Ardeshir Patel of Al Busaidy Mansoor Jamal & Co assesses the regulatory landscape for mergers and acquisitions in Oman
1. REGULATORY FRAMEWORK
1.1 What legislation and regulatory bodies govern public M&A activity in your jurisdiction?
Public M&A activity is governed by the Commercial Companies Law (CCL), the Capital Market Law, regulations issued by the Capital Market Authority (CMA) and laws that may specifically apply to a particular target company depending on its economic activities. Recently, the Competition Law has been introduced, which will likely have an impact on public M&A where there is a possibility of an economic concentration occurring.
The CMA is the primary regulatory authority. Other regulators may be involved depending on the economic activities the target company undertakes. Relevant examples include the Central Bank of Oman in the case of banks, the Authority for Electricity Regulation in the case of companies operating in the power and water sector, the CMA (in its role as financial services and insurance regulator) for financial intermediaries and insurance companies and the Public Authority for Consumer Protection (PACP) in the case of competition issues.
An acquirer needs to fulfill reporting requirements vis-a-vis Omani regulators and seek prior consent for an acquisition. The requirements that may be triggered by an acquisition depend on the stake proposed to be acquired and the economic area in which the target company operates.
1.2 How, by whom, and by what measures, are takeover regulations (or equivalent) enforced?
The applicable regulations are enforced by reviews of filings, regulatory action (including fines and reversal of a transaction), enforcement action (including fines and prosecution through the public prosecutor's office) and private litigation.
2. STRUCTURAL CONSIDERATIONS
2.1 What are the basic structures for friendly and hostile acquisitions?
A friendly acquisition may involve the acquisition by an Omani or foreign entity of shares in the Omani target company: (i) from existing shareholders of the target through a privately negotiated transaction (settlement of such transaction needs to occur on the Muscat Securities Market); or (ii) by subscribing for new shares in the target company on a private placement basis (each an acquisition).
A friendly merger may involve a merger between the Omani target company and an Omani subsidiary of the foreign acquirer, which results in one of the companies folding itself into the other (merger by incorporation) or the two companies merging into a new company (merger by consolidation).
Omani M&A laws do not deal with hostile M&A activity.
2.2 What determines the choice of structure, including in the case of a cross-border deal?
An acquisition would be favoured for a cross-border deal particularly where the acquisition is negotiated with key shareholders.
A merger would be favoured for a consolidation of businesses within Oman.
An acquisition would generally take significantly less time to complete and require fewer regulatory approvals than a merger.
2.3 How quickly can a bidder complete an acquisition? How long is the deal open to competing bids?
A negotiated acquisition does not require corporate approvals at the level of the target company. An acquisition involving a private placement exercise needs to be approved by a three-quarters majority of votes cast at an extraordinary general meeting of the shareholders of the target company (a so-called super-majority vote).
A merger needs to be approved by a super-majority vote by each of the merging entities.
An acquisition or merger may require regulatory approvals depending on the economic sector in which the target company or merging entities operate.
Normally, an acquisition is completed within a month. A merger takes between three to six months to complete. The timeline may be impacted by the timelines (or otherwise) of regulatory approvals. The merger timeline includes a three-month creditor waiting period prescribed by the CCL.
A transaction does not need to be left open to competing bids.
2.4 Are there restrictions on the price offered or its form (cash or shares)?
The consideration for an acquisition is usually cash. However, rarely, an acquisition may be for consideration other than cash.
The consideration for a merger must be shares and the law does not contemplate alternative merger consideration.
2.5 What level of acceptance/ownership and other conditions determine whether the acquisition proceeds and can satisfactorily squeeze out or otherwise eliminate minority shareholders?
There is no legally founded squeeze-out provision that an acquirer may apply in order to squeeze out minority shareholders. It is possible to delist a publicly listed company provided that the delisting is approved by a super-majority vote. The CMA invariably requires an acquirer to make a tender offer to minority shareholders as a condition to delisting.
2.6 Do minority shareholders enjoy protections against the payment of control premiums, other preferential pricing for selected shareholders, and partial acquisitions, for example by mandatory offer requirements, ownership disclosure obligations and a best price/all holders rule?
There is no statutory protection against the payment of control premiums or other preferential pricing for select shareholders or partial acquisitions.
2.7 To what extent can buyers make conditional offers, for example subject to financing, absence of material adverse changes or truth of representations? Are bank guarantees or certain funding of the purchase price required?
In a negotiated acquisition, there is no restriction on what buyers can do and they may make conditional offers including on the basis of availability of finance, and absence of material adverse changes. However, in case of an acquisition through a private placement or merger, such conditionality is not permitted.
Bank guarantees or evidence of certain funding of the purchase price is not required.
3. TAX CONSIDERATIONS
3.1 What are the basic tax considerations and trade-offs?
Capital gains arising from the sale of shares in an Omani publicly listed company are not taxable in Oman. Therefore, an acquisition involving Omani parties transferring shares would not trigger adverse tax consequences in Oman. A foreign entity that disposes of its shareholding in an Omani publicly listed company would, however, need to consider the tax consequences that such disposal would trigger in its own jurisdiction. At the inception of an acquisition an acquirer could enhance the tax efficiency of an investment by undertaking the acquisition in a manner that takes advantage of the tax treaties that Oman has with various countries.
A merger is likely to create tax-related issues that would need specialist tax advice particularly in relation to achieving the transfer of assets from the merging entity to the merged entity in a tax efficient manner.
3.2 Are there special considerations in cross-border deals?
Cross-border transactions raise special tax considerations, since the shareholders of the target company may be located in jurisdictions where the sale, transfer or exchange of shares gives rise to a taxable event. The tax efficiency of a cross-border investment into Oman can be enhanced through suitable tax planning at inception.
4. ANTI-TAKEOVER DEFENCES
4.1 What are the most important forms of anti-takeover defences and are there any restrictions on their use?
A successful hostile takeover of an Omani listed company is unlikely under the existing regulatory regime. For example, an acquirer is not allowed to acquire more than 10% of bank, 15% of a financial services provider, 20% of a power company, or 25% of a listed company, without regulatory approval. Moreover, an acquirer is not allowed to make an open offer or tender offer to public shareholders to increase its shareholding. Consequently, anti-takeover defences have not developed to any significant extent in Oman.
Additionally, a foreign acquirer is subject to the further restriction of the aggregate foreign shareholding in the listed entity not exceeding 70% (subject to any lower limit being provided in the articles of association of the target company). The 70% foreign ownership restriction does not apply to power companies, where 100% foreign ownership is permitted.
In addition to regulatory approvals, mergers face a significant hurdle with regard to corporate approvals since shareholders of the merging entities need to approve the merger by a super-majority (three-quarter) shareholder approval.
4.2 How do targets use anti-takeover defences?
4.3 Is a target required to provide due diligence information to a potential bidder?
4.4 How do bidders overcome anti-takeover defences?
Not relevant. Please see 4.1.
4.5 Are there many examples of successful hostile acquisitions?
5. DEAL PROTECTIONS
5.1 What are the main ways for a friendly bidder and target to protect a friendly deal from a hostile interloper?
The M&A regime in Oman is heavily weighted against a hostile acquisition; the risk of an interloper interfering in a friendly deal is negligible. Having said that, should the transaction parties choose, they could adopt counter-measures such as break fees or lock-up agreements.
5.2 To what extent are deal protections prevented, for example by restrictions on impediments to competing bidders, break fees or lock-up agreements?
There are no restrictions on parties seeking to place impediments to competing bidders such as break fees or lock-up agreements.
6. ANTITRUST/REGULATORY REVIEW
6.1 What are the anti-trust notification thresholds in your jurisdiction?
An acquisition or merger that results in an economic concentration needs to be approved by the PACP. Although not precisely defined under the Competition Law, an economic concentration is indicated when an entity controls or can influence 35% or more of the Omani market for a product or service. The Competition Law prohibits the creation of economic concentrations in excess of 50% of a relevant market.
6.2 When will transactions falling below those thresholds be investigated?
The PACP has inherent power to regulate competition in Oman and may investigate any transaction that presents competition issues.
6.3 Is an anti-trust notification filing mandatory or voluntary?
In the case of an acquisition or merger that is likely to create an economic concentration, notification to, and approval from the PACP is mandatory.
6.4 What are the deadlines for filing, and what are the penalties for not filing?
Notification of an acquisition or merger that is likely to result in an economic concentration must be notified and approval received prior to consummation of the transaction.
6.5 How long are the anti-trust review periods?
The PACP is required to evaluate and issue a decision on the application for competition clearance within 90 days of receipt.
6.6 At what level does your anti-trust authority have jurisdiction to review and impose penalties for failure to notify deals that do not have local competition effect?
The PACP does not have the authority to review and impose penalties for failure to notify deals that do not have local competition effect.
6.7 What other regulatory or related obstacles do bidders face, including national security or protected industry review, foreign ownership restrictions, employment regulation and other governmental regulation?
Please see 4.1.
7. ANTI-CORRUPTION REGIMES
7.1 What is the applicable anti-corruption legislation in your jurisdiction?
Oman has ratified the UN Convention Against Corruption and the 2010 Arab Convention on Prevention of Corruption. Oman has in force an anti-money laundering law, laws protecting public funds and prohibiting conflict of interest in the case of government officials and anti-bribery legislation in the Penal Code.
7.2 What are the potential sanctions and how stringently have they been enforced?
Penalties include fines, imprisonment, disgorgement and removal from office in the case of government officials. These sanctions can be severe.
8. OTHER MATTERS
8.1 Are there any other material issues in your jurisdiction that might affect a public M&A transaction?
Omani laws relevant to M&A may apply not only in relation to public acquisitions of Omani target companies but also to acquisitions and mergers that take place outside Oman where the target company has Omani subsidiaries involved in financial services, banking, power generation, or where a merger may result in an economic concentration occurring in Oman.
8.2 What are the key recent M&A developments in your jurisdiction?
The recent issuance of the Competition Law creates a new layer of complexity in Omani M&A transactions. The PACP is in the process of issuing regulations, which should assist in clearing some elements of uncertainty concerning anti-trust clearances for M&A activity.
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Al Busaidy Mansoor Jamal & Co
About the author
Ardeshir Patel is a partner at Al Busaidy Mansoor Jamal & Co, and has more than ten years' experience in Oman focusing mainly on corporate transaction work. His main areas of practice are corporate finance and M&A. Key transactions in which he has been involved include: advising the International Finance Corporation on its acquisition of a significant stake in Bank Muscat; advising National Gas on a cross-border acquisition of Shell Malaysia's natural gas distribution business in Malaysia; advising the Jindal group on its acquisition of Shadeed Iron & Steel; and, advising Oman's government on a public share offer of Oman Telecommunications.