M&A in Oman

Economic climates characterized by rapid change, whether expansionary or contractionary, tend to be accompanied by a surge in merger and acquisition (“M&A”) activity.  M&A transactions offer companies a way to expand their businesses much more quickly than they would be able to solely through organic growth.  Some companies seek this rapid growth to ride the momentum of a business that is prospering, or to bulk up in order to compete at a regional or global level; other companies, such as those that were hit hard by the global recession, have looked to M&A transactions as a way to stay afloat by consolidating operations.

Although M&A transactions, as strategic investment decisions, are driven mainly by financial and operational considerations, there are also a wide range of legal issues that come into play when companies evaluate and execute M&A deals.  For this reason, it is crucial for companies considering mergers or acquisitions to work closely with legal advisors.  This article provides an overview of two of the most critical legal aspects of M&A transactions in Oman: regulatory compliance and transaction structure.

Regulatory Compliance

The key starting point for an M&A transaction is to make sure the transaction is permitted by law.  In Oman, M&A deals can occur only with the prior approval of the relevant Government authorities.  Depending on the characteristics of the companies participating in the M&A transaction (e.g., whether they are listed) and the line of business in which they operate (e.g., banks, investment companies, or insurance companies), the relevant Government authorities may include the Ministry of Commerce and Industry, the Capital Market Authority or the Central Bank of Oman.

The process of evaluating whether an M&A transaction is permitted also involves an examination of the types of participating companies involved, as well as those companies’ constitutive documents.  For example, certain types of companies may have   shareholding restrictions mandated by law or by their respective articles of association triggering the need for additional approvals.  In the preliminary stages of the transaction, the companies’ legal advisors would examine these issues as part of the “due diligence” review process.

Transaction Structure

Under Omani law, a merger can be effected either by incorporation or through consolidation. A merger by incorporation would entail the dissolution of the merging (i.e., target) company and its incorporation into the incorporating (i.e., acquiring) company. This structure would follow the two-step procedure of (i) evaluating the merging company’s assets and (ii) increasing the incorporating company’s share capital by the net value of the merging company’s assets. The increased capital would be issued as shares to the shareholders of the merging company in proportion to their shareholdings.

A merger through consolidation is effected by the dissolution of both of the merging companies and the formation of a new company which will be capitalized by the net value of the assets owned by the two merging companies.  Each merging company will be allotted shares in the new company in accordance with its contribution to the capital, which will cascade down to its shareholders in proportion to their shareholdings.

Omani law sets out the methodology for the evaluation of the assets of the merging companies and other legal requirements governing mergers. The merger must be entered provisionally in the Commercial Register, subject to a three-month waiting period, and the merger must be announced in two daily newspapers over two consecutive days. During the three-month waiting period, any of the merging company’s creditors may file an objection to the proposed merger. A creditor’s objection will cause the merger to be suspended until one of the following occurs:

• the creditor waives his rights;
• the debt is discharged or sufficiently guaranteed; or
• the Commercial Court dismisses the creditor’s objections.

If there is no objection by a creditor during the three-month waiting period, the entry of the merger in the Commercial Register becomes effective.  Following the merger, the incorporating company will assume the liabilities of the merging company, in the case of a merger by incorporation, and the newly formed corporation will assume the liabilities of both merging companies, in the case of a merger through consolidation.