Recent actions by the Saudi Arabia competition authority confirm that the agency is adopting a more aggressive enforcement approach, particularly involving consumer-facing companies.
The Saudi Arabian General Authority for Competition ("GAC") recently announced that its board had blocked the Saudi stock exchange-listed National Gas and Industrialization Co. ("GASCO") from acquiring a majority stake in Saudi Arabia's Best Gas Carrier Co. ("Best Gas") from its sole shareholder. GASCO announced the proposed transaction in February 2022. GASCO is a monopoly wholesale distributor of liquid petroleum gas ("LPG") (principally butane, propane, and mixtures thereof). Best Gas purchases LPG, empty LPG cylinders, and parts from GASCO and sells filled LPG cylinders to end users.
The GAC board's announcement states that the proposed merger could allow GASCO to use its position as a monopoly supplier to advantage Best Gas by raising fees or reducing the quality of its products and services to Best Gas competitors. According to the GAC board, that conduct would reduce retail competition and harm consumers. GAC rejected the parties' claim that the merger would result in efficiencies in LPG distribution, finding the efficiencies insufficient in comparison to the potential harm to competition. The GAC statement indicated that it had studied LPG markets in a number of countries and found that most had liberalized competition in the LPG distribution chain. Those countries tended to limit or prevent vertical integration of LPG distribution stages. GAC's theory of harm and analysis in this transaction are consistent with recent enforcement actions of vertical transactions by other competition agencies, including in the United States and Europe.
This development marks just the second rejection of a transaction by GAC, both coming within roughly the last six months. Both rejections involved the proposed acquisition of a consumer-facing company. The prior challenge, described in our December 2021 Alert, involved an acquisition of a domestic food delivery app by an international competitor that also operated within the Kingdom. The GASCO challenge blocked the proposed vertical acquisition of a domestic retailer of LPG with its domestic sole supplier. To date, GAC has blocked only acquisitions of domestic companies.
These developments serve as a reminder that parties to acquisitions with a nexus to Saudi Arabia should expect GAC's review to be more than perfunctory. Transactions involving consumer-facing companies operating in Saudi Arabia may be of particular interest to GAC. Merging parties should conduct an early competition assessment of whether Saudi merger control applies and if the transaction is likely to raise regulatory concerns.