An Eye on Egypt – New Merger Control Regime Finally in Place

After much anticipation, Egypt’s Prime Minister issued Decree No. 1120 of 2024 (Decree) revealing the long-awaited amendments to the Competition Act’ executive regulations (Regulations).

By way of background, in December 2022, the Egyptian Competition Act underwent a major overhaul with the introduction of a pre-merger control regime that grants the Egyptian competition Authority (ECA) the power to review and approve certain proposed transactions before their conclusion (2022 Amendments). These amendments were, however, suspended until the Regulations could be updated by means of the Decree, leaving businesses in a temporary state of uncertainty.

What’s new?

1. Enhanced Enforcement Mechanisms

The Decree introduces ‘friendly’ enforcement mechanisms targeting restrictive business practices and breaches of merger control provisions by authorizing the ECA to order behavioral remedies and corrective actions instead of invalidating agreements. Where a party fails to comply with the ECA’s directions, the impugned agreements will be deemed invalid.

Notwithstanding this salutary effort that will undoubtedly seek to give effect to amendable contracts, the pivotal addition to the Regulations is in the merger control space where an entire chapter on economic concentrations was introduced.

• Economic Concentrations and New Notification Thresholds

The Regulations define a notifiable economic concentration as any change of control or physical impact on one or more parties that results from a merger, an acquisition (of shares, assets, or control), or the establishment of a joint project. Certain statutory exceptions to the mandatory notification of sizeable economic concentrations exist (e.g., restructurings), although they must be assessed on a case-by-case basis.

Prior to the Competition Act’s 2022 Amendments, parties with a combined annual turnover exceeding EGP 100 millionwere required to notify the ECA upon a transaction’s closing. Now though, the 2022 Amendments and Decree codify the pre-notification regime for prospective economic concentrations when the following filing thresholds are met: ^[1]

• Domestic transactions:  where the combined Egyptian turnover in the last fiscal year or value of the parties’ assets exceed EGP 900 million, and the local turnover of at two or more parties exceeds EGP 200 million each.

• International transactions: where the combined worldwide turnover in the last fiscal year or value of the parties’ assets held worldwide exceeds EGP 7.5 billion, and the local turnover of at least one party exceeds EGP 200 million.

• Discretionary Exceptions and Investigations

The Decree introduced exceptions where the ECA may, after the Cabinet’s approval, authorize an otherwise objectionable economic concentration, if it will (i) prevent the exit of one of the market players; (ii) yield greater economic efficiency; or (iii) safeguard national security.

By the same token, the ECA, may procure the approval of its board of directors, to initiate an investigation into economic concentrations that fall below notification thresholds within a year of the relevant transaction if there is evidence (such as the reduction of quality of products or the creation of barriers to market entry) that the concentration in question restricts or has adverse effects on competition.

• Who must notify?

The duty to notify falls on the (i) acquiring party in acquisitions of shares, assets, control or material influence over the target; (ii) merging parties in the event of a merger; and the (iii) parties to a joint project, as the case may be. Failure to notify may subject a party to a fine that ranges between the higher of 1% to 10% of the undertakings’ combined annual turnover, asset value, or value of operations. Where this percentage is not ascertainable, the fine will range between EGP 30 million and EGP 500 million.

• Filing fees

The Decree also introduces notification fees, which were not applicable under the old regime. The fees vary depending on the value on turnover and value of assets in Egypt, but range between EGP 80,000 where the parties’ annual turnover or value of assets in Egypt is between EGP 900,000 and EGP 1 billion; to EGP 100,000 where (i) the parties’ annual turnover or value of assets in Egypt exceeds EGP 1.5 Billion or (ii) their combined global annual turnover or value of assets exceeds EGP 7.5 billion and at least one of the parties’ annual turnover in Egypt in the fiscal year preceding the notification exceeds EGP 200 Million.

• Other regulatory filings

The parties that operate in an industry regulated by the Egyptian Financial Regulatory authority (FRA) such as insurance, Fintech, and certain non-banking financing activities, must also notify the FRA prior to the conclusion of the economic concentration.

Moreover, notification of an economic concentration to the ECA does not absolve the parties of their obligation to notify the COMESA Competition Commission of transactions that meet the relevant threshold in the Common Market for Eastern and Southern Africa. Similarly, the ECA takes the position that transactions notified to the COMESA Competition Commission must also be reported in Egypt if they meet the local reporting thresholds notwithstanding the COMESA’s one-stop shop merger control regime.

While the submission of comprehensive economic concentration notification files to the ECA is officially mandatory, the ECA has yet to make updated notification forms available to the public.

The amendments will become effective as of 1 June 2024.

^[1] Values and turnovers achieved in foreign currency will be calculated in Egyptian pounds based on the Central Bank of Egypt Exchange rate applicable on the last day of the relevant fiscal year. The Regulations exclude the turnover of the sellers from that of the target entity provided they exit the target entity and its related parties altogether following the execution of the economic concentration.