Merger Control in Egypt
Legislation and Enforcing Authorities
Merger Control Legislation
The Arab Republic of Egypt aims to guarantee a good economic environment that does not restrict, prevent or damage the freedom of competition and therefore issued Law No. 3 of the year 2005 on Protection of Competition and Prohibition of Monopolistic Practice (“Competition Law”). The Competition Law has since been amended four times, first time in 2008, then in 2010, 2014, and most recently, the merger control law was recently amended by Law No. 175 of 2022. These Amendments (“Amendments”) were published in the official Gazette on January 2023. The Executive Regulations of Law No. 175 of 2022 are yet to be issued (“Executive Regulations”).
The Egyptian Competition Law applies to all natural and legal persons and entities operating in the market in general. The provisions of the Competition Law also apply to acts committed abroad if they result in preventing, restricting or harming freedom of competition in the Arab Republic of Egypt, which constitute crimes according to the Egyptian Law on Protection of Competition and restriction of Monopolistic Practices.
On 6 December the Egyptian House of Representatives approved the Amendments which is now considered to be a significant leap of a long anticipated development of the Egyptian merger control regime that has been under consideration for the last decade. With the beginning of the New Year, we have seen the Amendments finally ratified and published in the official Gazette.
Legislation Relating to Particular Sectors
Other than the Egyptian Competition Law, the following legislations should be considered for the below sectors:
- The National Telecommunications Regulatory Authority (NTRA) applies article 4 and 24 of the Telecommunications Law No.10 of 2003 to regulate competition and to ensure economic freedom in the sector. The NTRA examines and detects mergers indirectly through reviewing the license requirements of any given operator. The NTRA would assess and evaluate any merger on the basis of its impact on competition. In the event, NTRA foresees or detects a penalty or violation of law, NTRA would threaten or directly block any merger by revoking the merging entities’ license.
- The Central Bank of Egypt (“CBE”) acts as the regulator of the banking system. The Banking Law No. 101 of 2004 (“Banking Law”), provides in article 12 that the CBE has the right to review all applications to own more than 10% stake in a bank or any other percentage that would enable the acquirer to have control over the management or decision-making in the bank. The relevant entities would have to submit before the CBE a list of documents for CBE’s examination and approval. The list of documents would include the strategic plans, financial statements of the acquirer, credentials in the banking business. This step must be fulfilled within 60 days prior to the date on which the acquisition is planned to take place.
- Economic concentrations related to activities that are regulated by the Financial Regulatory Authority (“FRA”) are subject to a special clearance process. They are first notified to the FRA than the FRA consults with the ECA before clearing the economic concentration.
- There are other regulatory agencies in the Egyptian market, such as the Egyptian Electric Utility & Consumer Protection Regulatory Agency, the Egyptian Insurance Regulatory Authority, whereby each of these regulatory agencies is concerned with a specific sector. The Egyptian Competition Authority’s relationship with all these agencies is a complementary relationship where the primary goal is to protect consumer rights and the public interest.
It is worth noting that the Competition Law provides that one of the functions of the Egyptian Competition Authority is to coordinate with the sectoral regulatory agencies in matters of common interest, without prejudice to the functions of the various agencies.
In the same vein, despite the overlapping jurisdiction of the various regulators in respect of competition matters, the merger notification regime instated by article 19 of the Competition Law remains applicable to all sectors making any merger control subject to the jurisdiction of the ECA.
The Egyptian Competition Authority (“ECA”) was created by virtue of the Competition Law as an independent body affiliated with the Prime Minister. The ECA is mandated to act as the administrative body responsible for safeguarding a climate in which competitors have equal opportunities to compete in all economic sectors.
Notification is mandatory for transactions that meet the jurisdictional thresholds. Filing is suspensory i.e., the ECA’s approval must be obtained prior to closing. The merger notification must be submitted before the execution/completion of the transaction. The notification must be submitted immediately upon signing a letter of intent or a memorandum of understanding or when parties enter into serious negotiations.
The notification must then be served within 30 days and filed to the ECA for its examination and review.
Prior to the Amendments, a pre-notification of the merger was not mandatory and it was not subject to the ECA’s approval. However, with the new changes taking place and issuance of promising ECA decisions, the Amendments were anticipated. The Uber/Careem case is a good example for this.
Failure to Notify
Any person may report any agreements, acts or actions that violate the Egyptian Competition Law. Any failure to notify will lead to the imposition of fines by the ECA.
Types of Transactions
Either of the following transactions are deemed as an economic concentration that is subject to the Competition Law:
- A merger;
- An acquisition for control or material influence in another person, whether direct or indirect, partial or whole, joint or individual; or
- The establishment of a joint venture project or the acquisition of an entity established for the purpose of undertaking a joint venture project and engaging in economic activity independently and continuously.
Definition of “Control”
The Amendments defines control as “the ability of the controlling person or persons to exercise an effective influence, directly or indirectly, by directing the economic decisions of another person or persons, either based on the majority in voting rights or on the ability of the controlling person in taking economic decisions concerning the person or other persons, or in any other way, and this includes every situation, agreement or ownership of shares or stakes of any percentage, provided that it leads to actual control of management or decision-making”.
Pursuant to the Amendments, transactions which meet the either of the following turnover/value of assets thresholds must be notified to the ECA:
- If the combined annual turnover or consolidated assets of the parties in Egypt exceeds EGP 900 million in the previous financial year, based on audited financial statements, and the turnover of at least two persons and each of the relevant persons (i.e., companies or parties) exceeds EGP 200 million in Egypt in the previous financial year, based on audited financial statements.
- If the global combined annual turnover or consolidated assets of the parties exceeds EGP 7.5 billion in the previous financial year, and one of the parties to the transaction has annual turnover in Egypt that exceeds EGP 200 million in the previous financial year, based on audited financial statements.
The ECA reserves the right to intervene in transactions below these thresholds within one year of closing if there are indications that the said transaction has resulted in a restriction to the freedom of competition.
Furthermore, the Banking Law specifies a 10% threshold of an acquired stake above which the approval of the CBE is also required.
Moreover, the Capital Market Law No. 95 of 1992 obliges the acquirer of a stake exceeding 33 per cent of any listed company to launch a mandatory tender offer to acquire up to 100% of the shares of the company. The requirement is intended for transparency purposes and to provide minority shareholders with an equal opportunity to cash in on their investments at the same level of economic benefit available to majority shareholders.
The Financial Regulatory Authority (FRA) regulates the tender offer process and must grant its approval before the process is launched. The tender offer approval requirements are listed in article 334 et seq of the Capital Market Law (as regularly amended), and the full application must be presented to the FRA, which must examine and approve, reject or modify the application within set time limits.
Calculations of Jurisdictional Thresholds
The calculation of thresholds are identified based on the audited financial statements.
Businesses/Corporate Entities Relevant for the Calculation of Jurisdictional Thresholds
The Executive Regulations (still to be issued) is expected to provide for indications of calculating the annual turnovers and combined assets.
Based on the principle of extraterritoriality of the Competition Law, foreign-to-foreign transactions are theoretically supposed to fall within the scope of application of article 19 of the Competition Law if they are considered to have an impact on the Egyptian market.
The wording of the Competition Law does not state that the annual turnover that triggers the notification requirement must be generated in Egypt; it also does not state otherwise.
However, the ECA’s latest guidelines explicitly include foreign-to-foreign transactions in the scope of notification. According to the guidelines, the threshold for notification is the turnover generated in Egypt alone.
Nonetheless with the new Amendments, a notification could be required when only one party has revenue in Egypt. Thus, transactions without local nexus in Egypt may still be subject to filing under the new pre-closing notification regime, where the international leg thresholds are met.
Market Share Jurisdictional Threshold
The Competition Law does not have a market share threshold. It is not clear yet if the Amendments will be applicable to a minimum threshold of market share. Only national and international, combined and individual annual turnover of the parties involved with the transaction in question are applicable.
Full function joint ventures are subject to merger control by the ECA. A joint venture of two or more persons, resulting in performing, on a lasting basis, an autonomous economic or commercial activity, regardless of its legal form or the activity to be practiced, is considered an economic concentration. However, partial joint ventures are not covered under merger control by the ECA.
Power of Authorities to Investigate a Transaction
The ECA will conduct a two-phase assessment. For the first phase, the ECA may grant its approval, require certain corrective measures, or may initiate the second phase for a deeper assessment. In the second phase, the ECA may approve, reject or require further conditions from the related parties.
The Amendments also allows the ECA to assess economic concentrations which do not surpass the abovementioned thresholds if it is proven that the same hinders, limits, restricts or harms competition. The precise scope of the ECA’s powers and conditions for assessing such economic concentrations are expected to be further addressed in the executive regulations. The ECA has the authority to investigate any economic concentration that does not meet the before-mentioned thresholds if it is suspected to have a negative impact on the market within one year from the date of establishment or execution.
The ECA could initiate inspection measures, collect information or issue orders to initiate such actions in relation to anti-competitive agreements and practices.
Any person may notify the ECA of any violation of the provisions of the Law that they are aware of.
If the ECA establishes that any of the provisions of Articles 6, 7 or 8 of the Law has been violated, it shall order the violator to modify the situation and remove the violation (either immediately or within a time specified by the Board of Directors of the ECA).
The law further identified a group of employees of the ECA, who shall have the status of judicial enforcement officers, namely the Executive Director, Legal and Economic Researchers and the Information Technology Specialist. Such employees shall be entitled to review records and documents, as well as to obtain any information or data from any governmental or non-governmental authority for the purpose of examining cases considered by the ECA.
Such powers extend to public business sector companies, and are not bound by the restriction provided for in Article (55) of Law No. 203 of 1991 pertaining to public business sector companies regarding the need to obtain permission from the parent companies’ board before proceeding with judicial enforcement actions.
Requirement for Clearance Before Implementation
Implementation may not lawfully proceed before an approval is issued by the ECA.
Penalties for the Implementation of a Transaction Before Clearance
In the event, a transaction is implemented before clearance, the ECA may impose a fine of at least 1%, which cannot exceed 10% of the total annual turnover, asset value or transaction value (whichever is higher based on the final audited financial statements of the concerned parties jointly). The penalty will be imposed on any person/entity which (i) fails to correctly notify the ECA of the economic concentration, (ii) fails to comply with the decisions issued by the ECA after the review and examination are conducted or obtains clearance for the economic concentration after knowingly submitting false information and documents to achieve such target.
The Competition Law and Amendments set forth as well penalties in the event a calculation of the said percentages is impossible. Whereas, a fine of at least EGP 30,000,000 shall be imposed and it will not exceed more than EGP 500,000,000.
Circumstances Where Implementation Before Clearance Is Permitted
This circumstance is not covered under the ECA Competition Law. It is noteworthy that certain transactions may be implemented without the need for a pre-approval such as:
- corporate restructuring that does not involve a change of control or material influence directly or indirectly;
- acquisition by financial securities firms of financial securities for the purpose of reselling them within one year; provided that such acquisition does not give the acquirers any rights or influence over the strategic decisions of the target. The ECA has the power to extend the resale period for one year.
Procedure: Notification to Clearance
Deadlines for Notification
Any person who becomes aware should notify the ECA according to article 19 of the Law.
Type of Agreement Required Prior to Notification
The merger notification must be submitted before the execution/completion of the transaction. The notification must be submitted immediately upon signing a letter of intent or a memorandum of understanding or when parties enter into serious negotiation.
The maximum fees stated in the Amendments are EGP 100,000 (approximately USD 4,000).
Parties Responsible for Filing
Persons directly involved in the economic concentration are required to submit the application to the ECA; typically, these are the parties to the agreement. The acquirer of assets or shares and the merging entity of any merger process are required to make the notification. In case of joint management or joint venture, they are obliged to make the filing and may opt to undertake the process jointly or each on their own.
Information Included in a Filing
According to article 44 of the current executive regulations of the Competition Law, the information included in a filing usually should cover the following:
- the name of the notifying party and their related parties, their respective nationalities, the addresses of their headquarters and their main place of business;
- the details of the transaction along with its date and the legal position it creates;
- the licenses and approvals obtained from other regulators and all supporting documents;
- approximate market shares of the relevant parties and their competitors in each of the relevant markets;
- any detail regarding the estimated period for a new competitor to enter any of the relevant markets; and
- the details and important key information concerning the most important clients targeted, the distributors, agents of the relevant parties each within their scope of activities in the Arab Republic of Egypt.
Penalties/Consequences of Incomplete Notification
Typically, the ECA will notify the applicants of additional information requested. Otherwise, failure to provide a complete application may result in the ECA rejecting the application, or other corrective action the ECA deems appropriate.
Penalties/Consequences of Inaccurate or Misleading Information
In the event, a transaction is implemented before clearance, the ECA may impose a fine of at least 1%, which cannot exceed 10% of the total annual turnover, asset value or transaction value (whichever higher based on the final audited financial statements of the concerned parties jointly).
The review process may be only for a sole phase or it may be bifurcated into two phases. First phase review process is conducted and a second review process follows. Once an application or notification is communicated before the ECA. The ECA will undergo the examination and review of the application, for the purposes of determining whether the economic concentration will have a negative effect on competition in the different sectors and relevant markets. This examination usually takes 30 working days, however this period may be subject to extension for an additional 15 working days if the parties involved are requested to submit an obligation and commitments memorandum to the ECA, as it is anticipated for the executive regulations.
After the preliminary review, the ECA will be entitled to issue decisions that encompass one of the following options:
- incompetence to examine the economic concentration;
- dismissal of the notification for the suspension or retraction in the decision of establishing/executing the transaction resulting the economic contraction;
- approval of the economic concentration;
- conditional Approval; or
- referral to a second review phase.
In all circumstances, if the ECA remains silent or does not revert back with a decision or feedback within the above-mentioned period and timeline, the economic concentration will be considered cleared.
In the event of referral to a second review phase. The second review phase will be conducted in the following manner:
The ECA will conduct its review within 60 working days from the referral decision. This period may be extended for an additional 15 working days if the parties involved are required to submit an obligation and commitments memorandum to the ECA as it is anticipated to be included in the executive regulations.
After the ECA conducts its review, it will issue one of the following decisions:
- dismissal of the notification (if the relevant parties decide not to proceed with establishing/executing the transaction resulting with the economic concentration);
- approval of the economic concentration;
- conditional approval; or
- rejection (which may be appealed within 30 days from the date the decision is notified to the parties).
In the same vein, if the ECA does not provide any feedback or remains silent within the review period mentioned above, the economic concentration will be considered cleared.
Pre-notification Discussions With Authorities
Pre-notification discussions with authorities can be engaged in. Any person who desires to engage in an economic concentration may apply for a meeting prior to submission of an application.
Requests for Information During the Review Process
Requests for information are common and expected, depending on the extent of the application submitted. Requests will effectively suspend the time otherwise imposed on the ECA to process an application.
There is no particular reference in the Amendments on the accelerated procedure option.
Substance of the Review
When considering an application, the ECA considers the following standards, which will be supported by the Executive Regulations that are yet to be published in the official gazette:
- maintaining and encouraging effective competition amongst competitors in the market;
- examining whether or not the economic concentration will result with certain negative effects on the economic growth, efficiency and whether or not it will impact the considerations connected to the protection of national security.
- maintaining diversity of operators providing products or distributing products in a certain market;
- Maintaining price, product/services diversity;
- Enhancing technological development and innovation;
- avoiding market control and market concentration by increasing or decreasing prices;
- maintaining high-quality products; and/or
- avoiding any market entry obstacles or blocks or any market expansion obstacles.
Markets Affected by a Transaction
We anticipate that the Executive Regulations will be treating this point extensively and this issue will be raised by the ECA.
Regarding the definition of market, the relevant market under the ECL is composed of two elements: the relevant product (good or service) and the relevant geographical area. Relevant products are those that are effective substitutes from the consumer’s point of view. The main illustrative criteria to consider one product as a substitute for another are the similarity in the specifications or usages of those products and the likelihood that consumers would switch from one product to another for changes in price or any other competitive factors. A secondary criterion is whether the sellers make their business decisions based on the switching of consumers from the product due to change in the price or any other competitive factors.
The geographical scope is the area where competitive conditions are homogenous, taking into consideration potential competitive opportunities. Under article 6 of the executive regulations for 2005 Law, two criteria are taken into consideration:
- the ability of the buyer to move from the relevant geographical area to another in Egypt or abroad as a result of change of prices or other competitive circumstances; and
- the ability of the seller in Egypt or abroad to move to the relevant geographical area as a result of change of prices or other competitive circumstances.
Certain factors must be taken into consideration to evaluate the ability of the buyers and sellers:
- transportation cost (including consumed time and insurance fees); and
- customs and other non-custom restraints.
Reliance on Case Law
The ECA is proactive when it comes to references to precedents and case laws. We anticipate a reliance on case law weighting in important sectors.
Many competition concerns are connected to the market share and presence of local operators in the Egyptian economic scene, specially with the uprisal of many economic challenges. The ECA focuses its efforts on providing a more equally efficient platform for economic operators. The main concern would be addressing sustainable competition in strategic sectors such as healthcare, food and products of national security.
The ECA considers the possible influence on economic efficiencies; however, the extent of such consideration is not apparent.
The industrial policy, the user/consumer interest, the public interest, the national security, economic efficiencies, the protection of minority shareholders are all factors considered when clearance and pre-approval are needed in specific sectors such as telecommunications and banking. We anticipate that the same would apply from a strict competition law perspective since the approval and clearance of the ECA is required now.
Special Consideration for Joint Ventures
There are no other special rules provided for in the Egyptian competition law pertaining to joint ventures in particular.
Decision: Prohibitions and Remedies
Authorities’ Ability to Prohibit or Interfere With Transactions
The ECA has the authority to take corrective actions for violations of the Competition Law. As or the NTRA and CBE they have the power to block the execution of the transaction in the case where their written authorization is required to proceed with the said execution.
The corrective actions will include divestment undertakings and behavioral actions as per the Amendments introduced.
Parties’ Ability to Negotiate Remedies
This would be further examined in practice with the implementation of the new Amendments and examination of the ECA’s treatment of case-by-case matters.
It is possible to remedy competition issues for example by giving divestment undertakings or behavioral remedies.
Violations of the ECL can be settled upon the approval of ECA’s board of the settlement. If the settlement was concluded before filing the criminal lawsuit or taking any procedures in this respect, the minimum stipulated fine shall be the maximum of the settlement amount. If the settlement was made after filing the criminal lawsuit or taking any procedures in it but before issuance of the final court judgment, an amount of no less than three times of the minimum stipulated fine and no more than half of its maximum shall be paid. Settlement shall terminate the criminal lawsuit. Agreements that violate the ECL are considered null and void for having a criminal purpose.
Private enforcement of competition law in Egypt is still at an early stage. However, as per the general rules of Egyptian civil law, persons that are harmed by the violations of the ECL can claim compensation from the competent court for the actions of the person committing the violation. This does not have to be related to the criminal court action; and the plaintiff can request compensation before the competent civil court even if ECA did not refer the matter to the court.
Negotiating Remedies With Authorities
We anticipate witnessing more information regarding the implementation of negotiation remedies with the ECA throughout this year with the issuance of the Executive Regulations and the application of the new Amendments. The Amendments still remain silent on this point.
Issuance of Decisions
Formal decisions permitting or prohibiting transactions are made publicly available – the decisions of the Egyptian Competition Authority and are generally published on the authority’s website.
Prohibitions and Remedies for Foreign-to-Foreign Transactions
We anticipate the, application of prohibitions and more extensive presentation of same in the Executive Regulations of Law No.175 of 2022. In the event, the ECA concludes that a foreign-to foreign transaction would fundamentally affect the strategic ownership and management of the locally based entities subject to the Egyptian jurisdiction, no action would directly be taken against the foreign entity but the operating licenses of the local entities would be revoked or suspended for reasons related to transparency, public interest or national security.
Ancillary Restraints and Related Transactions
Clearance Decisions and Separate Notifications
The details and scope of the amendments will become clearer in the law and via ancillary regulations, and we expect there to be guidelines published in the near future as well.
Third-Party Rights, Confidentiality and Cross-Border Co-operation
The employees of the ECA have a duty to keep information and sources confidential (Article 16). These information and data as well as their sources shall not be used for any purposes other than those for which they were submitted.
Furthermore, commercially sensitive information is not usually required for the purpose of the notification. Generally, any ECA employee having access to commercial information of any entity is prohibited from working for a competitor of the concerned party for a period of two years from the date the said employee gained access to the confidential information.
Co-operation With Other Jurisdictions
The ECA has been recently implementing several protocols with different jurisdictions such as KSA and many Arab states for the establishment of a cooperative ecosystem. In 2019, ECA signed a bilateral institutional partnership with the German Federal Ministry for Economic Affairs and Energy, and the Federal German Competition Authority, which has contributed to strengthening the institutional and enforcement capacity of ECA through knowledge sharing and internal capacity building. The valuable and successful cooperation has incentivized both sides to renew the Joint Declaration of Intent in 2020 to establish a more extensive level of cooperation with hands-on case handling experience sharing, policy review and guidelines development, as well as a more practical on-the-job work coordination and knowledge sharing.
ECA also cooperates with the COMESA Competition Commission regarding Merger Notifications; Article 25(6) of the 2004 COMESA Competition Regulations states that the Commission may notify Member States subject to a merger and request their written opinions. Regarding the requests from the COMESA Competition Commission, ECA reviewed 21 notifications and examined the potential impact of the mergers on the Egyptian market.
Appeals and Judicial Review
Access to Appeal and Judicial Review
Since the sanctions are not administrative in nature and may only be imposed through a criminal court order, the appeal may be conducted in general way as it is conducted in criminal procedures.
Typical Timeline for Appeals
The time frame for criminal law matters procedures are usually meeting the standard time lines. Between the first-instance court and final appeal the usual time frame is around 12 to 16 months.
Recent Changes or Impending Legislation
The most recent development lies in the amendment of the Competition Law’s merger control provisions. A new change lies in the constitution of the Arab competition network, presided by Egypt.
Recent Enforcement Record
The decisions of the ECA are administrative in nature and can be appealed before the Administrative Court. But once the matter is referred to the Prosecutor, the competence becomes that of the Criminal Court and more particularly that specialized in considering economic crimes. The statistics of enforcement records are not published on the ECA’s website.
We anticipate enforcement records for this year on all foreign-to-foreign mergers or others. Domestically, on 23 October 2018, a first-of-its-kind decision in which the ECA explicitly requested Uber and its regional competitor Careem to obtain a pre-approval from it before they complete their contemplated merger.
In general, the ECA took decisions for more than 344 matters in different sectors and markets. The health care sector constituted the biggest record, whereas 283 matters has been studied, representing 82% of the total of matters. The real estate sector came second in line for the enforcement record, whereas for the year 2022, 16 matters have been examined. The food and beverage sector came third in line with 12 matters and finally 4 matters for electricity, power, infrastructure elements and education, 7 matters for cars and automobiles. Two respective matters for each of the telecommunication, media and agriculture sectors separately.
The ECA approved 267 economic concentrations, detected 16 violations, started criminal procedure in 7 cases, rejected 3 requests for exemption and approved two exemptions and issued settlements for 15 cases.
Current Competition Concerns
The ECA faces currently great challenges regarding economic concentrations taking place in the country. One of the main goals of the ECA is to set safe grounds for local and domestic economic operators to compete in the Egyptian market. We will see the implementation and effects of the merger control notifications and the merger control system throughout 2023.
The ECA’s official statement, assured that those Amendments are drawn for the purposes of alignment with the Egyptian 2030 vision for economic and sustainable growth and in compliance with the state strategic policy of achieving economic growth in all sectors.
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