Competition law and implications for mergers and acquisitions

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the herald

Godknows Hofisi Business Law

In the business world, mergers and acquisitions are quite common. Companies can join together to form a single company through mergers or a company can acquire one or more others through acquisitions. In this article, I examine how the Competition Act (Chapter 14:28) (the Competition Act or the Act) applies in the case of mergers as defined in the statute.

Application of the Competition Act

  • The purpose of the law is to:
  • Promote and maintain competition in the economy of Zimbabwe;
  • Establish a Competition and Tariffs Commission (“the Commission”) and provide for its functions;
  • Ensure the prevention and control of restrictive practices;
  • Merger regulation;
  • The prevention and control of monopoly situations and the prohibition of unfair commercial practices, and
  • Provide for matters related or incidental to the foregoing.

Definition of mergers

Article 2 of the law defines a merger as the direct or indirect acquisition or establishment of a controlling interest by one or more persons in all or part of the activities of a competitor, a supplier, a customer or another person, whether such controlling interest is realized as a result of:

(a)The purchase or lease of shares or assets of a competitor, supplier, customertomer or another person;

(b)Merger or association with a competitor, supplier, customer or other person; Where

(vs)Any means other than those specified in (a) or (b) above.

Notifiable mergers

Under section 34(1) of the Act, the Minister shall, in consultation with the Commission, prescribe:

(a) a threshold of combined annual turnover or assets in Zimbabwe, either generally or in relation to specific industries, at or above which this Part of the Act will apply in relation to mergers;

(b) a method for calculating annual turnover and assets.

The following definitions under Article 34(2) are important:

  • “Reportable Merger” means a merger or proposed merger whose value is equal to or greater than the prescribed threshold under Article 34(1).
  • “Non-Notifiable Merger” means a merger or proposed merger whose value is below the threshold prescribed under Article 34(1).

Notification of mergers

This is covered by Section 34A of the Competition Act. Pursuant to Section 34A(1) of the Act, a party to a notifiable merger must notify the Commission in writing of the proposed merger within thirty days of:

(a) entering into the merger agreement between the merging parties; Where

(b) the acquisition by any of the parties to this merger of a controlling interest in another.

The Commission may, under Article 34A(3), impose a sanction if the parties to a merger:

(a) does not notify the merger.

(b) proceed with the implementation of the concentration without the approval of the Commission.

Commission orders relating to merger notification

These are covered by Article 31 of the law. Pursuant to Article 31(2), if the Commission is satisfied, having regard to the matters referred to in Article 32, that an actual or proposed merger or monopoly situation is or will be contrary to the public interest , the Commission may order one or more of the following orders with respect to such merger or monopoly situation:

(a) declare that it is unlawful, except to the extent and in the circumstances provided by or under the order, to enter into or perform any agreement or arrangement specified in the order;

(b) in the case of a monopoly situation, ending the monopoly situation within the period specified in the order;

(vs) prohibit or restrict the acquisition by any person named in the Order of all or any part of any business or assets, or the doing by such person of anything which will or may result in such acquisition;

(D) compel any person to take steps to obtain the dissolution of any organization, whether incorporated or not, or the dissolution of any association, where the Commission is satisfied that the person is concerned or party to the situation of amalgamation or of monopoly;

(e) requiring that, if a merger takes place or a monopoly situation exists, any party to it named in the order must observe any prohibitions or restrictions on the manner in which it conducts its business, as are specified in the order;

(F) generally, take such steps as, in the opinion of the Commission, are reasonably necessary to terminate or prevent the merger or monopoly, as the case may be, or to mitigate its effects.

Order communication and representations

Under section 31(4), an order must be in writing and served on any person named in it.

Section 34(5) requires that before making an order under this section, the Commission shall ensure that the person concerned is so informed of the general terms of the order which he proposes to make and that she has the opportunity to comment on it. The Board can vary or revoke an order at any time under section 31(6).

Conclusion

Depending on prescribed thresholds, mergers may or may not be notified to the Commission. You are advised to consult your professional advisers.

Disclaimer

This simplified article is for general information purposes only and does not constitute professional advice by the author.

Godknows (GK) Hofisi, LLB (UNISA), B.Acc (UZ), CA (Z), MBA (EBS, UK) is a Solicitor/Legal Advisor, Chartered Accountant, Company Rescue Practitioner, Registered Tax Practitioner accountant, transaction structuring consultant and business valuator. He is also a director of Investacare International (Private) Limited. He writes on a personal basis. He can be contacted at +263 772 246 900 or [email protected]

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