:
- transactions where the combined turnover or combined assets (whichever is higher) of the merging parties is between 500 million and 1 billion Kenya shillings; and
- transactions where the merging parties are engaged in prospecting in the carbon-based mineral sector irrespective of asset value.
The Threshold Rules propose that the following transactions be exempted from having to be notified to the Authority:
- transactions where the combined turnover or combined assets (whichever is higher) of the merging parties is between zero and 500 million Kenya shillings; and
- transactions where the merging parties are required to notify the transaction to COMESA, and two-thirds or more of the merging parties’ turnover or assets in the COMESA common market (whichever is higher), is not generated or located in Kenya.
Determination of turnover or assets
- The Authority intends that the undertaking’s most recent audited financial statements be used to guide it in calculating the merging parties’ turnover or assets. Moreover, where the audited financial statements submitted are incomplete or unreliable, the Authority proposes to calculate the value of the sales or services of that undertaking by applying internationally accepted accounting standards.
- In making the calculations:
- the Authority proposes that where additional transactions have occurred after the date of the most recent audited financial statements:
- to exclude inter-company trading, in the case of turnover;
- to exclude the value of recently divested assets or assets shown in an undertaking’s balance sheet as having been used as consideration in a recent transaction, in the case of asset value; or
- to include the value of recently acquired assets and the value of any asset received in exchange for recently divested assets;
- the value of turnover for credit or other financial institutions shall be the total of interest and similar income, income from securities, shares and other variable yield securities, income from participating shares, from shares in affiliated firms, commissions receivable, net profit on financial operations and other operating income;
- the value of assets or turnover in the case of a joint venture jointly controlled by an undertaking and third parties, shall be attributed equally between its controlling parents, irrespective of the size of their financial or voting interests; or
- in relation to investment funds, the investment entity is to be deemed to have control over the various investment vehicles through the general partner or partners and therefore the relevant turnover or assets to be considered in a merger shall be the combined turnover or assets of all the entities that the investment entity has control over, either directly or indirectly through the various investment vehicles.
Relationship with COMESA
Under the Threshold Rules, undertakings are required to inform the Authority in writing when a transaction is notified to COMESA.
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