Highlights
Egypt’s first pre-merger control regime was officially promulgated by law no. 175 of 2022 (the “Law”). Said Law amended Egyptian Competition Law No. 3 of 2005, granting the Egyptian Competition Authority (the “ECA”) the power to review and approve transactions that meet certain criteria. Our previous publication, available here, offers a simplified, accessible insight into the Law.
The enforcement of this regime was pending the issuance of the corresponding amendments to the Executive Regulations of the Competition Law. On 4 April 2024, Prime Minister Decree No. 1120 of 2024 introduced the long-awaited amendments (“ER Amendments”), which will enter into force as of 1 June 2024.
The ER Amendments provide technical insights and clarifications on the criteria and parameters for applying the pre-merger control regime, the material elements of which are tackled below.
The Letter of the Amendment
The pre-merger control regime is triggered if the transaction falls within the economic concentration (“EC”) definition and satisfies certain financial thresholds. The ER Amendments offer specific criteria regarding the definition of ECs and clarify the method of calculating the financial thresholds as follows:
A. Definition of Economic Concentrations
Briefly, ECs are defined by the Law as any change of control or material influence in a person(s) as a result of a merger, acquisition, or the establishment of a joint venture.
While a change of control is broadly defined in the Law as the ability of a person, or persons, to exercise effective influence (directly or indirectly) over another person by orienting said person’s economic decisions, the ER Amendments offer a detailed definition of material influence.
Material influence is the ability to influence (directly or indirectly) another person’s policies, such as strategic policies and commercial objectives. Said material influence is attained specifically when any of the following conditions are met:
- possessing 25% (twenty-five per cent) or more of the total voting rights, quotas, or shares of another person’s capital;
- possessing less than 25% (twenty-five per cent) of the total voting rights, quotas, or shares of another person’s capital when combined with other factors that enable impacting said person’s policies, namely:
- the ratio of voting rights owned by the possessor in comparison to the remaining voting rights;
- the existence of any provisions in the articles of association, the shareholders’ agreement, or other documents granting the possessor certain privileges such as preferential voting rights or veto powers;
- the presence of mutual stakeholders between the possessor and the acquired entity; and/or
- the presence of 1 (one) or more representatives of the possessor on the board of directors of the acquired entity.
- material influence is not achieved by possessing less than 10% (ten per cent) of the total voting rights, quotas, or shares in another entity unless the possessor ranks among the 3 (three) major stakeholders in the said entity.
B. Financial Thresholds Calculation
The Law sets out financial thresholds that trigger a pre-merger approval obligation if reached by the EC. These thresholds concern the achieved turnover or consolidated assets of the entities that are part of the EC. The ER Amendments define such entities as any natural or juristic person, economic entities, unions and the like participating in the EC and the related parties of said persons (i.e., subsidiaries, parent companies, and sister companies).
The thresholds range from EGP 900,000,000 (nine hundred million Egyptian pounds) to EGP 7,500,000,000 (seven billion five hundred million Egyptian pounds) depending on the transaction at hand (as further elaborated in our previous publication, available here).
The achieved annual turnover or consolidated assets are calculated by adding the value of the achieved annual turnover or consolidated assets in the previous year as stated in the latest audited consolidated financial statements for the persons involved in the EC, excluding the sellers, in case of their full exit from the target entity following the implementation of the EC.
In case the achieved annual turnover or consolidated assets from the previous year are denominated in a foreign currency, they shall be converted to Egyptian pounds based on the official exchange rate for foreign currencies as announced by the Central Bank of Egypt on the final day of the financial year of the persons involved in the EC.
In this regard, it is worth noting that the ECA reserves the right to examine any EC which – despite not meeting the aforementioned thresholds – is suspected of having a material detrimental impact on the relevant market within 1 (one) year as of the establishment/execution thereof.
Who Should Submit the Filing to the ECA?
- The acquiring person or persons in the event of an acquisition;
- the merging persons in the event of a merger; and
- the persons establishing a joint venture.
In consideration for examining ECs notification files, the ECA is entitled to a fee ranging between EGP 80,000 (eighty thousand Egyptian pounds) and EGP 100,000 (one hundred thousand Egyptian Pounds), determined based on the annual turnover or the consolidated assets.
EC Subject to the Supervision of FRA
ECs involving activities regulated by the Financial Regulatory Authority (the “FRA”) are subject to a distinct clearance procedure. Notification to the FRA is mandatory prior to entering into any agreements pertaining to the EC. Subsequently, the FRA consults with the ECA before granting clearance for the notified ECs.
What’s Next?
The ECA is anticipated to issue the application template and filing guidelines to initiate the implementation of the pre-merger control regime.