Previously, in part one of “Merger & Acquisition as per the UAE laws” series, we had a look at the process of merging any company except public joint stock company. Be sure to check out The laws of Mergers & Acquisitions in the UAE - Part 1 in case you missed it!
In this Part, we will talk about merging public joint stock companies as per Securities and Commodities Authority “SCA” board of directors’ decision.
What is the meaning of a Public Joint stock company?
As per article 105 of Commercial Companies Law, a public joint stock company is a company whose capital is divided into equal and negotiable shares. The founders shall subscribe to part of such shares while the remaining shares shall be offered for public subscription. The shareholder shall be liable only to the extent of his share in the capital of the company.
What is the decision scope of application?
As per article 46 of the Decision No. (18 / R.M) of 2017 of “SCA”, such decision will apply to mergers where any party is a public shareholding company, whether it is a merging or merged company or a new company arising from the merger.
What are the types of mergers?
The merger shall be performed by one of the two following methods:
- Merger by amalgamation where two or more companies are merged into an existing company (the merging company) where the legal entity of the merged company/companies elapse and is replaced with the merging company in all the rights, liabilities and it becomes the legal successor of the merged company/ companies.
- Merger by combination where two or more companies merge into a new company (the new company arising from the merger) where the legal entity of the merged companies elapses and is replaced with the merging company arising from the merger in all the rights and liabilities and it becomes the legal successor of the merged companies.
What are the preparation and arrangements for the merger to take place?
As a first step the boards of directors of the companies seeking to merge shall issue a resolution of the initial approval of the merger and the method, conditions, procedures, and schedule thereof based on a study prepared in this regard. Afterwards, the representatives of the companies seeking to merge shall enter into a merger contract. The terms and method of the merger as well as the intentions of the merged parties and the measures agreed upon throughout the merger shall be determined in the contract. The merger contract shall include the following items in particular:
- The memorandum of association and articles of association of the merging company or the new company arising from the merger.
- The name and address of the chairman and members of the board of directors or the proposed manager of the merging company or the new company arising from the merger.
- The method of transfer of the shares or stocks of the merged companies into shares or stocks of the merging company or the new company arising from the merger.
- The consideration that shall be paid to the partners or shareholders of the merged companies in exchange for transferring the shares held by them to the merging company or to the new company arising from the merger and the date of receiving of such consideration.
The companies seeking to merge shall form a committee called the ‘merger committee’ to follow up and finalize the merger procedures and name the consulting entities that will take part in the merger.
What are the approvals required to finalize the merger?
The initial approvals on the merger shall be obtained from the competent authorities which are department of economic development, the Central Bank, the Insurance Authority, and the bodies which license the activities with a special nature, each within its field of competence.
To begin with, the representatives of the companies seeking to merge shall file an application to SCA to approve the merger in principle and to approve the members of the merger committee and the consulting bodies that will take part in the merger.
Once SCA receive the application it shall consider it and may request any additional clarifications, guarantees, or information it sees fit and necessary to consider the application. SCA shall issue a decision approving or denying the application within (20) business days from the date of submitting a complete application. SCA may accompany its approval with the conditions or restrictions it decides in accordance with the requirements of the public interest.
Stay tuned for the next article where we will be highlighting more points about the merger process of public joint stock companies 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 +971 4 4221944 or email reception@alsafarpartners.com www.alsafarpartners.com to get started.