A Critique of Saudi M&A Laws
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Penn State Law Penn State Law eLibrary SJD Dissertations 4-27-2016 A Critique of Saudi M&A Laws Mulhim Hamad Almulhim [email protected] Follow this and additional works at: https://elibrary.law.psu.edu/sjd Part of the Antitrust and Trade Regulation Commons, Business Organizations Law Commons, Comparative and Foreign Law Commons, Securities Law Commons, Taxation-Transnational Commons, Tax Law Commons, and the Transnational Law Commons Recommended Citation Almulhim, Mulhim Hamad, "A Critique of Saudi M&A Laws" (2016). SJD Dissertations. 2. https://elibrary.law.psu.edu/sjd/2 This Dissertation is brought to you for free and open access by Penn State Law eLibrary. It has been accepted for inclusion in SJD Dissertations by an authorized administrator of Penn State Law eLibrary. For more information, please contact [email protected]. The Pennsylvania State University Penn State Law A Critique of Saudi M&A Laws A Dissertation in Law by Mulhim Hamad Almulhim Submitted for the Degree of Doctor of Juridical Science April 2016 Abstract This dissertation aims to elucidate Saudi Arabia’s mergers and acquisitions (M&A) laws. The dissertation studies and analyzes current Saudi M&A laws with reference to comparative models from different countries and provides recommendations to improve the transparency and efficiency of Saudi Arabia’s M&A laws. Such improvements may help companies attempting to conduct M&A activity in Saudi Arabia address certain barriers and difficulties, which may in turn help to stimulate the Saudi Arabian economy. Saudi Arabia is considered one of the world’s foremost emerging markets. Since Saudi Arabia joined the World Trade Organization, its stock market has been growing quickly, including rapid growth in M&A transactions. The author of this paper argues that Saudi has a significant need for M&A activity and notes that despite the sharp growth in M&A activity in Saudi in recent years, most of Saudi’s M&A laws are not modern or sophisticated enough to handle the large, complex M&A transactions that are beginning to occur in the Kingdom. Certain M&A transactions attempted in Saudi, such as the Sahara-Sipchem deal, have been unsuccessful due to the absence of a legal framework capable of reinforcing and protecting M&A transactions and boosting M&A activities. This paper offers a critique and analysis of Saudi Arabia’s M&A laws. The author argues that most of Saudi’s current M&A laws discourage corporations from engaging in M&A activity and/or cause M&A transactions to fail due to their (the laws’) deficits. This dissertation identifies loopholes in the Saudi legislation that governs M&A transactions. It covers antitrust law, corporate law, securities law and tax law and provides recommendations supported by models from different jurisdictions as to how M&A laws in Saudi can be made more efficient and brought in line with modern economic principles. 1 Table of Contents Chapter 1: Introduction ....................................................................................................................8 §1.1. Introduction to the Chapters.....................................................................................9 §1.2. Acknowledgements ................................................................................................14 §1.3. Literature Review...................................................................................................14 §1.4. Methodology ..........................................................................................................14 §1.5. Obstacles ................................................................................................................15 §1.6. The Scope of the Dissertation ................................................................................15 §1.7. The Significance of the Dissertation ......................................................................16 Chapter 2: Saudi Legal System and Authorities Related to M&A ................................................17 §2.1. Scope ......................................................................................................................20 §2.2. Introduction ............................................................................................................21 §2.3. International Saudi Trade .......................................................................................25 §2.4. The Saudi Constitution ..........................................................................................27 §2.5. The Saudi Legal System ........................................................................................29 §2.6. The Saudi Monarchy ..............................................................................................31 §2.7. The Three Branches of Government ......................................................................33 §2.8. Authorities Relevant to M&A ................................................................................52 §2.9. Foreign Investment in Saudi Securities .................................................................69 Chapter 3: Business Activities and M&A Transactions in Saudi Arabia ......................................77 §3.1. Scope ......................................................................................................................79 §3.2. Business organizations ...........................................................................................79 §3.3. Saudi Arabia’s Exports ..........................................................................................87 2 §3.4. Saudi Arabia’s Debt ...............................................................................................88 §3.5. Business activities in Saudi Arabia ........................................................................89 §3.6. Listed companies ...................................................................................................90 §3.7. The growth of the stock market in Saudi Arabia in 2015 Report ..........................90 §3.8. Family Businesses in Saudi Arabia........................................................................91 §3.9. Closely Held Corporations .....................................................................................92 §3.10. Foreign Investment in Saudi Arabia ......................................................................94 §3.11. Business Councils ..................................................................................................98 §3.12. Business sectors in Saudi Arabia (SA-US and Saudi-British Business Councils) 99 §3.13. Mergers and Acquisitions in Saudi Arabia ..........................................................102 Chapter 4: M&A and the Saudi Competition Law (Antitrust) ....................................................120 §4.1. Scope ....................................................................................................................124 §4.2. Introduction ..........................................................................................................124 §4.3. Pre-Merger Notification .......................................................................................136 §4.4. Assessment and Guidelines..................................................................................145 §4.5. Cases ....................................................................................................................151 §4.6. Interview with the Competition Council..............................................................155 §4.7. Questions the author asked the Competition Council ..........................................157 §4.8. Summary ..............................................................................................................160 §4.9. South African Competition Act ...........................................................................161 §4.10. Recommendations ................................................................................................170 Chapter 5: Closely Held Corporate M&A and Basic Principles: Stock Acquisition, Assets Acquisition and Merger ...............................................................................................................179 3 §5.1. Scope ....................................................................................................................183 §5.2. New Saudi Companies Law 2015 ........................................................................184 §5.3. Basic Corporate Governance Rules: General and Regarding M&A Specifically188 §5.4. Stock Acquisition of a Closely Held Target Corporation ....................................216 §5.5. Assets Acquisition of a Closely Held Corporation ..............................................237 §5.6. Merger of Closely Held Corporation into Acquiring Corporation ......................245 Chapter 6: Tender Offer of Stock of a Publicly Held Corporation (Public Takeover) ................258 §6.1. Scope ....................................................................................................................263 §6.2. Introduction ..........................................................................................................265 §6.3. When Does The Saudi M&A Regulation Apply?................................................268 §6.4. The Announcement of the Offer ..........................................................................269 §6.5. “Prohibited Dealings by Persons Other Than the Offeror” .................................272