Saudi Arabia's General Authority for Competition recently announced key changes to its merger control notification thresholds, adding a new local nexus test and a new minimum turnover threshold for the acquired entity. This is a significant development in parallel to the GAC's increasingly active role in merger enforcement, including new cases where behavioral and structural remedies were required as conditions for approving deals.
A. New Thresholds for Local Nexus and Target Turnover
When Saudi Arabia's Competition Law came into force in 2019, it introduced the Kingdom's first merger control notification thresholds based on the parties' turnover.1 Parties intending to participate in an "Economic Concentration," defined as the transfer of shares, assets, or rights from one entity to another that results in a change of control or decisive influence over the target entity, or the establishment of joint control over a full-function joint venture, are required to obtain GAC clearance if their turnover exceeds the threshold.2 Initially, a filing was required if the total combined turnover of the participating entities exceeded 100 million Saudi Riyals (US$ 26.6 million). The first years of the new regime indicated that the notification threshold was too low relative to the market size in Saudi Arabia such that too many transactions were required to file despite their lack of any potential effect on competition in the Kingdom.
Earlier this year, the GAC increased the notification threshold to 200 million Saudi Riyals (US$ 53.3 million) in an attempt to address this issue.3 The higher combined turnover threshold was a positive step, but it was still possible to trigger a filing requirement, even for transactions where the target business had no assets or sales in Saudi Arabia (indeed, in the past, a transaction was presumed to have an effect in Saudi Arabia if any of the parties had any amount of sales, assets or future business plans in Saudi Arabia). As a result, many foreign transactions with no connection to the Kingdom were still caught in the threshold. For example, 62% of the 316 notifications received by the GAC in 2022 were for foreign transactions.4 The GAC also reported a spike in merger filings this year and last year as compared to 2021 and 2020 (see White & Case Global Antitrust Merger StatPak (WAMS)).
On 1 November 2023, the GAC issued new thresholds, which introduce additional conditions making it harder to trigger a filing requirement in Saudi Arabia.5 Under the new thresholds, a filing is required only if all the following cumulative conditions are met:
- Worldwide turnover of the parties: the total combined annual turnover of the parties exceeds 200 million Saudi Riyals (US$ 53.3 million);
- Worldwide turnover of the target: the total annual turnover of the target entities exceeds 40 million Saudi Riyals (US$ 10.6 million); and
- Domestic turnover of the parties: the total annual turnover of the parties in Saudi Arabia exceeds 40 million Saudi Riyals (US$ 10.6 million).6
The changes apply only in the context of notifying mergers and acquisitions. For transactions resulting in creating a new joint venture, a filing would be required under the previous notification threshold – if the worldwide turnover of the parties exceeds 200 million Saudi Riyals (approximately US$ 53.3 million), and the joint venture will be jointly controlled, full-function, and long-lasting.
Expanding the notification thresholds by adding a local nexus requirement and a minimum amount of sales for the target entities is a welcome improvement to the regime. Although under the new thresholds, it is still possible to trigger a filing requirement when the target is not active in Saudi Arabia (for example if the target meets the minimum turnover amount from worldwide sales, and the purchaser alone meets the minimum domestic turnover requirement in Saudi Arabia), the additional conditions are expected to reduce the number of unnecessary filings for transactions that impose no material effect on competition in Saudi Arabia. This should free up resources to allow the GAC to focus on reviewing transactions that are more likely to have a potential effect in Saudi Arabia. The new thresholds went into immediate effect and have been already reflected in the Arabic version of the GAC Merger Review Guidelines.7
B. New Conditional Approvals with Behavioral and Structural Remedies
The new thresholds come against a backdrop of increased competition enforcement activity in Saudi Arabia. In addition to investigating violations,8 imposing fines,9 and blocking deals,10 recently the GAC has started to impose behavioral and structural remedies as conditions for approving transactions that raise discrete competitive concerns.
Pursuant to the Saudi Competition Law, after the GAC evaluates the potential competitive effects of a transaction, it can either approve, conditionally approve, or reject the transaction.11 However, the GAC only issued its first conditional approval in May 2023, and has since issued two more in August and September, as set out in more details below. The remedies suggest the GAC is scrutinizing the specific circumstances of each transaction closely and is willing to accept different options to mitigate any potential competitive harm without the need to block such transactions altogether.
We provide summaries of the GAC's recent conditional approval decisions here:
- Wamid / DirectFN: In May 2023, the GAC granted conditional approval for the acquisition of 51% of Direct Financial Network Co. (DirectFN) by Saudi Tadawul Group Holding Company through one of its subsidiaries, Tadawul Advanced Solutions Co. (Wamid).12 The GAC decision conditions the approval on obtaining certain commitments from the parties, including to: (i) maintain competitive prices; and (ii) provide copies of agreements between the parties within three months from entering into such agreements, all of which for a period of three years from the effective date of the acquisition. In addition, the GAC ruled that a monitoring trustee should be appointed to monitor compliance with the remedies imposed. Any violation of these conditions is subject to a fine up to SAR 2 million (US$ 533,000) and potential annulment of the GAC's clearance decision.
- Alarabia Contracting / Faden Advertising: In August 2023, the GAC granted conditional approval for the acquisition of 100% of Faden Advertising Agency by Alarabia Contracting Services for Technical Contracting.13 Both companies offer advertising services in Saudi Arabia. The GAC's decision does not discuss the theory of potential competitive harm, but it imposes commitments on the acquirer to transfer its ownership of a particular subsidiary to a separate fund to be regulated by the Saudi Capital Market Authority and placed under an independent board of directors with no representation from Alarabia. The parties must complete the transfer within six months from the decision date, and the GAC will monitor the behavior of the parties for three years after closing to ensure compliance. Any violation of these conditions is subject to a fine up to SAR 2 million (US$ 533,000) and potential annulment of the GAC's clearance decision.
- Jahez / The Chefz: In September 2023, the GAC granted conditional approval for the acquisition of 100% of The Chefz by Jahez.14 Both companies provide mobile application platforms that specialize in delivering restaurant orders online. The terms of the GAC's conditional approval, which were discussed in press coverage, included imposing restrictions on exchanging services between Jahez and The Chefz, restrictions on entering into exclusive arrangements, as well as reporting measures to ensure compliance.15 However, on 1 November 2023, Jahez announced that the deal has been terminated.16
Conclusion
Since the Saudi Competition Law came into force in 2019, the GAC has been steadily refining its merger control regime and playing an increasingly active role in enforcement efforts. The new notification thresholds represent an important development in that timeline that will have a positive impact on the Kingdom's merger control regime. Furthermore, the GAC's recent reliance on conditional approvals sets new precedents for the tools the GAC is likely to use in merger enforcement going forward. The fact that the GAC imposed both behavioral and structural remedies suggests the GAC is scrutinizing the specifics of each deal and is open to considering a range of conditions for clearance.
Parties intending to enter into a transaction that triggers a merger control filing requirement in Saudi Arabia are advised to carefully consider how the GAC would likely review and decide on the transaction in order to prepare accordingly. Prompt advocacy efforts with the GAC could help address potential concerns early and allow for timely clearance.
Reem Albakr (The Law Firm of Waad Nasser Alkurini, Associate, Riyadh) contributed to the development of this publication.
1 See Saudi Competition Law, issued by Royal Decree No. (M/75) (6 March 2019) (the "Saudi Competition Law"), Article 7; see also Saudi Arabia's New Competition Law Goes Into Effect | White & Case LLP (whitecase.com).
2 See Saudi Competition Law; Article 1 and Article 7; see also GAC Guidelines for Economic Concentration Review (July 2021), as amended, in Arabic ("GAC Merger Review Guidelines"), p.9.
3 See GAC Press Release, "The General Authority for competition announces raising the minimum threshold for reporting an economic concentration" (29 March 2023); see also Saudi Arabia's General Authority for Competition increases its merger control notification thresholds | White & Case LLP (whitecase.com).
4 See GAC Annual Report 2022, Figure 18, p. 151.
5 See GAC Press Release, "The GAC Board of Directors Approves [New Notification Thresholds]" (1 November 2023).
6 GAC Merger Review Guidelines, p.11.
7 Id.
8 See, e.g., GAC Press Release, "GAC Conducts In-depth Investigations on the Automotive Sector" (16 August 2023).
9 See, e.g., GAC Press Release, "GAC Announces Penalties Against Two Companies Working in Engineering Consulting" (6 June 2023).
10 See, e.g., Key Developments in Saudi Arabia Merger Control: First Rejection, Review Guidelines, and New Tools | White & Case LLP (December 2021); and Saudi Arabia's General Authority for Competition blocks vertical merger in the gas sector for the first time | White & Case LLP (July 2022).
11 Saudi Competition Law, Article 10.
12 See GAC Press Release, "Commitments Made by Tadawul Advanced Solutions/Direct Financial Network Company".
13 See GAC Press Release, "Commitments made by Alarabia Contracting Services/Faden Advertising Agency".
14 See GAC Press Release, "GAC Board of Directors Holds its Eighty-Third Meeting and Issues a Number of Decisions".
15 See, e.g., TV Interview with GAC Mergers and Acquisitions Unit Head, Mr. Talal Alhogail (discussing the conditional approval of Jahez/The Chefz).
16 See Jahez says Chefz SPV buyout deal 'not closed' (argaam.com).
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