The Capital Market Authority: Updated Regulations to Regulate Mergers and Acquisitions

​The Capital Market Authority’s Board of Commissioners has issued its resolution to adopt the updated Merger and Acquisition Regulations, thereby replacing the previously implemented Merger and Acquisition Regulations, which was adopted in 2007. The updated regulation will be effective and enter into force starting from today 29/01/1439H corresponding to 19/10/2017.

This update comes in continuation of the Authority’s efforts to regulate mergers and acquisitions transactions in accordance with best international practices, and in line with the powers vested in the Authority by the new Companies Law with regards to merger transactions, of which a party is a listed company. All of these to contribute to implementing the Authority’s program to achieve the Saudi Vision 2030.

The Authority also mentioned in its press release that it took into consideration, during the drafting phase of the updated regulation, the best international practices adopted in this regard that will serve to be in line with the nature of the Saudi capital market. It also added that as a part of its continued efforts to communicate and consult with the investors, as well as governmental and private bodies regarding draft implementing regulations prior to issuing them, the Authority has previously published the draft Mergers and Acquisitions Regulation for public consultations on the draft, for which the Authority had received a number of comments and observations from different governmental and private bodies, as well as the individuals, and all of these comments and observations were taken into consideration.

The Authority indicated in its release that this updated regulation has reinforced the importance of full and fair disclosure in mergers and acquisitions, while taking into account clarifying the relevant procedures and obligations related to owning or acquiring shares or controlling interests in listed companies, and enabling listed companies and their shareholders, thereby paving the way for completing merger and acquisition.

It is worth mentioning that the updated regulation aims to set the base for the principles of fairness, equality of treatment and equal opportunities amongst owners of securities who are the subject of a merger or an acquisition. In the light of this, the updated regulation included a number of examples to clarify cases in which a person will be considered as a related party and the obligations arising therefrom. Furthermore, it included a number of examples in which a group of persons are presumed to be Acting in Concert and as such their collective ownership in the listed company will be treated as that of a single person’s ownership.

Also amongst the significant additions to the updated regulations are setting a regulatory framework for securities exchange offers to acquire all of a listed company’s shares or merging with it subject to the shareholders general assemblies’ approval, as well as allowing for partial takeovers of a listed company’s shares, aspects which were not available in the previous regulation.

Moreover, the additions to the updated regulation included a legal framework for private sale and purchase transactions that involves targeting an ownership of 10% or more in a listed company’s share capital, and clarifying the role of the companies' boards of directors in these transactions, the announcement obligations on the transaction parties and the listed company, as well as the prohibitions and restrictions on dealings by the selling shareholder, the buyer and any persons acting in concert with any of them.

With respect to the principle of achieving market safety and protection of minority shareholders, which is considered to be one of the main pillars of the regulation, the updated regulation included provisions that are applicable to any person who increases its ownership so that it becomes the owner of, individually or together with persons acting in concert with it, 40% or more of a listed company’s shares. These include: the requirement for the person on whom these provisions applies to becomes subject to a lockup (involves buying, selling or disposing of these shares) for a period of six months following the acquisition of 40% or more of the listed company’s shares, the requirement for such person to announce to the public a number of details such as its ownership and the ownership of the persons acting in concert with it, the consideration paid, the objective of the acquisitions, and its future plans for the listed company, its shareholders and employees; while the listed company will be required to announce to the public a number of details such as the details of the changes in its ownership structure, the rights and the obligations of that person, and the opinion of its board of directors about that person’s plans regarding the listed company's  activity, shareholders and employees.

To this end the Authority, through its existing mandates including the issuance of the updated Mergers and Acquisitions Regulations, is keen on achieving its strategic goals in light of its Financial Leadership Program, which for the Saudi capital market to become by the end of 2020 the main capital market in the Middle East and the starting point for those who seek investment and financing in the region.

The updated Merger and Acquisition Regulations can be reviewed through visiting the Authority’s website: