The COMESA Competition Commission Issues Its First Partial Refusal to Grant Merging Parties Permission to Consummate Merger
By Tyla Lee Coertzen
On 2 September 2023, the COMESA Competition Commission released its decision to prohibit the proposed acquisition by Akzo Nobel N.V (“AkzoNobel”) of Kansai Plascon East Africa Proprietary Limited (“KPEA”) and Kansai Plascon Africa Limited (“KPAL”) (the “Target Firms”). The CCC’s decision in this merger represents the first merger prohibition it has issued since its inception in 2013.
In terms of the proposed acquisition, AkzoNobel was set to acquire 83.31% of the issued share capital of KPAL and 100% of the issued share capital of KPEA from Kansai Paint Co. Ltd.
AkzoNobel is a Dutch multinational company active in the manufacture and sale of paints and coatings, with a presence in Egypt, Mauritius, Tunisia and Zambia and Zambia. In addition, AkzoNobel supplies paints to the Democratic Republic of the Congo, Eswatini, Ethiopia, Kenya, Libya, Madagascar, Rwanda, Sudan and Zimbabwe.
The Target Firms are also active in the manufacture and supply of coating products. KPEA maintains a presence in Burundi, Kenya, Tanzania, Uganda and Zanzibar and operates five manufacturing plants, four of which are located within the Common Market (namely in Burundi, the Democratic Republic of the Congo, Malawi, Rwanda and Zambia). KPAL also has manufacturing plants in the Common Market, namely in Malawi, Zambia and Zimbabwe and derives turnover in Eswatini.
This would-be transaction has a somewhat convoluted history and was, by some observers’ interpretations, many years in the making. As Andreas Stargard notes regarding our prior reporting, “this very publication has analysed the COMESA competition troubles of the merging paints makers of the recent past. These have included failure-to-file mandatory notifications (and also here), as well as a paints cartel-conduct inquiry by the CCC, after Akzo and Kansai’s acquisitive hunger had initially begun in 2013 with disputes over use of the Sadolin brand in Uganda and elsewhere — coincidentally the same year the CCC became functional.”
In addition, notably, the same transaction was prohibited by the South African Competition Commission in late 2022 (which decision is currently being determined by the South African Competition Tribunal). The merger is also currently being assessed by the Namibian Competition Commission.
In its assessment of the market for the manufacture and supply of decorative paints, the CCC identified several competition concerns arising from the proposed merger. Specifically, it identified that the merger would result in a combination of two strong paint brands (namely Plascon and Dulux) and that there were no effective competitors present who would pose a real ability to counter the undue market power and unilateral conduct arising thereof.
While the merging parties proffered a number of commitments, the CCC found that such commitments would not sufficiently remedy the decrease in competition in the market (particularly in Eswatini, Zambia and Zimbabwe). The CCC thus outright prohibited the merger in these three Member States.
The CCC approved the merger in certain other jurisdictions subject to conditions proffered by the parties. Specifically, the parties are obliged to divest the Sadolin brand owned by AzkoNobel to an independent third-party competitor in Uganda within 6 months of the date of the CCC’s decision. In Malawi, the CCC approved the merger subject to a condition that the merging parties continue productions in the Malawi manufacturing plant for a period of three years after the CCC’s decision, in order to remedy the plant’s potential closure and job losses resulting thereof.
The CCC’s decision over this merger is a clear indication of the approach it will take to mergers which it believes will pose significant anti-competitive harm and competitive loss within the Common Market. Thus, the decision is an indication of CCC’s powers, adjudicative authority as well as its willingness to enforce its powers.