The Egyptian merger control regime will enter into force on 1 June 2024. In anticipation of this, the Egyptian Competition Authority has published the relevant notification forms, as well as detailed guidelines and Q&As to assist parties in navigating this new regime and promote compliance. We highlight here some of the key features provided in the guidelines.
Background
On 29 December 2022, Egypt amended Law No. 3 of 2005 on Protecting Competition and Preventing Monopolistic Practices ("Competition Law"), introducing the country's first pre-closing merger control regime. The new regime was put on hold pending the issuance of amended executive regulations to provide the necessary details for the new filing procedures. On 4 April 2024, the Egyptian government issued the amended executive regulations pursuant to Ministerial Decree No. 1120 of 2024 ("Executive Regulations"), which activates the new filing requirements, subject to a grace period until 1 June 2024.
In anticipation of the new regime going into effect, on 26 May 2024, the Egyptian Competition Authority ("ECA") issued Economic Concentration Review Guidelines ("Guidelines"), accompanied with commonly asked questions and answers, to provide more details on how the ECA expects to apply the new merger control regime. We highlight some of the key new features below, which supplement our earlier articles on the Competition Law and the Executive Regulations.
For more details, see our prior articles: Egypt to Overhaul its Merger Control Regime | White & Case LLP (December 2022) and Egypt's New Merger Control Regime Goes Into Effect | White & Case LLP (April 2024).
New Local Nexus Requirement
Under the Competition Law, an ECA merger filing is required if the parties to the "Economic Concentration" (as defined) exceed one of two alternative thresholds:
- Domestic Threshold: 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)1 each in Egypt during the last fiscal year; or
- International Threshold: 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.
The Guidelines now clarify that the second threshold, described as the "international threshold," will only apply if the local turnover of 200 million Egyptian Pounds is achieved by the target entity in Egypt. This is a welcome development that should limit the number of notifications for foreign-to-foreign transactions with no link to Egypt.
Post-closing Jurisdiction for One Year
The ECA will continue to have the right to review transactions that do not meet the notification thresholds for up to one year after closing, if it has evidence that the transaction lessens, restricts or harms the freedom of competition. In order to assess this, the Guidelines explain that the ECA would consider whether there is (1) a restriction of technological development and innovation; (2) an increase or decrease in pricing; (3) a reduction of the quality of the products; or (4) barriers to entry or expansion are created in the market.
Full-functionality Assessment for Joint Ventures
The establishment of a joint venture is only notifiable under the Competition Law if the joint venture will "conduct an economic activity in an independent and permanent manner" (also known as a "full-function" joint venture), subject to the parties meeting the minimum turnover or assets thresholds for filing. The Guidelines now clarify the elements to be considered when assessing whether a joint venture meets this standard, which include the following:
- The joint venture must engage in an economic activity beyond performing one specific function for its controlling shareholders.
- The joint venture must have independent resources, including financing, employees, and assets. It should also have independent management that handles the daily operations.
- The joint venture's purchases and sales must not be limited to its controlling shareholders. If the joint venture has limited or no economic operations with other market players, then it would not be considered independent.
Fast-track Process for No-Issue Transactions
The ECA instituted a fast-track process with simplified procedures for transactions that do not result in "changes to the structure of the Egyptian market(s)," as those would be unlikely to raise any competitive concerns. Parties to a qualifying transaction would only need to file a short form notification form, and the ECA will provide its decision withing 20 working days (instead of the regular 30-working day review period for other transactions).
The Guidelines provide a list of six specific scenarios where a transaction would qualify for the simplified procedures:
- The parties meet the domestic notification threshold, and the annual turnover or value of the assets in Egypt combined does not exceed EGP 2 billion (approximately USD 65 million) based on the latest audited consolidated financial statements.
- The parties meet the international threshold, and the annual turnover in Egypt of the Target does not exceed EGP 500 million (approximately USD 16 million) based on the latest audited consolidated financial statements.
- The establishment or acquisition of a joint venture that carries out economic activity outside of Egypt.
- The establishment or acquisition of a joint venture that conducts its activity in markets that are not horizontally or vertically related, or otherwise related to the markets in which the parent companies operate.
- Conglomerate economic concentrations between persons operating in markets that are not horizontally or vertically related or otherwise related to each other.
- Acquisition of sole control over one or more persons after the acquiring person or persons exercised joint control over the same person.
Conclusion
The ECA's Guidelines and related materials provide critical information to help parties navigate the new Egyptian merger control regime. In particular, the newly introduced minimum domestic threshold for the target entity and the creation of a fast-track process for no-issue transactions are welcome developments that aim to alleviate some of the concerns surrounding the launch of the new regime. They limit the scope of notifiable transactions and allow for a smoother process when there are no potential competitive concerns in Egypt. Transactions that meet the filing requirements will be required to comply with the new regime as of 1 June 2024. Parties are advised to consult with antitrust counsel on transactions that may include any business activity in Egypt.
1 Foreign currency conversions for the turnover amounts are calculated based on the average official exchange rate of USD 1: EGP 30.89, for the fiscal year ending on 31 December 2023.
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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
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