Highlights

On December 30, 2022, significant amendments to the Egyptian Competition Law No. 3 of 2005 (the “Law”) were officially promulgated under Law No. 175 of 2022. These amendments introduce a pre-merger control system that gives the Egyptian Competition Authority (the “ECA”) the power to review and approve proposed mergers and acquisitions before they can be completed (or signed, as applicable). The purpose of this system is to ensure that the resulting company does not have too much market power and does not negatively impact competition in the industry. Pre-merger control regimes are used to prevent anti-competitive practices and maintain a healthy and fair market for businesses and consumers.

The previous system for reviewing and evaluating completed mergers and acquisitions after they have taken place is no longer in operation.

Scope of Application

The prior approval regime applies to transactions resulting in Economic Concentrations (the “ECs”) which meet certain financial thresholds, as further elaborated below.

The Letter of the Amendment

Approval Triggers: ECs & Thresholds

The prior approval regime is triggered if the transaction in question meets the definition of ECs and also meets certain financial thresholds. If both conditions are met, the transaction must go through the approval process before it can be completed (or signed, as applicable).

A. Definition of ECs

ECs are defined as any change of control or material influence (as both terms are defined below) in a person(s) that results from:

1. A merger;
2. an acquisition of control or material influence in another person, whether direct or indirect, partial or whole, joint or individual; or
3. the establishment of a joint venture project or the acquisition of an entity established for the purpose of undertaking a joint venture project and engaging in economic activity independently and continuously.

It is important to note that the following transactions are not considered as ECs for the purpose of the pre-merger approval:

1. Corporate restructuring that does not involve a change of control or material influence directly or indirectly; and
2. acquisition by financial securities firms of financial securities for the purpose of reselling them within one year, provided that such acquisition does not give the acquirer(s) any rights or influence over the strategic decisions of the target. The ECA may extend the one-year resale period, if so requested.

* Change of control refers to the ability of an individual or group to effectively influence another person or entity's economic decisions, directly or indirectly.

*On the other hand, material influence is defined as the ability to influence (directly or indirectly) another person’s policies such as strategic policies and commercial objectives.  It is worth noting that the parameters of material influence will be further defined in the Executive Regulations when they are released (the “ERs”).

B. Triggering Financial Thresholds

ECs that meet certain financial criteria will be subject to the pre-merger approval regime. said the criteria are as follows:

1. The combined annual turnover or consolidated assets of the relevant persons in Egypt exceeds EGP 900,000,000 in the previous financial year, based on audited financial statements, and at least two of these relevant persons and each of the relevant persons has a turnover exceeding EGP 200,000,000 in Egypt in the previous financial year, based on audited financial statements.
2. The combined worldwide annual turnover or consolidated assets of the relevant persons exceeds EGP 7,500,000,000 in the previous financial year, based on audited financial statements, and at least one of these relevant persons has an annual turn-over exceeding EGP 200,000,000 in Egypt in the previous financial year, based on audited financial statements.

The ERs of the Law will provide further details on how to calculate the above financial thresholds.

The ECA has the authority to investigate any EC that does not meet these thresholds but is suspected of having a significant negative impact on the market within one year of its establishment or execution. The ECA may also impose behavioural provisions if evidence of anti-competitive behaviour is found.

Approval Process: First Phase Review

Once properly notified to the ECA, ECs will undergo an initial review period of 30 working days during which the ECA will determine whether the ECs will have a negative effect on competition in the relevant markets. This period may be extended for an additional 15 working days if the parties involved are required to submit an obligation and commitments memorandum to the ECA, as will be further specified in the ERs.

After its review, the ECA will issue one of the following decisions:

1. Incompetence to examine the ECs;
2. dismissal of the notification (if the relevant parties decide not to proceed with establishing/executing the transaction resulting in the ECs);
3.  approval;
4. conditional approval; or
5. referral to a second phase of review.

If the ECA does not provide feedback within the review period mentioned above, the ECs will be considered cleared by the ECA.

Approval Process: Second Phase Review

If the ECs are referred to a second phase review, the ECA has 60 working days from the referral decision to review the ECs. This period may be extended for additional 15 working days if the parties involved are required to submit an obligation and commitments memorandum to the ECA, as will be further specified in the ERs.

After its review, the ECA will issue one of the following decisions:

1. Dismissal of the notification (if the relevant parties decide not to proceed with establishing/executing the transaction resulting in the EC);
2. approval;
3. conditional approval; or
4. rejection (which may be appealed within 30 days from the date the decision is notified to the parties).

If the ECA does not provide feedback within the review period mentioned above, the ECs will be considered cleared by the ECA.

Penalties for Non-Compliance

In addition to any measures which may be imposed by the ECA, a fine of at least 1% but no more than 10% of the total annual turnover, asset value or transaction value (whichever higher based on the latest audited financial statements of the relevant parties combined will be imposed on any person who commits any of the following acts:

1. Failure to notify the ECA of the ECs;
2. failure to comply with the decisions issued by the ECA after review;
3. obtaining clearance for the ECs after knowingly submitting false information and documents for this purpose.

If it is not possible to calculate the percentages mentioned above, a fine of at least EGP 30,000,000 but no more than EGP 500,000,000 will be imposed.

Approval of EC in the Financial Securities Field

ECs related to activities that are regulated by the Financial Regulatory Authority (the “FRA”) are subject to a special clearance process. These must be notified to the FRA before any agreements related to the EC are entered into. The FRA then consults with the ECA before clearing the notified ECs. In this case, the ECA has 30 days from the day after it receives the full ECs file from the FRA.

After its review, the ECA will issue one of the following recommendations:

1. Incompetence to examine the ECs;
2. dismissal of the notification (if the relevant parties decide not to proceed with establishing/executing the transaction resulting in the ECs or the information requested by the ECA is not provided thereto within the required timeframe);
3. recommendation for approval; or
4. recommendation for rejection.

If the ECA does not provide feedback within the review period mentioned above, the ECs will be considered cleared by the ECA.