Saudi Merger Control Regulator Issues First Conditional Approval

On 7 June 2023, the Saudi Arabian General Authority for Competition (GAC) granted for the first time a conditional clearance. The decision was issued in respect to the acquisition of a 51 percent stake in Direct Financial Network Co. (DirectFN) by Saudi Tadawul Group Holding Company through one of its wholly owned subsidiaries, Tadawul Advanced Solutions Co. (Wamid). A market investigation conducted by GAC raised concerns that the transaction could have negative implications on the market for digital solutions for the financial sector. To procure clearance of the acquisition the parties proposed several remedies to GAC. GAC took these under consideration and cleared the acquisition conditionally.

Both the acquirer and its group as well as the target operate in the market for digital solutions for the financial industry and investors therein. Direct FN—the target—offers digital platform and risk management solutions for the broader financial industry as well as institutional and retail investors in Saudi Arabia. The acquirer—Wamid—is a technology company providing technology and data solutions to clients active in the Saudi capital market. The Saudi Tadawul Group is the parent company of Saudi Exchange, the operator of the Saudi stock market Tadwul, the Securities Clearing Center Company (Muqassa), the Securities Depository Center Company (Edaa) and Wamid—the acquirer.

The parties notified the proposed acquisition to GAC on 11 December 2022. An initial review of the transaction by GAC showed considerable  (potential) overlap between the businesses of the target, the acquirer, and the acquirer’s group. This prompted GAC to conduct a market investigation to assess possible impacts on the market for digital solutions for the financial industry in Saudi Arabia. Through this investigation the authority found that considering the overlap of the parties’ activities the transactions posed considerable competition risks in the Saudi market. In particular, GAC saw potential foreclosure effects by the acquirer’s group providing preferential treatment to the target and discrimination of competitors.

To mitigate negative effects on competition and secure clearance of the transaction the parties proposed several remedies to GAC. GAC consider these and ultimately granted conditional approval for the transactions. The conditions were (1) a commitment that the acquirer and their group would continue to offer competitive prices and service to competitors, (2) a commitment that DirectFN would not be offered preferential prices for offerings of the Saudi Tadawul Group, and (3) certain oversight and reporting measures. GAC imposed this measure to ensure fair competition and mitigate foreclosure effects in the relevant market. The measures were imposed for a period of three years. In addition, GAC ruled that a trustee should monitor compliance with the remedies imposed.

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Regrettably, as is typical for GAC and other Middle Eastern regulators, GAC did not disclose details on their findings and reasoning for the decision. The published decision is limited to a very high level overview of the transaction, a declaration that the transaction was cleared conditionally, and what conditions were imposed. No details on what the specific findings of the market investigation were and how the authority determined and designed the remedies imposed. The decision also does not include any discussion of the reasoning of GAC for their decision. This practice of a public authority not disclosing how they reached their decisions is common in the MENA region. This lack of transparency is common through out the Middle East. However, it does cause ambiguity as to the position the authorities are taking towards specific issues and thus makes decisions less predictable.