Saudi Arabian Law Overview

The Mergers and Acquisitions Regulations issued by the Board of the Capital Market Authority pursuant to its Resolution Number 1-50-2007 of 21 Ramadan 1428 Hejra (corresponding to 3 October 2007) and amended by Resolution of the Board of the Capital Market Authority Number 3-45-2018 of 7 Shaban 1439 (corresponding to 23 April 2018) apply in any situation where there is a restricted purchase of, or a restricted offer for, the shares of any listed company, or where there is a takeover offer or a reverse takeover relating to any listed company. The Mergers and Acquisitions Regulations ensure that offerors and offerees act in the best interests of their shareholders, and grant them sufficient information and advice in order to reach a properly informed decision.

A restricted purchase of shares comprises the purchase of voting shares listed on the Saudi Stock Exchange when, as a result, 10% or more of such class of the relevant company’s shares is owned by, or under the control of, the purchaser. A restricted offer for shares is achieved through a public announcement where the announcer offers to purchase voting shares of a particular class listed on the Saudi Stock Exchange if the number of shares to be acquired by the offering party would increase its ownership or the shares under its control to 10% or more of the shares of the relevant company.

A takeover offer is made to the holders of the securities of the offeree company and aims to acquire control of the company. A reverse takeover comprises an arrangement where a listed company makes an offer for an unlisted company on terms that (a) the listed company will offer new shares in itself to the shareholders of the unlisted company in exchange for their shares and (b) the number of shares to be issued by the listed company under this arrangement is so large that the shareholders of the unlisted company acquire between them more than 50%. The Mergers and Acquisitions Regulations apply to Saudi Stock Exchange participants including issuers, shareholders and the directors of the companies which are subject thereto. Should a person come to obtain or control 40% or more of a specific class of shares carrying voting rights, they may not control those shares for six months without the CMA’s approval, and in accordance with any conditions they specify.

The Mergers and Acquisitions Regulations set out detailed provisions concerning the situations in which a public announcement is required to be made including where a company is considering a potential takeover and an approach to a potential offeree company has been made and the parties have reached an understanding that an offer will be made, or where there have been stipulated minimum price movements above the lowest share price since the time of approach, of the shares of the relevant company following a bid approach. Following certain announcements, the offeror must submit to the Capital Market Authority (CMA), for its approval, a takeover timetable including shareholders’ approval of the takeover, the delivery of the final offer document to it, the publication of the offer document and making it available to the board of directors of the offeree company, the earliest permitted first closing date of the offer and the last date on which it is no longer unconditional as to acceptances. The offer timetable as set out in the Mergers and Acquisitions Regulations details the specific time periods for key events during merger and acquisition processes.

The Offer Document

The offer document must include:

1. a heading stating that an independent financial adviser authorised by the CMA must be consulted if there is any doubt about the offer;
   
   
2. the date when the document is published, the name and address of the offeror and of any person making the offer on behalf of the offeror;
   
   
3. details of the securities for which the offer is made, including whether they will be transferred with profits;
   
   
4. the total payment proffered;
   
   
5. details of all needed documents and procedures that must be followed to accept the offer;
   
   
6. the closing price for the securities to be acquired and securities offered (in the event of a merger or securities exchange) for the first day in each of the six months immediately before the date of the publication of the offer document, for the last day before the commencement of the offer period and for the latest available date before the publication of the offer document (quotations stated in respect of securities listed on the Saudi Stock Exchange should be taken from the official list and, if any of the securities are not so listed, any information available as to the number and price of transactions which have taken place during the preceding six months should be stated together with the source, or an appropriate negative statement);
   
   
7. the closing price of the securities to be acquired, in the case of a merger or securities exchange offer, particulars of the first profits and revenues in which the new securities will participate and how the securities will rank in respect of profits,
   
   
8. revenues, capital and redemption and a statement indicating the effect of acceptance on the capital and income position of the offeree company’s shareholders; and
   
   
9. in the case of a securities exchange offer, the effect of full acceptance of the offer upon the offeror’s assets, profits and business which may be significant for a proper appraisal of the offer.

The offer document must be submitted by the offeror to the CMA for its approval prior to publication; the time frame for the granting of approval by the CMA is thirty days from receiving the requisite information and documents. The CMA has the discretion to accept the offer document and grant its approval to the offer if it is satisfied that the offer is in the interests of investors and that it does not breach the Capital Market Regulation or the Implementing Rules.

Independent Advisors

The offeror and selling shareholder in an offer or merger must also appoint an independent legal advisor who is authorised to practice law in Saudi Arabia, and an independent financial advisor who will act as the point of contact between the CMA and the party whom the financial advisor represents.

Private Transactions

The Mergers and Acquisitions Regulations also contain rules governing private transactions, which involve the sale and purchase of shares carrying voting rights in Saudi listed companies, and which are negotiated between the offeror and selling shareholder(s) of the offeree company without making an offer or involving the other shareholders or directors of the offeree company in the transaction. In such transactions, the selling shareholder and the offeror have the option of informing the board of the offeree or its advisers of the potential private transaction in order to request price-sensitive confidential information. Neither a legal advisor nor an independent financial advisor needs to be appointed in a private transaction.

An obligation to announce the transaction may still be triggered during certain circumstances, such as once a definitive sale and purchase agreement has been signed, where the offeree company is the subject of rumours and speculations or where there are certain price movements since the start of the negotiations between the selling shareholder and the offeror, and such price movements could reasonably be attributed to the private transaction.

*This Saudi Arabian Law Overview is not intended to be legal advice, and cannot be relied on as a substitute for legal advice. We make no representation that the contents of this Saudi Arabian Law Overview are or will remain accurate or current. 

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