MMAN Advocates | View firm profile
Mergers and Acquisitions is an interesting and vibrant practice that is
emerging in Kenya. It is reported that Kenya ranked 4th overall in
Africa after South, Nigeria and Ghana as the most sought after country
for foreign investors for mergers with local firms/companies. The
following is a brief write up on mergers in Kenya
What is a merger?
The term “merger” is defined in section 2 of the Act as “any acquisition
of shares, business or other assets, whether inside or outside of
Kenya, resulting in the change of control of a business, part of a
business or an asset of a business in Kenya in any manner and includes a
takeover.”
Under section 41(1) of the Act, a merger is deemed
to occur when one or more undertakings, directly or indirectly, acquire
or establish direct or indirect control over the whole or part of the
business of another undertaking.
Control is defined under section 41(3) to include
amongst other things, a situation where a person beneficially owns
directly or indirectly more than one half of the issued share capital of
an undertaking.
The Competition Authority of Kenya (the Authority)
was established by the Competition Act, 2010 (the Act) to promote and
safeguard competition in the national economy. Section 42 (2) of the Act
requires that merging entities should seek the approval of the
Authority prior to implementing a merger where such merger would lead to
the acquisition of control over an undertaking. Section 42 (1) of the
Act however authorizes the Authority to exclude any proposed merger from
the provisions of the Act.
Are all mergers notifiable?
Under the Act, All mergers are notifiable. It should be noted that no
merger carried out in the absence of an authorising order by the
Authority, has any legal effect, and no obligation imposed on the
participating parties by any agreement in respect of the merger are
enforceable in legal proceedings.
What is the legal framework?
Some of the governing laws on mergers and acquisitions in Kenya include:
- The Competition Act No 12 of 2010
- The Companies Act Cap 486
- The Capital Markets Authority Act
There mergers that are sector specific such as banking, insurance and telecommunications and are regulated by respective laws.
How is a merger filed?
All undertakings to a merger are required to
notify the Authority of their proposal in writing. Some of the documents
required to accompany the merger notification form are
- a signed copy of sale and purchase agreement;
- audited financial statements for the last three years;
- latest annual reports;
- board resolutions and related documents regarding the merger decision; and
- a breakdown of employees.
The Authority may require any other information it deems pertinent to determination of the merger.
What are the estimated timelines for getting the Authority’s Approval?
The statutory timeline set for merger
determination is 60 days after the Authority receives all information,
or within 90 days, if a hearing conference is conducted. The authority
may summon representatives of the merging entities for a conference
hearing for clarification purposes. Additionally, based on the
complexity of the case, the Authority may extend the period up to a
total of 120 days.
What are the merger thresholds and how much does it cost to file a merger?
The Authority is mandated under section 42(1) of the Act to declare any
proposed merger to be excluded from the provisions of Part IV of the
Act. To facilitate this, the Authority has issued merger thresholds
guidelines. The fee per merger in the healthcare sector where the
merging parties have a combined turnover or assets of between Kenya
shillings 500 million and Kenya shillings 1 billion Kenya shillings is
KShs.500,000. For all other sectors, where the parties have a combined
turnover of between Kenya shillings 1 billion and Kenya shillings 50
billion, the fee is Kenya Shillings 1 million, while mergers with a
turnover of above Kenya Shillings 50 billion incur a fee of Kenya
Shillings 2 million. Mergers that fall below the above thresholds do not
attract a filing fee and should apply for exclusion from the provisions
of Part IV of the Competition Act.
It is important to understand the Part IV of the Completion Act before
proceeding to advise a client on an intended merger. In depth research
and consultation with officers from the Authority will also enable one
prepare and file the correct documents and eliminate room for errors and
delayed approval or exclusion by the Authority.
Disclaimer: This article has been prepared for
informational purposes only and does not constitute legal advice. This
information is not intended to create, and receipt of it does not
constitute, a lawyer-client relationship. Nothing in this article is
intended to guaranty, warrant, or predict the outcome of a particular
case and should not be construed as such a guaranty, warranty, or
prediction. The authors are not responsible for any actions (or lack
thereof) taken as a result of relying on or in any way using information
contained in this article and in no event shall they be liable for any
damages resulting from reliance on or use of this information. Readers
should take specific advice from a qualified professional when dealing
with specific situations