1 RELEVANT AUTHORITIES AND LEGISLATION
1.1 What regulates M&A?
In Slovenia, different aspects of M&A are regulated by different bodies of law. The company law aspects (corporate governance, corporate finance, changes to the corporate form and mergers) are subject to the Companies Act. Certain aspects of takeovers of public companies (the mandatory bid rule, the takeover offer process, target defence restrictions) are regulated by the Takeovers Act. Moreover, the Markets in Financial Instruments Act and the Ljubljana Stock Exchange Rules provide a regulation of the capital markets aspects of M&A. Apart from that, the Slovenian M&A framework is set by regulations provided for by, inter alia, the Competition Act, the Labour Law Code of Obligations and the Rights in Rem Act.
Certain sector-specific regulations, e.g., the Insurance Act, the Banking Act, the Investment Funds Act, and the Media Act, etc., provide for special regimes with respect to mergers/acquisitions of certain regulated corporate entities.
Certain additional requirements with respect to acquisitions and reorganisations of municipality/state-owned companies are governed by the Public Finance Act.
1.2 Are there different rules for different types of company?
The takeovers regime stricto sensu (the Takeovers Act - mandatory bid rule, the takeover offer process, target defence restrictions) only applies with regard to acquisitions of (i) listed public limited companies (i.e. joint-stock companies, the shares of which are admitted to trading on an organised market), and (ii) non-listed joint-stock companies if certain requirements regarding the size of the target company are met (at least 250 shareholders or total assets of at least EUR 4 million).
Similarly, capital markets regulations (such as market transparency and market abuse) only apply in regard to such companies. For example, the Financial Instruments Market Act provides for certain reporting obligations with regard to stakebuilding in a listed company. Once a single shareholder (option holder, a person entitled to jointly exercise voting rights, etc.) has reached such 5, 10, 15, 20, 25, 1/3, 50 or 75% of all voting rights in a public listed company (or if its stake has fallen below such a threshold), it is obliged to notify the management of the respective company. In turn, the company management is obliged to publish the fact that such an acquisition has been effected. Such reporting obligation applies mutatis mutandis to a non-listed joint-stock company that is subject to the Takeovers Act.
1.3 Are there special rules for foreign buyers?
As a rule, foreign buyers (especially EU/EEA-based buyers) are subject to the same regulations and requirements as the Slovenian buyers.
Certain sector-specific regulations (see question 1.4 below) provide for certain additional conditions that are to be met by an acquirer of a shareholding in certain regulated entities in order to obtain a respective authorisation by the competent public authority.
1.4 Are there any special sector-related rules?
Transactions within certain business sectors (banking, insurance, fund management, media) are, in addition to the general M&A regime, governed by various sector-specific rules. Usually, an approval by the relevant controlling public authority is required before the acquisition of a controlling stake in a regulated entity. For instance, the acquisition or sale of a shareholding in a Slovenian bank, insurance company or fund management company upon which the thresholds of 20, 33, or 50% of all the voting rights in such insurance company are reached or exceeded, trigger the requirement for preliminary approval by the relevant regulator (Bank of Slovenia, Slovenian Insurance Supervision Agency). Similarly, an acquisition of 20% or more shares in a daily media publishing undertaking may only be effected upon consent of the Slovenian Ministry of Culture.
1.5 Does protectionism operate in favour of local owners?
The applicable legislation does not distinguish between local and foreign owners.
1.6 What are the principal sources of liability?
In addition to the contractual liability, the participants in M&A transactions should consider the liability provided for noncompliance with the obligation to duly notify the Slovenian Competition Protection Agency (the "CPA") of the merger (when triggered)/seek an approval by the competent public authority (when applicable – see question 1.4 above).
For example, the completion of an M&A transaction without the prior notification/clearance from the CPA (when required) may entail a penalty in the amount of up to 10% of the turnover that the undertaking (along with other undertakings of the same group) achieved in the past business year, to be imposed upon the undertaking obliged to notify.
Additionally, the fines for infringement of the rules regarding bid procedures set out in the Takeovers Act (e.g. the failure of the bidder to instigate the tender offer procedure when it acquires more than 1/3 of the voting capital in the target company), may reach the amount of approximately EUR 125,200. Further penalties are provided under the sector-specific regulations mentioned under question 1.4 above. In addition to a monetary penalty, the acquirer will also suffer loss of the voting rights, stemming from the shares acquired outside the tender offer procedure.
Moreover, the Financial Instruments Market Act provides for a monetary penalty of EUR 25,000 to 125,000 for the failure to report an acquisition of a significant stakeholding (please see question 1.2 above).
Lastly, the acquirer of a Slovenian public company (joint-stock company) should take into account the provisions of the Financial Instrument Market Act regarding insider dealing and market abuse (closely mirroring the Directive 2003/6/EC on insider dealing and market manipulation). Breach of the respective provisions may, inter alia, entail a monetary fine of up to EUR 125,000 for the infringing undertaking, prohibition from further trading with financial instruments, as well as criminal sanctions (including imprisonment) for the responsible persons within the undertakings.
2 MECHANICS OF ACQUISITION
2.1 What alternative means of acquisition are there?
The control of a business is usually acquired by acquiring control of the corporation-owner of the business. This may be implemented by way of share purchase, takeover/merger, de-merger, or through a management agreement (where a dominant company controls the target company based on agreement, not equity). The acquirer can also acquire control of the target business via an asset purchase agreement.
In case of a share purchase, the investor will generally acquire control once the transfer of the title to the shares (closing) has been duly effected. In order to gain (positive) control, the investor should acquire at least 50%+1 of the voting shares. A more efficient level of control is obtained by way of acquisition of at least 75% of the voting shares in a company and full control by 90% (although shareholders aggregately holding a 10% interest still have certain minority blocking rights).
2.2 What advisers do the parties need?
In a common M&A transaction, the investor/purchaser is (depending on the size and complexity of the transaction) usually advised by local legal, financial and tax consultants. With regard to specific sectors of business, additional specialised advisors may be necessary (such as environmental regulation/industry specialists).
2.3 How long does it take?
The timeframe of an M&A transaction depends on the transaction structure and the eventual prior approvals/notifications required. In case of bid procedures under the Takeovers Act, the bidder must, before submitting the bid: (i) publish a takeover intent declaration; and (ii) obtain an authorisation from the Securities Market Agency. Once the said conditions are met, the bid shall stay open for a minimum of 28 days, and a maximum of 60 days.
If the transaction requires prior notification to be filed before the CPA, the general timeframe will usually be extended by up to one month for the CPA's preliminary (phase I) investigation. If the CPA decides to initiate a full investigation (in cases where the proposed transaction could lead to a market concentration significantly impeding effective competition on the Slovenian market – phase II), the CPA's decision should be expected in three months upon such initiation.
2.4 What are the main hurdles?
An M&A transaction may experience hurdles in cases when preliminary notification/approval by a public authority is required (see questions 1.4 and 2.3 above). Delays are mainly caused by the formalities that must be complied with and, sometimes (depending on the sector/public authority), the lack of decisive guidelines and/or practice – especially in cases of complex transactions. It should further be noted that the statutory time limits in which public authorities are to render their respective decisions are, in most cases, of an instructive nature, i.e. do not represent a strict obligation for the public authorities.
2.5 How much flexibility is there over deal terms and price?
In principle, the price and other transaction terms may be freely negotiated between the parties.
When the target is a public company falling within the scope of the Takeovers Act regime, the price in a public bid is subject to the restrictions provided therein. Generally, a takeover offer must be made in relation to all shares in the target (no partial bids) and the offer price (i) must be the same for all the shares in the target company/all the shares in the target company falling into a certain class, and (ii) may not be lower than the highest price at which the bidder has obtained the shares in the target company within the past 12 months. Furthermore, if, within one year upon the acquisition based on a successful bid, the bidder acquires additional shares in the target company at a higher price than offered in the bid, the bidder is obliged to pay the acceptors of the original bid the respective price difference.
2.6 What differences are there between offering cash and other consideration?
In the prevailing number of cases, M&A transactions in Slovenia are based on cash consideration. However, other kinds of consideration may also be agreed upon.
Pursuant to the Takeovers Act, either (a) cash, or (b) shares in the bidder/company controlling the bidder, or (c) a combination of the former, may be offered as consideration. In principle, the same legal regime applies to all aforementioned transaction modes.
2.7 Do the same terms have to be offered to all shareholders?
When the target is a public company falling within the scope of the Takeovers Act, the bid must provide for the same price with respect to all the shares in the target company/all the shares in the same class (equal treatment rule).
In other cases, the transaction terms may be freely negotiated between the acquirer and the selling shareholders, e.g., different terms with respect to different shareholders in the target company. The Companies Act provides for the general principle that all the shareholders shall be treated equally. The rule is further reflected e.g. in the case of a squeeze out - the same share price and exit conditions must be offered to all the shareholders which are being squeezed out.
2.8 Are there obligations to purchase other classes of target securities?
According to the Takeovers Act, the (mandatory or voluntary) takeover offer must be addressed to all "securities" issued by the target which are not held by the offeror; for the purpose of the respective provision, "securities" are defined as (i) shares of the target carrying voting rights, and (ii) call option warrants issued by the target. A bidder is thus not under an obligation to also purchase non-voting shares in the target company.
2.9 Are there any limits on agreeing terms with employees?
As a general rule, the employment contracts concluded by the target company shall remain in force after an M&A transaction. The acquirer is bound by/not allowed to amend the provisions of such employment contracts and employees' rights and obligations stemming from them except by way of a mutual agreement with the employees.
In case of a legal merger, de-merger or transfer of an undertaking (by way of an asset deal), the acquirer shall be liable for the employer's obligations assumed by way of employment contracts concluded before the transaction. Moreover, both parties to the transaction are deemed jointly and severally liable for any claims by the employees arising until the date the transfer was effected.
2.10 What role do employees play?
The general regime regarding employee participation in corporate transactions is set out in the Employee Participation in Management Act. Depending on the nature of the planned transaction/its impact on the employees' position, the employer (target) must: (A) inform the employees about the envisaged measure (e.g. change or reduction in the size of the business); (B) consult the employees with regard to the envisaged measure (e.g. sale of the company business, winding up, corporate reorganisation, reduction of the number of employees); or (C) obtain prior consent of the employees with respect to such a measure (e.g. if actions described under (B) will result in the change of a significant number of employees – as defined in the target's charter). The failure to adhere to these obligations may result in a monetary fine of up to EUR 20,000 (imposable on the employer) and/or, potentially, in the invalidity of the labour law measures (such as terminations of employment agreements or mass redundancies) subsequent to such a measure.
Since the above obligations are only binding on the "employer" (i.e. the management of the target), shareholder-level transactions (share sale/purchase agreements) are arguably not affected thereby. However, the validity of the transactions involving the target itself (such as asset purchases and mergers) may be compromised if the requisite steps are not adhered to.
In the contexts of a public takeover (governed by the Takeovers Act), the following applies: the target company and the acquirer/offeror must immediately inform the employees (via employee representatives) of the takeover intent (decision to make a takeover offer) and make available to the employees the target board's opinion on the effects of the takeover offer. Moreover, the target board is obliged to publish the employees' opinion with regard to the takeover offer (if it receives such opinion in good time).
2.11 What documentation is needed?
Documentation needed for a transfer of shares in a public company depends on: (i) the number of shares/level of control acquired (potential trigger of a CPA notification obligation/prior clearance requirement); and (ii) the nature of the target company (if listed and/or meeting certain requirements as to the size – see question 1.2 above – the transaction will be subject to the Takeovers Act regime).
The implementation of a bid procedure under the Takeovers Act requires, inter alia, the following documents: takeover intent declaration; bid; bid prospectus; opinion of the target board; confirmation of the Slovenian Central Clearing Corporation (the "CCC") that (a) a bank guarantee amounting to the consideration for all the shares that are subject to the takeover bid has been submitted, or (b) alternatively, that an equal amount of cash has been deposited with CCC; if shares are offered as consideration, a confirmation that such shares have been deposited with the CCC; and a report on the target shares which the bidder has acquired in the past 12 months (submitted on a special form), etc.
It should be noted that in the tender offer process pursuant to the Takeovers Act, the bid must be submitted by a registered member of the CCC, e.g. a stock-broking company.
The transfer of shares in a limited liability company is effected upon the execution of a share transfer agreement in the form of a notarial deed. In order to register the transfer with the court register, the following documents must, inter alia, be executed/submitted to the court register: share transfer agreement; executed in the form of a notarial deed; updated company articles of association and certain other documents – depending on the specific circumstances of the case (e.g., in case of an entry of a new shareholder, a statement that all companies in which such new shareholder holds a 25% stake have settled all outstanding taxes and other public charges).
In cases of legal mergers, the Companies Act provides that, inter alia, the following documentation is to be executed/submitted to the court register in cases of corporate transformations (i.e. mergers and de-mergers) in order to effect the transformation: transformation plan (only in case of de-mergers); transformation agreement; report of the management body; report of the financial auditor; protocol of the general meeting of each company participating in the transformation; and approval of the competent public authority (if applicable), etc.
2.12 Are there any special disclosure requirements?
In the context of a public takeover, the offer document must contain, inter alia, the identification of the offeror, the definition of the target securities, consideration (cash, securities, combination), the acceptance deadline and, if applicable, the threshold condition (minimum number of shares acceptable for the offeror). If the target company is not listed, but is subject to the Takeover Act because it fulfils the additional criteria (see question 1.2 above), the offer document must further contain a (court-appointed) auditor's opinion as to whether the consideration offered for the target shares is fair/equitable. In case of consideration by way of securities, the offer document must contain detailed information on such securities (mirroring the requirements of the EC Prospectus Directive).
As noted above, the target board must, within 10 days upon publication of the takeover offer, publish its opinion on the effects of the proposed takeover (including an indication of any prior dealings with/agreements between the board and the offeror).
Furthermore, individual members of the offeror and target company's boards must disclose any transactions with target securities which they (as natural persons) or their family members have entered into in the 12 months prior to the publication of the takeover offer.
2.13 What are the key costs?
The official fees due to the Court Register and the Official Gazette (for the compulsory publication, where applicable) are nominal. Advisory and investment professionals' fees (if applicable) depend on individual arrangements with the respective adviser/investment professional.
In cases that require prior notification to the CPA, a fee of EUR 2,000 shall be paid upon the filling of the notification via bank transfer. Please note that the amount of the filing fee is occasionally subject to adjustments by the Government of the Republic of Slovenia.
The fee due to the Securities Market Agency for the issuance of an approval to the takeover bid (Takeovers Act) amounts to 0.2% of the nominal value of the entire body of shares issued, but no less than EUR 2,000 and no more than EUR 12,000.
2.14 What consents are needed?
If the transaction takes place in a sector regulated by special rules, prior approval/permission by the relevant public supervisory body may be required. Please see question 1.4 above.
In case of a bid procedure under the Takeovers Act, the bid shall be approved by the Securities Market Agency prior to publication.
Pursuant to the Prevention of Restriction of Competition Act, an M&A transaction requires prior approval by the CPA if the combined aggregate annual turnover of all the undertakings concerned (including undertakings belonging to the same group), exceeds EUR 35 million before tax on the Slovenian market in the last business year and (a) the annual turnover of the target company (including undertakings belonging to the same group) exceeded EUR 1 million on the Slovenian market in the last business year, or (b) in the event of creation of a joint venture, the annual turnover of at least two participating undertakings (including undertakings belonging to the same group) exceeded EUR 1 million on the Slovenian market in the last business year.
If a concentration does not meet the above thresholds, but the market share of the undertakings concerned exceeds 60% in the Republic of Slovenia, the undertakings concerned are obliged to inform the CPA of the concentration (but not submit a formal notification).
2.15 What levels of approval or acceptance are needed?
In case of a – voluntary or mandatory – public offer (submitted in relation to the shares in a company subject to the Takeovers Act), the offeror is free (but not obliged) to set an acceptance threshold.
In case of private companies, no acceptance threshold is prescribed; however, the Companies Act provides for a statutory pre-emptive right of the existing shareholders. Articles of association may require consent of the general meeting and stipulate the respective voting majority requirement.
As far as (fundamental) corporate changes are concerned, the following applies: an envisaged merger or de-merger must be approved in advance by the general meeting of the (de)merging company(ies). The required minimum majority is 75% of the share capital represented at the voting in case of a joint-stock company and 75% of the entire share capital in case of a limited liability company. A larger majority may be provided for by the articles of association.
In case of the transfer of shares in limited liability companies, please see question 2.10 above as concerns the employee involvement/consent requirements.
2.16 When does cash consideration need to be committed and available?
The parties to an M&A transaction are usually free to negotiate the consideration payment terms, i.e. advance payments, delayed payments, and escrow payments, etc.
Nevertheless, the payment terms are strictly regulated if an investor initiates a bid procedure under the Takeover Act. First and foremost, the consideration (cash or securities) offered for the target securities must be deposited with the CCC prior to the publication of the takeover offer. In case of a successful bid procedure, the CCC is obliged to effect the payment of the deposited cash/transfer of the deposited shares to the acceptors of the bid within eight days upon having received the decision on bid success (issued by the Securities Market Agency).
3 FRIENDLY OR HOSTILE
3.1 Is there a choice?
The law itself does not distinguish between friendly and hostile takeovers. In practice, a takeover attempt is deemed hostile if it is opposed by the management and/or supervisory board of the target company.
The Takeovers Act limits the actions of the target company's management board while the tender offer procedures are pending. In particular, a prior approval by the general meeting is required for defensive measures of the board (any steps that the board intends to undertake in order to resist the transaction such as sale of assets, acquisition of own shares, issuance of new shares/increase of share capital, etc.).
3.2 Are there rules about an approach to the target?
There are no explicit rules about the bidder's approach to the target; however, such an approach may result in the target board disclosing/publishing this fact (either voluntarily or on the basis of the target board's mandatory disclosure obligation under the Financial Instruments Markets Act – inside information). Please also see question 4.2 below.
3.3 How relevant is the target board?
Practically, the cooperation of the target board is of great importance in the due diligence and negotiation process. Pursuant to the Takeovers Act, the target board is obliged to issue a written opinion on the published takeover bid.
Apart from the above, the managing bodies of the companies participating in the merger/de-merger are obliged to prepare a written report on the transaction – legal and economic rationale of the transaction. It shall be presented before the Companies Register for the sake of publicity. Finally, it is the general meeting that approves the transaction, having in mind the information contained in the managing body report. If the transaction is approved by the general meeting, the management body is obliged to execute it. In hostile transactions, the board's tactics to resist the transactions usually require prior approval of the shareholders (please see question 8.2 below).
3.4 Does the choice affect process?
In practice, the transaction negotiation and execution processes run more efficiently if the co-operation of the target board has been secured in advance.
4 INFORMATION
4.1 What information is available to a buyer?
A significant amount of information on the target company is publicly available. The public Companies Register, which in Slovenia is run by district courts, provides public access to the main corporate documentation (e.g. articles of association, certain general assembly resolutions, some supervisory board resolutions, company's legal status history, and share-transfer agreements in a limited liability company, etc.). Please note that a substantial amount of corporate information is available online (www.ajpes.si). Most companies (public and private) are also obliged to publish their accounting statements for each financial year (which, as a rule, equals the calendar year). If the transaction involves real estate, the ownership title/encumbrances status of the latter may be checked with the Land Register.
No law provides that the target company is obliged to disclose information to the buyer. However, the general assembly of the target company may obligate the board of the target company to disclose certain information to the potential buyer.
Any information that is not publicly available may, in principle, only be obtained with the cooperation of the target. As a rule, an acquirer who already holds shares in the target has access to certain non-public information – on an equal basis with the other shareholders.
4.2 Is negotiation confidential and is access restricted?
As a rule, the negotiation is kept confidential. However, in case of listed (public) companies, the fact that negotiations are taking place between the board and the (potential) bidder may trigger the target board's ad hoc disclosure obligation (this would be the case to the extent that, if made public, the fact that such negotiations are taking place could have a significant impact on the target share price).
However, the Securities Market Agency may, notwithstanding the above, request that the potential acquirer and/or the potential target company's management board disclose any ongoing negotiations, which may result in the tender offer. Even if there is no such request from the Securities Market Agency, the target company's management is required to notify the Securities Market Agency of any arrangements or negotiations with the bidder, or that there are no such ongoing arrangements or negotiations, within two business days after the publication of the takeover intention.
If there is an agreement with the target company regarding the acquisition of the latter, such an agreement must be disclosed in the prospectus used in the tender offer procedures.
Furthermore, the parties usually undertake to keep confidential any information concerning the transaction parameters.
4.3 What will become public?
In case of a public company, the acquirer will have to make available to the public, inter alia, a detailed prospectus containing a wealth of information on both the target company and the acquirer (see question 2.12 above). Since there is no obligation to settle transactions regarding listed companies on-exchange (e.g. if the acquirer enters into a direct agreement with the seller of a controlling block), the purchase price need – in principle – not be disclosed to the public.
In case there is a merger/de-merger agreement involving joint-stock companies (public or non-public), a copy of the merger/de-merger agreement is kept with the Companies Register, thus making it available to the public.
The transfer of shares in a limited liability company may be performed only on the basis of a share transfer agreement in a form of a notarial deed, which must be submitted to the Companies Register (where it is made available to the public). The same applies to the merger and de-merger transactions where the merger agreement is kept at the Companies Register. For this reason, it is common that the parties present to the Companies Register an abbreviated form of the share transfer agreement or merger/demerger agreement, without disclosing the main parameters of the transaction – although the viability of this practice has recently been challenged in legal writing.
4.4 What if the information is wrong or changes?
In the tender offer procedure, the Securities Market Agency will scrutinise the prospectus (which is an integral part of the bid documentation) for errors, discrepancies, and omission prior to issuing its consent that the tender offer may proceed. The acquirer will be requested to correct wrong information.
If the prospectus includes false information, the persons who prepared it or took part in its preparation shall be jointly and severally liable to the holders of securities for damage if they knew of or should have known that the information was false.
After the takeover bid has been announced, the bidder may amend it only by:
- offering a higher price or a more favourable conversion rate; or
- setting a lower successful bid threshold if any.
The bidder may amend the takeover bid not later than 14 days prior to the expiration of the time allowed for acceptance of the bid.
If the bidder amends his takeover bid, it shall be considered that accepting parties that have accepted the takeover bid prior to the publication of such amendment have also accepted the amended takeover bid.
5 STAKEBUILDING
5.1 Can shares be bought outside the offer process?
After placing the (mandatory or voluntary) takeover offer and until its expiration, the bidder is not allowed to make any purchase of the shares outside the tender offer procedure. Note that the tender offer process is only triggered if: (i) the target is a listed public company (or a non-listed public company meeting certain criteria with respect to size – see question 1.2 above); and (ii) the respective thresholds set forth by the Takeovers Act are met. An investor is deemed to have reached the threshold: (a) upon acquisition of 1/3 of the voting shares in the target company; and (b) each time such investor subsequently acquires 10% or more of the shares in the target company after the conclusion of a successful bid process. The obligation to submit a public bid ceases to apply once the investor has acquired 75% of all the voting shares in the target.
Note that an investor may lawfully acquire shares even after the mandatory tender offer thresholds are met; however, such investor shall lose its voting rights from such shares until a tender offer is published. There is also a monetary penalty for the investor for failing to start the tender offer, despite reaching the trigger threshold.
Note further that, under certain circumstances, acquisitions of target shares in the course of corporate restructuring and acquisitions of target shares by regulated credit institutions by way of enforcement of collateral are exempt from the above regime (see question 10.1 below).
5.2 What are the disclosure triggers?
Pursuant to the Financial Instruments Market Act, any shareholder who: (a) directly or indirectly, acquires 5, 10, 15, 20, 25, 33, 50 or 75% of all voting shares in a public listed company (meeting the criteria described in question 1.2 above); or (b) if the total number of its voting rights falls below any of the said thresholds, is obliged to notify the public company thereof. In turn, the respective company is obliged to publish the reported change within three business days upon the receipt of such notification.
5.3 What are the limitations and implications?
After placing of the bid and until its expiration, the bidder is not allowed to make any purchase of the shares outside the bid procedure. Please see question 5.1 above for other limitations.
6 DEAL PROTECTION
6.1 Are break fees available?
In transactions between the (controlling) shareholder(s) and the acquirer, the parties involved are free to agree on any potential break fees. The practice is not widespread, though. Apart from this, Slovenian legislation provides that the party, which remains loyal to negotiations, is entitled to be fairly reimbursed for the costs suffered during the negotiations in case the opposite party breaks the negotiations without reason – culpa in contrahendo.
Given the concentrated ownership structure in most Slovenian companies, transactions where management is acting on behalf of the (non-controlling) shareholders are rare. In such instances, break fees can be arranged; however, such an arrangement may be problematic from the perspective of (i) directors' duties, and (ii) financial assistance rules.
6.2 Can the target agree not to shop the company or its assets?
Slovenian legislation does not generally prohibit such arrangements between the parties and it is not uncommon that the target board undertakes not to shop the target or its asset for a certain period of time. For that purpose, the parties usually sign a Letter of Intent or similar legal instrument indicating the exclusivity, or lock out, period.
It should be taken into consideration, however, that no-shop or lockout commitments might constitute a breach of the general rules on the duty of management loyalty and care. The target board has the principal obligation to manage the company in compliance with the shareholders' interest. This is why the boards are well advised to carefully evaluate the possible competing proposals before entering into a lock-out agreement.
6.3 Can the target agree to issue shares or sell assets?
The issuing of (voting) shares by public companies is subject to a strict pre-emption right regime in favour of existing shareholders which can only be excluded by a 75% majority of the capital present at the voting on the resolution on the share issuance/capital increase.
The Companies Act requires for all joint-stock companies that the transfer of assets in the value equalling or exceeding 25% of all the company's assets is approved by the general assembly, with a qualified majority of 75% of the capital present at the general assembly.
In case of a tender offer process pursuant to the Takeover Act, certain statutory restrictions as to the actions of the target company board during the bid process are provided for; by way of example, issuing of shares, acquisition of own shares or entering into transactions exceeding normal course of business to the effect that a bid is frustrated is deemed null and void if it is not approved by the general meeting of the target. Therefore, the possibility of the target company to issue shares or sell assets during the tender offer procedure is rather limited by the Takeovers Act.
6.4 What commitments are available to tie up a deal?
Apart from the – legally risky – break fee, no shop and lock-out agreements, no other formal mechanisms are available. Target management may, of course, influence the shareholders by advocating for or against a certain bidder.
7 BIDDER PROTECTION
7.1 What deal conditions are permitted?
As a general rule, the Slovenian legislation obligates the parties to deal in good faith. Any further deal conditions may be agreed between the parties without breaching the said legal principle, and, with regard to the public companies, in compliance with the above restrictions.
In case of joint-stock companies (falling within the scope of the regulation provided by the Takeovers Act), the bidder is not entitled to withdraw a bid after it has been published, unless the bid cannot be executed due to circumstances beyond the control of the bidder, provided that the time limit for its acceptance has not expired. In certain cases, a voluntary bid may be withdrawn. Please note that the bidder may make the bid subject to certain conditions (such as the minimum acceptance and administrative authorisations). Notably, a bidder cannot make his offer conditional upon merger control clearance.
7.2 What control does the bidder have over the target during the process?
There is no legal ground for the bidder to exercise any control over the target during the deal process. Therefore, the bidder may not avoid/prevent any changes of circumstances regarding the target, e.g. due to defensive measures initiated by the target boards. However, in case any steps have been undertaken in bad faith or in violation of the deal conditions (please see questions 7.1 and 6.3 above), the target shareholder may claim damages.
As concerns the statutory restrictions as to the actions of the target company board during the bid process in case of a tender offer pursuant to the Takeover Act, please see the answer to question 6.3.
Last but not least, the general meeting of the target may, in the course of a tender offer process, temporarily suspend the validity of defence mechanisms provided for in the company's articles (e.g. statutory or contractual share transfer restrictions) by way of an amendment to the articles of association.
7.3 When does control pass to the bidder?
Legally, the title to shares (and the attached control rights) passes to the bidder as at the moment of registration of the transfer with CCC. In case of share transfer in a limited liability company, control passes to the investor upon the execution of the share transfer agreement in the form of a notarial deed. In case of reorganisations by way of a merger or a de-merger, the control passes to the investor/bidder upon the registration of the merger/de-merger agreement with the court register.
As concerns the rights/level of control an investor may exercise on the basis of different stakeholdings, please see question 2.1 above.
7.4 How can the bidder get 100% control?
Pursuant to the Companies Act, the bidder who has acquired the title to at least 90% of the entire issued share capital in a joint-stock company, is entitled to submit a bid for the purchase of the remaining shares (squeeze-out). The remaining shareholders are thereby obliged to sell their shares to the bidder.
8 TARGET DEFENCES
8.1 Does the board of the target have to publicise discussions?
In case of listed (public) companies, the fact that negotiations are taking place between the board and the (potential) bidder may trigger the target board's ad hoc disclosure obligation, both in cases where the Takeovers Act applies, as well as in the event of stakebuilding notification pursuant to the Financial Instruments Market Act.
Apart from this, the management bodies have the general obligation to discharge their duties in all shareholders' and the company's best interests. This obligation may be interpreted as requiring that bids should be reported to the shareholders. The rules on the board of directors' activity and the management agreements may expressively provide for such a duty.
Please see also question 4.2 above.
8.2 What can the target do to resist change of control?
In the case of a tender offer pursuant to the Takeover Act, certain statutory restrictions as to the actions of the target company board during the bid process are provided for; by way of example, entering into transactions exceeding the normal course of business, acquisition of own shares or performance of any and all actions that may frustrate the bid is deemed null and void if it is not substantiated by the general meeting of the target. See question 6.3 above.
In cases where the Takeovers Act does not apply, the target company is pretty much free to resist the change of control as long as the capital maintenance rules and equal treatment of shareholders rule are observed. The disposal of the assets in a joint-stock company, however, is subject to certain restrictions. See question 6.3 above.
8.3 Is it a fair fight?
In the tender offer procedures, the Securities Market Agency will supervise (to a certain extent) that it is a fair fight. Outside the tender offer procedure and when the company which intends to acquire shares is not at the same time a shareholder in the target, the board is not limited to treat such companies in a more or less favourable manner.
9 OTHER USEFUL FACTS
9.1 What are the major influences on the success of an acquisition?
Judging from past experience, the cooperation of the target company's board may prove decisive for the success of the M&A transaction. Often, the board can influence the major shareholders. In view of the concrete business sector, the state institution in charge may also affect the transaction whenever prior approval is required, or when research has to be made, etc.
9.2 What happens if it fails?
Above all, the issue of the reimbursement of the transaction costs (e.g. for due diligence process, advisers) may arise. Therefore, it is advisable that the participants agree in advance how the costs should be split (if at all).
10 UPDATES
10.1 Please provide a summary of any relevant new law or practices in M&A in Slovenia.
The threshold triggering the obligation to submit a mandatory takeover offer has recently (May 2012) been increased from 25% to 1/3 of the voting capital in the target company – largely as a response to the widespread criticism that the formerly applicable threshold was too low and thus impeded the equity capital markets' activity.
Moreover, in view of the pending financial crisis, the Takeovers Act was amended to the effect that acquisitions of target shares (i) by corporate creditors in the context of a target company's restructuring, and (ii) by credit institutions who acquired target shares by way of enforcing security for extended loans, are exempt from the obligation to submit a mandatory takeover offer (upon exceeding the 1/3 voting capital threshold). In regard to (i), the acquirer is obliged to launch a mandatory takeover offer upon any further acquisition of target shares; in regard to (ii), the acquiring credit institution is prohibited from exercising voting rights in the target and is obliged to dispose of the target shares within two years upon such acquisition (or launch a takeover offer in respect of all target shares).
This article appeared in the 2013 edition of The International Comparative Legal Guide to: Mergers & Acquisitions; published by Global Legal Group Ltd, London. www.iclg.co.uk.
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