Egyptian Competition Authority Orde

On 23 October 2018, the Egyptian Competition Authority (“ECA”) announced that it will take interim measures with respect to reported merger discussions between the ride-hailing apps companies Uber and Careem.[1] The ECA ordered the two companies to submit a notification (effectively, a request for exemption) to the ECA to obtain its consent prior to the conclusion of any merger or similar agreement. The ECA also demanded that the companies submit information about the nature of the agreements they wish to conclude, their market share, as well as other financial information. In a first, the ECA warned the companies that concluding agreements without adherence to this order may result in a fine of EGP 20,000 – 500,000, as well as other potential sanctions.

The Controversy: Pre- or Post-Merger Control

Competition authorities are generally entrusted with reviewing competition related consequences of certain transactions, including mergers. The way these authorities practice such control generally falls into two categories: pre- or post-merger control; meaning that they either require the relevant parties to seek clearance before they conclude the merger, or they address potential anti-competitive effects after the transaction has been concluded. While many, if not most, competition authorities worldwide employ a pre-merger control, the Egyptian Competition Authority currently employs a post-merger notification system. One of the main points of debate stirred by this decision is whether by stopping merger discussions in their tracks (in a pre-merger control fashion), the Authority is assuming greater powers than it is entitled to under the Competition Law. In general, Article 19 of the Competition Law only obliges parties to submit a merger notification to the ECA, and only if the annual turnover exceeds 100 million EGP. Article 44 of the Executive Regulations requires such notification to be sent within 30 days of the conclusion of the event or act that triggers the notification requirement. The decision of the ECA, however, does not expressly claim to impose a pre-merger notification system. Rather, it relies on Article 20 (2) of the Competition Law, which mandates the ECA, upon approval of a majority of its Board, to issue decisions to temporarily stop certain practices, if the evidence shows that they will have an anti-competitive effect on the market, in violation of Articles 6 – 8 of the Competition Law, and if such effects are substantial and irreversible. In its decision, the ECA stated that this “halt” order is valid against Uber and Careem and their related parties, with respect to any agreement that appears to be a merger, or the formation of a partnership, or the buy and sale of shares or assets, etc.

What Is the Relevant Market?

One of the main questions asked when any competition authority is analysing the effect of a transaction is: what is the market for which we need to determine the effect of the transaction? This is crucial because different definitions of the market will lead to different findings with respect to the market share of a certain company, and the ability of others to compete with it. In the case at hand, the ECA determined the market to be the “Ride Hailing Apps” market, rather than the taxi market for example. The ECA argued that taxis and other transportation methods are not comparable to the service provided by Uber and Careem in Egypt, given the quality of the cars and drivers, as well as the technology that allows for different methods of payment, requesting cars, safety features, etc. As such, taxis cannot be considered competitors to the two companies.

Does the ECA Have Jurisdiction?

It is to be noted that the transaction in question, the potential merger/agreement between Uber and Careem, was not meant to be concluded in Egypt. Neither of the two companies (which have reportedly refuted claims that they are engaging in merger discussions) are based in Egypt, even though they operate there. The ECA noted, however, that it still has jurisdiction to issue this decision, given that Article 5 of the Competition Law explicitly states that it shall be applicable to acts undertaken abroad, if they have an adverse effect on competition in Egypt.

Why and How Did the ECA Intervene?

According to the ECA, the reason for its decision is that any agreement of the nature described above between Uber and Careem will violate Articles 6(1)(a) and 6(1)(d) of the Competition Law, leading to a substantial and irreversible anti-competitive impact on the pricing and production/distribution/marketing in the market. The ECA’s decision does not point to an actual anti-competitive occurrence (for instance, it does not mention a concluded agreement that will affect pricing or distribution). Rather, the ECA finds that a merger or similar transaction between the two companies is bound to have an anti-competitive effect on the market, in violation of Article 6 (1) (a) and 6 (1) (d) and must therefore be stopped. The decision notes the difficulty of new entrants in the ride-hailing apps market, due to the large financing required, as well as what is termed the “network effect”, which refers to the attractiveness of established companies in this market. In the example at hand, riders are more likely to join Uber and Careem because they have a wide, established network of riders. This means that Uber and Careem will likely have more drivers, which in turn means that they will be more attractive to riders, and so on. As such, the ECA contends, this market is prone to monopolistic control, and a merger between the companies “would lead to an increase in prices for riders, a decrease in service quality, and a limit on the users’ freedom of choice”. As a result, the ECA’s decision invokes Article 20 (2) of the Competition Law, requiring Uber and Careem to temporarily halt any agreement similar to a merger, and to submit a request to the ECA for the application of Article 6(2), which grants a discretionary exemption to a transaction that has anti-competitive effects, if the parties can show that it will have a positive effect on the consumer that outweighs the anti-competitive effects. The ECA requires both companies to submit relevant information that would enable the Authority to make this determination. The ECA commits to reaching a decision on the matter within 60 days of complete application of the notice/request but warns the parties that it will impose fines that might reach up to EGP500,000 if they fail to submit relevant information without prejudice to more significant penalties that might be imposed if the parties conclude a transaction that violates the Competition Law. Although the decision invokes the “temporary measures” powers, it explains that such measures will remain in force until the Authority has had a chance to decide on the effect of the potential transaction.

Conclusion

The effect of the ECA’s intervention in the potential merger between Uber and Careem is yet to be seen, although it signals a stronger focus on mergers, including international mergers. The ECA’s decision must be viewed in connection with the Authority’s ongoing efforts to push for a reform of the Competition Law that would grant the Authority formal pre-merger control powers. This also accompanied a recent increase in competition-related criminal prosecutions, as well as the Authority’s recent introduction of an updated merger notification form that requires companies to submit relevant information electronically.   [1] ECA Decision No. 26/2018 on taking interim measures with respect to the merger of Uber and Careem in accordance with Article 20 (2) of Law No. 3/2005, Egyptian Gazette, Issue No. 238 (cont.), 23 October 2018.