By Sarah Townsend
New rules on M&As for listed firms to be published in Official Gazette next month
The Emirates Securities and Commodities Authority (SCA) has issued new rules introducing a codifed takeover regime in the UAE for the first time.
The code is set to come into force following publication in the UAE’s Official Gazette next month.
Lawyers have described the establishment of a formal takeover regime for listed firms as a significant development for the UAE’s public M&A market.
Until now, prospective investors had to approach the regulator and agree a bespoke process. In reality, however, the lack of clarity over exactly what was allowed and how the process worked deterred many from launching bids.
The new regime applies to the acquisition of shares in public joint stock companies listed on the Dubai Financial Market (DFM) and Abu Dhabi Stock Exchange (ADX).
It is based on classic Western-style takeover frameworks, with key features including principles related to equality of treatment for shareholders and competing bidders; disclosure requirements to enable informed decision making, and restrictions on dealing in securities other than in exceptional circumstances.
There are also “fairness opinion targets”, similar to in UK takeover regulations – which require parties to appoint independent advisors to validate the terms of the offer, and prohibit the target board (the subject of the takeover bid) from acting in a manner that denies its shareholders the opportunity to fully assess an offer.
Crucially, the new rules contain so-called “squeeze-out” and “sell-out” procedures deemed especially attractive for prospective investors.
They entitle a bidder that has managed to obtain 90 percent of the shares in a listed company, to acquire the remaining 10 percent on a compulsory basis.
Mohammed Al Shukairy, Dubai-based partner at law firm Clifford Chance, told Arabian Business: “This is a positive development for the UAE’s public M&A landscape.
“The new code is long awaited and brings necessary implementation procedures to enable bidders to feel more confident about the process.”
In particular, he said, the squeeze-out procedure is welcome because, without this assurance that they can obtain 100 percent of a company, many prospective investors would not bother bidding at all.
He also said the regime would encourage some companies “to pursue inorganic growth through acquisition of other listed firms”, and incentivise others to improve the quality of their management and growth plans to make them less susceptible to takeover.
However, he warned that the regime would have limited appeal to foreign investors because corporate ownership restrictions still prevent them from acquiring more than 49 percent of onshore UAE entities.
What is more, the new takeover code does not override existing legislation around regulated industries such as banking and insurance. Investors wishing to acquire all or part of such firms still require approval from the UAE Central Bank or other regulator.
“You cannot expect the floodgates to open and the country to witness a steep rise in listed M&As, but for UAE-based firms who are able to ‘go all the way’ to 100 percent ownership, there is now a mechanism for doing so,” Al Shukairy said.