Merger Control Developments | Kenya | Africa Competition Guide

Have any notified transactions been prohibited by the competition authority in your jurisdiction since January 2021? If so, on what basis?

Local counsel are not aware of any notified transactions that have been prohibited by the CAK. Typically, the CAK does not withhold its approval, but where there are significant competition concerns, it can grant approval subject to the fulfilment of certain conditions by the merging parties. The conditions imposed may largely relate to public interest concerns, such as restrictions on the termination of employees. Local counsel are, however, aware of transactions in which the CAK has approved subject to a condition that the merging parties dispose of certain sections of their business or outlets in certain geographic regions within a specified period of time post-closing. This was to address concerns identified by the CAK in its merger analysis, that the transaction could result in the parties becoming dominant in certain geographic regions following the merger.

Are there official proposals to amend merger filing fees and/or monetary thresholds or have such amendments been affected?

Yes. The Competition General Rules amended the merger filing thresholds and fees as indicated above in question 1.

Is the submission of a merger notification suspensory and mandatory in your jurisdiction? If so, has the authority brought any cases against entities accused of gun-jumping and/or prior implementation of a notifiable transaction? If so, kindly provide details.

The Kenyan competition regime is suspensory and parties are prohibited from implementing a notifiable transaction until the CAK grants its approval.

The CAK has penalised parties for consummating notifiable transactions without obtaining prior CAK approval. The penalties imposed so far have generally ranged between 3% and 7% of the parties’ combined turnover derived from Kenya. Based on publicly available information, in 2020, the CAK imposed a penalty of KES 549,019 (approx. USD 5,490) on an entity that had implemented a notifiable transaction without obtaining approval from the CAK. However, not all information on fines and penalties imposed is publicly available. The maximum financial penalty that can be imposed is 10% of the parties’ combined turnover derived from Kenya. In addition, there are criminal sanctions that attract a fine of up to KES 10 million (approx. USD 86,542) and/or imprisonment of up to five years.

Is the submission of a merger notification non-suspensory and voluntary in your jurisdiction? If so, has the authority brought any cases against entities for failure to notify a transaction post-completion within the stipulated time period? If so, kindly provide details, including details of instances where the authority has specifically requested notification of mergers.

As indicated in the response above, the Kenyan competition regime is suspensory and parties are prohibited from implementing a notifiable transaction until the CAK grants its approval.

Please describe any cases in which the competition authority fined any entity for failing to comply with merger conditions.

Local counsel are not aware of any cases in which the CAK fined any entity for failing to comply with merger conditions. Note however that not all such information is made publicly available.

Please describe any cases in which the acquisition of shares or assets of another firm was interdicted by the competition authorities in your jurisdiction, as well as the basis for this.

As indicated in the response above, the CAK has penalised parties for consummating notifiable transactions that include the acquisition of shares or assets without obtaining the prior approval of the CAK approval.

Please describe any cases in which parties (acquirer and target) did not have physical presence in your jurisdiction and the transaction was nonetheless notified. For example, where either party makes sales and derive some turnover in your jurisdiction do not have any subsidiaries or assets in the country, what is the local nexus test /local effects test to establish merger review jurisdiction?

In considering whether a transaction has a nexus to Kenya, where the parties do not have a presence in Kenya, such as through a subsidiary, the CAK would consider if the parties to the transaction derived any turnover or held any assets in Kenya, through any means, such as by making sales directly into Kenya or by having third party distributors in Kenya. Note, however, that such transactions and approvals are not always made publicly available and, therefore, local counsel are not aware of any specific transaction falling within this category that has been published by the CAK. In addition, local counsel have been involved in transactions falling under this category ,which have been approved by the CAK, but the information may not be publicly available. However, the CAK Annual Report for the financial year 2019/2020 indicates that a total of 72 mergers with an international dimension were notified to the CAK in the period which are differentiated from 49 mergers with a local dimension.

Has the authority approved any mergers subject to novel or otherwise noteworthy conditions?

Most of the conditions imposed by the CAK relate to the retention of employees and restrictions against amending the terms of supplier and distributor contracts for a specified period of time. However, in 2020, the CAK imposed noteworthy conditions on KenolKobil Plc in its acquisition of Gulf Energy Holdings Limited. The acquisition was approved subject to the condition that:

(a) in addition to the retention of 102 employees of Gulf Energy Holdings Limited for a period of 24 months, the basic remuneration for all employees transferred to the merged entity should not be reduced for 24 months, and other employment benefits shall, taken as a whole, be no less favourable than those provided as at the date of the signing of the agreement; and

(b) for the duration of the existing contracts between Gulf Energy and the small and medium enterprises operating within the retail station market, the merged entity shall ensure that these enterprises enjoy the same benefits within the contract as provided at the signing of the contract.

Further, in a transaction involving the acquisition of a minority stake in retail chain, Naivas Supermarkets, by French private equity fund Amethis Finance, the CAK required the merged entity to ensure that all the reconciled and agreed outstanding debts owed to the supermarket’s suppliers are paid to the extent permitted by the contracts entered into between the parties. The CAK required this to be done prior to the implementation of the proposed transaction.

In relation to the proposed merger between Telkom Kenya Limited (“Telkom”) and Airtel Networks Kenya Limited (“Airtel”), the CAK had imposed eight conditions in its merger determination, seven of which the parties considered onerous. The parties filed the first-ever merger review application to the Competition Tribunal (since its establishment) challenging the conditions imposed by the CAK as part of its approval of the transaction. The conditions imposed by the CAK included:

(a) a requirement for the spectrum in the 900 MHz and 1800 MHz acquired by the merged business from Telkom, to revert back to the Government of Kenya;

(b) a blanket prohibition from selling or transferring any of the parties’ operating licences and spectrum licenses; and

(c) a blanket prohibition on the merged entity from entering into any form of sale agreement within five years, which would have had the effect of restricting the merged business from even selling shares to raise further capital or any commercial sale of assets in the ordinary course of business.

The application at the Competition Tribunal successfully challenged the merger conditions, with the Kenya Competition Tribunal finding it necessary to either overturn or amend six of the conditions. The Kenya Competition Tribunal ruled that the CAK’s conditions relating to spectrum and licenses did not address any competition law concerns and were an unreasonable and unjustified curtailment of the merged entity’s right to property. It also held that instead of a blanket ban against entering into any form of sale agreement, the merged entity could dispose up to 40% of its shareholding at any time during a five-year period. Further, the ruling clarified that the merged entity was not to be restricted from disposing of its assets and shares in the ordinary course of business.

More recently in 2021, in a transaction involving the transfer of 84.99% of the issued share capital in Century Microfinance International (a deposit-taking microfinance institution) by Branch International Limited (an app-based financial services provider), the CAK issued its approval subject to the following conditions:

(a) that each party maintains the terms agreed with its borrowers in respect of all loans existing in their loan books at the time of the acquisition; and

(b) that each party retains its existing performing and non-performing loans in accordance with their terms up to and until the expiry of such loans so long as the said terms are not in contravention of the provisions of the Competition Act.

Please indicate whether the competition authority has required notification of internal restructurings (that do not involve a change in ultimate control) and, if so, on what basis.

The CAK does not consider internal restructurings that do not involve a change in ultimate control to be notifiable transactions.

Please indicate whether an obligation to notify could be triggered as a result of a change in direct control over an entity through the interposition of a new entity within the group, albeit that the restructure does not result in a change in ultimate control.

No obligation to notify would be triggered by the mere interposition of a new entity where there is no change in the ultimate control of the target entity. The Competition General Rules provide that merger involving a holding company and its subsidiary, wholly owned by undertakings belonging to the same group, or amalgamations, involving subsidiaries wholly owned by undertakings belonging to the same group, shall not be subject to notification.

Please describe cases of mergers that have been approved subject to public interest grounds since January 2021 and kindly describe the nature of these public interest grounds.

Based on the merger determinations publicly published by the CAK, the merger mentioned above involving the transfer of 84.99% of the issued share capital in Century Microfinance International by Branch International Limited was conditionally approved. The explanation provided by the CAK for arriving at the conditions to maintain existing loan terms (described above) is that the CAK was concerned that the parties may subject existing loans to new terms, thereby negatively affecting existing borrowers.

Please describe cases where the competition authority has prohibited a merger transaction based on public interest grounds alone.

As mentioned above, local counsel are not aware of any merger transactions that have been prohibited by the CAK. Where there is a public interest concern, the CAK would typically approve the merger and impose conditions meant to address the public interest concerns.

Describe the circumstances in which ‘greenfield’ / joint ventures mergers are caught under the merger review regime, and kindly provide instances of such mergers that have been notified to and considered by the competition authority.

As mentioned above, the CAK published the JV Guidelines in 2021 to clarify how joint venture mergers would be treated. The JV Guidelines provide that a joint venture would be notifiable if it is a “full-function” joint venture, meaning that it operates as a self-standing, independent business and if it meets the merger filing thresholds. A “full-function” joint venture must perform, for a duration of 10 years or more, or on a lasting basis for a period less than 10 years with renewal provisions, and must enjoy all the functions of an existing or new autonomous economic entity, which meets the various criteria set out in the guidelines including the following (amongst others):

(a) operating in a market and performing the functions normally carried on by undertakings operating in the relevant markets;

(b) having a management dedicated to its day-to-day operations and access to resources in order to conduct for a long duration or a lasting basis in its business activities within the area provided for in the joint-venture agreement; and

(c) the joint venture entity must have activities that go beyond one specific function of the parents.

From the determinations published by the CAK, a filing was submitted by Elopak AS and Nampak Southern Holdings Limited in relation to their proposed joint venture. Elopak did not have any turnover or assets within Kenya, whilst Nampak had subsidiaries in Kenya at the time of the filing. The CAK approved the transaction unconditionally. As mentioned above, not all such notifications are publicly published by the CAK.

Please indicate whether there are any circumstances in which non-controlling minority share acquisitions that have been found to constitute a notifiable merger and the basis for this.

The CAK would not consider non-controlling minority share acquisitions notifiable mergers on the basis that there is no change of control in the target entity. However, there is a possibility that the CAK may consider the acquisition by one or more minority shareholders of shares, in the course of a single transaction, where they together hold a majority of shares, a notifiable merger on the basis that the shareholders are acquiring joint control.

On average how long does the authority in your jurisdiction take to approve a non-complex transaction? What about a complex one?

The CAK is required to make a determination within 60 days of receipt of a notification, or of further information (as the case may be); and where there is a hearing conference, the CAK must give its decision within 30 days after the hearing conference. If the CAK deems the issues raised by the merger to be complex, it can extend the timeline by a further 60 days. The time starts running from the date on which a complete merger notification or application for exclusion is received together with the appropriate fee, if applicable. On average, the CAK generally takes:

(a) two to three weeks to approve exclusion applications;

(b) between 40 – 75 days to approve full non-complex merger filings; and

(c) between 60 – 120 days to approve full complex mergers.

Kindly indicate whether the competition authority enjoys the power to “stop the clock” for the review of a merger and under what circumstances can this happen. If so, please describe cases where the authority has stopped the clock.

The CAK may “stop the clock” from running where it has requested for further information from a merger party in the course of analysing a filing. There are no specific instances where the CAK has “stopped the clock” that local counsel can describe, as this would be confidential information, however, it is usual practice for the CAK to do so where significant or vital information is outstanding from a merger party.

Please indicate whether, legally or in practice, your competition authority allows for “Carve out” / “hold separate” arrangements (this means that where clearance is not obtained in your jurisdiction by a specific date, the acquirer would opt not to take over the company in your jurisdiction but will implement the transaction in countries where approval has been obtained. The target in your jurisdiction may be left behind with the sellers for future disposal separately). If so, kindly describe cases where this has happened.

It may be possible (albeit difficult in practice) for an acquirer to have in place, a separate arrangement to carve out the Kenyan aspect of a transaction where approval from the CAK is not obtained by a specific date, on the basis that the change of control in Kenya (which is what the CAK is concerned with) will not take place in the absence of a CAK approval. However, this would require a legal ring-fencing whereby the shares in the Kenyan operations are transferred to another group entity, owned and controlled by the sellers, rather than a mere contractual ring-fencing. With regard to contractual ring-fencing, based on publicly available information, local counsel are not aware of any such arrangement having been implemented in practice. It is difficult to implement a contractual ring-fencing in Kenya as technically this is not permitted under Kenyan laws, but parties can have discussions with the CAK regarding the CAK allowing such an arrangement to proceed.

Please indicate whether, legally or in practice, your competition authority allows for a transaction to close sequentially (for example: the shares in a target company, which triggers a filing requirement in your jurisdiction or which is active in your jurisdiction, will only be transferred after clearance in your jurisdiction has been obtained, while the shares in other companies affiliated to the target and operating in other countries thus do not trigger a filing requirement in your jurisdiction, shall be transferred as soon as clearances in those other relevant jurisdictions have been obtained (irrespectively of whether clearance in your jurisdiction has been obtained). If so, kindly describe cases where this has happened.

Legally, a transaction having a Kenyan aspect may be closed sequentially, provided that the closing related to the aspect of the transaction triggering a filing in Kenya takes place after CAK approval has been obtained. It is unlikely that the CAK would be concerned with a closing in another jurisdiction that does not result in a change of control in Kenya. However, from publicly available information, local counsel are not aware of any transactions having a Kenyan aspect that have closed sequentially. As mentioned above, it is difficult to implement a contractual ring-fencing in Kenya, as technically, this is not permitted under Kenyan laws, but parties can have discussions with the CAK regarding the CAK allowing such an arrangement to proceed.

Africa Competition Guide

Kenya

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