Acquisition of Companies in the State of Qatar and Australia
Acquisition of Companies in the State of Qatar and Australia
Dr. Zain Al Abdin Sharar
Dr. Mohamed AlKhulaifi([·])
Executive Summary
In recent years, acquisitions have become an increasingly popular choice for local public shareholding companies in Qatar striving for economic growth, and looking to increase their investment and enter foreign markets.([1]) In response to the importance of acquisitions as a mean of economic concentration and a method for external growth, the Qatari legislatures enacted Law No 3 of 2010 amending some rules of the Commercial Companies Law No. (5) of 2002, and has introduced Chapter 4 which included new rules for acquisitions.([2]) The new rules set out basic procedure, which applies to a friendly acquisition,([3]) when a public shareholding company acquires the shares of another public shareholding company within the State of Qatar.([4]) However, the new rules lack clarity, and do not indicate the goals and objectives of acquisition.([5]) Moreover, the rules do not sufficiently address important issues in acquisitions, such as protection of shareholders of the target company (the acquired company),([6]) hostile acquisitions, compulsory acquisitions, cross border acquisitions and disclosure of information to shareholders.
In Australia, Chapter (6) of the Corporation Act 2001 set out detailed rules regulating acquisition (also known as takeover),([7]) and is largely concerned with protecting shareholders of target companies.([8]) It applies to listed companies, unlisted companies with more than 50 members and listed managed investment schemes. Other important rules relating to takeovers are found in the Australian Stock Exchange (ASX)Listing Rules, ([9]) the Foreign Acquisitions and Takeovers Act (FATA) which contains complex provisions regulating the acquisition directly or indirectly by foreign persons of, inter alia, Australia companies,([10]) and other applicable legislation which imposes restrictions on takeovers involving companies which operate in particular industries such as banking, media([11]) and life insurance.([12])
This article compares the acquisition regime in Australia with that which applies in Qatar by virtue of Law No 3 of 2010 only, and makes some recommendations to the Qatari authorities about how the Qatari law could be modified to make it more consistent with the Australian takeovers law and therefore more consistent with international standards and best practices.
Definitions of Acquisition
According to Gaughan, the expression ‘acquisition’ or ‘takeover’ is a legal process whereby a company buys or takes control of another, whether by buying the majority of the company’s shares or all of its property. ([13]) This will clearly be the case where a company acquires all or over 50 per cent of the voting shares in the target company. ([14]) As a result of this process, the acquiring company becomes a holding company, whilst the target company (acquired company) becomes a subsidiary without losing its legal personality. ([15])
The consideration for an acquisition of shares of a target company is usually cash; however, the consideration may comprise shares in the acquiring company, or a mixture of cash and shares.([16])
The most popular types of acquisition are: friendly acquisition (friendly takeover) and hostile acquisition (hostile takeover).([17])
In a friendly acquisition, the acquiring company buys or takes controls of the company’s shares through negotiations between the directors and management of the acquiring company and directors and management of the target company.([18]) This type of acquisition is also known as a negotiated acquisition.([19])
On the other hand, in a hostile acquisition,([20]) the acquired company unilaterally acquires the shares of the target company through the capital market (the exchange) and without the consent of the latter one. Generally, the acquiring company usually makes an offer to all of the shareholders to buy the shares in order to gain majority control of the voting shares in the target company, after getting the approval of the regulator of the capital market, without the need to get the approval of the target’s management and directors.([21])
Scope of Application
In Qatar, Article 282 (bis) 1 of The Companies Law No. 5 of 2002 , as amended by Law No 3 of 2010 uses the words “acquisition of a company” and therefore, on the face of it would appear that it covers only acquisitions of a public company,([22]) and does not extend to investment funds ([23]) or collective investment schemes.([24]) This interpretation is consistent with the fact that as at the time of writing this paper, there were no laws in place in Qatar regulating collective investment schemes.([25])
Article 282 (bis) 2 set out the steps and procedures that the acquiring company and the acquired company need to follow in order to have a valid acquisition. In addition, Article 282 (bis) 2(1) provides that both the acquiring company and the acquired company (target company) are required to approve the acquisition by way of a resolution of an extraordinary general assembly. Therefore, it can be concluded that the acquisitions rules contained in Law No 3 of 2010 are designed only for friendly acquisitions and do not apply to hostile acquisitions.
Moreover, The acquisition rules contained in Article 282 (bis) 1- Articles 282 (bis) 4 address only acquisitions made by companies and do not address acquisitions made by individuals.([26])
In Australia the takeovers legislation applies to takeovers of companies and other corporate bodies,([27]) which are either listed on the Australian Securities Exchange (ASX) or have fifty shareholders or more.([28]) It is important to note that the takeovers legislation applies also to listed management investment schemes (e.g. unit trusts).([29])
When do the Acquisition (Takeovers) Provisions Apply?
Under section 602 of the Corporations Act, the purposes of the takeovers provisions seek to ensure that:
acquisition of control should take place in an efficient, competitive and informed market;([31])
shareholders and directors of a target should know the identity of the bidder,([32])
have a reasonable time to consider an acquisition proposal([33])
are given sufficient information to be able to assess the merits of the offer([34]) ; and
all shareholders should have a reasonable and equal opportunity to participate in the benefits of the offer([35]).
Moreover, section 602 applies to acquisitions of control over:
voting shares in unlisted companies with more than 50 members;
listed bodies other than companies; and
voting interests in listed managed investment schemes.
Listed managed investment schemes are treated as if they are listed companies.([36])
According to section 606 of the Corporations Act, there is a prohibition against a person acquiring a “relevant interest” in the securities of an Australia company if, by virtue of the acquisition:
that person’s voting power in the company increases from below 20% to above 20%; or
a person’s voting power in the company is between 20% and 90% and increases([37]).
The prohibition in section 606 is subject to a number of exceptions which are set out in section 611.([38]) For example, a person does not breach the section if an acquisition:
resulted from acceptance of an offer under a takeover bid;
resulted from an on-market transaction where the acquisition is by a takeover bidder during the bid period;
was previously approved by resolution of the general meeting of the target company;
was by creeping takeover whereby the acquirer held voting power in the company of at least 19 per cent and no more than 3 percent was acquired in the previous six months;
occurred as a result of an allotment by the company to all shareholders on a pro rata basis; or resulted from a dividend reinvestment plan available to all shareholders.
The reasons for these technical exceptions are based on the assumption that it would not assist the objectives of the takeovers legislation by requiring compliance in those situations.
In Qatar, unlike the Australian provisions, there is no stated prohibition against acquiring a particular percentage of voting shares.([39]) According to Article 282 (bis) 1 of Law No 3 of 2010 which provides that “acquisition shall occur through direct or indirect ownership for a part of the capital of another company or by obtaining a majority of voting rights throughout the purchase of all shares or part therefor through a public offer for exchange or pursuant to an agreement with partners or shareholder without prejudice to the interests and objectives of the company or through any method provided for in the provisions of this law.”([40])
As can be seen, there is no specified limit on the number of shares that need to be acquired in the target company to be subject to the acquisition rules. Article 282 (bis) 1 states that “acquisition of a company shall take the form of direct or indirect ownership for a part of the capital of another company”.([41]) Accordingly, accruing any percentage in a public company will constitute to be acquisition as the article does not specify what is meant by “a part of the company”.([42]) Therefore, it is highly recommended that the Qatari legislature clarify what is meant by “part of the company” by stating the exact percentage, which will constitute a percentage for acquisition.
However, the second paragraph of Article 282 (bis) 1 stipulates clearly that the acquisition of a company can be accomplished by “obtaining majority of voting rights”.([43]) This clearly would suggest that acquisition of voting rights should not be lower than fifty plus percent as Article 282 (bis) 1 uses the word “majority”. This interpretation is very significant, as a bidder could stand in the market and acquire up to just short of 50% without having to make any statement or disclosure about its intention to acquire the target company.
It is not clear how Article 282 (bis) 1 would be interpreted and applied by the Qatari courts and the authorities. It also remains to be seen if, in practice, there will be any challenges mounted by interested parties against a proposed acquisition where it does not comply with these take-over provisions, even though the acquisition is not of a majority stake in a company.
Moreover, the acquisitions provisions refer to an “indirect ownership for a part of the capital of another company”, they do not define what amounts to an indirect acquisition nor do they clearly address and define the concept of related parties in an acquisition. As such, it is arguable that these provisions could be circumvented through an acquisition by parties acting in concert.
Therefore, the Qatari legislature should amend chapter 4 of Law No 3 of 2010 in order to include detailed articles that clarify the exact percentage required so that acquisitions are in line with the Australian Corporations act. This would eliminate the ambiguity in chapter 4 of the Commercial Companies Law.
Disclosure of ownership of shares
In Australia, One of the main objectives of the takeover provisions in Chapter 6 of the Corporations Act 2001 (Cth) is to ensure that the identity of a person who propose to acquire a substantial interest in a company be known to shareholders and directors.([44]) However, this is implemented partially in the substantial holding provisions of Part 6C and the tracing beneficial ownership of shares provisions of Part 6C.2 of the Corporations Act 2001 (Cth).([45])
The substantial holding provisions,([46]) compel shareholders who have a relevant interest in not less than five per cent of the voting shares of a listed company to disclose to the company full particulars of their relevant interest in the shares.([47]) The disclosure of substantial holding information is often the first indication on an impending takeover bid.
Therefore, it is important to understand the scope and meaning of the term “relevant interest”.([48]) Under the Corporations Act, a person has a “relevant interest” if they are the holder of the security, they have the power to control the exercise of the voting power attached to the security, or they have the power to dispose or control the disposal of the security.([49])
Likewise it is important to also understand what is included in the term “voting power”. A person’s voting power comprises the aggregate votes of the person and associates taken as a percentage of the total votes in the body corporate.([50]) The term includes not only the voting securities which a person owns but also includes the associates of that person, so that their interest in voting securities must also be taken into account.([51]) The term “associate” is very wide and also includes two persons who are either acting in concert or who are proposing to act in concert.([52])
Additionally, it can be argued that the takeovers law has territorial effect where a person takes over a foreign company which itself has control over the voting power of an Australian company([53]), (but note the exception in the case of a company which is listed on an approved foreign market).
In Qatar, unlike the Australian takeover rules there is no clarifying guidance on what is intended by the phrase “acquisition shall occur through direct or indirect ownership for a part of the capital of another company”. Whilst this clearly recognizes the concept of “relevant interest” it does not clarify what is included. Such clarification is important to give guidance to the market.
It should be noted, though, that Article 2 (1) of the Foreign Investment Law restricts foreign ownership to a maximum of 49 per cent of a Qatari company’s capital. This rule applies as well to acquisitions when it is made by foreign investors.([54])
However, Article 2([55]) of the Foreign Investment Law (as amended by Law No. 1 of 2010)(2)further provides that foreign investors may own up to 100 percent of the capital if:
The entity operates in the following sectors: agriculture, industry, healthcare, education, tourism, exploitation and development of natural resources, energy or mining, consultancy services, technical and information technology, cultural, sports and entertainment services or distribution services
The project contributes to Qatar’s development plans.
Again, this exception applies when it is made by foreign investors.
It is highly recommended that the Qatari legislature develop a functional definition for the term “acquisition” in order to avoid any ambiguities or uncertainties.
Takeover procedures
In Australia, The two most common types of takeover in Australia are “on” market bids (for quoted securities) and “off” market bids (for quoted or unquoted securities).([56]) Both of these types of takeover have different characteristics. In the case of an “off” market bid, it is defined as an offer to buy all or a specified proportion of all the securities in the bid class.([57]) So, the offer can relate to either all of the securities of a particular class or the same specified proportion of each holder’s securities.([58]) In an “off” market bid, the consideration can be cash, securities, or a combination of both.([59]) Where the consideration is cash only, the price must be at least the highest price paid by the bidder or an associate for securities in the bid class in the four months prior to the date of the bid.([60]) An “off” market bid may be the subject of a number of conditions. It is common for “off” market bids to be made the subject of conditions such as the bidder reaching a certain minimum level of acceptances or obtaining all necessary regulatory approvals.([61]) Both the bidder and the target are required to lodge statements.([62])
As regards an “on” market bid, the bid must relate to all securities of the target, rather than a specified percentage of each holders holding. Therefore, an offer of securities under a market bid must be an offer to buy all the securities in the bid class.([63]) Unlike an “off” market bid, an “on” market bid must be for cash.([64]) Also unlike an “off” market bid, the bidder may increase the price without having to increase the price in respect of those securities which it has already acquired. “On “market bids must be unconditional and therefore a bid cannot be the subject of a condition relating to minimum acceptances.([65]) Like an “off” market bid, the bidder in an “on” market bid is still required to lodge a bidders statement and the target must lodge a target statement.([66])
However in Qatar, The two types of acquisitions which seem to be covered by the Qatar legislation include the two most common types of acquisitions: exchange of shares (also called share swaps) and cash bids.([67]) The legislation sets out the process for both a share swap and a cash bid.([68]) Interestingly if a takeover is a cash bid the provisions include provision for the cash for the acquisition of the shares to be paid to the target company which is required to pay the consideration into a special account which is to be distributed to the shareholders once the Extraordinary General Assembly which has been convened to vote on the acquisition, have voted.([69])
According to Article 282 (bis) 2(1), the acquiring company and the acquired company (target company) are required to approve the acquisition by way of a resolution of an extraordinary general assembly.([70]) An acquisition resolution of an extraordinary general assembly requires approval of shareholders holding at least two thirds of the shares represented at an extraordinary general assembly.([71]) In addition, the acquisition resolution must also be ratified by the Minister of Business and Trade.([72])
However, it is not clear what criteria or factors would be taken into account by the Minister when ratifying or objecting to the acquisition. The factors could conceivably range from minority shareholders protection or procedural issues to broader economic and policy considerations.
There is nothing in the law which sets out what is to happen in the event that a successful objection is raised with the Ministry of Business and Trade. Presumably the funds are returned to the the acquiring company.
Article 282 bis 2(2)further provides that the acquiring company must increase its share capital , and distribute the increased capital to all of the shareholders of the acquired company (target company) in proportion to their shareholding in the acquired company (target company) . Accordingly, the acquired company (target company) becomes a subsidiary retaining its separate legal personality.([73]) Although not explicitly stated in this Article, this procedure presumably only applies to acquisition by way of exchange of shares.
Whilst the legislation does not draw a distinction between an “on” market and an “off” market bid, the effect of the provisions are that given that an acquisition can only occur after vote at an extraordinary general assembly, it follows that the only types of takeovers which are contemplated by the legislation are “off” market takeovers.
Furthermore, Article 282 bis 2(6) provides that “the acquiring company must undertake all the procedures necessary to protect the minority shareholders of the acquired company, including presenting proposals to purchase the remaining shares or voting rights, in accordance with the decision issued by the Minister for this purpose”.([74]) A Ministerial Decision has not yet been issued (until the time of writing this paper). Therefore, it is not clear yet what kind of proposals the acquired company would have to present to the minority shareholders. Moreover, it may be argued that if the effect of this Article is such that the acquiring company must make an offer to purchase the shares for cash from the minority shareholders of the acquired company, where the original acquisition had been conducted by way of an exchange of shares. An obligation to purchase further shares by way of cash could cause problems for the acquiring company from a financial perspective , and also will create uncertainty about how acquisitions would be implemented and completed.
The Role of the Corporate Regulators
The Australian Securities and Investment Commissions (ASIC) is responsible of administering the Corporations Act 2001, and is the main regulator of the securities market in Australia. In addition, ASIC plays a major role in administering the takeover regime in Australia and occupies different roles.([75]) In one role, it is a facilitator of takeovers, with broad powers of exemption and modification of the take overrules. This encourages close consultation between ASIC and those involved in a takeover. ASIC is also the main enforcement agency for the takeover rules and is able to refer matters to the Takeovers Panel.
According to Part 6.5 of the Corporation Act, takeover bidders must lodge a bidder statement and offer document with ASIC containing prescribed information before an offer is sent to a target company’s shareholders. The purpose of the bidder’s and target’s statements is to ensure that shareholders of target companies receive adequate information so as to enable them to assess the merits of takeover offers. ASIC is also given the power to grant exemptions and modifications to the takeover rules.
The Takeovers Panel
The Takeovers Panel has the power to review an ASIC decision on its merits in relation to an application to exempt or modify the takeover rules.([76])
It also has the power to make various orders where it considers that there have been unacceptable circumstances to the affairs of a company.([77]) There is no definition of “unacceptable circumstances, so the jurisdiction of the Takeovers Panel is therefore extremely broad. It has power to: ([78])
“make declarations of “unacceptable circumstances” regarding the affairs of a company in relation to a takeover or acquisition of a substantial interest in the company make a wide range of interim and final orders (enforceable by the courts) to remedy those circumstances and protect the rights of interests of those affected by the circumstances;([79]) and
Review the decisions of ASIC which relate to modifying the operation of or granting exemptions from the provisions of Chapter 6 relating to takeovers.”([80])
According to section 657A(3) which provides that in deciding whether or not to make a declaration of unacceptable circumstances the Panel must regard to:
The purpose of the takeover provisions as set out in s 602;
The other provisions in Chapter 6 of the Corporations Act;
The Panel’s rules made under s 658C; and
Any other matter it considers relevant
An application for a declaration or order by the Panel can be made by the bidder company, target company, ASIC or any other person whose interests are affected by the relevant circumstances.([81]) The application must be brought within two months after the circumstances occurred or a longer period determined by the panel.([82]) the Panel must give each person to whom a proposed declaration relates, each party to the proceedings, and ASIC an opportunity to make submissions.([83]) A declaration must be made within three months after the circumstances occur or one month after the application for the declaration was made. These time limits can be extended by the court on application by the Panel.([84])
During a takeover, the Panel becomes the main forum for dealing with disputes relating to the bid. The decisions of the Panel can themselves be the subject of a merits review by another panel and can be the subject of review by the courts if there has been a breach of administrative law processes and principles.([85])
The Role of the Anti-Trust Regulator in Takeovers
The Trade Practices Act 1974 prohibits an acquisition of shares which is likely to result in a substantial lessening of a competition in a market for goods and services, unless it has the consent of the Australian Competition and Consumers Commission (ACCC).([86]) The ACCC also has power to review certain overseas acquisitions, which may lessen competition in an Australian market.([87])
A rationale for many takeovers and mergers is said to be the ability to achieve greater efficiency and economies of scale in the operation of similar businesses. The possibility of review by the ACCC is obviously a serious threat in takeovers involving major competitors in a concentrated market. The definition of the relevant market is vital in determining whether substantial lessening of competition has occurred.
Australian Stock Exchange
The Australian Stock Exchange (ASX) operates Australia main financial markets for equities including shares, derivatives and fixed interest securities. It has a role in takeovers, to the extent that its rules regulate takeovers according to listing rules.([88])
In Qatar, there are two regulators under the acquisitions provisions in Qatar which are the Ministry of Economy and the Qatar Financial Markets Authority.([89]) Specifically, Article 282 (bis) 3, which provides that “The provisions of Law No 33 of 2005 pertaining to the Qatar Financial Markets Authority (QFMA) and the amending laws,([90]) shall apply to offers of acquisitions for companies listed on Qatar Exchange.” There are no provisions in Law No. 8 of 2012 which relate to acquisitions, (until the time of writing this paper), however, it is anticipated that the QFMA will introduce a code on acquisitions in the near future.
Protection of Minority Interests
In Australia, Section 661A(1)(b)A is designed to provide protection for minority interests. A bidder and its associates who have relevant interest in at least 90 per cent of the bid class securities must offer to buy out the remaining holders of securities.([91]) Upon attaining 90 percent, the bidder must give a notice to each shareholder in the bid class. The notice must state that the bidder has exceeded the 90 per cent threshold, inform the holders of their right to be bought and set out the terms on which the holder may be bought.([92]) The notice must be lodged with ASIC and given to each relevant market operator.
Within one month after the notice is given, the shareholder may give written notice requiring the bidder to acquire the securities.([93]) The notice by the holder gives rise to a contract between the holder and the bidder for the sale of the securities on the terms applicable before the end of the period.([94]) The right to require the bidder to buy out securities also extends to the holders of securities that are convertible into bid class securities.([95])
It can be seen that these provisions enable minority shareholders holding any class of shares to prevent themselves being locked in after control has overwhelmingly passed.
In Qatar, Article 282 also seems to contemplate protection of minority interests in that it provides at Article 282 (bis) 2(6) that the “acquirer company shall take the necessary procedures to protect the rights of minority shareholders.([96]) These procedures shall include an offer to purchase the remainder of the shares or voting rights in accordance with a decision of the Minister to this effect.“([97])
However as stated above, a ministerial decision has to be made in this regard and therefore, it is more about guidance on the procedures to protect minority shareholders.
As will be seen from the discussion on the Qatar Navigation and the Qatar Steamships transaction, the effect of the Law however is similar to the compulsory acquisition provisions which are found in the Australian law.
Article 68
An important Article, particularly in the case of Qatar listed companies is Article 68. Article 68 provides that “The government, departments, public corporations and companies in which the State holds minimum 51% shares may establish one or more shareholding companies by itself or jointly with one or more national or foreign establishments…
“These companies will not be subject to the provisions of this Law except in the extent that does not contradict to the positions and agreements made upon its establishment as well as to the provisions stipulated in its articles of association and statute.”([98])
At first glance it is hard to see what relevance this has to Chapter 9 on acquisitions. However, the effect of this provision particularly in the case of a bidder or target is that the company or companies in which the government holds 51% will not need to comply with the takeover provisions, to the extent that those provisions are inconsistent with for example their articles of association.
The Australian Law, has no equivalent provision and it is arguable at least in theory, that an Article 68 company could act in a manner which was contrary to the provisions of Chapter 9 and not in the interests of a significant percentage of shareholders. This could be particularly the case where the Article 68 company is the target.
Case Study in Qatar: the Qatar Shipping and the Qatar Navigation
Notwithstanding that the takeover provisions that were introduced in March 15, 2010 are very short; an analysis of the acquisition of Qatar Shipping by Qatar Navigation is instructive on how the provisions work in practice.
The joint shareholder circular issued by Qatar Navigation and Qatar Shipping provides that “On March 15, 2010, Law No (3) of 2010 amending Commercial Companies Law No. (5) of 2002 was issued which introduced new provisions into the Commercial Companies Law in respect of the combination of companies in Qatar.([99])
On March 17, 2010 the lead advisor and the lead advisor’s advisors met with the Ministry to discuss Law No (3) of 2010 and to seek its guidance with respect to the implementation of the transaction.([100])
The structure of the transaction as set out in the Joint Shareholder Circular provides:
“approval by the shareholders of Qatar Navigation at an ordinary and extraordinary general assembly meeting, including to a resolution to increase its share capital;
Approval by the shareholders of Qatar Shipping at an extraordinary general assembly meeting;
Ratification of the shareholder approvals by the Ministry; and
Distribution of the increase in share capital to the shareholders in Qatar Shipping in accordance with the Exchange Ratio.“ ([101])
‘It is also important to note, that the requisite shareholder approval at these meetings will bind all shareholders and obligate all shareholders to transfer their shares, including those who have not voted in favour of the Transaction”([102])
Additionally, the circular also provides that “On the Closing Date, the parties will deliver a joint written request to the Ministry of Business and Trade requesting the Ministry’s ratification of the resolutions of the Shareholders’ Meetings of both companies in accordance with Article 282 bis 2 of the CCL (the Ministry Approval).([103])
The circular also provided that as “ a result of the Transaction, each issued and outstanding share in Qatar Shipping will be converted into a fraction of a share of Qatar Navigation based on the Exchange Ratio, in accordance with Article 282 bis 2 of the CCL.” ([104])
Finally, whilst it is not expressly set out in the takeover rules, each of Qatar Navigation and Qatar Shipping undertook a valuation exercise in order to arrive at an exchange ratio. One of the mechanisms considered in arriving at an exchange ratio was the closing prices of each of the companies over the period prior to the date when the prospective merger was announced. Ultimately the implied exchange ratio using this methodology was 2.0 and the ultimate agreed exchange ratio was 2.2.
There are a number of points which come out of this transaction and which should be considered when looking at the effectiveness of the Qatar takeover provisions.
Firstly, ultimately, the decision about whether to proceed with the transaction was made by the shareholders in an Extraordinary General Assembly meeting of both companies. The shareholders of each company therefore had the opportunity to vote on the transaction. Unlike takeovers under the Australian legislation where ultimately, it is up to each shareholder to make his or her own decision about whether to accept an offer, in the Qatar situation, if the resolution approving the transaction is passed by the relevant number of shareholders, then that decision binds all shareholders, irrespective of whether they voted in favour of the transaction. The Qatar provisions make it clear that the bidder needs to take the necessary procedures to protect the rights of minority shareholders. “These procedures shall include an offer to purchase the remainder of the shares or voting rights in accordance with a decision of the the Minister to this effect. “([105])
If this transaction is representative of how takeovers will be processed under these rules, then it would appear that the rules effectively include a compulsory acquisition function.
Comparative analysis
Notwithstanding that the Qatar regulations purport to regulate takeovers in Law No (3) of 2010, the rules do not include features which are common in the Australian takeover regime. For example, as stated earlier, there is no minimum bid threshold and price. In fact, the real intent of the Article 282 (bis) 1 is unclear in that it provides that “Acquisition of a company shall take the form of direct or indirect ownership for part of the capital of another company or by obtaining a majority of voting rights through the purchase of all shares or part thereof or through a public offer ….”.([106]) This should be contrasted with the Australian situation where the acquisition of 20 per cent of the voting rights in a company triggers certain other requirements.
Whilst the wording in Article 282 (bis) 1 is sufficiently general to accommodate the “relevant interest” provisions which are to be found in the Australian law, to date, there has been no clarification on the intention of the provision, and it is likely that there will be no clarification until a situation eventuates which requires it.
Bidder Statements
Under Chapter 6, of the Australian law, the Bidder is required to prepare a bidder statement which contains all of the information about the bidder and the details of the bid which enables shareholders of the target to make an informed decision about whether to accept the bid.([107]) However the rules in the Qatari acquisition Law No (3) of 2010 do not require the bidder to prepare a statement to be distributed among the shareholder of the target company, which contains all of the information about the bidder and the details of the bid which enable the shareholders to make an informed decision to vote for or against the acquisitions in the extraordinary meeting. However, form a practical view point, the Qatar Financial Markets Authority (QFMA) has been requesting any acquiring company to prepare an information memorandum to be distributed in order to approve the transaction. However there are no rules in any legislation for the QFMA to specify exactly what detailed information needs to be included in the information memorandum.
Target Statements
Likewise, in Australia the target is required to set out details of the recommendations of the directors on whether to accept the bid. Additionally, where the bidder already has 30% of the target, then the target statement must also include an experts report.([108]) However, as stated above the rules in Qatari acquisition Law No (3) of 2010 do not require the target company to to set out details of the recommendations of the directors on whether to accept the bid.
In reality, the Qatar Navigation Qatar Steamships transaction involved both the bidder and the target providing extensive information to their shareholders in a prospectus type disclosure about the advantages and disadvantages of the transaction. Details of the valuation of each of the companies were also included in the documentation. The inclusion of rules which require the bidder and the target to provide information to shareholders and which assists the shareholders to make an informed decision about the bid, would be an important improvement to current provisions. This would be particularly so in the context of hostile takeovers.
Requirement to make a formal Bid
The current takeover provisions in the Qatar law are unclear about when a bidder is required to make a formal bid. In the Australian law, the takeover legislation is triggered with 20% of the voting power. However, it has been argued that the percentage is too low.([109])
Whilst the current provisions of Chapter 4 of Law No (3) of 2010 include provisions which have been inserted for the protection of minority shareholders, there needs to be clarity on how this would work, if it is intended to operate in a manner which is different to the outcome of a resolution of an Extraordinary General Assembly. To date this particular point has been academic because the effect of the passing of the resolution in favour of the merger of Qatar Navigation with Qatar Shipping had the effect of binding all shareholders, including those who voted against the transaction. The rules are silent on what happens if shareholders do not vote in favour of the resolution, Does that bind all shareholders so that it is not open to any shareholders to approach the bidder after the vote?
Does Qatar Need Provisions which are Similar to the Takeovers Laws in Australia?
A look at the takeovers figures for Qatar compared to other countries, for 2011, 2012 and 2013 is instructive in this regard. What the table below shows is takeover activity broken down by the targets country. What can be seen is that from an international point of view, acquisition activity in Qatar is high. This would indicate that Qatar should have an acquisition regime which is consistent with the Australian takeovers regime, and therefore consistent by and large with international takeover regimes.
Source Zawya([110])
With the elevation of Qatar Exchange from “Frontier Market” to “Emerging Market”,([111]) it is likely that there will be increased interest by international institutional investors in companies in Qatar. It is therefore important that these international investors understand the regulatory landscape which applies to companies in which they are proposing to invest. As has been shown, currently the takeover provisions in Qatar do not provide sufficient clarity.
There have been suggestions however that the Australian takeover rules are also in need of updating and improvement. Levy and Pathak([112]) have put forward six suggestions for an improvement to the takeovers regime in Australia. These are:
• A person who controls more than 50 per cent of shares in a company should be free to acquire further shares without having to make a bid or satisfy another exemption. The law should focus only on transactions for a change of control.
• All bids should be subject to a mandatory 50 per cent minimum acceptance condition, so control only passes at a price acceptable to the majority of shareholders.
• The prohibition against escalator agreements should be repealed to allow top up payments equal to a subsequent bid price.
• • Transactions between a bidder and a shareholder linked to the bid should be facilitated where the transaction is dependent on other shareholders’ acceptances.
• The rules governing the bid timetable should be reformed to avoid takeover bids dragging on unnecessarily and to bring matters to a head more quickly.
• We should build on the success of the Takeovers Panel by conferring on it additional powers to grant exemptions, modifications and give advance rulings.”([113])
The underlying basis of the Levy and Pathak suggestions is that they “are intended to reflect the Chapter 6 principles, namely that acquisitions take place in an efficient, competitive and informed market, that there is enough time and information to assess a bid, and that shareholders have equal opportunity to participate in benefits under a bid.”([114])
Possibly one of the biggest deficiencies in the Qatar takeover rules is how it would handle a hostile takeover, where the target believes that the offer is not in the best interest of shareholders. In this case, the process would still apply, that is the bidder and the target would both be required to hold an Extraordinary General Assembly.
As mentioned, additionally, there is no provision in the rules which sets out at what point a bidder is deemed to be making a bid for the target. As stated, this has not been a problem to date as the takeovers under these new provisions have been friendly takeovers. The process is likely to be problematic where a takeover is a hostile takeover. It should not be assumed that all future takeovers will be friendly, and thought needs to be given to how a hostile takeover will be processed.
The requirement for both the shareholders of the target and the bidder to hold an Extraordinary General Assembly, whilst ensuring all shareholders of both the bidder and the target have a say in the transaction, can be time consuming and costly, but ultimately may have the same effect as a compulsory acquisition for the outstanding shares of the minority.
The rules do not allow for proportional takeovers where the bidder only wants to acquire say 50% of the holding of each holder. This could be important where the bidder wants to make sure of its representation on the Board.
Whilst the Australian regime draws a distinction between “on market” and “off market” takeovers, it appears that all takeovers under the Qatar rules must be off market. This is by virtue of the fact that one of the prerequisites to the takeover is the holding of the Extraordinary General Assembly by both companies. Currently under the rules in Qatar, a bidder could acquire a large stake in the target company without being required to declare its intentions, ultimately to the disadvantage of shareholders of the target.
Whilst certain takeovers in the Australian regime can be a mix of cash and shares, this position is unclear under the Qatar Rules.
The Australian regime includes a panel of review called the Takeovers Panel. The mechanism for review under the Qatar rules is by the Ministry and appears to be restricted to approving the resolutions passed at the Extraordinary General Assembly of the two companies. Arguably it is still open for one of the companies to question the validity of the resolutions or the information which was the basis for the passing of the resolutions, but the process of review and the scope of the Ministry review, is not clearly articulated.
There is no guidance or provision on what information must be provided to shareholders and this is a shortcoming which is extensively covered in the Australian regime via bidder statements and target statements.
In conclusion, the Qatar takeover regime appears to work well in the case of friendly takeovers but is likely to be problematic in the case of hostile takeovers because of a lack of detail on how certain key issues are regulated. There can be no certainty that all future takeovers will be friendly takeovers, and so provisions should be introduced along the lines set out in the Australian regime which provide clarity on the process where a takeover is considered to be hostile. Having said this, the Australian takeovers law is
complex and thought should be given to whether all the features of the Australian system should be incorporated into Qatar.
On the basis of the comparative analysis and examination in this paper, a list of recommendations to the Qatari authorities is set below.
It is essential to introduce new rules on Acquisitions based on international standards and best practices.
The new rules on Acquisitions must have a functional definition for the term “acquisition” in order to avoid any ambiguities or uncertainties.
The new rules on Acquisitions must indicate the goals and objectives of acquisition.
The new rules must address important issues such as protection of shareholders of target company (the acquired company), hostile acquisition, compulsory acquisition, cross border acquisition and disclosure of information to shareholders.
The new rules must draw a distinction between friendly acquisitions and hostile Acquisitions.
The new rules must draw a distinction between on market and off market bid.
The new rules must state the threshold which triggers the acquisition rules.
The new rules should establish a similar body like the Australian Takeover Panel to review acquisition cases on its merits in relation to an application to exempt or modify the takeover rules
The new rules must require the bidder company (the acquiring company) to prepare a bidder which contains all of the information about the bidder and the details of the bid which enables shareholders of the target to make an informed decision about whether to accept the bid.
The new rules must require the target company to set out details of the recommendations of the target company’s directors on whether to accept the bid or not.
The new rules must address offers made by an individual seeking to take control of a company
BIBLIOGRAPHY
Anton Seely, ‘Takeovers: the public interest test’ Bsiness & transpot Section, House of Common Library [2011].
Gaughan P A, Mergers, Acquisitions and Corporate Restructuring (4thed, 2007).
Gregg A. Jarrell, Takeovers and Leveraged Buyouts, the concise encyclopedia of economics <http://www.econlib.org/library/ Enc1/TakeoversandLeveragedBuyouts.html> at 14 October 2013
King & Wood Mallesons, (2012), A Guide to Takeovers In Australia.
Joint Shareholder Circular issued by Qatar Shipping and Qatar Navigation (2010).
Lipton and Herzberg, Understand Company Law (13th ed, 2006) 508.
Lumsden A Takeover Regulation: A More Considered View, University of New South Wales, Centre for Law Markets and Regulation.
Levy R. and Pathak N, (2013, being a reprint of a 2008 article), Improving Efficiencies in Takeovers, Herbert Smith Freehills.
Imed Aribi,‘An overview of acquisition of Companies in the Qatari Commercial Law’, the Legal and Judicial Journal Vol. 1(2011)
Saleh Suhaibani and Abdel Azim Mussa ‘Merger and Acquisition, Global financial turmoil and new opportunities’ [2008] 1 Rajhi financial Services.
Joint Shareholder Circular issued by Qatar Shipping and Qatar Navigation (2010).
Zawya, Table showing Breakdown of Takeovers by Target’s Country.
Corporations Act 2001 (Cth) (Australia).
Trade Practice Act 1974 (Cth) (Australia).
The Foreign Acquisitions and Takeovers Act 1975 (Cth) (Australia).
The Broadcasting and Television Act 1942 (Cth) (Australia).
Foreign Investment No. 13 of 2000 (Qatar).
The Commercial Companies Law No. (5) of 2002 (Qatar).
The Law No. 3 of 2010amending some rules of the Commercial Companies Law No. (5) of 2002) (Qatar).
The Law No. 33 of 2005 regarding to the Qatar Financial Markets Authority (Qatar).
The Law No.8 of 2012 regarding to the Qatar Financial Markets Authority (Qatar).
Law No. 13 of 2012 regarding Qatar Central Bank and the Regulation of Financial (Qatar).
Dr. Zain Al Abdin Sharar, Director of Legal Affairs and Enforcement at Qatar Financial Markets Authority.
Dr. Dr. Mohamed AlKhulaifi, Associate Dean for Academic Affairs at the College of Law, Qatar University.
The ideas expressed in this article is solely the opinions of the authors and do not necessarily represent the opinions of the Qatar Financial Markets Authority.
[1] Acquisitions made across the MENA region by Qatari companies have reached over USD 7.3 billion since the start of the Arab Spring, according to figures compiled by Zawya. Zawya is a specialized company that provides business intelligence and news focused on the Middle East and North Africa and is now part of Thomson Reuters, the world>s leading source of intelligent information for business and professionals. For more details see more at http://www.zawya.com/story/Qatar_in_USD73bn_MENA_acquisition_spree-ZAWYA20120916071726/> at 13 October 2013
[2] For more information, see the Official Gazette for the State of Qatar , Vol. 3, 31st of March 2010
[3] Hostile acquisition is not regulated in the Commercial Companies Law No. (5) of 2002 and its amendments.
[4] The Companies Law No. 5 of 2002 and its amendments Law No. 3 of 2010. Articles 282 bis(1)-282 bis(4)
[5] Chapter 4 of Law No 3 of 2010 amending some rules of the Commercial Companies Law No. (5) of 2002 particularly Articles 282bis(1)does not states directly that the acquisitions articles applies to public companies only, however, by examining the conditions for a valid acquisitions, it can be concluded that chapter 4 was specifically designed for public companies as one of the requirement for a valid acquisitions is to have extraordinary resolution by the extraordinary y meeting. These meeting are only design in the Commercial Companies Law No. (5) of 2002 for public companies only.
[6] According to Chapter (6) of the Corporation Act 2001, all shareholders are to be treated equally within the same class of shares.
[7] Part 5.1 of the Corporation set out schemes of arrangement can also be used to acquire the securities in a body. Part 5.1 of the Corporation 5 is not considered in this paper.
[8] The Corporations Act 2001 (Cth), sometimes referred to just as the Corportions Act (or informally as the <Corps> Act), is an act of the Commonwealth of Australia that sets out the laws dealing with business entities in Australia at federal and interstate level. It focuses primarily on companies, although it also covers some laws relating to other entities such as partnerships and managed investment schemes.
[9] The ASX Listing Rules contain several important rules on acquisition. actions by listed companies:
[10] The Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA).
[11] The Broadcasting and Television Act 1942 (Cth) seeks to prevent undesirable concentrations of powers in the television and other media industries.
[12] For example: Ch 7 of the of the Corporation Act 2001 dealing with financial services and markets, and the Trade Practices Act 1974 (Cth). According to section 50 of the Trade Practices Act 1974 (Cth), a corporation is prohibited from acquiring shares or assets of a body corporate if the acquisition will have the effect of substantially lessening competition in a market.
[13] Gaughan P A, Mergers, Acquisitions and Corporate Restructuring (4thed, 2007) 12.
[14] Lipton and Herzberg, Understand Company Law (13thed, 2006) 508.
[15] SalehSuhaibani and Abdel AzimMussa ‘Merger and Acquisition, Global finacial turmoil and new opportunities’ [2008] 1 Rajhi financial Services.
[16] Lipton and Herzberg, above n 14, 508.
[17] There is another type of takeover called “bail-out takeover”. Basically this type of takeover refers to the takeover of a financially tired company by a financially wealthy company.
[18] Anton Seely, ‘Takeovers: the public interest test’ Bsiness & transpot Section, House of Common Library [2011] 2, 18.
[19] Ibid.
[20] Also called unfriendly acquisition or takeover
[21] Gregg A. Jarrell, Takeovers and Leveraged Buyouts, the concise encyclopedia of economics <http://www.econlib.org/library/Enc1/TakeoversandLeveragedBuyouts.html> at 14 October 2013
[22] Also known in Qatar as a “Qatari Shareholding Company”.
[23] Investment funds in Qatar are regulated by law No. 25 of 2002.
[24] The Companies Law No. 5 of 2002 and its amendments does not regulate colective investment schemes.
[25] However, it is worth mentioning that the investment schemes are regulated within the Qatar Financial Centre Schemes can be established in the QFC using one of the following legal forms:
•collective investment companies (CIC): a company incorporated under the Companies Regulations 2005 if its articles of association provide that the company is established for the sole purpose of constituting a scheme;
• collective investment partnerships (CIP): a limited partnership registered under the Partnership Regulations 2007 if its partnership agreement provides that the partnership is established for the sole purpose of constituting a scheme; or
• collective investment trusts (CIT): an express trust created under the Trust Regulations 2007 if its trust instrument provides that the trust is established for the sole purpose of constituting a scheme.
All of the above Scheme are not subject to the Commercial Companies Law No. (5) of 2002. The Qatar Financial Centre Authority (QFC Authority) is a business and financial centre located in Doha, providing unique legal and business infrastructure for financial services. It was established in March 2005.
[26] Companies Law No. 5 of 2002 , as amended by Law No 3 of 2010, Articles 282 (bis)1- 282 (bis)4
[27] Corporations Act 2001, section 602
[28] Chapter 6 of the Corporations Act 2001(Cth)deals in general with takeovers provisions.
[29] Corporations Act section 602(a)
[30] Corporations Act section, Chapter 6
[31] Corporations Act 2001, section 602(a)
[32] Corporations Act 2001, section 602(b)(i)
[33] Corporations Act 2001, section 602(b)(ii)
[34] Corporations Act 2001, section 602 (b) (v)
[35] Corporations Act 2001, section 602 (c)
[36] Corporations Act 2001, section 604
[37] Corporations Ac 2001t, section 606(1)(c)
[38] Corporations Act 2001, section 611
[38] Corporations Act 2001, section 611
[39] Companies Law No. 5 of 2002 , as amended by Law No. 3 of 2010, Article 282 (bis)1- 282 (bis)4, for more information see Imed Naser Aribi,‘An overview of acquisition of Companies in the Qatari Commercial Law’, the Legal and Judicial Journal Vol 1(2011) Law No. 3 of 2010, Article 282 (bis)1- 282 (bis)4
[40] Companies Law No. 5 of 2002 , as amended Law No .3 of 2010, Articles 282 (bis)1
[41] Ibid.
[42] Ibid.
[43] Ibid.
[44] Corporations Act 2001, section 602(b)(i).
[45] Part 6C.2 of of the Corporations Act 2001 (Cth) provides a mechanism for traing the person who has the beneficial ownership of shares in a listed company or interests in a listed managed investment scheme. The aim of Part 6C.2 tracing provisions is to promote an informed market for shares in listed companies and to prevent substantial transactions on an uninformed market.
[46] Pt 6C.1, Sections 671 B and 671C
[47] Ibid
[48] The definition of “relevant interest” is very complex.
[49] Corporations Act, section 608
[50] Corporations Act, section 606
[51] Ibid.
[52] Corporations Act, section 610
[53] King & Wood Mallesons (March, 2012) A Guide to Takeovers in Australia, 7
[54] Foreign Investment law No. 13 of 2000.
[55] Law No. 1 of 2010
[56] Corporations Act 2001, section 617
[57] Corporations Act, section 618(1)
[58] Corporations Act, sections 626-629
[59] Corporations Act, sections 619(1) and 621(1)
[60] Corporations Act, section 621(4)
[61] Corporations Act, sections 626-629
[62] King & Wood Mallesons, above n 53, 11
[63] Corporations Act, section 618(1)
[64] Corporations Act, section 621(3)
[65] Corporations Act, section 625(1)
[66] King & Wood Mallesons, above n 53, 12.
[67] Companies Law No. 5 of 2002 , as amended Law No. 3 of 2010, Article 282(bis) 1
[68] Companies Law No. 5 of 2002 , as amended by Law No. 3 of 2010, Article 282(bis) 2
[69] Companies Law No. 5 of 2002 , as amended by Law No. 3 of 2010, Article 282(bis) 2
[70] Companies Law No. 5 of 2002 , as amended by Law No. 3 of 2010, Article 282(bis) 2 (1)
[71] Ibid.
[72] Ibid.
[73] Companies Law No. 5 of 2002 , as amended by Law No. 3 of 2010, Article 282 (bis) 2(2)
[74] Companies Law No. 5 of 2002 , as amended by Law No. 3 of 2010, Article 282 (bis) 2(6)
[75] Corporations Act, sections 655A
[76] Formerly known as the Corporations and Securities Panel.
[77] Corporations Act, section 655A(1)
[78] Corporations Act, section 657D
[79] Corporations Act, section 657E
[80] King & Wood Mallesons, above n 53,9
[81] Corporations Act, section 657C(2)
[82] Corporations Act, section 657C(3)
[83] Corporations Act, section 657A(4)
[84] Corporations Act, section 657B
[85] Corporations Act, section 657EB
[86] Corporations Act, section 50
[87] Ibid.
[88] Lipton and Herzberg, above n 14, 13.
[89] According to Article 160 of Law No. 13 of 2012 regarding Qatar Central Bank and the Regulation of Financial, consent is required from Qatar Central Bank prior to the merger of two or more financial institutions or the acquisition of a financial institution. The QCB Law sets out the two methods by which a financial institution may merge with another or be acquired. Article 161 states that two or more financial institutions may merge into a single entity having a new independent legal personality and such new entity shall acquire the rights and obligations of the two or more entities that are subject to the merger. The other method is for a financial institution to be acquired by another entity. Following the acquisition, the merging entity ceases to exist.
[90] The Law No 33 of 2005 pertaining to the Qatar Financial Markets Authority has been repealed and replaced by Law No. 8 of 2012.
[91] Corporations Act, Section 661A(1)(b)A
[92] Corporations Act, Section 662B
[93] Corporations Act, Section 662C(2)
[94] Ibid.
[95] Corporations Act, Section 663A
[96] Companies Law No. 5 of 2002 , as amended by Law No (3) of 2010 , Article 282(bis)2 (6)
[97] Companies Law No. 5 of 2002 , as amended by Law No (3) of 2010 , Article 282(bis) 2
[98] Ibid.
[99] Joint Shareholder Circular, March 31 2010, 13. For more information see<http://qnav-qship merger.com/app/webroot/files/file/Information%20Circular.pdf>,at22nd October 2013
[100] Ibid.
[101] Ibid.
[102] Ibid.
[103] Ibid.
[104] Ibid.
[105] Companies Law No. 5 of 2002 , as amended by Law No 3 of 2010, Article 282 (bis) 2
[106] Companies Law No. 5 of 2002 , as amended by Law No 3 of 2010, Article 282 (bis) 1
[107] Corporations Act, section 636
[108] Corporations Act, section 638
[109] Andrew Lumsden, Takeovers Law: A More Considered View, 2005,
[110] Zawyais a company that provides business intelligence and news focused on the Middle East and North Africa and is now part of Thomson Reuters, the world>s leading source of intelligent information for business and professionals.
[111] The Qatar Exchange has been upgraded in June 2013 from a «Frontier Market» to «Emerging Market» status by the leading global index Morgan Stanley Capital International «MSCI»
[112] Rodd Levy and Neil Pathak, Improving Efficiencies in Takeovers, 2008, Hebert Smith Freehills
[113] Ibid.
[114] Ibid.
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