Mergers generally need to be checked before they are completed to make sure that a sound competitive environment is created and the merger does not affect it and to ensure that this merger positively benefits consumers and does not cause any damage to other companies in the market.

therefore, pre-merger inspection is a very necessary procedure, as all data on transactions are reviewed before the merger and this is by the competent authorities, as this procedure protects the market from domination and allows developing companies to have a location.

Background about pre-merge control:

The Egyptian first pre-merger control regime was officially promulgated by law no. 175 of 2022, this Law amended Egyptian Competition Law No. 3 of 2005, granting the Egyptian Competition Authority the power to review and approve transactions that meet certain criteria.

On 29 December 2022 the amendment of Egyptian Competition Law by law no. 175 of 2022, This amendment transformed the country’s merger control regime from a post-closing notification system to a pre-merger filing system.

The enforcement of this regime was pending the issuance of the corresponding amendments to the Executive Regulations of the Competition Law issued by Prime Minister’s Decision No. 1316, 2005 Resolution On 4 April 2024, Prime Minister Decree No. 1120 of 2024 introduced the long-awaited amendments to the Executive Regulations of the Competition Law which will enter into force as of 1 June 2024.

Decree Overview:

Decree No. 1120 of 2024 introduced the long-awaited amendments to the Executive Regulations of the Competition Law by activating the pre-merger control regime.

This which was mentioned was officially promulgated by law no. 175 of 2022. The pre-merger control regime is triggered if the transaction falls within The Economic Concentration definition and satisfies certain Financial Calculation Rules.

The Executive Regulations of Amendments request specific criteria regarding the definition of Economic Concentration and clarify the method of calculating the Financial Calculation Rules as follows:

Definition of Economic Concentrations:

Economic Concentration is defined by the Egyptian Competition law as” any change of control or material influence over one or several entities,” which results from a merger, acquisition, or joint venture that conducts an economic activity in an “independent and permanent manner” (i.e., a full-function joint venture).

While a change of control is defined in the Law as the ability of a person, or persons, to exercise effective influence (directly or indirectly) over another person by orienting said person’s economic decisions, the Amendments offer a detailed definition of material influence “The ability to influence (directly or indirectly) another person’s policies, such as strategic policies and commercial objectives.”

If your company needs legal support to ensure that Mergers and Acquisitions process is carried out soundly, contact us to obtain the service and provide appropriate legal advice.

Cases Material Influence is achieved:

Article 50 of the Executive Regulations in the new decree clarifies that “material influence” is achieved in any of the following instances:

1-Any action that results in the acquisition of more than 25% of the total voting rights or share capital of another person’s capital

2-Any action that results in the acquisition of less than 25% of the total voting rights or share capital of another person’s capital, when combined with other factors that enable impacting said person’s policies, namely:

• The proportion of voting rights owned by the possessor in comparison to the remaining voting rights.
• The existence of any provisions in the articles of association, the shareholders’ agreement, or other documents granting the possessor certain privileges such as preferential voting rights or veto powers.
• The presence of mutual stakeholders between the possessor and the acquired entity; and/or
• The presence of (one) or more representatives of the possessor on the board of directors of the acquired entity.

3-In any event, an acquisition of less than 10% of the total voting rights or share capital does not confer material influence, unless the acquirer will become one of the three primary shareholders of the target.

And Note that

The Executive Regulations also exclude certain types of transactions from the definition of Economic Concentrations. For example:

•  Any internal restructuring transaction (provided it does not lead to a change of control or material influence directly or indirectly).
• Temporary acquisition of securities by any company operating in the securities business that will resell such securities within one year of the acquisition.

In the end, success always requires taking into account the responsibility towards the rest of the companies in the market, therefore, undergoing pre-merger screening ensures that you and others succeed properly

Is your company ready to comply with regulatory laws? Consult our legal experts at El-Laithy & Associates Lawyers Law Firm now