Fernando de las Cuevas and Ignacio de la Fuente of Gómez-Acebo & Pombo assess the regulatory landscape for mergers and acquisitions in Spain
1. REGULATORY FRAMEWORK
1.1 What legislation and regulatory bodies govern public M&A activity in your jurisdiction?
Public M&A transactions in Spain are governed by: the Ley del Mercado de Valores (Securities Market Act or SMA) 24/1988 of July 28 1999; the Real Decreto sobre Régimen de las Ofertas Públicas de Adquisición de Valores (Royal Decree on the rules applicable to takeover bids RD 1066/2007) 1066/2007 of July 27 2007; the Ley de Sociedades de Capital (Companies Act CA) 1/2010 of July 2 2010; the Ley de Modificaciones Estructurales (Corporate Restructuring Act or CRA) 3/2009 of April 3 2009; and the Ley del Impuesto sobre Sociedades (Corporate Income Tax Act or CITA) 4/2004 of March 5 2004
Control over public M&A transactions is carried out by the National Securities Market Commission (NSMC).
1.2 How, by whom, and by what measures, are takeover regulations (or equivalent) enforced?
The NSMC has statutory powers for the supervision, inspection and sanctioning of takeover transactions.
The SMA grants the NSMC broad powers to verify that the rules on public takeover transactions are observed. In this respect, it may directly or indirectly, by seeking judicial assistance, request or impose the necessary measures in order to verify compliance with such rules, and even impose fines ranging between a minor fine of up to €30,000 ($33,200), and the highest of either a multiple of the offender´s revenue or €600,000.
2. STRUCTURAL CONSIDERATIONS
2.1 What are the basic structures for friendly and hostile acquisitions?
The two main alternatives to structure the takeover bid are: launching a bid to acquire all or part of the target´s shares or assets; or, via a merger according to the process described in the CRA.
Mergers in public and private companies are governed by the same Act. Therefore, focus will now be placed on the specific takeover process to acquire listed companies.
2.2 What determines the choice of structure, including in the case of a cross-border deal?
Timing, tax impact, shareholding structure or particulars of the bidder´s interest in the target make it necessary to analyse and determine the most suitable alternative on a case-by-case basis.
2.3 How quickly can a bidder complete an acquisition? How long is the deal open to competing bids?
Bids need to be published and open for acceptance for at least 15 days from the date on which the first announcement is published. Competing bids may be placed during the acceptance period until five days prior to the period's expiry.
Under favourable conditions, the acquisition process can be completed within three months.
2.4 Are there restrictions on the price offered or its form (cash or shares)?
According to RD1066/2007, the price offered may be placed in cash, shares or a combination of both. It also needs to meet certain requirements. First, a general requirement that the price must be higher than the price the bidder would have offered for the relevant shares in the preceding 12 month period; and, specific requirements that vary depending on the concrete structure of the transaction.
2.5 What level of acceptance/ownership and other conditions determine whether the acquisition proceeds and can satisfactorily squeeze out or otherwise eliminate minority shareholders?
It is possible to squeeze out minority shareholders, provided that: (i) the bidder holds at least 90% of the target´s securities with voting rights; and (ii) the bid has been accepted by at least 90% of the holders of voting rights in the target.
2.6 Do minority shareholders enjoy protections against the payment of control premiums, other preferential pricing for selected shareholders, and partial acquisitions, for example by mandatory offer requirements, ownership disclosure obligations and a best price/all holders rule?
The takeover offer issued by any potential acquirer needs to ensure the equal treatment of every holder of securities that are in the same circumstances.
Additionally, a person acquiring at least 30% of the voting rights of a listed company or appointing more than half of the members of the board of said company is obliged to issue an offer to acquire the totality of its share capital.
2.7 To what extent can buyers make conditional offers, for example subject to financing, absence of material adverse changes or truth of representations? Are bank guarantees or certain funding of the purchase price required?
Voluntary offers (those that do not qualify as mandatory according to the provisions of RD 1066/2007), may be subject to the following conditions, provided that compliance may be verified at the end of the acceptance period: (i) approval of certain corporate resolutions by the general shareholders meeting of the target; (ii) acceptance of the offer by a minimum number of shares; (iii) approval of the offer by the general shareholders meeting of the bidder; and (iv) any other deemed appropriate by the NSMC.
It is necessary to provide a guarantee or collateral at the time the offer is placed, or to deposit the amount offered in a financial institution.
3. TAX CONSIDERATIONS
3.1 What are the basic tax considerations and trade-offs?
According to the SMA, the transfer of shares of listed and non-listed companies is tax-neutral, except for those transfers of shares where the transfer is intended to avoid taxation on the transfer of real estate properties.
The CITA regulates a special beneficial taxation regime applicable in defined circumstances. Therefore, capital gains accrued by the transferor resulting from any restatement of the company's assets and rights for accounting purposes, necessary in order to proceed their transfer at a given price, are not included in the taxable base for corporate tax purposes whenever they result from: (i) the transfer by Spanish residents of assets and rights that are located in Spanish territory. If the acquiring company is not a resident entity, only those capital gains under the transfer of assets that are attributable to a permanent establishment in Spain will be exempt; (ii) the transfer by Spanish resident entities of permanent establishments located in the territory of states outside the EU, when the transferees are Spanish resident entities; (iii) the transfer of permanent establishments in Spain by non-resident companies. If the acquiring company is not a Spanish resident entity, only those capital gains arising from the transfer of assets associated with a permanent establishment in Spain will be exempt; or (iv) transfers of permanent establishments in EU territory by non-resident companies, when the transferees are EU resident companies.
3.2 Are there special considerations in cross-border deals?
A special tax regime applies to enterprises that are not located in Spain. It makes it necessary for non-resident enterprises to make a pre-deal tax analysis in order to determine the concrete tax-impact of the transaction for the bidder.
4. ANTI-TAKEOVER DEFENCES
4.1 What are the most important forms of anti-takeover defences and are there any restrictions on their use?
According to the passivity rule set out in article 28 of the RD 1066/2007, the management of a Spanish company may not perform any action aimed at preventing the success of a bid without the authorisation of the general shareholders meeting. Further, they specifically cannot (when those transactions may impede the effectiveness of the bid): (i) decide to issue securities; (ii) directly or indirectly encourage or develop transactions in relation to the securities affected by the bid; or (iii) transfer or lease assets of the company. Nor may they distribute extraordinary dividends if they have not been approved prior to the bid.
There is an exception, which is the possibility of looking for a white knight in order to challenge the hostile takeover bid.
4.2 How do targets use anti-takeover defences?
The trust of the shareholders in the target's management body is especially relevant in order to enact the various anti-takeover defences in these circumstances, so that the management is capable of implementing anti-takeover defences on behalf of the target.
4.3 Is a target required to provide due diligence information to a potential bidder?
No. However, in the context of a bidding process, the company is obliged to disclose the same information to all of the participants that are in the same situation.
4.4 How do bidders overcome anti-takeover defences?
RD 1066/2007 provides specific measures that the target may apply to enable bidders to overcome anti-takeover defences, such as: the waiver of the pre-emptive rights and rights of first refusal provided in the shareholders agreements; or the waiver of limitations to the voting rights imposed by by-laws or shareholders agreements of the target.
4.5 Are there many examples of successful hostile acquisitions?
Not as many as friendly acquisitions.
5. DEAL PROTECTIONS
5.1 What are the main ways for a friendly bidder and target to protect a friendly deal from a hostile interloper?
RD 1066/2007 provides the general equal information right of every participant in the takeover process, meaning that the target needs to guarantee that all the contenders have access to the same amount of information, and that, if one of them should request additional documentation, the same documentation should be provided to the rest.
5.2 To what extent are deal protections prevented, for example by restrictions on impediments to competing bidders, break fees or lock-up agreements?
Deal protection measures are in general terms prevented, and target companies have very limited scope for introducing restrictions or impediments on certain bidders and to benefit the ones they deem preferable (see section 5.1).
However, it is possible for a target company to look for white knights in order to compete with hostile bidders.
6. ANTITRUST/REGULATORY REVIEW
6.1 What are the anti-trust notification thresholds in your jurisdiction?
A transaction could be subject to either the European Union (EU) or Spanish merger control rules. The determination of the relevant jurisdiction and the deriving competent authority (the EU Commission or the Spanish antitrust authority), depends on: (i) the combined aggregate turnover of the companies involved; and (ii) the Spanish market share of the target and of the purchaser in any relevant market. In the EU, the determination is made through two alternative tests:
Test 1
(a) Combined aggregate worldwide turnover of all the undertakings concerned is more than €5,000 million; and
(b) Aggregate union-wide turnover of each of at least two of the undertakings concerned is more than €250 million,
Unless each of the undertakings concerned achieves more than two-thirds of its aggregate union-wide turnover within one and the same member state.
Test 2
If the concentration does not meet the thresholds referred to in Test 1, it could still have an EU dimension where:
(a) Combined aggregate worldwide turnover of all the undertakings concerned is more than €2,500 million;
(b) In each of at least three member states, the combined aggregate turnover of all the undertakings concerned is more than €100 million;
(c) In each of at least three member states included for the purpose of point (b), the aggregate turnover of each of at least two of the undertakings concerned is more than €25 million; and
(d) The aggregate union-wide turnover of each of at least two of the undertakings concerned is more than €100 million,
Unless each of the undertakings concerned achieves more than two-thirds of its aggregate community-wide turnover within one and the same member state.
The Spanish competition authority should be notified of the transaction if one of the following alternative tests is met as a consequence of it: a market share equal to or higher than 50% of the relevant product or service market at a national level or in a geographical market defined within the same, is acquired or increased; or a market share equal to or higher than 30% of the relevant product or service market at a national level or in a geographical market defined within the same, is acquired or increased and the turnover in Spain exceeded €10 million in the last accounting year; or the global turnover in Spain for all the participants in the last accounting year exceeds €240 million, provided that at least two of the participants achieved an individual turnover in Spain of more than €60 million.
6.2 When will transactions falling below those thresholds be investigated?
Such transactions will be investigated depending on to sectorial provisions.
6.3 Is an anti-trust notification filing mandatory or voluntary?
Mandatory.
6.4 What are the deadlines for filing, and what are the penalties for not filing?
The notification of the takeover must be filed with the National Antitrust Commission prior to the transaction being completed.
Failure to notify the takeover is punishable by a fine of up to five percent of the turnover of the breaching company in the financial year preceding the infringement. If it is impossible to determine the turnover of the company, a fine ranging between €500,000 and €10 million may be imposed. Failure to comply with the competition authorities' decisions may be sanctioned with a fine of up to 10% of the turnover of the breaching company in the financial year preceding the infringement. If it is impossible to determine the turnover of the company, a fine higher than €10 million may be imposed. Despite the above general rules, the National Antitrust Commission may impose fines, such as penalty payments or other additional sanctions (such as the publication of the resolution in the press).
6.5 How long are the antitrust review periods?
The antitrust review process is a two phase process. The first phase will last up to one month from the date notification is received by the National Antitrust Commission and the second phase, up to two months from the time the review process is opened. When the commission's report proposes a prohibition or a clearance subject to conditions, the government may issue a different decision in a maximum term of one month and fifteen days.
6.6 At what level does your anti-trust authority have jurisdiction to review and impose penalties for failure to notify deals that do not have local competition effect?
Spanish authorities are entitled to review and impose penalties if the transaction falls within the Spanish thresholds described in section 6.1, and the EU authorities, if it falls within the EU thresholds.
6.7 What other regulatory or related obstacles do bidders face, including national security or protected industry review, foreign ownership restrictions, employment regulation and other governmental regulation?
Sectorial provisions provide additional procedures to be observed in case of takeover processes related to companies pertaining to regulated sectors.
7. ANTI-CORRUPTION REGIMES
7.1 What is the applicable anti-corruption legislation in your jurisdiction?
The Ley de Prevención de Blanque de Capitales (Anti-Money Laundering Act or AMLA) 2/2010 of April 28 2010.
7.2 What are the potential sanctions and how stringently have they been enforced?
Fines for failing to comply with the provisions of the AMLA amount up to the highest of either (i) five percent of the offender's share capital; (ii) double the economic value of the transaction; or (iii) €1.5 million.
8. OTHER MATTERS
8.1 Are there any other material issues in your jurisdiction that might affect a public M&A transaction?
Most applicable provisions have been described.
8.2 What are the key recent M&A developments in your jurisdiction?
The most recent M&A developments are in the tax-regime applicable to M&A transactions.
First published by our sister publication IFLR magazine. Take your free trial today.
Fernando de las Cuevas
Gómez-Acebo & Pombo
Madrid
About the author
Fernando de las Cuevas specialises in M&A, banking law, securities market law, collective investment institutions, and family and private equity businesses. He is consistently recognised in all prestigious legal directories, including Best Lawyers, Chambers and Partners, and Legal500. He is particularly renowned for his commendable M&A and financial knowledge.
De las Cuevas joined Gómez-Acebo & Pombo Abogados in 1983. He was a foreign associate at Shearman & Sterling in New York from 1985 to 1986. He has been a partner of Gómez-Acebo & Pombo Abogados since 1990 and managing partner from 1998 to 2000. He holds a Master of Law, a Bachelor of Business Science and a diploma in European studies from the Universidad de Deusto (1981), and a diploma in higher European studies from the College of Europe, Bruges (1982). He received a research scholarship from the European Free Trade Association, Geneva (1982-1983), and graduated from the PIL course at Harvard Law School (1990).
Ignacio de la Fuente
Gómez-Acebo & Pombo
Madrid
About the author
Ignacio de la Fuente graduated in law and business sciences from the Universidad Pontificia de Comillas in Madrid, and obtained a scholarship from the University of Texas at Austin where he developed his studies in business sciences.
De la Fuente is an associate at Gómez-Acebo & Pombo Abogados, and his specialisations include M&A, family and private equity businesses and insolvency proceedings. He provides legal advice to international companies and private and equity funds in domestic and cross-border M&A transactions. He is a member of the Guipúzcoa Bar Association and he is fluent in Spanish, English, German and Basque.