Public Interest a Factor when Merges Cut Jobs, Joyce Karanja-Ng’ang’a
Avoiding or limiting job losses when companies merge has become a major priority for competition authorities throughout east and southern Africa. Kenya and Zambia have joined South Africa in regularly setting conditions to minimise employment losses, and so have other member states of the Common Market for East and Southern Africa (COMESA).
The unmistakable message from national and regional competition regulators participating in the Africa Competition Law Conference 2018, hosted in Johannesburg by Bowmans earlier this year, was that public interest issues in general and jobs in particular are high on the agenda.
As more than one of the speakers put it: South Africa is viewed as the godfather of public interest in competition matters but Kenya, Zambia and other members of COMESA are catching up.
The difference – for the time being at least – is that where public interest conditions attached to merger approval in South Africa have expanded to include a much wider range of issues, competition authorities elsewhere seem to be focusing on employment.
That said, it is difficult to gain a detailed sense of trends because many of the authorities do not publish their decisions. However, recent experience is that the Competition Authority of Kenya (CAK) routinely attaches conditions around employment when considering merger applications.
Taking a dim view of job losses
Even in pure share sale transactions, where the only change is in equity ownership and employment levels will be unaffected, the CAK will often err on the side of caution by imposing a condition relating to the retention of employees.
In mergers where it is clear that job losses are inevitable (such as when a failing firm is being acquired, or where there is a business or asset transfer, or where the merger will otherwise result in there being overlapping positions that are unaffordable to retain), the CAK will often liaise with the parties to get an indication of how many employees the acquirer/ merged business is able to retain. The CAK will then usually issue a conditional approval that stipulates, for example, that no more than an identified number of jobs may be cut.
Zambia is also routinely linking merger approval to restrictions on job losses. However, Zambia’s Competition and Consumer Protection Commission is more likely to tolerate retrenchments if other benefits to the economy would carry more weight. Examples could be a significant increase in taxes paid to the government if the merger goes ahead, or a demonstrably positive impact on poverty alleviation (such as through the acquiring company’s support for small and medium enterprises or community development).
Regional view from COMESA
At the conference, a broader regional perspective on public interest criteria was provided by the COMESA Competition Commission (CCC), which is based in Malawi. The COMESA region is made up of 19 member states.
The CCC representatives made it clear that job retention is an important consideration in merger applications directed to it (mergers with a cross-border or regional dimension).
However, while preserving jobs is a crucial factor for the CCC, it is willing to consider balancing factors, such as how job losses could be offset by poverty alleviation or other benefits. The crux is that the merger parties should be ready to substantiate any claims to this effect.
Public interest guidelines in the pipeline
One of the most encouraging messages to emerge from the Bowmans Africa Competition Law Conference 2018 is that public interest guidelines will soon be forthcoming for the COMESA region.
It is to be hoped that national competition regulators will follow suit and publish their own guidelines, since merging companies and their attorneys in some countries are often in the dark as to regulators’ thinking.
In Kenya, public interest conditions tend to be expressed in a single sentence, stating for example, that merger approval is subject to the loss of no more than, say, 20 jobs. Little or no detail is given about how long the condition applies or what the position would be if those employees wanted to resign or retire.
Greater clarity on the public interest aspects of merger control would be warmly welcomed throughout the region and is eagerly awaited.