After highlighting the process of merging companies in our previous series of articles published in the last three weeks. In this series of articles, we will start highlighting the process of Acquisition in the UAE as per SCA roles and regulations.
As per article 299 of the commercial companies law No.32 of 2021 which stipulate that where a person or group of associated persons to be determined by the decision issued by SCA in this regard, purchases or performs any act that may lead to the acquisition of shares or securities convertible into shares in the capital of a public joint stock company incorporated in the state, and whose shares have been offered for public subscription or have been listed in one of the state’s financial security markets, said person or group of associated persons shall comply with the provisions of SCA decision issued on the acquisition.
The conditions and procedures issued by SCA to regulate acquisitions may include a condition stipulating that those whose ownership in the capital has reached the percentage determined by SCA, shall have the right to impose upon the minority shareholders to assign their shares in the acquiree company in their favor and a condition stipulating that the minority shareholders who hold the percentage specified by SCA shall have the right to impose upon those whose ownership percentage in the capital has reached the percentage determined by SCA to accept the assignment of their shares in their favor, and that in return of a consideration consistent with the provisions of SCA decisions governing the terms and procedures of the acquisition.
SCA shall undertake the implementation of the transfer of ownership of securities, subject matter of the assignment.
The company may, by virtue of a special decision, increase its issued capital with the aim of acquiring an existing company and issuing new shares for the benefit of the partners or shareholders of that acquiree Company.
Thus based on the aforementioned the companies law has referred the acquisition process to the Decision of the Chairman of the Securities and Commodities Authority “SCA” Board of Directors No. (18 / R.M) of 2017 Concerning the Rules of Acquisition and Merger of Public Shareholding Companies, and Administrative Decision No. (62 / R.T) of 2017 . Concerning the Technical Requirements for Acquisition and Merger Rules.
Accordingly, in this part one of this series of The Laws of Acquisition in UAE we will determine the scope of application of SCA board of director’s decision and the exception of such decision.
What is the Scope of application of the SCA decision?
Without prejudice to the provisions of legislation and articles of association of the companies, in relation to the ownership percentages by non-UAE nationals therein, and subject to the provisions of the law, the provisions of the decision shall apply to the acquisitions of securities in a public shareholding company incorporated in the state and offered its shares for public subscription or listed in a financial security market in the state.
What is the acquisition process?
Any person holding convertible securities in a public shareholding company, subject of the acquisition, which is incorporated in the state and has offered its shares for public subscription or has listed its shares on the security market “target company “shall submit an offer of acquisition in accordance with the provisions of this decision only when he practices the right of conversion.
It is worth mentioning that the offer Price may not be lower than the highest price of the following:
- The security market price on the first day of the offer.
- The closing price prior to the first day of the offer commencement.
- The average price during the 3 months preceding the start of the offer.
- The highest price paid by the acquirer to buy the securities during the 12 months preceding the submission of the offer.
Without prejudice to the legally prescribed disclosure rules, and prior to announcement of the offer, the concerned persons shall not disclose any confidential information in relation to any offer/ potential offer, and they shall conduct the due diligence process maintaining the confidential information, in particular the information which influences the price of the Securities. All concerned persons shall take all the necessary measures to prevent the leakage of any information regarding any offer/ potential offer, as well as not leak or publish any statements or allow any person, entity, or a certain investor group to have access to any information concerning the acquisition prior to announcement of the offer. Providing any concerned party with information, whenever it is absolutely necessary shall not be deemed a disclosure of confidential information, provided that the disclosing person informs the concerned party that the information is confidential. The concerned party shall be liable to conduct the due diligence process to prevent leakage of such information.
What are the exclusions and exemptions of the decision?
For any of the following cases, SCA may make an exception from all or some of the provisions the decision:
- The Acquisitions made by the government or a strategic partner.
- The Acquisitions made to restructure the distressed companies.
- The conversion of the securities arising from inheritance, will and endowment.
- Purchase of securities to execute a guarantee or a warranty.
- Increase of the shareholder’s share in the company due to restructuring of loans arising thereon.
- Holding of securities in accordance with the underwriting agreement.
- Assignment of securities among associated companies to the holding company, its affiliates, or among affiliates.
- The securities held when the decision enters into force.
- In the event the securities ownership ratio drops to between (30%) and (50%+ 1 security).
- Any other cases required for public interest.
Stay tuned for the next article where we will be highlighting the types of acquisition in the UAE as per the SCA board of directors’ decisions.
For further assistance or information regarding M&A please find out how our experts at Al Safar & Partners can help. Call +97144221944 or email reception@alsafarpartners.com www.alsafarpartners.com to get started.