On May 23, 2024, the Egyptian Competition Authority (ECA) hosted a discussion to clarify Egypt's new pre-closing notification merger control regime. The panel introduced a simplified procedure for certain filings and provided insights into the ECA's interpretation of key elements of the merger control framework, including the material influence requirement and notification thresholds. Following this discussion, the ECA released new notification filing forms and preliminary Guidelines on May 26, 2024. While these Guidelines offer some clarity, they remain basic and confirm the ECA's interpretation rather than establishing new legal standards.
Notification Thresholds
The amendments to the Egyptian Competition Law at the end of 2022 introduced two types of notification thresholds:
- Domestic Notification Threshold: Requires at least two parties involved in the merger to have turnover or assets in Egypt.
- International Notification Threshold: Requires only one party to have turnover or assets in Egypt.
Initially, it was understood that meeting the international threshold could be satisfied by the acquirer alone having Egyptian turnover/assets. However, the ECA clarified during the panel that this threshold applies only if the target company also meets the Egyptian turnover/asset requirement. This position has been confirmed in the new Guidelines.
Despite this clarification, the Guidelines are not legally binding since the ECA lacks regulatory authority. Thus, Egyptian courts are not bound by these interpretations and could potentially adopt a different view. However, it is anticipated that even if a court deviates from the ECA's interpretation, it would likely take into account the ECA's public position when determining whether a violation occurred.
Material Influence vs. Change of Control
The Egyptian Competition Law originally focused on "change of control," but the Executive Regulations expanded this to include "material influence." According to these regulations, a transaction requires notification if the acquirer gains material influence over a target through:
- Acquiring at least 25% of the target.
- Acquiring 10-25% of the target, under conditions such as appointing board members, having decisive influence due to fractured shareholding, or having common shareholding.
- Acquiring less than 10%, if this makes the acquirer one of the three largest stakeholders and meets other conditions.
Although the Competition Law emphasizes change of control, the Executive Regulations and the ECA's Guidelines apply the material influence standard. This suggests that notifications are required whenever material influence is acquired, even if control is not fully transferred.
Review Process and Simplified Procedure
The Competition Law outlines a two-phase review process:
- Phase I: Lasts 30 business days, extendable by 15 days, and begins once the ECA confirms receipt of a complete notification.
- Phase II: For transactions that raise significant competition concerns, lasting 60 business days and extendable by 15 days.
The new Guidelines introduce a simplified review procedure for certain transactions, including:
- Transactions under the domestic threshold with combined Egyptian turnover/assets under EGP 2 billion (approximately USD 40 million).
- Transactions under the international threshold with the target's Egyptian turnover/assets below EGP 500 million (approximately USD 10 million).
- Full-function joint ventures outside Egypt with no Egyptian activities.
- Full-function joint ventures with no vertical or horizontal overlap with the parties' activities.
- Conglomerate concentrations between unrelated markets.
- Acquisitions of sole control from joint control.
The simplified procedure uses a short form filing and has a shorter review period of 20 business days. This procedure is designed for transactions that are unlikely to pose competition concerns.
Binding Nature of the Guidelines
The ECA's Guidelines are not legally binding as they have not been ratified by the Prime Minister of Egypt. Thus, they are considered an interpretation of the Competition Law rather than legislative or regulatory provisions. This means that Egyptian courts are not obliged to follow the Guidelines and could interpret the Competition Law differently.
While businesses following the ECA's interpretation in the Guidelines are unlikely to face penalties if a court adopts a different view, there is a risk that a court could overturn decisions made under the simplified review process if it finds that the ECA lacked authority to establish such a procedure. Although such a scenario seems unlikely, businesses should be aware that the simplified review process may not be legally recognized if challenged.
Conclusion
The recent developments by the ECA regarding merger control in Egypt represent a shift towards a more clarified and streamlined process, particularly with the introduction of a simplified review procedure and an updated interpretation of notification thresholds. However, the non-binding nature of the Guidelines and the lack of formal ratification mean that there is still some uncertainty. Businesses should stay informed about potential legal interpretations and be prepared for possible changes in the enforcement of these guidelines. Despite these uncertainties, it is expected that courts will consider the ECA's established positions when reviewing transactions.
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