Measures Regulating Mergers in Egypt
It is worth mentioning that Merger and Acquisitions (M&A) are deemed one of the principal and fundamental forms of possessing and controlling cooperation in any jurisdiction tremendously.
Given that the pivotal role of such transactions, the provisions of Egyptian laws, precisely, Egyptian Companies’ Law No. 159 of 1981 and its Executive Regulations, as amended set out all measures and terms to govern such transactions legally and properly to avert any misleading and/or damage(s).
Legally speaking, the provisions of the law and its executive regulations mentioned above differentiate between Mergers and Acquisitions, as each form has its specific terms and requirements in the manner set forth in the law.
On the practical front, the General Authority for Investment and Free Zones (GAFI) has the exclusive jurisdiction in relation to Merger transactions, as GAFI is deemed as the regulatory authority in this regard along with the Egyptian Competition Authority (ECA)
In accordance with the Egyptian jurisprudence, there are a series of terms and requirements pertaining to Merger transactions that shall be fulfilled to the utmost extent possible, as such, the following shall shed light on such terms and requirements:
Pursuant to the provisions of Egyptian laws and regulations, the process of mergers primarily shall comprise two principal factors as follows:
- The Merging Entity.
- The Merged Entity.
Additionally, Merger transactions shall take one of the following statutory forms in accordance with the provisions of Egyptian laws:
- Merger by Consolidation; as such form means that one or multiple entities (Merged Entity(ies)) may be merged in an existing entity (the Merging Entity); and
- Merger by Absorption: such form means that one or multiple entities (Merged Entity(ies)) may be merged to form one new entity (the Merging Entity)
Most importantly, the aforementioned law and its Executive Regulations set out prescribed terms pertaining to either the Mering Entity or the Merged Entity, whereby, the Mering Entity shall be irrevocably and indubitably in the form of a joint stock company (JSC), in return, the Merged Entity(ies) may take any of the following forms:
- A limited liability company (LLC).
- One-Person Company (OPC).
- Company Limited by Shares (CLS).
- Joint Liability & Partnership Companies.
- It should be noted that the Merger transaction may be carried out even if the Merged Entity is under liquidation, provided that obtaining the concerned approval is issued by the authority in question.
It is well established that upon the completion of the Merger transaction, the legal personality of the Merged Entity(ies) shall be dissolved by the law.
How do you evaluate mergers targets?
Legally, the assets of the Merging and Merged entities shall be duly evaluated by the concerned department at GAFI and such evaluation shall be implemented prior to proceeding with the Merger transaction.
Moreover, in the course of the implementation of the Merger transaction, parties to the said transaction shall conclude a merger contract (“Merger Contract”), as the latter is required by the law and the regulatory authority.
The Merged Contract mentioned above, shall comprise a set of material provisions, including inter alia:
- The grounds of Merger and its objectives
- The date of assets’ valuation.
- The determination of the rights of the shareholders.
How do you measure mergers?
It is imperative that the Merger Contract should be approved through a decision issued by the extraordinary general assembly meeting (EGAM) and such approval shall be issued by the Merger’s Contract parties.
Notwithstanding the above, if the Merger transaction results in the incorporation of a new entity, the incorporation process shall be performed in accordance with the provisions in the Egyptian Companies’ Law No. 159 of 1981 and its Executive Regulations, as amended.
Recently, the Egyptian legislation enacted new provisions and obligations, including amongst other provisions, granting the ECA the full power to review and approve potential mergers, acquisitions and joint ventures prior to their completion, with the intention to ensure that transactions do not negatively affect competition in their respective sectors and to prevent monopolistic practices in accordance with the provisions stated expressly in the relevant law in this regard.