THE ORIGINS AND DEVELOPMENT OF COMPETITION LAW AND MERGERREGULATION IN ZIMBABWE

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The merger regulatory framework in Zimbabwe

The Competition Act27 is the principal merger regulating statute in Zimbabwe. The Act provides for substantive and procedural aspects of merger regulation in addition to establishing and constituting the Competition and Tariff Commission (CTC) as the principal competition and merger regulating authority.28 It is a combination of these aspects that determines the effectiveness of the Zimbabwean merger regulating system.
The research statement and objective The study primarily aims at analysing from a competition law perspective, the current regulatory framework for mergers and acquisitions in Zimbabwe. It aims to identify and highlight the shortcomings within the system and develop and suggest a model regulatory framework that is suitable for Zimbabwe in general and particularly in the context of the perennial harsh business operating environment in which corporate mergers and acquisitions are a critical component not only for corporate survival but also for socio-economic stability. The researcher primarily aims at assessing whether from a competition law perspective, the current state of merger regulation in Zimbabwe is adequately equipped to meet the demands of both promoting beneficial corporate restructurings implemented through mergers and acquisitions on the one hand and the promotion and maintenance of a competitive market structure on the other hand. The study will expose certain critical shortcomings within the current merger regulatory framework. It will then use established and developed comparative jurisdictions to adopt and adapt a model suitable and effective for selective and relevant aspects of merger regulation in Zimbabwe where the latter regime falls short.
The study will develop and suggest a regulatory model that is suitable to strike and maintain a balance between the promotion of beneficial corporate restructuring transactions implemented through mergers and acquisitions and the established principles of merger regulation aimed at protecting the competitive process so as to maintain the competitive structure of the market. 1.6 The significance and relevance of the study The significance of the study can be highlighted in the assumptions that can be made from the above exposition.
These relate to the general importance of competition in a market and the rationale behind merger regulation and the need to promote beneficial corporate restructurings implemented through corporate mergers and acquisitions in a crisis environment such as the perennial harsh business operating environment facing corporate entities in Zimbabwe. The study assumes that: (a) Competition is a necessary vehicle for achieving economic growth and development particularly in developing countries such as Zimbabwe; advances a broader socio- economic policy objective of the government and enhances the general welfare of citizens. (b) Corporate mergers and acquisitions are an essential tool for effecting corporate restructuring transactions that are necessary for (i) enhancing general efficiency in the market, (ii) enhancing economies of scale and scope; 29 (iii) ensuring business survival through consolidation that ensures profitability and viability especially in a harsh economic operating environment.
Corporate mergers and acquisitions can however also be potentially harmful to the competitive structure of the market thereby negating the gains of competition through the elimination of an effective competitor and reduction of market participants. In the process it can create dominant firms that have the capacity and potential to engage in anti-competitive practices that are detrimental to consumer welfare. (d) There is a need to regulate corporate mergers and acquisitions in order to ensure that competition in the market is protected and maintained for the good of the economy and the consuming public. (e) An effective merger regulatory framework is necessary to achieve and maintain a balance between the promotion of beneficial corporate restructurings transactions on one hand and the protection of the competitive process on the other hand through meeting the current demands of the competitive market as well as adjusting to any future changes in the business operating environment that necessitates mergers, particularly ‘rescue mergers.’

TABLE OF CONTENTS :

• Acknowledgements
• Table of Contents
• Abstract
• PART
• CHAPTER INTRODUCTION AND OVERVIEW OF THE STUDY
  • 1.1.Background to the study
  • 1.2.Why mergers and acquisitions
  • 1.3.Why regulate corporate mergers and acquisitions
  • 1.4.The research in context
  • 1.4.1. The merger regulatory framework in Zimbabwe
  • 1.5. The research statement and objectives of the study
  • 1.6. The significance of the study
  • 1.7. Definition of terms
  • 1.8. Thesis
  • 1.9. Methodology and approach
  • 1.9.1. The Choice of South Africa, the US and the EU
  • 1.9.2. South Africa
  • 1.9.3. The US
  • 1.9.4. The EU
  • 1.10. Limitations and delineation of the study
  • 1.11. The structure of the thesis
• CHAPTER THE ORIGINS AND DEVELOPMENT OF COMPETITION LAW AND MERGERREGULATION IN ZIMBABWE
  • 2.1. Introduction
  • 2.2. The evolution of competition law and policy in Zimbabwe: an overview
  • 2.3. Regulation of monopolies and economic activities: 1980 to
  • 2.3.1. Regulation of economic activities in the first decade of independence (19890 to 1990)
  • 2.3.2. Measures to regulate economic activities
  • 2.3.2.1. The creation of public enterprises
  • 2.3.2.2. Foreign exchange control
  • 2.3.2.3. Price controls
  • 2.3.2.4. Labour market regulations
  • 2.3.2.5. The implications of the economic regulatory measures: some comments
  • 2.4. Competition law and policy as part of economic reforms: ESAP and the idea of a competition system
  • 2.4.1. ESAP
  • 2.4.2. The competition implications of ESAP
  • 2.4.2.1. Trade liberalisation
  • 2.4.2.2. Domestic deregulation
  • 2.4.2.3. Labour market reforms
  • 2.4.2.4. Reform of the public enterprises
  • 2.4.2.5. ESAP and the development of a competition system: some general observations
  • 2.5. The IPC Study and the development of a competition system in Zimbabwe
  • 2.5.1. The IPC Study
  • 2.5.2. IPC Study findings
  • 2.5.2.1. Degree of concentration in the manufacturing sector
  • 2.5.2.2. Degree of concentration in the non-manufacturing sector
  • 2.5.2.3. Barriers to entry
  • 2.5.3. The IPC Study Recommendations
  • 2.5.3.1. The need for a competition regime in Zimbabwe
  • 2.5.3.2. The dimension of competition policy
  • 2.5.4. The implications of the IPC Study: Post-IPC Study and the evolution of a competition regime
  • 2.5.4.1. The Competition Council Committee of Zimbabwe
  • 2.5.4.2. The Monopolies Commission: the guiding principles
  • 2.5.4.3. The preliminary legislative phase
  • 2.5.4.4. The underlying principles of the draft legislation
  • 2.5.4.5. The consultative stage
  • 2.6. The current regulatory framework: The Competition Act of
  • 2.6.1. Introduction
  • 2.6.2. The main elements of the Competition Act
  • 2.6.2.1. Aims of the Act
  • 2.6.2.2. Application of the Act
  • 2.6.2.3. The prevention and control of monopoly situations
  • 2.6.2.4. Regulation of mergers and acquisitions
  • 2.6.2.5. Prevention and control of restrictive practices
  • 2.6.2.6. Institutional provisions
  • 2.6.2.7. Other matters regulated by the Competition Act
  • 2.7. Conclusion
• CHAPTER THE REGULATION OF CORPORATE MERGERS AND ACQUISITIONS IN ZIMBABWE
  • 3.1. Introduction
  • 3.2. The Competition Act: purpose and scope
  • 3.2.1. The Long Title and the objectives of the Act
  • 3.2.2. The purpose of the Act
  • 3.3. The Competition Act and merger regulation
  • 3.3.1. General
  • 3.3.1.1. The pre-notification requirement: procedure and formalities
• CHAPTER THE INTERPRETATION AND APPLICATION OF THE FAILING FIRM DOCTRINE IN ZIMBABWE
  • 4.1. Introduction
  • 4.2. The failing firm doctrine: a general overview
  • 4.3. The Act and the failing firm doctrine
  • 4.3.1. Statutory clarity
  • 4.3.2. Administrative guidelines
  • 4.4. The CTC approach to the failing firm doctrine: curing the statutory deficiencies?
  • 4.4.1. Rothmans of Pall Mall (Zimbabwe)/British American Tobacco (Zimbabwe): the lack of causality in failing firm doctrine
  • 4.4.1.2. The significance of BAT/Rothmans merger on the development of the failing firm doctrine in Zimbabwe
  • 4.4.2. Aykroyd Insurance Brokers/Hunt Adams and Associates
  • 4.4.3. National Insurance Company of Zimbabwe (Nicoz)/Diamond Insurance Company (Diamond): failing or ailing?
  • 4.4.3.1. The significance of the Nicoz/Diamond decision
  • 4.4.4. Zimboard Products/PG Bison Mauritius: the failing firm doctrine within the public interest realm
  • 4.4.5. Shashi Private Hospital/Premier Services Medical Investments (PSMI): saving an essential service provider
  • 4.4.5.1. Significance of the PSMI/Shashi decision
  • 4.4.6. Innscor Appliances Manufacturing/World Radio System Group (WRS)
  • 4.4.7. Preventing the exit of a major market player
  • 4.5. The CTC approach: curing the statutory deficiencies
  • 4.6. Conclusion
  • PART II
• CHAPTER MERGER REGULATION, PUBLIC INTEREST AND THE FAILING FIRM DOCTRINE: THE SOUTH AFRICAN EXPERIENCE
  • 5.1. Introduction
  • 5.2. The origins of a broad-based competition system in South Africa
  • 5.2.1. The roots of the Competition Act 89 of
  • 5.2.2. The shortcomings of previous competition legislation
  • 5.2.2.1. The Regulation of Monopolistic Conditions Act of
  • 5.2.2.2. The Maintenance and Promotion of Competition Act of
  • 5.2.3. The influence of policy considerations
  • 5.2.3.1. The ANC’s Reconstruction and Development Programme (RDC)
  • 5.2.3.2. The White Paper on Reconstruction and Development of
  • 5.2.3.3. The Growth, Employment and Redistribution Strategy (GEAR) of
  • 5.2.3.4. The Proposed Guidelines for Competition Policy of
  • 5.2.3.5. Some remarks
  • 5.3 Merger regulation under the Competition Act of
  • 5.3.1. General provisions relating to merger regulation
  • 5.3.2. Substantive issues
  • 5.3.2.1. Defining a merger
  • 5.3.3. Merger classification and related aspects
  • 5.3.4. The substantive assessment test for merger clearance
  • 5.3.4.1. The first leg: the ‘pure competition’ test
  • 5.3.4.2. The second leg: the efficiency and substantial benefit’ test
  • 5.3.4.3. The final leg: the public interest compatibility test
  • 5.4. Public interest provisions in merger assessment
  • 5.4.1. Public interest and procedural aspects of merger regulation: implications for failing firms
  • 5.4.2. Public interest, the substantive test and the failing firm doctrine
  • 5.4.2.1. The failing firm doctrine in South Africa
  • 5.4.2.2. The failing firm doctrine in practice
  • 5.4.2.2.1. Schuman Sasol/Price’s Daelite: laying the criteria
  • 5.4.2.2.2. Iscor/Saldanha Steel: the approach
  • 5.4.3. The impact of the substantive test on the failing firm doctrine in South Africa
  • 5.4.3.1. The South African approach and lessons for Zimbabwe
  • 5.5. Conclusion
• CHAPTER REGULATING MERGERS WITH FAILING FIRMS IN THE EU: LESSONS FOR ZIMBABWE
  • 6.1. Introduction
  • 6.2. The EU merger regulatory framework
  • 6.2.1. A general overview
  • 6.2.2.1. EU merger control under the EU Treaty
  • 6.2.2.2. The EU Treaty and merger control
  • 6.2.3. The EU and merger control regulations
  • 6.2.3.1. The Regulation 4064/
  • 6.2.3.2. The ECMR
  • 6.2.4. The Horizontal Merger Guidelines and the failing firm doctrine
  • 6.3. The criteria for a successful failing firm defence in the EU
  • 6.4. Application of the failing firm doctrine in the EU: some selected decisions
  • 6.4.1. Aerospatiale/Alenia/de Havilland: setting the tone for the failing firm defence in the EU
  • 6.4.2.1. Kali und Salz/MdK/Treuhand
  • 6.4.2.2. Kali und Salz: laying the criteria for the failing firm defence in the EU
  • 6.4.3.1. Saint Gobain/Wacker-Chemie/NOM
  • 6.4.3.2. Saint Gobain/Wacke-Chemie/NOM and the failing firm defence
  • 6.4.4.1. Bertelsmann/Kirch/Premiere: a ‘failing company’ or ‘failing division’
  • 6.4.4.2. Bertelsmann/Kirch/Premiere and the failing firm doctrine
  • 6.4.5.1. NewsCorp/Telepiu
  • 6.4.5.2. NewsCorp/Telepiu and the failing firm doctrine
  • 6.4.6. After the Commission’s Kali und Salz criteria: development of the failing firm doctrine in the EU
  • 6.4.6.1. France v Commission (the Kali und Salz appeal)
  • 6.4.6.2. BASF/Eurodiol/Pantochim: refining the Kali und Salz criteria
  • 6.4.6.3.1. The Ernst & Young France/Andersen France decision: not only an alternative purchaser but a competition enhancing one
  • 6.4.6.3.2. The rapid disintegration of Andersen’s network and the prospects of an alternative acquisition
  • 6.5. Using the EU approach to develop an effective regulatory framework for Zimbabwe
  • 6.6. Conclusion
• CHAPTER THE FAILING DIVISION DEFENCE: LESSONS FROM THE US
  • 7.1. Introduction
  • 7.2. The US merger regulatory framework
  • 7.2.1. The general overview of the US merger regulation
  • 7.3. Regulating mergers with failing firm divisions: section 7 of the Clayton Antitrust Act and the Horizontal Merger Guidelines
  • 7.3.1. Section 7 of the Clayton Antitrust Act
  • 7.3.2. The Horizontal Merger Guidelines and the failing division defence
  • 7.4. The US practice in applying the failing division defence
  • 7.4.1. Selected decisions on the failing firm defence
  • 7.4.1.2. International Shoe Co. v FTC and the birth of the failing firm defence
  • 7.4.1.3. Brown Shoe Co. v United States: failing business as a mitigating factor
  • 7.4.1.4. United States v General Dynamics Corp. and the reformulation of the failing firm defence
  • 7.4.2. Selected decisions on the failing division defence
  • 7.4.2.1. United States v Lever Brothers Co
  • 7.4.2.1.2. The significance of the Lever Brothers Co. to the failing division defence
  • 7.4.2.2. United States v. Reed Roller Bit Co
  • 7.4.2.2.1. The significance of the Reed Roller Bit Co: the Brown Shoe Co. ‘curse’
  • 7.4.2.3. Federal Trade Commission v Great Lakes Chemicals Corp
  • 7.4.2.3.1. Great Lakes Chemical Corp. approach and significance to the failing division defence
  • 7.5. Concluding remarks
• CHAPTER AN IDEAL MODEL FOR EFFECTIVE REGULATION OF CORPORATE MERGERS AND ACQUISITIONS IN ZIMBABWE: SUGGESTIONS AND RECOMMENDATIONS
  • 8.1. Introduction
  • 8.2. Shortcomings of the current merger regulatory framework
  • 8.2.1. An understated objective of the regulating statute
  • 8.2.2. Unclear definition of a merger
  • 8.2.3. The unclarified standard for merger assessment
  • 8.2.4. Undefined public interest concept
  • 8.2.5. The inadequate failing firm doctrine
  • 8.2.6. A screwed institutional arrangement
  • 8.3. Lessons from other jurisdictions: South Africa, the EU and the US
  • 8.3.1. The rationale for the comparative study
  • 8.3.2. The South African approach: lessons for Zimbabwe
  • 8.3.3. The EU approach and lessons for Zimbabwe
  • 8.3.4. The US approach to the failing division doctrine and lessons for Zimbabwe
  • 8.4. Towards an effective merger regulatory framework: suggestions and recommendations for a suitable model
  • 8.4.1. Rearranging the current merger provisions
  • 8.4.2. Restating the objectives of the Competition Act
  • 8.4.3. Redefining a merger and eliminating the artificial gap in the statutory definition
  • 8.4.4. Defining the public interest concept
  • 8.4.5. Clarifying the standard for merger assessment
  • 8.4.6. Promoting and maintaining a balance between beneficial corporate transactions and the protection of a competitive market structure
  • 8.4.7. Revamping the structure of the merger regulating authority
  • 8.5. Concluding remarks

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