January 2, 2023
Antitrust Update: Ratification of the Pre-Merger Clearance Regime
The much-anticipated pre-merger clearance regime (the “New Regime”) has finally been enacted by virtue of Law No. 175 of 2022 amending the Egyptian Competition Law No. 3 of 2005 (the “Amendments”). The Amendments have been published in the Official Gazette on 29 December 2022, the last working day of the calendar year, and have become effective as of the following day.
We will provide a general overview of the key elements of the Amendments as follows:
New Definitions
The Amendments introduce a set of new definitions applicable to the New Regime.
Under the New Regime, a pre-closing clearance is triggered upon the occurrence of an economic concentration. Economic concentration has been defined in the Amendments as every change in the control or material influence of an entity as a result of:
Excluded from the realm of economic concentrations are intra-group mergers or acquisitions (unless the same result in a direct or indirect change of control or material influence of the relevant entities) and the temporary acquisition of securities for the purposes of reselling the same within one year of its acquisition.
The Amendments further define control as the ability of the controlling entity to exercise effective influence, whether directly or indirectly, on the economic decisions of the other entity, either via a majority of voting rights or on the ability of the controlling entity to prevent economic decisions being taken, or any other method including every situation, agreement, or ownership of shares, whatever their percentage, provided that it leads to actual control over the management or decision-making of the entity.
Material influence is also defined in the Amendments as the ability to influence, directly or indirectly, the policy of the entity including the strategic decisions or business objectives (as to be determined by the executive regulations of the law).
New Thresholds
As anticipated, the Amendments have introduced new turnover thresholds which ultimately trigger the pre-merger clearance requirement. The obligation to notify the Egyptian Competition Authority of the economic concentration arises if any of the following thresholds are met:
The Amendments do not provide the definition of relevant entities whose turnover will be relevant for the purposes of the New Regime. It is anticipated that this will be further clarified in the executive regulations and/or the guidelines to be issued.
Extended Powers of the ECA
The Amendments grants the ECA the ability to examine a concentration, even if the above thresholds are not met, in case the concentration in question limits or damages competition. The precise scope of the ECA’s powers and conditions for assessing such economic concentrations are expected to be further addressed in the executive regulations.
Additionally, the ECA may now request specific conditions or acknowledgements from the relevant entities as a condition precedent to issuing its clearance decision. It may also refuse to provide clearance for a transaction if it determines that the concentration would impede or damage competition.
Final Remarks
The ratification of the Amendments marks Egypt’s shift to the pre-clearance regime in line with the global focus on greater regulatory oversight on transactions and the protection of competition. The executive regulations and guidelines, which aim to provide further guidance on the practical applicability of the New Regime, are expected to be issued within the coming days.
We will provide a general overview of the key elements of the Amendments as follows:
New Definitions
The Amendments introduce a set of new definitions applicable to the New Regime.
Under the New Regime, a pre-closing clearance is triggered upon the occurrence of an economic concentration. Economic concentration has been defined in the Amendments as every change in the control or material influence of an entity as a result of:
- the merger of one or more legal persons in a pre-existing juristic person or via the establishment of a new juristic person.
- the direct or indirect acquisition of control or material influence in another legal person via the purchase of shares, securities, assets or any other way.
- the establishment of a joint venture or the acquisition by two or more legal persons of an existing entity as a joint venture undertaking independent and ongoing economic activities.
Excluded from the realm of economic concentrations are intra-group mergers or acquisitions (unless the same result in a direct or indirect change of control or material influence of the relevant entities) and the temporary acquisition of securities for the purposes of reselling the same within one year of its acquisition.
The Amendments further define control as the ability of the controlling entity to exercise effective influence, whether directly or indirectly, on the economic decisions of the other entity, either via a majority of voting rights or on the ability of the controlling entity to prevent economic decisions being taken, or any other method including every situation, agreement, or ownership of shares, whatever their percentage, provided that it leads to actual control over the management or decision-making of the entity.
Material influence is also defined in the Amendments as the ability to influence, directly or indirectly, the policy of the entity including the strategic decisions or business objectives (as to be determined by the executive regulations of the law).
New Thresholds
As anticipated, the Amendments have introduced new turnover thresholds which ultimately trigger the pre-merger clearance requirement. The obligation to notify the Egyptian Competition Authority of the economic concentration arises if any of the following thresholds are met:
- The annual turnover achieved or the accumulated assets in Egypt for the relevant entities collectively exceed EGP 900 million in the most recent consolidated financial statements, provided that each of the entities have a turnover exceeding EGP 200 million; or
- The global annual turnover or the accumulated assets of the relevant entities collectively exceed EGP 7.5 billion in the most recent consolidated financial statements, provided that the annual turnover in Egypt of at least one of the entities exceeds EGP 200 million.
The Amendments do not provide the definition of relevant entities whose turnover will be relevant for the purposes of the New Regime. It is anticipated that this will be further clarified in the executive regulations and/or the guidelines to be issued.
Extended Powers of the ECA
The Amendments grants the ECA the ability to examine a concentration, even if the above thresholds are not met, in case the concentration in question limits or damages competition. The precise scope of the ECA’s powers and conditions for assessing such economic concentrations are expected to be further addressed in the executive regulations.
Additionally, the ECA may now request specific conditions or acknowledgements from the relevant entities as a condition precedent to issuing its clearance decision. It may also refuse to provide clearance for a transaction if it determines that the concentration would impede or damage competition.
Final Remarks
The ratification of the Amendments marks Egypt’s shift to the pre-clearance regime in line with the global focus on greater regulatory oversight on transactions and the protection of competition. The executive regulations and guidelines, which aim to provide further guidance on the practical applicability of the New Regime, are expected to be issued within the coming days.
