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Monday, 8 April 2019

The Egyptian Competition Authority’s guide to how to use anti-cartel legislative provisions to control and review mergers

A CONTRARIAN VIEW- Does the ECA have the legal ground to stop Uber from buying Careem? Or to block any M&A, for that matter? That what we were asking ourselves when the Egyptian Competition Authority (ECA) sent a sharp, unprecedented warning to ride-hailing companies Uber and Careem that they could be fined up to EGP 500 mn each if they go through with the merger they announced (pdf). If you were wondering the same thing, dear reader, you are in luck. Firas El Samad (bio), founding and managing partner at Zulficar & Partners, outlines the legal repercussions of the ECA’s decision. It’s the best analysis we’ve read to date on the legal nuances and implications of the case on future M&As and the ECA’s ability to regulate them.

How to use a spoon to cut a steak: The Egyptian Competition Authority’s guide to how to use anti-cartel legislative provisions to control and review mergers

The decision: On one fine morning, on October 23rd, 2018, the world woke up to the Egyptian Competition Authority (ECA) issuing a first of its kind decision that requires ride-hailing giants Uber and Careem obtain the pre-approval of the ECA before completing their “contemplated” merger, which was brought to the attention of the ECA through media outlets. The decision looks at Uber and Careem as competing entities, and their contemplated merger a form of collusion that is penalized under Article 6 (a) and (d) of the Egyptian Competition Law No.3 for the year 2005 (the Antitrust Act) that governs the prevention of cartels. The decision itself was taken under Article 20, which entitles the ECA to intervene if they conclude from appearances and ostensible proof that a certain act, contemplated or committed, constitutes or would likely constitute a breach of the law with potential imminent and irreversible damages to consumers and/or to competition itself.

Egypt does not currently have a law that allows or empowers the ECA to review, approve or disapprove mergers whether prior to or following their completion. Since the adoption of the Antitrust Act more than a decade and a half ago, the ECA has been fighting and lobbying in vein for a proper pre-merger control regime. The law itself was originally and primarily conceived and passed as a tool to fight monopolistic practices, such as a merchant or a group of merchants who restrict supply in order to raise their prices. To date, there is still no confirmed and serious indication that a comprehensive pre-merger control regime is on the government’s legislative agenda.

What the ECA has managed to obtain since 2005 through the current law (as a compromise of sorts) is the power to gather some “post completion” information about transactions of a certain size and this in order to keep themselves up-to-date and to study relevant markets when needed. So as things currently stand, Article 19 of the law requires mergers and acquisitions of a certain size be notified to the ECA within 30 days from the date on which the merger (or the acquisition) comes to effect. The threshold for notification is the cumulative turnover of EGP 100 mn . Failure to make the notification will result in a fine that ranges between EGP 20,000 and EGP 500,000. It is therefore obvious that there is nothing in the act that would require the clearance or the pre-approval of the merger by the ECA.

So when faced with the question of whether the law should prevent companies from merging or assess in advance the presumed harmful effect of a merger and take preventive measures, the presumed answer by legislators has been so far: No. Let them merge and the ECA will oversee what the resulting entity would do. Why should we overwhelm and swamp the regulator with the task of having to study and review countless transactions and add another layer of bureaucracy to an already saturated environment, especially in an era of a supposedly post-socialist private sector-driven economy?

Frustrated by the lack of proper legislative tools, the ECA has finally decided to react and to take matters into its own hands. Choosing to ignore the fact that the Antitrust Act does not provide for the desired interventionist approach in regulating mergers, the ECA has taken it on itself to assume greater regulatory and authoritative powers by transforming the existing post-merger notification regime into a de facto pre-merger authorization requirement that is not legislatively supported by the law.

You can catch the rest of the oped here.

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