The acquisition process has emerged as an inevitable consequence of the rapid and successive developments of giant economic entities, and the sustained efforts in liberalizing international trade in goods and services, since these developments have intensified competition among companies (1). Small companies have had no option but to yield to large companies, withdraw from the market declaring bankruptcy, or resort to an acquisition contract as one of the solutions addressing distress (2).
Acquisition represents an economic necessity through which economic and legal systems seek to achieve developmental objectives that ensure the preservation of the rights and obligations of all participating parties, in a manner consistent with the principles of justice, equality, and equal opportunity. The Saudi regulator has taken interest in establishing acquisition rules and accordingly issued the Merger and Acquisition Regulations pursuant to Resolution No. 1-50-2007 dated 21/9/1428H corresponding to 3/10/2007G, and based on the Capital Market Law issued by Royal Decree No. (M/30) dated 2/6/1424H and the Companies Law issued by Royal Decree No. (M/132) dated 1/12/1443H. These rules and controls are likely to facilitate the inflow of foreign capital and remove its obstacles and restrictions, thereby attracting greater productivity and profitability and enhancing competitiveness (3).
There is no doubt that regulating the securities market and adhering to transparency and disclosure contribute to the growth of the capital and assets of listed companies and the expansion of their operating activities, thereby enabling investors to realize greater profits and returns (4).
-
Concept of Acquisition.
It is defined as a legal process carried out between two persons, whereby one of them acquires all or part of the share capital interests of a company, whether by agreement with the management or without agreement, resulting in control over the board of directors of the target company (5). Jurisprudence has also defined it as: “the acquisition by one company of all or most of the ordinary shares of another company (which carry voting rights), or where the acquiring company is able to hold a percentage of another company’s shares that enables it to exercise financial and administrative control over its activities; thus, the acquiring company becomes akin to a holding company and the other company to be acquired becomes a subsidiary, without either company losing its legal personality” (6). Others have defined it “as where one company purchases an influential percentage of the shares of the company to be acquired, which is then called an acquisition. This percentage does not reach the level of full ownership, but it may in some cases reach partial control, especially at the time of making significant decisions that require voting. Such acquisition may be effected by purchasing shares directly from the market or by agreement with the company to be acquired; that is, it may occur with the knowledge of the company to be acquired or without its knowledge. It is observed that in the case of an acquisition, the entity and name of the company generally remain unchanged because the acquirer, in this case, has not reached the level of control over the target company” (7).
Acquisition and merger are used as two synonymous terms for the same meaning in many studies, as both are similar in that they are means of forming large companies and economic entities, and both are also tools for benefiting from expansion in the company’s core activity by concentrating production and increasing investment and spread; and the similarity between merger and acquisition increases when the acquisition is complete (8). However, they differ: a merger is usually effected between two companies of approximately the same size to become one company with unified shares, and a merger agreement is executed between the merging companies; and the merger results in full amalgamation, as occurred when Daimler-Benz merged with Chrysler and became one company under the name DaimlerChrysler. As for an acquisition, it is effected through the financial and administrative control by one company over the activities of another company, by purchasing all or a percentage of the company’s shares, as occurred in Aramco’s acquisition of 70% of SABIC’s shares (9). An acquisition results in the non-dissolution of the company after another company purchases its shares, unlike a merger, which results in the dissolution of the target company and the formation of a new company, or the dissolution of the target company and its incorporation into another company (10).
-
Economic Reasons for Acquisition.
The economic reasons for merger do not differ from those specific to acquisition, and may be summarized in several reasons as follows:
- The acquiring company’s desire to enter a new market. If a company wishes to enter a new market, its first option is to search for a company operating in the same field and undertake an acquisition of it; thereby it enters the market by the shortest route, even if the cost increases somewhat. Companies that adopt this policy focus on entering the target market as quickly as possible and are unconcerned with whether the cost increases or not, provided that their selection of the acquired company is precisely studied; because in doing so they secure a new market through which they can double their sales, especially since this market is characterized by increased demand for the products of the acquiring company.
- Benefiting from economies of scale, or reducing the cost associated with producing a greater number of products or services, by reducing the number of employees resulting from the merger of similar departments, for example.
- Controlling a larger share of the output of the sector to which both companies, the parties to the acquisition, belong; thereby increasing each party’s ability to influence production trends and prices in the sector to which they belong, and to compete and confront strong competition in the local or global market by increasing their products or introducing new products that they did not previously produce.
- Ensuring the continued flow of production inputs and controlling their prices, in pursuit of controlling production costs, by acquiring companies whose final outputs constitute essential inputs for operating the acquiring companies.
- The acquiring company’s desire to monopolize the market and exclude competitors so as to dominate the market. The cost of purchasing this type of company is the highest cost to the acquiring company, because the acquired company must be offered an amount sufficiently attractive to lead it to relinquish the market to the acquiring company.
- Escape from the specter of bankruptcy and consequent liquidation, and escape from claims and lawsuits by rights holders; and in order to strengthen its financial position by transferring its assets to another company and disposing of burdensome obligations by placing them upon the acquiring company, thereby becoming solvent—an outcome that will make it appear to creditors as more capable of fulfilling its obligations (11).
-
Regulation of Takeover Offers.
The Saudi regulator set out the Merger and Acquisition Regulations as a legislative and supervisory framework for takeover offers, with the aim of achieving justice and equality among shareholders, enabling them to make the correct investment decision, applying a disclosure policy and commitment to transparency, limiting the misuse of inside information, taking into account the interests of companies involved in such transactions, protecting investors and market participants, and avoiding disruption of the financial market (12).
The Capital Market Authority issues rules to regulate purchase transactions and restricted offer transactions for shares. “Restricted purchase of shares” means the purchase of shares carrying voting rights and listed on the market where such purchase results in the purchaser, or persons acting in concert with it, owning or controlling a percentage equal to (10%) ten percent or more of the shares of a company of the same class of shares of the relevant company. “Restricted offer for shares” means the issuance of a public announcement under which the announcer offers to purchase shares of a specified class listed on the market carrying voting rights where the number of shares the offeror seeks to acquire would cause the shares owned by it, or owned by persons acting in concert with it, or controlled by them, to reach a percentage equal to (10%) ten percent or more of the shares of the relevant company.
The Authority’s power to issue rules regulating restricted share purchase transactions and restricted share offer transactions includes, without limitation, the power to issue rules relating to the following:
- Amending the percentages stipulated in Article Fifty-Two of this Law, and approving exceptions to the definition set out therein for restricted share purchase transactions and restricted share offer transactions.
- Determining the timing for publishing announcements relating to restricted share purchase transactions and restricted share offers in the market, and their form and manner.
- Setting out the information that the share purchaser and the offeror must disclose, and the method of disclosure, including any requirements for ongoing disclosure in relation to changes in share ownership.
- Imposing any conditions or requirements on the company whose shares are the subject matter or target of a restricted share purchase, or a restricted share offer, regarding the announcement of its position on the restricted purchase or restricted offer, or its view in respect thereof.
- Any other rules relating to restricted share purchase transactions, or restricted share offer transactions, as required by the requirements of market integrity and investor protection.
What are the key differences between a merger and acquisition?
While the terms are often used synonymously because they both serve as tools for economic expansion and increasing market share, the sources highlight several fundamental legal and structural differences between a merger and an acquisition.
The key differences include:
Company Size and Structure: A merger usually occurs between two companies of approximately the same size that agree to combine and become one entity with unified shares. In contrast, an acquisition involves one company (the acquirer) gaining financial and administrative control over another (the target) by purchasing all or a specific percentage of its shares.
Legal Personality and Dissolution: A merger results in the dissolution of the target company, which is either absorbed into the other company or joined with it to form an entirely new legal entity. In an acquisition, the target company is not dissolved; it typically retains its legal personality, name, and entity status, often functioning as a subsidiary to the acquiring company.
Nature of the Agreement: A merger is typically executed through a formal merger agreement between the participating companies. An acquisition can occur with or without the agreement of the target company’s management, sometimes involving direct share purchases from the market.
Control vs. Amalgamation: A merger is characterized by full amalgamation (e.g., Daimler-Benz and Chrysler becoming DaimlerChrysler). An acquisition is characterized by control, where the acquirer holds enough shares to influence or direct the target’s activities without necessarily owning it entirely (e.g., Aramco’s acquisition of 70% of SABIC).
Despite these differences, the economic motivations for both processes are often identical, such as the desire to enter new markets, achieve economies of scale, reduce production costs, or escape potential bankruptcy
How can an acquisition help a company avoid bankruptcy?
An acquisition can serve as a vital lifeline for a company facing financial distress, allowing it to escape the “specter of bankruptcy” and the subsequent threat of liquidation.
According to the sources, an acquisition helps a company avoid bankruptcy through the following mechanisms:
Transfer of Assets and Obligations: A distressed company can strengthen its financial position by transferring its assets to the acquiring company. Crucially, it can also dispose of “burdensome obligations” by placing them upon the acquirer.
Restoration of Solvency: By becoming part of a larger, more stable entity, the target company becomes solvent. This shift in status makes the company appear to creditors as significantly more capable of fulfilling its financial obligations, which can halt aggressive debt collection efforts.
Protection from Legal Action: The process allows a company to escape claims and lawsuits from rights holders that often accompany financial failure.
Survival in Competitive Markets: In an environment dominated by “giant economic entities” and intense international competition, smaller companies that cannot compete effectively may choose an acquisition contract as a strategic alternative to withdrawing from the market or declaring bankruptcy.
By resorting to an acquisition, a distressed joint stock company can preserve its operations and legal personality—since, unlike a merger, an acquisition generally does not result in the dissolution of the target company—while gaining the financial backing needed to survive.
Overview of Acquisition of Distressed Joint Stock Companies
The text examines the legal and economic framework of corporate acquisitions specifically focusing on the regulations governing distressed joint stock companies within the Saudi Arabian market. It defines an acquisition as a process where one entity gains administrative and financial control over another without dissolving the target’s legal identity distinguishing this from a full merger. These transactions are driven by various economic incentives, such as expanding market reach, achieving economies of scale or preventing bankruptcy for struggling firms. The source highlights the role of the Saudi Capital Market Authority in establishing transparency and disclosure rules to protect investors and ensure market stability. Ultimately, these regulations aim to foster competitive economic growth and attract foreign investment by providing a clear, structured system for transferring company ownership.
Sources :
1- Rifa‘at Sa‘id Al-‘Awadi, Isma‘il ‘Ali Bisyuni, Mergers and Strategic Alliances between Companies in Arab States, Arab Organization for Administrative Sciences, published research in the Arab Journal of Administration, Hashemite Kingdom, Vol. 26, Issue 2, 2006, p. 203.
2- Dr. Muhammad Al-Sa‘id Al-Sayyid Al-Mashd, Acquisition Contract of Companies, A Comparative Study, research published in the Journal of Legal and Economic Research, p. 1064, on the Microsoft Word – 8-/. E-E/ ‘D39J/ ‘DE4/.doc website, access date 30/12/2025 at 6:00 p.m.
3- Dr. Hussein Fathi, “The Legal Foundations of Takeover Offers over Corporate Managements,” Dar Al-Nahda Al-‘Arabiyya, 1997, p. 4.
4- Saudi Capital Market Law and its Implementing Regulations, Guidance Manual, p. 2, published on the www.cma.org.sa website. . .
5- Dr. Tahir Shawqi Mu’min, “Acquisition of the Company,” A Theoretical and Applied Study, Dar Al-Nahda Al-‘Arabiyya, Cairo, 2009, p. 8.
6- Dr. ‘Abd Al-Majid bin Salih Al-Mansur, Corporate Acquisitions and the Position of Jurisprudence Thereon, Al-Muhamah, Thesis: Corporate Acquisitions and the Position of Jurisprudence Thereon, ‘Abd Al-Majid bin Salih Al-Mansur, access date 31/12/2025.
7- Dr. Sayyid Ahmad Sayyid Ya‘qub Al-Sayyid Yusuf Al-Rifa‘i, “Merger, Ownership and Acquisition: Tools and Means for the Reform and Prosperity of the National and Global Economy,” Kuwait University, Jaber Al-Ahmad Central Library, 1st ed., 1432H, 2011, p. 193.
8- Dr. Muhammad Khalifa Rashid Muhammad Al-Shahumi, The Legal Regime of Acquisition of Joint Stock Company Shares (A Comparative Study), PhD Dissertation, Cairo University, 2017, p. 31.
9- Muhammad Sa‘id ‘Abd Al-Maqsud, Mandatory Takeover Offer under Saudi Regulations, research published on the website: Mandatory Takeover Offer under Saudi Regulations – Humat Al-Haqq for Law and Legal Consultations – Attorney at Law, Jordan.
10- Salih Al-Suhaibani, ‘Abd Al-‘Azim Musa, Merger and Acquisition, Al Rajhi Financial Services Company, Investment Research, Kingdom of Saudi Arabia, Riyadh, 2008, p. 4.
11- Shihab Al-Masri, Merger and Acquisition: A Comparative Study, research published on the website:
access date 1/1/2026 at 13:27 p.m.
12- Dr. Muhammad Khalifa Rashid Muhammad Al-Shahumi, The Legal Regime of Acquisition of Joint Stock Company Shares (A Comparative Study), PhD Dissertation, Cairo University, 2017, p. 86.
