On 24 March 2019, Uber announced the USD 3.1 billion acquisition of Careem, one of the largest technology transactions in the MENA region. Shortly thereafter on 26 March 2019, the Egyptian Competition Authority (the “ECA”) issued a press release regarding the proposed acquisition between Uber and Careem, in which it addressed its concerns about the transaction. The press release echoes the concerns expressed by the ECA in a decree published in October 2018 (the “Decree”), when rumors of the transaction first surfaced.
Shalakany provided coverage and analysis of the ECA Decree when it was initially issued, and this article will provide further analysis and commentary on the issues raised in the press release.
What’s new?
The Decree issued last October was in the form of a report providing a detailed overview about Uber and Careem and the concerns of the ECA. In addition, the ECA obliged Uber and Careem in the second article of the Decree to obtain the prior approval of ECA before the conclusion and execution of any agreement.
In the latest press release, the ECA announced that the parties of the transaction formally informed the ECA that they “have entered into a Conditional Purchase Agreement pending a decision from the ECA”. The press release added that ECA would be announcing its decision regarding the transaction after conducting the necessary technical investigation. According to the ECA, the decision could be either to: (i) unconditionally approve the transaction, (ii) approve the transaction with conditions and remedies, or (iii) to prohibit the transaction.
On 29 March 2019, the ECA published surveys on its official Facebook page for the customers and captains of Uber and Careem in order for the ECA to measure the impact of the acquisition from a factual perspective. ECA also invited all the concerned parties and SMEs to share their opinions on the transaction by 30 April 2019.
An interesting concern that ECA raised in the press release is the potential restriction in the relevant markets, including online transportation mobile applications, motorcycles and food delivery applications. It is questionable whether these sectors would also be impacted by the transaction and what this means for future considerations when assessing horizontal mergers and acquisitions and the scope of the sector under review.
Does this mean we now have pre-merger control in Egypt?
According to the Egyptian Competition Law and its Executive Regulations (the “Law”), the parties that enter into, inter alia, a merger or acquisition transaction are under an obligation to notify the ECA of the deal within 30 days commencing from the day the deal was executed, providing certain thresholds are satisfied, including for example a minimum combined annual turnover of EGP 100 million for the acquirer, the target and their related parties.
The above means that, according to the Law, the ECA has no control on any mergers or acquisitions, whether before or after their conclusion.
Having said this, in the Decree issued last year, the ECA discussed its concerns regarding the market and how harmful the ongoing negotiations between Uber and Careem might be. The ECA interpreted article 6 of the Law considering the potential transaction at that time, which prohibits any horizontal agreements (i.e., between competitors at the same level of production and distribution in any defined market) in the event of any negative impacts on the market according to cases stated in the said article.
What does this mean for merger control going forward?
It is hard to say whether this sets a new direction by the ECA or whether this unprecedented intervention was done on an exceptional basis. The ECA has not intervened in any transaction of this kind since the issuance of the Law in 2005. However, the ECA has lobbied strongly, without success, over the past couple of years for the issuance of amendments to the Law that provides pre-merger control regime in Egypt similar to those that exist in the US and the EU.
Considering the above, there are a number of important questions to be considered: why has the ECA now suddenly interpreted article 6 in this manner? Why did the ECA lobby for all these years for a pre-merger control regime when the solution was there since 2005? Is the ECA trying to create a precedent that would oblige parties to inform it before having a published amendment to the Law? Does this take into consideration the guarantee of non-prohibition of an action without having this explicitly stated by Law? As a practical matter, what should companies considering a merger or acquisition transaction now do in order to be fully compliant?
Unfortunately, all these questions will remain unanswered until there is further guidance from the ECA on how they plan to regulate mergers and acquisitions going forward in light of their intervention in the Uber and Careem transaction.
Market Reaction
The market is currently divided into two groups. On the one hand, some people are satisfied with ECA’s intervention -in their opinion- the “lack of competition will push the market to stagnation, which would bring about lower quality, higher prices, and lack of alternatives”.
On the other hand, there is concern that the ECA has set a dangerous precedent that could create uncertainty in the market and, as a result, deter investment.
