Anyone involved in mergers and acquisitions (M&A) in Tanzania needs to be able to navigate the intricacies of the concept of “change of control” referenced in the definition of “merger” in the Fair Competition Act, 2003. For these purposes a “merger'' is defined to mean “an acquisition of shares, a business or other assets, whether inside or outside Tanzania, resulting in the change of control of a business, part of a business or an asset of a business in Tanzania”.
Any transaction that falls within this definition, and as such is regarded as a merger, needs to be approved by the Fair Competition Commission (“FCC”) (which is the body with the mandate to regulate competition in Tanzania) if it meets the prescribed threshold. The current threshold for merger notification in Tanzania is TZS 3.5bn (calculated from combined market value of assets or turnover of the merging firms, whichever is higher).
While other terms in the merger definition are clearly defined in the Act, such as what constitutes an “acquisition” and an “asset”, there is no separate definition for the term “change of control”. The lack of such a definition and of a related regulatory framework contributes to uncertainty among stakeholders involved in M&A transactions. Tanzania’s diverse business landscape, comprising multinational corporations, state-owned enterprises, and local businesses, does give rise to unique challenges in aligning stakeholders' interests and expectations regarding change of control. Additionally, cultural and organizational differences further complicate the process of deciphering change of control.
This ambiguity creates room for varied interpretations, and can lead to disputes and resulting costs for merging firms including FCC non-compliance penalties and increased transaction costs, as parties engage in prolonged negotiations and legal battles to resolve such disputes.
The FCC itself relies on the ruling in the case of Toyota Tsusho v. Fair Competition Commission, FCT Appeal No, 6 of 2013 which referred to “change of control” as the “potential ability of the acquiring firm to materially influence the business policy and operations of the target firm in the post merger scenario irrespective of the size of the ownership change”. However, without quantifying what amounts to material influence (and as the criteria on the size of ownership change is expressly stated as excluded), the question of whether there is a change of control can be quite subjective, particularly so when the change of control has resulted in a less than 50 percent shareholding change. In such a scenario, there is a conundrum as to whether there is a need to report a transaction to the FCC for approval. Such uncertainty can undermine investor confidence, potentially hamper the efficiency of M&A transactions and ultimately stifle economic growth.
In other jurisdictions, the change of control provisions are more elaborate. For example the legislation in Kenya provides scenarios where change of control is triggered including where the acquiring person(s) beneficially owns more than one half of the issued share capital or business or assets of the undertaking, or is entitled to vote a majority of the votes that may be cast at a general meeting of the undertaking, or has the ability to control the voting of a majority of those votes, either directly or through a controlled entity of that undertaking, or able to appoint, or to veto the appointment of, a majority of the directors of the undertaking.
So far the FCC has been doing a great job in terms of expediting merger reviews, protecting consumers (for example via product recalls) and more generally seeking to ensure that there is healthy commercial competition. However, there is a need to reduce uncertainty as to the scope of the “change of control”. One option could be for the FCC to enact guidelines to provide greater clarity as to the criteria for assessing control and thresholds triggering notification requirements, having taken input from stakeholders within the Tanzanian business community, including industry associations, legal practitioners, and academic institutions.
Legislative amendment is another approach, particularly bearing in mind the recent (15 February 2024) amendment proposals through a special Bill supplement (namely, the Fair Competition (Amendment) Act, 2024) that has been presented to the parliament for first reading. While the Bill has addressed many challenges such as giving a mandate to the FCC to enforce consumer protection claims and revising the market threshold of abuse of dominance from 35% to 40%, unfortunately the change of control provision has not been addressed.
However, I believe that there is still time for stakeholders to propose amendments so as to include a clear definition of the term “change of control” before the current Bill is passed as an Act. By establishing more clarity on this point, Tanzania can create a more conducive environment for M&A transactions, promote investor confidence, position itself as a hub for investment and business activity in East Africa, and so accelerate economic growth.
By Penina Mbogoro, Manager, Company Administration Services - PwC Tanzania
