10th of April, 2024
Legislative Update: Insights on the new Egyptian merger control regime
Keywords: Competition, M&A
In December 2022, Egypt amended its Competition Law No. 3 of 2005 by issuing Law No. 175 of 2022 (together the “Law”), with the main purpose of overhauling the post-closing non-suspensory notification regime and introducing a mandatory and suspensory pre-merger control regime. The Law provides the Egyptian Competition Authority (the “ECA”), for the first time, with the competency and power to assess economic concentrations that meet certain conditions to ascertain their impact on competition in Egypt. The ECA can therefore upon its review approve, conditionally or unconditionally or reject a transaction.
For more details about the highlights of the amendments to the Law, please refer to our client alert here.
However, the ECA announced in early 2023 that the implementation of the new regime is delayed pending the issuance of amendments to the executive regulations of the Law (the “ER”). The business and the legal community had to wait for 18 months before the ER were finally unveiled through the issuance and publication of Prime Minister’s decree No. 1120/2014 (“Decree”) on Apr. 7th 2024.
The main purpose of the Decree is to address details concerning the new merger review regime and procedures pertaining thereto, the details of which the Law deferred to the ER.
Key issues addressed in the Decree provisions include, inter alia, clarifications on the calculation of the monetary threshold, material influence test, inspection fee assessment mechanism and required documents. The Decree also provides for the criteria for approving economic concentrations in certain circumstances such as economic efficiency or national security considerations. It also reaffirms the power of the ECA to decide to review transactions not meeting the monetary thresholds if the ECA suspects it will limit or harm competition, within 1 year from the date of execution of the economic concentration and sets out factors to guide the ECA determination in this regard.
So, what are the main takeaways from the Decree and the main features of the new pre-merger review regime?
- Date of implementation of the pre-merger review regime
The Decree expressly provides for a date of implementation as of 1st of June 2024. It appears that the Government took on board comments from the legal and business community requesting a grace period is provided for in the ER, since the Law itself did not provide for one. As such, transactions closing by 31st of May 2024 will not be caught by the pre-merger review regime and should proceed with closing without having to notify the Egyptian Competition Authority (the “ECA”) of the transaction.
- Post-closing notification regime
The post-closing non-suspensory notification regime that used to exist under the Law has been abolished since December 2022 when amendments to the Law introducing the pre-closing M&A review regime were enacted. Provisions of the Law and the ER pertaining to the pre-merger review regime are repealed. This means that transactions closing before the 1st of June 2024 are also not subject to the post-closing notification regime.
- Notifiable transactions & calculation of turnover
Under the Law and the ER, economic concentrations satisfying certain monetary and control/material influence requirements will need to be notified to the ECA before closing, to allow the ECA to assess its impact on competition in Egypt and determined whether to allow or block such a concentration.
Economic concentrations leading to a change in control or material influence (both of which are defined under the Law), that also meet any of the monetary thresholds (later mentioned) must be notified pre-closing to the ECA and shall be subject to the ECA assessment process.
Clarifications on “material influence”
The Decree further clarifies the meaning of “material influence” and provides guidance as to the test that will be implemented by the ECA in this regard. The Decree defines “material influence” as the ability to influence either directly or indirectly the policy of another person, including its strategic decisions or commercial goals. It further provides for instance when such material influence will be considered to exist, as follows:
In case of leading to an ownership of 25% or more of the total voting rights, shares or equity shares of another person, or
In case of leading on an ownership of less than 25% of the total voting rights, shares or equity shares of another person, if accompanied by other factors that influence the policies or commercial goals of a person, especially in case of: (a) the percentage of the voting right that enables influencing the policy and commercial goals of the person, (b) provisions in any agreement granting the acquirer privileges such as special voting rights or veto rights, (c) the presence of shareholders or portion holders common between the acquirer and the target, and/or (d) having one or more representative of the acquirer in the board of directors of the target.
The Decree provides that material influence will not exist by acquiring less than 10% of the total voting rights or shares or equity rights in another person, unless the acquirer is one of the top three shareholders or equity owners in the target.
It is not clear if the ECA, in practice, will allow parties to challenge the presumptions provided under this material influence test.
Clarifications on calculating the monetary threshold
If the aggregate annual turnover or value of assets, whichever is higher, of the parties in Egypt exceeds EGP 900 million (app. USD 18.9 million) and provided at least two of the parties each drive a turnover in Egypt more than EGP 200 million (app. USD 4.2 million), or
if the aggregate annual global turnover or value of assets, whichever is higher, of the parties exceeds EGP 7.5 billion (app. USD 158 million) and provided that at least one of the parties to the transaction drives turnover in Egypt more than EGP 200 million (app. USD 4.2 million).
The Decree clarifies the method of calculating the combined annual turnover/value of assets by providing that it will be on the basis of the annual turnover and value of assets of the parties concerned with the concentration, based on the last audited financial year.
The calculations will exclude the same of the seller if the seller is exiting the entity subject of the economic concentration.
The exchange rate as announced by the Central Bank on the last day of the financial year of the concerned parities shall be the basis for foreign currency conversions needed to calculate the turnover/value of assets for the purpose of assessing if the monetary threshold is met.
The Decree further defines persons concerned with the economic concentration as “…. natural persons, legal entities, economic entities, unions, associations, financial groups, and collectives of persons, regardless of the method of their establishment, participating in the economic concentration, and their associated parties”.
Clarifications on the test for assessing harm to competition
The Decree provides for factors the ECA will consider when assessing an economic concentration, which seem to be provided in an exclusive manner, as follows:
The structure of the market or the concerned markets, the level of actual or probable competition in Egypt and outside Egypt if it impacts its markets.
The market status of the parties concerned with the economic concentration including their economic status, their financial capabilities compared to the current and probable investments in the market.
Substitutions available to the suppliers, customers and consumers and their ability to access production resources or concerned markets, and the pattern of supplying concerned products and their consumption.
Barriers to entry and expansion in the concerned markets.
The potential effect of the economic concentration on the consumer, or the existing or potential investments.
The impact of economic concentration on innovation and development.
Potential negative effect on the freedom to compete.
Excluded transactions
The Decree reiterates the two exceptions provided under the Law. So, corporate restructuring not leading to a change of control and temporary acquisition of securities, will not be subject to the notification and ECA pre-merger control regime.
- Party bearing the obligation to notify
While the Law did not provide certainly as to the party responsible for notifying an economic concentration to the ECA with the presumption being that it is the acquirer, the Decree provides a much-needed clarity in this regard and determines the notifying party depending on the type of the concerned transaction, as follows:
The acquiring person or persons in acquisitions leading to control or material influence, individually or collectively, over one or more persons.
Persons involved in a merger.
Persons acquiring control through the acquisition of a person for the purpose of establishing a joint venture.
Persons responsible for establishing a joint venture.
- Notification form and supporting documents
The ER does not include the new notification form, but it lists the required documents and data ask list. The ECA will be publishing the new form and guidelines pertaining thereto within the coming few days to allow the business and legal community to get familiar with the new regime before the implementation date of 1st of June 2024.
In comparison to the previous documents and data ask list, the new list expectedly requires more information/documents. We note especially the need for a power of attorney issued from the notifying company to the applying individual for the notification filing, in replacement of the simpler delegation letter.
We also note that there is an obligation on the notifying party to inform ECA in writing of any modification or change that occurs in the legal form of economic concentration during the examination period that is punishable by a fine ranging from EGP 50,000 to EGP 1 million (app. USD 1,050 to 21,050).
Documents are only accepted in Arabic or if in another language, must be accompanied by an Arabic translation. It is helpful that the majority of the ask list requires copies of documents rather than originals.
- Notification fees and their assessment
The Law caps the filing fees at EGP 100,000 but deferred to the ER to determine the mechanism for determining such fees.
The Decree therefore introduces a tiered notification fees scheme payable to the ECA, ranging from EGP 80,000 to EGP 100,00, depending on the realized annual aggregate turnover/value of assets of the parties concerned with the economic concentration under review. In case more than one category is applicable, the highest fee will apply.
7. Publication of the notified economic concentration, publication fees and third-party observations
The ECA will publish a statement regarding the transaction subject to the economic concentration and a summary thereof in a widely circulated daily newspaper or on the official website of the ECA, immediately upon receiving a complete notification file. The purpose of the publication is to allow third parties the chance to submit observations on the economic concentration. The ECA’s board may decide to forgo the publication on public interest grounds. Publication fees will be borne by the notifying party subject to guidelines to be issued by the ECA.
8. ECA review timelines
The ECA review timelines for Phase I and Phase II are set under the Law. The review period for Phase I is 30 working days, with an additional 15 working days in case a commitment offer is submitted, while Phase II is 30 working days with an additional 15 days in case of a submission of a commitment offer. In both cases, if the ECA does not respond by the end of such a period, parties may proceed with closing as its approval will be deemed.
The Decree provides some clarity in this regard, but we hope further clarity is provided in the ECA forthcoming guidelines and consultations, particularly with regards to the criteria for considering a filing to be complete and its impact on the review timeline.
9. Transactions concerning FRA activities
For FRA related transactions, as per the Law the ECA has a 30-working day timeline, from the date it receives the complete file from the FRA, to provide the FRA with the ECA’s advisory opinion. However, the Law and the Decree do not provide for the timeline for the FRA’s own review and decision process, given it has the exclusive jurisdiction to clear economic concentrations that pertain to the non-banking financial and insurance sector.
The Decree provides that the same set of required documents and data set out in the Decree will be required in case of notifying the FRA with an economic concentration that falls under its competency. However, it is not clear if this includes the notification form or if the FRA will develop its own form. It is also not clear if the publication provisions and fees will also apply.
10. Penalties
Penalty for failure to notify the ECA before consummating notifiable transactions is determined by the Law to be a fine of not less than 1% and not exceeding 10% of the total annual turnover, assets, or value of the transaction for its parties, whichever is higher, according to the latest approved combined financial statements of the transaction parties. If such a percentage cannot be calculated, the penalty shall be a fine of not less than EGP 30 million (app. USD 631k) and not exceeding EGP 500 million (app. USD 10.5 million).
Key watch outs
It is expected that the ECA will be publishing the new notification form and guidelines within the coming few days, as we understand they have been prepared beforehand and ready for dissemination right after the issuance of the ER. We also understand that the ECA is planning to make use of the period until 1st of June to familiarize the business and legal community with the new regime through a series of consultations and information sessions with stakeholders.
The Law and the Decree do not stipulate in an express manner for a stop-the-clock type of scenarios. However, a notification file is not legally satisfied unless a notification form designated by the authority is completed and all supporting documents are submitted to the ECA. This could mean that in practice, the ECA will have a level of discretion to determine if the filing is complete, therefore, to determine when the review clock has started. So, even if the ECA showed a considerable level of leniency and accepted the filing without certain documents, there will be grounds for the ECA to claim that the timeline for its review did not start until after the filing was complete. The ECA will also likely be reluctant to issue its decision until after the file is complete.
One example that comes to mind here relates to the instrument of authorization that is required to handle the filing procedures before the ECA. Under the new regime, a power of attorney will be needed to handle such procedures. A power of attorney issued in Egypt must be procured from the Notary Office and if issued outside of Egypt, it will need to be notarized, consularized abroad and then legalized in Egypt. This process can take anywhere between 2 weeks to a couple of months. Further, clients are advised to consider translation time for non-Arabic documents, when considering the overall timeframe for the Egyptian competition review process.
For economic concentrations falling under the competency of the Financial regulatory Authority (FRA), much clarity is still needed on the part of the FRA as well as the ECA to better understand the practicalities of the filing and review procedures. It is not clear for example if the FRA is subject to any timeframes for its own review and decision process, given it is the recipient of the submission and the competent authority to ultimately decide on an economic concertation from a competition law perspective. We look forward to also getting some clarity through the consultations from the ECA with regards to transactions including mandatory purchase offers.
Download the full article from here
In December 2022, Egypt amended its Competition Law No. 3 of 2005 by issuing Law No. 175 of 2022 (together the “Law”), with the main purpose of overhauling the post-closing non-suspensory notification regime and introducing a mandatory and suspensory pre-merger control regime. The Law provides the Egyptian Competition Authority (the “ECA”), for the first time, with the competency and power to assess economic concentrations that meet certain conditions to ascertain their impact on competition in Egypt. The ECA can therefore upon its review approve, conditionally or unconditionally or reject a transaction.
For more details about the highlights of the amendments to the Law, please refer to our client alert here.
However, the ECA announced in early 2023 that the implementation of the new regime is delayed pending the issuance of amendments to the executive regulations of the Law (the “ER”). The business and the legal community had to wait for 18 months before the ER were finally unveiled through the issuance and publication of Prime Minister’s decree No. 1120/2014 (“Decree”) on Apr. 7th 2024.
The main purpose of the Decree is to address details concerning the new merger review regime and procedures pertaining thereto, the details of which the Law deferred to the ER.
Key issues addressed in the Decree provisions include, inter alia, clarifications on the calculation of the monetary threshold, material influence test, inspection fee assessment mechanism and required documents. The Decree also provides for the criteria for approving economic concentrations in certain circumstances such as economic efficiency or national security considerations. It also reaffirms the power of the ECA to decide to review transactions not meeting the monetary thresholds if the ECA suspects it will limit or harm competition, within 1 year from the date of execution of the economic concentration and sets out factors to guide the ECA determination in this regard.
So, what are the main takeaways from the Decree and the main features of the new pre-merger review regime?
- Date of implementation of the pre-merger review regime
The Decree expressly provides for a date of implementation as of 1st of June 2024. It appears that the Government took on board comments from the legal and business community requesting a grace period is provided for in the ER, since the Law itself did not provide for one. As such, transactions closing by 31st of May 2024 will not be caught by the pre-merger review regime and should proceed with closing without having to notify the Egyptian Competition Authority (the “ECA”) of the transaction.
- Post-closing notification regime
The post-closing non-suspensory notification regime that used to exist under the Law has been abolished since December 2022 when amendments to the Law introducing the pre-closing M&A review regime were enacted. Provisions of the Law and the ER pertaining to the pre-merger review regime are repealed. This means that transactions closing before the 1st of June 2024 are also not subject to the post-closing notification regime.
- Notifiable transactions & calculation of turnover
Under the Law and the ER, economic concentrations satisfying certain monetary and control/material influence requirements will need to be notified to the ECA before closing, to allow the ECA to assess its impact on competition in Egypt and determined whether to allow or block such a concentration.
Economic concentrations leading to a change in control or material influence (both of which are defined under the Law), that also meet any of the monetary thresholds (later mentioned) must be notified pre-closing to the ECA and shall be subject to the ECA assessment process.
Clarifications on “material influence”
The Decree further clarifies the meaning of “material influence” and provides guidance as to the test that will be implemented by the ECA in this regard. The Decree defines “material influence” as the ability to influence either directly or indirectly the policy of another person, including its strategic decisions or commercial goals. It further provides for instance when such material influence will be considered to exist, as follows:
In case of leading to an ownership of 25% or more of the total voting rights, shares or equity shares of another person, or
In case of leading on an ownership of less than 25% of the total voting rights, shares or equity shares of another person, if accompanied by other factors that influence the policies or commercial goals of a person, especially in case of: (a) the percentage of the voting right that enables influencing the policy and commercial goals of the person, (b) provisions in any agreement granting the acquirer privileges such as special voting rights or veto rights, (c) the presence of shareholders or portion holders common between the acquirer and the target, and/or (d) having one or more representative of the acquirer in the board of directors of the target.
The Decree provides that material influence will not exist by acquiring less than 10% of the total voting rights or shares or equity rights in another person, unless the acquirer is one of the top three shareholders or equity owners in the target.
It is not clear if the ECA, in practice, will allow parties to challenge the presumptions provided under this material influence test.
Clarifications on calculating the monetary threshold
If the aggregate annual turnover or value of assets, whichever is higher, of the parties in Egypt exceeds EGP 900 million (app. USD 18.9 million) and provided at least two of the parties each drive a turnover in Egypt more than EGP 200 million (app. USD 4.2 million), or
if the aggregate annual global turnover or value of assets, whichever is higher, of the parties exceeds EGP 7.5 billion (app. USD 158 million) and provided that at least one of the parties to the transaction drives turnover in Egypt more than EGP 200 million (app. USD 4.2 million).
The Decree clarifies the method of calculating the combined annual turnover/value of assets by providing that it will be on the basis of the annual turnover and value of assets of the parties concerned with the concentration, based on the last audited financial year.
The calculations will exclude the same of the seller if the seller is exiting the entity subject of the economic concentration.
The exchange rate as announced by the Central Bank on the last day of the financial year of the concerned parities shall be the basis for foreign currency conversions needed to calculate the turnover/value of assets for the purpose of assessing if the monetary threshold is met.
The Decree further defines persons concerned with the economic concentration as “…. natural persons, legal entities, economic entities, unions, associations, financial groups, and collectives of persons, regardless of the method of their establishment, participating in the economic concentration, and their associated parties”.
Clarifications on the test for assessing harm to competition
The Decree provides for factors the ECA will consider when assessing an economic concentration, which seem to be provided in an exclusive manner, as follows:
The structure of the market or the concerned markets, the level of actual or probable competition in Egypt and outside Egypt if it impacts its markets.
The market status of the parties concerned with the economic concentration including their economic status, their financial capabilities compared to the current and probable investments in the market.
Substitutions available to the suppliers, customers and consumers and their ability to access production resources or concerned markets, and the pattern of supplying concerned products and their consumption.
Barriers to entry and expansion in the concerned markets.
The potential effect of the economic concentration on the consumer, or the existing or potential investments.
The impact of economic concentration on innovation and development.
Potential negative effect on the freedom to compete.
Excluded transactions
The Decree reiterates the two exceptions provided under the Law. So, corporate restructuring not leading to a change of control and temporary acquisition of securities, will not be subject to the notification and ECA pre-merger control regime.
- Party bearing the obligation to notify
While the Law did not provide certainly as to the party responsible for notifying an economic concentration to the ECA with the presumption being that it is the acquirer, the Decree provides a much-needed clarity in this regard and determines the notifying party depending on the type of the concerned transaction, as follows:
The acquiring person or persons in acquisitions leading to control or material influence, individually or collectively, over one or more persons.
Persons involved in a merger.
Persons acquiring control through the acquisition of a person for the purpose of establishing a joint venture.
Persons responsible for establishing a joint venture.
- Notification form and supporting documents
The ER does not include the new notification form, but it lists the required documents and data ask list. The ECA will be publishing the new form and guidelines pertaining thereto within the coming few days to allow the business and legal community to get familiar with the new regime before the implementation date of 1st of June 2024.
In comparison to the previous documents and data ask list, the new list expectedly requires more information/documents. We note especially the need for a power of attorney issued from the notifying company to the applying individual for the notification filing, in replacement of the simpler delegation letter.
We also note that there is an obligation on the notifying party to inform ECA in writing of any modification or change that occurs in the legal form of economic concentration during the examination period that is punishable by a fine ranging from EGP 50,000 to EGP 1 million (app. USD 1,050 to 21,050).
Documents are only accepted in Arabic or if in another language, must be accompanied by an Arabic translation. It is helpful that the majority of the ask list requires copies of documents rather than originals.
- Notification fees and their assessment
The Law caps the filing fees at EGP 100,000 but deferred to the ER to determine the mechanism for determining such fees.
The Decree therefore introduces a tiered notification fees scheme payable to the ECA, ranging from EGP 80,000 to EGP 100,00, depending on the realized annual aggregate turnover/value of assets of the parties concerned with the economic concentration under review. In case more than one category is applicable, the highest fee will apply.
7. Publication of the notified economic concentration, publication fees and third-party observations
The ECA will publish a statement regarding the transaction subject to the economic concentration and a summary thereof in a widely circulated daily newspaper or on the official website of the ECA, immediately upon receiving a complete notification file. The purpose of the publication is to allow third parties the chance to submit observations on the economic concentration. The ECA’s board may decide to forgo the publication on public interest grounds. Publication fees will be borne by the notifying party subject to guidelines to be issued by the ECA.
8. ECA review timelines
The ECA review timelines for Phase I and Phase II are set under the Law. The review period for Phase I is 30 working days, with an additional 15 working days in case a commitment offer is submitted, while Phase II is 30 working days with an additional 15 days in case of a submission of a commitment offer. In both cases, if the ECA does not respond by the end of such a period, parties may proceed with closing as its approval will be deemed.
The Decree provides some clarity in this regard, but we hope further clarity is provided in the ECA forthcoming guidelines and consultations, particularly with regards to the criteria for considering a filing to be complete and its impact on the review timeline.
9. Transactions concerning FRA activities
For FRA related transactions, as per the Law the ECA has a 30-working day timeline, from the date it receives the complete file from the FRA, to provide the FRA with the ECA’s advisory opinion. However, the Law and the Decree do not provide for the timeline for the FRA’s own review and decision process, given it has the exclusive jurisdiction to clear economic concentrations that pertain to the non-banking financial and insurance sector.
The Decree provides that the same set of required documents and data set out in the Decree will be required in case of notifying the FRA with an economic concentration that falls under its competency. However, it is not clear if this includes the notification form or if the FRA will develop its own form. It is also not clear if the publication provisions and fees will also apply.
10. Penalties
Penalty for failure to notify the ECA before consummating notifiable transactions is determined by the Law to be a fine of not less than 1% and not exceeding 10% of the total annual turnover, assets, or value of the transaction for its parties, whichever is higher, according to the latest approved combined financial statements of the transaction parties. If such a percentage cannot be calculated, the penalty shall be a fine of not less than EGP 30 million (app. USD 631k) and not exceeding EGP 500 million (app. USD 10.5 million).
Key watch outs
It is expected that the ECA will be publishing the new notification form and guidelines within the coming few days, as we understand they have been prepared beforehand and ready for dissemination right after the issuance of the ER. We also understand that the ECA is planning to make use of the period until 1st of June to familiarize the business and legal community with the new regime through a series of consultations and information sessions with stakeholders.
The Law and the Decree do not stipulate in an express manner for a stop-the-clock type of scenarios. However, a notification file is not legally satisfied unless a notification form designated by the authority is completed and all supporting documents are submitted to the ECA. This could mean that in practice, the ECA will have a level of discretion to determine if the filing is complete, therefore, to determine when the review clock has started. So, even if the ECA showed a considerable level of leniency and accepted the filing without certain documents, there will be grounds for the ECA to claim that the timeline for its review did not start until after the filing was complete. The ECA will also likely be reluctant to issue its decision until after the file is complete.
One example that comes to mind here relates to the instrument of authorization that is required to handle the filing procedures before the ECA. Under the new regime, a power of attorney will be needed to handle such procedures. A power of attorney issued in Egypt must be procured from the Notary Office and if issued outside of Egypt, it will need to be notarized, consularized abroad and then legalized in Egypt. This process can take anywhere between 2 weeks to a couple of months. Further, clients are advised to consider translation time for non-Arabic documents, when considering the overall timeframe for the Egyptian competition review process.
For economic concentrations falling under the competency of the Financial regulatory Authority (FRA), much clarity is still needed on the part of the FRA as well as the ECA to better understand the practicalities of the filing and review procedures. It is not clear for example if the FRA is subject to any timeframes for its own review and decision process, given it is the recipient of the submission and the competent authority to ultimately decide on an economic concertation from a competition law perspective. We look forward to also getting some clarity through the consultations from the ECA with regards to transactions including mandatory purchase offers.
Download the full article from here
Legislative Update: Insights on the new Egyptian merger control regime
10th of April, 2024
Keywords: Competition, M&A
In December 2022, Egypt amended its Competition Law No. 3 of 2005 by issuing Law No. 175 of 2022 (together the “Law”), with the main purpose of overhauling the post-closing non-suspensory notification regime and introducing a mandatory and suspensory pre-merger control regime. The Law provides the Egyptian Competition Authority (the “ECA”), for the first time, with the competency and power to assess economic concentrations that meet certain conditions to ascertain their impact on competition in Egypt. The ECA can therefore upon its review approve, conditionally or unconditionally or reject a transaction.
For more details about the highlights of the amendments to the Law, please refer to our client alert here.
However, the ECA announced in early 2023 that the implementation of the new regime is delayed pending the issuance of amendments to the executive regulations of the Law (the “ER”). The business and the legal community had to wait for 18 months before the ER were finally unveiled through the issuance and publication of Prime Minister’s decree No. 1120/2014 (“Decree”) on Apr. 7th 2024.
The main purpose of the Decree is to address details concerning the new merger review regime and procedures pertaining thereto, the details of which the Law deferred to the ER.
Key issues addressed in the Decree provisions include, inter alia, clarifications on the calculation of the monetary threshold, material influence test, inspection fee assessment mechanism and required documents. The Decree also provides for the criteria for approving economic concentrations in certain circumstances such as economic efficiency or national security considerations. It also reaffirms the power of the ECA to decide to review transactions not meeting the monetary thresholds if the ECA suspects it will limit or harm competition, within 1 year from the date of execution of the economic concentration and sets out factors to guide the ECA determination in this regard.
So, what are the main takeaways from the Decree and the main features of the new pre-merger review regime?
- Date of implementation of the pre-merger review regime
The Decree expressly provides for a date of implementation as of 1st of June 2024. It appears that the Government took on board comments from the legal and business community requesting a grace period is provided for in the ER, since the Law itself did not provide for one. As such, transactions closing by 31st of May 2024 will not be caught by the pre-merger review regime and should proceed with closing without having to notify the Egyptian Competition Authority (the “ECA”) of the transaction.
- Post-closing notification regime
The post-closing non-suspensory notification regime that used to exist under the Law has been abolished since December 2022 when amendments to the Law introducing the pre-closing M&A review regime were enacted. Provisions of the Law and the ER pertaining to the pre-merger review regime are repealed. This means that transactions closing before the 1st of June 2024 are also not subject to the post-closing notification regime.
- Notifiable transactions & calculation of turnover
Under the Law and the ER, economic concentrations satisfying certain monetary and control/material influence requirements will need to be notified to the ECA before closing, to allow the ECA to assess its impact on competition in Egypt and determined whether to allow or block such a concentration.
Economic concentrations leading to a change in control or material influence (both of which are defined under the Law), that also meet any of the monetary thresholds (later mentioned) must be notified pre-closing to the ECA and shall be subject to the ECA assessment process.
Clarifications on “material influence”
The Decree further clarifies the meaning of “material influence” and provides guidance as to the test that will be implemented by the ECA in this regard. The Decree defines “material influence” as the ability to influence either directly or indirectly the policy of another person, including its strategic decisions or commercial goals. It further provides for instance when such material influence will be considered to exist, as follows:
In case of leading to an ownership of 25% or more of the total voting rights, shares or equity shares of another person, or
In case of leading on an ownership of less than 25% of the total voting rights, shares or equity shares of another person, if accompanied by other factors that influence the policies or commercial goals of a person, especially in case of: (a) the percentage of the voting right that enables influencing the policy and commercial goals of the person, (b) provisions in any agreement granting the acquirer privileges such as special voting rights or veto rights, (c) the presence of shareholders or portion holders common between the acquirer and the target, and/or (d) having one or more representative of the acquirer in the board of directors of the target.
The Decree provides that material influence will not exist by acquiring less than 10% of the total voting rights or shares or equity rights in another person, unless the acquirer is one of the top three shareholders or equity owners in the target.
It is not clear if the ECA, in practice, will allow parties to challenge the presumptions provided under this material influence test.
Clarifications on calculating the monetary threshold
If the aggregate annual turnover or value of assets, whichever is higher, of the parties in Egypt exceeds EGP 900 million (app. USD 18.9 million) and provided at least two of the parties each drive a turnover in Egypt more than EGP 200 million (app. USD 4.2 million), or
if the aggregate annual global turnover or value of assets, whichever is higher, of the parties exceeds EGP 7.5 billion (app. USD 158 million) and provided that at least one of the parties to the transaction drives turnover in Egypt more than EGP 200 million (app. USD 4.2 million).
The Decree clarifies the method of calculating the combined annual turnover/value of assets by providing that it will be on the basis of the annual turnover and value of assets of the parties concerned with the concentration, based on the last audited financial year.
The calculations will exclude the same of the seller if the seller is exiting the entity subject of the economic concentration.
The exchange rate as announced by the Central Bank on the last day of the financial year of the concerned parities shall be the basis for foreign currency conversions needed to calculate the turnover/value of assets for the purpose of assessing if the monetary threshold is met.
The Decree further defines persons concerned with the economic concentration as “…. natural persons, legal entities, economic entities, unions, associations, financial groups, and collectives of persons, regardless of the method of their establishment, participating in the economic concentration, and their associated parties”.
Clarifications on the test for assessing harm to competition
The Decree provides for factors the ECA will consider when assessing an economic concentration, which seem to be provided in an exclusive manner, as follows:
The structure of the market or the concerned markets, the level of actual or probable competition in Egypt and outside Egypt if it impacts its markets.
The market status of the parties concerned with the economic concentration including their economic status, their financial capabilities compared to the current and probable investments in the market.
Substitutions available to the suppliers, customers and consumers and their ability to access production resources or concerned markets, and the pattern of supplying concerned products and their consumption.
Barriers to entry and expansion in the concerned markets.
The potential effect of the economic concentration on the consumer, or the existing or potential investments.
The impact of economic concentration on innovation and development.
Potential negative effect on the freedom to compete.
Excluded transactions
The Decree reiterates the two exceptions provided under the Law. So, corporate restructuring not leading to a change of control and temporary acquisition of securities, will not be subject to the notification and ECA pre-merger control regime.
- Party bearing the obligation to notify
While the Law did not provide certainly as to the party responsible for notifying an economic concentration to the ECA with the presumption being that it is the acquirer, the Decree provides a much-needed clarity in this regard and determines the notifying party depending on the type of the concerned transaction, as follows:
The acquiring person or persons in acquisitions leading to control or material influence, individually or collectively, over one or more persons.
Persons involved in a merger.
Persons acquiring control through the acquisition of a person for the purpose of establishing a joint venture.
Persons responsible for establishing a joint venture.
- Notification form and supporting documents
The ER does not include the new notification form, but it lists the required documents and data ask list. The ECA will be publishing the new form and guidelines pertaining thereto within the coming few days to allow the business and legal community to get familiar with the new regime before the implementation date of 1st of June 2024.
In comparison to the previous documents and data ask list, the new list expectedly requires more information/documents. We note especially the need for a power of attorney issued from the notifying company to the applying individual for the notification filing, in replacement of the simpler delegation letter.
We also note that there is an obligation on the notifying party to inform ECA in writing of any modification or change that occurs in the legal form of economic concentration during the examination period that is punishable by a fine ranging from EGP 50,000 to EGP 1 million (app. USD 1,050 to 21,050).
Documents are only accepted in Arabic or if in another language, must be accompanied by an Arabic translation. It is helpful that the majority of the ask list requires copies of documents rather than originals.
- Notification fees and their assessment
The Law caps the filing fees at EGP 100,000 but deferred to the ER to determine the mechanism for determining such fees.
The Decree therefore introduces a tiered notification fees scheme payable to the ECA, ranging from EGP 80,000 to EGP 100,00, depending on the realized annual aggregate turnover/value of assets of the parties concerned with the economic concentration under review. In case more than one category is applicable, the highest fee will apply.
7. Publication of the notified economic concentration, publication fees and third-party observations
The ECA will publish a statement regarding the transaction subject to the economic concentration and a summary thereof in a widely circulated daily newspaper or on the official website of the ECA, immediately upon receiving a complete notification file. The purpose of the publication is to allow third parties the chance to submit observations on the economic concentration. The ECA’s board may decide to forgo the publication on public interest grounds. Publication fees will be borne by the notifying party subject to guidelines to be issued by the ECA.
8. ECA review timelines
The ECA review timelines for Phase I and Phase II are set under the Law. The review period for Phase I is 30 working days, with an additional 15 working days in case a commitment offer is submitted, while Phase II is 30 working days with an additional 15 days in case of a submission of a commitment offer. In both cases, if the ECA does not respond by the end of such a period, parties may proceed with closing as its approval will be deemed.
The Decree provides some clarity in this regard, but we hope further clarity is provided in the ECA forthcoming guidelines and consultations, particularly with regards to the criteria for considering a filing to be complete and its impact on the review timeline.
9. Transactions concerning FRA activities
For FRA related transactions, as per the Law the ECA has a 30-working day timeline, from the date it receives the complete file from the FRA, to provide the FRA with the ECA’s advisory opinion. However, the Law and the Decree do not provide for the timeline for the FRA’s own review and decision process, given it has the exclusive jurisdiction to clear economic concentrations that pertain to the non-banking financial and insurance sector.
The Decree provides that the same set of required documents and data set out in the Decree will be required in case of notifying the FRA with an economic concentration that falls under its competency. However, it is not clear if this includes the notification form or if the FRA will develop its own form. It is also not clear if the publication provisions and fees will also apply.
10. Penalties
Penalty for failure to notify the ECA before consummating notifiable transactions is determined by the Law to be a fine of not less than 1% and not exceeding 10% of the total annual turnover, assets, or value of the transaction for its parties, whichever is higher, according to the latest approved combined financial statements of the transaction parties. If such a percentage cannot be calculated, the penalty shall be a fine of not less than EGP 30 million (app. USD 631k) and not exceeding EGP 500 million (app. USD 10.5 million).
Key watch outs
It is expected that the ECA will be publishing the new notification form and guidelines within the coming few days, as we understand they have been prepared beforehand and ready for dissemination right after the issuance of the ER. We also understand that the ECA is planning to make use of the period until 1st of June to familiarize the business and legal community with the new regime through a series of consultations and information sessions with stakeholders.
The Law and the Decree do not stipulate in an express manner for a stop-the-clock type of scenarios. However, a notification file is not legally satisfied unless a notification form designated by the authority is completed and all supporting documents are submitted to the ECA. This could mean that in practice, the ECA will have a level of discretion to determine if the filing is complete, therefore, to determine when the review clock has started. So, even if the ECA showed a considerable level of leniency and accepted the filing without certain documents, there will be grounds for the ECA to claim that the timeline for its review did not start until after the filing was complete. The ECA will also likely be reluctant to issue its decision until after the file is complete.
One example that comes to mind here relates to the instrument of authorization that is required to handle the filing procedures before the ECA. Under the new regime, a power of attorney will be needed to handle such procedures. A power of attorney issued in Egypt must be procured from the Notary Office and if issued outside of Egypt, it will need to be notarized, consularized abroad and then legalized in Egypt. This process can take anywhere between 2 weeks to a couple of months. Further, clients are advised to consider translation time for non-Arabic documents, when considering the overall timeframe for the Egyptian competition review process.
For economic concentrations falling under the competency of the Financial regulatory Authority (FRA), much clarity is still needed on the part of the FRA as well as the ECA to better understand the practicalities of the filing and review procedures. It is not clear for example if the FRA is subject to any timeframes for its own review and decision process, given it is the recipient of the submission and the competent authority to ultimately decide on an economic concertation from a competition law perspective. We look forward to also getting some clarity through the consultations from the ECA with regards to transactions including mandatory purchase offers.
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In December 2022, Egypt amended its Competition Law No. 3 of 2005 by issuing Law No. 175 of 2022 (together the “Law”), with the main purpose of overhauling the post-closing non-suspensory notification regime and introducing a mandatory and suspensory pre-merger control regime. The Law provides the Egyptian Competition Authority (the “ECA”), for the first time, with the competency and power to assess economic concentrations that meet certain conditions to ascertain their impact on competition in Egypt. The ECA can therefore upon its review approve, conditionally or unconditionally or reject a transaction.
For more details about the highlights of the amendments to the Law, please refer to our client alert here.
However, the ECA announced in early 2023 that the implementation of the new regime is delayed pending the issuance of amendments to the executive regulations of the Law (the “ER”). The business and the legal community had to wait for 18 months before the ER were finally unveiled through the issuance and publication of Prime Minister’s decree No. 1120/2014 (“Decree”) on Apr. 7th 2024.
The main purpose of the Decree is to address details concerning the new merger review regime and procedures pertaining thereto, the details of which the Law deferred to the ER.
Key issues addressed in the Decree provisions include, inter alia, clarifications on the calculation of the monetary threshold, material influence test, inspection fee assessment mechanism and required documents. The Decree also provides for the criteria for approving economic concentrations in certain circumstances such as economic efficiency or national security considerations. It also reaffirms the power of the ECA to decide to review transactions not meeting the monetary thresholds if the ECA suspects it will limit or harm competition, within 1 year from the date of execution of the economic concentration and sets out factors to guide the ECA determination in this regard.
So, what are the main takeaways from the Decree and the main features of the new pre-merger review regime?
- Date of implementation of the pre-merger review regime
The Decree expressly provides for a date of implementation as of 1st of June 2024. It appears that the Government took on board comments from the legal and business community requesting a grace period is provided for in the ER, since the Law itself did not provide for one. As such, transactions closing by 31st of May 2024 will not be caught by the pre-merger review regime and should proceed with closing without having to notify the Egyptian Competition Authority (the “ECA”) of the transaction.
- Post-closing notification regime
The post-closing non-suspensory notification regime that used to exist under the Law has been abolished since December 2022 when amendments to the Law introducing the pre-closing M&A review regime were enacted. Provisions of the Law and the ER pertaining to the pre-merger review regime are repealed. This means that transactions closing before the 1st of June 2024 are also not subject to the post-closing notification regime.
- Notifiable transactions & calculation of turnover
Under the Law and the ER, economic concentrations satisfying certain monetary and control/material influence requirements will need to be notified to the ECA before closing, to allow the ECA to assess its impact on competition in Egypt and determined whether to allow or block such a concentration.
Economic concentrations leading to a change in control or material influence (both of which are defined under the Law), that also meet any of the monetary thresholds (later mentioned) must be notified pre-closing to the ECA and shall be subject to the ECA assessment process.
Clarifications on “material influence”
The Decree further clarifies the meaning of “material influence” and provides guidance as to the test that will be implemented by the ECA in this regard. The Decree defines “material influence” as the ability to influence either directly or indirectly the policy of another person, including its strategic decisions or commercial goals. It further provides for instance when such material influence will be considered to exist, as follows:
In case of leading to an ownership of 25% or more of the total voting rights, shares or equity shares of another person, or
In case of leading on an ownership of less than 25% of the total voting rights, shares or equity shares of another person, if accompanied by other factors that influence the policies or commercial goals of a person, especially in case of: (a) the percentage of the voting right that enables influencing the policy and commercial goals of the person, (b) provisions in any agreement granting the acquirer privileges such as special voting rights or veto rights, (c) the presence of shareholders or portion holders common between the acquirer and the target, and/or (d) having one or more representative of the acquirer in the board of directors of the target.
The Decree provides that material influence will not exist by acquiring less than 10% of the total voting rights or shares or equity rights in another person, unless the acquirer is one of the top three shareholders or equity owners in the target.
It is not clear if the ECA, in practice, will allow parties to challenge the presumptions provided under this material influence test.
Clarifications on calculating the monetary threshold
If the aggregate annual turnover or value of assets, whichever is higher, of the parties in Egypt exceeds EGP 900 million (app. USD 18.9 million) and provided at least two of the parties each drive a turnover in Egypt more than EGP 200 million (app. USD 4.2 million), or
if the aggregate annual global turnover or value of assets, whichever is higher, of the parties exceeds EGP 7.5 billion (app. USD 158 million) and provided that at least one of the parties to the transaction drives turnover in Egypt more than EGP 200 million (app. USD 4.2 million).
The Decree clarifies the method of calculating the combined annual turnover/value of assets by providing that it will be on the basis of the annual turnover and value of assets of the parties concerned with the concentration, based on the last audited financial year.
The calculations will exclude the same of the seller if the seller is exiting the entity subject of the economic concentration.
The exchange rate as announced by the Central Bank on the last day of the financial year of the concerned parities shall be the basis for foreign currency conversions needed to calculate the turnover/value of assets for the purpose of assessing if the monetary threshold is met.
The Decree further defines persons concerned with the economic concentration as “…. natural persons, legal entities, economic entities, unions, associations, financial groups, and collectives of persons, regardless of the method of their establishment, participating in the economic concentration, and their associated parties”.
Clarifications on the test for assessing harm to competition
The Decree provides for factors the ECA will consider when assessing an economic concentration, which seem to be provided in an exclusive manner, as follows:
The structure of the market or the concerned markets, the level of actual or probable competition in Egypt and outside Egypt if it impacts its markets.
The market status of the parties concerned with the economic concentration including their economic status, their financial capabilities compared to the current and probable investments in the market.
Substitutions available to the suppliers, customers and consumers and their ability to access production resources or concerned markets, and the pattern of supplying concerned products and their consumption.
Barriers to entry and expansion in the concerned markets.
The potential effect of the economic concentration on the consumer, or the existing or potential investments.
The impact of economic concentration on innovation and development.
Potential negative effect on the freedom to compete.
Excluded transactions
The Decree reiterates the two exceptions provided under the Law. So, corporate restructuring not leading to a change of control and temporary acquisition of securities, will not be subject to the notification and ECA pre-merger control regime.
- Party bearing the obligation to notify
While the Law did not provide certainly as to the party responsible for notifying an economic concentration to the ECA with the presumption being that it is the acquirer, the Decree provides a much-needed clarity in this regard and determines the notifying party depending on the type of the concerned transaction, as follows:
The acquiring person or persons in acquisitions leading to control or material influence, individually or collectively, over one or more persons.
Persons involved in a merger.
Persons acquiring control through the acquisition of a person for the purpose of establishing a joint venture.
Persons responsible for establishing a joint venture.
- Notification form and supporting documents
The ER does not include the new notification form, but it lists the required documents and data ask list. The ECA will be publishing the new form and guidelines pertaining thereto within the coming few days to allow the business and legal community to get familiar with the new regime before the implementation date of 1st of June 2024.
In comparison to the previous documents and data ask list, the new list expectedly requires more information/documents. We note especially the need for a power of attorney issued from the notifying company to the applying individual for the notification filing, in replacement of the simpler delegation letter.
We also note that there is an obligation on the notifying party to inform ECA in writing of any modification or change that occurs in the legal form of economic concentration during the examination period that is punishable by a fine ranging from EGP 50,000 to EGP 1 million (app. USD 1,050 to 21,050).
Documents are only accepted in Arabic or if in another language, must be accompanied by an Arabic translation. It is helpful that the majority of the ask list requires copies of documents rather than originals.
- Notification fees and their assessment
The Law caps the filing fees at EGP 100,000 but deferred to the ER to determine the mechanism for determining such fees.
The Decree therefore introduces a tiered notification fees scheme payable to the ECA, ranging from EGP 80,000 to EGP 100,00, depending on the realized annual aggregate turnover/value of assets of the parties concerned with the economic concentration under review. In case more than one category is applicable, the highest fee will apply.
7. Publication of the notified economic concentration, publication fees and third-party observations
The ECA will publish a statement regarding the transaction subject to the economic concentration and a summary thereof in a widely circulated daily newspaper or on the official website of the ECA, immediately upon receiving a complete notification file. The purpose of the publication is to allow third parties the chance to submit observations on the economic concentration. The ECA’s board may decide to forgo the publication on public interest grounds. Publication fees will be borne by the notifying party subject to guidelines to be issued by the ECA.
8. ECA review timelines
The ECA review timelines for Phase I and Phase II are set under the Law. The review period for Phase I is 30 working days, with an additional 15 working days in case a commitment offer is submitted, while Phase II is 30 working days with an additional 15 days in case of a submission of a commitment offer. In both cases, if the ECA does not respond by the end of such a period, parties may proceed with closing as its approval will be deemed.
The Decree provides some clarity in this regard, but we hope further clarity is provided in the ECA forthcoming guidelines and consultations, particularly with regards to the criteria for considering a filing to be complete and its impact on the review timeline.
9. Transactions concerning FRA activities
For FRA related transactions, as per the Law the ECA has a 30-working day timeline, from the date it receives the complete file from the FRA, to provide the FRA with the ECA’s advisory opinion. However, the Law and the Decree do not provide for the timeline for the FRA’s own review and decision process, given it has the exclusive jurisdiction to clear economic concentrations that pertain to the non-banking financial and insurance sector.
The Decree provides that the same set of required documents and data set out in the Decree will be required in case of notifying the FRA with an economic concentration that falls under its competency. However, it is not clear if this includes the notification form or if the FRA will develop its own form. It is also not clear if the publication provisions and fees will also apply.
10. Penalties
Penalty for failure to notify the ECA before consummating notifiable transactions is determined by the Law to be a fine of not less than 1% and not exceeding 10% of the total annual turnover, assets, or value of the transaction for its parties, whichever is higher, according to the latest approved combined financial statements of the transaction parties. If such a percentage cannot be calculated, the penalty shall be a fine of not less than EGP 30 million (app. USD 631k) and not exceeding EGP 500 million (app. USD 10.5 million).
Key watch outs
It is expected that the ECA will be publishing the new notification form and guidelines within the coming few days, as we understand they have been prepared beforehand and ready for dissemination right after the issuance of the ER. We also understand that the ECA is planning to make use of the period until 1st of June to familiarize the business and legal community with the new regime through a series of consultations and information sessions with stakeholders.
The Law and the Decree do not stipulate in an express manner for a stop-the-clock type of scenarios. However, a notification file is not legally satisfied unless a notification form designated by the authority is completed and all supporting documents are submitted to the ECA. This could mean that in practice, the ECA will have a level of discretion to determine if the filing is complete, therefore, to determine when the review clock has started. So, even if the ECA showed a considerable level of leniency and accepted the filing without certain documents, there will be grounds for the ECA to claim that the timeline for its review did not start until after the filing was complete. The ECA will also likely be reluctant to issue its decision until after the file is complete.
One example that comes to mind here relates to the instrument of authorization that is required to handle the filing procedures before the ECA. Under the new regime, a power of attorney will be needed to handle such procedures. A power of attorney issued in Egypt must be procured from the Notary Office and if issued outside of Egypt, it will need to be notarized, consularized abroad and then legalized in Egypt. This process can take anywhere between 2 weeks to a couple of months. Further, clients are advised to consider translation time for non-Arabic documents, when considering the overall timeframe for the Egyptian competition review process.
For economic concentrations falling under the competency of the Financial regulatory Authority (FRA), much clarity is still needed on the part of the FRA as well as the ECA to better understand the practicalities of the filing and review procedures. It is not clear for example if the FRA is subject to any timeframes for its own review and decision process, given it is the recipient of the submission and the competent authority to ultimately decide on an economic concertation from a competition law perspective. We look forward to also getting some clarity through the consultations from the ECA with regards to transactions including mandatory purchase offers.
Download the full article from here
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