On 4 April 2024, the Egyptian Prime Minister issued Decree No. 1120 of 2024 (“Decree“) introducing significant amendments to the Executive Regulations of the Egyptian Competition Law (Law No. 3 of 2005 concerning the Protection of Competition and Prohibition of Monopolistic Practices) (“ECL“). An earlier amendment to the ECL was issued at the end of 2022 with references to certain future criteria to be introduced by the ECL Executive Regulations. The enforcement of sections related to merger control in the ECL was contingent upon the implementation of Executive Regulations.

Egypt has finally published the long-awaited merger control criteria, which aim to modernize and strengthen the existing provisions of the ECL, notably, “Chapter Nine: Examining Economic Concentration” was established. The new regime will go into effect on 1 June 2024. Any transaction falling within the newly established merger control criteria, that has not closed prior to 31 May 2024, will require clearance to finalizing implementation of closing.

Under the new merger control regime (similar to many other merger control regimes in the region), a transaction is notifiable in the event it (i) falls under the definition of ‘Economic Concentration’; (ii) meet one of the financial thresholds; and (iii) does not fall under any exemptions.   

Definition of Economic Concentration:

Article 48 of the Decree defines ‘Economic Concentration’ as any change in control or material influence over one or more individuals, resulting from any of the following cases:

1. Merger of one or more persons into an existing entity retaining its legal personality following the merger, or the creation of a new entity by merging at least two previously independent persons, resulting in the termination of their legal personality or any of its parts.
2. Acquisition of Control or Material influence by one or more persons, directly or indirectly, over another person or part thereof through a contract, or by purchasing securities, assets, or other means, and the acquisition can be individual or collective.
3. Establishment of a joint venture or acquisition by one or more persons of an existing entity for the purpose of establishing a joint venture engaging in independent and permanent economic activity.

Understanding ‘Control’ and ‘Material Influence”

Article 2(h) of the ECL defines ‘Control’ as “the ability of a controlling person to exercise decisive influence directly or indirectly by directing the economic decisions of another person, based on the majority of the voting rights or the ability of the controlling person to prevent the making of economic decisions of the other person or in any other manner. This includes any status, agreement, or ownership of any percentage of shares, and provided that it leads to actual control over management or decision-making”.

Under Article 50 of the Decree, ‘Material Influence’ is defined as the ability to directly or indirectly impact the policy of another person, including their strategic decisions or business objectives. Any of the following would be considered ‘Material influence’:

1. Any action that leads to the ownership of 25% or more of the total voting rights, shares, or capital stock in another person.
2. Any action that leads to the ownership of less than 25% of the total voting rights, shares, or capital stock in another person, if associated with other elements capable of influencing its policies, particularly:

1. The proportion of voting rights owned by the individual compared to the total voting rights enabling them to influence the person’s policy and business objectives.
2. The presence of provisions in the articles of association, shareholders’ agreement, or others, granting the acquirer privileges such as preferential voting rights or veto rights.
3. The existence of common shareholders or stakeholders between the acquirer and the acquired person.
4. The existence of one or more representatives of the acquirer on the board of directors of the acquired person. In all cases, material influence is not achieved by owning less than 10% of the total voting rights, shares, or capital stock in another person, unless the acquirer is among the top three shareholders or stakeholders in the acquired person.

Financial Thresholds

In the event a transaction falls within the definition of Economic Concentration, then the parties must assess whether they exceed one of the following ‘Financial Thresholds’ established by the Decree:

1. the combined turnover or assets of all parties in Egypt exceeds 900 million Egyptian Pounds (approximately USD 29 million), and the turnover of at least two parties exceeds 200 million Egyptian Pounds (approximately USD 6.4 million) each in Egypt during the last fiscal year; OR
2. the combined turnover or assets of all parties worldwide exceeds 5 billion Egyptian Pounds (approximately USD 242.7 million) and the turnover in Egypt of at least one party exceeds 200 million Egyptian Pounds (approximately USD 6.4 million) during the last fiscal year.

The relevant parties of a transaction to consider when calculating whether the above Financial Thresholds are met are the Buyer(s) and Target. In the Event the Seller(s) remain part of the economic concentration post-closing, then they should be included in the calculation.  

According to Article 61, the ECA, with the approval of the Cabinet, has the right to commence the examination of an Economic Concentration that does not exceed the Financial Thresholds if it possesses evidence or indications that could restrict or harm competition within a period not exceeding one year from the date of implementing the economic concentration. Indications of said harm includes:

1. Limiting technological advancement or innovation.
2. Market control through actions that could lead to price increases or decreases.
3. Reduction in product quality.
4. Creating barriers to entry or expansion in the market.

Exemptions

The following two fact patterns are NOT considered an ‘Economic Concentration’ under the ECL:

1. Temporary acquisition by any securities companies of securities in a person for the purpose of resale within one year from the date of acquisition, provided that they do not exercise any voting rights or take any action or measure that may affect the strategic decisions or business objectives of the acquired person.

The Egyptian Competition Authority (“ECA“) may extend this period for a maximum of one year upon a written request submitted by the acquirer sixty days before its expiration, accompanied by evidence of the impossibility of reselling the securities within one year from the date of acquisition. The ECA’s Board of Directors (“Board“) shall issue a decision on the request within thirty days from the date of its submission, and in case of refusal by the ECA to the request, the acquirer shall be obliged to implement the measures set by the ECA.

Exercising voting rights or taking any action or measure that may affect the strategic decisions or business objectives of the acquired person, failure to submit a request for extension within the prescribed period, or violation of the decision of the ECA referred to in the preceding paragraph, in violation of the provisions of Article (19 bis A) or Article (19 bis E) of the (“ECL“), as the case may be, and this is in case the limitations of the notification obligation under the provisions of Article (19 bis) of the ECL are exceeded.

2. Merger or acquisition between companies affiliated with the same person, and this process is considered a form of restructuring, and the obligation to notify arises only if there is a change in control or material influence directly or indirectly.

Notification Obligations:

According to Article 55 of the Decree, only one merger control filing is required in relation to the relevant transaction. The Decree further provides which parties have the obligation to submit the filing with the ECA when the transaction involves an acquisition, merger, or joint venture:

1. The acquirer(s) in case of an acquisition that leads to individual or collective control or material influence over one or more persons.
2. The merging parties in case of a merger.
3. The acquirer(s) in case of an acquisition for the purpose of establishing a joint venture.
4. The individuals responsible for establishing a joint venture.

It is important to highlight that a reverse to the implementation of economic concentration is considered available in any of the following cases:

1. The individuals concerned with economic concentration withdraw from its implementation.
2. Withdrawal of the notification file.
3. Change or modification of the legal form of economic concentration during the examination, if this modification or change results in a new economic concentration.

The notifier shall submit a written request to the ECA before the expiration of the legal examination periods specified in the ECL, which includes the amendment to the implementation of economic concentration. The competent examination committee shall issue a decision to maintain the request.

Filing Fees:

Article 59 states that the fees payable to the ECA for examining a notifications of economic concentration as stipulated in Articles (19 bis A) and (19 bis E) of the ECL shall not exceed 100 thousand Egyptian pounds (approximately USD 3,236), as follows:

1. A fee of eighty thousand Egyptian pounds if the annual turnover or combined assets in Egypt for the individuals concerned with economic concentration collectively range between nine hundred million pounds and one billion pounds.
2. A fee of ninety thousand Egyptian pounds if the annual turnover or combined assets in Egypt for the individuals concerned with economic concentration collectively range between one billion pounds and one billion five hundred million pounds.
3. A fee of one hundred thousand Egyptian pounds if the annual turnover or combined assets in Egypt for the individuals concerned with economic concentration collectively exceed one billion five hundred million pounds.
4. A fee of one hundred thousand Egyptian pounds if the annual turnover or combined assets globally for the individuals concerned with economic concentration collectively exceed seven billion five hundred million Egyptian pounds as of the last year in the latest approved consolidated financial statements, provided that the annual turnover in Egypt for at least one of the individuals concerned with economic concentration in the latest approved consolidated financial statements exceeds two hundred million Egyptian pounds.

In all cases, the highest fee shall be paid if more than one category applies, and the applicant shall bear the publication costs.

Timeline

The ECA initial review process timeline of an Economic Concentration application is 30 working days, subject to an extension of 15 working days. It is within the discretion of the ECA to extend the review of an application for an additional 60 working days with the option for another 15 working days thereafter, should they find it necessary.

Generally, competition authorities in the region subject a filing to a mandatory publication phase for third party comments after the review is concluded. The Decree seems to provide for a 15-day publication phase as an option to allow third parties to provide their comments, unless the ECA’s board decides not to publish for reasons related to public interest.

Thereafter, the ECA will make a decision as to whether approve or reject the application for Economic Concentration. The parties would have an opportunity to appeal against the ECA decision within 30 days of its issuance.

Approval of Economic Concentration:

Article 60 of the Decree states that the ECA, with the approval of the Cabinet, may permit economic concentration in any of the following cases:

First – If failure to implement it would result in the exit of individuals from the market, provided the following conditions are met:

1. One of the individuals concerned with economic concentration faces financial distress that would lead to their exit from the market.
2. There is no less restrictive alternative to economic concentration that would infringe on competition freedom.

Second – If it is proven that economic concentration would result in economic efficiency outweighing the effects of competition limitation, provided the following conditions are met:

1. Economic efficiency is achievable.
2. Economic efficiency is only achievable through the implementation of economic concentration.
3. Economic efficiency benefits consumers.

Thirdly – If the implementation of economic concentration would achieve considerations related to national security protection.

Fines

Under the ECL, parties that meet the merger control criteria, and do not submit an application for an Economic Concentration and would be subject to a fine between 1% and 10% of the value of the parties’ turnover or assets of the value of the transaction (Whichever is highest).  In the event the value cannot be calculated, the ECA would impose a fixed fine amount between 30-500 million Egyptian Pounds (approximately USD 1 – 16 million).

Conclusion

In conclusion, the revisions brought forth by Prime Minister’s Decree No. 1120 of 2024 mark a pivotal advancement in regulating economic concentration in Egypt. Scheduled to come into effect on 1 June 2024, these changes lay the foundation for a more transparent and competitive economic environment. This new pre-closing merger control regime will take some getting used to by all parties doing business in Egypt

Authors: Asad Ahmad, Head of Anti-trust & Competition and Salma Farouq, Associate.