The Egyptian Competition Authority (ECA) now has a robust framework for assessing economic concentration, After the issuance of the New Egyptian Merger Control Regime including those with potential anti-competitive effects even if they are below financial thresholds.
table of content :
The past year in merger control
New Egyptian Merger Control Regime
Important Advise in New Egyptian Merger Control Regime
New Egyptian merger control system on the healthcare sector
Are there any in merger challenges, or remedies that have emerged over the past year?
Significant changes that impact merger control in the past year?
When Implementation-of-the-merger-control-regime-in-Egypt?
What are the key developments in the past year in merger control in your jurisdiction?
After almost 17 years of enacting the Egyptian Competition Law (ECL), pre-merger control was finally introduced by Law No. 175/2022. In the past few years, the Egyptian Competition Authority (ECA) expressed concerns about the anti-competitive impact of some transactions. However, it was not until 2018 that ECA decided to revive an old but effective EU law doctrine, the so-called Continental Can Doctrine. According to this doctrine, merger and acquisition can be assessed under the substantive provisions of Competition Law.
Arguably, a merger or an acquisition is an agreement that perfectly falls under the different substantive provisions of the ECL. What was missing was not the substantive grounds to assess these types of transactions but a procedural framework regulating the matter more effectively.
To fill in this gap, the ECA used to intervene under Article 6 of the ECL (prohibition of anti-competitive horizontal agreements), read in conjunction with Article 20 of the Law (The ECA’s powers to impose interim measures and remedies on the breaching undertakings) to assess the anti-competitive effect of some transactions. This approach was adopted in relation to an acquisition between the most significant two competitors in the healthcare sector which was eventually prohibited by ECA marking the first blocked transaction under the substantive provisions and was also used in relation to the multi-jurisdictional Uber/Careem acquisition in the ride-sharing sector.
The significance of the latter case cannot be overstated for several reasons. First, it was the first case against which ECA adopted the Continental Can doctrine. Second, it was the first recorded case in which ECA took a deep dive into the rapidly evolving digital economy. Thirdly, it was the first case in which ECA explored its sphere of influence with other competition authorities concerned with the matter to mark the first multijurisdictional cooperation in the area of merger control by the authority.
Finally, in the absence of substantive guidelines under the different provisions of the law, the publication of the full report of the Uber/Careem acquisition offered the first insight into ECA procedural and substantive methodology in the assessment of anticompetitive behavior as well as the role of economic analysis in such assessment.
Within this history, in December 2022, Law No. 175 of 2022 was adopted, it concerns the amendments of the ECL provisions, introducing the new Economic Concentration ex-ante control regime for the first time in Egypt. The amendments provide a strict standstill obligation on the parties to the transaction in case their transaction falls under the legal definition of Economic Concentration. The said definition covers the acquisition of “decisive influence” (so-called concept of Control) and the acquisition of material influence (i.e., the ability to influence another person/entity’s strategic and commercial policies and goals directly or indirectly, particularly the likelihood that such influence may lead to or facilitate a collusive outcome).
What are the amendments to the New Egyptian Merger Control Regime?
The amendments provide that, for an Economic Concentration to be notifiable under the new ex-ante control regime, it shall meet a certain financial threshold.
Accordingly, a transaction should be notifiable if the combined aggregate local turnover of the parties (including related parties) exceeds Nine Hundred Million EGP (900.000.000 EGP). The turnover of at least 2 of the concerned parties in Egypt exceeds Two Hundred Million EGP (200.000.000 EGP) for each separately. Or if the combined aggregate worldwide turnover of the parties (including related parties) exceeds 7 billion and Five Hundred EGP and the turnover realized in Egypt of at least one of the concerned parties exceeds Two Hundred Million EGP (200.000.000 EGP).
However, and for the purpose of allowing ECA a wider scope for intervention that is not conditioned by any financial thresholds, the amendments explicitly provide that the ECA reserves the right to review any economic concentration falling below the above-mentioned thresholds (non-notifiable concentrations). ECA could do so even if the transaction is consummated within a 1-year deadline for intervention from the consummation date. In this context and unlike notifiable concentrations, the ECA can only impose behavioral remedies without blocking the transaction. Therefore, even if the transaction does not meet the above-mentioned financial thresholds, it may be subject to the ECA’s scrutiny by virtue of Article 19 bis paragraph (2) of the ECL.
This was a deliberate attempt from ECA to intervene in some mergers that may escape the financial threshold, yet they may have some anticompetitive effects. ECA was concerned with the so-called pattern of killer acquisitions and acquisitions with narrow geographic scope that may lead to the creation of monopolies at the local level. This move came after some policy papers and interventions in which the ECA expressed concerns regarding those types of acquisitions.
The amendments also introduced the concept of remedies consisting of behavioral and structural remedies that the ECA may impose on the parties to a certain transaction in order to eliminate harmful effects on competition resulting from the concentration instead of totally blocking it, the concept of remedies had always existed before the enactment of these amendments, however, an official definition of the nature of such remedies and the procedures related to them are now clearer.
As to the substantive assessment conducted by the ECA for the notifiable Economic Concentration, the new article 19 bis (b) of the ECL states that economic concentration should be declared incompatible if it restricts, prevents, or harms the freedom of competition. The article explicitly refers to the executive regulation to determine the factors to be considered in assessing whether the Economic Concentration restricts, prevents, or harms the freedom of competition. Additionality, and in a controversial way, the second paragraph of the same article states that ECA may approve a transaction after the approval of the council of ministers in two cases, first, if without the consummation of the transaction, parties would exit the market (failing firm defense) or if the concentration yields economic efficiencies that outweigh the harm of competition or achieves national security objectives.
In a very atypical way, this article conditions for the exemption of an Economic Concentration in case of proof of economic efficiency the council of ministers’ approval, which contradicts a well-established international practice according to which the assessment of economic efficiencies should not be based to political whim but rather to genuine technical considerations.
Another controversial aspect of the amendments is creating a separate new merger control regime in egypt for transactions in sectors under the supervision of the Financial Regulatory Authority (FRA) (i.e., Non-Banking Financial Activities). The amendments explicitly excluded the activities under the FRA’s supervision from ECA’s jurisdiction. In this regard, the new Article 19 (e) provides that entities exercising an activity under the supervision of the FRA must notify the FRA of the Economic Concentration. Here, ECA powers in relation to the concentration are only limited to issuing a non-binding opinion to the FRA. This provision creates a proliferated competition regime and is -very much- expected to create uncertainty and confusion and maybe contradictions between the FRA’s and the ECA’s decisions regarding a given transaction as, after all, ECA’s opinion or recommendations will not be binding for the FRA.
It shall be noted that upon the publication of the new law in the official gazette, ECA published a press release stating that the new law would not be implemented until the adoption of executive regulation. To date the executive regulation has not been issued, and therefore the ex-ante control regime of Economic Concentration is not yet effective. This does not mean that ex-ante control of Economic Concentrations will be totally suspended till the issuance of the executive regulation, as the ECA can still intervene under article 6 and article 20 of the ECL to assess transactions that may likely produce anticompetitive effects as it did in the past. Whether it will do so in the presence of a merger control law remains uncertain. Therefore, we usually advise and help our clients in assessing the legality of their mergers under the test set forth under article 6 which is by the way very different from the test set forth in the New Egyptian Merger Control Regime.
Have there been any developments that impact how you advise clients about the New egyptian merger control regime?
it is always advisable that firms procure the ECA’s approval on the transaction (especially horizontal transaction, i.e., between competing persons) before its implementation. At this stage (i.e., prior to the implementation), the ECA should not block the transaction by any means; it may impose remedies (structural or behavioral measures) or provide its unconditional approval of the transaction.
In any case, if the transaction triggers a notification under the COMESA competition rules, it is ECA that investigates the matter in cooperation with the COMESA Competition Commission (CCC).
Here it is also important to note that clients need to seek local competition expertise with experience in ECA’s methods for collecting economic evidence. On many occasions, data requests from the side of the authority are vague or wider in scope than necessary.
The Request for Information (RFI) issued by the authority needs to be carefully reviewed and possibly negotiated with the authority. ECA usually does not disclose the theory of harm it is after or even the scope of its investigation.
The Economic evidence and their assessment will depend on the theory of economic harm that the authority is pursuing. In the early merger cases that started in the years 2018 onwards, the test may seem very technically similar to the EU’s Significant Impediment of Effective Competition “SIEC test”, which is not true.
The test under article 6 is more similar to the test under the EU horizontal cooperation guidelines. While both may lead to the same results, the structure of economic analysis may differ. Now the new test set forth in the law is an entirely new substantive test so called the freedom of competition test. According to this test transactions that may prevent, restrict, or harm the freedom of competition should be declared incompatible with the law. The latter test may also seem flexible enough to capture horizontal, unilateral, vertical, and conglomerate effects.
It may do so in a particular way though that also places emphasis on the concept of freedom of competition. The law gave the ECA the freedom to interpret this test in the executive regulation of the law which is still pending. However, regardless of what may be included in the executive regulation, such regulation cannot entirely throw away the interpretation given by Egyptian Courts to the concept of Freedom of Competition under the current article 1 of the law which may likely give rise to new line of cases in which the principal focus is the likelihood of the merger in question to restrict the freedom of competition of other undertakings as such.
The assessment of economic efficiencies is another controversial aspect of the law. In the EU, the SIEC allows the European Commission to take economic efficiencies into consideration when assessing whether the transaction in question may significantly impede effective competition. A freedom of competition-based test may not allow this to a similar extent. The law does allow the exemption of the transaction on the basis of economic efficiency, yet the assessment of such efficiencies comes at a later stage after the competitive assessment. So, if a transaction is to be saved on grounds of efficiencies this can only happen after ECA declaring the transaction as restrictive of the freedom of competition. The body that can later save the transaction of economic efficiency grounds is not ECA but rather the cabinet of ministers. Meaning that clearance can be delayed even further beyond the statutory deadlines.
The particularities of the substantive test may add another hurdle for the international cooperation of ECA in the area of merger control. As argued above, ECA showed signs of effective cooperation with regional and national competition authorities during the assessment of Uber/Careem acquisition. Recently, COMESA competition authorities joined by other competition authorities in the African continent issued a mutual statement setting out a framework for mutual cooperation in the area of digital markets. The events leading to such cooperation were unfolded at the time of Uber/Careem acquisition when ECA took the leading role in trying to ensure a consistent outcome of the assessment by different authorities concerned by the transaction and to streamline the commitments that may be imposed by different authorities. It also marked the first North African-wide intervention in the digital market. Now the particularity of the substantive test makes the Egyptian framework greatly different from that of the COMESA’s, which may limit the effectiveness of such cooperation unless more harmonization efforts were made. Also, the pending executive regulation means that Egypt will be the only member state of the African digital competition alliance that lacks an effective merger law.
What is the impact of the new merger control regime in egypt on the healthcare sector?
the approval granted to transactions in the healthcare or pharmaceutical sectors is conditioned on the ECA’s assessment of the transaction and its potential impact on the relevant market(s). By way of illustration, prior to the merger law, during the era of applying article 6 against harmful concentrations, ECA blocked a merger between two of the biggest healthcare providers in the Governorate of Greater Cairo on the basis that its consummation may lead to the creation of a monopoly in the said geographic zone.
Also in relation to the healthcare sector, it is worth noting that ECA may consider the availability of less restrictive purchasers as part of its assessment and here the ECA recent approach is unconventional and not without critics.
Are there any trends in merger challenges, settlements or remedies that have emerged over the past year? Any notable deals that have been blocked or cleared subject to conditions?
It is generally expected that ECA will be more lenient towards the acquisition of material influence. In 2019, in a landmark case, ECA concluded that the possession of minority shareholding conferring material influence led to a collusive outcome on the Egyptian market. Here some commentators wrongly thought that it is as if ECA is rejecting the acquisition of minority shareholding. Nothing could be further from the truth. This case was a classic textbook example of cross shareholding across competitors and interlocking directorates that resulted in a collusive outcome. ECA ended the case by accepting commitments from both parties. The significance of this legal precedent for the future is that it sheds light on the fine line that may bring a case of material influence under merger law or under the law of article 6 against anticompetitive horizontal agreements.
ECA’s approach is, however, stricter in the healthcare and pharmaceutical industry. Having said that, it is also noticeable that some parties, especially local players not familiar with competition law, in many times fail to defend a proper market delineation and market power which could have drastically changed the outcome of the assessment
Have the authorities released any key studies or guidelines or announced other significant changes that impact merger control in the past year?
To date, the only comprehensive guidance on ECA analysis in merger control is the published decision of Uber/Careem acquisition. There were some published policy papers issued by the authority that highlight the general economic benefits sought from the merger control law. The ECA has recently established a merger unit to develop the guidelines whether the substantive or the procedural guidelines. It is expected from this unit to also establish those guidelines on the aspects of coordination of ECA with other sector regulator especially the FRA to clear out the overlap created by the law and the clear discrimination between entities subject to the ECA’s jurisdiction and those subjected to the FRA.
On the international front, a joint statement of the COMESA Competition Commission “CCC”, EAC Egypt, and other African competition authorities was issued to declare a framework of informal cooperation in investigation and exchange of expertise in enforcing competition rules in the digital economy. The statement cannot amount to a formal coordination framework and merely creates a forum for the exchange of expertise and capacity building. There are lots of legal and technical hurdles for an effective international cooperation in law enforcement between the ECA and other competition authorities, the CCC included. That is why it is important for companies to consider this aspect and previous cooperation attempts performed by ECA in multijurisdictional transactions to anticipate the outcome but also factor in the limitations.
the most anticipated change is the pending executive regulation of the new merger law and the accompanying guidelines that shall finally bring the law into effect.
The absence of these legislation creates a highly uncertain and may create an uneven playing filed for different industries.
Well to say the least, it may create a race of mergers to monopoly since lots of industries would be aware that once the regulation is issued not all their transactions can escape the law.
The very recent acquisitions in the tobacco industry are one evidence that merger law may not be applied consistently whether on the substantive or procedural aspects. The transactions in this sector raise questions on the neutrality of the merger regime and whether it could ensure a fair and non-discriminatory treatment of different businesses.
Yet it is the delay in issuing the above legislations that might be the reason to blame. Lots of observers have been also fair to expect a kind of intervention for the ECA. Indeed, few years ago, ECA intervened against similar kind of transactions that risked creating monopolies in different industries.
The issue here also raises the question of parties’ rights during the investigation process, mainly their due process rights and access to case files. Nothing in the new merger law imposes any obligation on the ECA with regard to transparency and accountability. The law is completely silent on these matters, which seriously risks turning the merger regime into a closed process that is difficult to predict. ECA has shown signs in the past towards recognizing those rights and their importance for the technical efficiency of the merger investigation but also the integrity and credibility of the process. For instance, in the Uber/Careem decision, ECA dedicated for the first time in its history a whole part that elaborates on the rights afforded to the parties during the assessment of the transaction. Similar stances were also observed under other areas of competition enforcement where ECA was for the first time sharing what is akin to a fully detailed statement of objection and allowed the parties concerned to share their defenses prior issuing final decisions. Recent practices of ECA show, however, a drawback from this track.
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Implementation of the merger control regime in Egypt
the revisions brought forth by Prime Minister’s Decree No. 1120 of 2024 mark a pivotal advancement in regulating economic concentration in Egypt. Scheduled to on implementation of the merger control regime in egypt June 1, 2024, these changes lay the foundation for a more transparent and competitive economic environment. This new pre-closing New egyptian merger control regime will take some getting used to by all parties doing business in Egypt
For further information and inquiries about New egyptian merger control regime as well as the procedures and documents required please feel free to contact the Corporate Procedural Department at Ibrachy & Dermarkar Law Firm It is considered the best law firm in Egypt info@id.com.eg
