•The deal has been approved on condition that the acquirer retains all the target’s 4,478 employees on terms that are no less favorable than their current terms.
•Nava Apparels L.L.C-FZ is a limited liability company involved in the manufacture of clothing apparel for export to the US, Canada, and Europe.
The Competition Authority of Kenya has approved the proposed acquisition of the entire assets of Mombasa Apparel (EPZ) by Nava Apparels L.L.C-FZ, in the latest mergers and acquisitions in the Kenya.
However, the deal has been approved on condition that the acquirer retains all the target’s 4,478 employees on terms that are no less favorable than their current terms of employment, subject to the individual employees accepting the acquirer’s retention of employment.
The approval, the competition watchdog said, has been granted based on the finding that the transaction is unlikely to negatively impact competition in the market for the manufacture of clothing apparel for export, a key consideration during merger analysis.
Dubai registered Nava Apparels L.L.C-FZ is a limited liability company involved in the manufacture of clothing apparel for export to the US, Canada, and Europe.
However, it does not have operations in Kenya.
Mombasa Apparel (EPZ) Limited is a limited liability company in Kenya, an apparel manufacturing company whose market is the United Arab Emirates and the US.
It does not sell its products in Kenya, nor have local subsidiaries.
The proposed transaction involves the acquisition of assets of Mombasa Apparel (EPZ) by Nava Apparels L.L.C-FZ.
The transaction therefore, qualified as a merger within the meaning of Section 2 and 41 of the Competition Act No. 12 of 2010.
The Act stipulates that a merger, or takeover, may occur when an undertaking directly or indirectly acquires control over another business within Kenya.
This may happen through, among others, purchase or lease of shares, exchange of shares, vertical integration.
Further, merging parties whose combined turnover or assets, whichever is higher, is over Sh1 billion are required to seek approval from the authority prior to implementing the proposed transaction.
“The transaction between Nava Apparels L.L.C-FZ and Mombasa Apparel (EPZ) met this threshold for mandatory notification and full analysis as provided in the Competition (General) Rules, 2019,” CAK said in its decision.
During merger analysis, and in order to determine the impact that a transaction will have on competition, the authority identifies the relevant product market as well as the relevant geographic market.
The relevant product market comprises products orservices that are interchangeable or substitutable by the consumer due to their characteristics, prices and or intended use.
Based on this criteria, the relevant product market for the proposed transaction is the market for the manufacture of clothing apparel for export.
Determination of the relevant geographic market involves interrogating the area in which merging parties undertake the business and in which competition conditions are sufficiently similar.
“With regard to the proposed transaction, the manufacture of clothing apparel for export is done throughout the country. Therefore, the authority determined that the relevant geographical market for the proposed transaction is national,” CAK said.
The textiles and apparel sector is the third largest foreign exchange earner in Kenya.
The apparel sector has a three-tiered structure: in the EPZ, there are approximately 36 large companies, and outside the EPZ there are over 170 medium and large companies and more than 70,000 micro and small ones.
Currently, there are seven operational export processing zones which include Athi River EPZ, Nairobi EPZ, Mombasa Port City EPZ, Kilifi EPZ, Malindi EPZ, Voi EPZ, and Kimwarer EPZ, with 36 registered apparel manufacturers in the EPZ zone in Kenya.
Exports to the USA account for the largest share of garment or apparel exported from the EPZ zones in Kenya, under the African Growth and Opportunity Act (AGOA).
One criteria of assessing a merger’s impact on competition is the post-merger market share of the undertakings involved in the transaction.
With regard to the proposed merger, post-merger, the merged entity’s market share will increase marginally to 3.83 per cent.
The parties face competition from other players controlling 96.17per cent of the market.
Premised on this, the proposed transaction is unlikely to lead to a substantial lessening of competition in the market for manufacture of clothing apparel for export, CAK noted.
During merger analysis, the Authority also considers the impact that a proposed transaction will have on public interest, in this case refers to various economically inclined concepts that, when considered, protect the welfare of the public.
In the Competition Act, some of the public interest considerations are the extent to which a proposed merger would impact employment opportunities, impact on competitiveness of SMEs, impact on particular industries or sectors and impact on the ability of national industries to compete in international markets.
Nava Apparels has committed to offer employment to all the employees of the Mombasa Apparel at the completion of the transaction.