East Africa mulls over fee for mergers and buyouts

Filing fees are expected to facilitate merger and acquisition investigations. FOTOSEARCH 

In Summary

• The East African Community Competition Authority is carrying out a study to determine how much firms would be required to pay, insisting that while filing fees are essential to facilitate merger and acquisition investigations, they do not want to discourage investments into the region.

By JAMES ANYANZWA
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The East African Community Competition Authority is considering approval fees for companies seeking to expand into the region through mergers and acquisitions.

This would raise the cost of cross-border investment and put the region at par with other blocs such as the Common Market for Eastern and Southern Africa, which levy filing fees on such transactions.

Already, the competition watchdog is carrying out a study to determine how much firms would be required to pay, insisting that while filing fees are essential to facilitate merger and acquisition investigations, they do not want to discourage investments into the region.

“The authority is therefore commencing a study to review the merger and acquisition framework, which among others will inform the Authority on the notification fees to charge,” said deputy registrar in- charge of mergers and acquisitions Lilian Mukoronia.

“But the fees should be charged in a way that they don’t discourage investment in the EAC region.”

In the Comesa, the merger notification fee is calculated as 0.1 per cent of the merging parties’ combined annual turnover or the value of assets in the Common Market (whichever is higher) with a cap of $200,000.

The fee applies to only mergers which affect at least two of the 19 Comesa markets and for firms with a combined turnover of $5 million.

The Comesa Competition Commission reportedly earned $3.14 million in merger filing fees between December 2015 and October 2016.

Last year South African Competition Commission increased the merger filing fee for large mergers to ZAR 500,000 ($ 40,528)   from ZAR 350,000 ($28,370) and for medium mergers to ZAR 150,000 ($12,158) from ZAR 100,000 ($8,105).

The proposed introduction of merger filing fee would enable the regional competition authority to carry out  investigations in cases of over-pricing of a transaction.

The EAC Competition Act 2006, which came into force in December 2014, provides for notification of mergers and acquisitions, notification of subsidies granted by partner states and regulates public procurement.

The Act prohibits anti-competitive trade practices and abuse of market dominance and mandates the Authority to promote and protect fair competition in the Community and to provide for consumer welfare.

The Authority is also investigating firms and trade associations engaged in trade malpractices and exploitation of consumers through price fixing. It is also undertaking sector studies to inform the competitiveness of the regional economy.

Between January and March this year the Comesa Competition Commission has handled 12 merger transactions largely in petroleum, energy, construction, ICT and Communications, alcoholic and non-alcoholic beverages sectors.

Globally, competition authorities are prioritising excessive pricing cases.

For instance in December 2016, the UK’s Competition and Markets Authority imposed a record breaking fine against Pfizer ($117 million) and Flynn ($7 million) for abusing their dominant position by charging excessive and “unfair” prices for phenytoin sodium, an anti-epilepsy drug.

Excessive pricing cases in the pharmaceutical sector are a current enforcement priority in a number of jurisdictions.

In Italy, Aspen was fined by the Italy Competition Authority for excessively pricing a number of cancer drugs and the Competition Commission of South Africa is investigating Roche and Pfizer for excessive pricing in relation to a number of products.