Merger Control 2021 Comparisons

Last Updated July 07, 2021

Contributed By AnesuBryan & David

Law and Practice

Authors



AnesuBryan & David (AB & David) was established in Zimbabwe in 2017 as a specialist Pan African business and projects law firm. The firm is a member of AB & David Africa, a network of Business and Projects law firms with offices. The firm quickly established itself as a go-to-firm in commercial transactions, with a team of three senior and two junior and multi-skilled lawyers in the M&A team focusing on legal due diligence, creative deal structuring, acquisition and disposal programmes, competition law, auctions and exchange control. The firm advises clients across industries including mining, telecoms, banking and finance, insurance, manufacturing, agriculture, fintech, infrastructure, private equity, and real estate. Recent work includes the acquisition of a stake in Liquid Telecoms (now intelligent) by CDC valued at USD200 million, the acquisition of Colonnade Reinsurance by Waica Re PLC valued at USD6 million and advising a Qatar private equity fund in an auction for the disposal of a regional logistics and haulage company.

Relevant legislation includes:

  • the Competition Act [Chapter 14:28];
  • the Companies & Other Business Entities Act [Chapter 14:23];
  • the Competition (Advisory Opinion) Regulations Statutory Instrument 26 of 2011;
  • the Competition (Notifiable Merger Thresholds) (Amendment) Regulations, Statutory Instrument 126 of 2020;
  • the Competition (Advisory Opinion) Regulations, Statutory Instrument 125 of 2020;
  • the Competition (Anti-Dumping and Countervailing Duty) (Investigation) Regulations, Statutory Instrument 266 of 2002;
  • the Competition (Fees for Inspection and Copying of Documents) Regulations (Statutory Instrument 266 of 2001);
  • the Exchange Control (Special Provisions for Securities Listed on Victoria Falls Stock Exchange) Regulations, Statutory Instrument 196 of 2020; and
  • the Zimbabwe Stock Exchange Amendment Rules 2019.

Apart from advisory opinions on request no other guidance are given from the Competition Authorities.

Foreign Transactions

Save for the Indigenization Act, which reserves up to a 49% quarter for foreign investors in mining transactions relating to the mining of Platinum and Diamonds, there is no other legislation regulating foreign investment.

Sector-Specific Legislation

The Postal and Telecommunications Act requires persons licensed by the Postal and Telecommunications Regulatory Authority of Zimbabwe (PORTRAZ) to inform the authority of any transfer of more than 10% of the shares in the licensee. The Zimbabwe Energy Regulatory Authority Act gives the energy regulator the power to regulate competition in the sector.

The principal merger control authority is the Competition and Tariff Commission. The sector specific authorities are as follows:

  • the Postal and Telecommunications Regulatory Authority (Sector Specific mergers involving telecommunications companies); and
  • the Zimbabwe Energy Regulatory Authority (Competition issues specific to the energy industry).

Notification is compulsory if a transaction reaches or exceeds the notification threshold. Currently, the threshold for a notifiable merger applies to merging parties whose combined annual turnover in Zimbabwe is ZWL10 million or whose combined assets in Zimbabwe is ZWL10 million. There are no exceptions to notification.

Penalties for failure to notify may not exceed 10% of either or both of the merging parties’ annual turnover or assets in Zimbabwe.

A recent penalty was the USD1.6 million fine against a party who implemented a transaction in 2020 without complying with the notification requirement.

Merger control legislation generally regulates vertical, horizontal mergers and conglomerations. The framework targets transactions involving direct or indirect acquisitions of a “controlling interest” only. Therefore, the transfer of shares which do not result in a "controlling interest" is not caught by merger regulations.

The Competition Act qualifies "control" and defines a "controlling interest" as any interest in an asset which enables the holder to exercise, through direct or indirect means, control over activities or an asset of another.

The jurisdictional threshold is ZWL10 million of assets or annual turnover in Zimbabwe, applicable to all sectors.

Calculation of Annual Turnover

Annual turnover is calculated in adherence to the International Accounting Standards (standards set by the International Accounting Standards Association adopted by the Zimbabwe Public Accountants and Auditors Board) and the statement of Comprehensive Income of the concerned entity for the immediate previous financial year.

Calculation of Assets

The asset value of any of the merging parties is calculated using the International Accounting Standards and the International Financial Reporting Standards (standards set by the International Accounting Standards Association and adopted by the Zimbabwe Public Accountants and Auditors Board).

The asset value of the party at any time will be based on the gross value of its assets as recorded on the party’s Statement of Financial Position as at the end of the immediate previous financial year; any sales or assets booked in foreign currency are converted at the prevailing exchange rate.

A seller's turnover is included with that of the target.

The threshold is calculated by combining all the merging parties annual turnover or assets in Zimbabwe, and if such combined turnover or assets exceeds the threshold, then the transaction becomes a notifiable merger.

For group companies, where one of the merging companies is a subsidiary company, the combined turnover of the group of companies in which the acquiring party is a subsidiary is also included.

The current legislative framework has no extra-territorial application except in respect to mergers with an "effect" in Zimbabwe, eg, change in control of an asset or entity in Zimbabwe. The competition legislation incorporates the "effects test" which empowers the regulator to "regulate" any foreign transaction(s) which may have an economic "effect" in Zimbabwe regardless of lack of presence. However, no guidelines have been issued on how the "effects test" will be applied to foreign mergers. In practice, such notifications result from co-operation between competition authorities especially with those from the neighbouring countries.       

There is no market share jurisdictional threshold.

Joint ventures are subject to merger control. The competition framework requires parties to any agreement or arrangement, including a joint venture involving a transaction which is prohibited, restricted or affected by the Competition Act to apply for authorisation from the Competition and Tariff Commission. There are no special rules for determining whether joint ventures and any similar arrangements meet the jurisdictional threshold.

The Competition and Tariff Commission (the "Commission") is empowered to conduct any investigation it deems necessary into any merger or monopoly situations even if the transaction does not meet the notification thresholds. There is no statute of limitation on the authorities’ ability to investigate a transaction.

Parties cannot implement a transaction unless the Commission has approved and cleared the transaction. The Commission can prohibit and penalise a party for implementing a transaction without their approval.

The Commission may prohibit the transaction and/or impose a penalty which may not exceed 10% of the parties combined annual turnover or assets in Zimbabwe.

The penalties are made public in the Commission's annual reports which are published annually or quarterly after board resolutions pertaining to that specific transaction.

There are no exceptions to suspensive effect.

At no point is closing prior to clearance permitted. The Competition Act empowers the Commission to impose a penalty where the parties proceed to implement a merger before it has been cleared.

Notification must be made within 30 days of concluding the merger agreement between the parties or within 30 days of the conclusion of the acquisition of a controlling interest between the parties.

Failure to notify attracts a penalty which may not exceed 10% of either of the merging parties annual turnover in Zimbabwe. The penalties are published by the Competition Commission.

A formal and written agreement is required prior to notification.

However, the Companies and Other Business Entities Act, a recently published statute, requires the parties to provide shareholders with a notification of a provisional contract of merger accompanied by a copy of the contract of merger.

The contract of merger to be submitted on notification to the shareholders must include the following details:

  • name of registered office and company secretary of each company that will merge;
  • terms and conditions of the proposed merger;
  • the manner and basis of converting shares of each merging company into cash or property;
  • the full text of the surviving company`s constitutive documents;
  • the date for which all transactions of the non-surviving company shall be treated as those of the surviving company; and
  • the rights conferred by the surviving or new company on the holders of securities other than shares and any other provisions relating to the merger.

It is expected that the Commission will use this standard in cases where no formal agreement has been reached by the parties before notification.

The notification is accompanied by a notification fee calculated at 0.5% of the combined annual turnover or assets in Zimbabwe of the merging parties.

The minimum and maximum fees payable are ZWL100,000 and ZWL800,000. respectively.

Any party to a notifiable merger can make the notification. This may either be the acquiring or target party to the transaction.

A standard notification form is provided by the Competition and Tariff Commission setting out the information to be included in a filing.

The general information to be included is as follows:

  • the names and official addresses of the merging parties;
  • all undertakings directly or indirectly controlling the merging parties;
  • the full name, address and contact details of the person authorised to make the notification;
  • address and designated office for which the Competition and Tariff commission should send any correspondences;
  • specific details on the nature or quantity of assets being acquired or transferred;
  • purchase consideration;
  • estimated timelines for concluding the transaction;
  • pre and Post-Merger structure of ownership and control of the merging parties;
  • rationale and future plans of the proposed merger; and
  • the anticipated benefits of the merger to the consumers or any other third parties.

Documents from foreign countries must be notarised by a notary public, whilst those from Zimbabwe must be certified as true copies of the original. The filing must be in the English Language.

There are no penalties or consequences for incomplete notifications.

The Competition Commission is empowered to revoke authorisation in cases where the Commission realises that authorisation was granted based on misleading information.

The party responsible for the submission of misleading information may be fined or imprisoned for a period not exceeding one year. There have been no reports of any instances where the authority has had to resort to this power.

The review phases are the following:

  • filing a notification accompanied by the notification fee;
  • scrutiny of the submitted forms by the Competition and tariff competition;
  • initial screening committee;
  • stakeholders consultation;
  • case analysis and report drafting;
  • consideration of the report by the draft committee;
  • consideration of the report by the Competition and Tariff Commission's Board's sub-committee;
  • consideration of the report by the Competition and Tariff Commission's main Board; and
  • notification of the board's decision to the merging parties.

There is no set timeline within which the Commission should conclude the processes above.

Parties can engage in pre-notification discussions with the Commission. The Competition Act empowers the Commission to enter into such negotiations with parties at "any time". Pre-notification discussions are encouraged by the authorities.

Confidentiality

Negotiations are confidential. The Competition Act (the "Act") mandates the directors and any other members of the Competition and Tariff Commission to observe the highest level of secrecy for any information obtained in the course of their duties. The Act further imposes a penalty for failure to observe such secrecy, with the maximum penalty being one year of imprisonment.

The Commission may request for any information it deems necessary and since there is no timeline within which a review must be completed, the request for information has no effect on the time for completion of review. Parties are encouraged to submit comprehensive documents to avoid request for documents which may delay the review process.

All merger review procedures follow the channels set by the Competition and Tariff Commission. As such, there is no method whatsoever, to accelerate any of the review procedures.

The Competition Act does not specifically define the substantive test used in reviewing a merger. A reading of the different sections in the statute gives the impression that "public interest" which is defined to mean any transaction which is likely to lessen the degree of competition or create a monopoly in the country or part of the country is the substantive test applied by the authorities.

In determining the markets affected by a transaction, the authorities look at the products being offered by the merging parties and the geography/location points for distribution of that product.

Authorities frequently rely on case law. However, case law from other jurisdictions is not binding but is only persuasive. Regarding case law from South Africa, this is heavily relied upon as it shares a common law heritage with Zimbabwe.

The Commission is mostly concerned with investigating effects which in their nature are restrictive practices. Such restrictive practices include anything which has or will likely have the following effects:

  • restricting, preventing or limiting the production or distribution of any commodity or service;
  • enhancing the price of any commodity or service;
  • preventing or retarding the development of any technical improvements in regard to a commodity or service;
  • preventing or retarding the expansion of the existing market; and
  • limiting the availability of the commodity or service.

Economic efficiencies are regularly considered. The Competition and Tariff Commission largely considers economic efficiencies for mergers having a higher risk of stifling competition. The Competition and Tariff Commission requires the merging parties filing the notification to justify the merger transaction and suggest how it is intended to mitigate the anti-competitive effects of the concerned merger.

A consideration of the economic efficiencies of the merger may result in the merger being approved with conditions.

The Act defines "public interest" broadly and this allows the Commission in reviewing mergers to consider other none competition issues. Non-competition issues which have been taken into account by the Commission in previous cases include:

  • creating employment;
  • consumer protection;
  • promotion of indigenisation;
  • dismantling of market entry barriers;
  • brand development; and
  • promotion of foreign investment.

Joint ventures are notifiable except when it is established that the joint venture is for a specific one-off project. This means that where the joint venture is to be terminated after the specific project is completed, the joint venture is not notifiable.

Regarding interfering with transactions, the Competition and Tariff Commission can:

  • conditionally approve a merger;
  • approve the merger without conditions; and/or
  • prohibit the merger in its entirety if it is likely to lessen or remove competition or result in unfair business practices.

The Commission may enter into negotiations with the parties concerned with the intention of making an arrangement which will ensure the discontinuance of any restrictive practice, terminate, prevent or alter any merger or monopoly situation.

All enforcement orders and remedies must reasonably and justifiable consider the specific circumstances.

Typical remedies include "conditional approval" of a merger, divesting or dissolution in cases of a monopoly or prohibiting the acquisition, in whole or in part, of an undertaking or assets which raises competition issues.

The remedies imposed on the merging parties cannot be varied or negotiated by the parties once they have been imposed by the Competition and Tariff Commission. In practice, an affected party is given an opportunity to make representations before a remedy is issued by the Commission.

Conditions and timing for divestitures or other remedies are determined on a case-by-case basis.

Parties cannot implement a transaction where the remedies have not been complied.

Penalties for failure to implement remedies are determined on a case-by-case basis.

All decisions are issued to the parties explaining, if necessary, the reasons for the decision made where the merger is prohibited.

The Competition and Tariff Commission further makes public all decisions it makes in its “public” annual reports.

The information provided for in the public reports include:

  • names of merging parties;
  • date of notification;
  • merger details (specifics of transaction);
  • the relevant market;
  • type of merger (conglomerate/vertical/horizontal);
  • the decision of the Competition and Tariff Commission (approval or disapproval).

Where foreign-to-foreign parties have a local asset or branch, remedies are imposed on that local entity. There is no recent record of any remedies enforced in a foreign to foreign transaction.

Clearance decisions cover related arrangements.

Separate notifications are not required for ancillary transactions since all related transactions are treated as one.

Third parties are notified of a proposed merger through a publication in the government gazette.

The Competition and Tariff Commission gives third parties the right to submit written representations regarding mergers.

A notice of the proposed merger is published in the government gazette. The Commission may either make calls or submit questionnaires calling on third parties to make written submissions to the Competition and Tariff Commission regarding the merger.

A notification is not confidential. This is because after notification is made, a notice of the proposed merger is made in the government gazette calling on third parties to make any submissions regarding the merger.

The description of the transaction itself is confidential unless the members of the commission are disclosing such in their official capacity and only when required by law to do so.

The Competition and Tariff Commission co-operates with competition authorities from other jurisdictions for transactions involving foreign entities. The commission shares information relating to specific transactions without authorisation from parties involved.

An appeal against the decision of the Competition and Tariff Commission can be made to the Administrative Court and a review to the High Court of Zimbabwe.

If the appeal to the Administrative Court fails, the decision can be appealed to the High Court.

An appeal is supposed to be lodged within 30 days of the original decision.

The framework does not provide for the right of appeal by third parties against clearance decisions.

However, The Competition Act grants third parties the right to recover damages for any loss, suffering, injury or harm as a result of any arrangement, undertaking or conduct which constitutes unfair business practise or any conduct in contravention of the Competition Act.

There are no recent changes serve for the Competition (Notifiable Merger Thresholds) (Amendment) Regulations, Statutory Instrument 126 of 2020 which provides for new monetary thresholds for notification. Currently a new competition policy and a Competition Bill (the "Bill") is being considered by the government, this will result in substantial changes to the competition framework including the definition of a "merger", regulation of joint ventures, and clarification on the application of the "effects test" as well as the party required to notify a merger and the substantive test. The new Bill is intended to align the local framework to international best practice.

During the first quarter of 2021, the Competition and Tariff Commission released a report which highlighted its enforcement record as follows:

  • approved seven mergers without conditions;
  • approved one merger on conditional terms; and
  • no merger was disapproved.

The Competition and Tariff Commission is looking forward to the promulgation of a new act that is meant to provide a framework that is in line with international best practices. The main concern is that the current framework is inaccessible and leaves a lot of issues to interpretation.

AnesuBryan & David (AB & David)

2nd Floor, Engen House
Corner R.Mugabe & Kaguvi Street
Harare
Zimbabwe

+263 242 756551/2

admin.zw@abdavid.com www.abdavid.com
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Law and Practice in Zimbabwe

Authors



AnesuBryan & David (AB & David) was established in Zimbabwe in 2017 as a specialist Pan African business and projects law firm. The firm is a member of AB & David Africa, a network of Business and Projects law firms with offices. The firm quickly established itself as a go-to-firm in commercial transactions, with a team of three senior and two junior and multi-skilled lawyers in the M&A team focusing on legal due diligence, creative deal structuring, acquisition and disposal programmes, competition law, auctions and exchange control. The firm advises clients across industries including mining, telecoms, banking and finance, insurance, manufacturing, agriculture, fintech, infrastructure, private equity, and real estate. Recent work includes the acquisition of a stake in Liquid Telecoms (now intelligent) by CDC valued at USD200 million, the acquisition of Colonnade Reinsurance by Waica Re PLC valued at USD6 million and advising a Qatar private equity fund in an auction for the disposal of a regional logistics and haulage company.