The Difference Between Mergers, De-mergers and Acquisitions Under Egyptian Law

Mergers, acquisitions (M&A) and de-mergers are critical mechanisms for corporate growth, market expansion, and restructuring. These mechanisms enable companies to consolidate business units, expand their customer base, and streamline operations; however, they are governed by distinct legal frameworks under Egyptian law, executive regulations, and decrees. While often mentioned together, these terms differ in their legal nature, procedures and consequences.

Understanding the differences between mergers, demergers, and acquisitions is essential for achieving the strategic objectives of the corporations involved, properly structuring these corporate actions, managing legal risks and ensuring compliance with applicable legal provisions.

Regulatory Framework

In Egypt, mergers, acquisitions and demergers are mainly regulated by the Companies Law No. 159 of 1981 its Executive Regulations No. 96 of 1982, and their relevant amendments. Additional oversight is provided by the Capital Markets Law No. 95 of 1992 and its Executive Regulations, and their relevant amendments, where publicly listed companies are involved.

Notably, both mergers and acquisitions are subject to the Protection of Competition and the Prohibition of Monopolistic Practices Law No. 3 of 2005, and their relevant amendments, and are subject to regulations and decrees issued by the competent authorities.

Furthermore, these corporate actions may be subject to additional regulations where the target company’s and–or merging entities’ activities concerns sensitive sectors.

Definition of Mergers

By interpretation of Article (130) and (132) of Companies Law No.159 of 1981, and Article (288) of its Executive Regulations No.96 of 1982:

• Merger means the fusion of two or more companies together in one of two forms: either (1) merger by consolidation or (2) merger by absorption.
• The entities involved in the merger process are classified into: (1) merged entities that refer to the entity or entities that shall be merged and (2) the merging entity that refers to the entity that shall be merged into.
• Merger by consolidation refers to the process in which one or multiple companies (merged entities) are combined to form a single new company (the merging entity).
• Merger by absorption alludes to the process in which one or multiple companies (merged entities) are integrated into an existing company (the merging entity).

Key Legal Effects:

By interpretation of Article (132) of Companies Law No.159 of 1981:

A merger results in the dissolution of the merged company without liquidation, with all its rights, obligations, assets, and liabilities–including those related to supply chains and existing contracts–transferred by operation of law to the merging or newly formed company, as agreed, without prejudice to the rights of creditors.

The legal personality of the merged company ceases, and its shareholders receive shares in the merging entity as consideration. All existing legal relationships, including contracts and litigation, continue without interruption, subject to approval by the competent authorities, such as the General Authority for Investment and Free Zones “GAFI” or the Financial Regulatory Authority “FRA”, where relevant.

Definition of Demerger

According to Article (299/bis) of Executive Regulations No. 96 of 1982:

• A demerger involves separating a company’s assets, along with corresponding liabilities and equity, into two or more independent entities, through either a horizontal or vertical split. These new entities obtain their legal personality after registering in the commercial register.
• The company that retains its legal identity is termed the “dividing company”, while each separated entity is a “divided company”.
• In a horizontal split, the new companies are owned by the same share/quota holders in the same ownership proportions as the original. In a vertical split, a portion of the company’s assets or activities is transferred into a subsidiary wholly owned by the dividing company.
• In both types, the division of assets and liabilities is typically based on book value, unless GAFI approves another valuation method per its regulations. The allocation of share/quota holders’ equity-such as capital, reserves, and retained earnings-is determined by a resolution of the company’s extraordinary general assembly or quota holders.
• The split is implemented by issuing shares/quotas in the dividing company based on its post-split net assets, either by adjusting shares/quotas number or nominal value, and issuing new shares/quotas in the divided company, based on the portion of net assets it receives. Valuation of in-kind contributions must follow the procedures set forth in the Executive Regulations of Law No. 159 of 1981.

Key Legal Effects:

By interpretation of Article (299/bis (5)) of the Executive Regulations No. 96 of 1982:

A demerger leads to the legal separation of a company’s assets, liabilities, and equity into two or more entities. The dividing company retains its legal personality, while the newly formed companies acquire independent legal status. Assets and liabilities are transferred by operation of law as specified in the demerger plan, and shareholders or quota holders receive proportional ownership in the resulting companies.

The resulting companies are considered legal successors of the original entity, inheriting its rights and obligations based on the allocation set out in the demerger resolution. Importantly, the rights of creditors and holders of bonds or sukuk issued prior to the demerger remain unaffected. Prior approval from these parties must be obtained to ensure full protection of their rights during the process.

Definition of Acquisition

An acquisition refers to a corporate transaction in which one company gains control over another by purchasing all (100%) or a significant portion of its equity, commonly at least 51%, or a controlling interest of 75%.

This ownership stake grants the parent company authority over the target company’s strategic direction and operational decisions. While the acquired company may retain its separate legal identity, it becomes subject to the oversight and control of the acquiring entity.

Mechanism of Acquisitions in LLC v. JSC:

Acquisitions in Egypt vary based on the target company’s legal form.

Firstly, according to Article (118) of Companies Law No. 159 of 1981:

For Limited Liability Companies (LLCs), purchase of quotas is typically executed through a Share Purchase Agreement (SPA), either officially or customarily.
Furthermore, Article (275) of the Executive Regulations No. 96 of 1982 stipulates:

The Register of Partners must detail partner identities, quota holdings, and transfer records. Noting, transfers between living parties require both parties’ signatures and are legally effective only upon registration in the register.

Secondly, by interpretation of Articles: (2) (§2) and (26) of Law No. 93 of 2000 regarding the Deposit, Central Registration, Clearing, and Settlement of Securities and Article (28) of its Executive Regulations No. 906 of 2001, Along with Articles (120) and (121) of Executive Regulations No. 96 of 1982:

For joint stock companies (JSCs), purchase of shares is facilitated through a custodian registered with Misr for Central Clearing, Depository and Registry (MCDR). The transaction becomes legally effective upon issuance of a share ownership transfer certificate by MCDR, And the registration of the ownership transfer in the records of the acquired company.

Conclusion

Mergers, demergers, and acquisitions are distinct corporate mechanisms under Egyptian law, each with specific procedures and objectives.

Mergers combine entities through consolidation or absorption, aiming to reduce costs and expand markets. They involve asset and liability evaluations, board and shareholder approvals, and the transfer of rights and obligations to the merged entity.

Demerger splits a company into independent entities, enhancing operational focus and specialization. It requires detailed demerger plans, shareholder resolutions, and creditor safeguards.

Acquisitions involve one company gaining a controlling stake in another—via SPAs for LLCs or custodians under MCDR for JSCs-subject to Extra-Ordinary General Assembly approval, GAFI ratification, and registration.

These corporate actions influence the broader economy by improving efficiency, fostering innovation, expanding market reach, and enhancing competitiveness. While mergers and demergers focus on structural transformation, acquisitions offer a faster route to control. All three require strict legal compliance to protect stakeholder rights while contributing to economic growth.