Mergers and Acquisitions Department
The Mergers and Acquisitions Department deals with issues pertaining to mergers and acquisitions of businesses operating within the country, and of outside businesses having business activity in the country. The phrase “Mergers and Acquisitions” is prevalent in investment banking, amongst competition regulators, and other financial sector regulators. It is basically the acquisition or buying of the shares /assets of another company by another or by an individual. It also means the amalgamation of companies to form a single economic/business concern. The Mergers and Acquisitions Department is responsible for the analysis of transactions in order to ascertain if these transactions are likely to result in the substantial lessening of competition in the country.
What is a Merger?
Section 35 of the Competition Act No.8 of 2007 (“the Act”), requires that enterprises to a merger transaction notify and seek the approval of the Commission before implementing a merger. The only prerequisite for notifying is that the transaction in question must constitute a “merger” as defined in the Act.
In terms of Section 2 of the Act, “merger” means the acquisition of a controlling interest in –
(i) any trade involved in the production or distribution of any goods or services; or
(ii) an asset which is or may be utilised for or in connection with the production or distribution of any commodity.
A merger may occur through a purchase or lease of shares, an interest or assets, joint ventures and/ the amalgamation or other combination with another enterprise. A merger therefore occurs when there is a “change of control”.
Acquisitions of shares (or other equity interests such as partnership interests) typically qualify as mergers whenever they result in a change of control in any of the ways listed in Regulation 3 (1)(g) of the Competition Commission Regulations Notice of 2010 (“Competition Regulations”). The controlling interest may be in any trade involved in the production or distribution of any goods or services.
A merger can also be an acquisition of a controlling interest in an asset as defined in the Act. However, not all acquisitions of assets constitute a merger. With respect to acquisitions of assets, the main question relates to whether the acquired assets have sufficient independent competitive significance in connection with production or distribution of any commodity in a relevant market. To qualify as a merger, the transferred assets must enable a business activity to continue and the revenue directly related to the transferred assets must be identifiable. Simply put, the transferred asset must be capable of being independently used to generate income (commercial purposes). As such, assets bought in the ordinary course of business and those acquired for personal use do not qualify as mergers.
What is acquisition of “controlling interest”?
The assessment of whether there has been a change in control is undertaken by the Commission on a case-by-case basis, having regard to the unique facts of each particular case. In terms of Regulation 3 of the Competition Regulations, acquisition of controlling interest means the holder thereof –
(i) beneficially owns more than one half often voting and/or more than half of the economic interest of the target firm;
(ii) is entitled to vote a majority of the votes that may be cast at a general meeting of the firm;
(iii) is able to appoint or veto the appointment of a majority of the directors of the firm; or
(iv) has the ability to exercise a decisive influence over the policies of the firm and its strategic direction.
Who should file a merger and where to obtain the forms
In a merger transaction, there are normally two parties involved and these are the acquirer and the target. Both these parties are responsible for notifying the transaction to the Commission. A merger is notifiable if one or both of the parties to the transaction has an economic presence in the country. This may be through direct presence in the country, through subsidiaries or through any economic activity/selling their products in the country; even if the firms do not have a physical presence in the country. The relevant forms for the merger notification filing can be obtained on request from the Swaziland Competition Commission.
When must the Swaziland Competition Commission be notified of a Merger?
The Commission must be notified of all mergers and acquisitions that have an effect in the economy of Swaziland before the merger is implemented. The business can request for a pre-notification meeting with the Mergers and Acquisitions Department to obtain any other necessary guidance related to merger procedure. The inquirer will be duly furnished with the list of requirements and documents necessary for a complete filing of a merger.
How much does it cost to notify a merger?
Mergers are classified as either small or large. A small merger is defined as a transaction in respect of which the parties’ combined assets or turnover is E8 Million or less. Small mergers are exempt from paying a filing fee. A large merger is defined as a transaction in respect of which the parties’ combined assets or turnover is above E8 Million. In the case of large mergers, the filing fee is equal to (0.1%) of the combined annual turnover or assets value (whichever is greater) of the merging entities. The fee is calculated on the assets or turnover of the merging firms situated in and out of the country. However, this fee is capped at E600 000 (i.e. the fee cannot exceed E600 000). The following table presents the merger thresholds and notification fees payable for small and large mergers.
|Merger thresholds and notifiable fees payable
||Combined turnover / Asset value
||Notification fee payable
||Below or equal to E8million (≤E8 000 000)
||Above E8 Million
(>E8 000 000)
|Zero point one percent of combined annual turnover/assets (0.1%), however the fee is capped at E600 000
What does the Commission consider when analysing a merger?
The Competition Regulations set out the analytical framework for the competitive assessment of mergers as follows-
- a) Is the merger likely to substantially prevent or lessen competition in the relevant markets?
- b) If it appears that the merger is likely to substantially prevent or lessen competition in the relevant markets, then the Commission needs to determine whether these anti-competitive effects can be outweighed by technological, efficiency or other pro-competitive gains.
In terms of the Competition Regulations, the Commission needs to evaluate the following factors to assess the strength of competition in the relevant market(s) and determine whether the merger will result in any change in the competitive landscape that could substantially prevent or lessen competition in the relevant market(s)-
- I) rationale for the transaction;
- II) the ease of entry into the market, including tariff and regulatory barriers;
III) the actual and potential level of import competition in the market;
- IV) the relevant market(s) with emphasis on the relevant product(s) and the geographic market;
- V) the levels of concentration in the market;
- VI) the degree of countervailing power in the market (that is the bargaining strength that the buyer has vis-a-vis the seller in commercial negotiations due to its size, commercial significance to the seller and its ability to switch to alternative suppliers);
VII) the dynamic characteristics of the market, including growth, innovation, and product differentiation;
VIII) the nature and extent of vertical integration in the market;
- IX) whether the business or part of a business of a party to the merger or proposed merger has failed or is likely to fail; and
- X) whether the merger will result in the removal of an effective competitor.
What happens after the Commission has looked at the merger notification?
In the case of small and large mergers, upon completion of the merger investigation, the Commission may-
(a) approve the merger without any conditions;
(b) approve the merger subject to specific conditions; or
(c) prohibit the merger altogether.
Parties aggrieved by a decision of the Commission may within thirty days of the decision of the Commission appeal to the High Court of Swaziland.
Failure to notify a merger transaction
Businesses are urged to comply with the legislation and notify merger transactions. In terms of Section 35 of the Act, failure to notify a merger is an offence which attracts a sentence of a fine not exceeding E250 000 or imprisonment to a term not exceeding five years or both. Further, Regulation 28A of the Competition Commission (Amendment) Regulations Notice of 2016 empowers the Commission to impose a fine of up to 10% of a firm’s total turnover for failure to comply with the Act.
Section 35 of the Act allows parties to a merger to make an application for condonation with the Commission, following prior implementation of a merger without notifying. The Commission is at liberty to either grant the condonation application with or without conditions or to refuse to grant the application altogether. A merger transaction implemented without the approval of the Commission is not considered valid and is of no legal effect unless an application for condonation has been applied for and granted by the Commission.
When not sure whether the proposed transaction is notifiable, what should businesses do?
If businesses are uncertain about whether a transaction is a merger and should be notified with the Commission or not, a written request for an advisory opinion, detailing the nature of the business proposal, may be submitted to the Commission. Furthermore, businesses are encouraged to request for a pre-notification meeting with the Mergers Department of the Commission to obtain any other necessary guidance related to the merger notification procedures.