Despina Americanou of Stelios Americanos & Co assesses the regulatory landscape for mergers and acquisitions in Cyprus
1. REGULATORY FRAMEWORK
1.1 What legislation and regulatory bodies govern public M&A activity in your jurisdiction?
The following legislation applies to M&As in Cyprus: the Companies Law chapter 113; the Public Takeover Bids Law 41(I)/2007 (Takeover Law); the Cyprus Securities and Stock Exchange Law 1995 as amended; the regulatory decision on the procedure for acceptance, clearing and settlement of a transaction which concerns dematerialised securities of the Central Securities Depositary and Central Registry after acceptance of a public offer or the Exercise of Squeeze-out (Regulations); the Control of Concentrations between Enterprises Law 22(I)1999 as amended; and, Law 104(I)/2000 Safeguarding of Employees' Rights in the Event of Transfers of Undertakings, Businesses or Parts of Undertakings or Businesses as amended.
The Takeover Law, Securities and Stock Exchange Law and the Regulations govern the M&A of companies of which the shares are listed on a regulated market within the Republic of Cyprus. The regulatory bodies in such cases are the Council of the Cyprus Stock Exchange and the Cyprus Securities Committee.
1.2 How, by whom, and by what measures, are takeover regulations (or equivalent) enforced?
The Cyprus Stock Exchange and the Cyprus Securities Committee are the regulatory bodies for companies with shares listed on a regulated market within the Republic of Cyprus. They have the authority to approve or reject public offerings, order investigations, impose sanctions, and cooperate with authorities both within the Republic of Cyprus and abroad.
2. STRUCTURAL CONSIDERATIONS
2.1 What are the basic structures for friendly and hostile acquisitions?
There are a number of ways of acquiring control over a public company, such as: (i) contractual acquisition of majority of share capital, in the case of a company whose shares are not listed with the stock exchange; (ii) public offer (in a case where the shares are listed with a regulated stock exchange); (iii) merger or division of a company in accordance with sections 201 A-K of the Companies Law; and, (iv) scheme of arrangement in accordance with sections 198-200 of the Companies Law, which requires court approval.
2.2 What determines the choice of structure, including in the case of a cross-border deal?
First, it depends on whether the shares of the target company are listed with a regulated stock exchange and second which scheme structure is preferred by the acquirer in terms of tax optimisation. The Cyprus limited liability company (LLC) is the vehicle most commonly used.
2.3 How quickly can a bidder complete an acquisition? How long is the deal open to competing bids?
In the case of a public offer for the acquisition of shares in a company listed in a regulated market, it can be completed in approximately 70 days from the time of announcement of the public offer, subject to possible legal proceedings that may be taken by interceded parties that could block the process. Any competing bidder may submit its offer no more than 14 days before the expiration of the acceptance date of the initial public offer.
2.4 Are there restrictions on the price offered or its form (cash or shares)?
In the case of a public offer for the acquisition of shares in a company listed with a regulated market, a bidder can offer cash, shares or a combination of both. The same applies in the case of a merger or division or scheme of arrangement in relation to a company whose shares are not listed with a regulated market. However, the Takeover Law provides that in certain circumstances, the bidder must offer a cash alternative as part of the consideration. The price offered in a public offer bid must be the highest price paid or agreed to be paid during the last 12 months before the offer period for the shares in the target company.
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?
In accordance with the Takeover Law, a public offer will be considered as successful when the bidder has acquired more than 50% of the voting rights in the target company.
The squeeze-out procedure will be triggered when the bidder, through a public offer, acquires at least 90% of the voting rights in the target company.
The same applies in the case of a merger, division or scheme of arrangement in relation to a company which has shares that are not listed with a regulated market.
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 Law provides that all holders of the same class of shares of the target company should be treated equally in a public offer. When a person acquires an amount of shares which provide them with voting rights equal to or greater than 30% of the voting rights in the target company they are obliged to a make a public offer for the acquisition of all the shares in the target company.
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?
Conditional public offers cannot be accepted and a public offer can only be revoked in certain circumstances as provided under the Takeover Law and after the approval of the regulatory authority.
The general principles of public offerings, as codified in the Takeover Law, provide that the bidder, prior to announcement of the public offer, should ensure that they are able to satisfy the consideration offered. In the case of a cash consideration, the public offer should be supported by confirmation issued by a banking or other institution, acceptable to the committee, confirming the availability of the amount required to be paid.
3. TAX CONSIDERATIONS
3.1 What are the basic tax considerations and trade-offs?
Cyprus has adopted in its local legislation the Merger Directive (Council Directive 90/434/EEC and its amendments) and applies the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares for companies from different EU member states. The directive includes provisions for non-imposition of tax on transactions in connection with mergers, divisions, transfers of assets or exchanges of shares and defers any taxation of capital gains. The tax law applies to resident and non-resident companies. The same exemption applies to any stamp duty, mortgage fees or land transfer fees, the latter being for immovable property situated in Cyprus. Cyprus tax law also exempts profit from sale of shares and also a number of other financial instruments including debentures, bonds, and options on them.
3.2 Are there special considerations in cross-border deals?
Different countries have different laws and regulations. It should be expected that EU countries will apply the EU Merger Directive, but a number of other factors should be considered. For example, transfer of tax losses between countries, tax exemptions and reliefs that apply on M&A transactions.
4. ANTI-TAKEOVER DEFENCES
4.1 What are the most important forms of anti-takeover defences and are there any restrictions on their use?
The most common anti-takeover defences are the seeking of an alternative bidder, or withholding the board's recommendation. However in accordance with the Takeover Law, the board is not allowed without the prior approval of the general meeting of the shareholders to take any actions that may frustrate or cancel the public offer.
4.2 How do targets use anti-takeover defences?
The board's recommendation to the public offer may be used as an anti-takeover defence, as well as legal actions and interventions with the regulatory authorities if the bid does not comply with law.
4.3 Is a target required to provide due diligence information to a potential bidder?
No, it is not required.
4.4 How do bidders overcome anti-takeover defences?
Anti-takeover defences may be overcome by an approval of the general meeting of the shareholders.
4.5 Are there many examples of successful hostile 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?
The Takeover Law prohibits any arrangements (commitment letters, letters of intent to transfer shares) between the bidder and concert parties and with the target company or shareholders.
5.2 To what extent are deal protections prevented, for example by restrictions on impediments to competing bidders, break fees or lock-up agreements?
As explained in answer to the previous question, the Takeover Law prohibits any offer related arrangements.
6. ANTITRUST/REGULATORY REVIEW
6.1 What are the antitrust notification thresholds in your jurisdiction?
Section 3 of the Law 83(I)/2014 sets the criteria and provides, inter alia, that: (i) at least two of the undertakings merging must have a total turnover of €3.5 million ($3.9 million) each; (ii) at least one of the participating companies must be engaged in commercial activities within the Republic of Cyprus; (iii) at least €3.5 million out of the aggregate turnover of all the participating undertakings must relate to the disposal of goods or the supply of services within the Republic; or (iv) it is declared as being of major importance by the minister of commerce.
If the participating undertakings meet the above thresholds and other criteria laid down in the same section, then they must notify their concentration within seven days from the date of conclusion of the agreement or the publication of the relevant offer of purchase or exchange or the acquisition of a controlling interest (whichever occurs first) to the Commission of Protection of Competition (CMC).
6.2 When will transactions falling below those thresholds be investigated?
If the transaction does not meet the above thresholds, then it does not fall within the jurisdiction of the CMC.
6.3 Is an antitrust notification filing mandatory or voluntary?
It is mandatory.
6.4 What are the deadlines for filing, and what are the penalties for not filing?
Filing should occur within seven days of the conclusion of the agreement or the publication of the relevant offer of purchase or exchange, or the acquisition of a controlling interest (whichever occurs first). The penalty for failure to notify the CMC is 10% of the annual turnover of the responsible person for notification, and if the concentration was completed, an administrative fine of €8,000 will be imposed for every day of violation.
6.5 How long are the antitrust review periods?
The CMC should issue a decision within one month of the filling of the notification and payment of the applicable fees.
6.6 At what level does your antitrust authority have jurisdiction to review and impose penalties for failure to notify deals that do not have local competition effect?
The CMC has jurisdiction only for transactions meeting the requirement stated in 6.1.
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?
The minister of commerce may intervene in mergers which raise certain public interest issues, even though they may not meet the thresholds stated in section 6.1.
Law 104(I)/2000 on the Safeguarding of Employees' Rights in the Event of Transfers of Undertakings, Businesses or Parts of Undertakings or Businesses and the Takeover Law provides that the board of directors of the target company and the bidder should inform their employees or their representative of the upcoming takeover or merger.
For companies which are regulated and supervised by independent authorities such as banking institutions or insurance companies, approval of the relevant regulator will be required.
7. ANTI-CORRUPTION REGIMES
7.1 What is the applicable anti-corruption legislation in your jurisdiction?
Applicable legislation includes: the Law Sanctioning the Criminal Law Convention on Corruption 23(III) of 2000 (Law 23(III) of 2000) and Law 22(III) of 2006; the Criminal Code; and, the Prevention of Corruption Law, chapter 161.
7.2 What are the potential sanctions and how stringently have they been enforced?
The potential sanctions range from between several months of imprisonment to fines. We are not aware of any prosecution against a company based on the legislations in section 7.1.
8. OTHER MATTERS
8.1 Are there any other material issues in your jurisdiction that might affect a public M&A transaction?
8.2 What are the key recent M&A developments in your jurisdiction?
Recently, the Takeover Law has been substantially amended in an effort to codify the rules governing M&As of companies which have shares are listed on a regulated market in the Republic.
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Stelios Americanos & Co
About the author
Despina Americanou is a partner at Stelios Americanos & Co. She has experience in both litigation and corporate law and provides legal advice to many local and international clients. Over her years of practice, Americanou has gained valuable experience in drafting and negotiating share purchase agreements, shareholders agreements and securities agreements. She has participated and offered legal assistance on corporate matters, M&A and banking and finance issues, and has acted as special Cyprus law counsel in various multinational cross-border transactions.
Americanou has a degree in law studies from the National and Kapodistriako University of Athens, Greece, and an LLM in international commercial law from the University of Westminster. She served as a counsellor at the Municipality of Aglantzia and was appointed as president of the tenders committee for five years. She is a member of the Cyprus Bar Association.