Bojan Šporar and David Premelc of Rojs Peljhan Prelesnik & partners assess the regulatory landscape for mergers and acquisitions in Slovenia
1. REGULATORY FRAMEWORK
1.1 What legislation and regulatory bodies govern public M&A activity in your jurisdiction?
The pivotal legislation in Slovenia governing public M&A activity is the Takeover Act.
The Securities Market Agency is the primary regulator in charge of supervising the markets in financial instruments. The Competition Protection Agency (CPA) is the national competition authority competent to review concentrations, abuses of dominance and restrictive agreements and practices, the Tax Administration regulates taxation and reporting obligations, and the Labour Inspectorate oversees implementation of labour laws and other regulations.
Depending on the industry sector, other regulators may have a significant role. For example, in the banking sector – the Bank of Slovenia; in the insurance sector – the Insurance Supervision Agency; in the media sector – the Ministry of Culture.
1.2 How, by whom, and by what measures, are takeover regulations (or equivalent) enforced?
Takeover rules are enforced by the Securities and Market Agency, which may impose sanctions for non-compliance with the Takeover Act (monetary sanctions and standstill of voting rights). Additionally, a shareholder may file: (i) a civil action challenging invalidly adopted shareholders' resolutions, under the condition that they were adopted through votes of the purchaser who failed to make the mandatory takeover bid; and (ii) damages action against any person breaching the Takeover Act due to failure to, among others, launch a mandatory takeover bid.
2. STRUCTURAL CONSIDERATIONS
2.1 What are the basic structures for friendly and hostile acquisitions?
There is no regulatory difference between friendly and hostile takeovers. In the case of friendly acquisitions, the deal may be structured in two steps. First, a private deal for the purchase of the shares representing a majority of voting rights is negotiated on the OTC market. Second, after the completion of a private deal, the acquisition continues as a public mandatory takeover offer and the purchaser exceeding the mandatory offer threshold is required to follow all the procedural steps required to publish a mandatory takeover offer (not following the procedure results in among other a standstill of voting rights).
In the case of hostile acquisitions, the chances of concluding a private deal as a first step are slimmer; therefore, they are usually structured directly as voluntary public tender offers.
2.2 What determines the choice of structure, including in the case of a cross-border deal?
The way the deal is structured primarily depends upon purchaser's decision, which is based on factors such as the structure of existing shareholders, financing structure, friendly or hostile takeover.
2.3 How quickly can a bidder complete an acquisition? How long is the deal open to competing bids?
Depending on the scope of the pre-acquisition due diligence, type of sale, type of financing and other elements of the process, a typical transaction could last anywhere from three to nine months (not including any post-acquisition activities).
The takeover process is open to competing bids until 10 days before the acceptance period of the first takeover offer ends.
2.4 Are there restrictions on the price offered or its form (cash or shares)?
The Takeover Act allows for cash consideration offers, share consideration offers, combined offers and alternative (cash or share) offers. A bidder is required to offer cash consideration if it had exceeded the mandatory takeover offer threshold.
Additionally, the purchase price offered in a takeover bid must be at least equal to the highest price at which the offeror (or any person acting in concert with it) was buying the target's shares in the last year before announcing the takeover bid.
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?
Squeeze-out of minority shareholders is possible once a single majority shareholder has obtained at least 90% of the entire share capital of the joint-stock company. Squeeze-outs are performed on the grounds of shareholders' assembly resolution proposed by the majority shareholder and in exchange for a suitable compensation. Minority shareholders also have the right to demand that the majority shareholder purchases their shares in exchange for a suitable compensation.
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?
All shareholders must be treated equally in relation to the consideration being offered, including compensation to the shareholders which are subject to squeeze-outs. No shareholder, including the purchaser of shares, may request or be granted preferential treatment.
A person acquiring shares giving at least one-third of the voting rights triggers an obligation to make a mandatory takeover bid. Post-takeover purchases at a higher price per share may also trigger a make whole obligation which applies with respect to shareholders who have accepted the takeover offer.
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?
The use of conditions in takeover offers is restricted – only conditions provided in the Takeover Act may be included in the takeover offer. If the acquisition of shares, which are the subject of the takeover offer, is conditional on the consent of an authority, the offer must be issued under a resolutive condition that the authority does not issue such consent. Additional permissible condition is setting a threshold for the takeover bid to be deemed successful.
A public M&A transaction, carried out through a takeover bid cannot be conditional on the bidder obtaining financing. A business combination related to a private M&A transaction can be conditional on the bidder obtaining financing with certain limitations. Such a condition would be quite exceptional, but not unprecedented. Any failure to obtain financing could lead to contractual penalties and break-fee payments.
Before publishing the takeover bid, the offeror must deposit cash or provide a sufficient funds bank guarantee in the amount necessary to satisfy all potentially accepting shareholders in order to obtain an authorisation to publish the bid.
3. TAX CONSIDERATIONS
3.1 What are the basic tax considerations and trade-offs?
According to Corporate Income Tax Act, M&A transactions, among others, can generally be conducted as tax-neutral transactions.
3.2 Are there special considerations in cross-border deals?
No.
4. ANTI-TAKEOVER DEFENCES
4.1 What are the most important forms of anti-takeover defences and are there any restrictions on their use?
Preventive measures are more common than post-tender mechanisms. However, strict restrictions as to what can be done exist with respect to limiting the transferability of shares, exercise of individual shareholders' voting rights, purchasing of own shares, poison pill mechanisms and transferring of significant asset bundles.
4.2 How do targets use anti-takeover defences?
A shareholders' resolution is required to apply the majority of legally available anti-takeover defences, apart from that the target company may always seek for a white knight. Targets in practice often acquire assets that could cause merger clearance problems for a hostile purchaser.
4.3 Is a target required to provide due diligence information to a potential bidder?
The outlining duty of the management is to act in corporate interest of the company, which does not necessarily include the duty to provide due dilligence information in all circumstances (especially in cases of hostile takeovers by competitors). The tactics of withholding due dilligence information is also used as an anti-takeover defence, although it could result in damage liability of target's management for acting against corporate interests of the company.
4.4 How do bidders overcome anti-takeover defences?
By stake-building before the mandatory takeover offer and tackling individual defences, there seems to be no general approach. Note that the bidder may change the takeover bid only in such a manner to increase the offered price or set a lower threshold for a takeover bid to be deemed successful.
4.5 Are there many examples of successful hostile acquisitions?
Hostile takeovers are very rare, though not unprecedented.
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?
A friendly bidder could secure an acquisition by purchasing shares before the offer, rather than obtaining the agreement of significant shareholders to tender their shares. A friendly bidder could potentially and in compliance with applicable laws also use break-up fees or exclusivity agreements.
5.2 To what extent are deal protections prevented, for example by restrictions on impediments to competing bidders, break fees or lock-up agreements?
Subject to applicable laws, deal protections such as using break-up fees or exclusivity agreements are possible. However, in the latter case if the seller was a state, the exclusivity agreement with a friendly bidder would be subject to state aid rules and the state as a seller must run an open, price-maximisation oriented privatisation or tender process.
6. ANTITRUST/REGULATORY REVIEW
6.1 What are the antitrust notification thresholds in your jurisdiction?
Under the Prevention of Restriction of Competition Act (PRCA), a concentration has to be notified to the CPA, if the following turnover thresholds are met:
(i) the combined annual turnover of the undertakings involved (including other same-group undertakings) exceeded €35 million ($37 million) on the Slovenian market in the preceding business year; and
(ii) the annual turnover of the target company (including other same-group undertakings) exceeded €1 million on the Slovenian market in the preceding business year or in the event of creating of a joint-venture, the annual turnover of at least two participating undertakings (including same group undertakings) exceeded €1 million on the Slovenian market in the preceding business year.
Regardless of the stated thresholds, a concentration doesn't need to be notified to the CPA if it is to be assessed by the European Commission in accordance with Regulation 139/2004/EC.
6.2 When will transactions falling below those thresholds be investigated?
The CPA may call on the involved undertakings to notify their concentration even if they have not exceeded the prescribed thresholds, if they obtain more than 60% of the market share in Slovenia, together with other same-group undertakings.
6.3 Is an antitrust notification filing mandatory or voluntary?
As soon as the turnover thresholds are met, the concentration will be deemed mandatorily notifiable.
6.4 What are the deadlines for filing, and what are the penalties for not filing?
A concentration must be notified to the CPA prior to its implementation but not later than 30 days after the conclusion of the contract, the announcement of the public bid, or the acquisition of a controlling interest. That period begins when the first of these events occurs.
When the EC decides not to appraise the concentration, the concentration must be notified to the CPA no later than 30 days after the undertaking has been informed of the decision made by the EC. When the EC by means of a decision notifies the undertakings that the concentration will be appraised by the CPA, the concentration must be notified to the CPA no later than 30 days from the service of the decision on the undertaking.
As regards fines for failure to file a notification or failure to file timely notification, the PRCA provides that a fine of up to 10% of the annual turnover of an undertaking concerned together with other undertakings within the group generated in the preceding financial year may be imposed for an infringement. In addition, fines from €5000 to €30,000 may be imposed on responsible individuals of the undertaking or of the individual entrepreneur.
6.5 How long are the antitrust review periods?
The CPA must issue a decision in the Phase I review within 25 working days of the receipt of a complete notification. Phase I review at EU level similarly takes 25 working days from the date of submission of a final notification. Phase II proceedings are lengthier, both on a national and EU level.
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 notification duty arises when and if the turnover thresholds are met, regardless of whether the concentration has an effect on competition in the local market. A fine of up to 10% of the annual turnover of an undertaking concerned together with other undertakings within the group generated in the preceding financial year may be imposed for failing to notify a concentration meeting the relevant 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?
There is no national security review of acquisitions. Exceptionally, limitations may apply with respect to asset deals, where the acquisition of a particular asset may be subject to prior review or consent by the pertinent authority; for example, this can apply to real property, located in designated national strategic defence sites. However, certain M&A transactions concerning some of the alleged national jewels seem to have been subject to a national interest review by the politics trying to prevent such deals from taking place.
As a general rule, employee' rights held towards the transferor are automatically transferred and enforceable against the transferee upon transfer.
7. ANTI-CORRUPTION REGIMES
7.1 What is the applicable anti-corruption legislation in your jurisdiction?
The main legislation in respect of corruption are the Integrity and Prevention of Corruption Act (Anti-corruption Act) and the Criminal Code.
7.2 What are the potential sanctions and how stringently have they been enforced?
The Commission for Prevention of Corruption has the power to impose fines for offences under the Anti-corruption Act, where for undertakings the fines range between €400 and €100,000 and for responsible persons from €400 to €4000. To the extent respective offences amount to criminal acts, the penalties may be up to eight years' imprisonment for responsible individuals. The rules seem to be stringently enforced.
8. OTHER MATTERS
8.1 Are there any other material issues in your jurisdiction that might affect a public M&A transaction?
Despite issues addressed above and potential political factors, such as lack of consensus on the sale of specific companies set for privatisation (most notably Slovenia's national telecommunications operator, Telekom Slovenia) which could hypothetically affect a public M&A transaction in Slovenia, there are no other material issues.
8.2 What are the key recent M&A developments in your jurisdiction?
The key recent M&A developments are driven by the privatisation of majority state-owned companies and the sale of distressed assets formed during the economic crisis in the country.
In 2013, the parliament designated and approved fifteen state-owned companies for privatisation, whereby only four of them have so far been sold: Fotona to Gores Group; Letrika to German Mahle Group; Aerodrom Ljubljana to German Fraport; and, Helios to the Austrian-based Ring Group. The privatisations of other companies including, amongst others, Slovenia's national telecommunications operator, Telekom Slovenia, the second largest state-owned bank Nova KBM, the national airline Adria Airways and Elan, a sports equipment manufacturer, are expected to form the largest part of M&A activity in 2015 and 2016.
A significant part of M&A activity is expected to result from the continued sale of distressed assets, including non-performing loans – a necessary corollary of the restructuring and rehabilitation of the Slovenian banking sector. The majority of these assets have been transferred to the state-owned Bank Assets Management Company as a measure of cleaning up the non-performing portfolios of Slovenian banks.
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Bojan Šporar
Rojs Peljhan Prelesnik & partners
Ljubljana
About the author
Bojan Šporar joined (the then) Colja, Rojs & Partnerji in 2007 after his traineeship at Linklaters and court articling at the High Court in Ljubljana. He is now a partner at the firm. He advises both corporates and banks primarily on mergers and acquisitions, debt finance and restructurings. He is also active in the capital markets area and advises on general corporate and commercial matters.
The range of transactions on which Šporar has recently advised include: privatisations, private acquisitions, takeover offers, spin-offs, debt refinancing and restructurings, acquisition finance, securitisations and structured finance transactions involving debt and equity.
Šporar has advised many Slovenian and international clients including Agrokor (the largest private company in Croatia), Hypo Group, NKBM (the second largest Slovenian bank), Bloomberg, Societe Generale, Moneygram, Kimberly Clark and Goodyear.
David Premelc
Rojs Peljhan Prelesnik & partners
Ljubljana
About the author
David Premelc is a partner at Rojs, Peljhan, Prelesnik & partners, where he practises corporate law, with a primary focus on mergers and acquisitions, corporate litigation and arbitration, media law and data protection. Prior to joining Rojs, Peljhan, Prelesnik & Partners in 2006, he worked at the High Court of Ljubljana and provided legal consulting services to the United Nations High Commissioner for Refugees' Office in Ljubljana. As part of his commercial law and M&A specialisation, Premelc has been a permanent adviser to significant Slovenian and international companies, including banking, pharmaceutical, media, IT, automotive and industry sectors.
Premelc regularly represents clients in administrative, litigation and international and domestic arbitration proceedings. He is representing one of the top five Slovenian companies in an ICC arbitration proceeding with the world's third largest player in its sector. He is consulted on a regular basis on data protection and media law issues.
