Saudi Arabia: M&A

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This country-specific Q&A gives an overview of mergers and acquisition law, the transaction environment and process as well as any special situations that may occur in Saudi Arabia.

It also covers market sectors, regulatory authorities, due diligence, deal protection, public disclosure, governing law, director duties and key influencing factors influencing M&A activity over the next two years.

This Q&A is part of the global guide to Mergers & Acquisitions. For a full list of jurisdictional Mergers & Acquisitions Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/mergers-acquisitions/

  1. What are the key rules/laws relevant to M&A and who are the key regulatory authorities?

    The Kingdom's legislative structure is based primarily on Sharia Law, the fundamental principles of Islam which remain uncodified. This is supplemented by more specific laws and regulations, which, in turn, must comply with the provisions of Sharia Law. General legal principles, such as fairness and the assumption of risk by an asset-holder, are enshrined in Sharia Law and are often relevant and applicable to legal issues.

    The law most relevant to both public and private corporate transactions is the New Companies Law of 2015 ("NCL"), which came into force in May 2016 and replaced the previous Companies Law of 1965. The NCL now applies to all companies in the Kingdom, but provides those companies incorporated prior to May 2016 with a one year grace period to make the necessary updates to comply with its provisions.

    For public M&A specifically, merger and acquisition regulations have been developed by the Kingdom's Capital Market Authority ("CMA"), modelled largely on the UK Takeover Code. These regulations came into force in 2007 and were subsequently amended in 2012 (the "M&A Regulations").

    The Saudi Arabia General Investment Authority ("SAGIA") is the authority responsible for regulating all foreign investment, both in the private and public sectors, and manages the licensing regime for such investments. There is also a Foreign Investment Law including sector-specific rules and ownership restrictions applicable to foreign investors ("FIL").

    The Ministry of Commerce and Investment ("MOCI") regulates the establishment and liquidation of private entities (for example, sole proprietorships, partnerships, branches of foreign entities limited liability companies, closed joint stock companies ("CJSCs") and public joint stock companies ("PJSCs") (the latter being the form of listed corporate vehicle in the Kingdom)).

  2. What is the current state of the market?

    There is very little in the way of market practice for public M&A in the Kingdom, despite the fact that the Saudi stock exchange ("Tadawul") is the largest in the region. There has only been one public takeover – the acquisition of HADCO by Almarai Company in October 2009 – since the M&A Regulations came into force. Although the infrastructure for public takeovers exists, appetite in the market is likely to remain quiet in the short term.

    Foreign (i.e., non-GCC) investors should be aware that a single foreign investor, qualified to invest in the Saudi stock exchange, cannot hold more than 10% of the issued share capital in a listed company. In addition, no listed company on Tadawul can have more than 49% of its shares held by foreign investors in aggregate. To qualify as a foreign investor and be allowed to invest in Saudi stocks, a foreign investment fund must have at least SAR 3.75 billion (USD 1 billion) under management.

    By contrast, non-GCC investors may own up to 100% of shares of private companies in the contracting, services, trading (retail and wholesale) and industrial sectors.

    At present, there is much greater market interest in private M&A in light of the National Transformation Program 2020 ("NTP 2020") and Saudi Vision 2030 ("SV 2030"). While some investors might be cautious until national economic policies have become more detailed, inbound investment is being drawn in by national champions such as Saudi Aramco, SABIC and Saudi Arabian Industrial Investments Company ("SAIIC"). For instance, in May 2016, SAIIC and GE announced an MOU to co-invest in strategic sectors such as water, aviation, energy and industrials more broadly, to serve both the domestic market and beyond. Though some valuations might remain high, there can be no denying the attraction of Saudi Arabia for investment, given the resources and population at its disposal.

  3. Which market sectors have been particularly active recently?

    The insurance sector is ripe for public M&A activity; there are over 36 insurance companies currently in operation within the Kingdom, and we would expect to see this as an area for consolidation in the near future. Sectors which involve cash businesses (such as retail, food, healthcare and beauty) and which are less reliant on Government funding, are also likely to become increasingly active and therefore of substantial interest to investors.

    The Kingdom's oil and petrochemicals market remains a focus of attention, and industries affiliated to those markets are looking to participate in a greater number of corporate transactions. The Kingdom's Public Investment Fund recently invested in Uber Technologies, noted as the largest deal with Middle Eastern involvement in the first half of 2016, and shows a growing interest by the Kingdom in the technology sector, though whether this translates into domestic activity remains to be seen.

  4. What do you believe will be the three most significant factors influencing M&A activity over the next 2 years?

    The Government's new economic initiatives (NTP 2020 and SV 2030) are going to have an overwhelming influence on the M&A landscape. The expectation is that the Kingdom is willing to open up to new investment, with sectors such as construction, retail, healthcare and manufacturing likely to evolve as a result.

    The prominence of Saudisation, and the focus of the Government on ensuring that a greater number of Saudi nationals are in employment, will continue to impact the valuation of companies given the cost of complying with its requirements (e.g., the requirement to pay minimum wages and provide staff training). Skills-heavy industries are likely to insist on the need for foreign labour and the manner in which the Government balances these competing interests will be crucial.

    The confidence and momentum with which private capital flows and regional family offices begin to spread their influence in the Kingdom will have a significant impact on how the domestic M&A market develops in the short to medium term. In a lower oil price environment, the economy will need to look to wealth creators to stimulate growth in line with Government-led strategy. Ensuring that sources of private capital are well advised enough to invest in the local market should, in turn, create a confidence in the region that stimulates further deal flow.

  5. What are the key means of effecting a merger?

    The NCL allows for two companies to merge, following which either: (1) the first entity loses its legal personality and is absorbed by the second; or (2) each entity loses its legal personality, and an entirely new entity with a separate legal personality is created. The NCL requires that both the assets of the target and the acquiring company must be valued in order for a merger to become valid, and that any resolution to merge two entities must come into force 30 days from the date of its publication.

    However, although mergers in the Kingdom are theoretically possible, they are uncommon in practice. Ordinarily, more traditional acquisitions or formations of special purpose vehicles and the use of share swaps are adopted as means of acquiring companies.

    Public mergers are expected to be conducted in accordance with the M&A Regulations. Bidders must publicly announce an offer to a public target's shareholders to acquire their shareholdings. Before an offer document is sent by the bidder to all target shareholders, the CMA is required to review and approve its contents. CMA consent will usually be provided within 30 days of receipt of all relevant information.

  6. What information relating to a target company will be publicly available and to what extent is a target company obliged to disclose diligence related information to a potential acquirer?

    Public companies in the Kingdom are required to publish information in accordance with the CMA rules. This includes annual audited accounts, interim accounts, annual reports and directors reports, as well as news of material/price sensitive importance to the relevant entity. A potential acquirer will have limited ability to request information which would not otherwise need to be disclosed by a public target company; anything it does receive that is material and not already published will need to be disclosed at the time of an announcement of a public offer.

    By contrast, very little information is publicly available in respect of private companies in the Kingdom. A company's articles of association do not form part of any public record in the Kingdom. Whilst the MOCI can be approached for basic information regarding a company via an online search of its commercial register, such information tends to be limited to the registered address, paid-up capital, identity of shareholders, names of directors and evidence of incorporation. In addition, although the NCL requires that the constitutional documents and subsequent amendments of an entity be filed with MOCI and uploaded to its website, these are not publicly available, and can only be accessed by MOCI itself and other authorised Government departments and entities. Due diligence is therefore almost entirely dependent upon the co-operation between the seller and target.

    There is no ability to conduct court searches on private entities, and searches of the IP register (which take time to procure) are of limited value.

  7. To what level of detail is due diligence customarily undertaken?

    As a result of the limited information available in respect of private companies in the Kingdom, acquisitions of private entities will often involve detailed due diligence by the acquirer.

    For public takeovers where information about the target is more readily available, a reasonable view of target performance can be obtained without too much additional diligence, though this will depend on: (i) the nature of the business; (ii) the value of the transaction; and (iii) the co-operation of the target. Typically purchasers will ask for as much information as they can, and indeed offerors are under an obligation under the M&A Regulations only to announce an offer after the most careful and responsible consideration in accordance with the M&A Regulations. Specific provision is made in the M&A Regulations to allow a target to furnish a bona fide potential offeror with information that may not be available to all shareholders. However, once the existence of the offeror or potential offeror is announced, all information provided by a target to one offeror or potential offeror must, on request, be given equally and promptly to another offeror or genuine potential offeror.

  8. What are the key decision-making organs of a target company and what approval rights do shareholders have?

    Limited Liability Companies ("LLCs")

    LLCs are managed through a single manager or a board of managers, the members of which are appointed by the shareholders. An LLC with more than 20 shareholders must also appoint a supervisory board composed of at least three shareholders to oversee and advise the manager or board of managers. The shareholders typically appoint and remove the managers by ordinary resolution (50%+1), though the LLC articles might require a higher threshold. The LLC articles can also give board appointment rights to specific shareholders.

    There are no age, gender or nationality restrictions on managers (so non-Saudi nationals can have board seats), and there is no requirement for managers to actually hold shares in the LLC itself. The governance procedures for any board of managers will be set out in the LLC's articles and, if there is one, the relevant shareholders agreement. The NCL does not specify anything in particular on this, though the MOCI has an approved model form of articles for LLCs.

    Only a single class of shares is permitted in an LLC, so voting rights will be consistent across all shares. Unless the LLC articles provide otherwise, shareholders will receive dividends in proportion to the number of shares that they hold, share in the company's assets upon a liquidation and have the right to review the company books. Any specific approval matters on items required by a shareholder will need to be incorporated into the LLC articles. Amending the LLC articles can only be done by way of a resolution signed by all LLC shareholders before a Saudi notary public. A draft resolution amending the articles must be pre-approved and stamped by the MOCI.

    By law, members of an LLC have a right of first refusal on a transfer of shares in an LLC.

    Joint Stock Companies ("JSCs")

    JSCs are managed by a board of directors. The directors are entitled to exercise all the powers of the company, and can delegate these powers to committees or individual directors. As with LLCs, shareholders typically appoint and remove JSC directors by ordinary resolution (50%+1), though JSC articles also typically provide for the retirement of directors. Note, however, that the NCL introduced the principle of cumulative voting for JSCs, which can offer greater protection to minority interests (see question 25).

    Directors of JSCs are appointed for a maximum of three years (except for the first board which can be appointed for up to five years). Re-appointment of directors is typical, though must be permitted under the JSCs bylaws.

    A JSC board will elect a chairman from its members and may also appoint a managing director, who usually acts as CEO and can be removed or replaced by the board. As with LLCs, there are no age, gender or nationality restrictions on directors of JSCs.

    The NCL has specific requirements for the governance of JSC board meetings, including that: (i) the quorum should be at least half of the members and in any event at least three members (unless the articles provide for a larger number); and (ii) the Chairman has a casting vote unless the articles provide otherwise.

    Voting rights and matters requiring shareholder approval will be set out in the JSC's bylaws, although the MOCI tends not to be flexible in allowing material deviations from its model JSC bylaws. Amending the JSC's bylaws can only be done by way of a resolution approved at an extraordinary general assembly meeting, where the approval threshold is two-thirds or three-quarters depending on the type of amendment. Broadly speaking, resolutions of the extraordinary general assembly are passed by a two-thirds majority vote of the shares represented at the meeting, unless such resolution relates to: (i) capital increases or reductions; (ii) extensions of the JSC's term; (iii) premature dissolution of the JSC; or (iv) merger of the JSC with another company (in such cases, the resolutions will only be valid if passed by a three-quarters majority vote).

    Unless the bylaws provide otherwise, JSC shareholders do not have a right of first refusal on a transfer of shares in a JSC.

  9. What are the duties of the directors and controlling shareholders of a target company?

    Article 165 of the NCL makes it clear that managers of an LLC will be jointly liable to a company and its shareholders for damages resulting from the managers' violation of the NCL, the LLC's articles of association, or other mistakes committed by them in the supposed performance of their duties. Otherwise, the NCL is generally silent on the fiduciary duties of managers, but this is not to say that a manager has no obligations to the company or its shareholders. Indeed, commentators point to the fact that "mistakes" (and, prior to the NCL coming into effect, the phrase "wrongful acts" before that) can be construed widely, and that general principles of Sharia such as fairness and avoiding unjust enrichment and speculation, all contribute to a regime that, in practice, is in many ways analogous to the common law duties of directors in the UK.

    For JSCs, the equivalent provision to Article 165 is Article 78 of the NCL, which notes that directors will be jointly liable to a company and its shareholders for damages resulting from their mismanagement of the company's affairs, as well as their violation of the NCL or the JSC articles. It remains to be seen whether this difference in language is intended to impose a different standard on JSC directors, assessing the impact of the decisions through the lens of "mismanagement" rather than merely "mistakes". At a minimum, it would be prudent to assume that the fiduciary duties of LLC directors also apply to JSC directors.

    With regard to JSCs, the NCL also provides that directors must not:

    • have any interest in the JSC's business or contracts, unless authorised annually by the shareholders;
    • Receive loans from the JSC without annual approval from the shareholders;
    • be involved in any competing business, unless authorised annually by the shareholders; and
    • disclose confidential information to third parties or to shareholders, other than in connection with a general meeting.

    PJSCs must also comply with the CMA's corporate governance regulations, which require directors to carry out their duties in a responsible manner, in good faith and with due diligence in an informed way. The listing rules of the CMA also provide that directors and senior executives of PJSCs must conduct themselves in such a way as to serve the interests of the company.

  10. Do employees/other stakeholders have any specific approval, consultation or other rights?

    The NCL does not provide for special approval or consultation rights of any third party upon a company's sale or acquisition. Regulatory approvals, such as those required from SAGIA, are addressed in question 11 below.

    In public takeovers, the M&A Regulations note that directors should take into account the interests of employees, creditors and shareholders when providing advice or recommendations to shareholders.

  11. What regulatory/third party approvals are required and what waiting periods do these impose, if any?

    In a public M&A context, CMA approvals, including approval of the terms and contents of the offer document, will be required for the transaction to complete and, if applicable, for trading in the public securities offered as consideration to be permitted. In addition, a merger or acquisition which may result in an entity becoming dominant in a market must be cleared by the Competition Council.

    In all instances, SAGIA licensing approvals will be required where non-GCC investors are involved. New rules now allow for such approvals to be granted within five business days of an application, although in practice the process may take longer if SAGIA requests additional information.

    MOCI approval and notarisation of amendments to the articles of association will typically be required where LLCs are involved, but there is no fixed timeline for such approval. In practice, this tends to be between 4-6 weeks.

    Depending on the industry, additional regulatory approvals may be required. This includes, for example, approvals from the Saudi Arabia Monetary Agency in relation to transactions including banks and insurance companies, and other Government approvals where the activity undertaken is a 'special activity', such as in the healthcare or transportation sector.

  12. To what degree is conditionality an accepted market feature on acquisitions?

    Conditionality is a generally accepted feature on private acquisitions in the Kingdom and tends to include the obtaining of regulatory approvals and clearances and the resolution of material issues uncovered by the buyer's due diligence of the target company. Even within the public M&A context, offer conditions are regarded as permissible provided that they do not depend solely on the subjective judgments of the bidder or target boards. In the Almarai transaction, for instance, the conditions included shareholder approval, regulatory approvals and clearances, and completion of the transaction before a longstop date.

  13. What steps can an acquirer of a target company take to secure deal exclusivity?

    Exclusivity is very common in private M&A, albeit for short periods of time.

    In a public context, it is possible to enter into exclusivity arrangements. However, the M&A Regulations require directors of a target to give careful consideration before entering into any commitment with an offeror (or anyone else) which would restrict their freedom to advise shareholders in the future. Further, once an offer has been announced, the M&A Regulations require all information provided by a target to an offeror or potential offeror to be, on request, given equally and promptly to another offeror or genuine potential offeror. Exclusivity will therefore have a limited impact on a public M&A transaction.

    Break fees are unlikely to be enforceable in a public M&A context unless they are of a low value, and in any case no more than 1% of the offer value. Anything above this threshold will generally be regarded as punitive and thus unenforceable. The CMA must always be consulted prior to the parties agreeing any break fee.

    There are no restrictions on break fees in a private M&A context, though directors should consider their duties in agreeing to any such fees. Excessive break fees will generally be regarded as punitive and thus unenforceable. In practice, break fees in the private M&A market are normally limited to the other side's costs.

  14. What other deal protection and costs coverage mechanisms are most frequently used by acquirers?

    See above on the use of break fees. Otherwise, within the context of private M&A in particular, parties are free to agree upon any set of commitments deemed necessary to secure the relevant deal. However, such activity should not be undertaken in the public M&A context where this would prevent the involvement of potential competing bidders.

  15. Which forms of consideration are most commonly used?

    There is no defined market for consideration in public transactions, given that there has only been one such transaction under the new regime. There are, at least in theory, instances where cash is compulsory under the M&A Regulations; in a mandatory offer the offeror must offer a cash alternative not less than the highest price it paid for target shares in the 12 months prior to the announcement of the offer.

    In most private acquisitions, cash consideration is the norm, though equity and share swaps are increasingly used where the acquirer is a listed company.

  16. At what stages of an acquisition is public disclosure required (whether acquiring a target company as a whole or a minority stake)?

    The M&A Regulations require public announcements to be made:

    • when a company is considering a potential takeover, an approach to such company has been made and the offeror and target company have reached an understanding, including the relevant conditions, that an offer will be made;
    • where a firm intention to make an offer, not subject to pre-conditions, is notified to the target board from a serious source;
    • where an offeror triggers a mandatory offer by acquiring (with persons acting in concert with it) more than 50% of a target company;
    • where an offeror acquires, through one or a series of transactions and whether or not combined with shareholdings of parties acting in concert, shares resulting in a shareholding of 30% or more of the voting rights of the target (thereby being entitled to make an offer without approaching the target – a so-called, "permissive offer");
    • where, following a bid approach, the entity's shares are the subject of rumour and speculation and there is a price movement of 20% or more above the lowest share price since the time of the approach, or of 10% or more in a single day;
    • where, prior to a bid approach, the entity's shares are the subject of rumour and speculation and there is a price movement of 10% or more in a single day, with reasonable grounds indicating that the potential bidder's conduct has resulted in such movement;
    • where negotiations or discussions in relation to a certain acquisition are extended to include more than a restricted number of people outside those who need to know in the companies concerned and their immediate advisers; and
    • where the offeror is sought by the target to acquire more than 30% of the voting rights or where the target is seeking multiple offerors, and the target is the subject of rumour or speculation leading to a share price movement of either 20% or more above the lowest share price since the time of the approach or of more than 10% in a single day, or the number of potential offerors is about to be increased to more than a very limited number.

    In all cases under the M&A Regulations, parties will be deemed to be "acting in concert" where they co-operate actively through some formal or informal agreement to be controllers of an entity, through acquiring shares in such entity.

    As noted above, the announcement obligations lie solely with the offeror in instances prior to the approach of the target company, and primarily with the target company following such approach. It is the joint responsibility of both the offeror and offeree companies to make the public announcement required following the formal understanding of an offer between them.

    No public disclosure requirements apply in the case of private acquisitions unless the acquirer is a public entity and the transaction is required to be disclosed under the CMA rules.

  17. Are there any circumstances where a minimum price may be set for the shares in a target company?

    In any public offer, the offer price cannot be less than the highest price for which the shares were purchased by the offeror during the 12 month period prior to the offer, although the CMA has the discretion to adjust the price on application. The CMA must be consulted where more than one class of shares is involved. In the context of a mandatory offer for a public target company, any consideration must have a cash alternative, and must be calculated under the same general principle.

    Bidders are required to offer shares to shareholders at a minimum value in other instances, namely where an offeror (or person acting in concert with it):

    • has purchased shares within the three month period prior to the commencement of the offer period. In this case, the offer to shareholders of the same class cannot be on less favourable terms; or
    • has purchased shares above the offer price during the period from the making of a public announcement (in instances where a firm intention of an offer is made to the target board, or a mandatory or permissive offer is required), until the offer closes for acceptance. In this case, the offer must be increased to no less than the highest price paid for the shares acquired during such period, and a public announcement of such a revised offer must be made.
    • No restrictions on minimum price apply in respect of private acquisitions.

  18. Is it possible for target companies to provide financial assistance?

    Article 73 of the NCL prohibits a JSC from granting a loan to, or providing security in respect of the financial obligations of, its shareholders. The NCL does not impose a similar restriction on LLCs. However, under the NCL, distributions are only permitted by any Saudi company insofar as they are paid out of the net profits of a company. As a result, any upstream loans or guarantees to shareholders are generally prohibited if the company does not have sufficient net profits to support such undertaking, on the basis that if such loan or guarantee was called the company would not be able to meet its obligations without being in breach of the law on distributions.

  19. Which governing law is customarily used on acquisitions?

    There are broadly three approaches in the Saudi market to the selection of governing law and accompanying dispute resolution provisions. Such selection will depend on the key motives of the parties to the transaction.

    • The most common choice is that Saudi law be the governing law, with Saudi courts or Saudi arbitration as the dispute resolution mechanism. This will be the preferred approach where the majority of the parties and/or their assets are situated in the Kingdom.
    • A common alternative is for transaction documents to be governed by English law with arbitration in accordance with recognised international rules (such as the LCIA or ICC rules), and a provision allowing for enforcement against assets outside the Kingdom. This approach is customarily adopted where the parties' most likely recourse is to enforce against assets held abroad. Enforcement against assets within the Kingdom remains subject to compliance with the principles of Sharia, notwithstanding recent legislative attempts to improve the enforceability of foreign awards in the Kingdom.
    • Another option is for parties to adopt Saudi law as governing law, with GCC arbitration as a dispute resolution mechanism. This will allow for enforcement against assets held in the Kingdom and in other State signatories to the Riyadh Convention. While enforcement within the Kingdom again requires any arbitral awards to be compliant with Sharia law, there is arguably a greater chance of this taking place if the governing law is Saudi law and the arbitration venue is closer to home.
  20. What public-facing documentation is it necessary for a buyer to produce in connection with the acquisition of a listed company?

    A bidder for a listed target must produce and deliver and/or make available to the target shareholders the following:

    • an announcement (including the identity of the bidder, the terms and conditions of the offer, and details of the proposed shareholding and any indemnity arrangements);
    • a board circular from the target's board (summarising the terms and conditions of the offer and the target board's view on the same);
    • an offer document (including financial information on the offer and parties involved, shareholdings of the bidder and target and any other unique arrangements); and
    • if a valuation of assets is provided in connection with the offer, the opinion of a named independent valuer.

    The offer document and board circular must also be published more widely by the bidder and target company, respectively. The offer document can only be published with the prior consent of the CMA.

    Certain documents are also required to be made available for inspection for the duration of the offer period, with the offer document or target board circular identifying where such documents can be inspected. These documents are:

    • the bidder and target's constitutional documents and audited consolidated accounts;
    • written consents of financial advisers and documents related to the offer's financing arrangements;
    • documents related to break fees or other similar arrangements;
    • documents showing an irrevocable commitment to accept an offer; and
    • other reports, valuations, letters or documents or parts of documents which are exhibited to, or referred to in, any document issued by the bidder or target in relation to the offer.

  21. What formalities are required in order to document a transfer of shares, including any local transfer taxes or duties?

    There is no equivalent of a stock transfer form in the Kingdom.

    For the completion of share transfers in an LLC, the LLC articles should be amended, and the register of members updated, to reflect the changes in shareholdings. To amend the LLC articles an application is made to the MOCI to approve amendments which, once approved, must then be signed by all LLC shareholders before a local notary public. Changes to the register of members must also be notified to the MOCI.

    Where the entity is a JSC, updates are to be made to the share register following a transfer but there is no requirement to amend the JSC's articles of association or bylaws to effect a share transfer.

    There are generally no stamp duty taxes or duties payable upon the transfer of shares both in an LLC and a JSC. However, a 20% capital gains tax is imposed on the disposal of shares of a Saudi entity by a non-resident.

  22. Are hostile acquisitions a common feature?

    Given there has been only one public takeover in the Kingdom, there is no market practice of hostile bids having been made. Whilst in theory they are possible and not prohibited by the M&A Regulations, hostile bids would be highly unusual in the Saudi public takeover context. Saudi companies tend to prefer a consensual approach, and a perceived lack of cooperation between management and the bidder would possibly deter shareholders from accepting hostile bids.

  23. What protections do directors of a target company have against a hostile approach?

    Under the M&A Regulations, the target's board are prevented, except pursuant to a pre-existing contract, from taking frustrating actions without prior shareholder approval during the course of an offer, or prior to the date of an offer if such offer is deemed imminent. Frustrating actions include the issue of new shares, the issue of grants or options in respect of unissued shares, the creation or issue of securities carrying rights of conversion into shares, the sale, disposal or acquisition of any material assets and the entry into new contracts outside the ordinary course of business. The greatest protection against hostile offers is the cultural attitude; shareholders are unlikely to accept offers without the recommendation of the target board, though a particularly large offer could always challenge this theory.

  24. Are there circumstances where a buyer may have to make a mandatory or compulsory offer for a target company?

    There will be an obligation to make a mandatory offer of shares in a listed entity where a person or group acting in concert increases its / their share ownership in such listed entity, so as to hold 50% or more of such listed entity's voting shares. When such requirements are satisfied, the CMA has the power to order the relevant person / group to make a mandatory offer in respect of the remaining shares.

    As detailed above, any acquisition which results in a shareholding that imposes an obligation to make a mandatory offer must be announced publicly. The price to be offered must contain a cash alternative of not less than the highest price for which the shares were purchased by the offeror during the 12 month period prior to the date of the board order for a mandatory offer, although the CMA has the discretion to adjust the price on application.

    In addition, where the requirement to make a mandatory offer applies, the offeror is required to file a report with the CMA detailing all purchases of the target company's shares in the previous 12 months.

  25. If an acquirer does not obtain full control of a target company, what rights do minority shareholders enjoy?

    There are generally few rights which are reserved specifically for minority shareholders; their rights are typically no greater than those of other shareholders, and are generally limited to rights to vote and to receive dividends and certain financial information about the company. In an LLC, amendments to the constitution, changes of ownership or capital increases will require shareholder votes and can be vetoed by any shareholder, regardless of whether they hold a majority or minority stake in the company.

    In a JSC, shareholders representing at least 5% of the share capital may:

    • require the board to convene a general assembly meeting; and
    • request the competent judicial authority to inspect the company, where there is good reason to believe that actions of the board or the auditors in respect of the affairs of the company, are suspicious.

    The NCL also introduced cumulative voting for shareholders of a JSC in relation to the appointment of a board. This allows shareholders to cast all of their votes to a single nominee for the board, rather than having to divide the total value of their votes amongst different candidates for board membership. As a result, depending on how majority shareholders allocate their votes, minority shareholders may be able to appoint their own board members, thereby improving their representation.

    Minority shareholders cannot force through squeeze outs, which are not permitted under Saudi law.

  26. Is a mechanism available to compulsorily acquire minority stakes?

    Squeeze outs are not possible – there is no mechanism through which bidders can compulsorily purchase the shares of minority shareholders.