January 18, 2023

Egypt Adopts New Pre-Closing Merger Control Regime

Egypt amended its Protection of Competition and Prohibition of Monopolistic Practices Law No. 3 of 2005 (“Competition Law”) on 29 December 2022. The amending law No. 175 of 2022 (“Amendment Law”) introduced the long anticipated new pre-closing clearance regime on transactions constituting an ‘economic concentration’.

Before the Amendment Law, the Competition Law used to provide only for an obligation to send post-closing notification for transactions involving parties with annual turnover of more than EGP 100 million.

Under the new regime, a transaction which constitutes an ‘economic concentration’ and exceeds the turnover thresholds set by the Amendment Law will require the pre-closing approval of the Egyptian Competition Authority (“ECA”).

What is Economic Concentration?

Economic concentration is defined as any change of control or material influence over an entity that results from:

  1. Merger transaction, whether through consolidation or amalgamation.
  2. Acquisition transaction, whether direct or indirect, individual or collective, through contractual arrangement, purchase of shares, purchase of assets or any other method.
  3. Establishing a full-function joint venture to conduct business in an ‘intendent and permanent manner’.

‘Control’ and ‘material influence’ are defined to be the ability to, directly or indirectly, influence the economic and strategic decisions as well as the business objectives of the target entity.

Accordingly, under the new regime, pre-closing approval will be required only for merger and acquisition transactions as well as full-function joint ventures that result in a change of control or material influence over the target business.

What is not Economic Concentration?

The following will not constitute an economic concentration:

  1. Merger or acquisition transaction between subsidiaries of the same parent company for restructuring purposes and which does not result in any direct or indirect change of control or material influence.
  2. The temporary acquisition of securities, to be resold within one year, on the condition that the acquirer will not use any of its voting rights or take any action that would result in a material influence on the company.

What is the Turnover Threshold of the Economic Concentration?

An economic concentration transaction will trigger the pre-closing approval requirement only if it meets any of the following thresholds:

  1. If the combined turnover or assets of the parties in Egypt exceeds EGP 900 million (approx. US$ 30 million)[1] during last financial year, provided that the turnover of at least two relevant parties exceeds EGP 200 million (approx. US$ 6.7 million) each in Egypt during the last fiscal year.
  2. If the combined turnover or assets of the parties worldwide exceeds EGP 7.5 billion (approx. US$ 253 million) during last financial year, provided that the turnover of at least one party in Egypt exceeds EGP 200 million during the last fiscal year.

The forthcoming executive regulations of the Amendment Law will determine the criteria of calculating the combined turnover and assets of the parties.

ECA will be entitled to review the transactions which do not meet above thresholds within one year of the closing in case it is conceived that such economic concentration will result in possible anti-competitive practices.

What is the Filing and Approval Procedures and Timeline?

Filing

Parties to an economic concentration transaction which meets the above thresholds is required to notify the ECA about the transaction and shall not close it until obtaining ECA’s approval, i.e., the notification has a suspensory effect.

ECA Review

ECA will review the transaction in two phases:

  1. Phase 1: ECA has 30 working days (can be extended by 15 days) to review the file of the notified transaction and decide whether to approve it or otherwise to refer it to the second review phase in case it is decided that the transaction will be harmful or constraining to competition.
  2. Phase 2: the timeline for this review phase is 60 working days (can be extended by 15 days).

Upon finalizing the review process, ECA is authorized to approve the transaction, unconditionally or conditionally or otherwise to block it.

ECA’s fees for reviewing the file of the transaction shall not exceed EGP 100,000 (approx. US$ 3,375).

What are the Implications for Non-compliance?

Companies which fail to submit the pre-closing notification will be subject to a fine ranging between 1% and 10% of the value of the annual turnover or assets of the involved parties or the value of the transaction (whichever is highest), or a fixed amount ranging between EGP 30 million (approx. US$ 1 million) to 500 million (approx. US$ 16.8 million) if the value of turnover or assets is difficult to be calculated.

Fines will also be imposed if the parties failed to comply with the remedial measures determined by ECA or if the parties provided false information.

[1] Exchange rates stipulated in this article are based on the foreign exchange rate of 18 January 2023.

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