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Mergers and Acquisitions Control

الرقابة على عمليات الدمج و الاستحواذ - Mergers and Acquisitions Control - conditions of sukuk issue

In the first place, Mergers and Acquisitions (M&A) transactions are deemed as one of the focal pillars in the Egyptian corporate and commercial regime. Arguably, Egyptian jurisprudence and legislation seek to facilitate the control and governance of such a market to the utmost extent possible to serve all incoming investors in this respect.

Undoubtedly, the stability of the political position of Egypt plays a pivotal role in attracting incoming investors, particularly in the M&A market.

It is worth mentioning that M&A practices primarily are regulating and governing in the Arab Republic of Egypt through various legal provisions, inter alia, the Egyptian Companies Law No. 159 of 1981, Capital Market Law and Egyptian Competition Law No. 3 of 2005, as amended.

It should be noted that the M&A transactions according to the Egyptian jurisdiction are focused on two principal forms as mentioned below.

Forms of M&A Transactions

Legally speaking, the M&A transactions shall be taken place through the following mentioned forms to come in line with all prescribed provisions in Egyptian laws and decrees.

On the legal front, the said transactions are required to strictly abide by all terms, conditions and approvals in this regard, as a merger and acquisition transaction is based on the legal form of the target company.

1- Transfer of shares in a joint stock company (JSC):

It is well established that any transfer of shares in a JSC shall be undertaken through a set of conditions and terms as prescribed in Egyptian laws and decrees, as the process shall be carried out through a licensed brokerage firm, whereby the latter shall implement the transaction before the Egyptian Stock Exchange (EGX).

Moreover, any transaction exceeding EGP 20 million shall be pre-approved by the EGX committee in question, additionally, it is permissible to transfer of listed shares in the manner set forth in Egyptian laws and regulations.

2- Transfer of Quotas in a limited liability company (LLC):

The transfer of quotas in an LLC shall be taken place either through an official or unofficial agreement within the meaning of the Target Company’s articles of incorporation. Furthermore, the transfer of quotas in an LLC shall be duly annotated in the company’s ledger in question.

Mergers and Acquisitions Control Amendments

Crucially, the following authorities have the exclusive jurisdiction to regulate and govern M&A transactions, as follows:

With the observance of the above-mentioned authorities, other regulatory authorities may be involved based on the envisaged activity that might be carried out by the Target Company.

In the same context, the EGC recently issued new amendments and regulations in connection with regulating and governing M&A transactions, hence, such amendments and regulations which are defined below more in detail shall be observed.

As a matter of law, a transaction shall be filed before the EGC Authority and obtain its approval prior to its closure, as well as under the amended legislation, a transaction that constitutes an economic concentration and exceeds the turnover thresholds require the pre-closing approval of the EGC Authority, it is clear that the term of economic concentration within the meaning of the new amendments means any change of control or material influence on the Target Company based on any of the following reasons as follows:

  1. Merger transactions.
  2. Acquisition transactions.
  3. Conducting a joint venture (JV).

Legally, failure to comply with all conditions and terms set forth in the new amendments and controls issued by the EGC, a fine ranging between 1% and 10% of the value of the annual turnover or assets of the involved parties or the value of the transaction (whichever is higher), or a fixed amount ranging between EGP 30 million to 500 million if the value of turnover or assets is difficult to be considered.