MERGERS AND ACQUISITIONS IN TANZANIA
Mergers and Acquisitions (M&A) have become increasingly common in Tanzania as companies seek to expand their market presence, increase resources, and secure capital. These transactions can revitalize businesses, making them more efficient and competitive.
This article provides a general overview of the legal analysis and procedures governing mergers and acquisitions in Tanzania.
LEGAL ANALYSIS
Mergers and acquisitions in Tanzania are primarily regulated by the following laws:
- The Fair Competition Act No. 8 of 2003 (“the Competition Act”);
- The Competition Rules of 2018 (“the Competition Rules”); and
- The Fair Competition (Threshold for Notification of a Merger) Order, 2006, as amended by the Fair Competition (Threshold for Notification of a Merger) (Amendment) Order, 2017 (the Competition Threshold Order).
It is important to note that competition law in Tanzania operates alongside sector-specific regulatory frameworks.
REGULATORY AUTHORITY
The Fair Competition Commission (FCC) is the primary regulatory body responsible for overseeing mergers and acquisitions in Tanzania. It was established under Section 62(1) of the Competition Act and is tasked with ensuring compliance with competition laws and protecting market integrity.
UNDERSTANDING MERGERS AND ACQUISITIONS
Definition of Key Terms
Under the Fair Competition Act, a merger is defined as the acquisition of shares, a business, or other assets—whether within or outside Tanzania—that results in a change of control over a business or its assets in Tanzania.
An acquisition, in relation to shares or assets, refers to obtaining any legal or equitable interest in those shares or assets, either individually or jointly. However, acquisitions made solely through a charge (e.g., as security for a loan) are excluded from this definition. Notably, the law considers an acquisition as a form of merger.
CHANGE OF CONTROL
A key element of a merger is the change of control. Although the Competition Act does not provide a specific definition, Tanzanian case law has clarified that change of control involves:
- Material influence: The ability of the acquiring firm to significantly affect the business policy and operations of the target company.
- Decisive influence: The power to determine the strategic direction of the company, which may arise through ownership of assets, shares, or voting rights.
MERGER NOTIFICATION REQUIREMENTS
Threshold for Notification
Mergers must be notified to the FCC if they meet the financial threshold outlined in Section 11(2) of the Competition Act. The current threshold, as specified by the Competition Threshold Order, is Tanzanian Shillings Three Billion Five Hundred Million (TZS 3,500,000,000).
The threshold calculation is based on the combined market value of the assets or turnover of the merging entities. This means that even acquisitions involving non-controlling minority shares require notification if the threshold is met.
Notification Procedure
The notification process is governed by the Fair Competition Act and Competition Rules and involves the following steps:
- Filing a Notification: Submit a formal notification of the proposed merger to the FCC.
- Review of Filing: Within 5 days, the FCC will confirm whether the filing is complete or incomplete.
- Initial Assessment: If the filing is complete, the FCC has 14 days to determine whether the merger requires further examination. If no further review is needed, the merger is deemed approved.
- In-Depth Investigation: If further examination is required, the FCC may prohibit the transaction for up to 90 days, extendable by an additional 30 days.
- Final Decision: Upon completing its investigation, the FCC may:
- Approve the merger;
- Approve with conditions; or
- Prohibit the merger.
Prohibition of a Merger
A merger may be prohibited if it creates or strengthens a position of dominance in the market, as outlined in Section 11(1) of the Fair Competition Act.
A position of dominance is defined as the ability of a company to:
- Profitably and significantly restrain or reduce competition for a substantial period; and
- Hold more than 35% of the relevant market share.
Filing Fees
The fees for filing a merger notification are based on the combined annual turnover or asset value of the merging parties, using the most recent audited financial statements. The fees range from Tanzanian Shillings Twenty-Five Million (TZS 25,000,000) to Tanzanian Shillings One Hundred Million (TZS 100,000,000), depending on the size of the transaction.
PENALTIES FOR NON-COMPLIANCE
Failure to comply with the Competition Act can result in severe penalties. The FCC may impose a fine of between 5% and 10% of the annual turnover derived from Mainland Tanzania.
If the offending party is a corporate entity, its directors, managers, or officers may also be held personally liable unless they can prove they were unaware of the violation or took all reasonable measures to prevent it.
CONCLUSION
Tanzania’s legal framework for mergers and acquisitions is comprehensive and mandates strict compliance with notification and approval procedures. Companies considering a merger or acquisition must ensure they meet the legal requirements to avoid substantial fines and legal repercussions. Adhering to the Fair Competition Act and related regulations is essential for a smooth and legally sound transaction.
Further Information:
This editorial is intended to give you a general overview of the Law. If you would like further information and clarification on any issue raised in this editorial, please contact.
Patrick Sanga
Partner
E: p.sanga@vemmaattorneys.co.tz
Bernard Nkwabi
Senior Associate
E: b.nkwabi@vemmaattorneys.co.tz