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Approval Of Mergers And Acquisitions In Kenya: What Does The Regulator (cak) Look At?

02 May 2025

6 minute read

Approval of Mergers and Acquisitions in Kenya: What Does the Regulator (CAK) Look At?

A Merger occurs when one or more undertakings directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another undertaking. Mergers and acquisitions are powerful corporate moves that have the potential to reshape industries, enhance efficiencies, salvage failing firms and drive growth. Businesses usually undertake mergers to accelerate growth- both economically and geographically, thereby increasing their market share; increase efficiencies and enhance synergies; and access capital and new markets through diversification.

However, while mergers present exciting opportunities for businesses, they also have a dark side. Mergers and acquisitions if unregulated may result in monopolies and as a result stifle or restrict competition. The Regulator - Competition Authority of Kenya (CAK)- must therefore carefully analyze the proposed mergers so as to ensure that such transactions do not harm the market, consumers, or the economy as a whole. Mergers, if left unchecked, may lead to job losses, less choice for consumers and unwarranted concentration of economic power. In this article, we will examine the notification threshold, the Merger Review Process, and the key factors considered by the Competition Authority of Kenya (CAK) when determining whether to approve or reject a proposed merger or acquisition.

1. Approval of Mergers

Under the Merger Threshold Guidelines Part B of the First Schedule, only mergers that meet the specified thresholds need to be notified to CAK. These thresholds include:

· A combined turnover or assets exceeding KSh 1 billion, and the target entity having turnover or assets above five hundred million shillings;

· The acquiring entity having assets is above ten billion shilling, and the merging entities being in the same market or vertically integrated, unless the transaction meets the COMESA Competition Commission Merger Notification Thresholds

· Entities in the carbon-based mineral sector with a combined value above KSh 10 billion must also notify CAK.

· where the undertakings operate in the COMESA, and two-thirds or more of their turnover or assets (whichever is higher) is generated or located in Kenya The thresholds are discussed in greater details in our article (Regulation of Mergers in Kenya)

2. Merger Review Process

Once notified, CAK assesses whether the merger would likely reduce competition, harm consumers, or create a dominant market player. The Authority relies on audited financial statements and other reports from the target and acquirer to make this assessment. CAK, then has 60 days (or if it requires additional information, 60 days from when it receives all the information) to make a decision. CAK may decide to:

a) give approval for the implementation of the merger;

b) decline to give approval for the implementation of the merger; or

c) give approval for the implementation of the merger with conditions.

Should an undertaking disagree with CAK’s decision, they can appeal to the Competition Tribunal, and eventually to the High Court if needed.

3. So, what does CAK look at when deciding whether to approve or decline a proposed merger or acquisition?

a. Impact on Competition: Will it harm or enhance competition?

At the heart of the review is the potential impact on competition. The CAK primary concern is whether the merger will stifle competition. When two companies in the same industry combine, the result could be a market with fewer choices, higher prices, or reduced service quality for consumers. The Regulator analyses whether there will be enhanced market power or if the merged entity could single handedly manipulate the market.

The Regulator must assess whether there are other players in the market, their strength and the impact of the merger on the said market. For example, will an entity acquire a dominant position in the market? If so, what will be the effect of such dominance? Is the market concentrated with other players to such an extent that the effects of the merger will be offset? Will consumers still be able to access goods and services in an enhanced manner or will their choice be curtailed? What is the supplier or buyer power within that market? What are the barriers of entry and exit within the said market?

A notable example is when the Competition Authority of Kenya evaluated the proposed acquisition of Mombasa Apparels by Nava Apparels. The Authority assessed the market share of the merged entity, which would rise to 3.83%. It concluded that, despite this increase, the merger would still face significant competition from other players who control 96.17% of the market. Based on this analysis, the Authority determined that the proposed transaction was unlikely to substantially reduce competition in the export clothing apparel market.

b. Consumer Welfare: Will it benefit or harm the customer?

Regulators also focus on consumer welfare. While mergers could theoretically result in better services, or more innovation, there’s often a fine line between promise and reality. While combining resources could lead to improved offerings, regulators are cautious that such a merger might lead to a focus on consolidation over customer benefits.

Competition, which in lay-man terms, is the rivalry between firms, usually results in firms trying to outperform the other to deliver the best product at the best price to consumers. Therefore, when two entities come together under a merger, this competition is eliminated and the risk of a controlled market increases. For a merger to be approved, the merger should enhance the welfare of the consumers or at least not cause any detriment to the welfare of consumers.

c. Employment Impact: What About Jobs?

Mergers often lead to restructuring and job cuts, which can have significant adverse effects on the society and the economy. Regulators have to assess the impact on jobs and the broader economy. When filing a proposed merger, CAK requires the merging firms to enumerate any job losses that may be occasioned by the merging firms rationalizing their operations. Additionally, the merging firms are required to substantiate any claims of employment that may be generated as a result of the merger. Where upon analysis, CAK observes that the proposed merger may result in job losses, the merger is declined.

In the KCB and NBK Merger, the competition authority was of the view that the proposed merger was likely to result in negative public interest concerns that needed to be considered. Specifically, the Authority anticipated that the merger would result in duplication of certain roles which was likely to lead to loss of employment. At the time, KCB employed 4,835 people, while NBK had 1,356 staff members.

To balance public interest concerns with the strategic goals of the merging parties, the Authority determined that granting conditional approval would be appropriate. Therefore, CAK approved the proposed acquisition of NBK by KCB on the condition that 90% of the merged entity’s employees would be retained for a period of 18 months from the merger’s closing.

This limitation on job cuts was designed to allow the merged entity to continue with its restructuring efforts while mitigating the negative social impacts. The 18-month period was based on both prior case precedents and the submissions from the merging parties.

d. Economic Efficiency: Will the Deal Benefit the Economy?

Regulators also assess whether the merger will lead to greater economic efficiency. Will the merged company be more efficient in operations? Will it result in cost savings, increased production, or better market access?

If a merger promises significant economic benefits—like improved research and development, economies of scale, or better distribution—CAK may see it as a positive development for the economy. This aspect of the review process focuses on ensuring that mergers contribute positively to the broader economic landscape.

e. Impact on National Industries in Global Markets

Regulators also examine whether the merger will affect the ability of national industries to compete in international markets. They consider the benefits that may arise from the merger, such as advancements in research and development, technical efficiency, increased production, or improved distribution of goods and services.

Conclusion

Mergers and acquisitions can be transformative, but they come with a responsibility to balance corporate interests with the public good. The role of regulators, like CAK, is complex and requires them to assess a range of factors beyond just business objectives. CAK mainly focuses on the “Substantial Lessening of Competition” criteria as well as the “Public Interest Tests”.

For businesses looking to merge, it’s essential to demonstrate how the merger will serve not just the company’s goals but also the broader public interest. Only by balancing competition, consumer benefits, employment security, and economic efficiency can these big corporate deals truly succeed.

HOW WE CAN HELP

At CM Advocates LLP, we are dedicated to helping your company navigate the complexities of mergers and acquisitions within an ever-changing and evolving economy. Our experienced team offers comprehensive legal advice and support, ensuring that your merger complies with all regulatory requirements. This includes obtaining necessary approvals and licenses from regulatory bodies such as the Competition Authority of Kenya and ensuring your business operates within the boundaries of the law. We assist with due diligence, drafting offer letters, transfer of business agreements, share sale and purchase agreements, share subscription agreement as well as liaising with relevant authorities to ensure a smooth and lawful transaction.

In addition to our advisory services, we stay up-to-date with the latest regulatory changes, helping you avoid the risks and penalties associated with non-compliance. As your trusted partner, we ensure that your business remains compliant. For any clarifications, contact us at commercial@cmadvocates.com.

Contributors: Brian Thuranira & Victorine Rotich

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