Mergers and Acquisitions (M&A) in Egypt

The subject of mergers and acquisitions (M&A) in Egypt is one of the important subjects that bring many questions, there are many companies that looking for a specialized lawyer in Merger & Acquisitions in Egypt to know how to acquire a company in Egypt and whereas our firm has the best lawyers specializing in Mergers& acquisition in Egypt, we decided to write this article to know more about both terms. The merger usually entails the expiry of the term of companies and the end of their legal personality. Usually, this happens on the desire of partners before the expiry of the legal term of the company, by merging the company with another existing company that practices the same activity. On the other hand, a company may acquire 100% of the shares of another company or buys more than 50% of the shares so that it becomes the decision-maker in this company’s management. In this regard, we will explain the difference between merger and acquisition as follows:

“Merger” means a contract whereby one or more companies are merged into another company, by the dissolution of the merged company and transfer of its financial liabilities to a new company. Hence, the legal personality of each company then expires, while the assets and liabilities thereof are transferred to a new company, and, accordingly, at least one of the two companies shall be dissolved, without subjecting any of the merged companies to liquidation.

“Acquisition” means the transfer of ownership of the shares or assets of the acquired company to the acquirer, whereby the acquirer will have financial and administrative control over this merged company’s affairs.

Difference between Merger and Acquisition:

- The main difference between “merger” and “acquisition” is that the merger process entails the establishment of a new legal entity, which consists of the union of the two companies (merging company and merged company), including members of the board of directors, shareholders and partners of the two companies, on such terms as agreed upon by both parties. A merger usually takes place between two companies of equal size and scope of business, respectively. The main objective of mergers is to take control over a larger market share, reduce costs, and/or expand to new territories. The merger aims at increasing profits, which brings a benefit to the shareholders after the completion of the merger process.

The acquisition means a company purchases another company (usually a smaller size) so that the acquirer becomes dominant and the final decision-maker in anything related to the acquired company, by acquiring the company, including its shares, debts, financial and legal responsibilities, and other assets, or acquiring more than 50% of its shares, to be able to make decisions without the approval of the other of the shareholders. The acquisition is usually made with the approval of the company to be acquired. However, if the company does not fully agree to the acquisition, the process is then a takeover. Given the disrepute associated with acquisitions, entails that large-size companies impose their control over a particular sector or market, certain companies refer to their acquisitions as “mergers”, even if they are not the same.

- Major mergers are published in the media or press as soon as they are declared given their great importance and impact on the market.

Examples of corporate mergers and acquisitions:

Example of a merger:

 The merger of MOBIL and EXXON

Each of the two companies was one of the largest oil production companies in the world. In 1999, they entered into a merger worth $81 billion, about $125 billion after accounting for inflation, after obtaining approval from the Federal Trade Commission (FTC). When the merger process was completed, a company named “ExxonMobil” was established, and shares are now available for trading on the New York Stock Exchange (NYSE).

Today, despite the serious decline in oil prices due to COVID-19, the new company’s market capitalization still achieves more than $80 billion.

Example of an acquisition:

AT&T's acquisition of Time Warner: 

In 2018, AT&T declared the acquisition of Time Warner for $85.4 billion, to be one of the largest acquisitions in the past decade. This acquisition comes after a long time of attempts by the US government to prevent this acquisition. It is worth noting that AT&T is today one of the largest telecommunications companies in the world. Thus, it has become one of the largest entertainment companies as well, with a market capitalization of about $214 billion.

Merger Process:

1. Valuation of the assets and liabilities of the companies concerned with the merger.

- Valuation of the assets and liabilities of the merged companies, under the provisions applicable to the valuation of in-kind shares, as the merged company’s assets submitted to the merging company are considered in-kind shares.

- Valuation of the assets and liabilities of the merging company, by the competent valuation committee, as is the case for the merged company.

2. Auditor's report on the merger:

- In this step, the auditor prepares a report on the method and means of the merger, as well as the merger conditions and terms, and reviews all such data and information about the process.

- Acquisition Process (in joint-stock companies):

1. Transfer of ownership of the securities to the buyer.

2. The transfer of ownership would enable the acquirer (the acquiring company) to have actual control over the acquired company, whether this control was direct or indirect.

Forms of Acquisition:

1. Acquisition by the purchase of shares in cash (where the acquirer pays the purchase price in cash, whether immediately or thereafter).

2. Acquisition through a share for share exchange (where payment is made through a swap process).

3. Acquisition by subscribing to increase the capital of the target company (which takes place by increasing the capital of the acquired company).

4. Acquisition by “Debt for Equity Swap.”, where the acquiring company is a creditor of the acquired company or a creditor of one of its shareholders.

5. Acquisition by purchasing the assets of the acquired company.

To sum up, this article is a quick overview of the merger and acquisition process in Egypt. For more questions or inquiries about the procedures and controls for the merger of companies in Egypt, Please do not hesitate to contact us.