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By James MacCallum - j.maccallum@tamimi.com
Mergers on the Rise: Mergers of companies in the UAE have become increasingly common in recent years. Among the more highly publicised were Emirates Bank’s merger with National Bank of Dubai in 2007 to form Emirates NBD, and Aldar’s merger with Sorouh in 2013. Then, in July 2016, the boards of First Gulf Bank and National Bank of Abu Dhabi approved a merger of FGB and NBAD to form what is likely to produce the largest bank in the MENA region. Subsequent to this, it has been announced that Abu Dhabi’s Mubadala Development Company will merge with the Abu Dhabi International Petroleum Investment Company (IPIC) and, in just the last few days (at the time of writing), it has been announced that each of Khalifa University of Science, Technology and Research, the Abu Dhabi Petroleum Institute and the Masdar Institute will merge.
Means of Implementing Mergers:
It is symptomatic of times when economic conditions appear favourable to business growth that businesses expand rapidly, but not necessarily in the most cost-effective and streamlined manner. When economic conditions change and become less favourable, as during present times, it becomes more important for businesses to operate in a more cost-effective and efficient manner in order to maximise profit margins and under-cut their competition by reducing their costs base. An important tool in the drive to rationalise and reduce costs is the merger of operations, where circumstances allow and where benefits can be gained. This can assist to cull the profligate and inefficient corporate structuring that often flourishes when businesses are focusing more on keeping up with burgeoning and evolving client demand, rather than on optimal corporate structure planning.
There are a myriad of different means by which companies or organisations can merge with one another. Each different mechanism will be selected for particular reasons and will produce a different outcome. The three classic means of effecting a merger of corporate entities are as follows:
1. Common Holding Company
This would involve bringing different companies/businesses together under a common holding or parent company. This can assist in slimming down the management structure, facilitating the sharing of resources and support functions as well as enabling the uniform implementation of policies and procedures across a merged group, together with aiding access to finance for the companies and businesses brought together by the merger.
