Pre-Merger Control Regime Bilingual

 

On the 29th of December 2022, the Egyptian Competition Law no. 3 of 2005 (“ECL”) underwent amendment through Law no. 175 of 2022, effectuating a significant alteration to Egyptian merger-control procedures, replacing the post-closing merger notification regime established since 2008 with the pre-closing merger control regime (“Pre-Merger Regime”), and subsequently, on the 4th of January 2023, the Egyptian Competition Authority (“ECA”) issued a press release affirming that transactions completed subsequent to the 29th of December 2022 shall not be subject to any form of merger filing until the issuance of amendments to the ECL executive regulations, which will elucidate several foundational matters for the Pre-Merger Regime to become enforceable, such as the methodologies for calculating financial thresholds and determining the relevant official fees for pre-merger notification.

 

on the 4th of April 2024, the long-anticipated ECL Executive Regulations were amended by Prime Minister Decree no. 1120 for 2024 (“Amendments”), therein specifying the effective date for the application of the Pre-Merger Regime, the procedural steps for filing the pre-merger notification, the requisite documents/information, the methodologies for calculating financial thresholds, and the official filing fees, as elaborated in this document.

 

 

The official effective date for the application of the Pre-Merger Regime is the 1st of June 2024, signifying that (i) any transaction concluded prior to this date is exempt from any merger-control filing obligations in Egypt, even if the relevant thresholds and requirements were met, and (ii) subsequent to this effective date, it becomes mandatory for any prospective economic concentration meeting the pertinent financial thresholds and requirements stipulated in the amended ECL to submit a pre-merger notification to the ECA, failure to comply with which shall result in the imposition of significant financial penalties, as detailed herein.

 

 

“Economic Concentration” is defined in the ECL as any alteration in control or substantial influence of one or more entities, arising from any of the following:

 

The amalgamation of one or more entities with an existing entity that maintains legal personality subsequent to the merger, or the establishment of a new entity through the amalgamation of at least two previously independent entities, resulting in the termination of their legal personalities or any of their components.

 

 

 

A direct or indirect acquisition by one or more entities of control or substantial influence over another entity or a portion thereof through a contract, or via the acquisition of securities or assets or other means; such acquisitions may occur individually or collectively.

 

The establishment of a joint venture, or the acquisition by two or more entities of an existing entity, for the purpose of establishing a joint venture that conducts economic activity independently and permanently.

 

 

The Amendments introduce the definition of “Material Influence” as the capacity to exert direct or indirect influence on another person’s policy, encompassing its strategic decisions and commercial objectives, which specifically manifests in any of the following circumstances:

 

An action resulting in ownership of 25% or more of the voting rights, or shares/quotas of another person’s capital.

 

Ownership of less than 25% of the voting rights, or shares/quotas of another person’s capital, when combined with other elements impacting its policy, notably if: ¬¬

 

The percentage of voting rights owned by the person relative to the remainder of voting rights affects the person’s policy and commercial objectives.

 

Provisions in the articles of association, shareholders agreement, or other instruments confer privileges such as preferred voting or veto rights upon the acquiring person(s).

 

Mutual shareholders exist between the acquiring and acquired person.

The acquiring person(s) have one or more representatives on the board of directors of the acquired person.

 

Material Influence does not arise from owning less than 10% of the total voting rights or quotas/shares in another person unless the acquiring entity is one of the three largest shareholders in the acquired person.

 

 

The ECL establishes two distinct financial thresholds that trigger the obligation to file a notification under the Pre-Merger Regime:

 

The cumulative value of annual turnover or assets situated in Egypt for all Concerned Parties to the economic concentration surpasses EGP 900 million based on the most recent approved consolidated annual financial statement, and if the Egyptian annual turnover of at least two Concerned Parties (individually) exceeds EGP 200 million based on the latest approved consolidated annual financial statement.

 

Or;

 

The cumulative value of annual worldwide turnover or assets for all Concerned Parties to the Economic Concentration surpasses EGP 7.5 billion based on the most recent approved consolidated annual financial statements if the value of Egyptian turnover for at least one party exceeds EGP 200 million based on its most recent approved consolidated annual financial statement.

 

 

The Amendments define “Concerned Parties” as natural persons, legal entities, economic entities, associations, financial groups, and personal groups regardless of their method of establishment participating in the Economic Concentration along with their related parties, and;

 

“Related Parties” as parties composed of two or more persons, each possessing independent legal personality, wherein the majority of stocks or shares of one of them is owned, directly or indirectly, by the other party or wherein the majority of stocks or shares in both parties are owned by one party. Related parties also encompass the person or persons subject to the actual control of another person. Actual control entails every arrangement, agreement, or ownership of stocks or shares, irrespective of percentage, in a manner leading to the control of management or decision-making.

 

 

The financial threshold for the Economic Concentration is computed as the sum of the achieved annual turnover or asset value as per the latest approved annual consolidated financial statement for all Concerned Parties, including sellers who remain among the related parties of the target entity after the implementation of the Economic Concentration, excluding sellers who will exit the target entity subsequent to the implementation of the Economic Concentration.

 

In instances where the annual consolidated turnover or asset value is denominated in foreign currency, it shall be converted to EGP based on the official exchange rate declared by the Central Bank of Egypt on the last day of the Concerned Party’s financial year.

 

WHO SHALL SUBMIT THE PRE-MERGER NOTIFICATION

 

The pre-merger notification shall be filed before the ECA by the following persons:

 

The acquiring persons(s) in cases where the acquisition results in individual or collective control or material influence over other person(s).

 

The merged entities in the event of a merger.

 

The acquiring person(s) if the purpose of such acquisition is to establish a joint venture.

 

Parties establishing the joint venture.

 

STEPS FOR FILING PRE-MERGER NOTIFICATION

 

There exists no deadline for filing the pre-merger notification with the ECA, as the filing may be made at any time prior to the implementation of the Economic Concentration, and as per the Amendments, the steps for filing the pre-merger notification are as follows:

 

1.Completion of the ECA pre-merger notification application form (to be issued).

 

2.Payment of the relevant examination official fees to the ECA.

 

3. Submission of photocopies of the documents detailed in the Amendments, noting that any non-Arabic document must be translated into Arabic to be accepted by the ECA.

 

 

4.Upon receipt of the pre-merger notification file, the ECA shall publish a statement and a brief regarding the Economic Concentration in a daily newspaper or on its official website, allowing third parties to submit related comments within 15 days from the publication date, unless the ECA decides not to publish due to reasons related to public order. This publishing process was not referenced in the ECL but shall not delay the examination period.

 

5.The applicant may submit any additional document(s) or information considered essential for the examination of the Economic Concentration, such as studies prepared by the Concerned Parties for their products or for the purpose of evaluating or analysing the impact of the transaction on the market.

 

 

6.The applicant must notify the ECA of any changes to the legal form of the Economic Concentration during the examination period; failure to do so will result in any approval granted, in the absence of such notification, being deemed to have been obtained through the submission of false information/documents to the ECA.

 

 

Pursuant to the Amendments, the applicant for the pre-merger notification shall submit photocopies of the following documents (any non-Arabic document must be translated into Arabic):

 

1.Power of attorney issued in the name of the applicant’s representative(s), legalized before the relevant Egyptian Consulate (the original should be available upon request), along with a copy of the representative(s) ID.

 

2.Commercial register extract or equivalent document for each of the Concerned Parties excluding Related Parties.

 

3.A copy of the articles of association as amended or an equivalent document for each of the Concerned Parties excluding Related Parties.

 

4.A copy of the most recent approved annual consolidated financial statements (or separate financial statement if the consolidated is not yet available) for the persons controlling each of the Concerned Parties along with the relevant auditor’s report.

 

5.A copy of the annual report for each of the Concerned Parties excluding related parties.

 

6.A copy of the letter of intent, memorandum of understanding, sale and purchase agreement, purchase offer, or due diligence report, or shareholders agreement, or any other agreement enabling a person to control or exert material influence.

 

7.A copy of the ratified meeting minutes for the board of directors and general ordinary/extraordinary assembly related to the Economic Concentration.

 

8.A copy of the approvals and clearances issued concerning the notified Economic Concentration from other authorities inside or outside of Egypt.

 

9.The payment receipt for the ECA examination fees.

 

10.A written acknowledgment that the applicant will bear any publication fees (the ECA board should issue regulations regarding such fees).

 

 

Upon submission of the pre-merger filing, the Economic Concentration shall be examined by the ECA committee, which may, at its discretion, engage in two phases:

 

 

The ECA committee shall review the filing and render a decision within 30 working days, extendable by an additional 15 working days if the Concerned Parties submit an undertakings and regulations proposal during the examination period to obtain conditional approval for the Economic Concentration from the ECA.

 

Should the committee fail to render a decision in Phase 1 within a maximum of 45 working days from the date of submitting the notifications, the Economic Concentration shall be deemed approved by the ECA.

 

 

The ECA committee in Phase 1 may opt to refer the notification for Phase 2 (inspection). In this phase, the committee must render a decision within 60 working days from the referral decision, extendable by an additional 15 working days if the Concerned Parties submit an undertakings and regulations proposal during the examination period to obtain conditional approval for the Economic Concentration from the ECA.

 

Should the ECA fail to issue a decision during Phase 2 within a maximum of 75 working days from the referral of the filing from Phase 1, the Economic Concentration shall be deemed approved by the ECA.

 

 

In contrast to the post-closing filing regime, which was fee-exempt, the Pre-Merger Regime incorporates associated fees, as the ECA shall levy an official fee to be paid by the applicant, categorized as follows:

 

1.EGP 80,000 if the combined total annual turnover or assets for the Concerned Parties in Egypt falls between EGP 90 million and EGP 1 billion.

 

2.EGP 90,000 if the combined total annual turnover or assets for the Concerned Parties in Egypt falls between EGP 1 billion and EGP 1.5 billion.

 

3.EGP 100,000 if the combined total annual turnover or assets for the Concerned Parties in Egypt exceeds EGP 1.5 billion.

 

4.EGP 100,000 if the total global (worldwide) combined annual turnover or assets of the Concerned Parties exceeds EGP 7.5 billion, provided that the total annual Egyptian turnover for one of the Concerned Parties of the Economic Concentration in its most recent approved annual consolidated financial statements exceeded EGP 200 million.

 

 

Failure to adhere to the Pre-Merger Regime may result in a fine ranging between 1 percent and 10 percent of the value of the gross turnover or assets for the Concerned Parties, based on the most recent approved consolidated financial reports, and in instances where such calculation is unfeasible, the fine shall range between EGP 30 million to EGP 500 million.

 

 

The Amendments provide that the ECA, following Prime Minister approval, may commence examination of an Economic Concentration that does not meet the financial thresholds for pre-merger notification, provided the ECA possesses evidence that such Economic Concentration may lead to restriction, limitation, or harm to competition within one year from its implementation, evidenced by occurrences such as:

 

1.Limitation of technological or innovation development.

 

2.Market control through actions that raise or lower prices.

 

3.Diminution of product quality.

 

4.Creation of market entry barriers or impediments to expansion.

 

 

The ECL delineates certain transactions exempted from the Pre-Merger Regime:

 

1.Temporary acquisitions by securities companies of securities with the intent to resell within one year from their acquisition date, provided the securities company does not exercise voting rights or influence strategic decisions or commercial objectives of the acquired entity; furthermore, the ECA may entertain requests to extend this period under certain conditions.

 

2.Merger or acquisition between subsidiaries, considered a form of restructuring unless such merger or acquisition leads to direct or indirect changes in control or material influence.

 

 

In a departure from traditional regulatory approaches, the decree encourages entities involved in economic concentration to proactively propose commitments and controls. Through engaging stakeholders in a collaborative dialogue, regulators aim to mitigate adverse effects on competition, fostering a cooperative framework conducive to sustainable market growth.

 

 

With the decree, Egypt’s regulatory framework assumes a proactive stance toward evaluating economic concentration cases. Market assessments conducted by the ECA scrutinize factors such as market structure, consumer alternatives, and barriers to entry. Such comprehensive evaluations ensure a holistic understanding of competition dynamics, enabling informed regulatory interventions aimed at preserving market fairness.

 

 

The Financial Regulatory Authority (FRA) oversees Egyptian companies engaged in capital market activities, non-banking financial institutions, and insurance-related activities. The ECL establishes a distinct process for pre-closing notifications for economic concentrations occurring in any FRA-supervised activities. Such parties must notify

 

the FRA of the economic concentration, and the FRA must seek an ECA opinion before approving the implementation of the economic concentration. In this scenario, the ECA must render a decision within a maximum of 30 calendar days from the date of receiving the notification from the FRA. Otherwise, it shall be deemed that the ECA has no objection to the economic concentration.

 

As Egypt embarks on this regulatory journey, Prime Minister’s Decree no. 1120 for 2024 emerges as a pivotal milestone in the nation’s quest to fortify its competitive landscape. By championing transparency, regulatory vigilance, and collaborative engagement, the decree lays the groundwork for a resilient and dynamic marketplace. As businesses navigate the contours of these transformative regulations, adherence to competition norms emerges as not merely a regulatory obligation but a cornerstone of sustainable economic growth and prosperity in Egypt.