LEGAL VIEWPOINT: Merger of Banks & Companies by Dr AbdelGadir Warsama Ghalib, Principal Legal Counsel, Bahrain

Dr AbdelGadir Warsama Ghalib, Principal Legal Counsel, Bahrain

Noticeable these days, there are many talks about mergers in banks in the region. Already some mergers took place in UAE among big banks there. We believe that, it is always a very good trend and highly needed to have strong big banks (companies) with remarkable net worth and assets, as there are mega big projects that require big financing. No doubt, this merger fever trend will open the room for our banks to stand on competitive range with foreign banks, regionally and at the global level. We normally say that, mergers of our companies is almost like marriage of our children, we look to it passionately and with deep interest, however, we cannot force it. An issue that should come naturally, instinctively and from themselves, otherwise it may face difficult problems.

Asia 728x90

Most of the company laws in the region, provide for mergers. Wherein, mergers shall be in two forms. The 1st is “Acquisition”, through winding up a company or more and transferring to an existing company. The 2nd is “Consolidation”, through winding up of companies and incorporating a new one to which the merged companies are transferred.

The reasons for merger of companies are many, normally depend on the merits of each case, and could be pursued to achieve financial, strategic or corporate benefits. However, to initiate the process of mergers, as a matter of procedure, each company involved shall undertake its homework, prepare itself for that new strategy and thereafter pass a special resolution for merger. This resolution shall take place according to the procedures in the Memorandum and Articles of Association of the company. Steps for mergers shall be published in the Official Gazette and newspapers, and the Commercial Registry. Holders of rights may object within sixty days from publication date. If no objection is made, the merger shall be effective, and the emerging company shall subrogate the merged companies in all their rights and obligations. In all instances and steps certain lobbying is needed.

Mergers and acquisitions (M&A), generally speaking, is the area of corporate finance, management and strategy dealing with purchasing and or joining other companies. In a merger, two organizations join forces to become a new business, usually with a new name. Whereas, acquisition is a situation whereby one company purchases most or all of another company’s shares in order to take control. Acquisition occurs when a company obtains more than 50% ownership in another company.

Mergers and Acquisitions (M & A) are needed by many corporates to strengthen their positions. However, they may not be lucky to obtain the approval of the Regulatory Authorities, as there are tough rules indicating, mergers shall not monopolize any economic activity, a commodity or a certain product. For banks, they need to obtain the prior approval of the Central Bank and its welcome for the new outcome of the merger.

However, we patiently look for mergers and or acquisitions in the region to boost trading activities and the economy. Strong companies, no doubt, can play a major role in pursuing new big projects and offering many new lucrative job opportunities for the youth and new comers.

Dr. AbdelGadir Warsama Ghalib is Principal Legal Counsel at Dr. AbdelGadir Warsama Consultancy, Bahrain