What is an Economic Concentration?
The definition of Economic Concentration is set out in the Competition Law, and is broadly defined as "any act resulting in complete or partial transfer (merger or acquisition) of the ownership or usufruct rights of property, rights, equity, shares or obligations of an undertaking to another, empowering the Undertaking or a group of undertakings to directly or indirectly control another undertaking or group of undertakings".
Interestingly, neither the Competition Law nor the Ratio Implementing Regulations provided for a definition of "control", our expectation is that this will be clarified in further implementing regulations and this further clarification would be welcomed to help the assessment of whether transaction involving minority shareholdings will be considered to be an Economic Concentration. Given the broad definition of Economic Concentration, our expectation is that until further implementing regulations or additional guidance are published, a broad scope of joint ventures will also be captured and considered an Economic Concentration.
How is the new annual sales threshold calculated?
"Where the total annual sales value of the concerned establishments in the Relevant Market within the State exceeds three hundred million dirhams (AED 300,000,000) during the last Fiscal Year."
The total annual sales (i.e. turnover) threshold set out in the Ratio Implementing Regulations can be broken down into a number of component parts:
- the concerned establishments: the annual sales are calculated by reference to the concerned establishments, and we would interpret this to mean all parties to the transaction i.e. the seller, the buyer and the target, and we would also expect this to be done on a group basis. Consequently, one party alone may trigger the annual sales threshold;
- the Relevant Market: the Relevant Market refers to both the goods and services and also the physical or digital place where the supply and demand for such goods or services is. Whilst it is unclear at this stage, one interpretation would be that the sales value to be included for the purposes of the test is limited to only those products or services which are sold within the physical or digital location, which would be helpful in limiting the reach of this threshold test. We see this as a sensible step and we would expect further clarification to either be provided in further implementing regulations or guidance provided by the Ministry; and
- within the State: the sales value to be used for the purposes of the calculation will only capture those sales within the UAE.
The concept of Relevant Market which is included in the annual sales threshold is likely to mean that the impact of this test will be less than other similar turnover tests in the region and still serve to protect competition in the UAE, but is likely to require more substantive competition analysis by concerned parties to determine what the Relevant Market is for groups or entities that service multiple markets.
Changes in the market share threshold?
"Where the total market share of the concerned establishments exceeds forty percent (40%) of the total transactions in the Relevant Market within the State during the last Fiscal Year."
The position in the Competition Law and the Ratio Implementing Regulations is consistent with that in the previous UAE competition regime i.e. the market share threshold will be triggered if the concerned establishments account for more than 40% of the Relevant Market. As with the annual sales threshold (and other global competition regimes), one of the key components in determining whether the market share threshold is trigged is the determination of what constitutes the Relevant Market, and this will need to be analysed on a case by case basis. As more transactions file with the Ministry, we would expect to be able to form a firmer view as to what the Ministry will consider to be a Relevant Market and how broad or narrow this might be.
Timelines for filing and deemed rejection
The Ministry has a 90-day period (which can be extended by a further 45 days) in which to review the proposed Economic Concentration and issue a resolution. Additionally, the Competition Law contains various provisos for suspending the period (for example, where there are requests for further information from the Ministry). However, unlike other prominent merger control regimes in the region, if the Ministry does not issue a resolution in the period, then this will be a deemed rejection. As it currently stands, this has the potential to have a dramatic impact on transactions and will need to be carefully considered in transaction documents to provide for situations where a resolution is not received within the 90-day period.
Additionally, the Ministry has the power to request other stakeholders (i.e. parties not involved in the transaction) by publishing basic information on the Ministry's website. This is coupled with the right for such stakeholders to provide the Ministry with any data or documents concerning the Economic Concentrations (e.g. effectively the ability to object). How this will play out in practice in the UAE remains to be seen, but we do expect it be a point that transacting parties are wary of and one that will require engagement with the Ministry to understand the level of information that will be disseminated as part of the application.
Exemptions
The Ratio Implementing Regulations do not provide any further clarity regarding the exemptions which are set out in the Competition Law (i.e. government owned entity exemptions and sectoral exemptions).
Consequently, our reading of the Competition Law remains that until such time as the relevant cabinet decisions or local government decisions are published specifying those entities that are exempt, government owned entities will be subject to the Competition Law (although we would expect such decisions to be published shortly). It will also be interesting to see what the impact is where one party to a transaction benefits from an exemption but the other party does not and what this means in terms of making a filing.
