What has changed
Parties to a horizontal cooperation agreement and potentially parties to certain horizontal mergers or acquisitions may be required to obtain the prior approval of the Egyptian Competition Authority (ECA).
On 29 December 2019, the ECA announced that it has conditionally cleared its first pre-merger notification under the exemption procedure for horizontal cooperation agreements.
This is the first time that the ECA has issued a decision detailing its procedure for exempting horizontal cooperation agreements under Article 6(2) of the Egyptian Competition Law (ECL). The decision provides businesses with a better understanding of the process and time-frame required for notification. However, the decision also raises a number of questions.
What it means for you
Competitors who enter into cooperation agreements are advised to seek the prior approval of the ECA according to the rules set out in the ECL. This case has, for the first time, expanded the authority of the ECA to review mergers and acquisitions, as well as cooperation agreements.
In its decision, the ECA notably refers to the experiences of the European Commission prior to the adoption of the EU Merger Control regime. In addition, the ECA’s substantive assessment of the merger has been influenced by the EU horizontal merger assessment guidelines.
In this case, the parties, post transaction, would have had 100% market share in their markets. According to the ECA, the efficiencies claimed by the parties were neither verifiable nor consumer specific. The ECA argued that high barriers to entry meant that any new entry would be unlikely, or at least not timely, and most likely insufficient to constitute any competitive pressure on the parties post merger.
In its market definition assessment, the ECA has also for the first time conducted consumer surveys. This was conducted in cooperation with other relevant governmental authorities. In addition, the ECA also conducted an online survey, which was widely published in Egyptian media.
Furthermore, the ECA cooperated extensively with other competition authorities in the region. Most importantly, the ECA noted that it has cooperated with the competition authorities of Saudi Arabia, Pakistan and the COMESA.
It is important to note that the new approach by the ECA is still developing and the courts have not yet ruled on its legality. This means that the established post merger notification regime is still applicable and remains standard practice. For the ECA to intervene in any merger, it would need to issue interim measures to prevent the parties from closing their transaction and notifying the ECA post merger.
In this case, the ECA has issued, as proposed by the parties, a list of commitments for a total period of 5 years or until there is effective new entry in the market (holding 20% market share or more than one entry holding 30% market share combined). These commitments include: imposing a price cap on the parties’ services; and a ban on use of direct or indirect exclusivity clauses or terms/ A trustee will be appointed (to be approved by the ECA) to monitor the implementation of the commitments. Furthermore, subject to certain conditions, competitors entering the market will have access to certain data, which is developed or held by the parties.
Clients are advised to consider the following going forward;
- Notify any horizontal cooperation agreement to the ECA prior to concluding such agreements.
2. In the event that a merger or acquisition transaction meets the following conditions, parties should particularly consider approaching the ECA;
- media reports about the potential transaction
- a possible combined market share of 100% post-merger
- ongoing competition inspection involving any of the parties
3. The burden to provide acceptable remedies is on the parties and not the ECA. The ECA role is limited to “testing” whether these proposed remedies would result in efficiencies (consumer benefits) that would outweigh the harm of the transaction. However, it remains unclear what is meant by “testing” and how the ECA conducts this “testing.”
4. The Executive Regulations of the ECL state that the review can take 30 days, which can be renewed once more for a further 30 days. The ECA interprets this as 30 working days. In this case, the review period has extended more than one year.
5. Even though parties to non-horizontal mergers are unlikely to be affected by this development, the ECA has covered the conglomerate aspects in its merger assessment, which implies that conglomerate and/or vertical theories of harm could potentially be captured. In addition to reviewing conglomerate/vertical aspects of a merger, the ECA might be inclined to find that acquisitions can amount to an abuse of dominant position if the acquisition is likely to strengthen the existing dominant position of an undertaking in such a way that the degree of dominance reached substantially fetters competition.
6. The ECA seems to be particularly interested in access to information and data. Therefore, clients, specifically those holding a significant amount of consumer or mapping or other personal data, are advised to assess their positions in order to avoid being caught under the ECA’s radar.
To read more about the interim measures and about the background of this case please click here. As previously reported, under the ECL there is not a pre-merger control regime, which remains, the case in normal circumstances. It is only a post-merger notification regime, where the ECA does not have any power to block, appraise or approve any mergers. However, the ECA considered that this acquisition is a form of a horizontal cooperation agreement and therefore, needs to be notified to the ECA and issued an interim decision requiring parties to the transaction to notify it prior to closing their agreement.