Saudi Construction Case Study
Asad and three business associates have decided to start a business: Saudi Construction. They will do work for oil companies in Saudi Arabia at first, but he hopes the firm will grow within two or three years to gain heavy construction contracts throughout the Middle East. Asad wonders whether he should form a corporation, a partnership, or maybe a limited liability company under Saudi Companies Law.
Asad believes they will initially need about $10 million in capital to run the business and have sufficient financial reserves to do large-scale projects. After two years, they will need an additional $20 million in capital.
Asad will be in charge of business operations. He realizes they need a business plan that will address how to value the corporation in order to raise the necessary capital in two years. It also needs to address how Saudi Construction can legally protect its assets in an industry where lawsuits are a common hazard.
Meanwhile, his associates have pressured Asad to kick-start the business by signing a couple of lucrative contracts right away; they tell him he shouldn’t worry about the administrative paperwork. They say that nobody ever looks at the paperwork once a business is formed and it’s no big deal.
Saudi Construction Case Study
Asad decided to establish Saudi Construction Inc. as a corporation. He did so mainly to reduce his and his associates’ personal liability. After three years of operation, he and his partners took the company public to raise capital to support their aggressive growth plans.
Now, Asad is trying to understand the governance model in corporations and the roles and responsibilities of shareholders, directors, and officers. Saudi Construction Inc. has shareholders all over the world and the lawyers keep telling him that communication is critical to avoid trouble. Operations need to be much more formal and they need to have regular Board of Directors meetings.
Asad has heard the lawyers talk about proxies and proxy fights and he wants to understand what all that means. His operations team has identified a number of key strategic merger and acquisition candidates, yet this is all new to him and he wants to understand what the options are for handling mergers, who has to approve them, what happens after companies merge, and so forth. His operations team is screaming at him they need to buy a company in the next quarter to meet their growth objectives, so he needs to learn the basics fast.
He worries about lawsuits. The officers of the corporation are out making deals all the time and some suppliers questioning whether the officers have the authority to sign and bind contracts for the company. The directors want him to clarify what authority different officers have over the corporation.
Furthermore, a couple of difficult shareholders want to second guess and challenge every decision the officers and the Board make, and Asad thinks it’s only a matter of time before someone take legal action. He doesn’t understand what standards (or test) a judge would use to figure out whether the shareholders have a valid claim and whether they are entitled to damages.
Asad is feeling a lot of stress. Part of his frustration is because he thinks judges don’t know business and shouldn’t be in a position to tell him and his associates what to do. But he’s also frustrated because he has the feeling he should slow down and do things by the book … but slowing down means missing out on very good business deals. Plenty of the directors and officers have said they will make the deals themselves if Saudi Construction cannot.
Asad really likes the money he is making, but his frustration and the pressure he’s under to make his deadlines are becoming overwhelming. Meanwhile, his business associates are telling him to ignore all the shareholders and administrative issues.
(You may refer back to 10-2: Case Study Scenario #1 as needed.)
Saudi Construction Case Study
Asad is very happy to report that Saudi Construction Inc. has grown significantly in the last three years through mergers and acquisitions. His family is so proud of him; he is a rich man. However, the problems of managing the business continue, but in different ways. Now, in the 5th of the business, there are still some minority shareholders from some of their acquisitions who make life difficult.
Asad’s industry friends tell him that the best thing to do is get rid of his problems by buying the minority shareholders out. Asad really likes that idea; it would make his life easier now and allow the majority shareholders (whom he controls) to make all the decisions without interference.
Some of Asad’s fellow corporate officers have been secretly talking at lunch about another idea. Why don’t the officers get together and do a management buyout (MBO)? Asad of course is interested because this would make him wealthy beyond all expectations. Of course, the officers will need to borrow a lot of money to do the buyout, but Asad hears there are ways to do it.
Yet trouble is always at the door. A number of the shareholders want to take control of Saudi Construction Inc. away from Asad’s group; they are unhappy with some of the acquisitions and the direction the corporation is going in. The shareholders are threatening a hostile tender offer. They want to go around the board of directors and go directly to shareholders. How can they do that? Asad needs to understand all the tactics these shareholders will employ in a hostile tender offer. More importantly, Asad is a man of action. What can he do to prevent it? If the hostile shareholders want a fight, Asad is prepared to fight. He didn’t work this hard to lose control of Saudi Construction now!
Asad’s friends have told him if he really wants to fight, he must be ruthless. He must create a “poison pill” to make his company’s stock less attractive and thwart the hostile takeover.
(You may refer back to Case Study Scenarios #1 and #2 as needed.)