By: Dr. Fahad Al-Shammari
Associate Professor of Commercial Law, Kuwait University
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1. Emergence of a New Controlling Shareholder after Exceeding 30% Ownership

The mandatory takeover rule aims to protect minority shareholders from the risks arising when a new controlling shareholder emerges. Such a shareholder may potentially harm minority rights or the company’s interests through misuse of company assets or by making substantial changes to the company’s operations. Kuwaiti Capital Markets Law No. 7 of 2010 considers that ownership of more than 30% of a company’s shares triggers the emergence of a new controlling shareholder, thereby initiating the mandatory takeover procedure.

However, exceeding the 30% threshold does not automatically create a controlling shareholder capable of exercising the powers the mandatory takeover rule intends to regulate. According to Kuwaiti Companies Law No. 1 of 2016, key corporate decisions that materially affect the company or shareholders fall under the authority of the Extraordinary General Assembly rather than the Board of Directors or the Ordinary General Assembly. Examples include amending the company’s articles of association, increasing or decreasing capital, selling or disposing of the company’s assets, mergers, transformations, or liquidation. Each of these decisions requires approval exceeding 50% of the company’s shares—a condition not satisfied merely by surpassing 30% ownership.

Additionally, Article 180 of Companies Law No. 1/2016 prohibits the General Assembly from imposing new financial burdens on shareholders, reducing dividend percentages, or modifying shareholder rights without the written consent of all shareholders and the approval of the Capital Markets Authority.

2. Price of the Mandatory Takeover Offer

The effectiveness of the mandatory takeover rule in ensuring a fair exit for minority shareholders is directly tied to the offer price proposed by the shareholder exceeding the mandatory threshold. The executive regulations require that the price of the mandatory offer be the highest price offered by the acquirer within the preceding six months, or the weighted average daily price.

Nevertheless, the acquirer can manipulate the timing of purchases to circumvent this rule. For example, acquiring 10% of shares at 1 KD per share, followed six months later by 21% at 0.5 KD per share, would trigger the mandatory takeover. However, the offer price would be 0.5 KD—the highest price during the prior six months—resulting in minority shareholders not receiving the same premium as the shares used to transfer control.

Moreover, if the acquirer colludes with an existing controlling shareholder to purchase shares below market value, the mandatory takeover may proceed without guaranteeing a fair price to the minority shareholders. This undermines the rule’s intended protection.

3. Proposed Amendment: Conditional Mandatory Takeover

We propose a three-tier approach to stock acquisition in the market:

a. Tier One: 1% – 50% Share Acquisitions
Transactions within this range should remain under Market Rules, without triggering mandatory takeover or defensive measures by the board. Minority protection would rely on specific duties imposed on the controlling shareholder. Ownership below 50% is insufficient to constitute a new controlling shareholder capable of the threats the mandatory takeover rule is designed to prevent.

b. Tier Two: 50% – 90% Share Acquisitions
Mandatory takeover should apply in this range, but with adjustments, including enhanced disclosure requirements and fair pricing mechanisms. The board should be empowered to initiate defensive measures to ensure minority shareholders receive the highest possible price. Currently, the Capital Markets Law and its executive regulations prevent the board from acting during the takeover period without shareholder approval, which weakens negotiation power. Example: Elon Musk’s acquisition of Twitter, where the board threatened a poison pill defense, prompting a fair price offer.

c. Tier Three: 90% – 100% Share Acquisitions
This stage addresses cases where the controlling shareholder seeks full ownership (100%) via Squeeze-Out transactions. Kuwaiti law currently lacks provisions allowing the majority shareholder to compel minority exit to achieve complete control. Without this mechanism, full control may be unattainable, reducing the attractiveness of future acquisitions.

Conclusion

The mandatory takeover rule under Kuwaiti Capital Markets Law No. 7 of 2010 protects minority shareholders, but its current implementation has gaps regarding fair pricing, board authority, and full ownership acquisitions. A conditional, tiered approach with clear defensive powers for boards and mechanisms for minority exit would better achieve the law’s objectives, attract investors, and ensure equitable treatment for minority shareholders.

Dr. Fahad Al-Shammari
Associate Professor of Commercial Law, Kuwait University
This email address is being protected from spambots. You need JavaScript enabled to view it.