Paradigm shift in the landscape of merger control in Egypt
With Suzan Taha
In a recent interview with LegalcommunityMENA, Yehia Shahine, Partner & Head of Arbitration at ALC – Alieldean Weshahi & Partners, discussed the implications of the recent amendment to the Law regulating the Protection of Competition and Prohibition of Monopolistic Practices in Egypt. This amendment introduces a pre-Merger or Acquisition (M&A) mandatory approval regime, replacing the previous post-closing notification system. We explored the changes brought about by this new law and the potential challenges in its implementation.
How does this new law change existing laws or regulations?
On December 31, 2022, the amendment of the Law regulating the Protection of Competition and Prohibition of Monopolistic Practices No. 3 of the year 2005 (hereinafter “ECL”) entered into force. The amendment to the Law introduces a significant shift from post-M&A notification to a mandatory pre-approval regime for economic concentration transactions. It also clarifies various aspects, including the definition of economic concentration, notification thresholds, timeline for merger control review, and fines. This amendment aims to streamline the M&A landscape in Egypt and ensure compliance with competition regulations.
The ECL used to provide for a post M&A notification the non-observance of which was subject to a fine. This major amendment was introduced after several prior unsuccessful attempts to shift to pre-M&As control. This amendment was also introduced after we witnessed the Egyptian Competition Authority (hereinafter “ECA”) imposing de-facto pre-M&A control in couple of major M&A transactions over the past few years (by widely interpreting the ECL) and after imposing this pre-M&A indirectly through the Financial Regulatory Authority and the Ministry of Health.
By virtue of this amendment, parties to any prospective M&A transaction that constitutes an economic concentration are now required to obtain ECA’s prior approval.
How does this new law impact business?
The impact of the new amendment on businesses involved in M&A transactions is significant. The shift from a post-closing notification system to a pre-approval regime introduces a mandatory step that must be undertaken before completing an economic concentration transaction. This change alters the manner and speed at which M&A transactions have traditionally been concluded in Egypt.
Moreover, the introduction of filing fees and publication obligations adds financial considerations to the process. While the filing fee is capped at EGP 100,000, the exact requirements and costs related to publication remain unclear. These additional expenses and administrative burdens may affect the overall costs and efficiency of M&A transactions.
It is noteworthy that the amendment provides the following two thresholds to trigger the necessity of obtaining ECA’s prior approval for any transaction that constitutes an economic concentration:
- The combined annual turnover or accumulated assets in Egypt of the concerned persons exceeds EGP 900 million (around USD 29 Million) provided that the annual turnover in Egypt of at least two concerned persons exceeds the amount of EGP 200 million each (around USD 6.4 Million); or
- The combined annual turnover or accumulated assets worldwide of the concerned persons exceeds EGP 7.5 billion (around USD 241 Million) provided that the annual turnover in Egypt for at least one concerned person exceeds the amount of EGP 200 million (around USD 6.4 Million).
However, despite the clear impact of the amendment, there are still aspects that require further clarification and guidance from the Egyptian Competition Authority (ECA) and other regulatory bodies. The business community, investors, and competition practitioners are eagerly awaiting more details and guidelines to understand the full implications of the amendment and ensure compliance with the new regulations.
Overall, the new law creates a more structured and regulated environment for M&A transactions in Egypt. Businesses will need to navigate the pre-approval process, adhere to the specified thresholds for economic concentration, and consider the potential impact on competition in the market. It is crucial for businesses to stay informed about the evolving regulations and seek expert advice to successfully navigate the new landscape and achieve their M&A objectives while ensuring compliance with the amended law.
How does this new law interact with other laws or regulations?
The interaction between the amendment and other laws and regulations is notable in certain areas. For example, the new law organizing the Central Bank of Egypt exempts banking activities from the jurisdiction of the ECA. This requires referring to the laws governing the banking and non-banking sectors to determine which activities may be exempted. Furthermore, the amendment explicitly exempts transactions within the competency of the Financial Regulatory Authority (FRA), creating an interplay between the amendment and the laws governing the FRA’s authority.
It is noteworthy here that while the amendment clearly provides for the exemption of any transaction in any economic sector subject to the competency of the Financial Regulatory Authority, ECA is still empowered to impose fines if the FRA approves any transaction based on inaccurate data or documents submitted by the applicant. This, implicitly, means that the exact extent of ECA’s power over some of the transactions (excluded from its competency) remains to be clearly charted.
Are there any exemptions or exclusions under this new law?
The amendment provides two exceptions that do not constitute economic concentration and do not require ECA’s approval. The first exception applies to the temporary acquisition of financial securities by financial securities firms for resale within one year, provided it does not grant voting rights or influence strategic decisions of the target. The second exception encompasses internal corporate restructuring that does not result in any change of control.
However, the amendment explicitly provides for an exemption of transactions in any economic sector subject to the competency of the Financial Regulatory Authority. Nonetheless, the new amendments oblige FRA to obtain the advisory opinion of ECA before approving any Economic Concentration in any economic sector subject to its competency.
Are there any potential challenges or difficulties that might arise in implementing this new law or amendment?
Indeed, potential challenges may arise as the amendment provided that the executive regulations would stipulate further much needed clarifications for its implementation. The executive regulations are supposed to regulate several aspects that would lead to the assessment of the impacts of the economic concentration and would affect whether, or not, ECA shall grant the approval. Challenges may arise if the executive regulation provided complicated, unclear, or unenforceable mechanisms that would impede the implementation of the new regime introduced by the amendment.
It also remains to be seen how ECA will implement the amendment, especially with respect to the deadline during which it should issue its decision. Furthermore, the timeframe for ECA to review and issue its decision has raised concerns, as it may affect the overall timeline of transactions subject to ECA’s prior approval. Striking a balance between ECA’s control and parties’ expectations remains a testing task.
Finally, the application of the amendment in respect of transactions that fall below the financial threshold set out might represent a challenge as to how and when it will be implemented: can the ECA just days before closing a transaction ask for a review and makes its approval a pre-condition to closing? What might this do to the expectations of the parties that were certain when entering into the deal that it falls below all financial thresholds.
About Yehia Shahine
Yehia Shahine is a Partner and Head of Arbitration at ALC – Alieldean Weshahi & Partners. With over 14 years of experience, Shahine specializes in complex commercial arbitration, investment arbitration, complex litigations, and competition law matters. He has worked in top-tier law firms in Egypt and France, demonstrating his expertise and commitment to delivering exceptional legal services.
Yehia Shahine is highly regarded for his deep knowledge of arbitration processes and his ability to handle intricate disputes. His extensive experience and proficiency in commercial arbitration have made him a sought-after advisor and advocate for clients. In addition to his arbitration work, he also provides guidance on investment arbitration cases, complex litigations, and competition law matters, both in advisory and contentious capacities.
He holds a DEUG, Maitrise, and double master’s degrees in international and European Business Law, as well as Business and Tax Laws from Paris I Pantheon-Sorbonne University.
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