A Quick Look Into Regulatory System in Mergers and Acquisitions In Tanzania
- Competition matters, policies and their legal standpoints
Mergers and acquisitions (M&A) are among the major contributors to Tanzania’s industrial and trade expansion and a key enhancer to competition among variety of businesses that lead to provision of quality services and products to consumers. Moreover, Tanzania is committed to a full transition to a market economy, and the government is fully aware of the importance of M&A activity as part of that process.
A combination of resources through a merger; firms are able to increase efficiencies through reduced costs, strategic reorganization, adoption of new technologies and combined expertise. Also, more and more investors find it viable to venture into mergers and acquisitions to establish their presence in Tanzania and enhance their dominance in the business competitive environment. The acquisition of local firms within Tanzania is an important part of attracting foreign direct investment into the country as well as facilitating market entry. Many foreign companies that wish to start up in Tanzania will find that the easiest way to do so is to acquire a firm which is already established, with a ready list of customers, employees and suppliers, as well as perhaps benefiting from local licenses and domestically registered intellectual property rights. Example of acquisitions existing in Tanzania are the acquisition of Kobil T Limited by Kilimanjaro Oil Company Limited, acquisition of BG Group PLC by Royal Dutch Shell PLC and acquisition of Swala Oil&Gas PLC by Tata Petrodyne Limited.
Our Breakthrough Attorneys’ experts in competition, equity and venture capital have widely taken part and advised in the field of M&As and have executed and litigated in some of the major regulatory merger cases in the country. Hereinbelow they provide us with the simplified practice of M&As in Tanzania.
The Legal framework and Regulatory Authorities:
The legal framework for M&As in Tanzania consists of several major statutes (i – iii) and sectorial statutes (iv – v) as well as general statutes of application (vi – vii) such as;
i. the Fair Competition Act 2003,
ii. the Companies Act 2002,
iii. the Capital Markets and Securities (Substantial Acquisitions, Takeovers and Mergers) Regulations 2006,
iv. the Energy and Water Utilities Authority Act 2001,
v. the Tanzania Communications Authority Act 2003
vi. the Income Tax Act 2004 and
vii. the Employment and Labour Relations Act 2004.
M&As in Tanzania are regulated by the Fair Competition Act 2003 (‘the Competition Act’) through its implementing body the Fair Competition Commission (FCC). The FCC acts as the regulatory body but also as a first tier quasi-tribunal forum for competition and antitrust disputes, grievances out of which, are taken to the Fair Competition Tribunal, also formed under the same law.
For purposes of scope of mergers in Tanzania The Competition Act defines a ‘merger’ as an acquisition of shares, a business or other asset, whether inside or outside Tanzania, resulting in the change of control of a business, part of a business or an asset of a business in Tanzania.
Procedural steps for Mergers establishment:
Notification of a Merger:
The FCC must be notified of any merger or acquisition in which there is a turnover of assets in excess of Tshs. 800,000,000 (approximately US$380,000). The notification must include basic corporate information and a merger/acquisition plan.
After notification the FCC has 14 days to request more information and to determine whether the proposed merger or acquisition should be examined in more detail, absence of which the transaction is deemed approved. If the FCC decides to further examine the transaction, the acquisition will be prohibited for 90 days and can be extended for an additional 30 days. During this period the FCC will determine whether the merger or acquisition creates or strengthens a position of dominance in the market.
A position of dominance:
Under the Competition Act a merger is prohibited where it creates or strengthens “a position of dominance” in a market. The Act defines a position of dominance as where a person acting alone, can profitably and materially restrain or reduce competition in that market for a significant period of time; and the person’s share of the relevant market exceeds 35 percent.
If the FCC determines that the merger or acquisition does create or strengthens a position of dominance in the market, it may either prohibit the merger or acquisition entirely or suggest changes so that the proposed transaction does not contravene the Competition Act.
Penalties and compliance issues:
The financial penalties imposed on a person or company in violation of the Act are severe. Under the Act, failure to notify a merger or acquisition is an offence which is punishable by;-
- A fine of between 5 and 10 percent of the annual income of the company that fails to notify the Commission.
- In addition, every director, manager or officer of the company at the time the offence was committed may be charged jointly in the same proceedings and may be deemed to be jointly guilty unless he/she proves that the offence was committed without his/her knowledge or that he/she exercised all due diligence to prevent the commission of the offence.
Since the establishment of the FCC in 2006 until 30 May 2009 there had been 18 notifications of which 17 were approved and one is pending before EWURA, the utility regulatory agency. The first notification took seven months to be approved but thereafter most were approved within 14 days.
In the standpoint of trade environment scales, the Act has received considerable applause from the World Bank as having been well-drafted and presenting a good basis for a workable competition policy regime. Moreover, the Act is relatively clear in terms of the procedure to be followed by notifying parties and in terms of when a transaction becomes notifiable. But despite its clarity, the Act still leaves the door open for a misconception of difficult concepts such as dominance, market assessment and barriers of market entry.
Due to this drawback, a fair degree of refinement still needs to be undertaken so as to bring about legal certainty within the regime. For example, the Act makes numerous references to “turnover” while leaving a void as to how this is to be calculated. In the absence of such fine-tuning, there is a risk of confusion and conflicting practice in diverse cases being further propelled by a solid influx of venture capital for the past five years or so. On that note therefore, our competition experts at Breakthrough Attorneys strongly recommends that further clarification needs to be given in the form of guidelines and orders made by the FCC under the Act.
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Breakthrough Attorneys, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.