The applicable Tanzanian laws and regulations governing mergers and acquisitions include the Companies Act 2002, the Income Tax Act 2004, the Employment and Labour Relations Act 2004, and the Fair Competition Act 2003—which is supplemented by the Fair Competition Rules 2010—as well as, sectoral legislation, such as, the Energy and Water Utilities Regulatory Authority Act 2001 and the Tanzania Communications Regulatory Authority 2003.
For companies whose shares are traded publicly on the Dar es Salaam Stock Exchange, the Capital Markets and Securities (Substantial Acquisitions, Takeovers and Mergers) Regulations 2006 govern tender offers, proxy statements and rules of disclosure, among other matters.
Business combinations may be structured in a variety of ways for legal, taxation and other reasons, which include sale and purchases of shares and assets, tender offerings, or mergers, though other methods can also be used. For instance, in the case of public companies combinations may involve a two-step process that starts with a tender offering (either for shares, bonds or a combination of both) followed by a real merger.
Developments in Tanzania’s corporate and takeover law have essentially entailed mergers, and shares and asset purchases. Unless the articles of association stipulate otherwise, a merger decision must be approved by a majority vote of shareholders of each company.
In the case of share and asset purchases, again, unless the articles of association state differently, the acquisition of a company, regardless of whether it’s structured as a share or an asset purchase, normally requires the sanction of a majority of the directors of the acquiring company. Conversely, the sale of a company, if it represents all or considerably all of the assets of the vendor, generally requires approvals by a majority of the directors and shareholders, with the right to vote, of the selling company.
Due to national security and national interest concerns, there are restrictions to foreign participation in some sectors of the economy. For example, in the maritime sector, a shipping agency license is granted to a citizen of Tanzania or a company incorporated in Tanzania in which more than 50 percent of the share capital is held by a Tanzanian.
Parties in a merger or acquisition deal to comply with the Companies Act 2002. This Act enables parties to effect registration of share transfers and contains disclosure requirements for offering documents issued by public companies. Acquisitions and mergers involving publicly listed companies must comply with the Capital Markets and Securities (Substantial Acquisitions, Takeovers and Mergers) Regulations 2006, which apply to acquisitions of an interest of between 20 and 75 percent in public or listed companies and to mergers meeting such thresholds.
The acquisition of an interest of more than 90 percent sets in motion the compulsory takeover and delisting provisions of the Regulations, which require the acquirer to either give a mandatory public takeover offer to all shareholders of the target or disinvest via an offer for sale or by a new issue of capital to the public so as to fall below the threshold.
Sectoral laws and regulations require parties in a proposed merger or acquisition to obtain the consent of the pertinent regulatory body if the proposed transaction involves a change in the ownership of the license. For example, the consent of the Tanzania Communications Regulatory Authority is required in a transfer of a telecom license.
Further, under the Employment and Labour Relations Act 2004, trade unions and employees must be notified about a merger or acquisition transaction even though they cannot stop it from taking place. Taxation is another key component of any merger or acquisition deal structuring and the implications of the Income Tax Act 2004 thereon will be discussed in next week’s article.
Within the competition regime established by the Fair Competition Act 2003, mergers or acquisitions that result in a change of control of a business, part of a business or an asset in Tanzania, and involve a turnover or assets in excess of TZS 3.5 billion are scrutinized by the Fair Competition Commission (FCC).
The FCC may prohibit outright, or propose changes to, a merger that creates or strengthens a position of dominance in a market. However, the law does not prohibit, as a matter of course, all positions of dominance but only those whose effects may harm competition. Positions of dominance with restrictive effects on competition may be exempted by the FCC if the effects of the dominance will contribute to greater efficiency in production or distribution, promote technical and economic progress, and protect the environment and the merger.