The Tanzanian Fair Competition Commission has threatened to withdraw its approval of East African Breweries Limited’s (EABL) merger with Serengeti Breweries Limited (SBL) due to an alleged breach of the conditions for the approval that growth in the acquired business be achieved.
It is worrying to think that a regulator would look to unwind a merger five years after approval on the basis that the business is not growing sufficiently.
Merger approval ought to provide certainty to businesses and, unless there is evidence that the regulator has been misled in granting the approval, it should not second-guess whether a merger turned out to be successful or whether the business is being run effectively.
Parties embark on a merger based on expected returns and growth prospects, but sometime facts and circumstances conspire against the firm and the rationale for the transaction is not fully met. That should not be grounds for unwinding a merger. If a business is less successful, that gives opportunities to competitors to grow in or enter the market or leads to further acquisition by those who might do better with the assets in question.
In this instance, upon acquiring its stake in SBL, EABL did not have a presence in Tanzania, so there should be no question of it deliberately impeding SBL’s growth in favour of another entity. Indeed even if the merger was horizontal (ie EABL had an existing presence in the Tanzanian beer market) a regulator ought to assess the merger based on the notion that competition between the two firms is removed.
It is not clear whether the merger was approved based on an express condition that growth be achieved or if the regulator believes disclosing the rationale for the acquisition is tantamount to an undertaking to meet the rationale. Either way, such action does not bode well for regulatory certainty.