Public interest factors in merger control are creating uncertainty for investors in Africa
18 October 2016, 13:37
Nairobi - While merger control typically prevents companies from acquiring a dominant position in M&A transactions in Africa, there is a lack of predictability and rules-based approach on how businesses can comply with the public interest factors contained in the legislation.
Clear public interest guidelines are needed in all the major jurisdictions in Africa, in order to create a degree of certainty for investors and to allow merging parties to consider these issues proactively, rather than being met with a condition imposed unilaterally by the regulator.
South Africa is ahead when it comes to public interest factors in competition law and the Competition Commission published guidelines this year on how public interest factors will be considered. The most acute public interest factor in South Africa has been employment, where the protection of employment is paramount.
Botswana also focuses on employment creation and citizenship empowerment in its public interest considerations in merger control. Companies doing deals in Botswana may be asked how Botswana nationals benefit from the deal. Botswana regulators will look at how locals will benefit in the supply chain, through procurement or share ownership when making public interest decisions.
In Kenya the situation is similar - conditional approval of mergers, where conditions are based on public interest concerns, are typically focused on employment. In Tanzania public interest conditions for mergers & acquisitions are also mostly related to employment.
What is concerning, though, is the lack of certainty regarding what regulators look for when considering public interest factors in Africa. There is little precedent even in South Africa and it took many years for public interest guidelines to be published here. There are not many guideline documents in other African countries that stipulate how regulators approach public interest in those countries. As a result, there is still much uncertainty as to how public interest will be viewed by the various regulators.
For instance, it is not clear how long, before or after a merger, retrenchments are considered. If employees are retrenched six months before a merger, will they look at this from a public interest perspective in a case where the target company has retrenched employees to make itself more attractive to the buyer? Also, in what circumstances does it not matter if you retrench employees, when is it justifiable? Is it acceptable only if the business is failing, for example?
In developing economies where unemployment is a concern, it is clearly employment issues that come up most often for consideration when public interest issues are addressed. In this regard it is also worth bearing in mind that public interest factors focusing on employment issues could have the unintended consequence of introducing industrial policy issues into merger control.
Merger control is not designed to improve national economic outlook; industrial policy should take care of that. Regulators in Africa should therefore be aware of industrial policies that might be introduced via the back door when considering pubic interest concerns relating to employment in merger control.
The lack of clear guidelines introduces unpredictability and an unpredictable environment is not attractive to investors. Absolute certainty may never be achievable, since each case is different and regulators have to consider the specific facts arising in each transaction. However, in order to reassure investors, regulators across Africa will be expected to publish guidelines on their approach to public interest, as provided in local legislation, to give some certainty to investors as to the general approach.