Corporate M&A 2020

Last Updated February 25, 2020

Qatar

Law and Practice

Authors



Sharq Law Firm is one of the best-known firms in Qatar, with a long history of working on high-profile deals for Qatari public entities, listed companies and private companies. The firm consists of 26 lawyers working from offices in the Westbay area. The diverse team includes lawyers from the UK, USA, Belgium, Qatar, Lebanon, Jordan, Egypt and Turkey, and is led by the firm's senior partner, Mr Rashid Al Saad, who has a wealth of experience leading and managing major and complex transactions. The firm has strengths in various areas, but is perhaps best known for its finance, corporate, litigation and arbitration work. However, the firm provides a full range of legal services, with a strong presence in an array of fields, including capital markets; corporate M&A; corporate and commercial transactions, IPOs, restructuring and insolvency; corporate governance and regulatory compliance matters; and dispute resolution.

In the past few months, there has been no changes beside the largest domestic merge between Barwa Bank and International Bank of Qatar. Recently, Qatar Petroleum announced that it has entered into a binding agreement to acquire Yara’s 25% stake in Qatar Fertiliser Company. However, due to the blockade, Qatar decided to increase its foreign investment, mainly in Europe and the United States. As such, Qatar has invested QAR200 million in Airtel Africa and also sold its shares for QAR506.8 million in Qatari Diar.

There has, and continues to be, a significant increase of investment into the infrastructure sector due to preparations for the FIFA World Cup, which will take place in 2022. In particular, Qatar is promoting the media by establishing the Media City law in order to attract the worldwide media sector. Besides that, other sectors such as hospitality, construction and technology are also expected to grow in the coming months.

The Qatari market is not fully developed to experience significant M&A activities. However, the industry where the most talks regarding M&A activities have been held for the past 12 months is the financial industry. Alongside the merge between Barwa Bank and International Bank of Qatar, there are talks between other banks who showed interest in merging their activities together.

Depending if a company is acquiring a private or public company, however the following techniques are the most common for acquiring a company in the private sector.

Mergers

According to Qatari Law, a merger takes place when one company merges into another company, or when one or multiple companies are merged into a new established company. However, before a company can enter into a merge transaction, it should provide firstly a valid corporate approval from the competent corporate body of the company. Such an approval should be in accordance with the relevant articles of associations. Once approved, the merger can proceed. The merger contract must contain, pursuant to Qatari law, an evaluation of the liabilities of the merged company and the number of shares or stocks allocated in the capital of the absorbing or the new receiving company.

Demergers

Qatari law states that the companies are allowed to partition into two or more entities with result that each respective company shall have an independent legal personality. However, such a decision must be approved by the extraordinary general assembly of the company, with a majority votes representing at least 75%. In case a shareholder voted against the partition, the law permits the shareholder to exit from the company.

Acquisitions

The law depicts four scenarios where a company may acquire another company:

  • when the company owns, directly or indirectly, a part of another company’s capital or obtains the majority of the votes therein;
  • if the company controls the majority of the voting rights under an agreement which has been concluded with other partners or shareholders - the latter should be without contradicting the interest and objectives of the acquired company;
  • when the company will hold significant voting rights which grants it the ability to have effective control of the General Assembly - the law states a company having 40% of the shares or stocks should be considered as a presumption of an acquisition, in so far as such rate is the highest ownership within the company; and
  • when the company holds enough voting rights which grants it the authority to either appoint and/or dismiss the majority of the board of directors, supervisory board or the directors.

Regarding the public companies, the Qatar Financial Markets Authority (QFMA), governed by Law No 8 of 2012, regulates the takeovers and mergers of public companies. Furthermore, the QFMA issued the Mergers and Acquisitions Rules of 2014, where it provides rules and regulation specific relating to listing, disclosure and notification requirements for the listed companies.

Depending where the entity is registered, different laws may apply. Generally, mergers and acquisitions activities are governed by Law No 11 of 2015 (“Commercial Companies Law”) and by the newly enacted Foreign Investment Law No 1 of 2019 (“New Foreign Investment Law”), which replaces Law No 13 of 2000. Additionally, in an effort to strengthen the regulatory and supervisory role of the QFMA on the Qatari capital market, the QFMA issued the Merger and Acquisition Rules 2014 (“M&A Rules 2014”) which apply to listed companies.

Qatar also has multiple sector-specific governing laws. For example, for companies who are registered with the Qatar Financial Centre (QFC), Law No 7 of 2005 will be applicable. For companies who are registered in the Qatar Science and Technology Park, the Law No 36 of 2005 will apply. Where these laws are silent on an issue, the State laws will be applicable.

In 2019, Qatar issued the New Foreign Investment Law, the main goal of which is to attract foreign investment in Qatar's economic sectors from companies and individuals. Previously, there was the obligation to have a local partner who would hold at least 51% of the shares in any limited liability company, or act as sponsor. However, the executive regulations of the New Foreign Investment Law are still pending.

Merger Control in the State of Qatar (the “State”) is governed by Law No 19 of 2006 on the Protection of Competition and the Prevention of Monopolistic Practices (the “Competition Law”) and Decision No 61 of 2008 which provides further details and clarification to the Competition Law (“Executive Regulations”). The Competition Protection and Anti Monopolistic Committee is the competent authority for administering merger control in the State. There has been no amendment to the competition law, nor its executive regulations, since their enactment. Furthermore, Law No 11 of 2015 of Commercial Companies Law provides additional regulations that control the merger and acquisition process.

A mandatory notification is provided by Article 10 of the Competition Law. Article 10 states that any person who wishes to acquire assets, equities or usufructs, or to buy shares, set up united bodies or mergers, or to combine the management of two or more legal persons by means that require “market control or influence”, shall submit a written request to the Competition Protection and Anti Monopolistic Committee (the “Committee”) for a ruling on the proposed merger transaction.

Qatar’s labour regulations are governed by Law No 14 of 2004 (“Labour Law”) which it provides the key structure for employment law. However, this law does not apply for the following employees and workers:

  • corporations and companies established by Qatar Petroleum;
  • government and public entities;
  • armed, maritime and police forces;
  • temporary workers; and
  • individuals working in domestic employment.

The Labour Law states that, when a company merge with another company, the employment related rights, obligations and benefits will be transferred to the acquired company. This entails that a merging of companies cannot be a ground for termination of any employment contract. Additionally, the law states clearly that the successor will be jointly liable with the former employer for the payment of the workers entitlements accruing from the latter.

The QFMA has been granted with broad investigatory powers under the QFMA regulations. Although mergers are not mentioned specifically, there are no express national security reviews of acquisitions in Qatar to be aware of.

As a civil law jurisdiction, Qatar is not able to provide a definitive significant court decision, as a precedent system is not in place. Every court decision is made on a case-by-case basis, depending on the individual circumstances.

At time of writing, there have been no significant changes relating to takeover laws.

It can occur that a bidder might build a stake in a target company prior to launch an offer. However, the Qatari market has insufficient data available to determine if this is a customary practice.

The QFMA regulation requires listed companies to disclose certain information to the QFMA authority as well to the market. This regards any dealings of shareholders owning 5% or more of the concerned securities during the offer period. Additionally, the QFMA regulation require the company to disclose the details of any person who, individually or jointly with minor children, a spouse or with any other person/company to become owner of 5% or more of the concerned shares during the offer period. 

As the law reads, a company cannot introduce differing rules for stakebuilding as most requirements are statutory and, as a result, cannot be changed.

Many banks operating in United States of America, Europe and other countries use OTC derivative contracts with other banks through a Central Counterparty (CCP) in accordance with the prevailing legislations and practices in their respective countries. Therefore, circular No 12/2015 states that the financial institutions operating in Qatar shall take this into account and take the necessary procedures when dealing in the financial derivatives with banks abroad, given that Qatar Central Bank will apply the treatment decided by Basel Committee to the derivative positions.

A 20% risk weight shall apply to derivative contracts that are not conducted directly by CCPs or through intermediaries dealing with these CCPs. A 2% to 4% risk weight shall apply to derivative contracts that are directly or indirectly conducted through a Qualified Central Counterparty (QCCP).

See 4.4 Dealings in Derivatives.

The shareholders must include in the offer document an adequate disclosure regarding the interest of the top management position. Namely, they must disclose whether there is either a direct or indirect interest between the top management and the offeror, offeree, independent advisors and/or any person who has a relationship with the acquisition or merger.

In Qatar, there are generally to stages where the company has the obligation to disclose certain information. The first stage is during the pre-completion, the listed companies are required to disclose information not only to the QFMA but also to the market. This includes, but is not limited to, the offer price; purpose of the acquisition or merger; the advantages and disadvantages possibly arising from the acquisition or merger.

The second stage is immediately upon completion of the deal were the listed companies are required to provide a statement to the QFMA and the market. The statement must include, for example, the actual percentage and value of the shares that have been acquired. Once the statement has been provided, the listed companies must also submit to the QFMA the execution copy of the transaction agreement.

The listed companies are required, under the QFMA regulations, to submit a proposed timetable for M&A transactions. The timetable should include an opinion issued by the board of the company, the final offer and a proposal with respect to the relevant dates. The submission must take place within the 14 days from the date of the notification from the company intending to launch an offer.

The M&A Rules provide that if the procedures for the implementation of the acquisition or merger are not completed presumably within the timeline indicated within the timetable outlined above, a listed company is required to notify both the QFMA and the market of the reasons for this. In such cases, the listed company shall also inform QFMA and the Market whether incompleteness is temporary or final. However, the M&A Rules do not provide clear guidelines regarding on the triggering event of this disclosure obligation, nor provide the period within which this obligation must be complied with or the penalties related with it.

In Qatar, the scope of due diligence is the standard scope which is expected of any acquirer. Usually, the company will look into the targeted business by conducting due diligence regarding any legal, commercial, financial and technical matters. In general, due diligence is based on the publicly available information.

There is insufficient data available in the Qatari market to determine whether standstills or exclusivity are commonly demanded.

In Qatar, it is common that a company, during the pre-tender stage, offer terms and conditions to be documented in a definitive agreement. However, mandatory offers are required to be unconditional. 

There is not enough market practice to establish the average time to acquire/sell a business, for instance, the merger between Barwa Bank and International Bank of Qatar was completed after approximately one year. Another example is merger of the world’s largest LNG producers, Qatargas and RasGas, which was initial announced in 2016 but completed in 2018.The QFMA Regulations states that the company must provide them with a timetable regarding the transaction. Once the QFMA adopts the timetable, all parties involved must comply with it.

The QFMA regulations states that every person either who owns or intends to own 75% of the offeree company, whether individually or with other person, must notify it accordingly.

The person(s) must submit a mandatory offer to buy all the remaining securities and the offer must be launched within the 30 days from the date on which the holding of the particular shares is accomplished. However, the QFMA may grant a temporary exemption regarding the obligation to launch the mandatory offer. In this instance, the person(s) should provide to the QFMA that it will not own more than 78% of the share capital. Additionally, the exceeding 3% must be disposed of within the three months from the date it has been acquired by the person(s).

Both cash and shares are considered in M&A deals involving both private and public companies.

Usually, in Qatar, an offer is not only subject to the conditions which would only satisfy the bidder or the target company. However, in the case of a mandatory takeover offer, the bidder may not impose conditions.

During the pre-completion of the M&A transaction, the listed companies should provide details to the QFMA and the market of the minimum number of shares that could be acquired under the offer; see 4.2 Material Shareholding Disclosure Threshold.

Immediately upon completion of an M&A transaction, listed companies are required to provide the QFMA with the execution copy of the merger or acquisition agreement. They must also provide not only the total value of the acquisition offer but also the funding sources.

In the QFMA regulations, there are no specific rules dealing with break-up fees and similar deal security measures. Usually, parties are free to agree specific arrangements to this effect.

The bidder may enter into agreements with other shareholders in the form of shareholders agreements.

Shareholders may vote by proxy, provided that the proxy is a shareholder and that the mandate is made special and in writing. A shareholder may not mandate a member of the board of directors to attend the general assembly meetings on their behalf. However, in all cases, the number of shares acquired by the proxy in that capacity shall not exceed 5% of the shares in the company’s capital.

QFMA Regulations on Mergers and Acquisitions (M&A Rules) stipulate that every person who owns or intends to own, whether individually or in alliance with others, more than 75% of the total share capital of a publicly listed entity, is required to notify QFMA of such intent and submit an compulsory offer to buy all the remaining stocks from the remaining shareholders. The compulsory offer must be submitted within 30 days of the date on the holding of the said 75% of the shares in the company’s capital. It should be noted that the stock purchase price offer must not be less than the highest price offered, individually or in in alliance, in a previous proposal made within the past 12 months.

Minority shareholders also have an equivalent right, to be bought out on the same basis (a "sell-out" right), if bidder does not initiate a squeeze-out. This is only applicable in an event where the company acquires 90% or more of the share capital or voting rights of a publicly listed entity. In such scenario, the M&A Rules grants the minority shareholders holding at least 3% of the share capital the right to request an offer from the acquirer for the purchase of their remaining stocks.

Negotiations are typically undertaken prior to submitting a draft offer document to the QFMA. They are drawn up as unilateral undertakings and, generally, do not provide a way out for the principal shareholder.

Information relating to a merger or acquisition must be disclosed to the general public prior to the holding of the general assembly meeting required to issue the decision on whether to approve or reject the contemplated merger or acquisition.

As mentioned in 4.2 Material Shareholding Disclosure Threshold, publicly listed companies are required to comply with certain disclosure obligations both prior to an acquisition or merger and upon completion of the transaction. Disclosure is mandatory, however, pursuant to the M&A Rules, the disclosure requirements may vary depending on the type of merger or acquisition.

Pre-completion Disclosure Obligations

Publicly listed companies are required to submit an application to QFMA to disclose certain information. Depending on the type of the merger or acquisition, disclosure may include:

  • the purpose of the acquisition or merger;
  • the predicted timetable;
  • details of the offeror, the offeree company, the major shareholders who owns 5% or more of the share capital of a company, and details of the senior management;
  • details of the subsidiary, its business and the degree of dependency on the listed company;
  • details of the minimum and maximum number of shares that can be acquired under the offer;
  • the offer price;
  • the advantages and disadvantages that may arise from the acquisition or merger including the consequences that the offer may have on the financial position of the listed company and its shareholders; and
  • the detailed disclosure of any conflicts of interest involved.

Immediately after accepting the acquisition or merger application, the company must notify the market where listed either of the offeror or the offeree company. This notification shall be published on the market website.

Completion of an Acquisition or Merger

Listed companies are required to provide the QFMA and the market with a statement setting out the outcome of the transaction, including an indication of the actual percentage and value of the shares that have been acquired and the effects of any difference on the content of any such previous disclosure. Furthermore, they have to submit to the QFMA the executed copy of the merger or acquisition agreement.

Under the Companies Law, a merger occurs when one company is merged into another company, or one or more companies are merged to form a new company. The terms of the merger contract will provide the liabilities of the merged company and the merging entities number of shares allocated to the capital. The merger shall not be valid unless issued under a decision by every company party thereto according to the terms prescribed or amending the company's Memorandum of Association or by the Companies Law.

The merger decision shall be published in two local dailies, one of them issued in Arabic and on the website of both companies, if any. In the event a new entity is formed, the amended and the restated Articles of Association must also be published in the Official Gazette.

Subsequent to the approval of the stockholders through the extraordinary general assembly, the Qatar Central Bank Law mandates that every acquiring entity executing a merger or acquisition shall publish the following in the Official Gazette and in two local daily newspapers:

  • board of directors’ resolutions;
  • extraordinary general assembly resolutions; and
  • the QCB merger or acquisition approval decision.

A bidder is required to provide their financial statements, approved by the Board of Directors, for the purposes of evaluation. These should be attached to the report of the external auditor of the bidder and the bidding company.

Upon the completion of the acquisition or merger, the publicly listed company must immediately submit a statement to the authority and the market. This statement should set out the details of the process results; the actual percentage that has been acquired; its value; whether there is any difference from any target percentage previously announced; and the impact of that difference - if any - on the components of any previous disclosure sent to the authority and the market. The listed company must also provide the authority with an executed copy of the merger or acquisition agreement.

Commercial Companies Law stipulates that the Board of Directors of a company in Qatar are required to uphold their fiduciary duties of care and loyalty to the company. Any violation of these duties may result in joint and several liabilities of all of the Directors. The duties involve the following principles:

  • to make informed decisions while acting in the general interest of the company;
  • not to carry out any activities which are not permitted, whether directly or indirectly, for their own benefit or the benefit of others;
  • not to participate in any activity competing with the company or to trade for their own account or for others in one of the branches of the company's; and
  • a director is not permitted, whether directly or indirectly, to use any information that they are privy to by virtue of their position in order to attain certain benefits for themselves or others.

The above are the default duties that the directors and managers owe the company, regardless of whether or not the company is undergoing a combination of business. Therefore, the Chairman and the members of the Board shall be jointly liable for compensating the company, shareholders and third parties for any damage resulting from acts of fraud, misuse of the authority or violation of the provisions of the Commercial Companies Law.

Furthermore, the QFMA provides that the Chairman and members of the Board of Directors, or a directors’ panel or the equivalent as the case may be and senior executive management of the listed offeree company must refrain from the following throughout the offer period:

  • any procedure or action that leads to a significant event affecting negatively on the company;
  • a decision to increase capital or to issue convertible bonds into shares if such increase or issue makes the completion of the deal difficult or impossible; or
  • any business or action that would substantially affect the company's assets, increase its financial liabilities or hinder developing its activities in the future, unless such business or action has been under the usual activities of the company and at the date prior the Offer Period.

In the State, establishment of special or ad hoc committees will depend on the merits of the internal corporate governance structure of each company.

As a civil law jurisdiction, Qatar does not have a precedent system and, therefore, it is not possible to give a definitive answer as to whether courts in Qatar defer to the judgement of the board.  Every court decision is made on a case-by-case basis, depending on their circumstances. However, takeover issues do not appear to be a significant source of litigation activity.

Both the bidder and the target entity must submit a certificate, produced by an independent opinion or recommendation of the target entity, concerning acceptance or rejection of the offer.

Disclosure to the QFMA is required in any conflicts of interest matters in relation to any individual, director or stockholder holding 5% or more of the publicly listed entity involved in the proposed transaction. If the relevant person does not abide by the disclosure requirements mandated under the provisions, they could be held in violation of the applicable regulations and could be subject to various penalties.

Furthermore, the Companies Law states a company may acquire another company, if it controls the majority of the voting rights under an agreement concluded with other partners or shareholders, without contradicting the interests and objectives of the acquired company. However, there are no published records of the fines or penalties imposed by the authorities in the State.

There is no express law that prohibits hostile tender offers, however, they are not a common practice.

For publicly listed companies, the Commercial Companies law states that, any decision protecting the interest of a particular category of shareholders, causing harm to the same or bringing special benefits to the members of the Board of Directors or others without considering the interest of the company, may be nullified.

This being noted, the Directors of the company can use dissuasive tactics as defensive measure by increasing the company’s capital. Such decision should go through Extraordinary General Assembly (EGM). The EGM meeting shall not be valid, unless it is attended by shareholders representing at least 75% of the company's capital.

However, if such quorum is not met, this Assembly shall be called for a second meeting to be held during the next 30 days from the first meeting. The second meeting shall be considered as valid if it is attended by shareholders representing 50% of the company's capital.

In the State, the merger shall be subject to the approval by the competent corporate bodies of the companies involved which shall be accordance with the terms stipulated in their articles of association (“Articles”). For example, shareholders or stockholders of a publicly listed entity in the State have approval rights by virtue of the EGM approval meeting and resolution required in order for a business combination to take place.

The approval required for passing a resolution for merger or an acquisition depends on the percentage required under the Articles. However, Commercial Companies Law establishes the minimum threshold for matters relating to mergers and acquisitions to 75% of the total voting share capital.

As mentioned, directors uphold their fiduciary duties and, therefore, should act in the best interest of the company. The directors might be personally responsible if they adopt defensive measures which are not in the best interest of the company; see 8.1 Principal Directors' Duties.

When it comes to a takeover offer, shareholders have the right to make the decision. While making such a decision, the directors of the target company should provide their recommendations to QFMA by submitting an opinion which outlines either their acceptance or rejection of the offer. Such recommendation must be followed by an opinion of on financial advisor’s concerning the offer.

Litigation is not very common in connection with M&A deals in the State.

Lawsuits can occur at any time, both prior to closing and post-closing, depending on the case.

There is no significant shareholder activism in the State.

See 11.1 Shareholder Activism. There is no published precedent for shareholder activism, as yet.

See 11.1 Shareholder Activism.

Sharq Law Firm

Alfardan Office Tower
Level 17, West Bay
P.O. BOX 6997
Doha
Qatar

+974 4444 2230

+974 4037 9528

info@sharqlawfirm.com www.sharqlawfirm.com
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Law and Practice

Authors



Sharq Law Firm is one of the best-known firms in Qatar, with a long history of working on high-profile deals for Qatari public entities, listed companies and private companies. The firm consists of 26 lawyers working from offices in the Westbay area. The diverse team includes lawyers from the UK, USA, Belgium, Qatar, Lebanon, Jordan, Egypt and Turkey, and is led by the firm's senior partner, Mr Rashid Al Saad, who has a wealth of experience leading and managing major and complex transactions. The firm has strengths in various areas, but is perhaps best known for its finance, corporate, litigation and arbitration work. However, the firm provides a full range of legal services, with a strong presence in an array of fields, including capital markets; corporate M&A; corporate and commercial transactions, IPOs, restructuring and insolvency; corporate governance and regulatory compliance matters; and dispute resolution.

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