Impact of Malawi's new competition law on mergers - Part 1

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Mandatory and suspensory merger notification

The Act applies to ‘all economic activities within, or having an effect on, Malawi’.

In respect of mergers, the Act states that ‘a merger occurs when one or more enterprises directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another undertaking...’ and that the Commission is empowered to ‘review and control mergers having an effect in, or into, Malawi’. Transactions that fall within the definition of a ‘merger’ shall ‘not be completed in Malawi unless the Commission grants a formal approval...’.

The Act provides examples of how a ‘merger’ may be achieved, which include ‘acquiring, by any means, the controlling interest in a foreign enterprise that has a controlling interest in a subsidiary in Malawi’. As such, the notification of indirect changes of control of Malawian entities is contemplated.

However, based on the scope of application of the Act and a plain reading of its sections, it is not clear whether mergers involving a target with sales into Malawi but no local presence can be excluded from notification, or whether such transactions may be regarded as have an ‘effect’ in Malawi, sufficient to trigger notification obligations.

Financial thresholds

Currently, there are no financial thresholds for mergers that are subject to mandatory notification. The Act contemplates that financial thresholds may be issued in future. For the time being, parties may apply to the Commission for negative clearance if there is uncertainty as to whether a transaction is notifiable.

The Act provides examples of mergers that are notifiable and includes transactions that are likely to result in ‘the acquisition of at least 40% share of any market or such other amount of the market that the Commission may prescribe’.

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Most major merger control regimes provide financial thresholds for merger notification, allowing for objectively clear criteria, while market share thresholds do not offer the same certainty. The Malawian regime may benefit from an appropriate financial threshold, so that parties falling below such thresholds may readily exclude notification obligations.

Other transactions that are subject to merger notification obligations, as set out in the Act, include transactions that are likely to result in ‘the acquisition of assets related to a relevant market or to the business of the acquiring firm' and 'a lasting change to the structure of, or have a substantial effect on commerce in, or a local nexus to the domestic market’.

Substantive assessment

When assessing mergers, the Commission is required to consider the effect of a merger on competition and must also assess whether the merger can or cannot be justified on substantial public interest grounds.

Concerning the public interest, the Act provides several factors for the Commission to assess, including the extent to which the proposed merger ‘would likely affect employment in a particular industry or sector’; ‘is likely to affect the ability of small businesses, or firms controlled or owned by historically disadvantaged persons to become competitive’; ‘would likely affect the ability of small enterprises to gain access to or to be competitive in any market’; and ‘would likely result in a more rapid rate of technological advancement by enterprises in Malawi’.

Merger review period

The Act envisages a 90-day merger review period, extendable by the Commission for a further 60 days. Although it is not clear from the Act, it appears that the reference to ‘days’ in this section of the Act may be Malawian business days, and not ordinary calendar days.

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Prior implementation of or failure to notify mergers

The Commission may impose an administrative order on parties for failure to notify, or for prior implementation of, a notifiable merger. The Commission may also, inter alia, apply to the Commercial Division of the High Court of Malawi for a cease and desist order or any other interim order prohibiting implementation of the merger prior to approval.

Notably, although the Act appears to contemplate the possibility of third-party damages being claimed for losses when certain provisions of the Act are contravened, including the merger control provisions, the Act does not specify financial penalties that may be imposed on parties for failure to notify or for prior implementation of a merger.

It appears from the Act that financial penalties are reserved for anti-competitive practices and unfair trading, as well as other general offences under the Act, such as knowingly furnishing false information to the Commission, or failing to attend or give evidence before the Commission ’in compliance with a summons issued under the Act.

In the Airtel judgment, where it was held the Commission was not empowered under the Repealed Act to impose financial penalties, the High Court noted that the draft new Competition Act clearly provided for financial penalties and urged the relevant authorities to expedite implementation of the new legislation. As such, the Commission was guided to ensure that it is sufficiently empowered to impose financial penalties for the types of conduct it intends to penalise.

The fact that the Act only provides for financial penalties in relation to anti-competitive conduct and unfair trading practices may indicate that the omission of financial penalties for merger contraventions was deliberate.