Mergers and acquisitions (hereinafter collectively referred to as “merger(s)”) are business transactions in which the ownership and/or controlling interest(s) of a business entity or organisation, are transferred to another business or organisation. Notably, a merger occurs when two businesses unite to create a new entity, whereas an acquisition involves one business acquiring a majority stake in another entity.
In various jurisdictions, the approval of the relevant regulator is typically required for a merger transaction to proceed. Local laws in these areas may explicitly forbid the completion of a merger before obtaining such approval. Failure to secure approval prior to finalizing the transaction may result in significant penalties for the parties involved.
Some of the jurisdictions with mandatory notification of a merger prior to implementation include, Tanzania, India, Korea, Singapore, The European Union and Turkey, to name a few, while jurisdictions with voluntary notification include, Australia, France, Spain, the United Kingdom and Mauritius.
Merger notification in Tanzania.
Notification of mergers in Tanzania is governed by the Fair Competition Act, Number 8 of 2003 as amended from time to time (hereinafter referred to as “the Fair Competition Act”), which establishes the Fair Competition Commission (hereinafter referred to as “the Commission”) mandated to investigate, approve or revoke merger transactions.
The Fair Competition Act further establishes a notification requirement for mergers that meet the prescribed threshold for notification. The current threshold for notification is TZS 3.5 billion (approximately USD 1.4 million[1]) calculated from the combined market value of the assets or turnover of the merging firms.[2]
Merger Notification Procedure
The notification procedure in Tanzania is initiated by filing a prescribed merger notification form FCC.8, accompanied with memorandum and articles of association; copies of audited annual financial statements for the preceding three years; strategic business plans; certificates of incorporation/registration; annual performance report and any other additional documentation as directed by the Commission in respect of both, the acquiring firm and the target firm.
Within five (5) working days after receipt of the merger notification, the Commission will review the merger and issue either a notice of complete filing or a notice of incomplete filing. If the Commission issues a notice of incomplete filing the acquiring firm can apply to the Commission to have the incomplete filing set a side.
If the Commission issues a notice of complete filing, within fourteen (14) days after issuing the same, the Commission may approve the merger and the parties can proceed with closing. However, if the Commission decides to further examine the transaction, closing of the merger may be prohibited for ninety (90) days in order for the Commission to conduct an investigation of the merger to ascertain whether the relevant merger will have a major economic impact or if it is likely to harm competition. Once the 90 days period ends and the Commission is not satisfied, the investigation can be further extended for another thirty (30) days. After the conclusion of the investigation and upon the satisfaction of the Commission, it may: -
Conditional approval of a merger
The Commission grants conditional approval for mergers as part of its responsibility to uphold fair competition and endorse optimal business practices. The underlying reasons for granting conditional approval to mergers include sustaining and fostering robust competition among businesses providing goods and services, advancing the welfare of consumers, buyers, and other users of goods and services, as well as supporting employment, small businesses, and specific economic sectors. In that regard, conditions issued by the Commission in respect of approving merger may include a condition that:
Notable example: In 2022, Scancem International DA’s (“Scancem”) indirect acquisition of Tanga Cement Public Limited was approved with conditions that required Scancem not wind up Tanga Cement Public Limited without prior notice or approval of the commission; Scancem was also required to continue the production and the promotion of the Simba Cement brand owned by Tanga Cement Public Limited; and Scancem was also required to submit to the Commission a payment plan for Tanga Cement Public Limited’s existing debts.
Prohibition of a Merger
The Fair Competition Act grants the Commission power to prohibit a merger if the intended merger will create and or strengthen the position of dominance in a market. Position of dominance in the market can be described to mean an entity while acting alone can profitably and materially restrain or reduce competition in that market for a significant period of time; and the entity’s share of the relevant market exceeds thirty-five (35%) percent.
Notable example: In 2013, Toyota Tsusho Corporation (“Toyota”) notified the Commission of its intention to acquire 100% of CFAO Motors (T) Limited (“CFAO”). Both entities deal in the distribution of automotives. The Commission’s investigation established that Toyota had a 40% market share while CFAO had 18.445% market share. When combined the market share of both entities would be 58.445% which exceeded the prescribed threshold of 35%. The Commission prohibited the merger based on the reason that Toyota would be strengthen its position of dominance in the market thereby likely to harm the competition in the automotive sector.
Conclusion
The completion of the intended merger transaction may also be influenced by regulators specific to the sector of the target company. In practice, the legal due diligence conducted before initiating the transaction will uncover any sector-specific approvals or requirements that could affect the merger. Nonetheless, it is crucial to emphasize the importance of acknowledging such factors. For example, in the Banking and Financial Sector, any transfer of ownership in a bank that results in an individual owning more than five percent (5%) of the voting shares must receive approval from the Bank of Tanzania.
By Kenneth Ulaya - Advocate
Note: This is not a legal opinion, and the contents hereof are not meant to be relied upon by any recipient unless our written consent is sought and explicitly obtained in writing.
[1] Based on the Bank of Tanzania exchange rates as of 22nd December 2023.
[2] Fair Competition (Threshold for Notification of a Merger) (Amendment) Order of 2017
