Real Estate, Construction and Hotels & Leisure Focus
Richard Cantin Head of Corporate Commercial - Morocco, Corporate Commercial
Here is a question that was included in the final exam of my Business Law class: An international hotel owning and management group (IHOMG)based in Europe (with a global turnover of EUR 250 million and EUR 5 million in annual turnover from Moroccan sources, through the operation of a riad and restaurant in Marrakech) has just signed a letter of intent with a Moroccan hotel owning company (currently generating MAD 250 million in annual turnover from its hotel and restaurant operations in Marrakech), pursuant to which the IHOMG will acquire, through a lease management contract entered into by its local subsidiary, the possibility to exert a determining influence over the Moroccan company’s hotel property and business for the next 10 years. [Note: A lease management contract allows a company to lease a property and business for a given period of time, during which the manager acts, for all legal purposes, as the owner of both the property and business.]
Which party(ies) to this transaction, if any, is(are) subject to an obligation to notify the Moroccan Competition Council? How did you make this determination? (40 points – max. 1,000 words)
The international hotel management company is under an obligation to notify the Moroccan Competition Council of a concentration under the Law (n° 104-12) on the Freedom of Prices and Competition (“Law”) prior to completing this transaction.
In order to make this determination, we must, first of all, determine if there is a notification requirement in this case. This determination can only be made by following a three-step process.
1. The first step is to confirm that Moroccan law applies to the parties to this transaction. The Law applies to all transactions that can have an impact on the Moroccan market (or a substantial part thereof). At this stage, it does not matter if the transaction will increase, promote or enhance competition (positive impact) or, rather, if it will restrict, hinder or impair competition (negative impact), or even if it will have any impact. All that matters is that it can have an impact.
Because of the heavy financial penalties and fines that can result from a failure to file (late penalties of up to 5% of the global average daily turnover per day once summoned to file and fines up to 5% of the annual national turnover), it is always safe to assume that a transaction involving parties active (directly or indirectly) on the Moroccan market can have an impact (through horizontal, vertical or conglomerate effects) on the Moroccan market concerned, if it qualifies as a concentration subject to the notification requirement under the Law (in which case whether it will have an impact on competition and if so, which one, is precisely the determination the Moroccan Competition Council will have to make in reviewing the transaction, as the case may be). 2. The second step is to verify if the transaction qualifies as a “concentration” under the Law (Article 11), which include (i) mergers between two previously independent businesses, (ii) acquisitions resulting in a change of control, (iii) transactions between companies that have a 40% share of a national market or a substantial part thereof, as well as (iv) joint businesses through the creation of a new, autonomous business entity (or the common control over a business).
This transaction is clearly not a merger. It does, however, qualify as an acquisition since the international hotel management company will acquire “the possibility to exert a determining influence over the Moroccan’s company’s hotel business activity” with rights over the company’s property and business assets, which is one of the ways (with the purchase of shares and assets) that a company can acquire control over another company’s business under the Law.
3. The third step is to verify if the parties to the transaction meet at least one of the three thresholds required to trigger the notification requirement. The first threshold relates to the global turnover of all the parties concerned by the transaction, the second threshold relates to the local (Moroccan) turnover of at least two parties to the transaction and the third threshold relates to the market share of the parties.
In this case, the first threshold is reached because the parties to the concentration have a global total turnover equal to or greater than MAD 750 million. In fact, this threshold is met by the international management company alone.
It is sufficient that one threshold for notification is met to trigger the notification requirement under the Law. For this determination, it is irrelevant that the parties do not meet the other requirements. It is however interesting to note that the parties do not both meet the national threshold of MAD 250 million in annual total turnover, which already shows that the transaction is unlikely to have a significant impact (positive or negative) on competition in the market concerned.
Still, we have now determined that the transaction is a concentration subject to an obligation to notify the Moroccan Competition Council.
As to which party(ies) is(are) subject to this obligation, this determination relates to the type of concentration. As we have already determined that this transaction falls within the definition of an “acquisition” under the Law, the party liable is the party making the acquisition and, therefore, the international hotel owning and management company is responsible to notify the Council prior to completing the transaction. This can be done based on the letter of intent signed between the parties.
Disclaimer: The foregoing forms part of an educational program and is meant to illustrate the reasoning that allows for a legal determination to be made under a given set of facts. It is not intended to constitute legal advice, even in respect of similar cases.
For further questions, please contact Richard D. Cantin.
Published in July 2022
