Following media reports that two multinational companies were in merger discussions, the Egyptian Competition Authority ("ECA") has told the parties to seek prior ECA approval before entering into any agreement.
Although the parties denied entering into any agreement with the intention to merge, the ECA informed them that any such agreement might be considered to fall under Articles 6(a) and 6(b) of the Egyptian Competition Law ("ECL"), which relate to cartels and cooperation agreements respectively. Under the ECL, all cooperation agreements must obtain prior approval from the ECA before they can be concluded. The ECA considered in this case that, although the agreement appeared in the form of an acquisition agreement, it might in reality constitute an anticompetitive agreement falling under the existing ECL prohibitions. The ECA therefore informed the parties that they should notify the agreement prior to its completion, following which the ECA would assess whether the agreement violates the ECL.
Under the existing merger control rules of the ECL, parties to a merger or acquisition are required to notify the ECA of a transaction within 30 days of its completion, but the ECA does not have jurisdiction to review or assess the transaction.
Implications for market players
The development appears to signify a new enforcement policy of the ECA, under which parties to any merger or acquisition may be required to notify the transaction to the ECA and to obtain its prior approval before entering into the agreement. Parties that do not notify their transaction, run the risk that the ECA will consider it to be a form of cartel or anticompetitive cooperation agreement and therefore be entitled to intervene and potentially prohibit the transaction.
The ECA specified clearly in its press release that the agreement in question might fall under both Articles 6(a) and 6(b) of the ECL. This indicates that the ECA might try to argue that the agreement constitutes (i) a cartel limiting output or marketing tools, which would be per se illegal, or (ii) an anticompetitive cooperation agreement which may benefit from an exemption.
However, it is not yet clear which approach the ECA will follow in this case, and to what extent this signifies a general change in its policy. The recent case involved a specific set of circumstances including:
- media reports about the potential transaction
- a possible combined market share for the parties of 100% post-merger
- ongoing competition inspection in the same market in Egypt
- evidence of significant irreparable damage to competition and consumer welfare if the transaction were to take place (based on the ECA's preliminary assessment)
What happens now?
The parties in this case face a significant challenge to any future merger between them, which would likely require notification to and clearance from the ECA.
Parties to any proposed transaction that might have an effect on the Egyptian market will now need to consider both their market position in Egypt and the sensitivity of the acquisition before entering into any agreement. If the market conditions of any transaction were similar to this recent case, it is likely that the ECA would follow a similar approach and require notification.