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Key Developments in Kuwait Merger Control: New Turnover Threshold Requirements

The Government of Kuwait has recently amended its competition law to include for the first time a pre-merger notification regime based on turnover thresholds. Kuwait's Competition Protection Agency has started to apply the new thresholds and has already launched inquiries into transactions that may have failed to file.

 

Kuwait's New Competition Regime

Kuwait's legislative amendments and prompt investigations indicate a likely shift towards more active merger control enforcement in this jurisdiction.  The Government of Kuwait enacted its first competition law in 2007, and established the Competition Protection Agency ("Agency") under the Minister of Commerce and Industry to oversee its enforcement in 2012.  While the 2007 law included a merger control regime, notification was required only for parties with a dominant position in the market (i.e., if their combined market shares exceed 35%), which was rarely triggered particularly in foreign-to-foreign transactions.  

In 2020, however, the Government of Kuwait enacted new legislation that aims at strengthening the country's competition regime, including its merger control rules – Law No. 72/2020 for the Protection of Competition ("Kuwait Competition Law").1 The legislative reform was in line with a regional trend of similar reform efforts in other Middle East jurisdictions in recent years.2

The new Kuwait Competition Law applies not only to business activities in Kuwait but also to any conduct or agreement outside of Kuwait if it "results in preventing, restricting, or harming freedom of competition in [Kuwait]."3 The Law prohibits any agreement between any entities – whether horizontal or vertical– if it would result in harm to competition.4  The Kuwait Competition Law also prohibits particular types of horizontal agreements as anticompetitive per se, including price-fixing, market allocation, bid rigging, fixing production or sales volumes, and limiting investments or R&D.5 Moreover, the Law prohibits any entity that has a "dominant position" in the market from undertaking any unilateral conduct that would cause harm to competition. These competition law principles are tested in other jurisdictions like the EU and, like other authorities in the Middle East, Kuwait's Agency is likely to be influenced by general EU principles and case law – at least in the initial stages of enforcing the new Kuwait Competition Law.

In addition, the Kuwait Competition Law requires premerger notification for transactions that meet certain conditions, which were left to be determined in the implementing regulations.7 In June 2021, the Agency issued the Implementing Regulation under Resolution No. 14/2021 (the "Implementing Regulations"), which provided more details on the contemplated merger control process but did not identify the turnover threshold amounts.8 It was not until September 2021 that the Agency issued Resolution No. 26/2021 specifying the new pre-merger notification thresholds that are now in effect.9

 

Premerger Notifiable Transactions

The Kuwait Competition Law requires a filing to the Competition Protection Agency from parties intending to participate in an "Economic Concentration" if they meet any of the turnover thresholds, detailed below.10 "Economic Concentration" is defined as a transaction resulting in a change of control over an entity – whether directly or indirectly – arising from a merger, acquisition, or any form of joint partnership between two or more persons that leads to a permanent and independent economic or commercial activity,11 and "control" is defined as the ability to exercise "decisive influence."12  As such, like other countries in the Middle East (e.g. Saudi Arabia), the Kuwait Competition Law appears to generally follow the basic features of EU merger rules.

 

Kuwait Turnover Filing Thresholds

Under the new regime in Kuwait, a filing is required to the Competition Protection Agency if the transaction meets any one of the following thresholds: 

  • One of the transaction parties has annual sales in Kuwait exceeding 500,000 Kuwaiti Dinars (approximately € 1.5 million / $ 1.6 million) in the last fiscal year; 
  • All transaction parties have combined annual sales in Kuwait of at least 750,000 Kuwaiti Dinars (approximately € 2.2 million / $ 2.5 million); or
  • All transaction parties have combined registered assets in Kuwait exceeding 2.5 million Kuwaiti Dinars (approximately € 7.4 million / $ 8.2 million).13

These turnover thresholds are relatively low when compared to most other jurisdictions – even considering the size of the Kuwaiti economy. Importantly, there is no clear exemption for transactions with no local nexus to Kuwait.  As a result, many global deals are likely to trigger a technical filing requirement in Kuwait even where there is minimal or no local effect. 

 

Kuwait Merger Review Process

The Kuwait Competition Law requires parties to file at least 60 days before closing the transaction.14 After reviewing the filing, the Agency may (1) grant approval, (2) grant conditional approval, or (3) deny the transaction.15  When reviewing a proposed transaction, the Agency will evaluate: (i) its potential impact on the preservation or promotion of effective competition in the relevant market; (ii) consumer interests, including product prices and quality; and (iii) the role of competition in encouraging cost reductions, development of new products, or the entry of new competitors.16

The following features of Kuwait's new merger control regime follow trends already seen in other jurisdictions: 

  • The Kuwait Competition Law sets forth a lengthy suspensory merger review period, which allows the Agency at least 95, and up to 185, days to review the merger and issue a decision.17  Moreover, the review period does not formally start until applicants submit all the data and documents required for the filing.   Although Kuwait's merger review period is the longest in the Middle East, in practice the Agency has been clearing transactions within 30 days from filing since the thresholds came into effect.
  • The merger filing fee will be calculated by the Agency as 0.1% of the paid capital or of the value of the assets of the parties in Kuwait, whichever is lower, capped at 100,000 Kuwaiti Dinars (approximately € 297,000 / $ 328,000).19  This fee cap is the highest in the region – by comparison, the filing fee in Saudi Arabia, for example, is capped at 400,000 Saudi Riyals (approximately € 96,000 / $ 106,000).  Nevertheless, actual fees are likely to be low for most filings given that the calculation is based on the value of paid capital or assets – as opposed to revenues – in Kuwait.       
  • The Agency may solicit the views of potentially affected third parties and can publish an announcement of the notification on the Agency's website – but parties may request confidential treatment of the information.  Interested third parties may submit an objection to the Agency within 15 days from the date of announcement.20
  • Failure to notify a reportable transaction, or submission of misleading or incorrect information in a filing, is subject to a potential fine in an amount not exceeding 10% of the parties' combined total revenues during the previous fiscal year. 21
     

 

Active Enforcement by Kuwait's Competition Agency

Although Kuwait's new merger control regime has been in effect for only a few months, the Agency has made a point to demonstrate its intent to actively enforce it.  Since the new thresholds came into force, the Agency has already reviewed five filings, cleared two transactions, and started contacting companies to inquire about at least three transactions that failed to file.22 

For example, in November 2021, the Agency announced its conditional approval of Bahraini company Kalaam Telecom's acquisition of Kuwait-based Zajil Telecom for 16.2 million Kuwaiti Dinars (approximately US $54 million), subject to the Agency's monitoring of the companies' prices and quality of services for a period of one year post-closing.23  The Agency also obliged the companies to provide copies of their customer contracts within a month after closing, and not to engage in any refusal to deal, withholding products, or tying arrangements.

The Government of Kuwait has also invested significant resources in technical infrastructure to build the Agency's regulatory capacity and enforcement capabilities.24  The Agency has been actively collaborating with other government entities in Kuwait and regulatory agencies throughout the Middle East, including through bilateral meetings and joint workshops.  Kuwait's Agency leaders have also been actively participating in the newly established "Arab Competition Network" – a regional organization aiming to facilitate and enhance cooperation between competition authorities of 17 Arab countries.25
 

Outlook for Merger Control in Kuwait 

Parties contemplating transactions that include assets or revenues in Kuwait should carefully examine whether a premerger filing is required and consider the potential risks under the Kuwait Competition Law.  Kuwait is the latest jurisdiction in the Middle East to strengthen its merger control regime and introduce notification thresholds based on the transaction parties' turnover.  While the new thresholds came into effect only last September, Kuwait's Competition Protection Agency has already sprung into active enforcement, clearing transactions, imposing conduct remedies on a cross-border transaction, and launching several inquiries into transactions that failed to file.  This spike in enforcement in Kuwait comes at a time of heightened regional cooperation and knowledge-sharing between the various competition authorities across the Middle East.  The principles followed by Kuwait's Agency and other authorities in the Middle East appear to be based on EU competition law, which can provide some preliminary guidance to transaction parties, at least until each of these authorities further develops its own precedent and guidelines. 

 

1 Kuwait Law No. 72/2020 for the Protection of Competition, dated 1 November 2020, available in Arabic at this link ("Kuwait Competition Law").
2 See, e.g., White & Case Client Alerts, Key Developments in Saudi Arabia Merger Control, available at this link, Egypt's Competition Authority Seeks Active Merger Control, available at this link; Significant Changes to Turkish Merger Control, available at this link; Shining a Light on Global Surge in Merger Control Filings, available at this link.  
3 Kuwait Competition Law, Articles 3.
4 Kuwait Competition Law, Articles 6-7.
5 Kuwait Competition Law, Articles 5.
6 Kuwait Competition Law, Articles 8.
7 Kuwait Competition Law, Article 12.
8 See Kuwait Implementing Regulations for Law No. 72/2020 for the Protection of Competition, Issued in Resolution No. 14/2021, dated 30 June 2021, available in Arabic at this link ("Kuwait Implementing Regulations").
9 See Kuwait Competition Protection Agency, Executive Resolution No. 26/2021, dated 23 September 2021, available in Arabic at this link ("Thresholds Resolution").
10 Kuwait Competition Law, Article 12; Kuwait Implementing Regulations, Articles 76, 78.
11 Kuwait Competition Law, Article 1; Kuwait Implementing Regulations, Article 69.
12 Kuwait Competition Law, Article 1; Kuwait Implementing Regulations, Article 1.
13 See Thresholds Resolution.
14 Kuwait Implementing Regulations, Article 78.
15 Kuwait Implementing Regulations, Article 86.
16 Kuwait Implementing Regulations, Articles 73.
17 Kuwait Implementing Regulations, Article 81. Since the new thresholds came into force, the Agency has already reviewed five filings, cleared two transactions, and started contacting companies to inquire about at least three transactions that failed to file.      
18 Kuwait Implementing Regulations, Article 80.
19 Kuwait Implementing Regulations, Articles 77-78.
20 Kuwait Implementing Regulations, Article 82-83.
21 Kuwait Competition Law, Article 34(2)-(3).
22 We understand that contacts concerned transactions with a local nexus, but it cannot be excluded that companies involved in foreign to foreign transactions were also contacted.  See Kuwait News Agency, "Agency: 2021 Witnessed a New Start to the Agency's Work Despite the Coronavirus Pandemic," dated 10 January, 2022, available in Arabic at this link.
23 Agency Press Statement, "Conditional Approval of Kalaam Telecom's Acquisition of Zajil International Communications Company," dated 24 November 2021, available in Arabic at this link.
24 Kuwait News Agency, "Agency: 2021 Witnessed a New Start to the Agency's Work Despite the Coronavirus Pandemic," dated 10 January, 2022, available in Arabic at this link.
25 Agency Press Statement, "Agency Participates in the Preliminary Meeting of Arab Competition Authorities in Preparation for the Launch of the Arab Competition Network," dated 22 February 2022, available in Arabic at this link; see also Arab Competition Network Website, available in Arabic at this link.

 

Sameer Saboungi (Law Clerk, White & Case, Washington, DC) co-authored this publication.

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