Introduction
In the world of business mergers and acquisitions are quite common. Businesses may combine to become one through mergers or one business may acquire one or more others through acquisitions. In this article I look at how the Competition Act (Chapter 14:28) (“the Competition Act” or “the Act”) applies in the case of mergers as they are defined in the Act.
Application of the Competition Act
The purpose of the Act is to:
- Promote and maintain competition in the economy of Zimbabwe;
- To establish a Competition and Tariff Commission (“the Commission”) and to provide for its functions;
- To provide for the prevention and control of restrictive practices;
- The regulation of mergers;
- The prevention and control of monopoly situations and the prohibition of unfair trade practices, and
- To provide for matters connected with or incidental to the above.
Definition of mergers
Section 2 of the Act defines a merger as meaning the direct or indirect acquisition or establishment of a controlling interest by one or more persons in the whole or part of the business of a competitor, supplier, customer or other person whether that controlling interest is achieved as a result of:
(a) The purchase or lease of the shares or assets of a competitor, supplier, customer or other person;
(b) The amalgamation or combination with a competitor, supplier, customer or other person; or
(c) Any means other than as specified in (a) or (b) above.
Notifiable mergers
In terms of 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 in general or in relation to specific industries, at or above which this Part of the Act will apply with regard to mergers;
(b) a method for the calculation of annual turnover and assets.
The following definitions in terms of section 34(2) are important:
- “Notifiable merger” means a merger or proposed merger with a value at or above the threshold prescribed in terms of section 34(1).
- “Non-notifiable merger” means a merger or proposed merger with a value below the threshold prescribed in terms of section 34(1).
Notification of mergers
This is covered by section 34A of the Competition Act. According to section 34A(1) of the Act a party to a notifiable merger shall notify the Commission in writing of the proposed merger within thirty days of—
(a) the conclusion of the merger agreement between the merging parties; or
(b) the acquisition by any one of the parties to that merger of a controlling interest in another.
The Commission, may in terms section 34A(3), impose a penalty if the parties to a merger:
(a) fail to give notice of the merger.
(b) proceed to implement the merger without the approval of the Commission.
Orders by the Commission in relation to merger notification
These are covered under section 31 of the Act. According to section 31(2) if the Commission is satisfied, having regard to the matters referred to in section 32, that any actual or proposed merger or monopoly situation is or will be contrary to the public interest, the Commission may make any one or more of the following orders in respect of that merger or monopoly situation:
(a) declaring it to be unlawful, except to such extent and in such circumstances as may be provided by or under the order, to make or to carry out any agreement or arrangement which is specified in the order;
(b) in the case of a monopoly situation, to terminate the monopoly situation within such time as is specified in the order;
(c) prohibiting or restricting the acquisition by any person named in the order of the whole or part of any undertaking or assets, or the doing by that person of anything which will or may result in such an acquisition;
(d) requiring any person to take steps to secure the dissolution of any organization, whether corporate or unincorporated, or the termination of any association, where the Commission is satisfied that the person is concerned in or a party to the merger or monopoly situation;
(e) requiring that, if any merger takes place or any monopoly situation exists, any party thereto who is named in the order shall observe such prohibitions or restrictions in regard to the manner in which he carries on business as are specified in the order;
(f) generally, making such provision as, in the opinion of the Commission, is reasonably necessary to terminate or prevent the merger or monopoly situation, as the case may be, or alleviate its effects.
Communication of order and representations
In terms of section 31(4) an order shall be in writing and served on every person named therein. Section 34(5) requires that before making an order under this section the Commission shall ensure that the affected person thereby is informed of the broad terms of the order it proposes to make and is given an opportunity to make representations in the matter. The Commission may amend or revoke an order at any time in terms of section 31(6).
Conclusion
Depending on prescribed thresholds, mergers may or may not notifiable to the Commission. You are advised to consult your professional advisors.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), CA(Z), MBA (EBS, UK) is a legal practitioner / conveyancer, chartered accountant, corporate rescue practitioner, registered tax accountant, consultant in deal structuring and business valuer. He is also a director with Investacare International (Private) Limited. He writes in his personal capacity. He can be contacted on +263 772 246 900 or gohofisi@gmail.com
