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Watchdog to charge fees for merger deals [Business Daily (Kenya)]
[March 23, 2014]

Watchdog to charge fees for merger deals [Business Daily (Kenya)]

(Business Daily (Kenya) Via Acquire Media NewsEdge) The Competition Authority of Kenya (CAK) will from July start charging filing fees to process applications for mergers and acquisitions (M&A), adding to the cost burden for firms involved in cross-border transactions.

The competition watchdog, which hitherto did not charge merger notification fees, says the new levy is meant to recoup costs incurred in filing, analysing, review and advertising in making a determination of M&A deals.

"The charges are based on the costs we incur to analyse merger notifications. We were keen not to propose very high charges that may curtail investment. The fees are not as high as what Comesa charges," said director-general Wang'ombe Kariuki.

Mergers involving turnovers of between Sh1 billion and Sh50 billion will be processed for a fee of Sh1 million while transactions involving bigger entities will be charged Sh2 million.

Mr Kariuki said the charges were in line with global best practices and that the income earned from filing fees would help cut reliance on the Treasury for funding.

Experts, however, warn that the fees could encourage clandestine deals and increase opacity in the highly sensitive M&A market.

"There is a risk that the introduction of merger filing fees at this stage might serve as a deterrent to parties in M&A transactions from notifying their transactions with the authority as required by law," said Anne Kiunuhe, a partner at Anjarwalla & Khanna.

This comes after the Common Market for Eastern and Southern Africa (Comesa) Competition Commission set $500,000 (Sh43 million) as filing fees for deals involving two or more member states of the bloc.

It was feared that this would deal a major blow to Kenyan firms that have recently been expanding into the Eastern Africa region.

However, corporate attorneys and competition law experts say the Kenyan fees will dampen the nascent M&A market and increase the cost of doing business.

READ: Boom for EA mergers and acquisitions They also say the pricing bands are too wide — hence not matching transaction values and the merger fees.

"The international norm is to charge merger notification fees based on how sophisticated the deal is, the sector and trading activity of the parties," said Mahesh Acharya, a partner at Kaplan & Stratton law firm.

Mr Acharya advised French firm L'Oreal in the Sh3 billion acquisition of Kenya's Interconsumer Products in April last year.

It now means that M&A deals affecting Kenyan firms with regional operations will have to pay filing fees to both CAK and Comesa.

For example, Britam's acquisition of Real Insurance was filed with multiple competition watchdogs including the Comesa Competition Commission where it paid $500,000 notification fees and CAK (free of charge).

It and also paid Tanzania's Fair Competition Commission, Competition and Fair Trading Commission of Malawi and Competition Regulatory Authority in Mozambique.

The law provides that persons found guilty of consummating a merger without clearance from CAK face a five-year jail term and a fine of Sh10 million.

CAK may also impose a financial penalty not exceeding 10 per cent of the preceding year's gross annual turnover of the parties in the clandestine undertaking.

"Although the observance of competition laws in Kenya has improved greatly in the last few years, they have not yet fully developed and it is safe to say that they are still honoured more in the breach than in observance," Ms Kiunuhe told the Business Daily.

The competition watchdog has already asked the Director of Public Prosecutions (DPP) to prefer criminal charges on directors of pollster Ipsos-Synovate for failure to seek regulatory approval when it acquired Synovate Kenya.

READ: Synovate directors risk jail, hefty fines Mauritius and Rwanda do not have merger filing fees and lawyers at Anjarwalla & Khanna said this may make them more attractive investment destinations than Kenya.

The fresh tussle on merger fees comes at a time when there have been increased activities in Kenya's M&A market, as evidenced in deals to consolidate market share by local players and takeovers by foreign multinationals.

Mr Acharya said the turnover threshold of Sh1 billion was very low and would most likely require deals involving small and mid-sized enterprises (SMEs). He added that the wide bands should be dropped and fees based on the complexity of the deal.

The CAK determined a total of 65 merger applications in the fiscal year ended June 2013 - spanning across sectors such as banking, insurance, engineering and construction, floriculture, information, communication and technology (ICT) and mining.

This represented a nearly six-fold growth in Kenya's M&A market compared to the 68 deals cleared in the six-year period between 2005 and 2011 by the Monopolies and Prices Commission, the CAK's predecessor.

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