EGYPT Law and Practice Contributed by: Nadia Abdallah, Zahra Ashraf, Beshoy Mounir and Yasmine Attia, Matouk Bassiouny & Hennawy
If the target company’s shares are not actively traded on the EGX, the FRA will typically require a fairness opinion from an IFA. Price Adjustment Mechanism In transactions with high valuation uncertainty, buyers may opt to adopt an adjustment mechanism where- by a preliminary purchase price is paid by the buyer at closing and adjusted (upwards or downwards) thereafter according to the agreed-upon adjustment mechanisms. Typically, in the event of upwards adjust- ments, the seller shall be entitled to additional cash; in the event of a downwards adjustment, the buyer may be granted additional shares. 4.5 Common Conditions for a Takeover Offer/ Tender Offer Pursuant to Article 354 of the Executive Regulations of the Capital Markets Law, the submitted MTO shall not be conditional on any requirement. However, conditions that are inherent to the execution of the transaction, such as obtaining regulatory, cor- porate or contractual approvals, are considered part of the standard MTO process and are necessary for the FRA’s approval of the offer. Exceptionally, the MTO may, subject to the FRA’s approval, be made conditional by the offeror on its acquisition of at least: • 51% of the issued share capital of the target com- pany for the purpose of gaining control over the target company; and • 75% of the issued share capital of the target com- pany for the purpose of a merger. 4.6 Deal Documentation Takeover offers and business combinations are usually documented by the relevant transaction documents/ definitive agreements (eg, share purchase agreements or subscription agreements, as the case may be). The target company’s obligations are determined on a case-by-case basis, depending on the transaction, its structure and the due diligence findings. Such obliga- tions may include obligations to procure the fulfilment of certain pre-completion actions, a completion obli-
gation (eg, in the event of a subscription whereby the company is required to issue shares), etc. It is worth noting that it is not typical to include repre- sentations and warranties in public M&A transactions, although the parties may elect otherwise. 4.7 Minimum Acceptance Conditions Please see 4.5 Common Conditions for a Takeover Offer/Tender Offer . 4.8 Squeeze-Out Mechanisms Minority squeeze-outs are generally not recognised under Egyptian law. Instead, Article 357 of the Executive Regulations of the Capital Markets Law provides a minority buy-out right. Specifically, where a shareholder acquires 90% or more of the share capital and voting rights of a listed company, minority shareholders holding at least 3%, or alternatively a group of 100 shareholders rep- resenting at least 2% of the free float, may apply to the FRA to require the majority shareholder to submit an offer for their shares. 4.9 Requirement to Have Certain Funds/ Financing to Launch a Takeover Offer The MTO Draft and the information memorandum draft submitted to the FRA by the offeror (or its repre- sentatives) shall include a commitment letter from a licensed bank confirming that the funding of the MTO is available, whether the payment of the purchase price is based in any way on the financial resources of the target company and the consequences of said financing structure on the target company’s assets and activities. Under the Capital Markets Law, an MTO may not be conditional on obtaining financing, and the FRA is unlikely to approve the MTO Draft unless the offeror provides evidence of sufficient funds to execute the offer. 4.10 Types of Deal Protection Measures Customarily, the protection measures that a target company may grant include break-up fees, non-solici- tation provisions, matching or topping rights, informa- tion rights and exclusivity periods, which are all left to
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