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UAE Law Focus: Mergers in Public Shareholding Companies

Published on : 17 May 2018

Mergers and Acquisitions: Public Shareholding Companies

“How do you make money? Mergers, Acquisitions and Liquidations”

                                                                                                            ~Mario Gabelli


Corporate Lawyers in Abu DhabiSultan Bin Saeed Al Mansouri, MOE (Minister of Economy), and Board Chairman of the securities and commodities authority (SCA) was responsible for the introduction of a set of regulations concerning mergers and acquisitions of the UAE-based public joint stock companies. This decision includes three chapters comprising 61 articles which focuses on the general rules and conditions of procurement, various definitions relevant to mergers and takeover as well as control, penalties and inspection. To be investment-friendly and ensure a promising financial system, SCA has introduced, in recent times, a series of decisions launched new systems and modified some others with the aim of efficiently developing a legislative environment and organizational infrastructure. These measures have not only encouraged and helped capital markets ensure more flexibility and responsiveness but have also boosted competitiveness, thereby enhancing and improving services provided by them.

The FGB and NBAD Merger

In the United Arab Emirates, partial or complete control of a public company can be acquired by way of a statutory merger process under the Federal Law Number 2 of 2015 concerning UAE Commercial Companies law (the Federal Companies Law or new CCL) as amended. Under the provisions of this law, one or more companies can merge with another company when the following process is complete. Firstly, a merger agreement must be agreed upon and signed by both the companies. Secondly, the dissolving company must acquire the approval of its shareholders by way of special resolution to approve of the merger upon which the dissolve of the company becomes effective. Thirdly, the acquiring company must acquire the consent of its shareholders, in the same way thereby increasing its share capital and permitting the company to issue shares to the dissolving company. Lastly, and most importantly, the SCA must approve the merger.

A recent example of a merger in compliance with the new governance rules is as follows: National Bank of Abu Dhabi PJSC(NBAD) and First Gulf Bank (FGB) entered into a merger. The merger of NBAD and FGB is being effected using this statutory process and will result in the assets and liabilities of FGB being assumed by NBAD in consideration for the issues of new shares in NBAD to the shareholders of FGB. Following completion of the merger, the FGB shareholders will own about 52% of the enlarged issued share capital of NBAD.


Administrative Decisions Number (62/ R.T) of 2017 Concerning Technical Requirements for Acquisition and Merger Rules has its basis on five primary consideration. Where, the first and the foremost factor is of the Federal Law number (4) of 2000 concerning the Emirates Securities and Commodities Authority and Market, and amendments thereof (the SCA Law).The SCA Law regulates the activities of securities and commodities markets in the UAE and including recent modifications of 2006 by Federal Law number (25) and Federal Law Number (6) of 2009. SCA Law provides a uniform definition of securities to be shares, bonds, and notes issued by joint stock companies, relationships, and notes issued by the federal government, local government, public authorities and institutions in the country, or any other locally or internationally acceptable financial instruments issued by SCA. It also gave legal recognition to an agent or a broker as an entity licensed and authorized under the provisions of the law to practice the concerned business in the securities and commodities market.

The second consideration was the Federal Companies Law which was a replacement of Federal Law number 8 of 1984. This law states that all Limited Liability Companies (LLC) must review their articles to ensure that the same comply with the terms of the new CCL. Specific other conditions, although not mandatory, were encouraged to be examined within the scope of this article. A few of the changes introduced by this law were the fact that any part of the shareholder reports which referred to and complied with the regulation that was prevalent in the respective field must be changed and updated to ensure clarity. Also, the introduction of this law, shareholders now had the right to appointment of more than five managers or directors. Additionally, an explicit reference to the increase in positions of administration, the shareholders were required to amend their articles accordingly. With this arrangement, shareholders, to pass ordinary resolutions need a simple majority of the shareholders present at the general assembly as opposed to earlier where recommendations could be given only on the condition that 50% of the votes at that meeting must be secured.

The third consideration has its basis on the Cabinet Resolution Number13 of 2000 regarding the Regulation for Functioning of Emirates Securities and Commodities Authority, and amendments thereof. This resolution sought to clarify and define specific terms about securities and commodities. It further aimed to explain the meaning the Securities and Commodities Authority Market and contributed about five articles for the clarity of this purpose. It also pointed at categorizing and listing the authority’s objectives and powers. It began with Article 7 of the resolution which involved the main aims and the purpose of the decision itself. Article 8 mentioned the skills which the authority possessed in the interest of working towards its target. This resolution further went on to define the organs of the body and its challenges. This part of the decision could be considered an extension of the previous section as it went on to state the functions of the authority. The last part of the decision focused on the administrative apparatus of the administration which primarily referred to its structural formation. This resolution consisted of thirty-six articles in all.

Additionally, the fourth consideration is based several decisions including decisions of the Chairman of the Authority’s Board of Directors Number (38/R) of 2015 concerning assigning H.E. Dr. Obaid Saif Al Zaabi as Acting Chief Executive Officer of the Securities and Commodities Authority. The Authority’s Board of Directors’ Decision Number (42) of 2015 concerning the Controls and Procedures for Reconciliation in Crimes related to Public Shareholding Companies. The decision of the Chairman of the Authority’s Board of Directors Number (18 / R.M) of 2017 concerning the Rules of Acquisition and Merger of Public Shareholding Companies, and
Based on the requirements of the business interest.

Annex number (1) of the decision is relevant to the technical requirements of the acquisition offer document. The first one is the financial and other information about the offer, the acquirer, and the target company. Further, the offer document and any amendments made to it after that must include a note in the introduction of the report concerned highlighting that the consultation of an independent financial consultant who is licensed by the authority is another requirement in case of any queries regarding such a document. Secondly, the parties must mention the publishing date as well as the name and address of the acquirer, and that of the person who submitted the report on behalf of the acquirer. Thirdly, details of the securities subject of the offer, indicating that the transfer should be with or without profits must be specified. The first three guidelines of Annex Number 1 are as follows:

“The financial information and other information about the Offer, the Acquirer and the Target Company where the Offer Document and any amended offer Document must include the following:

  1.  A note in the introduction of the document indicating that consultation of an independent financial consultant licensed by the Authority, in case if there is any doubt about the Offer;
  2. The document publishing date, the name and address of the acquirer and the person who submitted the offer on behalf of the acquirer, if any;
  3. Details of the securities subject of the Offer, indicating that the transfer should be with or without the profits;
  4. The details about the total amount of the offer should also be submitted;
  5. It must include the procedures that should be followed to accept the offer;
  6.  The closing price of the securities to be acquired and the closing price of the offered securities (in case of acquisition through Swap) on the first day of every month of the six months immediately preceding the offer document's publishing date. And on the last day preceding the offer term as well as on the previous day available before the offer document publishing date, provided that the parties obtain the prices of the listed securities from the market. In the event, the company has unregistered-securities, the information available on the number and value of the deals completed within the last six (6) months and disclosure of the source of such information, or note shall be submitted to indicate that none of such information is available.
  7.  The details of the first payment of the profits or fees in which shall be payable by the new securities (in case of acquisition through Swap). The classification of securities is profits, costs, the capital, and recovery, and a statement indicating the impact of accepting the offer on the money and the income earned for the shareholders of the Target Company. In case the new securities are not identical to the securities listed in the market, the offer Document shall contain all the details of the rights associated with the guards, and a statement indicating that an application was or will be submitted to the Authority to list them.
  8. Indicate the impact of accepting the entire offer on the Acquirer’s assets, profits, and business which can be essential to conduct a valid appraisal of the Offer in case of an acquisition.

The second subheading consists of a statement, the exact words of which must be included in the offer document and goes as follows:

The Securities and Commodities Authority and the Market shall not be liable for the content of this Offer Document and shall not submit any confirmation about the accuracy or completeness thereof, and at this moment expressly disclaim any responsibility for any loss arising from the content of this document or from relying on any part thereof.”

Lawyers in Abu DhabiThis decision also made specific, clear criteria if the payment of the offer value includes securities and in case the acquirer is a company not listed in the market. The following must be involved in the decision:

  1. The sales, net profits or losses, before tax, if any, and after tax, the amount of paid fee, if any, and any exceptional items. Also, minority interests, and the total number of dividends, proceeds, and profits for each security, for the past three fiscal years.
  2. A list of the assets and liabilities based on the latest audited financial statements published.
  3. The cash flows, if they are available, based on the latest audited financial statements published.
  4. All the material changes to the Acquirer’s financial or commercial position after the latest audited financial statements published, or a statement indicating that none of such changes took place.

  5. The details relating to the items referred to in sub-clause Number (I/3/a) of this article regarding any initial announcement or initial financial statements issued since the publishing of the latest audited financial statements.
  6. Any information concerning any of the above that has been amended to take the impact of inflation into account.

  7. The significant accounting policies and any keynotes on the financial statements related to the adjustment of data, including any data that was amended to take the impact of inflation into account. If it is not possible to compare the data due to the change of the accounting policy, there should be disclosure of the estimated sum of the discrepancy arising from the difference shall be defined.
  8. The parties should mention names of the members of Acquirer’s Board of Directors.

  9. The nature of the Acquirer’s activity and the financial and commercial forecasts.
  10. A summary of the main content of every material contract concluded by the Acquirer or any of the affiliates outside the ordinary course of its activity in the two years preceding the Offer Term. The summary shall include a note to the Related Parties, and the terms, date, and provisions of each contract, and any sums paid by the Acquirer (or any of its affiliates) or paid to it based on each deal. “

The decision also sets out that all offer documents shall contain adequate information about the target company in compliance with the sub-clauses. The offer must also have information regarding the funding, the names of lenders and the source of funding. The decision highlights an essential part of section 8 where the resolution points out towards the fact that all financial information regarding the disclosure of the offer transparently and efficiently. Importantly, the motive of the acquirer and an analysis of the profitability of the target company’s share. 

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