Overview
In recent years, Egypt has implemented substantial regulatory reforms, reflecting significant changes in its competition regulations compared to its previous frameworks. One key aspect of these reforms is the introduction of a pre-merger control mechanism, empowering the Egyptian Competition Authority ("ECA") to review and approve mergers and acquisitions (M&A) transactions before their completion. This regulatory framework, governed by the Egyptian Competition Law and Prohibition of Monopolistic Practices No. 3 of 2005 ("ECL"), has undergone amendments to strengthen its effectiveness and align it with international best practices by virtue of Law No 175 of 2022.
On 4 April 2024, the Egyptian Cabinet of Ministers enacted the amendments to the Executive Regulation of the pre-merger control regime and was officially published by Decree No. 1120 of 2024 ("ER"). The ER shall come into force on 1 June 2024, meaning that transactions closing on or a[er 1 June 2024, shall meet the required threshold and shall require the prior approval of the ECA.
Economic Concentration
The legislation has established prerequisites mandating pre-closing notification for transactions falling under the definition of Economic Concentration as per the amended ER and meeting the prescribed notification thresholds. What constitutes an Economic Concertation, as defined in the ECL, shall be any change of control or material influence over one or several undertakings for instance a joint venture or merger or acquisition ("Economic Concentration").
Entities licensed by the Financial Regulatory Authority ("FRA"), are required to notify FRA of any Economic Concentration before concluding the transaction, and FRA shall seek the opinion of the ECA before approving on implementing an Economic Concertation.
Material Influence
Article 50 of the ER introduced the concept of "Material Influence", delineating specific criteria for assessing the extent of influence exerted by one entity over another. Material Influence shall mean "the direct or indirect ability to influence the policy of another undertaking, including their strategic decisions and commercial goals.". The Material Influence is realised by any of the following factors:
- Owning 25% or more of the total voting rights, or share capital in another undertaking.
- Owning less than 25% of the total voting rights, or share capital in another undertaking, combined with other elements affecting their policies, such as: a) the percentage of voting rights compared to the total, enabling influence on policies and commercial objectives of an undertaking; b) granting special voting rights or veto powers to the acquiring party; c) shared ownership between the acquiring and acquired parties; d) representation of the acquiring party on the board of directors of the acquired party.
However, owning less than 10% of the total voting rights, or share capital in another undertaking does not constitute material influence, unless the acquiring party is one of the top three shareholders in the acquired party.
Exclusion to the Economic Concentration
Moreover, the ER outlined certain transaction categories that fall outside the scope of Economic Concentration. Such as, temporary acquiring securities companies for resale purposes within a year of purchase, as long as they abstain from voting or take any actions that could impact the strategic direction or commercial goals of the acquired company. As well as, excluding restructuring transactions, filing requirements only kick in if there's a tangible shift in control or direct/indirect influence.
Thresholds Calculations Requirements
A transaction leading to an Economic Concentration that reaches a certain financial threshold will require the prior approval of the ECA.
- The total annual turnover or consolidated assets of the relevant entities in Egypt exceeded EGP 900 million in the preceding fiscal year, if the annual turnover in Egypt of at least two of the parties individually exceeded EGP 200 million in the latest approved consolidated financial statements for the preceding fiscal year; or
- The annual turnover or consolidated worldwide assets of the parties collectively exceeded EGP 7.5 billion in the last fiscal year, if the annual turnover in Egypt of at least one of the parties in the latest consolidated financial statements exceeded EGP 200 million.
In light of the above, in a sell-side turnover, the above thresholds will be assessed only if the seller remains involved in the Economic Concentration post-closing. Where annual business turnover or consolidated assets are in foreign currency, they will be converted to Egyptian pounds using the official exchange rate set by the Central Bank of Egypt on the final day of the relevant fiscal year of the parties involved.
Review of Transactions Below the Threshold
In certain cases, the ECA is entitled to review certain transactions if it falls below the threshold if it transpires that there is evidence or indications that may limit or restrict or have negative impact on competition in Egypt within a period not exceeding one-year post-closing. as specified in the executive regulations of this law.
The ER sets out these cases that may indicate hindering technological advancement or innovation, market control affecting price fluctuations, compromised product quality, or the establishment of entry barriers or market expansion impediments.
Who Shall Notify, Procedures and Fees
The ER clarified the parties responsible for filing, which will be the obligation of the entities responsible for establishing a joint venture, or all parties in cases of merger, or the acquiring party in case of an acquisition.
Filing must adhere to a designated form provided by the ECA. Additionally, parties must furnish supporting documentation such as constitutional documents, personal identifications proof, financial statements, transactions documents, board resolutions, and a power of attorney. Time shall be taken into consideration when preparing these required documents in order to avoid any delays. The filing fees are tiered based on the annual turnover of the Economic concentration and are capped at EGP 100,000.
Timeline
At the outset, the ECA has 30 working days to review a transaction which is the initial phase, extendable by 15 days if necessary. In the absence of a decision within these periods, the transaction is automatically approved. Nevertheless, the ECA reserves the option for a secondary review, lasting up to 60 days, with a potential 15-day extension. Parties dissatisfied with decisions on Economic Concentration have 30 days to appeal from the date of decision notification.
Significant Fines May Apply
Failure to comply with the above rules may result in a fine of between 1% and 10% of the total annual turnover or assets or value of the transaction of the Economic Concentration, whichever is higher pursuant to the last consolidated financial statement. Otherwise, a fixed fine of between EGP 30 million and EGP 500 million may be imposed by the ECA.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.