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 Qatar.
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/
What are the key rules/laws relevant to M&A and who are the key regulatory authorities?
The Qatar Financial Markets Authority (QFMA) and the Ministry of Economy and Commerce are the regulators in this regard. The Qatar Stock Exchange (QE) also administers listed companies. The key laws/regulations are comprised of:
(a) Law No. (8) of 2012 (QFMA Law);
(b) Law No 11 of 2015 (the Commercial Companies Law);
(c) The QFMA Mergers and Acquisition Rules; and
(d) The QE Rulebook.
What is the current state of the market?
The stock market in Qatar has never been a very active market with only 45 listed companies. The last mergers of listed companies being the merger of Qatar Shipping and Qatar Navigation and of Barwa and QREIC took place in 2010. Recently in the government sector the merger of Qatargas and Ras Gas has taken place.
Which market sectors have been particularly active recently?
The government sector remains the most active sector in Qatar based on the hydrocarbons industry and major infrastructure projects.
What do you believe will be the three most significant factors influencing M&A activity over the next 2 years?
(a) The need for rationalisation of the number of local banks (which are all listed) is likely to be a significant factor going forward.
(b) The decision by Qatar Petroleum to focus more on core business activities will have a significant effect.
(c) The ongoing political issues are likely to have effects on investment and activities in the region generally.
What are the key means of effecting the acquisition of a publicly traded company?
Under the Commercial Companies Law, where a company seeks to acquire shares that will result in it holding 51% of the capital of the target company or will result in it holding 40% of the shares of the target company (where that makes it the largest shareholder) then the same will need to be completed by way of resolution of the shareholders of both companies in a meeting in which at least 75% of shareholders must be in attendance.
The QFMA Mergers & Acquisitions Rules provide that any person who owns 10 percent of the shares must notify the QFMA if he or she will acquire more shares and any person or group that acquires 20 percent of the shares must be notified to the QFMA. Any acquisition up to 30 percent is to be made through the market or by formal offer to the shareholders (Article 2).
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?
There is no specific obligation to disclose imposed on the target company.
The only information publicly available will be that which can be found on the website of the target (which must include biannual financial reports) or on the QE website or which is published in newspaper in connection with the target’s annual general meeting. Such publication will include the balance sheet, profit and loss statement, board of directors’ report, auditor’s report and general assembly agenda.
To what level of detail is due diligence customarily undertaken?
Ordinarily a due diligence will be undertaken although it is not required by law. A due diligence will look at various matters including corporate & shareholder Information; government & regulatory matters; details of assets; financial position & statements; financial obligations & commitments, material contracts, real estate, insurance policies, taxation position & issues, employees, intellectual property & technology, litigation, arbitration & other disputes.
What are the key decision-making organs of a target company and what approval rights do shareholders have?
The shareholders’ meeting and the board are the approving organs.
What are the duties of the directors and controlling shareholders of a target company?
Under the QFMA Mergers & Acquisitions Rules, the directors of the company should not act in a way that could harm the company or make the deal more complex. Shareholders’ spouses and children are not allowed to trade shares before a decision has been made on whether or not to implement an acquisition or merger. Shareholders and directors may not exploit any information for trading purposes (Article 10).
Furthermore, board of directors’ spouses and children cannot trade their shares from the time the merger and acquisition has been announced until a general assembly has been held and decision has been taken on whether to implement, or not, the acquisition or merger (Article 11).
Do employees/other stakeholders have any specific approval, consultation or other rights?
To what degree is conditionality an accepted market feature on acquisitions?
It is not.
What steps can an acquirer of a target company take to secure deal exclusivity?
Only by way of an agreement to do so.
What other deal protection and costs coverage mechanisms are most frequently used by acquirers?
Leak protection mechanism, which prevents leaks of information.
Which forms of consideration are most commonly used?
Cash and share issues.
At what ownership levels by an acquirer is public disclosure required (whether acquiring a target company as a whole or a minority stake)?
Under the QFMA Mergers & Acquisitions Rules, a listed company must disclose the details of any individual who owns 5 percent or more of the shares.
At what stage of negotiation is public disclosure required or customary?
In most cases there is a degree of negotiation with the QFMA. For instance, Article 2(2) states that a listed company which is party to an acquisition or merger outside of Qatar must disclose the offer details.
Is there any maximum time period for negotiations or due diligence?
Are there any circumstances where a minimum price may be set for the shares in a target company?
Is it possible for target companies to provide financial assistance?
Which governing law is customarily used on acquisitions?
What public-facing documentation must a buyer produce in connection with the acquisition of a listed company?
Under the QFMA Mergers & Acquisitions Rules, the offeror must submit a merger and acquisition application containing the following information:
- The offeror's name, nationality, and address.
- Information about the offeror's company, such as its headquarters, objectives, current capital, company's address, names of directors, names of shareholders, the percentage each shareholder owns in the offeree company.
- The name, headquarters, address and capital of the offeree company
- The number of shares owned by the offeree in the listed offeree company must be shown in a statement
- Minimum and maximum of the shares to be acquired and minimum and maximum percentage of the offeree company's capital
- The price offered to the offeree.
- The purpose of the merger or acquisition.
- A copy of the articles of association and memorandum of association of the target company shall be provided to the offeree and the offeror.
- The offeror shall submit an updated copy of its shareholders' register.
- A copy of acquisition or merger agreement signed by both parties.
- In case of cash payment, a bank guarantee issued by a local bank ensuring that the offeror has the capability of fully or partially paying.
- A valuer’s valuation of the offeree company's assets.
- Commitment by the offeror to the authority to pay full fees in relation to acquisition and merger
- The offeror and offeree company must submit am audited financial report for the last three years.
Furthermore, a notice of the process must be given to the Competition Protection and Anti-Monopoly Committee of the ministry of Economy and Commerce.
What formalities are required in order to document a transfer of shares, including any local transfer taxes or duties?
There are no taxes and duties on a share transfer. If the transfer is of a listed company, the same must be registered on the exchange and the company’s own register. If a company is not listed then the transfer must be approved by the Ministry of Finance, Ministry of Economy and Commerce, Department of Labour and a transfer document needs to be authenticated at the Ministry of Justice.
Under the QFMA Mergers & Acquisitions Rules, following the merger a certificate has to be given to the acquirer proving that the assets owed to him have been transferred.
Are hostile acquisitions a common feature?
What protections do directors of a target company have against a hostile approach?
The QFMA requirements make no provision of protections directors have against hostile takeovers. However the QFMA requirements are all based on the fact that a takeover/merger are consent based. For example, the QFMA Mergers & Acquisition Rules contemplate a merger agreement being entered into. Also many requirements (such as the requirement to have a valuation) cannot be carried out if the target company does not co-operate.
Are there circumstances where a buyer may have to make a mandatory or compulsory offer for a target company?
Under the Commercial Companies Law, where an acquisition is approved by the shareholders of the target, the remaining minority shareholders may be required to acquire their shares at the offered price or at a price determined by a valuer undertaking a formal valuation.
The QFMA Mergers & Acquisitions Rules requires a person who wants to acquire 75 percent or more of the shares to notify the authority and he may submit a mandatory offer to buy the remaining shares of the company (Article 34).
If an acquirer does not obtain full control of a target company, what rights do minority shareholders enjoy?
Under the QFMA Mergers & Acquisitions Rules, if a shareholder acquires 90 percent or more of the capital or voting rights in a company; minority shareholders who own 3 percent or less in a company have the right to send a request to the authority to compel the majority shareholder to buy their shares. (Article 38)
Is a mechanism available to compulsorily acquire minority stakes?
The authority can compel majority shareholders to acquire the shares owned by minority shareholders, as suggested in Article 38.