Kuwait: All part of the process

Author: | Published: 1 Apr 2012
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The Capital Markets Law (Law No 7 of 2010) (CML) and its bylaws, as amended, (together, the CML Rules) recently came into full operational effect in Kuwait. A regulated takeover regime has now, for the first time, been formally established in the country. In addition, the CML has also provided for the creation of a new securities and capital markets regulator, the Kuwait Capital Markets Authority (CMA).

The aims of the CML Rules are, among others, to introduce a framework for a new capital markets and securities regime in Kuwait and to establish a new capital markets and securities regulator, replacing the previous regulator, the Kuwait Ministry of Commerce and Industry. The CMA is managed by a Board of Commissioners whose tasks include issuing all relevant bylaws and instructions to execute the provisions of the CML. The CMA is also charged with the responsibility of approving or rejecting all takeover bid applications in Kuwait.

It is important to note that the CML Rules, including the takeover regime contemplated thereunder, are still quite novel and the Kuwait market is still coming to grips with how exactly a takeover transaction under the CML Rules is to proceed pursuant to the provisions of Chapter 7 of the CML Bylaws (Acquisitions and the Protecting of Minority Rights).

During the process of a takeover transaction whereby a company (the offeror) wishes to acquire another company (the target) which is listed on the Kuwait Stock Exchange (KSE), there are certain disclosure obligations which are to be complied with by a target in the context of a takeover as well as certain restrictions to which the board of directors of a target will be subjected to during a takeover; it is also important to consider the relevant sanction provisions which will be imposed by the CMA in the event of there being a breach of any of the provisions of Chapter 7 of the CML Bylaws.

A takeover under the CML Rules


In order for a takeover of a target to proceed in Kuwait, an offeror is required to submit an application in relation to the takeover and a proposed offering document simultaneously to the board of directors of the target, the CMA and the KSE.

In addition, and in parallel to the takeover proceedings, the offeror is also required to separately obtain the approval of the Kuwait Competition Authority before it may be able to proceed with the takeover in accordance with the CML Rules (Art. 256 of the CML Bylaws). This would mean that (in the case of either a takeover or mandatory offer) an approval from the Kuwait Competition Authority is required, but arguably only in the event where an offer would, if completed, be subject to the Kuwait Competition Law (Law No 10 of 2007).

Should this be the case, it is believed that the offeror should state this to be the case in the takeover documentation and should also notify the Competition Authority pursuant to the provisions of the Competition Law. In addition, it is thought that where any offer is subject to the Competition Law, then it must be a term of the offer that the offer will lapse if ultimately the Competition Authority does not provide its approval for the takeover.

Once the takeover documentation has been submitted to the relevant persons, the offeror may not proceed with any further steps in relation to the takeover until the CMA has either approved or rejected the takeover application. In this regard, it should be noted that the CMA has a period of 10 business days from the date of the takeover application being submitted to it to review and consider the takeover application and to decide as to whether or not it will either approve or reject the takeover (Art. 72 of the CML).

It is important to note that as part of the approval process the CMA is not meant to consider the substantive and/or commercial terms of the offer; instead, the role of the CMA is simply to ensure that the provisions of the CML Rules, and, in particular, those of Chapter 7 of the CML Bylaws, are complied with by both the offeror and the target in relation to the takeover.

Pursuant to the provisions of Article 72 of the CML, the CMA is obliged to reject the offer if:

(i) the offer does not comply with the CML Rules;

(ii) the applicable fees to the CMA in relation to the offer have not been paid (in this regard, and although not clear from the CML Rules, it is also thought that the fees to be paid by the offeror to the CMA should be calculated based upon the value of the offer by the offeror for the target, and if an indicative range of the value of the offer has been provided by the offeror, then the highest amount of such indicative range should be used; however, the CMA is yet to further clarify its position in this regard);

(iii) the offeror fails to submit the necessary documents as required under the CML Rules; or

(iv) the takeover application is comprised of incorrect documentation or is missing any documentation which will have an effect on the decision to be taken by the shareholders in relation to the offer.

Pursuant to the provisions of Article 266 of the CML Bylaws, a target is obliged, within a period of seven business days from the date of the offering document being submitted to the target, to notify the CMA that it has been provided with a takeover offer; and provide the CMA with a response to the takeover offer and the opinion and advice/recommendations which the target is proposing to put forward to its shareholders after having obtained independent advice from an independent investment adviser.

These time periods are quite short. It will take some time for the target to engage an independent investment adviser who can provide his or her view on the offer to the CMA, and thereafter, to the shareholders of the target. As such, it is expected that the CMA may at some point in the future either amend the CML Bylaws accordingly to address such timing matters, or provide an extension of applicable time periods on a case-by-case basis. It therefore remains to be seen as to how, in practice, the CMA will deal with such timing considerations.

Upon the CMA approving the offer, the offeror must publish the offering document (which must comply with the provisions of Articles 258-262 of the CML Bylaws) in accordance with the timetable as prescribed by the CMA (Art. 265 of the CML Bylaws). In this regard, and although the CML Rules do not prescribe any steps and/or milestones which are to be reached under a timetable prescribed by the CMA, it is thought that any such timetable should, among other things, address:

(i) the delivery of the final offering document for approval by the CMA;

(ii) the publication of the offering document so approved by the CMA and the sending out of thesame to the board of the target;

(iii) the details (time periods and so on) for the publication by the target of its advice/recommendations to the shareholders of the target;

(iv) details of the requisite shareholders' approval required by the target;

(v) the last date on which the target may announce profit or dividend forecasts, asset valuations or proposals for dividend payments;

(vi) the last date for the satisfaction of all other conditions; and

(vii) the last date for monies or other consideration to be provided to the shareholders of the target.

Pursuant to Article 266 of the CML Bylaws, the target must publish its advice/recommendations to the shareholders of the target in the manner prescribed by the CMA (Art. 266 of the CML Bylaws).

In the above regard, the board of directors of the target must provide the shareholders of the target with its advice and information at least 15 business days before the general assembly meeting of the shareholders of the target so as to enable such shareholders to reach an informed decision as to whether or not to accept or reject the offer (Art. 254 of the CML Bylaws).

As an aside, it should be noted that the provisions of Art. 254 of the CML Bylaws also provides that a general assembly meeting of the shareholders of the offeror also be held where the board of directors of the offeror must also be provided with advice and information in relation to the offer. Although not expressly stated in the CML Rules, this requirement appears to imply that the shareholders of the offeror must also approve the offer. In addition to the above, the board of directors of the target must also provide to its shareholders the independent investment advice which the target's board is required to procure in relation to the offer from independent investment advisers (Art. 255 of the CML Bylaws).

In order for the offer to be accepted, a majority of the shareholders of the target must approve the offer at a general assembly meeting of the target. In the event where the offer is rejected at this meeting, then the offer must be terminated. The only exception in this instance is that, in the event of mandatory offer proceedings, the offer will be made directly to the shareholders of the target and without the involvement of the board of directors of the target and without there being any need for a general assembly meeting of the shareholders of the target to be convened (Art. 291 of the CML Bylaws).

The acceptance of the offer by a majority of the shareholders of the target does not mean the decision to accept the offer is binding on dissenting shareholders of the target. Dissenting shareholders of the target are free not to tender their shares to the offeror. This would mean that the offer can continue and that all shareholders are free to decide as to whether or not to tender their shares to the offeror. There is no equivalent provision for the offeror's shareholder meeting, however, since Art. 254 of the CML Bylaws provides that the offeror's shareholders must also decide on the offer.

It follows that if the offeror's shareholders may also refuse to agree for the offer to be made, the offer will similarly be terminated. To the extent that the offer has been accepted by the shareholders of the target, the takeover may proceed to close in accordance with the terms and conditions of the offer.

The offeror must disclose the outcome of the general assembly meeting in relation to the offer at least one hour before the opening of the trading day of the KSE following the date on which the general assembly meeting was held at which the offer was deliberated and decided upon (Art. 292 of the CML Bylaws).

Disclosure of takeover transactions


Pursuant to the provisions of Article 257 of the CML Bylaws, both the offeror and the target must immediately disclose the offer to the CMA and the KSE where the offeror and the target reach an initial agreement over the offer, or where a person acquires more than 30% of the total share capital of a KSE-listed company (in which event a mandatory offer will have to be made by the acquirer for the remaining shares in such company), as well as in any other case as may be required by the CMA from time to time.

Restrictions and sanctions


Pursuant to the provisions of Article 281 of the CML Bylaws, the board of directors of the target is prohibited from performing any of the following actions during the offering period (as prescribed by the CMA) or during the period of initial negotiations on the lodging of the takeover application without the approval of the shareholders' general assembly, with the exception of any matters stipulated for in any prior agreement:

  • issuing any approved un-issued shares;
  • issuing or granting options over any un-issued shares;
  • creating, issuing or permitting the creation or issue of any securities convertible into shares or subscription rights to shares;
  • disposing or agreeing to the disposal of any assets of substantial value;
  • signing any contract outside the scope of the targets regular activities;
  • taking any measures relating to the target which would lead to the bid not being accepted or to denying shareholders the opportunity to make a decision in this regard; or
  • having the target take on any significant material obligations.
  • Pursuant to Article 123 of the CML, any person who has been found to have breached the provisions of Chapter 7 of the CML Rules (Acquisitions and the Protecting of Minority Rights) may be liable to the payment of certain financial penalties as imposed by the CMA, namely, the higher of either KWD5,000 ($18,000) to KWD100,000; or an amount equal to 20% of the value of the shares forming the subject of the transaction.
John Cunha
  John Cunha is a senior associate with ASAR and is an admitted Attorney in the High Court of South Africa and a Solicitor of the Senior Courts of England and Wales. He received his law degree from the University of the Free State in South Africa and thereafter also obtained his MBA at the same university which was offered in collaboration with De Paul University, Chicago. He also obtained a Masters degree in International Trade Law from the University of Stellenbosch, South Africa.

Cunha was admitted as an Attorney in the High Court of South Africa in the year 2000 and practised as such in Johannesburg, where he primarily focused on corporate/commercial transactions and commercial litigation matters. He qualified as a Solicitor of the Senior Courts of England and Wales in 2007. He is a member of the banking and finance, capital markets and M&A department at ASAR, and is fluent in three languages: English, Portuguese and Afrikaans.

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