Yes. Mergers are regulated in Pakistan under the Competition Act 2010 (“Competition Act”) read with the Competition (Merger Control) Regulations 2016 (“Merger Regulations”).

The relevant regulatory authority in relation to control of mergers in Pakistan is the Competition Commission of Pakistan (“CCP”).

N/A

Yes. Pursuant to Section 11 (3) of the Competition Act read with the Merger Regulations, a pre-merger application is required to be filed with the CCP subject to the merger parties meeting the pre-merger notification thresholds prescribed in the Merger Regulations (detailed in the response to Q.8 below).

Section 11(2) of the Competition Act (the Competition Act) requires clearance to be sought from the Competition Commission of Pakistan (CCP) where an undertaking intends to acquire the shares or assets of another undertaking, or two or more undertakings intend to merger the whole or part of their business, and meet the pre-merger thresholds prescribed under the Competition (Merger Control) Regulations, 2016 (the Merger Regulations).

The Competition Act applies to undertaking across the world and to all actions and matters that take place in Pakistan and distort competition in Pakistan. Therefore, clearance is not required to be sought in respect of an acquisition or merger which meets the pre-merger thresholds but to which the Competition Act does not apply.

The term “merger” is defined as “the merger, acquisition, amalgamation, combination or joining of two or more undertakings or part thereof into an existing undertaking or to form a new undertaking”; and the expression "merge" means “to merge, acquire, amalgamate, combine or join, as the context may require.” Further the term “acquisition” has been defined as “any change of control of any undertaking by way of acquisition of shares, assets or any other means.”

Regulation 3 of the Merger Regulations prescribes the following non-exhaustive list of activities which are deemed to be mergers:

1. two or more undertakings, previously independent of one another, merge to form a new undertaking and cease to exist as separate legal entities; or
2. one undertaking is absorbed by another with the latter retaining its legal entity and former ceasing to exist; or
3. one or more undertakings which acquire direct or indirect control of the whole or part of one or more other undertakings; or
4. the result of an acquisition by one undertaking of the assets or shares or a substantial part of the assets or shares of another undertaking, is to place the former undertaking in a position to replace or substantially replace the latter undertaking in the business or, as appropriate, the part concerned of the business in which the latter undertaking was engaged immediately before the acquisition; or
5. a collaborative arrangement by which two or more undertakings devote their resources to pursue a common objective; provided that such arrangement must be: (i) subject to joint control; (ii) to perform the functions independently; and (iii) on a lasting basis.

Exemptions:

Regulation 5 of the Merger Regulations specifies a list of transactions that are exempt from filing, including, inter alia, the following:

1. A transaction in which a holding company (whether incorporated in or outside Pakistan) increases its stake in its subsidiary or the subsidiaries thereof (whether incorporated in or outside Pakistan), or if such subsidiary(ies) acquire or increase their equity investment in each other.
2. A transaction in which a holding company (whether incorporated in our outside Pakistan), merges, amalgamates, combines or ventures jointly with its subsidiary or the subsidiaries thereof (whether incorporated in or outside Pakistan) merge, amalgamate, combine or venture jointly with each other.
3. A transaction in which a bank or an insurance company or an investment company deals in trading of shares for its own account for the purpose of earning dividend income and capital gains and not with the intention of acquiring controlling interest in the investee company.
4. Where an undertaking, the normal market activities of which include the carrying out of transactions and dealings in securities for its own account or for the account of others, acquires securities of another undertaking and sells back the acquired securities on pre-determined price within a period of six (6) months from the date of such acquisition.
5. Real property or goods acquired in the ordinary course of business if the person who intends to acquire the assets will not, as a result of the acquisition, hold all or substantially all of the assets of a business or of an operating segment of the business.

The exempted transactions may still be subject to a substantive review if deemed appropriate by the CCP.

Clearance will be required if the minority investment leads to a change of control, meets the pre merger thresholds and is one to which the Competition Act applies. Control, in relation to an undertaking, may exist if, by reason of securities (being not less than 10% of their market value), contracts or any other means, or any combination of them influence is capable of being exercised with regard to the activities of the undertaking and in particular by:

1. ownership of, or the right to use all or part of the assets of an undertaking; or
2. rights or contracts which enable decisive influence to be exercised with regard to the composition, voting or decisions of the organs of the undertaking.

While there is no specific local effects test, the Competition Act applies to undertaking across the world and to all actions and matters that take place in Pakistan and distort competition in Pakistan. Therefore, clearance is not required to be sought in respect of an acquisition or merger which meets the pre-merger thresholds but to which the Competition Act does not apply.

If a foreign-to-foreign transaction has an indirect effect on competition in Pakistan or results in a change in control of an undertaking in Pakistan, such transaction, if it meets the relevant thresholds, will be subject to the requirement for pre-merger clearance.

The merger parties (excluding asset management companies) are not required to obtain pre-merger clearance unless:

1. worldwide assets of either the acquirer, seller or the target (excluding the value of goodwill) is at least PKR 300 million or combined worldwide assets of acquirer, seller plus target is at least PKR 1 billion; OR  worldwide annual turnover of either the acquirer, seller or the target is at least PKR 500 million  or combined worldwide turnover of the acquirer, seller plus target  is at least PKR 1 billion;

AND

2. value of shares or assets subject to the acquisition is at least PKR 100 million; OR (in case of an acquisition of shares) the acquirer acquires voting shares, which taken together with voting shares (if any) held by the acquirer, shall entitle the acquirer to more than 10% voting shares.

The Merger Regulations separately provide thresholds that apply to transactions involving asset management companies (AMCs):

1. in the case of an AMC carrying out asset management services, its collective exposure for itself and in all of its collective investment schemes in a single entity is more than 25% of total voting rights; OR  the value of total assets under management of an AMC is at least PKR 1 billion;

AND

2. value of shares or assets subject to the acquisition is at least PKR 100 million; OR (in case of an acquisition of shares) the acquirer acquires voting shares, which taken together with voting shares (if any) held by the acquirer, shall entitle the acquirer to more than 10% voting shares.

The filing is mandatory subject to the merger parties meeting the prescribed thresholds.

The requirement to file a pre-merger application is triggered as soon as the concerned undertakings agree in principle or sign a non-binding letter of intent to proceed with the intended merger. The concerned undertakings are additionally requried to submit with the CCP a prior notice of intention with respect to the intended merger.

Pakistan has a suspensory regime i.e. the merger parties cannot proceed with the merger or acquisition unless clearance is obtained from the CCP.

The notice of intention to merge is in the form of a letter addressed to the CCP. In addition, the CCP has prescribed two (2) forms i.e. a short form and a long form, either of which (as applicable) is required to be submitted along with supporting documentation set out in each form. While the long form generally pertains to all sorts of transactions, the short form specifically concerns acquisition of shares on the capital markets, conglomerate mergers, or group re-structuring. In the event the applicant(s) wish for any information set forth in the form to be treated as confidential, they may notify the CCP of the same in the prescribed manner.

Yes. A pre-merger application is subject to payment of the following processing fee based on the turn over of the merger parties:

• PKR 300,000 where the turn over is up to PKR 500 million;         
• PKR 600,000 where the turn over is more than PKR 500 million but does not exceed PKR 750 million;
• PKR 750,000 where the turn over is more than PKR 750 million but does not exceed PKR 1 billion;
• PKR 1,050,000 where the turn over is more than PKR 1 billion but does not exceed PKR 5 billion;
• PKR 1,500,000 where the turn over is more than PKR 5000 million but does not exceed PKR 10,000 million; and
• PKR 2,250,000 where the turn over exceeds PKR 10,000 million.

In the event the application is being made by an asset management company, the processing fee will depend on the value of assets under the management of the concerned undertakings as set out hereinbelow:

• PKR 300,000 where the value of assets is up to PKR 5 billion;
• PKR 600,000 where the value of assets is more than PKR 5 billion but does not exceed PKR 7.5 billion;
• PKR 750,000 where the value of assets is more than PKR  7.5 billion but does not exceed 10  billion;
• PKR 1,050,000 where the value of assets is more than PKR 10 billion but does not exceed PKR 50 billion;
• PKR 1,500,000 where the value of assets is more than PKR 50 billion but does not exceed PKR 100 billion; and
• PKR 2,250,000 where the value of assets exceeds PKR 100 billion.

The pre-merger application, once duly filed, may undergo two (2) phases of review: (i) first phase review; and (ii) second phase review.

1. First Phase Review: As part of the first phase review, the CCP carries out a preliminary assessment as to whether:
   1. the application meets the relevant filing requirements;
   2. the transaction falls within the meaning of “merger” as defined in the Competition Act; and
   3. the merger meets the prescribed pre-merger notification thresholds and relevent requirements relating to presumption of dominance as determined under the Competition Act;

The first phase review entails a quick reveiw whereby the CCP allows merger situations that clearly do not raise competition concerns to proceed without delay. Within thirty (30) working days of receipt of the duly completed application (after rectification of any objections raised by the CCP), if the application meets the aforsaid criteria at the satisfaction of the CCP, a favorable decision is issued by the CCP allowing the merger.

2. Second Phase Review: In the event the CCP is unable to conclude in the first phase review that the merger does not raise competition concerns, a more detailed assessment is carried out by way of a second phase review, whereby the merger parties may be required to provide such further information as the CCP considers necessary.

Within ninety (90) working days of the receipt of the foregoing information, the CCP makes an order either allowing or rejecting the merger, failing which it is deemed that the CCP has no objection to the merger.

The CCP must find that the intended merger does not substantially lessen competition by creating or strengthening a dominant position in the relevant market. When determining whether there has been a substantial lessening of competition, the CCP may take into account any factor that is relevant to competition in that market, including but not limited to:

(a) the actual and potential level of import competition in the market;

(b) the ease of entry into the market, including tariff and regulatory barriers;

(c) the level and trends of concentration, and history of collusion, in the market;

(d) the degree of countervailing power in the market;

(e) the dynamic characteristics of the market, including growth, innovation, and product differentiation;

(f) the nature and extent of vertical integration in the market;

(g) whether the business or part of the business of a merger party or merger has failed or is likely to fail; and

(h) whether the merger situation will result in the removal of an effective competitor.

The CCP is empowered to pronounce the following decisions on conclusion of the first phase review:

1. unconditional approval of the intended merger;
2. approval of the intended merger subject to specified conditions; or
3. initiation of a second phase review.

On completion of the second phase review, the CCP may:

1. authorize the intended merger with or without conditions;
2. prohibit consummation of the intended merger; or
3. approve the intended merger on the condition that the concerned undertakings enter into contracts specified by the CCP.

Yes. Section 11 (10) of the Competition Act read with Regulation 15 of the Merger Regulations, entitles the applicant of a pre-merger application, upon conclusion of the second phase review, to remedy any competition concerns raised by the CCP by establishing that the intended merger:

1. contributes substantially to the efficiency of the production or distribution of goods or to the provision of services;
2. such efficiency could not reasonably have been achieved by a less restrictive means of competition;
3. the benefits of such efficiency clearly outweigh the adverse effect of the absence or lessening of competition; or
4. it is the least anti-competitive option for the failing undertaking‘s assets, when one of the undertakings is faced with actual or imminent financial failure.

1. Failure to notify: In the event an undertaking fails to notify the CCP of an intended merger, the CCP may (i) undo or prohibit the intended merger; and/or (ii) order the undertaking to pay by way of penalty such sum as may be specified in the order. In addition, the CCP may impose fines set out in the paragraph below.
2. Failure to provide complete/ accurate information: If an undertaking has, inter alia, furnished any information or made any statement to the CCP which such undertaking knows or has reason to believe to be false or found by the CCP to be inaccurate, the CCP may impose penalties on such undertaking (including its director, officer or employee) up to an amount not exceeding PKR 75 million or an amount not exceeding ten percent (10%) of the annual turnover of the undertaking. Moreover, if the CCP determines that the merger approval was based on false or misleading information, it may undo the merger or prescribe modifications or additions to the original order.

Implementation prior to the clearance: If the parties to an intended merger have consummated a merger prior to obtaining the clearance or during the pendency of the clearance, the CCP may undo or prohibit the merger, but only as a conclusion of a second-phase review. The CCP also has the power to impose fines (of amounts stipulated in paragraph (b) of the response immediately above).

Implementation of a prohibited merger: Parties found to be involved in a prohibited merger will be subject to the penalties set out in the response to Q.18 above. In addition, the Competition Act provides that if a party violates an order of the CCP and the violation is a continuing one, the CCP may direct the undertaking guilty of such violation to pay by way of penalty a further sum which may extend to PKR 1 million for every day after the first violation. Moreover, failure to comply with an order of the CCP constitutes a criminal offense under the Competition Act punishable with imprisonment for a term which may extend to one year or a fine which may extend to PKR 25 million and the CCP may also initiate proceedings in a court of competent jurisdiction against the concerned undertaking.

No. The Competition Act does not authorize the CCP to review transactions and challenge mergers that fall below the prescribed pre-merger notification thresholds.

Pursuant to Section 11 (12) of the Competition Act, if the CCP identifies any unnotified transactions, it may make an appropriate order against the concerned undertakings (including the imposition of sanctions set out in paragraph (a) of the response to Q.18 above), provided that such undertakings are given a prior opportunity of being heard.

Further, Regulation 14 of the Merger Regulations prescribes the procedure that the CCP is required to comply with for initiating proceedings against the mergers implemented without clearance that substantially lessen competition by creating or strengthening a dominant position in the relevant market. The CCP may issue an order (imposing the sanctions described in the response to Q.18 above) against the undertakings that are parties to the foregoing merger after giving such undertakings an opportunity of being heard by issuing a notice specifying its intention to make such order and the reasons as to why such undertakings appear to be in contravention of the Competition Act and the Merger Regulations. The CCP is further empowered to issue an interim order against the concerned undertakings directing them to do or refrain from doing any act specified in such order until the issuance of the final order.

The CCP has been exceptionally active in enforcement of the provisions of the Competition Act since its promulgation in 2010. For instance, penalties of billions of PKR have been imposed by the CCP over the past decade on entities relating to numerous sectors including finance, automobile, cement, poultry and edible oil, for breach of various provisions of the Competition Act, particularly for abuse of dominant position in terms of Section 3 of the Competition Act.

With regard to regulation of unnotified mergers, there have only been a few instances where the CCP has, on its own motion, initiated proceedings against such mergers in Pakistan. Further, while the Competition Act provides for the reference of a pre-merger application to a second-phase review, the majority of the applications (in practice), are approved by the CCP in the first phase review.

Occasionally, the CCP issues show-cause notices to merger parties not meeting the prescribed thresholds directing them to furnish information including reasons for not obtaining pre-merger clearance.

Considering the prevalent COVID crisis, the CCP has recently launched online portals for processing pre-merger applications and relevant systems for conducting online hearings to facilitate local and foreign investors. Furthermore, the CCP is contemplating making the prescribed pre-merger application forms available in languages besides English and Urdu. 

The parties to an intended merger may also be required to procure sector-based approvals of relevant authorities under various laws of Pakistan depending on the nature of the transaction. Such laws include, inter alia, the Foreign Exchange Regulation Act 1947, the Companies Act 2017, the  Securities Act 2015, the Banking Companies Ordinance 1962, the Insurance Ordinance 2000 and Listing Regulations of the Pakistan Stock Exchange.