ECA Issued Merger Control Guidelines. Will They Hold?

On 23 May 2024, the Egyptian Competition Authority (ECA) held a discussion during which they provided clarification on Egypt’s new pre-closing notification merger control regime. Most notably, during the panel discussion, the ECA introduced a simplified procedure, and deliberated their interpretation of the material influence requirement as well as the filing thresholds. Following the panel discussion, on 26 May 2024, the ECA released new notification filing forms, as well as rudimentary Guidelines covering the issues deliberated during the panel discussion. While the Guidelines remain superficial, they do provide written confirmation of the ECA’s new interpretation of the international threshold.

Notification threshold

The amendments to the Egyptian Competition Law introduced end of December 2022 introduced two notification thresholds:

• the domestic notification thresholds that requires at least two parties to have turnover/assets in Egypt; and
• the international notification threshold, which only requires one party to have turnover/assets in Egypt.

The law did not specify which party would have to have turnover/assets in Egypt to fulfill the local turnover/asset requirement of the notification thresholds. This was initially understood as filing under the international notification threshold being required even where the acquirer alone met the Egyptian turnover/asset required. At the panel discussion held on 23 May, the ECA now changed their position and explained that they would only consider the international notification threshold to be met, if the target meets the Egyptian turnover/asset requirement. This position was later confirmed in the Guidelines. While the ECA limiting the application of the international notification threshold is welcome, it raises some concerns.

The ECA does not have regulatory authority. Hence, the Guidelines issued by the ECA are neither legislative nor regulatory in nature. They are merely a confirmation of the ECA’s interpretation of the international notification threshold as established under the law. The law, however, remains ambiguous as it only requires that ‘a party’ to the transaction has turnover/assets in Egypt. Since Egyptian courts are not bound by the guidelines, they would conduct their own review and interpretation of the Egyptian Competition Law, if the matter would be brought to them. Considering the broad wording of the law, there remains a risk that Egyptian courts would take a different position and hold that the acquirer alone could meet the Egyptian turnover/asset requirement under the international notification threshold.

Still, we would expect that even if a court would deviate form the ECA’s position and require notification under the international notification threshold, even if the target has no turnover/assets in Egypt, that the courts would not penalize parties for following the interpretation of the international notification threshold of the ECA as expressed in the Guidelines. In doing so the parties could conceivably at least rely on the argument that they in good faith followed the interpretation of the law as publicly promoted by the ECA and, therefore, should not be held liable for a violation established by the courts based on a different interpretation.

Material influence and change of control

While the Competition Law only addressed change of control, the Executive Regulations expanded the application of the Egyptian merger control regime to acquisitions of material influence. Hence, under the Egyptian merger control regime as further defined in the Executive Regulations a transaction requires notification, where a (natural or legal) person acquirers material influence over an undertaking by:

• acquiring at least 25 percent in the undertaking;

• acquiring at least 10 but less than 25 percent in the undertaking, provided that at least one of the following conditions is met:

• the acquirer gains the right to appoint at least one representative to the board;

• the shareholding in the target is so fractured, that the acquirer can still take decisive influence on strategic decisions; or

• there is common shareholding or are common shareholders between the acquirer and the target; or

• acquiring less 10 percent in the undertaking, provided that at least one of the aforementioned conditions is met, and the acquirer becomes one of the three largest stakeholders in the undertaking.

The Executive Regulations do not address the discrepancy with the Competition Law, which appears to rely on the concept of change of control. Neither did the ECA explicitly do so in their Guidelines. However, the Guidelines rely on the concept of material influence as introduced by the Executive Regulations. Also the ECA applies the material influence test—rather than a change of control test—in practice. Hence, in practice filing will be required where the material influence test is met.

Review process

Pursuant to the Competition Law the review process is split into Phase I and Phase II review. The Guidelines now introduced a new, simplified procedure for certain filings. The ECA will commence a Phase I review once the ECA confirms that a complete notification was submitted. The statutory review period in Phase I is 30 business days, with the option of an extension by 15 business days. Where the ECA finds that a transaction (potentially) poses considerable competition concerns in Egypt, they can initiate a Phase II review. The statutory review period in Phase II is 60 business days and can be extended by 15 business days.

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The simplified procedure introduced with the Guidelines is reserved for transactions that do not pose competitive concerns in Egypt. Specifically, the following transaction qualify for review in simplified procedure:  

• where the domestic notification threshold is met, but the combined Egyptian turnover/assets of the relevant parties is under EGP 2 billion (approx. USD 40 million);

• where the international notification threshold is met, but the target’s Egyptian turnover/assets are less than EGP 500 million (approx. USD 10 million);

• where the transaction concerns the establishment or acquisition of a full-function joint venture (non-full function joint ventures do not require notification) outside of Egypt, with no activities in Egypt;

• where the transaction concerns the establishment or acquisition of a full-function joint venture that is active in a market that does not vertically or horizontally overlap and is not otherwise connected to the activities of the groups of the joint venture parents;

• conglomerate economic concentrations between persons operating in markets that are not horizontally or vertically related or otherwise related to each other; and

• an acquirer acquiring sole control over an undertaking they already had joint control over pre-closing.

The simplified procedure includes a separate, short form filing form. Most notably this short form filing form does not require the parties to disclose prior transactions. Furthermore, the review period is shorter with only 20 business days.

Binding effect of the Guidelines

With the clarification on the international notification threshold—now requiring that the target has Egyptian turnover/assets—and the the introduction of the simplified review procedure, the Guidelines introduced significant changes to the Egyptian merger control regime. This raises the question of whether businesses can rely on the Guidelines as binding.

The ECA does not have regulatory authority. For any rules drafted by the ECA to gain the rank of legally binding provisions under Egyptian law, such rules have to be ratified by the Prime Minister of Egypt. Since the Guidelines have not been ratified by the Prime Minister, they are neither legislative nor regulatory in nature. Hence, an Egyptian court would not have to follow the Guidelines in their interpretation of the Competition Law and the Executive Regulations.

Thus, the clarification on the international notification threshold included in the Guidelines that a filing is only required, if the target meets the minimum Egyptian turnover/asset requirement, can only be understood as the ECA’s interpretation of the relevant provision of the Competition Law. The Competition Law provides that under the international notification threshold ’at least one party’ to the transaction must meet the Egyptian turnover/asset requirement for a filing obligation to arise. The ECA appears to consider this provision ambiguous and subject to interpretation. In their Guidelines they offered an interpretation of the provision and held that the party referred to in the Competition Law must be the target. However, a court or other authority could conceivably take a different view. There is reasonable room to argue that ‘at least one party’ to the transaction meeting the Egyptian turnover/asset requirement should be understood as the international notification threshold being met if any party to the transaction meets the Egyptian turnover/asset requirements. An Egyptian court could reject the interpretation of the international notification threshold of the ECA and find that a broader application of the Egyptian merger control regime is warranted. In doing so an Egyptian court could find that an acquirer, who meets the Egyptian and worldwide turnover/asset requirements under the international notification threshold, but forwent notification of a transaction because the target had no Egyptian turnover/assets, has violated the Competition Law.

In practice, these concerns may be of little impact initially. We would not expect an Egyptian court to fine or otherwise penalize an acquirer who forwent notifying a transaction by relying on the explicit position of the ECA expressed in the Guidelines. Even if a court would take a different view on the Competition Law than the ECA, we would expect the court recognize that by issuing the Guidelines the ECA created an expectation that the Competition Law would be applied in accordance. However, since the Guidelines do not have the rank of a legal provision of Egyptian law, a court could essentially repeal the Guidelines by rending a verdict that included an interpretation of the Competition Law that differed form that taken in the Guidelines.

In respect to the simplified review procedure the situation may be more problematic. Since the ECA cannot issue binding regulations on their own, they can arguably not introduce a new or amended procedure. In particular, since the Competition Law does not provide for the possibility of the ECA developing a review process in addition to the Phase I Phase II procedures established by the Competition Law. Hence, a court or the legislator could find that the simplified procedure introduced in the Guidelines is not a legal procedure. The consequence of this would be that all transactions cleared under the simplified procedure would be deemed not having been legally cleared.

It remains to be seen how this issue would be resolved. Still, as in case of the ECA’s interpretation of the international notification threshold, we do not see a realistic risk that a court would penalize businesses for closing a transaction after having received clearance under the simplified review track. We would expect the courts to consider businesses that relied on the ECA’s Guidelines and closed a transaction after having received clearance under the simplified track as having acted in good faith and relying on a strong expectation set by the ECA that closing was legal. Still, the courts or the legislator could repeal the simplified review process, since the ECA had no authority to establish it. Such authority was not granted in the Competition Law or the Executive Regulations. Also the ECA does not have regulatory authority that would allow it to establish such procedure without individual authorization.