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COMESA: Competition Commission partially prohibits AkzoNobel’s acquisition of Kansai Plascon

4 September 2023
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Overview

  • The COMESA Competition Commission (CCC) has prohibited AkzoNobel’s acquisition of the decorative coatings business of Kansai in eSwatini, Zambia and Zimbabwe.
  • The prohibition was purely on competition law grounds and marks the first time that the CCC has prohibited a transaction since it became operational in March 2013.
  • In its assessment of the merger, the CCC identified horizontal overlaps in the market for the manufacture and supply of industrial coatings and decorative paints.

The COMESA Competition Commission (CCC) has prohibited Amsterdam-based AkzoNobel N.V.’s (AkzoNobel’s) acquisition of the decorative coatings business of Kansai Plascon Africa Ltd (Kansai) in eSwatini, Zambia, and Zimbabwe. The merger was prohibited purely on competition law grounds and is the first merger to be prohibited by the CCC since it became operational in 2013.

As regional regulator of competition law in the COMESA Common Market, the CCC was notified during November 2022 of the proposed acquisition by AkzoNobel of control over Kansai, which is incorporated in South Africa and Plascon East Africa (Pty) Ltd, which incorporated in Mauritius. Both merging parties have significant business operations in the Common Market.

COMESA comprises Burundi, Comoros, Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Eswatini, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Somalia, Sudan, Tunisia, Uganda, Zambia and Zimbabwe.

In its assessment of the merger, the CCC identified horizontal overlaps in the market for the manufacture and supply of industrial coatings, and the market for the manufacture and supply of decorative coatings.

In relation to industrial coatings, the CCC concluded that the merger would not result in a substantial lessening of competition in the Common Market, and a combination of business activities by the merging parties in these markets was unconditionally approved. However, in relation to decorative coatings, the CCC’s investigation revealed major competition and public interest concerns, resulting in a conditional approval in respect of some activities, and a prohibition in respect of others.

The CCC found that in the market for decorative paints, the merger would result in a combination of two of the strongest paint brands (Plascon and Dulux) in the Common Market, with no effective competitor to counter any exercise of undue market power/ unilateral conduct. As each other’s closest substitutes, the CCC found that the competitive pressure that existed between AkzoNobel and Kansai pre-merger, would be lost post-merger.

To remedy these concerns, the merging parties tendered a number of commitments, including a divestiture of certain of its brands. The CCC however, found that the remedies offered by the parties would not sufficiently address the loss in competition that would result in eSwatini, Zambia and Zimbabwe – and in respect of these three countries, the CCC outrightly prohibited the merger.

In relation to the East Africa region, the CCC approved the merger subject to the parties divesting of AkzoNobel’s Sadolin paint brand to an independent/ third-party competitor based in Uganda. The divestiture would take the form of a perpetual royalty-free licence to manufacture and supply Sadolin branded paint in Burundi, Kenya, Rwanda and Uganda. However, an obligation is placed on the merging parties to ensure that the divestiture be notified to the CCC within six months from the date of merger approval, failing which this aspect of the merger will also be prohibited.

In Malawi, stakeholders submitted concerns that the merger would result in the potential closure of a manufacturing plant, resulting in job losses. Given its statutory powers to consider the effect of a merger on employment, the CCC approved the merger in Malawi on condition that the merging parties commit to continue production at the Malawi manufacturing plant for a period of three years from the date of approval of the merger.

The timing of the CCC’s decision to partially prohibit this merger is curious, particularly as it is currently being heard by the South African Competition Tribunal (following the South African Competition Commission’s decision late last year to also prohibit the merger). The merger is also currently before the Namibian Competition Commission, which has yet to take a decision.