On 1 November 2023, the Board of the General Authority for Competition (“Authority“) announced that new financial thresholds would apply to determine whether a transaction is reportable to the Authority.
By implementing such change, the aim of the Authority is to provide further clarity on the local nexus test required for a transaction to be notifiable to the Authority and to align the Saudi merger control regime further with international standards.
This announcement follows the recent publication by the Authority of its annual report for 2022. This alert also provides an overview of the merger control activity in Saudi Arabia in 2022.
New Financial Merger Control Thresholds
- Following the announcement made by the Authority, there are now three tests to satisfy for a transaction to be notifiable to the Authority:
- The transaction must involve the complete or partial transfer of ownership of assets, rights, shares, stocks or obligations of an entity to another entity. This includes for instance acquisitions or transfers of shares or assets, mergers, issuance of shares in favor of a new shareholder. This also includes the formation of any full-function joint-venture (i.e an autonomous economic undertaking on a long-lasting basis is capable of bringing about a lasting change in the structure of the undertakings concerned and in the relevant market);
- The transaction must result in a result in a change of control in favor of the purchaser, the joint-venture partner or the merging entity, as the case may be. The concept of “control” is not precisely defined in the Competition Law or its Implementing Regulations but the merger review guidelines issued by the GAC clarified this matter: “Control (…) exists in relation to an undertaking within the meaning of the Competition Law where one undertaking has the right or ability to exercise decisive influence over the other undertaking with regard to the activities of the other undertaking, including the ability to determine or decisively influence the undertaking’s strategic or operational decisions. Such decisive influence constituting control refers to the power to determine decisions relating to the strategic commercial behavior of an undertaking, such as the undertaking’s budget, business plan, major investments, or the appointment of senior management.” Therefore, even the transfer of a minority stake may result in a change of control if the purchaser is granted veto right amounting to decisive influence in the target company, as part of the transaction; and
- The total annual revenues of the parties involved in the transaction worldwide must exceed SAR 200 million (approx. US$ 53,333,333). The Authority takes into account the combined revenues of the parties collected at a group level on a worldwide basis.
- The thresholds above remain unchanged. But the following two new financial thresholds were added:
- The total annual revenues of the target company (or consolidated revenues in the context of a target group) worldwide must exceed SAR 40 million (approx. US$ 10,666,667); and
- The total annual revenues of the parties involved in the transaction in Saudi Arabia must exceed SAR 40 million (approx. US$ 10,666,667).
- It is unclear however how the first additional financial threshold relating to the total annual revenues of the target company (which must exceed SAR 40 million (approx. US$ 10,666,667) will apply in the context of the formation of a full-function joint-venture (in the absence of a target company per se).
- All these tests are cumulative.
Overview of the Merger Control Activity in Saudi Arabia in 2022
- The Authority recently published its annual report for 2022.
- There was a slight, yet noticeable, increase in the number of merger control applications submitted to the Authority in 2022 (316 filings) compared to 2021 (295 filings).
- The applications in 2022 included 176 full merger control filings (i.e. requests for a No-Objection certificate) and 128 short form filings (i.e. requests for a No-Notification Required certificate).
- Out of the 176 full merger control filings, 85% were related to acquisitions, 4% to mergers and 11% to joint ventures.
- In 2022, merger control applications related to the following top 5 industries: manufacturing, information and communication, wholesale and retail, transportation and storage, and arts, entertainment and leisure.
- Beyond merger control, the Authority has also been extremely active, as the following statistics demonstrate:
- The Authority carried out 299 dawn raids in 2022, meaning on average 1 dawn raid took place every business day;
- It conducted investigations on 136 companies; 33 of which were indicted; investigations on 34 companies were dropped without any charges, and the Authority approved to study settlement applications for 16 entities. The Authority completed 10 settlement agreements and 42 settlement applications were still under process by the end of 2022.
- The total amount of fines imposed by the Authority and local courts in 2022 amounted to SAR 80,697,257 (approximately USD 21,519,268) in relation to violations of the Competition Law.
