Old post-closing regime
Under the old regime, transactions that met the turnover threshold had to be notified to the Egyptian Competition Authority (ECA) within 30 days after closing. The old post-closing regime continues to apply to all transactions signed up until 29 December 2022. However, going forward, all transactions that meet the turnover thresholds (which have been substantially increased when compared to the old regime) and result in a change of control or material influence over another entity will require pre-closing approval from the ECA.
Under the old regime, no definition of a “merger” or “control” was contained in the Competition Law. As such, in principle, any transaction that met the financial threshold had to be notified to the ECA within 30 days of closing, regardless of whether the transaction led to a change of control.
New pre-closing regime
The new regime introduces a change of control element for the first time in the Egyptian merger control system. An “economic concentration” is defined as any change of control or material influence that results from a merger, acquisition, or the establishment of a full-function joint venture. Control and material influence are defined as the ability to influence the economic and strategic decisions, as well as the business objectives, of the target entity. Excluded from the definition of an economic concentration are transactions that do not result in a change of control or material influence, such as those between subsidiaries of the same parent company.
The thresholds that trigger the pre-closing approval requirement are a combined turnover or assets of EGP 900 million (approximately USD 30 million) in Egypt, with at least two parties having a turnover of EGP 200 million (approximately USD 6,5 million) each in Egypt, or a combined worldwide turnover or assets of EGP 7,5 billion (approximately USD 250 million), with at least one party having a turnover of EGP 200 million (approximately USD 6,5 million) in Egypt. This, of course, raises the question of whether the ECA will apply a local nexus test when it comes to the latter ‘international leg’ of the turnover thresholds. This is an aspect we will be keeping a close eye on as merger regimes without local nexus tests are not considered to be best practice and introduce significant difficulties from a compliance and legal certainty perspective.
In terms of timing, upon a complete filing being submitted, the ECA will conduct an initial review. This initial review shall be concluded in 30 working days, with the option to extend the review period by an additional 15 working days. If the ECA finds that the transaction raises competition concerns, a second phase will follow. The review period for this second phase is 60 working days and may also be extended by an additional 15 working days. It is still not entirely clear as to what will constitute a complete filing as the ECA appears to be somewhat formalistic when it comes to supporting documents.
The amendments to the Competition Law have also significantly lowered the merger filing fees. The ECA’s fees for reviewing a notified transaction shall not exceed EGP 100,000 (approximately USD 3,500).
Firms failing to submit the pre-closing notification will be subject to a fine ranging between 1% and 10% of the value of the annual turnover or assets of the involved parties or the value of the transaction (whichever is highest), or a fixed amount ranging between EGP 30 million (approximately USD 1 million) to EGP 500 million (approximately USD 16,5 million) if the value of turnover or assets cannot be ascertained.
COMESA and the ECA
Egypt is one of the 21 COMESA Member States. Generally, the COMESA Competition Commission serves as a one-stop shop for mergers requiring clearance in more than one Member State. The introduction of the new pre-closing regime creates a legal obligation to notify both the COMESA Competition Commission and the ECA (to the extent a transaction is notifiable in both jurisdictions). Under the old post-closing regime, this dual notification requirement only applied informally.
In conclusion, it is crucial for businesses operating in Egypt to be aware of this material change to its merger control paradigm. The ECA will start to enforce the new regime after the executive regulations are issued. Certain aspects of the new regime appear to be positive steps in that they increase certainty and reduce costs. The changes also align Egypt with most other jurisdictions that also require pre-closing notifications. However, the separate notification requirement (in addition to the COMESA filing) does create a degree of additional complexity because COMESA is a non-suspensory regime (i.e. parties may, on risk, implement their transaction prior to receiving approval) whereas the new Egyptian regime suspends closing until approval is received.