Companies Merger have emerged as a pivotal strategic tool for businesses seeking to enhance their competitiveness and foster sustainable growth within an increasingly dynamic global economic environment. In Saudi Arabia, mergers have gained significant prominence as a fundamental step towards realizing the objectives of Vision 2030, which aims to diversify the economy and bolster its capabilities. By improving operational efficiency, expanding market share, and leveraging synergies between resources and expertise, Companies mergers contribute to a more resilient business environment and attract greater investment to the Kingdom. Furthermore, mergers enable companies to become more resilient in the face of economic challenges, thereby positively impacting the business environment and enhancing the attractiveness of investment in the Kingdom. From this perspective, this article provides a comprehensive overview of Companies mergers in Saudi Arabia, covering types of mergers, their benefits, and the challenges they present.

What is Companies Merger in Saudi Arabia?

Companies law stipulates that a merger occurs by combining one or more companies with another existing company, or by combining two or more companies to establish a new company. All assets, rights, obligations, and contracts of the merged company (ies) shall be transferred to the merging company or the company resulting from the merger. The merging company or the company resulting from the merger shall be considered a successor company of the merged company(ies).

Types of Companies Merger in Saudi Arabia

Saudi Arabian companies can engage in various types of mergers transactions. The merger and acquisition regulations issued by the Capital Market Authority stipulate that a company may enter into a merger transaction through any of the following:

1-Absorption merger

The merged company may merge into another entity through absorption by a Merging Company, whether the shares of Merging Company are listed on the Exchange or not.

• Merged Company absorbed by another listed Company If the merged company is absorbed by a Merging Company which shares are listed on the Exchange, a Security Exchange Offer to purchase all shares of the merged company's shares shall be made by the Merging Company. The new shares in the Merging company shall be offered and issued to the shareholders of the merged company in accordance with the provisions of Capital Market Law, Companies Law, and their Implementing Regulations.
• Upon successful completion of the share exchange and closing of the Merger transaction, the assets of the merged company are transferred to the Merging Company, which will continue to exist. The listing of the Merging Company will remain in place while the Merged Company will cease to exist and its shares will be delisted from the Exchange.
• Merged Company absorbed by a non-listed company If a Merger involves the absorption of a Merged Company by a Merging Company which shares are not listed on the Exchange, a Security Exchange Offer to purchase all shares of the Merged Company's shares shall be made by the Merging Company. The new shares in the Merging Company shall be offered and issued to the shareholders of the Merged Company in accordance with the provisions of Capital Market Law, Companies Law, and their Implementing Regulations.
• Upon successful completion of the share exchange and closing of the Merger transaction, the assets of the Merged Company are transferred to the Merging Company, which will continue to exist. The Merged Company will cease to exist and its shares will be delisted from the Exchange.

2-Merger by way of forming a new legal entity

• If a Merger involves the formation of a newly formed legal entity into which the Merged Company and another Merging company will merge, a Security Exchange Offer to purchase all shares of the Merged Company’s shareholders shall be made by the newly formed legal entity, and shares in the newly formed legal entity shall be issued to the shareholders of the Merged Company and the other Merging Company.
• Upon successful completion of the share exchange offer and closing of the Merger transaction, the assets of the Merged Company and of the other Merging Company are transferred to the newly formed legal entity. The Merged Company and other Merging Company will cease to exist, and the Merged Company’s shares will be delisted from the Exchange.
• The newly formed legal entity shall submit a new application to list the shares of the new legal entity to the Capital Market Authority.

3- A merger of a company into a company that owns it or is owned by the same partners or shareholders.

• A merger of one or more companies into a wholly-owned subsidiary shall be made by a decision issued by the Merging Company, without the need for a merger decision from the merged company or companies. Each director or board of directors of the company shall prepare a financial solvency statement for each company party to the merger, indicating the Merging company's ability to meet the debts and obligations of the merged company or companies upon the effectiveness of the merger.
• The merger of two or more companies owned by the same partners or shareholders shall be made by a decision issued by each company party thereto. In such a case, the valuation of the assets of each company party to the merger shall be exempted from the provisions of the merger.

Regulations Governing Merger Transactions in Saudi Arabia

- Merger Proposal

• A merger involves combining one or more companies into an existing company, or merging two or more companies to form a new company.
• The merger proposal shall be approved by each company party thereto in accordance with the procedures stipulated for amending its articles of association or bylaws. The merger proposal shall specify its terms and conditions, and shall indicate the nature and value of the consideration, including the number of shares or units of the merged company in the capital of the Merging company or the new company resulting from the merger. It shall also include a statement of the ability of each company party to the merger to meet its liabilities.
• Subject to applicable regulations, a company, even if it is in the process of liquidation pursuant to the provisions of the system, may merge with another company of the same or different type.
• A merger is not valid unless the assets of each participating company are valued.
• The consideration in a merger typically consists of shares or stock in the Merging or newly formed company.
• The competent authority shall determine the rules and procedures for implementing the merger proposal, including the cash consideration for purchasing fractional shares or stocks, or for compensating a partner or shareholder who objects to the merger decision, and the rules governing the voting of a partner or shareholder who has an interest other than his interest as a partner or shareholder in the company.

- Objection to the merger decision

• Each company party to the merger shall announce it at least thirty days prior to the date set for taking a decision on the merger proposal and voting thereon.
• Any creditor of the merged company may object to the merger by registered letter to the company or by any other means specified in the notice, within fifteen days from the date of the notice. The company shall pay the debt of the objecting creditor if it is due, or provide sufficient security for its payment if it is due in the future.
• A creditor who has notified the company of their objection to the merger, and the company has failed to pay the debt if it is due or provide sufficient security for its payment if it is due in the future, may apply to the competent court within ten days prior to the date set for the decision on the merger. The competent court may, in such a case, order the payment of the debt if it is due or the provision of security for its payment if it is due in the future. If the court finds that the merger would cause serious harm to the objecting creditor and that neither the merged nor the Merging company is able to pay the debt or provide security, the court may order the merger to be suspended or postponed, provided that its decision is issued before the merger becomes effective. If the competent court does not rule on the creditor's objection before the merger becomes effective and it is subsequently proven that the objecting creditor's claim is valid, the court may order compensation for the damages suffered by the creditor as a result of the merger.

- Effectiveness of the merger decision

• The merger shall become effective and binding upon the registration of the merged company's data in the commercial register of the Merging company. In all other cases, the merger shall become effective and binding upon the registration of the new company in the commercial register.

Benefits of Mergers in Saudi Arabia

It is worth noting the benefits of completing merger transactions in Saudi Arabia, including the following:

• Facilitating access to regional and global markets

One of the benefits of merging companies is that they enable companies to access regional and global markets. Moreover, the Kingdom serves as a strategic base for reaching markets in the Middle East, Africa, Asia, and Europe.

• - Innovation and Technology development

One of the benefits of merging companies is the opportunity to exchange knowledge and expertise across various fields between companies, which contributes to driving innovation and technological advancements. For example, a technology company can leverage the expertise of another company to enhance its products or services.

• Improving productivity and saving time

One of the benefits of merging companies is the acquisition of new production resources and improved production capacity, leading to time savings and increased efficiency.

• Enhancing financial value

Merging companies typically lead to an increase in the financial value of the merged companies. By combining resources and enhancing competitive capabilities, higher returns for shareholders can be achieved.

Challenges of Companies Merger in Saudi Arabia

One of the most significant challenges facing Merging Companies in Saudi Arabia is:

• Compliance with regulations and laws governing mergers transactions

Companies often face challenges in understanding and complying with local regulations governing mergers and acquisitions. Therefore, it is crucial for companies to be aware of the necessary legal and financial procedures.

• Cultural challenges

Companies may encounter cultural and social challenges when engaging in mergers transactions and in Saudi Arabia. Therefore, it is imperative for companies to understand local culture and respect values and traditions.

• Organizational integration

Companies may encounter challenges in achieving organizational integration between merged entities, as there may be differences in organizational structures, processes, and cultures.

• Technical Challenges

Companies may encounter technical difficulties when integrating systems and infrastructure between two companies. Therefore, companies shall be able to implement technical integrations efficiently.

• Risk Management

Companies may face challenges in managing the financial, legal, and regulatory risks associated with mergers and acquisitions. Therefore, companies shall assess potential risks and develop strategies to mitigate them, protecting their interests and reputation in the market.

In conclusion, Companies mergers in Saudi Arabia are effective strategic tools that enhance competitiveness and contribute to sustainable economic growth. By supporting mergers through modern and advanced systems and regulations, the Kingdom demonstrates its commitment to providing a flexible and balanced business environment that fosters business continuity and attracts investment. This commitment also reflects the Kingdom's keenness to achieve the goals of Vision 2030 by encouraging Companies integration, promoting innovation, and fostering stability in both domestic and regional markets.

Companies Merger service

Legal services related to Companies mergers in Saudi Arabia encompass a range of steps and procedures designed to ensure that mergers are conducted in compliance with local laws and regulations. The merger process is governed by the Companies Law and its executive regulations, and is also subject to the regulations of the Capital Market Authority and other regulatory bodies, depending on the type and size of the companies involved. Key merger-related services offered by Dr. Fahad Alrefaei & Partners Consulting & Law Firm:

• Providing legal advice on the feasibility and viability of a merger.
• Studying the legal aspects of institutions and companies involved in mergers.
• Drafting merger agreements
• Submitting applications to the relevant government authorities such as the Ministry of Commerce and the Capital Market Authority.
• Preparing the necessary legal documents to register the new entity with the relevant authorities.
• Transferring ownership rights, contracts, and legal obligations to the new company
• Post-merger Companies restructuring

For Companies merger services in Saudi Arabia, please don't hesitate to contact us at Dr. Fahad Alrefaei & Partners Consulting & Law Firm at 920012753 or via [email protected]
We are pleased to assist you.

Please find: Merger and acquisition services