Practice Areas > Competition Law, Mergers & Acquistions
Competition Law
Lawcastles provides services on competition law with special focus on regulatory control over mergers and acquisitions. The services include assisting clients in determining whether their behavior or agreements with other persons may be regarded by competition authorities as anti-competitive; advising clients on the process and authorities involved in investigation of mergers and acquisitions; advising our clients on notification and review process; advising clients on the consequences of failure to notify or late notification of a notifiable mergers and acquisitions; advising clients in obtaining exemptions from competition authorities; advising clients on confidentiality matters in the notification and review process and representing clients before competition authorities. Lawcastles is a contributor on Tanzania in the worldwide electronic database on ‘Frequently Asked Questions on Competition Law’ that is maintained by Clifford Chance (an international law firm).
Fair Competition Act, 2003 is the main legislation which regulates unfair competition in Tanzania and the administering authority is FCC. Under section 5(6) of the Fair Competition Act, 2003, a person is regarded to have a dominant position in a market if acting alone, can profitably and materially restrain or reduce competition in that market for a significant period of time and that person’s share of the relevant market exceeds 35 per cent. Section 10 of the Fair Competition Act, 2003, prohibits a person with a dominant position in a market to use his position of dominance with the object, effect or likely effect of appreciably preventing, restricting or distorting competition.
A merger is prohibited if it creates or strengthens a position of dominance in the market. A merger is notifiable if it involves turnover or assets above the threshold set out by FCC. Currently, a merger must be notified to FCC if the combined turnover of the two undertakings involved in the transaction is above Tshs 800 million. A notification has to be made by any person who is a party to an agreement on merger or acquisition of assets, shares or business inside or outside Tanzania resulting in the change of control of a business, part of a business or an asset of business in Tanzania. The notification can be submitted on the basis of a draft agreement, letter of intent, memorandum of understanding and the heads of agreement.
The notifiable merger or acquisition must be filed with the FCC at least fourteen (14) days before the implementation of the proposed merger or acquisition. Upon receipt of the notification, FCC determines whether or not the proposed merger or acquisition should be examined. If FCC determines that the proposed merger or acquisition should be examined, such merger or acquisition will not be allowed to take place for a period of 90 days to allow FCC to complete the examination. FCC may extend the examination period for a period not exceeding 30 days if the examination process is not completed within 90 days. After completing the examination, FCC must decide whether or not the proposed merger or acquisition will create or strengthen a dominant position in the market. If the Parties delay to supply the information required by FCC, the duration for review process may be extended for a further period as FCC considers that the review process has been delayed by lack of the requested information.
Under the Fair Competition Act, 2003 failure to notify a notifiable acquisition or merger is an offence. The Fair Competition Act, 2003 imposes obligations to any person not to give effect to a notifiable merger or acquisition that has not been notified to FCC at least 14 days bringing it into effect. The person who is liable is any person who is a party to an agreement on merger or acquisition of assets, shares or business inside or outside Tanzania resulting in the change of control of a business, part of a business or an asset of business in Tanzania and has failed to notify the merger or acquisition. Furthermore, the Fair Competition Act, 2003 imposes liability to directors, managers and officers of the company that is a party to an agreement and partners of a firm that is a party to an agreement.
Late notification is an offence that may result into penalties such as Compensatory Orders to compensate other person(s) suffered loss or damage as the result of the failure to notify the merger or acquisition in time. Providing misleading information is also an offence under the Fair Competition Act, 2003 and may result into penalties such as fines. There are no fines for incomplete notification.
Where the competition problems are identified, remedies in a form of structural, behavioural or combination of structural and behavioural undertaking may be negotiated. As stated above, section 58(8) of the Fair Competition Act, 2003 allows FCC to enter into a compliance agreement whereby a person will undertake to refrain from conduct in contravention of the provisions of the Act, from a date, and for a period of time specified in the compliance agreement or for the disposal of shares or assets. In principle, FCC can require remedies in respect of foreign-to-foreign mergers which have effect on Tanzania though in the past FCC has not required remedies in respect of foreign-to-foreign mergers.
Mergers & Acquisitions
Lawcastles has strong expertise in mergers and acquisition work. The firm represents both buyers and sellers in acquisitions, divestitures and joint ventures. Lawcastles attorneys are very experienced on all key legal issues on mergers and acquisitions starting from negotiating heads of agreement to completion of the transaction. Some of our lawyers participated in major acquisitions in Tanzania and are very experienced on all key legal issues on mergers and acquisitions starting from negotiating heads of agreement to completion of the transaction. We believe that, mergers and acquisitions transactions, whether structured as asset, business or share sale, are fraught with complex issues that require dedicated expert attention. Our firm is at your disposal to assist you in handling these issues.
We work with our international clients and their other advisors to organize and analyze the relevant facts; to identify and develop solutions to business, operational and legal problems; to explore and implement financing arrangements; to identify and resolve other potential legal problems (including tax, competition, insurance, intellectual property employee benefits, labor, environmental, liability exposure, real estate, and governmental and other consent/approval issues); and to negotiate and draft the implementing agreements and other documentation. Our services in mergers and acquisitions include the following:
· Advising on appropriate structures in respective merger or acquisition transaction.
· Assisting parties in negotiating the heads of agreement.
· Assisting the parties in financing arrangements.
· Assisting the parties in conducting due diligence investigation.
· Advising the parties on the requirements of the local law on mergers and acquisitions.
· Drafting and reviewing Sale Agreements, Shareholders' Agreements, Warranties and Indemnities, Disclosure Letters, Completion documents, etc.
· Assisting the parties in obtaining necessary consents and approvals.
· Assisting the parties in completion of the transaction.
The main laws that regulate M&A activities include Companies Act, 2002; Capital Markets and Securities Act, 1994 and Fair Competition Act, 2003, Law of Contract Act, Cap. 345 and Transfer of Business (Protection of Creditors) Act, Cap. 398. In addition, there are other sector-specific laws that regulate business acquisitions such as Banking and Financial Institutions Act, 2006, Tanzania Communications and Regulatory Authority, 2003, Mining Act, 1998, Shipping Agencies Act, 2002, etc. Transaction agreements relating to M&A are often governed by Tanzanian law. The parties to such agreements may however provide for the law of any other jurisdiction to govern the agreements. There are no general governmental approvals, permissions or filings necessary in connection with the business acquisitions. Where one business is licensed or subject to regulatory approval and that business is acquired or merged with another, and there is a change of control in the licensed business, then it may or may not be necessary, depending on the specific regulatory regime, that the operating licence be transferred or the consent of the regulatory authority be obtained.
Examples of specific sectors where prior consent of the regulatory authority to a change of control in the ownership of a licence or the transfer of a licence is required are banking (which require approval of the Bank of Tanzania); insurance industries (which require approval of Insurance Supervisory Department); mineral rights (which require approval of the Commissioner for Minerals) and telecommunications and broadcasting (which require the approval of Tanzania Communications Regulatory Authority). Also, the DSE has jurisdiction in the event that one or more of the businesses involved in the business combination is an entity, the shares of which are quoted on the DSE. Under DSE Rules, details of the transaction, notices and circulars must be submitted to DSE for approval. If additional shares in the acquirer company are to be issued and listed (along with the shares already listed), consent of the DSE to the listing of the additional shares is required.
The Companies Act, 2002 establishes procedures for registration of share transfers and contains disclosure requirements for offer documents issued by public companies in relation to issues of shares. The Companies Act, 2002 also regulates arrangements and reconstructions. If an arrangement is proposed between a company and its creditors or shareholders, the court may, upon application (or upon the company's liquidation), order a meeting of the creditors or shareholders. The Companies Act, 2002 sets out information obligations in relation to the arrangements and reconstructions.
Under section 5(6) of the Fair Competition Act, 2003, a person is regarded to have a dominant position in a market if acting alone, can profitably and materially restrain or reduce competition in that market for a significant period of time and that person’s share of the relevant market exceeds 35 per cent. Section 10 of the Fair Competition Act, 2003, prohibits a person with a dominant position in a market to use his position of dominance with the object, effect or likely effect of appreciably preventing, restricting or distorting competition. A merger is notifiable if it creates or strengthens a position of dominance in the market. A merger is notifiable if it involves turnover or assets above the threshold set out by FCC. Currently, a merger must be notified to FCC if the combined turnover of the two undertakings involved in the transaction is above Tshs 800 million.
Public takeover bids and changes of control of public companies are regulated under Capital Markets and Securities (Substantial Acquisitions, Takeovers and Mergers) Regulations, 2006. These Regulations apply to acquisitions of an interest of 20% or more in public and listed companies and to mergers involving such a company. They contain lengthy and detailed provisions that aim to ensure a transparent and efficient offer system for public transactions; restrictions on dealings before, during and after the offer; and shareholding disclosure requirements. The acquisition of an interest of more than 90% triggers the acquirer's duty to either make a mandatory public takeover offer to all shareholders of the target, or to disinvest to fall below the required threshold.
Subject to the exchange control restrictions and sector specific laws, M&A activities involving foreign persons and companies are generally not restricted. Most of business activities are open to foreign investors. In a few sectors such as shipping agencies, telecommunications and broadcasting, ceilings have been placed on foreign shareholdings by licensing authorities. According to Shipping Agency Act, 2002 a license to conduct shipping agency business can only be granted to a citizen of Tanzania or body corporate incorporated in Tanzania in which more than 50% of the share capital is held directly or indirectly by a citizen of Tanzania. A licence to provide telecommunications and postal services can only be granted to an entity in which a local shareholder possesses thirty five percent of the shares. In case of broadcasting content businesses, a licence can only be granted to an entity in which a local shareholder possesses a minimum of fifty one percent of equity interest. Companies in which the majority shareholders are foreign individuals or foreign entities are not allowed to own land unless they are undertaking projects approved by Tanzania Investment Centre. Section 8 of the Insurance Act, 1996 provides that an insurance company to be registered in Tanzania must be locally incorporated and at least one third of the controlling interest (whether in terms of shares, paid up capital or voting rights) must be held by citizens of Tanzania and at least one third of the members of the board of directors must be citizens of Tanzania. There are also foreign shareholding limitations in companies holding certain types of mineral licences under the Mining Act, 1998. For companies listed at DSE, the Capital Markets and Securities (Foreign Investors) Regulations, 2003 set out the limit of aggregate securities to be held by foreign investors.
There are exchange control restrictions for Tanzanian companies to acquire companies based in other countries. Outward portfolio investments, foreign lending operations in favor of non-residents, acquisition of real estate, outward direct investment, operation of offshore foreign currency accounts by residents and participation of non-residents in domestic money and capital markets are also restricted. Outward M&A by Tanzanian companies can only be done after obtaining approval from the Bank of Tanzania.
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