All you need to know about acquisitions and mergers

by Mmeeme Leticia Luweze
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To understand the legal framework surrounding mergers, acquisitions, or joint ventures, it is essential to familiarize yourself with the Competition Act of 2023 to avoid potential legal issues. The Competition Law, assented by H.E Yoweri Kaguta Museveni, addresses practices that could harm competition in Uganda’s market, including anti-competitive behaviour, agreements, abuse of dominant market positions, and the impacts of mergers, acquisitions, and joint ventures on competition.

While the act comprises several sections elaborating on its provisions, our focus today is primarily on section five, aptly titled Mergers, Acquisitions and Joint Ventures. This section encompasses three subsections, namely: Notice of Merger, Acquisition, and Joint Venture; Procedure for Inquiring into Mergers, Acquisitions, and Joint Ventures; and Findings and Orders of the Ministry upon Inquiry.

Mergers, acquisitions, and joint ventures are now subject to regulatory oversight to ensure fair competition and prevent adverse effects on markets. According to the Competition Act, any party intending to engage in such activities must provide notice to the Ministry in the prescribed manner and form. Failure to do so renders the merger, acquisition or joint venture void.

Upon receiving notice, the Ministry of Trade, Industry and Cooperatives conducts an inquiry within a specified timeframe to assess the potential impact on competition. This involves evaluating various factors, including market share, barriers to entry, and the likelihood of price increases. The Ministry may approve or reject the proposed transaction based on its findings.

Non-compliance with notification requirements is considered an offense, and individuals or entities may be subject to fines as a penalty. However, if the Ministry fails to communicate its decision within the specified timeframe, the transaction is automatically considered approved.

In the inquiry process, affected parties may submit written comments or objections, which the Ministry considers before deciding. If the Ministry concludes that the transaction will not harm competition, it approves it. Otherwise, it may propose conditions for approval. Parties have the opportunity to accept these conditions or propose modifications. Failure to reach an agreement within the stipulated timeframe results in the rejection of the transaction.

Ultimately, if the Ministry believes that a transaction will significantly harm competition, it can prohibit its implementation. These regulations aim to balance the interests of businesses with a broader goal of maintaining competitive markets for the benefit of consumers. Violations of the regulations, such as providing false information, carry significant penalties, including fines and imprisonment.

Steps and processes for business owners planning to merge companies:

Notice Requirement:

The act mandates that any person proposing a merger, acquisition, or joint venture must provide notice to the Ministry in the prescribed manner and form. Failure to do so renders the transaction void. The notice should be submitted after specific milestones, such as board approval for mergers or the conclusion of negotiations for acquisitions.

Void Transactions:

Transactions entered into without adhering to the notice requirement are deemed void.

Timing of Notice:

The timing for providing notice varies depending on the type of transaction

  • For proposed mergers or amalgamations, notice must be given after the respective board of directors or similar body has accepted the proposal.
  • For a proposed acquisition of control over another entity, notification should be provided after the finalization of negotiations regarding the agreement for acquiring control.
  • As for a joint venture, notification should be furnished following the formal execution of the joint venture agreement by all involved parties.

Inquiry Process:

Upon receiving notice, the Ministry is obligated to conduct an inquiry within a specified timeframe to assess the potential impact of the proposed transaction on competition.

This inquiry involves evaluating various factors, including market share, barriers to entry, and the likelihood of price increases. The Ministry may approve or reject the transaction based on its findings.

Notification Compliance:

Non-compliance with the notification requirements constitutes an offense, punishable by fines. However, the transaction is deemed approved if the Ministry fails to communicate its decision within the specified timeframe.

Submission of Comments or Objections:

During the inquiry process, affected parties may submit written comments or objections regarding the proposed transaction.

The Ministry considers these submissions before determining approval or rejection.

Approval Process:

If the Ministry concludes that the transaction will not harm competition, it approves it. Otherwise, it may propose conditions for approval.

Parties involved have the opportunity to accept these conditions or propose modifications. Failure to reach an agreement within the stipulated timeframe results in the rejection of the transaction.

Prohibition of Harmful Transactions:

If the Ministry believes that a transaction will significantly harm competition, it can prohibit its implementation.

Penalties for Violations:

Violations of the regulations, such as providing false information, carry significant penalties, including fines and imprisonment.

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