The difference between mergers, acquisitions, and takeovers

What is the difference between mergers, acquisitions, and takeovers? Experts confirm that these processes are among the most important growth and corporate restructuring strategies in the modern business environment. They also represent vital tools for companies to achieve their diverse goals, including market expansion, enhanced operational efficiency, and increased market share.

Therefore, this article will discuss a concise and comparative definition that clarifies the difference between mergers, acquisitions, and takeovers, focusing on distinguishing the characteristics of each and their main differences.

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The concept of mergers in companies

A merger is the union of two or more companies to form a new legal entity. An example of this is the merger of Cairo Saudi Bank and the Saudi United Commercial Bank to create the Saudi United Bank.

The most important types of company mergers in Saudi Arabia are acquisition mergers, in which an existing company absorbs one or more other companies, transferring all their rights and obligations to them, and amalgamation mergers, which result in the establishment of a completely new company through the union of two or more companies.

Mergers are also classified based on the nature of the merged companies’ business into horizontal mergers between competing companies in the same sector, and vertical mergers between companies operating at different stages of the production or distribution chain.

There is also diversified mergers that bring together companies operating in disparate industries.

Reasons for company mergers

Companies pursue mergers to achieve multiple strategic objectives, most notably: combining resources and expertise for greater efficiency, expanding market share, and accessing new markets or innovative technologies. Other benefits of mergers include reducing operating costs, diversifying businesses to mitigate risks and enhance financial stability, and sometimes eliminating a competitor or gaining a strong competitive advantage in the market.

Company merger procedures in Saudi Arabia

The process of merging companies in Saudi Arabia begins with intensive negotiations between the companies concerned, during which a merger agreement is drafted that specifies the detailed terms of the process, including an economic feasibility study to ensure the achievement of the desired goals and clearly defines the obligations of each party.

This is followed by the step of internal approval of the merger by the shareholders or relevant authorities in each company, with the necessary amendments made to the articles of incorporation and bylaws to comply with the merger process.

After obtaining all internal approvals, an application is submitted to obtain official approvals from the relevant governmental and regulatory bodies.

The legal and administrative procedures for the merger are then completed, and it is announced, declared, and officially registered with the competent authorities to make the process effective and legal.

The steps involved in acquiring a company are very similar to those of a merger, and it is best to consult a licensed lawyer who can ensure the protection of the interests of all parties involved and compliance with all relevant regulations and laws.

The term "company acquisition" refers to

An acquisition is the purchase of one company by another, with the acquiring company remaining operational. An example of this is the Saudi American Bank's acquisition of the Saudi United Bank, which subsequently disappeared from the market, while the Saudi American Bank continued operating as the Samba Financial Group. Later, the National Commercial Bank acquired Samba.

Types of company acquisitions

There are many types of company acquisitions, including the following:

1. A hostile takeover, which is carried out without the approval of the board of directors of the target company.
2. A friendly acquisition, which is done with the approval of the board of directors of the target company.
3. Reverse acquisition, in which the target company becomes a subsidiary of the acquiring company.
4. A cross-border acquisition, in which the acquiring company becomes a subsidiary of the target company.
5. Leveraged acquisition, in which the acquisition process is financed primarily by borrowing money.
6. Management acquisition, in which the management team of the target company acquires the company.
7. Horizontal acquisition, which is the acquisition of a competitor by a company in the same industry.
8. Vertical acquisition, which is when a company acquires a supplier or distributor in its supply chain.
9. A conglomerate acquisition is the acquisition of one company by another in an unrelated industry.

Examples of corporate acquisitions include the Public Investment Fund's acquisition of a stake in STC's subsidiary, Tawal, in 2024, with the aim of establishing one of the world's largest tower companies; Almarai's acquisition of shares in Hail Agricultural Development Company in 2009; and Uber's acquisition of its Middle Eastern competitor, Careem, in 2019.

The concept of control in companies

A takeover is a transaction in which one company is bought by another while keeping the two companies operating separately, with as few material changes as possible, especially with regard to the legal structure of each.

For example, Amazon's acquisition of Souq.com allowed both companies to continue operating independently, maintaining their headquarters, staff, and all aspects of their operations as before.

These processes have wide-ranging implications affecting various stakeholders, as companies undergo comprehensive transformations in their organizational structure and management, as well as potential changes in their brand and prevailing work culture.

As for employees, there is a possibility of job losses or changes in their roles, and these processes also affect consumers through variations in prices, the quality of products or services offered, and the level of competition in the market.

The difference between mergers, acquisitions, and takeovers

It remains for us to now explain the difference between merger, acquisition and control in a simplified way and from more than one aspect, as follows: When the agreement is between two parties that are relatively equal, the appropriate term for this process is called a "merger," if the purchase is from a stronger party, this is an acquisition, and if the attempt at control is unfriendly, it is called a "control."

When considering the resulting entity, if a new entity is created, it is a "merger"; if the acquiring company remains the same, it is an "acquisition"; and if the target company continues with a change in management or major shareholders, it is a "control".

As for the level of control, if the one who has the final decision is a new joint board of directors, it is a "merger," if the acquiring company has the final decision, it is an "acquisition," and if the controlling party has the decision, it is a "control."

Also, if the process is carried out with the agreement and consent of both parties, it is often within the mergers or acquisitions, and may be an attempt to take control despite the current administrative opposition.

Companies' motivations for undertaking mergers, acquisitions, and takeovers

We can also clarify the difference between mergers, acquisitions, and takeovers by understanding the reasons that drive companies to undertake these processes: a merger aims to achieve integration, increase efficiency, expand operational points, and jointly acquire new technologies or markets.

Acquisition, on the other hand, aims to gain a larger market share, eliminate a competitor, acquire a brand or patents, or diversify the business.

Control, on the other hand, aims to leverage the assets of the target company, restructure them to generate profits, and influence its strategic decisions.

Legal aspects regulating mergers, acquisitions, and control operations in Saudi Arabia

Mergers, acquisitions, and takeovers in Saudi Arabia are subject to a comprehensive legal and regulatory framework designed to ensure transparency, fairness, and the protection of the interests of all stakeholders. Key regulatory bodies include:

The Capital Market Authority (CMA) for listed companies sets detailed rules for disclosure and acquisitions, as well as the General Authority for Competition, which reviews these transactions to ensure that legitimate competition in the market is not harmed.

The Saudi Companies Law also regulates the basic procedures for mergers and the establishment of new companies. These processes require adherence to precise legal procedures, including obtaining the necessary approvals from the competent authorities, conducting legal due diligence to assess potential risks, and ensuring the protection of shareholders’ rights in accordance with applicable laws and regulations.

Therefore, understanding these legal aspects and using themAbdulaziz bin Yasser Al-Anzi Law FirmThis is of utmost importance to ensure that these processes are carried out properly and legally.

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