We would like to announce that the amendments of the executive regulation of the Egyptian Competition Law no. 3 of the year 2005 (“ECL”), which implement the Egyptian pre-closing merger control regime (“Merger Control Regime” or “MCR”) has been officially enacted on 4th of April 2024 by virtue of the Prime Minister Decree no. 1120/2024 (“Executive Regulation”). The MCR was introduced by virtue of the legislative amendments of the ECL, which were enacted on 29th of December 2022 and entered into force on 30th of December 2022 (the “Amendments”). The notification form template and the MCR guidelines are expected to be issued by the Egyptian Competition Authority (“ECA”) soon.
The Executive Regulation will enter into force on 1st of June 2024. Hence, transactions that will be closed prior to 1st of June 2024 will not be subject to the MCR. However, transactions that will close as of 1st of June 2024 (inclusive) shall be subject to the MCR, in case they satisfy the filing requirements.
The MCR aims to place mergers and acquisitions under the supervision of the ECA in an effort to protect and prevent restriction to competition in the relevant market(s) on an ex-ante basis. Unlike the old regime whereby the parties notify the transactions to the ECA post-closing, the MCR introduces a suspensory regime of mergers, acquisitions, and joint ventures that qualify as economic concentrations, whereby economic concentrations must be approved by the ECA prior to their implementation.
In this regime, any transaction that fulfills a set of requirements becomes a notifiable transaction to the ECA, except for economic concentrations implemented in the activities subject to the regulatory supervision of the Financial Regulatory Authority (“FRA”). These concentrations must be notified to the FRA to seek its prior approval, and the FRA shall procure the opinion of the ECA before issuing its approval.
It should be noted that transactions occurring in the banking sector are already exempted from the ECL and fall under the jurisdiction of the Central Bank of Egypt.
The Amendments and the Executive Regulation provide for, inter alia, the following:
- an obligation on the parties of the transaction to obtain the prior approval of the ECA on any transaction that satisfies the following requirements:
- The transaction involves an Economic Concentration. The Amendments and the Executive Regulation provide for a definition of “economic concentration” which details the definition of “Control” and “Material Influence” as the main criteria for establishing an economic concentration. Please note that both Control and material influence are defined very broadly. For example, control is defined to include the capacity of a person(s) to exercise effective influence on another party by guiding the economic decisions of the said party either based on the majority of the voting rights or based on the capacity of the controlling person to prevent another person from taking an economic decision (veto rights), or any other method, including any event, agreement, or ownership of shares (regardless of the number of owned shares) that results in the effective control of the management or decision making of another person. Material Influence is also defined very broadly to include the ability of a person to affect the policies of another person. The Executive Regulations provide a non-exhaustive list of the cases where material influence takes place, which include, inter alia, acquisition by a person of at least 25% in the share capital of another person.
- A set of financial thresholds based on the combined turnover and asset value of the concerned parties pertaining to the economic concentration must be satisfied. The Executive Regulation details the method of calculating the above annual turnover and the combined assets.
- Below these financial thresholds, the ECA can interfere with economic concentrations, which have been implemented within one year from their implementation, without being able to unwind such concentrations, but it has the power to impose behavioural remedies on these concentrations.
- The Amendments provide for exemptions from filing obligations for specific cases, which include, inter alia, intra-group restructurings that do not involve direct or indirect change in control or material influence.
- Subject to the approval of the Cabinet, the ECA may, subject to satisfaction of specific requirements set forth under the Executive Regulation, approve notifiable (problematic) economic concentrations in specific cases that include, inter alia, failing firm defense or for public security consideration.
- an obligation to perfect the payment of filing fees up to EGP100,000 to the ECA for the assessment of a notifiable transaction;
- vesting upon the ECA or FRA with the power to approve (either unconditionally or conditionally subject to behavioral and/or structural remedies) or block any notifiable transaction;
- Failure to notify ECA or obtain its clearance will subject the parties to a penalty of a fine not less than 1% and not exceeding 10% of the total annual turnover, the asset value of the concerned parties pertaining to the economic concentration or the transaction value, whichever is higher. If the percentage cannot be calculated, the penalty shall be a fine of not less than EGP 30 million and not exceeding EGP 500 million;
- The documents required for the filing are set forth under the Executive Regulation.
- The review process of the filing is divided into phase (1) and phase (2) reviews. The
ECA must issue its decision during the following time-limits:
- 30 business days from the date of complete filing date (subject to 15 business days extension in case of submission of commitment offer) in case of phase (1) review; and
- 60 business days (subject to 15 business days extension in case of submission of commitment offer) from the referral decision of the filing to phase (2) review. Filing to the ECA does not replace, as a general rule, the filing to the COMESA Competition Commission (“CCC”). In addition, filing to the CCC shall not replace filing to the ECA – the CCC shall not be a one-stop shop. However, the ECA’s position on the one-stop shop nature of the CCC is still to be confirmed by the ECA upon its implementation of the MCR., as we expect future discussions between the ECA and the CCC on this issue.
For any questions or inquiries, please feel free to contact:
Dr. Mohamed Aldegwy
Partner, Head of Competition
Dr. Amr A. Abbas
Partner, Head of Arbitration & Co-head of Competition