On December 29, 2022, Egypt amended Law No. 3 of 2005, also known as the Competition Law, to introduce the country's inaugural pre-closing merger control framework. This new regime was temporarily suspended pending the release of revised executive regulations that would outline the detailed filing procedures. On April 4, 2024, the Egyptian government enacted these revised executive regulations through Ministerial Decree No. 1120 of 2024, thereby activating the new filing requirements, with a grace period extending until June 1, 2024.
On December 29, 2022, Egypt amended Law No. 3 of 2005, also known as the Competition Law, to introduce the country's inaugural pre-closing merger control framework. This new regime was temporarily suspended pending the release of revised executive regulations that would outline the detailed filing procedures. On April 4, 2024, the Egyptian government enacted these revised executive regulations through Ministerial Decree No. 1120 of 2024, thereby activating the new filing requirements, with a grace period extending until June 1, 2024.
In preparation for the implementation of this new regime, the Egyptian Competition Authority (ECA) released Economic Concentration Review Guidelines on May 26, 2024. These guidelines, which include frequently asked questions and their answers, aim to clarify the ECA's approach to enforcing the new merger control regulations.
Definition of Economic Concentrations
Economic Concentrations (ECs) are defined by the Competition Law as any change in control or material influence over a person or persons resulting from a merger, acquisition, or the formation of a joint venture. The Law broadly defines a change of control as the ability of one or more individuals to exert effective influence, directly or indirectly, over another individual’s economic decisions. The recent amendments to the Executive Regulations (ER) provide a more detailed definition of material influence, offering greater clarity on this aspect.
Revised Notification Thresholds
Under the previous post-closing notification regime, the notification threshold was set at a combined turnover of EGP 100 million (approximately USD 2 million) within Egypt for the parties involved in the transaction. The recent amendments significantly increased this notification threshold and introduced the option to meet the thresholds based on the value of assets held by the parties.
New Filing Requirements
Under the amended Competition Law, a merger filing with the ECA is mandated if the parties involved in the Economic Concentration surpass one of two specified thresholds:
Domestic Threshold: The combined turnover or assets of all involved parties within Egypt exceed 900 million Egyptian Pounds (approximately USD 29 million), with at least two parties each having a turnover exceeding 200 million Egyptian Pounds (approximately USD 6.4 million) in Egypt during the previous fiscal year.
International Threshold: The combined global turnover or assets of all involved parties exceed 7.5 billion Egyptian Pounds (approximately USD 242.7 million), and at least one party has a turnover in Egypt exceeding 200 million Egyptian Pounds (approximately USD 6.4 million) during the previous fiscal year.
The recently issued Guidelines provide clarification on the application of the international threshold. Specifically, the threshold will only be applicable if the target entity's local turnover in Egypt reaches 200 million Egyptian Pounds. This refinement is a positive development as it will reduce the number of notifications required for foreign-to-foreign transactions that have no significant impact on the Egyptian market.
ECA's Authority to Review Below-Threshold Transactions
It is important to note that the ECA retains the right to review any Economic Concentration that, despite not meeting the specified thresholds, is suspected of having a materially detrimental impact on the relevant market. This authority extends for up to one year from the date of the establishment or execution of the EC.
Criteria for Change of Control and Material Influence
Joint control is considered sufficient to constitute a change of control. Any transaction resulting in a change of control, decisive influence, or the establishment of joint control over an entity requires pre-closing notification to the ECA, provided the notification thresholds are met. This includes any alteration in the ability to influence the strategic decisions or business objectives of an entity.
The amended Executive Regulations offer a non-exhaustive list of factors that grant a natural or legal person material influence over an entity. The key determinant of whether a person acquires material influence is the extent of the interest they obtain in the entity. According to the amended Executive Regulations, a person acquires material influence if they either (1) acquire at least 25 percent of the share capital, shares, stocks, interest, or voting rights in the entity, or (2) acquire less than 25 percent of the share capital, shares, stocks, interest, or voting rights, but other circumstances provide the person with significant influence over the entity.
ECA's Power to Review Transactions Below Thresholds
Under certain conditions, the ECA has the power to review transactions that do not meet the established thresholds. With the approval of the Council of Ministers, the ECA can call in such transactions if there is evidence or indications that they may negatively impact competition in Egypt within one year after closing. The amended Executive Regulations provide a non-exhaustive list of circumstances that might raise concerns about a transaction's potential negative effects on competition, even if it falls below the thresholds. These circumstances include the transaction's potential to (1) limit technological advancements or innovation, (2) cause changes in prices for products and services, (3) lead to lower quality of products and services, or (4) create barriers to market entry or expansion.
Notification Obligations for Various Transaction Types
In the case of a single purchaser acquisition, the acquirer is responsible for making the notification. For mergers, the obligation to file falls on the merged party. When multiple acquirers are involved in acquiring a target to operate as a joint venture, the joint venture itself must make the notification. Lastly, if a new joint venture is being established, the responsibility to file lies with the parent companies of the joint venture.
