The Egyptian pre-closing merger control regime will go into full effect on 1 June 2024. The Egyptian Competition Law was amended in December 2022 to introduce a new pre-closing merger control regime, but its enforcement was suspended pending implementation. On 4 April 2024, the Prime Minister issued Decree No. 1120 of 2024 updating the "Executive Regulations" to implement the amended Competition Law, which launches the new regime into full force and lifts the hold on enforcement.1
Background
On 29 December 2022, Egypt enacted amendments to the Law on Protection of Competition and Prohibition of Monopolistic Practices ("Egyptian Competition Law").2 The amendments transformed the country's merger control regime from a post-closing notification system to a premerger filing system. For more details on these amendments, see our prior article at: White & Case Client Alert "Egypt to Overhaul its Merger Control Regime" (December 2022).3
Although the amendments technically went into force the day after they were enacted, certain articles defer to the "Executive Regulations" for the details required to operationalize the new filing regime. As such, the Egyptian Competition Authority ("ECA") announced at the time that it would not enforce the merger control regime until the new Executive Regulations are issued. On 4 April 2024, the new Executive Regulations were published in the Official Gazette, and they will go into effect on 1 June 2024.4 Therefore, any notifiable transaction that has not closed by 31 May 2024 will be subject to enforcement under the new merger control regime.
We highlight some of the key features of the new regime in the following sections.
Defining Economic Concentrations
Parties are required to file for merger clearance in Egypt if they intend to participate in an "Economic Concentration" and their annual turnover exceeds the notification thresholds. The Egyptian Competition Law defines an Economic Concentration as any "change of control or material influence over one or several entities," which results from a merger, acquisition or joint venture that conducts an economic activity in an "independent and permanent manner" (i.e., a full-function joint venture).5
The "material influence" standard is a new addition to the Egyptian Competition Law, which expands the scope of ECA's jurisdiction so as to require filings for certain transactions even when they do not result in a change of control. While the amendments to the Egyptian Competition Law provided a detailed definition for "control,"6 it simply defined "material influence" as "any direct or indirect ability to influence the strategic decisions or business objectives of a target entity"7 and referred to the Executive Regulations for more details on how the ECA will analyze this concept.
Article 50 of the Executive Regulations now clarifies that "material influence" is achieved in any of the following instances:
- Any action which results in the acquisition of more than 25% of the total voting rights or share capital of another; or
- Any action which results in the acquisition of less than 25% of the total voting rights or share capital of another, if it is combined with other elements which can lead to effects on the policy, including the percentage of the acquirer's voting rights in relation to other shareholders, any special voting rights, the existence of common shareholders between the parties, or the presence of one or more representatives of the acquiring person on the board of directors of the acquired person.
In any event, an acquisition of less than 10% of the total voting rights or share capital does not confer material influence, unless the acquirer will become one of the three primary shareholders of the target.
Meanwhile, the Executive Regulations also carve out certain types of transactions from the definition of Economic Concentrations. For example, they exclude any internal restructuring transaction (provided it does not lead to a change of control or material influence in a direct or indirect manner) or a temporary acquisition of securities by any company operating in the securities business that will resell such securities within one year of the acquisition.8
Turnover Calculation Rules
An ECA merger filing is required if the parties to the Economic Concentration exceed one of two alternative turnover thresholds:
(a) the combined turnover or assets of all parties in Egypt exceeds 900 million Egyptian Pounds (approximately USD 29 million), and the turnover of at least two parties exceeds 200 million Egyptian Pounds (approximately USD 6.4 million) each in Egypt during the last fiscal year; or
(b) the combined turnover or assets of all parties worldwide exceeds 7.5 billion Egyptian Pounds (approximately USD 242.7 million) and the turnover in Egypt of at least one party exceeds 200 million Egyptian Pounds (approximately USD 6.4 million) during the last fiscal year.9
The Executive Regulations clarify that for the purpose of analyzing these thresholds, the relevant turnover to consider includes only the transaction parties remaining in the Economic Concentration post-closing. In addition, foreign currency conversions shall be calculated based on the exchange rate announced by the Central Bank of Egypt on the last day of the relevant fiscal year.10
Filing Requirements and Formalities
Only one consolidated merger filing will be required for each transaction on behalf of all parties (as was previously done under the post-closing regime). While the Egyptian Competition Law is silent on which party is responsible for filing, the Executive Regulations clarify that this is the obligation of the purchaser in the context of an acquisition, or all parties in the context of a merger or a joint venture.11
Filings shall be submitted pursuant to a form which will be provided by the ECA. Parties will also be required to submit supporting documents, including corporate documents, financial statements, board resolutions, and a power of attorney. If the power of attorney is executed outside of Egypt, it must be attested at the Embassy of Egypt then legalized at the Ministry of Foreign Affairs in Egypt (which is different from the old post-closing regime that only required a simple proxy). Parties should take into consideration the time required to obtain such formalities to avoid delays to the transaction timeline.
In addition, a filing fee will be assessed based on the parties' turnover, capped at 100,000 EGP (approximately USD 3,236).12
Merger Review Timeline
The merger review process under the Egyptian Competition Law is segmented in two phases.13 The initial phase is 30 working days, subject to a potential extension by 15 working days. If the ECA's review during the initial phase raises potential concerns, the ECA can refer the file to a second review phase, which can last up to 60 working days, subject to a potential extension by another 15 working days.
It is worth noting that the Executive Regulations add the potential for a public consultation once a complete filing is submitted, whereby the ECA may publish on its website or in a widely circulated newspaper, details on the transaction under review, allowing third parties to provide their comments within 15 days.14
At the end of its review, the ECA will decide whether to approve or reject a transaction based on whether it "would result in limiting competition, restricting it, or harming it."15 If the ECA rejects the transaction, it is possible to appeal the decision within 30 days.
Potentially Steep Fines
Parties that violate a filing obligation or submit false information to the ECA would be subject to a fine between 1% and 10% of the value of parties' turnover or assets or the value of the transaction (whichever is highest). If the value of turnover or assets cannot be calculated, the ECA would impose a fixed fine amount between EGP 30-500 million (approximately between USD 0.9 - 16.18 million).16
Conclusion
After a long legislative journey, Egypt has finally established a new pre-closing merger control regime. Transactions that meet the filing conditions will be required to notify the ECA and obtain merger clearance before implementing these transactions. The ECA is a highly active regulatory authority and ECA staff have been preparing for this new regime for several years, so enforcement of the new regime will likely start immediately after it goes into full effect on 1 June 2024. Parties are advised to carefully consider their potential obligations under the new regime and to consult with counsel early in the process to avoid delays.
1 The authors are grateful to Youssef Abdelmaksoud and Youssef Hammouda for their contributions to this article.
2 Law No. 175 of 2022, amending certain provisions of Law No. 3 of 2005.
3 See also White & Case Client Alert: "Egyptian Cabinet Approves Its First Pre-Merger Notification Regime | White & Case LLP (whitecase.com)" (December 2020).
4 Decree No. 1120 of 2024, amending the Executive Regulations to the Egyptian Competition Law, Article 4.
5 Egyptian Competition Law, Article 2(g).
6 Egyptian Competition Law, Article 2(h), defines "Control" as "the ability of a controlling person to exercise decisive influence directly or indirectly by directing the economic decisions of another person, based on the majority of the voting rights or the ability of the controlling person to prevent the making of economic decisions of the other person or in any other manner. This includes any status, agreement, or ownership of any percentage of shares, and provided that it leads to actual control over management or decision-making."
7 Egyptian Competition Law, Article 2(i).
8 Executive Regulations, Article 48. In addition, Article 62 of the Executive Regulations provides that any transactions which fall under the supervision of the Financial Regulatory Authority ("FRA"), are to be submitted to the FRA for review, which will in turn solicit the opinion of the ECA before approving the Economic Concentration.
9 Egyptian Competition Law, Article 19 bis. Foreign currency conversions for the turnover amounts are calculated based on the exchange rate of USD 1: EGP 30.9, for the fiscal year ending on 31 December 2023.
10 Executive Regulations, Article 53.
11 Executive Regulations, Article 55.
12 Executive Regulations, Article 59. Foreign currency conversion for the filing fee amount is calculated based on the exchange rate of USD 1: EGP 30.9, as the applicable rate on 31 December 2023.
13 Egyptian Competition Law, Article 19 bis (c).
14 Executive Regulations, Article 56.
15 Egyptian Competition Law, Article 19 bis (b).
16 Foreign currency conversion for the filing fee amount is calculated based on the exchange rate of USD 1: EGP 30.9, as the applicable rate on 31 December 2024.
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