In a significant move to ensure the intended implementation of Royal Decree No(M75) of 1440H (the “Competition Law”) and Resolution No 337 of 25/1/1441H (“Executive Regulations”), the Kingdom of Saudi Arabia’s (“KSA”) General Authority for Competition (“GAC”) release Version 4 of the Merger Review Guidelines early November 2023 (“Guidelines”). This latest iteration is designed to assist a diverse range of stakeholders, including companies, government agencies, legal professionals, and the general public, in navigating the complexities of competition rules, with a specific focus on the screening and evaluation of economic concentration transactions.

Two pivotal changes stand out as the cornerstone of this release. In sections A and B, the Guidelines undergo significant enhancements, addressing the compulsory notification financial thresholds and the introduction of a notification fee. These amendments not only streamline the reporting process but also underscore the GAC’s commitment to ensuring a more transparent, efficient, and competitive economic landscape. Below are some of the key changes and substantial provisions of the Guidelines.

Compulsory Notification: Updated Financial Thresholds.

The GAC issued two amendments to the Financial Thresholds in 2023. The first amendment came in March 2023 where the GAC doubled the financial threshold required to trigger an economic concentration filing from 100 million Saudi Riyals to 200 million combined global turnover of the entities party to the economic concentration. The second amendment to the same financial threshold were just made October 2023, wherein the GAC added two other financial thresholds which must be met to trigger an economic concentration filing.

As of today, and under the newly issued Guidelines, GAC must be notified of any economic concentration that meets the criteria in the Competition Law and all three of the following financial thresholds (“Financial Thresholds”):

1. The total worldwide annual sales value of Economic Concentration Parties exceeds 200 million Saudi Riyals;
2. The total worldwide annual sales value of the target establishment exceeds 40 million Saudi Riyals; AND
3. The total annual sales value in Saudi Arabia of all Economic Concentration Parties exceeds 40 million Saudi Riyals.

Prior to the implementation of these new Financial Thresholds, KSA was a no-minimum financial threshold jurisdiction. Meaning if the global financial thresholds were met, there was no minimum threshold needed to be met in KSA to trigger a merger control filing.

Sales in Saudi Arabia, or world-wide sales?

The KSA Competition Law requires concentrations to be reported if the total value of annual sales of all participating entities exceeds 200 million Saudi Riyals. It does not distinguish between sales taking place within Saudi Arabia and those taking place outside Saudi Arabia.

Accordingly, GAC will consider the relevant annual sales figures to be the combined aggregate group-wide and world-wide sales figures of all the relevant entities.

The Guidelines clarify additional reporting requirements related to the target establishment’s sales and local connection, stating that the target’s sales must be more than 40 million Saudi Riyals.

The total sales (within Saudi Arabia) of the parties participating in the economic concentration transaction together must exceed 40 million Saudi riyals.

One of the key elements of Saudi Vision 2030 is to make KSA a global investment powerhouse to stimulate the economy and diversify the KSA revenues. It is likely that GAC hopes this new change in the Guidelines will reduce the need for reporting economic concentrations which do not substantively affect competition in KSA, thus removing a hardship for business transactions to take place.

Notification Fee

The new Guidelines also reflect the change made to the economic concentration filing fee which was made in June 2023. The new reduced notification fee, set at 0.0002 times (0.02%) of the total annual sales of all parties participating in the transaction subject to the economic concentration filing, with a ceiling of 250,000 Saudi Riyals (USD 66,573) rather than the previous cap of SAR 400,000 (USD106,518). It was inferred from the market that the previous higher cap had a substantial impact on parties contemplating entering into a commercial arrangement which could trigger the GAC’s filing mandate.

 For example: Notification Fee = (Merging/Acquiring entity revenues + Merged/Acquired entity revenues) x 0.0002

 Wide Application: Defining Undertakings

The Guidelines emphasizes the broad application of the KSA Competition Law, extending beyond formal legal structures. The use of the term “undertaking” encompasses a wide range of economic entities, not limited to companies. Thus, the KSA Competition Law applies to all undertakings engaged in economic activity, irrespective of their legal form.

It is not necessary that the activity earn a profit or be intended to earn a profit; this means that charities or other not-for-profit entities offering products or services in a market are in principle subject to the KSA Competition Law.

Defining Economic Concentration: Change of Control

The Guidelines define “Economic Concentration” as “any action that results in a total or partial transfer of ownership of assets, rights, equity, stocks, shares, or liabilities of a firm to another by way of merger, acquisition, takeover, or the joining of two or more managements in a joint management, or any other form that leads to the control of a firm(s) including influencing its decision, the organization of its administrative structure, or its voting system.”

An Economic Concentration occurs where there is both (i) transfer of ownership of a type specific in the definition of Economic Concentration or a joining of two or more management; and (ii) change of control of one or more undertakings.. “Control” over an undertaking is the ability to exercise decisive influence over the undertaking. Ultimately, Control is the power to determine decision relating to the strategic commercial behaviour of an entity.

Full-Function Joint Ventures

According to GAC, establishing a joint venture is typically viewed as an Economic Concentration if the joint venture forms an autonomous economic undertaking, or performs the economic functions of an autonomous economic undertaking, on a lasting basis. Such a joint venture may be termed a “full-function” joint venture.

The GAC considered the following to be attributes of a full-function joint venture:

• The joint venture must operate in a market and perform the functions normally carried out by a commercial undertaking operating in that market.
• The joint venture must ordinarily have a management team dedicated to its day-to-day operations and access to sufficient resources, including finance, staff, and assets (tangible and intangible), in order to conduct, on a lasting basis, its business activities within the area provided for in the joint-venture agreement.
• It must be intended to operate for a sufficiently long period to bring about a lasting change in the structure of the undertakings concerned (the joint-venture resources would be indicative, on this point).
• It will ordinarily have sufficient autonomy from its parent undertakings, in terms of its operational decision-making, to be considered a full-function joint venture.

A joint venture may begin its life as a non-full-function joint venture and subsequently becomes a full-function joint venture. It will, at that time, be considered as a new economic concentration requiring notification.

Conclusion

Stakeholders are encouraged to familiarize themselves with these updates to navigate the evolving dynamics of competition in Saudi Arabia. As the business environment continues to evolve, staying informed and compliant is key to thriving in a competitive and growing marketplace.

How GLA can help?

With our exceptional Anti-trust and Competition practice, which has been leading the way in the region, and our great relationships with the regulators, GLA provides top tier legal services by properly assessing transactions under the competition regimes and successfully navigating the client through an economic concentration filing with ease.  Please contact Alex Saleh, Managing Partner (alex.saleh@glaco.com) and Asad Ahmad, Head of Antitrust and Competition Practice (asad.ahmad@glaco.com) if you have any questions.

Authors: Asad Ahmad, Senior Associate, and Salma Farouq, Associate.