The COMESA Competition Commission (CCC) has published a new practice note to clarify details around its merger control thresholds, making it clearer to understand whether M&A transactions in the eastern and southern Africa region meet the commission’s merger filing requirements.

The practice note clarifies the term ‘operate’ under COMESA’s 2004 Competition Rules and the 2004 Competition Regulations, given that merger parties have typically used COMESA’s 2014 Merger Assessment Guidelines to understand its meaning. 

Under those guidelines, an entity would ‘operate’ in a member state if its annual turnover or value of assets in that member state exceeded $5 million.

According to the practice note, that definition no longer applies, with Rule 4 of the Merger Threshold Rules instead taking precedence. 

Under those rules, the term ‘operate’ applies to an entity — either the target firm or the acquiring firm or both—that is active in two or more COMESA member states, with a combined annual turnover or asset value (whichever is highest) of at least $50 million for all merger parties in those member states. 

Also, the CCC would need to be notified if the annual turnover or asset value of at least two of the parties in those member states exceeds $10 million, unless both of the merger parties have at least two thirds of their COMESA-based turnover or assets in the same single member state.

“What happened before was that, although there was one central document — the Merger Threshold Document, the requirements and aspects of the threshold were spread out, so you had to look at the regulations, you would have to look at the guidelines and you would have to look at the threshold notice,” said Elisha Bhugwandeen, professional support lawyer at Webber Wentzel in Johannesburg.

“Now everything is in one place.”

The practice note also clarifies the cumulative steps in which Rule 4 should be applied. The first is the regional test—that the merging parties must operate in at least two COMESA member states, though it can also be applied if one merger party only operates in one member state but the other party operates in two. 

The second is the combined turnover or asset value test, based on whichever is highest. 

The third is the individual turnover or asset value test, with the final test being the two-thirds exemption rule, which applies once the higher value between turnover or asset value has been established.

“There have always been challenges around interpretation and also the distinction between the guidelines and the regulations,” said Daryl Dingley, a partner at Webber Wentzel also in Johannesburg.

“It’s been quite a complicated approach given they have focused on the regional dimension test together with a traditional threshold test, so there has been some level of confusion.”

That regional dimension test was put in place to ensure the CCC was only capturing transactions that had a regional impact, leaving everything else to national competition authorities to review, Dingley said.

“In principle it’s right, but it was just the way it developed over time, they tried to improve it and that is when it became even more complicated—we ended up having to read three different documents to try and figure out exactly what was notifiable or not,” he said. “Our clients want certainty, so this is a great step in that direction.”

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