On 2 September 2023, the Common Market of Eastern and Southern Africa Competition Commission (the "COMESA Commission") issued its first ever merger prohibition after considering the proposed acquisition of the decorative paint business of Kansai Plascon East Africa Proprietary Limited and Kansai Plascon Africa Limited (collectively, "Kansai Plascon") by AkzoNobel N.V ("AkzoNobel").
Both AkzoNobel, the Dutch multinational, and Kansai Plascon, the Japanese-owned business, produce paint for consumer and industrial use across the globe, including many COMESA member states. In its assessment of the merger, the COMESA Commission considered both the decorative and industrial coatings markets. In relation to the industrial coatings market, the COMESA Commission determined that the proposed merger would not result in a significant market share increase of the merging parties and therefore the merger was approved in relation to the industrial coatings businesses of the parties.
However, in relation to the decorative coatings market, the COMESA Commission identified various competition issues arising from the proposed tie-up. The COMESA Commission was therefore only prepared to conditionally approve the transaction in some jurisdictions, but in others insisted upon an outright prohibition.
The Commission observed that the merging parties' brands (AkzoNobel's Dulux in the Southern Africa region and its Sadolin brand in the Eastern Africa region) are constantly recognised as premium paints by consumers and therefore the proposed transaction would result in the creation and/or strengthening of market power of the merging parties. The COMESA Commission observed that the merging parties are the two strongest paint brands in the Common Market and would be able to act unilaterally without any significant constraints from competitors in the market. Moreover, there would be no effective substitutes for consumers or retailers to turn to if the merged firm were to engage in abusive conduct in the Common Market.
The COMESA Commission considered some of the remedies offered by the merging parties to be effective, such as the divestiture of the Sadolin brand in Uganda along with the granting of royalty-free licencing rights in certain neighbouring territories.
Notably, with regard to Malawi, the COMESA Commission highlighted that part of its mandate includes the consideration of potential job losses that might arise as a result of a merger. The merging parties therefore also agreed to not close the Kansai Plascon manufacturing plant in Malawi for a period of three years.
However, when it came to the Southern Africa region (specifically Eswatini, Zambia and Zimbabwe), the COMESA Commission considered the remedies offered by the merging parties to be ineffective at addressing the substantial lessening of competition that would arise as a result of the merger. The COMESA Commission therefore prohibited the merger in respect of the decorative coatings markets in Eswatini, Zambia and Zimbabwe.
The COMESA Commission's decision to prohibit parts of the transaction is not necessarily out of line with the decisions of other regulators regarding the transaction. The proposed merger was prohibited by the South African Competition Commission in November 2022, although a reconsideration of that decision is currently being heard by the South African Competition Tribunal. However, this is the first time that the COMESA Commission has prohibited any transaction. Prior to this decision, the COMESA Commission had always been praised for its pragmatism, as reflected in its ability to negotiate creative remedies with merging parties.
Indeed, the COMESA Commission's usual approach is to consult with the merging parties to ensure equitable conditions are imposed on prospective mergers instead of outright prohibitions. It may be that in this transaction, there just was not a workable remedy available and not a move towards a stricter, less pragmatic approach to conditional merger approvals in the COMESA region.
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