Pre-merger notification threshold in Ethiopia
An overview of a recent change introduced by the Trade Competition and Consumer Protection Authority (hereinafter called “the Authority”) pertaining to pre-merger notification threshold to differentiate those transactions that must be reviewed by the Authority prior to the coming to effect of a merger.
This briefing has been published by Mesfin Tafesse & Associates, Ethiopia, who has agreed to Simmons & Simmons making it available to elexica subscribers.
This legal update addresses a recent change introduced by the Trade Competition and the Authority pertaining to pre-merger notification threshold to differentiate those transactions that must be reviewed by the Authority prior to the coming to effect of a merger.
Acts or arrangements constituting merger
Under the Ethiopian Trade Competition and Consumer Protection Proclamation No.813/2014 (the Proclamation), three kinds of arrangements are considered as merger:
- Amalgamation - when two or more business organisations previously having independent existence form a new organisation or when one takes over the other.
- Joint venture - when two or more business organisations pool the whole or part of their resources for the purpose of carrying on a certain commercial activity.
- Acquisition - when directly or indirectly acquiring shares, securities or assets of a business organisation or taking control of the management of the business of another person by a person or group of persons through purchase or any other means.
Notification and approval of merger
According to the Proclamation, parties to the transaction first need to provide a notice to and acquire an approval from the Authority for a merger to take place irrespective of the financial magnitude of the transaction constituting the merger. There has been no threshold set by the Proclamation or implementing regulations or directives which served as a criterion to exempt small transactions from giving notification to the Authority and seeking its approval.
Recently, the Authority has started to implement a pre-merger notification threshold. The directive setting forth the threshold is still in the form of a draft but has received the blessing of the Ministry supervising the Authority, ie the Ministry of Trade.
The new practice
Based on the new practice, pre-merger notification is only required to be given to the Authority:
in case of amalgamation: if the combined assets or turnover (which ever combination is higher) of both the acquiring and the target company is more than ETB 30m, or
in case of acquisition: if the target company assets or turnover (whichever is higher) is more than ETB 30m.
In calculating the threshold, the Authority will use as a reference point the company’s audited financial statement of the preceding year.
Those companies whose audited financial statement shows less than ETB 30m capital or turnover (whichever is higher) will directly go to the Document Authentication and Registration Authority (DARO) to proceed with the next step for merger registration.
As an extension of the scope of the directive discussed above, the Authority, in a recent letter it issued to DARO, has made a capital increment that has the effect of raising a company’s capital to more than ETB 30m subject to its approval prior to effectiveness.
Thus, if the turnover or asset (whichever is higher) is less than 30m, the parties are not required to give pre-merger notification to the Authority, however post-merger notification has to be given to the Authority.
