Tribunal once again quashes Tanga Cement takeover deal

But working on a fresh application that was lodged only three months after the prohibition of the first one by the FCT, the FCC approved the acquisition of 68.33 percent of Tanga Cement Plc shares by Scancem International DA without conditions on February 28, 2023.

But Peter Hellar went to the FCT, protesting the FCC’s merger approval.

The respondents in the case were the FCC, Scancem International DA, Fayaz Bihojani, William Urio, and Hakan Gurdan.

After a protracted legal battle, the three FCT-member bench ruled: “We find it necessary that we rectify the mischief that is prevailing in our market by having two conflicting decisions of the same merger. We find it necessary, and we now nullify the decision of the 1st Respondent (FCC) dated February 28, 2023, in Merger Application No. CBC. 127/359/144,” reads the October 16, 2023, ruling by Judge Salma Maghimbi (the FCT chairperson), Dr Onesmo Kyauke (member) and Dr Godwill Wanga (member).

With two conflicting decisions, the FCT got advice from the Principal State Attorney representing the FCC in the case, Mr Deodatus Nyoni, that to remedy the situation, the Tribunal should nullify the decision of the FCC dated February 28, 2023, in the subsequent merger and grant a leave to the respondents to make an application for review of the decision of the Tribunal dated September 23, 2022.

“In our considered view, adoption of Mr Nyoni’s noble advice, painful as it sounds, will surely disentangle us from this controversy,” the FCT ruled.

It said it was not its intention to cause inconveniences or unnecessary delays to potential investors, adding that it was only acting in its capacity as a watchdog of competition and regulatory authority in pursuit of fulfilling the purpose of the FCA, which is to promote and protect effective competition in trade and commerce, to protect consumers from unfair and misleading market conduct, and other related matters.

“With that in mind, we do always make decisions that align with government policies that are meant to attract and retain both local and foreign direct investments and do away with bureaucratic attitudes that discourage potential investors. However, the rule of law should not be compromised for the sake of attracting investors,” the FCT ruled.

Having nullified the decision, the three-bench FCT panel noted that since their intention was not to clog investors and bar future endeavours, they found it just and fair to grant leave to the respondents or any of them, if they so wish, to move the FCT to review its decision in the previous merger dated September 23, 2022.

This, they ruled, should be based on the alleged change of the relevant market in a period beyond the set time of the year.

“The review (if any) may be lodged in the Tribunal within 21 days of the date of this ruling,” the FCT ruled.

In their argument, the FCT members cited the example of a 2019 merger application in South Africa involving Africa Forestry Fund 11 Limited (AFF), which sought to acquire Vuka Forestry Holding (Pty) Ltd and Glen Village Trading Co (Pty) Ltd.

The South African Fair Competition prohibited the merger on the ground that, at that time in 2019, its approval would not only result in a negative public interest outcome in the broader forestry industry in the Mpumalanga and Limpopo Regions but also because the combined market share of the acquiring group owned both MTO Forestry (Pty) Ltd and Peak Timber Plantation (PTP), which accounted for up to 45 percent of the supply of timber pole treatment facilities.

As such, in order to ameliorate the competition concerns identified in 2019 and in preparation for another attempt to acquire Vuka, the Acquiring Group sold its interest in PtP in 2020 and filed a fresh merger notification in September 2021, about two years later.

Without delving into the outcomes of the second application, the FCT members argued that what was important was to note that the second merger application was only made after two years, contrary to the one between Scancem International DA (Scancem), a subsidiary of Heidelberg Cement AG, which owns Tanzania Portland Cement Plc (Twiga Cement), and AfriSam Mauritius Investment Holdings Limited, owner of Tanga Cement, which came only three months after the FCT prohibited the first one.

“What we can gather from the example above is that in South Africa, when the Competition Commission prohibits a proposed merger, the applicant can still present a fresh merger notification provided there is evidence of substantial change in market dynamics or circumstances from the time the first notification was presented,” the FCT argued.

With a fresh merger notification taking two years to lodge after the prohibition of the first one, the FCT argued that the duration between one merger notification and another was important to avoid abuse of the notification process.

“In our considered view, the position of South Africa should also be adopted in Tanzania... Therefore, when a merger notification is prohibited by the Fair Competition Commission, the applicant should have a window within which she can still submit a fresh application, provided two conditions are met: Firstly, the applicant must show that there was a substantial change of circumstances or market dynamics. Secondly, the fresh application should be made after the lapse of a reasonable time,” the three FCT members urged.

The reasonable time in the Tanzanian context, the members say, could be a period of one year, based on their financial statements in line with the Public Audit Act [Cap. 418 R.E. 2021] and the Budget Act, 2015, Cap 439, among others.

“Having the above in mind, the Tribunal is setting a one-year duration as a reasonable period of time for a firm to make a fresh notification of a previously prohibited merger,” noting however that with no clear guidelines on the same in Tanzania, the Tribunal was not blaming the respondents for lodging a fresh merger notification before the expiry of one year after the prohibited proposed merger.