Saudi Arabia Expands Merger Control Regime, Causing Headaches for Businesses

Saudi Arabia recently amended its merger control notification thresholds to reduce filings for transactions unrelated to the Kingdom. However, the changes seem to be having the opposite effect so far. Businesses are finding more deals caught in the expanded notification requirements, leading to uncertainty and extra compliance costs.

The Changes

The Saudi General Authority for Competition (GAC) introduced two new thresholds in addition to the existing SAR 200 million (approx. USD 52 million) worldwide turnover requirement. They added a minimum SAR 40 million (approx. USD 10.4 million) Saudi turnover threshold as well as a minimum SAR 40 million worldwide turnover requirement for the target.

Unintended Consequences  

While these moves may sound like they limit filings, the problem lies in the details. Any party’s Saudi turnover alone can meet the local threshold for mergers and acquisitions. So if the buyer does business in Saudi Arabia, even deals targeting businesses with no presence there now require notification. Previously, the target having no local turnover provided a reasonable argument against notifying.  

The requirements for foreign-to-foreign deals also raise questions. Guidelines suggest these transactions may not need to meet the Saudi turnover threshold. However, other vague factors could still mean a filing is required. This creates uncertainty over when foreign deals need clearance.

Greenfield joint ventures also continue to require notification in Saudi Arabia. As per the guidelines the minimum target turnover requirement does not apply to them.

Challenging Environment

At the same time the GAC has stepped up enforcement. During the first two years of the new merger control regime being in force, gun jumping fines were imposed in four cases. In 2022 alone 15 gun jumping fines were issued. Furthermore, recent departures of experienced staff mean the authority has lost experienced staff familiar with the Saudi regime. The result is slower reviews and positions difficult to reconcile with international best practice.

Implications for Business

For businesses active in Saudi Arabia, the implications are clear. More transactions will get caught in the Kingdom's merger control net, regardless of whether they impact competition there. Companies can no longer rely on the target having no presence there as a reasonable argument against notification. And arguing good faith interpretation of an uncertain local nexus test is also no longer viable.

The Path Ahead

The GAC set out to limit the regime's scope. But recent changes have achieved the opposite effect. Businesses must adjust their approach accordingly and brace themselves for more Saudi filings. The GAC may revise the system again to address these issues arising from the amendments. However, experience shows any improvements remain a longer-term prospect. Companies need a short-term fix to manage the expanded requirements in the interim.

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