Firm Jumps the Gun, Lands In Trouble With Competition Authority Over Unapproved Merger

Competition Authority Penalizes Asante Capital

The Competition Act No.12 of 2010, by the competition authority, provides that implementation of mergers should follow the necessary approvals, a breach of which attracts a hefty fine. Asante Capital EPZ Limited (Asante) is now at the mercy of the authority after being slapped with Ksh 549,019, following an unauthorized merger with Moringa Entities (Moringa SCA and Moringa Mauritius Africa).

Asante Capital EPZ is an agroforestry company located on the South coast Kenya engaging in the growing of eucalyptus, ginger and drumstick tree (moringa) and also processes tress and makes briquettes while Moringa entities invest in agroforestry businesses located in developing countries with the objective of scaling their social and environmental impact.

When these two parties settled for the idea of a merger, they sought clarification from the authority in terms of provisions regulating mergers and acquisition, which envisioned a series of payments to be made over a specified period, subject to certain performance metrics being achieved (tranches).

As per the Authority, the proposed acquisition of 44.2% shareholding in Asante by the Moringa entities would not lead to the acquisition of control in Asante and, therefore did not require prior authorization by the Authority (first tranche). A year later the parties wrote to the Authority in regard to the third payment of investment, indicating that the second payment of investments had already been actualized. But according to the authority, the second tranche was a notifiable transaction as Moringa Entities’ stake in Asante had resulted in a change of control and therefore qualified as a merger as per Section 2 and 41 of the Act, and contrary to the provisions of section 42(2) of the Act.

Although Competition Authority recognized that the parties self-reported and their desire to settle the matter administratively, but the administrative penalties take into account deterrence and proportionality of the infringement as guided by the Fining and Settlement Guidelines. Nature of the infringement cooperation by the parties, the possible effect of the transaction on competition, and public
interest considerations such as employment, were among other factors considered when administering the penalty.

Asante capital has now been ordered to initiate steps to regularize the transaction.