Acquisitions Legal Framework in the UAE – Dr. Ahmed Hatem

Acquisitions refers to the process of one company purchasing another company, usually by acquiring a majority stake or all of its assets. It involves one company, called the acquiring company or acquirer, taking control of another company, known as the target company.

Acquisitions are made for a variety of reasons, and the motivations behind them can differ based on the specific circumstances, such as strategic expansion, strength the company position in the market, access to resources, talent Acquisitions and for financial considerations. In this article we will start highlighting the process of Acquisitions in the UAE as per SCA rules and regulations.

As per article 299 of the Commercial Companies Law 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 Acquisitions 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 decision of the Chairman of the Securities and Commodities Authority (SCA) Board of Directors no.18/R.M of 2017 concerning the rules of Acquisitions and mergers of public shareholding companies and the administrative decision no.62/R.T of 2017 concerning the technical requirements for Acquisitions and mergers rules.

What is the Acquisitions process?
Any person holding convertible securities in a public shareholding company, subject of the Acquisitions, 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 Acquisitions in accordance with the provisions of this decision only when he practices the right of conversion. 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.

What are the types of Acquisitions?
Mandatory Acquisitions:
In the event the ownership ratio of any person, or a group of associated persons or related parties amounts to (30% + 1 Security) and more of the target company, he/they shall take the following actions:

• Immediately stop increasing the ownership ratio in the target company.
• Immediately inform SCA of the ownership ratio, and whether there is an intent of Acquisitions.
• In the event there is an intent of Acquisitions, submit an offer and the securities which exceeds the (30%) shall not have voting rights until the Acquisitions is performed successfully, unless otherwise is decided by SCA.

In the event there is no intent of Acquisitions, the ownership ratio shall be lowered to (30%) and below provided that no damage is caused to the security market, within a period of no more than 3 months from the date of notifying SCA. The securities exceed the (30%) shall have no voting rights.

Any person or a group of associated persons or related parties holding an ownership ratio ranging between (30%) and (50% + 1 security), shall submit an offer in case he/they has/have increased his/their ownership ratio by (1%) of the securities. For the purpose of calculating such (1%), the ratio of the last purchase transaction shall be added to the ratios bought in the preceding last (6) months without counting the transactions completed.

This shall apply to any person or groups of associated persons or related parties holding (50% + 1 security) and above if their ownership ratio fell to between (30%) and (50% + 1 security).

Upon executing the Offer, the following conditions shall apply:

• If the number of the securities offered in the end of the offer term equals (50 + 1 security) and above, the transaction shall be executed.
• If the number of the securities offered in the end of the offer term is below (50 + 1 security), the transaction shall be canceled.

Voluntary Acquisitions:
Any person or a group of associated persons or related parties wishing to acquire securities resulting in holding (30% + 1 Security) and above of the target company may submit a voluntary offer.

Upon executing the offer, the following conditions shall apply:

• If the number of the securities offered in the end of the offer term equals (50 + 1 security) and above, the transaction shall be executed.
• If the number of the securities offered in the end of the offer term is below (50 + 1 security), the transaction shall be canceled.

Partial Acquisitions:
Any person or a group of associated persons or related parties wishing to acquire a specific number of securities that leads them to hold (50% + 1 security) and above of the target company shall notify SCA and submit a draft offer. To complete the Acquisitions, the number of securities offered in the end of the offer term must equal at least the number of securities sought to be acquired in the target company.
Any person or a group of associated persons or related parties wishing to acquire a specific number of securities that leads them to hold a maximum of 30% of the securities of the target company, shall submit an offer. To complete the Acquisitions, the number of securities offered in the end of the offer term must equal at least the number of securities sought to be acquired in the target company.

The approval of the target company’s board of directors on the Acquisitions must be obtained in case the number of securities sought to be acquired is not more than 30% and the offer shall be executed in accordance with the security market mechanisms.

Upon executing the partial offer, the following conditions shall be met:

• If the number of securities offered in the end of the offer term is less than the specific number of securities required to be acquired, the transaction shall be canceled.
• If the number of securities offered in the end of the offer term is more than the specific number of securities required to be acquired, the acquirer must acquire from all securities holders who responded to the offer thereof a number of securities representing the percentage of their respective offers to the total of the securities required to be acquired. Fractions shall be adjusted to the benefit of minor holders.

Obligatory Acquisitions:
Any of the other securities’ holders who hold a percentage representing at least (3%) of the securities may submit an offer to the acquirer which acquired (90% + 1 security) and above an application to make an offer to acquire the minority securities. The acquirer shall decide on the application no later than 60 days from the date of receiving the application. In the event the acquirer rejects the application or fails to respond within the said period, such holders may apply to SCA to enforce the acquirer to submit an offer. If SCA accepts the application, it shall inform the acquirer which shall then submit a draft offer within 60 days from the date of being notified of SCA’s decision.

The Acquirer, which acquired (90% + 1 security) and above, may apply to SCA for approval to submit a mandatory offer to enforce the minority securities’ holders to sell / swap all the securities held by them in favor of the acquirer where this is permitted by the articles of association of the acquired target company, within 60 days from the date of final settlement of the primary offer.

The minority holders may resort to the competent court within 60 days from receiving a written notification of the acquirer’s application. The mandatory offer procedures may not be suspended except by a court order, otherwise the mandatory offer shall be settled within the next 7 days following the expiry of the grace period given to the minority securities’ holders.

What announcement shall be made?
The acquirer shall deliver the intent of Acquisitions to the target company in a written form, in addition, the acquirer shall publish the announcement of the intent to offer on the secure market’s website and the announcement shall include the following data and information:

• The terms of the offer.
• The real identity of the acquirer and its key shareholders.
• The details of the securities actually/ potentially held by the acquirer and its associated group during the term of the Acquisitions.
• Indicate whether the acquirer has received any irrevocable obligations in relation to acceptance of the offer.
• The details of any arrangements with the target company which may have a material impact on the offer.
• A confirmation by the financial consultant of the acquirer that the latter has the required financial resources to execute the offer.
• The intents, future plans and the purpose of the Acquisitions.
• The arrangements related to the termination fees.

What are the consequences of failing to announce the intent of mergers?
If the acquirer wishes to merge with the acquired company within the 12 months following the completion of the Acquisitions and has not announced the intent of mergers in the announcement of the intent of Acquisitions or in the offer document, it shall perform one of the following acts in order to complete the mergers:

• Hold 75% of the securities.
• Obtain the consent of the target company’s general assembly on the mergers under a special resolution.

Now we have determined the four types of Acquisitions, how the process shall take place and the most important requirements that the law stipulated such as submitting an offer and the requirement to make an announcement regarding the intended transaction. It’s important to note that Acquisitions involve significant risks and challenges, including integration issues, cultural differences, and potential resistance from employees and stakeholders. Successful Acquisitions require thorough due diligence, careful planning, and effective post-Acquisitions integration strategies.

For further assistance please contact
Al Safar & Partners on
+97144221944 ext. 720
or +971 55 763 0405
reception@alsafarpartners.com
www.alsafarpartners.com