The Mergers & Acquisitions Review - Edition 13 PDF

Mergers &
Acquisitions
Review
Thirteenth Edition
Editor
Mark Zerdin
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© 2019 Law Business Research Ltd

Mergers &
Acquisitions
Review
Thirteenth Edition
Reproduced with permission from Law Business Research Ltd

This article was first published in September 2019
For further information please contact Nick.Barette@thelawreviews.co.uk
Editor
Mark Zerdin
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ACKNOWLEDGEMENTS
The publisher acknowledges and thanks the following for their assistance throughout the
preparation of this book:
AABØ-EVENSEN & CO ADVOKATFIRMA
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ARIAS, FÁBREGA & FÁBREGA
ASHURST LLP
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DRYLLERAKIS & ASSOCIATES
ELVINGER HOSS PRUSSEN
i
Acknowledgements
GREENBERG TRAURIG SANTA MARIA LAW FIRM
HENGELER MUELLER PARTNERSCHAFT VON RECHTSANWAELTEN MBB
HEUKING KÜHN LÜER WOJTEK
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URÍA MENÉNDEZ
WHITE & CASE LLP
WINSTON & STRAWN LLP
ii
CONTENTS
PREFACE�� vii
Mark Zerdin
Chapter 1 EU OVERVIEW��1
Mark Zerdin
Chapter 2 EUROPEAN PRIVATE EQUITY��10

Benedikt von Schorlemer and Jan van Kisfeld
Chapter 3 M&A LITIGATION��18

Roger A Cooper, Meredith Kotler, Mark McDonald and Vanessa C Richardson
Chapter 4 REGULATION OF FINANCIAL INSTITUTION M&A IN THE

UNITED STATES��27
Gregory Lyons, David Portilla and Nicholas Potter
Chapter 5 UNITED STATES ANTITRUST OVERVIEW��34

Richie Falek, Neely Agin and Conor Reidy
Chapter 6 ARGENTINA��40
Fernando S Zoppi
Chapter 7 AUSTRIA��48
Clemens Philipp Schindler and Christian Thaler
Chapter 8 BRAZIL��59
Adriano Castello Branco, Claudio Oksenberg and João Marcelino Cavalcanti Júnior
Chapter 9 CANADA��70
Cameron Belsher, Robert Hansen, Robert Richardson and Mark McEwan
Chapter 10 CAYMAN ISLANDS��83

Suzanne Correy and Daniel Lee
iii
Contents
Chapter 11 CHINA��93
Wei (David) Chen and Kai Xue
Chapter 12 COLOMBIA��104
Alexandra Montealegre and Stefania Olmos
Chapter 13 COSTA RICA��117

John Aguilar Quesada and Marco Solano
Chapter 14 DOMINICAN REPUBLIC��124

Georges Santoni Recio and Laura Fernández-Peix Pérez
Chapter 15 ECUADOR��134
Boanerges H Rodríguez Velásquez
Chapter 16 EGYPT��142
Omar S Bassiouny and Maha El-Meihy
Chapter 17 FINLAND��152
Jan Ollila, Wilhelm Eklund and Jasper Kuhlefelt
Chapter 18 FRANCE��164
Didier Martin
Chapter 19 GERMANY��185
Heinrich Knepper
Chapter 20 GREECE��202
Cleomenis G Yannikas, Vassilis S Constantinidis and John M Papadakis
Chapter 21 HONG KONG��213

Jason Webber
Chapter 22 HUNGARY��224
József Bulcsú Fenyvesi and Mihály Barcza
Chapter 23 ICELAND��234
Hans Henning Hoff
Chapter 24 INDIA��241
Justin Bharucha
iv
Contents
Chapter 25 INDONESIA��256
Yozua Makes
Chapter 26 ITALY��267
Mario Santa Maria and Carlo Scaglioni
Chapter 27 JAPAN��278
Masakazu Iwakura, Gyo Toda and Makiko Yamamoto
Chapter 28 KOREA��287
Ho Kyung Chang, Alan Peum Joo Lee and Robert Dooley
Chapter 29 LUXEMBOURG ��298

Philippe Hoss and Thierry Kauffman
Chapter 30 MEXICO��313
Eduardo González and Jorge Montaño
Chapter 31 NETHERLANDS��321
Meltem Koning-Gungormez and Hanne van ‘t Klooster
Chapter 32 NIGERIA��331
Lawrence Fubara Anga and Maranatha Abraham
Chapter 33 NORWAY��336
Ole K Aabø-Evensen
Chapter 34 PANAMA��368
Andrés N Rubinoff
Chapter 35 PORTUGAL��376
Francisco Brito e Abreu and Joana Torres Ereio
Chapter 36 QATAR��388
Michiel Visser, Charbel Abou Charaf and Mohammed Basama
Chapter 37 ROMANIA��400
Horea Popescu and Claudia Nagy
Chapter 38 RUSSIA��411
Alexander Vaneev, Denis Durashkin and Anton Patkin
v
Contents
Chapter 39 SINGAPORE��422
Sandra Seah, Marcus Chow and Seow Hui Goh
Chapter 40 SPAIN��432
Christian Hoedl and Miguel Bolívar Tejedo
Chapter 41 SWITZERLAND��446
Manuel Werder, Till Spillmann, Thomas Brönnimann, Philippe Weber, Ulysses von Salis,
Nicolas Birkhäuser and Elga Reana Tozzi
Chapter 42 UKRAINE��455
Viacheslav Yakymchuk and Olha Demianiuk
Chapter 43 UNITED ARAB EMIRATES��469

Danielle Lobo and Abdus Samad
Chapter 44 UNITED KINGDOM��479

Mark Zerdin
Chapter 45 UNITED STATES��498

Richard Hall and Mark I Greene
Chapter 46 VENEZUELA��530
Guillermo de la Rosa Stolk, Juan Domingo Alfonzo Paradisi, Valmy Diaz Ibarra and
Domingo Piscitelli Nevola
Chapter 47 VIETNAM��543
Hikaru Oguchi, Taro Hirosawa and Ha Hoang Loc
Appendix 1 ABOUT THE AUTHORS��557

Appendix 2 CONTRIBUTORS’ CONTACT DETAILS��587
vi
PREFACE
2018 was the year of the mega-deal, with an unprecedented number of big-ticket mergers
taking place across a range of jurisdictions and sectors. In the first six months of 2018,
global deal value rose by 59 per cent compared to 2017, despite volumes falling by 12 per
cent. Although there was a considerable drop off in activity in the second half of the year,
2018 nonetheless saw robust overall performance by market participants, with global activity
in 2018 exceeding US$3 trillion for the fifth consecutive year.
The United States remained the most targeted and acquisitive region globally in 2018;
however, the deal-making landscape in the US for the remainder of 2019 presents a mixed
picture. On the one hand, tax reform, a more relaxed US regulatory climate and growing cash
reserves present a favourable environment for investors. On the other, dealmakers are likely to
be concerned by the trade dispute between the US and China – which is already threatening
economic growth and, at the time of writing, shows no sign of abating – and the ongoing
uncertainty regarding antitrust policies, which may lead to increased scrutiny of M&A deals.
In Europe, after a record-breaking start to the year, the prolonged uncertainty caused
by stuttering Brexit negotiations and wider political tensions across the continent finally
caught up with dealmakers in the second half of 2018. In line with a softening of the global
economy, the value of European deals in H2 plummeted to its lowest level since 2013, and
the volume of transatlantic deals between North America and Europe also fell by 29 per cent
year-on-year.
One of the main disruptors to M&A activity over the past 12 months has been the rise
in political intervention in cross-border deals. In particular, concerns over national security
have led to the tightening of foreign investment regimes and antitrust regulations, coupled
with more active enforcement by regulators. This growth in protectionism is likely to remain
one of the main obstacles facing dealmakers in the near future.
Nevertheless, looking forwards into the remainder of 2019, there is certainly cause
for optimism: private equity continues to enjoy record-breaking levels of dry powder, and
developments in technology are driving both the sector itself and the facilitation of deals
more broadly. Finally, and perhaps most importantly, the past 12 months have highlighted
the resilience of companies and private equity firms in their navigation of global political
uncertainty and economic shifts.
vii
Preface
I would like to thank the contributors for their support in producing the 13th edition
of The Mergers & Acquisitions Review. I hope the commentary in the following 47 chapters
will provide a richer understanding of the shape of the global markets, and the challenges and
opportunities facing market participants.
Mark Zerdin
Slaughter and May
London
July 2019
viii
Chapter 1
EU OVERVIEW
Mark Zerdin1
I OVERVIEW OF M&A ACTIVITY

Following on from a reasonably strong year for M&A in 2017, the start of 2018 saw high
levels of activity across Europe. Indeed, the value of deals in the first half of 2018 reached
€509 billion – up 16 per cent from the same period in 2017.2 Mega mergers were the
driving force behind these record-breaking statistics, consistent with the emerging global
trend towards fewer, but larger, deals. In the first quarter of 2018, six deals surpassed the
US$10 billion mark – the highest Q1 deal value since the financial crisis – and, in Q2, the
value of deals rose even further to €292.5 billion.3
European deal-making spanned a wide range of sectors throughout 2018, but the most
notable in terms of deal value was the technology, media and telecoms (TMT) sector, in which
four of the top 20 deals in Europe were recorded.4 Most M&A activity was concentrated in
the UK, which accounted for 25 per cent of total value for the first half of 2018, followed
by Germany (15 per cent of value) and the Republic of Ireland (14 per cent).5 Particularly
notable European deals included the Japanese drugs giant Takeda’s £46 billion acquisition of
Irish pharmaceuticals firm Shire; Comcast’s high profile takeover of Sky for €42 billion; and
the renewable energy deal struck by RWE, E.ON and Innogy for over €37 billion.
Nevertheless, in the face of continued geopolitical uncertainty, European M&A
experienced a considerable decline in the second half of 2018. Following an exceptional start
to the year, M&A activity fell suddenly by 52.8 per cent in H2. In Q4, the value of European
deals dropped to US$146.2 billion – the lowest quarterly value since Q1 2013. Indeed, of
the 11 deals worth over US$10 billion recorded in 2018, all were announced in the first five
months of the year. Only 10 deals worth over US$5 billion were announced in H2 2018.
In 2019, M&A activity has thus far been similarly subdued. In addition to the obvious
concerns arising out of the continued political and economic uncertainty, an important
contributing factor to this fall in activity has been the rise of protectionism across Europe and,
indeed, globally. At both Member State level and EU level there have been moves towards
greater scrutiny of foreign investment in strategic assets or critical infrastructure. Earlier this
year, for example, the UK updated its merger and takeover rules to give the government
stronger powers of veto over foreign takeovers of certain types of technology businesses. At
1 Mark Zerdin is a partner at Slaughter and May.

2 Mergermarket, ‘Scanning the horizon: European M&A Outlook 2018’.
3 Ibid.
4 Mergermarket, ‘Deal Drivers EMEA 2018 Full Year Edition’.
5 Mergermarket, ‘Scanning the horizon: European M&A Outlook 2018’.
1
EU Overview
EU level, there have been proposals to increase scrutiny of foreign direct investment and to
create a cooperation mechanism between Member States in cases where foreign investment
poses a potential threat to security.
It has not, however, been a wholly bleak affair across the board: in a bid to deploy
record amounts of dry powder, private equity firms have taken centre stage over the past
12 months. In 2018, European private equity saw €170 billion in buyout deal value – the
highest so far this decade. This trend looks set to continue into 2019, with private equity
buyouts accounting for 29.2 per cent of all European M&A activity during the first quarter
– the highest figure at this stage of the year on Mergermarket records.6 The top three deals
thus far have all been inbound investments conducted by North American investors and
consortia, such as the €5.7 billion acquisition of Scout24 by the Hellman & Friedman and
Blackstone consortium.7
Going into 2019, the TMT sector was the most profitable and active sector in the first
quarter of the year, with buyout deals valued at €7.5 billion and 54 exits recorded. This is the
first time on Mergermarket records that the TMT sector has, on a quarterly basis, surpassed
the industrials and chemicals sector (which saw €6.3 billion of buyout deals and 27 exits in
Q1).
The clear drop-off in M&A activity since the second half of 2018 may concern
dealmakers and, with the European Central Bank ending quantitative easing and the
eurozone economy entering a slower rate of growth, 2019 is unlikely to present a favourable
environment for M&A activity. On top of these conditions, geopolitical uncertainty and
growing protectionism will be important factors for market participants to consider before
making significant investment decisions. Nevertheless, as companies learn to navigate
uncertainty in Europe, it is hoped that market participants will have the confidence to remain
inquisitive and acquisitive.
II RECENT EUROPEAN LAW MEASURES RELATING TO CORPORATE LAW

i Brexit update
At the time of writing, there is significant uncertainty regarding the UK’s withdrawal from
the European Union. On 29 March 2019, the date that the UK was originally scheduled to
leave, the UK Parliament rejected the withdrawal agreement negotiated between the Prime
Minister, Theresa May, and the EU for the third time. Consequently, EU leaders agreed to
delay Brexit for up to six months. The revised departure date has been set for 31 October 2019,
with the option for the UK to leave earlier if a withdrawal agreement is reached. At present, it
remains to be seen whether a withdrawal agreement will come into force or if the UK will exit
the EU without an agreement. Indeed, as political pressure for a second referendum mounts,
it also possible that the UK will reverse its decision to leave.
On the assumption that the UK will ultimately leave the EU, the government has
published several pieces of secondary legislation, which will come into force on exit day. The
intention of this legislation is to facilitate the effective functioning of the UK’s company law
framework and the operation of the UK takeovers regime on a freestanding basis outside the
EU framework post-Brexit.
6 Mergermarket, ‘EMEA MA activity during Q1 2019’.

7 Ibid.
2
EU Overview
ii General Data Protection Regulation

As discussed in the previous edition of The Mergers & Acquisitions Review, the General Data
Protection Regulation (GDPR) was published in the Official Journal on 4 May 2016 and, as
a regulation, it has had a direct effect in all EU Member States from 25 May 2018. The aim of
the GDPR is to harmonise the data protection regime across the European Union, replacing
existing national laws based on the Data Protection Directive of 1995 (which is implemented
in the United Kingdom through the Data Protection Act 1998). Under the GDPR, the
territorial scope of the EU data protection regime will be significantly expanded to apply
to any organisation that offers goods and services to individuals in the European Union
(including those that are free of charge), or any organisation that monitors their behaviour.
This means that a larger number of overseas businesses are likely to be affected. The GDPR
also brings with it greater enforcement powers, and sanctions for non-compliance may lead
to fines of up to 4 per cent of annual worldwide turnover or €20 million (whichever is
greater). As under the current law, the GDPR will regulate the transfer of personal data
to countries or companies outside the European Union, providing formal mechanisms to
permit international data flows.
Despite the many similarities between the GDPR and the preceding Data Protection
Act, companies need to ensure that their data processing systems are compliant with the new
elements and enhancements introduced by the GDPR. The Information Commissioner’s
Office (ICO), the UK’s data protection regulator, maintains and frequently updates a guide
to the GDPR, which aims to help organisations comply with the GDPR requirements.8
After formally exiting the European Union, the GDPR will continue to apply to
the United Kingdom because, as stated above, the United Kingdom intends to enact EU
legislative provisions directly into domestic legislation to prevent uncertainty about the status
of EU law after Brexit. Thus, the provisions of the Data Protection Bill 2017 will align the
United Kingdom with the GDPR by repealing and replacing the Data Protection Act 1998.
iii New Prospectus Regulation

On 30 June 2017, the New Prospectus Regulation9 was published in the Official Journal of
the European Union; it repeals and replaces the Prospectus Directive.10 The stated aim is to
lower one of the main regulatory hurdles that companies face when issuing equity and debt
securities, by simplifying administrative obligations related to the publication of prospectuses
but in a manner that still ensures that investors are well informed.11
One of the key changes that the New Prospective Regulation provides for is a simplified
disclosure regime for small and medium-sized enterprises and secondary issuances. For
example, the reformed prospectus regime limits the inclusion of risk factors to those that are
specific to the issuer of the securities and that are material to making an informed decision.
Risk factors will be divided into a limited number of categories and, within each category, the
most material risk factor will need to be mentioned first. The summary of the prospectus will
now be limited to seven sides of A4 paper when printed, and the requirement for the format
8 Information Commissioner’s Office, ‘Guide to the General Data Protection Regulation (GDPR)’. https://
ico.org.uk/for-organisations/guide-to-the-general-data-protection-regulation-gdpr.
9 Regulation (EU) 2017/1129.
10 Directive (EU) 2003/71.
11 Council of the European Union press release 260/17, ‘Capital markets union: new prospectus rules
adopted’, 16 May 2017.
3
EU Overview
to consist of five tables has been removed. While the new rules still require the summary
to have a uniform format, it is less prescriptive both in terms of content and structure. The
increased emphasis on uniformity and materiality should also reduce the cost of accessing
European capital markets.
While a handful of changes have already been implemented, the majority of the
provisions of the New Prospectus Regulation and delegated acts will come into force on
21 July 2019. On 31 January 2019, ESMA published a new Q&A on the application of
the Prospectus Directive and its implementing measures, which includes guidance on how
the New Prospectus Regulation will apply in the event that the UK leaves the EU without a
withdrawal agreement.
iv The Fifth Anti-Money Laundering Directive

The Fifth Money Laundering Directive (MLD5)12 came into effect on 9 July 2018 and will
amend the Fourth Money Laundering Directive (MLD4)13 once it has been transposed by
Member States, which must be done by 10 January 2020. MDL4, and therefore also MDL5,
are part of the European Commission’s proposal to strengthen the fight against terrorist
financing against the backdrop of the Panama Papers revelations in April 2016 and recent
terrorist attacks. They apply to a wide range of businesses: in essence, any business deemed
at risk of being involved in money laundering or terrorist financing. The aim of the directive
is to ‘ensure more transparency and help competent authorities to effectively detect criminal
and terrorist financing flows’.14 The proposed amendments, which extend the scope of MLD4
even further, seek, among other things, to address the risks associated with prepaid cards
and virtual currencies; broaden access to information on beneficial ownership; and to award
further powers to financial intelligence units (FIUs), including a requirement for Member
States to establish national central mechanisms allowing FIUs to better identify holders and
controllers of bank and payment accounts and safe-deposit boxes.15
v Cross-border insolvency
The EC Regulation on Insolvency Proceedings16 (ECIR) was introduced to facilitate the
efficient conduct of cross-border insolvencies by, inter alia, allocating jurisdiction between
Member States (excluding Denmark, which has opted out), and providing that there will only
be one main insolvency proceeding. On 20 May 2015, the European Parliament approved
a recast version of the ECIR (Recast Insolvency Regulation), which included changes such
as extending the regulations to rescue proceedings (including debtor-led pre-insolvency
proceedings); the removal of a restriction that secondary proceedings must be winding-up
proceedings; and the introduction of a concept of group coordination proceedings where
a group coordinator is appointed to oversee the insolvency or restructuring of a group of
12 The Fifth Money Laundering Directive ((EU) 2018/843)(MLD5).

13 The Fourth Money Laundering Directive ((EU) 2015/849)(MLD4) .
14 European Commission. Executive Summary of the Impact Assessment accompanying the document
‘Proposal for a directive of the European Parliament and of the Council amending Directive (EU)
2015/849 on the prevention of the use of the financial system for the purposes of money laundering or
terrorist financing and amending Directive 2009/101/EC’. 5 July 2016.
15 Practical Law Financial Services, ‘Hot topics: MLD5’.
16 Council Regulation (EC) No. 1346/2000.
4
EU Overview
companies.17 The Recast ECIR came into force on 26 June 2017 and applies to proceedings
that are based on a law relating to insolvency. However, it does not apply to proceedings that
are based on general company law.
From a UK perspective, the impact of the Recast ECIR on acquisitions from or of
insolvent companies will largely depend on the terms of the UK’s planned withdrawal from
the EU. If a deal is reached and the EU withdrawal agreement comes into force, the Recast
ECIR will, broadly speaking, continue during the transition period, which, unless extended,
is due to run until 31 December 2020. In the event of a no deal scenario, however, the
Insolvency (Amendment) (EU Exit) Regulations 2019 made on 30 January 2019 will come
into force on exit day.18 The most significant overall effect of these regulations is likely to
be that cross-border insolvency proceedings will become more complex, as proceedings
started elsewhere in the EU will no longer be automatically recognised; parties will instead be
required to seek permission for proceedings in each jurisdiction.
III RECENT COMPETITION LAW DEVELOPMENTS

i Treatment of mergers by the European Commission
Between January 2018 and the end of March 2019, the Commission received 506 merger
notifications under the European Merger Regulation (EUMR). During that period, 460
cases were cleared unconditionally at Phase I. In 22 cases, Phase I clearance was conditional
on certain remedies being implemented, while 14 cases were referred to Phase II for in-depth
consideration. Of the seven Phase II decisions made during the period, four cases were
cleared unconditionally, seven cases were given clearance conditional upon remedies being
implemented and two cases were prohibited.
In February 2019, the Commission prohibited two separate transactions on the same
day, namely Siemens’s proposed acquisition of Alstom and Wieland’s proposed acquisition
of Aurubis Rolled Products and Schwermetall. These landmark decisions have generated
considerable debate around whether the EU merger control rules should be reformed to
enable the creation of ‘European champions’ in the face of increasing competition from
China and elsewhere. However, Commissioner Margrethe Vestager has defended the current
rules, noting that European business champions cannot be built ‘with mergers that harm
competition, or by looking the other way when Europe’s businesses break our rules’.19
In terms of substantive assessment, the Commission has continued to focus on
the effects of mergers on longer-term innovation and competition in several cases. The
Commission has identified concerns in various industries where a transaction would remove
a player with significant pipeline products or R&D capabilities, or both, or where it would
otherwise negatively affect innovation, including the pharmaceutical and medical devices,
energy and agrochemicals sectors. The former Deputy Director of General Mergers, Carles
Esteva Mosso, has emphasised that ‘innovation analysis is an important part of our merger
control practice [. . .] the Commission is keen to ensure that innovation competition is not
17 Regulation (EU) 2015/848.

18 The Insolvency (Amendment) (EU Exit) Regulations 2019 (SI 2019/146).
19 ‘The Champions Europe Needs’ (speech by Commissioner Margrethe Vestager at the WELT Economic
Summit, Berlin), 9 January 2019.
5
EU Overview
harmed by mergers, which is a particular risk in transactions combining close and important
innovators in concentrated industries with high barriers to entry and well-paced innovation
processes’.20
The trend of requesting significant volumes of internal documents as part the merger
notification has also continued, particularly in respect of more complex cases. The Director
General for Competition, Johannes Laitenberger, has noted that ‘internal documents are
important, because they can help us understand the plans that companies have for the future
and make better decisions’.21 The best practice guidelines that were announced in 2018 and
intended to clarify the Commission’s approach in this area are still awaited at the time of
writing.
The Commission has also continued its strict approach to ensuring compliance with
the EU merger control procedures. Following the imposition of a €124.5 million fine on
Altice in April 2018 for implementing its acquisition of PT Portugal prior to notifying the
merger to the Commission and receiving clearance, the Commission imposed a fine of €52
million on General Electric in April 2019 for providing incorrect information about its
proposed acquisition of LM Wind.
ii Possible reforms to the EUMR

Possible reforms to the EUMR are still under consideration following a public consultation
between October 2016 and February 2017. The consultation sought to explore the
potential for further simplification of EU merger control review, streamlining of the referral
system between the Commission and European national competition authorities, and
the introduction of complementary jurisdictional thresholds based on transaction values.
These latter proposals stem from a debate about the effectiveness of the turnover-based
jurisdictional thresholds in the context of some high-value transactions (particularly in the
digital economy) involving target companies with limited or no turnover, which were not
notifiable under the EUMR but may have had significant competitive effects in the EEA. A
similar debate has occurred at the national level in the EU, and the German and Austrian
governments have recently introduced additional jurisdictional thresholds relating to the
transaction value, which apply as an alternative to the existing turnover-based criteria. The
Commission published a summary of the consultation responses received, which showed
mixed views on the proposals, in particular in relation to the proposals for new jurisdictional
thresholds.22
A separate expert report commissioned by the Commission to examine future challenges
of digitisation for competition policy concluded that the merger control regime is largely fit
for purpose.23 In respect of the proposals for new jurisdictional thresholds, the report suggests
that the Commission should wait and assess how the new transaction value-based thresholds
20 Innovation in EU Merger Control (speech by Carles Esteva Mosso at the ABA Section of Antitrust Law
Spring Meeting, Washington), 12 April 2018.
21 Enforcing EU competition law in a time of change: ‘Is Disruptive Competition Disrupting Competition
Enforcement’ (speech by Johannes Laitenberger), 1 March 2018.
22 Summary of replies to the Public Consultation on Evaluation of procedural and jurisdictional aspects of
EU merger control, July 2017.
23 ‘Competition Policy for the digital era’, a report by Jacques Crémer, Yves-Alexandre de Montjoye and
Heike Schweitzer, April 2019.
6
EU Overview
in Austria and Germany play out in practice, and examine whether the referral system is
sufficient to ensure that transactions of EU-wide relevance are ultimately analysed at the EU
level.
It is unclear at this stage if the Commission will propose any legislative changes to the
merger regime in response to the 2016 consultation or the 2019 expert report.
IV RECENT TAX LAW DEVELOPMENTS

It appears that the Commission is increasingly frustrated with the lack of progress on tax
policy initiatives: no progress has been made on the common consolidated corporate tax
base or the financial transaction tax, and the Commission’s original proposals for a digital
services tax were rejected late last year (see subsection ii). Therefore, on 15 January 2019 the
European Commission published a proposal to reform the decision-making process for areas
of EU taxation policy by transitioning from unanimous voting to qualified majority voting
at the Council level. If this proposal is agreed (which is doubted), a more dynamic approach
to EU tax legislation could be expected.
i State aid
Between 10 January 2019 and 2 April 2019, the Commission opened four new state aid
investigations relating to tax rulings granted by the Netherlands to Nike24 and Luxembourg
to the Finnish food drink packaging company Huhtamäki,25 Danish tax support measures for
the Øresundlink public infrastructure project26 and Slovakia’s turnover tax for food retailers.27
State aid investigations are therefore still a live risk.
In an M&A context, reliance on tax rulings should be scoped out during the due
diligence process. One crucial question in assessing the state aid risk in respect of a particular
ruling is whether the ruling reflects the law or approves a more advantageous position. While
the double non-taxation of McDonald’s Europe franchising pursuant to its Luxembourg tax
rulings was not state aid, given that it was not the derogation from, but the application of,
Luxembourg law and the double tax treaty between Luxembourg and the US that led to the
double non-taxation,28 the Commission found that Engie’s favourable treatment pursuant to
its Luxembourg tax rulings did amount to state aid.29
The Commission’s decision30 in relation to the group financing exemption under the
UK controlled foreign companies regime was good news for groups with offshore finance
subsidiaries of substance that are merely funded from the UK. The Commission decided that
exempting finance income that would otherwise be brought into charge as a result of it being
derived from UK-connected capital is not state aid. In contrast, exempting finance income
that would otherwise be brought into charge as a result of it being derived from UK activity
is state aid. This means that, since 1 January 2019, when the group financing exemption was
tightened to exempt only the former and not the latter, it has been fully compliant.
24 Press release IP/19/322.

28 Press release IP/18/5831 and decision C(2018) 6076 final.
7
EU Overview
In Heitkamp BauHolding,31 the CJEU overturned a 2016 judgment of the General

Court (GC), and annulled the Commission’s decision that the corporate rescue exemption
from the German anti-loss-buying rules constituted state aid. This is good news for those
looking to invest in distressed companies. Taken together with two other recent cases where
the GC annulled the Commission’s state aid decisions,32 it also shows that the European
Courts do not merely rubber stamp the Commission’s decisions.
ii Taxation of the digital economy and beyond

Base Erosion Profit Shifting (BEPS) Action 1 seeks to address the tax challenges of the digital
economy. Following the publication of an interim report on 16 March 2018, the OECD
published a policy note and a public consultation document in early 2019 proposing a
two-pillared approach to the discussion of further reform of the international tax system. The
first pillar addresses the challenges of the digital economy, setting out the following proposals:
profit allocation on the basis of user participation; the allocation of income associated with
marketing intangibles and their risks to the market jurisdiction; and taxation on the basis of a
significant economic, rather than a significant physical, presence. The second pillar addresses
remaining BEPS issues that go beyond the digital economy, discussing the introduction of an
income inclusion rule under which an entity would pay tax on the income of its controlled
entities or permanent establishments if such income would not otherwise be subject to tax at
a minimum rate, and of an under-taxed payments rule that would deny tax deductions for
payments to related parties if such payments are not subject to a minimum effective rate of
tax. A public consultation on the OECD’s proposal took place in February and March 2019,
and the OECD submitted a progress report to the G20 finance ministers in June 2019. The
OECD’s aim continues to be a consensus-based, long-term solution in 2020.
Meanwhile, there is a growing number of countries that are taking matters into their
own hands. At the time of writing, six EU Member States (namely, Austria, Belgium, France,
Italy, Spain and the UK) have introduced or announced digital services taxes. In contrast,
similar proposals at the EU level seem unlikely to come to fruition. The Economic and
Financial Affairs Council of the EU failed to agree the European Commission’s original
proposals during its meeting on 4 December 2018, and then failed to agree an amended and
more limited digital services tax during its meeting on 12 March 2019.
It is further noted that on 10 March 2019, the International Monetary Fund (IMF)
published a policy paper entitled Corporate Taxation in the Global Economy that addresses
issues similar to those under consideration by the OECD; among other things, the IMF
paper looks at minimum taxes on outbound and inbound investment. It is clear that the
political desire to address perceived avoidance is still strong. In particular, the OECD’s
proposals, if widely implemented, may require a reevaluation of existing group and widely
used acquisition structures.
31 Case C-203/16 P.
32 Belgian excess profit exemption cases (T-131/16 and T-263/16) and the Spanish case Futbol Club Barcelona
(T-865/16).
8
EU Overview
iii Acquisition structuring

The CJEU’s judgments in the Danish conduit cases33 call for caution in relation to acquisition
structures set up to take advantage of the exemption from withholding tax under the Interest
and Royalties Directive (IRD)34 or the Parent and Subsidiary Directive (PID), or both.35 The
Danish tax authority had denied the exemption in respect of dividend or interest payments
from a Danish company to its intermediate parent on the basis that the recipient was merely
a conduit and the actual beneficial owners were non-EU entities, and the CJEU confirmed
that the benefit of the IRD and the PID must be denied if there is an abuse of rights. This
would be the case in respect of structures that meet the formal conditions of the IRD or the
PID, but not its purpose, and were set up with the intention of claiming the exemption from
withholding tax by artificially creating the pre-condition therefor. The factors that the CJEU
indicated would be taken into account in determining whether there is an abuse of rights
include:
a the circumstances around the set-up of the structure;
b a quick on-payment of payments received;
c the recipient’s ability to economically benefit from, and determine how to use, the
payments received; and
d the recipient’s other activities (if any).
As part of the drive to discourage aggressive cross-border tax planning, DAC636 requires
intermediaries to report cross-border arrangements if they meet certain conditions. These
conditions are, however, so widely drawn that they may catch arrangements that would not
normally be thought of as aggressive. In this respect, a lot will depend on the terms of the
national implementation legislation of which, at the time of writing, only a few countries
have published drafts. In any event, potential reporting duties should be considered in respect
of certain existing and any new acquisition or financing structures: while no reports have to
be made before 1 July 2020, structures implemented as early as June 2018 may have to be
reported.
iv Warranty and indemnity insurance

In respect of warranty and indemnity insurance for cross-border transactions, the CJEU
confirmed in A Ltd v. Finland 37 that insurance premium tax is chargeable where the
policyholder (rather than the target) is located.
33 Judgment in the joined cases N Luxembourg 1 (case C-115/16), X Denmark (case C-118/16), Danmark I
(case C-119/16) and Z Denmark ApS v. Skatteministeriet (case C-299/16); and judgment in the joined cases
T Danmark and Y Denmark Aps (C-116/16 and C-117/16).
34 Council Directive 2003/49/EC of 3 June 2003.
35 Council Directive 90/435/EEC of 23 July 1990 as amended by Council Directive 2003/123/EC of
22 December 2003.
36 Council Directive (EU) 2018/822 of 25 May 2018.
37 Case C-74/18.
9
Chapter 2
EUROPEAN PRIVATE EQUITY
Benedikt von Schorlemer and Jan van Kisfeld 1
I INTRODUCTION
Expectations in the private equity industry for 2018 were not as high as for 2017. Despite
this, 2018 was a record-breaking year for the private equity market, with the highest deal
volume in history. Although macroeconomic factors tended to support uncertainty, private
equity, as in previous years, repeatedly demonstrated its robustness, proven by its ability to
cope with disruptive times of economic turbulence, political uncertainty and social upheaval,
but also increased public scrutiny and regulation. However, Brexit, whose terms are still
not agreed between the EU and the UK, which led to the resignation of Theresa May as
Prime Minister of the UK, the trade conflict between the US and China, a slowing economy
in the US, the continuing banking and economic crisis in Italy and the weak economy in
some other European countries still do not allow the private equity industry to rise above its
uncertainties.
As a result, there continues to be a disconnect between the number of deals and
transaction volume versus the capital available and raised by investors. The bulk of capital
is also supported by banks and debt funds, which are continuously hungry to lend.
Furthermore, interest rates remain low, as the European Central Bank and governments
pursue loose monetary policies to spur investments and growth, which is another reason for
the continuous flow of capital to private equity funds.
Thus, the challenges in 2018 remained basically the same as in 2017, since the global
situation has not changed significantly, with a degree of geopolitical and economic uncertainty
and currency volatility: there is plenty of capital causing fierce competition between investors
that chase few and even-higher-valued targets.
Preqin’s latest report on global private equity developments shows that 2018 witnessed
another large amount of capital (US$432 billion) raised.2 With record levels of dry powder,
growth of raise funds and the nearly zero interest environment, the underlying macroeconomic
conditions are almost perfect for private equity investment models. However, there has even
been an increase in the shortage of acquisition targets compared to 2017 to meet demands,
meaning that competition for deals remains fierce. The flood of money into private equity
has driven up purchase prices significantly and eliminated the formerly large gap between
private and public market valuations. According to Preqin, 68 per cent of investors consider
valuations to be the greatest challenge facing the private equity industry in the year ahead.3
1 Benedikt von Schorlemer is a partner and Jan van Kisfeld is a former associate at Ashurst LLP. The authors
would further like to thank research assistant Manuel Freiwald for his contributions to this chapter.
2 2019 Preqin Global Private Equity & Venture Capital Report.
3 Id.
10
EU Private Equity
The industry has focused again on new concepts, as it becomes more and more difficult
to realise intended returns with traditional methods. Mere financial engineering has been a
thing of the past for quite some time now. Optimising the operations of portfolio companies
(with the effect of longer holding periods), in particular with a focus on digitalisation, has
been one of the answers to date. There is an emphasis on driving down portfolio company
costs and improving margins. Continuing trends also include more buy-and-build activities.
In this environment, Germany seems to have maintained its position as the new
core market for private equity in Europe. The development of the private equity market in
Germany, Switzerland and Austria will continue to stand out from the market in the rest of
Europe in 2018, as in the previous year. Even if the record numbers from 2016 could not be
reached, when the total value of the transactions rose by 51.7 per cent to €41.3 billion, 2018
was a solid year with overall activity (buyouts and exits) of €38.3 billion.
In terms of diversification of investments, the industrial and chemicals sector continued
to be top-ranked in 2018 for number of transactions. Although these sectors lost some share
in 2017 and 2018 compared to the period from 2013 to 2016, they still lead in volume with
a 22 per cent share. The buyout value increased slightly compared to 2013 to 2016, when
the industrial and chemicals sector accounted for 16 per cent of shares, and 17 per cent in
2017 and 2018.
A notable disparity could be seen in the energy, mining and utilities sectors. The high
stake of 11 per cent in value and the lower stake of 3 per cent in volume show that the
transactions dominating these sectors are few in number but large in volume.
II FACTS AND FIGURES: EUROPEAN PRIVATE EQUITY IN 2018

In 2018, the European private equity market reached a post-crisis high in terms of both value
and volume.
In the buyout segment, volume increased from 1,417 transactions in 2017 to 1,566 in
2018.4 At the same time, the overall transaction value increased from €140 billion to €175
billion. This is reflected in an 11 per cent increase in volume and a 25 per cent surge in value.
Furthermore, the number of buyouts valued at more than €1 billion (47) was the highest
number of mega-deals since the financial crisis. In addition, an upward trend could also be
observed in the lower mid-market (between €101 million and €250 million) with an increase
in deal count of 15.6 per cent. Every other deal size bracket trended downwards in 2018.
This observation is no longer paralleled by developments in the exit market, in which
the number of transactions decreased from 990 in 2017 to 945 company sales in 2018,
resulting in a drop in exits of 13.1 per cent on a value basis.
After a setback in 2016, in particular regarding the UK and Ireland market, caused
by the uncertainty since the Brexit referendum, investors do not appear to have completely
adapted to the fact that the United Kingdom is leaving the European Union: the United
Kingdom and Ireland continue to dominate the European private equity market in terms
of value and volume, claiming 22 per cent of the total buyout activity in 2017 and 2018
compared with their share of 23 per cent in the years from 2013 to 2016.5 In value terms
it is notable that the United Kingdom and Ireland have dropped from 31 per cent between
4 PwC Private Equity Trend Report 2019.

5 Id.
11
EU Private Equity
2013 and 2016 to 23 per cent between 2017 and 2018. Despite this drop, which has mainly
benefited the Nordic countries, regardless of the Brexit uncertainty, the UK and Ireland
remained the leaders in terms of buyout volume.
In value terms, the United Kingdom and Ireland account for 23 per cent, the Nordic
countries for 16 per cent, France for 15 per cent, Iberia for 13 per cent, Germany for 10 per
cent, Italy for 9 per cent and Benelux for 8 per cent of all European buyout volume.6
In 2018, there were nine transactions in the €1 billion-plus bracket. Among those,
the €4.6 billion buyout of the German energy services provider company Techem by the
financial investors Partners Group together with Caisse de Depot et Placement du Quebec
and Ontario Teachers’ Pension Plan from Macquarie was the biggest private equity exit in
Europe in 2018.
European exit activity in 2018 was less promising. The numbers decreased in 2018
compared to the previous year with a notable drop of 4.5 per cent, falling from 990 to 945
company sales. This means that the positive trend in volume observed in recent years (with
the exception of 2016, a permanent increase in volume was seen from 2013 until 2017) did
not continue. One of the reasons for this development might be seen in general partners
(GPs) awaiting and observing publicly listed assets, which may be undervalued in unsettled
stock markets.
III SIGNIFICANT TRANSACTIONS AND KEY TRENDS IN EUROPE

i Transactions
2018 was characterised by mega-deals exceeding €1 billion. Regarding buyouts, the
€101 million to €250 million bracket grew by 15.6 per cent in 2018, while the other deal
size segments trended downwards. In 2017, mega-deals recaptured the European market, and
in 2018, their volume reached an elevated level.
In 2018, four of the top 10 European exits were located in the UK:
a Global Infrastructure Partners’ divestment of a 50 per cent stake in Gatwick Airport to
VINCI Airports, valued at €6 billion;
b the exit of Sky Betting and Gaming by CVC Capital Partners to The Stars Group for
€4.5 billion;
c BTG, a UK pharma group, was acquired in a public takeover for more than €4 billion
by Boston Scientific; and
d the remaining stake of 60 per cent in EMI Music Publishing was sold by Mubadala
Investment to Sony Corporation for approximately €1.6 billion.
Europe’s two biggest buyouts in 2018 were:

a valued at €10.1 billion, the purchase of Dutch chemicals group Nouryon, a specialty
chemicals division of AkzoNobel, by Carlyle Group and Singaporean sovereign wealth
fund GIC; and
b the buyout of the majority of Recordati, an Italian pharmaceuticals group valued at
€6.3 billion, by CVC Capital Partners, Public Sector Pension Investment Board and
Stepstone Group.
6 Id.
12
EU Private Equity
ii Key trends
As in 2018, the market concentrated on finding suitable assets, fee structures and compliance
with tightening regulatory requirements on both sides of the Atlantic. Trends observed in
previous years are still valid, including longer holding periods, extended buy-and-build
activities, the application of warranty and indemnity (W&I) insurance policies and trading
in secondaries.
Typically, private equity funds hold their portfolio companies for three to five years on
average before exiting. This holding period has increased in small steps, reaching an average
of six years in 2014. One of the reasons for these longer holding periods is macroeconomic
stagnation and the uncertainty caused by the financial crisis that began in 2008. In 2017,
the median holding period returned to a new normal of five years.7 Parallel and in line with
the observed trend to longer holding periods are continuous buy-and-build activities, which
are used to increase potential exit returns. This corresponds with the increasing number
of add-ons, which funds can use to execute buy-and-build strategies. For several years, the
number of add-on deals globally increased notably, and they make up around half of all deals
today. On the other hand, quick flips (i.e., transactions with a holding period of up to three
years) have decreased in the past few years. In 2008, at 44 per cent, nearly half of all buyouts
were quick flips. More recently, the number has retreated by half to around 20 per cent. This
sharp drop in quick flips is a result of factors such as high prices, limited future market beta
and tax reform in the United States, under which carries generated from investments held
for a maximum of three years will be taxed at the higher ordinary income rate. These factors
make it rather unlikely that quick flips will experience an upswing in the foreseeable future,
but rather indicate the continuous trend to longer holding periods.8
A further trend is the growing use of W&I insurance policies in transactions, which are
now standard in certain sectors, in particular for private equity transactions where purchasers
require protection against deal risks and sellers look for a clean exit and an increased internal
rate of return, all of which can be achieved with W&I insurance. Under these insurance
policies, (usually) the buyer insures against the risks occurring in cases of a breach of the
representations and warranties or indemnities that are given in a sale and purchase agreement.
Damage claims incurred as a result of a breach of a representation and warranty or indemnity
are paid by the insurance company (which, apart from certain exceptions, may not turn
towards the seller), subject to the terms and conditions of the policy including baskets and
caps as agreed. The bulk majority of W&I insurance policies are issued to buyers. Thus, W&I
insurance significantly reduces the risks of sellers to become liable for damage claims under a
sale and purchase agreement. As a result of the market entry of a number of new players and
the intense competition among insurers, prices for insurance coverage have fallen drastically.
This trend, which began in recent years, also continued in 2018. The average premiums for
W&I policies in 2018 fell to 0.6 to 0.9 per cent of the insured sum for real estate transactions,
and 0.8 to 1.5 per cent of the insured sum for corporate deals. In addition to standard
W&I policies, special contingent policies covering already known risks (which are usually
excluded) are also more and more common, and certainly at much higher premiums. The
demand for W&I policies is still growing globally. Lower average premiums, lower retention
levels and new insurers entering the market are the reasons for this development, resulting in
continued fierce competition among W&I insurers.
7 Bain & Company, Global Private Equity Report 2018.

8 Id.
13
EU Private Equity
IV LEGAL FRAMEWORK FOR PRIVATE EQUITY FUNDS IN GERMANY

AND EUROPE
i Legal form of private equity fund vehicles in Germany
The legal framework for private equity funds has not changed significantly in recent years.
The biggest change on the regulatory side was introduced through the transformation of
the Alternative Investments Fund Managers Directive (AIFMD) into national law. For this
purpose, Germany established the Investment Code (KAGB), which came into effect on
22 July 2013. As to the legal form of vehicles, German (corporate) law offers various types.
Generally, vehicles for funds can be organised in the legal form of a stock corporation (AG),
a limited liability company (GmbH) or a form of a limited partnership (GmbH & Co KG).
Furthermore, the KAGB provides variations of the AG and the limited partnership (KG), the
investment-AG or investment-KG, introducing additional regulations. Generally, the legal
form now depends on a specific fund’s concept with regard to the invested assets of an open
or closed-end fund and its circle of investors.
From a practical standpoint and an investor’s tax perspective, the limited partnership
in the form of a GmbH & Co KG still prevails for German private equity funds. The KG
essentially has two kinds of partners: limited partners (LPs) and GPs. While investors subscribe
for limited partnership interests, thus becoming LPs, the sole GP of a limited partnership is
a separate company usually organised as a limited liability company in accordance with the
Limited Liability Company Act. With the combination of these two legal forms, investors
combine the advantages of both. In particular, the personal liability of investors is limited to
their liability contribution, as LPs are only liable for debts of the limited partnership up to
the liability amount registered with the German commercial register. Since German law does
not require a minimum liability amount, usually only a small portion of the actual capital
commitment of an LP is registered with the commercial register as liability amount, and as
such revealed to the public. Once an LP has fulfilled his or her obligation up to the respective
liability amount, and has not received a repayment in the meantime, the LP does not assume
any further responsibility for the liabilities of the limited partnership. In contrast to LPs, a
GP of a limited partnership is liable for all obligations of the partnership without limitation.
In a GmbH & Co KG, the liability of the GP (as a limited liability company) is limited to
the assets of the company. Its shareholders cannot be held liable for more than the capital
contribution paid (or owed) by the respective shareholders.
Furthermore, based on the principle of freedom of contract, the partnership agreement
can be tailored in a very flexible way to the needs and objectives of the investors. In general,
investors as LPs only have limited information rights compared to other legal forms unless
broader information rights have been agreed upon in the partnership agreement. The entry
and exit of investors in and out of a GmbH & Co KG are also simple and do not require a
notarial form. Thus, the accession of a new investor as a LP is uncomplicated and cost-efficient.
In addition, there are beneficial tax rules if a GmbH & Co KG as a limited partnership is
not engaged in business activities for German tax purposes. Last but not least, the limited
partnership agreement does not have to be revealed to the public, and in particular does not
have to be registered with the German commercial register.
14
EU Private Equity
ii Monitoring of private equity funds in Germany

According to the KAGB, alternative investment fund managers are now obliged to establish a
depositary for alternative investment funds (AIFs) under their management. This depositary
shall, inter alia, review legal title in an AIF’s assets on a continuous basis. The depositary’s
obligation is not limited to holding companies, but applies to all subsidiaries in the case of a
holding structure within the portfolio. Additionally, the depositary may not solely rely on an
AIF’s due diligence, but is requested to also conduct its own review.
iii Transactions
Types of private equity transactions
The typical private equity transaction structure has not changed significantly in recent years.
From a legal standpoint, the acquisition of interests or shares remains the most important
type of transaction, in most cases, of a private equity transaction in the form of a leveraged
buyout (LBO). In an LBO, usually all or the majority of interests of the target company are
acquired by the private equity investor, although the acquisition is funded only fractionally
with equity, while the larger portion of the purchase price is financed with bank or other
third-party debt (leveraged transaction). The leverage shall be defrayed by the free cash flow
of the target company.
Disclosure requirements
Under German law, several acts deal with disclosure obligations that apply to all shareholders
and investors, and thus also for private equity investors. The most relevant disclosure
obligations relate to stock corporations, and in particular listed companies. The German
Securities Trading Act (WpHG) sets forth various thresholds for equity holdings in listed
companies that trigger certain disclosure requirements, while the German Stock Corporation
Act (AktG) governs all companies organised as a German stock corporation. According to
the WpHG, everyone reaching, exceeding or falling short of 3, 5, 10, 15, 20, 25, 30, 50 and
75 per cent of the voting rights in a listed company by purchase, sale or any other means is
obliged to notify both the company and BaFin, the German Federal Financial Supervisory
Authority. The same obligations apply for persons who act in concert.
To capture all sorts of arrangements to build up positions in a German listed company,
the German legislator has also extended the disclosure requirement for financial instruments
by including other instruments that do not necessarily qualify as financial instruments but
grant the right to acquire voting shares or to vote such shares.
To restrict undesired activities – in particular by financial investors – the WpHG
enhanced, in a similar way to respective provisions under the US Securities Exchange Act,
the transparency of certain financial transactions obliging an investor to disclose its specific
intentions with the target company and the sources of the funds to finance the transaction.
Thus, an acquirer of an essential participation (i.e., a participation reaching or exceeding a
threshold of 10 per cent of the voting rights) is, subject to certain exemptions, required to
disclose the aforementioned information regarding the purpose of the transaction and the
origin of funds.
Concerning stock corporations (whether listed or not), the AktG sets forth that any
enterprise (private investors are not subject to this obligation) is obliged to promptly notify
the stock corporation regarding the following: reaching a threshold of more than 25 or 50
15
EU Private Equity
per cent in the capital of a stock corporation, or whenever the enterprise falls below these
thresholds. If the enterprise fails to fulfil its disclosing obligations, it will lose its rights rooted
in its shares.
To make the shareholder structure of non-listed stock corporations more transparent,
the AktG limits the admissibility of bearer shares. This amendment came into effect on
31 December 2015. Since then, non-listed stock corporations may generally only issue
registered shares.
On a European level, besides the above-mentioned implementation of the AIFMD
into German law and the additional provisions introduced in the KAGB, the industry is
facing further legal regime changes. Solvency II (adopted by the European Parliament on
11 March 2014)9 created new insurance regulations as of 1 January 2016 that require insurance
companies to hold more liquid assets, restricting the amount that can be invested in private
equity. The Markets in Financial Instruments Directive II (MiFID II), the update of the
MiFID, was adopted by the European Parliament in April 2014 and published in June 2014
after its formal adoption by the Council of Ministers. In addition, the European Commission
resolved on a revision of the EU Pension Funds Directive (IORP) – IORP II – which had to
be transformed into national law by January 2019 (the corresponding implementation act
in Germany came into force in January 2019) and which has far-reaching consequences for
both the funding of pension schemes and the way they are managed.
V OUTLOOK
The sentiment in the private equity industry is rather characterised by optimism for the
development of the private equity market in Europe in 2019. More than half (56 per cent)
of private equity houses10 expect the European deal market for private equity to get slightly
better in 2019, while 35 per cent of respondents assume it will stay broadly the same. This
compares with only 7 per cent of firms anticipating that it will get slightly worse. German
private equity firms are distinctly above the average in terms of optimism: 70 per cent of
them expect a slight improvement, and only a tiny minority of 5 per cent expect a slight
deterioration. The Benelux countries are confident about the development of the private
equity market in Europe in 2019 as well: 58 per cent expect the situation to get slightly better
in 2019, although a significant 13 per cent of respondents expect it to get worse.11
On the whole, investors remain optimistic that Europe will still be a region for
investments that have high potential in 2019. Most European countries still offer a high
grade of legal certainty in a stable environment, which continues to be an essential argument
for future investments. However, there are record levels of dry powder now exceeding
US$2 trillion12 and leverage in the global private equity market, caused by the huge amounts
of money successfully raised in recent years, which means that deals have never been more
9 Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the
taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (recast).
10 The following survey results are based on a survey conducted by Mergermarket’s research and publication
division on behalf of PwC, who spoke to 250 private equity principals in Europe.
11 See footnote 4.
12 Preqin Research Blog by Naomi Feliz (28 January 2019), ‘Alternatives in 2019: Private Capital Dry Powder
Reaches $2tn’.
16
EU Private Equity
expensive. This has resulted in fierce competition among private equity investors.13 All
private equity firms expect competition for investments to remain the same or to increase
in 2019, with 29 per cent believing competition will rise significantly and 44 per cent that
it will increase slightly.14 In addition, more competitors from outside the industry, such as
pension funds, family offices and insurance companies, are developing a taste for the private
equity model, which increases competition. Furthermore, additional players such as Chinese
investors are becoming more and more established in the market, although the competition
for deals from Chinese investors is not expected to increase but to stay broadly the same in
2019.15 In light of the above, investors will most likely be pulled into fierce competition, and
private equity houses are well advised to analyse pricing even more carefully.
Despite a very solid investment environment in Europe and investor confidence seen
in the public market, certain risks should not be disregarded, with the following being some
examples: the more critical outlook regarding economic developments in many regions of
the world, including the trade conflict between the US and China and the US’s policy of
increased protectionism; as well as the never-ending Brexit struggle that finally resulted in
Theresa May stepping down as the United Kingdom’s Prime Minister. The impact of Brexit
is mirrored in a survey by PwC in which 45 per cent of respondents stated that Brexit makes
the UK a less attractive destination for investments in 2019.16
Given the uncertainties in the market, private equity funds will have to closely analyse
any possible scenarios for each investment. Nevertheless, the bottleneck of investment
opportunities with a fierce price competition as a consequence will, in our view, continue to
be one of the main limiting factors of the private equity industry in 2019.
13 PwC Private Equity Deals Insights 1Q 2019.

14 Id.
15 Roland Berger Private Equity Outlook 2019.
16 See footnote 4.
17
Chapter 3
M&A LITIGATION
Roger A Cooper, Meredith Kotler, Mark McDonald and Vanessa C Richardson1
I INTRODUCTION
M&A litigation has evolved dramatically in recent years. There has been further development
of substantive doctrines under Corwin and MFW (discussed further in Sections II and III,
respectively), which provide defendants with strong bases for dismissing many complaints. At
the same time, more Section 220 ‘books and records’ actions have been filed as a means for
stockholders to obtain pre-lawsuit discovery in order to plead a complaint that may stand a
stronger chance of withstanding a motion to dismiss (discussed in Section IV).
Delaware also continues to see a number of M&A cases that are not filed by stockholder
plaintiffs (discussed in Section V). For example, the Delaware courts recently held that a buyer
properly invoked a material adverse effect (MAE) clause to terminate a merger agreement –
the first decision so holding in Delaware. CBS’s recent proposal to dilute the Redstone family’s
controlling stake in CBS in response to a perceived threat that the Redstones were going to
force a merger between CBS and Viacom (which is also controlled by the Redstones) also
played out in the Court of Chancery. That case led to interesting decisions on the availability
of preliminary injunctive relief and attorney–client privilege before it settled.
Meanwhile, the Delaware Supreme Court has issued several key rulings on appraisal
issues and continues to provide further guidance on appraisal rights (discussed in Section VI).
II POST-CLOSING DAMAGES CLAIMS: THE CORWIN DEFENCE

As we have written in previous versions of this chapter, the Delaware courts have underscored
the deference afforded to merger transactions approved by a fully informed, disinterested and
uncoerced stockholder vote. In Corwin v. KKR Financial Holdings, the Delaware Supreme
Court unanimously held that arms-length transactions (i.e., ones that do not involve a
controlling stockholder on both sides of the deal, as in a minority buyout) approved by a fully
informed, uncoerced vote of a majority of the disinterested stockholders will be reviewed
under the deferential business judgment rule.2
Since Corwin, the Court of Chancery has repeatedly dismissed post-closing challenges
to non-controller stockholder-approved transactions at the pleading stage of the litigation.3
1 Roger A Cooper and Meredith Kotler are partners and Mark McDonald and Vanessa C Richardson are
associates at Cleary Gottlieb Steen & Hamilton LLP.
2 Corwin v. KKR Financial Holdings, 125 A.3d 304, 305-06 (Del. 2015).
3 See, e.g., In re Cyan, Inc S’holders Litig, C.A. No. 11027-CB, 2017 WL 1956955 (Del. Ch. 11 May 2017);
In re Paramount Gold & Silver Corp S’holders Litig, C.A. No. 10499-CB, 2017 WL 1372659 (Del. Ch.
13 Apr 2017); In re Columbia Pipeline Group, Inc S’holders Litig, C.A. No. 12152-VCL (7 Mar 2017)
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Subsequent decisions clarified that Corwin applies to two-step mergers under Section 251(h)
of the Delaware General Corporation Law (DGCL) (involving a tender offer followed by a
short-form merger);4 and that the fully-informed, uncoerced and disinterested stockholder
vote extinguishes all claims relating to the merger, including aiding and abetting claims
against third parties.5
However, some limits on the Corwin doctrine have emerged. First, the Court of
Chancery has cautioned that this cleansing effect will apply only when the stockholder vote
is not coerced.6
Second, the stockholder vote also must be fully informed. In Appel v. Berkman,
Chief Justice Strine wrote for the Court that the failure to disclose that the founder, largest
stockholder, and chair of the target privately told the board that, in his view, ‘it was not
the right time to sell the Company’, meant that the stockholders’ vote on the deal was not
fully informed.7 In Morrison v. Berry, Justice Valihura wrote for the Court that the failure to
disclose ‘troubling facts regarding director behavior’ in negotiating the deal, which ‘would
have helped [stockholders] reach a materially more accurate assessment of the probative
value of the [company’s] sale process’, precluded Corwin-cleansing in that case.8 The Court
emphasised that plaintiffs were not required to allege that the information, if disclosed,
would have made a reasonable stockholder less likely to approve the deal; rather, it was
enough to plead that ‘there is a substantial likelihood that a reasonable stockholder would
have considered the omitted information important when deciding whether to tender her
shares or seek appraisal’.9
Recent Court of Chancery opinions have continued to emphasise these points. For
example, in In re Xura, Inc Stockholder Litigation, Vice Chancellor Slights held that claims
against a CEO were not cleansed by the stockholder vote because alleged material facts
purportedly showing his conflicted role in negotiating the transaction were not disclosed.10
In In re Tangoe, Inc Stockholders Litigation, Vice Chancellor Slights held that claims against
the target board were not cleansed by the stockholder vote because, among other things,
allegedly material facts concerning an ongoing restatement process were not disclosed.11 In In
re PLX Technology Inc Stockholders Litigation, Vice Chancellor Laster held that claims against
(order); In re Merge Healthcare Inc S’holders Litig, C.A. No. 11388-VCG, 2017 WL 395981 (Del. Ch.
30 January 2017); In re Solera Holdings, Inc S’holders Litig, C.A. No. 11524-CB, 2017 WL 57839 (Del. Ch.
5 January 2017).
4 In re Volcano Corp S’holder Litig, 143 A.3d 727 (Del. Ch. 2016), aff’d, 156 A.3d 697 (Del. 2017) (table).
5 Singh v. Attenborough, 137 A.3d 151, 152 (Del. 2016) (‘Having correctly decided . . . that the stockholder
vote was fully informed and voluntary, the Court of Chancery properly dismissed the plaintiffs’ claims
against all parties [including the board’s financial advisor].’).
6 Sciabacucchi v. Liberty Broadband Corp, C.A. No. 11418-VCG, 2017 WL 2352152, at *2 (Del. Ch.
31 May 2017) (determining that the plaintiff adequately pleaded that a vote was structurally coercive, and
refusing to dismiss); In re Saba Software, Inc S’holders Litig, C.A. No. 10697-VCS, 2017 WL 1201108, at
*8, 14 (Del. Ch. 31 Mar 2017, revised 11 April 2017) (determining that the plaintiff adequately pleaded
that a vote was coerced and was not fully informed, and refusing to dismiss).
7 Appel v. Berkman,180 A.3d 1055, 1057-58 (Del. 2018).
8 Morrison v. Berry, 191 A.3d 268, 283-84 (Del. 2018).
9 Id. at 286.
10 In re Xura, Inc S’holder Litig, Consol C.A. No. 12698-VCS, 2018 WL 6498677, at *1 (Del. Ch.
10 December 2018).
11 In re Tangoe, Inc S’holders Litig, C.A. No. 2017-0650-JRS, 2018 WL 6074435, at *2 (Del. Ch.
20 November 2018).
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an activist investor for aiding and abetting a target board’s breaches of fiduciary duty were
not cleansed by the stockholder vote because alleged material facts bearing on a potential
conflict of interest between the activist investor and the target’s remaining stockholders were
not disclosed (in that case, however, the Court went on to find that the plaintiffs had failed
to prove damages because there was no competent evidence the intrinsic value of the target
exceeded the deal price).12
Of course, notwithstanding these decisions, Corwin remains a powerful tool for
defendants in post-closing damages litigation. Indeed, because of the significance of
Corwin-cleansing, boards are routinely advised to disclose all conceivably material facts to
their stockholders before they vote on a deal.
III CASES INVOLVING CONTROLLING STOCKHOLDERS

As explained in previous versions of this chapter, until 2014, all controlling stockholder
buyouts were evaluated under the onerous entire fairness standard regardless of the
procedural protections used in the deal process. That changed with the Delaware Supreme
Court’s decision in Kahn v. M&F Worldwide Corporation, commonly referred to as MFW,
which held that the business judgment rule (not entire fairness) will apply if the controlling
stockholder buyout is expressly conditioned ab initio on the approval of a special committee
of the independent directors and approval of a majority of the disinterested stockholders (the
dual approval conditions).13
In October 2018, in Flood v. Synutra International, Inc, the Delaware Supreme Court
clarified that the ab initio requirement is satisfied as long as the dual approval conditions were
in place before the onset of substantive economic bargaining, even if they were not included
in the controller’s initial offer.14 Further, in April 2019, in Olenik v. Lodzinski, the Delaware
Supreme Court further clarified the line between preliminary discussions – which may be
conducted before MFW’s dual protections are put in place without forfeiting the ability to
invoke the business judgment rule under MFW – and substantive economic discussions,
which may not be.15 There, the parties had engaged in a joint valuation exercise in the months
before the controller conditioned its offer on the dual protections, and the Court found it was
‘reasonable to infer that these valuations set the field of play for the economic negotiations to
come’, an inference that was further supported by the fact that, as alleged in the complaint,
the offers that were subsequently made and ultimately accepted were close to the ‘indicative
valuations’ that had been presented several months earlier.16
This framework also has been extended by the Court of Chancery beyond the controller
buyout context. In In re Martha Stewart Living Omnimedia, Inc Stockholder Litigation, the
controlling stockholder was a seller to a third party along with the minority stockholders,
but the plaintiffs alleged that she received greater consideration for herself than the minority
12 In re PLX Technology Inc S’holders Litig., 2018 WL 5018353 (Del. Ch. 16 October 2018), aff’d, No. 571,
2018, 2019 WL 2144476, at *1 (Del. 16 May 2019).
13 Kahn v. M&F Worldwide Corp, 88 A.3d 635 (Del. 2014).
14 Flood v. Synutra Int’l, Inc, 198 A.3d 754 (Del. 2018).
15 Olenik v. Lodzinski, No. 392, 2018, 2019 WL 1497167 (Del. 5 April 2019).
16 Id. at *9.
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stockholders received.17 In such case, the Court found that the business judgment rule would
apply under MFW, as long as the dual approval protections were in place at ‘the point where
the controlling stockholder actually sits down with an acquirer to negotiate for additional
consideration.’18
IV RISE OF BOOKS AND RECORDS ACTIONS UNDER SECTION 220

In part in response to Corwin and MFW, which raised the bar for plaintiffs in post-close
damages actions to plead facts to survive a motion to dismiss, there has been a recent uptick
in stockholder inspection demands under Section 220 of the DGCL, and actions brought in
the Court of Chancery to compel the production of books and records pursuant to Section
220(c).19 In the past year, some plaintiffs have used documents obtained in this way to plead
a post-close damages complaint that survived a motion to dismiss, including in the Appel case
discussed above.20
In several recent decisions, the Delaware Supreme Court has held that Section 220
may entitle stockholders to more than just minutes and other formal board materials, but
only to the extent such formal materials are insufficient to satisfy the stockholder’s proper
inspection purpose. For example, in KT4 Partners LLC v. Palantir Techs Inc, the Court
explained that ‘if a company . . . decides to conduct formal corporate business largely through
informal electronic communications [rather than through formal minutes and resolutions], it
cannot use its own choice of medium to keep shareholders in the dark about the substantive
information to which Section 220 entitles them’.21 However, the Court emphasised that
this ‘does not leave a respondent corporation . . . defenseless and presumptively required
to produce e-mails and other electronic communications. If a corporation has traditional,
non-electronic documents sufficient to satisfy the petitioner’s needs, the corporation should
not have to produce electronic documents.’22
17 In re Martha Stewart Living Omnimedia, Inc S’holder Litig, Consol. C.A. No. 11202-VCS, 2017 WL
3568089, at *2 (Del. Ch. 18 August 2017).
18 Id. at *19.
19 DGCL § 220(c) (‘If the corporation . . . refuses to permit an inspection sought by a stockholder . . . or
does not reply to the demand within 5 business days . . . , the stockholder may apply to the Court of
Chancery for an order to compel such production. The Court of Chancery is hereby vested with exclusive
jurisdiction to determine whether or not the person seeking inspection is entitled to the inspection
sought.’).
20 Appel, 180 A.3d at 1059 (noting plaintiff served Section 220 books and records demand before filing his
post-closing damages suit). Notably, the material fact that the Delaware Supreme Court found was not
disclosed in that case came from the target board’s minutes. Id. at 1057 & n.1.
21 KT4 Partners LLC v. Palantir Techs Inc, No. 281, 2018, 2019 WL 347934, at *2 (Del. 29 Jan 2019); see
also Inter-Local Pension Fund GCC/IBT v. Calgon Carbon Corp, C.A. No. 2017-0910-MTZ, 2019 WL
479082 (Del. Ch. 25 January 2019) (holding that a stockholder had proper purpose to inspect records,
and that the stockholder was entitled to emails because they were necessary and essential for that purpose);
Schnatter v. Papa John’s Int’l, Inc, C.A. No. 2018-0542-AGB, 2019 WL 194634 (Del. Ch. 15 January 2019)
(noting that ‘[a]lthough some methods of communication (e.g., text messages) present greater challenges
for collection and review than others, . . . the utility of Section 220 as a means of investigating
mismanagement would be undermined if the court categorically were to rule out the need to produce
communications in these formats’).
22 KT4 Partners at *12.
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V M&A LITIGATION WITHOUT STOCKHOLDER PLAINTIFFS

i Broken deal litigation
In Akorn, Inc v. Fresenius Kabi AG, the target (Akorn) sought to compel the buyer (Fresenius)
to close on its acquisition of Akorn, while Fresenius sought a declaration that it had properly
terminated the merger agreement based on the occurrence of an MAE.23 After expedited
discovery and trial, Vice Chancellor Laster concluded that an MAE had occurred, and thus
Fresenius had validly terminated and was not required to close. That decision was affirmed by
the Delaware Supreme Court.24
Akorn is the first Delaware decision to release an acquirer from its obligation to close a
transaction as a result of the occurrence of an MAE. Before Akorn, Delaware decisions had
required acquirers to close, often despite a significant diminution in a target’s value. However,
the Court of Chancery’s detailed recitation of the unusual facts of that case attest to the fact
that MAEs remain difficult to establish, even after Akorn. Nonetheless, Akorn may embolden
parties to litigate such cases in the future, where before the lack of precedent for finding an
MAE may have discouraged them.
In Vintage Rodeo Parent, LLC v. Rent-a-Center, Inc, the Delaware Court of Chancery
found that a target company properly terminated the merger agreement following the passage
of the specified end date where the buyer failed to exercise its right under the agreement to
give notice that it wished to extend the end date.25 The Court further determined that there
was no implied duty to warn a counterparty of a mistake, and that an obligation to use
commercially reasonable efforts to consummate a merger does not preclude exercise of an
express right to terminate the merger agreement.26 The Court, however, requested additional
briefing regarding the enforceability in this context of the US$126.5 million reverse
termination fee to which the target claimed to be entitled, which constituted 15.75 per cent
of the equity value of the transaction (the case settled before that issue was decided). The
decision was a stark reminder that courts will strictly enforce the terms of a merger agreement
as written, and that failure to comply with seemingly ministerial formalities can have severe
consequences.
ii CBS/Redstone case
One of the most extraordinary Delaware cases in recent memory, In re CBS Corporation
Litigation, led to two notable decisions from the Court of Chancery before it settled shortly
before trial.
In that case, a special committee of the CBS board of directors called a special meeting
of the full board on 14 May 2018 (to take place three days later, on 17 May) to consider
and vote on a stock dividend intended to dilute the voting control of National Amusements,
Inc (NAI), a company owned by the Redstone family who, by virtue of CBS’s dual class
structure, owns approximately 10 per cent of CBS’s common stock and 80 per cent of its
23 Akorn, Inc v. Fresenius Kabi AG, C.A. No. 2018-0300-JTL, 2018 WL 4719347, at *3 (Del. Ch.
1 October 2018).
24 Akorn, Inc v. Fresenius Kabi AG, 198 A.3d 724 (Del. 2018).
25 Vintage Rodeo Parent, LLC v. Rent-a-Center, Inc, C.A. No. 2018-0927-SG (Del. Ch. 14 March 2019).
26 Id.
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voting power.27 The special committee and CBS simultaneously filed a lawsuit against NAI
in the Court of Chancery seeking approval of such dividend, alleging that it was necessary
to prevent the supposed threat that NAI would remove CBS directors to force an allegedly
unfair merger with Viacom, of which NAI is also the controlling stockholder. CBS also
immediately moved for a temporary restraining order (TRO) to prevent NAI from taking
action to protect its controlling stake until the board had a chance to approve the proposed
dividend at the special meeting.
Before a hearing on the TRO motion on 16 May, NAI (which had no prior notice that
the CBS special committee was considering such a drastic step) exercised its right to amend
CBS’s by-laws by written consent to require, among other things, that any dividend be
approved by at least 90 per cent of the CBS directors. Because three of the 14 CBS directors
were affiliated with NAI, these by-law amendments likely would preclude the declaration of
the dilutive dividend.
After an expedited briefing and a hearing on 16 May, the Court of Chancery denied
CBS’s request for a TRO on 17 May, the day of the special meeting. In so ruling, the
Court resolved an ‘apparent tension’ in the law between, on the one hand, past decisions
suggesting the possibility that a board might be justified in diluting a controlling stockholder
in extraordinary circumstances (arguably implying that, in such circumstances, the board
should be permitted to act without interference by the controlling stockholder) and, on the
other, cases recognising the right of a controlling stockholder to have the opportunity to
take action to avoid being disenfranchised. The Court found the well-established right of
a controlling stockholder to take measures to protect its voting control ‘weigh[ed] heavily’
against granting a TRO that would restrain it from doing so, and that ‘truly extraordinary
circumstances’ would therefore be required to support such a TRO.28 At the same time,
the Court noted that it had the power to review and, if necessary, set aside any such action
taken by the controlling stockholder after the fact (itself another reason why a TRO in these
circumstances was not warranted).29
A second decision issued by the Court of Chancery in this case arose from a privilege
dispute during discovery. Among other things, NAI argued that, because the three
NAI-affiliated members of the CBS board were joint clients of CBS’s counsel (i.e., in-house
and outside counsel representing the full board, not the special committee specifically), NAI
was entitled to unfettered access to privileged communications with such counsel made
prior to the filing of CBS’s complaint on 14 May. CBS, however, took the position that the
NAI-affiliated directors were adverse to CBS management and other board members with
respect to certain issues even separate from the proposed merger with Viacom (which the
special committee was formed to consider) and prior to the commencement of the litigation.
For example, CBS’s outside counsel filed an affidavit acknowledging that it had advised
certain members of CBS management and the board (unaffiliated with NAI) about ‘the
options available to CBS in dealing with its controller’ over many years.30
In ruling on this issue, Chancellor Bouchard first held that, because the NAI-affiliated
directors were joint clients of CBS’s counsel, under existing Delaware jurisprudence they
27 CBS Corp v. Nat’l Amusements, Inc, C.A. No. 2018-0342-AGB, 2018 WL 2263385, at *1-2 (Del. Ch.
17 May 2018).
28 Id. at *6.
29 Id. at *5.
30 In re CBS Corp Litig, Consol. C.A. No. 2018-0342-AGB, 2018 WL 3414163 (Del. Ch. 13 July 2018).
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had the right to unfettered access to legal advice rendered by such counsel absent an ex
ante agreement among the parties, the formation of a special committee or ‘sufficient
adversity’ between the director and the corporation ‘such that the director could no longer
have a reasonable expectation that he was a client of the board’s counsel’.31 The Court
determined that, as a result of the formation of a special committee by the CBS board of
directors to consider the potential merger with Viacom, the NAI-affiliated CBS directors
were not entitled to privileged communications with company counsel relating to the special
committee’s mandate. The Court held, however, that the NAI-affiliated directors were
entitled to communications with company counsel that were unrelated to special committee
matters, finding that ‘no factual basis has been identified to support the conclusion that the
NAI Affiliated Directors were made aware (or reasonably should have been aware) that CBS
Counsel was not representing them jointly with the other CBS directors with respect to any
matter other than the matters falling within the purview of the Special Committees for which CBS
Counsel provided assistance’.32 This decision shows that mere adversity between directors is
not sufficient to exclude some directors from privileged communications with board counsel;
rather, such adversity must be made manifest to the directors who are excluded.
VI FALL OF APPRAISAL ARBITRAGE

Section 262 of the Delaware General Corporation Law provides stockholders with the right
to demand a judicial appraisal of the fair value of their stock.33 To exercise appraisal rights a
stockholder must:
a deliver a written demand prior to the vote;
b not have voted in favour of the transaction;
c continuously hold the stock through closing; and
d perfect appraisal rights after closing.34
The past decade has been marked by a notable increase in statutory appraisal filings in
Delaware, driven by the appraisal arbitrage phenomenon.35 This phenomenon was made
possible largely by the generous statutory rate of interest on appraisal claims (5 per cent over
the Federal Reserve discount rate, compounded quarterly from the closing date of a merger)
and a 2007 Court of Chancery decision in In re Appraisal of Transkaryotic Therapies, Inc.36 In
that case, the Court permitted investors who purchased publicly traded shares in the open
market, when neither petitioner nor respondent knew whether those shares were voted in
favour of a merger (which would disqualify them from seeking appraisal), to pursue appraisal
31 Id. at *4-5.
32 Id. at *7 (emphasis in original).
33 In general, holders of listed stock (or stock held by more than 2,000 holders of record) have appraisal rights
if they are required to accept as merger consideration anything other than stock of the surviving company,
listed stock of any other corporation or cash in lieu of fractional shares. 8 Del. C. § 262(b).
34 8 Del. C. § 262.
35 Cornerstone Research, Appraisal Litigation in Delaware: Trends in Petitions and Opinions: 2006-2018 at
1, available at https://www.cornerstone.com/publications/reports/appraisal-litigation-delaware-2006–2018
(Appraisal Litigation in Delaware) (noting appraisal filings steadily rose after 2009 until peaking in 2016).
36 No. Civ. A. 1554-CC, 2007 WL 1378345 (Del. Ch. 2 May 2007).
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so long as the total number of shares not voting in favour of the deal was greater than the
number of shares pursuing appraisal.37 Several appraisal decisions finding fair value materially
above the merger price added to the increase in filings.38
Recent developments, however, have pumped the brakes on appraisal arbitrage. First, in
2016, Section 262(h) of the DGCL was amended to permit companies to cut off the accrual
of statutory interest by prepaying any amount to the petitioner. In addition, in response to
the concern that small appraisal claims were being filed solely to extract nuisance settlements,
Section 262(g) was amended to provide that appraisal would be unavailable in the case of a
company whose stock was publicly listed if the appraisal demands represent 1 per cent or less
of the stock outstanding and the total value of the demands (as implied by the deal price) is
US$1 million or less.
Secondly, in 2017, the Delaware Supreme Court reversed two appraisal awards –
7.5 per cent above the deal price in DFC Global and 28 per cent above the deal price in
Dell – in both cases because the lower court had given insufficient weight to the deal price.39
As Chief Justice Strine explained in DFC Global, economic principles suggest that in open
and arm’s-length mergers, ‘the best evidence of fair value [i]s the deal price’.40 The Court
rejected the arguments that regulatory uncertainty surrounding the target at the time of
the transaction rendered the deal price unreliable, and that the buyers’ status as a financial
sponsor rather than a strategic acquirer meant that it did not fully value the target.41 In Dell,
Justice Valihura echoed this reasoning, and extended it to a management buyout involving a
relatively limited pre-signing bidding process.42
Both decisions left open that the deal price would not be entitled to significant weight
in all cases, particularly those with an uncompetitive or otherwise flawed deal process. For
that reason, even after Dell and DFC Global, the Court of Chancery declined to place any
weight on the deal price in at least two appraisal cases. However, in those cases, the Court
looked to the deal price as a check on its fair value determination, which ultimately was very
close to the deal price.43
37 Scott Callahan, Darius Palia and Eric Talley, Appraisal Arbitrage and Shareholder Value, 3 J Law, Fin &
Accounting 147, page 3 (2018) (describing how statutory interest rate in Section 262(h) and the Court of
Chancery’s 2007 Transkaryotic decision led to arbitrage opportunity: hedge funds may ‘accumulate shares
in the target company after an announced merger, perfect appraisal rights, and put forward a sophisticated
expert to challenge the merger consideration, possibly obtaining an award in excess of the merger
consideration. And, even if the award fell short of the merger consideration, it would accrue interest at the
statutory compounded rate, often far outpacing the risk-adjusted return on the deal consideration itself ’).
38 See, e.g., Towerview v. Cox Radio, Inc, C.A. No. 4809-VCP, 2013 WL 3316186 (Del. Ch. 28 June 2013)
(finding fair value of 20 per cent above deal price); Global GT LP v. Golden Telecom, Inc, 993 A.2d 497
(Del. Ch. 2010) (19.5 per cent above deal price).
39 DFC Global Corp v. Muirfield Value Partners, LP, 172 A.3d 346, 349-50 (Del. 2017); Dell, Inc v. Magnetar
Global Event Driven Master Fund Ltd, 177 A.3d 1, 5-6 (Del. 2017).
40 DFC Global, 172 A.3d at 349.
41 Id. at 349-50.
42 Dell, 172 A.3d at 31-35.
43 See, e.g., Blueblade Cap Opportunities LLC v. Norcraft Cos, Inc, C.A. No. 11184-VCS, 2018 WL 3602940,
at *1-3 (Del. Ch. 27 July 2018) (refusing to the give deal price any weight, finding fair value to be 2.5 per
cent above the deal price); In re Appraisal of AOL Inc, C.A. No. 11204-VCG, 2018 WL 1037450, at *2
(Del. Ch. 23 February 2018) (also refusing to give deal price any weight, finding fair value to be 2.6 per
cent below deal price).
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Thirdly, a separate line of appraisal cases has found fair value to be significantly
below the deal price due to the fact that synergies are excluded from the statutory fair value
standard. For example, in ACP Master, Ltd v. Sprint Corp, Vice Chancellor Laster held that
fair value was US$2.13 per share, less than half the merger price of US$5 per share.44 In
Verition Partners Master Fund Ltd v. Aruba Networks, Inc, Vice Chancellor Laster relied on
the unaffected market price of the target’s stock, which was 30 per cent below the deal price,
as the ‘most persuasive evidence of fair value’.45 On appeal, however, the Delaware Supreme
Court reversed, holding that the deal price minus synergies realised in the transaction was the
appropriate way to determine fair value based on the record of that case (which still valued
the tie-up below its deal price).46
These developments have already led to a sharp decrease in appraisal actions, with new
appraisal filings falling by approximately two-thirds from their peak in 2016.47
44 ACP Master, Ltd v. Sprint Corp, C.A. No. 8508-VCL, 2017 WL 3421142, at *1 (Del. Ch. 8 August 2017).
45 Verition Partners Master Fund Ltd v. Aruba Networks, Inc, C.A. No. 11448-VCL, 2018 WL 922139, at *2-4
(Del. Ch. 26 January 2018).
46 Verition Partners Master Fund Ltd v. Aruba Networks, Inc, No. 368, 2018, 2019 WL 1614026 (Del.
16 April 2019). In a more recent decision, the Court of Chancery distinguished Aruba, and held fair value
to be equal to the unaffected market price (18 per cent below the deal price). See In re: Appraisal of Jarden
Corp, Consolidated C.A. No. 12456-VCS (Del. Ch. 19 July 2019).
47 Appraisal Litigation in Delaware, supra note 35 at 1 (‘Last year saw a drop in the number of appraisal
petitions filed in the Delaware Court of Chancery. After steadily rising since 2009 and peaking at 76 in
2016, the number of appraisal petitions filed by shareholders declined to only 26 in 2018’).
26
Chapter 4
REGULATION OF FINANCIAL
INSTITUTION M&A IN THE
UNITED STATES
Gregory Lyons, David Portilla and Nicholas Potter1
I INTRODUCTION
M&A involving financial institutions, which for the purposes of this chapter are defined to
include banks and insurance companies, constitute a major segment of the US M&A market
every year. This chapter examines the evolving legal and regulatory features of M&A deals in
the financial services market, and seeks to provide guidance as to how the changing face of
regulation is likely to impact transactions in this important market segment.
II BANK M&A
With approximately 250 mergers per year over the past decade,2 and almost 5,500 banks
remaining in the United States,3 M&A has been and will continue to be a constant feature of
the US banking landscape. Given that they constitute 85 per cent of US banks by number4
(if not by aggregate banking assets), community banks (defined for these purposes as those
with less than US$10 billion of assets) always will dominate the M&A space. Indeed, in the
years following the financial crisis there were very few deals outside of community banking,
as larger banks enhanced their capital bases and focused on responding to the enhanced
regulatory standards imposed by the 2010 Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank) and enhanced scrutiny by the federal banking agencies.
However, more recently these larger banks have started to participate in more bank
and non-bank deal activity. For reasons discussed below these institutions, as well as foreign
banks seeking to gain greater access to the US market, can be expected to play an increasingly
prominent role in the bank M&A market unless the environment turns more negative to
growth due to political, economic or other factors.
More generally, while economic factors affect all M&A, the regulatory environment,
encompassing not only the laws and regulations themselves but also the manner of their
implementation by the bank regulatory agencies, impacts bank M&A more than virtually
any other industry. This environment designates the possible participants (very limiting
for private equity and non-financial companies), the preconditions for banks to participate
(being healthy from a financial and regulatory perspective) and the regulatory burdens facing
1 Gregory Lyons, David Portilla and Nicholas Potter are partners at Debevoise & Plimpton LLP.
2 Federal Deposit Insurance Corporation (FDIC) Statistics at A Glance – Historical Trends as of
31 December 2018.
3 FDIC Quarterly Banking Profile, Q4 2018, p. 1.
4 Id. at p. 9.
27
Regulation of Financial Institution M&A in the United States
the resulting institutions. Understanding this environment, both generally and as to the
specific institutions contemplating a transaction, is critical to evaluating any possible M&A
transaction.
i US-based bank M&A

Before the financial crisis, regional and global US banks aggressively pursued M&A
to increase their geographic and industry coverage and customer base, and to obtain the
enhanced operational efficiencies resulting from spreading costs across a large revenue base.
The financial crisis and Dodd-Frank interrupted this narrative. Dodd-Frank, as implemented
by the federal bank regulators shortly after the crisis, applied enhanced prudential standards
(EPS), including capital-related burdens and resolution planning, on banking institutions,
which burdens increase as an institution crosses various asset thresholds (e.g., US$10 billion,
US$50 billion, US$250 billion). Moreover, deals beyond a limited size would require a US
bank with assets above US$50 billion to update its capital plan prior to obtaining regulatory
approval for the transaction, while with larger deals the regulators also would require
additional information so that they could confirm that a deal would not potentially have an
adverse impact on the financial stability of the US. All these additional burdens combined to
inhibit the traditional drivers of non-organic growth for larger institutions.
In this regard, one metric of the efficiency of a bank’s operations is its pre-tax,
pre-provision income divided by its risk-weighted assets (basically, the bank’s assets,
risk-weighted depending on perceived credit and market risk) (efficiency metric). Using
this approach, the optimal size for a banking institution in 2016 (the end of the Obama
administration) was between US$$5 billion and US$$10 billion of assets.5 In other words, in
contrast to the pre-crisis trend favouring growth to achieve economies of scale, the increased
burdens imposed on larger banks after the crisis resulted in banking institutions becoming
less efficient with capital on average as they grew beyond US$$10 billion of assets. This
regulatory dynamic clearly chilled the incentives for these regional institutions to pursue
transactions.
However, the regional banks have continued to strengthen since 2016. Moreover, the
change in presidency resulted in new individuals leading the US federal banking agencies.
These individuals generally are perceived to favour a more tailored approach to regulation
than their predecessors, and indeed in October 2018, the regulators proposed regulations to
reduce the burden of the EPS for banks between US$100 and US$250 billion of assets (and
to eliminate the EPS burdens for banks US$50 billion to US$100 billion of assets) (proposed
US tailoring rules).
As a result of these developments, in 2018 the more traditional relationship between
increased size and efficiency returned, with banks above US$50 billion of assets (rather than
US$5 to US$10 billion of assets) having the highest efficiency metric. The banking industry
is showing evidence of responding.6 For example, in March 2019, Fifth Third Bancorp
acquired US$20 billion asset MB Financial to create a US$170 billion asset bank. Also in
2019, SunTrust Banks (US$215 billion of assets) and BB&T Corporation (US$225 billion of
assets) announced they were entering into a merger of equals. These deals are driven by many
of the same factors as have historically applied, as well as a desire to invest funds in fintech.
5 Keefe Bruyette & Woods; SNL Financial Data.

6 Id.
28
These banks need to compete with global banks like JPMorgan, which has announced it
will spend US$11 billion on fintech in 2019, several times the entire annual profit of many
regional banks.
However, inhibitors remain to mergers creating ever-larger US banks. The proposed US
tailoring rules maintain material additional EPS burdens for banking institutions that cross
US$250 billion of assets. Thus, given the apparent adverse relationship between the enhanced
regulatory burden and the efficiency metric, a regional bank with US$100 to US$200 billion
of assets may want to consider acquiring a banking institution small enough to keep it below
the US$250 billion asset threshold unless a strong rationale for a larger transaction exists. For
example, SunTrust and BB&T have stated that they believe their close geographic proximity
allows significant economies of scale to invest in fintech, and each was by itself approaching
US$250 billion of assets and thus likely would have encountered the higher EPS at that level
in the near future in any event. Given the EPS burdens of a particular asset level apply in full
to a bank once it crosses that asset level, banks have significant disincentive to barely cross
a given EPS asset threshold. In other words, from an economies of scale relative to burden
perspective, no bank would want to be just one dollar above the asset threshold (i.e., in the
case of SunTrust and BB&T, US$250 billion) at which point a higher level of EPS burdens
applies.
Moreover, the burden on the largest Wall Street firms, known in regulatory parlance as
global systemically important banks, and the post-Dodd-Frank focus on ensuring financial
stability as a factor in applications involving large deals, could prevent a return to the large
national deals of the 1980s between two US firms, like the merger of NationsBank and
Bank of America that resulted in the national retail giant of today. As JPMorgan’s heavy
investment in fintech indicates, these large institutions appear to be focusing more on using
mobile and other technology to enhance market share, rather than relying on traditional
bank M&A. Given that JPM has grown deposits at twice the industry average since 2014 –
US$215 billion in absolute terms (or equivalent to the seventh-largest US commercial bank)
– this approach seems to have provided a nice complement to its branch network.7
Nonetheless, M&A remains a significant growth mechanism for the vast majority of US
banks (and foreign banks, as discussed below), and the environment currently is as favourable
as it has been for many years. Diligence by each party remains critical, anti-money laundering,
a poor Community Reinvestment Act rating and other significant regulatory issues still can
significantly delay or even prevent regulatory approval of a transaction. However, the time
required for Federal Reserve Board (FRB) M&A approvals in 2018 reduced by more than
one-third from the 2014 highs,8 and the FRB appears willing to consider deals as large as
SunTrust and BB&T, which will result in the seventh-largest bank in the US.
ii Foreign bank M&A

Large bank M&A in the US market is not limited to US-based banking institutions. Foreign
banking organisations (FBOs) comprise 16 of the largest 20 global banks, with JPMorgan
sixth after five Asian banks.9 FBOs also have a significant presence in the US, constituting 10
of the largest 34 US holding companies, and nine of 21 US holding companies with US assets
7 BankDirector.com, ‘This Bank is Winning the Competition for Deposits’ (15 March 2019).
8 S&P Global Market Intelligence, ‘Bank M&A has gotten speedier in recent years’ (December 2018).
9 S&P Global, Data Dispatch – The World’s 100 Largest Banks (6 April 2018) Update.
29
between US$100 billion and US$200 billion.10 These numbers do not include the substantial
US branch presence of FBOs. For example, the Canadian FBOs Toronto Dominion, Bank
of Montreal and Royal Bank of Canada (RBC) each have an aggregate US branch presence
of US$346 billion, US$200 billion and US$164 billion, respectively, and the Japanese FBOs
MUFG and Mizuho each have an aggregate US branch presence of US$274 billion and
US$140 billion, respectively.11 As a point of reference, the smallest of these, Mizuho, has US
branch assets equivalent to a top 30 US holding company.
FBOs also have shown a strong desire to grow in the US market, in many cases
given the continued relative strength of the US market and the much more concentrated
banking sector in their home markets. RBC’s acquisition of City National Bank (Los Angeles
headquarters) and Canadian Imperial Bank of Commerce’s acquisition of PrivateBancorp
(Chicago headquarters) represent two of the largest US deals by value announced since
2015.12 MUFG also has stated that it wants to be a top 10 US bank holding company,13
which would require it to more than double in size from its current US$168 billion of US
bank holding company assets.
As with their US-based counterparts, the US regulatory regime likely will play a
large role in the continued expansion of FBOs in the US. The federal banking agencies
expressed concern after the financial crisis that the large presence of foreign banks in the US
could impair the US economy in times of global financial stress. As a result, US regulators
required all FBOs with US non-branch assets of US$50 billion or more to establish US
holding companies to aggregate their US entities, and imposed capital and EPS standards on
those holding companies at least equally burdensome as those that apply to their US-based
counterparts. In April 2019, the federal banking agencies proposed FBO regulations intended
to tailor the application of the EPS and other burdens to FBOs (FBO tailoring proposals)
similar to the objectives of the US tailoring proposals.
The impact of the FBO tailoring proposals and other drivers of FBO M&A in the US
is not yet fully known. However, particularly given the size of their global operations, which
in many cases for FBOs with a significant US presence is significantly larger than all but
the largest US banks, continued desire to meaningfully expand into the US market appears
likely. Indeed, given their global size, larger US targets would be necessary to make an impact
on their balance sheets. Indeed, if MUFG’s view about the desired size in the US holding
company presence (which would still result in the US holding company presence being less
than 15 per cent of its global presence) is representative of other FBOs, the US regional banks
would appear logical targets for their growth.
III NON-BANK M&A14

While bank M&A tends to garner the largest headlines, both US-based banks and FBOs
are also engaging in significant non-bank M&A in the US. While banks are acquiring a
spectrum of financial companies, changes in the regulatory requirements after the financial
10 National Information Center, ‘Holding Companies with Assets Greater than US$10 Billion’
(20 April 2019).
11 FRB, ‘Structure and Share Data for US Banking Offices of Foreign Entities’ (30 September 2018).
12 S&P Global, Market Intelligence Deal Tracker (2015–2018).
13 American Banker, ‘MUFG’s big expansion is just getting started’ (26 March 2018).
14 Including asset managers, fintech and insurance companies.
30
crisis also are having an impact on these transactions. Banks are required to hold capital to
support their assets, and the bank regulators increased their capital ratios (i.e., the amount
of capital that they have to hold to support a given level of assets) after Dodd-Frank. Many
banks thus have focused on acquisitions of asset managers, M&A-advisory broker-dealers
and similar service-based entities that allow banks to generate revenue without generating
significant balance sheet assets that require additional capital. A sampling of approximately
a dozen US-based regional banks shows that on average they derive about 38 per cent of
their income from non-interest (i.e., non-mortgage or investment security-based) revenue,
showing that these types companies are an important part of their overall revenue mix.15
Other regulatory changes resulting from Dodd-Frank, such as the Volcker Rule, have
materially limited the ability of banks to acquire private fund complexes or entities engaged
in significant proprietary trading.
As banking institutions return to fiscal and regulatory health, they have a variety of
options to consider as to where to engage in non-bank acquisitions. The proper placement
of the target in a consolidated organisation can materially impact the ongoing benefits it can
provide. Particularly for financial holding companies, a special designation for well-managed
and well-capitalised institutions held by the vast majority of the regional and larger banks
acquiring a non-bank entity as a subsidiary of the holding company generally permits the
broadest range of permissible activities while requiring no bank regulatory approvals. On the
other hand, acquiring a non-bank entity as a subsidiary of a bank permits the bank to fund
and support the operations of that entity most efficiently. Particularly if, as is generally the
case with larger institutions, the relevant banking institution has a national bank subsidiary,
merging the non-bank into the national bank would permit the non-bank to obtain the
benefit of the federal preemption over state laws afforded to banks, but this is generally the
most burdensome type of acquisition from a regulatory perspective.
Banks are increasingly focused on the fintech space, both to increase internal operational
efficiency (e.g., blockchain) and to provide enhanced revenue and services to customers (e.g.,
payments and lending platforms). While banks often acquire all or a majority stake in the
former, in the latter case they often take non-controlling interests. If a bank were to take a
controlling stake (certainly more than 25 per cent of the voting stock, but often much lower,
particularly if combined with ongoing business relationships), then the fintech company
would become subject to the bank’s regulatory framework. In that case, the bank would have
to be concerned about regulatory and reputational risk with the fintech company, and the
fintech company’s permissible activities would be limited to those permissible for banking
institutions. Moreover, whereas at one point fintech sought to compete with banks, banks
have access to low-cost funding (via deposits) and a sticky customer base that fintech firms
find desirable.16 As a result, a recent report stated that more than 75 per cent of fintech firms
cite collaboration (often via minority investments and business relationships) preferable to
competition with incumbents, such as the institutions that dominate the banking industry.17
For acquisitions of all the stock or assets of a fintech company, the bank regulatory
considerations are identical to those described above for other non-bank acquisitions. On
the other hand, banking institutions typically will acquire a non-controlling interest in a
fintech company off the holding company (and not the bank). While banks are also able to
15 Silver Lane Advisors; SNL Financial, Company Filings (30 September 2018).
16 American Banker, ‘Where fintech dollars will go in 2018’ (December 2017).
17 Capgemini, LinkedIn and Efma, World FinTech Report (December 2018).
31
acquire non-controlling interests in some circumstances, the holding company often provides
greater structuring flexibility from a regulatory perspective. The principal concern with
holding company acquisitions of minority interests in fintech companies historically has been
the lack of clear guidance as to what levels of voting and non-voting stock ownership and
business relationships the FRB will permit without deeming the holding company to control
the fintech company from a bank regulatory perspective (which presents the disadvantages
described above).
However, in April, 2019, the Federal Reserve sought to provide greater certainty as to
what constitutes control with acquisitions of less than 25 per cent of the voting stock of a
target (at 25 per cent voting stock ownership or above, a company is conclusively determined
to be in control of a target under the US banking laws).18 This greater certainty also may
increase the desire of both banking institutions and fintech companies to engage in these
partnership investments with each other. The proposal creates a grid, with higher levels of
voting stock ownership (in any event below 25 per cent) necessitating the acquirer having
fewer other indices of control (e.g., interlocking directors, business relationships) to avoid a
banking law control determination. Interestingly, as our firm highlighted shortly after the
FRB published the proposal,19 as currently drafted, the proposal may provide more assistance
to fintech companies and activist investors increasing stakes in banking institutions without
being deemed in control of a bank than to banks seeking to gain meaningful non-control
stakes in fintech companies.
Finally, insurance company M&A continued to proceed at a rapid pace in 2018, as
private equity firms entered the market, the Bermuda companies consolidated and global
companies such as AXA significantly enhanced their market presence through non-organic
growth. Unlike bank M&A, insurance transactions tend to be regulated solely by state
insurance regulators. These regulators have begun to become more comfortable with private
equity firms as owners of insurance companies, and the rules governing risk-based capital for
insurance companies may favour larger groups once the National Association of Insurance
Commissioners group capital calculation (GCC) comes into effect. The precise impact of the
GCC remains to be seen, as for now field testing is just under way, and it is to be expected
that after an initial period of adjustment, the larger insurance groups will be able to benefit
from aspects of the GCC not available to smaller or monoline insurance groups. This may
well be a catalyst for M&A activity in a market otherwise characterised by low interest rates
(especially relevant for life and annuity insurers) and increasingly positive pricing trends for
organic business growth (for property and liability insurers and reinsurers).
IV CONCLUSION
After a pause caused by the financial crisis and a subsequent harsher regulatory environment,
both economic and regulatory factors appear to favour bank and non-bank M&A by both
US-based banking institutions and FBOs. As with many other areas of the US, however,
the current more favourable environment is not stable, and a recession or a change in the
federal government leadership to a less business-friendly administration could significantly
impair inorganic expansion. For this reason, many banking institutions currently are actively
18 84 Fed. Reg. 21634 (14 May 2019).

19 Bloomberg Law, ‘What the FRB Non-Control Proposal Means for Activist Investments in Banks’
(May 2019).
32
searching for targets to take advantage of the current arrangement. The regulation of fintech
and insurance M&A also are at a stage where they may favour transactions with buyers
who can fit within the rigorous regulatory framework or even take advantage, in the case of
insurance groups, of the emerging GCC in the US.
33
Chapter 5
UNITED STATES
ANTITRUST OVERVIEW
Richie Falek, Neely Agin and Conor Reidy1
I INTRODUCTION
Before reviewing key developments in the antitrust enforcement of M&A in the United
States over the past year, it is helpful to begin with some brief background on US antitrust
law and process.
Section 7 of the Clayton Act, the primary standard for the competitive review of mergers,
acquisitions, joint ventures and other transactions in the United States, is deceptively simple.2
It prohibits M&A where the effect ‘may be substantially to lessen competition, or tend to
create a monopoly’.3 The more-than-80 years since the Clayton Act was established, however,
have given rise to a litany of case law interpreting this very broad standard. While most of
those cases remain nominally good law, many decisions arguably are inconsistent with the
continually evolving economic and commercial environment. Indeed, there are many newer
industries for which there is little applicable case law: only imperfect analogies that can be
drawn from more mature industries.
To help address these issues, the Federal Trade Commission (FTC) and the Department
of Justice (DOJ) – the two agencies that share responsibility for competitive enforcement in
the United States – have issued guidelines to help practitioners more predictably analyse the
potential risk that a transaction may be challenged.4 However, here, too, there are limitations:
the guidelines are generalised, and may support varying analyses of a given transaction. As a
result, many US transactional lawyers take deep, expensive dives into case law and guidelines,
only to be inconclusive in predicting the likelihood of government opposition to a proposed
transaction.
For this reason, it is often a wiser course of action to begin with the Hart-Scott-Rodino
Antitrust Improvements Act (HSR Act)5 rather than case law or guidelines. The HSR Act
provides the FTC and DOJ an opportunity to review transactions before the parties close the
transaction and the proverbial ‘eggs are scrambled’. While the HSR Act introduced some delay
due to one or more waiting periods, the result – along with the FTC and DOJ’s enforcement
– actually has created tremendous transparency and much higher levels of certainty.
1 Richie Falek, Neely Agin and Conor Reidy are partners at Winston & Strawn LLP.
2 Clayton Antitrust Act of 1914, 15 U.S.C.A. § 18 (West 2018).
3 Id.
4 Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines (2010). Note that
the guidelines are almost a decade old.
5 Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. § 18a (West 2018).
34
United States Antitrust Overview
The FTC and DOJ annually publish detailed statistics regarding the HSR clearance
process.6 Virtually without exception in each year since the passage of the HSR Act, this
quantitative analysis demonstrates that the HSR process is fast and almost always results in
positive outcomes for parties. As such, while antitrust litigation is no doubt time-consuming
and very expensive, it is very rarely necessary. Having said that, there are various ways in
which parties can help ensure a positive outcome from the HSR process.
i Numbers trump case law, especially under the current administration

Very generally, a transaction in excess of certain value and party-size thresholds requires that
each party make an HSR filing and then observe a 30-day waiting period before consummating
the transaction.7 This initial waiting period can be shortened if the parties request and the
agencies grant early termination of the waiting period. On the other hand, the waiting
period may be lengthened if one of the agencies issues a Second Request, which includes
a more extensive production of documents, data and interrogatory responses; depositions
of individual representatives of the parties; and interviews and document requests issued to
relevant third parties such as customers, suppliers and competitors. A Second Request will
typically add months to the approval process.
In a Second Request scenario, there are three potential outcomes after the parties
comply: the reviewing agency can clear a transaction; the parties and the agency can enter
into a settlement (consent decree), which typically requires the divestiture of one party’s
businesses to an approved buyer as a condition of allowing the broader transaction to be
consummated; or the agencies can seek to block the transaction in federal court for violating
Section 7 of the Clayton Act.
Every year, the DOJ and FTC jointly issue statistics covering the HSR process for
the prior government fiscal year.8 The most recently released report, for 2017, found the
following:
a there were more HSR filings than ever: over 4,000;9
b 97.4 per cent of transactions were cleared without a Second Request, a higher rate than
in any year other than 2008, during the Great Recession;10
c most transactions were resolved within the first 30 days, with early termination
(typically shortening the period to between 10 to 14 days) granted almost 80 per cent
of the time it was requested;11
6 Federal Trade Commission and Department of Justice, Hart-Scott-Rodino Annual Report Fiscal Year
2017 (2017), https://www.ftc.gov/reports/federal-trade-commission-bureau-competition-department-
justice-antitrust-division-hart2. The Report for fiscal year 2018 is not yet available.
7 15 U.S.C.A. § 18a; Premerger Notification Office Staff, HSR Threshold Adjustments and Reportability
for 2019, Federal Trade Commission: Blogs – Competition Matters (7 March 2019), https://www.ftc.gov/
news-events/blogs/competition-matters/2019/03/hsr-threshold-adjustments-reportability-2019.
8 Hart-Scott-Rodino Annual Report Fiscal Year 2017, footnote 6.
9 Id. at 26.
10 Id. at 6.
11 Id.
35
d of these thousands of filings, the FTC issued 33 Second Requests and the DOJ issued
18; and12
e the agencies issued 15 consent decrees and brought 13 lawsuits.13
ii Strategies to increase transparency and predictability

Focus on the current competitive landscape
Despite the fact that the overwhelming majority of transactions are approved, each transaction
presents its own facts and circumstances, and so a positive outcome cannot be assumed.
Careful preparation is thus always necessary. Preparation should begin with an assessment of
the current competitive landscape gleaned from discussion with the parties, ordinary course
documents and public sources. This assessment should include:
a whether and the extent to which the parties compete against one other;
b if the parties compete, for what specific products or services, and in which specific
geographies;
c identification of actual and potential competitors and their market shares, as well as the
strengths and weaknesses of each;
d whether new competitors recently have entered the market; and
e how likely market entry is in the future.
This assessment of the competitive landscape provides the context to guide the application on
past enforcement and case law to the current transaction.
Anticipating customer reactions

After assessing the competitive landscape, counsel should then investigate likely customer
reactions. After all, the agencies’ first substantive step after reviewing an HSR filing often is
to seek out the parties’ largest customers to get their perspectives on the transaction. Since
these inquiries are not publicly disclosed, and the agencies provide no relevant statistics, it is
not possible to precisely gauge the impact of customer reaction on the likelihood of further
review.
That said, it is axiomatic that the antitrust laws are designed to protect competition
and customers, not competitors. Thus it follows that a lack of customer complaint (or,
even more so, favourable customer reaction) will lessen the potential for further review or
possible litigation. After all, if no customers are willing to stand up in court and say that
the transaction will hurt them, it will be very difficult for the government to prove that
competition for customers is likely to be harmed.
In theory, it would be desirable for antitrust counsel to make these inquiries before
the underlying transaction agreement is executed so that the parties can make an informed
decision regarding what antirust-related commitments they are willing to undertake. The
problem, of course, is that a proposed transaction is almost certainly not public at this point.
Direct customer outreach is thus not feasible. Nevertheless, counsel should work directly
12 Id. at 5.
13 Id. at 2. The FTC brought two and the DOJ brought 11, although the DOJ simultaneously filed a
proposed settlement in nine of those 11 lawsuits.
36
with the parties to gauge customer reactions as best they can. For example, the parties may
be able to anticipate likely reactions of key, longstanding customers without asking them
directly.
Make informed contractual commitments

While there is no guarantee that any transaction will clear the HSR process, a careful analysis
of the competitive landscape and possible customer reaction, followed by analysis of past
enforcement and case law, helps maximise the possibility of success. It also helps the parties
make informed decisions regarding the contractual commitments they will be willing to
undertake.
For example, targets typically request a hell or high water provision, most often at the
outset of negotiations. Such provisions require an acquirer to divest any assets or to take any
action the agencies require (such as licensing intellectual property) to alleviate their antitrust
concerns. If counsel’s review has indicated that certain assets may be likely to cause antitrust
concerns, and those assets are critical to the underlying economics of the transaction, an
acquirer will obviously be less likely to agree to a hell or high water provision. Conversely,
if review has indicated that issues are unlikely, an acquirer will be more willing to agree to a
hell or high water provision, perhaps in exchange for a concession on a provision not related
to antitrust.
There are numerous other potential provisions that may also arise over the course of
negotiations, such as divestiture caps (limiting the dollar amount or type of assets the acquirer
is willing to divest) and break-up fees (giving the acquirer the right to pay a fee and abandon
the transaction if the agencies’ demands are too onerous). Understanding the larger context
of the transaction will help both sides more clearly determine their positions on these matters.
iii US antitrust enforcement: the year in review

There were two trends that emerged in M&A antitrust enforcement this past year: the
continued success of the FTC in obtaining preliminary injunctions in federal district court
and attention to deal-specific vertical issues.
Preliminary injunctions
In December 2017, the FTC issued an administrative complaint challenging the merger
of Tronox Limited and Cristal, two top suppliers of chloride process titanium dioxide, a
white pigment used in a wide variety of products including paint, industrial coatings, plastic
and paper. The FTC simultaneously asked a federal district court to issue a preliminary
injunction preventing the parties from closing the transaction pending the conclusion of
FTC administrative proceedings. The District Court for the District of Columbia determined
that the FTC was likely to prove that the transaction would substantially reduce competition
for chloride process titanium dioxide and granted the preliminary injunction in September
2018. Tronox and Cristal subsequently agreed to settle with the FTC, agreeing to divest
chloride process titanium dioxide assets to a multinational chemical manufacturer. The FTC
approved its final order in May 2019.
The FTC obtained another significant result when it issued an administrative complaint
in April 2018 charging that Wilhelmsen Maritime Services’ proposed US$400 million
acquisition of Drew Marine Group would significantly reduce competition in the market
for marine water chemicals and services used by global fleets. The FTC claimed that if the
transaction were consummated, the combined company would control at least 60 per cent of
37
that market. As in the Tronox/Cristal case, the FTC asked the District Court for the District
of Columbia to issue a temporary restraining order and preliminary injunction to prevent the
parties from consummating the merger pending the administrative proceeding. The Court
granted the preliminary injunction, and shortly thereafter, Wilhelmsen and Drew Marine
abandoned the transaction.
Vertical issues
Last year, the DOJ made clear that while it remains concerned about vertical mergers,
case-specific facts are critical when evaluating the likelihood of a challenge. While the DOJ
challenged the vertical aspects of the AT&T/Time Warner combination, it allowed the Cigna/
Express Scripts and CVS/Aetna transactions, both of which followed the DOJ’s loss over
AT&T/Time Warner, to close without any remedy, despite vertical concerns. It remains to be
seen whether the DOJ’s unsuccessful challenge to AT&T/Time Warner will cause the DOJ to
be more hesitant in the long term to challenge vertical transactions.
In November 2017, the DOJ challenged AT&T’s proposed US$84 billion acquisition
of Time Warner. The DOJ alleged that the combined company would ‘use its control over
Time Warner’s valuable and highly popular networks to hinder its rivals by forcing them to
pay hundreds of millions of dollars more per year for the right to distribute those networks’,
and that the combined company would also ‘use its increased power to slow the industry’s
transition to new and exciting video distribution models’.14 In June 2018, however, the District
Court for the District of Columbia denied the DOJ’s request to enjoin the transaction. The
Court held that the DOJ had failed to prove that AT&T’s acquisition would substantially
lessen competition, explaining that Time Warner’s networks were not ‘must haves’ for a
distributor to compete, and that although Time Warner’s valuable content theoretically gave
it leverage to negotiate, these arguments were insufficient to establish that the merger would
result in increased leverage and harm to competition without more evidence of real-world
impact. The DOJ appealed the District Court’s decision, but in February 2019 the Court of
Appeals for the District of Columbia upheld the lower court’s ruling.
Following its loss in district court over AT&T/Time Warner, the DOJ closed its
investigations into two other mergers with potential vertical concerns. In September 2018,
the DOJ closed its six-month investigation into Cigna’s acquisition of Express Scripts, a
health insurance company and pharmacy benefit manager, respectively. The DOJ analysed
whether the merger would substantially lessen competition in the sale of pharmacy benefit
manager (PBM) services or raise the cost of those services to Cigna’s health insurance rivals.
In closing the investigation, the DOJ stated that Cigna’s US$67 billion proposed acquisition
of Express Scripts was unlikely to result in harm to competition or consumers because Cigna’s
PBM business nationwide was small, and at least two other large PBM companies and several
smaller PBM companies would remain in the market following the merger.
While the DOJ brought a challenge against CVS’s proposed US$69 billion acquisition
of Aetna, the challenge was based on horizontal rather than vertical concerns. The DOJ
alleged that the combination of two of the country’s leading sellers of individual prescription
drug plans would result in higher premiums, lower service and reduced innovation. It did not,
however, include in its complaint any allegations regarding the addition of CVS’s pharmacy
14 Department of Justice, Office of Public Affairs, Justice Department Challenges AT&T/DirecTV’s

Acquisition of Time Warner, 20 November 2017, https://www.justice.gov/opa/pr/justice-departmen
t-challenges-attdirectv-s-acquisition-time-warner.
38
and PBM business to Aetna’s health insurance business, although public commentators
expressed concerns with input foreclosure and customer foreclosure. Regarding input
foreclosure, the DOJ explained that the evidence showed that it was unlikely that CVS could
profitably increase its PBM or retail pharmacy costs following the merger, as doing so would
result in CVS losing business to other PBM or retail pharmacies. As for customer foreclosure,
the DOJ noted that Aetna occupied only a small share of the market in many commercial
health insurance markets, and thus CVS’s acquisition of Aetna was unlikely to result in
customer foreclosure.
To address the DOJ’s horizontal concerns with the CVS/Aetna merger, CVS and Aetna
entered into a settlement with the DOJ in which they agreed to divest Aetna’s Medicare Part
D business to WellCare Health Plans. After reviewing the terms of the settlement, however,
the District Court for the District of Columbia decided to hold an unprecedented two-day
hearing to assess whether the settlement provided sufficient protection to consumers. The
hearing, which concluded on 6 June, included testimony from witnesses who both supported
and opposed the proposed remedy.
It remains to be seen if the above trends – the success by the FTC in obtaining
preliminary injunctions and the agencies’ focus on deal-specific vertical issues – will continue
to play a significant role in 2019. That said, practitioners should keep both trends in mind as
they guide their clients through the M&A antitrust enforcement process.
39
Chapter 6
ARGENTINA
Fernando S Zoppi1

Since Mauricio Macri took office in December 2015, with the clear intent of shifting policy
towards a pro-business model, investors have shown a renewed interest for opportunities in
Argentina.
While the country still needs to go through some critical and long-term structural
reforms, the current administration has been encouraging investments in several sectors,
including technology, agribusiness, transport and aviation, energy, mining and infrastructure.
Within this context, the Argentine economy still benefits from reasonable, well-priced
commodities, an educated workforce and a strong entrepreneurial community.
M&A activity was significant in the period running from 2016 to 2018 (both in terms
of number of deals and transaction volumes). For a number of reasons, including general
conditions affecting emergency markets and local factors (such as the current economic
recession and the typical political uncertainties as the country approaches the presidential
elections in late 2019), a drop in M&A activity is expected for this year.
II GENERAL INTRODUCTION TO THE LEGAL FRAMEWORK FOR M&A

The Argentine capital market is relatively small, lacks sufficient depth, has limited liquidity
and is subject to regulations that are just now in the process of being modernised to meet
international standards. Further, most Argentine public companies generally have a minority
portion of their capital floating in the capital markets (between 10 and 30 per cent).
Accordingly, public M&A transactions in Argentina are not frequent.
As a result of the foregoing, most of the M&A activity is done through private deals.
These may involve shares, assets or a combination thereof. Share deals are preferred to asset
deals.
Share deals are undertaken through stock purchase agreements that generally follow
international standards for private transactions. These agreements can be subject to foreign
law and jurisdiction (including foreign arbitration tribunals). This is generally the case in
transactions for high-end Argentine companies. However, there are some aspects that will
necessarily depend on and be governed by Argentine laws (e.g., matters relating to the
consummation of transactions, certain matters covered by local securities regulations, labour
laws, regulatory requirements).
1 Fernando S Zoppi is a founding partner of Martínez de Hoz & Rueda.
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Assets deals (such as the bulk transfer of assets) are less common in Argentina for tax
reasons (as further detailed below), which in general make such transfers expensive, as the
transfer of each asset is subject to a different set of taxes; and because of timing concerns.
Public M&A transactions that involve the acquisition of a controlling stake may require
the acquirer to launch a tender offer to all the minority shareholders in the target company.
A mandatory tender offer is not required when the acquisition does not entail acquiring the
control of a company (i.e., more than 50 per cent of the voting securities or de facto control)
or when a change of control occurs as a result of a merger or a spin-off. The tender offer shall
contemplate a fair value, according to the parameters of recently enacted regulations.
On a separate note, corporate foreign shareholders must register at the Public Registry
of Commerce to be able to hold shares of a company incorporated in Argentina. A foreign
shareholder must submit certain corporate and accounting information to obtain registration.
The registration procedure and requirements have been substantially eased recently. Further,
the Capital Markets Law exempts foreign shareholders from such registration when the target
company is listed on the stock market.
III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAW AND

THEIR IMPACT
There have been no major amendments in corporate and takeover law in recent years, other
than as described above.
Certain amendments introduced by the Macri administration to the foreign exchange
regime have been critical to the development of the M&A market, in particular the elimination
of foreign exchange restrictions to acquire foreign currency and for the transfer of proceeds
outside Argentina (including dividends or other profits).
Argentina’s companies laws have been amended to allow a company to be set up as
a single shareholder corporation (sociedad anónima unipersonal or SAU). Further, it is now
possible to set up a company in the form of a simplified corporation (sociedad anónima
simplificada or SAS) through an expeditious and online procedure. Both SAUs and SASs are
aimed at promoting start-ups and entrepreneur activities in Argentina.
Finally, Congress has approved a new public–private partnership law. This regime seeks
to replace the existing regulatory frameworks, which failed because of technical defects and
the critical legal, institutional and economic context affecting Argentina during the past few
years. The new law is ambitious, and includes various protections in favour of the private
sector (contractors and lenders) to effectively foster the development of these associative
schemes and generate massive infrastructure investments.
IV FOREIGN INVOLVEMENT IN M&A TRANSACTIONS

As already mentioned, up to December 2015, foreign investment in Argentina decreased
sharply as a result of a high level of state intervention in the economy, coupled with a
shortage of foreign exchange, which resulted in the former (Kirchner) government freezing
all outflows of dollars from Argentina. As a result, companies were not allowed to transfer
monies abroad (such as in the form of dividends, royalties or payments for services), and thus
foreign investment was drastically reduced.
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In this context, most M&A activity involving foreign investors was related to the exit
of foreign investors from Argentine assets because of the economic difficulties or as a result of
multinationals leaving the region.
Following the election of a more pro-business government in December 2015, foreign
investor appetite has increased and we are now seeing a renewed interest in Argentina. While
the arrival of foreign investments is still moderate, there is a clear increase in the volume of
M&A activity and the size of transactions.
Local and foreign hedge and private equity (PE) funds have been particularly active
recently, and have closed transactions in the past four years in different sectors, such as the
energy (including oil and gas and renewable energy), agribusiness, hotel, food and beverage,
infrastructure and real estate sectors.
There are no specific required approvals for foreign investments either through PE
funds or other types of foreign investments (other than antitrust approval, if applicable).
However, depending on the type of portfolio company, activity or industry, as a general
rule, certain investments may be subject to prior (or, in some cases, subsequent) approval by
different regulatory agencies.
In some regulated industries, such as financial services, insurance, telecommunications,
aviation, oil and gas, mining and utilities, the approval of the applicable regulatory authority
is necessary to transfer either the control of, or a relevant portion of the shares of, a company
operating in those industries. Investments in real estate (rural lands or land adjacent to
country borders) may in certain cases require regulatory approval, and restrictions may apply
for foreign entities or individuals.
These processes generally involve the filing of detailed information about the acquirer
company, and the various formalities (e.g., translations, legalisations, specific forms) will
depend on the type of agency. The timing will also depend on the regulatory agency involved
in the process (typically, this may take more than three months to complete).
V SIGNIFICANT TRANSACTIONS, KEY TRENDS AND HOT INDUSTRIES

As already discussed, between 2003 and 2015 (under the Kirchner administration), M&A
activity was extremely modest, both in terms of the number of deals and deal volumes,
because of limited foreign direct investment (inbound). In contrast, during the same time
period, many other countries in the region (in particular Brazil, Mexico, Colombia, Peru and
Chile) experienced an increase in foreign direct investment and a resulting increase in M&A
activity.
During those years, the M&A market in Argentina was marked by less sophisticated
transactions, and deal amounts were far below the average in the region. Only a few transactions
have come close to, or crossed, the US$1 billion barrier (YPF, Telecom Argentina, Apache).
Instead, most deals closed at a price below US$100 million.
To restore confidence in the (local and international) business community and
attract investments, the new Macri administration quickly addressed some of the most
urgent economic and legal issues the Kirchner administration had either created or failed
to address. Before completing six months in office, Macri, inter alia, ended more than 12
years of legal dispute with the holders of Argentine sovereign debt in default, put Argentina
back into international capital markets, eliminated taxes on certain exports and eliminated
several foreign exchange restrictions (including on the transfer of dividends to foreign parent
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companies). While it is expected that the deal flow in Argentina will increase significantly in
the coming years, there is already a clear renewed interest in Argentine assets, and we have
seen steady growth in the number of deals closed.
In our experience, there is an increased appetite for renewable energy (incentivised by a
new special law); PE funds have already closed several deals in this sector. Additionally, several
players have made investments in the renewable energy sector of more than US$6 billion
following a series of auctions conducted by the government.
The recovery in the oil prices should also trigger renewed interest in oil and gas
assets (including the shale oil and shale gas projects in Vaca Muerta (see also Section
X)). Recently, for example, ExxonMobil and Qatar Petroleum signed a deal for a record
investment in Vaca Muerta for at least US$620 million. ExxonMobil also invested in the
midstream sector by acquiring a significant equity stake in Oldelval. International trader
Trafigura has also completed a couple of deals to start its downstream operation in Argentina
(including in association with its affiliate, Puma Energy). The same path has been followed by
DeltaPatagonia, which acquired 125 service stations from YPF to start operations under the
Gulf trademark, and Raizen, which acquired the downstream business of Shell.
Further, the offshore bidding round being organised by the government to award
exploration permits over offshore blocks generated substantial foreign investment (including
investors from the US, Japan, Norway, Germany, the UK and Qatar), and the government
received bids for a total investment of approximately US$1 billion. Blocks were awarded in
the Austral, West Malvinas and northern portion of the Argentina Basin, covering around
200,000 square kilometres.
The agribusiness sector also offers opportunities, and commodities prices have been
recovering well in the past few years. This sector is critical to the Argentine economy, as it will
trigger a cascade effect on the industrial and services sectors (in which deal volume remains
modest).
PE funds have invested in different sectors, including pharma, credit card processors,
telcos, logistics, technology and agribusiness. Owing to a decline in asset value and a
willingness to sell by owners, subject to the stabilisation of the political scenario, PE investors
may find attractive opportunities to invest in other areas, including infrastructure.
VI FINANCING OF M&A: MAIN SOURCES AND DEVELOPMENTS

Acquisition financing originated in Argentina is very limited and costly. As a result, most
foreign investors (including PE funds operating in Argentina) usually obtain their funding
from foreign investors, including a wide variety of foreign institutional investors, pension
funds, banks, hedge funds, multilateral institutions and individuals. Some PE funds
incorporated abroad but managed by Argentine managers obtain funding from local family
offices, private individuals and some investment companies. Local banks, insurance companies
and government agencies do not normally invest in PE funds, and there are currently no
regulations to promote or provide incentives for this.
Generally speaking, local portfolio companies are funded mainly through capital
contributions. Therefore, debt obtained from foreign sources is used to a lesser degree,
and local financing is available, although it may not cover all the financial needs of a
portfolio company.
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Interest under a debt has the advantage of being tax deductible. The Argentine Central
Bank regulations contemplate that, under certain circumstances, some loans may need to
be reported to the Bank. Currently, there are no foreign exchange regulations applicable to
lending transactions or otherwise.
VII EMPLOYMENT LAW

In the assignment of a business, all liabilities in relation to employees will be transferred to the
purchaser. If an employee is seriously affected by the assignment of a business, it is possible
for that employee to consider him or herself in a position of constructive dismissal. The same
applies in the case of the leasing or temporary assignment of a business.
The transferor and transferee (on any title) will be jointly and severally liable for the
obligations deriving from the labour relationships that exist at the time of the transfer or
assignment of a business. The transfer of personnel (without the establishment) shall only be
carried out with the written consent of the affected employees.
The main effect of the assignment of a business is that the former employer is replaced
by the purchaser or successor. It is not necessary that employees consent to the transfer.
A change of employer has consequences with respect to all the employment relationships
that are in force, not only to all current labour relationships but also to those in which the
obligation to effectively render services has been temporarily suspended (e.g., if personnel are
on holiday or on sick leave).
A purchaser or successor may not oppose an employee whose services were suspended
for any reason at the moment of the assignment of a business, even if the purchaser or
successor has not been informed by the previous employer of the suspension.
The labour conditions currently in force regarding the assignment of a business, such
as the office location, working hours and salaries, should be maintained by the purchaser
or successor without prejudice to the legitimate right of the employer to modify labour
conditions in the future within the limits established by the applicable labour law.
Pursuant to the mandatory case law, a purchaser or successor of a business is liable for
the transferor’s obligations that derive from employment relationships that were terminated
before the transfer. This implies that the purchaser or successor shall even be liable for the
labour credits of previous employees who have worked for the transferor within the statute of
limitations period, which for labour credits is two years.
Under the applicable law, an employee may consider him or herself to be in a situation
of constructive dismissal if the assignment of a business causes serious damage to him or her
– for example, if he or she was working for an economically sound company and, as a result
of the assignment of the business, he or she has to start working for a markedly insolvent
company. The sole fact of the assignment of a business to a purchaser or successor does not
mean that an employee can automatically consider that he or she is subject to constructive
dismissal.
In cases of the purchase of the stock of a corporation, there would be no assignment of
a business, since the employer (the corporation) would remain the same no matter who the
shareholders are.
According to the majority of local legal scholars, the transferor of a business does not
assume any liability for the labour obligations of the purchaser or successor after the date
of transfer. All liabilities with respect to employees shall be assigned to the purchaser or
successor in interest.
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VIII TAX LAW

Capital contributions are not subject to any tax in Argentina as long as the company receiving
the contribution is located in Buenos Aires or a province that does not apply stamp tax
(which some provinces do).
Holdings of shares issued by Argentine companies when the holder is a foreign
resident are subject to a 0.25 per cent personal assets tax on their percentage net equity
on 31 December every year. The Argentine company is liable for the tax, but it has a claim
against the foreign shareholder for the amounts paid. Under National Supreme Court case
law, branches of foreign companies are not subject to this tax.
Dividends distributed by Argentine companies to their foreign shareholders are subject
to withholding tax depending on when the distributing company earned the profits out of
which the dividends are paid. For fiscal years beginning on or before 31 December 2017,
there is no withholding tax (provided the profits have been taxed at company level). For
fiscal years beginning on or after 1 January 2018 and until 31 December 2019, dividends are
subject to a 7 per cent withholding tax. For fiscal years beginning on or after 1 January 2020,
dividends are subject to a 13 per cent withholding tax.
In a share deal, capital gains arising from the transfer of shares issued by an Argentine
company (including redemption) are subject to a 15 per cent income tax when made by a
foreign resident. In the case of a non-resident entity, the transferor may opt to pay a 13.5
per cent tax on the transfer price. If both the transferor and the transferee are non-resident
entities, the tax shall be paid by the local representative of the transferor, any person mandated
by the transferor to pay it, or the transferor itself from abroad. Stamp tax on the share transfer
agreement may be avoided through a letter offer agreement in most provinces.
Capital gains tax also applies to transfers of shares of entities above the direct shareholder,
but only when the transferred shares were acquired on or after 1 January 2018.
Transfers of assets as a going concern are subject to various taxes depending on the asset.
The transfer of all sorts of assets is subject to income tax on any capital gain. For fiscal years
beginning between 1 January 2018 and 31 December 2019, the income tax rate will be 30
per cent. For fiscal years beginning on or after 1 January 2020, the income tax rate will be
25 per cent. The transfer of real estate is subject to stamp tax at a rate of around 4 per cent,
depending on the province where the real estate is located; the tax is customarily shared (half
by the seller, half by the purchaser). The transfer of fixed movable assets is subject to VAT
at a rate of 21 per cent (10.5 per cent on machinery and similar equipment). The transfer
of inventory is subject to VAT at a rate of 21 per cent (10.5 per cent on some agricultural
products) and to gross turnover tax (at a rate of around 3 per cent, but this depends on the
province to which the tax basis is allocated). In all cases, the agreement is subject to stamp tax,
but this may be avoided through a letter offer (with the exception of transfers of real estate
and automobiles). As already stated, the tax is customarily shared by the seller and purchaser.
IX COMPETITION LAW
A new antitrust law was passed by Congress in May 2018.
An important change introduced by this new law lies in the timing for auditing M&A.
The old regime established an ex post control (i.e., transactions were reviewed after closing),
whereas the new law establishes an ex ante control (i.e., transactions are now reviewed prior
to closing).
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The Antitrust Law requires that transactions in which the aggregate business volume of
all companies involved therein in Argentina is higher than 100 million mobile units (which
is roughly equivalent to US$60 million (as at April 2019) be approved by the Antitrust
Authority before closing. The aggregate business volume means the amounts resulting
from the commercial activity and direct subsidies received by the companies involved in
the transaction during the last financial year, corresponding to their ordinary business and
calculated on an after-tax basis.
Authorisation will have to be obtained from the Antitrust Authority for a transaction
to enter into force between parties and to be effective with regard to third parties. Failure to
request and obtain authorisation, or if authorisation is not granted by the Antitrust Authority,
shall render a transaction void, without prejudice to any sanction that may be applicable in
the case of rejection.
The Antitrust Authority shall make the request for approval public so that interested
parties can submit objections. Within 120 days of the request being made public, the Antitrust
Authority will have to decide whether to approve the transaction, approve the transaction
subject to certain conditions or reject the transaction. Failure to issue a decision within 120
days shall be regarded as an unconditional authorisation by the Authority.
Transactions closed prior to obtaining the Antitrust Authority’s authorisation will render
the companies involved subject to fines, regardless of the Authority’s decision regarding the
transaction. If the Authority finds that it was a prohibited transaction under the Antitrust
Law, the companies will have to divest the acquired assets. The transactions subject to review
and approval are:
a mergers;
b the bulk transfer of assets, including transfers of ongoing concerns;
c the purchase or acquisition of any interest in stock, equity participations or debt
instruments convertible into stock, or equity participations that provide the right to
influence the decisions of the issuer thereof, when, in either case, the purchaser of the
same obtains through the acquisition of those securities or equity interests the control
of or a substantial influence over the issuer; and
d other transactions that entail a de facto transfer or a dominant influence upon the
decisions of the company in question.
The law does not contain any specific definition of substantial influence. However, recent
rulings by the Antitrust Commission have concluded that the right to appoint a certain
number of directors or to appoint key officers, or the existence of supermajorities, are relevant
factors for deciding in a particular case whether the buyer of a non-controlling interest in a
company nevertheless acquires a substantial influence therein.
During the first year of the Antitrust Authority being established, a notice of any
transaction subject to prior review and approval may be filed with the Authority either prior
to its consummation or within one week of closing. However, until the Authority is created,
and the aforementioned one-year period elapses, the old antitrust regime will continue to
apply.
Companies involved in a potential transaction may submit their situation to the
advisory opinion of the Antitrust Authority, which will determine whether the proposed
transaction should be submitted for authorisation.
Significant changes to the previous regime are being introduced. Even though
transactions were only considered valid between parties and with regard to third parties upon
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review and approval under the old antitrust regime (a requirement that continues under the
new regime), approval could be obtained after closing. The only real obligation of the parties
was to notify the authorities either before closing or within a week of closing. Failure to notify
was penalised with fines.
Although failure to obtain the required prior approval and denial of the approval after
closing did not entail the imposition of penalties insofar as the filing had been made within
the specified deadlines, by consummating the transaction without approval, the parties
assumed the risk that approval could be denied or conditional, thus resulting in a need to
divest the acquired assets totally or partially.
X OUTLOOK
As has been outlined, the change of administration in December 2015 triggered a change in
expectations that translated into the renewed interest of foreign investors in Argentina.
The government has clearly indicated that one of its main goals is to attract foreign
investments. This goal requires some pending structural changes, including those aimed
at reducing the fiscal deficit and high inflation rates, reducing labour costs and improving
quality standards within government institutions.
Infrastructure and energy are both in need of investment, and to that effect, the
government has launched a public auction to construct projects to provide more than
1,000 megavolts of energy from renewable sources (mainly solar and wind). Additionally,
Vaca Muerta (a rock formation in the province of Neuquén where a large oil and natural
gas discovery was made in 2010 and it is considered to be one of the largest shale fields
in the world) has attracted a lot of attention from foreign investors, who have positioned
themselves in the area with substantial success, thereby creating multiple opportunities for
related businesses.
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Chapter 7
AUSTRIA
Clemens Philipp Schindler and Christian Thaler1

While 2017 was one of the top years in terms of M&A activity since 1988, with the years
2000 to 2007 being the strongest, peaking in 2005 with over 500 deals, both the number
and the aggregate volume of transactions were significantly down in 2018. The number of
deals fell from 345 to 324 (i.e., by 6.1 per cent), and transaction volume was reduced from
€14.7 billion to €7.9 billion (as recently published in the EY M&A-Index Austria 2018). The
same holds true for ‘blockbuster’ deals with a volume in excess of €1 billion: there were only
two in 2018 (as compared to four in 2017). As previously, the vast majority of transactions
were entered into by strategic investors; nevertheless, there was also a significant increase in
financial investments (by private equity and venture capital investors) of roughly one-third
(from 20 to 27 deals).
In terms of statistics, the EY M&A-Index Austria 2018 reveals that:
a domestic deal activity was down by 28 deals and 28.9 per cent, respectively;
b inbound investment by foreign investors into Austrian companies fell by nine deals and
6.8 per cent, respectively;
c there was a significant increase in outbound investment by Austrian investors, by
16 deals and 13.8 per cent, respectively; and
d the overall number of 324 transactions during 2018 was segmented into 69
domestic transactions (21.3 per cent), 123 inbound transactions (38.0 per cent) and
132 outbound transactions (representing 40.7 per cent of the number of deals).
In terms of industry sectors, investments in industrial targets (81 deals) outnumbered

transactions in the technology sector (73 deals) and the real estate sector (72 deals), in each
case by a close margin; in terms of deal volume, the real estate sector continues to lead the
rankings (with an aggregate deal volume of €2.4 billion versus €1.9 billion in the industrial
sector). As in previous years, among foreign investors into Austrian targets, German investors
formed the strongest and most active group (with a total of 40 deals equalling a 32.5 per cent
share); globally, foreign investment into Austria could be segmented into investments sourced
in Europe (63.5 per cent), Asia (33.9 per cent) and the United States (2.6 per cent).
1 Clemens Philipp Schindler and Christian Thaler are partner at Schindler Rechtsanwälte GmbH.
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The main corporate law statutes are the Stock Corporation Act and the Limited Liability
Company Act for corporations, and the Enterprise Act for partnerships. The Takeover Act
and the Stock Exchange Act, supplemented by the Market Abuse Regulation, are relevant
for listed companies (in relation to, public takeovers, stake-building, ad hoc disclosure,
insider trading, directors’ dealings, etc.), whereas for private companies they do not apply.
Merger control issues are governed by the Cartel Act, unless the EU Merger Regulation
applies. In relation to corporate reorganisations, such as mergers, spin-offs and squeeze-outs,
in particular the EU Merger Act, the Demerger Act, the Shareholder Squeeze Out Act
and the Transformation Act complement the general corporate law statutes, while from a
tax perspective the Reorganisation Tax Act provides for roll-over treatment under certain
conditions. From a general tax perspective, the Corporate Income Tax Act as well as the
Individual Income Tax Act are of most relevance, with, inter alia, transfer taxes being primarily
subject to the Stamp Duty Act and the Real Estate Transfer Tax Act. In the employment law
area, the Labour Constitution Act and the Act on the Amendment of Employment Contracts
(AVRAG) are to be taken into account. In addition, for specific industries, sector-specific
laws apply, such as the Banking Act, the Securities Supervisory Act, the Insurance Supervisory
Act or the Telecom Control Act.

THEIR IMPACT
A notable recent change in the legal framework relates to listed companies; historically,
companies admitted to trading to the regulated Official Market of the Vienna Stock Exchange
could not be voluntarily delisted unless in the form of a ‘cold delisting’ (as a consequence
of a restructuring or if the preconditions for a listing ceased to apply). Thus, an admission
to a regulated market was tantamount to a one-way street. In 2018, the legislator finally
introduced an optional voluntary delisting (upon application of the issuer) subject to a vote
or request of shareholders representing 75 per cent of the share capital; and, as alternatives, a
takeover offer addressed to the remaining shareholders or an alternative listing in a different
Member State being maintained. While mandatory offers or takeover offers are, likely to
Austria’s limited market size, traditionally rare as M&A structuring instruments, we consider
that this delisting option may create an incentive for more takeover offers being made in the
future (there has been one precedent, Pankl Racing Systems AG, seen promptly upon the
introduction of the new law).
Partial takeover bids (addressed to all shareholders of a listed company, but with an
acceptance cap) also remain a popular tool for purposes of increasing an existing shareholding
below the formal control threshold of 30 per cent (unless lowered in the articles of association,
as implemented by several Austrian companies in particular in the recent past); partial
takeover bids may also be submitted by the issuer itself thus acquiring its own shares, for
example for purposes of acquiring treasury shares (which may be cancelled or designated for
other purposes such as an acquisition currency, or for employee or management stock option
programmes).
No change has been made to the formal control threshold of 30 per cent, which has
been in place since 2006 and which triggers a mandatory bid obligation for all shares in the
target, or are even limited to only 26 per cent, which is the ex lege cap of exercisable voting
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rights (unless another shareholder holds voting rights in excess of that threshold or a bid is
launched). Often, however, such bid is followed by subsequent bids, which usually triggers
a mandatory offer.
Another recurrent topic is access to documents and information to conduct due
diligence. In this context, certain differences depend on the legal form under which the target
is established (largely based on the differentiation between whether a company is privately
held, forms part of a group or is publicly listed).
As a general rule, in the case of stock corporations, third parties do not have a right
to obtain information from the stock corporation apart from those pieces of information
that are publicly available; the disclosure of any non-public information by a company is
subject to a decision of its management (the management board in the case of joint-stock
corporations, and managing directors in the case of limited liability companies), which must
be taken in consideration of, inter alia and most importantly, the interests of the company
(and not its shareholders). A board is thus not obliged to disclose confidential information
to a prospective buyer. Even shareholders’ information rights are subject to important
restrictions. Shareholders can request financial statements, including the management
report as well as the supervisory board report. Furthermore, shareholders have an individual
information right at the shareholders’ meeting in relation to items contained in the agenda,
and to the extent such information is necessary to properly assess an agenda item. Given
that such information will usually not suffice for the purposes of due diligence by a potential
investor, shareholders will often request the management to disclose additional information.
The decision on the disclosure of confidential information, and thus the decision on the
admission or refusal of a due diligence, is a management measure, and thus generally does
not require the consent of the supervisory board or the shareholders. The management has
to avoid any damage to the company, and must consider all potential advantages, risks and
disadvantages. Positive impacts may include, for example, new or cheaper means of financing,
access to new customers or markets, access to product or technical know-how, and advantages
for the company’s production or procurement or access to additional funding. Negative
impacts could arise if, for example, a competitor or a major supplier or customer of the target
can access the information. The decision to allow due diligence is not necessarily an all-or-
nothing decision; the greater the interest of the company in a transaction underlying the due
diligence request, the greater amount of sensitive data can be disclosed as well. The interest
of shareholders also has to be taken into account by the management, whereby shareholders
should generally be treated equally in equal situations. Another aspect to consider is the time
frame. The more advanced the stage of the acquisition process, the more comprehensive and
detailed the information that can be made accessible to the buyer. Due diligence will mostly
only be permitted if the buyer’s intention to commit to a purchase has become more specific,
for example by it signing a letter of intent. At the same time, the prospective buyer should
also sign a non-disclosure agreement as a standard precautionary measure.
The situation for limited liability companies is generally comparable to that of stock
corporations. Although its shareholders have only limited access to information rights, the
Austrian case law has long established that every shareholder has to be granted a comprehensive
information claim. Therefore, managing directors are, in general, obliged to provide requested
information to shareholders. However, this information claim does not apply without
restriction. The purpose of the comprehensive information right is to monitor managing
directors, to control the business situation of the company and to prepare for general meetings.
This information claim should thus only be used for these objectives. Accordingly, there is
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some legal argument in Austria that the information claim would not include a due diligence
for the sale of shares; meanwhile, others argue that managing directors may not deny access
to documents or information for purposes of a due diligence. Overall, a due diligence claim
by a shareholder of a limited liability company must be honoured, if and to the extent that
it is essential for selling the shares to a potential buyer, and the shareholder’s request is not a
misuse of the law (e.g., if the shareholder intends to avoid disclosure of the information to a
prospective buyer), but only to the extent that is necessary to sell the shares, and only insofar
as the interests of the company are not negatively affected. Regarding the question of what
information the seller is allowed to share with a potential buyer, the company’s confidentiality
interests must be carefully weighed against the shareholder’s interests in the dissemination of
information, and will often require a shareholder resolution (at least in scenarios in which the
sale of the shares is subject to shareholders’ approval). The shareholders of a limited liability
company are subject to the duty of loyalty to the company and to the other shareholders.
The nature of such duty of loyalty among the shareholders means paying due regard to the
legitimate interests of the other shareholders even when exercising their voting rights.
M&A data protection is also in the spotlight. The General Data Protection Regulation
(GDPR) came into effect on 25 May 2018. For the seller side in an M&A process, there are
important GDPR concerns to be aware of. During a due diligence, there are potential risks
of data and privacy breaches, when sensitive information is shared between potential buyers
and the seller company. For the buyer side, the company’s GDPR compliance or readiness
must be taken into account during the due diligence process if the potential acquisition target
does business in Europe or deals with data related to European citizens, even if the company
does not have a physical office location in the EU. The GDPR is a comprehensive set of
rules and regulations, and there are several important steps organisations must carry out in
order to comply, such as a classification of all personal data being processed by a company,
performance of risk assessments, implementation of specific processes, and notifications of
the competent authorities and – in some scenarios – the individuals who have been affected
by a breach. Further, individuals have important rights under the GDPR (such as the right
to be informed, the right of access and rectification, right of data portability, etc.). To
avoid fines for non-compliance, which can be substantial, companies will need to have an
in-depth understanding of where personally identifiable information is stored and processed
throughout the organisation and will have to transfer such information into a record of
all processing activities. Various opening clauses provide Member States with discretion to
introduce additional national provisions to further specify the application of the GDPR. In
this context, the Austrian legislation provides that declarations of consent to the processing
of personal data lawfully obtained according to the current data protection framework shall
remain valid under the GDPR if such declarations also comply with the new regulations of
the GDPR. As Austrian case law has already been rather strict in this respect in the past, it can
be expected that the need to adapt existing declarations of consent may be lower in Austria
compared to other European countries. Compliance can potentially be very expensive,
and these costs should be considered very carefully when it comes to the purchase price
of a target company. Further, fines related to non-compliance with the GDPR can be very
high – in some cases up to 4 per cent of the company’s prior year worldwide revenue or up
to €20 million. Based on the announcement that the staff of the Austrian data protection
authority will be increased significantly, it can be assumed that breaches of the GDPR will
soon be proseceuted systematically.
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Austria

As a basic principle, there is no general foreign investment control or supervision regime in
place in Austria.
However, under the Foreign Trade Act, the acquisition of an interest of 25 per cent or
more, or a controlling interest in an Austrian business by a foreign investor (for the purposes
of this law, that is an investor domiciled outside of the EU or the EEA and Switzerland; if
the investor is resident in these regions or country, no advance approval is required, but ex
officio investigations can be initiated without time limit) is subject to advance approval by
the Austrian Minister of Economic Affairs where that business is involved in internal and
external security (e.g., defence and security services) or public order and security, including
public and emergency services, such as hospitals, emergency and rescue services, energy and
water supply, telecommunications, traffic or universities and schools. Transactions subject
to approval cannot be completed pending approval. Failure to obtain approval is subject to
imprisonment and criminal penalties.
The acquisition of ownership and certain lease interests in real estate by non-EEA
nationals or the acquisition of control over companies owning such interests is subject to
notification or approval by the local real estate transfer commission. What interests are covered
and whether notification or approval is required varies among the pieces of legislation of the
nine states in Austria. Where the real estate is used for commercial rather than residential
purposes, approvals are usually granted.
In regulated industry sectors (e.g., banking, insurance, utilities, gambling, telecoms or
aviation), the acquisition of a qualified or a controlling interest is typically subject to advance
notification to, or approval of, the competent regulatory authority. Sanctions for failure to
notify or obtain approval in advance range from monetary penalties to a suspension of voting
rights or a partial or total shutdown. Although such rules also apply to domestic investors,
they usually are a more burdensome hurdle in the cross-border context.

i Signficant transactions
During 2018, in terms of deal volume the market saw several notable transactions.
The five largest deals involving Austrian targets or other participants involved the
following:
a OMV Aktiengesellschaft, a publicly listed oil and gas company that counts Austria
and Abu Dhabi among its core shareholders, acquired a 20 per cent share in offshore
licences for two oil fields in Abu Dhabi. Thus, OMV AG managed to substantially
increase its reserves to approximately 450 million barrels. Upon its announcement,
the agreed consideration and purchase price amounted to more than €1.2 billion.
Later, in January 2019, OMV proceeded to acquire a 50 per cent share in Abu Dhabi’s
national oil company, ADNOC Refining, and an additional 50 per cent share in a
yet-to-be-established trading joint venture for an estimated purchase price (subject to
adjustments) of US$2.5 billion. This transaction continues an extended sequence of
outbound transactions that OMV AG has entered into over the past decade.
b ZKW Holding GmbH, the top company of a lighting and electronics systems specialist
domiciled in Austria with a staff of over 3,500 in Austria and 9,000 worldwide, was
acquired by South Korean LG Electronics for a consideration of more than €1.1 billion.
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Austria
In the process, LG as acquirer agreed to grant job guarantees for employees domiciled
in Austria. As per market sources, the transaction was concluded within the framework
of a competitive auction process involving other prominent industrial bidders.
c Austrian AHT Cooling Systems GmbH, a specialist in cooling technology, which has
been owned by a financial private equity investor (Bridgepoint Capital) since 2013,
has now been acquired by a group company of a Japanese strategic investor, Daikin
Europe NV, for a consideration in excess of €880 million. The parties to the transaction
have stressed that synergies should enable a continuation of the global growth of the
combined group.
d As a rare example of transactions involving publicly listed companies, a significant
stake (blocking minority) in real estate company CA Immobilien Anlagen AG has been
sold by its core shareholder and competitor, the publicly listed IMMOFINANZ AG,
to the US-based Starwood Capital Group. The transaction involved a participation of
26 per cent in the share capital plus four registered shares (vesting special shareholders
and nomination rights). The aggregate consideration amounted to approximately €750
million, which corresponds to €29.5 per share. The acquirer later also published a
partial bid to the other shareholders in CA Immo, which was, however, only accepted
by a small number of shareholders (only approximately 150,000 shares have been
tendered).
e As an example for a successful outbound transaction, technology group Andritz
AG acquired Xerium Technologies, Inc, based in North Carolina, USA, for a total
consideration of approximately €650 million. The target specialises in supplying
manufacturers of paper machines and, in terms of transaction volume, has been the
largest acquisition completed by Andritz AG to date.
ii Key trends and hot industries2

Overall, the number and volume of transactions decreased during 2018 after the record year
of 2017.
Outbound transactions by Austrian investors have been on the rise, as compared to a
reduction in domestic and inbound transactions.
Notwithstanding, the aggregate consideration paid in inbound deals by foreign
investors in Austria outnumbered that paid or committed in outbound transactions, with
€3 billion being paid in the top five inbound deals, largely due to two high profile deals:
the highest transaction volume for inbound deals was attributable to the automotive supply
sector (ZKW/LG), whereas for outbound deals, this would be the oil and gas sector (OMV/
ADNOC).

Corporates have found that the financing environment has somewhat improved, in particular
for those with strong financials. Banks are also more active in approaching blue-chip
companies, so financing opportunities for acquisitions are rather good.
The financing environment for buyout transactions has remained more or less
unchanged, and is quite different for domestic market participants (as opposed to
2 EY M&A-Index Austria 2018.
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international players), which typically seek financing from domestic banks, and international
financial sponsors, which are able to tap international banks (at least on large-cap deals).
Leverage levels for large-cap transactions have gone up slightly to around 5 times EBITDA,
and relative debt-to-equity ratios of 40 to 50 per cent. Small to mid-cap transactions are
sometimes financed through equity alone, or by domestic or German banks. Leverage levels
and relative debt-to-equity ratios generally tend to be lower for small to mid-cap transactions
than for large-cap deals.
Where leverage is employed on small and mid-cap transactions, there is usually
only senior and institutional debt, as mezzanine structures tend to add another layer
of complexity that is often not supported by the limited transaction size. On large-cap
transactions, mezzanine financing is sometimes considered but, given the limited transaction
size, is ultimately seldom employed. High-yield instruments are usually only considered for
post-completion refinancing, as the time and cost involved tend to be disproportionate to
any gains on the pricing side.
Experience shows that certain limitations under Austrian corporate law are often
unexpected for foreign investors when structuring a deal, particularly in relation to intragroup
(financing) transactions: Austrian law generally prohibits the return of equity to shareholders
(i.e., up-and-side-stream transactions) of both a limited liability company as well as a stock
corporation (and is applied by the Austrian courts by analogy to limited partnerships with
only a limited liability company or stock corporation as unlimited partner). Based on this
principle, Austrian courts have established that a company cannot make any payments to its
shareholders outside arm’s-length transactions except for the distributable balance sheet profit,
in a formal reduction of the registered share capital or for the surplus following liquidation.
The prohibition on return of equity covers payments and other transactions benefiting a
shareholder where no adequate arm’s-length consideration is received in return; in relation to
acquisition financing, typical examples for critical and potentially inadmissible transactions
include upstream, side-stream and cross-stream loans as well as security rights (such that, for
instance, a target company is typically prohibited from granting personal or asset security
for the acquisition debt of its (new) parent for the acquisition of target shares). To the
extent a transaction qualifies as a prohibited return of equity, it is null and void between
the shareholder and the subsidiary (and any involved third party, if it knew or should have
known of the violation.) Breaches may also result in liability for damages. Most of the above
principles are also applied by the Austrian courts by analogy to limited partnerships with a
limited liability company or stock corporation as (the sole) unlimited partner.
Austrian courts have developed case law suggesting that a subsidiary may lend to a
shareholder, or guarantee or provide a security interest for a shareholder’s loan, if it:
a receives adequate consideration in return;
b has determined (with due care) that the shareholder is unlikely to default on its payment
obligations, and that even if the shareholder defaults, such default would not put the
subsidiary at risk; and
c that the transaction is in the interest of the Austrian subsidiary (corporate benefit).
In addition, the Austrian Stock Corporation Act prohibits a target company from financing
or providing assistance in the financing of the acquisition of its own shares or the shares of
its parent company (irrespective of whether the transaction constitutes a return of capital).
It is debated whether this rule should be applied by analogy to limited liability companies.
Transactions violating this rule are valid, but may result in liability for damages.
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VII EMPLOYMENT LAW

In the case of a transfer of a business within the meaning of the Act on the Amendment of
Employment Contracts implementing Directive 2001/23/EC on safeguarding employees’
rights on transfers of undertakings, businesses or parts of businesses (Transfer of Undertakings
Directive), the employment relationships of the employees associated with the business
transfer together with the business to the purchaser (Section 3 Act on the Amendment of
Employment Contracts). Employees can object to the transfer of the employment relationship
within one month if the purchaser does not maintain dismissal protection pursuant to a
collective bargaining agreement or take over pension commitments based on a single contract.
This does not apply if the seller ceases to exist (e.g., in the case of a legal merger).
The Austrian Supreme Court has held that a dismissal of employees in the course of
an asset sale (both by the seller and the acquirer) is against good morals (bonos mores) unless
there are valid economic, technical or organisational reasons unrelated to the asset sale. If
dismissals occur in close proximity to an asset sale, there is a (rebuttable) presumption that
such exceptions do not apply. In addition, the general rules of Austrian employment law
concerning appeals against dismissals apply.
There is no special protection against a dismissal in the context of a share sale (i.e.,
where not the business as such but the company is transferred). Only general rules of Austrian
employment law concerning appeals against dismissals apply.
Another area of interest to investors is whether there are obligations to inform or consult
employees or their representatives, or to obtain employee consent to a share sale or an asset
sale. If a works council is established at the target company, the target company must inform
the works council in accordance with Section 109 of the Labour Constitution Act, and consult
with the works council on request in relation to a share deal. If no works council is established,
no information or consulting requirements apply. In relation to an asset deal, the following
has to be observed: the Labour Constitution Act provides for information and consultation
rights of the works council in general, as well as specifically in relation to certain transactions
and changes to a business. The information must be given sufficiently in advance, in writing
and in a manner that allows the works council to assess the relevant transaction or change.
The information must specifically include the reason for the transaction or measure, and the
legal, economic and social consequences as well as any associated measures that may affect
employees. The works council must be given an opportunity to comment on the transaction
and propose measures mitigating adverse effects for employees. Where no works council is
established, an asset sale only triggers information requirements if a transfer of a business is
concerned. In that case, the seller or the purchaser must provide certain information to the
employees affected. Affected employees do not, however, have consultation rights. There is
no obligation to obtain the consent of the employees affected. However, where by operation
of Section 3 of the AVRAG a transfer of a business results in the transfer of an employee to
the purchaser together with the business, the employee can object to the transfer in certain
limited circumstances (see above).
VIII TAX LAW

As there is no tax exemption for capital gains realised from the sale of shares in an Austrian
company (as opposed to shares in a foreign company), foreign investors will often choose an
acquisition vehicle in a foreign country with which Austria has concluded a double taxation
treaty that provides that only such other jurisdiction is entitled to tax the capital gains.
55
Austria
On the other hand, an Austrian acquisition vehicle allows the establishment of a tax
group between the acquisition vehicle that incurred the debt and the target, which enables
the purchaser to offset the interest expenses for the acquisition from the operational profits of
the target. In general, non-Austrian corporations may also be part of an Austrian tax group,
and their respective losses may reduce the Austrian tax burden under certain circumstances.
However, such attribution of losses is limited to 75 per cent of the income subject to tax in
Austria. Remaining losses may be carried forward.
Furthermore, foreign investors will usually opt for structures that avoid or minimise
withholding tax. Dividends and interest payments are generally subject to withholding tax
of 27.5 per cent (25 per cent in cases of corporations as the recipient). However, limitations
and exemptions apply under domestic law as well as applicable tax treaties. In particular,
withholding tax on dividend payments to non-Austrian investors is typically subject to the
limitations under the EU Parent-Subsidiary Directive and applicable double taxation treaties.
Interest payments on loans to non-Austrian lenders are, in principle not subject to Austrian
withholding tax.
Debt-financed acquisitions should be structured carefully to secure the deductibility
of interest as well as the offsetting of such interest expenses from business profits of the
target company. Interest expenses are, for instance, not deductible in Austria if the interest
is not taxed at the level of the related party lender at an effective tax rate of 15 per cent or
more. It is worth noting, however, that there are no statutory rules on thin capitalisation in
Austria. From a practical perspective, tax authorities usually accept debt-to-equity ratios of
around 3:1 to 4:1. Besides the non-deductibility, the breach of such ratio would also result in
interest payments being treated as deemed dividends, which – unlike interest on shareholder
loans – would be subject to withholding tax in Austria (see below). Finally, it is worth noting
that there is currently no interest barrier rule providing for a general limit on the deductible
amount of interest expenses paid to unrelated parties (see below).
Besides the developments mentioned above, tax audits in relation to M&A deals are
becoming more common and burdensome. In particular, transfer pricing issues, for example,
in relation to interest on shareholder loans or certain fees payable to related entities, are under
scrutiny. Accordingly, tax rulings are also becoming more popular.
Since 2019, controlled foreign company (CFC) rules and a legal definition for abuse of
law are in place. In this context, the inclusion of the existence (or non-existence) of an abuse of
law in the scope of binding tax rulings is likely to have high practical relevance. In Austria, the
introduction of an interest barrier rule foreseen under the BEPS Anti-Avoidance Directive has
been deferred for now. Although the European Commission initiated respective infringement
proceedings against Austria, financing structures with unrelated parties should not be challenged
by the tax authorities for the time being. If combined with intragroup financing, limitations, in
particular thin capitalisation and the arm’s-length principle, have to be observed.
IX COMPETITION LAW
The following types of concentrations are subject to merger control (intragroup transactions
are exempt) under the Austrian Cartel Act:
a the acquisition of an undertaking or a major part of an undertaking, especially by
merger or transformation;
b the acquisition of rights in the business of another undertaking by management or lease
agreement;
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Austria
c the (direct or indirect) acquisition of shares, if thereby a shareholding of 25 per cent or

50 per cent is attained or exceeded;
d the establishment of interlocking directorships where at least half of the management
or members of the supervisory boards of two or more undertakings are identical;
e any other concentration by which a controlling influence over another undertaking
may be exercised; and
f the establishment of a full-function joint venture.
A concentration must be notified to the Federal Competition Authority (FCA) if the following
cumulative thresholds, which in an international comparison context are rather low, are
fulfilled (based on the revenues of the last business year): the combined worldwide turnover
of all undertakings concerned exceeds €300 million; the combined Austrian turnover of all
undertakings concerned exceeds €30 million; or the individual worldwide turnover of each
of at least two of the undertakings concerned exceeds €5 million.
However, even if the above thresholds are satisfied, no obligation to notify exists if
the Austrian turnover of only one of the undertakings concerned exceeds €5 million; or
the combined worldwide turnover of all other undertakings concerned does not exceed €30
million.
For calculating the turnover thresholds, the revenues of all entities that are linked with
an undertaking concerned as defined under the Cartel Act are considered one entity (thus the
turnover of a 25 per cent subsidiary must be attributed fully). Indirect shareholdings only have
to be considered if the direct subsidiary (of at least 25 per cent) holds a controlling interest
in the indirect subsidiary. Revenues of the seller are disregarded (unless the seller remains
linked with the target undertaking as defined under the Cartel Act). Specific provisions for
the calculation of turnover apply for mergers in the banking, insurance and media sectors.
Transactions that are notifiable in Austria may have an EU dimension under Article 1
of Regulation (EC) No. 139/2004 on the control of concentrations between undertakings
(Merger Regulation). In that case, the European Commission generally has sole jurisdiction
to assess such case. However, the Cartel Act contains specific rules regarding media mergers,
which require a filing with both the European Commission and the FCA.
The relevant merger authorities in Austria are the FCA and the Federal Cartel Prosecutor,
collectively referred to as the Official Parties, and the Cartel Court.
The Official Parties assess notifications in Phase I proceedings. Should a notification
raise competition concerns, either official party may apply to the Cartel Court to open
Phase II proceedings. Decisions of the Cartel Court may be appealed before the Supreme
Cartel Court. The Competition Commission is an advisory body that may give (non-binding)
recommendations to the FCA as to whether to apply for an in-depth Phase II investigation
of a notified transaction.
A notifiable transaction must not be implemented prior to formal clearance. Possible
sanctions for the infringement of this suspension clause are that the underlying agreements
or acts are declared null and void, or the undertakings may be fined up to 10 per cent of their
worldwide annual turnover (by the Cartel Court on application of the Official Parties).
Non-compliance with remedies imposed on the parties is equivalent in seriousness to
breaching the suspension clause and may lead to similar fines.
A merger must be prohibited if it is expected to create or strengthen a market-dominant
position. An undertaking is generally considered market-dominant for that purpose if it can
act on the market largely independently of other market participants (the Austrian Cartel Act
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contains a rebuttable presumption of market dominance if certain market share thresholds

are achieved). Even where a merger is expected to create or strengthen a market dominant
position, it must nevertheless be cleared if either it will increase competition, and therefore
the advantages gained by implementing the transaction will outweigh the disadvantages; or it
is economically justified and essential for the competitiveness of the undertakings concerned.
A media merger will be assessed not only against its compatibility with the competition
rules, but also as to its adverse effects against media plurality.
X OUTLOOK
It is rather difficult to predict prospective market developments for the imminent future
due to macroeconomic developments (e.g., Brexit) that may change the current investment
environment in Europe and internationally. Generally, the first half of 2019 continued to be
active and, based on the assumption that the economy remains stable, the Austrian M&A
market should continue its previous performance. This outlook is also supported by the fact
that private equity firms hold substantial cash reserves to be invested, and that many of their
portfolio companies are overdue to be sold again.
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Chapter 8
BRAZIL
Adriano Castello Branco, Claudio Oksenberg and João Marcelino Cavalcanti Júnior1

Following a slight recovery of 2017, Brazil’s economy experienced a modest growth in
gross domestic product (GDP) of 1.1 per cent in 2018. M&A activity followed this lead.
According to PricewaterhouseCoopers,2 there were 658 transactions in 2018, representing
an increase of 2.3 per cent compared to the 643 deals completed in 2017. Foreign investors
conducted 231 transactions, representing an 8 per cent decrease comparing to the 252 deals
recorded in 2017, and private equity activity was down to 136 transactions among Brazilian
and non-Brazilian investors,3 compared to 147 transactions in 2017.
Major deals announced in 2018 with Brazilian involvement included:
a Boeing’s US$4.2 billion joint venture with Embraer;
b Rhône Capital’s acquisition of Fogo de Chão for US$560 million;
c Kroton Educacional’s acquisition of Somos Educação for US$1.5 billion; and
d Suzano Papel e Celulose’s merger with Fibria Celulose, with a value of 36.7 billion reais.
The results of the presidential and Congress elections in October 2018 gave the market a more
optimistic outlook for M&A activities in the first quarter of 2019. Although the expectations
have not been not fully met, the market was still very active and performing well: there were
233 announced transactions for a total aggregate value of 29.5 billion reais.4
Deals announced to date in 2019 include the ongoing US$905 million acquisition
of Nextel Brasil by América Móvil, the acquisition of Chevron Brasil by PetroRio for
US$400 million, the ongoing US$615.5 million sale by Odebrecht Mobilidade of Supervia
- Concessionária de Transporte Ferroviário to Guarana Urban Mobility, the 2 billion reais
sale by Odebrecht Rodovias of Concessionária Rota das Bandeiras to Farallon Capital
Management, and the acquisition of 100 per cent of the capital stock of Drogaria Onofre
Ltda (owned by subsidiaries of CVS Health Corporation) by Raia Drogasil SA, Brazil’s largest
pharmacy retail chain.
1 Adriano Castello Branco and Claudio Oksenberg are partners and João Marcelino Cavalcanti Júnior is a
senior associate at Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados.
2 https://www.pwc.com.br/pt/estudos/servicos/assessoria-tributaria-societaria/fusoes-aquisicoes/2018/fusoes-
e-aquisicoes-no-brasil-dezembro-2018.html.
3 Ibid.
4 https://www.ttrecord.com/pt/publicacoes/relatorio-por-mercado/relatorio-mensal-brasil/
Brasil-1T-2019/1864/.
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Brazil

M&A are regulated mainly by the Brazilian Corporation Law,5 and rules, regulations,
opinions and precedents of the Brazilian Securities Commission (CVM) (CVM Regulations),
including:
a CVM Rule No. 319 (mergers involving public companies);
b CVM Rule No. 358 (disclosure of material information by public companies);
c CVM Rule No. 361 (tender offers);
d CVM Rule No. 481 (disclosure of information prior to shareholders’ meetings and
proxy solicitations);
e CVM Rule No. 561 (remote participation and voting of shareholders at shareholders’
meetings);
f CVM Rule No. 565 (disclosure requirements for M&A transactions);
g CVM Rule No. 567 (disclosure requirements regarding share buyback programmes
and transactions with own shares);
h CVM Rule No. 568 (use and disclosure of information of significant investments in
listed companies);
i CVM Rule No. 570 (application of remote voting rules);
j CVM Opinion No. 34 (conflicts of interest);
k CVM Opinion No. 35 (fiduciary duties);
l CVM Opinion No. 36 (poison pills); and
m in the case of companies listed on the Novo Mercado or Level 2 listing segments of
B3 (the São Paulo Stock Exchange), the corresponding listing rules (in addition to tax,
antitrust and regulatory rules).
M&A deals involving solely closely held companies are only subject to the provisions of
the Corporation Law (excluding those provisions exclusively applicable to publicly held
companies), and the Brazilian Civil Code if they are limited liability companies (limitadas).
Transactions that involve public companies, in addition to the CVM Regulations, are also
regulated by the applicable listing rules.
Foreign investment is restricted in certain industries as follows:
a aviation: after several legislative initiatives in recent years to end the limitations to
non-Brazilian capital on the voting capital of Brazilian airline companies, such
nationality restrictions are no longer applicable after the approval of Law 13,482/19 on
17 June 2019;
b public services: telecommunications, electric energy distribution, gas distribution and
rail transport, to name but a few public services in Brazil, are provided directly by the
government (by means of state-owned companies) or by private parties who become
responsible for the provision of such services through the execution of concessions
agreements, permissions or authorisations As a rule, non-Brazilian investment is
allowed, subject to certain restrictions (for instance, transfers of control of public
service concessionaires may be subject to prior government approval);
5 Law No. 6,404 of 15 December 1976.
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Brazil
c real estate: the acquisition of rural land in Brazil by foreigners is subject to certain
restrictions, which may apply to Brazilian companies where the majority of the capital is
held or controlled by foreigners (e.g., prior authorisation from a government authority
may be required for title transfer);
d mining: foreign investment must be made through a Brazilian entity, with mining in
national border zones being restricted (transfers of mining rights are also subject to
prior government approval);
e oil and radioactive minerals are a Brazilian state monopoly; oil-related activities by
private or state-owned companies are subject to concession or authorisation;
f radio and television broadcasting and journalistic companies: foreign capital is limited
to 30 per cent of the company’s capital; and
g banking: subject to the prior approval of the government, in addition to Brazilian
Central Bank approval (transfers of control of financial institutions or of significant
stakes therein are also subject to prior government approval).
III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAW AND THEIR

IMPACT
On 2 January 2018, the new version of the Novo Mercado listing segment rules (New Rules)
came into force, with certain provisions already in effect that impact on specific tender
offer proceedings. Essentially, the New Rules aim to demonstrate B3’s intention to simplify
tender offer proceedings, adapt tender offers to the market’s reality and reduce the extensive
provisions once considered mandatory in the by-laws of companies listed with the Novo
Mercado. The main changes can be summarised as follows.
The previous Novo Mercado rules (Previous Rules) set a relative presumption of control
for any shareholder, or group of shareholders, that holds shares enough to ensure an absolute
majority of the votes in the last three shareholders’ meetings, even if such shares do not
represent an absolute majority of the company’s total voting capital. This presumption was
excluded from the New Rules, and the concept of control under the Novo Mercado New
Rules is aligned with the Corporation Law.
A mandatory tender offer as a result of an acquisition of control is still an obligation
under the Novo Mercado. Pursuant to the Previous Rules, in the case of an acquisition of
control by several different transactions, the purchaser was required to pay the difference
between the price of the tender offer and the amount paid for shares acquired by the purchaser
in a stock exchange in the six-month period prior to the date of such acquisition of corporate
control, which is no longer necessary under the New Rules.
As to a delisting tender offer (DTO) from the Novo Mercado, pursuant to the New
Rules, the prior approval of the delisting by a shareholders’ meeting is no longer required.
The DTO must be accepted (or the delisting consented to) by more than one-third of the
free float shares,6 unless a higher quorum is set forth in a company’s by-laws. Furthermore,
the requirement to launch a DTO may be even waived by a shareholders’ meeting installed
in the first call with the presence of at least two-thirds of the free float shares and approved
by the majority of holders of the free float shares attending the meeting. With respect to the
price of the DTO, the rules of CVM Rule 361 will be generally applicable, as opposed to the
6 Shares not held by the controlling shareholders, its related persons and the management, and
treasury shares.
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Brazil
Previous Rules, which had several specific provisions applicable only to companies listed on
the Novo Mercado. The New Rules also eliminate the obligation that holders of the free float
shares had to elect the appraiser that would determine the economic value of the company
(for purposes of the price to be paid under the DTO) based on a list of three prospective
appraisers recommended by the board of directors. Nonetheless, the price per share of the
DTO must be fair (based on book value, market value of the company’s assets, discounted
cash flow, comparable multiples, market value or any other criteria accepted by CVM), and
it can be challenged by minority shareholders with at least 10 per cent of the company’s
outstanding shares, according to the Corporation Law.
Concerning a tender offer for the cancellation of a company’s registry as a publicly
traded company, pursuant to the New Rules, it will follow the relevant proceedings set forth
in CVM Rule 361, as opposed to the Previous Rules, which had a set of specific provisions
applicable for such tender offer.
Finally, with respect to the board of directors’ opinion, required within a time frame of
up to 15 days counted as of the release of a tender offer’s public notice, under the New Rules,
in addition to the convenience and opportunity of a tender offer and the strategic plans of an
offeror (which were already provided under the Previous Rules), the opinion must also state
the available alternatives to the acceptance of the tender offer in the market, aiming to enable
investors to be informed about the potential implications of choosing whether to participate
in the relevant tender offer or not.

In 2018, Brazil experienced a slight downturn in foreign involvement in M&A transactions.
Non-Brazilian investors saw a decrease in the number of transactions – 231 up to December
2018 – which represents a decrease of 8 per cent when compared to 252 transactions in
2017.7
Nevertheless, foreign investors took a leading role in major acquisitions announced in
2018. Examples of significant foreign investments in Brazil included the acquisition of the
XL Group (and its Brazilian subsidiaries) by AXA Group for US$15.3 billion.
In November 2018, US-based Mohawk Industries acquired 100 per cent of the
Brazil-based company Eliane Revestimebtos Cerâmicos SA The deal value was US$250
million.
In September 2018, Ardian acquired 40 per cent of Nuova Argo Finanziaria, which
indirectly controls the management of important highways in Brazil, from Aurelia and Gavio
Group for €850 million.
Also in September 2018, ExxonMobil and QPI Brasil Petróleo acquired Bloco Titã, an
important oil extraction zone, from ANP for 3.12 billion reais.
In August 2018, Advent International acquired 80 per cent of Walmart Brasil for 1.9
billion reais.
In August 2018, Switzerland-based group Glencore completed its acquisition of a
78 per cent stake in the Brazil-based fuel distributor Ale Combustíveis. The deal value was
1.7 billion reais.
7 https://www.pwc.com.br/pt/estudos/servicos/assessoria-tributaria-societaria/fusoes-aquisicoes/2018/fusoes-
e-aquisicoes-no-brasil-dezembro-2018.html.
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Brazil

Some of the most active target sectors involved in announced M&A deals in Brazil in 2018
were information technology (IT), energy and power (including oil and gas), transportation,
retail, financial and education.
In the IT sector, Digital Reality Inc, through its Brazilian subsidiary Stellar Participações,
acquired 49 per cent of Ascenty, a large Brazilian data centre provider. The deal value was
US$1.8 billion.
In the energy sector, Enel Brasil completed a tender offer for the acquisition of
Eletropaulo, which is the company responsible for electricity distribution in the state of São
Paulo, for 7.06 billion reais.
In the industrial sector, Omega Geração acquired 100 per cent of wind farm Assuruá,
in the state of Bahia, from FIP IEER for 1.9 billion reais.
In the financial sector, Banco do Brasil acquired an assignment of claims portfolio from
Votorantim for 593.8 million reais.
In the education sector, Neuberger Berman acquired 25 per cent of Uniasselvi, a
distance learning institution, from Carlyle and Vinci Capital for 380 million reais.

It is common knowledge that the cost of credit in Brazil remains prohibitively expensive.
Acquisitions are usually funded via securities offerings (debt and equity) and bank
loans, or via both. Private equity investment funds are also used as vehicles for funding in
specific cases.
Furthermore, local financing is generally not available in all industries. Inbound
cross-border investments are typically financed outside Brazil. Leveraged buyouts are not
usual, although in certain cases (especially where the buyer is a local private equity fund)
pre-acquisition debt is pushed down to the target following the closing (subject to certain
conditions or requirements in cases in which the target is a listed company).
Security for acquisition financing normally consists of shares and assets, if any, of the
target company, and guarantees of the acquiring group.
VII EMPLOYMENT LAW

Although the alternatives implemented by the Brazilian labour reform are still being adopted
with caution by companies in general, in the first year following the enactment of the
labour reform, the litigation numbers reveal a more business-friendly environment, and the
constitutionality of some relevant changes to the labour legislation were confirmed by the
Supreme Court.
i Litigation rates
Mostly due to the chances of being considered responsible for paying a company’s attorney
fees in cases where a labour claim is deemed groundless, in 2018 workers had filed 35 per cent
less lawsuits than they had in 2017.
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ii Ratification of out-of-court agreements

Requests for the ratification of out-of-court agreements by labour judges, a procedure
implemented by the labour reform, numbered more than 40,000 in the past year. This
significant number reveals such mechanism was adopted as mutually beneficial tool for both
workers and companies, allowing employees to receive their settlement amount within a
limited period of time while granting employers legal certainty upon obtaining employees’
formal release.
iii Outsourcing of services

Recent rulings of the Brazilian Supreme Court have confirmed the constitutionality of
outsourcing activities irrespective of whether they are related to a contracting company’s core
business, cancelling a contrary presumption established by a superior labour court precedent,
without prejudice to the risk of recognition of a de facto employment relationship between an
outsourced worker and the contracting company should employment features be observed in
the rendering of services.
Union contributions
As result of the labour reform, the payment of union contributions (not included in this
legal concept are the dues related to affiliated or associated members of a union) ceased to
be mandatory and became voluntary. This change in legislation created significant backlash
from employer and employee unions, and as a result, labour union income has decreased
88 per cent compared to the contribution amounts of the previous year. Despite a number
of lawsuits (from labour unions representing employees or employers) challenging the labour
reform in this regard, based on the freedom of association right, the Brazilian Supreme
Court ruled in favour of the constitutionality of the labour reform provision under which
contributions to unions are not mandatory, except in the event of an employee’s personal and
previous written authorisation. Based on these union contribution conflicts, employment
relationship negotiations have been impacted, resulting in a reduction in the number of
direct collective bargaining agreements between employers and unions in relation to the years
preceding the labour reform.
VIII TAX LAW

This section presents general matters regarding the ultimate beneficial owner (UBO)
disclosure requirements taking into account the recent rules enacted by the Brazilian Internal
Revenue Service (RFB).
Normative Instruction No. 1,863634, dated 27 December 20186 May 2016, issued
by the RFB (NI 1,863634), regulates the information that must be provided to the RFB
in order for foreign investors incorporated as entities (NRIs) to obtain a national taxpayer
identification number (CNPJ), which is required for an NRI to invest in the Brazilian
financial and capital markets pursuant to the mechanism set forth by Resolution No. 4,373,
dated 29 September 2014, of the Brazilian Monetary Council (4,373 investment and 4,373
investor), and also for an NRI to directly invest in Brazilian-resident legal entities pursuant
to the mechanism set forth by Law No. 4,131, dated 3 September 1962 (4,131 investment
and 4,131 investor).
When applying for a CNPJ, any prospective NRI must provide information regarding
the respective legal representative in Brazil and its shareholding chain if it reaches an
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individual (natural person) that is deemed to qualify as its UBO; or any of the entities listed
in Paragraph 3 of Article 8 of NI 1,863634, which are exempt from disclosing the respective
UBO (exempt entities).8
According to Article 8 of NI1,863634, an individual is deemed the UBO of the 4,373
or 4,131 investor if he or she ultimately, directly or indirectly, owns, controls or has significant
influence over an entity, or is the individual on behalf of which a transaction is conducted.
For the purposes of such rules, significant influence is deemed to exist whenever an individual
owns more than 25 per cent of an entity’s capital stock, directly or indirectly; or an individual
directly or indirectly has, or exercises preponderance in, corporate resolutions, and has the
power to elect the majority of an entity’s directors, even without controlling it.
Furthermore, if the shareholding chain of a certain 4,373 or 4,131 investor reaches one
of the listed exempt entities, there is no obligation to disclose the UBO. However, if there is
an UBO, the RFB requires the disclosure of some personal information such as the UBO’s
date of birth, the UBO’s country of birth and the UBO’s country of residence, as presented
in Annex XII of NI 1,863.
In addition to NI 1,634, the RFB issued Declaratory Act No. 09, dated 23 October 2017
(ADE 09/2017, jointly with NI 1,634 (UBO Regulation)) to further regulate the application
of the UBO disclosure requirements. To do this, ADE 09/2017 also classifies the entities
subject to UBO disclosure rules in three different categories: entities exempt from disclosing
the UBO (group 1), entities resident abroad obliged to disclose information (group 2) and
Brazilian-resident entities (group 3).
Group 1 entities correspond to the exempt entities listed by Paragraph 3 of Article 8 of
NI 1,863634. Annex XII ADE 09/2017 provides that such entities are not obliged to provide
information regarding the respective UBO considering their particular features, despite the
information regarding the legal representative. Nonetheless, note that such waiver is only
applicable if the 4,373 or the 4,131 investor qualifies as an exempt entity itself. On the other
hand, group 2 entities are further categorised into three subcategories: those that obtain a
8 The following are listed as exempt entities: (1) legal entities, or their controlled companies, incorporated as
publicly held company in Brazil or incorporated in countries that require public disclosure of all relevant
shareholders, and that are not incorporated in favourable tax jurisdictions or submitted to a privileged
tax regime; (2) not-for-profit entities that do not act as fiduciary managers and that are not incorporated
in favourable tax jurisdictions or submitted to a privileged tax regime, as long as they are regulated and
inspected by a competent governmental authority; (3) multilateral organs, central banks, governmental
entities or those related to sovereign funds; (4) social security entities, pension funds and similar
institutions, as long as they are regulated and inspected by a competent governmental authority in Brazil
or in their country of origin; (5) Brazilian incorporated investment funds regulated by CVM, as long as
the Brazilian Individual Taxpayers’ Registry or the CNPJ of the respective quota-holders is informed to the
RFB; (6) investment funds specially incorporated to manage complementary pension plan resources as well
as insurance plans if regulated and inspected by the qualified public authority in its country of origin; and
(7) collective investment vehicles domiciled abroad whose shares or equity holding representative securities
are admitted to trading in markets regulated by an authority accredited by CVM; or collective investment
vehicles domiciled abroad:(a) whose minimum number of shareholders is equal or higher to 100, provided
no shareholder holds significant influence over the vehicle; (b) whose asset portfolio is managed by a
professional manager registered before an authority accredited by CVM and in a discretionary manner;
(c) which is subject to investor protection regulation by a regulation authority accredited by CVM; and
(d) whose asset portfolio is diversified (i.e., the concentration does not amount to significant influence in
the case of concentration in assets from a single issuer).
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CNPJ through the RFB; those that obtain a CNPJ through the Brazilian Central Bank; and
those that obtain a CNPJ from CVM. The information to be presented depends on the tier
that the entity is ranked in.9
Besides this information, the UBO Regulation may also require some documents to
be presented to the RFB up front, depending on the qualification of the 4,373 or the 4,131
investor, which must be reviewed on case-by-case basis.
Furthermore, note that there are deadlines for presenting the information and documents
requested under the UBO Regulation. Failure to comply with the UBO Regulation may
result in the suspension of a CNPJ, and the consequent inability of the 4,373 or 4,131
investor to carry out transactions in Brazil.
IX COMPETITION LAW
2018 was a year of important developments in the Brazilian merger control practice. The
decisions taken by the Administrative Council for Economic Defence (CADE) in certain
complex M&A transactions have demonstrated that the authorities continue to tend to take
a rigorous approach in the analysis of those cases. Highlights included the increasingly active
role of the Department of Economics Studies in the most complex merger cases, third-party
intervention in merger cases, and the analysis of complex mergers that raise portfolio or
conglomerate concerns.
The year’s highlights also included the publication of CADE’s Remedy Guide, aimed
at providing general guidelines for the negotiation and implementation of remedies, and
the increasing coordination and exchange of information between CADE and foreign
competition authorities in the analysis of cross-border mergers.
i CADE’s Remedy Guide

On October 2018, CADE issued the Antitrust Remedy Guide (Guide), which provides
guidelines for the implementation of remedies in merger cases that raise competition concerns.
In accordance with the Guide, the implementation of remedies should observe the
following principles:
a proportionality (meaning that a remedy must be necessary, adequate and sufficient to
address concerns raised by a merger);
b timeliness (i.e., the remedy should address a concern as quickly as possible and in any
case, in a timely manner);
c feasibility (that is, a remedy should be subject to easy implementation); and
d verifiability (meaning that CADE must be able to verify its fulfilment).
The Guide also sets CADE’s preferences in terms of types of remedies. In this sense, structural
remedies (such as the divestiture of an asset) are preferred over behavioural ones (i.e., when
the parties assume obligations, such as eliminating exclusivity clauses or maintaining
non-discriminatory behaviour in supply agreements). The Guide expresses CADE’s concerns
regarding remedies that may be difficult to monitor: it is desirable that the parties hire
monitoring trustees to help CADE keep track of the fulfilment of the obligations assumed by
9 Annex XII provides four additional tiers for entities qualified under this subgroup – each one of the entities
is required to comply with different disclosure obligations.
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the parties, and remedies should preferably not require continuous monitoring. The Guide
also lists questionable remedies, such as obligations to make investments and the imposition
of price caps.
Although the Guide is not binding, it is based on CADE’s experience and reflects the
way CADE will likely approach remedies in future cases.
ii Increasingly complex analysis of M&A deals

The most recent complex cases that have been analysed by CADE show that the competition
authority maintains a rigorous and sophisticated approach concerning the analysis of M&A
transactions, which translated into an increasing number of cases challenged to CADE’s
Tribunal, and blocked or approved with remedies:
a nine cases were recently challenged to the Tribunal and approved with remedies: Disney/
Fox; AT&T/Time Warner; Itaú/Citibank; Bayer/Monsanto; ArcelorMittal/Votorantim;
Dow/Dupont; WEG/TGM; Petrotemex/PQS; Itaú/XP; Praxair/Linde;
b four cases were blocked in 2017 and 2018: Kroton/Estácio; Ipiranga/Alesat; JBJ Agro/
Mataboi and Ultragaz/Liquigas; and
c two withdrawals were made due to the risk of blocking: Owens-Illinois/Nadir and Saint
Gobain/Rockfibras.
Portfolio or conglomerate effects, and coordinated effects

The analysis of conglomerate or portfolio effects are increasingly important, as CADE’s
review becomes ever-more sophisticated. Examples include Bayer/Monsanto, BVMF/Cetip,
Votorantim/Arcelormittal, Tigre/Condor and Luxottica/Essilor, all of which involved important
discussions about conglomerate effects; and Reckitt/Hypermarcas, Kroton/Estácio and Essilor/
Luxottica, in which portfolio effects were deeply analysed.
In addition, CADE has given a lot of attention to the analysis of coordinated effects,
especially in sectors with a history of cartel convictions. Examples include Ipiranga/Alesat,
Arcelormittal/Votorantim, Prosegur/Transfederal, Bradesco/HSBC and Itaú/Citibank.
Third party-complaints
CADE is paying lot of attention to third-party complaints in the context of merger control
cases. Such interventions have effectively affected both the timing and the results of the
analysis of such cases (see, for instance, Petrotemex/PQS and Itaú/Ticket Serviços). There have
also been third-party interventions through complaints about transactions that allegedly
should have been notified to CADE, either because they met the thresholds criteria, or because
of their potentially negative effects in the market (see All Chemistry/SM Empreendimentos
Farmacêuticos).
Increasingly active role of the Department of Economics Studies in complex mergers

The Department of Economics Studies (DEE) is part of the Brazilian competition system
and is responsible for advising the General Superintendence and CADE’s Tribunal in both
merger review and conduct cases, as well as preparing studies to ensure CADE’s technical and
scientific updating. The DEE had an important role in the recent analysis of the most complex
merger control cases, such as Ipiranga/Alesat, Mataboi/JBJ, Ultragaz/Liquigás, Kroton/Estácio,
Areclormittal/Votorantim, Bradesco/HSBC, Reckitt/Hypermarcas and British/Iberia/Latam. In
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addition, the DEE has been taking an active role in its competition advocacy role, issuing
studies and analyses of several sectors (such as the passenger and cargo air transport market,
port services and fuel distribution).
iii Cooperation between competition authorities

CADE continues to increase its cooperation and coordination with foreign antitrust authorities
in cross-border mergers. Contacts between CADE and both the European Commission and
the Department of Justice (United States) have been common for a while. The main goal
is to exchange information and avoid conflicting decisions in cross-border cases. However,
CADE has been diversifying its contacts with other foreign authorities: for instance, it has
recently engaged in exchanges with the Russian and Indian authorities (regarding the Alstom/
Siemens case).
Moreover, CADE has signed several memorandums over the past few years to
regulate cooperation with other competition authorities. CADE has signed memorandums
establishing cooperation between CADE and the competition authorities of several different
countries such as South Africa and Russia, as well as a multilateral agreement with the
BRICS10 economies, in recent years.
X OUTLOOK
After a decrease in 2016 compared to recent years, and following the first signs of economic
recovery, M&A activity increased in 2017 and 2018. The expectations for the remainder
of 2019 are mostly positive. The outlook for M&A transactions in Brazil will certainly be
enhanced by the approval and implementation of reforms proposed by the new Federal
Administration, especially the pension system reform. The prospect of a combination of
attractive prices, less expensive credit and banks willing to approve financing will benefit the
volume of transactions in Brazil.
There have also been initiatives by the federal government to foster investments and
create a better investment environment in general. For instance, the Provisional Measure of the
Economic Freedom aims to reduce governmental bureaucracy and the amount of interference
in private parties’ relations with the purpose of stimulating entrepreneurial activity in Brazil.
Furthermore, in early 2019 the Ministry of Economy created an Inter-ministerial Committee
for Digital Transformation, which is tasked with discussing, together with representatives
of the civil society, how to create a better environment for business, entrepreneurship and
innovation. Among the ideas being discussed by the Committee is a proposal for a Startups
Act, which intends to reduce the obstructions to innovation and bureaucracy and enhance
sustainable growth for emerging companies in Brazil.
With respect to scenarios or trends that can already be identified, it is possible to say
that an important driver for M&A activity in Brazil will be the privatisation agenda, which
is one of the main priorities for the government for this and following years and aims to
attract the private sector to fill in infrastructure gaps. The main sectors announced to be
privatised or awarded to private sector players include airports, ports, energy, railroads and
roads, mining, and banking and related services. The government has already privatised 12
airports (including major hubs in northeast Brazil such as Recife) in 2019, and is in the
10 Brazil, Russia, India, China and South Africa.
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process of doing the same for major Brazilian ports. In addition, Petrobras has a continuing
significant plan to divest non-core assets, such as its sale of 90 per cent of gas supplier TAG
to Engie Group for US$8.6 billion, which was signed in April 2019.
As in previous years, the current foreign exchange levels may also continue to play a role
in incentivising seasoned foreign investors (especially by private equity) to take advantage of
investment opportunities in the country.
Finally, there are still industries with growth and consolidation potential (e.g., utilities,
healthcare and education) that may be further explored as the country’s GDP continues
to grow.
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Chapter 9
CANADA
Cameron Belsher, Robert Hansen, Robert Richardson and Mark McEwan1

Canada saw 591 M&A deals announced in 2018 valued at US$91.3 billion overall.2 These
results trended slightly downwards from 2017, when 628 deals worth US$97.5 billion were
announced,3 but compare favourably to the US$77.5 billion invested in 668 deals in 2016.4
Deal counts fell and valuations rose for the first quarter of 2019, with the number of deals
in 2019 decreasing to 129 from 153 in 2018, and aggregate deal values increasing from
US$12.8 billion in 2018 to US$24.8 billion in 2019. The first quarter also experienced an
increase in inbound M&A activity relative to the same period in 2018.5 This inbound activity,
along with the trend towards fewer but higher-value deals, underlines the competition in the
marketplace and the continuing confidence that buyers place in the Canadian market.
The most active sectors by deal count in 2018 were the technology, media and
telecom industries, with 118 deals announced during the year for US$6.1 billion.6 However,
energy, mining and oil and gas – all traditional drivers of deal flow in Canada’s resource
rich economy – were close behind, with 115 announced deals and for a market-leading
US$38.2 billion.7 The 95 announced deals in the industrials, manufacturing and engineering
industries had an aggregate value of US$11 billion, making it the second most valuable sector
in 2018.8 Cannabis, which was legalised for recreational purposes in late 2017, also became
an important sector for M&A activity in 2018, as the top 20 cannabis deals of 2018 and
2019 accounted for approximately US$23 billion overall, over US$10 billion of which was
deployed in 2019.9
The Canadian private equity market continues to be a key driver of M&A activity,
and enjoyed its second-best year since 2006 by deal value with overall activity declining only
slightly in 2018 following sustained highs in activity and values. Aggregate deal value was
C$48 billion, which was only slightly behind 2017’s high of C$53 billion, while deal volume
experienced a modest dip to 303 deals from the all-time high in 2015 of 355. Funds continue
1 Cameron Belsher, Robert Hansen and Robert Richardson are partners and Mark McEwan is an associate at
McCarthy Tétrault LLP.
2 Mergermarket, Deal Drivers Americas FY 2018.
5 Mergermarket, Americas Trend Summary 1Q19
9 Pitchbook Data, Inc.
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to fundraise actively, building on ever-increasing dry powder, and the market across Canada
remains highly competitive, attracting interest from domestic and international investors.
In 2018, there was a relative increase in private equity activity in the healthcare sector and a
tightening of activity in the business-to-consumer and energy sectors, while the business-to-
business, materials and resources, and IT sectors remained flat. The number of private equity
exits was down approximately 20 per cent in 2018, but deal value increased by almost 40 per
cent compared with the period running from 2015 to 2017.10

i Alternative transaction structures
In contrast to private M&A transactions in Canada, which are negotiated contractual
arrangements set against a similar legal framework to the United States, public M&A
transactions in Canada are subject to complex securities and corporate law regimes.
Accordingly, Canadian dealmakers generally pursue one of two common methods to acquire
control of a public company: a takeover bid or a plan of arrangement.
Takeover bids
A takeover bid is an offer made to a person in Canada to acquire outstanding voting or equity
securities of a class of securities, which, if accepted, would result in the bidder (together
with persons acting in concert with the bidder) owning 20 per cent or more of such class.
Most commonly, a bidder will make an offer to all of the shareholders of a target company
to buy their shares. Exactly the same offer must be made to all shareholders. This means
that, subject to certain limited exceptions, it is not permissible to have collateral agreements
with, for example, a controlling shareholder or a shareholder who is a senior officer that
result in additional consideration flowing to that shareholder. The offer must remain open for
shareholders to accept for at least 105 days (referred to as the bid period), subject to a target
board’s ability to reduce the bid period to not less than 35 days in prescribed circumstances.
Any takeover bid must be subject to a non-waivable condition that a minimum of more
than 50 per cent of all outstanding target shares owned or held by persons other than the
bidder and its joint actors be tendered and not withdrawn before the bidder can take up any
shares under the takeover bid. The takeover bid must also be extended by the bidder for at
least an additional 10 days after the bidder achieves the minimum tender condition and all
other terms and conditions of the bid have been complied with or waived.
Certain takeover bids are, however, exempt from compliance with these requirements,
including transactions involving the acquisition of securities from not more than five
shareholders of the target company, provided that the price paid does not exceed 115 per
cent of the prevailing market price (referred to as the private agreement exemption).
If the bidder succeeds in acquiring at least 90 per cent of the target’s shares owned by
third parties within 120 days of the commencement of the bid, then the bidder is typically
able to effect a compulsory acquisition of the remaining outstanding shares pursuant to a
process governed by Canadian corporate statutes. This process can take approximately
30 days, although timelines vary depending on the jurisdiction of incorporation of the target
company. Alternatively, if the bidder acquires more than two-thirds of the outstanding shares,
10 Pitchbook Data, Inc.
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the bidder may call a meeting of all of the shareholders of the target company for the purposes
of voting on an amalgamation with an affiliate of the bidder. This vote can be generally be
carried with two-thirds of the outstanding shares, and if approved can result in any remaining
minority shareholders being squeezed out for the same consideration that was offered in
the takeover bid. This second-step transaction takes longer than a compulsory acquisition
because of the need to call a meeting of the shareholders of the target company.
Plans of arrangement
Most consensual acquisitions of Canadian public companies, however, are effected not by
way of a takeover bid but through a statutory procedure under the target company’s corporate
statutes. These statutes generally provide that companies can be merged, and their outstanding
securities can be exchanged, amended or reorganised through a court-supervised process
known as a plan of arrangement. Under this process, the target applies for an initial court
order directing the target to seek the approval of its shareholders and fixing certain related
procedural requirements. A second court appearance will be scheduled for shortly after the
shareholders’ meeting for the court to consider the substantive fairness of a transaction, and
at which any interested party may appear and object to the completion of the transaction. If
shareholders vote to approve the transaction, typically by two-thirds of the votes cast at the
meeting, and there are no meritorious objections from other interested parties, the court will
approve and the transaction will proceed as intended. Plans of arrangement are often used to
enable the shareholders of the target to exchange their shares for either cash or another form
of consideration.
The plan of arrangement has two significant advantages in certain circumstances. One
is that it allows for multiple transactions to happen simultaneously or in a specified sequence
following shareholder and court approval. This is useful, for example, where there are multiple
companies involved in the transaction, where several classes of equity and debt securities are
outstanding, or where the sequencing of particular steps in the transaction is important to
achieve an advantageous tax result. The other advantage to a plan of arrangement is that it
will generally permit securities of the offeror to be issued to US holders of the target without
requiring such securities to be registered in the US.
ii Target board considerations

Under the Canada Business Corporations Act (and other Canadian corporate statutes are
substantially the same in this regard), directors have a legal obligation to act honestly and in
good faith with a view to the best interests of the corporation; and exercise the care, diligence
and skill that a reasonably prudent person would exercise in comparable circumstances.
In the context of a potential M&A transaction, Canadian boards typically seek
to discharge these duties by overseeing a process relating to the sale of a company. It is
not mandatory that Canadian public companies be sold by way of an auction, and many
companies are sold pursuant to a process whereby the target negotiates confidentially with
one third party and then issues a press release after a support agreement has been signed. It
is customary for these support agreements to include ‘fiduciary-out’ termination provisions,
similar to the practices in the US market. At this stage, the target company’s board is
recommending to its shareholders that they accept the transaction, but whether the bidder
succeeds will depend upon the reaction of the shareholders. In the case of a takeover bid,
the bidder will have to mail its takeover bid circular to target shareholders and its bid must
be open for at least 35 days (provided the target company’s board has agreed to reduce the
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bid period). In the case of a plan of arrangement, there is a period of approximately one
month between the mailing of the target’s management information circular and the date of
its shareholders’ meeting. In either case, during that time, potential competing bidders may
come forward and seek to make a superior proposal. Depending on the terms of the support
agreement, there may be obstacles to another potential acquirer making a superior proposal,
including the size of any break fee and whether there is a right to match in the support
agreement. In addition, some target companies in Canada have signed support agreements
with go shop provisions whereby the target puts the bidder on notice that it intends to
actively solicit higher offers from third parties.
iii Defensive measures

Any widely held public company with a depressed share price can be vulnerable to an unsolicited
takeover bid. A target company will commonly react to a hostile takeover bid by initiating
defensive measures. Although other potential responses may be available, two prominent
defensive measures in Canada are shareholder rights plans and tactical private placements.
Shareholder rights plans

Until Canada’s takeover bid rules were amended in 2016 to increase the minimum bid period
from 35 days to 105 days, shareholder rights plans were frequently used to delay a hostile
bidder so that the target board had more time to canvass alternatives. Unlike in the United
States, they could not be used to stop a hostile bid indefinitely. Now that Canada has a
105-day minimum bid period (subject to two exceptions), the formerly accepted rationale
for shareholder rights plans has diminished significantly.
Shareholder rights plans nevertheless remain a relevant tool for deterring creeping
takeover bids. Any purchase in the market that takes a shareholder above 20 per cent
ownership of a target company requires the bidder to make a formal takeover bid to all the
target’s shareholders on identical terms, subject to two key exceptions to the formal takeover
bid rules. The first is a de minimis exemption that permits a shareholder to acquire shares
in excess of the 20 per cent threshold through purchases of up to 5 per cent of the target’s
outstanding shares annually at market prices. The second is the private agreement exemption
described above. Many Canadian public companies have shareholder rights plans that
prohibit the use of these two exemptions to acquire control of a company without offering an
appropriate premium to all shareholders, and to prevent the acquisition of a negative control
block that could deter a bid that the target board and other shareholders would find desirable.
Tactical private placements

There have been a small number of transactions in Canada in recent years where target
companies have issued equity to friendly third parties at least in part to discourage hostile
bids. Not only does the hostile bid become more expensive as a result, but the mandatory
50 per cent tender condition becomes harder to achieve.
Any private placement that impacts a hostile takeover bid may be challenged in court
or before the securities regulators, or both. Relevant considerations in cases to date include:
a the timing of the private placement relative to a bid;
b whether the target required the financing;
c the impact of the private placement on the hostile bid or on a second bidder or
locked-up shareholder; and
d whether the private placement was approved by shareholders.
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iv Financing
In Canada, unlike in the United States, it is not permissible to make a takeover bid conditional
on arranging financing. Before a bidder makes a cash takeover bid, it must have made
adequate arrangements for its financing. Typically, the bidder will have signed a binding
commitment letter with a bank or other source of funds prior to launching its takeover bid.
The bidder will seek to have the conditions to the availability of the financing set out in the
bank commitment letter as similar as possible to the conditions in the takeover bid circular
that is sent to the target company’s shareholders. The law requires that the bidder must be
confident that if the conditions to the bid are satisfied, the financing will be available.
III SIGNIFICANT TRANSACTIONS, KEY TRENDS AND HOT INDUSTRIES

i Private equity and pension funds
In Canada, domestic and international private equity firms and Canadian pension funds
continued to have a major impact on both inbound and outbound transactions in 2018.
Marquee transactions included Brookfield Infrastructure Partners’ acquisition of Enercare
Inc, Searchlight Capital’s acquisition of Mitel and CPPIB’s consortium investment in the
acquisition of Refinitiv and Ant Financial.
Private equity exits: dual-track processes

The parallel pursuit by equity sponsors of both an M&A exit and an initial public offering
(IPO) is not a new development. Recent examples in Canada include GFL Environmental
Inc opting for a sale to BC Partners in April 2018 over a go-public transaction, and the
dual-track processes of Kinder Morgan Canada Limited and Neo Performance Materials
Inc that culminated in IPOs in May and December 2017, respectively. However, private
equity sponsors facing potentially volatile markets may rely on the dual-track process more
heavily in the future to help increase valuations and to hedge against the risk of a failed or
significantly delayed IPO. The US market has recently seen a significant uptick in dual-track
processes, much of which has been driven by private equity sponsors, and many dealmakers
expect such processes to become more common for significant sponsor exits in future years.
While a dual-track process may enhance valuations and pricing tension in certain
circumstances, concerns may arise that a contemporaneous IPO is little more than a
distraction from a sale process or an elaborate pricing exercise. These concerns, however, can
be managed or moderated in a number of ways:
a Concerns relating to distractions, skepticism of bidders, market perceptions and
confidentiality may be alleviated by a company making a ‘quiet filing’ with Canadian
securities regulators. While the US Jumpstart Our Business Startups Act and recent
policy changes from the US Securities and Exchange Commission allow for companies
to file a registration statement confidentially, a similar blanket policy is not available
for Canadian companies (other than in certain limited circumstances). As a result,
confidential filings are generally not a common practice in Canada. However, in
certain limited situations (including in certain dual-track processes), Canadian
securities regulators may from time to time allow a preliminary prospectus to be filed
on a confidential basis and allow a company to advance an IPO process to a certain
point without any public disclosure. This permits the company to address comments
from the securities regulators without having disclosed the prospectus to the public.
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If the company then ultimately pursues a sale process, it can terminate the IPO. Prior
consultation with the principal securities regulator is required in these circumstances to
ensure that the regulator is aligned on the case for a quiet filing.
b Bidders’ concerns regarding the commitment of a company to an auction process
running alongside an IPO process can be alleviated by offering break fees or expense
reimbursements to a preferred bidder in a dual-track process. It is also important to
note that the Canadian convention for underwritten IPOs is for the issuer to pay the
expenses of the underwriters, including the fees of underwriters’ counsel (often up to
a cap). If a company significantly advances an IPO but ultimately pursues the M&A
track, the company will in most cases be required to reimburse the underwriters for
their expenses (which can be significant, depending on the stage of the IPO). This is a
significant difference from the convention in the US where underwriters typically pay
the fees of their own counsel.
c Canadian securities laws provide for certain limited testing the water activities prior
to the public filing of a preliminary prospectus (subject to a cooling-off period). These
activities may allow for a company to confirm whether an IPO is a viable exit path
before making a public filing as part of a dual-track process.
Representations and warranties insurance

While M&A representations and warranties insurance (R&W insurance) has become
widespread in the US market, particularly in large or mid-market private equity deals, the
Canadian market has been relatively slower in its adoption. Insurance brokers and dealmakers
have, however, predicted over the past few years that it was only a matter of time before R&W
insurance became increasingly prevalent in Canadian transactions. In 2018, this expectation
became a reality. R&W insurance is now widely used by private equity firms and certain
strategic acquirers in Canadian transactions.
A number of factors have led to the embrace of R&W insurance in Canada:
a Dispositions of Canadian assets are increasingly being managed through structured
auction processes with the assistance of a financial adviser. In previous years, buyers
would use R&W insurance (in lieu of, or as a supplement to, traditional indemnification)
to competitively differentiate their bids. However, sophisticated sellers and financial
advisers that are conducting robust auctions are now including, as part of the formal
process, the requirement that any prospective buyer obtain an R&W insurance policy.
b Over the past year, R&W insurance policy terms have continued to become more
attractive. Competition among underwriters has created downward pressure on
premiums, which are now typically between 2.5 and 4 per cent of policy coverage.
Retention amounts have also decreased significantly, with a retention amount of 1 per
cent of the enterprise value now becoming standard.
c Just a few of years ago, policies contained numerous broad exclusions from coverage
including in areas like tax, environmental matters, cybersecurity, pension funding and
compliance with certain laws. This naturally led to specific or supplemental indemnities
being negotiated in purchase agreements to ensure buyers still had recourse for these
exclusions, which partially defeated the purpose of R&W insurance. As underwriters
have become more sophisticated and have faced greater competition from new entrants
into the market, the number and scope of exclusions have decreased considerably.
d Buyers have naturally been reluctant to shift from traditional indemnification to a
relatively new insurance product due to concerns about claims recovery. In an effort to
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increase adoption of the product and alleviate this concern, various prominent global
underwriters have published reports that set out historical information promoting their
claims coverage to build confidence in the effectiveness of the product among users.
e R&W insurance brokers are becoming increasingly focused on the Canadian market.
Many global insurance brokers have established permanent offices and staff in key
Canadian markets to help market and place R&W insurance.
There is no question that there is growing acceptance of R&W insurance in the Canadian
M&A landscape, especially where private equity firms are involved. Buyers and sellers are
now seeing the transformative impact of R&W insurance on deal negotiation dynamics and
post-closing relationships. As dealmakers become more familiar with the product, and in
particular in a generally seller-friendly environment where underwriters seek to demonstrate
that R&W insurance policies may provide more effective means of recovery than traditional
indemnification, there is every reason to expect that the product will be further embraced in
2019, and that adoption rates will converge with those in the US in coming years.
ii The cannabis industry

The recent legalisation of cannabis for recreational purposes continues to stimulate deal-making
both for M&A and capital markets transactions, and there were a number of notable deals
announced during the year. While many cannabis companies were already engaged in the
legal medical marijuana market prior to recreational cannabis becoming legal, their efforts
to achieve scale and position themselves for new market opportunities, including in pursuit
of outbound M&A deals and partnering with mature businesses in more traditional and
established industries, was a key feature of M&A activity over the year. A notable transaction
completed in June 2019 was Canopy Growth’s acquisition of a US$300 million call option
to acquire US-based, publicly traded Acreage Holdings for a share-based consideration of
US$3.7 billion, which option will be deemed to be exercised if the US federal government
legalises the production and sale of cannabis.
The legalisation of cannabis at the federal level in Canada stands in contrast to the
regulatory framework in the United States. Although a number of US states have legalised
cannabis to some extent, it remains a controlled substance under federal law. The practice of
the Department of Justice has, however, been not to enforce or prosecute federal prohibitions
for commerce or consumption that is permitted by state-level legislation. This state of affairs
caught the attention of the Canadian Securities Administrators, who have published guidance
for companies with US-based cannabis activities, and of the Toronto Stock Exchange (TSX),
which undertook a listing review of cannabis companies with US operations and maintains
that its issuers are not permitted to participate in marijuana-related activities in the US. The
Canadian Stock Exchange, in contrast to the TSX, has taken a more permissive approach,
requiring only fulsome disclosure of these activities. The capital markets have thus far been
receptive to US companies and companies with US assets, and it will be interesting to follow
any changes to these diverging approaches to the listing requirements.
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iii Strategic private investment in public entity or financing and

acquisition transactions
Strategic private investment in public entity (PIPE) transactions have become increasingly
common in Canada, especially among cannabis and junior mining issuers. A strategic PIPE
transaction has features commonly associated with both corporate financings and takeovers,
sometimes being referred to as a financing and acquisition (F&A) transaction.
In an F&A transaction, a publicly traded issuer will raise money by issuing equity or
equity-linked securities, usually at the market price or at a premium, to an investor who may
also receive warrants entitling the holder to acquire additional securities, giving the investor
a path to control the issuer. Some examples of recent transactions include:
a CITIC Africa’s C$725 million investment to acquire a 19.9 per cent interest in Ivanhoe
Mines, together with ancillary governance rights;
b Rhône Capital’s US$500 million investment to acquire a 21.8 per cent interest in
Hudson’s Bay Company, together with ancillary governance rights;
c Constellation Brands’ C$5.1 billion investment to acquire an additional interest of
approximately 30 per cent in Canopy Growth, together with ancillary governance
rights and share purchase warrants entitling Constellation to acquire (upon payment of
an additional C$4.5 billion) further shares that would result in aggregate holdings of
approximately 55 per cent; and
d Altria Group’s C$2.4 billion investment to acquire a 45 per cent interest in Cronos
Group, together with ancillary governance rights and warrants entitling Altria to
acquire (upon payment of an additional C$1.4 billion) additional shares that would
result in aggregate holdings of approximately 55 per cent.
From the issuer’s perspective, an F&A transaction offers equity financing at an attractive
price (since public offerings and private placements are typically completed at a discount to
the market price), often accompanied by an ancillary commercial relationship that may be
perceived by market participants as a form of commercial sponsorship by the investor. The F&A
transaction may be an especially attractive form of financing for a capital-intensive business
that is not earnings positive or is operating in a challenging capital markets environment, or
both. In addition, provided that the securities issuance is completed as a private placement,
the F&A transaction does not require a prospectus or other offering document.
From the investor’s perspective, an F&A transaction offers an opportunity to acquire
a substantial, non-controlling equity foothold in a company, usually accompanied by board
nomination rights, shareholder approval rights, anti-dilution and preemptive rights and an
option to acquire a controlling interest. Unlike an acquisition of securities effected under
the private agreement exemption from the takeover bid requirement, there is no statutory
limit on the premium payable in a private placement by an issuer. The F&A transaction can
be structured using common shares, preferred shares or convertible debentures. Convertible
debentures or preferred shares may be especially attractive for an investor that is evaluating an
early stage issuer or an issuer that is experiencing financial difficulty, where there can be a real
benefit to being higher up in the issuer’s capital structure before becoming an equity holder.
An F&A transaction permits an investor to monitor (and often influence) its substantial
investment before determining whether to acquire control (and consolidate the investee
company) by exercising its path-to-control warrants.
As a type of PIPE, an F&A transaction is subject to securities laws and stock exchange
requirements. The issuance of securities will be completed under an exemption from the
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prospectus requirement, usually in reliance upon the accredited investor exemption. An

accredited investor includes an institutional investor having net assets of at least C$5 million.
Securities acquired under the accredited investor exemption will generally be subject to
statutory resale restrictions for four months following the closing of the private placement,
except where the investor is a control person, in which case additional restrictions will apply.
If the investor acquires 10 per cent or more of the issuer’s voting shares, it will become an
insider subject to insider reporting obligations. In addition, if the investor acquires 10 per
cent or more of the voting or equity securities of any class (or convertible securities entitling
the investor to be issued 10 per cent or more of such class), the investor must promptly
issuer a press release and, within two business days, file an early warning report (similar to
a Rule 13D filing) with the Canadian securities regulators. Any issuance of equity securities
by a listed issuer (or securities exercisable, convertible or exchangeable for equity securities)
will usually require stock exchange approval. In the case of securities listed on the TSX or
TSX Venture Exchange, the stock exchange will usually require disinterested shareholder
approval if the securities being issued would result in a new 20 per cent shareholder or dilute
the company’s existing shareholders by 25 per cent or more. In addition, depending on
the strategic investor’s pro forma ownership in the issuer, the F&A transaction may trigger
approval requirements or pre-merger notifications under the Competition Act (Canada) and,
if the investor is a non-Canadian, under the Investment Canada Act.
F&A transactions are completed pursuant to a negotiated form of subscription
agreement, which, in addition to the customary provisions found in share purchase
agreements for private placements, will include some or all or the following provisions that
are more typically reserved for M&A transactions: a non-solicit with a fiduciary out; deal
protections, such as the payment of a termination fee and a right-to-match, in favour of the
investor; and a standstill provision, restricting the investor’s ability to acquire securities of the
investee company, or to propose a merger, prior to closing.
These provisions are customary because, in an F&A transaction, the investor is acquiring
a meaningful equity position in the investee company that, even if not accompanied by
path-to-control warrants, puts the investor in a good position to launch a takeover bid or
merger proposal. Moreover, prior to signing the subscription agreement, the investor will
have had an opportunity to complete a due diligence investigation and may have gained
access to material information that has not been publicly disseminated. If the investor elects
to commence a takeover bid or make a merger proposal, depending upon the investor’s
ownership interest, the takeover bid could be subject to insider bid rules, and any merger
could be subject to minority approval and formal valuation requirements under Multilateral
Instrument 61-101: Protection of Minority Security Holders in Special Transactions.
The scope of ancillary contractual rights that accompany the investment in an F&A
transaction is subject to negotiation in the context of the parties’ relative bargaining power
and prevailing market conditions. Often, these rights are set forth in an investor rights
agreement, which may contain some or all of the following provisions:
a Board nomination rights allowing the investor to enjoy the right to nominate an agreed
number of persons for election as directors. The actual number of nomination rights
will usually be a function of the investor’s percentage ownership. The agreement will
usually place restrictions on the company’s ability to change the size of its board, and
may prescribe how the chair will be selected.
b Top-up rights allowing the investor to subscribe for additional shares, at an agreed
price or formula price, to maintain its percentage shareholding following the issuance
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of dilutive securities, including shares issued as acquisition currency or pursuant to

employee compensation plans. Top-up rights can, however, create complexity for
compliance with stock exchange anti-dilution policies, and can inadvertently be an
unnecessary administrative burden for the investee company.
c Preemptive rights allowing the investor to have conventional preemptive rights to
participate rateably in any public offering or private placement.
d Shareholder approval rights allowing the investor to have the benefit of restrictive
covenants, which will require the investee company to obtain the investor’s prior
approval before, inter alia, amending its articles, entering into an agreed list of
material transactions and declaring an extraordinary dividend. Notably, the investor
is not subject to any common law fiduciary obligation to the investee in exercising
shareholder approval rights. The scope of these shareholder approval rights may be
taken into account by a stock exchange or a regulator in assessing whether they confer
de facto control on the investor.
e The investee company may want to ensure that it has an opportunity to use the proceeds
obtained from the F&A transaction to pursue its business plan before the investor is
able to acquire control of the company or take it private. As such, the investor rights
agreement may limit the strategic investor’s ability to acquire additional securities or
propose a going-private transaction with a standstill provision that applies for a period
following closing, or for as long as the investor holds an agreed minimum percentage
of shares, except with the prior approval of the investee company’s board.
f The investee company may seek to align the strategic investor with the company for
some minimum period following closing to prevent the investor from flipping its
investment to a competitor of the company, or divesting all or part of its interest in
a manner that places undue negative pressure on the market price of the company’s
shares. These resale restrictions may contain springing provisions, entitling the investor
to tender its shares to a third-party takeover bid.
g Conventional piggy-back rights or demand registration rights, or both.
h Path-to-control warrants allowing the strategic investor to acquire, on exercise, a
sufficient number of additional securities to give the investor a controlling interest
in the company. These warrants are usually priced at a further premium, above the
premium paid by the investor for its front-end investment in the common shares, and
may be subject to specified vesting limitations and other conditions.
The path-to-control control aspect of this type of transaction might seem curious to persons
familiar with the Revlon doctrine,11 which is a shareholder primacy model of jurisprudence
espoused by Delaware courts and followed in many other jurisdictions. Under the Revlon
doctrine, in the context of a transaction involving a potential change of control, directors’
fiduciary duties are automatically transformed from focusing on the long-term interests of
the corporation to maximising shareholder value in the near term. More specifically, the
role of the board, when faced with the possibility of a change of control, changes from
‘defenders of the corporate bastion to auctioneers charged with getting the best price for the
stockholders at a sale of the company’.12
11 Revlon, Inc v. MacAndrews & Forbes Holdings, Inc, 506, A.2d 173 (Del. 1986).
12 Revlon, at 182.
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However, a number of Canadian courts have declined to follow Revlon in the context of
change of control transactions, with one even going so far as to declare that ‘Revlon is not the
law in Ontario’.13 In BCE Inc v. 1976 Debentureholders,14 the Supreme Court of Canada had
an opportunity to weigh in on the topic in the context of a proposed C$52 billion leveraged
buyout. In BCE, the Supreme Court’s main focus was to consider whether the company’s
debenture holders were being oppressed in a proposed plan of arrangement that had been
approved by an overwhelming majority of common shareholders. While the Court did not
expressly reject Revlon, it reiterated a finding in its earlier decision in Peoples15 that, under
Canadian corporate law, the fiduciary duty of directors is always owed to the corporation
and not to any particular stakeholder or group of stakeholders. As such, under Canadian
law, an informed board that is free of conflicts of interest has wider latitude to exercise its
business judgment, even in the context of a prospective change of control, than may be the
case in jurisdictions that follow the Revlon doctrine. In Canada, not every potential, or even
prospective, change of control requires a board of directors to auction the company.

During the past two years, the review thresholds under the Investment Canada Act’s net benefit
regime have increased significantly. Two of the three thresholds that will apply to most direct
acquisitions of control of a Canadian business by non-state-owned enterprise investors16 from
World Trade Organization (WTO) Member States have increased significantly: the private
sector trade agreement investors threshold increased to C$1.568 billion (2019) in enterprise
value of the target, and the threshold for investors from other WTO Member States increased
to C$1.045 billion (2019) in enterprise value of the target.17 These increased thresholds have
contributed to a decrease in the number of transactions subject to a net benefit review (falling
from 22 in the 2016–2017 fiscal year to nine in the 2017–2018 fiscal year).18
While these increased thresholds represent a shift in the government’s emphasis away
from net benefit reviews (focused on economic benefits to Canada), national security is
increasingly in the spotlight. The national security review regime applies to any investment
that involves a non-Canadian, regardless of size and whether control was acquired. Certain
industries are likely to attract greater scrutiny, such as tech, critical infrastructure and defence.
The government’s Guidelines on the National Security Review of Investments set out a
non-exhaustive list of activities that may relate to national security. Although these guidelines
provide some insight as to when a national security review may occur, there are notable gaps,
and foreign investors often receive limited transparency during the national security review
process. If the government believes that a transaction may be injurious to national security,
the transaction can be blocked, subjected to conditions, or if already implemented, subject
13 Including Maple Leaf Foods Inc. v. Schneider Corporation (1999), 42 O.R. (3rd) 177 (C.A.).
14 [2008] 3 SCR 560.
15 Peoples Department Stores (Trustees of ) v. Wise, [2004] 3 SCR 461.
16 The threshold for direct acquisitions of Canadian businesses by state-owned investors from WTO Member
States is C$416 million (for 2019) in gross book value assets.
17 The threshold for the direct acquisition of control of a Canadian business that carries on a cultural business
by a non-state-owned enterprise investor from a WTO country remains the same: C$5 million in asset
value of the target.
18 Annual Report, Investment Canada Act, 2017–2018, 1 March 12019.
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to remedies that can include divestiture. Since 2012,19 four transactions have been blocked,
and various others have been subjected to conditions or were abandoned.20 The majority
of the national security reviews that have been ordered were in respect of investors from
China (10 orders) and Russia (two orders). In this geopolitical climate, national security
considerations will be crucial for investors and targets in deal planning and risk allocation in
2019.
V COMPETITION LAW
Certain types of transactions that exceed prescribed thresholds require pre-merger
notification under Canada’s Competition Act. Such transactions cannot be completed until
notice has been given to the Canadian Competition Bureau and the statutory waiting period
has expired or, alternatively, has been terminated early or waived by the Bureau. Generally,
pre-notification of such transactions is required if both:
a the parties to the transaction (together with their affiliates) have combined aggregate
assets in Canada, or combined gross revenues from sales in, from and into Canada,
exceeding C$400 million; and
b the aggregate assets in Canada of the target (or of the assets in Canada that are the
subject of the transaction), or the annual gross revenues from sales in or from Canada
generated by those assets, exceeds C$96 million (2019; this threshold is adjusted
annually).
Equity investments are also notifiable if the financial thresholds are met and the applicable
equity thresholds are exceeded (more than 20 per cent in the public company context, more
than 35 per cent in the private or non-corporate entity context or an acquisition of more than
50 per cent of a public company voting shares or private entity equity if a minority interest
is already owned by purchaser).
It is important to note that the Competition Commissioner can review and
challenge all mergers, whether they are notifiable or not, within one year of closing. Recent
developments may increase the number of transactions that are subject to review. From a
legislative perspective, recently expanded affiliation rules subject previously non-notifiable
transactions to mandatory notification by extending the same control and affiliation
principles to all entities, including corporations, partnerships, sole proprietorships, trusts or
other unincorporated organisations, which in turn expands the net of relevant entities for
the size of parties calculation. From an enforcement perspective, the Bureau has announced
an increasing focus on non-notifiable transactions via an expanded intelligence-gathering
mandate for the Merger Intelligence and Notification Unit. Furthermore, as part of the
Bureau’s overall enforcement prioritisation of the digital economy, the Commissioner recently
stated that the Bureau is going to be more vigilant about monitoring the acquisition of small
firms by big tech. All of this serves to reinforce the importance of conducting substantive
competition analysis of transactions of any size that may give rise to competition issues in
Canada.
19 Aggregated statistics regarding the national security review process were first published in 2012.
20 Since the implementation of a formal national security review process in 2009, 15 national security review
orders were issued between 2012 and 2018. In all 15 cases, the transaction was blocked, abandoned or
subjected to conditions.
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VI OUTLOOK
Buoyed by the general health of the economy, continued fundraising and existing dry powder
in the private equity market, and cannabis companies seeking to execute growth strategies by
entering into new markets and product lines through strategic M&A, 2019 promises to be a
strong year for M&A activity in Canada, with a high likelihood of significant and innovative
transactions emerging.
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Chapter 10
CAYMAN ISLANDS
Suzanne Correy and Daniel Lee1

The Cayman Islands is recognised as one of the world’s leading global financial services
centres. M&A activity is therefore largely driven by global rather than regional or national
trends. The aggregate value of global M&A increased in 2018, reaching the highest level since
2015. The Bureau van Dijk M&A Review Global, Full Year 2018 Report (2018 Bureau van
Dijk M&A Review Global Report) records deals worth US$5.3 trillion announced during
the course of 2018.2 Cayman Islands M&A-related activity also increased by value. According
to the 2018 Bureau van Dijk M&A Review Global Report, announced M&A deals in the
Cayman Islands in 2018 had an aggregate value of US$89.7 billion, some way from the high
of US$143 billion in 2016, but ahead of the US$84.5 billion announced in 2017.
The three main types of entity used in the Cayman Islands are the exempted company,
the exempted limited partnership and the limited liability company (LLC). During 2018,
formation activity increased significantly: 13,893 exempted companies (2017: 11,138), 4,917
exempted limited partnerships (2017: 3,774) and 928 LLCs (2017: 711) were incorporated
or registered in the Cayman Islands, with 90,268 exempted companies (2017: 83,675),
26,011 exempted limited partnerships (2017: 22,346) and 1,710 LLCs (2017: 889) being
active as at 31 December 2018.3

The key sources of regulation of M&A in the Cayman Islands are the Companies Law (2018
Revision) (Companies Law) and common law.
The Companies Law includes provisions permitting mergers and consolidations between
one or more companies, provided that at least one constituent company is incorporated
under the Companies Law. The Limited Liability Companies Law (LLC Law), discussed
further below, also provides for a similar framework for Cayman Islands LLCs.
Mergers, amalgamations and reconstructions by way of a scheme of arrangement
approved by the requisite majorities of shareholders and creditors, and by an order of the
Cayman Islands court under Section 86 or 87 of the Companies Law, are still available for
complex mergers (and are mirrored in the LLC Law). The Companies Law provides a limited
minority squeeze-out procedure (which, again, is mirrored in the LLC Law).
1 Suzanne Correy and Daniel Lee are partners at the Maples Group.
2 Total announced deal value, The Bureau van Dijk M&A Review Global, Full Year 2018.
3 Cayman Islands Registrar of Companies and Registrar of Exempted Limited Partnerships annual statistics.
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Cayman Islands
The Cayman Islands does not have a prescriptive set of legal principles specifically
relevant to going private and other acquisition transactions (unlike other jurisdictions such
as, for example, Delaware). Instead, broad common law and fiduciary principles will apply.
While there are no specific statutes or government regulations concerning the conduct
of M&A transactions, where a target company’s securities are listed on the Cayman Islands
Stock Exchange (CSX), the CSX Code on Takeovers and Mergers and Rules Governing
Substantial Acquisitions of Shares (which exists principally to ensure fair and equal treatment
of all shareholders) may apply.

IMPACT
i Economic substance requirements
The Cayman Islands has recently introduced the International Tax Co-operation (Economic
Substance) Law, 2018 (Economic Substance Law) and related regulations and guidance
notes. The Economic Substance Law is responsive to the global Organisation for Economic
Co-operation and Development (OECD) Base Erosion and Profit Shifting standards
regarding geographically mobile activities.
The Economic Substance Law introduces certain reporting and economic substance
requirements for relevant entities conducting relevant activities. Such entities will be required
to report certain information on their relevant activities on an annual basis to the Cayman
Islands Tax Information Authority, the first such annual report being due no later than
12 months after the last day of the relevant entity’s financial year commencing on or after
1 January 2019.
Relevant entities that do not conduct a relevant activity will have to make a simple
notification to confirm whether or not they conduct a relevant activity (this straightforward
notification is expected to be made online, via a dedicated portal, the first notification being
made around September 2020).
For a relevant entity formed on or after 1 January 2019 that will conduct a relevant
activity, the economic substance requirements will apply from the date that the relevant
entity commences the relevant activity. For relevant entities conducting relevant activities
that were in existence before 1 January 2019, the economic substance requirements will apply
from 1 July 2019.
A relevant entity is an entity that is not an entity that is an investment fund, an entity
that is a domestic company and an entity that is tax-resident outside of the Cayman Islands.
The terms investment fund and domestic company are defined in the Schedule to the
Economic Substance Law, and guidance notes provide some practical guidance as to the
meaning of tax resident.
Entities without separate legal personality (such as certain forms of partnership or
trust) are not within the classification of a relevant entity.
The Economic Substance Law applies economic substance requirements to the
following categories of geographically mobile relevant activities previously identified by the
OECD (and adopted by the European Union):
a banking;
b insurance;
c shipping;
d fund management;
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Cayman Islands
e financing and leasing;

f headquarters;
g distribution and service centres;
h holding companies; and
i intellectual property.
Where a relevant entity conducts a relevant activity, the economic substance test will apply.
Where a relevant entity conducts more than one relevant activity, the economic substance test
will need to be satisfied in respect of each relevant activity conducted.
ii Merger regime and dissenting rights

The statutory merger regime contained in Part XVI of the Companies Law remains a popular
tool for facilitating mergers involving Cayman Islands companies. Under this regime, two or
more companies may merge, with their property and liabilities vesting in one of them as the
surviving company.
Similar to other jurisdictions with equivalent regimes, the Companies Law provides for
a right of dissenting shareholders to object to a merger and be paid a payment of the fair value
of their shares upon their dissenting to the merger if they follow a statutory procedure. If the
dissenting shareholders and the relevant company are unable to agree in accordance with the
statutory procedure, the Grand Court of the Cayman Islands is required to determine the
fair value of the shares, and a fair rate of interest, if any, to be paid by the company upon the
amount determined to be the fair value.
These rights of a dissenting shareholder are not available in certain circumstances, such
as:
a to dissenters holding shares of any class in respect of which an open market exists on a
recognised stock exchange or recognised inter-dealer quotation system at the relevant
date; and
b where the consideration for such shares to be contributed are shares of the surviving
or consolidated company (or depositary receipts in respect thereof ), are shares of any
other company (or depositary receipts in respect thereof ) that is listed on a national
securities exchange or designated as a national market system security on a recognised
inter-dealer quotation system, or are held of record by more than 2,000 holders.
Although the period between 2015 and 2017 saw a significant increase in the volume of
dissent actions in the Cayman Islands, with 16 separate petitions having been filed between
the beginning of 2016 and the beginning of 2018, recently the number of such filings has
reduced. The increase in actions appeared to be driven, at least in part, by arbitrage investors,
purchasing positions in companies particularly with a view to exercising dissent rights. Such
actions now appear less common, however, in light of recent rulings both in the Cayman
Islands (including those described below) and elsewhere (particularly in Delaware). It
remains to be seen whether this level of dissenter activity leads to a re-emergence of schemes
of arrangement, being the way in which most takeovers and take-privates were structured in
the Cayman Islands prior to the introduction of the merger regime. Although schemes of
arrangement involve court supervision, higher requisite majorities and generally higher deal
costs, they do not involve dissenter rights or any other cash out or fair value option.
In 2019, the Grand Court ruled on only the third merger fair value appraisal that
has gone to trial in the Cayman Islands. The decision in Re Qunar Cayman Islands Limited
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Cayman Islands
advances the case law on the Cayman Islands merger regime following the 2017 decision
in Re Shanda Games Limited and the 2015 decision in Re Integra Group.4 These decisions of
the Court set out important guidance as to how, if a shareholder has dissented to a statutory
merger, the fair value of the dissenter’s shares will be determined. The following guidance can
be taken from the Court’s decisions:
a Fair value is the value to the shareholder of his or her proportionate share of the business
as a going concern: it is a value that is just and equitable, and provides adequate
compensation consistent with the requirements of justice and equity. Fair value does
not include any premium for the forcible taking of shares. In determining fair value,
neither the upside nor downside of the transaction being dissented from should be
taken into account (e.g., any costs savings obtained by a company going private).
b Assessing fair value is a fact-based exercise that requires an important element of
judgment by the court.
c If a company’s shares are listed on a major stock exchange, this does not mean that a
valuation methodology based upon its publicly traded prices is necessarily the most
reliable. Whether this valuation methodology is appropriate will depend on whether
there is a well-informed and liquid market with a large, widely held free float (as there
was in Qunar, but notably not in Shanda or Integra).
d The date for determining fair value was the date on which the shareholders approved
the transaction: this was the date on which the offer could be accepted. Importantly,
the Court concluded that dissenting shareholders could not take advantage of the cost
savings going forward as a result of the merger. The Court’s view was that dissenting
shareholders should not benefit from any enhancement in the value of their shareholding
attributable directly to the transaction from which they have dissented.
Interestingly, in reaching its decisions in Integra and Shanda, the Court took into account
guidance concerning similar statutory merger processes that exist in the state of Delaware
and in Canada. In view of the litigious nature of United States M&A, there is a significant
volume of case law on this topic in Delaware. We believe this may be the first time the Grand
Court has specifically considered Delaware precedent. Both Integra and Shanda had followed
Delaware and Canadian authority on this point, holding that in a fair value appraisal the
dissenters’ shares were to be valued as a proportion of the value of the whole company, not
as a block of shares offered for sale, such that there was no applicable ‘minority discount’.
The decision in Shanda was the subject of an appeal. Although the Court of Appeal
affirmed most of the conclusions below, significantly it reversed the Grand Court’s position
on minority discount. The Court of Appeal took a different view, and followed what it
considered to be the public policy reflected in English case law, to the effect that ‘it was
not unfair to offer a minority shareholder the value of what he possesses, i.e., a minority
shareholding. The element of control is not one which ought to have been taken into account
as an additional item of value in the offer of these shares’. The Court of Appeal held that
Section 238 of the Companies Law requires fair value to be attributed to what the dissenters
actually possess: if it is a minority shareholding, it is to be valued as such, and if the shares are
subject to particular rights or liabilities or restrictions, the shares are to be valued as subject
to those rights or liabilities. This question of minority discount is the subject of a further
appeal to the Privy Council. Interestingly, in Qunar, the Court, while following the approach
4 Maples and Calder acted for the successful dissenting shareholders in both Shanda and Integra.
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of the Court of Appeal in Shanda, considered that the applicable majority discount was nil,
given Qunar’s securities were highly liquid, and there was no risk on minority disadvantage
regarding management control or payment of dividends.
As a separate point, a series of decisions culminating in a Court of Appeal ruling in
Qunar affirmed that the Court has jurisdiction to make an interim payment order after a
dissent petition is filed but before the trial, meaning that a dissenting shareholder may be
entitled to receive an interim payment effectively at the outset of the proceedings. In many
cases this has equalled the merger consideration, on the basis that the company has admitted
that this reflects fair value (albeit this does not necessarily follow). However, the question of
what the Court should and should not take into account when being asked to exercise this
discretion has not been fully tested, and remains the subject of debate.
In a separate decision in Re Qunar, reversing earlier Grand Court decisions, the Court
of Appeal affirmed the availability of documentary discovery from dissenters, both as to their
own valuation analysis and as to their trading history in the company’s shares.
iii LLCs
In June 2016, the LLC Law came into force creating a new Cayman Islands vehicle: the LLC.
This vehicle takes its inspiration, in part, from the Delaware LLC. Its flexible nature means
that it is well-suited to a broad range of general corporate and commercial applications.
The introduction of the LLC has further strengthened the Cayman Islands’ position as the
domicile of choice for offshore investment funds and corporate structuring vehicles.
An LLC is essentially a hybrid vehicle, combining certain characteristics of a Cayman
Islands exempted company with those of a Cayman Islands exempted limited partnership.
In developing the vehicle, certain Delaware concepts were taken into consideration and
adapted, where appropriate, to mesh with Cayman Islands law and concepts. An LLC is a
body corporate with separate legal personality, like a Cayman Islands exempted company, but
without the constraint of having share capital.
Equivalent to the Delaware statute, the LLC Law provides a set of default rules as
to how an LLC operates. However, the members of an LLC are free to legislate their own
arrangements in the vehicle’s LLC agreement (the constitutional document of the LLC),
which is not publicly filed.
Generally, the liability of a member of an LLC is limited to the amount a member has
contractually agreed to contribute to the LLC. There is a limited statutory clawback, which
applies only if a member receives a distribution when the LLC is insolvent and the member
has actual knowledge of the insolvency at the time the distribution is made.
There is great flexibility in how LLCs are managed. They may be governed by the
members themselves or appointed managers who need not be members (such as a board of
managers). Unless otherwise expressly specified in an LLC agreement, the default duty of
care in managing an LLC is to act in good faith. This duty may be expanded or restricted,
but not eliminated, by the express provisions of the LLC agreement. In an M&A context, we
consider this feature may be of particular interest for management buyout investors who may
wish to have the right to appoint a representative as a director or manager of that vehicle.
In a traditional exempted company, any investor representative (in a company context, as a
director) has a duty to act at all times in the best interests of the company when participating
in company decisions: the representative cannot solely consider the interests of the investor
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that has appointed him or her (to do so would expose him or her to potential personal
liability). Contrast this with an LLC, where the members have the freedom to contractually
agree in the LLC agreement the duty of care that the managers of the LLC owe.
Although dependent on the required structuring for particular deals, the vehicle is
commonly used in a broad range of corporate and commercial applications, including
acquisition and joint venture structures, acting as corporate blockers and holding vehicles,
as preference share issuing vehicles (in a venture capital financing arrangements), employee
incentive vehicles and in structured finance transactions.
iv Global transparency
Already recognised by the OECD, the International Monetary Fund (IMF) and other
international bodies for its transparency and standards being consistent with those of other
major developed countries, the Cayman Islands is acknowledged as a first-class jurisdiction for
conducting international business. The government has also now implemented or confirmed
a number of further transparency steps it is willing to take, including:
a the introduction in July 2017 of a beneficial ownership register regime, discussed
further below;
b a willingness to commence discussions with those jurisdictions that are participating
in the G5 initiative (for the exchange of beneficial ownership information with law
enforcement agencies) on entering into bilateral agreements with the Cayman Islands,
similar to the beneficial ownership regime now in place with the United Kingdom;
c the repeal of the Confidential Relationships (Preservation) Law and its replacement by
the Confidential Information Disclosure Law, which offers more understanding of and
definition with regard to the mechanisms in place for sharing confidential information
with the appropriate authorities;
d acknowledging privacy as a basic human right, and introducing new data protection
legislation (currently expected to come into force at the end of September 2019);
e abolishing bearer shares (completed in May 2016); and
f implementation in the Cayman Islands of the model legislation published pursuant
to the OECD’s Base Erosion and Profit Shifting Action 13 Report (Transfer Pricing
Documentation and Country-by-Country Reporting), and as discussed above, the
introduction of the Economic Substance Law.
These measures demonstrate the Cayman Islands’ continued efforts to comply with and
promote transparency through close collaboration and compliance with the relevant global
regulatory bodies, tax authorities and law enforcement agencies in line with international
standards, while simultaneously respecting the legitimate right to privacy of law-abiding
clients.
The Cayman Islands has agreements to share tax information with authorities in
more than 90 other countries, including the United States under the Foreign Account Tax
Compliance Act, and is in the early adopter group for the Common Reporting Standard, the
OECD’s global tax information exchange standard.
In July 2017, the Cayman Islands introduced a new beneficial ownership register
regime (BOR Regime). Exemptions mean that certain Cayman Islands companies and LLCs
are not in scope of the regime. If a company or LLC is in scope, it must take reasonable steps
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to identify its beneficial owners and certain intermediate holding companies, and to maintain
a beneficial ownership register at its registered office in the Cayman Islands with a licensed
and regulated corporate service provider.
This register must generally record details of the individuals who ultimately own or
control more than 25 per cent of the equity interests, voting rights or rights to appoint
or remove a majority of the company directors, or LLC managers, together with details of
certain intermediate holding companies through which such interests are held.
Corporate service providers must facilitate access to information extracted from the
register through a centralised IT platform operated by a competent authority designated
by the government. The information will not be held on a central register by either the
government or the competent authority; nor will it be publicly accessible or searchable. Only
Cayman Islands and UK authorities will have rights to request information, and then only
as individual (and not automatic) requests. The information on the beneficial ownership
register can already be requested by UK authorities under existing information exchange
gateways, so in essence the new regime merely seeks to streamline the process to provide for
quicker and more discrete search accessibility.
Legislation introduced at the end of 2017 now requires that Cayman Islands companies
and LLCs that are exempt from the BOR Regime make a filing to that effect with their
corporate services provider in the Cayman Islands.

The vast majority of M&A activity involving Cayman Islands entities concerns foreign
businesses and investors as a result of the offshore nature of the jurisdiction. These businesses
and investors are based in a broad range of international jurisdictions.
A large number of M&A deals are still originating from the United States, while
European deals continue to feature and Asian-related transactions continue to grow.
As at the end of 2016, according to statistics published by the United States Securities
Exchange Commissions, there were 700 foreign companies (i.e., non-United States issuers)
listed on the New York Stock Exchange and NASDAQ, of which 103 were Cayman Islands
issuers, far ahead of any other traditional offshore jurisdiction. Only Canada had more
companies traded on the main US public markets than the Cayman Islands.
The Asian growth can be evidenced by the popularity of the Cayman Islands exempted
company as a listing vehicle in Asia: as at the end of 2018, 956 of the 1,926 companies
listed on the Main Board of the Hong Kong Stock Exchange were Cayman Islands exempted
companies.5
The Cayman Islands continues to be an attractive jurisdiction for the structuring of
offshore transactions for a number of reasons, including:
a the speed with which vehicles can be established (usually within one business day), and
without the need for any prior governmental approvals;
b the laws of the Cayman Islands are substantially based upon English common law and
a number of key English statutes. This gives Cayman Islands law and the legal system
a common origin with those of many of the jurisdictions of its users, including the
United States;
5 HKEx Fact Book 2018.
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c the Cayman Islands has a modern and flexible statutory regime for companies, limited
partnerships and LLCs;
d as described further below, the Cayman Islands has no direct taxes of any kind;
e the lack of exchange control restrictions or regulations; and
f there is no requirement that a Cayman Islands entity should have any local directors or
officers. Nor is there any requirement for local service providers (except that for funds
regulated under the Mutual Funds Law, where there is a requirement for their audited
accounts to be signed off by a local firm of auditors). The appointment of local service
providers, however, may assist entities with obligations under the Economic Substance
Law to discharge those obligations
As discussed above, the Cayman Islands is recognised by the OECD, the IMF and other
international bodies for its transparency and standards consistent with those of other major
developed countries.

The merger regime of Part XVI of the Companies Law continues to be a popular tool
for facilitating mergers involving Cayman Islands companies, and we continue to see
listed companies being the subject of take-private transactions led by private equity and
management in addition to traditional strategic corporate acquisitions. The merger regime
has also proven to be a popular mechanism for business combinations for special purchase
acquisition vehicles.
Deals of note announced or closed during 2018 that involved Cayman Islands vehicles
included:
a the US$6.7 billion acquisition of majority ownership of insurance claims and
technology services firm Sedgwick by funds managed by The Carlyle Group Global;
b the US$2.7 billion acquisition of NASDAQ-listed Ocean Rig UDW Inc, an
international contractor of offshore deepwater drilling services, by Transocean Ltd;
c the US$860 million acquisition of an oil and gas platform from Pampa Energía SA and
Pluspetrol Resources Corporation by Vista Oil & Gas, SAB de CV;
d the acquisition of SI Group, a leading global developer and manufacturer of performance
additives and intermediates, by SK Capital Partners, a private investment firm focused
on the specialty materials, chemicals and pharmaceuticals sectors; and
e the US$232.5 million tender offer to Paragon Offshore Limited by international
drilling contractor, Borr Drilling Limited.

As a leading jurisdiction for the establishment of private equity funds, it is perhaps
unsurprising that a significant number of Cayman Islands M&A deals are also financed by
private equity. Traditional sources also continue to be a key provider of finance for M&A
involving Cayman Island entities, including in respect of a number of the deals listed above.
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VII EMPLOYMENT LAW

A range of legislation and licensing requirements apply to companies seeking to carry on local
business in the Cayman Islands and employ local personnel. In view of the nature of offshore
business, the vast majority of Cayman entities do not have employees in the Cayman Islands,
and these requirements are therefore often not relevant to Cayman Islands M&A deals.
Employment standards in the Cayman Islands are currently governed by the Labour
Law (2011 Revision) (Labour Law), the Health Insurance Law (2018 Revision) and ancillary
regulations (Health Law), the National Pensions Law (2012 Revision) (Pensions Law), and
the Workmen’s Compensation Law (1996 Revision) and ancillary regulations. These laws
establish minimum employment standards, but do not preclude an employer from setting
conditions that are above the minimum.
The Labour Law includes provisions dealing with probation periods, employment
termination, public holiday pay, sick leave, compassionate leave, maternity leave, severance
pay and unfair dismissal.
The Health Law requires that health insurance cover is provided to employees, and
to their uninsured spouses and children. The Pensions Law requires an employer to provide
a pension plan or to make a contribution to a pension plan through an approved pension
provider for every employee who is between 18 and 60 years old (an employer is not required
to provide a pension plan for non-Caymanian employees who have been working for a period
of nine months or less).
VIII TAX LAW

i Cayman Islands taxation
The Cayman Islands has no direct taxes of any kind: no income, corporation, capital gains or
withholding taxes, or death duties. Under the terms of the relevant legislation, it is possible
for all types of Cayman vehicle – companies, unit trusts, limited partnerships and LLCs – to
register with and apply to the government for a written undertaking that they will not be
subject to various descriptions of direct taxation, for a minimum period, which in the case
of a company is usually 20 years, and in the case of a unit trust, limited partnership and an
LLC, 50 years.
Stamp duty may be payable in connection with the documentation executed in or
thereafter brought within the jurisdiction of the Cayman Islands (perhaps for the purposes
of enforcement). In most cases, this duty is of a relatively de minimis fixed amount except in
limited circumstances, such as when security is being granted over property in the Cayman
Islands.
ii Automatic exchange of information legislation

The Cayman Islands has signed an inter-governmental agreement to improve international
tax compliance and the exchange of information with the United States (US IGA). The
Cayman Islands has also signed, with more than 90 other countries, a multilateral competent
authority agreement to implement the OECD Standard for Automatic Exchange of Financial
Account Information – Common Reporting Standard (CRS).
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Cayman Islands regulations have been issued to give effect to the US IGA and CRS.
Cayman Islands financial institutions are required to comply with the registration, due
diligence and reporting requirements of these regulations, except to the extent that they are
able to rely on certain limited exemptions.
IX COMPETITION LAW
There is no specific anticompetition legislation that is relevant to Cayman Islands M&A.
Given the offshore nature of Cayman Islands M&A, competition law issues are usually a
question of the relevant onshore jurisdictions where the underlying businesses that are the
subject of the M&A are based.
X OUTLOOK
In a recent Deloitte survey,6 76 per cent of corporate executives and 87 per cent of private
equity investors – a significant source of deals for the Cayman Islands – expected the number
of deals to increase in 2019. Based on the year to date, 2019 is shaping up to be another
strong year for Cayman Islands M&A.
The existing legal framework of the Cayman Islands, together with the continued focus
on being at the forefront of global compliance developments and the ability to deliver new
legal initiatives (such as the new Cayman Islands LLC), will continue to ensure that the
Cayman Islands remains the offshore jurisdiction of choice for global M&A transactions in
future years.
6 Deloitte M&A Trends Report 2018.
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Chapter 11
CHINA
Wei (David) Chen and Kai Xue1

The trade war between China and the US has flared even more dramatically compared to
last year’s events. From US$34 billion in tariffs and retaliatory tariffs in July 2018, it is
expected to envelop all merchandise trade between China and the US by the end of 2019. As
a response to the intensifying war, China is continuing to open up foreign investment. A new
Foreign Investment Law (FIL) goes into effect on 1 January 2020, building on top of similar
liberalisation moves in 2017 and 2018.
The effect on outbound investment to the US has not been noticeable so far in 2019
because there was already little deal activity by Chinese buyers of American target companies
in 2018, leaving limited space for deal volume to dwindle any further. Overall Chinese
outbound M&A across the world declined from US$122.5 billion in 2017 to US$94.1
billion in 2018. The slowdown in outbound M&A activity is even more apparent when
compared to 2016, when deal volume reached the record-breaking level of US$210.4 billion.

There is no unified M&A law governing all M&A activities. Rather, specific M&A activities
are subject to different sets of laws and regulations depending on the type of buyer, the
target and specific legal issues implicated in the deal. Foreign investment in certain industries
requires approval from the competent regulatory body (e.g., investment in banking is overseen
by the China Banking and Insurance Regulatory Commission).
i Inbound M&A
In the context of inbound M&A, the laws and regulations applicable to foreign investment
in China will generally apply.
1 Wei (David) Chen is a managing partner and Kai Xue is a counsel at DeHeng Law Offices. The
authors would like to thank DeHeng colleagues Tong Yongnan, Wang Yuwei, Hu Tie and Zhang Xu
for their assistance in preparing this chapter and summer 2019 interns Weize Tong and Lui Ka Yee for
their contributions.
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Investment vehicles
China recognises a wide range of business vehicles. The three basic forms are the limited liability
company, the company limited by shares and the partnership. A business establishment that
is the result of foreign investment will generally be referred to as a foreign invested enterprise
(FIE). The most common forms of FIEs are:
a joint ventures (JVs) between domestic and foreign partners, including equity JVs and
cooperative JVs;
b wholly foreign-owned enterprises;
c foreign-invested holding companies;
d foreign-invested companies limited by shares (FICLS); and
e foreign-invested partnerships.
Joint ventures will be impacted when the FIL comes into effect on January 2020. The FIL
replaces the existing joint venture law. After the end of a five-year grace period from January
2020, joint ventures must make amendments to their corporate structure in accordance
with the Company Law. The eventual result will be consolidated corporate governance rules
applicable to both FIEs and domestic companies.
Foreign investment regulation system

Under the foreign investment regulatory system, foreign investment in industries that are
encouraged are grouped under an encouraged industries list (Encouraged Catalogue). While
foreign investments in industries subject to restriction or that are prohibited are placed under
a general nationwide negative list (Negative List) or a negative list (FTZ Negative List) for
the free trade zones (FTZ). The Encouraged Catalogue contains an extensive list of industries
that are sought after by policymakers. If a target sector industry is outside of the Negative
List or FTZ Negative List (in the case of investment within an FTZ), then the investment
does not require a case-by-case approval and can undergo recording through the record filing
system.
Negative List
The Negative List is a mechanism that restricts or prohibits foreign investment into certain
domestic industries. The latest Negative List (which entered into effect in July 2019) reduces
the number of items listed from 48 to 40. For non-Negative List items, all market participants
are legally entitled to invest in the respective sectors without bias, and foreign investors will
only need to go through the record filing system, rather than the case-by-case approval needed
under earlier versions of the foreign investment regulatory system.
Foreign investors are now allowed to hold controlling shares in domestic shipping
agencies, urban infrastructure networks (e.g., gas, heat and water drainage systems) that cater
to a population of 500,000 and above, and movie theatres and performance management
agencies. Changes were also seen in the agricultural, mining and manufacturing industries.
Foreign investors are no longer prohibited from investing in the development of wild animal
and plant resources, the exploration and development of certain natural resources (tungsten,
molybdenum, tin, antimony and fluorite), or the development of petroleum and natural gas
(when the investment occurs in the form of an equity or cooperative joint venture).
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Negative List for FTZs

For investments within FTZs, a separate negative list is implemented under the FTZ Negative
List.2 Here, the Negative List concept is used with a more experimental purpose, as successful
economic reforms are then subsequently extended nationwide.
In the latest revision of the FTZ Negative List (entering into effect in July 2019), the
number of restricted or prohibited industries was reduced from 45 to 37 items. Compared to
its 2018 predecessor, the 2019 FTZ Negative List completely removes restrictions on foreign
investment in fishing aquatic products, the printing of publications, smelting and processing
of radioactive minerals, and the production of nuclear fuel. Foreign investors may also now
hold minority shares in cultural and artistic performance groups. While such investments are
still prohibited within the nationwide Negative List, it is expected that a number of the 2019
FTZ Negative List exemptions listed above will be implemented broadly in future issues of
the Negative List.
It must be noted that in some sectors (e.g., finance, where there is a substantial
similarity between the Negative List and the FTZ Negative List in terms of restrictions such
as shareholding limits), companies operating in the FTZs can still enjoy more flexibility in
their day-to-day operations. For example, FTZs have simplified procedures for controlling
foreign capital. Foreign-invested companies in FTZs enjoy expedited processing in opening a
foreign currency account and receiving payment in a foreign currency.
As for the number of FTZs, this stands now at 12 locations. During the G20 Summit
of 2019, China announced that six new FTZs would be established in the near future.
Besides newly established FTZs, the Ministry of Commerce (MOFCOM) is also focusing on
improving the quality of the existing FTZs, and it has indicated it will deepen liberalisation
in existing FTZs through concentrating on promoting openness in the areas of finance,
education, culture, medicine and general manufacturing.
Record filing system

In parallel with adoption of the Negative List, a uniform record filing administration system
was implemented to replace case-by-case approval under MOFCOM for investments in
industries not on the Negative List. In general, the establishment of and most changes to
existing non-Negative List FIEs, including the transformation of non-FIEs into FIEs through
an acquisition, strategic investment by foreign investors in listed companies, mergers and
other methods, is under the purview of record filing. However, exceptions include transactions
on the radar of antitrust or national security review. Also not eligible for record filing are
affiliated acquisitions, namely the acquisition of domestic entities through overseas entities
that are established or controlled by affiliates of the target.
A strategic investment in a listed company not on the Negative List by a foreign
investor is eligible for record filing. This is worthy of note since investments of this type are
still subject to a number of legal requirements; however, it is commonly understood that
the requirements – including qualification, lock-up period and shareholding ratio of foreign
investors – may have been lifted (see ‘Inbound M&A transactions involving A-shares listed
companies’).
All record filings are required to be carried out via a uniform online platform, largely
eliminating the uncertainty of different interpretations by local officials.
2 Special Administrative Measures for Foreign Investment Access to Pilot Free Trade Zones.
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Encouraged Catalogue
The Encouraged Catalogue sets out the range of encouraged industries for foreign investment.
The latest Encouraged Catalogue (which entered into effect in July 2019) expands to include
415 items that are encouraged nationwide, and in the less-developed hinterlands of Central
and Western China there are 693 encouraged items. Examples of encouraged industries
are engineering consultancy, accounting, tax, cold chain logistics, artificial intelligence and
carbon capture.
M&A regulations
Inbound M&A transactions by foreign investors are primarily governed by the Regulations on
Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (M&A Regulations)3
developed by MOFCOM.
The M&A Regulations mainly concern:
a the acquisition of equity interest in and assets from Chinese domestic enterprises;
b the establishment of offshore vehicles for the purposes of listing Chinese assets through
an offshore initial public offering;
c the establishment of FIEs by offshore entities set up or controlled by Chinese domestic
enterprises and Chinese residents; and
d the swapping of shares between a foreign company or its shareholders and the
shareholders of a Chinese domestic enterprise.
The M&A Regulations also provide detailed procedures and rules regarding the acquisition
of domestic companies by foreign investors, including approval procedures, acquisition
prices and terms of payment. However, they are not comprehensive and do not apply to the
following inbound M&A transactions by a foreign investor:
a acquisitions of the equity or subscription of a capital increase of an existing FIE (covered
by regulations on equity changes of the investors of FIEs);4
b mergers between or acquisitions of a domestic enterprise through an existing FIE
(this is the ambit of regulations for mergers and divisions of FIEs and reinvestment by
FIEs);5 and
c acquisitions of a domestic limited liability company and the transforming of the same
into an FICLS (governed by regulations on the establishment of an FICLS).6
3 As last amended on 22 June 2009.

4 Mainly, Certain Regulations on the Change of Investors’ Equities in Foreign Investment Enterprises
promulgated by the former Ministry of Foreign Trade and Economic Cooperation (predecessor of
MOFCOM) and the State Administration for Industry and Commerce on 28 May 1997.
5 Mainly, Regulations on the Merger and Division of Foreign Invested Enterprises promulgated by the
former Ministry of Foreign Trade and Economic Cooperation and the State Administration for Industry
and Commerce on 22 November 2001, and Provisional Regulations on the Reinvestment of Foreign
Invested Enterprises in China promulgated by the former Ministry of Foreign Trade and Economic
Cooperation and the State Administration for Industry and Commerce on 25 July 2000.
6 Mainly, Provisional Regulations on the Establishment of Foreign Invested Companies Limited by Shares as
last amended on 28 October 2015.
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If a foreign investor’s acquisition of a domestic enterprise has a bearing on national security,

the acquisition may also be subject to a national security review by a ministry-level co-chaired
committee, generally involving MOFCOM, the National Development and Reform
Commission (NDRC) and, if necessary, other governmental regulators.
Acquisition of state-owned assets or equity

Inbound M&A transactions aimed at acquiring state-owned assets or equity are subject to
a rather complex legal regime and strict supervision by the Chinese authorities, including
the State-owned Assets Supervision and Administration Commission of the State Council
(SASAC). In general, sales of state-owned assets or state-owned enterprises (SOEs) (with
few exceptions) must be approved by SASAC (or its provincial and local counterparts) or by
the relevant SOEs that are empowered with approval authority. Acquisitions of state-owned
assets or SOEs are also subject to a mandatory appraisal conducted by a qualified appraiser
and, as a general principle, the actual transfer price for the state-owned assets or equity shall
not be less than 90 per cent of the value determined by the appraiser, except if a price lower
than the 90 per cent threshold is approved by the competent authority.
Inbound M&A transactions involving A-shares listed companies

PRC domestic stock exchange-listed companies currently issue two classes of shares, namely:
a A-shares, which are yuan-denominated shares reserved for Chinese investors, qualified
foreign institutional investors (QFIIs), yuan-qualified foreign institutional investors
(YQFIIs) and qualified foreign strategic investors; and
b B-shares, which are yuan-denominated shares traded in foreign currency (in US dollars
on the Shanghai Stock Exchange and in Hong Kong dollars on the Shenzhen Stock
Exchange) and available for purchase by both Chinese and foreign investors.
To qualify as a foreign strategic investment in a domestic-listed company, a foreign investor

needs to purchase at least 10 per cent of the A-shares of a listed company, by way either of
a private placement or a share transfer, and generally be subject to a three-year tie-in period
and other prescribed conditions.
In addition, to purchase through QFIIs or YQFIIs, or through qualification as a
strategic investment, a foreign investor may acquire A-shares indirectly through an existing
FIE that holds or is eligible to hold A-shares of a listed company.
ii Outbound cross-border investments

A new regulatory regime for outbound investments, the Administrative Measures for
Outbound Investments by Enterprises (the Outbound Investment Circular), came into effect
on 1 March 2018, specifying filing or approval requirements for outbound investments. The
Outbound Investment Circular is a framework of filing and approval requirements on both
direct and indirect outbound investments based on the sensitivity of an investment. The
Outbound Investment Circular, issued by the NDRC, cements the build-up of regulatory
policy changes since late 2016 when authorities adopted practices to curb outbound
investment in sensitive sectors. It also builds on the Guidelines on Further Guiding and
Regulating the Directions of Outbound Investments issued in August 2017 (the Outbound
Investment Guidelines), which divided types of outbound investments into the categories of
encouraged, restricted and prohibited.
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The Outbound Investment Circular also has the important consequence of bringing
under regulatory coverage the sponsorship of, or investment in, offshore investment funds
with outbound investments by Chinese entities, including offshore entities controlled by
Chinese companies or individuals. This puts indirect investments under the purview of
outbound approval regulation by the NDRC. Previously, if funds were transferred offshore
for an indirect investment, the transaction, although subject to domestic foreign exchange
regulations, was outside the regulatory approval of the NDRC.
Under the previous regulatory framework, it was necessary to file a project information
report for projects exceeding US$300 million before ‘carrying out any substantive work’. This
‘small pass’ requirement at the early stage of a project has been eliminated. Approval, filing or
reporting requirements under the NDRC under the new framework are timed at completion
(financial closing).
NDRC
The approvals and registrations for outbound investment must be obtained or conducted
through the NDRC, MOFCOM and the State Administration of Foreign Exchange (SAFE).
For SOEs, there are additional reporting obligations and a required approval from SASAC
(not covered in detail here).
Approval of a project before financial closing by the national level NDRC is required
for sensitive projects. However, for a non-sensitive project undertaken by a non-central
state-owned enterprise worth over US$300 million, a filing with, rather than approval from,
the national level NDRC is necessary. For non-sensitive projects under US$300 million,
conducting a filing is necessary with the provincial level NDRC. For indirect, non-sensitive
investments made through an offshore investment fund that exceeds US$300 million in value,
a report to the NDRC must be submitted before the financial closing; for such projects below
US$300 million, there is no reporting requirement. The applications for filing, approval and
reporting are done through the NDRC’s online platform.
Sensitive projects are outbound investments to sensitive countries or in sensitive
sectors. The 2018 Catalogue of Sensitive Industries for Overseas Investment defines sensitive
sectors as industries listed as restricted under the Outbound Investment Guidelines (i.e., real
estate, hotels, cinemas, entertainment, sports clubs) and news media, among others. Sensitive
countries are those that do not have diplomatic relations with China,7 are at war, or are barred
by international treaties agreements or treaties to which China is a party.
MOFCOM
Following the execution of the definitive transaction agreements, an ‘application form of
outbound direct investment’ should be submitted online to MOFCOM. The application
package includes the application form, transaction agreements, the business licence of the
buyer, an export permit for products or technologies (if applicable) and a statement from
officers of the companies warranting the veracity of the proposed outbound investment.
MOFCOM approval is typically received within 10 to 15 business days of the date on
which the application satisfies the filing requirements, and culminates in the issuance of an
enterprise overseas investment certificate.
7 Guatemala, Honduras, Nicaragua, Paraguay, Belize, Eswatini, and several Caribbean and Pacific
Island countries.
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SAFE
After obtaining an enterprise overseas investment certificate from MOFCOM, an application
for foreign exchange registration on an outbound direct investment is made to a commercial
bank under the supervision of SAFE, which will include the business licence of the buyer
and the enterprise overseas investment certificate, with a statement of foreign exchange
funding sources. Following submission, an overseas investment foreign exchange registration
certificate will be issued to the buyer.

THEIR IMPACT
i Greater global participation in the financial sector gains traction
In 2018, a number of laws and measures eased or committed in the future to easing restrictions
on foreign investment in the financial sector. Major steps that have been taken or are planned
include the following:
a the removal of restrictions regarding the business scope of jointly funded securities
companies in 2018;
b the cap on foreign ownership in companies in the securities, funds, futures and life
insurance sectors was increased to 51 per cent, and all limits on ownership by foreign
investors are due to be removed in 2020 (an acceleration was announced in 2019,
moving up the initial 2018 timetable); and
c the removal of restrictions on the business scope of foreign-invested insurance brokerage
companies.
Global investment banks have seized the opportunity to raise their shareholding to 51 per
cent in their Chinese business ventures. UBS increased its shareholding in its securities
joint venture to 51 per cent in December 2018. JP Morgan raised its shareholding in a
local mutual fund business to 51 per cent in July 2019. Many more foreign investments
in the local financial services industry are expected. Nomura and JP Morgan are expected
by the end of 2019 to open Nomura Orient International Securities and JPMorgan Chase
Securities (China) Co Ltd respectively, both 51 per cent held securities joint ventures with
local investment firms.
ii New Foreign Investment Law

Coming into effect on 1 January 2020, the Foreign Investment Law (FIL) seeks to be a
comprehensive overhaul of foreign investment law. The Law was passed against the backdrop
of intensifying trade tensions with the US. The aim of the Law is to boost foreign investor
confidence and remedy issues that may have previously deterred investors. While the FIL
attempts to provide greater legislative and commercial certainty for foreign investors, the FIL
is an overarching framework until more specific regulations and directives are issued.
The FIL replaced existing rules in relation to FIEs (i.e., the Sino-Foreign Joint Venture
Law, the Sino-Foreign Cooperative Joint Venture Law and the Wholly Foreign-Owned
Enterprise Law). The Law brings together in consolidated form rules many areas of foreign
investment, including the administration system for market access, the Negative List,
corporate governance and operations.
Chinese legislation has a reputation for vagueness of language and wording, and there
are provisions in the FIL that set unclear legislative expectations for the behaviour of investors.
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Premier Li Keqiang has announced greater clarification on the law with a ‘series of matching
regulations and directives’. The ensuing regulations are each predicted to delve deeper into a
specific segment of the FIL.
A salient feature of the FIL are IP protections responding to foreign investor complaints
about Chinese industrial policies that compel the transfer of IP from foreign investors. The
FIL prohibits theft of IP by Chinese joint-venture partners and commercial secrets from
foreign partners through protections listed in Article 22. The protections include criminal
liability for government officials for use of administrative means to pursue forced technology
transfers.
IV SIGNIFICANT TRANSACTIONS, KEY TRENDS AND HOT INDUSTRIES

i German investment screening and European sharing mechanism
Outbound Chinese investors also face difficulties and restraints by the countries of target
companies. Most notably, the Foreign Investment Risk Review Modernization Act of 2018
(FIRRMA), an amendment to the CFIUS, was signed into law in August 2018, creating a more
severe regime in the United States for the review and approval of foreign investment based
on perceived national security threats. Based on FIRRMA and later regulations promulgated
by CFIUS in October 2018, transactions in certain emerging technological industries are
subject to a mandatory filing for review. The potential effect of a transaction on eroding the
US’ technological leadership is an explicit factor adopted by CFIUS in determining whether
a transaction would result in a threat to US national security.
European policymakers have shown similar national security-related concerns and
protectionist sentiment towards China as a rising industrial competitor. The cumulative
acquisitions of European high tech companies by Chinese enterprises has prompted a response
in Germany. In December 2018, Europe’s largest economy amended its foreign investment
regulations, expanding the ability of the German Ministry for Economic Affairs and Energy
to prohibit those acquisitions of German enterprises that are perceived to threaten Germany’s
national security. The screening threshold for the acquisition of companies deemed relevant
to Germany’s security was lowered from 25 to 10 per cent, and certain media enterprises are
also included as companies subject to screening.
Earlier instances of German governmental intervention in 2018 included preventing
State Grid Corporation of China from obtaining a 20 per cent stake in 50 Hertz Gmbh,
one of Germany’s four transmission grid operators, in the summer of 2018 (through KfW,
the German development bank, the German government instead acquired the stake in
50 Hertz Gmbh), and again in the summer of 2018, the German government prohibited the
acquisition by China Yantai Taihai Corporation of Leifield Metal Spinning AG, a German
machine tool manufacturer.
The European Parliament, Council of European Union and European Commission
reached an agreement in 2018 on the introduction of a Europe-wide investment screening
and sharing mechanism. The framework requires European Union Member States to inform
the European Commission and other Member States of any transactions that are currently
being screened by it. The European Commission will also have the power to issue opinions as
to whether an acquisition will pose security risks to European nations, albeit these opinions
are non-binding. For investors being screened, this means that the review procedure is likely
to become even more lengthy and prolonged.
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V FINANCING OF M&A: MAIN SOURCES AND DEVELOPMENTS

Policymakers have sought to reduce the outflow of capital from China through stricter
screening enacted in measures first announced and then formalised between 2016 and 2018.
In response to the effect of these policies on curtailing financing for outbound M&A by
NRDC, MOFCOM and SAFE, Chinese investors developed alternative modes of fundraising
to minimise domestic regulatory scrutiny, including the use of:
a a guarantee or security structure in which a Chinese onshore entity or individual grants
a guarantee or security for a debt owed to an offshore creditor by an offshore debtor –
usually a subsidiary or controlled entity of the guarantee or security provided;8
b cash deposited with an onshore financial institution by a Chinese onshore investor and
a loan granted by an offshore branch of the onshore financial institution to an offshore
debtor – usually a subsidiary or controlled entity of the Chinese onshore investor;
c loans advanced by foreign lenders to overseas Chinese investors’ subsidiaries secured by
assets located outside China; and
d equity and debt issuance in overseas markets.
For option (a) registration with SAFE is required for the guarantee or security, and NDRC
and MOFCOM filings are necessary for such registration. Absence of such registration affects
the enforceability of the guarantee and security.
VI EMPLOYMENT LAW
M&A transactions have triggered labour disputes or strikes leading to collective labour
arbitration, hindering the completion of deals. Labour relations are established in the form of
employment contracts and, barring any change to the subject qualification of an employment
contract,9 labour relations are usually not affected. According to Article 40 of the Labour
Contract Law and Article 26 of the Labour Law, a target has the right to terminate an
employment contract if a material change in the objective circumstances relied upon at the
time of conclusion of the contract renders it impossible for the seller to perform and, after
consultation, the employer and the employee are unable to reach an agreement on amending
the employment contract. As such, unless the M&A transaction leads to a ‘material change
of the objective circumstances’ or the ‘subject qualification’ of the seller being eliminated, the
seller does not hold a unilateral right to terminate the employment contract.
Whether an M&A transaction has caused a change in either condition depends to a large
extent on the type of transaction. In general, a share acquisition does not affect the change of
the legal subjects of the parties. Nor is it a ‘material change of the objective circumstances’ to
the employment contract, so this type of transaction has no basis in providing the seller with
the unilateral right to terminate the employment contract. In the case of an asset acquisition
or business reorganisation, if it involves a transfer of assets, then this may constitute a material
change of the objective circumstances, and the seller may unilaterally terminate employment
contracts with employees.
8 Known as neibaowaidai.
9 According to the relevant provisions of the Labour Contract Law, an enterprise with the subject
qualification of labour and employment means it is established in the territory of the PRC, has not been
declared bankrupt according to law, and no business licence has been revoked, been ordered to close, been
revoked or been decided to be dissolved ahead of schedule.
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Even though there is a right to unilaterally terminate an employment contract, the

seller must still hold good faith negotiations with the employee to work out a comparable
position before exercising termination. If the employment contract is terminated, the seller
must provide severance based on the number of years of employment. In the case of large-scale
layoffs of employees, sellers must carry out negotiations with the employees’ labour union
and the local government to formulate a plan that includes providing advance notice to the
employees.
VII TAX LAW

The State Administration of Taxation (SAT) levies enterprise income tax (withholding tax)
at a rate of 10 per cent on the taxable income obtained by non-resident enterprise (NRE)
transferors through cross-border M&A.
In the past year, no further tax rules regarding NREs in M&A transactions were
published. SAT Announcement (2017) No. 37 and Circular (2009) No. 59 together
remain the overall framework regarding the treatment of taxable income for NREs in M&A
transactions. The issuance of Announcement (2017) No. 37 has not completely resolved
disputes in tax collection and enforcement on NREs in cross-border M&A transactions,
requiring the SAT to publish guidance announcements to further amend and explain Circular
(2009) No. 59 and Announcement (2017) No. 37.
VIII COMPETITION LAW

Sweeping changes that had been enacted in March 2018 saw the anti-monopoly enforcement
functions of three agencies (the Anti-Monopoly Bureau of the Ministry of Commerce, the
Price Supervision/Inspection and Anti-Monopoly Bureau of the National Development
and Reform Commission, and the Anti-Monopoly and Anti-Unfair Competition Bureau of
the State Administration of Industry and Commerce) being consolidated under the control
of the State Administration for Market Regulation (SAMR), including the role of merger
control review.
M&A transactions meeting statutory thresholds and circumstances constituting a
concentration of undertakings (i.e., an acquisition of control over a target) are subject to the
merger control provisions of the Anti-Monopoly Law. If in the preceding financial year (1) the
combined global turnover of the undertakings (i.e., the buyer or the target) exceeds 10 billion
yuan, and the turnover from the PRC of each of at least two of the undertakings exceeds 400
million yuan, or (2) the combined turnover from the PRC exceeds 2 billion yuan, and the
turnover from the PRC of each of at least two of the undertakings exceeds 400 million yuan,
then the transaction must obtain clearance from the enforcement authority.
The enforcement authority has strengthened enforcement to ensure compliance
with the filing requirements. In 2018, 13 deals were punished for failure to file and obtain
clearance before closing. Punishment amounts to fines of no more than 500,000 yuan,
though MOFCOM has the authority to go further and order the unwinding of a transaction
or divestiture of certain businesses or assets.
Over 81 per cent of cases in 2018 fell under the simple application procedure, a process
designed to abbreviate the duration of the review time for merger control reviews. The
following types of transactions are generally eligible for the simple application procedure:
(1) horizontal mergers in which the combined market share of the parties is less than
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15 per cent; (2) vertical mergers and conglomerate mergers in which each party’s market share
is less than 25 per cent; (3)acquisitions of shares or assets of a non-Chinese company that
does not conduct economic activities in China; (4) the establishment of a non-Chinese joint
venture that does not conduct economic activities in China; and (5) changes in control of a
joint venture whereby the joint venture becomes controlled by one or more of the previously
jointly controlling parents.
Lastly, some statistical figures shed light on enforcement activity in 2018:
444 applications were approved without any condition, increasing significant compared to
325 applications in 2017. Four applications were approved with conditions in 2018 under
the Anti-Monopoly Law. The average time for acceptance and clearance shortened to 16 days
from 24 days in 2017. In addition, 99.4 per cent of simple cases were cleared at the first
stage (within 30 calendar days following the acceptance of an application), demonstrating
that the simple case procedure plays an active role in improving the efficiency of merger
control review.
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Chapter 12
COLOMBIA
Alexandra Montealegre and Stefania Olmos1

In 2018, M&A activity in Colombia decreased by 8 per cent as compared to 2017.2 However,
M&A activity in 2019 is increasing, with factors such as a newly elected President who
promotes foreign investment, a new tax reform, Colombia’s admission as an OECD member,
the stability of macroeconomic figures and a strong rule of law coming into play.3 Compared
to the first quarter of FY 2018, the number of transactions in Colombia in the first quarter
of FY 2019 grew by 14.58 per cent, although the total aggregate value of the transactions
decreased by 28.81 per cent.4 The Cross-Border M&A Index published by Transactional Track
Record sets forth the following highlights for Colombia during the first quarter of 2019:
a a total of 55 transactions (M&A, private equity, venture capital and asset acquisitions)
worth US$972 million;
b of these 55 transactions, 40 correspond to M&A and are worth US$387 million.
Twenty-two transactions are ongoing and are worth US$326 million, and
18 transactions worth US$60 million have been completed;
c of the 55 transactions, a total of nine correspond to asset acquisitions worth
US$551 million. Six transactions, worth US$551 million, are ongoing, and three
transactions, whose value has not been disclosed, have been completed;
d a total of 30 cross-border inbound deals into Colombia worth US$263.08 million; and
e a total of seven cross-border outbound deals from Colombia worth US$108.5 million.5
Moreover, some of the factors ensuring the continuing success of M&A activity in Colombia
are the following:
a the approval of a tax reform that provides clarity to anxious dealmakers;
b lower valuations because of strong foreign currency exchange as compared to Colombian
pesos, resulting in cheaper targets;
1 Alexandra Montealegre and Stefania Olmos are associates at Baker McKenzie.

2 Transactional Track Record – Colombia – 4Q 2018: https://www.ttrecord.com/es/publicaciones/
informe-por-mercado/informe-mensual-colombia/Colombia-4T-2018/1852/.
3 ‘El monto que movieron las fusiones y adquisiciones en Colombia en 2018 subió 30%’, 21 de
enero del 2019, La República: https://www.larepublica.co/globoeconomia/transactional-track-
record-destaco-la-operacion-realisada-por-primax-peru-que-adquirio-a-distribuidora-andina-de-
combustibles-por-us2319-millones-2818139.
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Colombia
c Colombia’s adherence to key international treaties;

d buyers interested in acquiring distressed assets;
e favourable regulatory environment, including a flexible foreign investment regime;
f well-established orthodox financial management practices;
g low inflation;
h strong rule of law;
i foreign asset management willing to invest in Colombian infrastructure projects;
j the biggest infrastructure programme in Latin America, worth 16 trillion Colombian
pesos;
k implementation of peace agreements; and
l global economic recovery, which is enhancing expectations of growth.

The Colombian Commercial Code is the principal legal framework that sets forth the legal
vehicles that are available to foreign investors in Colombia and the rules related to corporate
governance of Colombian companies, such as quorums, veto rights, fiduciary duties of
members of boards of directors and legal representatives, and general rules applicable to
foreign investors aiming to conduct businesses in Colombia. Acquisitions of public companies
(public takeovers) have special regulations under Colombian law, and are regulated primarily
by, inter alia, Law 964/2005, which is the general statute regulating the Colombian securities
market, and Decree 2555/2010, which regulates public takeovers.
Nevertheless, many features of Colombian M&A are familiar to global businesses
and are similar to international standards of other jurisdictions, especially to New York law
standards and styles. In the past, the common law contractual model has influenced the way
acquisition agreements are drafted and negotiated in Colombia. It has become common
in the legal market that shareholders’ agreements, asset purchase agreements and share
purchase agreements in Colombia are drafted in a manner similar to New York law-governed
agreements, sharing similar provisions.
In fact, in the past couple of years, local arbitrators and case law have accepted
pro-sandbagging provisions under Colombian law and the right of buyers to be indemnified
via share purchase agreements due to a breach of sellers’ representations and warranties of the
sellers and of the target company. Such judicial decisions6 by local arbitrators have clarified
that concepts arising out of share purchase agreements, although not expressly regulated
under Colombian law, do have a legal reasoning and support under Colombian corporate
principles and rules.
Therefore, the increasingly sophisticated M&A market in Colombia is another trend
and reason for foreign investors to have confidence in the Colombian market.
Some key provisions that are frequently incorporated into the Colombian agreements
that are common to New York-style provisions are as follows:
a purchase price adjustments, including working capital adjustments and cash-free,
debt-free adjustments, and the use of locked box mechanisms;
6 Arbitrator’s award dated 1 September 2011 (Baclin Investments SL, Altra Inversiones Ltda, Mauricio
Camargo Mejía and Dario Duran Echeverry as the buyers and claimants v. Jairo Gutierrez Robayo, Jimena
Gross Mejía, Carlos Andrés Torres Robayo, Nelson Andrés Beltrán Algarra and Monserrat Gross Mejía as the
Sellers and Plaintiffs).
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b non-compete provisions and agreements, which now regularly include non-solicitation

clauses for the protection of employees and existing commercial relations and which are
legal in Colombia only in the context of an acquisition process in order to protect the
buyer and the value of the company; and
c escrow agreements (holdback provisions are less common, although they are becoming
increasingly more common, depending on the target).
In connection with indemnity provisions, limitations of liability (caps) are typically

heavily negotiated and may vary depending on the risk level of the target, although the
cap typically ranges between 15 to 20 per cent of the purchase price. Carveouts to the cap
are generally accepted for fraud, special indemnities and fundamental representations (such
as capitalisation, due authority and organisation, and ownership of shares or quotas). It
has become increasingly common to leave Foreign Corrupt Practices Act or anti-bribery
carveouts as fundamental representations and uncapped, especially when private equity funds
are involved in deals and for infrastructure deals.
The Colombian Arbitration Statute7 sets out provisions for domestic and international
arbitration and includes flexible and modern regulations for the benefit of foreign investors.
For instance, with respect to dispute resolutions, it is increasingly common that when
an international party is involved in a deal and the assets are located in Colombia, the
international arbitration has Bogotá as the seat of arbitration. The advantage to this is that
an award issued within an international arbitration seated in Bogotá is treated as a national
award, and is enforceable without any recognition procedure. By contrast, when an award is
issued outside Colombia, recognition is required prior to enforcement. It is also possible to
have Bogotá as the venue and for hearings to be held in a neutral place.
In addition to having Bogotá as the seat of arbitration, foreign investors might choose
as the rules of arbitration either the rules of the International Chamber of Commerce or
the rules of the Bogotá Chamber of Commerce, which allows the choosing of international
arbitrators instead of local arbitrators.
In connection with shareholders’ agreements under Colombian law, provisions are
commonly negotiated for minority rights protections, such as the appointment of members
of boards of directors, information rights, veto rights with respect to certain matters, the
appointment of executive officers of the company, preemptive rights and tag-along rights. In
addition, controlling shareholders often negotiate strongly for drag-along rights and control
of the day-to-day management of the company. In the past, the enforceability of tag-along
rights and drag-along rights under Colombian law were widely discussed, as this was not
clear among arbitrators, judges and legal academia. Nowadays, according to a thesis by the
Superintendence of Corporations and the flexibility of the simplified stock corporation form,
these rights are increasingly common under Colombian shareholders’ agreements.
7 Law 1563 of 2012.
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Colombia

THEIR IMPACT
i Tax reform8
The Colombian tax system underwent a large-scale reform in 2018 as part of efforts to
obtain the income required by an unbalanced governmental budget. This tax reform reduces
companies’ taxation by reducing their income tax rates, progressively eliminating the
presumptive income rate and excluding companies from wealth tax. Furthermore, the tax
reform includes the following key changes, which are particularly important in the M&A
area:9
a it includes indirect sales of shares, rights or assets located in Colombia as taxable events
as if such shares, rights or assets were sold directly;
b it modifies the general rule to determine the fair market value (FMV) of direct sales of
assets to include special rules designed to prevent tax avoidance; it also extended said
rules to rendered services;
c it includes a withholding tax of 7.5 per cent applicable to the dividends payable to
national legal persons, transferable to a foreign investor or to a local individual
shareholder;
d it modifies the tax regime applicable to dividends payable to individuals; and
e it creates the Colombian holding regime (CHC) to grant certain tax benefits to
companies created with the purpose of investing in other companies.
Withholding tax: dividends

A special 7.5 per cent withholding tax rate applies to dividends distributed as non-taxable
income to resident companies (increased from 5 per cent in the original finance law bill). The
withholding tax is payable only when an initial distribution is made to a resident company,
and is treated as an imputed tax credit on a subsequent distribution to a Colombian resident
(individuals) or an investor resident abroad. Dividends paid out of profits that were not taxed
at the corporate level are subject to the general income tax rate (33 per cent for taxable year
2019). In this last case, the 7.5 per cent withholding tax also applies after deducting the
tax paid at the general rate, resulting in an effective rate of 38.025 per cent for taxable year
2019. These rates also apply to dividends distributed to non-resident individuals and foreign
entities, subject to certain exceptions.10
Indirect transfers
The indirect transfer of shares or assets in Colombian entities are taxed in Colombia as if
the underlying Colombian asset had been directly transferred. If a seller fails to report the
deemed income arising out of an indirect transfer as taxable income or capital gain on the
income tax return, the subordinate Colombian company would be jointly and severally liable
8 Special thanks to Carlos Espinoza, group director of the tax team at Baker McKenzie Bogotá, for his
contributions to and comments on this section.
9 Doing Business in Colombia: A Guide to the Legal Issues. Published by Baker McKenzie in 2017.
10 https://www2.deloitte.com/content/dam/Deloitte/co/Documents/tax/Colombia%20tax%20reform%20
bill%20(second%20QRR%20review)%20final.1.pdf.
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Colombia
for such applicable tax, as well as for any associated interest and penalties. The purchaser
also would be jointly and severally liable if the purchaser becomes aware that the transaction
constitutes abuse for tax purposes. These rules do not apply where:
a the underlying Colombian assets are shares that are listed on a stock exchange recognised
by a governmental authority, and no more than 20 per cent of the shares are owned by
a single beneficial owner; or
b where they represent less than 20 per cent of both the book value and the FMV of the
total assets held by the foreign entity being transferred.
These measures will certainly discourage indirect transfers of shares. However, if an indirect
transfer of shares were to be performed, the following contractual measures shall be taken
into account from the M&A perspective as per joint and several liability:
a a fundamental representation and warranty, probably on the seller’s side, shall be
included in the share purchase agreement stating that the transaction does not
constitute abuse for tax purposes. Such fundamental representation shall survive as per
the applicable statute of limitations and shall not be subject to any limitation of liability
included in the share purchase agreement (i.e., cap, basket, de minimis); and
b a covenant on the seller’s side shall be included in the share purchase agreement stating
that the seller will comply with the obligation to report the deemed income arising
from the indirect transfer.
Tax incentives
The CHC regime is introduced for resident companies whose main activities are holding
securities, investing in foreign or Colombian shares, or administering such investments, and
that comply with certain additional requirements. The following rules apply under the CHC
regime:
a dividends received by a CHC from a non-resident entity are exempt from tax in
Colombia;
b dividends distributed by a CHC to a non-resident individual or foreign company are
considered foreign-source income and therefore not taxed in Colombia (but dividends
distributed by a CHC to a resident individual or Colombian entity are taxed at the
normal rate, and are subject to the general income tax regime); and
c the distribution of premiums for the placement of shares is subject to the same
treatment as ordinary dividends: that is, as exempt income when the beneficiary is
a CHC, as foreign-source income if distributed by the CHC to a non-resident, or as
taxable income if distributed to a Colombian resident.
Private equity funds

The rules for the realisation of income by capital funds have been amended so that in certain
cases, and subject to the fulfilment of strict conditions, income from such funds will be
deemed to arise or to be realised for income tax purposes when the profits are effectively
distributed or paid to the beneficiary.
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ii Foreign exchange rules11

The government has been introducing important changes concerning the applicable
foreign exchange procedures to increase Colombia’s competitiveness in foreign markets,
internationalise the domestic economy and increase the investment of Colombians abroad.
In response to Decree 117/2017 containing the rules governing foreign investments in
Colombia and Colombian investments overseas, the Colombian Central Bank issued
secondary legislation. Highlights include the following:
a Financial investments and investments in assets abroad made by Colombian investors
exceeding US$500,000 do not need to be registered if the investment was paid with
cash that does not need to be transacted through Colombian financial intermediaries;
however, the rule requiring registration when cash is remitted from Colombia remains
in place.
b While not directly related to foreign investments in companies, the Central Bank
also issued new rules governing in a clear manner the purchase of local, Colombian
peso-denominated A/Rs by non-Colombian investors seeking to become creditors
of Colombian obligors under commercial transactions. This included rules on the
acquisition of A/Rs held by local oil and gas companies subject to the special foreign
exchange regime. These new regulations solved the controversy of whether Colombian
peso-denominated A/Rs could be converted into foreign-currency assets held by
offshore creditors.
c Regarding financial derivatives products, during 2018, the Central Bank modified
certain restrictions to Colombian and foreign counterparties, eliminating the
requirement for Colombian financial entities to enter into credit default swaps with
foreign counterparties only whenever there was a related foreign investment operation.
However, the Central Bank has maintained the provision mandating that local financial
entities may only act as protection buyers and not as protection providers.
d Local financial entities may now enter into commodities derivatives with foreign
counterparties. Furthermore, the Central Bank has removed the limited list of
derivatives products that local counterparties may enter into. Finally, restrictions on
the settlement (delivery or non-delivery) have been lifted.
These reforms undoubtedly bring more flexibility to the market and its participants.
iii New private equity regulation

To boost the development of the private equity funds industry in Colombia and attract
new investors, the government recently issued Decree 1884 2018, which is aligned with
international standards and best practices. The most important developments of the new
Decree are as follows:
a allowing private equity funds to issue bonds (the issuance of bonds is restricted to
private equity funds that grant credits);
b allowing private equity to grant credits to individuals and corporations and to buy
receivables;
c units of private equity funds can be negotiated in the secondary market;
11 Special thank you to Sebastian Boada and Daniel Botero, senior associates in the banking and finance team
at Baker McKenzie Bogota DC, for their contributions to this section.
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d private equity funds and their compartments are able to merge or spin-off, and are able
to be assigned to an authorised manager; and
e new rules related to corporate governance have been introduced. For instance:
• principles related to management;
• the prevalence of the interest of investors in all the decisions to be made by a
manager;
• private equity funds shall have the obligation to prepare a conflict of interest
policy; and
• the investment committee shall meet at least once every three months.

Since 2010, US-based companies have been the most acquisitive in the Colombian market.
Internet and technology companies have been the most attractive to foreign investors by deal
volume.12 Among the main transactions that took place in 2018, the following rank as the
biggest:
a Grupo Argos increased its participation in Odinsa from 54.7 to 99.8 per cent for
2,578,139 Colombian pesos;
b the acquisition of ExxonMobil’s distribution in the region by Terpel for 2.146 million
Colombian pesos;
c the acquisition from the municipality of Bogotá of its 10.4 per cent shares in Grupo de
Energía de Bogotá by AFP and other investors for 1.920 million Colombian pesos;
d the acquisition from Spain’s Gas Natural Fenosa by public tender offer of a controlling
stake in Gas Natural SA ESP, one of the main gas distribution and retail supply companies
in Colombia, by Brookfield Asset Management for 1.12 million13 Colombian pesos;
and
e the purchase of Distribuidora Andina de Combustibles by Inversiones Primax and
Primax Holdings for US$231.9 million.14
Furthermore, some of the largest transactions during the first quarter of 2019 included the
following:
a Empresa de Energía del Pacífico’s (EPSA) purchase of the power generation
assets, including hydropower plants and wind and solar projects, from Celsia for
US$222.61 million;
b EPSA’s purchase of the electric energy distribution and commercialisation business of
Enertolima for US$532.01 million;
c Gran Tierra Energy Colombia, Southeast Investment Corporation and Gran Tierra
Resources’ purchase of Vetra Southeast (Spain) for US$102 million;
d Smurfit Kappa’s purchase of Smurfit Kappa Cartón de Colombia for US$101.72 million;

13 https://www.eltiempo.com/economia/empresas/fusiones-y-adquisiciones-empresas-en-colombia-para-2019-
308150.
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e Financial and Insurance Glenoaks Investments’ purchase of GNB Sudameris for

US$60.4 million; and
f Tecnoglass’s purchase of Vidrio Andino for US$45 million.15

i Infrastructure
The fourth generation (4G) road infrastructure programme in Colombia involves 30 toll
roads financed by local and foreign lenders. To date, financial closing has been reached for
14 of such 30 4G toll roads, and the financial closing for eight 4G toll roads is expected to
occur this year.16 From 2016 until the first half of 2018, Colombia awarded 17 public–private
partnership (PPP) infrastructure projects for an amount of US$8.4 billion. Fifteen out of the
17 projects focused on roads, with investment of US$8.4 billion; the remaining two projects
focused on electricity, with investment of US$78 million. Furthermore, the President has
established a taskforce within the Ministry of Transportation to facilitate PPPs for roads,
and is promoting that more than US$4 billion be invested in Bogota’s first subway line as a
municipal PPP.17 We expect M&A infrastructure activities to continue to grow in Colombia,
primarily for the following reasons:
a the sale of the participation interests of some of the concessionaires of the 4G
infrastructure projects;
b the appetite of international investors (Chinese, Brazilian, Spanish and Canadian
investors, among others) in infrastructure projects; and
c the government’s promotion of foreign investment and the development of the
country’s infrastructure.
Because of advances on the regulation and the strengthening of institutions for PPP initiatives
in the infrastructure industry, Colombia is considered the second most favourable country in
the region to develop such businesses. Reassurances provided by Law 1882 of 2018 include
an enhancement of transparency in public procurement, and an increase of the possibilities
for regional and municipal governments and state-owned companies to engage in PPPs. As
regards the adequacy of the Colombian PPP agency’s staff, the National Infrastructure Agency
received an award for its performance in 2018. Furthermore, the President has promoted
transparency mechanisms as a response to the Odebrecht corruption scandals.
However, a challenge remains regarding Colombia’s investment and business climate
score, which has been affected by bribery and corruption scandals. It is not certain that
the measures imposed by Law 1882 of 2018 will be able to restore confidence after this
reputational damage.18

16 ‘Financiadores de APP tendrán garantizados sus recursos’, Portafolio, 17 Mayo 2019, p. 12.
17 The Economist, Intelligence Unit, Inter-American Development Bank, The 2019 Infrascope – Evaluating
the environment for public–private partnerships in Latin America an the Caribbean.
18 The Economist, Intelligence Unit, Inter-American Development Bank, The 2019 Infrascope – Evaluating
the environment for public–private partnerships in Latin America and the Caribbean.
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Colombia
ii New decision of the Constitutional Court related to infrastructure

To grant legal certainty to the infrastructure sector and to support the fight against corruption,
the Constitutional Court conditioned Article 20 of Law 1882 of 2018 through a recent court
ruling.19 Before being conditioned by the Constitutional Court, such article of Law 1882
stated that investors in a PPP shall be compensated for all the costs, expenses, investments
and interest if such PPP agreement were to be annulled. This means that such compensation
could be paid to investors whose unlawful conduct led to the annulment of a PPP, which
ended up not penalising bribery and corruption, and infringing constitutional dispositions
such as public morality, good faith and public interest.
In its decision, the Court considered that those who finance such projects (banks,
funds, etc.) assume the major part of the capital risk, and therefore restitutions arising
from the annulment of a PPP agreement are intended to pay a project’s debt. Moreover, no
compensation shall be paid to a contractor or its members (for such purpose, the corporate
veil may be lifted) if their unlawful conduct led to the annulment of a PPP agreement.
Furthermore, the Court stated that the government shall no longer pay for sanctions
arising from the early termination of the applicable credit agreements of a PPP, given that the
payment of the penalty clauses or the early termination sanctions agreed on by a contractor
and lenders may not be justified against the public interest.
The decision of the Court is key for the development of infrastructure in Colombia,
considering that this decision protects lenders and third parties that have invested in
infrastructure projects and that have acted in good faith. Such court ruling shall reactivate
the financial closings of the 4G toll road concessions given that the lenders will have their
resources protected.
iii New infrastructure fund

The country’s biggest private equity fund for infrastructure started to operate with more than
US$1 million provided by pension fund administrators and the Financiera de Desarrollo
Nacional (FDN).20 This fund will co-invest with Caisse de dépôt et placement du Québec21
through a platform whose objective is to make capital investments in infrastructure projects
and companies. The primary focus of the fund is to invest in roads. However, the fund also
intends to purchase power and to invest in social infrastructure through work in the health
and education sector, either through PPPs or privately, as well as in water, sanitation and
waste management. In addition, the fund intends to invest mostly in brownfield projects and
less in greenfield projects.22
iv Representation and warranties insurance

The increased use of representation and warranties (R&W) insurance in transactions has
become a trend that reduces risks for buyers and investors in Colombia. Buyers increasingly
19 Decision issued by the Constitutional Court on 16 May 2019.

20 FDN is a financial corporation that specialises in infrastructure. Its focus is on project finance and
structuring.
21 Caisse de dépôt et placement du Québec is a long-term institutional investor that manages funds primarily
for public and parapublic pension and insurance plans.
22 https://www.dinero.com/edicion-impresa/negocios/articulo/canadienses-participan-de-nuevo-
fondo-de-inversion-en-colombia/267317.
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are willing to use R&W insurance in acquisition proposals to make their bids more attractive
and competitive to sellers. In Colombia, this is still an emerging trend that is being analysed
by buyers and sellers, and the insurance policies that are available are also being scrutinised.
The terms of the typical indemnity packages differ substantially between transactions
that use or do not use R&W insurance. For example, the indemnity escrow amount and
indemnity cap size are typically drastically lower in transactions using R&W insurance as
compared to transactions that do not use such insurance. Therefore, from a seller’s perspective,
R&W insurance may help expedite the sale process and improve sellers’ return on their
investments. A seller may also attract superior bids, because R&W insurance may offer
broader indemnification rights (particularly for a private equity or financial sponsor seller).
Thus, by purchasing R&W insurance at a fixed cost, a seller may significantly reduce or
eliminate contingent indemnification obligations. This protection is especially important for
minority or passive sellers who have minimal knowledge or control over a target company.23
From a buyer’s perspective, R&W insurance mitigates the risk of not being able to
enforce indemnity provisions where inter-jurisdictional legal processes may complicate
matters. R&W insurance policies can also be greatly customised: they can provide protection
beyond a limited indemnity cap, extend the duration of indemnification rights or replace
indemnification altogether, providing a sole remedy for breaches of representations and
warranties.

i Legal security for lenders of PPP projects
See Section V.i in respect of the Constitutional Court’s ruling stating that restitutions arising
from the annulment of a PPP agreement shall pay a project’s debt.
ii Issuance of green, social impact and project bonds

The local issuance of green and social impact bonds in 2017 and 2018 increased financing
options, especially for sustainability focused projects. Colombia’s social impact bond
was issued with the support of the Inter-American Development Bank in May 2018 for
US$133.3 million with three-year and five-year maturities.
Since 2016, more than US$500 million-worth of green bonds have been issued in
Colombia with the participation of banks, energy companies, multilaterals and local
investors. According to the Climate Bonds Initiative, green bond issuance grew a steady 4 per
cent year-on-year to US$162 billion in 2018.
Bancolombia SA24 took a performance-based approach to satisfy investors and pivot
the construction market towards a more sustainable future, focusing its efforts on green
buildings (above other areas that it also finances, such as clean production and agribusiness).
The bank provides variable loans for green construction financing from 0.5 to 2 per cent
less than conventional market rates by using its own resources alongside the proceeds of the
green bonds. The more measurably green a project is, the better the financing rate. Qualified
projects must receive a preliminary design certificate from an approved green buildings rating
system such as LEED or the International Finance Corporation’s EDGE.
23 https://www.lexology.com/library/detail.aspx?g=d917dbd7-d972-4566-b1df-d34bef2e36e6.
24 Colombia’s largest commercial bank.
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Colombia
The success of these early examples, and the support they have received from multilaterals
and other organisations, could encourage their implementation in other countries in the
region, opening up alternative forms of financing that could be applied to infrastructure and
PPP investments.
As to project bonds, nearly US$2 billion has been issued from Colombia since 2015,
mostly related to the 4G toll road programme. The 4G-related US dollar project bond size
has been constrained by the fact that the projects under the 4G programme are substantially
reliant on local currency revenues through user pay tolls, complemented by the availability of
payments and certain revenue top-ups made directly by the National Infrastructure Agency
(ANI).
Issuances related to the 4G programme have been able to attract international
institutional investors anchored by ANI’s payment obligations and on external credit
enhancement provided by Colombia’s development bank, FDN, in the form of subordinated
revolving liquidity facilities.
VII EMPLOYMENT LAW

i Legislation relevant for M&A
The labour legislation relevant for M&A in the Colombian jurisdiction varies depending on
whether a transaction is conducted as an asset transfer or as a purchase of shares. When a
business is acquired by means of a stock purchase agreement, the transaction will not involve
a change of employer. Therefore, employees and their conditions, benefits and entitlements
are unaffected.
However, if a deal is structured as an asset deal that involves the transfer of personnel,
and if the parties involved in the transaction do not previously assign or terminate their
employment agreements, this would be considered to be an employer substitution. Pursuant
to Colombian law, this would operate automatically upon the execution of an asset purchase
agreement and the transfer of personnel.
The main effects of employer substitution under Colombian law are the following:25
a Employment agreements of employees are not modified, suspended or terminated, and
all risks, duties and liabilities will be transferred to the buyer.
b The buyer must therefore match the salaries and benefits that the employees are already
receiving.
c If the incoming employees have enjoyed different employment benefits compared with
those of the purchaser’s existing employees in similar job roles, the purchaser might be
forced to match these by offering all employees the most favourable conditions (unless
otherwise agreed with all the employees, both old and new).
d All employees’ seniority must be preserved for all legal purposes.
e The pension liabilities of the seller will be transferred to the buyer.
f The former and new employers would be considered jointly and severally liable for
all labour obligations relating to the employment agreements existing at the time the
employer substitution takes place, and the new employer will be responsible for the
obligations that come into effect after the substitution occurs. If the new employer
25 Global M&A Handbook. Volume 1. Published by Baker McKenzie on 2015.
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assumes payments regarding labour obligations that the old employer was forced to
recognise, then the new employer can recover them from the old employer, unless
agreed otherwise.
VIII TAX LAW

See Section III.i.
IX COMPETITION LAW26
i Competition law relevant for M&A
As per the Colombian competition rules,27 M&A are subject to antitrust clearance by the
Superintendence of Industry and Commerce (SIC) when the following criteria are met:
a objective criteria: total assets or joint operating income of the parties involved in the
transaction during the fiscal year prior to the closing date, individually or combined,
exceed the annual thresholds established by the SIC. For transactions undertaken in
2019, the threshold is equivalent to approximately US$14.4 million; and
b subjective criteria: the parties involved in the transaction are engaged in the same
economic activity and therefore establish a horizontal relationship (horizontal mergers);
or participate in the same chain of value,28 establishing a vertical relationship (vertical
mergers) in one or more markets in Colombia regardless of the legal structure used for
such purpose.
However, if the subjective criteria set forth above are met but the combined market share
of the parties involved in the transaction is under 20 per cent, the parties can apply for
a fast-track (implied) approval by submitting a simplified form (notice) before the SIC.
The SIC, however, does not issue any opinion or ruling confirming such approval, and the
notice is answered by a letter whereby the SIC acknowledges receipt of such notice, within
10 business days counted from the day of the filing before the SIC. Nevertheless, if the
combined market share of the parties is equal to or above 20 per cent, the parties must obtain
clearance from the SIC through a full filing from which the SIC has the right to approve, or
oppose the proposed transaction, or to impose remedies on the proposed transaction. The
time frame for clearance depends on the complexity of the competition issues triggered by a
transaction, and usually takes from four to eight months.29
26 Special thank you to the antitrust team of Baker McKenzie Bogotá: Carolina Pardo, principal partner,
Angélica Navarro, senior associate and Mariana Camacho, junior associate for their contributions and
analysis to this Competition law section.
27 Law 155/1959, Law 1340/2009 and Decree 2153/1992 (among others).
28 A chain of value is a set of activities performed pursuant to which the product delivered is input for another
product.
29 Global Public M&A Guide. 2nd Edition. Published by Baker McKenzie on 2018.
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ii Gun jumping
In Colombia, during the past year the SIC has become increasingly active in regulating
pre-closing behaviours and transaction structures, and this is a trend we expect to continue.
Gun jumping relates to the unlawful coordination between the parties of an M&A deal
pre-acquisition or pre-merger.
Specifically, gun jumping may occur during the negotiation or due diligence process,
between signing and closing, or before the closing of a transaction when:
a the parties take (or participate in) concrete decisions in relation to the other party’s
business affairs, customer relationships, marketing programmes, pricing, price setting,
price-related decisions, suppliers or supply-related decisions, or any other commercial
decision;
b the parties exchange competitively sensitive information between the parties involved
in the transaction, absent additional safeguards;
c one party intervenes in another party’s business decisions or operational management
decisions (e.g., by way of a consent mechanism as part of the share purchase agreement
covenants);
d one party provides access to another party’s IT systems or other support functions; and
e there is any other action that could be construed as contributing to one party having
control over the activities of the other or others before gaining clearance by the antitrust
authority and before the transaction is closed.
To mitigate the risk of gun jumping, it is advisable to take certain measures and implement
them until closing, especially in the due diligence and negotiation phases of a transaction.
Such measures include designating specialised teams in each of the parties involved,
with such members being the only individuals on each side of the negotiation with access
to the other parties’ competitively sensitive information. Clean team members should only
have access to this information to the extent they do not have influence over the commercial
decisions of the company that they represent and pursuant to certain confidentiality protocols.
Parties may also agree on interim operating covenants that do not grant them any
decision-making power or control over the other party (including veto powers) but that
reflect the purchaser’s interest in preserving the value of the investment. Parties should
implement these covenants through clean team protocols.
Clean team covenants should avoid situations where either party can:
a influence the appointment of the senior management of the other party;
b influence the other party’s pricing policies;
c influence commercial decisions of the other party (e.g., through vetoing of tax filings);
d influence the target while entering into, terminating or modifying commercial contracts
or agreements; or
e access commercially sensitive information of the other party during the period before
signing and closing.
The design of the protocols should guarantee that should the transaction not close, the parties
will continue to act as independent competitors within the relevant market.
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Chapter 13
COSTA RICA
John Aguilar Quesada and Marco Solano1

Costa Rica is a development success story in many respects. There has been steady economic
expansion for more than a quarter of a century, and a stable democracy has been in place
since 1949, allowing the country to enjoy growth for several years thanks to a strategy of
outward-oriented growth based on openness to foreign investment and gradual trade
liberalisation.
Costa Rica is also a global leader with regard to its environmental policies and
accomplishments, which have helped the country to build its green trademark by promoting
forest and biodiversity conservation and the use of renewable energy sources.
The Costa Rican Investment Promotion Agency (CINDE) is a private, non-profit and
non-political organisation appointed by the government to promote foreign investment. It
has attracted more than 200 companies since it was formed more than 30 years ago, including
worldwide leaders such as Intel, Hewlett-Packard, Procter and Gamble, to name but a few.
More recently, Amazon, McKinsey & Co and Microsoft have announced that they intend to
expand their operations here.
The Social Progress Imperative global index ranked Costa Rica 33rd out of 146
countries in 2018. Of all the Latin American countries included in the report, Costa Rica
ranks first as the country with the greatest social progress in the region, well ahead of some
of the major regional players.2
According to the Global Competitiveness Report of the World Economic Forum,
Costa Rica was catalogued as an economy transitioning from Stage 2 (efficiency-driven
economies) to Stage 3 (innovation-driven economies). The country was ranked 55th out of
140 countries on the Global Competitiveness Index for 2018, third in Latin America after
Chile and Mexico and ahead of Panama.3
Costa Rica’s gross domestic product (GDP) per capita has tripled since 1960, and its
growth averaged 4.5 per cent between 2000 and 2013, as compared to the regional average of
3.8 per cent for the same period. According to World Bank information, the country’s GDP
in 2017 was US$57.29 billion, with economic growth of 3.3 per cent. Inflation for 2017 was
at 2 per cent.
Costa Rica’s economy is predominantly services-based. The services export industry
includes business process offshoring (BPO), information technology offshoring and shared
services. BPO itself covers a wide range of services. There are many large corporations with
1 John Aguilar Quesada and Marco Solano are partners at Aguilar Castillo Love.
2 Data from www.socialprogressimperative.org.
3 Data from http://reports.weforum.org/global-competitiveness-index/competitiveness-rankings/.
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BPO operations in Costa Rica, including Hewlett-Packard, Intel, Bridgestone, Amazon,

Procter and Gamble, Western Union, Emerson Electric and IBM. Some companies combine
BPO services with manufacturing or repair facilities. Costa Rica’s economy also has a thriving
medical device manufacturing industry that includes Baxter, Covidien, Abbot, Boston
Scientific, Allergan and St Jude Medical.
According to data from the World Bank, exports of goods and services in Costa Rica
represent 33 per cent of the country’s GDP. In 2017, exports to European and Asian countries
thrived, with countries of both regions experiencing significant growth.
In 2017, 40.5 per cent of exports from Costa Rica were to the United States, followed
by Belgium (6.5 per cent), Panama (5.6 per cent), the Netherlands (5.5. per cent) and
Nicaragua (5.3 per cent).
The Costa Rican M&A market was equally as active in 2018 as in 2017 (based on
data available at the Commission for Competition Promotion (Coprocom)). Consumer and
service sectors were the main drivers.
During 2018, multinational firms continued to purchase medium-sized companies to
position themselves in the Central American market. There were also cases of local and Central
American groups buying competitors to strengthen their market presence. Transactions
during 2018 continued to focus on medium-sized enterprises.

Costa Rica is a civil law country. Case law is only relevant in the interpretation of the law.
The Commerce Code4 regulates mercantile (commercial) companies in general. From a
corporate law standpoint, M&A are contemplated in the Commerce Code.
Costa Rican competition law is set out in the Law for the Promotion of Competition
and Effective Consumer Protection (CR-LPC).5
Chapters 3, 6 and 7 of the First Book of the Commerce Code regulate the two most
common corporate forms: corporations and limited liability companies. These Chapters
include company acquisition-related regulations, but there is no specific acquisition title or
chapter. The regulations mainly concern the transfer of shares or equity participations and
associated requirements.
The purchase of ongoing businesses is different from a company acquisition, and is
regulated in Chapter 3 (Title 1) of the Second Book of the Commerce Code (Articles 478
and 489). Chapter 3 establishes requirements for the transfer of ongoing businesses, including
publication (for three consecutive days) in the official newspaper and giving notice to the
enterprise’s creditors so that they have an opportunity to oppose the acquisition or exercise
their rights for a period of 15 days. Payment of the purchase price, according to Article 480,
is not to be made before the 15-day period expires and until liquidation of accounts payable
is made. Escrow of funds is commonly used for this purpose.
If the formalities established in Chapter 3 are not met, the transaction will be absolutely
void (for any eventual rights of third parties or creditors of the acquired ongoing business)
and payments made to the creditor will not be considered valid.
4 The Commerce Code (Law No. 3284 of 30 April 1964).

5 Law for the Promotion of Competition and Effective Consumer Protection (Law No. 7472 of
19 December 1994).
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Regarding mergers, Chapter 10 of the First Book of the Commerce Code, ‘Mergers
and transformations’, includes a very basic set of regulations regarding the legal nature of
a merger and the formal requirements to complete it. Merging entities may either form a
new company or be merged via absorption’(acquisition), in which only one of the entities
survives.
From a corporate law standpoint, the requirements to complete a merger are simple:
a pre-merger project or agreement, approval via extraordinary shareholders’ meetings (of all
entities involved) and publication of an extract of the merger approval in writing or in a
deed in the official newspaper. The merger will be effective a month after its publication and
registration if no third party opposes it. In principle, recordable assets will be transferred to
the resulting or surviving entity.
Competition law requirements to complete mergers, company acquisitions and
purchases of ongoing businesses are described in the next section.

THEIR IMPACT
As indicated, Costa Rican competition law is set out in the CR-LPC.
Preliminary merger control for transactions of a certain volume (over a threshold of
US$15 million) or of special relevance to the national market is mandatory.
A merger or acquisition may be considered a concentration under Article 16 of the
CR-LPC, so even though parties are free to consolidate a merger or an acquisition, they are
required to file a notification or previous communication to the Coprocom if meeting the
criteria established in the CR-LPC.
M&A control in Costa Rica uses a short authorisation proceeding. If the preliminary
merger control notice is not sent, the Coprocom may challenge a merger proven to qualify as
a concentration by opening a penalising proceeding.
Mergers or acquisitions involving regulated entities (banks, public companies,
financial entities, pension funds, companies managing funds of third parties and insurance
companies), in addition to the previous communication to the Coprocom, must obtain the
applicable approvals of the Securities Supervisory Agency (SUGEVAL), the Private Pension
Funds Supervisory Agency (SUPEN), the General Insurance Supervisory Agency (SUGESE),
the General Telecommunications Supervisory Agency (SUTEL) or the Financial Entities
Supervisory Agency (SUGEF), as appropriate.
According to the amended version of Article 16 CR-LPC, a concentration is defined as:
[a] merger, sale of business premises, or any other act or contract by which companies merge, form
partnerships, acquire shares, share equity, form trusts, merge or combine management, representation
or general assets; made between competitors, suppliers, customers or other operators who have been
independent in respect to each other, and result in the acquisition of economic control by one over
the other or others, or in the formation of a new economic agent under joint control of two or more
competitors, and any transaction in which any natural or legal person, public or private, acquires
control of two or more independent economic agents, actual or potential competitors.
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The enactment of the Tax Collection and Management Act and the General Tax Procedure
Regulations are discussed below. Although specific M&A regulations are not contained in
either set of Regulations, there are indirect applications or consequences to mergers, company
acquisitions and the purchase of ongoing businesses.

Acquisitions, expansions and ventures took place in Costa Rica in several sectors during
2018. While US companies and European multinationals were the main participants, Latin
American groups were also involved.
Costa Rica continues to pursue high-quality foreign investment. CINDE and the
Procomer lead Costa Rica’s investment promotion efforts. CINDE has focused on creating
clusters of related businesses, successfully targeting potential investors in the areas of medical
devices, services (shared services, BPO, global in-house centres) and advanced manufacturing.

The following is a summary of relevant 2018 transactions, expansions and projects in Costa
Rica:
Acquirer Transaction Target or targets Sector

Capitales Moonriver Acquisition Go Pato Delivery
application
ABB Ltd Acquisition General Electric Industrial Solutions Electric
products
Banco Davivienda Acquisition Grupo Kineret Financial
KKR & Co LP Acquisition Unilever (spreads division) Consumer
Grupo CCR Acquisition Aeris Holdings/Airport Worldwide Airport
Of special note during 2018 was a transaction involving Corporación de Supermercados

Unidos (CSU or Walmart), as a potential buyer of Grupo Empresarial de Supermercados
(GESSA), as seller. The Coprocom denied approval of the transaction on the grounds that
CSU boasted a condition of substantial power in the markets under investigation and that
the increase in shareholdings and power resulting from the proposed merger with GESSA
would have increased and strengthened the substantial power position already held by CSU.
Although CSU appealed the decision, it is unlikely that the Coprocom will change its criteria
on the basis of the power position that would be boasted by CSU, but the case is still pending
final resolution.

Acquisition financing is available for transactions. The most common funding structures,
regardless of the acquirer, are bank lending, corporate debt, capital increases (private
placement of shares of stock), and securitisations or security trust agreements.6
6 http://latinlawyer.com/jurisdiction/1003113/costa%20rica.
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Costa Rica
Withholding taxes are an important issue to take into account in establishing funding
structures and schemes, as these may apply if interest is paid to a bank domiciled abroad.
M&A financing has mainly come from abroad. As has traditionally been the case,
M&A are still financed in the acquirer’s market or through regional or global banks. However,
regional banks are becoming more involved in M&A transactions.
VII EMPLOYMENT LAW

No recent relevant amendments or modifications to Costa Rican labour regulations affecting
mergers or acquisitions have been issued. The only applicable regulation in the Code of
Labour Law is still the employer substitution rule, according to which both parties involved
in an acquisition (or employer substitution) will be jointly liable for six months after the
substitution is completed or verified regarding employees’ termination rights and benefits.
Once this period expires, the new employer remains solely liable for termination rights and
benefits.
VIII TAX LAW

Except for a few exceptions discussed below related to tax auditing, the tax system has not
been recently amended. The country’s tax regulations establish that residents and corporations
are taxed only on income earned in Costa Rica. The following is a summary of the main
applicable taxes.
i Income tax
This applies to individuals as well as legal entities for income originating from a Costa Rican
source. Taxable income is based on net income. Capital gains are generally not subject to
income tax, except when the transfer activity is regular or when transferring assets that were
subject to depreciation. In the latter case, the applicable rate is 30 per cent on the capital gain.
Withholding taxes apply, inter alia, to dividends (15 per cent), interest (15 per cent), royalties
(25 per cent) and fees (25 per cent).
ii Annual property tax

Property tax is rated at 0.25 per cent of the value of a property, and may be paid annually,
by semester or by quarter depending on the procedures established by the local government
(municipality).
iii Transfer taxes

There is a 1.5 per cent real property transfer tax and a 2.5 per cent vehicle transfer tax. This
tax is based upon the higher of the registered value or the deed value at the time of sale.
iv Stamp duty
This applies to all contracts and agreements at a rate of 0.5 per cent of the documents’
economic value.
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v Sales tax
This is imposed on certain taxable transactions at a rate of 13 per cent and is paid monthly.
After the enactment of the Tax Collection and Management Act in October 2012, the
General Tax Procedure Regulations were approved. Although specific M&A regulations are
not contained in them, the Regulations are broad and complex, and they contain stricter
rules and new capacities for the Tax Administration that should orient acquisition or merger
processes during due diligence and implementation.
The rule contained in the amended Code of Policies and Procedures Tax is that assets
will be subject to companies’ enforceable tax debts even after a transformation, merger or
company acquisition process, or the transfer of ongoing businesses. For assets to be subject
to companies’ enforceable tax debts after a transformation, merger, acquisition process or
the transfer of ongoing business process, the debt has to be enforceable prior to the process.
Also important to take into account is that the Tax Collection and Management Act
also imposes transfer tax (as described above) on indirect transfers (when a company holds
real properties and vehicles, and the company is transferred to new group of shareholders as
a whole). In principle, transfer tax does not apply to mergers: the application of transfer tax
has not been yet been interpreted by the Tax Administration in connection with acquisitions.
No other recent relevant amendments or modifications to the Costa Rican tax
regulations affecting mergers or acquisitions have been issued.
IX COMPETITION LAW
As outlined in Section III, Costa Rican competition law is set out in the CR-LPC. Mergers,
company acquisitions or the purchase of ongoing businesses may be interpreted by the
Coprocom as a concentration under Article 16 of the CR-LPC, so preliminary merger
control for transactions of a certain volume or special relevance is mandatory.
Other agencies may also exercise control over mergers, acquisitions or other relevant
transactions in connection with public companies, financial entities, pension funds, companies
managing funds of third parties and insurance companies, based on the regulations issued
by Conassif, the National Council of Supervision of the Financial System. These agencies are
Sugeval, Supen, Sugese, Sutel and Sugef.
X OUTLOOK
Costa Rica has continued to experience economic growth during the past year. The country
presents a winning combination of skills and opportunities that are appealing to export and
services-oriented foreign investment. Costa Rica’s attractiveness for foreign investment has
started shifting to emerging areas such as, inter alia, IT, knowledge processes, finance and
accounting, which require sophisticated skills and technological infrastructure.
Experts consider recent developments in the Costa Rican services market to be part
of its natural evolution.7 Other developments include the establishment of shared service
7 The World Bank. ‘Costa Rica – Public Expenditure Review: Enhancing the Efficiency of Expenditures’:
https://openknowledge.worldbank.org/handle/10986/8122.
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centres and manufacturing facilities outside the Greater Metropolitan Area, as well as the
establishment of energy, infrastructure and tourism projects, creating continuous M&A
opportunities for sophisticated investors and investment banking firms.
Costa Rica continues to evolve as a destination for investors with strong promotion
and protection programmes and friendly policies. Even though the size of the Costa Rican
and Central American market is not as significant as other countries in Latin America, in
terms of retail operations, its pursuit of growth will continue drawing multinationals that feel
comfortable with the above-mentioned mixture of skills and opportunities.
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Chapter 14
DOMINICAN REPUBLIC
Georges Santoni Recio and Laura Fernández-Peix Pérez1

During the past few years, we have seen important M&A activity taking place. The
Dominican economy continues to outperform most economies in the Latin American and
Caribbean region (averaging 7 per cent GDP growth over the past three years), and major
foreign investment continue to develop and grow in the Dominican Republic, together with
strong levels of M&A activity.

M&A deals occur through a merger by incorporation of a new entity or absorption of one or
more of the companies merged, a share transfer or an asset purchase.
Law No. 479-08 of General Companies and Limited Liability Individual Enterprises
was enacted in December 2008 and later modified by Law No. 31-11 (Companies Law).
This statute repealed the provisions effective until the current date of the Commercial Code
regarding companies (Articles 18 to 64 inclusive), introduced important legal modifications
concerning the incorporation, life and dissolution of companies, and, in addition to the
existing corporate vehicles, introduced three new corporate vehicles: the limited liability
company (LLC), limited liability individual enterprise and simplified company.
Moreover, Chapter IV of the Companies Law provides a definition for the term merger
and establishes a process for its fulfilment from a corporate standpoint. It defines a merger
as a transfer made by one or more companies of their assets and liabilities, either to an
existing company or to a new one, whereby the shareholders of the company that makes the
transfer receives shares in the company or companies that receive the assets and liabilities, and
eventually, a liquid amount that cannot exceed one-tenth of the nominal value of the shares.2
The merger must be approved by a shareholders’ extraordinary meeting of all the
companies involved, and will entail the following consequences: the dissolution without
liquidation of the companies that disappear, and the transfer of all their assets and liabilities
in the state in which they are present on the date of final completion of the transaction to
the beneficiary companies. Simultaneously, the shareholders of the disappearing companies
become shareholders in the recipient companies. When a new company is incorporated as a
1 Georges Santoni Recio is a partner and Laura Fernández-Peix Pérez is a senior associate at Russin, Vecchi &
Heredia Bonetti.
2 Article 382 of the Companies Law.
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result of a merger, its by-laws must be approved by an extraordinary general meeting of all
the companies that will cease to exist, and the new company must confirm and acknowledge
those approvals. The companies involved must execute a merger agreement.
Before the approval of the merger, the companies involved in the transaction must
appoint one or more commissioners, who must render a written report with the particulars
of the merger, and who shall verify that the value attributed to the shares of the participating
companies are adequate and that the rate of change is equitable. Additionally, the report must
include the estimated value of in-kind contributions and particular advantages, if there are
any. The report will be made available to the shareholders prior to the meeting, and must be
taken into consideration during the meeting before the approval of the merger.
Commissioners must have a bachelor’s degree in accounting, business administration,
finance or economics, and at least three years’ experience in their profession. There are certain
conditions that prohibit individuals from being appointed as commissioners:
a conviction for criminal offences or bankruptcy (fraudulent or not) by an irrevocable
judgment;
b disbarment, by virtue of a judicial or administrative decision, from the practice of
commercial activities;
c the individuals are public officers with duties related to the activities of the company;
d the individuals are the founders, in-kind contributors, beneficiaries of particular
advantages, directors of the company or its subsidiaries and their relatives up to the
fourth degree;
e the individuals are directors (and their spouses) of other companies that own one-tenth
of the paid capital of the company in question; and
f the individuals are any person (or his or her spouse) who directly or indirectly receives
a salary or compensation from the company for undertaking permanent activities
different from those assigned to the commissioner.
Commissioners may require the delivery of all useful documents related to the merger from
all the companies involved, and will provide the necessary confirmation of their content.
Likewise, depending on the types of companies involved, the boards of directors of the
companies must render a written report on the merger project.
Within 30 days of the execution of the merger agreement, the companies involved in
the process must file it along with the meeting minutes that approved the agreement before
the corresponding chamber of commerce. Additionally, an extract with the main terms of the
merger agreement must be published in a newspaper with national circulation.
In contrast, a shareholders’ meeting is not always required when an acquisition is made
through an assets purchase; this will depend on the types of assets being purchased and
the by-law requirements. If a company is selling all its assets, a shareholders’ meeting must
approve the sale. Nonetheless, the law and principles that govern the agreement itself will be
those of the Civil Code. Notwithstanding this, the parties are free to choose the jurisdiction
that will govern the agreement.
Regarding acquisitions made by share transfer, depending on the type of entity that is
selling the shares and the provisions of the by-laws, existing shareholders may have the right
of first refusal or right of first offer and, in some cases, tag-along rights. The Companies Law
governs shared transfers.
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The Restructuring Law3 was enacted on 12 August 2015 and came into effect in
February 2017. Its Ruling for application was also enacted in February 2017. Under the
Restructuring Law, if any company or merchant is in cessation of payments over a certain
period,4 or if at least one of the other scenarios provided in Article 29 of the Law occurs, the
affected party or the debtor can request the restructuring of the company. If the formalities
for requesting a restructuring process have been met, a verifier will be appointed who will
confirm whether there are grounds for the debtor to undergo a restructuring process. If so,
a conciliator will be appointed, and the process should end in a restructuring plan that is
approved between the majority (60 per cent or more) of the acknowledged and registered
creditors and the debtor. If it is not feasible for the debtor to undergo a restructuring process,
the liquidation of the company could be ordered by a court. If this occurs, a liquidator will be
appointed and will perform all actions related to the sale of the company as a whole (running
business) or the company’s assets. Once a restructuring request has been filed at court by the
debtor, or the debtor has been notified by the creditor or creditors of a filing at court of a
restructuring request, the debtor must inform the court and the verifier, among other actions,
of any act that represents a direct or indirect merger of the debtor.

THEIR IMPACT
Regarding takeover provisions, the Companies Law provides that in every company, except
LLCs, any shareholder (individual or legal entity) that achieves a participation of more than
10 per cent of the voting shares must notify the company, via a bailiff’s act, within a 15-day
period counted from the acquisition of shares that amounted to 10 per cent or higher,
indicating the number of shares owned and the votes it has in a shareholders’ meeting. LLCs
are excluded from this requirement, presumably because the Law specifically provides for their
shareholders and the company itself rights of first refusal, whereas in other companies those
provisions are only in place if they are included in the company’s by-laws. Thus, because of
its intuitu personae nature, an LLC always knows the intention of its shareholders to transfer
shares in advance, and the number of shares being transferred, and can therefore take action
on the transaction should it wish to do so.
The Law also provides that a corporation cannot have investments in another company
if the latter holds 10 per cent or more of the capital of the former. Likewise, there is a similar
provision for any other type of company that has a corporation among its shareholders.
Even though the Securities Law5 regulates the stock market, and the Companies Law
provides certain provisions applicable to corporations whose shares are publicly traded, to
date there is not a single company that is publicly traded; thus, the probability of a hostile
takeover occurring on a Dominican company is very remote.
3 Law No. 141-15 on the restructuring and liquidation of companies and merchants.
4 This will vary depending on the obligation that was unpaid; for example, two months of employees’
salaries, or payments overdue to a creditor or creditors for 90 days.
5 Securities Law, Law No. 249-17.
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The vast majority of M&A transactions that have occurred in the Dominican Republic have
been from foreign investments and from different countries. As a result of the financial crisis,
the number of business synergies, mergers and consolidations keeps increasing as a way to
cope with the difficult economic conditions.
Banking institutions, both local and foreign, have a prominent influence on M&A
transactions.

The number of M&A has risen during recent years. While there might not be a significant
difference in the volume of the transactions taking place, the settlement of transactions,
and the high-profile entities that have merged or that have been acquired, have increased
exponentially.
The most relevant M&A during the past few years are as follows:
a in 2016:
• a French group acquired the majority (70 per cent) of a fund that owns
approximately 130 petrol stations throughout the Dominican Republic from a
US parent company;
• a Japanese company acquired 50 per cent of the shares of a local cigar company.
The deal is said to have amounted to around US$14 million; and
• an American hotel group acquired a hotel group that had several hotels in the
Dominican Republic. The deal was concluded in September 2016;
b in 2017:
• a Spanish hotel group acquired three hotels in the Dominican Republic for
approximately US$100 million. The deal was concluded in December 2017;
• a Japanese company, the leader in the sanitary industry, acquired a local factory
in the same market. The deal was announced in November 2017;
• a Lithuanian airline that owned 65 per cent of the shares of a Dominican airline
sold its shares in June 2017; and
• other M&A deals mainly happened abroad but affected the Dominican Republic:
for example, a Dutch–British multinational signed an agreement to acquire the
personal care and house cleaning line brands from a Colombian multinational,
both of which have a presence in the Dominican Republic;
c in 2018:
• the largest Brazilian company in the brewery industry increased its ownership (to
85 per cent) in the main local brewery by acquiring an additional 30 per cent of
the shares. The deal is said to have amounted to around US$926.5 million. The
deal was announced at the end of 2017 and finalised at the beginning of 2018;
and
d to date in 2019:
• a Canadian independent supplier and marketer of fuel and petroleum products
acquired 75 per cent of the shares of the company that indirectly owned one of
the top petrol stations in the Dominican Republic; and
• a Canadian bank acquired 97.44 per cent of an important local bank. The deal is
said to have amounted to around US$330 million. The deal was announced on
August 2018, and finalised at the beginning of 2019.
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Typically, M&A are financed through loans that are guaranteed by assets of the buying
company or one or more of its subsidiaries, debt finance or private equity funds.
When financed through loans, several banks are usually involved in the lending.
In the case of Dominican banks, solvency ratio restrictions are determined by Monetary
and Financial Law No. 183-02, which places certain boundaries on the lending bank with
regard to the amount that can be lent to a single entity or economic group. Moreover, while
Dominican banks are participants in the financing of different mergers taking place in the
Dominican Republic, the main lenders are almost always foreign banks, particularly US
banks.
As indicated above, when a bank grants a loan, usually certain assets of either the parent
company or one or more of its subsidiaries are given in guarantee. If the assets placed in
guarantee are located in the Dominican Republic, depending on the type of assets, there are
filings and recording processes to be fulfilled. Typically, tangible assets (such as machinery,
equipment, vehicles) are given in chattels without loss of possession, as governed by the Law
of Agriculture Foment.6 There are certain formalities and restrictions surrounding chattels
without loss of possession; for example, a borrower cannot grant a chattel over assets that have
already been pledged unless the previous lender renounces its rights. In addition, the contract
must be executed before a justice of the peace or a notary public, and it must be recorded
by the justice of the peace of the domicile of the borrower in order to make it opposable to
third parties and in this way safeguard the privilege that the creditor is entitled to with the
subscription of this type of contract. Furthermore, if the assets are vehicles, in addition to the
chattel without loss of possession recordation, a transfer opposition is recorded before the Tax
Office to avoid the transfer of the registration of the vehicles.
When the guarantee is real property, it must be recorded before the corresponding title
registry of the real property, and a 2 per cent lien over the value of the property must be paid
to the Tax Office.
Furthermore, local financing institutions typically require that the borrowing company
executes a promissory note, which is a form of security that is invested by the prerogatives
provided for by Article 545 of the Civil Procedural Code, and it will be considered a title of
enforcement, without the need for a court ruling, in the event of the debtor’s default. The
promissory note has very specific and mandatory rules as to the form of the document, and
must be drawn up by a local notary public. Among the requirements of the promissory note
are that it must be in Spanish, and be validated and executed by the borrower in the presence
of a notary public. Stamp tax and recording fees apply.
Regarding debt finance, since acquirers are mainly foreign, bonds and other forms of
securities are rarely placed in the Dominican Republic. However, if a public offer is made in
the Dominican Republic, then Dominican law, as per the terms of the Securities Law, will
govern it.
Private equity as a financing method, from both local and foreign sources, is growing
steadily.
Finally, considering how volatile the local currency is, foreign currency, mainly the US
dollar, is used for any financing options.
6 Law of Agriculture Foment, Law No. 6188.
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VII EMPLOYMENT LAW

Employment is governed by the Labour Code, which was enacted on 29 May 1992.
The relevant matters to consider in a merger transaction with regard to employees are
labour contingency (severance), acquired rights and joint liability.
Dominican laws are very protective of employees’ rights, and the lawfully provided
severance payment derived from the unilateral decision of an employer to terminate a labour
contract can be quite high. Because of this, in some mergers, the labour contingency at the
time of the merger is deducted from the price.
In accordance with Articles 76, 79, 80, 184, 203, 221 and 223 of the Labour Code, the
severance payment and other benefits to be paid to an employee upon liquidation (when the
employer unilaterally terminates a contract without justified cause) comprise:
a advance notice: this is the notice of termination of the contract. The number of days
in advance on which an employee must be notified of the termination of his or her
contract will vary depending on the length of time that the employee has worked for
the company. If this period is one year or more of continuous work, the advance notice
will be of 28 days. If the company fails to give this advance notice, then it must pay the
employee 28 days’ salary;
b severance: the payment of an amount equal to 21 days’ salary for each year of service
given;
c any outstanding wages;
d holidays, if the employees have not taken their holidays during the past year;
e a proportion of the Christmas salary, depending on the date of the termination; and
f a portion of the company’s profits in the past year, if applicable.
The severance amount to be paid, and any other benefits related to it, are made proportionally
to the amount of time the employer has worked in the company, which means that until
the labour contract is terminated and the employees are paid, the amount to be paid in
connection with severance and employees’ acquired rights will increase over time.
On the other hand, the acquired rights of employees are those benefits given to them in
addition to those lawfully provided for: for example, life insurance policies, petrol payments
and funeral expenses. Any modification or elimination of the acquired rights of employees
constitutes a breach of the terms of the labour contract, which entitles the employee to
dismissal with just cause and triggers the severance compensation indicated above.
Finally, the third scenario (joint liability) refers to the shared responsibility that
is created when a company, a branch or an agency thereof is transferred or assigned, or
employees are transferred to other companies,7 including those rights and obligations of the
employees that have been the subject of a lawsuit and are pending verdict, and in no case will
void the acquired rights of the employees, whereby the new employer is jointly liable with
the substituted employer for all the obligations resulting from the labour contracts or the law
before the date of substitution.
In that vein, in an acquisition by share transfer, all the employees’ acquired rights must
be preserved, because the company continues its operation without there being any change in
7 This occurs, for example, when the employees of the company that ceases to exist work for the surviving or
newly created entity.
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the terms of employment. Likewise, in a merger by absorption, the surviving entity assumes
all the labour liabilities of the company that ceases to exist; if a new company is created, it
assumes the liabilities of the companies that cease to exist.
In an asset purchase acquisition where there is no transfer of employees, in principle
there are no labour liabilities to consider. However, if an employee transfer takes place, or
a company sells all its assets to another company and the first one terminates the labour
employment with the employees who are then hired by the company that purchased the
assets within a period of less than two months, it can be presumed that the seniority of
the employee continues in the labour contract with the buying company, and as such the
employee will have the legal remedies to oblige the companies to comply with Dominican
law. Nonetheless, the severance payment paid by the company that sold the assets may be
deducted from future severance payments made by the acquiring company to the employees.
VIII TAX LAW

The fiscal impact of a merger is covered mainly by the Tax Code, the Ruling for the application
of Title II of Income Tax enacted by Decree No. 139-98 and Decree No. 408-10 of Business
Reorganisation.
Prior to going through the merger process, and as per the terms of Article 94 of Decree
No. 408-10, it is mandatory to inform the Tax Office of the intention to merge and request
its approval to proceed with the merger.
Mergers, as stated in the above-cited three legal texts, are considered to be a form of
reorganisation of companies, and as such the results that could arise as a consequence of
the reorganisation are not taxed, and the rights and fiscal obligations that correspond to the
entities that are reorganised will be transferred to the continuing entities. Notwithstanding,
Article 287, Paragraph III of the Tax Code states that the losses that come from other entities
as a result of a reorganisation process are not tax-deductible.
It is also important to note that the surviving entity in a merger, or the new entity
created as a result of the merger, is liable for the obligations and taxes owed by its predecessor
and for the penalties for the infringements of the companies that have ceased to exist, and it
cannot oblige another entity to assume them.
On the other hand, acquisitions either by share transfer or by asset purchase are taxable
transactions, with consequences for both parties (buyer and seller).
If a company decides to purchase the assets of an entity, to avoid acquiring the liabilities8
it would have to pay the corresponding taxes for all the assets, and the tax rate to be applied
to the transfer would depend on the type of asset that is being transferred. The tax on the
transfer of real property amounts to 3 per cent of the sale price of each property or of the
value of the property registered in the records of the Tax Office, whichever is higher. The
same principle applies to the transfer of vehicles, but the tax rate here is 2 per cent. In both
scenarios, the tax described lies on the buyer.
8 Even if the buyer does not acquire the shares of the business, in some scenarios the Dominican Tax Code
holds him or her jointly liable (before the Tax Administration) for certain tax payments of the seller, such
as those that affect the assets acquired, proportionally to the tax debt of the seller, and VAT taxes that are
paid by the seller but collected by the buyer to be paid to the Tax Administration. In addition, if the buyer
acquires what the Tax Administration defines as a permanent establishment, the Tax Administration could
hold the buyer jointly liable for all the tax obligations of the contributor (seller).
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For the seller, the corresponding taxes that arise out of a transaction are paid on the
yearly income tax, and will be the difference between the acquisition price (adjusted by
inflation) and the sale price if it is a real property. For other types of tangible assets, the seller
will pay income tax on the difference between the book value of the asset and the sale price.
In both cases (sales of real property and sales of tangible assets), the tax rate is 27 per cent.
The purchase price (except when transferring real property or shares) should also
include 18 per cent VAT for the sale of assets (other than real estate) that must be reported,
collected and paid by the seller.
With regard to the transfer of shares, it is the seller who bears the tax burden. In
accordance with Article 289 of the Tax Code, capital gains tax, which applies currently at a
rate of 27 per cent, applies to sales, swaps, and other allocation acts of capital assets such as
share transfers, in which the applicable tax is calculated by deducting from the price or the
value of the transfer of the shares the cost of its acquisition adjusted by inflation (as per the
multiplying factor published yearly by the Tax Office).
Moreover, Norm 07-2014, issued by the Tax Office, allows the Tax Office to estimate
a minimum transfer value (sale price), regardless of the transfer value that the parties agree
to in the agreement (sale price), and it takes into consideration the equity of the company
whose shares are being transferred by dividing the result of the values for the paid-in capital,
admitted reserves, accumulated benefits or losses at the time of the sale, revalorisation of the
company equity and the surplus from the number of shares transferred. With this reasoning,
the Tax Office determines whether there has been a capital gain or loss.
Norm 07-2011 of the Tax Office also requires that any company that acquires shares
withholds 1 per cent of the price paid to the seller for the purchase of the shares regardless
of whether the seller is an individual, a legal entity, a resident or a foreign national. Said
payment is credited to the tax on capital earnings that has to be paid by the seller, generated
on the occasion of the sale, if applicable.
IX COMPETITION LAW
On 16 January 2008, the Dominican Republic enacted Law on the Defence of Competition.9
This Law prohibits the abuse of a dominant position and disloyal acts, such as agreements
between competitors’ market players, and promotes free competition. However, it does not
regulate the concentration of capital between the different players in a market.
Notwithstanding the above, several regulated markets require the authorisation of
certain government dependencies, such as:
a Telecommunications: Law No. 153-98 and the Rules of Free and Loyal Competition
of the Telecommunications Market require that any transfer, assignment, lease or grant
of the right to use any title or lien granted on concessions or licences must be carried
out with the previous authorisation of the Dominican Institute of Telecommunications
(Indotel). In that vein, the sale or assignment of shares resulting in the loss by the seller
or transferor of social control will require the authorisation of Indotel. Furthermore,
mergers and market concentrations in telecommunications are expressly subject to the
previous approval of Indotel, which can challenge a transaction or request and instruct
correction measures in order for the transaction to be within the boundaries of the Law
and the Rules.
9 Law on the Defence of Competition, Law No. 42-08.
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b Banking: the Monetary and Financial Law10 requires that the authorisation of the
Monetary Board is acquired in advance, as per Articles 9 and 35 of the Law, in cases
of mergers, share transfers of 30 per cent or more of the paid-in capital, absorption,
and substantial asset and liabilities transfers of any financial intermediation entity. The
authorisation of the Monetary Board is also required in advance for currency exchange
institutions.
c Securities: as per the terms of Articles 386 and 157 of the Companies Law, a corporation
that had ventures in the securities market must submit the merger agreement to the
Securities Superintendence, which will accept or reject the project within 15 days. The
merger agreement is submitted for the approval of the bondholders’ meeting, unless
the companies involved allow that the bondholders can be offered a refund as the
sole requirement. Moreover, the Securities Law sets out several provisions to avoid
concentration.
d Insurance: Articles 174 to 184 of the Dominican Insurance and Bonds Law11 allow
insurance and reinsurance companies to merge between each other with the previous
authorisation of the Dominican Insurance Superintendence. The Superintendence can
also recommend that an insurance company merges if the financial statements or the
verifications made by the Superintendence reflect that the insurance company is not in
a position to guarantee the fulfilment of its obligations before the insurers.
e Electricity: Paragraph II of Article 12 of the Ruling for the Application of the
Electricity General Law,12 enacted by Decree No.555-02, states that the Electricity
Superintendence, before authorising the transfer of generation concessions, mergers or
sales of shares where generation companies are involved, must investigate whether the
petitioners, either by themselves or through related parties, are owners of generation
centres with a total capacity that represents, in its opinion, a significant percentage of the
maximum demand of the national interconnected electric system that, in accordance
with the criteria established by the National Commission of Energy, constitutes a threat
to free competition in the electric wholesale market. Article 82 of the Law establishes a
similar prohibition on the transfer of concessions of generation and distribution.
f Pension funds: Article 93 of the Law of Social Security13 and Article 50 of Decree No.
969-02, which establishes the Pension Ruling, require that mergers are approved by
the Pension Superintendence before completing matters of common law, and in that
sense, a meeting approving a merger project together with the merger plan must be
submitted. The Superintendence can require amendments to the merger project or
reject it.
g Health risk administrators: similarly to pension funds as described above, Article 153
of the Law of Social Security states that health risk administrators and the National
Health Insurance Scheme must obtain the express authorisation of the Health and
Labour Risks Superintendence before merging with another entity.
10 Monetary and Financial Law, Law No.183-02.

11 Dominican Insurance and Bonds Law, Law No. 146-02.
12 Ruling for the Application of the Electricity General Law, Law No. 125-01.
13 Law of Social Security, Law No. 87-01.
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X OUTLOOK
Significant modifications to the Labour Code and Civil Code are being discussed, which
could affect certain aspects of M&A. However, it is not known when these modifications to
the existing laws, and the enactment of new laws, will be approved by Congress, considering
that some bills have been submitted for years.
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Chapter 15
ECUADOR
Boanerges H Rodríguez Velásquez1

During the past year, the Ecuadorian economy has changed course and begun attracting
foreign direct investment (FDI); the FDI registered by the Central Bank of Ecuador in fiscal
year 2018 totalled US$1.401 million, which reflects an increase of 126.5 per cent compared
with the FDI received in 2017. During 2018, FDI was invested in the following industries:
a mining (US$742 million);
b services (US$187.3 million);
c commerce (US$182.7 million);
d manufacturing (US$103 million);
e construction (US$86.8 million);
f agriculture (US$59.3 million);
g transportation; and
h storage and communications (US$38.7 million).
The new government came into power in May 2017, and has been working on policies
to improve FDI. At the end of December 2017, for example, the government defined the
promotion of investments as a key state policy, for which President Lenin Moreno created,
through Executive Decree 252, the Strategic Committee for the Promotion and Attraction
of Investments.
On 2 April 2018, President Moreno presented the general outline of his economic
plan, which consists of four main axes and 14 measures. The most important of these in
relation to M&A are measures 6, 7 and 8, which are intended to grant income tax and foreign
exchange tax benefits for new investments. The government will work on a new regulatory
framework to encourage the financing of investment credits by international banks; this
will undoubtedly help reactivate the local M&A market. The government will also seek to
rationalise both the costs of stock transactions and the statute that holds the shareholders of
a company responsible for the actions of its administrator, all as a means of strengthening
the stock market. These measures will help strengthen the concept of limited liability in
mercantile companies – a key concept that was harmed by the abusive application of the
Organic Law for the Defence of Labour Rights, the negative impact of which was notorious
in the stock market.
In March 2019, the Directory of the International Monetary Fund (IMF) approved
a financing agreement with Ecuador of up to US$4,200 million. The agreement requires
1 Boanerges H Rodríguez Velásquez is a senior associate at Coronel & Pérez.
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Ecuador to implement several legal amendments to its framework and change several policies,
including, among other things, a reduction of the country’s overall foreign debt, a reduction
of the public sector deficit, tax reforms, privatisations, returning its autonomy to the Central
Bank and labour reforms.

Generally, an M&A transaction will be governed by the Civil Code (Private Law Rules), the
Companies Law, the Organic Law of the Internal Tax Regime and its regulations and, when
applicable, the Organic Law for the Regulation and Control of Market Power.
For M&A purposes, the Companies Law regulates the merger procedure. Pursuant
to the Companies Law, there are two types of mergers: when two or more companies join
to form a new one that acquires their rights and obligations (Article 347 of the Companies
Law), commonly known as a merger; and when one or more companies are absorbed by an
existing one, commonly known as a merger by absorption.
In a merger, tangible or intangible assets can be transferred at their book value or at
their market value. The market value of the tangible and intangible assets is determined by a
shareholders’ meeting, based on an independent appraisal.
Generally, a merger involves the following steps:
a summons to the extraordinary general shareholders’ meetings for both the absorbed
and the absorbing entities;
b issuance of resolutions by the extraordinary general shareholders’ meetings regarding
the merger of the company, in the case of the absorbing entity, and the dissolution,
in the case of the absorbed entities. The shareholders approve the merger and the
amendment of the by-laws;
c filing the public deed of merger before the Superintendency of Companies, Securities
and Insurance (SCSI), which will include the approved merger balance sheet;
d an opposition period (six working days) starting with the publication of announcements
for three consecutive days to allow for the opposition of any party that might consider
itself affected by the dissolution;
e registration of the SCSI’s merger approval resolution at the Mercantile Register and
annotations with notaries;
f other publications and actions related to the finalisation of the approved dissolution;
g cancellation of the absorbed entity’s tax identification number and its registrations at
other government agencies; and
h other publications and actions related to the finalisation of the approved merger,
including updating the information regarding the absorbing entity’s capital at the
Internal Revenue Service and other government agencies.
The acquisition of an existing business can be sought through different contractual vehicles,
but generally, these contracts will either agree to the acquisition of the shares (in the case of
a corporation or public limited company) or share interests (in the case of a limited liability
company); or the acquisition of business assets and liabilities.
These contracts will generally be governed by the Private Law Rules and, depending
on the industry or sector, will add additional regulatory conditions as required by the
relevant law.
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i Acquisition of shares
If stocks are listed on the stock market, they can only be negotiated in the stock exchange
through brokers. The only exceptions are transfers of shares made by virtue of mergers,
demergers, inheritance, legacies, donations and liquidations of community properties or de
facto business associations.
In general terms, unless a shareholder agreement is in place, a transfer of non-listed
shares must comply with the Companies Law as follows:
a The assignee must receive the stock certificates that contain the shares being transferred,
with the respective assignment signed by the assignor. The assignment notice can be
delivered in a separate document attached to the stock certificate.
b Both assignor and assignee must inform the legal representative of the local company
whose shares are being transferred about the respective share transfers by means of a
joint communication signed by both or through separate communications.
c The legal representative of the local company must register the respective share transfers
on the company’s shares and shareholder ledger.
d The local company’s legal representative must electronically notify the SCSI about the
share transfers that have been carried out.
e The local company must issue new stock certificates at the request of the assignee.
For that purpose, the stock certificates that are transferred shall be handed in for their
annulment. The assignee can also choose not to request the issuance of new stock
certificates and to keep the assigned stock certificates.
f Compliance with the applicable rules for the declaration and payment of income tax on
the transfer of shares or participations.
g When Ecuadorian residents and effective Ecuadorian beneficiaries make direct or
indirect disposals through non-resident companies, they must declare the income
obtained, the expenses attributable to said income and the profits or losses produced by
said operations.
h In the case of operations carried out by non-residents of Ecuador, it is the substitute’s
obligation, namely the company whose shares are being negotiated, to declare and pay
the income tax for the sale of shares.
i When a purchaser of shares or rights representing capital is a tax resident in Ecuador
and at the same time a withholding agent, he or she is liable for withholding tax on the
payment he or she makes.
j The lack of presentation of this information (or the presentation of erroneous data) is
sanctioned with a fine of 5 per cent of the real value of the transaction.
The share participations issued by limited liability companies are not freely assignable or
transferable as is the case for stocks issued by corporations. They can be transferred to another
partner in the company or to third parties only with the unanimous consent of the partners.
The transfer must be executed through a public deed and registered in the company’s ledger.
ii Acquisition of assets
The acquisition of business assets and liabilities may or may not generate the payment of
various taxes. For example, if what is acquired is real property, the operation will be highly
taxed by municipal and state taxes. On the other hand, if the operation only involves movable
property and intellectual property rights, it will not be taxed.
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THEIR IMPACT
On 28 December 2017, the Organic Law for the Reactivation of the Economy was enacted,
which includes certain measures to reactivate the economy. The Law amends the Companies
Law and introduces the procedure for the transfer of the legal domicile of a foreign company
to Ecuador; it also approves the validity of shareholders’ agreements, which establish
conditions for a transfer of shares.
On 21 August 2018, the Law for Productive Promotion, Investments Attraction and
Generation of Employment was enacted with the main purpose of making the economy
dynamic, and promoting investment and employment as well as long-term fiscal sustainability.

Buyers in the process of acquiring companies in Ecuador are often subsidiaries of foreign
companies. Many of the large transactions that take place in Ecuador are financed by the
purchasers or by foreign banks; it is not common for local banks to be involved in M&A
processes.
In the World Bank’s Doing Business 2019 publication, Ecuador is ranked as the 123rd
country out of 190 economies as regards the ease of doing business. Foreign investors often
struggle with bankruptcy proceedings, for instance, which can be complex and lengthy.
Players in markets such as the food, animal products, agricultural goods, banking and
insurance, beer and beverage, and cement and steel-producing markets have been the main
recipients of foreign investment through M&A transactions in recent past. During the past
year, manufacturing was the sector that received the most foreign investment.

The most significant transactions during the past few years include the following:
a Nutreco Investments BV and Hendrux Genetics BV acquired 80 per cent of Macrobio
SA, a laboratory dedicated to shrimp farming;
b Socofar SA, a subsidiary of Fomento Económico Mexicano, SAB de CV (FEMSA),
acquired 100 per cent of one of the key players in the retail pharmaceutical business,
Corporación Grupo Fybeca SA GPF;
c Grupo Familia, through its subsidiary Productos Familia Sancela of Ecuador SA,
acquired 100 per cent of Industrial Papelera Ecuatoriana SA for approximately US$36
million. This operation required the authorisation of the Superintendency of Market
Power Control;
d Compañía de Petróleos de Chile Cope SA acquired the lubricants and fuels business of
Exxon Mobil Ecuador through its subsidiary, Organización Terpel SA;
e Zurich Insurance Group signed an agreement with QBE Insurance Group Limited
to acquire the operations of the latter in Argentina, Colombia, Ecuador, Brazil and
Mexico for US$409 million;
f Nestlé SA acquired the majority of the social capital of Terrafertil;
g InRetail Perú Corp acquired the pharmaceutical distributor Quicorp SA for US$583
million;
h Heineken International BV acquired the majority of Biela y Bebidas del Ecuador SA, a
company dedicated to the production of beer products, including key brand Biela;
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i Dicomtriz SA acquired the Amazonas Gas Station for US$10,561,332 million; and
j on 24 August 2017, the sale of the production plant of Ambev Ecuador SA, a
subsidiary of AB InBev, to the Ecuadorian consortium CEREC Holding Company SA
was approved by the Superintendency of Market Power Control (SCPM) as part of the
divestment process that AB InBev must complete for its global merger with SABMiller.

M&A transactions are generally funded either by companies’ own funds when multinationals
are involved, or international private banks and multilateral development banks, together
with their private branches, such as IDB-Invest. The agreement with the IMF will encourage
more foreign lenders to participate in these transactions.
VII EMPLOYMENT LAW

M&A transactions generate labour issues that must be addressed during negotiations. If a
transaction is made through the purchase of shares, there is no change of employer and the
working relationship is maintained with the employees; however, some legal scholars consider
that Article 171 of the Labour Code is also applicable, and that employees have the option to
terminate their contractual relationship as well; this is a much-debated subject. If, after the
purchase, the buyer terminates the contracts of certain workers, the company is obliged to
provide compensation in the form of severance payments.
On the other hand, if a transaction is made through the acquisition of assets or business
units of a company, Article 171 of the Labour Code comes into effect, and the buyer must
assume the responsibility of its predecessor as employer with respect to the workers at the
business unit. Note that if a worker decides not to continue the employment relationship
with the new employer, the employer must compensate him or her with a severance payment.
In merger processes, all labour contracts are maintained, and the absorbing company
will be the new employer of the workers of the absorbed company. If two merging companies
are liquidated and a new company is created, the new company will be the new employer of
the workers of the two companies that have merged.
Generally, once an employment agreement is terminated unilaterally by the employer,
a severance payment is due to the employees. The amount of the severance payment will
depend on the last compensation and the seniority of each employee.
Another important aspect regarding employment legislation is that there are specific
contractual modalities that apply for certain industries, such as banana production, tourism
and floriculture.
The IMF agreement requires major amendments to the employment framework. There
are ongoing talks regarding the depth of such amendments; however, it is expected that these
amendments will make the current rigid labour regime more flexible.
VIII TAX LAW

Nearly all payments made by corporations and individuals are subject to withholdings
on account of taxes. The payer is responsible for withholding the appropriate amount,
providing tax withholding certificates to the payee, filing a report of withholdings and paying
the amounts withheld within the following month. Payments made abroad – with some
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exceptions, such as dividends and interests – are subject to withholding at a rate of 25 per
cent pursuant to Article 39 of the Internal Tax Regime Law. For instance, royalties paid
abroad are subject to a withholding of 25 per cent unless they are reduced under a tax treaty,
or increased to 35 per cent if the recipient is in a tax haven or low-tax jurisdiction.
Dividends paid to a resident or non-resident corporation from another resident
corporation out of profits that have been subject to corporate income tax are exempt,
provided that the recipient does not reside in a low-tax jurisdiction or tax haven; otherwise,
a withholding of 10 per cent has to be made.
Payments made abroad for interest on foreign loans registered at the Ecuadorian Central
Bank (ECB) are tax-deductible, but are not subject either to income tax or to withholdings
on account of taxes in Ecuador as long as that interest does not exceed the interest rate
fixed by the board of directors of the ECB as of the date on which a loan was registered or
registration was renewed. If the interest rate of the loan exceeds the ECB’s interest rate, a
withholding of 25 per cent must be made on the excess.
Income (capital gains) generated by the direct or indirect transfer of shares is no longer
tax-exempt, since the tax laws were amended in 2015. However, share transfers are exempt
from VAT.
Transfers of assets and liabilities that take place as a result of a merger are exempt
from income tax. The increase or reduction in the value of the shares that may take place
as a consequence of a merger is also tax-exempt but not deductible. Any personal property
transfer taking place as a result of a merger would not be subject to VAT. Likewise, the
transfer of real property would not be subject to VAT or municipal taxes.
One tax implemented since 2008 that still discourages foreign investment is the overseas
remittance tax. This is levied on the value of all monetary operations and transactions carried
out towards any other country, with or without the intervention of institutions belonging to
the financial system. The tax base is the amount of the currency transfer, or of the credit or
deposit, or the amount of the cheque, wire transfer or draft abroad. The current tax rate is
5 per cent, and there are few exemptions.
In the past, Ecuador has not only imposed higher taxes on transactions involving
persons located in tax havens, but in general it has been combating tax havens. One of the
most recent examples, in February 2017, saw Ecuadorians vote to bar politicians and civil
servants from having assets, company interests or capital in tax havens.
Ecuador has been part of the global trend towards greater tax transparency and the
fight against tax evasion. In May 2017, Ecuador joined G20 countries, OECD members and
other developing countries as a member of the Global Forum on Transparency and Exchange
of Information for Tax Purposes. In May 2018, the Director of the Internal Revenue Service
announced that Ecuador had become a party to the Convention on Mutual Administrative
Assistance in Tax Matters. As a party to the Agreement, Ecuador will be able to exchange
financial information with 117 countries.
Ecuador has concluded tax treaties with several countries (including Belgium, Canada,
Chile, France, Germany, Mexico, Singapore and Spain) to avoid the double taxation of
income.
Several tax incentives are set forth in the Production Code, the Organic Law for
the Reactivation of the Economy, and the Law for Productive Promotion, Investments
Attraction and Generation of Employment, all aimed at attracting both domestic and foreign
investment in certain priority sectors (logistical services, biotechnology, tourism, forestry,
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etc.). A five-year tax moratorium on corporate tax applies to new investments that comply
with certain requirements and are located outside the main cities of Quito and Guayaquil. A
tax exemption of 10 years applies for investments in some industries.
As previously stated before, the IMF agreement also requires major tax reforms. While
non have been approved yet, the President has already announced the elimination of the
green tax because it had not fulfilled its tax purpose.
IX COMPETITION LAW
Starting from 13 October 2011, Ecuador’s competition regime was implemented through the
enactment of the Organic Law for the Regulation and Control of Market Power (LORCPM).
The SCPM is the entity in charge of overseeing compliance with the LORCPM.
The SCPM, as provided in the LORCPM and its regulations, has broad powers,
including:
a investigating and imposing sanctions related to antitrust matters and violations,
restrictive practices and market power abuse;
b approving conditioning or rejecting economic concentrations (mergers); and
c investigating and imposing sanctions related to unfair trade practices.
Operations of economic concentration are those operations that have the potential to affect
the structure of a market by limiting the number of competitors or the means of production.
i General legal regime applicable to mergers

The LORCPM determines that operations of economic concentration include but are not
limited to the following:
a mergers;
b full transfers of the assets of a merchant;
c the direct or indirect acquisition of the property or of any other right over the shares
or interests in the capital or securities that grant any type of right to be converted into
shares or interests in the capital, or to have any type of influence in the decisions of the
person that issues them, when such acquisition grants to the acquiring party the control
of or a substantial influence over that person;
d economic concentrations through the appointment of common managers or directors;
and
e any other agreement or act that transfers to a person or to an economic group the
assets of an economic operator, or that grants such person or economic group decisive
control or influence in the adoption of the decisions of the ordinary or extraordinary
management of an economic operator.
ii Thresholds and conditions

Certain operations of economic concentration require prior approval from the SCPM before
taking effect. Prior approval is required in the following cases:
a when the total business volume in Ecuador of all the transaction participants, considered
jointly, in the previous fiscal year of operation exceeds the amount of unified basic
remunerations (RBU) set forth by the Regulating Board as follows:
i for operations involving financial institutions and stock market entities,
3.2 million RBU, which in 2019 represent US$1.260 million;
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ii for operations involving insurance and reinsurance companies, 214,000 RBU,

which in 2019 represent US$84,3 million; and
iii for operations involving economic operations not included in (i) and (ii),
200,000 basic unified salaries (US$78,8 million); and
b when a transaction involves economic operators with a combined market share of
30 per cent or above in the relevant market of products or services.
If the conditions described above are not met by the parties to a transaction, or by the
transaction itself, no prior approval by the SCPM is necessary. Nevertheless, the SCPM, may,
ex officio or at the request of an interested third party, review the transaction.
Depending on the markets in which the M&A transaction is taking place, the
approval of specific regulatory agencies (such as the Superintendency of Companies, the
Superintendency of Banks, the Hydrocarbons Regulatory and Control Agency, the Mining
Regulation and Control Agency, the Telecommunications Regulatory and Control Agency)
must be obtained.
As previously indicated, the enactment of the LORCPM has completely changed the
landscape in Ecuador with respect to large M&A transactions. The need for regulatory approval
under many circumstances has increased both the time and cost of closing transactions of
economic significance. In addition, a perceived sense of unpredictability that clearance will
be granted will remain until there has been sufficient and consistent practice by the regulator.
Violations of the Antitrust Law are severely penalised. Monetary fines range from 8 to
12 per cent of the turnover in the fiscal year previous to the one when an infraction is
determined. There are also substantial monetary fines for the legal representatives, directors
and officers of a company involved in an infraction.
During 2018, the SCPM investigated 31 cases, 24 of which were opened during the
course of the year and seven of which were originally opened in 2017. Of the 24 cases opened
during 2018, 15 ended with an authorisation of the transaction without any type of remedies.
X OUTLOOK
The following, among other measures, will undoubtedly contribute to an increase in M&A
activity in the next few years in Ecuador:
a the Organic Law for the Reactivation of the Economy, the Law for Productive
Promotion, Investments Attraction and Generation of Employment, and the IMF
agreement, the laws that are expected to be sent to the National Assembly to attract
FDI;
b the government’s economic plan;
c the campaign announced by the Minister of Foreign Trade and Investment to make
Ecuador a new investment destination; and
d the liberalisation of air transport.
The strengthening of the principle of limited liability will undoubtedly be an incentive for
both local and foreign investors, as will be the guarantee of the continued dollarisation of
the economy, which is perceived to bring much-needed stability for long-term investment.
We also expect that the labour and tax reforms required by the IMF agreement will also
pave the way for more M&A transactions in Ecuador.
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Chapter 16
EGYPT
Omar S Bassiouny and Maha El-Meihy1

Egypt’s M&A value increased by 285.6 per cent, reaching US$1.5 billion in 2018 compared
to US$389 million in 2017.2
M&A deal value grew due to increased interest by foreign investors in the energy,
mining, education and utilities sectors. Landmark M&A transactions in 2018 included
Mubadala’s US$935 million and Rosneft US$1 billion acquisition of parts of the Zohr oilfield
from Eni, Dr Oetker’s acquisition of Tag Al Melouk and Soco International’s acquisition of
Merlon Petroleum El Fayoum Company.
Egypt’s share of M&A deals in the Middle East and North Africa region has increased
to 6.3 per cent in 2018, compared to 2.5 per cent in 2017.3
For the past 12 months, the Egyptian market and international investors have been
monitoring the progress of the implementation of the government’s economic and social
development plan in light of the US$12 billion Egypt–International Monetary Fund (IMF)
loan agreement, which was associated with a number of important measures including changes
in the deposit and lending interest rate announced by the Central Bank of Egypt (CBE) and,
most importantly, the removal of all FX controls and the free flotation of the Egyptian pound,
which was followed by a severe currency devaluation. The severe devaluation of the pound saw
Egyptian assets and securities lose more than 50 per cent of their value and, in conjunction with
the positive performance of the government insofar as the IMF loan programme is concerned,
as publicly noted by the IMF, had a major positive impact on M&A activity in Egypt.
The CBE has modernised its monetary policy framework, focusing on inflation under
a flexible exchange rate regime. Its monetary policy stance has been appropriately calibrated,
helping to reduce inflation from 33 per cent in July 2017 to 13 per cent in April 2019 despite
occasional supply-side shocks and excessive volatility in some food prices.4
Overall, 2018 was a progressive year for M&A in Egypt. Private equity, investment
managers and financial institutions become more active in terms of the number of deals and
their value. M&A transactions were closed in several sectors including:
a media;
b education;
1 Omar S Bassiouny is a partner and Maha El-Meihy is an associate at Matouk Bassiouny & Hennawy.
2 https://www.egypttoday.com/Article/3/62303/Baker-Mckenzie-expects-Egypt%E2%8
0%99s-M-A-IPOs-activities-to-rebound.
3 https://egyptoil-gas.com/news/egypt-ma-soar-to-1-5-b-in-2018-mergermarket.
4 http://sis.gov.eg/Story/139960/IMF-team-reaches-staff-level-agreement-on-5th-review-for-
Egypt’s-EFF?lang=en-us.
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c oil and gas downstream;

d petrochemicals;
e telecommunications;
f renewable and traditional energy;
g manufacturing;
h food processing;
i education;
j fintech; and
k healthcare.5
In 2019, M&A is likely to continue in the same positive manner in the Egyptian market, and
to rank third in terms of combined value in the region, whereby M&A business is expected
to reach US$1.372 billion in 2019, while trans-border M&A are likely to stand at US$$2.93
billion and rise to US$$3.14 billion in 2020.6

The Egyptian legal system is a civil law system, which is influenced mainly by Islamic shariah
and the French civil code. Hence, it is based on written legislation, rather than depending on
judicial precedents as in common law countries. That said, the Egyptian Civil Code7 plays an
prominent role in the legal framework since it governs and regulates all the general principles
pertaining to contract law, including but not limited to all types of sale and purchase
transactions. In other words, in the case of M&A transactions governed by Egyptian law, the
Civil Code is one of the main pillars regulating such transactions.
In addition to the general rules stipulated under the Civil Code, M&A transactions
are regulated in Egypt by diverse specific legislation depending on whether a transaction is
public or private.
Key rules pertaining to M&A can be particularly found under the Egyptian Companies
Law8 and its Executive Regulations, as amended, the Capital Market Law9 and its Executive
Regulations, as amended, and the Egyptian Exchange Listing Rules, as amended.10
Furthermore, decisions and decrees issued by the following concerned key regulatory
authorities constitute an integral part of the regulatory framework: the Egyptian Stock
Exchange (EGX), the Financial Regulatory Authority (FRA) and the General Authority for
Investment and Free Zones.
Subject to the specify activity of a target company, other regulatory bodies might be
involved such as the CBE and various key ministries.
As a general rule, acquisitions involving transfer of title of shares of joint-stock
companies and quotas of limited liability companies are the most common acquisition
structures in Egypt. The transfer of unlisted shares is conducted over the counter (OTC)
through an accredited broker registered with the EGX and appointed for such purpose.
5 https://www.iflr.com/Article/3860935/2019-M-A-Report-Egypt.html?ArticleId=3860935.
6 https://english.mubasher.info/news/3385713/Egypt-s-M-A-business-to-boom-in-2019-Report.
7 No. 131 of 1948.
8 No. 159 of 1981.
9 No. 95 of 1992.
10 The Board of Directors of the Financial Regulatory Authority Decree No. 11 of 2014.
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OTC transactions are not subject to the same level of regulation as public transactions. Any
transaction exceeding 20 million Egyptian pounds must be, inter alia, pre-approved by each
of the EGX Pricing Committee, which convenes on a weekly basis to study and resolve on
each envisaged transaction; and the FRA.

THEIR IMPACT
2018 witnessed several legislative amendments that have impacted the M&A market, including
an increase of the mandatory tender offer trigger from 2 to 5 per cent in the shareholding of
a public company. Further, the FRA introduced numerous specific regulations regarding the
acquisition of notable stakes in financial services companies.
The legislative amendments that have impacted the M&A market include an
amendment of the Companies Law in relation to shareholders’ agreements and preferred
shares.
i Shareholders’ agreements
Legal provisions exist to govern the concept of the shareholders’ agreement. Shareholders’
agreements are typically concluded between the founders and shareholders of a company in
order to organise the relationship between the partners that are not contained in the articles
of association that is ratified by the General Authority for Investments and Free Zones on
a designated form. Although there is no legal requirement to conclude agreements between
sellers, buyers and target companies for share acquisitions, it is however customary in large
acquisitions that parties conclude transaction agreements such as share purchase agreements
and shareholders’ agreements, as long as such shareholders’ agreements do not include any
contractual restrictions on the free tradability of the listed shares, since otherwise the same
would be null and void.
Egyptian law does not explicitly regulate or recognise the concept of the drag-along
right. There are no publicly available Court of Cassation judgements addressing the validity
or enforceability of drag-along or similar rights. In addition, in practice, the General
Authority for Investments and Free Zones does not accept the inclusion of drag-along right
provisions in a company’s articles of association. Accordingly, drag-along right provisions fall
under the scope of application of the general provisions of the Civil Code and the Executive
Regulations of the Companies Law, and qualify as a conditional contractual obligation.
Hence, the drag-along right is valid under Egyptian law since the fundamental conditions
that trigger the drag-along right (i.e., a third-party bone fide purchaser wishing to acquire
a majority or all of the capital of a target) do not conflict with the Civil Code. However, its
enforceability remains untested.
It is worth noting that the same is applicable to put option provisions. Accordingly,
put option provisions fall under the scope of application of the general provisions of the
Civil Code and the Executive Regulations of the Companies Law and arguably qualifies as a
promise to contract.
In light of the foregoing, the introduction of a regulated shareholders’ agreement will
give parties to M&A transactions further comfort, since rights such as drag-along rights and
put option rights will be incorporated into such shareholders’ agreement.
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ii Preferred shares
In the past, a company was not allowed to issue preferred shares unless its by-laws contained
a provision allowing that at incorporation. In this respect, the new amendments to the
Companies Law allow companies to issue preferred shares, even if such was not provided
for in their by-laws at incorporation, so long as an extraordinary general assembly of such
company vote representing three-quarters of the company’s capital is obtained. At the outset,
preferred shares were assumed to be incorporated with no limitations. However, shortly
after the issuance of the new amendment of the Companies Law, GAFI issued a circular to
limit the voting powers of holders of preferred shares to be capped at two to one. Preferred
shares are advantageous for parties who wish to enjoy more voting and financial rights and
contribute with the same capital, as opposed to ordinary shareholders.

Investing in Egypt was subject to a period of instability following the 2011 and 2013
revolutions. Although the devaluation of the Egyptian pound against the United States
dollar in 2016 should have increased foreign investment into the country, political instability
throughout the Middle East and North Africa have had a greater negative influence. Another
problem that slowed down foreign direct investment was the high level of bureaucracy.
However, several steps have been taken to enhance public service delivery and the domestic
investment environment, and to re-attract significant foreign direct investment inflows.11
Egypt was one of the African countries that received some of the largest amounts of
foreign direct investment inflows in 2018. According to the Central Bank of Egypt, foreign
direct investment inflows increased to US$10.2 billion, while outflows stood at US$4.2 billion,
which led to an increase of net foreign direct investment inflows to US$6 billion between July
2017 and March 2018. In parallel, total foreign investment reached US$14.9 billion due to
portfolio investments. Further, the discovery of the largest gas reserves in the Mediterranean
Sea, first in the country’s western desert and then in the Zohr offshore field, has positively
affected inflows into Egypt. As a result, Egypt saw around 1.6 per cent of growth in inflows
in relation to the oil industry in less than a year.
Foreign investments mainly come from countries with which Egypt has signed a
bilateral treaty, including EU and Arab countries, and the United States. Notwithstanding
this, the United Kingom remains by far the largest investor in Egypt. Such direct investments
mainly target the oil sector, followed by the construction, manufacturing, real estate and
financial services sectors.
The countries that have been key players in M&A deals in Egypt include the United
Arab Emirates, which currently enjoys very strong diplomatic and economic ties with Egypt;
a large number of UAE public and private companies have been consolidating their presence
in the Egyptian market via M&A.
Egypt is a party to more than 100 bilateral investment agreements with, inter alia, the
majority of the European Union Member States, the United States, and some African, Middle
Eastern and Asian countries. In addition, Egypt signed an agreement with the Mercosur bloc
of Latin American nations in 2010.
11 http://www.mof.gov.eg/MOFGallerySource/English/Strategy.pdf.
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Regional, international and local private equity and financial institutions are empowering the
Egyptian economy. The renewable energy sector, and consumer-focused sectors such as food
and drink, healthcare and education, have been the most active sectors.
The past year witnessed the acquisition by Mubadala Petroleum of a 10 per cent stake
in the Shorouk concession in Egypt’s Zohr gas field for US$934 million as well as SOCO
International’s acquisition of Merlon Petroleum El Fayum Company.
Further notable transactions were:
a EFG Hermes’ acquisition of a Cairo-based elementary schools’ portfolio from Talaat
Moustafa Group Holding, Egypt’s largest listed real estate developer, for 1 billion
Egyptian pounds;
b Tag El Melouk (a market leader in the production of baking powder, vanilla and salt,
among other products) selling 100 per cent of its shares to Dr Oetker; and
c Solvay Alexandria Sodium Carbonate (CCI) selling 100 per cent of its shares to three
state-owned companies in a US$15 million buyout of CCI by state-owned companies
Egyptian Ethylene and Derivatives Company, Sidi Kerir Petrochemicals Company and
the Egyptian petrochemicals holding company, ECHEM.12
While 2019 will be more focused on government IPOs, the first two quarters of 2019
witnessed some notable transactions.
Bank Audi announced through its acquisition to the National Bank of Greece in Egypt
(NBG). This acquisition included a book of ‘mostly of Egyptian-risk loans, deposits and
securities (total assets of around €110 million), a branch network of 17 branches and c.a.
250 employees’. The exit of NBG from the Egyptian market is in accordance with a wider
restricting plan for reducing its overseas presence.
Cleopatra Hospital Group has also acquired the real estate assets of El Katib Hospital,
and is currently finalising the business transfer agreement. El Katib Hospital is expected
to add around 100 beds to the existing capacity and introduce of a new urology centre of
excellence.
New challenges have been seen due to a more difficult external environment, given
the constricted global financial conditions. Egypt has successfully weathered recent capital
outflows. Nevertheless, further strengthening of the policy buffers, including by containing
inflation, enhancing the exchange rate’s flexibility and reducing the public debt will all be
essential.13
According to CBE monthly inflation developments, the nationwide annual inflation
declined to 12.5 per cent in April 2019 as the rural annual inflation declined to 11.9 per cent,
from 13.8 and 13.4 per cent in March 2019, respectively.14
According to the IMF review, the continued reinforcement of tourism and construction,
and the rising production of natural gas are expected to increase GDP growth to 6 per cent
due to the ongoing implementation of structural reforms, and should translate into stronger
private investment. Inflation is expected to reach single digits in 2020. The current account
12 https://www.iflr.com/Article/3860935/2019-M-A-Report-Egypt.html?ArticleId=3860935.
13 IMF, ‘Arab Republic of Egypt: Fourth Review Under the Extended Arrangement Under the Extended
Fund Facility-Press Release; Staff Report; and Statement by the Executive Director for the Arab Republic of
Egypt’.
14 https://www.cbe.org.eg/en/MonetaryPolicy/MonthlyInflationNoteDL/IN_April%202019_EN.PDF.
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deficit is projected to gradually narrow from 2.4 per cent of GDP in 2017 and 2018 to under
2 per cent of GDP in the medium term, and general government gross debt is expected to
continue to decline to 74 per cent of GDP by 2022 or 2023.15
In parallel, the significant investment liberation measures that are currently being
undertaken by the government – by way of example, the introduction of a new law for the
setting up of a natural gas regulatory authority charged with licensing – aims at opening the
gas market to competition.
Furthermore, the issuance of the New Industrial Law16 has made the establishment of
manufacturing facilities easier through the introduction of a one-stop shop mechanism as
an addition to the current practice of the General Authority for Investment and Free Zone,
under which the same concept is applied to establishing companies. These have encouraged
local investors to establish companies or manufacturing facilities, or to expand their existing
facilities, without being concerned about regularising the status of such facilities.
The free float of the Egyptian pound has affected inbound foreign investments through
the contributions of non-residents’ purchases into real estate, and the net purchase by
non-residents of companies and assets. Although purchases by non-residents have increased
foreign direct investment into real estate, the real estate sector is still mostly being affected
because of the increase in price of all the raw materials involved, which has affected costs and
purchase prices, leading to stagnation.

M&A are typically financed through equity, third-party financing, which includes credit
financing, or a combination of equity and financing. Buyers tend to provide sellers with a
warranty, or documentary evidence, or both, confirming the availability of the acquisition
financing. Typically, the payment of the purchase price is a condition precedent to a transfer
of shares. Hence, if finance is not available, a transaction will never be closed.
There are no typical seller’s assistance obligations. However, there are some regulatory
restrictions under Egyptian law that could impact the financing structure, including the CBE
regulatory instituted limitations and regulatory framework regulating acquisition financing;
and financial assistance rules that under Egyptian law restrict a company from lending or
guaranteeing the obligations of any of its board members.
Furthermore, in the case of a mandatory tender offer, a proposal submitted to the FRA
must include a confirmation from a licensed bank in Egypt evidencing the availability of
the financial resources to fund and cover an offer. Accordingly, short of a financial solvency
confirmation, the FRA should not accept an offer proposal.
Subject to the parties’ commercial agreement, financing may be structured as a condition
(among other conditions) in asset-based transactions, where the transaction documents may
reflect procurement of financing as a condition as supported by guarantees, warranties and
the provision of evidence confirming the availability of financing.
It is, however, not customary to enshrine a seller’s obligations to assist in relation to a
buyer’s financing in the transaction documents.
15 See footnote 9.
16 No. 15 of 2017.
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Private equity, investment managers and financial institutions recently become more
active in terms of the number of deals and their value. 2018 witnessed a deal flow of 30 per
cent in favour of strategic investors and 70 per cent for private equity firms. Hence, private
equity firms still dominate the private M&A scene in the Egyptian market.
VII EMPLOYMENT LAW

The relationship between employers and employees is governed by the Egyptian Labour Law17
and decrees of the Ministry of Manpower. Generally, the Employment Law favours and
protects employees as supported by several court precedents issued in favour of employees.
Although Egyptian law does not oblige employers to obtain approval of or consult employees
during an acquisition process, the law has still restricted an employer’s ability to make
changes to the workforce during this process. In an acquisition, employees’ rights (including
their acquired rights) remain protected and may not be discretionally limited or changed
by the employer. Employees’ dismissals take place by virtue of court orders and are limited
to specific major events. Further, any redundancies during acquisitions must take place in
coordination with the Ministry of Manpower and subject to its approval.
The Labour Law obliges buyers to have all the employees of the seller remain with the
target company or transfer to the buyer in the case of an asset deal. The application of such
transfer varies whether an acquisition is for assets or shares. In a share transfer, employees do
not transfer, since they remain with the target company; hence, an acquisition of shares does
not involve an employee transfer process.
In an asset sale, pursuant to the Labour Law, in the event an establishment is transferred
from one employer to another, employees of the transferred establishment are transferred
automatically to the new employer. Both the former and new employers will be jointly liable
for the fulfilment of their entire obligations as set out under the employees’ employment
contracts. Article 9, Paragraph 2 of the Labour Law states the following:
merging the establishment with another or transferring it by inheritance, bequeath, donation, or

sale – even by public auction – or by assigning or leasing it or other such disposing actions shall
not terminate the employment contracts of the existing employees. The successor employer shall be
responsible jointly with the former employers for implementing all obligations arising from these
contracts.18
Based on Article 9, the Labour Law neither defines an asset sale nor sets out parameters
to include a sale of business, whether in whole or partial. Hence, some sellers tend not to
apply the conservative approach and have employees transferred. Although the Labour
Law recognises the concept of employees’ automatic transfer in the event of an asset sale,
practically the transfer of employees cannot automatically be implemented before the Social
Insurance Authority due to bureaucracy.
That said, it should be also noted that in transfer of assets constituting a business,
employees’ and tax-related liabilities will remain shared, from a statutory standpoint, by both
the purchaser and the seller. A new labour law has been discussed in the Parliament since
17 No. 12 of 2003.
18 https://www.lexology.com/library/detail.aspx?g=01a631cc-1d7f-417e-b458-b39e22810afd.
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2017, and the draft of that law has kept a provision to the same effect. Other provisions that
are irrelevant to the M&A have been either amended or introduced to grant employees more
benefits (e.g., four months of maternity leave instead of three months19).20
VIII TAX LAW

Taxation in Egypt is governed by a number of pieces of legislation mainly comprising the
Income Tax Law21 and the Value Added Tax Law.22
Recently, capital gains realised from the sale of listed Egyptian shares by both resident
and non-resident shareholders have been taxable at a rate of 10 per cent.23 For listed securities,
the application of this tax was suspended for two years as of 17 May 2015. Such suspension
was extended for an additional period of three years that ends on 16 May 2020. Accordingly,
no capital gains tax shall be collected or withheld before 17 May 2020 with respect to shares
listed on the EGX.
On the other hand, the sale of unlisted Egyptian shares by both resident and non-resident
shareholders is subject to capital gains tax at a rate of 22.5 per cent on the gain realised.
Another applicable tax on sales of securities, whether listed or unlisted, is the newly
introduced stamp duty tax whereby the purchase and sale of shares representing less than
33 per cent of a company’s issued capital (during a consecutive period of two years) up to
31 May 2019 was subject to stamp duty at a rate of 0.3 per cent of the total consideration,
while as of 1 June 2019 the rate increased to 0.35 per cent. As per the Stamp Duty Law,24
stamp duty should be borne equally by the seller and the buyer. If the transferred shares
represent 33 per cent or more of a company’s issued share capital (as bulk in one transaction),
the buyer shall pay stamp duty at a rate of 0.3 per cent and the seller shall also pay 0.3 per
cent.
Further, although value added tax may seem irrelevant to M&A activities, its application
is crystallised in the acquisition of assets – in the context of asset deals rather than stock deals
– since a sale of assets is subject to value added tax at different rates according to the sold
assets.
Further, Article 107 of the Income Tax Law stipulates that if the Tax Authority finds
that the rights of the public treasury are liable to be lost, the President of the Authority may
request the competent summary matters judge to issue a warrant on petition for levying an
attachment on the funds or assets deemed adequate for collecting rights that may be lost,
whatever the holders of such funds.
Additionally, as per Article 1139 of the Civil Code, sums due to the state treasury for
taxes, duties and any other dues are privileged in accordance with the conditions laid down
by the laws and regulations issued in this connection. These sums shall be paid out of the
proceeds of the sale of a property charged with this privilege, in whosoever’s hand they may
be, and before all other rights, whether privileged by a lien or secured by a mortgage, except
the costs of legal proceedings.
19 Article 91 of the Labour Law.

20 https://drive.google.com/file/d/0B7TbC7kyvm9KVThUU1Jva09NZTA/view.
21 No. 91 of 2005.
22 No. 67 of 2016.
23 Article 46 bis 5 of the Income Tax Law.
24 No. 11 of 1980.
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By virtue of the above, the Tax Authority the right to trace the assets of a target in
whosoever’s hands they may be to satisfy any sums due on the target to the state treasury,
even if those assets have been transferred to, and are now owned by, the target. Although the
privileged right of the Tax Authority is deemed to be a general privileged right that shall not
entail, as a rule, tracing rights, this specific privileged right of the Tax Authority exceptionally
entails the latter’s right to trace the assets of the target, in whosoever’s hands they may be, as
indicated in above-mentioned provisions.
Further to the above, it should be additionally noted that the Tax Authority may have
another legal basis for claiming the amount of taxes due on any target from any purchaser
jointly with the target if a transfer of assets is considered to be a transfer of the target’s
business.25
Recently, there have been studies and recommendations to improve the current tax
regime through, among other things:
a the presence of a progressive tax, which shall be in accordance with social justice and
eliminate the burden on people with limited incomes;
b incentivising taxpayers that delay paying their taxes, thereby expediting the process of
receiving tax and increasing Egypt’s financial sources;
c imposing a tax on inheritance; and
d imposing a tax on net wealth, which shall be paid only one time.26
IX COMPETITION LAW
In 2018, the Egyptian Competition Authority (ECA) began adopting a new approach in
its interpretation of the Competition Protection Law and its Executive Regulations that has
materially impacted M&A transactions. The ECA, via its novel interpretation of the law,
deems that M&A transactions between dominant companies (defined as companies that
control over 25 per cent of a specific market) must obtain the prior approval of the ECA prior
to concluding a transaction, even if the transaction is concluded offshore. On the legislative
front, the ECA is trying to introduce an amendment to the Competition Protection Law
in Parliament to give it greater power in controlling mergers, and explicitly legalising its
above-mentioned new approach and interpretation.
In that context, the ECA regards the potential merger between Uber and Careem (two
of the biggest ride hailing app transportation companies) to be a horizontal agreement, which
as such violates Article 6(a) and (d) of the Competition Law.27 In this regard, the ECA issued
decision No. 26 of 2018 on 23 October 2018. This decision obliges the two companies and
their related parties, including the companies participating in their shareholding, to obtain
the ECA’s pre-approval prior to concluding any agreement related to the merger, establishing
joint ventures, or the purchase or sale of shares or assets of either company, either directly or
indirectly.
Based on the above, if the buyer is a competitor of the seller, whereby both will have a
significant share covering almost the whole market, the prior approval of the transaction by
the ECA will be required. Otherwise, failure to procure approval will be subject to the penalty
25 Article 80 (3) of the Egyptian Income Tax.

26 http://www.idsc.gov.eg/IDSC/Upload/Publication/FullFile_A/3499/‫ةرشن‬%20‫بئارضلا‬%20‫ليربأ‬%20
2019-‫ةدعاقلا‬%20‫ةيموقلا‬%20‫تاساردلل‬-‫دعب‬%20‫ةدوجلا‬1.pdf.
27 Law No. 3 of 2005.
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stipulated in Article (22) of the Competition Law: each party to the horizontal agreement
shall be punished by a fine ranging between 2 and 12 per cent of the total revenue of said
party that was generated from trading the product or products that are the subject of the
horizontal agreement during the violation period. In the event the competent court is unable
to determine the aforementioned revenue, each party shall be punished by a fine amounting
to no less than 500,000 Egyptian pounds and not exceeding 500 million Egyptian pounds.
Such fines will be doubled in the case of recurrence.
The Cabinet and the President have recently approved draft amendments to the
Competition Law, including a provision by virtue of which the penalty for failure to serve
post-closing notifications upon acquiring, inter alia, assets, usufruct rights, shares or the joint
management of two or more parties in the event that the combined annual turnover of the
concerned parties in Egypt exceeds 100 million Egyptian pounds) according to their latest
financial statements, will be calculated on a daily basis and until the required notification is
made. However, such amendments have not yet entered into force.
X OUTLOOK
Considering that Egypt achieved an economic GDP growth rate of 5.5 per cent for the second
half of 2018 (the highest growth in the Middle East according to the IMF), implemented
the vast majority of the medium-term reform plan agreed upon with the IMF, stabilised the
Egyptian pound foreign exchange rate, secured the relative availability of foreign currency
within banking channels and realised a notable increase in the forex reserves at the Central
Bank, a large number of analysers and practitioners remain optimistic insofar as foreign direct
investment and M&A activity are concerned.
In an attempt to reduce Egypt’s increasingly large foreign currency debt (which is close
to US$100 billion), a wave of privatisations of public sector assets, including power stations,
financial institutions and infrastructure, is expected, whether in the form of direct sales or
flotations on the stock exchange.
It is also envisaged that further reforms in connection with the regulatory framework
for antitrust will take place, and it is expected that these will strengthen the role of the
regulator. The sectors that will see the vast majority of M&A transactions in the coming
12 months include:
a renewable energy;
b oil and gas;
c petrochemicals;
d education;
e food processing;
f financial services;
g telecommunications;
h real estate; and
i with a population of just over 100 million, sectors that will be impacted by Egypt’s
demographic power and potential.
All of the above evidence Egypt’s commitment to a strong investment environment.28
28 http://www.mof.gov.eg/MOFGallerySource/English/Strategy.pdf.
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Chapter 17
FINLAND
Jan Ollila, Wilhelm Eklund and Jasper Kuhlefelt1

Building on a solid performance in 2017, the Finnish M&A market had a very strong year
in 2018, reaching a level close to the peak seen in 2006 and 2007 prior to the 2008 financial
crisis, both in terms of the number of deals and deal value. The second half of 2018, with
101 announced deals according to data compiled by Mergermarket, showed strong growth
compared to the 69 deals announced in the second half of 2017. The aggregate disclosed
deal value for announced acquisitions of Finnish targets was approximately €9.3 billion in
the second half of 2018 (second half of 2017: €5.8 billion), including the largest ever tender
offer for a Finnish company, namely the €5.6 billion offer for Amer Sports Oyj, the Finnish
sporting goods company, by a consortium led by Chinese ANTA Sports Products Limited.
Strong growth in the Finnish economy, following a sustained period of low and
even negative growth, continued to support optimism in the Finnish M&A market. The
availability of financing remained relatively good.
However, there have been signs of a market slowdown in the first half of 2019, with 66
deals announced. The aggregate disclosed deal value for announced acquisitions of Finnish
targets was approximately €3.7 billion in the first half of 2019, compared to €2.8 billion in
the first half of 2018, attributable mainly to Telenor’s €3.1 billion acquisition of DNA Plc,
the Finnish telecom operator, announced in April 2019. There is uncertainty as to whether
the market will regain momentum or whether the slowdown will be more persistent, linking
to general concerns about slowing growth in the Finnish economy.

The Finnish legal system derives from the Nordic legal tradition, which itself is based on the
German civil law tradition. Historically, agreements have been relatively brief, leaving room
for interpretation in accordance with contract law principles and market practice. However,
during the past few decades, agreements (and in particular acquisition agreements) have
become more detailed and have started to resemble Anglo-American acquisition agreements.
The manner of carrying out a takeover of a Finnish company depends primarily on its
ownership structure and whether the company’s shares are listed or unlisted.
The ownership of most Finnish private companies is concentrated. Even in many
listed companies, the majority of shares are held by a relatively small group of shareholders.
1 Jan Ollila is senior partner, Wilhelm Eklund is a partner and Jasper Kuhlefelt is a senior associate at
Dittmar & Indrenius.
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Therefore, negotiations with the majority shareholders are often important in both public
and private takeovers, and irrevocable undertakings from major shareholders may be decisive
for the success of a public offer.
The legal framework applicable to public takeovers varies considerably from the
regulation of private transactions. Contrary to private deals, takeovers of listed companies are
subject to fairly detailed rules.
Regulation of Finnish public takeovers essentially consists of the rules applicable to
public takeovers included in Chapter 11 of the Securities Markets Act (SMA), regulations
and guidelines on takeover bids and the obligation to launch a bid (Regulation 9/2013)
issued by the Finnish Financial Supervision Authority (FSA), which entered into force on
1 July 2013 and replaced the FSA Standard 5.2c, as well as the revised Helsinki Takeover
Code issued by the Takeover Board of the Securities Market Association, which entered into
force on 1 January 2014 and replaced the Takeover Code of 2006. The current SMA entered
into force at the beginning of 2013.
Chapter 11 of the SMA sets out, inter alia, the general requirement to treat holders
of each class of securities subject to the offer equally, the general structure of the offer
procedures, rules on publication of an offer and disclosure obligations, the requirement to
make a mandatory offer, pricing of offers and rules on competing offers.
There is a dual mandatory offer threshold, which is exceeded when the bidder, and its
affiliated parties, obtains more than 30 or more than 50 per cent of the voting rights in the
target. No mandatory offer will be required if the relevant thresholds are exceeded as a result
of a voluntary offer made for all shares and securities entitling to shares in the target.
Public offers are monitored by the FSA, which is authorised to interpret the relevant
statutory provisions and issue regulations and guidelines. Regulation 9/2013 supplements the
statutory rules and sets forth the FSA’s interpretation of the relevant provisions of the SMA.
Regulation 9/2013 contains more detailed rules on matters such as the takeover procedure,
disclosure obligations and pricing.
Furthermore, the rules and regulations of NASDAQ OMX Helsinki regulate, inter
alia, the trading in securities in connection with public transactions.
If a consideration consists of securities, the rules of the SMA relating to public offerings
and the listing of securities may also become applicable. Under the EU prospectus regime,
an EU listing prospectus may be used in exchange offers in Finland if the consideration
consists of securities listed in Finland or in another EU Member State. In such cases, the offer
document will also have to comply with the EU prospectus regime.
Another source of law is the Companies Act, which sets out general principles of
company law and provides the regulatory framework for corporate reorganisations and
squeeze-outs.
Under the Companies Act, a squeeze-out procedure can be initiated by a shareholder
holding, either directly or indirectly through a group company, more than 90 per cent of the
shares and votes of a company. A shareholder whose shares can be redeemed also has a right
to require that the majority shareholder redeems that shareholder’s shares.
The redemption price in a squeeze-out is the fair price. If the 90 per cent threshold is
exceeded as a result of a voluntary or mandatory public offer, the offer price is regarded as the
fair price unless there are special reasons for deviation from that price. If the bidder intends
to exercise the squeeze-out right upon reaching the legal threshold through a tender offer,
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that intention should be disclosed in the offer document. The squeeze-out is effected through
arbitration proceedings, which are usually initiated by the majority shareholder against all
other shareholders.
Whereas the takeover of a listed company follows a rather rigid statutory procedure, the
acquisition of a private company can be structured more freely.
With regard to private transactions in particular, there are few processes involving
notaries and government officials. As a result, few formal requirements exist concerning
documentation governing the transfer of a business regardless of whether it is transferred
through an asset or a share deal.
Regarding defensive actions, the board of a target company has a general obligation
under Finnish company law to act in the interests of the target company, with particular
regard to the interests of the shareholders. In line with this general obligation, Chapter 11
of the SMA provides that the board is generally obliged to seek shareholder approval for
defensive action that may frustrate a tender offer.
Finland has resolved to opt out of the breakthrough rule contained in Article 11 of
the Takeover Directive. Breakthrough rules may, however, be voluntarily adopted by listed
companies in their articles of association. To date, these provisions have not been adopted by
any listed company.
Finnish law severely restricts financial assistance. Under the Companies Act, a Finnish
limited liability company may not grant any loan or any security for a loan, give any guarantee
or assume any other liability the purpose of which is to finance an acquisition of the shares
in the company or the shares in its parent company. A breach of the financial assistance
rule may lead to, inter alia, personal liability for the members of the board of directors. In
practice, alternative structures, such as merging the target company into the acquirer after
the initial transaction, are used to facilitate intragroup financing arrangements in connection
with acquisitions.

IMPACT
The current SMA entered into force at the beginning of 2013. It includes certain rules
applicable to public offers for securities.
The amendments introduced in the 2013 SMA derive mainly from the Takeover
Directive. Among the key amendments, a revised definition of persons acting in concert was
introduced into law, mirroring that included in the Takeover Directive. Accordingly, natural
or legal persons are regarded as acting in concert if, on the basis of an agreement or otherwise,
they cooperate with a shareholder, the bidder or the target company with a view to exercising
or acquiring significant influence in the company or frustrating a public offer. In addition,
related parties such as group companies are regarded as persons acting in concert. A bidder’s
obligation to promote the fulfilment of a public offer is also now expressly stated in the SMA,
in line with the general principles of the Takeover Directive. Under this rule, the bidder may
not prevent or substantially hamper the fulfilment of the bid or its conditions.
The FSA has the right to impose on a potential bidder a deadline for launching a
public offer (‘put up or shut up’). Such a deadline can be imposed on the target company’s
application in a situation where a potential bidder has publicly stated that it is considering
launching a public offer. In cases where the potential bidder does not launch a bid, it can be
prevented from doing so during the following six months.
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To ensure sufficient protection of target shareholders, shareholders have the right to

withdraw their acceptance until the bidder has announced that all the conditions of the
bid have been fulfilled or waived. With regard to unconditional bids, the acceptance can be
withdrawn if the bid has been valid for 10 weeks and the purchase transactions have not been
effected.
The SMA provides for two exceptions from the obligation to launch a tender offer for
all shares in the company. First, significant shareholders are permitted to launch a conditional
consortium bid: if the mandatory bid obligation is triggered merely as a result of shareholders
acting in concert in launching a voluntary offer, the shareholders are exempted from the
mandatory bid obligation, provided that their acting in concert is limited to the voluntary
bid. Second, no mandatory bid obligation will arise if a shareholder, or a party acting in
concert, disposes of the number of voting rights exceeding the mandatory bid threshold
within one month of the mandatory bid obligation arising.
Furthermore, following an amendment to the SMA implementing the EU resolution
and recovery regime, no mandatory bid obligation will arise if the threshold for a mandatory
bid obligation is exceeded as a result of the Financial Stability Authority having exercised its
resolution implementation authority.
The SMA requires all listed companies to be members of a common organisation, the
purpose of which is to develop good securities market practice.
In connection with the entry into force of the SMA, the former Takeover Panel was
closed down, and as of January 2013, the renewed Securities Market Association has taken
care of issuing recommendations and opinions to promote compliance with good securities
market practice. The Association has also established the Takeover Board to promote good
securities market practice in connection with takeover bids. Furthermore, an application
can now be made to the Takeover Board for a statement regarding the interpretation of the
Helsinki Takeover Code, compliance with good securities markets practice and individual
company law issues.
In December 2013, the Takeover Board issued the new revised Helsinki Takeover
Code, which entered into force on 1 January 2014 and replaced the Takeover Code of
2006. Compliance with the Takeover Code is based on a comply or explain principle; in a
tender offer, both the target company and the bidder have an obligation to confirm whether
they comply with the Takeover Code, and to publicly explain if they are not committed to
complying with the Takeover Code or some of its individual recommendations.

The private M&A market is an integrated part of the Nordic and international private M&A
market. This is reflected in Finnish market practice and the procedures followed in Finnish
private transactions. Even purely Finnish transactions are often prepared, negotiated, drafted
and executed in ways that are similar to those in the international marketplace.
A large number of Finnish transactions have a cross-border element, as foreign ownership
of Finnish businesses continues to increase. The financial crisis significantly decreased the use
of structured sales and auctions in the Finnish market, but in recent years structured sales
have regained their prominence, although broad auctions have remained less common.
As the Finnish market is relatively small, Finnish companies frequently engage in
M&A transactions abroad, both as sellers and buyers. Foreign buyers are, on the other hand,
frequently involved in the Finnish market on the buy side.
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As in other Nordic countries, the legal advisory market concentrates on domestic firms.
The same goes for domestic or Nordic banks, which handle a large share of the financial
advisory mandates. However, the largest transactions frequently involve large international
investment banks, complemented by local Finnish players.

i Finnish activity abroad
Finnish activity abroad generally comprised smaller acquisitions with a few exceptions, such
as the acquisition by Stora Enso Oyj, the Finnish pulp and paper company, of Swedish forest
asset Bergvik Väst AB, valued at €1 billion (announced in November 2018). Other notable
deals included the following acquisitions:
a Sanoma Oyj, the Finnish media company, acquired Iddink Group BV, a
Netherlands-based educational platform and service provider, for €227 million
(announced in December 2018);
b Ramirent Plc, the Finland-based provider of machinery and equipment rentals for
construction and industrial use, acquired Stavdal AB, a Sweden-based construction
equipment rental company, for €158 million (announced April 2019); and
c Valmet Oyj, the Finnish developer and supplier of technologies, automation and
services for the pulp, paper and energy industries, acquired GL&V Inc, a Canada-based
provider of technologies and services to the pulp and paper industry, for €113 million
(announced February 2019).
In general, acquisition activity abroad by Finnish companies has remained relatively high
during the past 12 months, with Finland-based companies actively seeking international
growth, mainly through smaller acquisitions.
ii Private equity
Private equity (PE) investors’ activity showed some strong growth during 2018 and the
first half of 2019. The amount of PE and venture capital (VC) investments into Finnish
companies reached approximately €203 million in 2018 in the aggregate, according to data
from the Finnish Venture Capital Association. The total number of investments by PE and
VC funds into Finnish companies in 2018 was 154.
Notable PE transactions included the acquisition of Parmaco, a Finland-based provider
of modular buildings, by a consortium led by Terra Firma, a UK-based PE investor, for an
estimated €400 million, from MB Funds, a Finnish PE investor (announced in October
2018), and the acquisition of OpusCapita Solutions, a digital payment solutions provider,
by Providence Equity Partners, from Finnish Posti Group (announced in February 2019). In
addition, there were a number of smaller transactions.
PE investors have generally remained active, and many are expected to exit portfolio
companies already beyond their planned investment horizon and to invest committed capital.
In recent years, the trend in sales processes has moved towards a higher level of differentiation
in terms of structure, with the popularity of large-scale controlled auctions decreasing, and
the focus remaining on more concentrated efforts with a limited number of bidders.
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iii Public-to-private activity

Public-to-private transactions during 2018 and 2019 to date included several notable
transactions, including the following:
a a consortium led by ANTA Sports Products Limited’s €5.6 billion tender offer for
Amer Sports Oyj, the Finland-based sporting goods company, being the largest ever
tender offer for a Finnish company (announced in December 2018);
b Telenor’s announced acquisition of a controlling stake in DNA Plc, the Finnish
telecommunication company, to be followed by a mandatory tender offer, valuing
DNA at €3.1 billion (announced in April 2019); and
c Kildare Partners’ €1.6 billion tender offer for Technopolis Oyj, a Finland-based
company engaged in the provision of workspaces and services related to the technology
industry (announced in August 2018).
Other notable transactions were ÅF AB’s tender offer for Pöyry, the Finnish consulting and
engineering firm, for €586 million (announced in December 2018) and Orkla ASA’s tender
offer for Kotipizza Group Oyj, the Finnish pizza and fast food restaurant chain, for €158
million (announced in November 2018).
No major hostile offers have been seen on the Finnish market since Nordic Capital’s
unsuccessful €1.1 billion offer for TietoEnator (currently Tieto) in 2008. However, one minor
unsuccessful hostile offer occurred in November 2016 when Sistema Finance, a subsidiary
of the listed Russia-based diversified holding company AFK Sistema, announced its offer to
acquire Honkarakenne, the listed Finland-based housing construction company, against a
cash consideration of €7.8 million.
iv Sector-specific trends
After a strong and active period in the healthcare sector, activity in the sector showed some
signs of slowing down, mainly due to the failed social and healthcare reform, which resulted
in the government resigning in March 2019 just four weeks ahead of the general elections,
and a scandal involving private sector care service providers gaining extensive media coverage
in February 2019. Following strong activity during the first half of 2018 (including the
acquisition of Mehiläinen, the Finland-based provider of healthcare and social care services,
by CVC and Finnish institutional investors for an estimated €1.8 billion, announced in May
2018), the only notable transaction in the sector was the acquisition of Coronaria Hoiva
Oy, the Finland-based social care provider, by Humana, the Swedish social care provider, for
€71 million (announced in January 2019). There was also a number of smaller transactions.
Deal activity in the information technology and telecommunications sector has
remained high during 2018 and 2019. The most significant transaction in the information
technology and telecommunications sector was Telenor ASA’s €3.1 billion acquisition of
DNA Plc announced in April 2019. Other major transactions included the acquisition of
Small Giant Games Oy, the Finnish mobile game developer, by Zynga, Inc, a US-based
online gaming company, for €490 million (announced in December 2018), and Technology
Crossover Ventures’, a US-based PE firm, acquisition of a minority stake in RELEX Solutions,
the Finland-based computer software developer, for €175 million (announced in February
2019). There was also a significant number of smaller transactions.
Activity in the energy and infrastructure sector was lower compared to the previous
year, driven by the absence of large transactions. The largest transaction in the energy and
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infrastructure space was the acquisition of 33.9 per cent of Loiste Oy, a Finland-based energy
company, by Mirova SA and Infranode, for €200 million (announced in April 2019). There
were also some smaller transactions in the sector.
Transaction activity in the Finnish real estate and construction sectors remained active,
the biggest transaction being Kildare Partners’ €1.6 billion tender offer for Technopolis Plc,
the Finland-based company engaged in the provision of workspaces and related services to
the technology industry, announced in August 2018.
In May 2016, the government announced its renewed ownership steering strategy, the
main objective of which is to use invested capital to increase growth through, inter alia,
the disposal of all or part of the government’s stake in certain wholly or majority owned
companies. The government has carried out further disposals of stakes in certain companies,
including Neste, the listed oil refining company.
The industrial products and services sector also witnessed fairly strong activity. In
addition to Norwegian NRC Group ASA’s acquisition of VR Track Oy, the Finnish railway
track maintenance company, for €225 million (announced in October 2018), there were
several smaller transactions. The consumer and retail sector received a notable boost with the
ANTA Sports Products Limited-led consortium’s acquisition of Amer Sports Oyj, the Finnish
sporting goods company, for €5.6 billion (announced in December 2018), the largest ever
tender offer for a Finnish company.

Domestic and Nordic banks have traditionally provided acquisition finance for Finnish
transactions. However, large international banks are regularly involved in larger deals and
have returned to the Finnish market, although not yet to the extent seen before the financial
crisis. While Nordic banks may face lending constraints in the future because of increased
bank regulation, the current market sentiment seems to be that they have a fair amount of
capacity to finance transactions and that there is actually too little demand for financing. The
2018–2019 period indicates that Nordic banks are still willing to provide financing, at least
for mid-sized transactions, in particular for deals in hot industries. In terms of covenants,
however, the Finnish market has not to date witnessed a proliferation of covenant-lite loans
without maintenance-based financial covenants.
High-yield and other corporate bonds have generally increased in importance as a
financing source for larger companies. Recently, bonds have been issued in a number of
refinancing transactions and for general corporate purposes. In the future, more PE sponsors
are expected to tap the high-yield bond market, particularly as a source of refinancing for
existing portfolio company debt. The absence of maintenance-based financial covenants is
often cited by PE sponsors as a key benefit of high-yield bonds, although it should be noted
that, with the exception of a few bonds issued by PE-backed companies, Nordic high-yield
bonds’ terms tend to contain maintenance-based financial covenants.
Finally, there is a trend towards an increasing number of non-bank loan investors in
the leveraged buyout market, including asset managers, hedge funds and collateralised loan
obligations. The majority of those investors are from outside the Nordic countries.
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VII EMPLOYMENT LAW

A transfer of business under the Finnish Employment Contracts Act corresponds to the
transfer under the Acquired Rights Directive.2 The basic requirement for a transaction
or arrangement to constitute a transfer of business is that the subject of the transfer is an
economic entity (i.e., an organised grouping of resources that has the objective of pursuing an
economic activity) and that it retains these characteristics after the transfer. Supplementary
operations may also be subject to a labour law business transfer.
The transfer is mandatory and automatic. It does not require the entry into new
employment contracts or other agreements with the transferring personnel, and they cannot
effectively object to the transfer.
The employees transferring to the transferee are those at the service of the business
concerned at the time of the transfer.
According to the Finnish Cooperation Act, which applies to companies regularly
employing at least 20 employees, the transferor and the transferee have a joint obligation to
provide the employee representatives concerned with information regarding the timing of
the transfer, the grounds for the transfer, the legal, financial and social consequences of the
transfer to employees, and the planned measures concerning the employees. The information
shall be provided well in advance of the transfer of business; generally, one to two weeks
before the transfer is deemed sufficient, depending on the size of the transaction and its
impact on the personnel.
After the transfer, the transferee needs to make sure that the transferred personnel have
been provided with the requisite information within a week of the transfer. It should also
be determined whether the transfer has effects on the personnel that should be handled in
full-scale cooperation consultations. If there are no such effects, the transferee has no further
transfer-related consultation obligations towards the personnel.
The procedure is the same irrespective of how many employees will transfer.
VIII TAX LAW

An important driver for choosing the form of transaction is taxation. Finland has
implemented the provisions of the Merger Directive3 and, accordingly, certain transactions
such as share-for-share acquisitions can be carried out without triggering capital gains
taxation.
An asset deal is typically preferable from the buyer’s tax perspective, since the buyer
may obtain a step-up in tax basis and depreciate the acquired assets (including goodwill).
However, losses cannot be transferred in an asset deal. Sellers typically prefer share deals, as
a capital gain is often tax-exempt in a share deal. An asset deal may be preferred by a seller
with carry-forward tax losses, or if the sale resulted in a loss. A buyer cannot depreciate the
acquisition cost (including goodwill) in a share deal. Tax loss carry-forwards of the target can
frequently be preserved in a share deal.
Transfers of shares and other securities in Finnish companies are subject to a transfer tax
of 1.6 per cent of the sale price (2 per cent for transfers of securities in a real estate company).
The sale price is deemed to include any payments made, or obligations assumed, by the
2 Acquired Rights Directive (2001/23/EC).

3 Merger Directive (90/434/EEC).
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transferee to or for the benefit of the transferor. Transfers of securities between non-residents
are generally exempted from the transfer tax unless the securities are issued by a Finnish real
estate company. In addition, transfers of securities in a foreign real estate holding company
are subject to the transfer tax if the assets of the foreign company mainly comprise real
property (directly or indirectly) located in Finland, and either the transferor or transferee
is Finnish. In addition to securities, a transfer tax at a rate of 4 per cent is levied on the
transfer of real property. Where the consideration consists of securities, other than newly
issued shares, the transfer tax is levied on the transferred assets and the consideration. Certain
corporate restructurings, such as the transfer of a business against share consideration, are
exempt from the transfer tax. Certain transfers of listed shares on the stock exchange are also
exempted from the transfer tax.
An asset deal is not subject to VAT if it is treated as a transfer of a business as a going
concern, the transfer is made to the buyer and the buyer starts using the assets in a business
subject to VAT. No VAT is payable upon a transfer of shares in a share deal.
Acquisitions are typically carried out through a local, newly established and leveraged
acquisition vehicle (a limited liability company). Specific interest limitation rules limit the
deductibility of net interest expenses on both intragroup loans and third-party loans to the
extent that the total net interest expenses exceed 25 per cent of the borrower’s fiscal earnings
before interest, taxes and depreciation (EBITD). The limitation does not apply if total net
interest expenses for the year do not exceed €500,000 (including third-party interest expenses)
or the company’s equity ratio is at the level of or higher than the equity ratio of the group. The
Finnish Supreme Administrative Court (SAC) confirmed in a ruling that a comparison is to
be made regarding the consolidated financial statements of a foreign ultimate parent company
as opposed to the Finnish subgroup parent company even if the foreign ultimate parent
company is not obliged to prepare consolidated financial statements pursuant to an exception
under local law. Interest expenses on third-party loans are deductible up to €3,000,000
regardless of the taxpayer’s fiscal EBITD. In addition, interest expenses on third-party loans
that have been concluded prior to 17 June 2016 are fully deductible. Financial institutions
and certain other companies are outside the scope of the interest limitation rule.
The SAC has issued two rulings in which the right to deduct interest costs within
a group of companies was limited pursuant to the general anti-avoidance rule. In both
cases, the Finnish branch of an international group was not able to deduct interest costs
on a loan related to an intragroup share acquisition paid by the branch to a foreign group
entity. The rulings have affected the interpretation of branch structures used in intragroup
share acquisitions. Otherwise, arm’s-length interest expenses on acquisition debt are
generally tax deductible. There is generally no withholding tax on interest payments made
to non-residents.
When certain conditions are satisfied, one group member can transfer profits to another
member by way of a tax-deductible group contribution, which constitutes taxable income for
the recipient. The preconditions include a minimum ownership by the (common) parent of
90 per cent of the share capital in the subsidiary (or subsidiaries) that has lasted the entire
fiscal year, the fiscal years ending simultaneously as well as both parties carrying out business
activities. Group contributions to foreign group members are generally not deductible.
Capital gains are generally taxable for resident individuals at 30 per cent, or 34 per
cent for taxable capital income exceeding €30,000. In the case of corporations, capital
gains are generally included in the taxable income. The general corporate income tax rate is
20 per cent. Capital gains from transfers of shares classified as fixed assets are tax-exempt for
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corporate shareholders, as a general rule, provided that the shares represent at least 10 per
cent of the share capital of the target and have been held for at least 12 months. However, PE
investors have been excluded from the scope of the capital gains tax exemption. Capital gains
realised by non-resident shareholders are generally not taxable in Finland under domestic
rules, unless the shareholding relates to a business carried out in Finland, for example through
a permanent establishment, or if the shares are shares in a real estate company.
Dividends received by corporate shareholders are generally tax-exempt. The exemption
applies to domestic dividends, dividends from resident companies of other EU Member
States referred to in Article 2 of the Parent–Subsidiary Directive4 and dividends from other
EEA-resident companies, provided that the company is subject to a minimum of 10 per
cent tax on its income. Specific rules apply to financial, insurance and pension institutions.
Furthermore, dividends received by an unlisted company from a listed company are fully
taxable at 20 per cent, unless the unlisted recipient company directly holds a minimum of
10 per cent of the capital of the distributing listed company. Dividend income is fully taxable
at 20 per cent in cases other than the aforementioned if no exemption is provided under a tax
treaty. However, dividend income is fully taxable if the dividend has been deductible for tax
purposes for the distributing company, or if it relates to arrangements that are not genuine
and have been put in place for the purpose of obtaining a tax advantage.
Dividend income received by resident individual shareholders from domestic listed
companies is partly taxable (85 per cent) and partly exempt (15 per cent). The taxable
dividend income is taxed as capital income at 30 per cent, or at 34 per cent when taxable
capital income exceeds €30,000. The taxation of dividend income received by resident
individual shareholders from domestic unlisted companies is determined based on an annual
return of 8 per cent of the net value of the shares. As a general rule, within the 8 per cent
annual return, dividend income is partly taxable (85 per cent) as capital income and partly
tax-exempt (15 per cent). However, up to an amount of €150,000, only 25 per cent of the
dividend income is taxable as capital income. To the extent that the dividend income exceeds
the 8 per cent annual return, 75 per cent of the dividend income is taxable as earned income
at progressive rates and 25 per cent is tax-exempt.
Foreign corporate shareholders are generally subject to a withholding tax at a rate of
20 per cent on dividends. However, dividends are not subject to withholding tax if paid to a
corporate recipient covered by Article 2 of the Parent–Subsidiary Directive5 that holds more
than 10 per cent of the distributing company’s share capital, or an EEA-resident corporate
recipient that cannot obtain a credit for the withholding tax, and the dividend, if paid to a
Finnish-resident corporate recipient, had been tax-exempt. Further, the level of withholding
tax is generally reduced to between zero and 15 per cent under Finland’s tax treaties.
As a general rule, losses can be carried forward and used up to 10 years after the year in
which they arose. However, losses incurred by a company are not carried forward if a change
of more than 50 per cent in the ownership occurs. The rule also applies in the case of an
indirect ownership change. An exemption may be granted by the tax authorities.
4 Parent–Subsidiary Directive (2013/13/EU).

5 Parent–Subsidiary Directive (2013/13/EU).
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IX COMPETITION LAW
Merger control rules are set out in the Finnish Competition Act, which entered into force in
November 2011. If the EU Merger Regulation does not apply, a transaction must be notified
to the Finnish Competition and Consumer Authority (FCCA) if the aggregate worldwide
turnover of the parties (i.e., usually the acquirer and the target) exceeds €350 million and each
of at least two of the parties has a Finnish turnover of at least €20 million. Finnish turnover
means sales to customers located in Finland irrespective of whether the seller has any physical
presence in Finland. Notification must be submitted after entering into a concentration
agreement, acquisition of control or an announcement of a public offer, and in any event
before closing the transaction. It is also possible to notify the transaction as soon as the
parties have, with a sufficient degree of certainty and sufficiently specific terms, proven their
intention to conclude the transaction: for instance, with a signed letter of intent. A notified
transaction may not be implemented before clearance unless the FCCA grants an exemption.
The FCCA applies the significant impediment to effective competition test in line
with the Merger Regulation. The Market Court6 may, if proposed by the FCCA, prohibit
a transaction, order it to be cancelled or impose conditions if the concentration would
significantly impede effective competition in Finland or in a substantial part thereof,
particularly as a result of the creation or strengthening of a dominant position.
The FCCA will decide within one month of submission of a notification to either
approve the transaction or begin an in-depth investigation. The in-depth investigation may
last for three months (but may be extended by two months). The FCCA can extend the
investigation period if the parties to a transaction do not submit the required information
to the authority, or if the information is significantly incomplete or inaccurate. If the FCCA
wishes to prohibit the transaction, it is required to make a proposal to that effect to the
Market Court, which will decide on the issue. The Market Court’s decision can be appealed
to the SAC. The notifying party, however, is not entitled to appeal a conditional approval
decision of the FCCA to the Market Court.
The Competition Act was amended effective as of June 2019, extending the time
period of Phase I proceedings from one month to 23 working days. Consequently, the time
period for Phase II proceedings was amended from three months to 69 working days, and
the extension period from two months to 46 working days. The new provisions also grant the
FCCA a right to obtain confidential information necessary for the investigation of merger
control from other authorities, such as the tax authority and the Grey Economy Information
Unit.
X OUTLOOK
The general short to medium-term outlook is somewhat mixed, with significant uncertainty
as to whether the slowdown during the first half of 2019 will prove more persistent or whether
the market will regain its momentum. In any event, it seems unlikely that M&A activity will
return to the level seen in 2018.
Financial sponsors have been more active in the markets than at any time since the
financial crisis and are expected to remain active. The amount of the funds already raised
6 The Market Court is an independent and impartial court that hears cases concerning market law,
competition law, public procurement and civil intellectual property rights throughout Finland.
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but not yet invested continues to be significant. Many financial sponsors also continue to
remain under pressure to dispose of portfolio companies already held beyond the planned
investment horizon. Many potential industrial buyers continue to be in a strong financial
position and to seek investment targets.
After a lengthy process, the government’s reform of public social and healthcare
services lapsed in March 2019 and caused the government to resign. As part of the reform,
the responsibility for organising social and healthcare services would have transferred from
municipalities to counties and partially opened up the public social care and healthcare
market to private providers. The new government has just been formed, and it is expected to
continue to work on a reform of the social and healthcare reform system. There are, however,
many uncertainties surrounding the reform, and the new government has announced that it
is not contemplating a reform that would open up the social care and healthcare market to
private players to a significant extent. Over the medium to longer term, consolidation in the
social care and healthcare sector is expected to continue.
After a few active years, the initial public offering market showed clear signs of slowing
down. The NASDAQ OMX Helsinki had 14 listings in 2018, six on the main list and eight
on the First North Finland list. In 2019 to date, NASDAQ OMX Helsinki has seen only
three new listings.
The stock market is currently facing a number of uncertainties, including the US–
China trade war, Brexit and a weak economic outlook for leading eurozone countries.
Generally, investor confidence still appears to have remained at a fairly good level, and stock
market valuation levels remain fairly attractive. The overall development of the share prices
of Finnish companies listed on NASDAQ OMX Helsinki has been positive since early 2016.
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Chapter 18
FRANCE
Didier Martin1
I OVERVIEW OF M&A ACTIVITY2

Despite Macron’s agenda to promote investments in France, French M&A activity in 2018
recorded its lowest level in terms of aggregate value since 2014 as material deals announced in
France reached €54.5 billion against €99 billion in 2017. The number of material transactions
reached 875, which is lower than the number seen in the past two years, with 932 deals
announced in 2016 and 922 announced in 2017. Compared to 2017, when five deals
worth over €5 billion were announced, France did not attract jumbo deals in 2018, and all
transactions targeting French companies announced in 2018 were valued below €3.5 billion.
This decrease in value and volume of M&A activity can be explained by factors such
as a lack of significant deals and investors’ caution following the 2017 presidential election,
as a great number of reforms were implemented and others have been adopted since then.
As expected, 2018 was a significant year in terms of economic regulation: the government
has notably reformed and simplified certain corporate and financial market rules applicable
to French companies and the provisions related to their funding. It has also strengthened
the control regime of foreign investments in French companies. Such decrease may also be
explained by the uncertainty arising out of the conditions of Brexit and unforeseen social
instability in the second half of 2018: these required an urgent political response from the
government the economic consequences of which were difficult to predict.
The only sector that has not been affected by this decline is private equity. Indeed,
private equity transactions, which reached their highest annual value since the financial crisis
at €24.2 billion, amounted to 44.4 per cent of the aggregate value of the deals announced
in 2018.
M&A activity was driven by a few large cap deals, including the €2.6 billion bid made
by Total SA for Direct Energie SA, with a view to enhancing Total’s market share in electricity
distribution activities. The largest transaction in 2018 was the acquisition by Merck & Co of
Antelliq for €3.25 billion from a UK private equity firm.

The French Commercial Code and the French Civil Code – in respect of which the provisions
relating to contract law were reshaped in October 2016 and clarified in April 2018 – provide
the statutory framework and form the legal basis for the purchase and sale of assets or legal
1 Didier Martin is a partner at Bredin Prat.

2 Financial data extracted from Mergermarket, ‘Trend Reports Q1–Q4 2017 and 2018 (France)’.
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entities. Additionally, the French Monetary and Financial Code and the General Regulations
of the French Financial Markets Authority (AMF) provide the regulations relating to
takeovers. As a general rule, French takeover rules apply if a target is a French or EU public
company whose securities are listed in France and, in some instances, if the company is
dual-listed.
Rules relating to the financial services industry, the listing and public offering of
securities and the prevention of market abuse are set out in the Monetary and Financial Code
and in the General Regulations of the AMF.
French merger control rules are mainly contained in the Commercial Code. These
rules apply to cross-border mergers having effects on the French market (as currently
defined in accordance with worldwide and France-wide turnover thresholds) but with no
EU dimension. Mergers with an EU dimension (i.e., involving companies whose turnover
exceeds the thresholds set by the EU Merger Regulation) are instead subject to the review of
the European Commission.
Within the framework of the applicable laws and the General Regulations of the AMF,
NYSE Euronext operates the three French regulated markets, one stock market (Euronext
Paris) and two derivative markets (Monep and MATIF), and some organised markets (such
as Euronext Growth).

IMPACT
i New additional regulations regarding the use of Blockchain technology
Further to and as required by an ordinance dated 8 December 2017, France adopted an
implementation decree on 24 December 2018 that authorises and regulates the effective
use of blockchain technology to record and operate the transfer of certain securities. This
regulation governs the registration and transfer of securities issued in France and governed
by French law that are not listed on a regulated market or on a multilateral trading facility.
The French provisions do not impose a specific share electronic recording device, therefore
granting total freedom to issuers and parties regarding the selection of such devices.
In practical terms, non-listed French issuers may decide to issue their securities on
shared electronic recording devices (i.e., a blockchain) instead of the current book entry. Such
shared electronic recording device shall guarantee the registration and integrity of entries and
enable holders of securities to be identified, together with the number of securities they hold.
In this regard, any holder may ask to be provided with a certificate setting out its transactions.
Registration in a shared electronic recording device, such as registration in a buyer’s account
in the book entry system, entails a transfer of securities. Similarly, a pledge over securities
registered in a shared electronic recording may be constituted under the same terms and
conditions as a pledge over securities registered in a book entry.
ii Promoting the growth and transformation of companies

On 11 April 2019, a law relating to an action plan for corporate growth and transformation
of French companies (also known as the PACTE law) was adopted. The PACTE law aims to
simplify corporate law and promote corporate financing. It also aims to instil a new vision of
capitalism by allowing (but not requiring) French commercial companies to define in their
bylaws not only their objects, but also their own objectives.
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This reform entails the following main practical developments:

a a decrease of the squeeze-out threshold (from 95 to 90 per cent) in order to facilitate
the delisting process;
b the possibility offered to non-listed companies to issue preferred shares with multiple
voting rights attached and preferred shares that are redeemable on the holder’s
request;
c facilitating the access of companies to diversified funding (both public and private
funding) through a simplification of the rules applicable to public offerings and a new
initial coin offering (ICO) legal framework. This new framework will provide investors
with certain safeguards and guarantees that French-based ICO issuers will have the
possibility of requiring the approval (visa) of the Financial Markets Regulator certifying
a set of requirements concerning the security and transparency of the token issued, and
the creation of rules with respect to the secondary market for tokens;
d a simplification of the rules applicable to mergers. While French merging companies
used to be required to file with the commercial registry a statement in which they
state that and acknowledge that they have performed the merger in accordance with
the applicable rule, French companies will now be exempt from the requirement to
perform such a compliance declaration. The PACTE law also introduces the possibility
for a French SA to implement a merger by using a delegation of powers;
e strengthening the rules governing gender balance in the corporate governance of French
sociétés anonymes and French SCAs. First, decisions taken by a board of directors or a
supervisory board that do not comply with the rules relating to gender balance may be
deemed void. Secondly, appointment procedures for new executives in French sociétés
anonymes shall now endeavour to achieve a balanced representation of women and
men; and
f privatisation of certain state-owned companies, and notably Aéroport de Paris (ADP),
la Française des Jeux and Engie. The privatisation of ADP is, however, currently on
hold due to political opposition.
iii Simplifying corporate law

A law to simplify, clarify and update French corporate law was adopted on 10 July 2019, with
immediate effect. This law notably contains the following main reform proposals:
a the extension of the scope of the simplified merger regime, which allows the
implementation of a merger without a shareholder decision approving the merger and
without any report from special auditors, to mergers between sister companies wholly
or 90 per cent owned by the same parent company;
b the removal of the obligation to submit every three years a draft resolution on a capital
increase to the benefit of employees; and
c abstentions in general meetings of shareholders will no longer be counted as negative
votes.
iv Protection of trade secrets

A law on the protection of trade secrets was adopted on 3 July 2018 and is currently in
force. This law implements Directive 2016/943 on the protection of undisclosed know-how
and business information (trade secrets) against unlawful acquisition, use and disclosure into
French law.
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Under this new regime, any information known by a limited number of people with
a commercial value and being subject to reasonable protective measures shall be regarded as
trade secrets. The secrecy alone of information is not sufficient to benefit from the protection
provided by law, as companies will have to prove that protective measures were put in place
(e.g., confidentiality rules or restrictions on access rights) for that information.
The acquisition, use and disclosure of a trade secret is unlawful when it is carried out
without the consent of its legitimate holder and arises from unauthorised access or unfair
access in a way contrary to the normal course of trade.
v Strengthening the foreign investment control regime

Like most G20 countries, France has recently revised its foreign investment regulation to
widen the scope for scrutiny of foreign investments by expanding the list of business sectors
deemed sensitive to public order, public safety or national defence interests. The new business
sectors falling within the scope of the foreign investments regime are notably:
a activities related to operations in space;
b activities related to electronic and IT systems that are required for the performance of
police or customs duties;
c activities related to cybersecurity, artificial intelligence, robotics, additive manufacturing
and semiconductors; and
d activities related to data hosting.
The scope has also been extended to the provisions of services related to business sectors
that were already within purview (e.g., war materials or activities performed pursuant to an
agreement entered into with the French Ministry of Defence).
Furthermore, it is also now possible in France for target companies to ask the French
Ministry of Economy whether a contemplated investment is subject to the French foreign
investment control regime. Such extension stems from a suggestion made by French tech
companies to facilitate their fundraising, as the business sectors subject to foreign investment
control have been correlatively extended to the activities they may pursue.
As part of the PACTE law, France has also introduced a potentially more widespread
use of golden shares in certain strategic companies in which the state has a stake if it becomes
necessary to protect national essential interests relating to public order, public health, public
security or national defence. Golden shares will grant the state with blocking powers (e.g., the
right to block asset disposals or transfers of intellectual property or know-how outside France)
and information rights regarding the exercise of the rights attached to a golden share. In any
case, one ordinary share held by the state may be converted into a golden share by decree, and
the rights attached to such golden share may also be increased or reduced by decree.
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IV FOREIGN INVOLVEMENT IN M&A TRANSACTIONS3

In 2018, French companies (as bidders or target companies) were involved in only one of the
top 20 announced European deals, and French investors were more active in acquiring outside
Europe. The United States remains the leading investor in France, with US investments
representing 18 per cent of the foreign investments completed in France.4
i Cross-border inbound deals

Material inbound M&A transactions included, inter alia, the €3.25 billion acquisition of
Antelliq by Merck & Co Inc, a US pharmaceutical company; the €2.59 billion acquisition
by General Electric Company of Alstom’s stakes in three energy joint ventures created with
General Electric in 2015; and the €2.25 billion acquisition of Linxens Group by Tsinghua
Unigroup.
ii Cross-border outbound deals

Notable outbound M&A transactions included, inter alia, the €12.4 billion acquisition of
XL Group Ltd, a US insurance company, by AXA SA;5 the €5.41 billion acquisition of a
50.01 per cent stake in Gatwick Airport Limited by French Vinci Airports SAS; and the €3.7
billion acquisition of Ablynx, a company conducting pharmaceutical, medical and biotech
activities, by the French listed company Sanofi SA.
V SIGNIFICANT TRANSACTIONS, KEY TRENDS AND HOT INDUSTRIES6

i Less activity in 2018, many opportunities in 2019
As mentioned in Section I, M&A activity declined in 2018 compared to 2016 and 2017.
However, the first months of 2019 give signs of hope, as the deals announced so far this year
have already reached an aggregate value of €9.9 billion, compared to the €8.6 billion reached
for the first quarter of 2018.
The contemplated sales of significant stakes owned by the state in la Française des
Jeux, Aéroport de Paris and Engie could generate high-value transactions and boost the
M&A market in the second half of 2019. Private equity firms are also planning exits from
high-valued portfolio companies.
ii Development of private equity activity

In 2018, the private equity trend was still moving upwards both in terms of value and deal
count. Buyout and exit deals reached an aggregate value of €23.6 billion, which is close to
pre-crisis levels, 39 per cent of which is being driven by domestic private equity firms.
3 Financial data extracted from Mergermarket, ‘Trend Report Q1–Q4 2018 (France)’
4 Financial data extracted from BusinessFrance, ‘Report on foreign investments in France 2018’.
5 Financial data extracted from Deloitte, ‘M&A Predictor 2018 Annual Report’.
6 Financial data extracted from Mergermarket, ‘Trend Report Q1–Q4 2018 (France)’ and ‘Deal Drivers
EMEA FY 2018’.
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iii Most active sectors in 2018

In 2018, telecoms, media and technology (TMT), consumer, industrial, chemical and
business services were the most targeted sectors.
The TMT sector broke all European records, reaching €169.1 billion in 2018 up from
€61.5 billion in 2017. The sale by Altice of the fibre-to-home services provided by SFR to
Allianz, AXA and OMERS for €1.8 billion was a notable transaction.
The consumer sector was the second-most active sector in 2018 with the acquisition of
Neovia Group by Archer Daniels Midland Company for €1.54 billion being a key transaction.
The industrial and chemical sector was the third-most active sector in 2018.
iv Tender offers in 2018

In 2018,7 tender offers declined considerably, both in terms of the number of bids (22 in
2018 compared with 27 in 2017) and the aggregate value of the target companies (€12.5
billion in 2018, which is eight times less than the value seen in 2017, when the equivalent
figure was €106.2 billion).
All the offers made in 2018 were friendly, with half being initiated by the companies
themselves (as part of share buyback programmes) or by their long-standing shareholders.
The takeover bid made by Allianz SE for Euler Hermes was one of the most important public
M&A deals of 2018, with a target company valuation of around €5.2 billion, together with
the bid made by Total SA for Direct Energie for €2.6 billion.

i Overview of financing sources
After a remarkable year in 2017, 2018 was characterised by a slowdown in M&A transactions
due notably to the return of market volatility. As a result, a decrease in activity was observed
in all financing segments.
2018 marked a turning point for the corporate eurobond market as it was the first
time the amounts raised have decreased since 2011. By mid-December 2018, €270 billion
had been raised compared to €300 billion in 2017. This decrease can be partly explained by
an announcement by the European Central Bank (ECB) in June 2018 that it was ending
its quantitative easing policy (which occurred at the end of December 2018). Since March
2015, the ECB had acquired nearly €2,600 billion worth of assets on the markets, including
nearly €180 billion corporate bonds. However, French non-financial companies issued nearly
€65 billion worth of bonds in the course of 2018, which represented 16 per cent more than
2017. On the other hand, convertible bonds issues fell by nearly 40 per cent, representing a
total amount of €2.4 billion in 2018 compared to €4 billion in 2017.
Additionally, with nearly €90 billion borrowed by way of loans by companies between
January and November 2018, the syndicated loan market recorded a year roughly in line with
2017 (€95 billion). However, one of the traditional drivers, namely acquisition finance, only
had a limited impact on these results. Indeed, despite a few significant transactions, M&A
accounted for only around 20 per cent of the total amounts of loans raised in 2018.
7 Financial data extracted from the Observatoire des offres publiques 2019 report.
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ii Recent legal reforms

Amendments to the 2016 reform of the contract law
On 1 October 2018, the law modifying and clarifying the 2016 reform of the contract
law came into force. Such reform has a direct impact on all contracts, including finance
documentation. This law is attempting to strike a balance between developing familiar features
of French law (for instance, the obligation to inform the other party of any information of
decisive importance for its consent, and the requirement that contracts be negotiated, formed
and performed in good faith) while adding certainty for creditors (for instance, the legal
provision on hardship introduced by the 2016 reform – Article 1195 of the French Civil
Code – is now expressly excluded when it comes to transactions on securities or finance
documents further to Article L211-40-1 of the French Monetary and Financial Code). Such
law has also reconfirmed that parties are allowed to assign under French law through two
distinct procedures, either through receivables arising out of a loan contract or the benefit of
the entire contract as a whole.
Further inroads into the banking monopoly regime

The publication of Decrees No. 2018-1004 and No. 1008 of 19 November 2018 is further
evidence that the banking monopoly rules are ever-shrinking in relation to investment
funds, as a number of funds could purchase a participation in non-revolving loans but were
precluded from being initial lenders for the same loans. While Ordinance No. 2017-1432 of
4 October 2017 had defined a new regime for certain specialised financing vehicles (which
were then allowed to lend within the framework of the European long-term investment funds
Regulation, or alternatively within the restrictions imposed on the securitisation vehicles), the
new Decrees have redefined the direct lending capabilities of such specialised finance vehicles
and securitisation vehicles by reference to the rules applicable to specialised professional
funds, which represent a relative alleviation of the applicable conditions.
Modernisation of the law on security interests

The 2018 edition of this publication mentioned that the security agent role had been
modernised through Ordinance No. 2017-748 dated 4 May 2017, which came into force
on 1 October 2017. Such reform allowed security agents to be the direct holder (rather than
the initial lender) of both security interests and personal guarantees granted by the security
grantor. Foreign institutions have welcomed this reform, which was designed by reference
to the common law of trusts for security agent roles in common law countries. However, it
appears that as a matter of practice, French banks have generally chosen to stick, by and large
and somewhat surprisingly, to the previous regime whenever possible.
The PACTE law contains a number of proposals with a view to reforming the law
pertaining to security interests and allows the government to legislate by way of ordinances
to that effect.
The law suggests establishing a general right of assignment of receivables as security.
This security interest currently exists in France only to the benefit of banking institutions,
which are the only possible assignees of receivables in the context of certain forms of security
by way of assignment (Cession Dailly). The creation of this new security interest would have
the effect of aligning French law with the laws of other countries such as England, where
this security already exists as security assignments. The PACTE law also aims at modifying
the rules relating to guarantees and third-party security. It also suggests introducing more
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flexibility regarding the rules on security trusts in the Civil Code. Finally, the PACTE law
aims at a better articulation between the securities law and insolvency proceedings, and for
this purpose authorises the government to simplify, clarify and modernise the rules relating to
security interests and secured creditors in the context of insolvency proceedings.
iii Recent legal reforms

Looking forward, it is already clear that France will witness a number of important changes
over the next few months. In particular, the impact of Brexit (the modality of which is not
yet settled at the time of writing), the rapid emergence of green lending (either as regards
green projects or merely with loans whose margin will be affected by the environmental
performance of the borrower) will ensure that the French financings sector will remain very
dynamic for the foreseeable future.
VII EMPLOYMENT LAW

On 22 September 2017, the government enacted several ordinances8 that were ratified by
Parliament on 29 March 2018: the Macron labour law reform has brought significant changes
to French labour law with a view to simplifying the existing rules and regulations under
the French labour code and granting more flexibility for employers in respect of employee
management, thus attempting to make France more attractive to foreign investors. The
Macron labour law reform includes provisions that may have an effect on M&A transactions:
the main ones are as outlined below.
The Macron labour law reform has created a unique representative body in lieu of
the existing staff delegates, works councils and health and safety committees: social and
economic committees (SECs). An SEC will have to be implemented in companies with 11
or more employees by 31 December 2019 at the latest. SECs will replace the works councils
as from such date, and will exercise similar functions to those of the works councils. As is the
case for works councils, relevant compulsory consultations with SECs must be carried out
within certain time limits (see Section VII.iv).
Introduction of greater flexibility around employment restructuring

Rules governing collective redundancies for economic reasons
Under French law, to implement collective redundancies for economic reasons employers
must provide valid economic grounds justifying the redundancies. Since the Macron labour
law reform, these grounds must now be assessed at the level of the French territory only (i.e.,
at the level of the French employer company only, or at the level of the French company and
any other entities of the group located in France if those entities belong to the same business
sector as the French company). Before the Macron labour law reform, such grounds were
assessed at the level of the group as a whole in France and abroad.
These amendments further progressed the simplification of the redundancy rules that
had been initiated under Law No. 2016-1088, which entered into force on 8 August 2016 (El
Khomri law). The El Khomri law introduced two main changes to the redundancy rules: the
8 Ordinance No. 2017-1385 to No. 2017-1389 dated 22 September 2017; Ordinance No. 2017-1718 dated
20 December 2017.
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codification of two grounds of dismissal previously only recognised by case law (restructuring
aimed at safeguarding a company’s competitiveness and the closure of a company); and the
addition of economic indicators defining the concept of economic difficulties.
Since the El Khomri law was enacted, economic difficulties are now mainly appreciated
on the basis of a significant decrease in the number of orders from or the turnover of a
company, appreciated by reference to a number of quarters and the number of employees
within a company (e.g., in companies with less than 11 employees, a decrease of the turnover
during one quarter is considered as a sufficient ground for an economic redundancy). These
indicators do not constitute an exhaustive list, and any other element justifying the existence
of economic difficulties can be used to justify economic difficulties. Therefore, despite these
modifications, French case law will continue to be of key relevance when establishing whether
a company is facing economic difficulties.
The Macron labour law reform has also provided security and visibility with regard
to potential disputes arising following a dismissal by introducing a judge-binding scale of
damages – the Macron scale – granted for unfair dismissals (employees with less than one
year of seniority within a company can be awarded up to one month’s salary, while employees
with 30 years’ seniority and above can be awarded up to 20 months’ salary). However, since
its enactment, the Macron scale has met with resistance from the labour courts, as some
judges consider that the capping of damages would interfere with the right to adequate
compensation granted by the Termination of Employment Convention (No. 158) of the
International Labour Organization and the European Social Charter. A future ruling of the
French Supreme Court on this issue is therefore awaited.
Collective mutual termination procedure

To facilitate job reorganisations and head count adjustments other than for economic reasons,
the 2017 Macron labour law reform introduced an ad hoc voluntary termination procedure
called the collective mutual termination procedure. Recent case law has specified that this
procedure could also apply to headcount adjustments based on economic grounds.9 Under
the collective mutual termination procedure, employees apply for a voluntary departure
plan that must be validated by the French Labour Administration. Companies will not have
to demonstrate economic difficulties before implementing such an agreement. Under the
supervision of the Labour Administration, a voluntary departure plan must contain specific
provisions, and in particular on the maximum number of job terminations contemplated
and the modalities of information for SECs (no consultation with an SEC is required). The
collective mutual termination procedure does not prevent an employer from hiring new
employees either for a new position or a position occupied by an employee who agreed to the
mutual termination of his or her employment contract.
ii Employees’ right to make an offer to buy shares or assets in small and

medium-sized companies
Pursuant to the Hamon law of 2014, as modified by the Macron law of 2015, companies with
fewer than 50 employees, or companies with between 50 and 250 employees that fall into
the category of small and medium-sized companies (i.e., companies with a turnover below
€50 million or a balance sheet total below €43 million), must inform their employees of any
9 Administrative Court of Cergy-Pontoise, 16 October 2018, No. 1807099
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proposal to sell 50 per cent or more of the shares of the company or the sale of the company’s
business as a going concern with a view to allowing them to make an offer to purchase the
shares or the business.10 The Hamon law does not grant any priority or pre-emption rights to
employees; however, the procedure does impact the timetable for a proposed transaction, and
can also have an impact on the confidentiality of the transaction.
Regarding companies with fewer than 50 employees, such employees must be informed
of a proposed sale no later than two months prior to the signing of the transaction. In
addition, the transaction cannot take place before the expiry of this two-month period unless
all employees have informed the company that they do not wish to make an offer.
In companies with between 50 and 250 employees, the employees must be informed of
a proposed sale at the latest when the works council or the SEC of the company is informed
and consulted on the transaction in question. Unlike in the case of companies with fewer
than 50 employees, the law does not set any specific deadline prior to which the transaction
cannot take place (except that the works council or SEC consultation process will have to be
completed before any binding documentation with respect to the transaction is signed, in
compliance with generally applicable French employment law rules).
The law provides that employees are subject to an obligation of discretion with respect
to the information that they receive by virtue of the new law. For the moment, it is not clear
what information regarding a company and its activities must be given to its employees in
connection with a specific procedure. According to a strict interpretation of the law, when
a company informs its employees of their right to make an offer to buy the company or
the business, it is not required to give information on any other potential bidders or any
documents relating to the company or its strategy.11 However, should one or more employees
ultimately decide to make an offer to buy the company or the business, the Hamon law (and
its implementing Decree of 28 October 2014) is silent as to the level of information that the
company must provide.
Failing to comply with the obligation to inform employees that they can make an offer
to purchase the shares or assets of a company exposes a seller to a monetary fine that cannot
exceed 2 per cent of the value of the underlying transaction.
Following an information procedure under the Hamon law, the contemplated sale
must take place within two years of the date on which the employees are informed of the
transaction; otherwise, the company must complete the information process again.
iii Reinforced role of the works council or the SEC of the target of a takeover bid
Pursuant to Law No. 2014-384, which entered into force on 29 March 2014 (Florange law),
in a public company takeover context, the works council or SEC of a target company must
be formally consulted and issue an opinion (either positive or negative) on the takeover bid
(whether friendly or hostile).
The consultation of the target company’s works council or SEC must be completed
(i.e., a positive or negative opinion must be issued) within one month of an offer being filed.
If the works council or the SEC has not issued an opinion within this time frame, it will be
10 These provisions of the Hamon law do not apply to companies that are subject to insolvency proceedings.
11 The guidelines that have been published by the French Ministry of Labour for the implementation of the
Hamon law confirm this approach.
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deemed to have been consulted, except in certain exceptional circumstances where the works
council or the SEC can justify in court that it did not receive sufficient information about a
transaction.
In any case, the board of directors or the supervisory board of the target company
cannot make a decision with respect to a takeover bid (including whether to recommend the
bid) until the consultation process with the target company’s works council or SEC has been
completed. Note that in a situation in which the bidder has entered into a prior agreement
with the target (generally called a tender offer agreement) specifying the main terms and
conditions of the offer and providing for a break-up fee based on the recommendation of the
target’s board, it should be carefully assessed whether such agreement triggers the obligation
to consult the works council or SEC prior to its signature.
During the consultation process, the target company’s works council or SEC may ask
the offeror questions about its industrial and strategic plans for the company. It may also
choose to be assisted by a third-party expert (whose fees will be paid by the target company,
and who will issue a report that will assess the offeror’s industrial and strategic plans and their
impact on the target company and its employees). The third-party expert has three weeks
from the filing of the offer to issue its report.
iv Defined time limits for works councils or SECs to issue opinions in compulsory
consultation situations
A decree dated 27 December 2013 establishes the relevant time limit for works councils to
issue their opinion in the event that their consultation is compulsory. Unless an agreement
is reached between an employer and trade union representatives (or, failing that, the works
council) that provides for a specific time frame for their consultation, the members of a works
council must issue their opinion within the following time limits (the starting point being the
date on which a employer discloses the information):
a one month generally;
b two months if a works council is assisted by an expert;
c three months if one or more health and safety committees (CHSCT) are involved in a
project; and
d four months if a temporary coordination committee of a CHSCT is created.
If a works council has not issued an opinion within the relevant time limits, it will be deemed
to have been consulted and to have issued a negative opinion.
As indicated in Section VII.i, SECs will replace works councils on 31 December 2019
at the latest. The defined time limits within which SECs will have to render their opinion in
compulsory consultations (and that apply as from the setting up of an SEC) are as follows:
one month generally; two months if an SEC is assisted by an expert; and three months in
very specific situations where the consultation is carried out in a company that has one or
more local SECs involved in the consultation process being assisted by at least one expert.12
As is the case with works councils, these time limits apply in the absence of an agreement
entered into between an employer and the trade union representatives (or, failing that, the
SEC), providing for a specific time frame for the consultation of SECs.
12 Decree No. 2017-1819 dated 29 December 2017, Article 1.
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v Obligations to look for a buyer in the event of the closure of a business division
Among its provisions, the Florange law has introduced an obligation for an owner seeking
to close a business to attempt to find a buyer for the business. This obligation applies to
an intention to close any business division with more than 1,000 employees when such
closure would result in planned collective redundancies (i.e., more than 10 employees). This
obligation provides for specific information obligations toward the works council and the
employees of the target business, as well as an obligation on the company or the group to
consider all offers to acquire the business and to justify any decision taken in respect of such
offers to the works council.
vi Obligations of employers to fight corruption and protect whistle-blowers

The Sapin II Law on transparency, the fight against corruption and the modernisation of
the economy created two new obligations for employers aimed at fighting corruption and
protecting whistle-blowers.
Since 1 January 2018, employers with more than 50 employees must implement an
internal process allowing employees to report, confidentially, any of the following that they
have had knowledge of personally during their employment: any crime or criminal offence,
a serious and obvious violation of an international treaty ratified or approved by France, or a
threat or serious damage caused to the general interest.
Employers with more than 500 employees must also implement a code of conduct
that must give a definition as well as examples of what could constitute an act of corruption,
and also include disciplinary sanctions to be taken in cases of its violation; a process allowing
employees to report, confidentially, any violations of the company’s code of conduct; and a
training programme for executives and staff most exposed to the potential risks of corruption.
Any employee who submits in good faith a report of a violation will be considered as a
whistle-blower and will benefit from a specific protective status against dismissal. Reports of
violations must also be followed by an internal investigation that must verify the truthfulness
of the report. Therefore, when implementing such processes, employers must ensure their
compliance with the French labour regulations, in particular with regard to the protection
of employees’ rights to privacy as well as with regard to mandatory information and the
consultation of employee representatives, particularly when implementing monitoring
devices.
vii Risk of requalification of equity instruments granted to managers (management

packages) as remuneration subject to social security charges
The Paris Court of Appeal ruled in July 2017 that gains realised by managers upon the sale
of equity instruments (warrants in the case at hand) in the context of an leveraged buyout
exit, when such instruments were granted to managers (because of their status) and kept by
the latter to the extent that they remained within a company, should be considered as a salary
for social contributions purposes (i.e., the gain would be subject to social contributions at a
rate of around 40 to 50 per cent on an employer’s part, and around 20 to 30 per cent on an
employee’s part).13
13 Paris Court of Appeal, 6 July 2017, No. 14/02741.
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Indeed, it was held that the conditions under which such warrants were granted (to
employees only) and may be kept (for as long as the beneficiaries remain within a company)
establish a strong link with the employment agreement or corporate office (e.g., directorship)
of the relevant beneficiary.
The case was referred to the French Supreme Court, which confirmed the analysis
of the Paris Court of Appeal insofar as it approved that its finding that such gains should
be considered as salary as long as they were granted to managers because of their status of
employee or corporate officer of the company. However, contradicting the Paris Court of
Appeal, it considered that the basis for calculating the related social security contributions
was the acquisition gain and not the capital gain on disposal. In turn, the Supreme Court
remanded the case back to the Paris Court of Appeal, but made up of a different panel of
judges. Should the decision be confirmed, it cannot be ruled out that this principle would
apply to any kind of equity instrument awarded in the same circumstances as the ones at
stake. The final outcome of this litigation will need to be monitored closely, considering its
potential significant impact on the cost of management packages.
viii The PACTE law

Published on 23 May 2019, the PACTE law provides for a large set of rules intended to
increase employees’ involvement in company decisions and achievements, notably by
promoting employee share ownership, enhancing employee representation on boards of
directors and supervisory boards and promoting employee profit-sharing and saving plans.
Promotion of employee share ownership

The conditions for the allocation of free shares have been simplified and broadened. In
particular, the French Commercial Code limits the total number of free shares that could be
granted by a company to its employees and managers to a maximum corresponding to 10 per
cent of the share capital. Article 163 of the PACTE law provides that, for the purposes of this
limit, free shares that have not been definitively allocated at the end of the vesting period, or
those that are no longer subject to the retention obligation, are no longer taken into account
(Article L 225-197-1 of the Commercial Code, amended). In addition, Articles 162 et seq.
of the PACTE law support the development of employee share ownership by allowing, under
certain conditions, the allocation of shares to employees in simplified joint-stock companies
and by allowing employers to contribute unilaterally to employee share ownership funds.
Enhancement of employee representation on boards of directors and supervisory boards

The law provides for an increased number of employees on boards of directors and supervisory
boards. More specifically, the boards of directors and supervisory boards of companies with
more than 1,000 employees in France (including subsidiaries) or 5,000 employees in France
and abroad (including subsidiaries) must include at least two employees when the number
of non-employee board members exceeds eight (instead of 12) and at least one employee
when the number of non-employee members is less than or equal to eight (instead of 12). In
parallel, the scope of the exemption from the obligation to appoint employees within boards
of directors and supervisory boards has reduced. In particular, public holding companies with
less than 50 employees, which had so far been exempted from this obligation if one of their
subsidiaries had appointed employees as board members, no longer are.
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Promotion of employee profit-sharing and saving plans

Companies with fewer than 50 employees are exempted from the 20 per cent employer flat
contribution on amounts paid for mandatory profit-sharing and voluntary profit-sharing, as
well as on payments into an employee savings plan. Companies with 50 or more employees and
less than 250 employees are also exempted from this contribution, but only on the amounts
paid as voluntary profit-sharing.14 Such measures originated from parliamentary discussions
about the PACTE law but were enacted in Law No. 2018-1203 of 22 December 2018 on the
financing of social security for 2019.
VIII TAX LAW

i New mechanism to limit the deduction of interest expenses
The French finance law for 201915 carries out an overall reform of the deduction of interest
expenses for companies subject to corporate income tax (CIT). The reform implements a
general limitation on interest deduction to comply with the EU 2016 Anti-Tax Avoidance
Directive (ATAD 1),16 under which Member States are required as a minimum standard to
determine a threshold for deductibility of interest by reference to taxable earnings before
interest, tax, depreciation and amortisation (EBITDA). These new rules are applicable for
fiscal years opening as from 1 January 2019.
Article 34 of the French finance law for 2019 repeals the 25 per cent general reduction
pursuant to the rabot mechanism as well as the Amendement Carrez limitation (an anti-abuse
rule targeting acquisitions without substance), modifies the current thin capitalisation
rules and incorporates them into the new limitation by lowering the applicable thresholds
in the case of thin capitalisation (see below). However, the excessive interest rate rule for
interest payments to related parties,17 the Amendement Charasse (an anti-abuse rule targeting
acquisitions of shares of tax consolidated entities)18 and the French anti-hybrid provision19
still apply under the new rules.
The net borrowing costs within the scope of the new limitation are broadly defined as
the excess of deductible financial expenses (after application of the above-mentioned excessive
interest rate and anti-hybrid rules) over taxable financial income and other equivalent income
received by a company. As under the rabot rule, financial income and expenses correspond to
interest on all forms of debt, which can be sums left at the disposal of, or made available to
or by, related or unrelated parties.
The new mechanism limits for non-thinly capitalised companies the deductibility of
interest if and to the extent that the net borrowing costs of the concerned taxpayer exceed the
higher of 30 per cent of its EBITDA and €3 million. A safe harbour rule applies for companies
that belong to a consolidated group for financial accounting purposes: taxpayers are allowed
to deduct an additional 75 per cent of the amount of net borrowing costs not allowed for
deduction under the general limitation described above, provided that the ratio between their
14 Article L 137-15 of the Social Security Code.

15 Finance law for 2019 n° 2018-1317 of 28 December 2018.
16 Directive 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect
the functioning of the internal market.
17 Article 39-1-3 of the FTC.
18 Article 223 B, paragraph 6 of the FTC.
19 Article 212-I-b of the FTC.
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equity and their total assets is equal to or greater than the same ratio determined at the level
of the consolidated group for financial account purposes to which they belong. As a tolerance
measure also set out in ATAD 1, this condition is deemed to be met if the taxpayer’s ratio is
lower than the group’s as a whole by a maximum of two percentage points.
The interest deduction threshold is reduced for thinly capitalised companies. The
finance law provides for a new and wider definition of a thin capitalisation situation. While
until now a situation of thin capitalisation was characterised when three different ratios were
cumulatively exceeded (debt-to-equity ratio, adjusted earnings ratio and interest income
ratio), a thin capitalisation situation is now only based on the excess of a single debt-to-equity
ratio. Under the new deduction limit applicable in the case of thin capitalisation, the fraction
of interest expenses related to indebtedness towards unrelated parties and indebtedness
towards related parties up to one-and-a-half times the company’s net equity is deductible
within the limits of the regular threshold (i.e., the higher of €3 million and 30 per cent of
the company’s EBITDA but reduced pro rata to the proportion of the corresponding debt
over the total indebtedness of the taxpayer). The remaining portion of the net interest (i.e.,
related to indebtedness towards related parties exceeding one-and-a-half times the company’s
net equity) is deductible within the limits of the reduced threshold, which is the higher of €1
million and 10 per cent of the company’s EBITDA (again reduced pro rata to the proportion
of the corresponding debt over the total indebtedness of the taxpayer). A specific safe harbour
provision allows a thinly capitalised company not to be subject to these reduced thresholds if
the debt-to-equity ratio of such company is not higher, by more than two percentage points,
than the debt-to-equity ratio of the consolidated group to which it belongs for financial
account purposes.
The reform also provides for interest expenses and unused interest capacity carry
forwards.
For taxpayers that are members of a French tax consolidated group, the rules apply at
the level of the French tax consolidated group result. The applicable rules are broadly similar
to those applicable to companies that are not members of a consolidated tax group. However,
for thin capitalisation purposes, the above rules do not apply to interest paid between
members of the same French tax consolidated group.
ii Modification of the tax consolidated group regime

The finance law for 2019 amends the French tax consolidated group regime, mostly to align
this regime with EU principles.
Certain changes apply to the tax treatment of dividend payments. The 99 per cent
exemption applicable under the French participation exemption regime between companies
that are members of a French tax consolidated group (and also to dividends paid by eligible
EU and EEA subsidiaries to members of a French tax consolidated group) is extended to
dividends paid by eligible EU and EEA subsidiaries to a French company that is not a
member of a tax consolidated group in cases where the French shareholder and the eligible
EU or EEA subsidiary would have fulfilled the requirements to be members of a French
tax consolidated group had the foreign subsidiary been located in France. Dividends paid
between members of a French tax consolidated group that do not benefit from the parent–
subsidiary regime are now exempted at the tax consolidated group level up to 99 per cent
of their amount (they were totally exempt prior to the reform). In the same manner as for
the dividends eligible for the parent–subsidiary exemption, this exemption is also extended
to dividends paid by eligible EU and EEA subsidiaries to a French company that is not a
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member of a tax consolidated group in cases where the French shareholder and the eligible
EU or EEA subsidiary would have fulfilled the requirements to be members of a French tax
consolidated group had the foreign subsidiary been located in France.
The reform also repeals the neutralisation at the French tax consolidated group level of
the taxable portion of capital gains on share transfers eligible to the participation exemption
regime, and debt waivers and subsidies granted between members of a French tax consolidated
group. The taxable portion of capital gains on share transfers initially planned to be reduced
to 5 per cent was eventually maintained at 12 per cent.
The finance law for 2019 legalises the ability to perform sales and provide services
within the same French tax consolidated group for a price lower than the fair market value
but at least equal to the cost price.
Finally, several mechanisms have been introduced to prevent the termination of existing
French tax consolidated groups as a result of the Brexit by:
a postponing the closing of the fiscal year for the ineligibility of a French tax consolidated
group or a group member triggered by the Brexit; and
b allowing without termination of the French tax consolidated group the substitution of
a non-resident parent company by a foreign company directly or indirectly held by it,
which fulfils the requirements to become a non-resident parent company.
Furthermore, the election by the parent company from one type of tax consolidation to
another type (e.g., from a horizontal tax consolidated group to a vertical tax consolidated
group) and the merger of the parent entity of a French tax consolidated group into another
company of the same group no longer trigger the termination of the group, provided that
certain conditions are met.
These new rules are applicable for fiscal years opened as from 1 January 2019 except for
provisions concerning the termination of French tax consolidated groups that apply for fiscal
years closed as from 31 December 2018.
iii Calculation of the holding period of shares received by the contributor in a

partial asset contribution
The finance law for 2019 provides for a new, favourable method for calculating the holding
period for shares received by a transferring company in exchange for a contribution assimilated
to a complete branch of activity (certain share-for-share transactions) and benefiting from the
favourable rollover regime for French CIT purposes. A contributor is now deemed to have
held new shares received as a result of a contribution as from the original acquisition date of
the contributed shares by the contributor (i.e., the holding period is rolled over on the new
shares received as a result of the contribution).
This is a welcomed change as until now, Article 210, B, 2 of the French Tax Code (FTC)
only provided that capital gains relating to shares received in exchange for a contribution
were calculated by reference to the value of shares in the transferring company accounts, but
no legal disposition of the FTC indicated that the holding period of the shares received by
the contributor was also rolled over. This point had become crucial given that the finance
law for 2018 had repealed the former requirement to hold shares received in exchange for
a contribution for three years in order to benefit from the favourable CIT regime, and the
French participation exemption regime for capital gains is conditioned to a two-year holding
period of the eligible shareholdings.
This change applies for fiscal years closed as from 31 December 2018.
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iv Introduction of a general anti-abuse rule for CIT purposes

A new anti-abuse rule for CIT purposes is applicable for fiscal years beginning on or after
1 January 2019. The new Article 205 A of the FTC implements into French law the general
anti-abuse disposition of ATAD 1.
The wording of this new anti-abuse clause replicates the wording of the general
anti-abuse clause of Article 6 of ATAD 1. Consequently, an arrangement or a series of
arrangements that, having been put into place for the main purpose, or as one of the main
purposes, of obtaining a tax advantage, defeats the object or purpose of the applicable tax law,
are not genuine, and thus will not be taken into account for tax purposes.
Contrary to the general abuse of law regime provided by Article L.64 of the French
Book of Tax Procedures, there are no automatic penalties attached to the anti-abuse clause of
Article 205 A of the FTC.
The new clause is not intended to replace other current anti-abuse mechanisms but will
exist in addition to them.
IX COMPETITION LAW
The French Competition Authority has had responsibility for merger control since 2009, and
has increasingly adopted a more efficient approach to the application of its rules. In 2018,
235 concentrations were reviewed and cleared by the Authority, five of which were cleared
conditionally (that is, with remedies or injunctions).
It is also important to note that for the first time, the Minister of Economy made
use of his power to evoke a case. Subsequent to an in-depth examination, the Competition
Authority had cleared Cofigeo’s acquisition of securities and assets of the ready meal branch
of Agripole20 subject to the divestment of both a production site and a brand. Without
such injunctions, not only would Cofigeo become the undisputed leader in most of the
relevant markets, but it would also own all the best-known brands in the sector. The
remedies, therefore, aimed at preventing the price increase regarding essential goods.
The Minister of Economy made use of his power to evoke a case no later than on the day the
Competition Authority’s decision was issued. This power enables the Minister of Economy
to decide on a concern operation on the basis of public interests (other than the protection of
competition), such as industrial developments or the stability of employment. The Minister
highlighted that the target company was facing severe financial difficulties and that Cofigeo
was an important job provider in a difficult employment area. The transfer of assets ordered
by the Competition Authority would have exposed Cofiego and its employees to insolvency.
As a resultant, the Competition Authority’s decision will not be implemented and shall
be replaced by that of the Minister of Economy.
i Application of the merger control guidelines of 10 July 2013

On 10 July 2013, new guidelines on merger control were adopted by the Competition
Authority, revising the previous guidelines of December 2009 and taking into account the
Authority’s experience since.
The guidelines on merger control set out measures aimed at facilitating the
pre-notification process, specifying the criteria for the simplified notification procedure,
20 Case No. 18-DCC-95.
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the conceptual framework of the analysis of relevant markets and the role of this analysis,
and proposing standard models for transfers of assets and trustee mandates. The guidelines
also place greater emphasis on economic and econometric analysis, especially quantitative
tests, when the data and methodology used are reliable and verifiable. In particular, the new
guidelines introduce a reference to the upward pricing pressure, illustrative price rise and
gross upward pricing pressure index (GUPPI) tests, used to measure the impact of a merger
on prices without having to define the relevant market.
The GUPPI test was last used by the Competition Authority in its decision of
27 July 2016 authorising the acquisition of the Darty company by the Fnac group.21 In this
decision, the Authority, for the first time in France and Europe, considered the market for
the retail distribution of certain domestic electronic products to include both online and
in-store sales. The Authority then based its analysis of the horizontal effects on the GUPPI
test to conclude that a post-merger price increase by the new entity was likely. The Authority
also noted that the transaction would lead to a risk of stores not being incentivised to propose
price discounts or punctual promotions that would likely enhance local competition. To
meet the identified concerns, the Fnac group has committed to divest six stores to one or
more retailers of electronic products. Consequently, the Authority cleared the acquisition,
considering that this divestiture will guarantee sufficient competition in the market of retail
distribution of electronic products in Paris and its suburbs.
It should be noted that the French Competition Authority is currently reflecting upon
a revision of its merger control guidelines. Such revision aims at incorporating recent case law
developments regarding decision-making practices into the existing soft law rules governing
the analysis of merger operations. Following the consultation of interested third parties, the
Competition Authority has announced the adoption of new guidelines during the course of
2019.
ii Substantial penalties for gun-jumping

When French thresholds are met, a pre-merger filing is mandatory. This applies to all
concentrations, including foreign-to-foreign transactions, even in the absence of an overlap
between parties’ activities.
Individuals and companies acquiring control of all or part of an undertaking are
responsible for notifying. In the case of a merger, this obligation is incumbent upon the
merging entities. In the case of a joint venture, parent companies must file a joint notification.
Sanctions for not filing or for closing before clearance are as follows:
a corporate entities: up to 5 per cent of the turnover in France during the previous
financial year (plus, where applicable, that of the acquired part generated in France);
and
b individuals: up to €1.5 million.
An example of a sanction for the first type of gun-jumping (i.e., for failing to notify) can be
found in case No. 13-D-22.22 On 26 December 2013, the Competition Authority imposed a
fine of €4 million on Castel Frères, a company active in the wine sector, for failing to notify
its acquisition of six companies before closing the transaction on 6 May 2011. It was only in
21 Case No. 16-DCC-111.

22 Situation of the Castel Group in light of Article 430-8 of the Commercial Code, decision dated
20 December 2013, case No. 13-D-22.
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September 2011, in the context of the examination of another acquisition, that this merger
was reported to the Authority by a third party. On appeal, the fine was reduced to €3 million
on the grounds that the transaction was notified shortly after the Authority’s request and that
Castel Frères did not intend to bypass the competition rules.23
Regarding the second type of sanction for premature implementation, the Competition
Authority imposed a fine for a breach of the standstill obligation for the first time in 2016.
In 2014, Altice, active in the French telecom market through its subsidiary Numericable,
notified the planned acquisition of SFR and OTL, which was authorised by the Authority
in October 2014. In April 2015, the Authority conducted a dawn raid on the premises of
Numericable, SFR and OTL, and found evidence that Altice was involved in SFR’s business
and strategy prior to clearance, notably in approving the participation of SFR in a public
tender, assisting SFR in renegotiating a network sharing agreement with Bouygues Telecom,
determining the prices of SFR internet retail offers and coordinating with SFR in the context
of OTL’s acquisition. As a result, on 8 November 2016, the Competition Authority imposed
a fine of €80 million on Altice Group for implementing two transactions prior to obtaining
merger control clearance.24 This is one of the highest fines worldwide ever enforced for such
a practice.
Finally, parties may be required, subject to a periodic penalty for non-compliance,
either to file a concentration or to demerge. Transactions that have been completed without
clearance are illegal and not enforceable. There are no criminal sanctions for not filing.
iii Diversification of remedies that can be imposed by the Competition Authority

Regarding commitments and injunctions, in its new merger control guidelines the
Competition Authority provides several examples of its decision-making practice, which
is characterised by a preference for structural remedies (e.g., divestment of minority
shareholdings). However, in the case of complex transactions, the Authority pragmatically
accepts behavioural remedies, of which it provides several examples. Merger review over the
past few years tends to confirm such trend. For instance, in 2016, in five cases out of six, the
Authority conditioned its approval only on behavioural remedies. However, 2018 was a more
balanced year, as in half of its cases, the Authority cleared transactions subject to structural
remedies,25 and conditioned its approval only on behavioural remedies for the other half.26
Recently, the French Competition Authority accepted fix-it-first commitments so as to
remedy the anticompetitive effects of the acquisition of Alsa by Dr Oetker (Ancel).27 Within
the market for fabrication and marketing of dessert mixes to supermarkets and hypermarkets,
the Competition Authority identified the risk of a price increase following the completion of
the transaction as well as a lack of credible alternative suppliers. The Competition Authority
addressed in advance the aforementioned competition concerns and granted Dr Oetker
23 Judgment of the Supreme Administrative Court dated 15 April 2016, appeal No. 375658.
24 Situation of the Altice group with regard to Section II of Article L 430-8, decision dated
8 November 2016, case No. 16-D-24.
25 Acquisition of Zormat, Les Chênes and Puech Eco by Carrefour Supermarchés France, decision
dated 27 April 2018, case No. 18-DCC-65; acquisition of Jardiland by InVivo Retail, decision dated
24 August 21018, case No. 18-DCC-148.
26 Acquisition of SDRO and Robert II by Groupe Bernard Hayot, decision dated 23 August 2018, case No.
18-DCC-142; creation of a full-function joint-venture between Global Blue and Planet Payment, decision
dated 28 December 2018, case No. 18-DCC-235.
27 Case 19-DCC-15.
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approval to enter a trademark licensing agreement for Ancel mixes for a duration of five
years, renewable once. Thereafter, the licence would be conceded to Sainte Lucie, which is
active in a distinct market, namely the market for fabrication and marketing of baking aids to
supermarkets and hypermarkets. Sainte Lucie’s consistent growth in the past few years served
to assure the Competition Authority of a credible alternative in the relevant market.
It is important to note that the Competition Authority carefully monitors the
implementation of remedies, and may withdraw an authorisation in cases of non-compliance.
In such a case, the parties will then have to either restore the situation to what it was before
the transaction (i.e., unwind the operation) or re-notify the transaction to the Competition
Authority within a month. Compliance with commitments by companies is central to the
process of French merger control. The power of the Authority to withdraw merger approvals
was validated in 2012 by a decision of the French Constitutional Court in the context of the
appeal by Canal Plus and Vivendi against an order to re-notify the purchase of its former rival
TPS.28 The Authority withdrew its approval on the ground that Canal Plus Group did not
fulfil several commitments that were attached to the authorisation decision.
If such non-compliance with remedies is confirmed, the Competition Authority is also
able to impose financial penalties on the notifying parties of up to 5 per cent of their net
turnover achieved in France. In this regard, in 2018, the Competition Authority fined the
Fnac and Darty Group €20 million for non-compliance with commitments made when
Darty was taken over by Fnac.29
iv Contemplated changes in the French merger control regime

The Competition Authority launched an initiative on 20 October 2017 to modernise and
simplify the merger law. The topics proposed for consideration included, among others, the
simplification of merger procedures (especially the current simplified procedure) and the
introduction of limited ex post control by the Competition Authority or the reintroduction
of a market share threshold.
On 25 April 2019, a decree was issued regarding the simplification of merger procedures:
namely, the notification procedure has been streamlined. Parties are only required to submit
one copy of the notification notice instead of four material copies. Additionally, the threshold
from which a market is considered to be affected for the analysis of vertical effects was raised
from 25 to 30 per cent. The decree also simplifies the summary tables of the financial data of
the companies concerned.
The French Competition Authority’s reflection on limited ex post control is ongoing.
To date, the Authority contemplates an ex post control system for concentrations that do not
fall within the Commission’s jurisdiction but that present substantial competition concerns
in France. The Authority is considering a time limit of between six months and two years
at the end of which an ex post intervention would no longer be possible; and a cumulative
worldwide total turnover excluding VAT of those companies exceeding a certain threshold
(for example, the current threshold €150 million).
28 Case No. 2012-280 further to a request for a preliminary ruling on a question of constitutionality.
29 Case No. 18-D-16.
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X OUTLOOK
On 19 March 2019, the European Union adopted Regulation 2019/452, which establishes
a framework for the screening of foreign direct investment into the Union. This new
Regulation, which will apply as from 11 October 2020, aims to encourage cooperation and
information-sharing between Member States and the European Commission where a foreign
direct investment in one Member State is likely to affect the security or public order of other
Member States.
It does not establish any centralised screening mechanism at an EU level under
which an EU body would make the final decision on foreign investments. However, this
new Regulation confirms the power granted to each Member State to implement a foreign
investment control regime that may notably consider the effect of a contemplated investment
on critical infrastructure (e.g., defence, electoral or financial infrastructure), on critical
technologies or on the freedom of the press and media plurality.
More significantly, the new Regulation sets forth a cooperation mechanism in relation
to foreign direct investments undergoing screening. Each Member State shall inform the
European Commission and the other Member States as soon as possible when foreign
investments are subject to a control procedure on its territory. The other Member States may
then send comments to the Member State in which an investment is contemplated if they
consider that such foreign investment is likely to affect its security or public order or if they
have information relevant to such investment. At the request of a Member State or on its
own initiative, the Commission may issue an opinion, and must issue such opinion when at
least one-third of Member States consider that a foreign investment is likely to affect their
security or public order. The Commission and Member States shall issue their comments and
opinions within a reasonable period of time, and no later than 35 calendar days following
receipt of the notification made by the Member State in which the investment is planned.
The Member State conducting the screening of the related foreign investment shall give due
consideration to the comments of the other Member States and to the Commission’s opinion.
Even though the Members States will retain the ultimate decision-making power in this
respect, this new EU Regulation can be expected to add a layer of complexity to the review
process and potentially impact approval timelines in the future.
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Chapter 19
GERMANY
Heinrich Knepper1

2018 was, seen globally, a very good year for the M&A market, with aggregate volumes
of M&A deals reaching an estimated US$3.5 trillion, an increase in comparison to 2007
of almost 12 per cent. According to Merger Market, 2018 was thus the third-biggest year
in terms of volumes and the second-highest in average deal sizes. Global buyout activity
reached US$557 billion, the highest total in a decade and 3.7 per cent more than 2017
(US$537 billion). M&A deals driven by private equity or financial investors or sponsors who
exited their investment reached the second-highest number of deals on record, registering
2,450 exit transactions compared to a peak of 2,592 in 2017.
The value of European M&A also reached a post-crisis high (US$989.2 billion) in
2018, which was also the highest share of global M&A (28 per cent) by value since 2014.
However, it was a year of two halves: the first six months were very strong followed by an
increasingly difficult environment, which caused the market to stall notably in the second
six months.
Although Europe experienced 11 megadeals (greater than US$10 billion) in 2018,
four more than throughout 2017, all of them had been announced by May. Firms have been
forced to reconsider high-profile investments through a combination of rising protectionism,
government intervention and continued uncertainty. Just 10 deals in excess of US$5 billion
were recorded in H2. These included Hitachi’s US$9.4 billion acquisition of ABB’s power
grids business and the US$7.1 billion Calsonic Kansei/Magneti Marelli deal. Concerned by
the activity slowdown in H2, dealmakers are anxious about whether 2019 will see a return of
the buoyant levels of recent years.
Brexit was a major factor. The protracted uncertainty about the UK’s future relationship
with the rest of the EU caused a market slowdown in M&A activity. This was acutely felt in
the final quarter of the year as Theresa May faced battles on all sides of Parliament once her
deal with the EU had been agreed.
The German M&A market (looking at transactions involving at least one significant
German participant as buyer, seller or target) stalled or slightly dropped. Still, the German
M&A market in 2018 ranked second in Europe after the UK. The clearly dominant
transactions, both in Q1 and Q2, were the reorganisation of the German energy market
caused by the acquisition of Innogy SE by EON, which accounted for more than one-third of
the total 2018 deal value, and Vodafone’s takeover of Liberty Global’s assets in Germany and
1 Heinrich Knepper is a partner at Hengeler Mueller Partnerschaft von Rechtsanwaelten mbB.
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CEE. After a very strong beginning, increasing uncertainty let to a decline in market activity
in Germany in the second half of the year, with deal values of US$15 billion and 8.5 billion,
respectively, in Q3 and Q4.
Nevertheless, a number of high-profile M&A deals were seen in the past year. The
single most notable M&A transaction with German involvement was the acquisition by
E.ON SE of Innogy SE with a deal volume of approximately €38 billion, combined with a
swap of assets between E.ON and the previous majority owner of Innogy, RWE. Further top
ten German deals included:
a the acquisition by Vodafone plc of the German and Central European cable business
of UnityMedia (including UnityMedia Hungary, Romania, Germany and the Czech
Republic) from Liberty, for a total purchase price of €18.4 billion; the acquisition by
SAP SE of Qualtrics, LLC from its previous (private equity) owners;
b the acquisition by Gebrüder Knauf Verwaltungsgesellschaft KG of USG Corporation
for a purchase price of €5.3 billion;
c the sale by Macquarie of its participation in Techem GmbH, one of the German market
leaders in usage tracking devices for households (in particular heating meters) for €4.6
billion;
d the acquisition by Procter & Gamble of the consumer health business from Merck
KGaA (with a purchase price of €3.4 billion);
e the acquisition by Temasek Holdings BTE of a minority stake in Bayer AG (purchase
price: €3 billion);
f the sale by Kühne Holding AG of its majority stake in VTG to Morgan Stanley
Infrastructure Inc (€2.3 billion); and
g the acquisition by EQT Partners AB of Suse Linux GmbH from Microfocus
International plc.
Given the sheer size of the single largest German M&A transaction (which was at the same
time the third-largest M&A transaction worldwide), that is, the acquisition by E.ON of
Innogy, the energy, mining and utilities sector was the most targeted sector by value. This
takeover, creating one of the biggest energy utilities with a strong focus on renewable energies,
demonstrated the global shift towards cleaner and more efficient energy business. The deal
will see E.ON focus on driving sales by growing its supply and networks coverage, while
RWE will consolidate its power generation assets and build its renewable capacity.
The total number of initial public offerings (IPOs) in Germany in 2018 in the prime
standard segment of the German stock exchanges doubled in comparison to 2017 to a
total of 16, thereby reaching their highest number since the outbreak of the financial crisis
in 2007. The volume of IPOs increased as well, tripling to almost €12 billion (in 2017:
approximately €3 billion). The main drivers for this positive development were the IPOs of
Siemens Healthineers, Knorr-Bremse and DWS that, with a total aggregate IPO volume of
€9.5 billion, accounted for more than 80 per cent of the total volume. Siemens Healthineers,
with an IPO volume of €4.5 billion, achieved the single biggest IPO in Europe.

The main source of regulation for public takeovers in Germany is the Takeover Act, as amended
in 2006 to implement the EU Takeover Directive, as well as the German Stock Corporation
Act, which provides the general framework of the corporate legislation pertaining to German
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stock corporations. In addition, provisions of the German Securities Trading Act, including
provisions on the disclosure of holdings of listed securities and certain other instruments, are
relevant in connection with any public takeover relating to German target companies (or, in
some respects, companies with securities that are listed at a German stock exchange).
Further provisions relevant for the implementation of a public takeover and potential
further steps after the completion of a takeover are set out in the German Act on Corporate
Transformation, the Stock Exchange Act, the Offering Prospectus Act and the Commercial
Code.
The Takeover Act creates a comprehensive legal framework that enables public takeovers
to be conducted fairly and transparently. The Takeover Act is also designed to protect the
financial interests of minority shareholders and employees of target companies. It contains,
inter alia, provisions dealing with takeover bids and mandatory bids, including provisions
on pricing and procedure, and requirements in relation to the contents of offer documents.
The Takeover Act also provides a specific squeeze-out procedure following a successful
takeover bid (in addition to the general squeeze-out provisions under the Stock Corporation
Act and the squeeze-out provisions under the Act on Corporate Transformations) and a right
of sell out for minority shareholders following a successful takeover bid.
Pursuant to the Takeover Act, the Federal Ministry of Finance has adopted a number
of regulations, one of which contains important provisions governing the contents of an offer
document, the consideration payable in a takeover bid and exemptions from the obligation
to make a compulsory offer.
In implementing the EU Takeover Directive, Germany has taken a minimalist
approach, changing the existing German Takeover Act only to the extent necessary. In
particular, Germany has opted out of the strict provisions of the Takeover Directive on
frustrating actions that would have made such actions in hostile takeover scenarios generally
subject to shareholder approval. Germany has also opted out of the breakthrough rule under
the Takeover Directive that would have resulted in setting aside certain transfer restrictions
and voting agreements during a takeover bid. The German non-frustration rules allow a
target to take any action, including a frustrating action, with the consent of its supervisory
board. However, it is generally acknowledged that in giving its consent, the supervisory board
is bound to authorise a frustrating action in a takeover situation only if the benefit for the
company of implementing the action clearly outweighs the interests of the shareholders.
Although the stricter prohibitions of defensive measures and the breakthrough rules
under the Takeover Directive could be opted in by German publicly listed companies, this
possibility has not been used by any of the larger German corporates.
The Stock Corporation Act contains provisions relevant for all German stock
corporations (both public and private), including:
a provisions relevant to public and private takeovers of stock corporations;
b provisions relating to the implementation of permissible defences that can be employed
against hostile public takeovers;
c provisions on the squeeze-out of minority shareholders by a majority shareholder (both
in the case of publicly listed and private stock corporations) by a shareholder who has
achieved 95 per cent or more of the shares of the corporation.
The Securities Trading Act contains provisions relating to reporting requirements for
significant shareholdings and reporting obligations for listed companies regarding major
new business developments; these reporting requirements for major shareholdings have
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been significantly extended since 2011 to include reporting obligations for holders of other
instruments linked to shares. On the other hand, the areas of insider dealing and market
manipulation, which were addressed previously in the Securities Trading Act as well, are
now regulated on a European level on the basis of the Market Abuse Regulation (MAR);2 see
Section III.i.
The Act on Corporate Transformations contains the mechanics for a process of statutory
mergers between two German companies, which can be an alternative to a takeover offer. It
also contains the most important provisions regarding corporate restructurings that could be
relevant in the post-closing phase both for public and private acquisitions, including, since
2011, provisions allowing the majority shareholder of a stock corporation (which itself has to
be a stock corporation holding at least 90 per cent of the registered share capital of the target
company) to squeeze out the remaining minority of up to 10 per cent by implementing a
merger between the target and the shareholder (for the shareholder as surviving corporation).
The Stock Exchange Act and the Offering Prospectus Act set out the rules dealing with
prospectus requirements applicable when issuing new shares as consideration for a takeover
offer.
The Commercial Code provides for extensive disclosure obligations for publicly listed
companies in respect of:
a the structure of their share capital;
b the statutory provisions and provisions under a company’s articles on the nomination
and dismissal of members of the supervisory and management boards; and
c certain categories of agreements or matters that may frustrate a takeover offer, including
agreements among shareholders on the exercise of voting rights and the transfer of
shares (to the extent that these agreements are known to the management board), and
material agreements of a company providing for a change of control clause.

THEIR IMPACT
i EU Market Abuse Regulation
A notable change to the capital markets laws that has had a significant effect on M&A
transactions on a number of levels is related to the immediate applicability in all EU Member
States of the Market Abuse Regulation (MAR),3 effective as of 3 July 2016. The provisions of
the MAR have replaced a number of capital markets regulations of individual Member States
and, in many cases, significantly increase and strengthen compliance obligations. In particular,
any issuers with securities that are traded, at the initiative of the issuer, in the regulated
unofficial markets, will in the future be subject to obligations to disclose inside information
ad hoc, to maintain insider lists and to comply with regulations on directors’ dealings. In
addition, rules restricting insider dealings and market manipulations will be significantly
more strict, and potential sanctions in the case of infringements will be strengthened and
more severe.
Two years after the coming into effect of the MAR, the assessment of its impact has
yielded mixed results, and the Regulation itself as well as its application by the German
2 Market Abuse Regulation (Regulation 596/2014 of the European Parliament and of the Council).
3 Regulation (EU) No. 596/2014 of the European Parliament and of the Council of 16 April 2014 on
market abuse.
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regulator have also drawn significant criticism. According to a recent survey,4 the MAR has in
fact not yet led to greater legal certainty, but has instead decreased clarity in areas such as ad
hoc disclosure duties. At the same time, while the bureaucratic hurdles faced by issuers have
grown, investor protection has not improved.
The complicated ad hoc rules not only cause uncertainty among companies in the mid
to long-term, but could also develop into a considerable disadvantage for Germany as a
jurisdiction in which to undertake M&A transactions.
If companies postpone ad hoc disclosure early on as a precautionary measure, then they
must simultaneously ensure that insiders no longer trade in the relevant securities. At an early
stage, however, not all members of the management and supervisory boards are routinely
informed. In practice, postponement can usually only be maintained for a short time.
In a fiercely competitive M&A environment, the rules result in a clear disadvantage for
listed companies. Privately held companies or companies from non-EU jurisdictions with
more business-friendly rules, on the other hand, can exploit advantages in an M&A situation.
ii German Investment Code

In 2013, the German legislator enacted the German Investment Code (GIC), which
implemented the Alternative Investment Fund Managers Directive (AIFMD).5 The GIC
applies, inter alia, to managers of alternative investment funds (AIFs) (including private
equity funds) and aims to reduce the risks posed by AIF managers (AIFMs) to the financial
system by introducing various mandatory disclosure, corporate governance, liquidity
management and other requirements. In accordance with the AIFMD, the GIC contains
certain de minimis provisions under which AIFMs managing AIFs below certain thresholds
are exempted from full application of the GIC and are subject only to a registration rather
than a licensing requirement.
Certain elements of the GIC are of relevance to private equity investors. In particular,
the GIC contains a requirement for AIFMs to hold a minimum amount of capital (Section
25). For an internally managed AIF (i.e., when the management functions are performed
by the governing body or any other internal manager of the fund), the minimum level
is €300,000; however, for an AIFM that is an external manager to an AIF (or AIFs), it
is €125,000. In addition, if the value of the portfolios under management exceeds €250
million, the AIFM must provide its own funds equal to 0.02 per cent of the amount in excess
of €250 million. This additional capital requirement is capped at €10 million. The GIC also
imposes wide-ranging disclosure obligations on AIFMs. For example, managers are required
to make regular disclosures to investors, including an annual report and numerous additional
disclosures, such as details of investment strategy, liquidity and risks, and the use of leverage.
In addition to these disclosures to investors, managers are required to disclose to the relevant
authorities details of major shareholdings in non-listed (as well as listed) companies, if these
holdings exceed or fall below thresholds of 10, 20, 30, 50 and 75 per cent (Section 289).
These disclosure obligations are particularly onerous for private equity investors.
4 Source: survey conducted by Hengeler Mueller Partnerschaft von Rechtsanwaelten mbB and Deutsches
Aktieninstitut, an association that represents the interests of publicly traded companies, banks, stock
exchanges and investors.
5 Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative
Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC)
No. 1060/2009 and (EU) No. 1095/2010.
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The GIC also provides for a restriction on asset stripping where a private equity fund
subject to regulation under the GIC has acquired control over an unlisted company or over
an issuer. In particular, independent from the specific legal form of a target, any amounts
available for distribution must always be determined on the basis of the annual accounts of
the immediately preceding fiscal year. In the case of targets in the form of a limited liability
company (the most frequent corporate form in Germany), it remains unclear (and it has
so far not been decided by any court) if these restrictions impose restrictions on capital or
dividend distributions in addition to the statutory restrictions under the Limited Liability
Company Act, in particular the capital maintenance rules. Furthermore, the GIC restricts
the repurchase of own shares by a target acquired by a fund regulated pursuant to the GIC.
iii Foreign Trade and Payments Ordinance

The Foreign Trade and Payments Ordinance governs foreign direct investment (FDI) control
in Germany. Generally, acquisitions of 25 per cent or more of the voting rights of a German
company by non-European Economic Area investors are subject to foreign investment control
by the Federal Ministry for Economic Affairs and Energy. Under new legislation introduced
in December 2018, this threshold has been lowered to include minority acquisitions of at
least 10 per cent if the target company operates in the area of critical infrastructure and related
technology or manufactures certain military-related products or technology. The government
had already broadened the scope of FDI control in July 2017 when it introduced a filing
obligation for investments in the area of critical infrastructure and doubled the applicable
review period. Despite these amendments, certain cases raised national security concerns,
but were outside the scope of German FDI control because the investor did not reach the
25 per cent threshold. One such notable case was an attempt by a Chinese investor to acquire
a minority stake in German power transmission network operator 50Hertz. Against this
background, lowering the jurisdictional threshold to 10 per cent was seen as the government’s
reaction to a hike in foreign acquisitions in certain sensitive sectors in Germany.
In conjunction with tighter FDI controls around the world, cross-border transactions
may require separate FDI reviews in more than one jurisdiction. Currently, it is too early
to make an assessment of the practical impact of the increased supervision. It is generally
noted, however, that this corresponds to a global tendency towards protectionism, aimed
(not explicitly, but nevertheless clearly) against attempts of Chinese companies (in particular
state-owned enterprises) to gain footholds in Western key industrial sectors.

Germany continues to be one of the most attractive target jurisdictions in Europe, with
478 inbound transactions in 2018 (France: 287, Italy: 264, Netherlands: 259). Only the UK
attracted more inbound deals, with 672 transactions in 2018.6
Outbound activity of German buyers acquiring target companies or businesses
outside Germany dropped once again by about 52 per cent from US$77 billion in 2017 to
US$37 billion in 2018.7
6 Source: Merger Market, Deals with any German involvement.

7 Source: Merger Market – German outbound deals.
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i Significant transactions
The single most significant German M&A transaction was the acquisition of Innogy,
which occurred only a few years after the spin-off of the renewables energy business from
RWE to Innogy, thus creating the by-far largest utility company in Germany and one of
the biggest players in renewable energies Europe-wide. Other significant transactions also
involved energy, and in particular the renewable energy sector. Most notably, Copenhagen
Infrastructure Partners sold its equity and mezzanine loan stake in Veja Mate, a German
offshore wind park. Due to considerable challenges to the German utility industry following
the government’s decision to exit both coal energy generation and nuclear energy, it is to be
expected that, as the sector of renewable energies grows and diversifies, significant M&A
transactions will remain in the pipeline.
Another significant transaction was the acquisition by Vodafone of Unity Media in
Germany and Central Europe. For Germany, this transaction marked another round of the
consolidation of the German telecoms and media cable network. The increasing efforts of
German industry players and the government to promote Industry 4.08 and the expected
introduction in Germany of the 5G network, following the announced auction of the
relevant licences, is expected to spur further M&A activity in the telecoms and media sector.
ii Key trends
The reinstatement of US sanctions against Iran garnered much attention in 2018. For M&A
markets, as well as for the financing of acquisitions, it is in the divergence between US and
EU sanction policies, best reflected in their approaches to Iran, where the EU continues to try
to salvage the deal that led to the relaxation of sanctions while the US reimposes sanctions.
Many companies wish to trade freely worldwide, but where this is impeded, they desire
certainty as to where they can trade without sanctions being imposed.
With the US sanctions having the effect that most trade by European companies with
Iran risks the imposition of sanctions, and the EU legislating to seek to prevent European
business changing their behaviour to comply with US sanctions, businesses often face a
difficult choice between (potentially) losing access to the US markets and building business
with country targets of US sanctions. Any weakening of EU and US relations over the coming
years may well be reflected in the sanctions sphere with further divergence in other sanction
programmes, such as the sanctions against Russia.
The unresolved situation regarding Brexit continues to make itself felt also in the
M&A market and the market for acquisition financings, with many participants fearing
that a drift between UK and Europe, including a drift between the applicable laws, may
impede the globalisation of the M&A market and acquisition financing market, and lead to
a fragmentation and regionalisation of these markets.
It is generally expected that the general slowdown of economic activity in Germany
and the eurozone in general may result in increased numbers of restructurings, distressed
financings and distressed M&A transactions in the near future. In the years following the
8 A national strategic initiative of the government that aims to drive digital manufacturing forward by
increasing digitisation and the interconnection of products, value chains and business models. It also aims
to support research, the networking of industry partners and standardisation: https://ec.europa.eu/growth/
tools-databases/dem/monitor/sites/default/files/DTM_Industrie%204.0.pdf.
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immediate aftermath of the financial crisis, total numbers of restructurings and distressed
financing cases decreased, partly (as is believed) as a result of the high availability of (relatively
cheap) financing. An increased volatility in financial markets, the potential uptake of
inflation and, as a result, increased financing costs, are expected to increase the number of
restructurings as well as insolvencies in particular in Germany.
iii Hot industries

The automotive industry, still the most important traditional industry in Germany, has
remained in the focus also of M&A activities and is expected to generate significant additional
M&A activity in the future. Worldwide, the automotive industry has increased investment
in electro mobility and automated driving; very often, this investment takes the form of
the acquisition of start-up companies. At the same time, due to the receding significance
of traditional petrol and fuel motors, the automobile industry is in parts expected to
significantly shrink and to divest. Finally, also due to the challenges faced by the automotive
industry, combined with the slowdown in economic activity in the eurozone and Germany
in particular, it is expected that the number of restructurings, and thus the potential for
distressed M&A transactions, will increase specifically in the automotive and automotive
supplier industry.
In addition, the energy sector is expected to remain one of the most active fields in the
M&A sector, partly due to the switch in Germany from both coal and nuclear power stations
to renewables.

The availability of M&A-related financing generally continued to be strong in 2018, given
the still very low interest environment and competition for banks from alternative lenders
such as debt funds on leveraged buyouts.
However, after years of nearly uninterrupted strength, the credit markets have shown
volatility and signs of weakness recently. As a result, many acquirers seeking to finance their
M&A deals in the debt markets have faced challenges rarely seen in recent years.
Different financing sources may have markedly different views of the risk that any
particular financing transaction presents, and as a result may offer significantly divergent
terms. Even in normal times, financial institutions (and particularly different types of financial
institutions: money-centre commercial banks, investment banks or alternative lenders) have
different risk tolerances, but recent volatility and unpredictability in the financing markets
have resulted in greater differentiation in the terms that individual financing sources are
willing to offer potential borrowers.
The Euro Overnight Index Average (Eonia) and the Euro Interbank Offered Rate
(Euribor) are about to be either replaced or transformed, because neither complies with the
recently introduced EU Benchmarks Regulation (BMR).
Euribor and Eonia are critically important interest rate benchmarks for the eurozone.
The race is on to reform Euribor so that it complies before the BMR authorisation deadline
of 1 January 2020. No attempt will be made to reform Eonia, however, and transition to a
new overnight reference rate will be required.
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European authorities have established an industry working group tasked with

recommending alternative euro risk-free rates and a plan for adopting them. The European
Central Bank is simultaneously developing Euro Short-Term Rate (ESTER), a new euro
unsecured overnight interest rate, a possible alternative to Eonia and, potentially, to Euribor.
While regulators are supportive of the Euribor reform process, its success is not
guaranteed. There are scenarios where the volume of transactions in the market that Euribor
is meant to reflect prove insufficient even for a hybrid methodology. This could leave industry
needing to adopt (as yet, undefined) new reference rates for new business from as early as
January 2020.
Capital markets, in particular the high yield bond market in Germany, has remained
at a relatively low level. Only a few German-domiciled or headquartered issuers tried to tap
the high yield bond market, and some of them turned directly to the more liquid US market.
As a result of the impending Brexit (and the uncertainties around the immediate
and long-term consequences of Brexit), financing banks and other lenders have become
increasingly aware of the potential risks involving the choice of English law for financing
transactions. So far, the vast majority of syndicated financing in Europe is still expressed
to be governed by English law. However, unless the EU and the United Kingdom agree
otherwise, court decisions rendered in the United Kingdom will, once the United Kingdom
has effectively left the EU, no longer enjoy the benefit of direct enforceability under the
EU Regulation9 on jurisdiction and the recognition and enforcement of judgments in civil
commercial matters (repast). Increasingly, financial players are therefore looking at potential
alternatives to English law as the governing law for financial products. Increasingly, in
particular in smaller or mid-size transactions with a limited number of syndicate members,
German law and German court jurisdiction are chosen in financing contracts.
VII EMPLOYMENT LAW

The most notable developments in German employment law in 2018 that may be of relevance
in an M&A context essentially concern temporary agency workers, business transfers and the
minimum wage. Additionally, in May 2018, the EU General Data Protection Regulation
entered into force, further tightening the rules on data processing and imposing additional
information and documentation requirements on employers.
i Temporary agency workers

In the aftermath of the 2017 fundamental amendments to the German Act on Temporary
Agency Work (2017 Act), 2018 was a year of consolidation, characterised by court decisions,
mostly those of local and regional courts, aiming to clarify and sharpen the interpretation of
the new law. A number of these issues are pending on appeal before the federal courts. Key
questions at issue relate to the counting of agency workers regarding statutory law thresholds,
equal pay and duties to offer actual employment to agency workers.
As per the 2017 Act, agency workers count towards the thresholds for co-determination
and works constitution purposes, provided that their term of service in an establishment
exceeds six months. It remains unclear whether length of service has to be determined
individually for each agency worker, or whether the relevant factor is that a given job has
9 Regulation No. 1215/2012 of the European Parliament of the Council.
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been occupied by (one or several consecutive) agency workers for a time period exceeding
six months. Recent lower and regional court decisions have taken different positions on the
issue.
On a related issue, courts at both the local and regional levels have held that the
cancellation of contracts for agency work does not count towards the number of terminations
required to constitute an operational change within the meaning of Section 111 of the
German Works Constitution Act. Their key argument is that agency workers do not form
part of the workforce of the hirer for the purposes of such norm, since the termination of a
contract between a hirer and an agency does not make the agency worker lose its employer.
Whether this will be upheld by the Federal Labour Court remains to be seen. The Federal
Labour Court, on the other hand, has requested a preliminary ruling by the European Court
of Justice (ECJ) on whether agency workers count towards the thresholds relative to mass
redundancy proceedings. A decision thereon will likely also impact the operational change
issue.
Another key contested subject is equal pay: principally, this has to be provided to an
agency worker from the outset of his or her engagement by a hirer. Collective bargaining
agreements (CBAs) may provide for postponement for up to nine or, under limited
circumstances, up to 15 months. Employers not bound by CBAs may adopt the rules of
regional CBAs for their industry, for example by reference to employment agreements. A
challenge to such exemption as being in violation of the EU Directive on Agency Work has
recently been rejected by a regional labour court. However, until decided by the ECJ, this will
remain a source of uncertainty. Another contested item in this context is what elements count
towards equal pay. The Federal Social Court has ruled that only compensation payments
in the strict sense count, whereas payments compensating for costs incurred by an agency
worker in connection with his or her engagement (e.g., travel cost reimbursements) do not.
Nevertheless, many aspects of what exactly constitutes equal pay remain unclear. Finally, in
this context, it is worth noting that per precedent by the Federal Labour Court, the results of
social security audits conducted at an employer may be amended to his or her detriment if a
different assessment is subsequently mandated, for example in light of a new precedent. The
decided case concerned an agency that had to pay substantially higher contributions after a
CBA applied by it had been declared void in court.
Under the 2017 Act, a general 18-month limit on the use of individual temporary
agency workers by a hirer applies. Longer maximum terms may be permitted by CBAs,
or indirectly by shop agreements put in place on the basis of a CBA. A number of CBAs
concluded in the meantime allow for longer terms, for example of 48 months. Employers not
legally bound by CBAs may adopt the maximum length permitted under a regional CBA that
applies to their industry. In this context, CBAs commonly provide for a duty of the hirer to
offer employment to an agency worker after a defined term of engagement, and oftentimes
further provide that such duty can be excluded by conclusion of shop agreements regarding
the use of agency work. Per decisions of the regional labour courts, such shop agreements
do not have to specifically deal with offers of employment; rather, agreements on any issues
relative to the use of agency workers suffice. The issue has been appealed to the Federal
Labour Court.
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ii Business transfers
In the field of business transfers within the meaning of Section 613a of the German Civil
Code, 2018 was yet another year of stability. The Federal Labour Court has essentially
confirmed its stand on previously treated items and sharpened other aspects.
In one ruling, the Federal Labour Court denied the existence of a business transfer due
to the lack of control over the business by the presumed new employer. In the given case, the
original employer transferred its production equipment to a sister company, which agreed to
and subsequently did act as toll manufacturer and agent for and in the name of the original
employer. The Court held that the sister company failed to have control as it did not manage
the business in its own name or act as owner of the business in relation to third parties. This
was not overweighed by the fact that the company did act in its own name in relation to
public authorities and workers’ unions in the context of the employment relationships that
had presumably transferred.
Further to that, several cases are currently pending before the Federal Labour Court
regarding the liability of an acquirer for company pension rights in the event that a
transferred business was acquired from a company subject to insolvency proceedings, and
preliminary rulings thereon have been requested from the ECJ. Key questions raised are
whether an acquirer will only be liable for future service-related obligations, or whether he
or she may also be held liable for obligations relative to pre-transfer periods of service; and
whether an acquirer may be held liable for obligations relative to past service in cases where
an employee did not have a vested expectancy at the time when insolvency proceedings were
commenced. So far, the German courts’ stance has essentially been that an acquirer is not
liable for past service-related obligations. In principle, these will fall within the responsibility
of the mandatory statutory pension insolvency insurance provided they were vested, did not
exceed certain value thresholds and were not channelled through a pension fund; otherwise,
they are principally forfeited. If the ECJ were to find that the acquirer was liable for past
service-related obligations, this would make the acquisition of businesses from insolvency
substantially less attractive in cases where company pension obligations exist.
iii Minimum wage

The minimum gross wage of employees across all sectors in Germany, which was €8.84 per
working hour in 2018, was increased to €9.19 as per 1 January 2019 by regulation of the
federal government, and will further increase to €9.35 in 2020.
In notable decisions on the subject, the Federal Labour Court further clarified which
kinds of payments count towards the minimum wage requirement. As per earlier precedent,
payments by an employer only count if they are made in return for work performed and
are unconditional and irrevocable. That is to say, generally, payments do not count if they
are made as a reward for a purpose other than the actual performance of work or for which
statutory law defines a specific purpose. In 2018, the Court declared that attendance bonuses
in principle do count.
Further thereto, the Federal Labour Court has ruled that contractual exclusion
clauses in employment agreements concluded after the Minimum Wage Law took effect
on 1 January 2015 and that do not explicitly exclude claims to the minimum wage from
their scope will be void. However, it remains unclear whether this also applies in the case
of employment agreements concluded before such time. Regional labour courts principally
upheld such clauses in 2018, declaring that they were merely void insofar as claims to the
minimum wage were concerned. Nevertheless, until a decision by the Federal Labour Court
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on the issue, there still is a risk that such clauses could be found void in their entirety,
thereby substantially increasing the time frame for bringing claims. On a related note, the
Federal Labour Court decided in 2018 that, different from exclusion clauses in employment
agreements, clauses in CBAs agreed after the Minimum Wage Law took effect that fail
to exclude minimum wage claims from their scope will only be void in such respect, and
otherwise remain applicable.
Last, but not least, in May 2019, the federal government resolved to launch a new law
introducing minimum compensation requirements for apprentices. If the law is adopted as it
currently stands, from 2020 apprentices have to be paid a minimum of €515 gross per month
in their first year, with prescribed increases in the next two years of their apprenticeship.
In 2021, the first-year minimum amount shall increase to €550, and in 2023 to €620.
Exceptions shall be permissible, based on CBAs.
iv Data protection law

In May 2018, the EU General Data Protection Regulation entered into force, further
tightening rules on data processing and imposing additional information and documentation
requirements on employers. Generally, the law makes data processing by employers more
tedious and gives employees tort damages claims in the case of a violation of the duties
thereunder. Employers now, inter alia, have to take organisational measures to ensure that
no data is processed, stored or transferred in violation of the law. Employees have to be
actively informed about the legal basis, purpose and duration of any data processing relative
to them, as well as about recipients of their data, persons responsible for their processing,
the data protection officer of the company, rights to raise complaints as well as revocation
rights for any data processing permission. Further, employees can request information about
the length of time that their processed data will be held and content of their processed data.
And employers have certain information duties in relation to data protection authorities and
affected employees in the case of violations of the law. Essentially the same applies in all EU
Member States.
VIII TAX LAW

The most notable developments in German tax law from the previous edition to date that are
of relevance in an M&A context concern the repatriation of German-sourced profits and new
legislative developments on the German controlled foreign corporations regime and German
real estate transfer taxes. Both legislative projects are still ongoing albeit being discussed for
a long period.
i Repatriation of German-sourced profits and the anti-treaty shopping rule

Dividend distributions carry, in principle, a 25 per cent German withholding tax burden (plus
the still-existing solidarity surcharge of 5.5 per cent thereon). German domestic law offers a
reduction down to 15 per cent if the recipient is a foreign corporation and the EU Parent–
Subsidiary Directive or an applicable treaty might provide for a lower, or even a zero, rate.
This is all, however, subject to the rather harsh German anti-treaty and directive
shopping regime (Section 50d Paragraph 3 of the German Income Tax Act). The respective
withholding tax reduction will not be granted if, among other things, the ultimate parent
would not qualify for the reduced rate and the interposed recipient of the dividend was
either not established for sound economic reasons, or does not engage in general economic
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activities with sufficient substance. If an investment is made (as usually through, for example,
a Luxembourg or Dutch HoldCo) with low (but sufficient) substance, these rules are always a
major issue. While tackling abusive structures is obviously legitimate, the German substance
requirements go beyond that, and the ECJ has held in two recent and ground-breaking
decisions (Deister/Juhler and GS) that the previous and existing German anti-treaty and
directive shopping regimes were in violation of both the freedom of establishment (Article
49 Treaty on the Functioning of the European Union) and the Parent–Subsidiary Directive.
Does this also apply to third-country cases such as investments through, for example,
a Swiss or US HoldCo, which only benefit from the free movement of capital? The answer
should clearly be yes, as the German substance requirements apply irrespective of whether
the investor has a controlling stake, so that freedom of establishment does not block free
movement of capital according to the ECJ’s established formula. German tax authorities
have, not surprisingly, so far taken a very narrow view on how Deister/Juhler should be applied
in practice, and it remains to be seen how the tax authorities and the German legislator will
react to GS.
As a result, there is still a great deal (probably even more) uncertainty when it comes
to tax-planning considerations on the repatriation of German-source profits. Alternative
routes, such as share buybacks and distributions out of a corporation’s contribution accounts
(if available and accessible at all), must still be examined. Receiving dividend distributions
through a German partnership might also be an option on the back of the promising
jurisprudence of the Federal Fiscal Court.
Very recently, the ECJ issued a combined decision on four cases (N Luxembourg 1,
et al.) that contains rather explicit guidelines on what the ECJ considers as abusive, which
criteria should be applied when testing an abuse, and who has the burden of proof. The
legislator has to take this into account for the future of the German anti-treaty and directive
shopping regime, which is, for the time being, in violation of EU law, and hence inapplicable.
ii German controlled foreign companies rules to be revised

As part of Germany’s obligation to implement the rules of the EU Anti-tax Avoidance
Directive into German law, the German rules on controlled foreign companies (CFCs) must
be revised. It is expected that the German legislator will take this opportunity for a more
substantial review of the German CFC rules, which are widely perceived as outdated, for
example, when it comes to passive activity and the threshold for low taxation. However, the
exact content and scope of these revisions is still unclear, as legislation has so far only been
leaked in an unofficial draft version.
iii Amendment of the real estate transfer tax rules

German real estate transfer tax (RETT) becomes due not just upon the direct transfer
of German real estate itself but also upon certain direct or indirect transfers of shares or
partnership interests in real estate-owning companies or partnerships. In particular, RETT
is levied:
a on the direct or indirect transfer of 95 per cent (or more) of the interests in the assets
of a real estate owning partnership within a five-year period (Section 1, Paragraph 2a of
the RETT Act, Partnership Rule);
b if 95 per cent (or more) of the shares or partnership interests in a real estate-owning
company are directly or indirectly transferred to a single person (including related
persons) (Section 1, Paragraph 3 of the RETT Act);
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c if a person (including related persons) holds, as a result of a transaction, directly

or indirectly, 95 per cent (or more) of the shares or partnership interests in a real
estate-owning company (Section 1, Paragraph 3 or the RETT Act); or
d if a person holds, as a result of a transaction, a direct or indirect economic interest of
95 per cent (or more) in a real estate-owning company (Section 1, Paragraph 3a of the
RETT Act).
The threshold of 95 per cent means that, in practice, share deals are often structured in a
way that manages not to trigger RETT. However, there is now a broad political consensus
across party lines to amend the RETT rules with the explicit intention of capturing a larger
percentage of share deals. Hence, and as long-awaited, the German Federal Ministry of
Finance unveiled recently a draft bill for a reform of the RETT Act. Under the draft bill,
the scope of the German RETT provisions regarding the taxation of share deal transactions
would be substantially broadened. The main changes are as follows:
a Generally, the relevant threshold of currently 95 per cent will be lowered to 90 per cent.
b The general watching period of currently five years will be extended to 10 years.
c There will be a new provision that is modelled after the Partnership Rule and extends
its scope to corporations. As a consequence, in the future a direct or indirect transfer
of at least 90 per cent of the shares in a real estate holding corporation within 10 years
to (any number of ) new shareholders will trigger RETT (New Corporation Rule).
The threshold of 90 per cent for indirect transfers is generally calculated by a simple
multiplication of the share and interest percentage. However, there is one notable
exception: if there is a direct change of at least 90 per cent of the shares in a corporation
holding shares in the real estate holding corporation, then 100 per cent of the shares
held by the shareholder corporation would be deemed as transferred.
It remains to be seen how these draft measures will progress through the legislative procedure.
For the time being, however, the draft bill should form the basis of any tax planning
considerations, and in light of the temporal scope it might be worthwhile accelerating
envisaged transactions in order to still come under the current, more beneficial rules. For the
New Corporation Rule, this would require not just the signing but also the closing of the
transaction.
IX COMPETITION LAW
In 2018, the number of merger control notifications reviewed by the Federal Cartel Office
(FCO) remained stable. As in 2017, the FCO reviewed about 1,300 merger control
notifications, and cleared almost all notified transactions (more than 99 per cent) within
the Phase I deadline of one month. Only 12 of the transactions that were filed during 2018
raised (or continue to raise) competitive concerns and were (or still are) being reviewed in
more detail (Phase II proceedings), which is slightly more than last year (10 transactions).
To date, the newly introduced transaction value threshold, which entered into effect on
9 June 2017 as part of the Ninth Amendment of the Act against Restraints of Competition
(ARC), has not led to a considerable increase in merger control notifications. Against the
background of the Facebook/WhatsApp transaction, the Ninth Amendment provides for
a new Section 35, Paragraph 1a of the ARC. Transactions whereby one party generates a
turnover in excess of €25 million in Germany, but the turnover of any other party is below €5
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million in Germany, are now nevertheless subject to merger control if the transaction value
exceeds €400 million and the target company has significant activities in Germany. Focusing
on technology and innovation-driven markets, the new threshold aims at preventing possible
market foreclosure and barriers to entry as well as protecting the potential for innovation.
The new threshold raises two key questions: how to calculate the consideration and
how to determine the local German nexus. To provide further guidance, the FCO and the
Austrian : Federal Competition Authority has published joint guidance on the interpretation
of the new threshold. For the determination of the German local nexus, different criteria
apply to different sectors and activities. As a definitive list of criteria cannot be provided,
a case-by-case assessment remains necessary. The common denominator is that domestic
activities must have market orientation despite the (intermediary) absence of monetisation,
for example because a service is remunerated by means other than monetary payment, a
service is (temporarily) offered free of charge but can be expected to be monetised in the
future, or the activity consists of research and development of (future) products and services.
Based on the purpose of the provision, the transaction value threshold shall cover those
cases where the target shows a high degree of economic and competitive potential. It shall
not address transactions where the (albeit small) generated turnover adequately reflects the
market position and competitive significance.
Of the 12 Phase II transactions, three were cleared unconditionally and one was
prohibited. The FCO did not allow Miba AG (Austria) and Zollern GmbH & Co KG,
Sigmaringen to launch a joint venture to pool their hydrodynamic plain-bearing production
activities. With the merger, buyers in the respective industrial sectors in Germany and other
European countries would have lost an important supply alternative. The two parties were
the major competitors in an already highly concentrated market with high barriers to entry,
as the latter would require extensive technology knowledge and high investments.
While two cases are still under investigation, the parties of six transactions withdrew
their filings after the FCO expressed its competitive concerns: Bunkering Service Providers for
inland waterway vessels Reinplus VanWoerden Bunker GmbH’s and Nord- und Westdeutsche
Bunker GmbH’s supply areas overlapped, and the merger would have reduced the number
of competitors from three to two. Furthermore, Reinplus was also vertically integrated
in the upstream fuel trading markets. In its assessment of the merger of towbar suppliers
Horizon Global Corporation (US) and Brink International BV (Netherlands), the FCO
closely cooperated with the British Competition and Markets Authority. Both authorities
exchanged information and analysis regarding the competition issues that each authority was
investigating, including discussions of possible remedies. One key issue was the important
technical edge the merged entity would have had compared to its smaller competitors. Thus,
both authorities reached similar conclusions that made the parties decide to abandon the
transaction. In an attempted acquisition of the licence for the German-language edition
of National Geographic by Gruner + Jahr, the FCO looked at online, television and print
competition for science magazines and concluded that, despite a decrease in magazine
circulation, Gruner + Jahr’s dominant position in print publications was not sufficiently
controlled by television or online programmes. The other cases, in which a notification was
withdrawn, involved acquisitions of hospitals and petrol stations (i.e., narrow local markets).
In addition to these withdrawals, the FCO emphasised in its year-end press conference
that companies often informally approach the FCO before filing, in particular in cases that
may be critical. Some of the projects presented to the FCO on a confidential basis will then
not even be notified. The FCO is open to confidential guidance proceedings, and increasingly
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engages with parties to a transaction before submitting a formal filing. Depending on the
confidentiality of a transaction, the FCO may even start sending out requests for information
to competitors or customers prior to, or at least on the day of, the formal filing, increasing
the chance of a Phase I clearance in cases that require at least some kind of market testing.
In the Karstadt/Kaufhof acquisition, the long and thorough preparation of the actual merger
control proceeding allowed the case to be cleared during the one-month Phase I proceeding.
The FCO sent out questionnaires to around 100 retail companies and suppliers on the day
of the filing.
The Karstadt/Kaufhof deal was the most important transaction in the retail sector.
Despite the fact that the two companies were the only German department store operators,
the FCO did not assess the department store market, but focused on 20 different product
categories, such as suitcases and bags, underwear, sports and outdoor, and household textiles.
The FCO assessed the case under several possible market definitions ranging from a bricks and
mortar-only perspective to the inclusion of online retailers, which the FCO described as an
important shopping alternative providing for increasing competitive pressure. Competition
between online and offline distribution was also important in the Douglas/Parfümerie Akzente
and DocMorris/apo-rot Versandhandel cases. Douglas, the biggest brick-and-mortar perfume
retailer, purchased Akzente Parfümerie, a strong online sales outlet. In the DocMorris case, the
FCO explicitly concluded that mail order pharmacies compete with stationary outlets, which
is why the combination of two mail order providers did not negatively affect competition.
The retail sector also accounts for one of 2018’s most important judgments of the
Federal Court of Justice in the competition field. After its takeover of the Plus stores in
2008, food retailer EDEKA had unilaterally demanded special conditions from its suppliers
(also called ‘wedding rebates’). A combination of demands with retroactive effect, cherry
picking of individual preferential conditions granted to either of the parties and a request for
substantial bonuses violated the Law on Tapping (Sections 19 (1), (2); 20 (2) ARC), because
it asked suppliers to grant benefits without any objective justification. The Federal Court of
Justice particularly emphasised that EDEKA not only compared conditions applicable at
the time of the transaction. It also considered conditions that had applied only temporarily
before the merger was completed.
Generally, recent merger control and antitrust cases have confirmed the FCO’s focus on
digital markets. Following a 2016 market power of platforms and networks paper, and a big
data and competition working paper of October 2017, in 2018 the FCO published working
papers on online advertising and on competition restraints in online sales after Coty and
Asics. Access to data has become the key parameter in many industries, including the energy,
banking and insurance sectors. The FCO also issued a decision against Facebook prohibiting
the social network from combining user data from different sources. According to the FCO,
Facebook abused its dominant position by violating German data protection provisions. The
decision is not yet definitive.
X OUTLOOK
We expect a significant increase in M&A activity in Germany within the next 12 months.
Increasing globalisation, digitalisation, Industry 4.0, unsolved succession issues in Mittelstand
companies, low interest rates and enormous liquidity in the markets will continue to be
important drivers for M&A. Most German corporates are enjoying strong current trading
in 2018. Solid balance sheets, double digit profitability margins and strong order backlogs
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facilitate M&A transactions and drive valuations. High levels of dry powder, combined with
low interest rates and a scarcity of solid assets, are likely to lead to a further increase of
transaction multiples.
Nevertheless, political and economic risks for the global economy are obvious. These
factors also may have a significant impact on M&A activities. Among these uncertainties are
the unresolved questions around Brexit, increasing tensions between the United States and
China, a drift in respect of foreign policies between countries of the Western Hemisphere and
a potential slowdown, if not reversal, of the decades’-long trend towards globalisation. While
all these factors may in the short term even spur M&A activity, their long-term impact is in
our opinion impossible to predict.
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Chapter 20
GREECE
Cleomenis G Yannikas, Vassilis S Constantinidis and John M Papadakis1

Following many years of deep recession and increased levels of unemployment, Greece is now
trying to recover and restore stability in the Greek economy. Increased taxation and social
security are not helpful, and enterprises are awaiting for stability and solutions to structural
problems of the Greek economy, which will allow extrovert business, new investments and
the creation of new jobs.
At the same time, the government has started to make some progress with the
privatisation procedures already announced as part of the policy framework. After significant
delays, the implementation of several projects in the area of privatisations, such as Ellinikon,
the privatisation of Thessaloniki port and the privatisation of DESFA, has eventually gone
through to a significant extent. In addition, the new hyper fund was created with the aim of
promoting privatisations in a much wider spectrum compared with what was planned some
years ago. However, it remains to be seen how the government will finally treat this politically
sensitive situation.
In addition, Greece has been heavily involved in the refugee crisis, which has significantly
affected an economy and society that was already under pressure, adding further problems
to be managed by the government and Greek society, and creating an odd environment in
the country.
The private sector, to the extent that it is not dependent on the state, has shown it is
capable of surviving despite these difficulties. Under improved circumstances in the financial
environment, it should be able to grow rapidly and recover relatively quickly.

The Greek M&A legal framework is mainly composed of the following:
a Law 4548/2018, on public limited companies;2
b Law 4601/2019 (corporate provisions for business transformations);
c Law 4172/2013 (tax incentives for business transformations);
d Law 2166/1993 (tax and other incentives for business transformations (e.g., merger,
split, spin-off));
e Law 1297/1972 (tax incentives for business transformations);
1 Cleomenis G Yannikas and Vassilis S Constantinidis are senior partners and John M Papadakis is an
associate at Dryllerakis and Associates.
2 Sociétés anonymes, not to be confused with listed companies.
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f Law 3049/2002 on privatisations, and Law 3985/2011 and Law 3986/2011 on the
Privatisation Fund;
g Law 3864/2010 on the Hellenic Financial Stability Fund;
h Law 3777/2009 on cross-border mergers of limited liability companies (implementation
of Directive 2005/56/EC);
i Law 3401/2005 on prospectuses in the case of public offers of securities; (implementation
of Directive 2003/71/EC), which was amended by Law 4374/2016 (adopting EU
Directives 2013/50 and 2014/51);
j Law 3461/2006 on public takeovers (implementation of Directive 2004/25/EC);
k the Athens Stock Exchange Regulation; and
l Law 3959/2011 on Greek merger control provisions.

THEIR IMPACT
An important legislative initiative took place in 2018, aiming to modernise the provisions
governing the société anonyme and create a more attractive framework. In this respect, the
old L2190/20 has now been abolished and replaced by new L4548/2018. Within the same
modernisation framework, a new L4601/2019 has been further introduced, covering all
types of potential corporate transformations (including conversions, mergers, spin-offs),
regardless of corporate form. Some further initiatives are currently in progress regarding the
Commercial Registry and the revision of the corporate governance rules.
Indeed, requests from the business community concern more important measures that
need to be taken to increase the competitiveness of Greek enterprises in their daily operations,
such as fast-track permit procedures.

Notwithstanding the above efforts, the business environment in Greece remains to a large
extent characterised by bureaucracy, administrative procedures and actual disincentives for
foreign investors. One of the recent legislative initiatives refers to the reform of the framework
for strategic investments, the results of which remain to be seen in the near future.
Other than that, within the privatisation programme run by the Hellenic Republic
Asset Development Fund, the majority stake of Thessaloniki Port Authority was sold to a
German-led, French and Russian consortium. In addition, the tender process concerning
the sale of 66 per cent of the state-controlled Greek gas operator DESFA SA went through
successfully, with the Snam–Enagás–Fluxys consortium being awarded as the preferred bidder
of the process. On the other hand, the attempted sale of a 50.1 per cent stake in Hellenic
Petroleum ended in failure, as neither of the two consortiums that had originally expressed
an interest submitted a binding financial offer, while the ongoing process for the concession
of Egnatia Odos is significantly delayed.
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There have been a couple of M&A deals during the past 12 months. In the banking sector,
probably the most interesting deal was the merger between Eurobank Ergasias and Grivalia
Properties REIC. It was respectively announced that the merger creates the best-capitalised
bank in Greece, and the deal was successfully completed in the second quarter of 2019. In
gambling sector, OPAP proceeded with the acquisition of 51per cent of Stoiximan SA (Greek
and Cyprus activities), one of the leading online betting companies in the region. Another
interesting deal concerned the further investment by CVC Capital in the health sector by
further acquiring Hygeia SA hospital after last year having acquired both the Metropolitan
and IASO hospitals.
The real estate sector, after having suffered severely from the effects of the crisis, is
already recovering, with a lot of ongoing investments especially in the tourism sector (e.g.,
Four Seasons Astir Palace Hotel Athens, Grand Hyatt Athens). It is worth mentioning that
the recent trend in favour of short-term leases (e.g., through the Airbnb platform) have
assisted in this development, but the commercial leasing of stores and offices has also started
improving.
It is also finally worth noting the trend of several Greek companies to seek an alternative
to bank financing through the issuance of bond loans. This tendency has continued in the past
year especially through bonds listed on the regulated market of the Athens Stock Exchange.

As far as mergers are concerned, there is no practical need for financing since they are
implemented through an exchange of shares. Acquisitions can either involve an exchange
of shares (which was the case in several past deals, especially in the banking sector) or a cash
consideration, in which case financing is required. Such financing normally takes the form of
one of the two following alternatives:
a self-funding by the shareholders of the acquiring company: the procedures for an
increase in share capital are rather formal, as per the EU directives, especially when
made in cash. A main point of interest is the price offered for the new shares to be issued
(which cannot be less than market value), because this is linked with the valuation of
the company and determines the balance between shareholders; or
b bank financing, which can either be in the form of a classic bank loan or that of a bond
loan (common or convertible) issued by the company: experience shows a tendency in
favour of bond loans due to their favourable tax and other treatment, as well as due
to the easy transfer of bond titles, if needed. It cannot be ignored that, contrary to the
recent past, the severe financial situation has heavily affected and practically eliminated
bank financing for M&A.
In a case of intra-group financing, attention should be paid to the applicable provisions of

Law 4548/2018 regarding related party agreements. In any case, one must also be cautious
about the arm’s-length principle, in accordance with transfer pricing rules.
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VII EMPLOYMENT LAW

Employment legislation was not further developed during 2018 or to date in 2019 as far
as M&A activity is (directly) concerned, except for a couple of provisions pertaining to the
protection of employees’ rights in the case of ship transfers (as part of the business to be
transferred).
On the one hand, there is a plethora of special provisions of law regarding, inter
alia, mergers and restructurings of state-owned enterprises (SOEs) and within the banking
sector. Numerous provisions have been further instituted on an ad hoc basis to regulate
the employment relations of specific state organisations (see, for instance, Article 3 of Law
4138/2013 regarding the merger of local development organisations). However, no generally
applicable rule can be derived therefrom that would be of any interest for the private sector;
past governments very often established special legislative texts for M&A of SOEs due to
their politically sensitive nature.
On the other hand, as a general rule, in the case of a merger there is a full succession
of the surviving (absorbing) entity regarding all the rights and obligations of the merged
company. Accordingly, the latter becomes fully liable for any and all labour obligations of
the former. In the case of acquisitions, there are protective provisions regarding transfers of
businesses (implementation of European law) that provide that both the transferor and the
transferee shall be jointly and severally liable in respect of labour obligations that existed at
the date of transfer. It is worth mentioning that the means of transfer (i.e., if it takes place via
a contract – even an invalid one – or by law, or even by a simple assignment of the operation
of the business without transfer of tangible or intangible assets) is irrelevant, but the transfer
and succession in the employer’s position is examined on a case-by-case basis.
Since 2010, it has been expected that the downturn in the Greek market and the crisis
in the Greek economy would generally give rise to significant changes in employment law,
which might not refer directly to M&A topics but which would nevertheless have an impact,
since the labour perspective is generally a critical point of assessment in an M&A deal. As
part of the agreement for the financial support of the country, Greece undertook to proceed
quickly with radical changes in many sectors of the Greek economy and in the labour market.
The main areas that have been affected from a labour law perspective are as follows:
a introducing restrictions in the system of collective labour agreements or negotiations,
and a more flexible regime;
b abolishing the procedure of referring collective labour disputes to an organisation for
mediation and arbitration;
c increasing the thresholds in the case of group dismissals and, eventually, abolishing the
authorities’ prior approval;
d decreasing severance pay and allowing its repayment in instalments;
e introducing more flexible employment terms (sub minima) for workers under the age
of 25;
f extending probationary periods, facilitating greater use of part-time work, moderating
wages for overtime and introducing remuneration connected to the productivity of a
business; and
g keeping salaries temporarily frozen (initially) for three years after the conclusion of the
previously mentioned memorandum.
There have been quite a few examples of the implementation of the above-mentioned
guidelines during the past seven years. For instance, the Ministers’ Council issued Act No.
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6/2012, which instituted an obligatory decrease of 22 per cent in minimum wages under the
national collective labour agreement, and abolished the possibility of unilaterally resorting
to arbitration in cases where collective bargaining fails. Law 4093/2012 further reduced the
termination severance (mainly by preventing the accrual of seniority rights after November
2012), facilitated the split of annual leave, decreased the requirements for the operation
of temporary work agencies and instituted a number of additional favourable provisions
for the labour market. Most importantly, however, Law 4093/2012 abolished the system of
determining the minimum wage through collective bargaining procedures by introducing
the minimum wage itself. Finally, it vests the government with the power of adjusting the
minimum wage.
In general, the purpose of the above amendments was to reduce the cost of labour
and make the Greek employment market more competitive. On the other hand, various
provisions have been instituted to protect vulnerable groups, such as older employees. Thus,
it is obvious that, due to the financial support of EU Member States and the International
Monetary Fund, Greece has been obliged to proceed more quickly to implement those
measures to ensure the ‘flexicurity’ of the employment market.
However, based on the experience of recent years, the measures implemented so far have
not efficiently served these purposes. The above situation, apart from rendering any reforms
ineffective, has made it unclear whether each provision of this multitude of recent laws
affecting the employment terms in the public and private sectors would survive if contested
before the Greek courts. There had been various judgments of first instance courts (within
the framework of injunction measures) that considered certain provisions concerning public
sector employees as being contrary to the provisions of the Greek Constitution and European
law. In addition, such legislative initiatives of the government had raised multiple concerns
for the Committee on Freedom of Association of the International Labour Organisation’s
governing body, especially as to what regards the weakening and eventual abolishment of
collective bargaining rights and the overall scope of collective bargaining laws. It must be
noted, however, that said changes and restrictions on collective bargaining agreements seem
to be reduced after the expiration of the middle-term bailout programme, and the competent
authorities will start interpreting the respective terms in a way that is more favourable to the
unions’ side. For instance, a collective bargaining agreement at the level of a business could
include provisions deviating from the agreement made for a specific market or profession
and introduce provisions weakening workers’ rights and even reducing salaries, which is no
longer the case as, since August 2018, said option is considered as no longer valid. Similarly,
the government has reinstated the obligatory extension of collective bargaining agreements,
which had been suspended until the end of the economic adjustment programme.
Moreover, the government has made use of the option to define the minimum wage,
and by the end of 2018 had increased the minimum wage to €650 per month (the previous
minimum wage was €586.80), and abolished the distinction between the minimum wage for
young (up to 24 years old) workers and employees that gained a gross salary of €511.00. Said
increase also impacted the social security contributions for both employers and employees,
as well as of other professionals, as the new minimum wage is the basis for the calculation
of the minimum social security contribution for professionals (e.g., lawyers, engineers). On
the other hand, since 1 January 2019, a decrease in the social security contributions for this
category of professionals has been introduced equal to one-third of the percentage calculated
on the total income of the individual, but a suspended auxiliary social security contribution
for these professionals started to be implemented as of 1 January 2019, although not any
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more as a percentage on the individual’s income but just on the minimum wage amount (as
determined with a calculation of years of service); therefore, the hit on the market seems to
be less hard than was expected. In 2014, the Administrative Supreme Court found certain
provisions of Ministers’ Council Act No. 6/2012, and in particular the ones requiring the
consent of both parties (employer and trade union) for the initiation of an intermediation
and arbitration process, to be non-compliant with the constitutional provisions, which led to
the reinstatement of the previous regime of the unilateral application of the interested party
(Law 4303/2014).
In 2016, the government launched a dialogue regarding the introduction of a new social
security system, which was however rejected by, inter alia, the trade unions and professional
associations. The draft bill comprised several structural changes in the area of social security,
with the major ones being to have all social security funds and organisations merged into one;
and the implementation, for all categories of employees, self-employed persons and other
professionals, of a uniform treatment with regards to the calculation of their contributions
based on their annual or monthly income falling within a range of 25 to 36 per cent. There
were a variety of reactions about this restructuring of the social security concept (e.g., Greek
lawyers abstained from their duties for almost six months), but the government managed to
pass the legislation (Law 4387/2016). In terms of employment, a direct impact of the recent
Social Security Act is employees being subject to more than one social insurance organisation
(e.g., through being employees and self-employed at the same time), who are now required
to pay more (approximately double) social security contributions without being entitled to
additional pension amounts.
In 2017, Law 4472/2017 introduced a radical change pertaining to the collective
dismissals legal framework by abolishing the ministerial veto that used to apply under
the previous legal regime, which provided for an information and consultation procedure
between the parties involved as well as the prior approval of the competent authorities in
cases where the parties failed to reach an agreement. New Law 4472/2017 set out a different
procedure on collective layoffs, including the extension of the consultation process of up
to 30 days and the supervision of the procedure by a new supervising body, the Supreme
Labour Council. Pursuant to these new statutory provisions, the Supreme Labour Council is
now in charge of the collective layoffs process, and is also responsible for checking whether
employers have abided by the consultation and information requirements set out in law. If
the Supreme Labour Council finds that these requirements have been met, an employer is
free to proceed with the intended group dismissal. On the other hand, non-compliance with
these requirements would be the only reason for the government to discontinue a collective
redundancy process, in the sense that the government’s role is now limited to the inspection
of the existence of these typical consultation requirements.
Until very recently, Presidential Decree 178/2002 on the protection of employees’
rights in the event of a transfer of business (which harmonised EU Directive 2001/23) was
not applicable in the case of ship transfers. Through Law 4532/2018, said protection is now
extended to transfers of ships under the Greek flag, but only when they are part of the
business to be transferred and on the conditions set forth in Law 4532/2018.
Finally, the government recently adopted the wording of the Revised European Social
Charter as to what regards the termination of an employment agreement, and introduced
into Greek employment law the compulsory ‘causal’ redundancy. Until the introduction of
Law 4611/2019 (Article 48), Greek law provided that the termination of an employment
agreement should not be grounded on a specific cause if it was made in writing and the
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employee was receiving legal severance. Today, the right of an employer to terminate must
be grounded on a specific cause as per Article 24 of the Revised European Social Charter
(ratified by L4359/2016), and the employer must prove that these conditions have been met
in cases where the validity of the termination is challenged. This new condition will probably
affect and reduce the right of termination of employers, especially in cases of no apparent
reason a termination.
VIII CIVIL PROCEDURE CODE

One of the first measures adopted by the parliament directly after the conclusion of the July
2015 agreement with the EU institutions was the adoption of a new Civil Procedure Code.
Law No. 4335/2015 has introduced amendments in most areas of civil disputes aimed at
expediting the process up to the hearing of cases (which, prior to this change, could take more
than three to four years). The new Code provides that the whole process starts with the filing
of a claim, without setting a more specific date for its hearing, which will take place within a
maximum of 160 days from its submission. The process is concluded without a real hearing,
and based only on documents and affidavits of the parties, while the presence of barristers
is no longer necessary and grounds for the deferral of a hearing are practically abolished.
Furthermore, the new Code has adopted a much quicker process for the enforcement of
judicial decisions and a swift procedure for the collection of debts. The new Code came into
force on 1 January 2016.
The first couple of years of implementation showed a slight improvement in the courts’
addressing of civil cases and delivering judgments more speedily. However, it seems that the
main purpose and aim of the new Code will not be satisfied entirely, as the courts are showing
that they cannot deal with the number of the cases addressed to them: hearing dates are now
set in most cases eight to 12 months or more from the final submission of the pleadings of the
litigants, and the publishing of judgments has started to show significant delays.
A new tool for dispute resolution was introduced in the past 12 months with the aim
of helping the government in its effort to relieve the courts of the volume of cases and claims
pending. Law 4512/2018 provides for a compulsory mediation before the start of any judicial
proceedings in certain areas of day-to-day business activity (e.g., disputes over trademarks,
patents and IP rights in general may not be submitted for resolution to the competent court
before the claimant can prove that mediation has been attempted but failed). Other kinds of
disputes that have to be addressed through mediation before any submission of claims to the
competent courts are, inter alia:
a claims based on medical malpractice;
b compensation and claims from car accidents;
c the collection of professional fees; and
d claims based on stock exchange contracts.
Mediators should be accredited by the Central Mediation Committee, and are full-time
professionals with special training in mediation techniques. The Law provides that the
maximum length of the mediation process is 24 hours in total (which may be extended by
the parties), and for a short period for the conclusion of the process within 15 to 30 days
from the appointment of the mediator. This process initially was planned to be implemented
on October 2018 after the accreditation of the new mediators, but it has been suspended for
another year following several reactions of the local bars.
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IX TAX LAW
Following the complete replacement of the Code of Income Taxation (CIT) and the
introduction of a new Code of Fiscal Procedure, both of which came into force on
1 January 2014, as of 1 January 2015 the Greek Accounting Standards3 abolished the Code
of Transactions Tax Reporting and the Greek accounting legislation, thereby becoming more
compliant with the International Accounting Framework.
During 2018, changes in the tax legislation continued, mostly aiming at implementing
reforms agreed by the government within negotiations for financial support and enhancing the
collection of public revenues, but also adopting EU rules and complying with commitments
under international treaties.
The most important tax issues are as follows.
i Transfers of shares
From 1 January 2014, any capital gain that derives from a transfer of shares of non-listed
companies is subject to a 15 per cent tax if the transferor is an individual (Articles 42 and 43
CIT). In the case of legal entities, the capital gain shall be added to the gross income and,
should there be a profit from the business activity, it shall be subject to the tax rates that apply
to income from business activities (i.e., 28 per cent for fiscal year 2019). For the calculation
of the capital gain, the acquisition cost is deducted from the price.
The aforementioned tax is also imposed on the transfer of shares of listed companies
provided that the following conditions are cumulatively met: the transferor participates in
the share capital of the company with a stake of at least 0.5 per cent, and the shares to be
transferred have been purchased after 1 January 2009. In any case, a tax on stock market
transactions is also imposed.
ii Corporate income tax rate

The corporate income tax rate for public limited companies, limited liability companies,
private capital companies, Greek branches of foreign corporations and, in general, any
company that maintains double-entry accounting books, which was raised from 26 to 29 per
cent for fiscal years 2015 onwards, shall be gradually reduced to 28 per cent (for fiscal year
2019), 27 per cent (for fiscal year 2020), 26 per cent (for fiscal year 2021) and 25 per cent
(for fiscal years 2022 onwards) (Article 58, Paragraph 1 CIT).
iii Taxation on dividends

For profits distributed from 1 January 2019 onwards, a withholding tax of 10 per cent is
applicable on dividends. From 1 January 2017 until 31 December 2018, the rate of said tax
was 15 per cent.
Withholding of the aforementioned tax exhausts the tax liability, provided that the
taxpayer is an individual (Article 36 Paragraph 2 CIT) or a legal entity that is not a Greek
resident and does not have a permanent establishment in Greece (Article 64 Paragraph 3
CIT). Under specific conditions, which are set out by Article 63 CIT (adopting Directive
2011/96/EC), intra-group dividends may be totally exempt from withholding taxation.
Dividends distributed to Greek legal entities or legal entities with a permanent
establishment in Greece are also subject to withholding tax at a rate of 10 per cent, although
3 Law 4308/2014.
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an exemption under the conditions of Article 63 CIT may apply in the case of intra-group
dividends. However, their income from dividends is added to their annual gross income and
taxed as a profit at a rate of 29 per cent. In such a case, the tax withheld is credited against
the tax payable.
Pursuant to Article 48 CIT, intra-group dividends received by a legal entity that is a tax
resident of Greece are totally exempt from tax, provided that:
a the recipient holds a minimum participation of at least 10 per cent of the value or
number of the share capital, core capital or voting rights of the legal entity that makes
the distribution of profits;
b the aforementioned minimum participation is held for at least 24 months; and
c the legal entity that makes the distribution of profits:
• has a legal status that is included in the list of EU Directive 2011/96/EC;
• is a tax resident of an EU Member State, in accordance with the laws of that state,
and may not be considered as a tax resident of a third country (non-EU Member
State) by virtue of the double taxation treaty that has been signed with that third
country; and
• is subject to one of the taxes listed in EU Directive 2011/96/EC.
In such cases, dividends received by the legal entity must form a tax-free reserve until they are
further distributed to the entity’s shareholders.
Pursuant to Directives 2014/86/EC and 2015/121/EC, intra-group dividends are
exempt from taxation to the extent that the respective dividends have not been deducted by
the subsidiary. Furthermore, the aforementioned exemptions (of Articles 48 and 63 CIT)
shall be alleviated in cases where it is considered that a non-genuine arrangement exists (i.e.,
an arrangement that has not been put into place for valid commercial reasons reflecting the
economic reality).
iv Transfer pricing
The new CIT and the Code of Fiscal Procedure include transfer pricing (TP) provisions that
differ in some ways when compared to the previous legal framework, and that are applicable
for fiscal years starting as of 1 January 2014. It should be noted that under the new legal
framework, an advanced pricing agreement may be established with the Ministry of Finance.
Taxpayers having intra-group transactions exceeding the thresholds provided
in the above legislation have two main obligations: preparation of a TP report for the
documentation of intra-group transactions within the deadline for submission of the annual
tax return (the report is submitted to the tax authorities upon request and within 30 days
of the request), and the filing of a summary information table within the same deadline.
TP legislation provides serious penalties for the violation of the arm’s-length principle and
for the failure to comply with the above obligations. There are also new penalties provided
for the inadequacy, inaccuracy or late submission of the summary information table and
TP report. Finally, the new TP legislation specifically refers to the OECD Transfer Pricing
Guidelines for the documentation of intra-group transactions. There are also various circulars
of the Ministry of Finance issued to date that establish special rules for the documentation of
intra-group transactions.
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v Losses
In accordance with the new CIT, losses incurred abroad cannot be used against profits of
the same tax year or against future profits unless there is income that derives from other EU
or EEA Member States and there is no provision in a double taxation treaty that provides
a tax exemption for it. By virtue of a recent circular issued by the Ministry of Finance,
losses incurred abroad shall be monitored per country and may be used against future
profits incurred in the same country. Moreover, by virtue of a more recent circular, before
the deduction of said losses in Greece, Greek entities shall need to prove before the fiscal
authorities that they have made every effort to deduct losses abroad and have failed to do so.
In addition if, during a fiscal year, direct or indirect ownership of the share capital
or voting rights of a company is changed by more than 33 per cent of its value or number,
the transfer of losses ceases to apply as regards losses incurred during that fiscal year and the
previous five years, unless it is proven by the company that the change of ownership has
been exclusively made for commercial or business purposes, and not for tax-avoidance or
tax-evasion purposes.
vi Deductibility of interest – thin capitalisation rules

According to the CIT, borrowing costs are not recognised as deductible business expenses
to the extent that the surplus of the interest expenses against income from interest exceeds
a rate of 30 per cent of taxable profits before interest, taxes, depreciation and amortisation
(EBITDA). The term borrowing costs includes, apart from interest on loans, inter alia,
other costs economically equivalent to interest and expenses incurred in connection with
the raising of finance, as well as the finance cost element of finance lease payments and the
capitalised interest included in the balance sheet value of a related asset. It should be noted
that the aforementioned rate used to be higher during previous fiscal years, and was gradually
reduced.
However, interest expenses shall be recognised as fully deductible business expenses up
to an amount of €3 million net-registered interest expenses per year. Any interest expense
that is not deductible pursuant to the aforementioned rules shall be carried forward with no
time limit. This does not apply to credit institutions or to leasing and factoring companies.
vii The new CIT definitions and provisions

The new CIT introduces certain new definitions and provisions, the most important being
terms for legal entity and legal form, and the introduction of the true place of exercise of
management criterion.
The Code of Fiscal Procedures introduces definitions of tax avoidance, whereas a
general anti-abuse clause has been introduced pursuant to which:
the tax administration shall ignore any arrangement or a series of arrangements which, having been
put into place for the main purpose or one of the main purposes of obtaining a tax advantage that
defeats the object or the purpose of the applicable tax law, are not genuine, having regard to all
relevant facts and circumstances.
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viii Statute of limitations

The statute of limitations period varies depending on the category of tax and the fiscal year.
The basic statute of limitations for fiscal years 2014 onwards is five years, which may
be raised to 20 in cases of tax evasion, which covers a very broad number of cases. The
20-year statute of limitations also applies to fiscal years that had not been time-barred on
1 January 2014. However, by virtue of a more recent opinion given by the state’s Legal
Council, the 20-year statute of limitations shall not be applicable for fiscal years up to and
including 2011.
For a very long time, the expiry of the statute of limitations has been continuously
extended by special laws. According to a recent decision of the Supreme Administrative
Court in Plenary Session, in brief, such extensions of the statute of limitations have been
judged to violate the Constitution.
Another aspect of the statute of limitations concerns fiscal years 2011 to 2013, during
which the tax audit for sociétés anonymes was required to be carried out by a Greek certified
auditor issuing a tax certificate under the then-applicable Law 2238/1994. According to
certain jurisprudence, the tax authorities do not have the right to conduct an audit on sociétés
anonymes with no comments in the tax certificate after the lapse of 18 months from the
end of each relevant year unless exceptional circumstances exist. For periods starting from
1 January 2014 onwards, acquisition of an annual tax audit certificate does not affect the
statute of limitations.
X COMPETITION LAW
Merger control provisions are included in Law 3959/2011 regarding the protection of free
competition (Articles 5 to 10) and are enforced by the Hellenic Competition Commission
(HCC), an independent administrative authority.
The Greek merger control system provides for pre-notification to the HCC (30-day
deadline) in cases of concentration where the following two thresholds are cumulatively met:
all participating enterprises have an aggregate worldwide turnover exceeding €150 million,
and at least two of them each has a national (Greek) turnover of at least €15 million. In
such a case, the transaction cannot be completed without the clearance of the Competition
Commission. The latter theoretically has the power to block a transaction (but has not
blocked any application to date).
There is currently no post-notification obligation for minor mergers under Greek law.
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Chapter 21
HONG KONG
Jason Webber1
I OVERVIEW OF M&A ACTIVITY 2

M&A activity in Hong Kong remained high in 2018, with a total of 584 announced deals
and a total disclosed value of US$167.93 billion in 2018, representing a decrease compared
with 2017.
The Hong Kong securities markets showed a decrease in terms of market capitalisation
but an upturn in terms of trading activity in 2018. A total of 218 companies were newly
listed on the Stock Exchange of Hong Kong Limited (SEHK) in 2018, and the total amount
of equity funds raised on the SEHK in 2018 was approximately HK$544.13 billion.3

The law governing M&A comprises primary legislation, regulatory rules, the law of contract
and case law.
The primary legislation that applies principally to Hong Kong-incorporated companies
in general is the Companies Ordinance (CO) and includes provisions relating to financial
assistance for the acquisition of a company’s own shares, merger relief, transfers of shares
and schemes of arrangement affecting mergers. The Securities and Futures Ordinance (SFO)
is also relevant, covering the regulation of offers of securities, and the communication of
invitations and inducements to engage in securities transactions.
For companies in certain industries, there is also specific legislation that may be
relevant, for example:
a the Banking Ordinance for banking, restricted licence banking and deposit-taking
companies;
b the SFO for securities, financial advisory and asset management companies;
c the Broadcasting Ordinance (BO) and the Telecommunications Ordinance (TO) for
radio, television broadcasting and telecommunications companies; and
d the Insurance Companies Ordinance for insurance companies.
1 Jason Webber is a partner at Slaughter and May. The author would like to thank Nicola Lui and
Dimitri Au-Yeung for their assistance in preparing this chapter.
2 Statistics on mergers and acquisitions involving Hong Kong companies differ significantly among various
sources. This summary covers all M&A activity where Hong Kong was the target, seller or bidder region
between 1 January 2018 and 31 December 2018.
3 Source: SEHK Fact Book 2018.
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Prior approval of ownership changes from the relevant regulatory bodies may be required
under the legislation listed above.
If an M&A transaction involves a company whose shares are listed on the SEHK, the
Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
(Listing Rules) will also apply. In addition, the Securities and Futures Commission (SFC), in
consultation with the Takeovers and Mergers Panel (Panel) – a committee formed by the SFC
pursuant to the SFO – has issued the Code on Takeovers and Mergers and Share Buy-backs
(Takeovers Code), which applies to takeovers, mergers and share buy-backs affecting public
companies4 in Hong Kong and companies with a primary listing of their equity securities in
Hong Kong. The Takeovers Code is not statutory and does not have the force of law, but the
Listing Rules expressly require compliance with the Takeovers Code. As a non-governmental
statutory body, the SFC regulates the securities and futures markets in Hong Kong and
oversees the development of these markets. Its decisions apply to M&A of public companies.
Since Hong Kong is a common law jurisdiction,5 the law of contract (which is largely
derived from English law) and case law6 also form an important part of the law governing
M&A.
III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAW

AND THEIR IMPACT
i The Takeovers Code
To ensure that the Takeovers Code takes account of market developments and developing
international practice, it is regularly reviewed by the Executive of the SFC in consultation
with the Panel. On 13 July 2018, the SFC introduced certain amendments to the Takeovers
Code7 that came into effect immediately, including an upwards revision of the shareholder
voting approval threshold for whitewash waivers from a simple majority of independent votes
to 75 per cent of independent votes, with a separate simple majority independent shareholder
approval requirement for the underlying transaction.
4 The Takeovers Code states that all circumstances are to be considered, and an economic or commercial test
is to be applied (taking into account primarily the number of Hong Kong shareholders and the extent of
share trading in Hong Kong), in deciding whether a company is a public company. For the purposes of
the CO, a private company is a company incorporated in Hong Kong that, by its articles of association,
restricts the right to transfer its shares; limits the number of its members to 50, not including persons who
are in the employment of the company and persons who, having been formerly in the employment of the
company, were, while in that employment, and have continued after the termination of that employment
to be, members of the company; and prohibits any invitation to the public to subscribe for any shares or
debentures of the company (Section 11 of the CO).
5 Under the ‘one country, two systems’ approach, implemented after the transfer of sovereignty over Hong
Kong to the People’s Republic of China (China) on 1 July 1997, Hong Kong remains a common law
jurisdiction.
6 English case law has persuasive authority only and is subject to interpretation by the Hong Kong courts.
7 Source: Consultation Conclusions on proposed amendments to the Codes on Takeovers and
Mergers and Share Buybacks, SFC (https://www.sfc.hk/edistributionWeb/gateway/EN/consultation/
conclusion?refNo=18CP1).
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ii Listing Rules
The Listing Rules reflect currently acceptable standards in the marketplace and are designed
to ensure that investors have, and can maintain, confidence in the market. To ensure that
the Listing Rules take account of market developments and developing international
practice, the SEHK regularly reviews the Listing Rules and may, subject to the approval of
the SFC under Section 24 of the SFO, make amendments to the Listing Rules. Effective
from 30 April 2018, three new chapters were added to the Listing Rules, together with
consequential amendments, to:
a permit listings of biotech issuers that do not meet the normal financial eligibility tests
under the Listing Rules;
b permit listings of companies with weighted voting rights structures; and
c establish a new concessionary secondary listing route for Greater China and international
companies that wish to list on a secondary basis in Hong Kong.8
These changes aim to facilitate the listing of companies from emerging and innovative sectors
on the SEHK. As stated above, there were a total of 218 newly listed companies on the SEHK
in 2018, compared to 174 newly listed companies in 2017.
Separately, the SEHK is proposing to tighten the rules on backdoor listings and the
continuing listing criteria to address concerns over the perceived negative impact of increased
market activities related to shell companies. The SEHK issued a consultation paper on its
proposed rule amendments in June 2018,9 and will publish its consultation conclusions in
due course.
iii The CO
The CO came into effect on 3 March 2014. Various key concepts under the CO that are
relevant in the context of M&A are as follows:
a the requirements for approving a scheme of arrangement differ depending on the type of
scheme. For privatisation schemes and members’ schemes involving a takeover offer or
a general offer, the disinterested shares test (which requires not more than 10 per cent of
the total voting rights attached to all disinterested shares to be voted against a proposal)
applies so as to align with the requirement under the Takeovers Code in the context of
a takeover. The headcount test (which requires that a majority of the shareholders of the
target company voting on a scheme of arrangement (either in person or by proxy) must
vote in favour of it) applies to creditors’ schemes and members’ schemes not involving
a takeover offer or a general offer, and in these situations, the court is given discretion
to dispense with the test in appropriate circumstances;
b a company and its wholly owned subsidiaries may amalgamate and continue as one
company without the sanction of the court provided that certain conditions are met.
Such conditions include, for example, that each amalgamating company is a Hong
8 Source: SEHK press release dated 24 April 2018 (https://www.hkex.com.hk/News/News-Release/2018/

180424news?sc_lang=en).
9 Source: Consultation Paper on Backdoor Listing, Continuing Listing Criteria and Other Rule
Amendments, SEHK (https://www.hkex.com.hk/-/media/HKEX-Market/News/Market-Consultation
s/2016-Present/June-2018-Backdoor-and-Continuing-Listing/Consultation-Paper/cp201806.pdf ).
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Kong-incorporated company limited by shares, that each amalgamating company is

solvent and that no creditor of an amalgamating company will be prejudiced by the
amalgamation;
c general prohibition on private and public companies providing financial assistance for
an acquisition of shares in itself, and streamlined whitewash procedures are extended to
listed companies. In addition, it is expressly provided that a company is not prohibited
from giving financial assistance for the purpose of an acquisition of shares in its holding
company if the holding company is incorporated outside Hong Kong; and
d increased flexibility for companies to structure and organise their share capital in light of
updated concepts relating to share capital (par value (or nominal value), share premium
and the requirement for authorised capital have been abolished). Despite the absence
of share premium, merger relief continues to be available. The amount required to be
recorded as share capital in respect of the consideration shares issued by an acquiring
company is the subscribed capital attributable to the acquired shares.
Significant controllers register

To enhance the transparency of company ownership and control, from 1 March 2018, all
Hong Kong-incorporated companies (except those listed in Hong Kong) are required to
create and maintain a register of significant controllers pursuant to Part 12 of the CO. A
company’s significant controllers are, in broad terms, natural persons and corporate entities
immediately above the company in the ownership chain with significant control over the
company.
Companies (Amendment) (No. 2) Ordinance

On 1 February 2019, the Companies (Amendment) (No. 2) Ordinance 2018 came into
effect. This Ordinance amends certain provisions of the CO to improve its clarity and facilitate
business in Hong Kong, one notable amendment being a clarification that subsidiaries of
a non-Hong Kong holding company may take advantage of the court-free procedure for
horizontal amalgamation under the CO provided the merging companies are Hong Kong
companies.

Given Hong Kong’s position as a hub for investment into China, its status as a major regional
financial centre, and the widespread use of offshore companies for investment into and out
of China, a substantial number of transactions have foreign involvement, including in the
form of acquisitions by offshore companies. An analysis by reference to foreign involvement
in transactions is therefore not particularly meaningful.

A key trend observed in 2017 was the increased use of consortium structures involving both
private equity and strategic investors to undertake acquisitions as a means of sharing risk
and creating value through synergies. This trend continued in 2018, with examples such as
CK Group’s proposed consortium bid for Australia’s APA Group Limited, which is described
in more detail below, and the US$200 million investment by a group of investors led by
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Hong Kong
Sequoia China in Klook Travel Technology Limited,10 a Hong Kong-based travel activities
and services booking platform. Another trend observed in 2018 was the increased interest in
deals with a technology focus. Examples include Alibaba Group’s acquisition of China-based
online food delivery platform Ele.me11 and the Tencent-led investment in UBTECH
Robotics,12 a China-based intelligent humanoid robots manufacturer.
The most active sectors for M&A activity in Hong Kong in 2018 included technology
and fintech, energy and infrastructure, logistics, real estate, financial services and consumer.
It is expected that interest in these sectors will continue in 2019.
There were numerous high-profile M&A transactions in 2018. The largest proposed
outbound deal was the bid by a consortium led by CK Asset Holdings Limited in June 2018 to
acquire all outstanding shares in APA Group Limited for approximately A$12,979 million.13
APA Group Limited is listed on the Australian Securities Exchange and is a major natural gas
pipeline operator in Australia. Although the proposed transaction was recommended by the
board of directors of APA Group Limited and was approved by the Australian Competition
and Consumer Commission, the Treasurer of the Australian government vetoed it in
November 2018 on the basis that the proposed deal would be contrary to the national interest
as it would result in a single foreign company group having sole ownership and control over
Australia’s most significant gas transmission business.14
A notable tech transaction was the Series C equity financing announced in June 2018
by Ant Small and Micro Financial Services Group Co, Ltd (Ant Financial), an affiliate of
Alibaba Group Holding Ltd, which raised approximately US$14 billion.15 This fundraising
included a US dollar tranche, which was backed by global institutional investors such as
GIC Private Limited, and a renminbi tranche, which was primarily supported by existing
Ant Financial shareholders. Ant Financial has confirmed that it would use the funds raised
to accelerate globalisation plans for its Alipay payment platform, one of the largest online
payment platforms within China, and to invest in developing financial technology.
As a significant number of companies whose shares are listed on the SEHK have
controlling shareholders, there is not a large number of unsolicited M&A offers. Nonetheless,
in 2018, there was a rare hostile takeover attempt by Re Strategic Investments Pte Ltd (Re
Strategic), which operates under the control of PAG Real Estate, to acquire a controlling stake
in Spring Estate Investment Trust (Spring REIT). Spring REIT is a real estate investment
trust that primarily invests in real estate in China. Re Strategic was one of the substantial
unitholders of Spring REIT, and PAG Real Estate is an Asian alternative investment fund.
The offeror sought to acquire a controlling stake of Spring REIT in order to replace the
manager. Although the initial offer price was subsequently revised,16 the acceptance condition
was not met and the bid was ultimately unsuccessful.
10 https://www.klook.com/en-GB/newsroom/content/6388?n=5.
11 https://www.alizila.com/alibaba-acquires-eleme-boosting-new-retail-efforts/.
12 https://pressroom.ubtrobot.com/2018/05/07/ubtech-robotics-announces-largest-artificial-intelligence-
funding-in-history/.
13 https://www.cki.com.hk/english/PDF_file/announcement/2018/20181009_2.pdf.
14 http://jaf.ministers.treasury.gov.au/media-release/055-2018/.
15 https://www.antfin.com/newsDetail.html?id=5b19ed5ef86ebdaa6985060f.
16 http://www3.hkexnews.hk/listedco/listconews/SEHK/2018/1029/LTN20181029927.PDF.
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Hong Kong
In addition, there were a number of high-profile proposed privatisations of Hong

Kong-listed companies in 2018, including GuoLine Overseas Limited’s failed proposed
privatisation of Hong Kong-listed Guoco Group Limited and Swire Pacific Limited’s
successful privatisation of Hong Kong Aircraft Engineering Company Limited.17

In common with many jurisdictions, Hong Kong’s Takeovers Code requires an offeror to
have certainty of funds to make an offer for a public company. Under the Takeovers Code,
an announcement of a firm intention to make an offer should include a confirmation by a
financial adviser (or another appropriate third party) that resources are available to the offeror
sufficient to satisfy full acceptance of the offer (a sufficiency statement). Such confirmation
is not only required when the consideration is cash, or includes an element of cash, but also
when the consideration consists of, or includes, any other assets except new securities to
be issued by the offeror. The executive may also require evidence to support the sufficiency
statement, and evidence that the offeror has sufficient resources to complete the purchase of
shares that gives rise to the offer obligation.
Depending on how an acquisition is structured, M&A transactions in Hong Kong are
usually financed by:
a internal resources;
b shareholders’ loans;
c equity issues;
d debt issues;
e loan facilities from banks and financial institutions; or
f a combination of two or more of the above.
VII PENSIONS AND EMPLOYMENT LAW

Under Hong Kong law, there is no specific regulation that provides for the transfer of
employment contracts when there is a change of ownership of a business, as opposed to an
employing company. Employment contracts would therefore be terminated in the case of an
acquisition of a business, and the new employer would have the freedom to decide whether to
enter into new employment contracts with existing employees. However, generally speaking,
where termination of an employment contract takes place due to a transfer of business, this
would constitute redundancy, and employees previously employed may be entitled to severance
payments and long-service awards, for which the old employer would be liable. However,
under Sections 31J and 31C of the Employment Ordinance (EO), severance payments and
long-service awards are not payable in the case of a business transfer if, not less than seven
days before the end date of an employee’s previous contract, the new employer has offered to
renew the employee’s contract, or to re-engage him or her under a new contract, on no less
favourable terms and conditions, and the employee has unreasonably refused that offer. If an
offer of renewal or re-engagement is accepted by the employee, the new contract has effect as
if the renewal or re-engagement had been a renewal or re-engagement by the old employer
17 https://www.haeco.com/getattachment/e54ff63e-d570-4941-9491-83f5605b6930/
Joint-Announcement-(3).aspx.
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Hong Kong
without any substitution of the new employer;18 therefore, the employment relationship will
be regarded as being continuous for the purposes of the EO.19 Any redundancy issues that
may arise in future disposals of the business would be passed to the new employer after the
renewal or re-engagement.
Generally speaking, under the Mandatory Provident Funds Schemes Ordinance
(MPFO), an employer20 must enrol its employees as members of one of the registered MPF
schemes (as defined in the MPFO) available in the market in Hong Kong. An employer may
enrol different employees in different registered schemes. During the contribution period (as
defined in the MPFO), the employer must contribute to the registered scheme from its own
funds an amount determined in accordance with the MPFO, and deduct from employees’
relevant income for that period as a contribution by the employees to the scheme a further
amount determined in accordance with the MPFO. An employee and an employer may
make additional voluntary contributions to the employee’s scheme.
Where there is a proposed disposal of a business, the existing employer and the
proposed new employer should consider the implications of the MPFO and arrangements to
deal with the accrued benefits of employees under the applicable MPF scheme. If a merger
or acquisition is to be effected by way of a share sale, it is not likely that there will be MPF
implications (unless the target company is spun out from a group of companies that operates
a group-based scheme), as the merger or acquisition will not involve a change of employer.
The surviving party or acquirer would nevertheless be well advised to carry out due diligence
to ensure that all target employees are employed by the target company on terms that comply
with the MPFO.
However, if a merger or acquisition is to be effected by way of a business transfer
involving a change of employer, the employee must, in accordance with Section 14 of the
MPFO, elect to transfer the accrued benefits to a contribution account21 under the new
employer’s MPF scheme, retain the accrued benefits in the previous MPF scheme under a
preserved account22 or transfer the accrued benefits to a preserved account of another MPF
scheme.
Both the seller and the buyer must observe and comply with the requirements of the
MPFO with respect to the transfer of the accrued benefits of employees.
On 1 May 2011, the Minimum Wage Ordinance came into effect in Hong Kong and
introduced a statutory minimum wage. The statutory minimum wage was raised by 8.7 per
cent from the previous rate with effect from 1 May 2019.
18 Section 31J of the EO.

19 Subsection 3 of Section 31J of the EO and Paragraph 5 of Schedule 1 of the EO.
20 Under the MPFO, an employer means any person who has entered into a contract of employment to
employ another person as his or her employee.
21 A contribution account is an account mainly used to accumulate MPF contributions in respect of current
employment and investment returns.
22 A preserved account is an account in which accrued MPF benefits in respect of former employment
are held.
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VIII TAX LAW

Hong Kong’s competitive economy is reflected in the transparency, predictability and
simplicity of its low-rate tax system. These attractive qualities mean that, unlike many other
jurisdictions, Hong Kong tax is generally not the determining factor in the way in which a
transaction is structured in Hong Kong. There is no capital gains tax on the disposal of assets,
including the disposal of shares and property. In addition, dividends are not classified as
taxable income, and there is no withholding tax on dividends.
Stamp duty on the transfer of Hong Kong shares is currently 0.2 per cent of the
consideration paid (or market value), and is generally payable in equal shares of 0.1 per cent
by both the seller and the buyer. Transactions that are structured as schemes of arrangement
do not attract stamp duty. Stamp duty on the transfer of immovable non-residential property
in Hong Kong ranges from 1.5 per cent (for transactions up to HK$2 million) to 8.5 per
cent of the amount or value of the consideration (for transactions over HK$21,739,130)
and is usually paid by the purchaser.23 The Stamp Duty Ordinance is the principal source of
legislation governing this area.
The Inland Revenue Ordinance sets out three separate taxes on income: profits tax,
salaries tax and property tax. Liability to tax under these three heads, as a general rule, is
limited to persons or entities carrying on a trade, profession or business in Hong Kong, and
to income that arises in or is derived from Hong Kong. To this extent, the residence status of
persons and companies is irrelevant to income tax assessment. For the year of assessment from
2018 to 2019 onwards, a two-tiered profits tax rate applies. Corporations are taxed at 8.25
per cent on assessable profits up to HK$2 million and 16.5 per cent on any part of assessable
profits over HK$2 million, whereas unincorporated businesses are taxed at 7.5 per cent on
assessable profits up to HK$2 million and 15 per cent on any part of assessable profits over
HK$2 million.
In respect of loan repayments, as a general rule a borrower’s interest expenses will be
deductible where the lender is subject to Hong Kong profits tax on its receipt of the interest.
In addition, where a financial institution (whether onshore or offshore) makes a genuine
loan, interest expenses will generally be deductible.
IX COMPETITION LAW
The Competition Ordinance, Hong Kong’s first cross-sector competition law, came into full
effect on 14 December 2015. Previously, only the broadcasting and telecommunications
industries were subject to competition law, as provided for in specific provisions of the BO
and the TO (now largely repealed). The former TO provided a regulatory framework for the
Communications Authority to consent to certain M&A involving carrier licensees in the
telecommunications industry.
The Competition Ordinance retains a merger control regime in Hong Kong for the
telecommunications industry known as the Merger Rule. Like the regime under the TO, the
Merger Rule applies only to mergers involving carrier licensees, and the Communications
23 The same range of stamp duty is applicable to the transfer of immovable residential property executed
on or after 23 February 2013 but before 5 November 2016. The stamp duty applicable to the transfer of
immovable residential property executed on or after 5 November 2016 is a flat rate of 15 per cent of the
consideration or value of the property (whichever is the higher).
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Authority has concurrent jurisdiction with the Competition Commission in relation to the
Merger Rule. However, unlike the merger regime under the TO, the Competition Ordinance
does not specify thresholds upon which regulatory consent is triggered. Instead, the Merger
Rule refers to the acquisition of control, which could apply even if the acquisition involves
a minority interest not exceeding 30 per cent. A merger could be prohibited if it has or is
likely to have the effect of substantially lessening competition in Hong Kong. It is worth
noting that notification of mergers is voluntary rather than mandatory, but in practice the
Communications Authority is consulted in most (if not all) cases, even when no competition
concerns are expected.
Since the entry into force of the Competition Ordinance, the Communications
Authority has reviewed four transactions under the Merger Rule to date. In each of these cases,
the Communications Authority decided not to commence an investigation either on the basis
that each transaction was unlikely to have the effect of substantially lessening competition in
Hong Kong or, in respect of the most recent case, on the basis that the commitments offered
by the parties addressed effectively the competition issues identified. The first such decision
under the Competition Ordinance, announced by the Communications Authority on
31 March 2016, was in respect of the indirect acquisition of New World Telecommunications
Limited,24 a carrier licensee under the TO, by HKBN Ltd, the holding company of Hong Kong
Broadband Network Limited, another carrier licensee under the TO.25 The second decision,
announced on 10 November 2016, was in respect of the HK$9.5 billion acquisition26 by
Green Energy Cayman Corp27 of the entire equity interests of Wharf T&T Limited, a carrier
licensee under the TO.28 More recently, on 3 October 2017, the Communications Authority
announced it had decided not to commence an investigation under the Competition
Ordinance in respect of the acquisition by Asia Cube Global Communications Limited29
of the entire equity interests of Hutchison Global Communications Investment Holding
Limited, which wholly owns Hutchison Global Communications Limited, a carrier licensee
under the TO.30 The latest case concerned the proposed acquisition by HKBN Ltd of WTT
Holding Corp, both of which hold carrier licences under the TO.31 On 17 April 2019, the
Communications Authority accepted commitments from the merging parties to address
competition issues that it had identified as being likely to arise relating to building access
and wholesale service provision.32 The Communications Authority decided to accept the
commitments and not to commence an investigation into the proposed transaction.
24 New World Telecommunications Limited is indirectly owned by Concord Ideas Ltd.

25 Source: Communications Authority press release, 31 March 2016 (https://www.comsauth.hk/en/media_
focus/press_releases/index_id_1195.html).
26 Source: www.wharftt.com/en/about_us_press_release_2016_20161110.html.
27 Green Energy Cayman Corp is indirectly owned by MBK Partners and TPG Capital.
28 Source: Communications Authority press release, 10 November 2016 (https://www.comsauth.hk/en/
media_focus/press_releases/index_id_1328.html).
29 Asia Cube Global Communications Limited is wholly owned by a fund managed by I Squared Capital, a
private investment firm.
30 Source: Communications Authority press release, 3 October 2017 (https://www.comsauth.hk/en/media_
31 Source: HKBN press release, 7 August 2018 (https://reg.hkbn.net/WwwCMS/upload/pdf/en/
201808_HKBN-WTT-EN-web.pdf ).
32 Source: Communications Authority press release, 17 April 2019 (https://www.comsauth.hk/en/media_
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Hong Kong
In the run-up to the drafting and passing of the Competition Ordinance, which,
on the whole, was supported by the public, there was some debate about whether there
is a need for merger control in Hong Kong to govern general M&A activity (outside the
telecommunications sector). The Public Consultation Paper on Detailed Proposals for
Competition Law in 2008 showed a softening of the government’s stance on this issue, from
‘we do not need a merger control regime’ to inviting views on three possible options regarding
such a regime. The recommendation of the Commerce and Economic Development Bureau
of Hong Kong (CED Bureau) was that merger activities are not to be regulated except in the
telecommunications sector, which is already subject to such regulation under the former TO.
The CED Bureau stated that this proposal would give the Competition Commission more
time to focus on its initial work of implementing the proposed Competition Ordinance,
and would allow for a more effective assessment of whether merger control provisions would
be desirable in other (or all) sectors in the future once the Competition Commission has
accumulated some experience in the operation of the competition regime. This was the
position ultimately adopted in the Competition Ordinance. It has been suggested that the
Competition Commission would seek to introduce a fully fledged merger control regime
within two to three years of the Competition Ordinance taking full effect. The Competition
Ordinance is currently undergoing a review, which will include an assessment of whether a
cross-sector merger control regime should now be introduced.
X OUTLOOK
The government has forecast that Hong Kong’s GDP is likely to grow by 2 to 3 per cent
in 2019.33 Hong Kong’s economic performance in 2019 will be influenced by, among
other things, developments in external demand, the performance of the global economy
and geopolitical developments in major advanced economies, for example the trade dispute
between the US and China and Brexit.
The increasing trend of protectionist policies by international governments is likely
to continue to be a challenge for cross-border transactions involving sensitive industries
and strategic assets. Regulatory compliance will be another key challenge. In Hong Kong,
the HKSE has stated its intent to address perceived abuses related to reverse takeovers by
tightening relevant regulations. Of a wider application is the European Union’s General Data
Protection Regulation (GDPR), which came into force on 25 May 2018. The GDPR has
extraterritorial reach, applying to all firms with establishments in Europe or that provide
goods and services to individuals in Europe. It is, therefore, expected that there will be an
increased emphasis in M&A transactions on data protection compliance under the GDPR,
from due diligence of target companies to post-transaction integration.
Nonetheless, the M&A market in Hong Kong has remained busy, with 129 M&A
deals completed in Q1 2019, with a total disclosed value of US$32.06 billion.34 Despite
global challenges, M&A activity in Hong Kong is expected to remain steady in 2019. It
33 Source: 2018 Economic Background and 2019 Prospects, Financial Secretary’s Office, government
of the Hong Kong Special Administrative Region (HKSAR) (https://www.statistics.gov.hk/pub/
B6XX00042019AN19E0100.pdf ). The HKSAR government has stated that its GDP growth forecast is
predicated on the assumption that the US–China trade tensions would not escalate from the tariff measures
announced as at the time of the publication of its report (in February 2019) or might even ease somewhat.
34 Source: Mergermarket.
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Hong Kong
is expected that private equity-led transactions will continue to feature strongly, especially
in the active tech and fintech sectors. The flow of Chinese outbound investment will likely
be maintained in respect of targets that are regarded as prudent and strategic investments
in support of the One Belt, One Road initiative, further supported by favourable Chinese
policy developments such as the series of measures announced by the People’s Bank of China
in May 2018 to further enhance cross-border funds flow management. Therefore, while there
are several material variables that could impact on deal appetite in Hong Kong in 2019, the
overall outlook of the M&A market in Hong Kong for 2019 remains optimistic.
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Chapter 22
HUNGARY
József Bulcsú Fenyvesi and Mihály Barcza1

One hundred and seven deals were publicly disclosed in Hungary in 2018, reflecting a
decreasing M&A market when compared with 133 published deals in 2017.2 The estimated
size of the M&A market also decreased by 17 per cent in terms of value versus 2017. As in
previous years, real estate was the most active industry in Hungary ahead of technology and
consumer products. Share of inbound transactions increased from 28 per cent in 2017 to 40
per cent in 2018.

The main source of legislation governing M&A activity and corporate governance in Hungary
is Act V of 2013 on the Civil Code (Civil Code), and specifically Book Three, which contains
the general rules applicable to all forms of legal persons, including high-level rules on the
transformation, merger and demerger of legal persons, and sets forth definitions of the types
of legal transformations allowed by Hungarian law.
The provisions constituting the legal framework for transactions in Hungary
implemented by way of transformations, mergers or demergers may be found in Act
No. CLXXVI of 2013 on the Transformation, Merger and Demerger of Certain Legal
Persons (Transformation Act). This contains the prerequisites and procedures to be followed
in the case of a company transformation, and the documentation, transparency and financial
requirements of mergers, demergers and spin-offs, prescribing specific rules for companies
limited by shares, especially in the field of audit and management reports.
In the event that a company involved in a merger is not domiciled in Hungary but
in another country of the European Union, in addition to the provisions of the Civil Code
and the Transformation Act, the rules laid down in Act CXL of 2007 on Cross-Border
Mergers of Limited Liability Companies (Cross-Border Mergers Act) shall also be observed.
The Cross-Border Mergers Act serves the implementation of Directive 2005/56/EC of the
European Parliament and of the Council of 26 October 2005.
The procedural aspects of registering M&A in Hungary are set forth in Act V of
2006 on Public Company Information, Company Registration and Voluntary Liquidation
1 József Bulcsú Fenyvesi and Mihály Barcza are partners at Oppenheim Law Firm.
2 https://www.ey.com/Publication/vwLUAssets/ey-ma-barometer-hungary-2018/$File/ey-ma-
barometer-hungary-2018.pdf.
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Hungary
(Company Procedures Act). The Company Procedures Act lists the specific documents to
be prepared and submitted to court to register a merger or acquisition, and sets out the
applicable procedural requirements.
Part Three of Book Three of the Civil Code provides for the regulation of business
associations, regulating in Chapter No. XV the aspects of the acquisition of majority
interests (i.e., the direct or indirect purchase of 75 per cent of the voting rights) in limited
liability companies and private companies limited by shares. These rules set forth a special
statutory tag-along right obliging a shareholder who acquires a majority interest to purchase
the shareholdings of the other shareholders at least at equity value if such other minority
shareholders wish to sell their stake after the acquisition.
Act CXX of 2001 on the Capital Market (Capital Market Act) contains essential rules
on issuing and offering securities. Such rules must be observed if any of the target companies
concerned with an M&A transaction is a company limited by shares. In respect of publicly
traded companies, the Capital Market Act sets forth the specific provisions for the acquisition
of majority interests in public companies limited by shares, such as reporting obligations,
initial public offerings and minimum offer prices. Tender offers and M&A activity in the
financial sector are controlled and approved by the Hungarian National Bank, which became
the general supervising authority of financial institutions and markets in 2013. Act CXXXIX
of 2013 sets out the scope of activity and the procedural rules applied by the Hungarian
National Bank.
In the field of M&A legislation, special rules apply to companies engaged in the energy,
media and financial sectors. The acquisition and transformation of such companies may also
require the prior approval of the competent regulatory bodies, setting further preconditions
and documentation requirements for carrying out a successful merger. The competent
authorities for these sectors include the Hungarian Energy and Public Utility Regulatory
Authority, the National Media and Infocommunications Authority and the Hungarian
National Bank, respectively.
Irrespective of the industry or sector concerned, M&A reaching a certain market
threshold shall be reported to, or approved by, the Hungarian Competition Authority
(GVH). The reporting obligations and the rules for approval are set forth in Act LVII of 1996
on the Prohibition of Unfair Trading Practices and Unfair Competition.
Besides the above acts and laws, significant parts of foreign investments in Hungary are
also protected by way of bilateral investment treaties (BITs). BITs grant basic rights to foreign
investors in compliance with international standards, and enable them to seek remedies
before international forums if their right to fair and equitable treatment should be violated.

IMPACT
i Amendments to the Civil Code
Amendments were made to the Civil Code to clarify or eliminate ambiguities in the new act,
as well as to achieve compliance of the act with other laws.
After an essential amendment to the Civil Code in 2016 eliminating concerns about
the undesired personal liability of managing directors in relation to third parties, which made
it clear that (except in the case of a managing director causing damage intentionally) instead
of a managing director being directly and personally liable, a legal entity shall be liable in
relation to third persons if its managing director caused damage to a third person when acting
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in his or her capacity as managing director, and other notable modifications concerning rules
of dividends and collateral, in 2017 further material amendments were brought about in
relation to securities.
The regulation of securities was replaced with a new and simplified regime: on the one
hand, legal rules outside the Civil Code will have to be observed in depth for detailed rules of
securities; on the other, the new unified regulation for dematerialised and printed securities
leaves room for legal interpretation as to whether certain rules pertain to dematerialised or
printed securities only, or to both of them.
Although the Civil Code compiles the general rules of securities, and detailed rules are
incorporated into other pieces of law, it is also worth mentioning that a new act regarding
bills of exchange was introduced at the end of 2016, effective from 2017. Besides remaining
compliant with the relevant convention regarding bills of exchange, such new legislation
contains rules falling within the competence of the Member States, and includes modernised
procedural rules applicable in lawsuits regarding bills of exchange.
ii Financial and banking regulations

The most important drivers of recent changes in Hungarian financial regulations that can
affect M&A transactions have been amendments of the law in relation to implementing EU
rules and the introduction of national rules to supplement directly applicable EU regulations.
With effect from January 2018, the Hungarian legislator transposed Directive 2015/2366/
EU on payment services in the internal market and Directive 2014/65/EU on markets in
financial instruments (MiFID II Directive), which led to the amendment of the Banking
Act,3 the Investment Services Act4 and the Capital Markets Act, and to the adoption of a
new Decree 35/2017 (XII.14) of the Hungarian National Bank on the provision of payment
services.
Amendments to the Investment Services Act include the transposition of the MiFID II
Directive.
The Hungarian National Bank adopted amendments to its recommendations in
connection with risk assessment of encumbered assets and the restructuring of jointly
financed corporate debtors.5 Although these recommendations are not legally binding, they
have soft law effect in the Hungarian financial sector due to the fact that the Hungarian
National Bank is the supervising authority of the financial market.
Pursuant to these recommendations, the Hungarian National Bank set out a guideline
to credit institutions regarding which assets are qualified as encumbered assets. Generally,
any asset is deemed as encumbered if the asset is pledged or is subject to any dealing as a
security or for improving an institution’s credit rating, and cannot be freely withdrawn from
such dealings. As a non-exhaustive list, the encumbrance may arise from, inter alia, secured
payment guarantees, securities granted for dealings on derivatives, security agreements,
secured financing agreements and secured bond issuing. Based on the recommendations,
the Hungarian National Bank requires that a risk assessment of encumbered assets includes
an evaluation of risks arising from changes in the value of the encumbered assets, and the
3 Act CCXXXVII of 2013.

4 Act CXXXVIII of 2007.
5 Recommendations 6/2017 (V.30) and 14/2018 (III.6) of the Hungarian National Bank.
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risks and characteristics of local markets. Furthermore, credit institutions are required to
monitor the level of encumbrance over the encumbered assets, the reason for encumbrance,
the amount of assets free of encumbrance and any changes thereof.
Upon the restructuring of jointly financed debts, the Hungarian National Bank requires
constructive, good-faith negotiations between creditors and a debtor. It is recommended that
the creditors involve independent advisers to reach a mutual agreement in the restructuring
phase, and credit institutions should develop internal policies about the restructuring of debts,
which policies are in line with their general strategy in connection with non-performing
corporate loans. The Hungarian National Bank recommends that credit institutions not only
calculate the direct operation costs of the debtors when granting a bridge loan: they shall
also evaluate whether the payment of any taxes and publicly due burdens may be included
in the scope of the bridge loan to avoid any enforcement of such obligations, which could
endanger the restructuring procedure. Creditors shall require that the debtor put forward
a plan to maintain continuous operation and to give regular updates of its financial status.
Creditors shall also check and ensure that the bridge loan does not breach any obligations
of the debtor towards any creditors that are not participating in the restructuring procedure.
In the event that such breach is threatening, the consent of that creditor to the bridge loan
shall be required. The Hungarian National Bank considers a restructuring effective if the
continuation of the debtor’s operation is restored and the debtor remains able to discharge its
obligations following the restructuring.
iii Administration and proceedings

Pursuant to changes introduced in 2016, administrative aspects of transactions have become
simpler and more client-friendly. Under an amendment to the Company Procedures Act,
changes in company data (including the deletion of a company from the company registry)
are now reported to all the competent authorities by the Hungarian court of registry, instead
of the company (or its legal successor) having to notify all the relevant authorities separately.
Furthermore, certain changes in company data may now be reported to the court of registry
free of any procedural fees. In 2017, the registration of certain corporate changes became
quicker for companies limited by shares, and a specific procedure was regulated for private
companies limited by shares for going public.
As a consequence of a new codex on Hungarian civil proceedings, adopted in 2016 and
coming into force as of 1 January 2018, further changes have arisen regarding certain aspects
of company proceedings, and remarkable changes have been introduced regarding litigation
that also affect potential litigation related to companies or transactions. Increased attention
will have to be paid to such new rules to successfully proceed and litigate under the new civil
proceedings regime.
Further changes implemented in 2017 aimed at ensuring compliance with relevant EU
legislation on connecting company and commercial registers of the Member States (BRIS)
and facilitating the operation of a unified system of electronic administration in relation to
companies. The modifications of the Cross-Border Mergers Act implemented in 2017 aimed
at the transposition and further harmonisation of Hungarian national law with EU law,
including Directive 2005/56/EC of the European Parliament and of the Council, Directive
2009/109/EC of the European Parliament and of the Council and Directive 2012/17/EU
of the European Parliament and of the Council in respect of cross-border mergers and the
related registers, reporting and documentation obligations.
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Although it is not a new piece of legislation, a trend significantly affecting companies

in 2018 was the increasing requirement of compliance with the General Data Protection
Regulation. Such compliance is now thoroughly observed in the course of M&A transactions,
and a number of investors and purchasers have required targets and sellers to ensure
compliance to the best of their abilities.
In 2018, the Parliament adopted the Security Review Act.6 Under the Act, transactions
requiring ministerial approval (i.e., they may not be implemented before such approval is
granted) are:
a those to be carried out by a foreign investor (an investor resident or registered in a
country outside of the EU, the EEA or Switzerland);
b those relating to certain specific strategic activities (activities concerning national
security such as defence, dual-use products, cryptography and wire-tapping products,
government IT services as well as key services in the financial, energy and telecoms
sectors); and
c those whose implementation is considered a triggering event (e.g., acquisition of at
least a 25 per cent (10 per cent in the case of a publicly listed company) ownership
ratio – direct or indirect – in an existing or newly founded Hungarian company); those
registering a Hungarian branch office for the purpose of carrying out strategic activities;
or those extending the scope of their activities of a Hungarian company to strategic
activities.

Although the deals with the highest transaction value in 2018 involved foreign parties, as
in previous years, the Hungarian market was dominated by domestic transactions (where
both the target and the buyer were Hungarian), representing 48 per cent of all disclosed
transactions in 2018 over foreign transactions.
Regarding transactions related to foreign targets or buyers, inbound transactions were
also dominant (40 per cent of the disclosed transactions). Inbound foreign investments came
from the UK, France, Switzerland and the Czech Republic.
Outbound transactions remained at a rather low level (12 per cent of all disclosed deals)

Considering publicly disclosed transactions, the absolute leading sector in terms of the
number of deals in 2018 was real estate, with 27 deals, which is the same number that was
seen in the previous year.
The second sector behind real estate was technology, where there were 15 transactions
published in 2018, an increase from the 11 during the same period in 2017.
Further active sectors in 2018 were consumer products and retail, healthcare and
banking and capital markets.
In line with the previous year, strategic investors were in a majority in Hungary in
2018. Approximately 74 per cent (79 deals) of the deals were executed by strategic investors.
6 Act LVII of 2018.
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In the past couple of years, financial institutions have cleared significant parts of their
non-performing loan (NPL) portfolios from their balance sheets either by selling them to
third-party bidders, or by restructuring them into subsidiaries to operate and manage the
NPL portfolios separated from the parent financial institution. Consequently, in recent
years, many transactions have focused on the restructuring of currently existing debts and
portfolios. In 2017, corporate lending increased by 10.4 per cent.7 Within such dynamic
increase, the credit amount granted to small and medium-sized enterprises (SMEs) increased
by 12 per cent. The increase in the market was also influenced by sizeable single transactions.
The largest expansion was seen in the energy sector, with a 38 per cent increase since 2016,8
which included the acquisition of the Mátrai Power Plant by Opus Global Nyrt.9
Because of the divestment of NPL portfolios and the financial crisis, several Hungarian
financial institutions have adopted a more specialised focus and policy in relation to the
projects and investments they are willing to finance. Knowing these policies and the drivers
of credit institutions can be a key factor when selecting a financier. Therefore, choosing
experienced advisers on the borrower side who can also support investors in selecting the right
financier for their project has become even more important. Nevertheless, in general, banks
are competing for good projects and investors after years of deleveraging in the Hungarian
economy. Based on a report of the Hungarian National Bank, in the last quarter of 2017
financiers loosened their strict criteria on corporate lending. Banks are calculating further
growth in the outstanding credit amount (substantially as long-term credits). Subsidised
loans and financing are also available to certain investments and projects (e.g., renewables).
However, access to these is rather limited.
Interest rates for credits denominated in Hungarian forints or in a foreign currency
decreased in 2017. Credits are generally granted in Hungarian forints or in euros. However,
changes in the currency exchange rate still pose a risk. Since the beginning of April 2018,
the forint/euro exchange rate has deteriorated by 3.5 per cent, and at the time of writing, it
currently stands, with minor fluctuations, at 319 forints to one euro.10
Equity funds are also active in Hungary. Such funds are mainly either financed by the
state, state-owned institutions and entities, or by the European Union. Although private
equity funds are present in Hungary, their activity level and net investments are still low
in the whole CEE region. The share of private equity funds from the overall volume of
transactions has not significantly developed in recent years.
To facilitate the lending activities of private equity, the Hungarian National Bank and
the state-owned Exim Bank have launched several equity funds, including hedge funds. These
funds have clear investment policies to support and promote projects and transactions that
are beneficial for Hungary’s public affairs. Additionally, in 2017 multiple private equity funds
were created to finance acquisitions of specific strategic companies (e.g., the acquisition of
MKB Bank Zrt by Metis Private Equity Fund). Although these private equity funds took part
in large transactions, the aggregate volume of funds held in such companies is still relatively
low compared to other regions.
7 Lending activities report March 2018, published by the Hungarian National Bank, www.mnb.hu/
kiadvanyok/jelentesek/hitelezesi-folyamatok/hitelezesi-folyamatok-2018-marcius.
8 M&A Barométer Magyarország 2017, published by Ernst &Young Tanácsadó Kft.
9 https://index.hu/gazdasag/2017/12/14/meszaros_cseh_ceggel_osszeallva_viheti_a_matrai_eromuvet/.
10 https://www.portfolio.hu/arfolyam-panel/FX-EURHUF=X/euro-arfolyam.html.
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Furthermore the government, co-financed by the European Union, is making new

funds available to the investment market. Such new investment funds will support mainly
SMEs and research and development projects.
VII EMPLOYMENT LAW

There have been no major legislative changes in the employment rules in connection
with corporate transformations in Hungary in the past couple of years. However, we are
experiencing a slight change of focus when it comes to mergers or acquisitions of businesses
also involving a transfer of personnel. The Hungarian labour market has always been sensitive
to such changes. Corporate changes and reorganisations have often been associated with mass
layoffs, and recently, in several instances, the closure of plants and business units as well.
In general, trust in employers is usually lower than it is in Western Europe. Consequently,
this may cause loss of talent or key personnel even before the conclusion of a transaction.
Therefore, in the course of a transaction, communication is of paramount importance, and
it is similarly vital to maintain good relationships with employee representatives, and to pay
attention, to retain key personnel to safeguard operations and preserve the business potential
of a target.
It is usual to decide early in the planning phase of a transaction whether the employees
of the target will be retained by the purchaser. Rules pertaining to mass layoffs and transfers
of undertakings, including the protection of employees’ rights, are harmonised with the
respective EU directives and remained unchanged in 2018. However, beyond the general rules
on the protection of employees, and consultation and announcing obligations, individual
communication with employees is just as important both in the case of a mass layoff and in
an M&A transaction in which the employees of the transferred business unit are intended to
be retained.
Considering that shortages can be experienced on the Hungarian market for several key
workforce positions, retention of key staff can sometimes be more challenging than layoffs.
In several cases, interim loyalty or other types of incentive schemes may be of great help
for a purchaser in retaining experienced and valuable staff. Sometimes, putting restrictive
covenants in place specifically for the purposes of a transaction may also work well.
VIII TAX LAW

Under Hungarian law, specific rules regarding M&A, spin-offs and divisions of companies
are regulated by Act LXXXI of 1996 on Corporate Tax and Dividend Tax, which has to be
interpreted together with the general rules of the Hungarian civil law on business associations.
i Corporate tax
The biggest recent change in the legislation relevant to M&A and companies in Hungary is
the change in the corporate income tax rate.11 Until the end of 2016, the corporate income tax
rate was 10 per cent of the positive tax base (accounting profits adjusted with certain items)
11 http://abt.hu/hu/adozasi-hirek/.
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up to 500 million forints, and 19 per cent above 500 million forints. From the beginning
of 2017, the corporate income tax rate is 9 per cent of the positive tax base, regardless of
any threshold.
As of 2018, large companies in the central region of Hungary are entitled to a tax
credit under certain circumstances, including for investment projects resulting in product
diversification or new procedural innovation; and for investment projects with a value of at
least 6 billion forints, and of at least 3 billion forints in the case of investment projects serving
to create jobs.
Again as of 2018, favourable corporate tax rules for notified shares may be applied also
for shareholdings under 10 per cent.
ii Revaluation of assets and tax base adjustments

In the case of a transformation of a company structure, fixed assets (+/-), liabilities (+/-),
receivables (-) and provisions (+/-) can be revaluated.
The corporate tax base normally has to be adjusted by the revaluation difference
mentioned above at the predecessor, and by the difference between the accounting net book
value and fiscal net book value of tangible and intangible assets at the predecessor and in the
case of a spin-off at the successor (in the tax year of the transformation).
However, in the case of preferential company transformations it is possible to avoid
corporate tax adjustments. The conditions for the preferential company transformation status
are that both the predecessors and successors must be companies, none of the shareholders
of the predecessors acquire more than 10 per cent cash over the acquisition of shares of the
successor and there is no change in the proportion of the shareholders in the case of a spin-off
(a merger into the only shareholder of a one-person company is also considered to be a
preferential transformation).
In the case of a preferential company transformation, corporate tax adjustments may
be avoided if the following conditions are met: the successor keeps a record of all assets and
liabilities taken over from the predecessor as if no reorganisation had taken place (it has to
continue the records with the same purchase value, and accounting and fiscal net value);
the deed of foundation of the successor refers to this liability; and the preferential company
transformation status is referred to in the corporate tax return of the predecessor.
iii Asset deals

A sale of assets of a company is usually subject to corporate tax. The taxable profit is the
difference between the selling price and the fiscal net book value of the assets. However, it
is possible to avoid corporate tax impacts in the case of a preferential asset deal where an
independent division of the company (with its own structure, assets and ability to operate) is
sold to a buyer in exchange for the acquisition of shares.
Similar to a preferential company transformation, the special rules can be applied if:
a the asset transfer agreement lists all assets, liabilities and accruals (including purchase
values, net accounting and fiscal book values), and has a declaration to apply special
accounting rules;
b the buyer keeps all assets taken over in its books as if no asset deal had taken place
(e.g., it continues the records with the same purchase value, accounting and fiscal net
value as taken from the seller); and
c the seller reports the preferential asset deal status in its corporate tax return.
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iv Real estate companies

A transfer of real estate may be subject to property transfer duty not only in the case of an
asset deal but also a share deal, if a company is considered to be a real estate company having
at least 75 per cent real property within its total assets (not including cash, receivables and
accruals). The general transfer duty rate payable by the buyer is 4 per cent up to 1 billion
forints and 2 per cent over such amount. This regulation is applicable to indirect owners as
well, but there are exemptions for related companies having a registered principle business
activity of real property selling, leasing or management.
v Transfer pricing
As of 2018, a new transfer pricing regulation came into force.12 The aim of the new regulation
is to introduce changes to comply with the requirements set forth by the EU Joint Transfer
Pricing Forum.
IX COMPETITION LAW
i New turnover thresholds
As of 15 January 2017, new turnover thresholds were introduced into the Hungarian merger
control law. According to these, a concentration shall be notified to the GVH if the aggregate
net turnover in and from Hungary of all undertakings concerned exceeded 15 billion forints
in the last audited financial year, and the net turnover in and from Hungary of each of at least
two of the undertakings concerned exceeded 1 billion forints in the last audited financial year
(this latter threshold was raised from 500 million forints).
Even if the above thresholds are not met, the GVH may investigate a transaction within
six months after its implementation if it is not obvious that the merger would not have a
significant impediment on effective competition, in particular by creating or strengthening a
dominant position; and the aggregate net turnover in and from Hungary of all undertakings
concerned exceeded 5 billion forints in the last audited financial year. In such cases, however,
no suspension obligation applies.
According to a GVH notice, a concentration shall be regarded as obviously not
significantly impeding effective competition if the parties’ combined market share does not
reach 20 per cent on any overlapping (horizontal) markets or 30 per cent on vertically related
markets (or, where such market shares are reached, the market share increment stemming
from the concentration is below 5 per cent).
ii Calculation of turnover
The recent amendments have introduced a change in the calculation of turnover of
Hungary-based companies. Prior to the amendments, in the case of entities incorporated in
Hungary, all of their net turnover, whether from sales within or outside of Hungary, had to
be taken into account. As of 15 January 2017, again in the case of Hungary-based entities,
it is only the net turnover from sales into Hungary that shall be taken into account for the
purposes of the turnover calculation (i.e., export sales shall be deducted).
12 http://abt.hu/hu/adozasi-hirek/.
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iii Procedure and filing fee

Transactions that obviously do not significantly impede effective competition will be cleared
within eight calendar days (fast-track procedure). A formal merger control procedure will
only be initiated in cases where, on the basis of a notification, such impediment on effective
competition cannot be obviously excluded, where the notification is regarded as incomplete
by the GVH or where the special approval of the Media Council is required.
In the case of fast-track procedures, the filing fee is reduced to 1 million forints. The
filing fee for regular Phase I and Phase II proceedings has remained unchanged (altogether,
4 million forints for Phase I procedures and 16 million forints for Phase II procedures).
iv Recent developments in case law

Since 2016, the GVH has begun imposing significant procedural fines in merger control
proceedings for incomplete or incorrect data supply. In cases Vj-33/2016 and Vj-1/2017,
following the issuance of a clearance decision, the GVH discovered that the notifying parties
had provided incorrect information regarding the group structure or the relevant markets.
These clearance decisions were therefore revoked, and substantial procedural fines (7 million
forints to 75 million forints) were imposed. The GVH has also been recently more vigilant in
cases concerning a breach of the suspension obligation: for example, it imposed such fines in
early 2018 in case Vj-44/2017.
X OUTLOOK
As a consequence of a new codex on Hungarian civil proceedings adopted in 2016, which
came into force as of 1 January 2018, further changes have arisen regarding certain aspects
of company proceedings, and remarkable changes have been introduced regarding litigation
that also affect potential litigation related to companies or transactions. Such new rules
will have to be paid increased attention to successfully proceed and to litigate under the
new civil proceedings regime. The coming months or years will be a notable period for the
interpretation and practice of the new procedural rules to crystallise.
Legislation has been adopted to simplify registrations and make official proceedings
simpler and quicker, which may have a positive impact on registration proceedings related
to M&A transactions. Among other things, to simplify the registration of company data,
commercial courts will be notified by certain other authorities to register changes to certain
data of persons registered in a company’s registry automatically or ex officio, sparing the
registration of such changes by the company in separate proceedings.
Compliance with the General Data Protection Regulation is still a continuing trend,
and some aspects are expected to be crystallised in practice.
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Chapter 23
ICELAND
Hans Henning Hoff 1

In 2019, the Icelandic economy is facing its first downturn after the very strong phase seen
since the start of the country’s economic recovery from the crisis that started in 2008. This
downturn is to some extent due to the bankruptcy of WOW air in late March 2019, which
resulted in a severe decrease in the number of tourists travelling to Iceland. However, while
the tourism sector had greatly helped the Icelandic economy and stabilised the Icelandic
krona, a slowdown of the tourism boom had been expected for some years.
There was a considerable number of M&A during the past year spanning the whole
range of industries existing in Iceland. In the tourism sector, the Icelandair hotel chain,
which was put up for sale last year, appears to have been acquired by the Malaysian Berjaya
Corporation. While a Marriot hotel is currently being built next to Harpa, Reykjavik’s iconic
concert and convention centre at the Reykjavik harbour, for about US$175 million, the
share of the developer Carpenter & Company in the project has decreased, and a number of
Icelandic investors have stepped in, increasing their share to 66 per cent. Another transaction
in the energy sector was the US$373 million spent by an investment vehicle held by 14
Icelandic pension funds together with Ancala Partners on a 66.6 per cent share in HS Orka.
HS Orka produces geothermal energy in south west Iceland, and also owns a 30 per cent
stake in the Blue Lagoon, which is one of the top destinations for tourists in Iceland.
There was even some public M&A activity. An investment company named AU 3 ehf.
made a takeover bid for a 27 per cent stake in Heimavellir, a listed real estate company, but
had to withdraw its bid after the stock exchange operator declined the request of 81 per cent
of the shareholders to delist the company.
There were also some notable deals in the seafood sector. Iceland Seafood International
acquired the Icelandic seafood company Solo Seafood for US$65 million. Solo Seafood owns
the distribution company Icelandic Iberica, which is mostly active in Spain. Following the
acquisition of HB Grandi by Brim last year, Brim sold its 33 per cent share in the seafood
company VSV Iceland for US$75 million.
At the same time of the demise of WOW air, Icelandair, the former national carrier,
strengthened its capital base, while US-based PAR Capital Management acquired a 12.4 per
cent stake in the company investing US$44 million.
Prosthetic producer Össur withdrew from the stock market in Reykjavik, and it
has been listed in Copenhagen alone since 2017. In addition, the country’s largest listed
1 Hans Henning Hoff is partner at Heuking Kühn Lüer Wojtek.
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company, Marel, which produces fish and meat-processing machinery, has taken up a dual
listing, with its stock now being traded on the Amsterdam stock market in addition to being
listed in Iceland.
The restructuring and repayment of the national foreign debt is still occurring much
faster than scheduled initially. The tourism sector has even out-rivalled the fishing sector, and
the earnings of this power-intensive industry with its aluminium smelters and silicon metal
plants. With this strong tax income, the state has further decreased its national debt and also
refinanced the remaining debts with very favourable conditions. Due to the improved credit
rating and the low interest on international markets in general, Iceland managed to issue a
bond of over €500 million, which will run for five years and only bears 0.122 per cent interest
per year. At the beginning of 2019, the national net debt was 593 billion kronur, which is
23 per cent of GDP. This is a huge step forwards compare to the end of 2013, when the
national debt was 50 per cent of GDP.
As in previous years, the four publicly listed real estate companies Reginn, Reitir, Eik
and Heimavellir have strengthened their property portfolios.
There is some ongoing debate regarding the renewal and improvement of the country’s
infrastructure. For example, under review is how a train system could improve transport in
Reykjavik and the area surrounding the city, and the extension or even relocation of existing
airports is also being looked into. Because hydropower and geothermal energy make up the
largest portion of the energy market, it has taken some time to set up Iceland’s first wind
farms; however, the first larger projects have now been realised.
Such infrastructure investment could create opportunities for international and
domestic investors alike. Several Icelandic pension funds have thus set up an infrastructure
investment fund that aims at financing infrastructure projects in public–private partnerships.

The Icelandic legal system is similar to the legal systems of other Nordic countries, and is
particularly influenced by the legal systems of Denmark and Norway. However, it is also
influenced more by case law than its neighbouring Nordic jurisdictions, and thus its legal
system is closer to a common law system. Even though Iceland is currently not aiming for
accession to the EU it has, together with Norway and Liechtenstein as the other European
Free Trade Association (EFTA) states that are also part of the European Economic Area
(EEA), adopted much of the EU legislation due to the EEA rules. However, the Third Energy
Package has still not been adopted in Iceland. It is subject to very controversial debates.
Agreements regarding domestic deals up to a certain size are conducted mostly in
Icelandic and are fairly short. Larger deals (e.g., with international parties or financing)
are usually conducted in English, and the documents are more detailed. The expansion of
Icelandic investors into Europe and other parts of the world pre-2008, and the financial
crisis bringing foreign creditors into close contact with Iceland, have contributed to bringing
domestic M&A documents close to international practice.
It is quite common for privately held companies to have a group of shareholders rather
than being held entirely by one person. Therefore, negotiations usually include talks with
several shareholders even though the more active shareholders lead the discussions, and speak
also for those who have only invested in the company but are not involved in its management.
Main sources of corporate law are the Icelandic Limited Act and the Stock Corporation
Act. Transferring shares in a company does not require notarisation. Shareholder lists that
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have to be kept by boards do not have to be submitted to the Register of Enterprises, but the
Act on Financial Statements requires that shareholders and their shareholdings at year-end
are disclosed in companies’ financial statements, which have to be published.
Under both Acts, a squeeze-out of the minority shareholders can be requested if one
shareholder holds more than 90 per cent of the capital and votes in a company. Likewise, a
minority shareholder can demand redemption of its shares if a single shareholder holds more
than 90 per cent of the capital and votes in a company. The articles of association may contain
rules about the redemption of shares and the valuation method; only in a stock corporation
must there be a statement about this question in the articles of association even if there is
no deviation from statute law. The redemption price offered by the requesting party can be
challenged by the other party, and if no agreement is reached, court-appointed experts shall
determine the price.
The main rules for public takeovers are to be found in Chapter 10 of the Act on
Securities Transactions. A mandatory offer to the other shareholders shall be made if a
shareholder has acquired 30 per cent of the votes in a listed company, either by its own
shareholding or by acting in concert with other shareholders. A mandatory offer shall also
be made if a shareholder has gained the right to appoint the majority of the board members.
A mandatory takeover bid must be made within four weeks after the shareholder knew or
should have known that the relevant threshold had been crossed. The offer period ranges
from four to 10 weeks. The decision to make a voluntary takeover offer must be announced
without undue delay. If a target company faces financial problems, the Icelandic Financial
Supervisory Authority can grant an exemption from the duty to make a mandatory offer
to a party that wants to save the company from serious financial problems or that wants
to take part in the financial restructuring of the company if its board agrees to this. The
breakthrough rule has not been implemented in Iceland. While the Financial Supervisory
Authority monitors compliance with these rules, the rules of the NASDAQ OMX Iceland
stock market regulate the trading of securities in listed companies.
New foreign direct investments may now be again eligible to tax and other benefits
pursuant to the Act on incentives for initial investments in Iceland.

THEIR IMPACT
Due to the fact that only a handful of companies remained listed on the Icelandic stock
exchange during the turbulence following 2008 and the modest size of the market in general,
it is unsurprising that there were few changes in the legislation on takeovers in Iceland after
the modernised Act on Securities Transactions entered into force in November 2007. Since
then, only minor amendments have been made.
The same applies to corporate law. While there were many changes and debates about
changes in insolvency law and restructuring, and competition issues in general, there have
been few changes to the corporate law during the past couple of years. However, changes due
to the Shareholder Rights Directive and other changes in the legislative EU framework have
been adopted.
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The Icelandic software company Origo has sold a 55 per cent stake in the software company
Tempo, valuing the whole company at US$62.5 million. The purchaser is Los Angeles-based
Diversis Capital, which specialises in software and technology companies. Software company
Libra was sold to Dutch company Five Degree, again signalling how international the markets
have become.
While the privatisation of Íslandsbanki and Landsbankinn has still not been fully
accomplished, Arion banki now has more shareholders from the private sector. Two
funds managed by Tacomic Capital Advisors purchased a 5 per cent share in Arion for
UK£41.8 million. From the bankruptcy estate of Arion’s predecessor, Kaupthing, the fashion
company Karen Millen is now for sale, and it is expected that the buyers will be international
investors rather than investors from Iceland.
While Iceland has now got a quite active startup scene, quite a few Icelandic startups
have managed to procure funds from foreign sources, the latest example being Kerecis with
a US$16 million round in order to further enhance its products in the healthcare market.
A mid-cap deal was the divestment of Gear4 by Strax, which sold its subsidiary that
produces accessories for mobile phones to ZAGG, which is based in Utah, US, for €35 million
(plus a possible earn-out of €9 million).
A smaller outbound investment was the acquisition of the Scottish engineering
company KSLD by the Icelandic engineering company Efla. This investment is the last of a
series of acquisitions in other European countries such as Norway.

With the tourism sector slowing down, the focus of investors is more on infrastructure
projects, and the past year has shown in general how closely linked the Icelandic economy has
become to both the economies of North America and Europe. Because economic activities
were in full swing over the past couple of years, virtually all types of transactions – not only
public and private deals, but also, for example, management buyouts – can be seen again.
Almost all industries are involved. While the large banks are not yet still fully privatised, the
concentration of the market continues. The former investment bank Kvika (the successor
to Straumur Investment Bank) accomplished four takeovers during the past year. The
acquisition of asset management company GAMMA for US$20 was the last in this series, at
least for the time being.
With the initial public offering of Arion bank and new shareholders joining, the
privatisation of the banking sector has started for the second time since 2003, and questions
of Landsbankinn’s future ownership is still of high interest due to the bank’s eminent role in
financing many of the larger companies in Iceland.
The concentration of the real estate market, with the large listed companies Reginn,
Reitir, Eik and Heimavellir strengthening their property portfolios, continues. The Icelandic
Competition Authority has approved Reginn’s acquisitions of two real estate companies
named HTO and Fast-2.
As previously mentioned, investment focus has moved slightly away from the booming
tourism sector to other parts of the economy and to infrastructure projects.
One of the most thriving sectors is still life sciences. In addition to the pharmaceutical
company Alvogen, which is led by former Actavis CEO Robert Wessman, there is quite a
number of smaller companies that are increasing their international reach and may, mid-term,
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contribute a significant portion to Iceland’s earnings abroad. Often, such development is

accompanied by M&A activities, and it is likely that large international players will also
acquire some of the Icelandic startups in this field.
Geothermal energy production is currently a hot industry, and up to 7 billion kronur
will be spent on research and demonstration projects in the European project Geothermica.
In addition, Iceland is participating in the European Strategic Energy Technology Plan, which
aims to improve low-carbon technologies. Iceland, with its wealth of renewable energies, is a
preferred platform for such projects.
In terms of business success, Marel, the producer of fish and meat-processing technology,
must be mentioned in this context. Not only has Marel’s annual turnover continued to grow;
Marel has increased its market position in many of its key markets and continues its profitable
operations.

The new banks, Landsbankinn (successor to Landsbanki), Arion banki (successor to
Kaupthing) and Íslandsbanki (successor to Glitnir), which took over domestic businesses
during the banking crisis in 2008, still have very strong market positions and continue their
profitable operations. The privatisation in the banking sector will most probably also impact
the financing of deals.
Depending on the parties to an M&A deal, the financing varies. Pension funds and
institutional investors often pay in cash. Companies either opt for traditional bank financing
or also issue bonds. The bond market in Iceland has picked up again, and faster than the stock
market, after the 2008 crisis. The financing of growth in the parts of the economy that have
been expanding also depends on the type of investment. In the tourism sector, new hotel
buildings have mostly been financed domestically, but the investments of foreign entities in
energy-intensive industries seem to be financed from abroad to a considerable extent. Iceland
is at a crossroads, with its decades-old tradition of linking almost all loan agreements to the
consumer price index. However, this relatively new development that loans are without an
indexation seems to get stronger every year.
VII EMPLOYMENT LAW

The Transfers of Undertakings Directive2 was transformed into Icelandic law in 2002. The
Icelandic Act on the Legal Position of Employees in the case of a transfer of an undertaking
is applicable if a business unit is transferred in such a way that it maintains it characteristics
(i.e., the structure of assets that are used in an economic objective regardless of whether it is a
main or ancillary part of the operations). If such a transfer occurs, the rights and obligations
of the transferor transfer to the purchaser, and the purchaser shall observe the remuneration
and work conditions according to the collective labour agreement until it expires under, or is
terminated or superseded by, a new collective labour agreement. The same principle applies
in the case of a transfer regarding a bankrupt entity, with the exception that rights because of
non-performance by the assignor do not transfer in this case.
2 Directive 2001/23/EC.
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The transferor and the purchaser shall jointly inform the union workplace representatives
(or the employees themselves if there are no representatives) about the date of the transfer,
the reasons for the transfer, and the legal, economic and social consequences of the transfer
for the employees, and whether any measures are planned regarding the employees. The
aforementioned information shall be given well in advance, and if there are plans to take
measures regarding the employees, the matter shall be discussed with their representatives (or
otherwise directly with them) to reach an agreement. Both parties, transferor and transferee,
are obligated under these provisions.
The Icelandic Act on Mass Redundancies is applicable if at least 10 employees are made
redundant in a company of 21 to 99 employees, if at least 10 per cent of the employees are
laid off in a company of 100 to 299 employees, or if at least 30 employees are made redundant
in a company with 300 or more employees. With the objective of reaching an agreement, a
decision regarding layoffs shall be announced immediately to union workplace representatives
or to another representative elected by employees for that purpose. Regarding cooperation,
an attempt shall at least be made to avoid mass redundancies, reduce the number of affected
employees or mitigate the consequences for them with the assistance of social measures that
have, inter alia, the objective of facilitating a transfer to a new job or occupational retraining.
VIII TAX LAW

A corporation is considered to be resident in Iceland if it is registered here, and if it has its real
management here or if its home, according to the company’s articles, is in Iceland.
Because Iceland is not a Member State of the EU, EU Directive 2009/133/EC on
mergers is not applicable in Iceland.
There is the possibility of a tax-exempt merger if the absorbed company is completely
absorbed by the absorbing company with all assets and liabilities, and the only consideration
is shares in the absorbing company excluding any cash component. Under very strict
requirements, a tax-exempt cross-border merger is possible. The main criterion for this is
that the acquiring company is resident in the EEA or EFTA regions or in the Faroe Islands.
Foreign individuals and legal entities have to pay a withholding tax on dividends
received. The applicable rate is 20 per cent for legal entities and 22 per cent for individuals.
If dividends are paid from an Icelandic corporation to a foreign limited liability company in
the EU or EEA, the withholding tax can be partly or fully refunded after a tax assessment. If a
tax treaty is applicable, the withholding tax rate may also be reduced. Interest payments by an
Icelandic company to a non-resident are generally subject to withholding tax. The tax rate is
12 per cent. If the recipient is a legal entity, the tax might be reduced according to a tax treaty
Iceland is party to. If the recipient is an individual, a small tax-exempt amount is applicable.
In a Supreme Court judgment of 2012, it was ruled that interest paid on a loan taken in an
acquisition company to finance the acquisition of shares in the target company and that was
merged together with the acquisition company in the target company is not deductible.
Regarding thin capitalisation of companies, it should be noted that Iceland only has a
general anti-avoidance provision that might be applicable. In addition, a regulation regarding
transfer pricing was enacted on 1 January 2015. The regulation applies to businesses with more
than 1 billion kronur in revenue or assets, and requires the documentation of transactions
between related entities.
The tax base generally follows commercial accounts. The tax resident’s worldwide
income is taxable, with the possibility of deducting expenses made to generate that income.
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Tax grouping rules allow for a tax consolidation in Iceland, the main prerequisite being a
minimum shareholding of 90 per cent in the other companies of the tax group, which must
all be in Iceland. There is no difference in the taxation of distributed or retained earnings. The
new Act on Stamp Duties, which entered into force on 1 January 2014, provides only for the
levying of a stamp duty for the transfer of ownership in real estate and in ships.
IX COMPETITION LAW
Merger control proceedings are governed by the Icelandic Competition Act, and a
notification of a merger is required if the combined revenues of the merging companies reach
2 billion kronur and if at least two of the merging parties have a revenue in Iceland of at least
200 million kronur. For the determination of the revenue, parent companies and subsidiaries
are also relevant if they are directly or indirectly controlled by the merging companies.
If a merger has occurred that does not meet the above requirements for triggering a
notification duty, but the relevant combined revenue is 1 billion kronur and the Icelandic
Competition Authority is of the opinion that the merger may still reduce effective competition,
it may order the merging parties to submit a notification of the merger.
The notification of a merger shall be jointly filed by the merging parties after the
conclusion of an agreement, the announcement of a public bid or the acquisition of a
controlling interest in a company, and before completion of the respective merger. It must
not take effect while the Competition Authority is still examining the case. However, upon
application, an exemption to this rule may be granted.
Upon receipt of an application, the Competition Authority will notify the parties
within 25 working days as to whether it will further look into the case. This notification is a
prerequisite to interdict a merger. If a merger is to be interdicted, this must happen within
70 working days from the time of the Competition Authority’s announcement that it intends
to investigate the matter. If further information is required, the period may be extended by
up to 20 working days.
X OUTLOOK
The economic outlook for Iceland is still rather positive, in particular because the country
has the possibility to react to the economic downturn in allowing the krona lower against the
main currencies of the countries Iceland doing trade with. Unlike the strategy of the Icelandic
National Bank before 2008, there is now a much stronger minimum reserve policy in place,
which should result in greater stability for the financial sector and, following indirectly from
that, for other businesses.
The general investment climate is still positive and the government, which has been in
office since the parliament elections held in autumn 2017, is also pursing many long-term
projects that should help to keep Iceland in upcoming years within that group of European
countries that are well prepared for the future.
The strong economy, still relatively low unemployment rate and highly educated
population, along with the country’s wealth of energy and natural resources, offer a stable
environment for M&A activities in Iceland.
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Chapter 24
INDIA
Justin Bharucha1

India is the fastest growing major economy2 with a projected gross domestic product of
7.3 per cent in 2019 and 7.5 per cent in 2020.3 India’s economy is expected to reach US$2.95
trillion by the close of 2019.4
While aggregate M&A transaction volume decreased (1,640 transactions in 2018 as
compared to 1,824 in 2017),5 the aggregate deal value in 2018 (US$129.4 billion) increased
from 2017 (US$63.2 billion).6 The increase in value may be attributable to increased sales of
stressed assets (pursuant to the corporate insolvency resolution process), consolidation across
sectors and a surge in big-ticket transactions.7 India’s continuous rise in the World Bank’s
Ease of Doing Business rankings is also a contributing factor.8
E-commerce, fast moving consumer goods and agro-chemicals witnessed some major
deals in M&A in 2018 (see Section V for details). The acquisition of 77 per cent of Flipkart
(India’s largest e-commerce website) by Walmart Inc for about US$16 billion is the largest-ever
1 Justin Bharucha is a partner at Bharucha & Partners. The author would like to thank Ayesha Bharucha,
managing associate, for her assistance in the preparation of the chapter.
2 ‘World Economic Outlook (October 2018)’, International Monetary Fund. See https://www.imf.org/
en/Publications/WEO/Issues/2018/09/24/world-economic-outlook-october-2018 and http://pib.nic.in/
newsite/PrintRelease.aspx?relid=186586.
3 ‘World Economic Outlook (April 2019)’, International Monetary Fund. See https://www.imf.org/~/media/
Files/Publications/WEO/2019/April/English/text.ashx?la=en and http://pib.nic.in/newsite/PrintRelease.
aspx?relid=186586.
4 ‘France back at No.6 in GDP rankings, India slips to No.7 again’, Business Today. See https://www.
businesstoday.in/top-story/france-back-at-no6-in-gdp-rankings-india-slips-to-no7-again/story/293271.html.
5 ‘Deals in India: Annual review and outlook for 2019’, PricewaterhouseCoopers. See https://www.pwc.in/
assets/pdfs/publications/2018/deals-in-india.pdf.
6 ‘India mergers and acquisitions at record high of $129 billion in 2018’, Business Standard. See https://www.
business-standard.com/article/economy-policy/m-as-break-records-119011501213_1.html.
7 ‘Deals in India: Annual review and outlook for 2019’, PricewaterhouseCoopers. See https://www.pwc.in/
assets/pdfs/publications/2018/deals-in-india.pdf .
8 ‘Doing Business 2019 (published 31 October 2018)’, the World Bank. See http://www.worldbank.org/
content/dam/doingBusiness/media/Annual-Reports/English/DB2019-report_web-version.pdf.
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India
e-commerce acquisition in the world and the largest M&A transaction of 2018.9 In addition,
real estate, energy and manufacturing, collectively, witnessed significant activity.10

The principal statutes governing M&A are the Indian Contract Act 1872 (Contract Act), the
Companies Act 2013 (Companies Act), the Competition Act 2002 (Competition Act), the
Foreign Exchange Management Act 1999 (FEMA), the Insolvency and Bankruptcy Code
2016 (Insolvency Code) and subsidiary legislation.
Listed entities must additionally comply with, inter alia, the Securities and Exchange
Board of India (SEBI) (Substantial Acquisition of Shares and Takeovers) Regulations 2011
(Takeover Code), the SEBI (Prohibition of Insider Trading) Regulations 2015 (Insider
Trading Regulations) and the SEBI (Listing Obligations and Disclosure Requirements)
Regulations 2015 (LODR Regulations).
i The Contract Act

The Contract Act sets the paradigm for definitive agreements. Importantly, non-compete
stipulations are relatively limited, and damages will not be awarded in excess of the loss
suffered. Concomitantly, liquidated damages are, effectively, a cap on damages that may be
awarded depending on the extent of loss proved. Punitive damages are not awarded.
ii The Companies Act

The Companies Act addresses company law including mergers and restructuring, while the
Insolvency Code applies to insolvency resolution and liquidation.
Public companies are subject to more onerous compliance requirements than private
limited companies.
The Companies Act was amended in 2018 primarily with a view to creating greater
transparency in corporate structures while also increasing the ease of doing business in
India. The key amendments include the introduction of provisions to determine significant
beneficial ownership and, therefore, significant influence or control over an Indian company;
simplification and liberalisation of the private placement process; and easing of the restrictions
on providing loans to group companies.
Authority and capacity

The board of an Indian company must approve any acquisition or divestment of shares. If
the aggregate of the consideration (including for business or asset transfers) and the amount
of guarantees or securities extended by the company (to a company other than any of its
wholly owned subsidiaries), or proposed to be extended, exceeds the greater of 60 per cent
9 ‘Walmart acquires Flipkart for $16 billion in world’s largest ecommerce deal’, The Economic Times.
See https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/walmart-acquires-flipkart-for-
16-bn-worlds-largest-ecommerce-deal/articleshow/64095145.cms, and http://gtw3.grantthornton.in/assets/
DealTracker/Grant-Thornton-Dealtracker-H1-2018.pdf.
10 ‘Dealtracker Providing M&A and Private Equity Deal Insights’, Grant Thornton. See http://gtw3.
grantthornton.in/assets/DealTracker/Grant-Thornton-Dealtracker-H1-2018.pdf.
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of the acquirer company’s paid-up capital, free reserves and securities premium account, or
100 per cent of its free reserves and securities premium account, then at least 75 per cent of
the shareholders must also approve.
Pre-emptive rights, restrictions on transfers, puts and calls

The Companies Act mandates free transferability of shares of a public company but recognises
private arrangements between its shareholders as valid contracts. Implicitly, pre-emptive
rights and restrictions on transfers are enforceable inter se shareholders.
Types of companies
Public, private, sole trader and small companies are permitted. The latter two are geared
towards promoting domestic entrepreneurship.
Schemes of merger and demerger

The Companies Act permits schemes of compromise or arrangement between a company and
all or a class of its creditors or members. Schemes can effect a restructuring, merger, demerger,
hive-off or other reorganisation.
Every scheme must be approved by the board of each company concerned, at least
75 per cent of the shareholders of each company and at least 75 per cent of the creditors, and
subsequently sanctioned by the relevant National Company Law Tribunal (NCLT).11
Schemes involving listed companies require SEBI and stock exchange prior approval
at two stages: one month before the application to the NCLT for sanction and after NCLT
sanction.
Schemes involving foreign companies require approval from the Reserve Bank of India
(RBI) before filing with the NCLT. The transferee company must ensure that the valuation
in respect of such schemes is conducted by recognised professional valuers in accordance with
the internationally accepted principles on accounting and valuation.
Resident directors and independent directors

Under the Companies Act, every Indian company must have at least one director who was
resident in India for at least 182 days during the financial year; this period is proportionately
adjusted for newly incorporated companies at the end of the financial year of incorporation.
Every public company, whether listed or unlisted, must additionally have at least two
independent directors if its paid-up capital exceeds 100 million rupees, its turnover exceeds
1 billion rupees or its debt exceeds 500 million rupees.
Related-party transactions
The Companies Act defines a related party as including holding, subsidiary and associate
companies12 (including foreign companies) and entities in which directors are interested.
All contracts with related parties that are not at arm’s length must be approved by the board
in meeting and, where the consideration exceeds specified thresholds, by a shareholders’
resolution.
11 Approval of the NCLT is not required for a merger of two or more small companies and a merger of a
holding company and its wholly owned subsidiary.
12 Investing entities will be considered associate companies.
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iii The Competition Act

Regulation of combinations
The Competition Act prohibits persons or enterprises from entering into a combination
that has or is likely to have an appreciably adverse effect on competition within the relevant
market in India.
Separately, the Competition Commission of India (Competition Commission) must
approve a combination if the assets or turnover of the entities proposing to combine exceed
prescribed thresholds. In the case of a business or asset transfer, an exemption from approval
of the Competition Commission is available if the value of the relevant assets being transferred
or the turnover attributable thereto is within the thresholds.
The Competition Commission publishes a summary of every notice of a combination
received for stakeholders to review and submit their comments. It approves a combination
based on, inter alia, the actual and potential levels of competition in the market, barriers to
entry, market share, perceived benefits and the perceived adverse impact of the combination.
Mergers or amalgamations
The thresholds above which notice of a merger must be filed are as follows:
Enterprises considered for valuation Thresholds in India Aggregate global threshold

Enterprise remaining after the Asset value: more than 20 billion Asset value: more than US$1 billion,
merger or created as a result of the rupees including at least 10 billion rupees in India
amalgamation
Turnover: more than 60 billion rupees Turnover: more than US$3 billion,
including at least 30 billion rupees in India
The group* to which the enterprise Asset value: more than 80 billion Asset value: US$4 billion, including at least
remaining after the merger or created rupees 10 billion rupees in India
as a result of the amalgamation will
belong Turnover: more than 240 billion Turnover: more than US$12 billion,
rupees including at least 30 billion rupees in India
* A group means two or more enterprises that are directly or indirectly in a position to exercise at least 50 per cent of the
voting rights in another enterprise to appoint 50 per cent or more members on the board of directors, or control the
management or affairs of the other enterprise
Acquisitions
The thresholds above which notice of an acquisition of shares or a business must be filed are
as follows:
Enterprises considered for valuation Threshold in India Aggregate global threshold
Target aggregated with acquirer Asset value: more than 20 billion Asset value: more than US$1 billion,
Turnover: more than 60 billion rupees Turnover: more than US$3 billion,
Target aggregated with the group to Asset value: more than 80 billion Asset value: US$4 billion, including at least
which it will belong rupees 10 billion rupees in India
Turnover: more than 240 billion Turnover: more than US$12 billion,
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An acquirer that already, directly or indirectly, controls another enterprise engaged in a

business similar or identical to the target must notify the Competition Commission if the
following thresholds are exceeded:
Enterprises considered for valuation Threshold in India Aggregate global threshold
Target aggregated with the enterprise Asset value: more than 20 billion Asset value: more than US$1 billion,
controlled by the acquirer and engaged rupees including at least 10 billion rupees in India
in a similar or identical business as
the target Turnover: more than 60 billion rupees Turnover: more than US$3 billion,
Target aggregated with the group to Asset value: more than 80 billion Asset value: US$4 billion, including at least
which it will belong rupees 10 billion rupees in India
Turnover: more than 240 billion Turnover: more than US$12 billion,
Combinations exempt from regulation

The following combinations are, inter alia, exempt from the requirement of notifying the
Competition Commission:
a acquiring, solely as an investment or in the ordinary course of business, less than 25 per
cent of shares or voting rights and not control. Acquiring less than 10 per cent of the
total shares or voting rights of an enterprise will be solely an investment if the acquirer
is not a member of the board, has no right to nominate any director on the board, has
only such rights as are exercisable by an ordinary shareholder, and does not intend to
participate in the affairs and management of the target;
b acquiring additional shares or voting rights when the acquirer already holds between
25 and 50 per cent of the shares or voting rights;
c any acquisition in which the acquirer already holds 50 per cent or more shares or voting
rights;
d acquisitions of assets by an acquirer’s business or acquired solely as an investment or
in the ordinary course of business, except where the acquisition represents substantial
business operations, or the acquisition leads to acquisition of control;
e an acquisition pursuant to a bonus issue or capital restructuring or buyback of shares or
subscription to rights issue not leading to acquisition of control;
f merger or amalgamation of two enterprises where one has more than 50 per cent of the
shares or voting rights of the other, where 50 per cent of the shares or voting rights in
each enterprise is held by enterprises within the same group, or both;
g until March 2022, an acquisition or amalgamation in which the value of the assets
being acquired, taken control of, merged or amalgamated is less than 3.5 billion rupees
or turnover attributable to the assets is less than 10 billion rupees;13
h until August 2022, any amalgamation of regional rural banks mandated by the central
government;
i until August 2027, any amalgamation, reconstitution or transfer of the whole or any
part thereof of nationalised banks in accordance with special statutes in this regard; and
13 This exemption was previously available only in the case of an acquisition, and the value of the assets and
turnover of the enterprise as a whole were to be taken into account instead of the value of the assets and
turnover being acquired.
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j until November 2022, any combination involving central public sector enterprises14
operating in the oil and gas sectors under the Petroleum Act 1934 or under the Oilfields
(Regulation and Development) Act 1948.
The exemptions in points b, c and f are not available if the transaction results in a change in
control.
iv Exchange control regulations

The Indian rupee is not freely convertible, and the FEMA and its subsidiary rules and
regulations restrict transactions between Indian residents and other persons.
Foreign direct investment (FDI), both primary subscription and secondary acquisition,
is permitted in most sectors without prior approval and subject to compliance with conditions
separate from licensing or domestic compliance of general application, including those
relating to sectoral caps15 and pricing. All FDI must be reported through the government’s
online FIRMS portal. Investment by a non-resident in less than 10 per cent of the capital of
a listed entity will be considered foreign portfolio investment.16
FDI is subject to pricing guidelines. These guidelines require the purchase price of
shares to be at least the fair value (in the case of an Indian selling shares) or not more than
the fair value (in the case of an Indian acquiring shares) determined by any internationally
accepted pricing methodology. The valuation must be contemporaneous with the transaction.
Foreign investors may pay the entire consideration for an acquisition or subscription
up front or defer, including through escrow, up to 25 per cent of the total consideration for
up to 18 months. Similarly, indemnity obligations to a foreign investor of up to 25 per cent
of the consideration are permissible without prior government approval.
v The Insolvency Code

The Insolvency Code contemplates a time-bound resolution of insolvency. The NCLT shall
within 14 days of an application being submitted either admit or reject the application.
The process under the Insolvency Code, once admitted, is required to be completed within
180 days of the date of admission. A further extension of 90 days may be granted by the
NCLT if 66 per cent or more of the committee of creditors approves the extension. No
further extension is permitted thereafter. If no resolution plan is approved at the expiry of the
180 or 270-day period, as applicable, the NCLT shall pass an order for liquidation.
Applications, once accepted, may be withdrawn if 90 per cent of the committee of
creditors approve the withdrawal.
Currently, certain lacunae exist as, among other things, stakeholders have identified
certain limitations under the Insolvency Code that hinder the effective resolution of insolvent
companies.17
14 A central public sector enterprise consists of companies in which the shareholding of the central
government exceeds 51 per cent.
15 Illustratively, foreign direct investment in defence is permitted only up to 49 per cent without the prior
approval of the government.
16 Aggregate foreign portfolio investment in a company is restricted to 49 per cent or less.
17 Illustratively, certain stakeholders are of the view that where a company undergoing insolvency has
inadequate funds to remain afloat, the financial creditors of that company should bear the cost of the
insolvency proceedings.
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vi The Takeover Code

The Takeover Code is a comprehensive code that applies to a change of control of listed
companies (other than companies listed without making a public issue on the institutional
trading platform)18 of a recognised stock exchange. Control includes the right to appoint a
majority of the directors, or control the management or policy decisions of a company, and
applies to the acquisition of shares or voting rights.
Public offers
Mandatory offers and creeping acquisition
The Takeover Code mandates a public offer on acquiring 25 per cent or more of the voting
rights of a listed company and, if a shareholder already holds shares or voting rights to
that extent, on acquiring more than 5 per cent of the voting rights of that company in any
12-month period ending on 31 March.
A public offer must be for at least 26 per cent of the total shares of the target company
(excluding shares held by the acquirer), subject to maintaining the mandatory minimum
public float of 25 per cent.
Voluntary offers
A shareholder with 25 per cent of the shares or voting rights of a listed company may make
a voluntary public offer to acquire at least 10 per cent of the voting rights of that company,
provided that the mandatory minimum public float of 25 per cent remains unaffected.
Conditional offers
A public offer may be conditional on a minimum level of acceptance and on regulatory
approvals.
Consideration and performance surety

An acquirer may offer cash, shares of another listed company, listed debt securities, or any
combination of these as consideration for the shares tendered in response to a public offer.
The formula to calculate the minimum offer price is geared to the historical performance
of the shares of the listed company. However, if the negotiated acquisition price is higher than
the historical trading price, the negotiated price must be the minimum price of the public
offer.
Every person making a public offer must deposit monies in an escrow account as
performance surety. Indian banks may provide guarantees as surety for non-residents if such
guarantees are covered by counter guarantees of a bank of international repute.
Disclosures of shareholding
Every person acquiring 5 per cent or more of the shares or voting rights of a listed company
must disclose aggregate shareholding and voting rights to the concerned stock exchange
within two working days of the acquisition.
18 An institutional trading platform is a trading platform in a small or medium-sized enterprise (SME)

exchange for listing and trading of securities of SMEs, including start-ups.
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Every person holding 5 per cent or more of the shares or voting rights of a listed
company must disclose every subsequent acquisition or divestment of 2 per cent or more of
the total shareholding in a company even if such subsequent acquisition or divestment results
in the shareholding falling below 5 per cent.
Separate annual disclosures must be made on 31 March each year.
Delisting of target company

A company may be delisted in compliance with the delisting regulations.
The promoters or an acquirer making an open offer under the Takeover Code may
offer to purchase shares held by the public, and delisting may be permitted if, following the
offer, the promoters hold 90 per cent of the company and at least 25 per cent of the public
shareholders have participated in the offer. The acquirer or promoter may make a counter
offer if the price determined is not acceptable provided that the counter offer is not less than
the book value of the company.
Schemes of amalgamation
The open offer process is not triggered if the shares of a listed company are bought through
an NCLT-approved scheme of amalgamation.
Non-compete payments
The Takeover Code provides for any non-compete fees paid to be included in the transaction
value, while in a scheme of amalgamation, the same may be paid outside the deal value.
vii Insider Trading Regulations

The Insider Trading Regulations oblige shareholders, promoters, employees and directors
of listed companies to disclose any transaction or series of transactions involving shares of a
listed company having a trading value of 1 million rupees or more.
Insiders may also formulate irrevocable trading plans that are to be publicly disclosed
and mandatorily implemented.
viii LODR Regulations

The LODR Regulations apply to listed entities that have listed specified securities on an Indian
stock exchange, and mandate event-specific disclosure and separately, periodic disclosure of,
inter alia, changes in shareholding, proposals to change capital structure, information that
may have a bearing on the operation or performance of the company, M&A activity, as well
as transactions with group companies.
The LODR Regulations prevent directors and key management personnel of a listed
entity from entering into compensation or profit sharing agreements with shareholders or
third parties in connection with shares of the listed entity without the prior approval of the
board and the public shareholders. This proscription was specifically included to regulate
arrangements between private equity investors and management of listed entities.
Certain mergers, demergers and schemes of arrangement involving a listed company
require approval of the majority of the public shareholders of the listed company.
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THEIR IMPACT
i The Companies Act
The provisions of the Companies Act relating to M&A have recently been notified, changing
the M&A landscape significantly.
Merger into a foreign company

Previously, the Companies Act did not permit the merger of an Indian company with a foreign
company, and only permitted the merger of a foreign company with an Indian company.
However, the Companies Act now permits cross-border mergers with foreign companies in
certain jurisdictions, subject to RBI approval.
The RBI has promulgated regulations for cross-border mergers that primarily combine
compliances under various regulations and statutes (e.g., pricing guidelines and sectoral caps
as discussed above).
Creditors’ objections
The Companies Act provides that a scheme of arrangement can be challenged only
by shareholders holding at least 10 per cent of the shareholding by value or by creditors
representing 5 per cent of the outstanding debt of the company. This should shorten timelines
and preclude frivolous objections.
Ease of Doing Business Index

India’s ranking improved significantly, from 100 in 2017 to 77 in 2018.19 This improvement
can be attributed to the government’s continued efforts in this regard, including the
migration of several regulatory functions to e-portals, improving the country’s position in
the enforcing contracts indicator, and the simplification of procedures for tax, labour and
corporate regulatory compliance.
ii FDI policy and foreign investment

FDI of up to 100 per cent is allowed in single brand product retail trading under the automatic
route for products branded during manufacturing with the same brand as is used globally.
This initiative aims to attract a larger number of foreign investors engaged in production and
marketing. However, given that local sourcing requirements remain for FDI over 100 per
cent, it remains to be seen whether the liberalisation will lead to further FDI.
Further, foreign investment in a company engaged in the business of investing and
registered with the RBI as a non-banking financial company (NBFC) would fall under the
100 per cent automatic route. However, foreign investment in core and other investment
companies is permitted only under the government route.
19 ‘India Improves Rank by 23 Positions in Ease of Doing Business’, Press Information Bureau. See http://pib.
nic.in/newsite/PrintRelease.aspx?relid=184513.
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iii Startup India

The Startup India initiative promotes entrepreneurship and innovation by helping start-ups
secure funding. A start-up is a new entity that is headquartered in India, is less than 10 years
old and has an annual turnover of less than 1 billion rupees. Because of the muted success
of this initiative, the government made several changes, the most notable being tax benefits
to start-ups, as discussed later in this chapter. Certain additional benefits have also been
introduced, such as self-certification, funding corpus of 100 billion rupees and concessions
on patent and trademark filings. The impact of these changes remains to be seen.
iv Stressed assets
In the past, the RBI has prescribed various routes to be followed by financial institutions
for restructuring debt of defaulting borrowers. In February 2018, the RBI notified a new
framework mandating that insolvency proceedings be commenced against corporate
borrowers where a debt resolution plan was not effected within 180 days. However, in April
2019, the Supreme Court struck down the RBI’s new framework as ultra vires. While the RBI
is likely to notify new guidelines for debt restructuring, for the present, financial institutions
have greater flexibility for the restructuring of debt and disposal of stressed assets, as the
somewhat unreasonable 180-day time frame is no longer applicable.

Foreign investors continue to be key players in Indian M&A with inbound investment
increasing by 17 per cent.20
Below is a country-wide summary (top 10 only) of foreign involvement in Indian
M&A (in terms of US$):21
Rank Country 2016–2017 2017–2018 2018 Cumulative inflows Percentage of

(April to (April to (April to (April 2000 to total inflows
March) March) December 2018) December 2018)
1 Mauritius 15,728 15,941 6,023 132,408 32
2 Singapore 8,711 12,180 12,976 79,747 19
3 Japan 4,709 1,633 2,211 29,519 7
4 United Kingdom 1,483 847 1,056 26,494 6
5 Netherlands 3,367 2,800 2,951 26,433 6
6 United States 2,379 2,095 2,342 24,759 6
7 Germany 1,069 1,124 598 11,420 3
8 Cyprus 604 417 288 9,861 2
9 France 614 511 356 6,593 2
10 United Arab Emirates 675 1,050 299 6,054 1
Total FDI inflows 43,478 44,857 33,492 409,268
from all countries
20 ‘M&A Deals in India declined 17% to $25.8 billion in Jan-Mar: Report’, Mint. See https://www.livemint.
com/companies/news/m-a-deals-in-india-declined-17-to-25-8-billion-in-jan-mar-report-1554396413647.
html’
21 ‘Fact Sheet on Foreign Direct Investment (FDI) from April, 2000 to December 2018’, Indian Brand
Equity Foundation. See https://www.ibef.org/download/fdi_factsheet_12_march_2019.pdf.
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Flipkart/Walmart
One of the biggest deals of 2018 was Walmart’s US$16 billion acquisition of 77 per cent
of Indian e-commerce company, Flipkart, making it the largest acquisition in the Indian
e-commerce sector to date.
HUL/GSK CH
Hindustan Unilever Limited, one of the largest fast moving consumer goods companies in
the country, is set to merge with GlaxoSmithKline Consumer Healthcare Limited to further
strengthen its position in the food business and branch into the health and wellness business.
With a reported transaction value of US$4.5 billion, the merger is awaiting regulatory
approvals.
Larsen & Toubro/Mindtree

Larsen & Toubro (L&T) is in the process of a hostile takeover of Mindtree, an IT consulting
company. L&T triggered a mandatory open offer by agreeing to acquire shares from the
promoter of Mindtree and placing an order to acquire shares from the secondary market.
While the value of the deal was only 80 billion rupees, the transaction is significant as hostile
takeovers are rare in the Indian context.
UPL/Arysta
The acquisition of Florida-based Arysta Life Science Inc, by Indian company UPL (formerly
United Phosphorus Limited) for US$4.2 billion was the largest overseas deal in 2018.
Currently at number nine, after the merger, UPL will be the world’s fifth-largest crop
protection company.
ii Hot industries
The manufacturing sector was the focus of significant activity, with Tata Steel acquiring
Bhushan Steel for US$5.5 billion under a corporate insolvency resolution process, Hindalco
Industries acquiring Aleris Corporation for US$2.6 billion and Schneider Electric SA
acquiring the electric and automation business of L&T for US$2.1 billion.
iii Key trends

Indian industry is experiencing a digital revolution with each sector capitalising on
technology. The growth in the technology sector can be primarily attributed to increased
internet penetration and government initiatives facilitating the same.
The real estate sector witnessed healthy activity; some notable deals include the
acquisition of controlling interests in Essar Group’s Equinox Business Park by Brookfield
Asset Management Inc for US$360 million and Indiabulls Properties and Indiabulls Real
Estate Company by the Blackstone Group Lp for US$742 million.22
22 ‘Dealtracker Providing M&A and Private Equity Deal Insights’, Grant Thornton. See http://gtw3.
grantthornton.in/assets/DealTracker/Grant-Thornton-Dealtracker-H1-2018.pdf.
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i Indian banks
Indian banks are precluded from funding M&A other than providing guarantees as surety
for offshore acquirers if such guarantees are covered by counter-guarantees of a bank of
international repute.
ii NBFCs
NBFCs provide acquisition finance but are subject to exposure norms that apply to business
sectors, a single borrower and affiliated companies. Therefore, the available finance is limited
and expensive.
While a foreign investor may encumber shares of the relevant Indian company to
secure credit facilities raised outside India, prior RBI approval is required if the proceeds of
the credit facilities are to be used for further acquisitions, and the required approval is not
forthcoming.
iii Leveraged buyouts

Leveraged buyouts (LBOs) are limited in Indian M&A as the Companies Act prohibits
a public company from providing financial assistance to any person for the purposes of
acquiring the shares of that public company. While this structure does not apply to private
companies, LBOs are rare, although slowly gaining ground.
iv Structured investments and structured payouts

Given the difficulties in raising finance from more traditional sources, structured equity and
quasi-equity investments are the preferred routes to raise acquisition finance. Consideration
may be paid over time on the basis of earn-outs or other specific deliverables being achieved,
but as Indian law requires delivery of shares of a public company against payment, transactions
must be carefully structured.
VII EMPLOYMENT LAW

Contracts of employment cannot be specifically enforced under Indian law. Therefore, if an
employer company undergoes a change in control, there is a de facto requirement to obtain
employee consent.
Employees’ consent must be handled sensitively, but as long as the terms and conditions
of their employment are not adversely affected by a transaction, they are likely to give their
consent. In larger industrial establishments, the prior consent of the relevant state government
may be required, and this, too, is generally forthcoming.
As contracts of employment are not enforceable by specific performance under Indian
law, key personnel may be offered a retention bonus or other incentive as appropriate.
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VIII VIRTUAL CURRENCIES

The RBI prohibits all entities regulated by it (i.e., banks, NBFCs and payment system
providers) from dealing with virtual currencies, or providing services23 to facilitate any
person or entity dealing with virtual currencies. The RBI’s proscriptions are currently being
challenged before the Supreme Court.
IX TAX LAW
M&A in India are subject to income tax, stamp duty and, in the case of asset sales (including
certain business transfers), goods and services tax (GST). However, a business transfer
structured as a transfer of an undertaking as a going concern with no specific consideration
allotted to each transferred assets (a slump sale) is exempt from GST.
Indian law subjects any gains accruing on the transfer of a capital asset to tax. Capital
gains arising from both share transfers (of unlisted shares) and asset transfers are taxed as
long-term capital gains if the shares or assets are held for more than 24 months prior to
completion of the transaction. In the case of a transfer of listed shares, short-term capital
gains tax arises if the shares were held for less than 12 months; if held for more than 12
months, long-term capital gains tax arises. A transfer of listed shares on the market, whether
long-term or short-term, is subject to securities transaction tax. From 1 April 2019, capital
gains arising from a sale of listed equity shares, units of equity-oriented funds or units of
business trusts will be subject to long-term capital gains tax if the shares have been held for
more than 12 months and the gain exceeds 100,000 rupees.
Taxable income Short-term capital gains Long-term capital gains* Obligation to deduct tax at source†
Resident Non-resident Resident Non-resident Short-term Long-term
assessee assessee (%) assessee assessee (%) capital gains capital gains
(%) (%) (%) (%)
Unlisted Gain on 30‡ 40 or 30§ 20 10¶ 40 or 30§ 10
equity shares transfer
Listed equity Gain on 15 15 10¶ 10¶ 15 10
shares on transfer
market
Listed equity Gain on 30‡ 40 or 30§ 20ll 20ll 40 or 30§ 20
shares off transfer
market
Asset transfer Gain (i.e., 30‡ 40 or 30§ 20 20 40 or 30§ 20
difference
between sale
consideration
minus cost of
acquisition or
indexed cost of
acquisition)
23 Including maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens,
accepting them as collateral, opening accounts of exchanges dealing with them and the transfer and receipt
of money in accounts relating to purchase or sale of virtual currencies.
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India
Taxable income Short-term capital gains Long-term capital gains* Obligation to deduct tax at source†
Resident Non-resident Resident Non-resident Short-term Long-term
assessee assessee (%) assessee assessee (%) capital gains capital gains
(%) (%) (%) (%)
Business Gain (i.e., 30‡ 40 or 30§ 20 t 20 40 or 30§ 20**
transfer difference
(undertaking between sale
as a going consideration
concern) minus net
worth of
undertaking
transferred)
* This will change where the asset is a business asset and ¶ Indexation benefit not available
is subject to depreciation. The cost of acquisition would ll Where tax payable in respect of long-term capital gains
also be increased by indexation benefit as available on listed securities exceeds 10 per cent of the amount of
† No withholding of tax for resident assesses except for the capital gains before giving indexation benefit, such excess
purchase of immovable property has to be ignored
‡ For individuals, HUF, AOP and BOI, at progressive slab ** In the case of a slump sale, the mode of computation of
rates capital gains will be subject to the mode of computation
§ 40 per cent in the case of a corporate entity and up to prescribed as per Section 50B of the Income Tax Act 1961
30 per cent for all other persons
Note: in the case of non-residents, the benefits of a double taxation avoidance agreement will be available
The rates in the above table may be subject to a surcharge at the following rates:
Individuals
Total income Surcharge (%) Health and education cess (%)
5 to 10 million rupees 10 4
Above 10 million rupees 15 4
Companies
Total income Surcharge (%) Health and education cess (%)
Domestic company
Zero to 10 million rupees Nil 4
10 to 100 million rupees 7 4
Above 100 million rupees 12 4
Foreign company
Zero to 10 million rupees Nil 4 per cent
10 to 100 million rupees 2 per cent 4 per cent
Above 100 million rupees 5 per cent 4 per cent
i Tax efficiencies
For foreign investors, immediate tax efficiency is achieved if the applicable double taxation
avoidance agreement permits a lower rate of taxation.
A slump sale is more tax efficient than an asset transfer simpliciter, as it allows for
business losses to be carried forward and, as long as the undertaking has been held for more
than three years prior to completion of the transaction, gains are subject to long-term capital
gains tax notwithstanding that individual assets may have been more recently acquired.
‘Slump exchange’ structures are gaining popularity on account of their tax efficiency.
An NCLT-sanctioned scheme is also tax efficient if, inter alia, shareholders holding at
least 75 per cent in value of the original entity become shareholders in the resulting entity.
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India
The general anti-avoidance rules (GAAR) may also prove to be problematic. GAAR
enables the tax authorities to declare an arrangement as an impermissible avoidance
arrangement if they are of the view that the arrangement has been entered into with the
primary intention of avoiding tax. The law provides that there is a presumption of an
arrangement being an impermissible avoidance arrangement, and it is for the taxpayer to
demonstrate that it has commercial substance.
ii Developments
After years of uncertainty, attempts are being made to make the tax regime in India more
transparent and investor-friendly. While intention is articulated frequently, progress on the
ground is, arguably, slow.
Reduced rate of corporate tax

From 1 April 2018, income tax rates of Indian companies having a total turnover or gross
receipts of less than 2.5 billion rupees have been reduced from 30 to 25 per cent of the total
income.
Tax benefits for start-ups

For start-ups incorporated between April 2016 and March 2021, a 100 per cent deduction
of profits is proposed for three out of seven years. Further, start-ups and investors may seek
exemption from tax payable out of income from other sources in respect of the issuance of
shares at more than fair market value, subject to the fulfilment of the required thresholds.
IX OUTLOOK
India continues to rely on FDI as a significant driver of economic development, and the
legislative support for easing business processes should facilitate further investments.
Additionally, the resolution and acquisition of stressed assets under the Insolvency Code
framework is likely to drive a substantial portion of Indian M&A in 2019 despite protracted
timelines for the approval of resolution plans.
While India does seem to be on the cusp of an economic slowdown, the re-elected
Modi government, which took office on 31 May 2019, has announced policy measures to
stimulate economic growth and M&A activity in India.
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Chapter 25
INDONESIA
Yozua Makes1
I GENERAL OVERVIEW
Investors and the general business community have been keeping an eye on Indonesia’s
political situation in 2019, and may wait to see the results of the political changes prior to
making key business decisions, as the outcome of any legislative changes and the presidential
election will have a big impact on the investment and business climate of Indonesia. 2018
saw a moderate economic slowdown, a trend that is likely to continue in 2019.
The Indonesian Investment Coordinating Board (BKPM) reported a total investment
(including greenfield investments and acquisitions) of 721.3 trillion rupiahs in 2018, which
is an increase of 4.1 per cent compared to 2017 but below the national investment target of
765 trillion rupiahs. The top five key target industries are:
a electricity, gas and water supply;
b transportation, warehousing and telecommunication;
c mining;
d food; and
e housing, industrial estates and office buildings.
Indonesia is further solidifying its Asian roots: the FDI invested into Indonesia based on
country of origin has all derived from Asian countries: Singapore, Japan, China, Hong Kong
and Malaysia.
A report by the Indonesian Competition Supervisory Authority (KPPU) estimates that
the amount arising from M&A deals in 2018 was about 150 trillion rupiahs. Some of those
transactions were reported to KPPU, although a large number were not. KPPU accepted
74 reports in 2018, lower than the 90 that it accepted in 2017. Of the filings, 97 per cent
concerned acquisition deals.
Since taking over the presidential office, President Joko Widodo has been initiating
various regulatory reform measures packaged under a series of deregulation policies (or
economic deregulation packages (EDPs)) aimed at tackling regulatory complexities and
bureaucratic hurdles. The first EDP was launched in September 2015, and since then there
have been revisions to support the objectives of EDP reforms.
More recently, the government enacted Regulation No. 24 of 2018 (GR 24/2018),
which introduces the online single submission (OSS) system as the main reference for
business licensing and the gateway for government services at various ministerial, agency
and regional government levels. This was followed by a new Head of BKPM Regulation No.
1 Yozua Makes is the managing partner at Makes & Partners Law Firm.
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Indonesia
6 of 2018 on the Implementation of Capital Investment Licensing and Facilities. Similar to

its predecessor of 2017, the Regulation recognises the possibility of simplified licensing for
the services sector by allowing certain companies to apply directly for full licences, and by
simplifying the process for merger approval from a two-stage to a one-stage process.

In general terms, the statutory framework for the combination of businesses through a limited
liability company is set out in Law No. 40 of 2007 on the Limited Liability Company the
Company Law2 and various implementing regulations such as the Government Regulation
No. 27 of 1998 on Mergers, Consolidation and Acquisition of Limited Liability Companies.
In addition to the aforementioned umbrella laws and regulations, the practice and
procedure for implementing particular transactions must comply with other specific laws
and regulations relating to the status or nature of the business of the target company, and is
also regulated by specific bodies. For instance, banks, financial institutions and publicly listed
companies are regulated by the Financial Service Authority (OJK). OJK is a body established
by virtue of the Financial Authority Law3 merging the authority previously held by the
Capital Market and Financial Institution Supervisory Board or Bapepam-LK (Bapepam) and
the bank oversight authority of the central bank, Bank Indonesia to supervise all activities in
the financial services industries under one agency, with the exception of payment services that
are still under Bank Indonesia. Further, companies with foreign share ownership are regulated
by the Capital Investment Coordinating Board (BKPM), and for tax purposes, all companies
are subject to the relevant M&A regulations of the Directorate General of Tax and OJK,
which also regulate share custodian services and securities broker-dealers. In addition, for
M&A in the insurance sector, companies are required to comply with the Insurance Law and
its implementing regulations; for M&A in the broadcasting sector, companies are required to
comply with the Broadcasting Law and its implementing regulations; and for M&A in the
telecommunication sector, companies are required to comply with the Telecommunication
Law and its implementing regulations, and other sector-specific regulations to govern the
respective M&A in such industry.
In general, the requirements pertaining to M&A in Indonesia are as follows:
a the announcement of an M&A proposal prepared by the acquirer and the target
company or the merging companies, as the case may be, in newspapers;
b an extraordinary general meeting of shareholders of the target company or each of the
merging companies (as the case may be) in which a quorum of at least 75 per cent of
the total number of shares with voting rights are present (unless otherwise stipulated in
a specific regulation), and in which approval is obtained from shareholders holding at
least 75 per cent of the number of votes cast;
c the approval of creditors in respect of the proposed M&A transaction and a waiver of
their rights for claims to be settled prior to the effectiveness of the merger or acquisition;
d a valuation of shares to determine the fair market value of the merger shares conversion
formula;
2 Law No. 40 of 2007 on the Limited Liability Company.

3 Financial Authority Law (Law 21/2011).
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Indonesia
e the approval of third parties, including but not limited to the approval of third parties
required by prevailing law as well as pursuant to agreements entered into by the
companies involved;
f the approval of the relevant agencies having jurisdiction over the merging or acquired
company or companies (e.g., OJK and the Minister of Law and Human Rights); and
g the consent of any relevant industry regulator, depending on the nature of the target
company’s business.
An M&A transaction involves different companies, which can potentially result in a conflict
of interest among directors, commissioners, majority shareholders and affiliates. Thus, with
regard to the acquisition of a public company, to provide legal certainty and protection to
shareholders – particularly independent shareholders who have no conflicts of interest in
particular transactions – OJK under Bapepam Rule No. IX.E.1 requires a publicly listed
company conducting an M&A transaction to appoint an institution registered at OJK to
appraise the transaction. In the event that OJK finds a conflict of interest, the transaction
will require approval by the independent shareholders through a vote at a general meeting
of shareholders. Another related regulation is Bapepam Rule No. IX.E.2, last revised on
28 November 2011. Rule IX.E.2 provides that the disclosure of material transactions with a
value of between 20 and 50 per cent of a public company’s equity must be published within
two business days of signing the transaction documents; if the value exceeds 50 per cent,
the approval of the general meeting of shareholders is also necessary. The Rule also requires
the results of material business transactions and changes in core business to be reported to
Bapepam within two working days of completion.
In the banking sector, banks are subject to Government Regulation No. 28 of 1999
regarding Merger, Consolidation and Acquisition of Banks. Indonesia has acknowledged
the single-ownership principle of the Indonesian banking industry known as the Single
Presence Policy pursuant to OJK Regulation No. 39/POJK.03/2017 on Single Presence
Policy. Pursuant to this policy, albeit only certain requirements and exceptions, a controlling
shareholder of an Indonesian bank is allowed to be the controlling shareholder of only
one bank. Another important regulation of bank ownership is OJK Regulation No. 56/
POJK.03/2016 on Share Ownership of Commercial Bank. The rule sets out the maximum
share ownership in Indonesian banks – around 20 to 40 per cent – differentiated based on the
specific nature of the shareholders (whether a shareholder is also a bank, financial institution
or an individual). The rule allows ownership that exceeds such limit, subject to OJK approval.
Further, there is a specific requirement for prospective foreign investors to commit to the
country’s economic growth, obtain the approval of the authority of the respective country of
origin and be subject to certain ratings set out by Bank Indonesia.
Recently there have been regulatory discussions in OJK about issuing a new regulation
on holding companies for financial conglomeration activities that requires companies
operating across different financial sectors to form a holding company that is also subject to
OJK supervision. Financial industry stakeholders are currently waiting for the introduction
of this new regulation.
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Indonesia
III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAWS AND

THEIR IMPACT
In general, developments in corporate and takeover laws aim to make the process more
transparent, taking into consideration concerns of different stakeholders such as creditors,
employees, minority shareholders and consumers, and within the framework of environmental
protection and fair competition.
The government is concerned about maintaining fair competition among business
players in Indonesia. Consequently, regulations governing fair trade practices are frequently
issued or amended. In connection therewith, KPPU recently issued implementing regulations
to the Antimonopoly Law, namely KPPU Rule No. 10 of 2010, Rule No. 11 of 2010, and Rule
No. 13 of 2010 and its amendments, which govern the consultation and post-notification
requirements for mergers, consolidations and acquisitions, along with guidelines that, inter
alia, provide for the scrutiny of contemplated M&A transactions. These rules were issued
as the implementing regulations of Government Regulation No. 57 of 2010 on the Merger
or Consolidation and Acquisition of Enterprise Share which may Result in Monopolistic
Practices and Unfair Business Competition (GR 57/2010), which was recently issued by the
government (see Section IX).
With respect to acquisitions of public companies (also known as takeovers), OJK has
issued OJK Regulation No. 9/POJK.04/2018 regarding Takeover of a Public Company. This
regulation introduces the concept of the mandatory tender offer (MTO), which is triggered
by a takeover of a public company. The Rule requires a refloating obligation of 20 per cent
of the shares obtained as a result of an MTO. However, OJK can grant an extension of the
time period for a refloat of shares to the Stock Exchange in certain cases. Additionally, OJK
also introduced OJK Regulation No. 54/POJK.04/2015 on Voluntary Tender Offer, which
can be a tool for acquisitions for public companies with no controlling or simple-majority
shareholders, amending the previous Bapepam Rule IX.F.1 of 2011.
In December 2016, OJK introduced a revision to the regulation concerning mergers
and consolidations for public companies by virtue of OJK Regulation No. 74/OJK.04/2016.
The regulation provides new paper requirements for OJK approval in the event of the merger
or consolidation of public companies. The new requested documents include, among others,
corporate shareholding and management documents, appraisal reports, business plans, notes
on the new controller and management analysis reports. This regulation is aimed at further
promoting investor protection and information disclosure.

Foreign direct investment in Indonesia is regulated by the Investment Law4 and its
implementing regulations issued by BKPM. As the appointed regulator of direct capital
investment in Indonesia, BKPM has mainly focused on the efforts of the government to
attract foreign investors and build an international economic environment.
The most recent rules on foreign equity restrictions are stipulated in Presidential
Regulation No. 44 of 2016, which determines what business sectors are open or closed
for foreign investors, and if open, to what extent FDI is permitted (the Negative List).
The Negative List is the first and most important regulation that any foreign investor
4 Law No. 25 of 2007 on Capital Investment.
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Indonesia
contemplating investment in Indonesia should consult. If the business of the companies in a

contemplated M&A falls under the list of business fields that are closed to foreign investment
as provided in the Negative List, then the foreign investor cannot invest in such business
field in Indonesia. If the business falls under the list of business fields that are conditionally
open for investment, however, then foreign investment in such business is permitted, but a
contemplated M&A involving foreign investors will be limited regarding the level of foreign
ownership of shares allowed in the Negative List. As a consequence of the involvement of
foreign investors in an M&A transaction, the Indonesian company will be required to convert
its status from a domestic company into a foreign investment company within the framework
of the Investment Law.
The following are representative examples of the general application of current
Negative List provisions regarding foreign investment, which are also subject to other specific
regulations:
a finance companies: the maximum foreign ownership is 85 per cent;
b insurance: the maximum foreign ownership is 80 per cent; and
c plantation: the maximum foreign ownership is 95 per cent.
Most private foreign direct capital investments in Indonesia are administered and supervised
by BKPM. Consequently, most matters relevant to M&A transactions must be reported
to and will require approval of the Chair of BKPM. BKPM Regulation 6/2018 sets out
the procedures for obtaining BKPM approval for new investments, changes in shareholders,
mergers or business expansions.
Public companies, on the other hand, are regulated by OJK. Unlike private companies,
unless specifically provided under a separate regulation, publicly listed companies have no
restriction on foreign ownership of shares if such investment involves foreign passive portfolio
investors and not strategic or controlling foreign investors. Moreover, the provisions under
the Negative List are not applicable to a public company whose shares are acquired by foreign
investors in portfolio transactions made through the domestic capital market.
V SIGNIFICANT TRANSACTIONS AND HOT INDUSTRIES

For years, Indonesia has been substantially relying on the energy and mining sector, being a
strong force in the oil and gas business and the world’s largest exporter of thermal coal. Ever
since President Widodo took office, structure has become the top priority, as evidenced by the
large number of deals focusing on electricity, gas and water supply, and telecommunication.
Transportation and warehousing also made substantial contributions to both the economy
and in terms of fixing Indonesia’s lagging logistical landscape. More recently, the rise of the
middle class means rising consumer spending; therefore, consumer sectors such as retail,
consumer technology, consumer goods, transportation (including aviation) and property
(including housing, industrial estate, and office building) have become main targets.
2018 saw various major landmark deals in Indonesia, some driven by state-owned
enterprise and some by the banking sector. State-owned cement producer PT Semen
Indonesia Tbk (SMGR) completed a US$917 million acquisition of PT Holcim Indonesia
Tbk (SMCB), a local business of LafargeHolcim. Semen Indonesia reportedly raised US$1.25
billion through a bridge loan to fund the purchase of an 80.6 per cent stake in Holcim
Indonesia and another MTO for the remaining shares.
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Again in 2018, PT Bank Tabungan Pensiunan Nasional Tbk (BTPN) merged with PT
Bank Sumitomo Mitsui Indonesia (SMBCI), both subsidiaries of Sumitomo Mitsui Banking
Corporation (SMBC). SMBC was a controlling shareholder in BTPN and SMBCI, holding
40 and 98.48 per cent, respectively. Another notable M&A deal in the banking sector took
place in August 2018, when Bank of Tokyo Mitsubishi UFJ increased its investment in PT
Bank Danamon Indonesia, Tbk to become a controlling shareholder with a 40 per cent
interest by acquiring (directly or indirectly) an additional 20.1 per cent from Asia Financial
(Indonesia) Pte Ltd (AFI) and other affiliated entities. The investment amount for the
additional 20.1 per cent was reported to be valued at 17.187 trillion rupiahs.
Finally, in December 2018 two major M&A deals were closed, forging a path for
Indonesia’s energy holding formation. After two years of negotiation, Indonesia’s state-owned
mining holding company, PT Indonesia Asahan Aluminium (Inalum), finally raised its stake
in PT Freeport Indonesia, the operator of the giant Grasberg mine in West Papua, to 51.23
per cent from its previous 9.36 per cent stake. Inalum spent US$3.85 billion purchasing
the stakes. Meanwhile, Perusahaan Gas Negara Tbk (PGN) completed its US$1.35 billion
acquisition of 51 per cent shares of PT Pertamina Gas (Pertagas) from PT Pertamina (Persero).
VI FINANCING OF M&A MAIN SOURCES AND DEVELOPMENTS

As in other jurisdictions, financing for M&A in Indonesia is generally derived from internal
cash flows, bank loans (provided such financing is not intended for investment in speculations
on shares), the issuance of new shares (share swaps) and the issuance of financial derivative
instruments.
Various regulations are applicable depending on the nature of a financing scheme,
including a reporting requirement to Bank Indonesia for foreign currency-denominated
loans from offshore banks or entities; the submission of registration statements to OJK if
a transaction involves conducting a rights issue; and approval of BKPM for an increase of
equity to finance expansion (growth by acquisition instead of organic growth).
The prevailing regulations that affect the financing of M&A are as follows:
a Bank Indonesia Regulation No. 16/22/PBI/2014 regarding Reporting of Foreign
Exchange Activity and Reporting of Application of Prudential Principles in relation
to an Offshore Loan Management for Non-Bank Corporation, as amended by Bank
Indonesia Regulation No. 21/2/PBI/2019;
b Bank Indonesia Regulation No. 18/18/PBI/2016 regarding the Purchase of Foreign
Currency Against Rupiah through Banks; and
c Bank Indonesia Regulation No. 19/3/PBI/2017 regarding Short-Term Financing
Facility for Commercial Banks which, inter alia, prescribes reporting and credit rating
requirements in some cases.
Bank Indonesia also issued Bank Indonesia Regulation No. 7/1/PBI/2005 regarding Offshore
Borrowing and Other Obligations of Banks in Foreign Currency, which was last amended
by Regulation No. 21/1/PBI/1/2019, containing, among other things, obligation for banks
to limit the daily balance of short-term offshore borrowing to a maximum of 30 per cent of
capital.
Another key regulation on the matter is BI Regulation No. 16/21/PBI/2014 on
Implementation of Prudential Principles for the Management of Foreign Loans of Non-Bank
Corporations as amended by Bank Indonesia Regulation No. 18/4/PBI/2016. The Regulation
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aims to prevent foreign loans and excessive foreign debt from hampering macroeconomic
stability by providing guidelines for non-bank corporations to implement prudent principles
in managing their loans with foreign parties. In managing foreign loans, companies must
implement prudential principles by complying with the prescribed hedging and liquidity
ratios and credit ratings. Hedging and liquidity ratios are based on foreign-currency assets
(receivables) and liabilities (obligations) from forwards, swaps, or options transactions, or a
combination thereof.
The mandatory use of the rupiah for a transaction’s currency is another hot regulatory
topic in Indonesia. On 28 June 2011, the government issued Law No. 7 of 2011 on Currency
(Mata Uang). Article 21(1) of Law No. 7/2011 provides that the Indonesian rupiah shall be
used in every payment transaction, for the fulfilment of other monetary obligations or for
other financial transactions within the Indonesian territory, with certain exceptions. In 2015,
Bank Indonesia issued Regulation No. 17/3/PBI/2015 on the Mandatory Use of Rupiah
within the Republic of Indonesia. The Regulation basically strengthens the Currency Law,
and provides clearer guidance that the Law applies to both cash and non-cash transactions.
The new Regulation also explains in details the five exceptions of the rule.
VII EMPLOYMENT LAW

The Labour Law5 provides the framework for the rights of employees and employers in the
M&A context. Basically, since M&A are only related to the change in ownership or control
over a company, it should not in any way affect employees’ status. In general, there are two
possibilities with respect to an employee’s continuance in a company with new controlling
shareholders (in an acquisition) or with a surviving company (in a merger), which could
be either the extension or renewal of the employee’s term of employment. In the case of
a renewal of employment, the employee will have his or her contract terminated from the
previous company (before it was merged or acquired) and then be rehired by the surviving
company under new terms and conditions. Accordingly, there is a requirement under the
Company Law for boards of directors of companies undergoing M&A transactions to publish
a summary of a proposed merger or acquisition in at least one newspaper, and to announce
it in writing to the employees of the surviving or acquired company no later than 30 days
before the invitation of shareholders to the general meeting of shareholders.
Should an employee not wish to maintain his or her employment with the surviving
company, then he or she has the right to refuse the new employment. Thus, the employee
can resign from the company and demand a special severance payment, long-service payment
package and accrued compensation (such as untaken annual leave or housing allowance, if
applicable) as set out in the Labour Law, Article 163(1). It should be noted that the Labour
Law does not specify the percentage of ownership that triggers these entitlements, but simply
refers to a change of ownership. There is a risk that the employees or their union (if any)
will take the position that any change of ownership will qualify under Article 163(1), even
where there is less than a 50 per cent change in shareholding. Any substantial change in
management and employment policies, however, could also trigger Article 163(1), even
though the new shareholder is not a controlling shareholder, as this may directly or indirectly
affect the employees.
5 Law No. 13 of 2003 on Employment.
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However, under Article 163(2) of the Labour Law, employers (both the buyer and the
seller) also have the right to terminate an employment in the event of a change in a company’s
status, a merger or a consolidation, subject to the payment of severance and long-service
payment as set out in Article 163(2), which is set at a higher level than those under Article
163(1) mentioned above.
In addition to the above, the rights of employees in M&A transactions are also governed
by the provisions relating to M&A transactions in a collective labour agreement entered into
by and between the company and the company’s labour union. In the event of inconsistency
between the provisions of the Labour Law and the collective labour agreement, the provisions
that are more favourable to the employees will prevail.
VIII TAX LAW

i Corporate income tax in mergers
As in other jurisdictions, the accounting method used in mergers is generally a pooling of
interest method and a book value transfer approach.
Article 1(3) of Minister of Finance Decree No. 43/PMK.03/2008 of 13 March 2008 on
the Use of Book Value for Transfer of Assets in Relation to Merger, Consolidation or Spin-off
(MOF Decree 43/2008) defines a business merger as a merger of two or more taxpayer
entities with capital divided into shares in a manner that maintains the existence of one of
the companies having no residual loss or having a smaller residual loss.
Furthermore, Article 2 of MOF Decree 43/2008 provides that taxpayers conducting a
merger using book value must fulfil the following requirements: submission of an application
to the Director General of Tax including the reason and purpose for conducting the merger
or spin-off; payment of all tax owed by each of the companies involved; and fulfilment of
requirements of the business purpose test (described below).
In addition, Article 3 of MOF Decree 43/2008 provides that a taxpayer conducting
a merger using the book value approach may not compensate the loss or residual loss of the
merged taxpayer.
In general, one could conclude that there will be no capital gains tax (corporate income
tax) if the Directorate General of Taxation has issued an approval for a merger with book
value. In the event that a transfer of assets using book value is not approved by the Directorate
General of Taxation, then the transfer of assets shall be valued at the market price, and the
difference between the book value and the market value (capital gains) will be subject to
corporate income tax at a rate of 25 per cent (flat rate).
ii Value added tax

A transfer of assets is subject to VAT at 10 per cent of the market value, pursuant to Articles
4(1) and 7(1) of the VAT Law.6
The VAT should be imposed by a taxable business entity on the delivery of assets,
the initial purpose of which is not to be traded, except assets on which the VAT cannot be
credited because the acquisition of such assets has no direct relation to the business activity,
and for the acquisition and maintenance of sedan or station wagon motor vehicles when
made for a trading inventory or for rental purposes.
6 Law No. 42 of 2009 on Value Added Tax and Sales Tax on Luxury Goods.
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iii Tax on transfers of land

Government Regulation No. 41 of 2016 provides that the disposal of land and buildings is
subject to final income tax at a rate of 2.5 per cent of the transfer amount that is stated in the
deed, which is a reduction from the previous 5 per cent rate (the transferor’s tax obligation).
Moreover, the transfer of land or buildings in a merger is subject to land or building title
acquisition duty (BPHTB) of 5 per cent of the taxable value (NJOP) (the surviving entity’s
tax obligation). The NPOP in the merger is the market value or the same as the NJOP.
The taxpayer who carries out the merger and obtains approval for the use of book value
for the merger from the Director General of Taxation may apply for a 50 per cent reduction
in the BPHTB.
iv Sale of shares
Article 17 of Law No. 36/2008 provides that the maximum tax rate for individual taxpayers
is 30 per cent and the tax rate for corporate taxpayers is a flat rate of 25 per cent. Public
companies that satisfy a minimum listing requirement of 40 per cent along with other
conditions are entitled to a tax discount of 5 per cent off the standard rate, giving them an
effective tax rate of 20 per cent.
For transfers of shares in general, the difference between the acquisition of shares and
the selling price of shares will be subject to capital gains tax at a rate of 30 per cent (maximum)
if the seller is an individual and at a rate of 25 per cent (flat rate) if the seller is a corporate
taxpayer in Indonesia.
If the seller of the shares is a non-Indonesian taxpayer, then the capital gains tax from
the selling of the shares will be regulated based on the applicable tax treaty between the seller’s
country of domicile and Indonesia.
For transfers of shares of a publicly listed company, a final tax of 0.1 per cent of the
transaction value will be applicable to the seller and 0.5 per cent tax on the founder shares (if
the seller is holding the shares from the initial public offering).
IX COMPETITION LAW
Certain provisions of the Antimonopoly Law7 deal specifically with M&A. Essentially,
pursuant to Article 28 of the Antimonopoly Law, M&A transactions in Indonesia are
prohibited if they result in monopolistic or unfair trade practices. Therefore, all efforts
should be made to ensure that any contemplated M&A transaction does not give rise to a
monopolistic or unfair practice.
The Antimonopoly Law uses a market share standard as a parameter for ascertaining the
presumption of a monopoly (if a business player has more than a 50 per cent market share),
for ascertaining the presumption of an oligopoly (if a group of business players has more than
a 75 per cent market share) and for determining the dominant position (if a business player
has more than a 50 per cent market share and, as a group, those business players have more
than a 75 per cent market share unless the dominant position is not abused).
In July 2010, the government issued GR 57/2010, followed by various rules issued
by KPPU. GR 57/2010 and the KPPU rules provide that companies conducting an M&A
7 Law No. 5 of 1999 on the Ban on Monopolistic and Unfair Business Practices.
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transaction with the following criteria shall fulfil the post-notification requirement: the total
value of assets of the companies concerned is more than 2.5 trillion rupiahs; or the total
turnover of the companies concerned is more than 5 trillion rupiahs.
It should be noted that subscription to newly issued shares (capital increase) shall also
be deemed an acquisition.
KPPU provides a consultation procedure and post-notification within 30 days of
completion of a contemplated deal. In addition, GR 57/2010 provides that a bank conducting
an M&A transaction shall submit a post-notification of such transaction to KPPU if the total
value of the assets of the bank concerned is more than 20 trillion rupiah. Any non-compliance
with this requirement will incur administrative penalties.
After receiving a post-notification, KPPU will conduct an assessment to determine
whether the transaction has violated the Antimonopoly Law, taking into account:
a market concentration;
b market entry barriers;
c potential for unfair trade;
d efficiency; and
e whether an M&A transaction is necessary to prevent a company’s bankruptcy.
It should further be noted that, pursuant to Article 47(2.E) of the Antimonopoly Law,
KPPU has the authority to cancel an M&A transaction if such transaction has elements
of monopolistic or unfair trade practices. Moreover, the Antimonopoly Law may affect
foreign entities that are not doing business in Indonesia, but have entered into agreements
with Indonesian entities that may result in monopolistic or unfair trade practices within
Indonesia. Hence, it is advisable for investors contemplating an M&A transaction to file for
a consultation with KPPU prior to the completion of the contemplated transaction to avoid
the later cancellation of a transaction.
X OUTLOOK
A major and unprecedented shift of M&A deals dominated by the technology sector was seen
in 2018, in contrast to 2016, during which the mining sector still dominated. Consistent
political support by the government has led to new optimism regarding Indonesia’s potential
growth; given its consumer market, there is massive untapped potential for M&A in Indonesia
to cater to the needs of the rising middle class. Natural resources (coal, palm oil, natural
gas, petroleum and mineral resources) remain an important sector, but telecommunications,
retail, property, construction, technology, and financial services have proven to be the sectors
that have led the market.
As a democratic country that has undergone significant reform in the past two decades,
challenges still remain. Bureaucratic red tape and corruption have become the main obstacles
to the country’s sustainable growth. However, several reform initiatives have been introduced
to restore confidence in the country’s business climate. Investors are still waiting for the
impact of new procedures introduced by Government Regulation No. 91 of 2017, and the
subsequent BKPM regulation at the end of 2017 to streamline business process. Financial
and securities regulations, as well as corporate governance rules, have been set up to provide a
more sophisticated and modern regulatory environment for foreign investors.
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In light of the foregoing, it appears that recent economic developments show market
confidence that the government will continue to maintain and improve transparency, the
certainty of stakeholders’ involvement, fair competition and a more foreign investment
friendly environment.
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Chapter 26
ITALY
Mario Santa Maria and Carlo Scaglioni1

In 2018, the Italian M&A market saw an increase of approximately 21 per cent in the number
of transactions compared to the previous year (around 1,000), amounting to around €94
billion in value. The M&A market trend was characterised by two major transactions, Essilor/
Luxottica and Atlantia/Abertis, amounting to around €41 billion. Some relevant transactions
were also completed in the first quarter of the 2019.2

M&A of unlisted joint-stock companies, limited liability companies and limited partnerships
are regulated by the Italian Civil Code (Civil Code). The rules applicable to listed companies
are set forth in the Civil Code and in the Italian Securities Act3 and implemented by
secondary regulations adopted by the Italian Securities and Exchange Commission, the
public overseeing authority of mergers and takeovers, and the Italian Stock Exchange (Borsa
Italiana), the private company in charge of the management of the Italian securities market.
Listed companies may also adhere to the Code of Corporate Governance issued by
Borsa Italiana, which, for the signatories, follows the comply or explain model.
Certain transactions are subject to merger control clearance, which, depending on the
nature of the companies involved and the sector in which they operate, is issued by the Bank
of Italy, the Italian Antitrust Authority (IAA) or the Insurance Regulation Authority.
In terms of structure, M&A transactions can come in the form of acquisitions of
companies through share (and quota) deals, asset deals, leveraged buyouts, tender offers,
turnarounds, equity carveouts, mergers and demergers, or combinations of these.
The main forms of transactions covered by Italian law are asset deals, share and quota
deals, and mergers and demergers. The choice of one structure over the others entails different
consequences in terms of legal implications and tax consequences.
1 Mario Santa Maria and Carlo Scaglioni are corporate partners at Greenberg Traurig Santa Maria Law Firm.
The authors would like to acknowledge the contributions of fellow partner Edoardo Gambaro, senior
associates Alessandra Boffa, Caterina Napoli and Elisabetta Nicolì and associate Pietro Missanelli.
2 According to the 2018 M&A presentation ‘Il mercato M&A in Italia: trend e prospettive’, with the
cooperation of KPMG and Fineurop Soditic, and sponsored, among others, by Università Commerciale
Luigi Bocconi and the Italian Private Equity Venture Capital and Private Debt Association (AIFI).
3 Italian Securities Act (Legislative Decree No. 58/1998).
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i Asset deals
Asset deals concern the direct transfer of a business (inclusive of employees, assets, know-how,
contracts, etc.). The Civil Code, as a rule, provides for the continuity of such business –
agreements related to the activity are automatically transferred, except for those having
personal connotations, pursuant to Article 2558 of the Civil Code, and the seller remains
jointly and severally liable with the buyer for debts accrued before the transfer pursuant to
Article 2560 of the Civil Code. Depending on the number of employees involved, prior
notice of the transfer of a business to the union representing its employees is required (while
such notice is not required in a stock deal). An advantage of asset deals lies in the possibility
to choose the perimeter of the business to transfer, with the option of expressly excluding
certain assets while including others, and of excluding certain liabilities. This may represent
an advantage, for example, to the buyer, who may so be protected from risks connected to the
previous management of operations by excluding their transfer.
As to the transfer itself, an asset transfer agreement must be executed before a notary
public and registered at the relevant company register.
A potential disadvantage in choosing an asset deal is the application of stamp duties in
proportion to the value of the business; on the other hand, the buyers may enjoy a step-up in
the value of the transferred assets (see Section VIII).
ii Share and quota deals

In share and quota deals, the underlying business is the indirect object of the transfer, which,
instead, directly concerns the shares or quotas. Thus, no specific protection is given by
the Civil Code on a company’s assets and on the continuity of the business activity unless
specific representation, warranties and covenants are carefully drafted in the stock purchase
agreement.
Italian case law now tends to admit that the duration of the contractual representations
and warranties may exceed the duration of the shorter annual statutory guarantees related to
sale and purchase agreements provided by law.4
As to the transfer itself, share certificates representing the capital of joint-stock
companies must be transferred through an endorsement before a notary public, whereas if the
transfer involves the quotas of limited liability companies, the agreement must be executed
before a notary public and registered at the company registry to be validly enforced towards
third parties.
iii Newco share deals

Recent trends in business transfers have included the use of an M&A structure consisting of
the creation of a wholly owned newco on the part of the seller to which the latter transfers,
by means of a contribution in kind, a business, with the subsequent transfer of the shares or
quotas of the newco to a buyer. Setting aside the tax effects (see Section VIII), compared to an
asset deal, such structure allows for a clear separation of the business on the part of the seller
and its direct dealing with employees and other stakeholders (creditors, suppliers, customers)
prior to closing. On the other hand, in the case of a breach of agreement and a refusal to close
4 Italian Supreme Court decision No. 16963/2014.
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by either party, the enforcement and specific performance of the M&A agreement, with the
transfer of the business by judicial order, might be more difficult, leaving an option to claim
for damages.
iv Mergers and demergers

The Civil Code regulates mergers (Article 2501 to Article 2505 quater) and demergers
(Article 2506 to Article 2506 quater). Mergers can be in the form of mergers by acquisition or
mergers by incorporation. In both cases, pursuant to the principle of continuity set forth by
Article 2504 bis Civil Code, the company resulting from the merger assumes the same rights
and obligations as the companies participating in the merger. Despite the above principle,
in reality, real estate assets falling into the realm of a merger still require registration for tax
purposes, pursuant to Article 4 of the attachment to Legislative Decree No. 347/1990; and a
cadastral transfer pursuant to Article 1, Paragraph 276 of Law 244/2007.
The merger procedure set out by the Civil Code entails:
a the drafting of a merger project by the directors of the companies participating in the
merger;
b approval of the merger project by the relevant shareholder assemblies (for unlisted
companies, with a majority of at least one-third of the outstanding share capital also in
a second call of the assembly);
c the drafting of financial statements;
d directors’ reports describing the economic and legal reasons underlying the merger
project;
e an expert’s appraisal of the exchange ratio of the shares or quotas of the company
resulting from the merger to be attributed to the shareholders; and
f the execution of the merger deed before a notary public.5
Article 2501 bis Civil Code expressly provides for mergers by means of a leveraged buyout.
Before the introduction of this provision in 2003, the implementation of this type of
transaction was heavily jeopardised by the provision of Article 2358 of the Civil Code, which,
at that time, did not allow for a company to provide securities or issue loans for the purchase
of its own shares.
As to the limits, companies that are in a winding-up procedure may not participate in
a merger if the distribution of their assets has already begun, pursuant to Article 2501 of the
Civil Code. Such limit only concerns joint-stock companies.
A delicate aspect to consider in mergers and demergers is the protection of the minority
shareholders, if present. To this end, the exchange ratio, which represents the price of the
transaction and is determined by the directors of the companies participating in the merger,
is a crucial aspect of the merger itself. It is important to note that such ratio has to be
described by the directors in their report pursuant to Article 2501 quinquies Civil Code and
appraised by an expert appointed by the court pursuant to Article 2501 sexies Civil Code.
Minority shareholders might challenge the validity of a merger until the deed of merger is
registered. Thereafter, their claim is switched to a claim for damages.
5 If a merger is carried out by incorporation in a company that is totally owned (or 90 per cent owned)
by the other merging company, the procedure may be simplified with the omission of some of the
above-mentioned documents.
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III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAW

AND THEIR IMPACT
Recently, new measures have been introduced to accelerate credit recovery procedures of
non-performing loans and facilitate the issuance of new credit, also to the benefit of M&A
transaction financing, and new provisions have been adopted aimed, inter alia, at favouring
the business continuity of insolvent or distressed companies. Among the most significant
innovations are the following.
i Business Crisis and Insolvency Code

Legislative Decree No. 14 /2019, setting forth the new Business Crisis and Insolvency Code
(CCI), was published in the Italian Official Gazette on 14 February 2019 and will enter
into force on 15 August 2020. The CCI shall apply both to natural persons (consumers,
professional and entrepreneurs) and to legal persons, and consequently all types of debtors,
with the exception of the state and public entities.
The main changes set forth in the CCI with respect the current Insolvency Law are the
following:
a certified restructuring plans (Article 56): this procedure now has its own specific
regulation within Article 56 of the CCI; the restructuring plans shall set forth the
milestones to check the actual implementation of an insolvency plan and the actions to
be taken in the event that these are not accomplished;
b debt restructuring agreements (Articles 57–64): the CCI confirms the need for
distressed debtors to finalise a debt restructuring agreement with creditors that
represent at least 60 per cent of the total amount of claims, and introduces a facilitated
debt restructuring agreement (Article 60 CCI), reducing the creditor threshold from
60 to 30 per cent. The facilitated debt restructuring agreement can be used only in cases
where the distressed debtor is granted no delay for the payment of creditors who have
not signed such agreement, and no temporary protective measures have been requested
by the debtor towards the creditors;
c the composition of creditors (Articles 84–120): the CCI maintains the already
existing two-scheme structure of liquidating all assets or preserving a business as a
going concern, which can be carried out directly (by the debtor) or indirectly (by third
parties). The CCI introduces a series of restrictions on the composition of creditors
based on the liquidation of a company’s assets, thereby preserving the continuation of a
business. A significant change from the current system is that the court will be required
to also assess the economic feasibility, and not only the legal maintainability, of the plan
supporting the proposal of the composition of creditors (Article 47);
d judicial liquidation (Articles 121–283): the term bankruptcy has been replaced by
the term judicial liquidation (and all bankruptcy-related words have been modified
accordingly), but the change is purely lexical, since a judicial liquidation maintains the
same nature of the current bankruptcy proceedings;
e compulsory administrative liquidation (Articles 293–316): an exclusive insolvency
procedure for banking, fiduciary and insurance companies; and
f a single proceeding to enter judicial restructuring and liquidation procedures: the CCI
also establishes a single judicial process to ascertain an insolvency, applicable to all
debtors irrespective of the nature of the ensuing insolvency proceedings, which shall
precede the possible insolvency procedures (Articles 40–53).
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In addition, the CCI has introduced a new out-of-court procedure providing for a newly
non-jurisdictional composition body, the OCRI, which will be set up within the Chambers
of Commerce. According to this new procedure, the OCRI will be in charge of a consultation
procedure to help distressed companies return to solvency through agreements with creditors
or resorting to a restructuring or insolvency procedure. In the event that this procedure fails,
and a distressed debtor remains in a state of insolvency, the OCRI shall send a report to the
Public Prosecutor, who can then decide to proceed with the filing of a judicial liquidation
before the court (Articles 16–18).
Finally, the CCI also introduces a set of rules (Articles 284–292) for the management
of the insolvency of groups of companies according to which it is possible to establish a single
procedure for different companies of a group, on the basis of a single restructuring plan,
maintaining a separation of assets and liabilities.
ii Privacy and data protection

The new EU General Data Protection Regulation (GDPR),6 aimed at unifying the privacy
policies of Member States with the purpose of ensuring stronger and broader protection of
data, entered into force on 24 May 2016. From 25 May 2018, the GDPR applies directly
in all Member States. Legislative Decree No. 101/2018, which entered into force on
19 September 2018, has been adopted to align the national rules to the GDPR.
iii Transfer of title over real estate assets upon default

Law No. 119/2016 introduced Article 48 bis to the Banking Law,7 which provides financial
institutions with a more direct, less costly, out-of-court enforcement procedure of guarantees
on loans by allowing banks to satisfy their credits over a debtor’s real estate by means of a
direct transfer of such security to the creditor upon default of the borrower. Such transfer had
previously been admitted by Italian courts only with reference to specific transactions, as an
exception to the general rule pursuant to Article 2744 of the Civil Code. In particular, this
new legal provision admits that loan agreements executed between banks or other financial
institutions authorised to issue credit and entrepreneurs may be guaranteed by a registered
transfer of title over the debtor’s real estate assets, conditioned to the breach of his or her
obligations pursuant to the loan agreement, and complies with Italian law principles through
the provision of the patto marciano (Article 48 bis Paragraph 2 of the Banking Law). The latter
allows a lender, for loans secured by property, to obtain the transfer of such property upon
default by the borrower, but requires that the creditor, in the event that the appraised value
of a real estate security exceeds the relevant outstanding debt, shall have to correspond to the
debtor the difference in value directly in his or her bank account. Under certain conditions,
this transfer procedure may also apply if a court enforcement is initiated, and if the debtor
undergoes bankruptcy.
iv New security interest over movable assets

As a general rule, Article 2786 of the Civil Code provides that a security interest over movable
assets is executed by delivering the relevant asset to the secured creditor, with a few relevant
exceptions (such as a pledge over financial instruments pursuant to Legislative Decree No.
6 EU General Data Protection Regulation No. 2016/679.

7 The Banking Law, Law Decree No. 385/1993.
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170/2004 and the special privilege pursuant to Article 46 of the Banking Law). To render
credit transfers more flexible, in line with other jurisdictions, Article 1 of Law Decree No.
59/2016 introduces the possibility for entrepreneurs to grant a pledge over non-registered,
movable company assets to creditors without losing the right to trade or use the relevant
movable asset. The entrepreneur is expressly allowed to dispose of the secured asset (e.g., by
transforming or selling it), and the assets deriving from such use will be subject to the same
security interest without having to carry out any formality for the constitution of a new
security.

With respect to cross-border transactions, inbound deals amounted to 23 per cent of the total
value of deals in 2018, whereas outbound deals increased with respect to the previous year,
representing 60 per cent of the total value in 2018. The main foreign investors in Italy are still
the United States and France, although China has still significantly increased its investments.8

In 2018, the consumer market sector alone represented around one-third of the Italian
M&A market in value, instead of financial services, which have suffered a slowdown and
represented only 9 per cent of the Italian M&A market in terms of value. This was followed
by the support, services and infrastructure sector at 30 per cent, energy and utilities at 7 per
cent and industrial markets at 6 per cent.9
Among the most relevant deals of the past year are the following:
a in the consumer market sector, Essilor and Luxottica, the world’s largest lens and frame
manufacturers, successfully completed a €48 billion merger and formed a holding
company named EssilorLuxottica. The merger was officially completed after Luxottica’s
major shareholder, Delfin, contributed its entire 62.42 per cent Luxottica stake to
Essilor;
b Atlantia SpA, a company operating in the field of infrastructure and mobility networks,
indirectly acquired a participation in Abertis equal to 50 per cent by means of the
incorporation of Abertis Partecipaciones SA, whose entire share capital is in turn held
by a Spanish newco, Abertis HoldCo, 51 per cent of which is owned by Atlantia, 30
per cent by ACS and 19 per cent by Hochtief. Abertis Partecipaciones SA acquired 98.7
per cent of the entire share capital of Abertis for an amount equal to €16.2 billion. In
the same transaction, Atlantia also acquired a 23.9 per cent participation in Hochtief
through a transfer of shares by ACS for a total value of €2.4 billion;
8 According to the recent 2018 M&A presentation ‘Il mercato M&A in Italia: trend e prospettive’, with the
cooperation of KPMG and Fineurop Soditic and sponsored, among others, by Università Commerciale
Luigi Bocconi and AIFI. See also Thomson Reuters ‘Mergers & Acquisitions Review, Full Year 2018’,
Thomson Reuters, ‘Mergers & Acquisitions Review, First Quarter 2019’, Thomson Reuters, ‘Mid-market
M&A Review, First Quarter 2019’ and Thomson Reuters, ‘Small Cap M&A Review, First Quarter 2019’.
Luigi Bocconi and AIFI.
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c a consortium of investment funds controlled by CVC Capital Partners acquired the

entire share capital of Fimei, the holding company that holds around 51.8 per cent of
the Recordati pharmaceutical group, for an amount of around €3 billion;
d the American Global Infrastructure Partners fund acquired the entire share capital of
Italo-Ntv, the second company operating in the road and infrastructure field on the
Italian territory, for around €2 billion; and
e in the financial services sector, banking groups continued their strategy to sell and
outsource some of their non-core activities: among others, Banca Carige SpA completed
the transfer of its majority shares of Creditis Servizi Finanziari SpA to the investment
fund Chenavari Investment Managers.10

Bank loans still represent an important instrument in M&A financing. In 2018, the stock
of non-performing loans was smaller, both as a result of bad loan sales and because fewer
defaults occurred. Expansionary monetary conditions contributed to a reduction in funding
costs, which fell to very low levels in historical terms.11
The issuance and refinancing of debt have also increasingly grown as means of M&A
financing, along with the issuance of straight equity (although this is generally more
expensive for the company) and shareholders’ loans. The latter are usually subordinated to
bank financing.
Recent changes in the above-described rules governing the granting of security, aimed
at facilitating the enforcement of mortgages and pledges, might increase the amount of
asset-based financing in the near future in connection with M&A transactions.
VII EMPLOYMENT LAW

On 11 August 2018, the Dignity Decree12 was adopted by the recently established government,
and was subsequently converted into law and published in the Official Gazette.
The Dignity Decree, inter alia, enacts significant changes concerning fixed-term
employment contracts aimed at reducing the precariousness of workers under such contracts.
These changes are pursued through several innovations, including:
a a reduction of the duration of such contracts;
b the introduction of a requirement to justify the reasons for entering into fixed-term
contracts;
c a reduction in the number of permitted extensions of such contracts;
d an increase in the contributions payable by employers in connection with each contract
renewal; and
e a new cap for temporary agency workers in terms of percentage.
10 Santa Maria Law Firm assisted the purchasers in both transactions.

11 See Bank of Italy’s Annual Report dated 31 May 2019.
12 Dignity Decree No. 87 of 12 July 2018.
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In particular, a fixed-term contract can be entered into without a justifying reason only if its
duration does not exceed 12 months. In the case of a longer duration (as well as in the case
of renewal for an overall duration of more than 12 months), a justifying reason is always
required.
The reasons for an employer to enter into a fixed-term contract must be as follows:
a to meet temporary and objective needs beyond a business’s ordinary activity;
b to meet a need to temporarily replace other workers; or
c to meet a need related to temporary, significant and non-programmable increases in
ordinary activities.
In the absence of valid reasons justifying a fixed-term contract exceeding 12 months (or
in the case of renewal an overall duration exceeding 12 months), the employment will be
automatically converted into an open-term employment starting from the expiry of the first
12 months.
The overall duration of a fixed-term employment contract cannot exceed 24 months,
including all extensions, with the exclusion of seasonal employment contracts and possible
longer durations set forth by the applicable collective labour agreements.
The maximum number of permitted extensions is four; in the event of a fifth extension,
an employment contract is immediately and automatically converted into an open-term
contract, irrespective of the overall duration of the employment.
Staff leasing is governed by the same rules applicable to fixed-term contracts. To the
exclusion of certain specific categories, the total number of temporary agency workers and
fixed-term employees cannot exceed 30 per cent of the number of open-term employees as
of 1 January of the year in which each worker is hired, unless collective labour agreements
set forth otherwise.
As to the increase in social contributions, upon each renewal of a fixed-term employment
contract, a 0.5 per cent increase becomes due by the employer, in addition to the standard
contribution, for the entire duration of the renewal.
VIII TAX LAW

i Asset deals and mergers
In terms of tax implications, asset deals are generally characterised by:
a direct taxation on the seller’s capital gain (i.e., the difference between the sale price and
the fiscal cost of a business). If the seller is a joint-stock company or limited liability
company, the capital gain is subject to corporate income tax, with the application of the
24 per cent tax rate;
b exclusion from indirect taxation (no application of VAT); and
c application of stamp or registration duties in proportion to the value of the business.
Contributions of going concerns, mergers and demergers allow for a step-up in the tax basis of
the target’s underlying assets13 and goodwill14 through the payment of a sum ranging from 12
to 16 per cent, thus reducing the taxable income by means of deductions and depreciations.
13 See Law No. 244/2007.

14 See Law Decree No. 185/2008.
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The buyer of a going concern, pursuant to Article 14 of Legislative Decree No.

472/1997, is jointly and severally liable, with the seller, for the tax liabilities concerning the
transferred assets. However, these liabilities (due taxes and penalties) are limited to:
a the value of the assets;
b those relating to the two fiscal years prior to the year of transfer and the year of transfer
itself; and
c those audited in the two fiscal years prior to the year of the transfer or in the year of the
transfer itself, even if the liabilities relate to previous years.
These limitations do not apply in cases of tax fraud.

Furthermore, a buyer’s liabilities may be further limited by the issuance of a tax
certificate by the Tax Authority prior to the closing of the transaction.
Article 1, Paragraph 87 of Law No. 205/2017 amended Articles 20 and 53 bis of the
Consolidated Stamp Duty Act)15 with the intent of clarifying that deeds to be registered are
not to be requalified on the basis of the overall economic effects achieved within a framework
of several connected deeds. The new Article 20 provides that, for the purposes of correctly
applying the stamp duty, the registered deed has to be interpreted by exclusively considering
the deed in itself, without taking into account any external element such as, for example,
connected deeds or other elements beyond the text of the deed at issue.
For example, deeds concerning a contribution of a going concern followed by a sale
of the shares of the transferee company are not to be requalified as asset deals. Law No.
205/2017 also amended Article 53 bis of the Consolidated Stamp Duty Act in terms of
enhancement of the powers of the Financial Administration with reference to the abuse of
stamp, mortgage and cadastral duties.
ii Share and quota deals

Share and quota deals are instead characterised by:
a the participation exemption, applicable subject to certain conditions,16 with reference
to 95 per cent of the capital gain obtained by the sale by joint-stock companies or
limited liability companies (or less);
b the application of a flat rate registration duty; or
c a VAT tax exemption.
However, if a deal concerns the shares of a joint-stock company resident in Italy, a Tobin tax
of 0.2 per cent applies, with the exception of shares of listed companies whose average market
capitalisation in November of the year prior to the transfer was less than €500 million.17
15 The Consolidated Stamp Duty Act, Presidential Decree No. 131/1986.

16 The conditions of the application of the participation exemption are the participation has been owned
continuously for at least 12 months prior to the sale; the participations were classified as financial fixed
assets in the financial statements relating to the first tax period of uninterrupted ownership; the subsidiary
company is resident for tax purposes in a white list country; and the subsidiary is actually carrying out a
business activity.
17 See Law No. 228/2012 Paragraphs 491 et seq.
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iii Newco share deals

The M&A structure by which the seller constitutes a newco to which he or she transfers, by
means of a contribution in kind, a business, with the subsequent transfer of the shares or
quotas of the newco to a buyer, is expressly admitted by Article 176 Paragraph 3 of Presidential
Decree No. 917/1986 and is qualified as non-elusive of direct taxes. As for indirect taxes
(VAT, register, or both), recent case law has confirmed the non-elusive effects.18
IX COMPETITION LAW
Except in specific circumstances, under Law No. 287 of 10 October 1990 (Law), the filing of
a request for the clearing of a concentration (e.g., a merger, a joint venture or an acquisition of
control over another company) before the IAA is mandatory when two cumulative turnover
thresholds are met. Said thresholds were recently modified by the Yearly Competition Act19
and subsequently updated. As a result of these changes, Section 16(1) of the Law requires
prior notification of all M&A involving undertakings whose aggregate turnover in Italy
exceeds €498 million, and where the aggregate domestic turnover of each of at least two of
the undertakings concerned exceeds €30 million.
Concerning the above-mentioned requirements, prior to the reform of January 2013,
the turnover thresholds were alternative rather than cumulative. As a result, the number of
concentrations assessed by the IAA dropped considerably (only 73 in 2018). In 2018, out
of 730 concentrations the IAA opened proceedings only in six cases. In addition, the reform
also abolished the filing fees to be paid upon the filing of a transaction and replaced them
with an annual tax on the turnover of all corporations based in Italy. However, the revision
of the turnover thresholds by the Yearly Competition Act was precisely aimed at broadening
the scope of merger control by the IAA, with particular reference to joint ventures and
acquisitions of joint control over targets with a low turnover.
The filing of a transaction must precede execution. The IAA may also consider
receivable notifications that concern non-binding agreements insofar as they are supported
by solid documentary evidence. It would therefore be possible to notify a concentration on
the basis of a memorandum of understanding or preliminary agreement. The deadline for the
notification is the closing of an operation.
Contrary to what occurs under Regulation (EC) 139/2004, Italian merger control law
does not impose an automatic standstill obligation on parties. Therefore, in theory it would
be possible to realise a concentration after filing but before authorisation, while accepting the
risk of a de-concentration order from the Authority. However, the absence of an automatic
standstill obligation does not exclude the possibility that the IAA will directly require the
parties to suspend their concentration following a specific decision.20 With the aim of
facilitating the evaluation of an assessment by the IAA and reducing risks that could delay
the duration of the procedure, the IAA suggests a discussion of possible issues related to an
operation even before notification of a concentration (pre-notification phase).
18 Italian Supreme Court decision No. 2054/2017.

19 The Yearly Competition Act, Law No. 124/2017.
20 Note that the scope of the obligations arising from interim covenants, which are concluded by the merging
parties to regulate their relationship during the period from the signing to the closing, are currently under
the scrutiny of the European Court of Justice in case C-633/16, Ernst & Young.
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Once a request for the clearance of a transaction is filed before the IAA, the procedure
continues in two distinct phases, a first (necessary) step and a second (possible) step. The
first step begins with the filing and shall end within 30 days. At the end of this phase, the
IAA may decide to clear the transaction, or to initiate a more in-depth investigation in the
event that it considers that an operation is likely to be prohibited. The delay is suspended
if the parties communicate inaccurate or false information and will begin again only from
the reception of additional information (stop the clock). For the same reason, the IAA may
decide to postpone the opening of a second phase beyond the delay of 30 days. The second
step begins with the IAA notifying parties of a decision to initiate proceedings. This second
phase has a 45-day duration and can be extended only once for a maximum duration of a
further 30 days.
The IAA may authorise a concentration subject to commitments undertaken by the
parties to address its concerns. Contrary to procedures before the European Commission,
these commitments may be both proposed by the parties and prescribed directly by the
Authority. In any event, commitments are generally available only in the second phase of the
procedure, this being another difference from the procedure applied under Regulation (EC)
139/2004.
X OUTLOOK
In the first quarter of 2019, the number of transactions slightly decreased with a total value
of €4.2 billion, thus highlighting a slowdown compared to the value seen in the first quarter
of 2018. However, there are some interesting transactions envisaged that will be completed
in 2019, among which are the sale of Magneti Marelli to the KKR Fund for €6.2 billion, the
sale of Generali Leben (part of the Generali Group) and the announcement of the Nexi SpA
initial public offering for an equity value of €6.2 billion.21
Luigi Bocconi and AIFI.
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Chapter 27
JAPAN
Masakazu Iwakura, Gyo Toda and Makiko Yamamoto1

M&A transactions are an active and consistent presence in the Japanese market. The aggregate
number of M&A transactions in which Japanese companies were involved, whether domestic,
inbound or outbound, was 3,850 in 2018, according to Recof ’s analysis, representing an
increase of approximately 26 per cent from 2017.
i Domestic transactions
In 2018 the number of domestic M&A transactions in the Japanese market was approximately
2,800, a record high. Most Japanese companies regard M&A as one of the most important
business strategies to achieve growth and operating efficiency. In addition, many traditional
Japanese large-scale (involving conglomerates) companies, such as Hitachi and Toshiba, are
actively divesting non-core businesses (whether in subsidiaries or affiliates), and aiming at
emphasising their core businesses, in the hope that their return on equity (ROE) can increase.
In the past, most Japanese companies were severely criticised by, particularly, foreign investors
for their low ROEs as compared with those of US and European companies; however, this
has been much improved by the increasing number of Japanese companies divesting non-core
businesses, and a focus on corporate ROE has been one of the objectives of the economic
strategy under the Abe administration (Abenomics). As a result, private equity (PE) funds
have been prominently featured as key buyers of divested businesses and operations, having
access to low financing costs through the Bank of Japan’s ongoing quantitative and qualitative
easing monetary policies and investors’ appetite for better returns in the low interest rate
environment. It was reported that the number of domestic M&A deals involving PE funds,
whether Japanese domestic or global, was approximately 750 in 2018, which also was a
record high.
ii Inbound transactions
Although the number of inbound transactions in Japan where foreign buyers, whether
strategic or financial, acquire Japanese target companies is not as numerous as either purely
domestic or outbound transactions, because many traditional Japanese companies are having
difficulties increasing their ROE and others are facing challenges to their survival without
1 Masakazu Iwakura is a senior partner and Gyo Toda and Makiko Yamamoto are partners at
TMI Associates. They would like to thank Vincent Tritto, a foreign attorney at TMI Associates,
for his valuable assistance.
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injections of capital or other support, the number of inbound transactions has grown steadily
in recent times. Approximately 260 transactions were reported in 2018, which represented an
approximately 30 per cent increase from 2017. Among notable inbound transactions were:
a the acquisition of Toshiba Memory, Toshiba’s subsidiary, by Bain Capital, an active US
PE fund, and its consortium (which comprised international investors, including a
Korean competitor) for approximately US$18 billion;
b the acquisitions of Hitachi Kokusai Electric and Hitachi Koki, subsidiaries of Hitachi,
by KKR, for approximately US$2.2 billion (inclusive of dividends, US$2.8 billion);
and
c the acquisition of Asatsu-DK (ADK), the third-largest and a traditional advertising
agency company in Japan, also by Bain Capital, for approximately US$1.35 billion.
iii Outbound transactions

Because of the shrinking of the Japanese market caused by the aging society and declining
population, Japanese (particularly, listed) companies are obliged to seek to expand their
businesses overseas, as domestic organic growth can no longer be expected. Many Japanese
companies have expressly announced that they intend to seek to engage in outbound M&A
transactions and to increase their investment into foreign markets. In 2018, the number
of outbound M&A transactions was reported to reach a record high. Among others, the
acquisition of Shire plc (see Section V.i) by Takeda Pharmaceutical is the largest acquisition by
a Japanese company in market history in terms of purchase price (approximately £46 billion).
As a result of this and other transactions, the aggregate transaction value of outbound deals
significantly rose in 2018, reflecting an approximate 150 per cent increase from the previous
year.
On the other hand, the acquisition of a foreign company can be operationally and
culturally challenging for any purchaser, whether Japanese, US or European. Consequently,
it has been reported that many Japanese companies that closed acquisitions in outbound
M&A transactions have struggled during the period following post-merger integration
(PMI), and several companies have had to write off significant amounts of goodwill in their
acquisitions under the International Financial Reporting Standards. In response, the Ministry
of Economy, Trade and Industry (METI) established a study group of Japanese companies’
M&A transactions overseas, and released a report in March 2018 reflecting various issues
and providing suggestions and also some guidelines for Japanese companies in conducting
outbound M&A deals. Nevertheless, despite these operational and other issues, the increasing
trend of outbound M&A transactions is expected to continue as Japanese companies (are
obliged to) seek to increase their growth and future prospects.

It is generally stated in Japan that an M&A transaction is defined as a transaction where
control of a target company is transferred in any manner. In this regard, M&A transactions
can generally be grouped into three categories: stock transfers, business transfers, and statutory
mergers and other corporate restructuring transactions.
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i Stock transfers
This structure is the most frequently utilised in Japanese M&A deals and the best known.
A stock transfer agreement, or stock sale and purchase agreement (SPA), is based on an
agreement regarding the transfer of the stock in a target company between a seller and a
buyer and is basically governed by the Civil Code of Japan. While no formality including a
stock transfer form is required for an SPA to be effective in Japan, recent transactions in Japan
using a SPA have been negotiated with reference to deal styles employed in the US market;
provided, however, that the perfection of the transfer of the stock in the target company
requires a change of the stockholder’s name in the records of the target company from the
seller to the buyer, which is not subject to the payment of or submission of an exemption
from stamp duty as is the case in the United Kingdom. Although stock acquisitions in the US
can include a feature where the target company newly issues shares that give the buyer (who
subscribes for these newly issued shares pursuant to a share subscription agreement) a control
right with respect to the target company, in Japan the use of a share subscription agreement is
generally regarded as being a different category from SPA transactions, as share subscriptions
are governed by the Companies Act of Japan.
For a buyer to obtain control of a target, it is generally thought in Japan that the buyer
only has to purchase a (simple) majority of the target’s outstanding shares. However, as the
Companies Act provides that a two-thirds vote is required for certain major corporate actions
to be adopted as a resolution at a general shareholders’ meeting of the target company (as
a special resolution), it is sometimes said that the purchase of the majority of outstanding
shares of a target is not sufficient, but rather two-thirds is required. In this regard, generally
speaking, for a buyer to acquire one-third or more of the outstanding shares of a listed
target company, the buyer is obligated to make a tender offer or use takeover bid procedures
provided in the Financial Instruments and Exchange Act of Japan, known as a ‘mandatory
TOB procedure’ and based on the UK and European regulatory approach. Furthermore, if
a buyer intends to purchase two-thirds or more of the outstanding shares of a listed target
company through the TOB procedure, the buyer is obligated to purchase all shares tendered
and offered by the shareholders of the listed company, even if the buyer expressly announces
an upper limit of the number of shares that the buyer intends to purchase (referred to as the
‘mandatory obligation to purchase all of the offered shares in the TOB procedure’), as is also
the case with UK and European regulations. Except for these two mandatory points, the
TOB procedure in Japan is similar to the tender offer process in the US market.
ii Business transfers
A business transfer agreement (which is governed by the Companies Act) was often utilised in
Japan so that a buyer succeeds to a transferred business of a seller. However, for the business
transfer to be perfected, any and all registrations, licences, permissions, etcetera, have to
be perfected in light of any and all assets (including real estate, intellectual property rights,
licences, permissions), and the process for the closing of a business transfer was therefore very
tedious and time-consuming.
Accordingly, a company split agreement, which was adopted in the Companies Act
relatively recently, is now often used instead of the business transfer structure. In a company
split, the process generally entails a transferring company (namely, the seller) splitting a
portion of its business following a resolution adopted at a shareholders’ meeting, and the split
business is automatically transferred to a succeeding company (namely, the buyer), that is, an
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effect of universal succession. As a practical matter, a company split is much more convenient
and efficient as compared to the business transfer structure, and this form is therefore often
used these days.
iii Statutory mergers and other corporate restructuring transactions

Statutory mergers
A statutory merger in Japan is almost equivalent to that seen in the United States and European
countries. In a statutory merger, generally speaking, the disappearing company is merged into
the surviving company, as a result of which those two companies will be integrated into one
merged company. Tax and accounting impacts usually determine which company (namely,
the buyer or the seller) is the disappearing company and which is the surviving company.
Stock exchanges
A stock exchange agreement is a very efficient and straightforward transaction so that a target
company automatically becomes a 100 per cent subsidiary of a buyer if both the target and
the buyer obtain a special resolution (i.e., two-thirds approval) at a general shareholders’
meeting. In this process, no mandatory requirements relating to the TOB procedure are
necessary even if the target is a listed company.
Stock transfers
A stock transfer is a unique process under the Companies Act, and is not a simple transfer
of stock (or shares) of a target company. The process was originally introduced in order
for a company to newly incorporate a 100 per cent parent company (i.e., for a holding
company of one or more existing companies to be created). However, in the context of M&A
transactions, a stock transfer is utilised in a situation where two companies intend to integrate
their businesses in an umbrella structure of one holding company; namely, if shareholders
of the two companies adopt a resolution at a general shareholders’ meeting approving the
joint-stock transfer agreement, a joint holding company will be newly established, and the
two existing companies will be 100 per cent subsidiaries of the joint holding company. As
it may not be clear which company from among such two companies is the buyer (or the
target) and this ambiguity is suitable to mores in Japanese business society, this structure
has been used in various deals in the Japanese market where the transaction was intended
to act as an integration of equals rather than being considered a takeover of one company
by another (such as the Isetan/Mitsukoshi and Dwango/Kadokawa combinations, and recent
business integrations of regional banks, including the Concordia group).
However, this approach may minimise successful PMI and lead to entrenched
redundancies rather than increased efficiencies if the two operational subsidiaries remain as
sister companies after closing. Stock transfers have been recently criticised on the basis that
unless and until the actual integration of the two subsidiaries is conducted, the effect of the
transaction as a successful M&A transaction is questionable.
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THEIR IMPACT
i Significant recent statutory amendments and proposals
First, while cash-out mergers have been legally possible in Japan, this transaction type requires
numerous technical procedures, including special approval at a general shareholders’ meeting
and court procedures, for such a merger to be effective. The Companies Act was amended
relatively recently so that a shareholder holding 90 per cent or more of a target company can
force the other shareholders to sell their shares in the target to the acquirer with the approval
of the target’s board of directors. As a result, in many cash-out transactions of publicly held
companies where bidders seek to obtain all of the outstanding shares of the target, bidders
have stated in their TOB announcement that they would seek to exercise this right if they
were able to acquire 90 per cent or more of the target’s outstanding shares through the tender
offer.
Secondly, although bidders are allowed to use shares as consideration in tender offers
in Japan, in practice, only cash has been so far utilised as the offered consideration because
of certain procedural obstacles in the Companies Act and the resultant tax treatment
(namely, a capital gains tax is imposed on the selling shareholders, and carrying-over is not
permitted). An amendment has been proposed, however, which if adopted would eliminate
this procedural process and enable a Japanese stock company to more easily use its own shares
as consideration in a tender offer to acquire more than 50 per cent of a target company’s
(including a foreign target company’s) voting shares. The proposed amendment would also
affect the tax characterisation so that any capital gain arising from the sale of shares can be
carried over if certain requirements are satisfied. (This tax law change would apply more
generally and not just in tender offers.) This is in addition to the already adopted amendments
to the Industrial Competitiveness Enhancement Act and the relevant tax law (they became
effective in 2018) that aim to facilitate transactions utilising own shares as consideration.
Thirdly, although still at the proposal stage, it is also planned that the Companies Act is
to be amended to further promote corporate governance reforms. In this regard, the proposals
include, among other things, requiring listed companies to appoint outside directors,
determine and publicly disclose their remuneration policies, and electronically provide their
business and other reports as well as the agenda of shareholders’ meetings online. The bill
to amend the Companies Act containing these proposals is expected to be presented to the
Diet in the latter half of 2019 or thereafter. While it is uncertain whether and how those
amendments may affect M&A transaction activities involving listed companies, more input
from and discussion with outside directors and shareholders are expected to stimulate the
companies’ consideration of appropriate potential transactions.
IV RECENT LEGAL AND COMMERCIAL DEVELOPMENTS INVOLVING

LISTED COMPANIES THAT AFFECT M&A TRANSACTIONS
i Soft law impacts
The Tokyo Stock Exchange adopted Japan’s Corporate Governance Code (CGC) in 2015,
with an amendment thereto in 2018 in response to the increasing globalisation of the world
economy and growing expectations for established rules of conduct for directors of Japanese
listed companies. The CGC takes a comply or explain approach: namely, listed companies
are not required to comply with each principle set out in the CGC, but they are required
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to explain the reason if they do not comply with any of the CGCs principles. Although the
CGC is just soft law and is not legally required to be complied with, and nor is it enforceable
by the courts, listed companies are obligated to comply with the CGC to continue their
listing on the Exchange; as a result, adherence to the CGC has become an established custom
by listed companies, and it is expected that the courts will recognise the CGC principles as
appropriate rules of conduct applicable to directors of all Japanese listed companies.
In addition, the Council of Experts on the Stewardship Code, a council body set up
by the Financial Services Agency of Japan (FSA), provided Japan’s Stewardship Code (JSC)
in February 2014 and updated it in May 2017. The underlying philosophy of the JSC is
to promote awareness of the fiduciary responsibilities that institutional investors owe to
their investor clients, and to seek to encourage those institutional investors to engage in
dialogue with their investee-listed companies to enhance the mid and long-term return on
their investments. In Japan, similar to most other markets, institutional investors are major
players in the stock market. The JSC also adopts a comply or explain approach, and expects
institutional investors to voluntarily adopt principles and follow its suggested guidelines.
Increasing pressure from the market and clients have caused traditional institutional
investors to more keenly recognise their responsibilities and accountability to clients, and
this enhanced awareness has gradually changed the voting practices of investors, including
votes concerning proposed M&A transactions. Although the JSC is addressed to institutional
investors and does not bind investee-listed companies directly, it has played a substantial
role in promoting enhancement of listed companies’ corporate governance through the
improvement of the monitoring of corporate activities and results by institutional investor
shareholders.
In March 2018, the FSA published a draft guideline for investor and company
engagement, which became final and effective in June 2018. This guideline is intended
to supplement the CGC and the JSC and encourages institutional investors and listed
companies to particularly focus on their dialogue with each other. As a result, it was recently
said in Japan that although directors of Japanese companies (including listed companies) do
not legally owe any fiduciary or other duties directly to each shareholder, but only an indirect
duty to shareholders through their direct statutorily prescribed duty of care of a prudent
manager to the company, directors of listed companies now have become obliged to make
business judgements as if they directly owed a fiduciary duty to their companies’ shareholders
as result of the impact of the CGC and the JSC. Japan has been a very difficult market for a
long time, particularly, for hostile takeovers and activists, and these developments may signal
changes in this area.
There have been only very limited cases where shareholders have brought actions
against directors who have rejected hostile takeovers, or put pressure on boards to obtain
favourable acquisition prices or proposals from activists or other third parties seeking to
increase a company’s return on equity, or sought to engage management seeking to increase the
efficiencies of businesses. However, now that listed companies and their major shareholders
(namely, institutional investors) are adopting the principles set forth in the CGC and the
JSC, directors of listed companies face difficulty in rejecting hostile takeovers out of hand
or without a reasonably justifiable basis that is in the best interests of the company and
that of its shareholders. At the same time, institutional investors find it difficult to support
a target management’s attitude without reasonable analysis and considering whether the
management’s attitude promotes the best interests of the company and shareholders.
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In this regard, although it is a controversy involving listed Japanese real estate

investment trusts (J-REITs), as of the end of May 2019, Star Asia Group, through Star Asia
Investment Corporation, a J-REIT, is trying to take over Sakura General REIT Investment
Corporation, another J-REIT, in a hostile transaction by seeking to convene a unitholders’
meeting of the target so as to consider resolutions that would effect the takeover. Specifically,
Star Asia Group has asked investors in Sakura General REIT Investment Corporation to call
a unitholders’ meeting at which the cancellation of the existing asset management contract
and the approval of a new asset management contract will be on the agenda: if these actions
are taken, then management control of the target would change. Sakura General REIT
Investment Corporation, however, has shown strong willingness to oppose this, and has
called on investors to oppose Star Asia Group’s proposals. This has attracted much attention
because, if successful, it would be the first hostile takeover of a J-REIT.
ii Change of circumstances involving listed companies in Japan

Traditionally, shares in Japanese listed companies were cross-held by their business partners,
including their main banks, who acted as stable and management-supportive shareholders.
It has been said that this system of cross-shareholding weakened the market discipline that
should have been applied to listed companies and caused inefficiencies in the use of companies’
financial resources. Almost a decade ago, the law and regulations were amended to require
listed companies to explicitly disclose, in their annual securities reports, the amount of shares
held in other listed companies and the purpose of such share ownership. In addition, the
CGC requests listed companies to disclose their policies with respect to cross-shareholdings.
The updated CGC further requests listed companies to disclose various matters relating to
their cross-shareholdings. With the strengthened emphasis on disclosure of cross-shareholding
and increasing pressure from the market, many listed companies gradually have decreased
the amount of their cross-shareholding, and now, listed companies have fewer passive and
management-friendly or supportive shareholders, and increasingly face the discipline of and
pressure from the stock market to improve their financial performance.
Moreover, with the growing global trend of shareholder activism and changes in the
Japanese market environment, including enhanced corporate governance measures, activist
funds are expected to increase their presence and seek to target more and more listed Japanese
companies. Indeed, there have been several, albeit still not many, large-scale or notable cases
indicating the success, or at least the significant impact, of shareholder activism in the past
few years. This trend will lead to increased market discipline being put on listed companies
to improve their ROE.
In November 2018, the METI launched a new study group, the Fair M&A Study Group,
so that best practices in handling conflicts of interest that can arise in M&A transactions can
be followed in Japan. The Group is looking at, among other things, management buyouts
and squeeze-outs by controlling shareholders and considering what changes, given the current
environment surrounding Japanese listed companies, should be implemented. It is expected
that the Guidelines for Management Buyout published in 2007 would be updated as a result
of the Fair M&A Study Group’s report. This update is expected to reflect the accumulation
of legal and practical discussions and the progress of corporate governance reform over the
past few years.
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Japan

As noted earlier in Section 1, given Japan’s ageing society and declining population, which has
put a strain on domestic organic growth, as a result of which the Japanese domestic markets
are expected to continue to shrink, more and more Japanese companies intend to make
or increase significant investments overseas. To do so, many will seek to engage in M&A
transactions. A typical example is the unprecedented large-scale (i.e., the largest in history)
acquisition of Shire plc, an Irish-headquartered corporation, by Takeda Pharmaceutical, a
leading Japanese pharmaceutical company, with a purchase price of approximately £46 billion.
As is often stated, the pharmaceutical and generics industries in Japan have to, and therefore
are eager to, lay greater emphasis on expanding their business overseas to grow and expand
their portfolios. It is generally said that the chemical and electric components (excluding
semiconductors) manufacturing industries also are active in outbound M&A transactions.
While the Japanese economy has had stable growth for several years now because of
Abenomics and the length of its favourable business climate has reached a record high (as in
the United States), on the other hand, not all sectors of Japan’s economy has been favourably
affected. For example, Japan’s regional banks are struggling due to the Bank of Japan’s
continuous quantitative and qualitative easing policy (zero or negative-interest policy), and
the FSA has pressured a number of these regional banks, generally those that have declared
losses in their recent business years, to consider a business integration with other strong or
creditworthy regional banks. As a result, there have been several prominent transactions in
this sector, such as the establishment in 2016 of Concordia Financial Group, currently the
second-biggest regional bank in Japan, by means of a merger between Yokohama Bank and
Higashi Nihon Bank, and the formation in 2017 of Kansai Mirai (Future) Financial Group,
Inc, the biggest regional bank group in the Osaka area, through the business integration
of Kinki Osaka Bank, an affiliate of Resona Bank, and Kansai Urban Bank and Minato
Bank, affiliates of Sumitomo Mitsui Banking Corporation. In addition to these notable
integrations, there also have been various other recent business integration and M&A
transactions involving regional banks. This trend is expected to continue given the severe
environment surrounding Japanese regional banks.
In addition, as already referred in Section 1 as well, traditional and large-scale Japanese
conglomerates that aim to focus more on their core businesses and to increase their ROE
and efficiency have been actively divesting their non-core businesses, whether conducted
directly or through subsidiaries and affiliates. Given this seller-side demand, supported by
low funding costs and investors’ strong appetite for better returns in the extreme low interest
rate environment, PE funds have played an important role as the key acquirers of those
divested businesses.
In this regard, not only domestic PE funds but also foreign PE funds are very active
in these divestiture M&A transactions. Some of these transactions have been very large in
scale, such as the acquisition of Toshiba Memory by Bain Capital, a US PE fund, and its
consortium, the acquisition of Asatsu-DK by Bain Capital, and acquisitions of Hitachi
Kokusai Electric and Hitachi Koki by KKR, another US PE fund.
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VI OUTLOOK AND CONCLUSIONS

Despite the unstable global economy, particularly given the trade war between the United
States and the People’s Republic of China, and the existence of various geopolitical risks,
it is expected that the M&A market in Japan will continue to be active, and most likely
will expand even more. The trends of Japan’s ageing society and declining population will
be challenging to change despite government policies seeking to do just that. The strong
demands of shareholders and investors toward listed companies for higher ROE and return
on investment are putting continuous pressure on those listed companies to continue to grow
and to operate at higher and higher levels of efficiency.
Even if the Bank of Japan’s unprecedented easing policy were to be abolished and even
if the strong stock market were to be weakened, there is no factor currently foreseen that will
lessen Japanese companies from being involved in M&A transactions.
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Chapter 28
KOREA
Ho Kyung Chang, Alan Peum Joo Lee and Robert Dooley1
I OVERVIEW OF M&A ACTIVITY IN 2018

Korean M&A activity in 2018 showed a slowdown in deal value compared to the previous
year, with 1,167 completed cases and a total value of US$52.8 billion (a 17.1 per cent
decrease from 2017 in total deal value).2 While the number of transactions increased by
12.7 per cent from 2017, the total deal value declined. A rise in uncertainty in the global
economy resulting from international trade disputes, Brexit and other factors seem to have
led to a decline in larger-sized deals.
Domestic M&A activity involving Korean companies showed more mixed signals,
with 570 acquisitions of Korean companies by other Korean companies (up from 514 in
2017) worth US$37.2 billion (down from US$46.0 billion in 2017).3 The increase in the
number of domestic M&A transactions is generally credited to an increase in small-sized
deals for business restructuring purposes. There was a particular increase in domestic M&A
transactions among affiliates, recording the highest number in the past five years.
The number of transactions as well as deal value of inbound M&A (i.e., overseas
companies acquiring Korean companies) declined conspicuously, with 37 transactions (down
from 41 in 2017) worth US$4.3 billion (down from US$8.8 billion in 2017). More detailed
discussion of foreign direct investment into Korea can be found in Section IV.

Acquisitions of private companies in Korea are primarily governed by the Korean Commercial
Code (KCC), the Financial Investment Services and Capital Markets Act (Capital Markets
Act) and the Monopoly Regulation and Fair Trade Act (MRFTA).
The KCC contains the main rules of corporate structure and governance, including
requirements for, and limits on, mergers, share acquisitions, spin-offs and asset transfers.
As such, the KCC will influence the transaction structure, and dictate corporate approval
requirements, for both public and private companies. The KCC also governs directors’
fiduciary duties, regulations on self-dealing and other corporate conflicts of interest.
1 Ho Kyung Chang is a partner, Alan Peum Joo Lee is an associate and Robert Dooley is a foreign attorney
at Bae, Kim & Lee LLC. The authors would like to thank their colleagues Ben Gu, Namwoo Kim and
Eun Hong Lee for their significant assistance in preparing this chapter.
2 Thomson Reuters, Merger & Acquisitions Review Full Year 2018.
3 References to M&A activity in this chapter are based on the deals notified to the Korea Fair Trade
Commission (KFTC) during 2018, and reported in the press release issued by the KFTC on 5 March 2019
providing merger notification data for fiscal year 2018 (KFTC’s 2018 M&A Review).
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The Capital Markets Act applies to public companies listed on the Korea Exchange
(KRX), which includes the KOSPI, KOSDAQ and KONEX markets. The Capital Markets
Act imposes disclosure requirements and other restrictions on trading in KRX-listed shares.
It also prescribes rules for tender offers. Further, M&A deals involving public companies
are subject to KRX disclosure rules and scrutiny by the Financial Supervisory Service (FSS),
the enforcement arm of the Financial Supervisory Commission (FSC). FSC, through FSS,
generally administers the financial, banking and securities system in Korea.
Under the MRFTA, which is the main antitrust statute, acquisitions and other
combinations involving companies satisfying certain revenue and assets thresholds will
require antitrust review by the Korea Fair Trade Commission (KFTC).
The Foreign Investment Promotion Act and Foreign Exchange Transactions Act
govern foreign direct investments and foreign exchange transactions involving foreign
investors in Korea. Foreign investments generally require a report to a foreign exchange
bank, which is in most cases a formality, and acceptance of the report is usually granted
within a few days.
While foreign investors are in principle not prohibited from acquiring shares in a
Korean company, there are prohibitions or limits on foreign ownership in Korean companies
engaging in certain industries considered to be vital to the national interest, such as defence,
broadcasting, telecommunications, publishing and public utilities.

THEIR IMPACT
i Amendments to the KCC
Major amendments to the KCC were passed on 1 December 2015, and came into effect on
2 March 2016. The amendments were drafted with the explicit intention of invigorating
the Korean M&A market by enabling the use of M&A structures previously unavailable in
Korea.
The KCC amendments provide for triangular share swaps, reverse triangular mergers
and triangular spin-off mergers. Under those structures, parent company shares can be offered
as consideration. Specifically, parent company shares of the acquiring company are provided
as consideration to target company shareholders in a triangular share swap or a reverse
triangular merger, and parent company shares are provided to spun-off subsidiary company
shareholders under a triangular spin-off merger. Those amendments are expected to facilitate
more flexibility in M&A transactions by enabling cash-free mergers, as well as opening up
new possibilities for structuring cross-border M&A transactions involving entities in overseas
jurisdictions.
Further, the KCC amendments relax the threshold for small-scale share swaps (which
can be approved by the board of directors, instead of the more onerous requirement of
shareholder approval) from 5 per cent of total issued and outstanding shares to 10 per cent of
total issued and outstanding shares.
Finally, the KCC amendments introduce the simplified business or asset transfer,
where a transfer can be approved by a board of directors’ resolution if the counterparty to a
transaction owns over 90 per cent of the transferring company’s shares.
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ii Recent amendments to the Capital Markets Act

Amendments to the Capital Markets Act came into effect on 1 May 2018 to tighten the
disclosure obligations for shareholding dilution. Before the amendments, if a listed company
offered new shares other than by way of pro rata subscription by existing shareholders,
entailing dilution of existing shareholders, an exemption from the usual requirement of two
weeks’ prior notice under the KCC applied, which meant that most shareholders discovered
the dilution after the fact. Under the amended Capital Markets Act, disclosure is required at
least one week before the payment date in respect of the subscription price.
Before its expiration in 2018 due to the sunset clause in the Capital Markets Act, the
Korea Securities Depository (KSD) was allowed to exercise the unused voting rights of the
shares deposited in the KSD mirroring the actual votes exercised at the general shareholders’
meetings of listed companies. This shadow voting was allowed because minority shareholders
usually did not attend general shareholders’ meetings, and it was a common occurrence that
the quorum of 25 per cent of the issued and outstanding shares (required under the KCC)
could not be satisfied. The difficulty in achieving a quorum is more serious in relation to the
appointment of statutory auditors, as each shareholder’s voting right for the appointment of
a statutory auditor is limited to 3 per cent, and even if the controlling shareholder holds more
than 25 per cent of the shares, the quorum can only be satisfied if other minority shareholders
exercise their rights to surpass the quorum threshold of 25 per cent. Yungjin Pharmaceuticals,
a KRX-listed company, was actually unable to appoint its statutory auditor at its 2018 annual
general shareholders’ meeting as only 9 per cent (out of minority holdings of 47.55 per
cent) of its minority shareholders attended, and the quorum for appointing its statutory
auditor could not be satisfied. Currently, the solutions being discussed for this issue are to
introduce an electronic voting system for general shareholders’ meetings to facilitate minority
shareholder participation, and to have companies more actively court minority shareholders
to participate or grant proxies.
iii Recent amendments to the employment law, tax law and competition law
See Sections VII.i, VIII.i and IX.ii, respectively.

In 2017, foreign direct investment (FDI)4 into Korea reached an all-time high of US$229.4
billion (a 7.7 per cent increase from 2016), and FDI into Korea surpassed US$200 billion
in each year during the three-year period from 2015 to 2017.5 However, in 2018, global
economic uncertainty, in addition to soft economic conditions in certain countries that
are major sources of inbound investment, led to a decrease in the number and value of
inbound M&A deals, and while FDI figures for 2018 had not been compiled at the time of
publication, FDI is also expected to show a decline.
Among the total FDI amount for 2017 above, which includes both M&A investments
and follow-up investments by foreign investors in Korea, FDI by way of M&A was US$72.4
billion (a 15.4 per cent increase from 2016, on the basis of publicly filed information).
4 In this context, FDI means the investment by foreign individuals or entities into Korean entities of more
than 100 million won and representing 10% or more of the voting shares of the Korean entity.
5 Korea Trade-Investment Promotion Agency Foreign Investment Ombudsman Annual Report 2017.
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As of June 2017 (half year basis), the major countries investing into Korea were as
follows:6
Ranking Country Investment amount (US$ milllion)

1 United States 2,446
2 Singapore 1,181
3 Hong Kong 1,152
4 Japan 819
5 Philippines 505
6 China 479
7 Netherlands 431
8 United Kingdom 390
9 Germany 347
10 Ireland 323

Among others, notable significant transactions in the Korean M&A market announced in
2018 included the following.
Transaction Industry Deal amount (US$ milllion)

Hyundai Heavy Industries’ acquisition of Daewoo Shipbuilding 1,834
Shipbuilding & Marine Engineering
SK Telecom’s acquisition of ADT Caps from Carlyle Group Security 2,539
Shinhan Financial Group’s acquisition of Orange Life Life insurance 1,957
Insurance (former ING Life insurance)
Kolmar Korea’s acquisition of CJ HealthCare Pharmaceutical 1,120
Acquisition of Magna International Inc’s global fluid Auto parts manufacturing 1,181
pressure and controls by Hanon Systems
Acquisition of Style Nanda by L’Oreal Fashion 513
ii Key trends
One notable development in the Korean M&A market in 2017 and 2018 was the rapid
growth in the participation of private equity fund (PEF) players, in comparison to more
conservative activity by domestic conglomerates. Further, while PEFs in the Korean M&A
market previously tended to focus on buy-outs to ensure short-term returns, PEFs are
now starting to show interest in long-term investments in medium-sized firms, especially
in consortium with strategic investors. Notable examples are the acquisition of Hyosung
Packaging (a PET bottle company) by a Standard Chartered Private Equity consortium in
partnership with Samyang Group and the acquisition of Tapex (a taping company) by an NH
Investment & Securities consortium in partnership with Hansol Chemical.
6 Ministry of Trade, Industry and Energy and Korea Trade-Investment Promotion Agency, foreign direct
investment reference data, September 2017.
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Another development is the increase in carve-out transactions, where the parent

company spins off a subsidiary and sells a minority stake in the spun-off subsidiary to outside
investors. Korean companies are utilising carve-out structures to achieve various goals, for
example, to divest non-core business and focus on core businesses or to attract investments
to certain particular business divisions, and it is expected that carve-out transactions will
comprise a significant portion of the Korean M&A market in 2019. One recent example
of a carve-out transaction was the sale of existing shares by Kakao Corp and the issuance
of new shares by Kakao Mobility, which had been established by Kakao Corp by way of an
in-kind contribution of its Kakao Taxi and other auto-related businesses to a consortium led
by TPG. With the new capital raised from the consortium, Kakao Corp and Kakao Mobility
strengthened their position to develop and launch new premium taxi app services.
Finally, inbound transactions in 2018 showed a volume decrease of 48 per cent
compared to 2017, with an aggregate value of US$4.3 billion over 37 transactions. Notable
inbound transactions in 2018 included Hillhouse Capital, Sequoia Capital and Singapore
sovereign wealth fund GIC’s equity investment in Baedal Minjok, Korea’s leading food
delivery service company (US$308 million).
iii Hot industries

According to the KFTC’s 2018 M&A Review, in order to enhance the competitiveness
of existing businesses as well as to build an engine for future growth, mega-sized M&A
transactions in the subscription broadcasting services, video game, and shipbuilding industries
are expected in 2019.

i Leveraged buyouts
Korean statutory law and court precedents prohibit certain forms of leveraged buyout (LBO)
as illegal asset-stripping, and a clear-cut standard on whether a given financing structure is
permissible for a given transaction structure has not been provided to date.
Based on recent court precedents, it is generally understood that LBO financing structures
that directly utilise the target company’s assets as collateral are likely to be prohibited. However,
a 2015 Korean Supreme Court judgment7 ruled that an LBO that involved establishing
security on target company assets can be allowed considering, among other things, that:
a the acquiring company acquired 100 per cent of the target company, and as such no
minority shareholders were harmed by the transaction;
b a critical portion of the funding for the transaction (approximately 43 per cent) was
supplied by the acquirer;
c the acquiring company was not a paper company, but a listed company with substantive
assets; and
d there was no substantive or procedural defect in the merger following the acquisition.
While this judgment does not seem to rule that LBO financing structures that utilise a target
company’s assets as collateral are generally allowed, it can be seen that in certain cases such
financing structures are permissible, depending on the entirety of the circumstances.
7 Korean Supreme Court, 12 March 2015, 2012Do148 judgment.
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On the other hand, indirect LBO financing in cases where the acquiring company
(which borrowed the purchase price) is merged with the target company, or the target
company provides funding to the acquiring vehicle by capital reduction, are likely allowed,
assuming that the necessary corporate approvals and procedures are obtained and observed.
Overall, LBO financing is being used more often in the Korean M&A market compared
with previous years.
ii Total return swaps

A total return swap (TRS) is an instrument under which the total return payer (who will
acquire a partial stake in the target company) agrees to pay the total return recipient the
increase in the value of the stake, dividends, or both, derived from the stake; and in exchange,
the total return recipient agrees to pay a fixed fee to the total return payer, any decrease in the
value of the stake, or both.
Although it is arguable whether a TRS constitutes a true sale, M&A transactions
utilising the TRS are being seen more commonly in the Korean M&A market. For the
acquisition of KT Rental in 2015, Lotte Group financed approximately US$290 million
(out of a total purchase price of US$1.1 billion) using the TRS structure.
VII EMPLOYMENT LAW

i Recent amendments to the employment law
Nearly four years after revisions to the law were first proposed, the Korean National Assembly
passed a bill on 28 February 2018 to amend the Labour Standards Act (LSA) to reduce
Korea’s maximum weekly working hours. The law reduces the maximum weekly working
hours from 68 hours per week to 52. The law became effective on 1 July 2018. It currently
applies to large companies, and will be rolled out in stages to smaller companies. Employers
who fail to comply with this new law will be subject to criminal penalties of imprisonment
for up to two years or a fine of up to 20 million won.
Reviewing the working conditions of target companies for compliance with the
mandatory working hour regulations has become a routine part of due diligence.
ii Recent court decision

In Korea, the Act on the Protection of Dispatched Workers (Dispatched Workers Act)
regulates the use of employees of another company by way of worker dispatch. Under the
Dispatched Workers Act, worker dispatch refers to a system in which a dispatching company,
while maintaining the employment relationship with its employee, causes its employee to
work for another company under the supervision and direction of the receiving company in
accordance with a dispatch agreement between the two companies.
Outsourcing is similar to worker dispatch in that the receiving company uses the
employees of the outsourcing company for the work of the receiving company. However,
there is a general distinction between outsourcing of work, which is not subject to the
Dispatched Workers Act, and worker dispatch regulated under the Dispatched Workers Act,
based on whether the employee is supervised or controlled by his or her own employer or
the receiving company. If the employee is supervised or controlled directly by the receiving
company for the performance of his or her work, he or she will be regarded as a dispatched
worker under the Dispatched Workers Act.
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In September 2017, as a result of a labour inspection conducted by the Ministry

of Employment and Labour (MOEL), MOEL discovered that Paris Baguette had been
retaining bakers at its franchise stores via illegal worker dispatch, and ordered Paris Baguette
to directly hire 5,378 bakers. MOEL regarded Paris Baguette as a receiving company under
the Dispatched Workers Act in relation to the bakers principally on the grounds that, among
other things, Paris Baguette established and put into place uniform criteria for general
management of personnel matters, including recruitment, promotion, evaluation and wage
levels of bakers; and Paris Baguette’s quality manager managed the attendance time of bakers
and generally supervised and directed the bakers in their duties. Moving forward, there is a
strong possibility that MOEL will use the criteria applied in its determination of the Paris
Baguette case to assess alleged cases of illegal worker dispatch in transaction structures similar
to the above case.
In this regard, based on the foregoing, when entering into M&A transactions, buyers
will need to confirm whether target companies are in compliance with the Dispatched
Workers Act to avoid being ordered to hire any unexpected additional employees on a
permanent basis after closing a transaction.
VIII TAX LAW

i Recent amendments to the tax law
The key features of the recent amendments to tax laws are as follows.
Relief from VAT for business transfers

Under the current law, a comprehensive business transfer is not subject to value-added tax
(VAT). Where only selected assets or liabilities are transferred, the transaction is classified
as an asset transfer and the transferor is required to issue valid VAT invoices and file a VAT
return. However, from a practical standpoint, it is actually difficult for taxpayers to determine
whether a transaction is a comprehensive business transfer or an asset transfer. There was a risk
that input VAT would not be refundable if a transaction was treated by the parties as an asset
transfer at the initial stage of the transaction and later was determined to be a comprehensive
business transfer by tax authorities. Therefore, taxpayers had to obtain a ruling from the tax
authorities to gain certainty as to the type of transaction. According to the amended tax laws,
which became effective on 1 January 2014, a transferee is allowed to credit the input VAT on
a proxy basis when VAT is paid to the relevant tax authorities by the 10th day of the following
month after completion of the transaction.
Addition of employment succession requirements to satisfy tax-free merger and

demerger conditions
Under the former law, a merger or demerger would be treated as tax-free if certain
requirements, such as business purpose, continuity of interest and continuity of business,
were met. Amendments to the tax law effective on 19 December 2017 impose the continuity
of employment requirement as an additional condition for the tax-free treatment of a merger
or demerger. Under the new requirement, 80 per cent or more of the employees of the
transferred business must continue to be employed by the surviving entity until the end of
the fiscal year during which a merger or demerger is registered.
However, a tax-free merger or demerger may become taxable upon the occurrence of
certain trigger events within three years from the end of the fiscal year during which the
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merger or demerger is registered. The trigger events include discontinuity of interest and
discontinuity of business. The revised tax law added discontinuity of employment as a new
trigger event. To maintain a tax-free merger, the total number of employees of the surviving
entity must be 80 per cent or more of the combined total number of employees of both
entities. Similarly, to maintain a tax-free demerger, the total number of the spun-off entity’s
employees must be 80 per cent or more of the total number of those of the pre-demerger
spun-off business.
Relief from tax-free in-kind contribution requirements

Previously, corporate income tax on capital gains arising from qualified in-kind contributions
was deferred if all of the following conditions were met:
a the investing company is engaged in the business for five years or more;
b the investing company owns 80 per cent or more of the shares in the invested company,
and continues to hold such shares until the end of the year in which the in-kind
contribution is made;
c the invested company carries on the transferred business until the year end; and
d a separate and independent business division is transferred to the invested company.
It was not regarded as a transfer of a separate and independent business division if the
investing company contributed only certain holding stocks and related assets and liabilities
to the invested company.
The tax law as amended on 19 December 2017 abolished the fourth requirement with
a view to facilitating corporate restructuring. On or after 1 January 2018, the tax-free in-kind
contribution requirements will be met even if a investing company only contributes stocks,
if the other three requirements are met.
Expansion of tax-free merger incentives

Under the former law, a vertical merger between a parent company and its 100 per cent-owned
subsidiary was considered a tax-free merger without having to satisfy any further conditions.
According to the tax law as amended on 19 December 2017, in addition, a horizontal merger
between brother–sister entities that are 100 per cent held by the same parent company will
be eligible for tax-free treatment without the need to satisfy any further conditions on or after
1 January 2018.
Capital gains tax on the transfer of small and medium-sized enterprise shares by
major shareholders
Capital gains tax on the transfer of shares in small and medium-sized enterprises (SMEs) was
previously imposed at 10 per cent, irrespective of the size of the shareholder’s stake. The tax
law as revised on 15 December 2015 increases the capital gains tax rate on the transfer of
SME shares owned by major shareholders from 10 to 20 per cent on or after 1 January 2016.
The original 2018 tax reform proposal included an increase in the tax rate from 20 to
25 per cent on the tax base exceeding 300 million won for capital gains earned by a large
shareholder, which would be effective for share transfers from 1 January 2018. Under the
bill approved in 2018, the application of the increased tax rate will be postponed until
1 January 2020 for the transfer of shares in SMEs. This trend of increase in the capital gains
tax rate on the transfer of SME shares has led to an increase in M&A activity among private
companies since 2018.
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ii Recent court decision

In a recent case with respect to a share transfer, the Supreme Court decided in a recent
case that cash bonus compensation (an M&A bonus) to employees of an acquired company
should be an expense borne by the acquired company rather than the buyer of the acquired
company. The acquired company paid an M&A bonus to its employees and deducted
the M&A bonus in its corporate income tax return. However, the tax authorities denied
deductibility of the M&A bonus on the basis of their assertion that the M&A bonus should
have been an expense borne by the buyer of the acquired company’s shares as opposed to the
acquired company itself.
The Supreme Court held that there was a reasonable basis for the acquired company to
pay the M&A bonus considering the fact that the M&A bonus was paid to employees who
served the acquired company, that the amount of the M&A bonus was reasonably decided
in consideration of the operating income of the year, and that it was not out of the ordinary
course of business for the acquired company to pay compensation to its employees to prevent
or terminate strikes.
IX COMPETITION LAW
i Overview
According to the KFTC, companies notified the KFTC of 702 reportable transactions during
2018, which is a slight increase over the 668 transactions notified in 2017. The KFTC
challenged and conditionally approved only two transactions in efforts to protect competition
in industrial sectors including telecommunications (Qualcomm/NXP) and industrial gases
(Linde/Praxair).
ii Recent amendments to the competition law

During 2017, there were a couple of notable regulatory changes in the context of Korea’s
merger control: an increase in the jurisdictional thresholds, and a curtailment of the review
period for a transaction that is judged under a voluntary prior consultation as one that is
unlikely to raise competitive concern. Additionally, in 2019, the KFTC has revised its merger
filing guidelines to take into account information assets (including big data) and specialised
merger review standards for digital economy companies (in which the criteria applied by the
KFTC for the purpose of defining the relevant market are tailored for such companies).
The KFTC announced in October 2017 increased jurisdictional thresholds for merger
notification under the MRFTA. Under the previous merger notification regime, a transaction
was required to be reported if a party to the transaction incurred global revenue (or possessed
global assets) of at least 200 billion won in the preceding fiscal year and the other party to
the transaction had global revenue (or possessed global assets) of at least 20 billion won.
These threshold amounts were increased to 300 billion won and 30 billion won respectively
and came into force on 19 October 2017. Transactions entered into after 19 October 2017
are subject to the new thresholds. On the other hand, the domestic revenue threshold for
foreign-to-foreign mergers, which refer to M&A involving non-Korean companies, has
increased as well. For a foreign-to-foreign merger to be reportable, a foreign company
involved in the foreign-to-foreign merger is required to have generated sales in or into Korea
of at least 30 billion won in the preceding fiscal year in addition to satisfaction of the global
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revenue and asset thresholds noted above. Prior to the amendment to the MRFTA, the figure
was 20 billion won. According to the KFTC’s 2017 M&A Review, the increased thresholds
would likely reduce the number of merger notifications to the KFTC by 50 cases per year.
The other noteworthy change to Korea’s merger control law is an extension of the
scope of the simplified review procedure. The benefits of the simplified review procedure, a
short-form notification and a shorter waiting period (15 calendar days), have been extended
to transactions that are evaluated under a voluntary prior consultation as competitively
neutral transactions or transactions where procompetitive effects outweigh anticompetitive
effects. The MRFTA allows the parties contemplating a potentially reportable transaction to
request the KFTC’s preliminary or prior review even before signing a preliminary agreement
in respect of the transaction. This voluntary prior consultation is often used to prevent
unnecessary delay in merger review after a formal notification is submitted later following
execution of a definitive agreement. In practice, if no competitive concern is found in the
voluntary prior consultation, the proposed transaction usually passes the formal merger
review without difficulty unless substantial changes are made to the deal structure that was
notified to the KFTC in the voluntary prior consultation. However, in the past, the notifying
party or parties still had to file a full-length notification for the subsequent formal merger
review, which is a lengthy form that requires a significant amount of corporate and market
data, and were obliged to wait 30 calendar days until the receipt of the KFTC’s final approval
(although early approval was sometimes granted). Thus, the amendment to the MRFTA
has established a consistent procedural approach to transactions that are not likely to raise
competitive concerns.
iii Contemplated changes in the competition law

Apart from changes to the jurisdictional thresholds, the KTFC is contemplating an additional
notification threshold for unicorn deals. The current approach is relatively straightforward
but may not cover transactions involving highly valuable start-ups, which at the time of a
transaction may not have significant revenues or assets meeting the thresholds, but whose deal
valuation is relatively high in anticipation of its potential importance in the markets (unicorn
start-ups). The United States, Austria, and Germany are a few countries that have introduced
transaction-value-based thresholds. If adopted, the size-of-transaction test would intensify
competition law enforcement in the era of the digital economy. However, this proposal is still
under consideration and open for further discussion.
In addition, the KFTC appears to be considering the role of big data in merger
review. On 30 January 2018, the KFTC responded in its testimony to the Congressional
Special Committee for the Fourth Industrial Revolution that it will be mindful of likely
adverse impacts on innovation in connection with its merger review of transactions in the
big data-driven market. No indication of drastic changes to the analytical approach to
competition issues regarding big data has been observed, but the KFTC has clearly voiced
in its testimony that a company may be found to have dominant market power due to its
ownership of and control over valuable data in spite of a low market share. Much has been
said about big data-related theories of harm. The KFTC seems to be concerned that control
over big data can create barriers to entry in particular in a situation where a company holds
a unique dataset that cannot be replicated by its competitors without incurring substantial
time and cost. Thus, the KFTC is likely to actively monitor big data’s impact on fostering
competition in relevant markets.
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X OUTLOOK
In 2019, considering the relatively moderate growth of the Korean economy (2.6 per cent
real GDP growth forecast8) and the global economy (3.3 per cent GDP growth forecast9), it is
anticipated that the Korean domestic M&A market, as well as inbound and outbound M&A
activity, will be stable throughout 2019. However, continued geopolitical uncertainties,
potential global trade wars and increased government regulation may reduce M&A activity.
For the domestic M&A market, it is expected that PEFs will continue their active
participation in the market, fuelled by plentiful liquidity, and carve-out transactions by
companies seeking to strengthen their core business areas will increase. For the inbound and
outbound markets, a general global recovery is expected to contribute to increased M&A
activity, but considering the Korean economy’s global connectedness, the Korean M&A
market will be highly exposed to global economic and regulatory risks.
8 Bank of Korea forecast, January 2019.

9 IMF World Economic Outlook, April 2019. Projected at 3.7 per cent in January 2018, reduced to 3.5 per
cent in January 2019, then adjusted again in April 2019.
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Chapter 29
LUXEMBOURG
Philippe Hoss and Thierry Kauffman1

M&A activity remained relatively strong in Luxembourg in 2018, with less activity in the first
half of 2019 due to a global slowdown caused by the remaining uncertainties resulting from
Britain’s decision to leave the European Union and ongoing trade wars between the United
States and several of its trading partners, including China and the European Union. Some
of the reasons for Luxembourg’s continuing attractiveness are its regulatory and legislative
framework, its legal and political stability and its domestic market, in particular its fund
industry and financial sector.
Luxembourg remains the largest investment funds centre in Europe, and the
second-largest in the world behind the United States. At the close of April 2019, the net assets
under management in Luxembourg amounted to €4.405 billion.2 Hence, the investment
funds industry continues to play a major role in stabilising the Luxembourg market.
Luxembourg continues to be ideally placed to implement tax-efficient M&A transactions
and hence to be a key platform for M&A and private equity activity. One reason for this
is that the relevant legislation continues to be adapted and modernised to be as attractive
and flexible as possible: this includes new forms of companies, namely the special limited
partnership and the simplified stock company, which offer additional solutions for economic
actors, including those of the private equity world. Funding instruments and methods
created and used by practitioners over past decades, such as the use of tracking shares or the
issuance of hybrid instruments, have been confirmed by the legislator and codified in the law
of 10 August 2016 amending the law of 10 August 1915 on commercial companies (1915
Law), hence creating additional legal certainty.
Luxembourg remains one of the leading European hubs for vehicles investing directly
or indirectly in European real estate. It is also worth noting that a lot of actions are being
undertaken by the government to make Luxembourg a leading hub in the areas of information
and communication technology, fintech and space technology.
In general, Asian dealmakers and investors continue to set their sights on European
targets in a bid to reduce reliance on their domestic market. North American investors on the
other hand may feel more inclined to stay at home, as there may be new opportunities in a
less regulated and lower tax US environment as promised by the US President. This tendency
might be accentuated by the ongoing trade wars.
1 Philippe Hoss and Thierry Kauffman are partners at Elvinger Hoss Prussen.
2 CSSF press release 19/20 of 3 July 2019.
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With a number of promising drivers and deals in place, we anticipate a relatively active
M&A market in the second half of 2019, although not as exceptional as 2018. Low costs of
funding, the continued desire to expand geographic reach and innovation capabilities speak
in favour of an active year. On the other side, key global elections, heightened regulatory
scrutiny, in particular of Chinese investors, and speculations around Brexit may result in
a slowdown in M&A activities. Despite the strong concurrent bids from other leading
European hubs, investors and companies fleeing Brexit seem to find Luxembourg an adequate
alternative, and particularly the insurance and asset management sectors, which noticed the
establishment of many newcomers in the Luxembourg market.

The Luxembourg Civil Code, notably the provisions governing contracts, and the Luxembourg
Commercial Code provide the statutory framework and form the legal basis for the purchase
and sale of corporate entities in Luxembourg.
Statutory mergers, including cross-border mergers with EU or non-EU entities,
demergers, splits and spin-offs, as well as contributions of branches of activities, or of part or
all of the assets and liabilities of Luxembourg undertakings, are mainly governed by the 1915
Law, which implemented the EU Cross-Border Mergers Directive.3
In addition, the law of 5 August 2005 on collateral agreements, which provides legal
certainty to lenders, is commonly used in M&A transactions irrespective of the location of
the target to secure financing. In that context, it should be noted that Luxembourg continues
to offer a legal environment more favourable to lenders than any other European jurisdiction.
In the case of an offer for the acquisition of a target whose shares are admitted to
trading on a regulated market in one or more Member States, the law of 19 May 2006
transposing the Takeover Law4 will apply in cases where the target is a Luxembourg company
or where its shares are admitted to trading on the regulated market of the Luxembourg Stock
Exchange (LSE). If the target is a Luxembourg company and its shares are listed on the
regulated market of the LSE, all aspects of the offer will be governed by the Takeover Law
(even if the shares are additionally listed on other regulated markets in the EU or the EEA).
If the target is a Luxembourg company but its shares are listed only on a regulated market in
the EU or the EEA outside of Luxembourg, a split jurisdiction regime will apply, with the law
of the listing jurisdiction being applicable for the offer, and Luxembourg law being applicable
for corporate law matters, the legality of measures by the target that could defeat the offer as
well as information to be provided to employees of the target. With respect to Luxembourg
companies, Luxembourg law will also be competent to determine the control threshold, the
crossing of which may trigger the obligation to make a mandatory offer, and the exemptions
from such obligation. Luxembourg law will also provide for the sell-out and squeeze-out rules
following a successful offer.
If a bidder does not achieve the necessary threshold for a squeeze-out as a result of an
offer under the Takeover Law, but reaches that threshold at a later stage, such bidder may
be in a position to squeeze-out minority shareholders under the law of 21 July 2012 on
the mandatory squeeze-out and sell-out of securities of companies currently admitted or
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previously admitted to dealing on a regulated market in the European Union or having been
offered to the public. Conversely, minority shareholders may have the right under that law to
cause the majority shareholder to purchase their shares.
Public offerings on the Luxembourg territory and admissions to trading on the
Luxembourg regulated market of securities are governed by the EU Prospectus Regulation5
and by the Luxembourg prospectus law of 16 July 2019 (Prospectus Law), and the Financial
Sector Supervisory Commission (CSSF) is the supervisory and regulatory authority
competent to oversee these operations.
For companies whose securities are admitted to trading on the regulated market of the
LSE, and whose home Member State will be Luxembourg, a certain number of additional
Luxembourg laws (mainly deriving from the implementation of relevant European directives)
may apply, in particular the Luxembourg law of 11 January 2008, as amended, implementing
the Transparency Directive (Transparency Law)6 and the Luxembourg law of 26 December 2016
on market abuse (Market Abuse Law) implementing the Market Abuse Directive II.7
The law of 24 May 2011, as amended, on the exercise of certain rights of shareholders
in general meetings of listed companies will also apply to Luxembourg companies whose
shares are admitted to trading on a regulated market in the EU (Shareholder Rights Law).
The Takeover Law, the Prospectus Law, the Transparency Law and the Shareholder
Rights Law, and those provisions of the Prospectus Law supplementing the Prospectus
Regulation, are not applicable to Luxembourg or foreign companies whose shares or other
securities are admitted to trading on the Euro multilateral trading facility (MTF) market of
the LSE.
The Market Abuse Regulation (MAR),8 relevant implementing and delegated
regulations of the European Commission and the Market Abuse Law will apply with respect
to companies whose securities are admitted to trading on the regulated market or the Euro
MTF of the LSE.
Moreover, there may be specific legislation to be considered depending on the sector
involved in the transaction (e.g., credit institutions, insurance or reinsurance companies,
companies operating in the telecommunication business, MiFID firms) and, in particular,
prior regulatory approvals or notifications will then be necessary.
Additional regulations will also apply if a purchase, sale or merger of a Luxembourg
undertaking involves the transfer of staff.

THEIR IMPACT
i Modernisation of Luxembourg company law
On 10 August 2016, Parliament adopted bill of law 5730 modernising the 1915 Law and
amending, inter alia, relevant articles of the Civil Code. The new law came into force on
23 August 2016 (New Company Law).
Although the New Company Law brings a lot of significant changes, the contractual
freedom of shareholders remains the key feature. The New Company Law mainly aims
5 Regulation (EU) No. 2017/1129/

7 Directive 2014/57/EU.
8 Regulation No. 596/2014/EU.
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at integrating some innovations already existing in foreign jurisdictions to offer new legal
instruments to investors, to harmonise rules applicable to the different forms of companies
and to formally recognise the validity of legal solutions previously developed by Luxembourg
practitioners.
The New Company Law contains new opportunities but also certain additional
constraints. As a result, the impact of such legislation should be carefully analysed not only
for new entities but also for existing structures.
Below is a summary of some of the key changes resulting from the New Company Law.
Some of these may require specific actions, including appropriate provisions to be inserted in
articles of association or shareholders’ agreements:
a Key changes applying to a public company limited by shares (SA), a partnership limited
by shares (SCA) and a private limited liability company (Sàrl):
• agreements governing voting rights are now formally recognised (with certain
limits);
• the New Company Law now contains a list of cases where a decision of
shareholders or bondholders may be declared void;
• a shareholder of an SA, Sàrl or SCA may validly undertake not to exercise all or
part of his, her or its voting rights either temporarily or permanently;
• management may, if so authorised by the articles of association, suspend the
voting rights of a shareholder that is in default of its obligations under the
articles of association or a shareholders’ agreement or the relevant shareholder’s
undertakings;
• the change of nationality of a Luxembourg company will no longer require a
unanimous decision by the shareholders (and bondholders); and
• recognition of provisions where current or future shareholders organise the
transfer or acquisition of shares.
b Key changes pertaining only to a private limited liability company:
• the majority requirement applicable to the transfer of shares in a Sàrl to a
non-shareholder may be reduced from 75 to 50 per cent of the share capital
in the articles of association. If the proposed transfer of shares is not approved,
the remaining shareholders may propose alternatives within three months of
this refusal to the leaving shareholder, allowing it to transfer its shares, and if
no solution has been found, the leaving shareholder is authorised to transfer its
shares to the third party initially identified;
• the foregoing is without prejudice to the pre-emption and tag-along rights agreed
among the parties;
• abolishment of the double majority requirement (majority of shareholders
representing 75 per cent of the shares) for extraordinary shareholder decisions. A
75 per cent majority of the shares is now sufficient;
• the possibility for managers to pay an interim dividend;
• the possibility to issue redeemable shares; and
• the possibility to provide for an authorised share capital.
c Key changes pertaining only to a public company limited by shares and a limited
partnership by shares:
• the validity of lock up clauses in the articles of association is formally recognised,
with the consequence that any transfer made in breach of such clauses is expressly
null and void;
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• prior consent clauses and pre-emption clauses relating to shares provided for in
the articles of association are formally declared as being valid as long as such
clauses do not prevent the leaving shareholder from transferring its shares for
more than 12 months;
• the issuance of non-voting shares is no longer limited to 50 per cent of the share
capital, and non-voting shares do not necessarily need to receive a preferred
dividend; and
• an auditor’s in kind report is no longer required for the contribution to a company
consisting in a claim against or receivable issued by the same company (under
certain conditions).
On 15 December 2017, the Grand-Ducal Regulation (Regulation) coordinating the 1915

Law was published in the Luxembourg official gazette and applies from 19 December 2017.
The Regulation does not further amend the 1915 Law, but it significantly reorganises
the numbering of its articles and sections. From 19 December 2017, all references to the
1915 Law shall take into account the new numbering. The constitutional documents of
Luxembourg companies in force before 19 December 2017 do not need to be amended, and
reference to an old number will automatically be deemed to refer to the corresponding new
number of an article or a section.
i Creation of a register of beneficial owners

The 4th EU AML Directive,9 as amended by the 5th EU AML Directive,10 requires each
Member State of the EU to, inter alia, establish a register of beneficial owners (RBO) in
respect of corporate and other legal entities incorporated or formed within its territory.
The Luxembourg Law of 13 January 2019 creating a register of beneficial owners (RBO
Law) entered into force on 1 March 2019. Within six months from such date (i.e., before the
end of August 2019) all in-scope Luxembourg entities (e.g., commercial companies, special
limited partnerships and investment funds, including common funds) will have to comply
with the provisions of the RBO Law.
In particular, Luxembourg entities will be required to provide the RBO with relevant
information on their ultimate beneficial owners (UBOs) as defined by the AML Law.11
All UBOs are concerned, irrespective of whether they are Luxembourg nationals or
residents or not. As an exception, companies listed on EU-regulated markets or on regulated
markets established in a non-EU jurisdiction that has similar transparency rules shall merely
provide the RBO with the name of the relevant regulated market.
ii Amendments to the Shareholder Rights Law

The Shareholder Rights Law will be amended in 2019 pursuant to bill of law 7402.12
The Shareholder Rights Law, as it will be amended by bill of law 7402, will require
intermediaries (custody banks and other professionals providing securities safe-keeping and

11 Luxembourg Law of 12 November 2004 on the fight against money laundering and terrorist financing, as
amended.
12 Bill of law 7402 on the exercise of certain rights by shareholders in general meetings of listed companies
has, at the time of writing, been voted but not yet published in the Luxembourg legal gazette.
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securities accounts services) to communicate information regarding shareholders’ identities

on request and without delay to listed issuers so that they may identify their shareholders.
These requirements apply to all intermediaries that might be part of a holding chain,
including non-EU intermediaries. Intermediaries must also facilitate the exercise of their
rights by shareholders, in particular the right to participate and vote at general meetings.
The law will provide for increased transparency on subjects such as the remuneration
policy and related party transactions of listed issuers and as regards the shareholder
engagement policy of institutional investors and asset managers, the investment strategy of
institutional investors and certain information regarding the arrangements with the asset
manager appointed by them. Asset managers will need to report to their institutional investor
clients how their investment strategy and the implementation thereof complies with their
mandate, and on certain other matters. There will also be certain disclosure obligations on
proxy advisers with respect to their research, advice and voting recommendations.
iii Parliamentary bills of law not yet adopted

Current ongoing legislative activities relevant to M&A activity are quite limited, with the
most important being bill of law 6539 regarding the preservation of enterprises and aiming
to modernise the legal framework for insolvency law and assimilated procedures.

Luxembourg is the second-largest investment fund centre in the world after the United
States, the premier captive reinsurance market in the European Union and the premier
private banking centre in the eurozone. The financial sector is the largest contributor to the
Luxembourg economy.
Moreover, Brexit has had a positive impact on the Luxembourg insurance sector with
the establishment in Luxembourg of about 10 insurance companies such as AIG, Liberty
Mutual, Sompo International and Britannia.
A number of asset management and private equity firms have also pledged to move
activities to Luxembourg, including Fidelity, M&G, Standard Life Aberdeen, Columbia
Threadneedle, Blackstone, T Rowe Price and Wells Fargo.
Luxembourg’s success is founded on its social and political stability, and on a modern,
efficient, flexible and business-friendly legal and regulatory framework that is continuously
updated. Banks, insurance companies, investment fund promoters and specialist service
providers from all over the world have been attracted to Luxembourg. M&A transactions are
not subject to any particular restrictions.
A large part of M&A activity in Luxembourg consists of the involvement of
Luxembourg vehicles in the acquisition of foreign targets or assets. In particular, the number
of Luxembourg holding structures through which real estate is held has continued to increase
in past years.
Luxembourg’s neighbours, France, Belgium and Germany, are considered to be the
main players in the Luxembourg market, and they have a noticeable presence in Luxembourg
through their financial institutions. While other European countries have a strong presence,
the establishment of some of the main international financial institutions and banks from
non-European countries, in particular from China, over the course of the past few years
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is notable. Indeed, several Chinese banks have incorporated their European headquarters
in Luxembourg, and Luxembourg has become the leading European jurisdiction for
international renminbi business.
Luxembourg is a location that many foreign investors and international groups consider,
particularly for the establishment of investment funds or the structuring of cross-border
acquisitions and intragroup structuring, mainly due to Luxembourg’s stability, its pragmatism
and flexibility, and its openness to new businesses.
One of the advantages of Luxembourg’s legislation is that when implementing the
provisions of the EU Cross-Board Mergers Directive in the 1915 Law, Luxembourg law
covers not only national mergers and mergers between Luxembourg companies and EU
companies of sociétés anonymes, but also mergers between Luxembourg companies and
non-EU companies of any legal form, contrary to the legislation of most other Member
States.
It is further possible in Luxembourg to express the share capital of a Luxembourg
undertaking in a currency other than the euro or to have the legal documentation directly
drawn up in English, with the exception that some documents (i.e., notarial deeds) must be
followed by a French or German translation.
As further set forth above, the law of 5 August 2005 on collateral agreements, as
amended, is commonly used in M&A transactions involving a Luxembourg entity to secure
financing and continues to offer a legal environment more favourable to lenders than other
European jurisdictions.
In addition, the migration of companies to Luxembourg with the continuation of their
legal personality and without the need for reincorporation has always been recognised and is
a common occurrence.

In November 2018, Luxembourg-based ArcelorMittal completed the acquisition of Italian
steel producer Ilva in a deal worth €1.8 billion. The main assets of Ilva notably include its
steel plant in Taranto, Italy, which is Europe’s largest single-site integrated flat carbon steel
plant. Both companies are significant producers in Europe of hot rolled, cold rolled and
galvanised flat carbon steel. To obtain the approval of the European Commission for the deal,
ArcelorMittal was required to sell a large package of steel plant assets, including integrated
steelworks in Romania and the Czech Republic, as well as finishing plants in Italy, Belgium,
Luxembourg and North Macedonia, all of which were sold to London industrial and metals
company Liberty House.
Luxembourg remains heavily involved in major international deals structured through
Luxembourg. Hence, assistance on Luxembourg law aspects was required in, inter alia, the
following major deals:
a the investment of Technology Crossover Ventures and CPPIB through a Luxembourg
joint venture company in SportRadar AG, which provides sports-related live data and
digital content services, for €2.1 billion;
b the acquisition by Foncière des Murs of 14 four and five-star hotels in the UK for £858
million from American investment firm Starwood Capital;
c the acquisition by Silver Lake, the global leader in technology investing, of the property
platform ZPG Plc for US$3 billion;
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d the cross-border merger of Nets and Concardis Group to form a leading European
payment player, as Nets was a market leader in the Nordic payments industry and
Concardis a leading merchant payment service provider in the DACH region;
e the sale by CVC Capital Partners of Belgian food group Continental Foods to
Agrolimen;
f the sale of a 40 per cent stake in Belron, a leader in glass repair and replacement, to
funds managed by Clayton Dubilier & Rice;
g the acquisition by China Southern Power Grid of a stake in Encevo, a leading utility
company in Luxembourg; and
h the sale by residential real estate specialist BGP Investment Sàrl of all its real estate assets
(approximately 16,000 residential and commercial units) to certain funds belonging to
the ZBI Group.

In addition to financing by cash resources, Luxembourg law and existing practice in
Luxembourg provide for a large range of financing possibilities and instruments. It is
possible to gain financing, inter alia, through an issue of shares, securities and other financial
instruments carrying specific financial or voting rights such as preferred dividend rights,
tracking securities, subordinated loans or securities, securities with arrangements ensuring
multiple voting rights, convertible instruments, securities or loans with profit-participating
elements.
On the equity side, we see contributions to a company’s equity account with or without
the issue of shares by the company to be financed. In the latter case, the contribution is
made to the freely distributable account (account 115) of the company, which is termed a
‘contribution to equity capital without issue of shares (capital contribution)’ pursuant to the
Grand Ducal Decree dated 10 June 2009 on the presentation and content of a standard chart
of accounts, this being a sub-account of the share premium account of a company. Alphabet
shares, tracking shares and shares with differing par values are also possible, and are now
recognised by the New Company Law.
On the debt side, entities are financed through loans that may be interest-bearing,
profit-participating, convertible or tracking. However, transfer pricing rules must be complied
with, and payments must be at arm’s length.
More complex and hybrid instruments also exist, such as preferred equity certificates
(which can be interest free, tracking, convertible, etc.), notes, and bonds that can be issued
by an entity in addition to shares and that are governed mainly by their contractual terms. It
remains to be seen to what extent these hybrid instruments will continue to be used under
ATAD 213 (which is further discussed in Section VIII).
The New Company Law has introduced a great deal of flexibility or has confirmed the
flexibility of previously existing techniques: tracking shares are now formally recognised, the
public or private issuance of bonds is now possible for all types of entities vested with legal
personality, shares of a société anonyme can be issued below par value under certain conditions
and shares can be issued with different nominal values.
13 Directive (EU) 2017/952 of 29 May 2017.
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Third-party financing usually takes the form of senior or mezzanine loans (whether
syndicated or not). That said, alternative lenders are becoming more attractive in the debt
financing market given that they often offer more flexibility than traditional bank lenders.
For a number of reasons (including the low minimum share capital, less regulation by
the 1915 Law and its closed character), the private limited liability company is the preferred
corporate vehicle for Luxembourg-structured acquisitions. For more complex structures, the
limited partnership by shares may be interesting in particular for an initiator who wants
to retain total control of its management. Some additional company types have become
available over the past few years such as the special limited partnership, the simplified private
limited liability company and the simplified stock company. The special limited partnership
regime is inspired by the UK and US common law concept of a limited partnership. It
provides considerable flexibility and offers additional onshore structuring solutions. Investors
have demonstrated significant interest in these partnerships, as evidenced by the high number
of incorporation of this company form over the past few years. The simplified stock company
available in Luxembourg since the New Company Law is a company inspired by French
law that has seen great success in France, and has begun to be used in Luxembourg as an
alternative to the private limited liability company.
VII EMPLOYMENT LAW

Where a merger or an acquisition results in a transfer of an undertaking based on the territory
of the Grand-Duchy of Luxembourg defined as a ‘transfer of an economic entity which
retains its identity, meaning an organised grouping of resources which has the objective of
pursuing an economic activity, whether or not that activity is central or ancillary’, Articles
L127-1 and following of the Luxembourg Labour Code apply.
As a consequence, the rights and obligations of the transferor arising from employment
contracts or existing employment relationships on the date of the transfer shall, by virtue of
the law, be transferred to the transferee. The transferee is obliged to maintain all the essential
elements of the employment contracts of the transferred employees.
Transferors and transferees shall be jointly and severally liable in respect of obligations
that arose before the date of a transfer from an employment contract or an employment
relationship existing on the date of the transfer.
The transfer of an undertaking shall not in itself constitute a valid ground for dismissal
for the transferor or the transferee. Dismissals on the basis of real and serious grounds
linked to an employee’s behaviour or on the basis of economic reasons not linked to the
transfer remain possible. However, additional restrictions with respect to the termination of
employment contracts following a transfer of an undertaking may be foreseen in collective
bargaining agreements, such as the collective bargaining agreements applicable in the banking
and insurance sector. The collective bargaining agreement of the banking sector prohibits
terminations based on economic reasons for a period of two years following a transfer unless
expressly agreed on by staff representatives. The collective bargaining agreement for the
insurance sector does not provide for such exception.
Following a transfer, the transferee is furthermore obliged to maintain the provisions
of a collective bargaining agreement that had been applicable to the transferor. Transferred
employees will continue to benefit from the provisions of the collective bargaining agreement
until its termination or expiry, or until the effective date of its replacement. However, pursuant
to recent Luxembourg case law, in cases where a clause of a transferred employment contract
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refers to the application of a collective bargaining agreement, the provisions of such collective
bargaining agreement shall continue to apply to the transferee even after the termination
or expiry of the collective bargaining agreement in force the day of the transfer or the entry
into force of its replacement. If so, the application of the collective bargaining agreement can
be ended either by mutual consent or by a unilateral decision of the employer, provided a
specific procedure is followed.
In the context of the transfer of an undertaking, the transferor must inform the transferee
in due time about all rights and obligations transferred to the extent that these rights and
obligations are known by the transferor at the time of the transfer. The transferor and the
transferee shall furthermore inform in due time prior to the effective date of the transfer staff
representatives or, in the absence of staff representatives, the employees concerned in the
transfer regarding the date and the reasons of the transfer, as well as the legal, economic and
social implications for the employees and any measures envisaged towards the employees.
Finally, should the transferor or the transferee envisage taking measures involving the
employees due to the transfer, their respective staff delegations must be consulted on those
measures in due time with a view to reaching an agreement. The respective staff delegates
of the transferor and the transferee shall also be informed and consulted in advance about
all decisions that are likely to entail important modifications in the work organisation or
in employment contracts, and the respective staff delegates shall be informed about and
consulted on any economic or financial decision that may have a substantial impact on the
structure of the undertaking or on the level of employment in undertakings counting at
least 150 employees. This applies in particular in the case of a transfer of undertaking. As
regards cross-border mergers, the law of 3 June 2016 amending, inter alia, Article L.426-14
of the Labour Code guarantees to employees that benefitted before the merger from a
more favourable employee participation system than the one foreseen in Luxembourg the
maintenance of their participation in such system.
VIII TAX LAW

i Statutory framework
In general, Luxembourg corporate taxpayers may be subject to corporate income tax (CIT)
at a rate of 18 per cent, on which a 7 per cent solidarity surcharge is added, leading to an
effective corporate income tax rate of 19.26 per cent, plus municipal business tax (MBT),
which varies from one municipality to another.14
Moreover, corporations are generally subject to an annual net worth tax (NWT), levied
at a rate of 0.5 per cent on their unitary value (i.e., taxable assets minus liabilities financing
such taxable assets) as at 1 January of each year.15 A reduced tax rate of 0.05 per cent applies
to the portion of net wealth exceeding €500 million. Corporations having their registered
office or their central administration in Luxembourg for which the sum of financial assets,
transferable securities and bank deposits, receivables held against related parties or shares or
units in tax-transparent entities exceed 90 per cent of their total balance sheet and €350,000
are subject to a minimum NWT of €4,815.
14 In Luxembourg City, the municipal business tax is 6.75 per cent and the overall combined rate of
corporation taxes in Luxembourg City is of 26.01 per cent.
15 For corporations having a financial year corresponding to the calendar year.
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ii Participation exemption on dividends, liquidation proceeds and capital gains

Under the Luxembourg participation exemption, dividends, liquidation proceeds and capital
gains realised by a fully taxable Luxembourg-resident company from shareholdings in resident
or non-resident corporations may be exempt from CIT, MBT and NWT, provided certain
minimum holding conditions are met.
iii Withholding taxes

The standard withholding tax rate stands at 15 per cent for dividend payments to both
resident and non-resident shareholders. Reduced rates or withholding tax exemptions may be
available under applicable double tax treaties.16 Moreover, a full withholding tax exemption
may be available under Luxembourg tax law provided certain conditions are met.17
No withholding tax is due in Luxembourg on a full or partial liquidation of a fully
taxable company, regardless of the tax residence or tax status of a shareholder.
In addition, there is no withholding tax on royalty payments and fixed or floating rate
interest payments made to corporate lenders or to non-residents generally.
iv Recent developments
Intellectual property tax regime
On 17 April 2018, a new intellectual property (IP) tax regime was enacted, which is applicable
as from fiscal year 2018.
An 80 per cent tax exemption on eligible net income for qualifying IP rights is available
under the new regime. This new IP tax regime is based on the modified nexus approach
developed by the OECD in the final BEPS report on Action 5.
Ruling of the Luxembourg Administrative Court No. 39193C of 23 November 2017

The Luxembourg Administrative Court issued an interesting ruling in November 2017 on
the tax treatment of share redemptions by a company.
The Court held that the price paid to a shareholder upon the redemption by the
company of all or part of his or her shares should qualify as a sale of the shares (rather
than a dividend distribution) regardless of whether the shares are cancelled thereafter or not,
provided however that the sale price corresponds to the net asset value of these shares. As
a consequence thereof, no withholding tax should apply on such redemption. If the shares
are redeemed at a price exceeding the net asset value, the excessive portion of the price may
be considered as a hidden dividend distribution (which may be subject to a 15 per cent
withholding tax) unless there are exceptional economic reasons justifying a redemption above
net asset value.
Exchange of information
On 16 May 2017, the Court of Justice of the European Union (ECJ) delivered its long-
awaited judgment in the Berlioz case regarding the compliance of the Luxembourg laws of
29 March 2013 implementing Council Directive 2011/16/EU of 15 February 2011 on
16 Luxembourg has currently 81 double tax treaties in force.

17 Cf Article 147 of the law on income tax.
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administrative cooperation in the field of taxation and of 25 November 2014 (2014 Law) on
the procedure applicable to the exchange of information in tax matters, with respect to the
Charter of Fundamental Rights of the European Union.
The ECJ ruled in substance that a party has the right to appeal against a request
for information, which the aforementioned laws had denied. As a consequence thereof,
Luxembourg restored the information holder’s right of a judicial review of the legality of
the request by the law of 1 March 2019 amending the exchange of information procedure
as laid down in the 2014 Law (Amending Law). In particular, the Amending Law obliges
the Luxembourg tax authorities to make a high-level review of the foreseeable relevance of
an incoming request for information before sending an order to the information holder. The
information holder will be entitled to seek the annulment of the Luxembourg tax authorities’
order by the Luxembourg Administrative Courts. The claim (which has a suspensive effect)
must be filed with the Administrative Tribunal within one month of the notification of the
information order.
Multilateral Instrument
On 7 June 2017, Luxembourg signed the Multilateral Instrument (MLI) as one of 68 initial
signatories.
The MLI addresses the double tax treaty (DTT) changes proposed in the base erosion
and profit shifting (BEPS) action final reports and in the 2017 OECD Model Tax Convention.
In Luxembourg, the ratification process has been achieved through the law of
7 March 2019 and the deposit of the ratification instrument with the OECD on 9 April 2019.
As a consequence, the MLI entered into force on 1 August 2019, but only if the contracting
state of a covered tax agreement (CTA) has also ratified the MLI. CTAs cover the DTTs that
have been designated by Luxembourg as being subject to amendments by the MLI. In this
respect, Luxembourg has listed 81 DTTs as CTAs.
MLI provisions can be classified into three categories: minimum standards that cannot
be opted out of; provisions that apply unless one or both contracting jurisdictions make a full
or partial reservation against them; and provisions that have to be expressly opted into by the
signing jurisdictions to be applicable.
Luxembourg’s notable choices can be summarised as follows: Luxembourg opted for
full reservations with respect to Article 4 (dual resident entities), Article 8 (dividend transfer
transactions), Article 9 (capital gains from the alienation of real estate-rich companies),
Article 10 (permanent establishment triangular cases), Article 11 (savings clause), Article 12
(commissionaire arrangements) and Article 14 (splitting-up of contracts).
With respect to Article 3 (transparent entities), Luxembourg has made a partial
reservation, deciding not to apply Article 3(2), Article 3(1) addressing treaty benefits to be
granted to income ‘derived by or through an entity or arrangement that is treated as wholly
or partly fiscally transparent under the tax law of either Contracting State’.18
With respect to Article 5 (method for the elimination of double taxation), Luxembourg
has chosen option A, providing for a switch-over clause under which the residence state
must grant a credit, rather than an exemption, for the taxes levied in the other contracting
jurisdiction.
18 Article 1(2) of the 2017 OECD Model Tax Convention.
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With respect to Article 7 (prevention of treaty abuse), Luxembourg chose to apply

the principle purpose test (PPT) in contrast to the application of a simplified limitation on
benefits (LOB) alongside a PPT, or the fully fledged LOB.
Once entered into force, the MLI will be applicable for a specific CTA with regard to
the matching provisions only (which include, in any case, the minimum standards).
Anti-Tax Avoidance Directive19

The Anti-Tax Avoidance Directive (ATAD) lays down rules against tax-avoidance practices
that directly affect the functioning of the internal market, ATAD is the European response to
the OECD and G20 BEPS action plan set out in 2013 to address tax avoidance, ensuring that
multinational companies pay their fair share of taxes where economic activities generating
profits are performed and where value is created.
In Luxembourg, ATAD has been implemented by the law of 21 December 2018.
It introduced five legally binding measures to clamp down on aggressive tax planning,
namely the controlled foreign companies rules, the interest deduction limitation rule, the
anti-hybrid rules, exit taxation and the general anti-abuse rule. These rules are applicable
from 1 January 2019 except for the exit tax provisions, which will be applicable as from
1 January 2020. While most of them should have no major impact on Luxembourg, the
interest deduction limitation rule (IDLR) raises more concerns.
The IDLR limits the ability of taxpayers to deduct excess borrowing costs to the
highest of 30 per cent of its EBITDA (taxable earnings before interest, tax, depreciation
and amortisation) or €3 million. Borrowing costs are in excess when they exceed the ‘taxable
interest revenues and other economically equivalent taxable revenues that the taxpayer
receives’. Practical issues for the application of the IDLR result from a lack of details regarding
the concepts used in the IDLR (i.e., borrowing costs and interest revenues) leaving room for
interpretation. In this context, the IDLR may have negative tax consequences, especially for
securitisation companies investing into distressed debt, Additional clarifications through one
or several administrative circulars have been announced by the Ministry of Finance but are
currently still pending.
ATAD has in the meantime been amended by ATAD 2, which extends the scope of the
EU hybrid mismatch rules to a wider variety of mismatches and to third countries. ATAD 2
has not been implemented yet into Luxembourg law, but its implementation deadline is
31 December 2019.
IX COMPETITION LAW
The amended law of 23 October 2011 on competition (Competition Law), which reflects
Articles 101 and 102 of the Treaty on the Functioning of the European Union, prohibits
agreements between undertakings, decisions by associations of undertakings, and concerted
practices having as their object or effect the prevention, restriction or distortion of competition
as well as the abuse of dominant market positions. Such law does not provide for an approval
mechanism for mergers by the Luxembourg Competition Council (Competition Council).
19 Directive (EU) 2016/1164.
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Where a transaction has an EU dimension within the meaning of EU competition law,

EU merger control rules will apply exclusively and the European Commission will be solely
competent to review the transaction.
Where a transaction is below the EU merger notification thresholds, no pre-merger
filings or prior notification requirements exist in Luxembourg law, but the referral mechanism
in EU merger control law may allow the European Commission to review transactions
below the EU merger notification thresholds under certain conditions. In any event, the
cooperation mechanism in EU merger control law allows the European Commission to
exchange information with the Competition Council when investigating an M&A transaction
involving a Luxembourg entity or affecting the Luxembourg market, or both.
Given that the Luxembourg national market is small, and that most M&A transactions
with a Luxembourg connection deploy their competitive effect on a global or EU scale, or
mainly in other jurisdictions, most of such M&A transactions do not raise any antitrust
issues in Luxembourg. Even though the Competition Law does not provide for pre-merger
fillings with or prior notification requirements to the Luxembourg Competition Council,
on 17 June 2016, the Council asserted its competence to scrutinise and sanction M&A
transactions that create or strengthen a dominant position in Luxembourg in its Utopia
decision.20 Through this decision, it affirmed its authority to exercise ex post control of
mergers by using, in the absence of a specific merger control regime at the national level, the
provisions prohibiting the abuse of a dominant position. In its recent Féderation des Artisans
decision,21 the Competition Council confirmed its case law in this respect and carried out ex
post control of that transaction.22
Finally, the law of 15 November 2016 on certain rules governing actions for damages
for competition law infringements and amending the amended law of 23 October 2011 on
competition (Private Damages Law) implements Directive 2014/104/EU of 26 November 2014
on antitrust damages actions. The Private Damages Law reflects the objectives of the Directive,
improving the effectiveness of private enforcement as to infringements of EU and national
competition law, and fine tuning the interplay between private damages actions and public
enforcement by the European Commission and national competition authorities.
On the one hand, the Private Damages Law facilitates actions for damages through the
introduction of certain specific procedural rules:
a their exercise is simplified by a set of irrebuttable and rebuttable presumptions with
respect to the existence of an infringement of competition law and its effects;
b access to evidence, essential for competition law-based claims, is facilitated through
certain disclosure rules;
c the joint and several liability of undertakings that have infringed competition law
through joint behaviours allows an injured party to require full compensation from any
of them until it has been fully compensated; and
d the Private Damages Law refers to the Luxemburgish general procedural law principles
that provide for a 10-year limitation period for commercial claims.
20 Decision 2016-FO-04.
21 Decision 2019-R-01.
22 In that matter, the complaint, which qualified as an acquisition of shares as an abuse of a dominant
position, was dismissed.
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On the other hand, the Private Damages Law encourages consensual dispute resolution. In
accordance with the Directive, it provides for the suspension of the limitation period to bring
an action for damages for the duration of the consensual dispute resolution process and the
suspension of the proceedings relating to the action for damages during a maximum period
of two years.
X OUTLOOK
We remain cautiously optimistic that the outlook for M&A activities is positive, and that the
market will continue to grow and attract interest from investors both domestic and abroad.
The forecast for 2019 regarding domestic M&A in Luxembourg is still relatively good,
although less so than one year ago, and confirms the global resilience in this field. Moreover,
the impact of legislation from the new US administration is still limited on the global market,
and the US market shows a good performance that will probably have positive consequences
on the European and Luxembourg markets. This positive effect might, however, be cancelled
out, or even outweighed, by the effect of the tensions surrounding the potential escalation
of trade wars on the global markets. While Brexit has not yet had a negative impact on the
Luxembourg M&A market, there is uncertainty as to whether there will be hard or an orderly
Brexit. In addition, the terms of the relationship between the EU and the UK post-Brexit
remain to be negotiated. It seems clear that some economically significant areas such as merger
clearances, cross-border taxation and transfers of employees will be affected. We see industry
players and strategic buyers continuing to be active in Luxembourg (and in other countries
by using structures through Luxembourg), increasingly expensive financing, fluctuating
exchange rates and a legal and regulatory environment that is getting ever-more complex.
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Chapter 30
MEXICO
Eduardo González and Jorge Montaño1

Despite a weak start to 2019, the Mexican M&A market’s performance has been relatively
stable compared to previous years.
Certain assets have become more difficult to price due to concerns about the
policy-making of the current administration, and therefore some transactions have been
temporarily put on hold; however, other participants in the market continue to push forward
with their transactions, in some cases as a preventive measure against Mexico’s current
political and economic environment. Transactions in the M&A space represent, for some
family-owned businesses, a key avenue to monetise a life’s or multiple generations’ work
that could otherwise face stagnant or limited growth if it were to rely solely on pure organic
growth. This phenomenon, in turn, yields opportunities for investors or strategic buyers who
have cash available.
A weakened yet relatively stable peso continues to provide attractive investment
return opportunities in several industries including financial services, insurance, real estate,
consumer products, health and pharma, manufacturing and industrial.
The number of transactions during 2018 was similar to that of recent previous years.
The busiest sectors were technology, financial services and insurance, followed by real estate,
industrial and consumer products. Another key industry that has seen continuous action is
the infrastructure M&A space, both in social infrastructure such as hospitals and prisons, as
well as traditional toll road, waste water treatment plants and renewable energy.
The private equity industry continues to be a key driver for M&A activity in Mexico,
led by several established international and local firms, as well as family offices, which are
steadily taking a more active role in investments, and thus are leaving behind their role as a
silent partner in established funds and are moving in to acting as standalone funds themselves.
Data also provides evidence that the venture capital (VC) industry continues to grow
at significant rates, and it is expected to continue doing so in the future. For example,
Softbank announced in 2019 a US$5 billion fund dedicated to Latin American investments,
and has begun to deploy such fund in companies such as Rappi and PayClip, which have
significant operations in Mexico. Such announcement has sparked enthusiasm in the VC
and entrepreneurship ecosystem, and is expected to attract other international VC funds to
participate in transactions in Mexico
On the public exit front, although the initial public offerings market has historically
lagged behind other emerging financial markets, there is still optimism that increasing exit
1 Eduardo González and Jorge Montaño are partners at Creel, García-Cuéllar, Aiza y Enríquez, SC.
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opportunities through the public offering of securities will be available to investors in the
near future as the Mexican pension funds (AFORES) investment regime continue to become
more sophisticated and diverse, thus freeing up capital to be allocated to public offerings. As
described in more detail in Section VIII, the government has taken steps to incentivise initial
public offerings in the coming years through tax incentives. It remains to be seen if these
incentives will have the desired effect.

Depending on the target’s activities and the industry in which the target operates, any M&A
transaction in Mexico will probably be subject to several statutes. For example, during the
due diligence investigation of the target or during the structuring of the transaction, laws
ranging from the broad mercantile, labour and employment, tax, environmental, insurance
and anticorruption statutes to the more industry-specific ones such as those regulating, inter
alia, financial services, fintech, cannabis, telecommunications, oil and gas, transportation and
healthcare, will all provide guidelines and parameters within which all M&A transactions
have to be structured.
In an effort to increase Mexico’s attractiveness for investors, the federal government
has consummated several changes to statutes that were perceived to be outdated during
the past few years. Certain commercial statutes (e.g., the Mexican Commercial Companies
Statute and the Mexican Securities Market Statute) have been amended to incentivise M&A
activity by allowing parties to, inter alia, freely agree on customary governance and liquidity
provisions required for investors (particularly of an institutional nature) to attain a higher
level of certainty on governance and exit provisions. Through the liberalisation effort led
by former President Peña Nieto’s administration (2012 to 2018), the Mexican Foreign
Investment Law has been subject to several amendments to decrease (or remove) foreign
investment restrictions in, inter alia, the telecommunications and oil and gas industries.

THEIR IMPACT
While the statutes relating to corporate and takeover law have remained relatively untouched,
changes in respect of certain capital market products are sure to have a significant effect on
the M&A landscape in Mexico.
By way of background, AFORES are still restricted regarding the investments that
they are allowed to undertake in accordance with their investment regime, which is set
forth by law. As of today, AFORES are not yet permitted to invest directly in privately held
companies, but only in publicly listed companies and other publicly listed investment vehicles.
However, amendments to such investment regime are currently being reviewed and discussed
in Congress. If such amendments were to pass, AFORES will be able to invest directly in
privately held companies, which will certainly broaden their investment opportunities and
alternatives but would also put significant pressure on their analysis and risk management
capabilities.
The current AFORE investment regime, spurred some years ago the creation of
publicly traded vehicles that are managed by a general partner and that serve as platforms to
carry out investments in various sectors (CKDs), including the private equity, infrastructure,
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renewable energy and real estate sectors. The existence of the CKD market in Mexico has
caused M&A transactions in various fields and sectors to take off, as pension funds put their
cash to work through fund managers in acquisitions and similar investments.
There are four similar products worth discussing that complement the CKD market
in Mexico. The first is the creation of real estate investment trusts (FIBRAs), a vehicle that
invests in or acquires a real estate asset portfolio and is created through the issuance of a
public offering and ultimately listed on the Mexican Stock Exchange. The Mexican real estate
market has historically been quite active. However, since the creation of FIBRAs, M&A
activity in the real estate sector has increased significantly given that the creation of a FIBRA
typically entails the bundling or acquisition of real estate assets that will become part of
the FIBRA. The sponsors that manage FIBRAs have additional firepower from the amounts
raised in a public offering or in follow-on offerings to acquire additional assets for a FIBRA’s
portfolio, and FIBRAs present a great take-out opportunity for real estate developers and
other stakeholders of real properties.
The second product created the equivalent of a master limited partnership, the FIBRA
E, which is an investment vehicle for energy and infrastructure projects and is listed on
the Mexican Stock Exchange. One key feature is the tax benefits provided to investors in a
FIBRA E, as the investment vehicle and the portfolio companies through which investments
are held in the infrastructure and energy assets are deemed transparent from a tax perspective.
Despite current volatility in capital markets generally, there is a robust pipeline of FIBRA
E projects for the future. It is uncertain how many of the FIBRA E projects will effectively
materialise. While a strong impact on M&A activity is not evident yet, there is an expectation
that transactions in the energy and infrastructure space will continue to increase.
The third product is the special purpose acquisition company (SPAC), which is an
investment vehicle listed on the Mexican Stock Exchange that obtains funds from the public
offering through which it is created to invest and acquire a company, which may or may
not be identified at the time of the public offering. Essentially, it provides a sponsor with
sufficient funds to conduct an M&A transaction within the 24 months following its creation.
Recent SPAC offerings, such as the one made by Promecap, indicate a acceptance of these
types of investment vehicles in the Mexican market, but only time will tell if that acceptance
continues. Recent tax incentives described further below also seek to foster the creation of
SPAC and M&A transactions related thereto. To the extent that more SPACs are issued in
the market, they should certainly result in a positive effect on the M&A market in Mexico.
The fourth product is the CERPI, which is a derivative of the CKD, but with two key
differences: the first is a management and governance structure that more closely resembles a
traditional private equity fund, in which limited partners are expected to have a very limited
role in management and governance; the second, and the one that has really triggered a spur
in the use of this product, is that up to 90 per cent of the proceeds raised in a CERPI may be
deployed outside Mexico. This has led many international fund managers to seek to fundraise
in Mexico, as they can use it now as a regional platform to invest not only in Mexico but
outside of Mexico as well. This development is certainly expected to raise the level of M&A
activity as these funds begin to deploy the funds they raise.
Another important recent legal development, was the enactment of the Fintech
Law and its regulations, which have provided a legal framework for companies operating
crowdfunding, wallet and crypto businesses. The Fintech Law has attracted a lot of attention
and focus on technology-based solutions for the financial system, and will eventually lead to
M&A activity as those participants begin to consolidate.
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As noted in previous sections, the participation of international and global companies in the
Mexican market continues to be attractive. The level of cross-border transactions remains
significant, and the long-term view of many global institutional investors continues to drive
their desire to invest in Mexico and benefit from current opportunities in the market.
It is important to note that the United States continues to be the country that represents
the most foreign investment activity in Mexico. Other principal countries carrying out
substantial foreign direct investment in Mexico are Canada and Spain.
Given the manufacturing infrastructure and capabilities that Mexico has developed
through the years, the steadily growing middle class and the increase in consumerism, certain
sectors continue to be ripe for foreign investment, as has been evidenced through recent
M&A transactions, and these are expected to continue to attract foreign investment. It is
expected that foreign investment will continue to drive a significant portion of the large and
complex M&A transactions in Mexico.
In September 2018, Mexico, the United States and Canada announced an agreement
to modernise the North American Free Trade Agreement (NAFTA), which will be known
as the United States–Mexico–Canada Agreement (USMCA). The new agreement includes
significant revisions to the agreement signed in 1994. Regarding foreign investment, USMCA
largely replicates the protections provided under the 1994 NAFTA that are typically afforded
by bilateral investment treaties such as:
a a minimum standard of treatment, which includes fair and equitable treatment and full
protection and security;
b national treatment;
c most-favoured nation treatment; and
d transfers and protections in the case of direct or indirect expropriations.
Under USMCA, such protections may be claimed only by American and Mexican companies
working in the oil and gas, energy, telecommunications, transportation and infrastructure
sectors, provided that they hold a government contract or carry out activities related to one
of these sectors. Neither Canadian companies with investments in Mexico or in the United
States, nor Mexican or American companies with investments in Canada, shall have access to
arbitration under USMCA. Companies that do not participate in any of the above-mentioned
sectors will only be able to submit to arbitration violations involving national treatment
or most-favoured nation treatment, which require the government’s implementation of
a measure intended to discriminate against a company by reason of its nationality, and
violations involving a direct expropriation. Any other treaty violations must be submitted
before the national courts. USMCA provides a specific chapter for financial services, which
also sets forth an investment arbitration mechanism that is limited to the above-mentioned
narrower scope of protections. USMCA significantly limits the protection offered to foreign
investment by making claims involving violations of fair and equitable treatment and indirect
expropriation not subject to investment arbitration. In the absence of such protections,
investors will not be able to resort to arbitration to defend against government harassment,
abrupt regulatory measures or the unjustified termination of any agreement or permit.
The USMCA has yet to be ratified by the US Congress, Canada’s Parliament and
Mexico’s Congress. However, the Mexican Senate, which is controlled by Lopez Obrador’s
political party, is expected to ratify the USMCA soon.
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As noted in the Section I, Mexican M&A performed strongly throughout 2018. There is a
trend of consolidation and a high volume of activity in certain sectors, such as the technology,
pharmaceutical industry, real estate, food and beverage, distribution and retail.
M&A activity in the real estate sector is driven in large part by FIBRAs, as discussed
in Section III. Transactions mainly involve the acquisition of real estate portfolios. The
acquisition story driven by FIBRAs has not slowed since then.
The infrastructure (e.g., toll roads) and soft infrastructure (e.g., government-concessioned
hospitals, schools and prisons) space continues to attract international institutional investors,
such as the Canadian pension funds.
The pharmaceutical industry remains fragmented and filled with attractive targets ripe
for consolidation or participation by international participants.
In the aerospace and automotive sectors, we continue to see significant M&A activity,
mostly on the basis of cross-border transactions effected by global players but also in respect
of which Mexican operations will still have a significant role.
The airline industry has also supported developments that have led and may continue
to lead to M&A activity. Recent amendments allowing a greater participation (up to 49 per
cent) of foreign investment led, for example, Delta Airlines to acquire a substantial additional
stake in Aeromexico.
Finally, there has also been a trend for a higher volume of transactions in the VC
and technology space, which still may not represent significant M&A volume at this stage
but should have an impact in the short to medium term as these ventures mature and the
marketplace becomes more sophisticated. Increased valuations for technology companies has
spurred significant activity in the growth stage of these companies, and should lead to future
M&A activity as well.

Mexican corporate law does not impose restrictions on financial assistance, and thus a
Mexican target company’s ability to secure acquisition financing with its own assets makes
financing alternatives relatively more available for M&A and private equity transactions.
Mexican banks are actively participating in the market, and this has opened the door to other
types of lenders, such as credit opportunities funds created by global institutions.
There is no particular trend regarding bank and mezzanine debt in Mexican M&A
and private equity transactions. As in other markets, a decision about the type of acquisition
financing is based upon several factors, including the target company’s sector and its growth
plans and needs.
In those M&A and private equity transactions that include bank debt, Mexican banks
are normally pressed to incorporate US terms in their loan documents, including material
adverse change (MAC) provisions that match the acquirer’s right to withdraw from a
potential acquisition and provisions that seek to limit the conditions of the financing as
regards the conditions applicable to the closing of the acquisition. Owing to the absence of
financial assistance restrictions and a conservative approach to lending, Mexican banks very
rarely accept covenant-lite loans, which thus turns the negotiation of the financing terms and
conditions and the implementation of the relevant collateral packages into a substantial part
of the legal work relating to the closing of a transaction.
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When an M&A or private equity transaction involves financing, including going-private

transactions, one of the most controversial sections of loan documents is the one relating
to the conditions for a drawdown, and specifically the material adverse effect (MAE) or
MAC condition that directly affects the certainty of funds. It is hardly ever the case that the
definition of a MAE or MAC in a purchase agreement matches the definition in the loan
documents, and therefore the gap is generally a risk that the acquirer or investor is asked to
assume. In the context of a cross-border deal, the definition of a MAE or MAC becomes even
more complex when negotiating political or national risk language within an agreement,
especially in light of Mexico’s current political environment and Trump’s discourse on US–
Mexico relations. Having said that, we see that sponsors in private equity transactions are
generally more comfortable with the legal and related risks involved. Increasingly, investors
focus more on returns and less on country risk.
With respect to leveraged buyouts (LBOs), the main consideration in structuring such
transactions depends on the ability of target companies to pay dividends and make distributions
to their shareholders regularly to service acquisition loans. Hence, when structuring LBOs in
Mexico, it is paramount to incur the acquisition financing at the level of the operating target
companies, or to somehow restructure the debt after the closing so that the operating entities
can actually service the debt without having to deal with the tax and other timing restrictions
applicable to dividends under Mexican law. In addition, in pricing acquisition financing,
investors have to consider both the applicable withholding taxes on interest payments made
to foreign lenders (and the potential incremental cost they represent in terms of gross-up
provisions) and fraudulent conveyance issues under the Mexican Insolvency Law that are
mitigated through due diligence, representations, warranties and, ultimately, indemnities.
VII EMPLOYMENT LAW

Employee subcontracting regimes are common in Mexico and, consequent to relatively
recent amendments to tax and employment laws, thorough diligence is crucial for identifying
existing liabilities to avoid or reduce any labour or tax contingencies.
A subcontracting regime exists whenever employees of an entity (i.e., a contractor)
perform tasks or provide services to another entity (i.e., a client). In view of the foregoing,
whenever there is a subcontracting regime in place, it is crucial to verify whether it complies
with the following conditions set forth by the Mexican Federal Labour Law:
a it cannot cover all the activities or those activities, similar or alike as a whole, that are
performed at the workplace;
b services to be rendered must be justified because of their specialised nature; and
c subcontracting may not involve similar or the same activities as those performed by the
other employees in the contracting party.
Failure to comply with the specific conditions will not only result in joint and several liability
between the contractor and the client, but also in the direct obligation for the client to be
liable for the costs of employment and social security obligations, including profit sharing.
Earlier this year, the Senate approved an overhaul of the country’s federal labour law.
The changes include workers’ right to vote through secret ballots on unions and their labour
contracts, which normally does not occur in Mexico. The labour reform seeks to ensure that
workers will finally be represented by their unions.
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VIII TAX LAW

Transfer pricing reporting obligations contained in Mexican law have an impact on tax
filings for pre-closing, post-closing and straddling periods, as the buyer and seller will
have to agree on the terms and conditions under which these obligations will be complied
with on behalf of the target. Compliance with these obligations is particularly sensitive as
it provides information related to the organisation and operation of the group worldwide,
which, needless to say, the seller will not be willing to share with the buyer; thus, strong
confidentiality provisions would have to be negotiated as well.
The imminent approval by Mexico of the OECD’s multilateral instrument will limit
access to certain tax treaties to which Mexico is a party. This is particularly important in light
of the structuring work that needs to be performed prior to any M&A transaction taking
place, because any structuring analysis will need to address additional limitations.
There are also new obligations within the Mexican legislation related to the issuance of
digital invoices that are now applicable for, inter alia, stock purchases and payments made to
non-Mexican residents. The tax authorities continue to enhance all the regulations pertaining
to the issuance of digital invoices, which now apply to certain transactions that were not
considered to be affected in the past. Accordingly, stock purchase agreements have to provide
some detail in this regard to define which tax documents will be issued by whom at closing,
thus avoiding any discussions, as these rules are numerous and detailed.
Earlier this year, the Tax Administration Service published the rules for the application
of tax incentives for corporate bonds and initial public offerings (Rules). The Rules are the
result of an open dialogue between the Ministry of Finance and Public Credit, various financial
industry associations, the licensed securities exchanges in Mexico and their legal advisers. The
tax incentive for initial public offerings, in summary, allows for Mexican-resident individuals
and non-Mexican tax residents to apply a rate of 10 per cent to capital gains derived from
the sale of shares issued by Mexican-resident corporations in licensed securities exchanges
in Mexico during 2019, 2020 and 2021, provided that certain requirements are complied
with.2 The tax incentive for bond offerings, in summary, allows Mexican tax-resident issuers
of corporate debt outside of Mexico to apply a zero per cent withholding rate (as opposed to
4.9, 10 or even 35 per cent, in some cases) subject to compliance with certain requirements
such as having the debt instruments listed in Mexico.
2 In such regard, the Rules clarify that the total equity value of the issuer shall not be greater than 25 billion
pesos and shall be computed prior to the initial public offering (IPO); the tax incentive is also applicable
when a sale is done through the exercise of over-allocation options (greenshoe) or follow-ons; the tax
incentive will also be applicable to whomever sells shares to a SPAC or sells shares issued by a SPAC
obtained as a result of an initial business combination; with respect to the exception provided for the
divestment process of a private equity investment trust (FICAP), the exception shall also be applicable to
non-residents; the 20 per cent minimum participation of the FICAP shall be computed prior to the IPO;
and the participation of a FICAP shall be computed taking into account not only the shares acquired by
the FICAP, but also those acquired by certain foreign legal arrangements that are related to the FICAP or
its manager.
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Mexico
IX COMPETITION LAW
Enforcement by Mexico’s antitrust agency has been particularly active in recent years. Several
ongoing investigations and the imposition of substantial fines in many sectors of the economy
indicate the agency’s new more active and aggressive stance. On the antitrust clearance front,
the outcome of many M&A transactions has become more difficult to predict, especially in
borderline cases for which preemptive planning of an intelligent approach to the agencies has
become more important. Similarly, pre-closing integration efforts now need to be conducted
with more sensitivity to antitrust requirements.
X OUTLOOK
According to recent polls, President Andrés Manuel López Obrador, having held office for
less than a year, continues to be popular and has substantial support. It is still early to estimate
the President’s effects on the economy, the business sector and particularly on inbound M&A.
The President has consistently attacked the energy reform enacted by Peña Nieto’s
administration, and while there continues to be no indication of a major shift in the applicable
regulatory framework, there is no optimism regarding new projects in the oil, gas and power
sector.
In general, Mexico’s regulatory framework and macroeconomic outlook has made
most economic analysts maintain their view that the Mexican economy continues to be
experiencing a period of slow expansion.
After an election year and with USCMA discussions in the ratification stage of the
respectiver chambers of Congress, the expectation was that a good portion of the uncertainty
affecting the M&A market during 2018 would have subsided considerably. However, in
addition to global economic uncertainty, Trump’s constant tariff threats towards Mexico
and the rating agencies’ recent revisions of the outlook for Mexico and Pemex (Mexico’s
state-controlled oil company) have not helped address such uncertainty.
CKD listings are on hold: while there are close to 30 listing filings in process, no listing
has been made during 2019. There is more than one reason for such impasse, but one of them
is the uncertainty as to the AFORES new investment regime.
Mexico’s demographic trends continue to show an economy less dependent on exports,
a growing middle class and increased consumerism (with more access to consumer credit),
which suggests ample investment opportunities in sectors serving domestic consumption
such as financial services, technology, healthcare, retail, pharma, education, dwellings and
agro-industry.
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Chapter 31
NETHERLANDS
Meltem Koning-Gungormez and Hanne van ‘t Klooster 1

The Netherlands again saw a strong year of M&A activity, with a total increase in transactions
of 11.4 per cent as compared to 2017, resulting in the highest amount of transactions in
11 years.2
Most M&A transactions in 2018 were conducted within the service industries branch,
but the educational, healthcare and trading sectors also significantly contributed to M&A
activity. M&A activity was also high in the technology sector, in which Dutch companies
continue to attract the interest of international companies. For the most part, larger
corporates acquire tech startups and invest in innovative companies to speed up technological
development and keep up with market demands.
The popularity of the use of warranty and indemnity insurance continued steadily in
2018. Notable regarding this years’ M&A activity is that it was very much a seller’s market in
the Netherlands, with a large amount of transactions conducted as auctions.

Dutch transactions are generally structured as a transfer of the shares or (specific) assets of a
company or by way of a legal merger. The main principles governing the legal framework of
these transactions are set out in the Dutch Civil Code.
Parties are free to enter into contracts and to negotiate the terms of contracts. According
to case law dating back to 1981, not only the wording of the agreement should be considered
for interpretation thereof, but also the intentions of the parties and what they can reasonably
expect from each other. This means that contractual clauses are to be interpreted in line with
the meaning that the parties under the given circumstances could reasonably attribute to
them and that they could reasonably expect from each other.3
Over time and because of foreign involvement, contracts have become more extensive
and more Anglo-American. An example of this is the use of the entire agreement clause,
which is now standard practise in transactions, although case law indicates that the use of an
entire agreement clause does not simply preclude the significance of the parties’ statements
or conduct before the entry into an agreement. Under Dutch law, the actual meaning of the
1 Meltem Koning-Gungormez is a partner and Hanne van ‘t Klooster is an associate at Kennedy Van der
Laan.
2 https://www.ser.nl/nl/actueel/Nieuws/fusiemeldingen-2018.
3 Supreme Court 13 March 1981 (Haviltex).
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clause still depends on the specific circumstances of a case. 4 Recent case law does indicate
that depending on the circumstances, a linguistic interpretation could become increasingly
important, for example if it concerns a commercial agreement entered into by professional
parties, if the agreement was extensively negotiated, or if the parties were assisted by legal
advisers or lawyers.5
Under Dutch corporate law, the stakeholder model is predominant. This model entails
the board of a company having a duty to act in the best interests of a company and all the
stakeholders involved, thereby focusing on creating long-term value. The Enterprise Chamber,
a specialised division within the Amsterdam Court of Appeal, is the court of first instance in
disputes involving mismanagement and similar corporate issues, and the appellate court in
certain corporate litigation disputes. The Enterprise Chamber is often addressed by foreign
shareholders to challenge the parameters of the Dutch stakeholder model, for instance in a
recent case in which shareholder Elliott wanted to intervene in the strategy of AkzoNobel in
order to enter into negotiations with PPG Industries for the acquisition of AkzoNobel.
i Negotiations and pre-contractual good faith

In the pre-contractual phase, parties are obligated to behave in accordance with the
requirements of reasonableness and fairness and, in doing so, they must also have their
behaviour determined by the legitimate interests of the other parties. Although in theory all
parties are free to break off negotiations, it can be unacceptable to do so because one party
may be justified in its expectation that an agreement will be concluded, or because of other
circumstances. In that event, that party could be entitled to compensation, or could request
an injunction requiring the other party to continue negotiations. The justified interests of
the party that breaks off negotiations, the manner in and the extent to which that party
has contributed to the other party’s expectation, and whether any unforeseen circumstances
have occurred in the course of the negotiations, among other things, should be taken into
account.6
ii Anti-takeover structures
In the event that a shareholder requests an agenda item that may lead to a change in a
company’s strategy (such as a takeover), the management board can invoke, pursuant to
the Corporate Governance Code, a response time of a maximum of 180 days for further
deliberation and constructive consultation. Furthermore, it is possible to place preference
shares at a different entity, such as a foundation that is serving the interests of the company
and its stakeholders. By granting this entity a call option that can be exercised during an
imminent takeover, the equity interest that a hostile party accrues will dilute. Consequently,
this entity is able to ensure that the company will continue to focus on creating long-term
value. The issuance of priority shares with specific (voting) rights or depositary receipts
instead of shares is also a possibility. In the latter case, the votes on the shares will stay with a
foundation that is friendly to the board of the company.
4 Supreme Court 5 April 2013 (Lundiform/Mexx).

5 Supreme Court 29 June 2007 (Derksen/Homburg).
6 Supreme Court 12 augustus 2005 (CBB/JPO).
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iii Notifications
Before effecting a transaction in the Netherlands, the works councils of the parties involved
may have to be notified and consulted under the Works Council Act and a notification may
have to be sent to the Social and Economic Council of the Netherlands (SER) Merger Code
Committee and the trade unions in question under the SER Merger Code 2015. Obtaining
clearance from the Netherlands Authority for Consumers and Markets and the European
Commission regarding possible competition concerns may also be required. Furthermore,
sector-specific notifications may be necessary, such as to the Dutch Central Bank.

THEIR IMPACT
i Ultimate beneficial ownership register
A legislative proposal introducing the ultimate beneficial ownership register (UBO Register)
in the Netherlands was submitted to the House of Representatives on 3 April 2019. The
proposal is an implementation of the (amended) Fourth Anti-Money Laundering Directive,7
which seeks to prevent the use of financial systems for money laundering or terrorist financing
by means of, among other things, introducing an UBO Register. The UBO Register will be
part of the Dutch Trade Register, and as such it will be administered by the Chamber of
Commerce. Part of the information included in the rRgister will be publicly accessible, but
provisions have been made to ensure the privacy of UBOs. The UBO Register must be set up
at the latest by 10 January 2020.
ii Act on management and supervision of legal entities

A legislative proposal for the management and supervision of legal entities was submitted to
the House of Representatives on 13 June 2016. The aim of the proposal is to achieve greater
uniformity among the various Dutch legal entities (i.e., private limited liability companies
(BVs) and public limited liability companies (NVs), foundations, associations, cooperatives
and mutual insurance associations). This uniformity mainly concerns the applicable board
models – so both the one-tier board model and the two-tier board model – rules regarding
conflicts of interests of board members, and rules regarding the duties and responsibilities of
board members. Two memoranda of amendment were submitted on 8 November 2018 and
15 February 2019, respectively. Originally, the legislative proposal included uniform rules
applicable to all legal entities in the general part of Book 2 of the Civil Code. This approach
has now been abandoned. In the amended legislative proposal, the provisions are repeated
for each legal entity, taking into account the differences between them. In addition, some
changes with regard to content have been made. One example is the restriction with regard
to multiple-vote rights of management board or supervisory board members. This restriction
has been removed from the proposal (since the restriction was already applicable to BVs and
NVs, the removal only concerns the other forms of legal entities).
iii Corporate Governance Code 2016

The Corporate Governance Code 2016 entered into effect on 1 January 2017, replacing the
first Corporate Governance Code of 2008. The Code of 2016, applicable to Dutch listed
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companies and also to non-listed companies if they opt for its application, is based on the
principle of comply or explain. Directors must report on compliance with this principle in
the annual accounts. The most important difference from the Code of 2008 is that long-term
value creation is now a central aspect of the Code. The management board has to develop a
strategy relating to the creation of long-term value, taking into account, among other things,
the interests of all stakeholders. The supervisory board has to monitor the management
board in this. In addition, the management board is required to create a culture within the
organisation that is focused on long-term value creation, under supervision of the supervisory
board. As with the Code of 2008, the Corporate Governance Monitoring Committee will
report annually on compliance with the Code.
iv Proposed regulation on hostile bids and takeover activities

Discussion about whether Dutch listed companies are sufficiently protected against
hostile bids and takeover activities led to a draft legislative proposal, which was published
on 7 December 2018 for consultation until 9 February 2019. The proposal indicates that
setting up the policy and strategy of a company is the authority of the management board.
In addition, under the proposal the management board has a cooling-off period of up to
250 days if a shareholder proposes the dismissal, appointment or suspension of a member
of the management of the supervisory board, or if a non-approved offer on the shares has
been announced or made. In the opinion of the management board, these acts must be
contrary to the interests of the company. Shareholders may request an early termination of
the cooling-off period of the Enterprise Chamber.
In addition, on 5 March 2019 a legislative proposal on telecommunications parties was
submitted to the House of Representatives as a reaction to the attempted takeover of KPN
by América Móvil in 2013. The proposal gives the Minister of Economic Affairs and Climate
the authority to prohibit the acquisition or exercise of predominant control over parties in
the Dutch telecom sector if this would lead to a threat with regard to national security or
public order.
v Directive on long-term and transparent engagement by shareholders

Directive (EU) 2017/828 (amending Directive 2007/36/EC) regarding the encouragement
of long-term and transparent engagement by shareholders of listed companies had to be
converted into national law by the Member States by 10 June 2019. The Directive contains
requirements relating to the remuneration of directors, the identification of shareholders,
the facilitation of shareholders’ rights, the transmission of information, transparency for
institutional investors, asset managers and proxy advisers, and related party transactions.
The legislative proposal implementing the Directive was submitted to the House of
Representatives on 18 October 2018 and adopted on 2 April 2019. Some provisions with
regard to the remuneration of board members also apply to non-listed NVs.
vi Act on the protection of trade secrets

On 23 October 2018, the Dutch Trade Secrets Act, implementing Directive (EU) 2016/943,
entered into force. The Act contains provisions to enforce trade secrets and remedies against
infringing goods. Under the Act, the court has the authority to award full (reasonable and
proportionate) costs to the winning party (similar to intellectual property cases).
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vii Regulation on screening of foreign direct investment

At the EU level, a protectionist attitude can be observed as well. On 10 April 2019, EU
Regulation 2019/452 establishing the framework for the screening of foreign direct
investment officially entered into force. The Regulation will fully apply to Member States
from 11 October 2020. The new framework will, among other things, allow the EC to issue
opinions if an investment poses a threat to the security or public order of more than 1 one
Member State or if it could undermine a project or programme of interest to the EU.
viii Directive on cross-border conversions, mergers and divisions

On 31 January 2019, the EU ambassadors reached an agreement on the Council’s position
on the draft directive with regard to cross-border conversions, mergers and divisions. The
directive will allow companies to benefit from the EU single market. Extensive procedures are
introduced for cross-border conversions and divisions, and additional rules for cross-border
mergers of capital companies established in different Member States. The directive contains,
among other things, procedures that ensure that cross-border transactions are consistent with
all relevant national legal systems and that employees and shareholders are properly informed
of the effect of transactions. The presidency of the Council will now start negotiations with
the European Parliament with the aim of adopting the draft directive.

Although foreign involvement has been present in the Dutch M&A market for a long time,
there seems to have been a decrease in the proportion of cross-border deals. This trend
cannot be explained by inbound M&A activity (which only decreased slightly). During
2018, there were numerous (both successful and unsuccessful) efforts by foreign companies
to take over Dutch businesses. One striking example was the acquisition of the chemical
branch of AkzoNobel for €10.1 billion by the American investment company Carlyle and the
Singaporean investment company GIC, which generated the highest deal value on the Dutch
M&A market in 2018. Carlyle and GIC won a bidding battle against three other parties,
including the Dutch company HAL Investments.
Another public bid that has stirred feelings since 2016 is Qualcomm Inc’s bid for Dutch
chip manufacturer NXP Semiconductors NV. In March 2018, Qualcomm announced it was
extending the period of its cash tender offer made pursuant to the purchase agreement of
October 2016. However, the deal collapsed after the non-extendable deadline passed for
obtaining Chinese regulatory approval.
Other examples include the acquisition of Dutch stroller company Bugaboo by global
investment firm Bain Capital Private Equity and Dutch theater company Stage Entertainment
by the US media company Advance Publications Inc (both for undisclosed sums).

In 2018, M&A activity in the Dutch IT branch continued to grow, attracting the interest
of both foreign companies with strategic motives and private equity parties. One notable
transaction was the acquisition of the Dutch software company Mendix by Siemens
for US$730 million. Mendix is in a position to help Siemens, primarily known for its
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industrial manufacturing and therefore not a self-evident takeover partym with the digital
transformation of the company. It is expected that non-traditional strategic parties will play
an increasingly important role in M&A activity in this branch.
In addition, 2018 was a good year for takeovers of Dutch startups. Besides the
acquisition of Mendix, notable examples are the acquisition of the Dutch cybersecurity
company Security Matters by the Israeli cybersecurity company Forescout Technologies for
an amount of US$113 million, and the acquisition of the Dutch gaming server hosting
provider i3D.net by French gaming company Ubisoft for an undisclosed amount.

Cash has remained the preferred means of funding M&A deals. Private equity and venture
capital funding are runners-up as sources of funding for most transactions. Bank loans are
also attractive in view of the low interest rates. A relatively new form of funding is the initial
coin offerings,whereby startups using blockchain technology raise capital through coin
offerings. The Dutch regulatory authorities are watching these developments closely, as they
may trigger money laundering and fraud.
VII EMPLOYMENT LAW

i The Work and Security Act
With the introduction of the Work and Security Act in July 2015, employment law has been
amended substantially. The Act regulates most aspects, such as entering into an employment
agreement, employment conditions and the termination of employment agreements.
Under the Act, an employer can only terminate an employment contract on a limited
number of grounds. In the event of the long-term illness of an employee or if an employer
can demonstrate sufficient economic reasons, the Employee Insurance Agency will grant
permission for an employer to terminate a contract. If the grounds are more personal (such
as inadequate performance or a damaged working relationship), permission to terminate an
employment agreement must be obtained from the courts. In all cases (except for a serious
imputable act by the employee and summary dismissal), an employee who has been employed
for 24 months or longer is entitled to a statutory severance payment (transition fee).
ii The Balanced Labour Market Act

Changes in employment law are forthcoming. The Balanced Labour Market Act will enter
into force on 1 January 2020. The Act contains amendments to Dutch employment law
with the objective of narrowing the gap between employees with a permanent employment
agreement and flexible workers. Some of the most important changes are the following:
a A new ground for dismissal will be introduced in addition to the existing limited
grounds for dismissal: the cumulation ground. This ground offers employers the option
to combine several incomplete grounds for dismissal into one successful ground. In
the case of a cumulation of grounds, the court may award an employee an extra fee to
a maximum of half the statutory transition fee on top of the transition fee (and fair
compensation, if any).
b Under the Balanced Labour Market Act, employees will be entitled to a transition
fee from the first day of their employment agreement (including the probationary
period). Currently only an employee who has been employed for more than 24 months
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is entitled to the statutory transition fee. The way of calculation will also change. For
the first 10 years, the statutory transition fee amounts to one-third of a monthly salary.
Further, the temporary measures with regard to the transition fees, lower payments for
small employers and extended accrual for older employers will lapse.
c The sequence system for successive fixed-term employment contracts will be extended
to three years. An employment contract will be deemed permanent in the event of a
fourth consecutive contract or if the duration of employment exceeds three years. It will
be possible to deviate from this rule through collective labour agreements if the work
requires this (for instance, in the case of temporary work).
d Payroll workers will be entitled to the same terms and conditions of employment as
employees employed by the hirer, as well as an adequate pension scheme.
iii Pre-packaged insolvencies and transfers of undertaking

In 2017, the European Court of Justice (ECJ) ruled that pre-packaged insolvencies (pre-packs)
are not excluded from Directive 2001/23 on the transfer of undertakings (Directive). Based
on the Directive – and the implementation thereof in the Civil Code – the employees of a
transferring undertaking remain entitled to their employment and all rights and obligations
from that employment. In this event, the acquiring undertaking must also take over these
employees.
If an undertaking is declared bankrupt, its employees are not protected by the Directive
or the Civil Code. A pre-pack is a transfer of the assets prepared before the declaration of
bankruptcy with the consent of a prospective insolvency administrator, appointed by the
court, and is put into effect by that administrator immediately after the declaration of
bankruptcy.
The ECJ has ruled that the Dutch pre-pack procedure does not qualify as bankruptcy
proceedings within the meaning of the Directive because its purpose is for the continuation of
a company, not its liquidation. Therefore, it is not justified that employees lose the protection
of the Directive. The consequence is that all employees will automatically transfer to the
acquiring company while retaining the employment conditions of the bankrupt company.
To clarify and strengthen the position of these employees after a transfer, the government has
proposed measures that are detailed in the Transfer of Undertaking in cases of Bankruptcy
Bill. In principle, all employees of a undertaking will transfer to a new undertaking, and
they will remain entitled to their employment and all rights and obligations from that
employment. Only if jobs become redundant because of sufficient economic reasons will an
employee not be obliged to take over employees. The Bill was presented for consultation on
the internet on 29 May 2019.
iv Self-employed workers
The government is working on a replacement for the Assessment of Employment Relationships
(Deregulation) Act to clarify the position of self-employed workers. It is often the subject of
dispute whether a self-employed person is in fact employed by a contracting party.
In the Coalition Agreement 2017–2021, the coalition proposes an alternative to the
model agreements that the Dutch Tax Authority is currently approving. The use of these
approved models reduces the risk of meeting the requirements of an employment relationship
with all its obligations (such as taxes, but also protection under Dutch dismissal law). The
proposed alternative contains, for example, a minimum rate for independent contractors and
the introduction of a declaration of commissioning. Those elements contribute to security
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and clarity for independent contractors about their position. With its vote in favour of the
Balanced Labour Market Act, the Senate also voted in favour of the motion. The main
reason for this motion is the fear that employers will start to use temporary workers and
self-employed persons in stead of payroll employees as soon as the Balanced Labour Market
Act enters into force. It is not clear yet if a minimum rate will be introduced or if other
measures will be taken. The government has announced that new legislation will be in place
as per 1 January 2021, so more clarity is expected during the course of 2020.
v Legislative proposal aiming to increase awareness of equal pay for women

On 7 March 2019, the legislative proposal aiming to increase awareness of equal pay for
women was submitted to the House of Representatives. This proposal aims to increase
awareness of equal pay for women and strengthen the control thereof. The proposal aims to
ensure that:
a companies that are required by the Civil Code to publish an annual report are obliged
to include figures on the remuneration ratio between men and women, and an
explanation for the possible difference in pay between men and women and of the
policy they are pursuing to promote equal pay;
b companies that have at least 50 employees are required to apply for a certificate that
states they have equal pay for men and women. The certificate is valid for a period of
three years. Smaller companies can apply for this certificate on a voluntary basis;
c there will be a public register to check which companies received a certificate and which
requests have been declined or withdrawn;
d companies without a certificate are deemed to be paying unequal remuneration for
man and women. Employers will be obliged to prove this is not the case;
e every employee has the right to file a complaint with the Netherlands Institute of
Human Rights about unequal pay; and
f the Inspectorate SZW will be charged with the supervision of equal payand is authorised
to impose fines of up to a maximum of €83,000.
It is unclear whether the proposal will be adopted (in this form). Some employer organisations
have already criticised this proposal. If the proposal is adopted, there will be a two-year
transition period.
VIII TAX LAW

i OECD Base Erosion Profit Shifting
The public debate on corporate tax planning continued, and on 7 June 2017, the Multilateral
Instrument (MLI) proposed following the OECD’s Base Erosion Profit Shifting (BEPS)
Action 15 was signed by more than 70 countries, including the Netherlands. Pursuant to
the MLI, BEPS Actions – such as agreed minimum standards to counter treaty abuse –- can
be implemented in bilateral tax treaties without countries having to renegotiate and amend
all such treaties. One of the measures of the MLI is the introduction of a principle purpose
test (PPT), pursuant to which a treaty benefit may be denied if obtaining that treaty benefit
was one of the principal purposes of any arrangement or transaction that resulted directly
or indirectly in that benefit, unless it is established that granting the benefit in the relevant
circumstances would be in accordance with the object and purpose of the relevant treaty.
Considering that the PPT is an agreed minimum standard against treaty shopping, and that
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all countries that signed the MLI have opted for at least the implementation of the PPT, it is
likely that this anti-abuse rule will be implemented in many of the Netherlands’ bilateral tax
treaties. In abusive situations, it will then become much easier for the Netherlands to deny
treaty benefits to foreign recipients of Dutch source income.
ii Dividend tax
A recent change in tax regulation has had an immediate effect on the structure of M&A
transactions. The Act regarding the dividend withholding tax obligation for holding
cooperatives and the expansion of the dividend withholding tax exemption came into effect
on 1 January 2018. Under previous Dutch law, a cooperative was not subject to dividend
withholding tax, unlike a BV and an NV. In light of the increasing importance of cooperatives
in international structures (as a possible means for international tax evasion) and the state
aid risk, a dividend withholding tax obligation for qualifying membership rights in holding
cooperatives has been introduced. A holding cooperative is defined as a cooperative whose
actual activity in the year preceding the distribution consisted primarily (i.e., for 70 per cent
or more) of the holding of participations or the direct or indirect financing of affiliated entities
or natural persons. A qualifying membership right of a holding cooperative is defined as a
right that entitles the holder to at least 5 per cent of the annual profit or at least 5 per cent of
what is paid out on liquidation. Furthermore, under the new Act, the dividend withholding
tax exemption is extended from distributions made to qualifying BV and NV shareholders
within the European Union and the European Economic Area (EEA) to distributions made
to qualifying BV and NV shareholders and qualifying holding cooperative members located
in the European Union, the EEA or in a country with which the Netherlands has concluded
a treaty that contains a tax provision for the prevention of double taxation. The exemption
is subject to an anti-abuse rule. Although the dividend withholding tax will be abolished
altogether in 2020, the government expressly chose to introduce the Act because of the state
aid risk and the fact that it can serve as a basis for new legislation.
iii Withholding tax on interest

Under the current law, the Netherlands does not levy a withholding tax on interest. However,
the government recently announced plans to introduce a withholding tax on interest in
abusive situations as from 1 January 2021 to avoid the Netherlands being used for payments
to low tax jurisdictions through Dutch conduit entities. No details of this new withholding
tax are yet known. In principle, a Dutch company engaged in financing activities will be
taxed on the difference between the interest income and expenses (spread). For intragroup
financing companies, there are minimum equity and substance requirements that should be
reviewed and discussed in more detail.
IX COMPETITION LAW
On 26 October 2017, the General Court of the European Union annulled the EC’s decision
dated 10 October 2014 whereby it approved the merger between Dutch cable companies UPC
and Ziggo (following the acquisition of Ziggo by Liberty Global, the US parent company
of UPC) on the basis of a complaint by Dutch cable company KPN. On 30 May 2019,
after reassessing the transaction, the EC, subject to certain conditions, has confirmed its
earlier approval. The outcome of this case remains uncertain, as this decision has again been
appealed against by KPN.
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At the beginning of 2017, Liberty Global and Vodafone combined their Dutch
businesses into the joint venture VodafoneZiggo. This merger was approved by the EC on
3 August 2016. KPN appealed against this approval as well. On 23 May 2019, the General
Court rejected KPN’s complaint and concluded that the EC was right in approving the merger.
The EC’s approval was subject to the condition that Vodafone would sell its fixed-telecom
division in the Netherlands. In December 2016, both the EC and the Netherlands Authority
for Consumers and Markets cleared the acquisition of this division by telecom provider
T-Mobile Netherlands (for an undisclosed fee), paving the way for the joint venture.
In addition, on 27 November 2018 the EC gave unconditional clearance to the
acquisition of Dutch telecom provider Tele2 Netherlands by its rival, T-Mobile Netherlands.
The Netherlands Authority for Consumers and Markets supported this decision. In the
opinion of the EC, the acquisition would not raise any competition concerns in the EEA or
any substantial part of it.
X OUTLOOK
We are cautiously optimistic with regard to Dutch M&A activity in 2019. On the one hand,
funds are easily accessible due to a solid economy and low interest rates. On the other, growing
protectionism and increasingly complex regulations call for caution. Businesses remain eager
to do deals, whether these are transformational strategic deals, technology-driven transactions
or initial public offerings. We expect technology to continue to be a key driver in Dutch
M&A transactions during this year.
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Chapter 32
NIGERIA
Lawrence Fubara Anga and Maranatha Abraham1

There was a marked increase in M&A activity during the year in review.
The banking and financial services sectors were quite active, with several significant
transactions. These included the merger of Diamond Bank and Access Bank Plc and the
acquisition by Polaris Bank Limited of Skye Bank Plc, a Nigeria-based retail bank. In another
deal, One Finance Limited acquired Amplified Payments Ltd, a fintech company that builds
and facilitates payment solutions and digital financial transactions in Nigeria. Another
notable transaction was the acquisition of Primera Africa, a top-ranked brokerage house in
Nigeria by EFG Hermes, a leading financial services corporation, as part of EFG Hermes’
strategy to penetrate frontier and emerging markets. LeapFrog Investments, an emerging
market-focused private equity fund, has taken up a stake in ARM Pension managers, one of
Nigeria’s foremost pension management companies.
In the manufacturing sector, the Coca-Cola Company recently completed the
acquisition of a 100 per cent stake in CHI Limited, one of Nigeria’s foremost fruit juice and
drinks manufacturers.
Other significant transactions include Jiji’s acquisition of its rival in the online
marketplace sector, OLX, in a bid to extend the company’s footprint in Africa, and Helios
Investment Partners’ acquisition of Axxela Limited, a Sub-Saharan African gas and power
company.

The laws that regulate M&A activity in Nigeria are the Investments and Securities Act (ISA),
the Companies and Allied Matters Act, the Rules and Regulations of the Securities and
Exchange Commission (SEC) and, more recently, the Federal Competition and Consumer
Protection (FCCP) Act. Amendments were made to the SEC Rules and Regulations in 2017
and 2018.
Prior to the enactment of the FCCP Act, the role of the SEC was to review proposed
M&A transactions to ascertain whether a proposed transaction would result in substantial
restraint of trade. The implications of the new Act are discussed in Section 3. The Nigerian
Stock Exchange also plays a significant role in M&A involving publicly quoted companies
that are required to comply with its listing requirements.
1 Lawrence Fubara Anga is a partner and Maranatha Abraham is an associate at ÁELEX.
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Nigeria
Sector-specific laws also regulate M&A transactions in certain sectors. For example:
a the Banks and Other Financial Institutions Act and the Central Bank of Nigeria’s
Guidelines and Incentives on Consolidation in the Banking Industry are relevant to
M&A in the banking sector;
b the Nigerian Communications Act regulates the telecommunications sector;
c the Electric Power Sector Reform Act regulates the electricity sector; and
d the National Insurance Commission Act regulates the insurance industry.
These sector-specific laws operate in addition to the provisions of the ISA, the Companies
and Allied Matters Act, the FCCP Act and the SEC Rules and Regulations.
The Companies Income Tax Act also requires the consent of the Federal Inland Revenue
Service (FIRS) for a proposed merger or acquisition in relation to the capital gains tax payable.
Common law applies to the extent that there is no relevant provision in the statutes.

IMPACT
The SEC was the primary regulator with powers of oversight over all M & A transactions
involving both private and publicly quoted companies. However, in January 2019, the
Federal Competition and Consumer Protection Act 2019 entered into force. The Act repealed
the Consumer Protection Council Act, dissolved the Consumer Protection Council and
established the Federal Competition and Consumer Protection Commission (FCCPC) in its
stead. Consequently, the SEC’s powers of oversight and approval of M&A are now vested in
the Commission. Rules and regulations governing M&A under the new Act have not been
released, and it is unclear whether the extant SEC rules will continue to be applicable during
the transition period.
There are some concerns regarding how the FCCPC proposes carrying out its oversight
functions over M&A activities in Nigeria. For example, guidance is required as to how the
new provisions relating to registration of indirect transfers would be implemented. There are
also concerns regarding the role of the Federal High Court under the Act.
On a positive note, the Corporate Affairs Commission, which is the main regulatory
body for corporate organisations generally, has introduced various measures to make the
companies’ registry more efficient, including the creation of the Companies Registration
Portal to facilitate online registration of companies. Additionally, the National Assembly has
passed a bill to amend the current Companies and Allied Matters Act; the Bill is currently
awaiting presidential assent. Highlights of the Companies and Allied Matters Bill include
the introduction of single member companies, which allows for the formation of private
companies with only one member. Under the Bill, small companies can carry on business
with only one director, and are exempted from the requirement to appoint a company
secretary and to hold annual general meetings.

M&A activity in the past was fuelled by investors’ desire to participate in Nigeria’s rapidly
developing economy. However, recent uncertainty surrounding the foreign exchange regime,
coupled with slower economic growth and the emergence of other frontier markets, led
investors to become more cautious with Nigerian investments. More recently, interest in
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investment in Nigeria has been revived. This is partly connected to the devaluation of the
naira, which enabled foreign concerns to acquire Nigerian interests at a much cheaper rate.
The increasing stability of the foreign exchange regime has also had a positive effect on
portfolio investment and foreign direct investment.

Arguably the biggest deal for the period under review was the acquisition of Primewaterview
Holdings Nigeria Limited, a large-scale holding company with interests in real estate, oil
and gas, health and power, for US$1 billion by Milost Global Incorporated in conjunction
with, Isilo Capital Partners (its African subsidiary). This was reported to have been the
largest deal in Sub-Saharan Africa in the first half of 2018. The year under review also saw
the completion of 9mobile’s acquisition by Teleology Holdings Limited after the Nigerian
Communications Commission, the regulator of the Nigerian telecommunications sector,
approved the transaction.
Other significant deals include the acquisition of Mimee Noodles, the food division
of May and Baker Limited, by De-United Foods Industries Limited, makers of Indomie
noodles, in a 775 naira million deal. Another notable transaction was the acquisition of
a 75 per cent stake in Forte Oil Plc by Ignite Investments and Commodities Limited, a
subsidiary of Prudent Energy and Services Limited.
In the e-commerce sector, Zinox Technologies acquired a 99 per cent stake in Konga,
the largest online mall in the country. Shortly thereafter, Konga merged with Yudala to form
what is now the largest online mall in Africa.

The cost of locally sourced debt funding for acquisitions is very high, with interest rates
typically above 20 per cent. As a result, the vast majority of acquisitions in Nigeria are funded
using cash reserves while the rest are funded with equity or debt, especially foreign-sourced
debt.
VII EMPLOYMENT LAW

There have been no recent changes to employment law that are relevant to M&A. The statutes
governing this are the Labour Act, the Pension Reform Act and the Personal Income Tax Act.
The Labour Act provides that the transfer of any contract from one employer to another
shall be subject to the consent of the worker and the endorsement of the transfer of the
contract by an authorised labour officer.
VIII TAX LAW

Although the legal regime has not necessarily changed, it should be noted that during the year
under review there was increased activity by the FIRS, indicating the government’s intention
to widen the tax net and increase revenue generated from taxes. This development would
also mean increased scrutiny over M&A transactions to ensure that the applicable taxes are
properly assessed and paid. Thus, potential investors would have to undertake thorough due
diligence exercises to ascertain the amounts of back taxes for which a target asset is liable.
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No merger, takeover of any form or acquisition should be undertaken by a company

without obtaining prior direction as to the manner of assessment of its taxable income.
Directions are obtained from the FIRS.
The tax considerations will depend on the manner in which a combination is structured.
If a transaction involves an asset acquisition, the company disposing of the asset would be
liable to pay capital gains tax of 10 per cent on the gains realised on the disposal. If the
combination is effected by an acquisition of shares, no capital gains tax will be payable,
because the Capital Gains Tax Act exempts gains accruing on the disposal of stocks and shares
from tax. For tax purposes, the value of an asset transferred between connected companies
is deemed to be the amount equal to the residue of the qualifying expenditure. Clearance
should also be obtained from the FIRS with respect to any capital gains tax that may be due
and payable as a result of the business combination.
Another relevant tax, stamp duties, is charged at a flat rate of 0.75 per cent of the value
of any newly issued capital.
IX COMPETITION LAW
The Federal Competition and Consumer Protection Act received presidential assent in early
2019. The Act aims to promote competition, curb restrictive trade practices and protect the
interests of consumers. The Act establishes the FCCPC, which is now responsible for the
approval of M&A. The Act divides mergers into small and large mergers, but does not set
a threshold for determining which mergers fall into these categories. The newly established
FCCPC is responsible for setting the thresholds for each category by regulation but is yet to
do so.
The FCCPC is expected to issue regulations that would replace the SEC Rules and
Regulations to provide further guidelines for the M&A space in Nigeria.
X OUTLOOK
We expect to see more M&A deals in sectors with a high potential for growth, especially the
financial services, retailing and fast moving consumer goods sectors. Additionally, we expect
to see continued activity in the technology, media and telecommunications space, as well as
the financial technology sector, which appears to be a fast-developing area. The e-commerce
space also shows a lot of potential for M&A activity in the wake of Konga’s acquisition by
Zinox Group and the subsequent merger with Yudala.
The National Association of Securities Dealers (NASD) provides a platform for trade
in the securities of unlisted public companies, thereby allowing companies to raise capital
without being listed on the Nigerian Stock Exchange. The platform provided by the NASD
is instrumental in improving liquidity and facilitating private equity exits. FMDQ OTC
Securities Exchange, registered by the SEC, is a securities exchange for debt capital, foreign
exchange and derivatives. Its focus is on deepening the financial market and acting as a
self-regulatory organisation for over-the-counter markets.
The Central Bank of Nigeria has made moves to mitigate the effects of persistent foreign
exchange challenges. The most recent of these moves is the introduction of the investors’ and
exporters’ FX window in a bid to improve liquidity. Transactions under this window are to be
determined on a ‘willing buyer, willing seller’ basis. Experts believe this policy will encourage
foreign investment in the equity and bond markets and, on this basis, we anticipate new deals
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across several sectors. The reappointment of the Central Bank of Nigeria governor for another
five-year term suggests that investors can expect some consistency in the monetary policy and
foreign exchange regime in the years to come.
In July 2018, the President of Nigeria signed an executive order aimed at preventing
persons found guilty of corruption from continuing to control assets acquired from the
proceeds of corrupt activities. Additionally, the Presidential Enabling Business Environment
Council introduced several initiatives geared towards improving the business environment
in Nigeria. Such initiatives include the introduction of simplified registration procedures for
new businesses and the development of an online platform for payment of stamp duties. We
expect that, following the general elections, recent regulatory changes and the government’s
commitment to improving the business environment, investor confidence will improve, and
with that, M&A activities will continue to increase.
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Chapter 33
NORWAY
Ole K Aabø-Evensen1

After an all-time high for M&A in 2017 easily topping even the pre-financial crisis level,
the Norwegian M&A fell back throughout 2018, although deal volumes still reached the
second-highest level ever recorded, only surpassed by 2017. In terms of the number of
transactions, 2018 ended approximately 21 per cent down as compared with 2017.
There were 61 M&A transactions announced in Norway in Q1 2019, which is a 9.84
per cent increase in volume compared with Q1 2018. The strong Norwegian deal volume
comes despite a decline in global deal volumes observed in Q1 2019. The total reported deal
value for Q1 2019 ended at €2,982, which is also significant increase from the total reported
deal value for Q1 2018 of €1,050 million.
The deal pipeline continues to be fairly strong, with an increasing number of
respondents planning divesting parts of their business operations in the next couple of years.
We also continue to see strong deal drivers, such as technological innovations and digital
disruption both in Norway and the global markets in general. There were a few notable
transactions during Q1 2019, in particular Nasdaq’s €687 million voluntary offer to acquire
Oslo Børs VPS Holding ASA, a Norwegian group that offers marketplaces for listing and
trade in securities, registration of ownership and settlement of securities in Norway, market
data and online solutions.
Eight of the 10 largest disclosed Norwegian M&A deals in 2018 had industrial or
strategic investors on the buy side. The private equity (PE) transaction volume for 2018
declined (9.7 per cent compared with 2017’s figures) but we witnessed an increase in new
investments and add-ons compared with 2017, while the number of PE exits was down.
Transaction data from Mergermarket for the first four months of 2019 reveal that the
volume of Norwegian transactions continues to increase compared with the same period in
2018. As at the end of April 2019, 79 transactions with a total value of €6.65 billion had
been reported, whereas for the same period in 2018 there were 68 transactions with a total
reported value of €1.23 billion. During April 2018, the Norwegian market also witnessed a
few additional notable M&A deals, of which Hg Capital’s acquisition of an additional stake
in Visma AS, from Cinven and Canada Pension Plan Investment Board for €750 million is
among the most notable. Partners Group Holding AG’s acquisition of CapeOmega AS for
€1.2 billion is also worth mentioning.
During the past few years, a large part of Norwegian deal volume has come from
inbound cross-border deals, and during the first four months of 2019, inbound cross-border
1 Ole K Aabø-Evensen is a founding partner of Aabø-Evensen & Co Advokatfirma.
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deals comprised 49 per cent of the total number of transactions. This is a slight increase
in percentage compared with inbound cross-border transactions in the first four months
of 2018, which accounted for 47 per cent of the total deal volume. This shows that many
Norwegian businesses possess technology and knowledge that foreign investors continue to
consider attractive, in particular from a bolt-on acquisition perspective.
There has not been much change in the market for M&A deals. Nevertheless, large
auction processes continue to be slightly less common than they were 48 months ago. In
the past two to three years, we have observed an increase in the use of more tailored sales
processes, particularly within the oil and gas segment, involving one or a very limited number
of participants rather than full auction processes.

The Limited Liability Companies Act (1997), the Public Limited Liability Companies Act
(1997) and the Partnership Act provide the fundamental statutory framework and, with the
Contract Act (1918) (which applies to almost any kind of contract) and the Norwegian Sales
of Goods Act (1988), form the legal basis for the purchase and sale of corporate entities.
Public companies whose securities are listed on the Oslo Stock Exchange (OSE) or
another regulated market in Norway are additionally regulated under the Securities Trading
Act (2007) (STA) and the Securities Trading Regulation (STR). These rules regulate
prospectus and information requirements, establish a regime to prevent market abuse and
insider dealing, and set out more detailed regulations with respect to tender offers involving
listed shares under Norwegian law. These statutes are supplemented by, inter alia, guidelines
and recommendations issued by the OSE, and the rules and regulations of the OSE. Mergers
and takeovers of private companies and unlisted public companies have no equivalent
regulations. Anyone familiar with M&A transactions in most other parts of Europe will find
the Norwegian landscape relatively familiar, in particular with respect to public takeovers.
Norway is part of the European Economic Area (EEA) and has therefore implemented the
EU regulations of relevance to companies with publicly traded securities, including the
Prospectus Directive, the Takeover Directive, the Transparency Directive, the Market in
Financial Instruments Directive (MiFID) and the Market Abuse Directive.
The Competition Act (2004) gives the Norwegian Competition Authority (NCA) the
power to intervene against anticompetitive concentrations. Companies that are active in the
Norwegian market (generally in larger transactions) must also abide by the merger control
provisions set out in the EEA agreement; however, the one-stop shop principle prevents
duplication of the competence of the European Commission, the European Free Trade
Association (EFTA) Surveillance Authority and the NCA.
The remainder of this section describes the key rules applicable to public takeovers and
certain particular issues arising under Norwegian law.
i Stakebuilding in public traded companies: disclosure obligations

No limits exist regarding the speed at which a stake can be built. Norwegian law contains
a limited set of provisions governing stakebuilding, but insider dealing rules, disclosure
requirements and mandatory bid rules must also be observed.
Any persons owning shares in a company whose securities are listed on a Norwegian
regulated market (OSE or Oslo Axess) must immediately notify the company and the OSE
if their proportion of shares or rights to shares in the company reaches, exceeds or falls
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below any of the following thresholds: 5, 10, 15, 20 or 25 per cent, one-third, 50 per cent,
two-thirds or 90 per cent of the share capital, or a corresponding proportion of the votes, as a
result of acquisitions, disposal or other circumstances. Specific rules apply with regard to the
calculation of voting rights and share capital. Breaches of these disclosure rules will frequently
result in fines, which are increasing in severity.
Certain types of convertible securities, such as subscription rights and options, are
counted when calculating whether a threshold requiring disclosure has been reached;
however, see Section III.i with regard to certain proposed changes in this regard. It is possible,
and to some extent customary, to seek irrevocable undertakings or pre-acceptances from
major shareholders as well as from key or management shareholders during a stakebuilding
process, prior to announcing a mandatory or voluntary bid. Such irrevocable undertakings
are typically either drafted as soft irrevocables or hard irrevocables. The latter are irrevocable
undertakings to sell the shares regardless of whether a subsequent competing higher bid
is put forward. Soft irrevocables will normally be limited to a commitment to accept the
offer provided that no higher competing bids are made. There are no particular disclosure
requirements for such undertakings, other than the general disclosure obligations and the
disclosure obligations regarding options and similar instruments as part of stakebuilding,
which, however, may imply early disclosure of the undertakings owing to the low thresholds
set out by law. In Norwegian legal theory, it has so far been assumed that the disclosure
requirements will not be triggered by properly drafted soft irrevocable undertakings.
Notification must be given as soon as an agreement regarding acquisition or disposal
has been entered into. Crossing one of these statutory thresholds requires disclosure even if it
is passive (i.e., caused by changes in the share capital of the issuer where the person crossing
the relevant threshold does not acquire any shares or rights to shares or to dispose of any
shares). In such cases, notification must be given as soon as the shareholder becomes aware
of the circumstances causing the shareholder’s holdings in the company to reach, exceed or
fall below the relevant thresholds. Consolidation rules apply, and require the consolidation
of shares held by certain affiliates and closely related parties. Hence, the combined holdings
of the acquirer or the disposer, or of both, and of a party’s close associates, are relevant when
deciding whether any disclosure obligations have been triggered.
ii Mandatory offers
If a stake of one-third or more of the votes is acquired (directly or indirectly, or through
consolidation of ownership) in a Norwegian target company whose shares are listed on a
Norwegian regulated market, but also in, inter alia, foreign companies listed in Norway but
not in their home country, a mandatory offer to buy the remaining shares must be made.
Certain exceptions do apply, the most practical of which is when the shares are acquired
as consideration in mergers and demergers. In practice, a mandatory offer usually follows
a voluntary offer, triggered by the voluntary offer reaching the mandatory offer threshold.
The offeror is further obliged to make subsequent mandatory offers when, as a result of an
acquisition, the offeror passes a threshold of 40 or 50 per cent of the voting shares of the
company.
Regarding consolidation rules, note that certain derivative arrangements, such as total
return swaps, may be considered as controlling votes for the purpose of the mandatory offer
rules. A voluntary offer will also be subject to certain provisions of the mandatory offer
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requirements if the offer – if accepted – may take the offeror above the thresholds for a
mandatory offer. This means that a voluntary offer document for all the shares in a listed
company must, inter alia, be approved by the OSE before the offer is made public.
After entering into an acquisition agreement that will trigger a mandatory offer, the
acquirer shall immediately notify the target company and the OSE about whether it will
make an offer or sell the shares. It is possible to avoid the obligation to make an offer if
the acquirer sells the shares that exceed the relevant threshold within four weeks. After
announcing that an offer will be made, the announcement may not thereafter be changed to
an announcement of sale.
The offeror must then prepare an offer document to be approved by the OSE before
it is issued. In practice, the approval procedure takes one or two weeks, or longer if there
are difficult issues to deal with or if the OSE finds errors within the offer document. In a
mandatory offer document, the offeror must give a time limit of between four and six weeks
for acceptance by the shareholders.
The share price offered in a mandatory offer must be equal to the highest price paid by
the offeror (or agreed to be paid by the offeror) for shares (or, under the relevant circumstances,
rights to shares) in the target company during the previous six months. According to the
STA, the takeover authority may invoke that the offer must be based on market price if
it is clear that the market price at the time the offer obligation was triggered was higher
than the highest share price the bidder paid or agreed to pay. However, a 2010 EFTA court
ruling found that this rule did not comply with the EU takeover rules, as it does not provide
sufficient guidance on the method concerning how the market price is to be calculated. It
has been assumed that the Norwegian legislator is most likely to seek to revise the relevant
provision of the STA to meet the requirements of the EU takeover rules. However, this
provision has not yet been amended.
A mandatory offer must be unconditional and apply to all issued shares in the target
company, and the consideration needs to be in cash; however, it is possible to offer alternative
forms of consideration under a mandatory offer (e.g., shares in the offeror) provided that
an option to receive the total offer price in cash is also made, and this option is at least as
favourable as the alternative consideration. The consideration offered must be unconditionally
guaranteed by either a bank or an insurance undertaking authorised to conduct business in
Norway.
If the offeror acquires more than 90 per cent of the shares and the capital of the target
company, squeeze-out rights will be available.
iii Voluntary offers

In a voluntary tender offer (VTO) or exchange offer for a listed company, there is in general
no limitation under Norwegian law as to which conditions the offer may contain. A VTO
may be launched at the offeror’s discretion. The offeror may also choose to make the offer
to only some shareholders. Conditions such as a certain level of acceptance from existing
shareholders (90 per cent or two-thirds of the shares and votes), regulatory or competition
approvals, completion of satisfactory due diligence and a no material adverse change clause
are regularly included in Norwegian VTO documents. To complete the transaction quickly or
to avoid competing bids, in some cases the offeror may decide to include very few conditions.
In other cases, an offeror may decide to include more extensive conditions. In a VTO, the
offeror can offer consideration in shares or other non-cash forms, or a combination, also with
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cash as an element. In principle, it is also possible to make a voluntary offer conditional upon
financing, but the offer document must include information on how the acquisition is to be
financed.
There are no provisions regarding minimum consideration in a VTO under Norwegian
law, but in general a shareholder may expect to achieve a premium of 20 to 40 per cent
compared with the current share price. In recent years, there has been considerable variation
in the level of premiums offered in VTOs, with some examples of premiums of around 60
per cent compared with the average in the preceding 30 days.
If a VTO is accepted and brings the offeror control over voting rights so that it triggers
an obligation to issue a subsequent mandatory offer, several of the obligations relating to
mandatory offers will also apply, including an obligation of equal treatment of shareholders.
Under these circumstances, the VTO document must first be approved by the OSE, but
the offeror is still free to decide which conditions the voluntary offer may contain. The
mandatory offer requirements will not apply if the offeror has reserved the right to refuse or
reduce acceptance if the offer gives the offeror at least one-third of the voting rights, or if the
offer is addressed specifically to certain shareholders without it being made simultaneously or
in conjunction and with the same content.
The offer period for a VTO is between two and 10 weeks, and four weeks frequently
used as the initial offer period.
iv Standstill
The target company is allowed to take a more or less cooperative approach in a takeover
situation. However, there are restrictions on the board of the target company taking action
that might frustrate the willingness or otherwise of an offeror to make an offer or complete an
offer that has already been made. These restrictions apply after the target has been informed
that a mandatory or voluntary offer will be made. During this period, the target company may,
as a main rule, not issue new shares or other financial instruments, merge, or sell or purchase
material assets or shares in the company. These restrictions do not apply to disposals that are
part of the target’s normal business operations or when a shareholders’ meeting authorises
the board or the manager to take such action with takeover situations in mind. As a result of
this, a considerable number of Norwegian-listed companies have adopted defensive measures
aimed at preventing a successful hostile bid.
The Norwegian Competition Act provides that all transactions fulfilling certain
thresholds must be notified to the NCA, and that completion is suspended until clearance.
v Squeeze-out
It is rare that an offeror can expect to acquire 100 per cent of the shares and votes in the
target company through a voluntary or mandatory offer process; however, if the offeror is able
to acquire more than 90 per cent of the shares and voting rights, it has the right to acquire
(squeeze out) the remaining shares even if the minority shareholders refuse.
The Limited Liability Companies Act and the Public Limited Liability Companies
Act provide that if a parent company, either solely or jointly with a subsidiary, owns or
controls more than 90 per cent of another company’s shares and voting rights, the board
of directors of the parent company may, by resolution, decide to squeeze out the remaining
minority shareholders by a forced purchase at a redemption price. Minority shareholders
have a corresponding right to demand the acquisition of their shares by a shareholder with a
stake of more than 90 per cent of the company’s shares.
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The resolution shall be notified to the minority shareholders in writing and made
public through electronic notification from the Norwegian Register of Business Enterprises
(the Register). A deadline may be fixed, which must be at least two months after the date of
electronic notification from the Register, within which the individual minority shareholders
may make objections to or reject the offered price. The acquirer becomes the owner of (and
assumes legal title to) the remaining shares immediately, following a notice to the minority
shareholders of the squeeze-out and the price offered, and the depositing of the aggregate
consideration in a separate account with an appropriate financial institution.
If any minority shareholders do not accept the redemption price per share offered,
they are protected by appraisal rights that allow shareholders who do not consent to seek
judicially determined consideration for their shares at the company’s expense. The courts
decide the actual value of the shares. In determining the actual value, the starting point for
the court will be to establish the underlying value of the company divided equally between
all shares. However, if the squeeze-out takes place within three months of the expiry of the
public tender offer period for a listed company, then the price is fixed on the basis of the price
offered in the tender offer unless special grounds call for another price.
Provided that the conditions for a squeeze-out are met, it is a straightforward process to
have the target company delisted from the OSE or Oslo Axess. However, if these conditions
are not met, it could be substantially more challenging to delist the target company even
when the offeror has managed to acquire more than 80 per cent of the votes.
vi Statutory mergers
Subject to the approval of the majority of two-thirds of the votes and the share capital
represented at a general meeting of shareholders, Norwegian limited liability companies
(LLCs) may merge, creating a company (the surviving company) that takes over all assets,
rights and obligations of one or more assigning companies (the surrendering company or
companies). The articles of association of a company may provide for a higher majority
threshold, but may not set a lower one. Under a statutory merger, the shareholders of the
surrendering company have to be compensated by way of shares in the surviving company,
or by a combination of shares and cash, provided that the amount of cash does not exceed 20
per cent of the aggregate compensation. If the surviving company is part of a group, and if
one or more of the group companies hold more than 90 per cent of the shares and the votes of
the surviving company, compensation to the shareholders of the surrendering company may
consist of shares in the parent company or in another member of the surviving company’s
group. It is further possible to effect a merger by combining two or more companies into
a new company established for the purpose of the merger. After completion of a statutory
merger, any surrendering companies are dissolved.
Under Norwegian law, a statutory merger will be considered as a continuation of
the companies involved in the merger, implying that the transaction does not represent an
assignment of the original companies’ rights and obligations.
Certain formalities need to be observed to complete a merger under Norwegian law. A
joint merger plan describing the general terms of the merger has to be prepared and negotiated
between the surviving and surrendering companies. The joint merger plan must be signed by
the board of directors prior to the general meeting of shareholders resolving to approve the
merger plan. The board of directors, after signing the joint merger plan, have to issue a report
to the shareholders explaining the reasoning behind the merger, and how, inter alia, this may
affect the company’s employees. If a public LLC (ASA) is involved in a legal merger there are
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more detailed requirements for the content of the report. In addition, each of the participating
entities’ boards shall ensure that a written statement containing a detailed review of the
merger consideration payable to the shareholders of the participating companies is issued,
including an opinion of the fairness of the consideration. This statement is to be prepared
and issued by an independent expert (such as an auditor) when the participating entity is an
ASA. When the participating entity is a private limited company (AS), the statement may
be issued by the board and confirmed by the company’s auditor. The resolution to merge the
companies must be reported to the Register within certain time limits to avoid the resolutions
being deemed void. The shares used as consideration to the shareholders in the surrendering
company are issued according to the rules applicable to a capital increase.
Since Norway implemented Directive 2005/56/EC, it is further possible to conduct
a statutory merger of a Norwegian company cross-border within the European Union and
the EEA; however, public tender offers and other offer structures are often used instead of a
statutory merger, which cannot be used by foreign companies (outside the European Union
or the EEA), allows only 20 per cent of the consideration to be given in cash, requires more
formalities and documentation, and normally takes longer to complete than a public offer.
Still, a statutory merger may be suitable when an exchange offer mechanism would not
procure complete control under one corporate umbrella, and if there is not enough cash
available to effect a mandatory offer and squeeze out the minority shareholders.
Statutory mergers are generally not regulated by the STA’s public takeover rules;
however, transactions that are similar in form to mergers (share-for-share exchanges) but
whose structures do not meet the formal requirements for a merger under Norwegian
legislation, may be subject to the STA’s takeover rules if the target company’s shares are listed
on the OSE.
vii Employee board representation

In both ASAs and ASs, employees are entitled to be represented on the board of directors,
provided that the number of full-time employees in a company exceeds 30. Under these
circumstances, employees will be entitled to elect between one and up to one-third of
the members of the board from among the employees. The exact number of employee
representatives on a board varies according to the number of employees in the company.
Employee representatives will have the same voting rights as the other board members.
Employee board representation is not mandatory under Norwegian law, but cannot be
rejected if requested by employees when the conditions for representation are fulfilled.
A bidder should note that the employees of a Norwegian subsidiary may also demand
to be treated as employees at the Norwegian parent or sub-parent level, thus obtaining
representation on the board of directors of the Norwegian parent or sub parent.
viii Requirements of residency

The chief executive officer and at least 50 per cent of the members of the board of directors
must be residents of Norway, unless the Ministry of Trade, Industry and Fisheries grants an
exemption in an individual case. These residence requirements do not apply to citizens of an
EEA Member State, provided the board members are residents of an EEA Member State.
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ix Gender requirements
For public LLCs, Norwegian law imposes a requirement that both genders shall be represented
on a board of directors. As a main rule, each gender must be represented by at least 40
per cent on the boards of directors of public companies. Consequently, on a board of five
directors there cannot be fewer than two members of each gender. Exceptions apply to the
directors elected from among employees. The obligation to have both genders represented on
the board does not apply to Norwegian private LLCs.

IMPACT
i EU initiatives
Several new EU directives, regulations and clarification statements regarding the capital
markets are proposed or have been implemented in recent years. Norway will have to adopt
and implement some of these to comply with its obligations under the EEA agreement. These
EU initiatives are likely to have a direct or indirect impact on the regulatory framework for
public M&A transactions in Norway. As a result of these initiatives, several amendments to
the STA are expected to take place during the next 12 to 24 months.
The government appointed an expert committee to evaluate and propose relevant
amendments to existing Norwegian legislation resulting from amendments to the
Transparency Directive, MiFID I and the Market Abuse Directive. The committee was
mandated to prepare three separate reports to the government. All three reports have now been
delivered. The first report, inter alia, proposes implementing certain amendments to the STA
with regard to disclosure requirements for derivatives with shares as underlying instruments.
According to the proposal, the materiality thresholds and disclosure requirements that apply
for acquisition of shares in listed companies shall now also apply for derivatives with shares
as underlying instruments, irrespective of such equity derivatives being cash-settled or settled
by physical delivery of the underlying securities.
The committee further proposes that both borrowing and lending of shares shall
become subject to the same notification regime for both the lender and the borrower. Soft,
irrevocable undertakings will remain exempt from the disclosure obligations. The existing
disclosure obligations under the STA also include an obligation to disclose information
in relation to rights to shares, regardless of whether the shares already have been issued or
not. This is a stricter disclosure and filing obligation than what follows from the minimum
requirements set out in the Transparency Directive, and the committee has proposed that
the obligation be abolished. If adopted by Parliament, Norwegian law will no longer have
mandatory disclosure obligations for warrants and convertible bonds not linked to any issued
(existing) shares.
The second report, published in January 2017, proposed, inter alia, further amendments
to the STA to implement MiFID II and MiFIR into Norwegian law. In April 2018, the
Ministry of Finance issued a white paper to Parliament based on the committee’s second
report. In June 2018, Parliament resolved to implement these proposals into Norwegian law,
but the changes do not contain amendments that are directly relevant for the bidder or target
in an M&A process.
The third report deals with the implementation of the Market Abuse Regulation and
includes proposals under which the STA rules governing market abuse have been expanded.
These include, among others, a proposal for new rules concerning market sounding that
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occurs in preparations for a potential transaction. It is also proposed that primary insiders
will be personally obligated to publish information about their trading activities in listed
financial instruments.
The fourth report was published in January 2018 and concerns the implementation of
supplementary regulations regarding MiFID II and MiFIR.
Finally, a fifth report was published in June 2018 concerning the implementation of the
new Prospectus Regulation and rules regarding national prospectus requirements.
ii New takeover rules expected

In addition to the five reports referred to above, on 23 January 2019, the Committee has also
submitted a report concerning the Norwegian rules on voluntary and mandatory offers, with
a particular focus on the current limited regulation of the pre-offer phase. This Committee
report does not arise out of changes to EU rules, but rather the need to review and update the
Norwegian takeover rules on the basis of past experience and market developments.
In its report, the Committee proposes, inter alia, a new requirement that a bidder must
carry out certain preparations before it announces that it will launch an offer to acquire a
listed company. The Committee also proposes new content requirements for a notification
that a voluntary offer will be made, including information on matters of importance for the
market’s assessment of the offer and for the formation of the price. It is proposed that it be
clarified that the Norwegian Takeover Supervisory Authority (now the OSE) shall publish
such notification immediately. Furthermore, a new requirement is proposed that bidders
must present a voluntary offer no later than four weeks from the publication of the notice
announcing that an offer would be issued. At the same time, it is proposed that the Takeover
Supervisory Authority may grant an exemption from this deadline in special cases. The
Committee proposes that the minimum length of the offer period in voluntary offers be
extended from at least two to at least four weeks.
Is proposed that the existing main rule that the offer price under a mandatory offer
must correspond to the highest consideration paid or agreed by the bidder in the last six
months before the mandatory offer obligation being triggered be continued. However, the
Committee proposes a separate regulation setting out rules for calculating the offer price
in cases where there is a need for an exception from the above main rule or where it is not
possible or reasonable to use the main rule for calculating the offer price. In this regard, it is
also proposed that the offer price should be adjustable if the Takeover Supervisory Authority
considers that the stock prices during the period in question are being kept at an artificial
level, the stock purchase that is the basis for the offer price was not carried out on normal
commercial terms or the mandatory offer obligation is being triggered in connection with
a restructuring of a company in serious financial distress. In that case of adjustments of
the offer price where stock prices have been kept at an artificial level, or where the stock
purchase that is the basis of the offer price was not made on normal commercial terms,
the Committee proposes that the adjusted offer price shall be calculated on the basis of
three-month volume-weighted average stock prices.
Further, the Committee proposes introducing a general requirement that information
published on a planned or submitted takeover offer must be correct, clear and not misleading.
The scope of application is intended to be broad, and comprises the preparation phase, the
phase after a bid is launched and the bidding phase.
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The Committee also proposes a new right for the accepting stockholders to revoke their
acceptances for a period limited to three trading days after a competing offer is made and
disclosed, provided this occurs during the offer period for the original (first) offer.
Furthermore, the Committee proposes new rules on amending a tender offer, so that a
bidder prior to the expiry of the offer period may amend the terms of such an offer in favour
of the stockholders and also extending the offer period, provided the bidder has reserved such
rights in the offer document itself and that such amendments are approved by the Takeover
Supervisory Authority.
The Committee does not propose to implement rules regulating the type of transaction
agreements used in connection with takeovers of listed companies or similar commitments
between a bidder and a target company. Nevertheless, it proposes implementing a rule into
the new legislation that authorises the government to issue more detailed rules in a separate
regulation to govern the use of such agreements in connection with mandatory and voluntary
offers.
It is also proposed that the takeover rules are amended to clarify the scope and
applicability of such rules on companies domiciled in another country having issued stocks
traded on a Norwegian regulated market. Further, the introduction of an obligation for
companies domiciled outside the EEA is proposed to ensure that, if such non-EEA company’s
stocks are listed on a Norwegian regulated market, the company will have a special obligation
to provide information on its website about the rights of its minority stockholders.
According to the proposal, the Takeover Supervisory Authority will be authorised to
issue fines of up to 10 million kroner for natural persons and up to 20 million kroner for legal
entities for violation of a number of key rules, or up to 2 per cent of the total annual turnover
in the last annual accounts for the same. If approved by the Parliament in its proposed form,
this will, inter alia, apply to:
a the obligation to provide accurate, clear and non-misleading information in connection
with an offer;
b prerequisites for presenting an offer;
c the obligation to provide notification of a mandatory offer or voluntary offer;
d the obligation to make a mandatory or voluntary offer; and
e the requirement for a minimum offer price in mandatory offers.
It is currently unclear when the Parliament can be expected to adopt these amendments into
Norwegian legislation. However, we do not expect the proposed changes to be implemented
into Norwegian law until 1 January 2020 at the earliest.
iii Expected amendments to the prospectus regime

In June 2017, the EU adopted a new Prospectus Regulation2 to improve the existing
prospectus regime. The Regulation replaces the Prospectus Directive.3 Both the Prospectus
Directive and the existing Prospectus Regulation4 are implemented in Norwegian law, and
the rules are set out in the STA and the STR. The requirement of a prospectus or equivalent
2 Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017, repealing
Directive 2003/71/EC.
3 Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003, amending
4 Commission Regulation (EC) No. 809/2004 of 29 April 2004 implementing Directive 2003/71/EC.
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document will no longer apply to securities offered in connection with a takeover by means
of an exchange offer, merger or division, provided a document is made available that contains
information describing the transaction and its impact on the issuer. On 19 June 2018, a
government-appointed expert committee delivered a new report in which it proposed
amending the prospectus rules in the STA and STR by implementing the new Prospectus
Regulation into Norwegian law. From such time that the new rules are finally implemented
into Norwegian law, the requirement of a prospectus or equivalent document will no longer
apply to securities offered in connection with a takeover by means of an exchange offer, merger
or division, provided a document is made available that contains information describing the
transaction and its impact on the issuer. It is currently unclear when Norway will be able to
finally implement the new Prospectus Regulation into Norwegian law.
iv New National Security Act

In March 2018, the Parliament adopted a bill for a new National Security Act. This
new Act grants the government powers to intervene and stop acquisitions of shares in a
company holding investments in sectors considered vital from a Norwegian national security
perspective. The new Act entered into force with effect from 1 January 2019. This means that
Norway has now implemented a national security review of acquisitions that is fairly similar
to the type of review conducted by the US Committee of Foreign Investments.
v Proposed amendments to the Norwegian financial assistance prohibition

At the beginning of 2019, the Ministry of Trade, Industry and Fishery issued a consultation
paper revisiting a previous Ministry proposal of February 2016 for the certain further easing
of the Norwegian financial assistance prohibition rule (see below). The proposal was issued
together with some other proposals to amend the rules of the Norwegian Companies Acts in
order to implement EU Directive (EU) 2017/828 into Norwegian law. In the 2019 consultation
paper, the Ministry once again has slightly revised its proposal to abolish the requirement that a
buyer (borrower) must deposit adequate security towards a target company if the buyer receives
financial assistance from the target in the form of security for the buyer’s acquisition financing.
If adopted in its current proposed form, Norway will finally have a type of whitewash procedure
that could work also for leveraged buyout (LBO) transactions. In the past, it has been rather
impractical to obtain such assistance from a target company in typical LBO transactions (see
Section VI.ii). However, a proposal has not yet been put forward to Parliament, and it is too
early to say whether this proposal will be forwarded to Parliament in its current form.

Foreign nationals were relatively active in the Norwegian financial markets until a noticeable
retreat in 2015, largely as a result of a collapse in oil prices. However, from 2016 and
throughout 2018 foreign bidders returned and, so far in 2019, foreign appetite for Norwegian
assets continues to be relatively high.
In the first half of 2018, 141 Norwegian M&A transactions were announced with a
deal value of more than €5 million, of which 43.9 per cent involved foreign buyers.5 Overall,
5 Source: Mergermarket (based on announced deals above €5 million where the target is Norwegian.
Excludes lapsed or withdrawn bids).
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in 2017, the total number of M&A transactions with a deal value of more than €5 million
was at a record high of 283, of which 47 per cent involved foreign buyers.6 Seven of the 10
largest inbound M&A deals during 2018 involved foreign buyers, while eight of the 10 largest
inbound PE transactions involved foreign funds investing in a Norwegian target company.7
See Section V for examples of inbound cross-border M&A deals during 2018.
Foreign investors’ appetite for Norwegian assets in the first four months of 2019
increased compared with the same period in 2018, both in terms of the number of deals, and
the relative percentage of the total deal count for this period was also higher. Seven of the 10
largest M&A transactions involved a foreign buyer, one more than in the first four months of
2018, while for the same period in 2017, three of the 10 largest M&A transactions involved
foreign buyers. For the same period, 79 Norwegian M&A transactions were announced with
a deal value of more than €5 million, of which 49.3 per cent involved foreign buyers.8 This
is an increase in terms of the percentage of the total deal volume compared with 2018, in
which 47 per cent involved foreign buyers.9 In terms of the number of deals, there was an
increase of 16.2 per cent in volume compared with 2018. Examples of inbound cross-border
transactions so far in 2019 include Partners Group Holding AG’s €1.2 billion acquisition
of a stake in CapeOmega AS, Hg Capital’s €750 million acquisition of a stake in Visma
AS and Nasdag Inc’s €687 million bid on Oslo Bors VPS Holding ASA, the Norway-based
group that offers marketplaces for listing and trade in securities, registration of ownership
and settlement of securities in Norway, market data and online solutions.
The foreign ownership rate of shares listed on the OSE at the end of 2018, calculated
by market value, was 38.5 per cent, an increase compared with 38.36 per cent in 2017, but
still below the record of 40.8 per cent from 2007.

i Technology, media and telecommunications
In 2018, the technology, media and telecommunications (TMT) sector was largest in terms of
acquisitions in Norway, accounting for 19.8 per cent of the total deal count for the year. This
represented a 2.9 per cent increase in deal volume compared with 2017. However, the rise in
percentage within this sector was due to a decreasing deal volume in other sectors for 2018,
and the actual number of deals within the TMT sector in terms of volume actually remained
flat, with a zero per cent increase compared with 2017. The strength of M&A activity during
2018 within this sector continued to be driven by global trends such as digitalisation, AI, the
IoT, data analytics, infrastructure light business models and augmented reality. The increase
in average deal value within the TMT sector also continued to increase in 2018. The most
notable transaction in 2018 was Telia Company AB’s acquisition of GET AS, an Oslo-based
provider of subscription programming services, from TDC A/S for €2.2 billion in cash. The
transaction was to include TDC Norway. Other significant deals were EQT’s €440 million
sale of Tampnet AS, a Norway-based provider of satellite telecommunications services, to
an investor group composed of Arbejdsmarkedets Tillaegspension (50 per cent) and 3i
6 Source: Mergermarket.
7 Ibid.
8 See footnote 5.
9 Ibid.
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Infrastructure PLC (50 per cent), and Orange’s acquisition of BaseFarm AS, a Norway-based
hybrid cloud and big data technology solution provider from ABRY Partners, for around
€350 million.
As in previous years, the majority of deals in this sector were rather small, since several
target companies originate from venture capital (VC) investments reaching a stage in their
development where investors are seeking an exit. Since the post-crisis cooldown, there has
been relatively moderate interest in VC investments in the Norwegian market, which to a
great extent has resulted in the VC market lagging behind when compared to more mature
companies. However, the trend of more people being attracted to innovative tech investments
has continued.
The volume of deals within the TMT sector accounted for 22.8 per cent of the total
deal volume during the first four months of 2019. However, with the exception of Hg Capital
and Canada Pension Plan Investment Board’s €750 million acquisition of Cinven’s stake in
Visma AS, the transactions have been relatively small.
Based on current market sentiment, there are likely to be relatively high numbers of
TMT deals throughout the remainder of 2019, thanks largely to a domino effect whereby
corporates that were inactive in 2015, 2016, 2017 and 2018 will continue to replicate
peer deal success and related advantages. However, there are some concerns, including that
the pricing of companies within this sector has been on the rise for some time, and some
commentators feel that there could be a lack of robustness for development.
ii Industrials and manufacturing

The strong momentum within the industrial and manufacturing sector continued throughout
2018, accounting for 17.3 per cent of the total deal count for the year. This represented a
0.5 per cent decrease in the total deal volume compared with 2017. However, in terms of
the actual number of deals, this represented a 16.9 per cent decrease compared with 2017.
The strength of M&A activity during 2018 continued to be driven by this sector benefiting
from a weakening Norwegian krone. However, most of the transactions were small. One
exception was Qumei Investment AS’s €594 million acquisition of Ekornes, announced
in May 2018. This was the seventh-largest M&A transaction concluded last year. Another
notable transaction was FSN Capital Partners’ acquisition of SafeRoad AS for €244 million,
also announced in May 2018.
The momentum within the industrial and manufacturing sector has continued entering
2019, with 17 deals announced in the first four months, representing 21.5 per cent of the
total deal count for the period. The most notable of these deals were Tubacex SA’s acquisition
of Nobu Group for €51 million in deal value and AVK International A/S’ acquisition of
Furnes Jernstøperi AS, a Norway-based company engaged in the manufacturing of industrial
equipment and machinery.
iii Services
This was another busy sector in 2018, accounting for approximately 13.8 per cent of the total
deal count. This is an increase from the 11.1 per cent of the total deal count for 2017, and the
services sector was one of the most active sectors in 2018 with a total of 39 transactions, two
more than in 2017. Many corporates in the business services sector continue to experience
margin pressure. Technology-led disruptive innovations have the potential to transform the
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way business service providers operate, with the potential for becoming more global. With
opportunities for global growth, M&A delivery scale, improved geographical footprint and
capability, these are considered an attractive way for creating revenue and cost synergies.
The most notable transaction within the services sector in 2018 was announced in July
2018, when ABRY Partners, a US-based PE firm, announced its $411 million bid for Link
Mobility Group.
During the first four months of 2019, nine deals were related to the services sector. The
most notable was the acquisition by Sumitomo Corporation, the listed Japan-based company
engaged in, inter alia, imports and exports, of Q-Part Operations BV from KKR for €398
million. The deal included the target’s parking operations in Sweden, Norway and Finland.
iv Consumer
The consumer and retail sector accounted for 10.2 per cent of the total transaction volume
in 2018, a slight decrease compared with 2017 (11.7 per cent). In terms of number of
transactions, the sector showed a 25.6 per cent decrease compared with 2017. In May 2018,
Canadian Tire Corporation, Limited announced that it had acquired Helly Hansen AS,
a Norway-based designer and marketer of high-performance outdoor clothing for a total
consideration of €642 million.
Other notable deals were OpenGate Capital LLC’s acquisition of Jøtul AS and Icon
Capital AS’s acquisition of minority stake in MaloramaAS, Norway’s largest wholesaler and
distributor of paint and coating products.
In Q1 2019, 11 out of a total number of 61 deals were related to the consumer and retail
sector, five more than in Q1 2018.
v Energy (including oil and gas)

Throughout most of 2018, oil and gas prices continued to improve. However, at the end of
the year prices started to slide back. Despite this, investments within the oil and gas sector
continued to slowly improve throughout 2018. Overall, 11.7 per cent of all deals in 2018
were related to energy and oil services and the offshore sector, of which the oil and gas
segment accounted for 7.1 per cent. The oil and gas industry continued to reconfigure its
business model to sustain and grow in a lower oil price environment. Reduced oil prices until
mid-2016 led to many sponsors taking an interest in exploration and production (E&P)
assets at favourable prices, which continued into 2017 and 2018, resulting in increased
interest in such assets in general. The most noteworthy transaction was announced in August
2018: the €805 million acquisition of Mime Petroleum, a Norwegian oil and gas exploration
and production company, by Blackstone Group LP and Blue Water Energy LLP.
Notable transactions within the E&P segment included Neptune Oil and Gas Limited’s
€304million acquisition of VNG Norge AS, a Norwegian oil and gas exploration and
production company, Aker PB’s acquisition of a 77.8 per cent stake in King Lear Discovery
for €216 million, and Polskie Gornictwo Naftowe i Gazownictwo SA’s acquisition of a
42.38 per cent stake in the Tommeliten Alpha gas and condensate field for €192 million.
Within the electric power supply market, it was announced in June 2018 that
Keskusosuuskunta Oulun Seudun Sahko, Vantaan Energia Oy and Oy Turku Energia-Abo
Energi AB had acquired a 10 per cent stake in Hafslund Produksjon AS from Fortum Oyj
AB, a listed Finland-based energy group engaged in producing power from nuclear and wind
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sources, for €160 million. In September 2017, it was announced that TronderEnergi Nett
AS, a Norway-based company engaged in the distribution of electricity, had agreed to acquire
Gauldal Nett AS from Fredrikstad EnergiNett AS for an undisclosed consideration.
In Q1 2018, two transactions were related to the oil and gas sector, which is three less
than in Q1 2018. Both of these deals were in the E&P segment. However, within the oil
services and equipment market segment, potential sellers continue to be reluctant to initiate
sales processes, preferring to use bilateral sales processes rather than auctions. We expect that
this segment will continue to improve in 2019, depending on changes in oil prices.
vi Private equity
The number of transactions involving PE sponsors either on the buy side or sell side took
a dive of 9.7 per cent in 2018. Regarding buyout investments by volume, Sweden saw the
highest volume with 39.5 per cent, followed by Denmark with 24.5 per cent, Norway with
18.5 per cent and Finland with 17.5 per cent.
Norway’s PE industry is largely driven by new investments and add-ons, but in 2018
there was a significant decrease in the number of exits and a slight increase in the number
of new investments. Of all the transactions during 2018, half were new investments and
add-ons, 9 per cent were secondary and 21 per cent were exits. However, of the deals involving
PE sponsors, the average reported deal size took a significant dive from €567 million in 2017
to €249 million in 2018. Of the 10 largest disclosed transactions in 2018, all 10 had a deal
value exceeding €100 million (there were nine in 2017), and two of the 10 largest announced
and completed transactions involved PE.
Among the most notable PE deals in 2018 were Blackstone Group LP and Blue Water
Energy LLP acquiring Mime Petroleum AS for €805 million, the sale of Helly Hansen to
Canadian Tire Corporation by Teachers’ Private Capital, Limited for €698 million and
T EQT Partners AB’s €440 million sale of Tampnet AS to ATP Group. In July 2018, it was
also announced that Victory Partners VIII Norway, a company controlled by ABRY Partners,
launched a voluntary bid to acquire Link Mobility Group ASA for €411 million. This was
among the largest PE deals in the Norwegian market in 2018.
The PE market experienced a dive at the beginning of 2019, with a 26 per cent decrease
in announced deals compared with Q1 2018, and also a significant decrease in average deal
size. Still, PE funds continue to look actively for opportunities in the Norwegian market.
In April 2019 it was announced that HitecVision had agreed to sell CapeOmega AS
to Partners Group Holding AG for €1.2 billion. Hg Capital and the Canada Pension Plan
Investment Board acquired Cinven’s stake in Visma AS for €750 million, also announced in
April 2019.
For the moment, it may be that PE professionals are prepared for a more challenging
investment climate in 2019. Some delays and failures in deal execution as a result of market
uncertainty have also started to be seen, but the pressure on PE funds to continue to put
their capital to work means that deals will continue to happen. Consequently, we believe any
slowdown in deal activity by PE funds is likely to be short-lived. Under all circumstances,
we expect a continuing high number of PE and VC-related exits, add-ons and secondary
transactions, in particular within the healthcare, industrial, TMT and consumer sectors in
the next 12 to 24 months, but possibly with a drift towards more non-secular industries such
as healthcare and consumer staples. The number and size of deals involving PE sponsors will
depend on market developments and volatility. Some large distressed assets within the oil and
gas segment may also tempt some funds into opportunistic investments.
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The high-yield bond market has recovered from a period in the doldrums and is now quite
buoyant. Higher and more stable oil and gas prices, particularly during the second half of
2016 and throughout 2017 and for parts of 2018, combined with capital continuing to be
inexpensive and plentiful, has contributed to a significant strengthening of the credit markets.
Bidders are again considering high-yield bonds as a means of financing new acquisitions.
While some Norwegian banks continue to be selective even at the beginning of 2019, in
particular for projects exposed to the oil and gas industry, the presence of alternative lenders
and institutional investors in the form of collateralised loan obligations funds (CLOs) flooding
the international financing markets with an ever-more borrower-friendly documentation,
combined with an improved bond market, have created a very borrower-friendly environment.
The trend of unitranche or term loan B-style (TLB) loans spreading globally continues and
funds offering these types of loan products are marketing their products particularly towards
PE sponsors.
i M&A financing
Traditionally, third-party financing of acquisitions is provided by way of bank loans. In large
transactions, the senior loan will be governed either by Norwegian or English law, with one
bank acting as agent for the syndicate of lenders. In syndicated transactions, the senior loan
agreements used will normally be influenced by the forms used internationally, in particular
the standard forms developed by the Loan Market Association. Acquisition financing (in
particular for PE transactions) tends to be provided by way of two or sometimes three layers of
debt, with subsequent seniority. In recent years, generally we have witnessed a greater variety
of combinations of debt layers and lenders involved, especially in larger LBO transactions.
Increasing competition from the high-yield bond market, unitranche funds (see below)
and mezzanine providers, which ask for high interest rates, has made mezzanine financing
less competitive than other options. It is rarely seen for new deals, although some traditional
mezzanine funds are starting to adapt to the new market situation by offering products similar
to unitranche loans. There is an increasing use of second lien facilities instead.
Using debt securities such as high-yield (junk) bonds for acquisitions has not been
common in Norway, mainly because, compared with financing an acquisition with a
credit facility, financing through a high-yield bond debt involves coordinating the closing
of a transaction with what is, in fact, public financing. In most cases, the acquisition will
be subject to various conditions, typically including various forms of regulatory approval.
Funding an acquisition through a traditional credit facility is generally more feasible than a
high-yield bond. Historically, larger listed corporations have dominated acquisition financing
obtained through the Norwegian bond market. Such corporations have frequently been
willing to take a practical approach by issuing bonds and uploading debts on their balance
sheet to have dry powder easily available for future acquisitions without necessarily having to
take into consideration how to coordinate a drawdown with the conditions precedent under
a pending sale and purchase agreement. Such instruments would generally be documented
under New York or English law, or Norwegian law for issue in the local market. However,
from 2012 to September 2014, acquisition financing raised in the Norwegian debt capital
market was increasingly popular. During this period, it also became fairly common among
sponsors to attempt to refinance acquisition debt post-completion by using the Norwegian
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bond market. Bonds governed by Norwegian law are usually issued pursuant to the standard
terms of Nordic Trustee ASA, which acts as the trustee for the majority of bonds issued by
Norwegian companies.
Between May 2016 and the first half of 2019, the bond market has been improving
significantly. Bidders are again raising financing in the high-yield bond market in connection
with Norwegian leveraged acquisitions. We have also observed an increasing number of
sponsors refinancing acquisition debt post-completion at favourable coupon rates by using the
bond market. We expect that the high-yield bond market’s popularity for raising acquisition
financing will continue (depending on how the debt capital markets develop).
In the past year, there has been increased activity from non-bank (alternative) lenders
and funds that are offering to replace or supplement traditional senior secured bank loans
to finance M&A transactions. The products these lenders are offering typically include TLB
facilities and unitranche loans.
Vendors may occasionally also be willing to bridge the valuation gap by offering a
bidder to finance parts of the purchase price to achieve the price the vendors are asking. If
structured as vendor loan notes, these will sometimes (but not always) be subordinated to
the other elements of the acquisition financing. Vendor loan notes will then normally be on
similar terms (or senior) to the subordinated loan or preferred equity capital provided by
the PE sponsor, but are usually priced to give a lower rate of return. The split between debt
finance and true and quasi-equity will be determined on a transaction-by-transaction basis,
and particularly by reference to the underlying business and its funding requirements.
Other forms of debt financing that may be used in acquisitions, such as securitisations,
are relatively rare in Norwegian business combinations.
ii Financial assistance and debt pushdown

A buyer may also want to borrow funds from a target company (or its subsidiaries, following
completion of a transaction). While as a general rule there are no major obstacles in this
regard, in an asset deal where the business assets are bought by the entity financing the deal, a
debt pushdown is substantially more difficult in a share transaction. Public and private LLCs
have been prohibited from providing upstream financial assistance in connection with the
acquisition of shares in a target company (or its parent company).
Since 1 July 2013, the former prohibition on financial assistance has been eased by
the introduction of a type of whitewash procedure. Under this rule, both private (AS) and
public (ASA) limited liability target companies can, subject to certain conditions, provide
financial assistance to a potential buyer of shares in the target company itself. This must
be granted based on normal commercial terms and policies, and the buyer must deposit
adequate security for his or her obligation to repay any financial assistance received from a
target company.
Financial assistance must also be approved by the target’s general assembly by a special
resolution. This requires the same support from the target’s shareholders as would be needed
to amend the target’s articles of association (i.e., unless otherwise required by the articles
themselves, at least two-thirds of the votes cast and the share capital represented at the
general meeting). In addition, the target’s board has to prepare a special report that contains
information about:
a the proposal for financial assistance;
b whether financial assistance will be to the target’s corporate benefit;
c conditions that relate to the completion of the transaction;
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d an assessment of the effect of the assistance on the target’s liquidity and solvency; and
e the price payable by the buyer for any shares in the target company or any rights to any
such shares.
This report has to be attached to the notice of the general meeting sent to shareholders.
The target company’s board will also be under an obligation to obtain a credit rating
report on the party that is to receive such financial assistance.
The requirement to deposit adequate security for the borrower’s obligation to repay
any upstream financial assistance provided by a target will, however, mean that it becomes
impractical to obtain direct financial assistance from the target company in most LBO
transactions due to the senior financing banks’ collateral requirements in connection with
such deals. Banks normally request extensive collateral packages, so in practice there will be
no adequate security left, or available, from the buying company (or its parent company)
for securing any financial assistance from the target group, at least for the purchase of the
shares. The extent to which the offered security is adequate may mean that the target has
difficulty providing upstream assistance unless the new owners, or the vendors, are able to
come up with some additional collateral. Consequently, in practice, the new rules have so far
had little impact on how LBO financing is structured under Norwegian law, at least in PE
transactions. In most cases, the parties continue to pursue debt pushdowns by refinancing
the target company’s existing debt, as had previously been the case. It was proposed in 2016
that the requirement that a buyer (borrower) must deposit adequate security towards the
target company be abolished. This proposal was not put before the Parliament, and at the
beginning of 2019, a revised proposal was been published to abolish the adequate security
requirement under Norwegian law. However, it still unclear when and if this revised proposal
will be implemented. If it is adopted by Parliament, it will be possible in LBO transactions
for a buyer to receive financial assistance from the target company in the form of security for
the buyer’s acquisition financing. (See also Section III.v.)
iii Corporate benefit

The power of an entity to grant security or guarantees is limited by the doctrine of corporate
benefit in some situations. Under Norwegian law, a board of directors has a general duty to
act in the best interests of the company and all its shareholders. There is currently limited
case law to determine the boundaries of the corporate benefit requirements, but it has been
assumed that boards enjoy fairly wide discretion to consider the corporate benefit. If a board,
following due consideration, concludes that a transaction is in a company’s interests, it will
be difficult to challenge a well-documented resolution to this effect.
However, under Norwegian law it is uncertain to what extent a group benefit is sufficient
when there is no benefit to the individual group company, for example, in connection with
granting a guarantee or providing a security. In principle it is assumed that a Norwegian
company is able to provide upstream and cross-stream guarantees and security provided that:
a this will not jeopardise its continuing existence;
b its corporate objects are not transgressed by such transactions;
c it can be argued that cross guarantees benefiting the company exist or that the relevant
group company receives any type of guarantee fees; and
d guarantees and securities are not in breach of the financial assistance propitiation (see
Section VI.ii).
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The Public Limited Liability Companies Act and the Private Limited Liability Companies
Act now both contain a provision in Section 8-7(3) No. 3 stating that a loan or security to the
benefit of another legal entity within the group is not included in the prohibition on loans
or security to a company’s shareholders, provided that the loan or security will economically
benefit the group. This provision indicates that a group benefit may be sufficient when issuing
intragroup guarantees, even if there is no direct benefit to the individual group company that
is issuing the guarantees.
The validity of a legal act entered into by a legal entity can be set aside if, as a result,
its objects are transgressed and the counterparty was or ought to have been aware of the
transgression. Lenders will typically require the submission of corporate resolutions in which
the borrower’s board of directors confirms that the transactions contemplated by the finance
documents to be entered into by the Norwegian company are beneficial to the interests of the
company. On this basis, lenders can argue that they did not know or could not have known
that the corporate objects had been transgressed.
iv Need for shareholder approval

Both the Public Limited Liability Companies Act and the Private Limited Liability Companies
Act require that agreements between a company and a shareholder, the shareholder’s parent
company, a director or the general manager, a shareholder’s related party, or someone who
acts according to an agreement or understanding with any of the aforementioned parties,
must be approved by the company’s general meeting if the consideration to be paid by the
company has an actual value exceeding 10 per cent (AS) or 5 per cent (ASA) of the company’s
share capital at the time of the transaction. It has been assumed that the rules in principle also
apply to loans and guarantees, provided the interests and fees paid exceed these thresholds.
If the rules apply, the board of directors must issue a report to the shareholders, including
a statement that there is a reasonable correlation between the value of the consideration to
be paid by the company and the value of the consideration received by it. In addition, an
independent expert (ASA) or the company’s auditor (AS) must issue a statement confirming
that the board’s statement is correct.
Certain exemptions apply, such as agreements entered into following the rules
governing the incorporation or share capital increase against a contribution in kind, certain
management remuneration arrangements, transfers made according to publicly quoted
prices, and what are referred to as ‘agreements entered into as part of the company’s normal
business and that contain price and other terms that are customary for such agreements’. An
exemption rule now exists for intragroup agreements entered into between a parent company
and a subsidiary provided that the parent owns all shares in the relevant subsidiary and the
loan or security is to the benefit of the group, or the parties have adopted the new whitewash
procedures relating to financial assistance.
As long as a parent company controls all shares in the relevant subsidiary issuing the
intragroup loans and guarantees used, it can now be argued that there will no longer be a
need for banks to request that loans and guarantees have to be approved by the shareholders.
Approval may still be necessary in cases as referred to in Section VI.ii or where the parent
does not control all shares in the relevant group companies issuing the loans or securities.
Intragroup loans may trigger a need for shareholder approval from the receiving subsidiaries’
shareholders, unless they are entered into as part of the relevant subsidiaries’ ordinary business
activity and contain prices and other terms that are normal for such agreements. In legal theory,
it has been argued that intragroup loan agreements entered into in connection with M&A
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transactions very often must be considered as falling outside the normal business activity of
the respective company receiving the financing and, therefore, under all circumstances need
to be approved by the company’s shareholders.
Note that in early 2019 the Ministry proposed amended the above statute in both the
Public Limited Liability Companies Act and the Private Limited Liability Companies Act so
that these rules now shall only apply to agreements between a company and its related parties,
and only if the company’s consideration under such agreement has an actual value exceeding
2.5 per cent of the sum on the company’s balance sheet. It is further proposed that the board
shall deal with such agreements, and must, no later than two weeks prior to such agreement
entering into force, inform all shareholders about the agreement, and each shareholder shall
then be entitled to require that the agreement must be dealt with at a shareholders’ meeting.
v Pricing of credit
At the time of writing, the pricing of credit in the Norwegian leveraged finance market
seems to be relatively similar to the situation in 2018. To be competitive, Nordic banks
are now offering TLB for 375 to 400 basis points over the Norwegian interbank offered
rate (NIBOR). There has been a move away from the traditional senior A/B tranches (with
even amortisation on the A tranche and bullet repayment on the B tranche) to an all-TLB
structure with minimal front-end amortisation. Typically, the margin on the A tranche will
be 50 basis points lower than for the B tranche. On some smaller deals where the banks’
acquisition financing department has not been involved, margins have been more favourable.
A tranches throughout 2018 and into 2098 have been less frequent than in previous years.
When banks insist on an A/B tranche structure, they can seldom expect to achieve more than
a 20/80 split, compared to a 40/60 split, or sometimes 50/50 split, as was the norm in the
years immediately following the credit crunch.
Leverage multiples have continued to increase since 2015, all depending on each
individual investment case. During 2018, we observed everything from 2.5 to 6.7 times
EBITDA (all senior) and combinations of senior, 2nd Lien or high-yield bonds around 7.5
times EBITDA, even if most banks would hold back on accepting an increase in leverage
multiples above 6 times EBITDA. For some large Norwegian targets with attractive cash
flow, there were indications that some international banks were willing to support more
than 7 times leverage (potentially 7.5 times if cash flows or valuation were supportive), while
most Nordic banks would, subject to credit committee approval, be willing to accept a debt
structure of 7 times EBITDA with senior debt leverage between 5.5 to 6.5 times EBITDA.
Throughout 2016, 2017 and 2018 and the beginning of 2019, most Nordic banks
seem to be attempting to resist equity contributions below 35 per cent. There has been a
clear increase in acquisition multiples and banks prefer that a borrower finances parts of the
increase itself by contributing more equity to the structure. Sponsors may still attempt to
circulate draft term sheets to the banks with financing ideas with only a 20 to 30 per cent
equity contribution from the sponsor; there were deals of this kind in both 2016, 2017 and
2018.
In general, in our view the arrangement fee in bilateral transactions in May 2019 was
between 225 and 275 basis points. In syndicated deals, the arrangement fee now seems to be
standard at 250 basis points for medium-sized transactions. If a syndicate consisted of two or
three banks, of which one is a foreign bank, this very often increased the arrangement fee by
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50 to 75 basis points compared with a bilateral transaction. Agency fees have also increased.10
The banks blame this, inter alia, on more cumbersome obligations to comply with know your
customer guidelines.
For larger deals, unitranche structures combining senior and subordinated debt into one
debt instrument at a blended price seem to have replaced traditional mezzanine. Throughout
2018, we observed some international banks willing to propose term B, C, D, E and F-style
loan facilities for financing Norwegian assets at very favourable rates.
Up to May 2019, two PE sponsor-backed M&A deals were refinanced by issuing
high-yield bonds in the debt capital market, one less than during the same period in 2018.
These were achieved through interest rates from 365 to 700 basis points over NIBOR.
vi Financial covenants, mandatory prepayments and excess cash sweep

A full suite of financial covenants more or less used to be the norm in the leveraged debt
market, usually comprising leverage, interest cover, cash-flow cover and restrictions on capital
expenditure, and such covenants would be tested frequently. Borrowers would seek to amend
the interest cover covenants to provide additional headroom.
However, there has been an explosive development in financing provided by high-yield
bonds issued in the debt capital market. Bond financing may still retain incurrence-based
financial covenants (i.e., compliance with a fixed-charge covenant test or leverage test measured
at the time debt is incurred, investments are made or dividends are issued). Nowadays, most
Norwegian banks are willing to grant acquisition financing only based on leverage and cash
flow cover covenants.
Throughout 2018 and into 2019, in larger deals with an international banking
syndicate, it has become the norm to use cove lite-like terms for LBO transactions, but
banks will normally seek to resist such terms on small to medium-sized transactions. To meet
increased competition on smaller deals, banks continue to ease back on some of their terms
and there has been a move towards more relaxed terms (covenant-loose) for senior debt in
the leveraged market for mid-market deals. Typically, interest cover and capital expenditure
covenants are not seen very frequently in leveraged finance transactions.
Equity cure rights (the right to cure breaches of financial covenants by injecting
additional equity) are generally accepted among banks. However, permitted amounts, their
use in consecutive financial quarters and the application of equity cure proceeds to repay debt
are subject to negotiation. Banks will generally tend to restrict equity cures and will try to
ensure that as much as possible of the equity cure amount is being applied to prepayments.
By mid 2019, there seemed to be a general consensus among the larger banks that they
would be prepared to accept equity cure rights of up to five times the terms of the facilities,
even though it was known that, for occasional deals, banks had been willing to move to up
to six times. This is one more or less the same as for 2018. We have now also started to see
increased pressure on banks to accept EBITDA cures, and there have now been deals in
Norway conducted with this type of cure. On large transactions, up to a 5 times EBITDA
cure is fairly frequent, while for mid-sized deals, 2 times EBITDA cures should now be
possible to achieve.
The scope of agreed carve-outs and de minimis thresholds for mandatory prepayment
in cases of disposal proceeds, acquisition proceeds, insurance proceeds and excess cash flow
10 In a syndicated loan agreement, one bank will act as an agent on behalf of the other banks in the syndicate
according to a clause in the agreement. For this, the borrower will have to pay an annual agency fee.
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continue to be the subject of hard negotiations, and will vary according to the deal. However,
since 2013, the sweep percentage has steadily gone down, and the downwards ratchet leverage
levels at which a cash sweep ceases to apply have started to increase.
It now seems that banks’ terms and conditions in the leveraged finance sector have been
forced to return to those of the pre-crisis era. Obviously, banks will seek to hold back this
development as long as possible. How far sponsors are able to drive the banks further in this
respect remains to be seen.
VII EMPLOYMENT LAW

Under Norwegian law, employees are afforded protection through legislation, mainly the
Workers’ Protection Act (the Act), which implements the Acquired Rights Directive11 and
collective bargaining agreements. The Act further includes protection against, inter alia,
unlawful dismissals and mass layoffs.
Private acquisitions of or public offers for shares in a target company will not generally
affect the terms of an individual’s contract of employment with the target company. A
transaction will not itself trigger any duties towards the target company’s employees for the
new shareholder. However, the target company is duty-bound to inform the employees.
When a business (asset) is acquired, according to the Act, employees as a main rule have
the right to have their employment contracts transferred to the purchaser, and the purchaser
will therefore assume all rights and obligations of the transferor, provided that the unit being
transferred is an independent economic unit that keeps its identity subsequent to the transfer.
Certain exceptions apply to pension regimes. An employee may refuse the transfer of his or
her employment to the new employer. The former and the new employer shall, as early as
possible, provide information concerning the transfer, discuss it with the employees’ elected
representatives and then inform each employee. Similar provisions are often provided for in
collective bargaining agreements, and the provisions in these agreements may therefore also
apply to share transactions.
Employees are protected against termination based on a transfer of business, but
terminations resulting from rationalisation measures may take place. The rules for asset
transfers also apply in cases where the identity of the employer changes after a merger.
The Act sets out detailed rules that must be observed with respect to, inter alia,
workforce reductions, dismissals and redundancy notices, and transferring and relocating
employees, in particular in a business combination that takes place as an asset deal. These
rules are supplemented by notification and discussion obligations in connection with a
business combination set out in collective bargaining agreements (if applicable) with some
of the labour unions.
Furthermore, the Norwegian Reorganisation Act of 2008 must be observed prior to
plant closures and mass lay-offs. This Act sets out detailed rules and imposes an obligation
on the owner of a business if it is considering a workforce reduction that involves more than
90 per cent of the company’s workforce or if it is considering closing the business activity.
In March 2015, the Conservative government surprisingly reintroduced a Bill proposal
implying changes to the rules relating to restrictive covenants in employment relationships.
The Ministry of Labour under the previous government had introduced the basis for the
11 Council Directive 2001/23/EC.
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proposed amendments in 2010. The Bill proposal was never put forward. However, the
proposed changes have now been reintroduced and, in spite of objections from several
employer and business organisations, Parliament has resolved to adopt the proposal.
From 1 January 2016, non-recruitment clauses between an employer and other
businesses will be invalid except when such undertakings are agreed in connection with
takeover situations. Since 1 January 2016, however, in takeover situations, a non-recruitment
clause can only be agreed for a maximum of six months from the date on which the parties
resolved to terminate negotiations if negotiations fail. Non-recruitment clauses can further
be agreed for a maximum six-month period from the date of transfer of a business provided
the employer has informed all affected employees in writing.
It is not obvious if the letter of the new law also prohibits a seller and a buyer in a share
purchase transaction from agreeing non-recruitment clauses for longer periods, provided the
target company itself (as the employer of the relevant employees) is not a direct party to the
agreement. It can be argued that a non-recruitment clause in a share purchase agreement does
not violate the new legislation as long as the non-recruitment clause only refers to the target
company’s employees, and the target company itself is not a party to the agreement. There
is a risk that non-recruitment clauses agreed for longer periods in share sale and purchase
transactions may still be invalid. The basis for this is that even if the target company is not a
direct party to the sale and purchase agreement, the effects of the clauses in share purchase
agreements may still turn out to be the same as if a target company had become a party to
the agreement. Consequently, it can be argued that non-recruitment clauses agreed for longer
durations in share purchase agreements at least violate the spirit of the new legislation, and
thus must also be considered prohibited.
VIII TAX LAW

Norwegian shareholders, as LLCs and certain similar entities (corporate shareholders), are
generally exempt from tax on dividends received from, and capital gains upon the realisation
of, shares in domestic or foreign companies domiciled within EU and EEA Member
States. Losses related to such realisation are not tax-deductible. Consequently, corporate
shareholders may sell shares in such companies without being taxed on capital gains derived
from the sale. Costs incurred in connection with the sale of shares are not tax-deductible.
Certain restrictions exist regarding foreign companies not located in EU or EEA Member
States, or located in low-income tax states within EU and EEA Member States, that are not
conducting businesses out of such countries (controlled foreign companies (CFC) rules). On
1 January 2012, Norway abolished the former 3 per cent clawback rule on capital gains so that
capital gains earned by corporate shareholders has become subject to zero tax. This applies
regardless of whether the exempted capital gain is derived from a Norwegian or a qualifying
non-Norwegian company. Dividends received by a Norwegian company on business-related
shares in group subsidiaries within the EEA, held directly or indirectly with more than 90
per cent inside the EEA, are also exempt from Norwegian corporate tax in the hands of
the receiving corporate shareholders. The 3 per cent clawback rule will, however, apply to
dividends received by corporate shareholders owning less than 90 per cent of the shares,
and for foreign corporate shareholders with a permanent establishment in Norway that
receive dividends from Norwegian companies, subject to such foreign corporate shareholders
participating in or carrying out business in Norway to which such shareholdings are allocated.
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Under these circumstances, 3 per cent of dividends are subject to taxation as ordinary income
at a rate of 22 per cent (reduced from 23 per cent with effect from 1 January 2019) (giving
an effective tax rate of 0.66 per cent).
Dividends received or capital gains derived from realisations of shares by shareholders
who are Norwegian private individuals (personal shareholders) are taxable as ordinary
income. With effect from 1 January 2019, the government increased the tax rate on dividends
received from or capital gains derived from the realisation of shares held by Norwegian
private individuals. According to the new rules, the amount derived from, inter alia, such
distributions or capital gains must be multiplied by 1.44 (an increase from 1.33 in 2018), and
this grossed-up amount is thereafter to be taxed as ordinary income for private individuals at
a rate of 22 per cent. In effect, this increases the effective tax rate on distributions and gains
from the 30.59 per cent rate under the former tax regime to 31.68 per cent. Any losses are
tax-deductible against a personal shareholder’s ordinary income.
Capital gains from the realisation of shares in Norwegian LLCs by a foreign shareholder
are not subject to tax in Norway unless certain special conditions apply. The extent of the
tax liability of foreign shareholders in their country of residence will depend on the tax rules
applicable in that jurisdiction.
Normally, an acquisition of shares in a Norwegian target company will not affect the
target’s tax position, including losses carried forward, and such attributes normally remain
with the target unless the tax authorities can demonstrate that the transfer of shares is
primarily tax-motivated.
ii Acquisitions of assets
Capital gains derived from the disposal of business assets or a business as a whole are subject to
22 per cent tax and losses are deductible. A Norwegian seller can defer taxation by gradually
entering the gains as income according to a declining balance method. For most assets, the
yearly rate is a minimum of 20 per cent, including goodwill (however, see Section VIII.x).
The acquirer will have to allocate the purchase price among the assets acquired for the
purposes of future depreciation allowances. The acquirer will be allowed a stepped-up tax
basis of the target’s asset acquired. The part of the purchase price that exceeds the market
value of the purchased assets will be regarded as goodwill. However, the tax authorities may
dispute the allocation to goodwill instead of other intangible assets with a considerably longer
lifetime.
As gains from the disposal of shares in LLCs are generally exempt from tax for corporate
shareholders, this will, in many instances, make the sellers favour a share transaction over an
asset transaction. This will not, however, be the case in transactions involving a loss for the
seller, as a loss will still be admitted for the sale of assets.
iii Mergers
Under Norwegian law, an enterprise can be acquired through a tax-free statutory merger in
return for the shareholders in the transferor company receiving shares as consideration. Such
a transaction will be tax-exempt for both the shareholders and the merging companies. To
qualify as a tax-exempt merger, all companies involved need to be domiciled in Norway;
however, according to amendments made to the tax regulations in 2011, cross-border
mergers and demergers between Norwegian companies and a company domiciled within the
European Union or the EEA (subject to certain conditions being fulfilled) can also be carried
out as tax-free mergers or demergers under Norwegian law.
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To qualify as a tax-free merger, all tax positions will have to be carried over without any
changes, both at the company level and at the shareholder level.
A cash element may be applied as consideration in addition to shares in the transferee
company, but may not exceed 20 per cent of the total merger consideration. Cash payments
will be considered as dividends or as capital gains, both of which will be taxable if the receiver
is a personal shareholder. If cash compensation shall be considered as dividends, it must
be divided between the shareholders in accordance with their ownership in the transferor
company. Dividends or gain will be tax-exempt if the shareholder is a corporate shareholder,
except for the tax on 3 per cent of their dividend income derived from shares in the merging
companies, which is taxed at a tax rate of 22 per cent if the shareholder owns less than 90 per
cent of the shares in the merging companies.
iv Distribution of dividends and interests

No withholding tax is imposed on dividends or liquidation dividends paid by a Norwegian
LLC to an EEA-resident corporate shareholder provided that the shareholder is genuinely
established and conducts a real business activity in the relevant jurisdiction. Furthermore,
an EEA-resident corporate shareholder must be comparable to a Norwegian LLC. In this
context, an assessment would need to be performed to determine whether the company is
genuinely established pursuant to a business motive and that the establishment is not purely
tax-motivated. The assessment will differ according to the nature of the company in question,
and it must be assumed that assessments of a trading company and a holding company will
not be the same. If the required criteria are not met, the withholding tax rate in the applicable
double taxation treaty for the involved jurisdictions will apply. If a foreign holding company
is considered an agent or nominee for another real shareholder (not a legal and economic
owner of the dividends) or a pure conduit company without any autonomy to decide what
to do with its income, the tax authorities may apply the default 25 per cent withholding tax
rate (i.e., not accept treaty protection). Foreign buyers of Norwegian assets should thus be
cautious when setting up acquisition structures and include tax reviews of any prior holding
structures when conducting due diligence.
Interest payments are not subject to withholding tax, even if payments are made
outside the EEA; however, the government has proposed a new tax reform, which includes a
rule allowing the government to introduce withholding tax on interest and royalty payments
(see Section VIII.x). Regarding excessive interest and reclassified loans, see Section VIII.vi.
v Deducting losses on receivables between related companies

A company may finance its subsidiaries either by loans or by equity. If using a relatively high
amount of loan financing, the parent company could deduct the losses on receivables (bad
debt) in the case of an unsuccessful investment while realising a tax-exempt gain on shares
where an investment is successful. As of 6 October 2011, a parent company’s right to deduct
losses on receivables on related entities where the creditor has ownership of more than 90 per
cent has been restricted. However, the limitation will not apply to losses on customer debt,
losses on debts that represent previously taxed income by the creditor, or losses on receivables
arising from mergers and demergers.
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vi Thin capitalisation and transfer pricing

Under Norwegian law, significant restrictions on the deduction of interest paid to related
parties were implemented with effect from 1 January 2014. Additional restrictions were
implemented with effect both from 1 January 2016 and from 1 January 2019. The term
related parties covers both direct and indirect ownership or control, and the minimum
ownership or control requirement is 50 per cent. Where a related party to the borrowing
company has issued security for loans raised from an external lender (typically a bank), the
interest paid to the external lender shall be considered internal interest that will be subject
to limitations for deduction for tax purposes. Nevertheless, a loan from an unrelated party
secured by a guarantee from another group company shall not be considered an intragroup
loan provided that 50 per cent or more of shares in the group company issuing the security
are owned or controlled by the borrowing company. The limitation rule will also not apply to
third-party loans in situations where a related party provides a pledge over that party’s shares
in the borrowing company, or provides a pledge or charge over the related party’s outstanding
claims towards the borrowing company. Further, negative pledges provided by a related party
in favour of a third-party lender will not be deemed as security within the scope of the interest
limitation rule. Notwithstanding the above, the interest limitation rule will still apply if the
loan from an unrelated party can be considered as a de facto back-to-back loan from a related
party.
According to the interest limitation rules, interest expenses will, in general, still be fully
deductible against interest income. However, interest expense excluding interest income (net
interest expense) will only be fully deductible if the total amount of interest expenses does
not exceed 5 million kroner (a threshold value, not a basic tax-free allowance) during a fiscal
year or if the interest expense is paid to a non-related party. Outside these situations, from
1 January 2016 the rules hold that net interest expenses paid to a related party can only be
deducted to the extent that external and internal interest expenses combined do not exceed
25 per cent (previously 30 per cent) of the taxable profit after adding back net internal
and external interest expenses and tax depreciation. This is a type of taxable approach to a
company’s EBITDA. If a company has paid interest on intragroup loans exceeding 25 per
cent of the calculation basis, any excess amount shall be added back to its taxable income.
For the purpose of calculating the net interest paid, which may be subject to limitations,
the term interest includes any payment considered as interest for Norwegian tax purposes,
including certain premiums and discounts. The same applies to gains and losses on receivables
issued at a higher or lower price than the strike price. However, gains and losses are not
regarded as interest income or interest expenses for the person who has acquired the debt in
the secondary market. Currency gains or losses are not considered as interest; nor are gains or
losses on currency and interest derivatives.
Further, the limitation of interest deductions shall be calculated on a per-legal-entity
basis, and any related-party interest payments that are not deductible due to such limitation
may be carried forward for a maximum period of 10 years. Interest received shall be classified
as taxable income for the creditor company, even if the debtor company is denied deductions
due to the proposed limitation. Group contributions and losses carried forward may not be
used to reduce income resulting from interest limitation. Interest limitation will thus result
in payable tax.
At the end of the 2016, the EFTA Surveillance Authority (ESA) issued a reasoned
opinion stating that the Norwegian interest limitation rules of 2015 in their current form
violate the freedom of establishment, and thereby Article 31 in the EEA agreement. In a
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response dated 31 January 2017, the Ministry of Finance argued that the Norwegian interest
limitation rules are compatible with Norway’s EEA obligations; however, the Ministry also
described certain proposed changes to the rules that should be implemented. The next step
is for the ESA to decide whether it will take Norway to the EFTA Court for infringing its
EEA obligations.
With effect from 1 January 2019, the Norwegian interest limitation regime has been
amended: interest payable on bank facilities and other external debt within consolidated
group companies is now subject to the same interest deduction limitation regime as interest
paid to related parties’. The new amended rule only applies if the annual net interest expenses
exceed 25 million kroner in total for all companies domiciled in Norway within the same
group. Further, two revised escape rules’ aimed at ensuring that interest payments on loans
from third parties not forming part of any tax evasion scheme still should be tax deductible
has been implemented. The previous interest deduction limitation rules will continue to
co-exist with the new rules, but the scope of the old rules only applies to interest paid by
Norwegian enterprises to a related lender outside of a consolidated group (typically where the
related lender is an individual).
For enterprises within the petroleum sector, the Ministry has stated that it may consider
introducing separate interest deduction limitation rules.
vii Taxation of carried interests

Under current tax law, there is no explicit rule for taxation where managers of investment
funds receive profit interest or carried interest in exchange for their services and receive their
share of the income of a fund. The prevailing view until recently has been that, as long as
such managers invest capital into funds, the carried interest will be considered a capital gain
and taxed at capital gains rates, and if the managers are organised as LLCs, the corporate
stockholders’ income in the form of dividends and gains on stocks or ownership interest
in other companies would also be exempt from taxation in accordance with the exemption
method. However, the tax authorities have initiated several administrative actions challenging
the prevailing view by seeking to treat such capital gains as income, subject to ordinary
income taxation as salary at a higher tax rate.
In December 2013, Oslo District Court rejected the tax authorities’ primary claim in
a dispute between the tax authorities, on one side, and Herkules Capital (a Norwegian PE
fund’s advisory company) and, on the other, three key executives employed by the advisory
company who had an ownership interest in the advisory company. The Court concluded that
there was no basis for considering carried interest as income from labour to be taxed as wage
and salary income at a much higher maximum tax rate (now 46.7 per cent) in accordance with
the tax authorities’ primary position. The Court also rejected the tax authorities’ argument
that distributions from a PE fund to its partners should be subject to additional payroll tax
(14.1 per cent). However, the Court concurred with the tax authorities’ alternative claim
that such profit is subject to Norwegian taxation as ordinary income from businesses at the
then-prevailing tax rate of 28 per cent (now 23 per cent). The taxpayers, being the adviser
and the key executives, had not argued that carried interest should be taxed as a capital gain
allocated to the general partner, as the general partner (in this particular case) did not have
any ownership interest in the fund. The question of whether carried interest should be treated
as a capital gain was therefore not considered by the Court.
The tax authorities filed an appeal, and in January 2015, the Court of Appeal reversed
the District Court’s ruling and upheld the tax authorities’ original tax assessment (i.e., that
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the carried interest should be considered as salary income for the relevant key executives). The
Court of Appeal further concluded that the distribution to the key executives of such profits
in this particular dispute also was subject to payroll tax (at 14.1 per cent) under Norwegian
law, and ordered the key executives to pay a 30 per cent penalty tax on top.
The taxpayer appealed the ruling to the Norwegian Supreme Court, and in November
2015, the Supreme Court finally overturned the Court of Appeal and invalidated the tax
authorities’ tax assessment. The Supreme Court concluded that the carried interest should
be considered as ordinary income from business taxed at the then-prevailing tax rate of 28
per cent (now 22 per cent), but that such income could not be considered as salary income
for the relevant key executives. As such, there could be no question of payroll taxes on such
distributions.
viii Group contributions

Norwegian companies cannot file consolidated tax returns or form fiscal unities, but a transfer
of taxable income within an affiliated group of Norwegian entities is possible through group
contributions to offset taxable profits against tax losses in another Norwegian entity. It is
possible to grant more group contributions than taxable income, but the grantor company
will not be able to deduct the excess amount. This excess amount, which is not deductible
for the grantor, would equally not be taxable for the recipient. The distributable reserves
form the limit for total group contributions and dividend distributions. To enable group
contributions, the contributing and receiving entities must be corporate entities taxable in
Norway, an ultimate parent company must hold more than 90 per cent of the shares and
voting rights of the subsidiaries (either directly or indirectly) at the end of the parent’s and the
subsidiaries’ fiscal year, and the companies must make full disclosure of the contribution in
their tax returns for the same fiscal year. Furthermore, the Norwegian group contribution rules
are, under certain conditions, also applicable to Norwegian branches of foreign companies
that are resident within the EEA. As from 1 January 2018, Parliament has implemented a rule
allowing a grantor company to deduct group contributions to a recipient resident within the
EEA, provided the recipient has a tax loss carried forward from previous business activity in
Norway, subject to the recipient reducing the tax loss carried forward with an amount equal
to any group contributions received.
ix Stamp duty and capital duties

Norway does not levy capital duties. Stamp duty is triggered only if real property is acquired.
If the shares in a company owning real property are acquired, no stamp duty is levied.
x The 2016 Norwegian tax reform

During the past four years, the government has proposed and implemented several new rules
based on a previous proposal for a broader tax reform (proposed reform) issued in October
2015.
Under the proposed reform, the government originally stated that it intended to adopt
a rule allowing it to introduce withholding tax on interest and royalty payments. So far, such
rules have not been adopted. However, the government has now stated that it aims to propose
a new bill to be adopted by the Parliament in this regard during the course of 2019.In the fiscal
budget for 2019, the Ministry of Finance has proposed a new rule, elaborating on a previous
proposed reform to reduce the possibility for treaty shopping by implementing a rule stating
that all entities established and registered in Norway will have Norwegian tax domicile, unless
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a treaty with other states leads to a different result. Consequently, companies registered in
Norway shall in the future never be considered stateless. This rule will also apply to companies
previously established and registered in Norway but having later moved their tax domicile
out of Norway. Even companies established and registered abroad shall be considered to have
Norwegian tax domicile, provided the management of such companies (in reality) is carried
out from Norway. These new rules have been implemented with effect from 1 January 2019,
or from the first fiscal year starting after 1 January 2019, but no later than 1 January 2020.
In the 2017 fiscal budget, the government also states that it intended to submit a
consultation paper for amending the Norwegian CFC rules. The consultation paper was
originally expected to be issued during the course of 2017, but it has not yet been issued.
See Section VIII.vi regarding further restrictions on the interest deduction limitation
regime.
IX COMPETITION LAW
Under Norwegian law, an acquisition, merger or other concentration involving businesses
must be notified to the NCA if the following conditions are met: the undertakings concerned
on the target side have a group turnover in Norway exceeding 100 million kroner; the
acquirer has a group turnover in Norway exceeding 100 million kroner; and the combined
group turnover of the acquirer and the target in Norway is 1 billion kroner or more. The
NCA is empowered to issue decrees ordering that business combinations that fall below
these thresholds still have to be notified, provided that it has reasonable cause to believe that
competition is affected, or if other special reasons call for such investigation. Such a decree
has to be issued no later than three months after the date of a transaction agreement or the
date when the control was acquired, whichever comes first.
On 1 January 2014, Norway implemented a more comprehensive form of notification
(more similar to a Form CO), though more limited in substance than the former complete
filing form. However, the Ministry of Trade, Industry and Fisheries has also adopted a
simplified procedure for handling certain transactions that do not involve significant
competition concerns within the Norwegian market – a short-form notification that is
similar to the EU system. In March 2016, Parliament adopted amendments to the simplified
merger control procedure, which now covers:
a joint ventures with no or de minimis actual or foreseen business activities within
Norway. A turnover and asset transfer test of less than 100 million kroner is used to
determine this;
b the acquisition of sole control over an undertaking by a party that already has joint
control over the same undertaking; and
c concentrations under which one or more undertakings merge, or one or more
undertakings or parties acquire sole or joint control over another undertaking, provided
that:
• none of the parties to the concentration is engaged in business activities in the
same product and geographic market (no horizontal overlap), or in a product
market that is upstream or downstream from a product market in which any
other party to the concentration is engaged (no vertical overlap);
• two or more of the parties are active on the same product or geographical market
(horizontal overlap) but have a combined market share not exceeding 20 per cent
(previously 15 per cent) (horizontal relationships); or
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• one or more of the parties operates on the same product market that is upstream
or downstream of a market in which the other party is active (vertical overlap), but
none of the parties individually or in combination has a market share exceeding
30 per cent (previously 25 per cent).
After receipt of a filing under the new rules, the NCA now has up to 25 working days to
make its initial assessment of the proposed transaction, allowing, however, for pre-deadline
clearance, so that at any time during the procedure, the NCA can state that it will not
pursue a case further. The NCA must, prior to expiry of this deadline, notify the parties
involved that a decision to intervene may be applicable. If it issues such a notice, it has
70 working days from the date the notice was received to complete its investigation and
reach a conclusion. This basic period can be extended under certain circumstances. Since
an amendment in 1 July 2016, the statutory timetable for clearance under the Norwegian
merger control regime allows 145 working days total case handling time.
There is no deadline for filing a notification, but a standstill obligation will apply until
the NCA has cleared a concentration. As under EU merger rules, a public bid or a series of
transactions in securities admitted to trading on a regulated market such as the OSE can be
partly implemented, notwithstanding the general standstill obligation. For such exemption
to be effective, the NCA must be notified about the acquisition immediately (normally the
day on which control is acquired).
A simplified notification may, under the new regime, be submitted in Danish, English,
Norwegian or Swedish, whereas a standardised notification has to be submitted in Norwegian.
Since 1 July 2016, the substantive test (which was previously based on a substantial lessening
of a competition test) has now been aligned with the same substantial impediment to efficient
competition test as applicable under the EU rules, meaning that Norway must now apply
the same consumer welfare standard as the Commission instead of the previous total welfare
standard.
From 1 April 2017, the power previously held by the King Council to intervene in
merger control cases has been abolished. These powers have been transferred to an independent
appeal board, which now handles appeals in merger control cases.
Failure to comply with the notification duty leads to administrative fines. The NCA
may issue fines of up to 10 per cent of the undertaking’s worldwide turnover. The highest fine
so far amounted to 25 million kroner and was issued to Norgesgruppen in 2014. In principle,
breaches can also be subject to criminal sanctions, but this has not yet occurred.
X OUTLOOK
Even though there was a dip in Norwegian M&A activity in 2018 compared to the record
year seen in 2017, 2018 was still a very strong year for M&A from a historical perspective.
Despite a decline in global M&A during Q1 2019, the first four months of 2019 began with
increased M&A activity in Norway compared to last year. The Norwegian oil and gas sector
has now adapted to lower oil prices and as a result has regained profitability, which again
has resulted in the Norwegian economy recovering from the setback experienced following
the drop in oil prices in 2014. Experts expect petroleum investments to rise by 10 per cent
to 14 per cent in 2019, which again is expected to help boost Norway’s mainland activity
further. A continuingly weak kroner is also expected to continue increasing investments
within the Norwegian manufacturing sector in 2019. Currently, the Norwegian economy
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seems to be reasonably balanced, with a trend of policy rates being on the rise. The general
impression is that there is quite a lot of optimism regarding the Norwegian M&A market,
even if recently indications of economic worries and geopolitical uncertainties combining to
depress the global M&A figures have been seen.
Still, Norwegian companies continue to be exposed to the same pressures that are
currently driving deal activity globally, including lack of opportunities for organic growth
in a generally low-growth environment, transformational developments in technology and
the need to acquire new technology to stay ahead of competition. Acquiring or collaborating
with technology providers to drive innovation in their processes, rather than as an asset in
its own right, seems to be a key consideration across all sectors. This applies, for example, in
energy, life sciences, telecommunications, transport and financial institutions. This trend also
looks set to continue globally in 2019, and corporates seeming to view M&A deals as crucial
for strategic growth. The relatively strong economic outlook, presence of continuing strong
public markets, large cap deals, CEO confidence and transaction pipeline all seem to indicate
that the Norwegian M&A market most likely will be strong in 2019 and 2020 as well.
Nevertheless, there are some uncertainties, such as the possible effects of high housing
prices, which could turn out to be unfavourable even if the market for now looks to be
stabilising. However, rising interest rates, a high number of unsold houses and a high level
of housing starts to population growth may curb the growth in house prices. It is expected
that the Norwegian Central Bank may continue to raise interest rates during the next 12 to
24 months. In combination with stricter leveraging regulations, this could trigger a housing
market correction. If so, the critical issue is to what extent the market is heading for a soft or
hard landing. A recent International Monetary Fund house-price regression exercise suggests
that Norway’s house prices were overvalued by 15 per cent at the end of 2016, which makes
a soft landing possible. A housing market correction could indirectly contribute to less deal
activity in the market, since it is expected to reduce spending by Norwegian households.
Globally, there are also looming uncertainties to consider, including the fact that
Chinese corporate debt continues to be at a record high. If this reaches some sort of breaking
point it could trigger a new financial crisis and recession, resulting in a weaker global economy.
Trade wars, protectionism and escalating geopolitical turmoil may also have a negative effect
on global M&A activity, indirectly affecting Norwegian deal volume. In this regard, bidders
from Asia-Pacific were more or less non-existent during Q1 2019 in the Norwegian &A
market. According to Mergermarket, the number of outbound M&A deals from China are
currently at their lowest level since Q4 2013, indicating that the US–China trade war has
started to impact cross-border deal flows.
At the same time, a survey among global companies indicates that a majority of the
companies that participated in the survey plan to divest within the next two years, which is
expected to have a continued positive effect on M&A deal activity in Norway. Companies
are now very often looking to streamline their operating models, which quite often will have
an impact on their divestment plans for the next 12 to 24 months. We also believe that many
investors continue to view Norway as a good place to invest owing to its highly educated
workforce, technology, natural resources and well-established legal framework for M&A
transactions. Consequently, the total M&A deal volume in the Norwegian market should
remain relatively strong in 2019, with certain sectors showing a clear amount of increased
activity.
One sector in which we believe there will be more activity in 2019 than last year
is the energy sector, and in particular within the oil and gas segment. Still, things often
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shift rapidly in today’s market environment: a slight short-term improvement in oil prices
combined with executives’ fears of losing opportunities to competitors may have a substantial
effect on the level of optimism in the market and potential investors’ willingness to carry out
deals. Many businesses are currently driven by rapid technology changes and the battle for
customers. Consequently, businesses are fighting to stand out from their competitors, and
cross-sector convergence (i.e., expanding beyond traditional core activities to acquire new
capabilities) is one way to be differentiated, typically by adding new technology through
acquisitions. This is an important factor currently spurring M&A activity around the world,
which is also influencing the Norwegian M&A market. Many Norwegian businesses possess
important technology and intellectual property rights that may be useful in sectors and
businesses other than those for which they were originally developed. An increase in interest
from foreign investors wanting to acquire Norwegian technology through M&A has recently
been observed, and we believe that this is likely to continue irrespective of how oil and gas
prices develop.
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Chapter 34
PANAMA
Andrés N Rubinoff 1

Panama’s economy continues to lead in Latin America, with a growth in gross domestic
product (GDP) of 3.7 per cent in 2018. The economy has been supported by the expanded
Panama Canal and the appreciating US dollar, with a forecast a real GDP growth above
5.8 per cent for 2019. To that end, Standard & Poor’s recently upgraded Panama’s sovereign
credit rating to BBB+, announcing the improved rating together with a stable outlook at least
a month before the outcome of presidential elections on 5 May 2019.
M&A activity in Panama was expected to remain robust throughout 2019, as industries
such as logistics, energy and mining maintained a vibrant economic growth, while others
companies in the retail and financial sectors are ripe for consolidation or acquisition. Large
infrastructure projects, such as the US$2.6 billion construction of a third metro line, are also
contributing factors in the increase in foreign direct investment in Panama. The third metro
line, a monorail system stretching 25km west of Panama City, is currently at the bidding
process stage, with four bidders aiming to procure the contract. It will cross the Canal over
the Fourth Bridge, which will house the metro line and eight lanes to meet the needs of the
rapidly growing cities west of the capital. The Fourth Bridge project has an expected cost
of around US$1.5 billion and was granted to Consorcio Panamá Cuarto Puente, a joint
venture between China Communications Construction Company LTC and China Harbour
Engineering Company LTD.2
The energy sector in Panama will continue to experience government and foreign direct
investment. Given Panama’s long-running sustained economic growth, it is unsurprising that
energy demand in the country is expected to keep increasing. The difference between the first
trimester of 2018 and 2019 reflects a growth of 4.1 per cent.3 Investment in the clean energy
sector has also experienced significant growth and, at the going rate, clean energy production
has produced significant achievements, such as the inauguration of the Ikakos Power Plant,
a solar energy plant that produces around 40 megawatts yearly.4 The government is currently
working on the bidding process for Transmission Line 4, which will have cost approximately
US$450 million, and which will cement the connection between heavy hydroelectric energy
1 Andrés N Rubinoff is a partner at Arias, Fábrega & Fábrega.

2 https://elcapitalfinanciero.com/inicia-la-construccion-del-cuarto-puente-sobre-el-canal-de-panama/.
3 https://www.contraloria.gob.pa/INEC/archivos/A4012019_oferta_elec.pdf.
4 https://www.efe.com/efe/america/economia/clinton-elogia-a-panama-por-su-revolucion-en-la-utilizacio
n-de-energia-limpia/20000011-3885837.
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production in the west part of the country and the east part of the country’s increasing
demand.5 This project has attracted foreign investment, but the bidding process has not
found a bidder that can comply with the requirements set forth by the government.
The International Monetary Fund (IMF) Western Hemisphere Department recognised
Panama’s positive future growth due to:
a the expansion of the Panama Canal;
b the development of several services industries;
c the approval of free trade agreements with the United States, the European Union and
Canada; and
d the growth of the mining industry.
The latter has increased thanks to copper mining, which element has only recently started to
be tapped. The Cobre Panama copper mine, controlled by First Quantum Minerals, is said to
be practically operational: Cobre Panama is the nation’s most important private investment
project, with an estimated production of 320,000 tonnes of copper per year. As noted in an
IMF Country Report for 2014, the copper mine was expected to bring about ‘US$6½ billion
over 2013–17, about US$1½ billion of which have already invested’.6 The IMF calculates
that the mining project will contribute around 1.5 per cent of Panama’s GDP in 2019.7
Panama is consistently rated by international indexes as one of the best countries in
Latin America for business and investment. The World Bank’s Doing Business 2019 ‘ease of
doing business’ index ranked Panama 79th of the 190 surveyed countries. This may be due to
its encouragement of foreign investment through legal incentives. In 1998, the government
enacted the Investment Stability Law, which guarantees equal treatment to foreign investors
under the law as is given to their domestic competition, and guarantees the same commercial
and fiscal conditions for 10 years to foreign investors who invest at least US$2 million in
Panama. Under Law 41 (2007), Panama has motivated multinational companies to locate
their headquarters in Panama through tax incentives. As of May 2019, 147 international
companies have been established under the Law, including major multinationals such as
Hyundai, Procter & Gamble, AES, Halliburton, Hewlett-Packard, Peugeot/Citroën,
Pan-American Life Insurance Company, Caterpillar, LG, 3M, Western Union and Roche,
owing to the various taxation, immigration, labour and employment incentives offered
specifically to benefit multinationals that establish their regional offices or headquarters in
Panama.8

The relevant Panamanian laws and regulations governing business combinations include the
Corporations Law, the Limited Liability Company Law and the Commercial Code, which
is supplemented by the Civil Code. As combinations generally cause taxable events, the
Tax Code and its regulations (especially Executive Decree 18 of 1994, which establishes a
special regime regarding share-for-share mergers) and Law No. 18 of 2006, which created
5 impresa.prensa.com/economia/BM-licitaria-linea-transmision_0_4721527869.html.
6 www.biv.com/article/2017/5/first-quantum-minerals-commission-55b-panama-coppe.
7 http://laestrella.com.pa/economia/cobre-panama-iniciara-exportaciones-junio-pesar-fallo-corte/24112323.
8 https://elcapitalfinanciero.com/147-empresas-sem-operan-en-panama/.
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a special capital gains regime, are also pertinent. In the case of publicly traded companies,
the Securities Law9 and its regulations govern tender offers, proxy statements and rules of
disclosure, among other matters.
Business combinations in Panama are usually structured as share or asset purchases,
tender offers or mergers, but other techniques can also be used. One example is the
capitalisation of shares of two operating companies to a holding company incorporated for
that purpose with joint participation in the holding company. In the case of publicly traded
companies, combinations usually involve a two-step process that begins with a tender offer
(either for shares, cash or a combination of both) followed by an actual merger.

THEIR IMPACT
Corporate and takeover law can be divided into two kinds of transactions: mergers and share
and asset purchases. In the case of mergers, Panama law allows a company to be absorbed by
another regardless of the place of incorporation of either firm (merger by absorption). It also
allows two companies to merge, forming a new consolidated body. Once a merger becomes
effective, the absorbed company ceases to exist as a legal entity, and the surviving company
assumes all the assets, rights, licences, capital, liabilities and obligations of the absorbed
company by universal succession. Unless the articles of incorporation state otherwise, a
merger agreement must be executed by a majority of the directors of each company, and
approved by the holders of a majority of the issued and outstanding shares of each firm. The
merger agreement must then be registered with the Registry of Companies in Panama to
bring it into effect, unless a later effective date is defined in the merger agreement.
Regarding share and asset purchases, unless the articles of incorporation state otherwise,
the acquisition of a company generally requires approval from a majority of the directors of
the acquiring company regardless of whether it is structured as a share or an asset purchase.
On the other hand, the sale of a company, if it represents all or substantially all of the assets
of the seller, generally requires approval from both a majority of the directors and holders
of all issued and outstanding shares with the voting rights in the event of selling a company.

Foreign direct investment continues to be a principal driver of M&A activity and has been on
the rise in the past couple of years: due to the nation’s strengthened alliance with China, we
have seen increased interest in the acquisition of local companies by Chinese conglomerates,
which have also heavily invested in major engineering, procurement and construction projects.
Political instability in nearby Latin American countries has also been a substantial driver for
investment into Panama, as individuals and companies seek to diversify their country risk.
Generally there are no foreign ownership restrictions in Panama. Because of issues
of national security and national interest concerns, however, ownership of local companies
by foreign governments or nationals is restricted in certain industries, including, inter alia,
aviation, radio and television, and retail trade. In the case of the retail services market, foreign
participation is generally prohibited, with very few exceptions.
9 The Securities Law, Decree Law No. 1 of 1998.
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Most of the important sectors in the Panamanian economy have been subject to cross-border
acquisitions, but M&A activity is expected to continue to be distributed across several
industries, led most likely by the traditional financial services (including insurance) and
energy sectors, followed by the food and retail industries (both wholesale and consumer sales).
The aftermath of the Panama Papers and the controversy surrounding money laundering
allegations involving a prominent retail trade group have led to stricter tax, regulatory
and anticorruption compliance legislation in the country. Consequently, consolidation
among medium and small banks is still expected to pick up, spurred by reduced access to
correspondent banks, which are limiting their services because of local regulatory burdens, and
increased compliance standards imposed on foreign banks and the perceived reputational risk
stemming from the publication of the Panama Papers. This current issue in the Panamanian
financial services sector may have further long-term implications. For example, recently
Banco Panamá, a small bank located in Panama, merged with Banco Aliado in a transaction
valued at US$210 million.
Given the demand for energy in Panama and the region, the energy sector has been the
object of recent important acquisitions and new market entrants, including the acquisition by
CELSIA (part of the Colombian conglomerate Grupo Argos) of GDF Suez assets in Panama
and Costa Rica for a reported US$830 million, and InterEnergy Holding’s simultaneous
acquisition and US$300 million project financing of the construction of Phase II and Phase
III of the Penonomé wind power plant, the largest wind farm in Central America. Now
operational, the plant produced 401,734MWh in 2018, representing 4 per cent of the
country’s total energy demand. Significant acquisitions and joint ventures are expected in
the next few years in this sector as Panama continues to find and incentivise new sources
of energy for its rising demand, while further regulating its existing non-renewable and
renewable resources.
Increased deal activity is expected following the now-complete Canal expansion
and the growth of the port industry with regard to the logistics, transportation and
distribution and maritime industries, as this sector saw growth of 7.3 per cent last year. In
the telecommunications sector, Millicom International Cellular SA acquired 80 per cent of
Cable Onda, SA, a leading provider of broadband internet, pay-TV, fixed telephony and B2B
telecommunications services in Panama, for a reported US$1,462 million.
In recent years, M&A deals in Panama have had many drivers. Certain deals have
been instigated by a need to consolidate in a very competitive environment, others have
been undertaken to control costs and exploit synergies, and yet others have been fuelled by
the global economy and the need to develop new international markets and expand market
share. Some of the largest transactions in Central America have included Panamanian target
companies, independent of whether they are an operating company or a holding company
registered in Panama with operations in the region. Additionally, we are seeing a move
from New York law or New York-run deals to Panama law or Panama-run deals for Latin
America-based transactions that do not necessarily have a connection to Panama.
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M&A financing in Panama is usually provided by local and international banks, as there are
no limitations on international lending. With the end of the financial crisis, deals have also
been increasingly funded through private equity firms or through local and international
securities issues.
VII EMPLOYMENT LAW

In a merger scenario, the surviving company assumes the labour relations and liabilities of the
absorbed company. Similarly, in share acquisitions, the target company retains responsibility
for labour relations and liabilities. Asset acquisitions, however, present a special case. If the
sale comprises all or almost all the assets, causing business operations to be transferred, both
the buyer of the assets – the new employer – and the seller are, for a period of one year
following the acquisition, jointly and severally responsible for all labour liabilities that arise
prior to the acquisition of the assets or business. Furthermore, employees retain all their
rights and benefits, and no adverse changes can be made to their terms of employment.
Thus, in many asset acquisitions, insofar as may be legally feasible, buyers require sellers to
terminate all or certain labour relations as a precondition to closing a deal, in order to rehire
some employees on more favourable terms. Labour unions and employees must be notified of
the employer substitution even though they cannot prevent it from taking place.
VIII TAX LAW

One of the main components of any sell-side deal structuring is taxation. The structure
of an acquisition is usually influenced to a large extent by the need to make a transaction
tax-effective for the seller, without causing adverse tax consequences to the buyer. As Panama
generally follows a territorial system of taxation, only Panama-source income (generally
income and capital gains realised in connection with a trade, business or real estate transaction
in Panama) is taxable. Thus, mergers or acquisitions of companies organised in Panama that
do not carry out any trade or business or own assets within the country are generally not
taxable. Mergers or acquisitions are generally structured as either share-for-share transactions
or share-for-cash transactions, or a combination of both. Acquisitions can also be fashioned
as a straight purchase of shares or a purchase of assets. A brief description of the tax treatment
for each follows.
Share-for-share mergers are tax-free transactions, provided that no cash is paid out
(except up to 1 per cent of the value of a transaction for adjustments of fractional shares)
and certain other accounting parameters are followed. In a share-for-share merger, the
shareholders of the merged company keep a tax basis on the shares of the surviving company
that they receive equal to their average pre-merger tax basis of the surrendered shares.
Share-for-cash mergers, on the other hand, are not tax-free transactions. Gains realised
by sellers in these transactions, which are deemed to be gains from Panama-sourced income,
are subject to a 10 per cent capital gains tax. The capital gain is the difference between the
selling price allocated to Panamanian sources and the tax basis of the shares owned by the
selling shareholder. Furthermore, the law requires buyers to withhold 5 per cent of the total
purchase price allocated to Panamanian sources (as an advance of the capital gains tax) and
directly pay this amount to the tax authorities within 10 days of the transfer of the shares. If
the 10 per cent capital gains tax on the realised capital gain is less than the 5 per cent advance
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withholding, sellers can request a tax credit for the difference. This credit must be used in the
same fiscal year as that in which the capital gain is realised. Alternatively, sellers can choose to
treat the 5 per cent advance capital gains withholding as the final and definitive capital gains
tax payable in connection with the sale of the shares. In practice, most sellers pay the 5 per
cent purchase price capital gains withholding, as it is difficult to request and use the tax credit
in the same year that the transaction took place.
Share purchases are subject to a 10 per cent capital gains tax on Panama-sourced
gains in the same manner that share-for-cash mergers are taxed, including the 5 per cent
advance withholding obligation. The Department of Revenue of the Ministry of Economy
and Finance has repeatedly taken the position that capital gains tax applies to the sale of the
shares not only of Panamanian corporations, but also of any upstream company, regardless
of its jurisdiction of incorporation, as long as this company, directly or through one or more
subsidiaries, has Panama-sourced income. Consequently, gains derived from the direct or
indirect transfer of shares of a legal entity that has obtained Panama-sourced income is
subject to tax at a rate of 10 per cent.
Following a tax reform (Decree Law 135 of 2012), if a transaction involves, indirectly,
the transfer of shares of a Panamanian company with Panama-sourced income, the seller and
buyer can now apply pre-established calculations to determine the capital gains tax due on the
percentage of a transaction’s purchase price that is attributable to Panamanian assets. To pay
the capital gains tax, the buyer and seller will need to file a joint sworn affidavit setting forth
the total capital gains tax paid and the calculations used to arrive at the figure. In addition
the buyer, who is responsible for the payment, must obtain a temporary tax identification
number in Panama, known as 8-NT, and report and pay the capital gains tax. This temporary
registration has no additional tax implications or reporting requirements in Panama for the
buyer; however, buyers and sellers must be aware that the local tax authority has recently
ramped up the audit and enforcement of capital gains tax, particularly in high-profile
transactions. Recently, the National Assembly enacted Law No. 70 dated 31 January 2019,
which modifies the criminal code and sanctions as a crime the act of tax evasion in excess of
US$300,000.
Asset purchases are generally taxable events in Panama. Gains realised on the sale or
disposition of assets located in Panama are generally subject to a 10 per cent capital gains
tax. In addition, the transfer of chattel property, such as inventory or equipment, is subject
to a value added tax equal to 7 per cent, and the transfer of real estate is subject to a 2 per
cent transfer tax. In addition, buyers of an ongoing business concern must be aware that they
will become liable for the past taxes of the business, even if they are buying the assets of the
business and not shares of the company.
Frequently, M&A transactions involve either a pre-closing dividend to exclude assets
from a transaction or a post-closing dividend to distribute gains to shareholders. In this
regard, as a general rule, corporations in Panama are subject to a 10 per cent dividend tax
(20 per cent if the shares are issued to the bearer) on Panama-sourced income. Thus, income
that is not Panama-sourced is generally not subject to dividend tax. However, following the
recent tax reform, if the company paying the dividend engages in commercial or business
activities in Panama that require the company to obtain a business licence, then in addition
to paying the 10 per cent dividend tax on Panama-sourced income, it is also subject to a 5 per
cent dividend tax on non-Panama sourced income.
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Goodwill is another frequent point of conflict between buyers and sellers. Buyers
generally want to be able to claim a tax deduction for the amortisation of any goodwill paid
in an acquisition. However, amortisation of goodwill is only deductible in Panama if the
seller recognises it as income on its annual tax return.
IX COMPETITION LAW
There is no mandatory merger control approval process in Panama; the process is entirely
voluntary. That said, with the new antitrust and competition regime established by the
Competition Law, economic concentrations created by the mergers of conglomerates within
the Panamanian market have come under increasing, albeit still limited, scrutiny by regulators.
The Competition Law prohibits economic concentrations whose effects may unreasonably
restrict or harm free competition. An economic concentration is defined as the merger,
acquisition of control or any other act pursuant to which corporations, associations, shares,
trusts, establishments or any other kind of assets are combined, and which occurs between
suppliers or potential suppliers, customers or potential customers, and other competing or
potentially competing economic agents. The Law applies to any acts or practices that may
unreasonably restrict or harm free competition, and whose effects take place in Panama,
regardless of where those acts have been carried out or perfected.
The Competition Law does not prohibit all economic concentrations, but only those
whose effects may unreasonably restrict or harm competition. In addition, the Competition
Law expressly provides that the following business combinations shall not be deemed
prohibited economic concentrations:
a joint ventures formed for a definite period of time to carry out a particular project,
which is also contemplated in other jurisdictions;
b economic concentrations among competitors that do not have harmful effects on
competition and the market; and
c economic concentrations involving an economic agent that is insolvent, if certain
conditions are met, which is, roughly speaking, equivalent to the failing company
exemption prevalent in other jurisdictions.
Moreover, economic concentrations with restrictive effects on competition may obtain

clearance from the Competition Authority if their restrictive effects are outweighed by their
contribution to obtaining further efficiencies, such as:
a improvements in commercialisation and production systems;
b fostering technical and economic progress;
c improvements in the competitiveness of an industry; and
d contributions to consumer interests.
If advance verification for an economic concentration is sought and approved, the economic
concentration cannot be subsequently challenged. If no advanced verification is sought and
the transaction has been consummated, the Competition Authority may file a lawsuit with a
specialised superior court within three years of the transaction’s effective date if it considers
the economic concentration to unreasonably restrict or harm free competition, seeking that
conditions be imposed on the parties to ensure competitiveness in the marketplace, or seeking
a partial or complete divestiture of the concentration (or both).
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X OUTLOOK
Panama’s economy is expected to grow at a moderate and sustainable rate, despite the
perceived reputational damage to the financial and legal services industries. On this matter, the
government has countered issues by cooperating and aligning with international standards,
thus making firm commitments to creating a more transparent environment for foreign
investors. For example, the government has committed to adopt data-sharing arrangements
consistent with US Foreign Account Tax Compliance Act and the OECD’s Common
Reporting Standards, and has implemented several strict anti-money laundering regulations
applicable to both the financial and non-financial sectors. Multinational corporations,
regional conglomerates and private equity firms continue to seek and take advantage of the
country’s unique geographical position, its free market system and investor-friendly climate,
which will cause the prevalence of cross-border M&A in Panama to increase. A recently
adopted bankruptcy law (similar to Chapter 11 under the US federal bankruptcy laws) is also
likely to spark interest in distressed assets and companies. Undoubtedly, Panama will remain
in the spotlight for foreign investors, and the body of legislation governing M&A in Panama
will continue to evolve as cross-border transactions become more complex.
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Chapter 35
PORTUGAL
Francisco Brito e Abreu and Joana Torres Ereio1

The Portuguese economy continued to show some positive signs in the past year, in particular
with GDP growing 2.1 per cent in 20182 (GDP started to grow in 2014, at a rate of 0.9 per
cent, and continued to grow in 2015, 2016 and 2017, at a rate of 1.5, 1.4 and 2.7 per cent,
respectively, in contrast with the 1.4 per cent decrease in 2013 and the 3.3 per cent decrease
in 2012).The first quarter of 2019 registered GDP volume growth of 0.5 per cent compared
with the first quarter of 2018.3
In addition, 2018 was the third year after the conclusion of the financial assistance
programme with the European Commission, the International Monetary Fund and the
European Central Bank, which was initiated in 2014 further to Portugal’s bailout in 2011
and the execution of a memorandum of understanding with those entities in May 2011, and
this has also contributed to restoring confidence in the Portuguese economy.
All these signs of growth have been reflected positively in Portuguese M&A activity
during the past year, both in terms of number and volume of deals: there were more than
350 M&A deals, and the 158 transactions with disclosed value totalled approximately
€22.583 billion (76.12 per cent higher than the value registered in 2017).4 The following
events have been key factors for this dynamic in the Portuguese M&A market during the past
couple of years:
a Several privatisations, foreseen under the Portuguese financial assistance programme,
were carried out, such as:
• the sale of EGF (a company engaged in the treatment and management of
wastewater and solid urban waste, which was sold to SUMA, a joint venture
between Mota-Engil and ACS, companies active in the Portuguese and Spanish
construction sector respectively);
1 Francisco Brito e Abreu is a partner and Joana Torres Ereio is a senior associate at Uría Menéndez – Proença
de Carvalho.
2 Information available on the Portuguese Statistics Institute website: https://www.ine.pt/xportal/
xmain?xpid=INE&xpgid=ine_destaques&DESTAQUESdest_boui=314609582&DESTAQUESmodo=2.
3 Information available on the Portuguese Statistics Institute website: https://www.ine.pt/xportal/
xmain?xpid=INE&xpgid=ine_destaques&DESTAQUESdest_boui=353902457&DESTAQUESmodo=2.
4 According to the 2018 annual report released by Transactional Track Record and Intralinks in December
2018: https://www.ttrecord.com/pt/publicacoes/relatorio-por-mercado/relatorio-mensal-peninsula-iberica/
Mercado-Iberico-4T-2018/1849/
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• the privatisation of CP Carga (a railway freight transport operator) through the

sale of 95 per cent of the company’s share capital to MSC Rail (a subsidiary of the
Swiss MSC Mediterranean Shipping Company); and
• the sale of TAP (the leading Portuguese airline company, 66 per cent of which
was acquired by a consortium headed by David Neeleman (owner of, inter alia,
the Brazilian airline Azul) and Humberto Pedrosa (owner of the Portuguese
transportation group Barraqueiro), which was partially reverted upon the new
government taking office in November 2015).
b Portuguese banks and other entities in the financial and insurance sectors have focused
on selling non-core assets and businesses.
c In August 2014, Espírito Santo Group, a conglomerate that comprised, inter alia,
one of the biggest banks in Portugal, Banco Espírito Santo (BES), collapsed, forcing a
profound reorganisation in the group, including the transfer of part of BES’ businesses
to a new bank (Novo Banco), and leading to the divestment of several businesses and
to the sale of Novo Banco itself.
d The collapse of the Espírito Santo Group resulted in significant losses in several relevant
Portuguese companies, and in particular had an impact on Portugal Telecom, the
biggest Portuguese telecommunications player, affecting its merger with Brazilian Oi (a
deal that was aimed at creating one of the 20 biggest telecom companies in the world
with more than 100 million clients) and leading to the acquisition of its Portuguese
business by Altice, which was completed in June 2015.
e International investment and private equity funds have been particularly active in the
Portuguese market, and even though their interest in Portugal has been originated by
the crisis, the truth is that they maintain a very relevant role in the dynamic of the
Portuguese economy, presenting bids in most of the relevant deals in the tourism, real
estate, insurance and banking sectors.
f Chinese and Angolan investors have also played a significant role in M&A activity,
acquiring companies in several business sectors.
g 2014 was a turning point for the real estate sector, with relevant deals in all segments
and with real estate being the most active sector in the Portuguese M&A market, and
this trend has been reinforced year on year.
h Tourism has been key for the revitalisation of the Portuguese economy and has also
been growing every year, reaching 13.7 per cent of the GDP in 2017.5

The Portuguese legal framework governing M&A comprises, in particular, the following laws:
a the Civil Code, enacted by Decree-Law No. 47344, of 25 November, as amended,
which contains the general rules governing sales, purchases and contracts;
b the Commercial Companies Code, enacted by Decree-Law No. 262/86, of 2 September,
as amended (PCCC), which includes the general framework governing Portuguese
companies (the most common are sociedades anónimas, which may be listed or non-listed
5 Information available at https://www.portugal.gov.pt/pt/gc21/comunicacao/comunicado?i=

turismo-representa-137-do-produto-interno-bruto-em-portugal.
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companies, and sociedades por quotas, both of which are limited liability companies)
and also the legal regime governing share capital increases and decreases, mergers and
demergers, transfers of shares in sociedades por quotas and financial assistance;
c the Securities Code, enacted by Decree-Law No. 486/99, of 13 November, as amended,
which is applicable to listed companies6 but also contains the general regime regarding
some matters, such as the transfer of shares in sociedades anónimas;
d the Competition Code, enacted by Law No. 19/2012, of 8 May;
e the Labour Code, enacted by Law No. 7/2009, of 12 February, as amended; and
f the private equity legal regime, enacted by Law No. 18/2015, of 4 March.
In addition, regulated sectors such as banking, financing and insurance are governed by
specific laws and regulations, some of which are issued by the respective regulatory entities.7
Moreover, privatisations are specifically governed by laws enacted by the government
containing the applicable regime for each privatisation.

THEIR IMPACT
i Financial sector: structural reforms
A memorandum of understanding established as the main goals for the financial sector, inter
alia:
a the preservation of its stability;
b an increase of liquidity and a balanced deleverage of the banking sector;
c the reinforcement of banking regulation and supervision;
d the restructuring of Caixa Geral de Depósitos, the state-owned bank; and
e the reinforcement of the legal framework governing the restructuring and winding
up of credit entities and of the deposit guarantee fund, as well as the legal framework
applicable to the insolvency of natural and legal persons.
In line with these goals, profound changes have been implemented in the legal framework
governing the financial sector, and most of said goals, even if to a variable extent, have been
accomplished.
Decree-Law No. 298/92, of 31 December, which governs credit institutions and
financial entities, has been the object of an in-depth reform in the past few years, and enacted
by several laws and decree-laws, in particular:
a Law No. 23-A/2015, of 26 March, which transposes Directives 2014/49/EU, of
16 April 2014, and 2014/59/EU, of 15 May 2014. Inter alia, the Law:
• increased the powers of the Bank of Portugal regarding recovery measures;
• amended the rules applicable to deposit guarantee schemes;
6 Listed companies are overseen by the Portuguese Securities Market Commission (CMVM).
7 In particular, Decree-Law No. 298/92, of 31 December, as amended, governs credit institutions and
financial entities, which are supervised by the Bank of Portugal, and Decree-Law No. 94-B/98, of 17 April,
as amended, governs the activity of insurance companies, which are supervised by the Portuguese Insurance
and Pension Funds Authority.
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• increased the number of possible resolution measures that may be determined by

the Bank of Portugal, allowing, in particular, the segregation of assets to an asset
management vehicle;
• allowed the Bank of Portugal to determine internal recapitalisation measures (bail
in);
• established specific rules regarding financial support between companies
pertaining to the same group; and
• imposed an evaluation of the assets and liabilities of the entities subject to
resolution measures before the same are implemented.
b Decree-Law No. 20/2016, of 20 April, which sets forth that shareholders’ general
meetings of credit institutions whose articles of association establish voting caps must
take place every five years to resolve on the maintenance or revocation of said voting
caps (otherwise, said voting caps will be considered forfeited).
c Law No. 16/2017, of 3 May, which requires banks to disclose the identification of the
shareholders with qualified shareholdings within the banks, as well as the beneficial
owner of those same shareholdings.
ii Corporate laws
In 2017, there were two relevant amendments to the PCCC.
Bearer securities
Aiming at preventing corruption, money laundering and tax fraud, and increasing
transparency in the capital markets, Law No. 15/2017, of 3 May prohibits the issue of bearer
securities, and created a transitional six-month period (until 4 November 2017) to convert
existing bearer securities into registered securities. This Law came into force on 4 May 2017.
As a consequence, all securities issued by Portuguese entities, including shares, must be
registered securities, meaning that issuers must be able to identify their holders at any time.
Pursuant to this Law, bearer securities that were not converted into registered securities
within the aforementioned six-month period cannot be validly transferred, and their holders’
right to participate in the distribution of results is suspended until such conversion is
completed.
Conversion of shareholder loans into share capital

Pursuant to Decree-Law No. 79/2017, of 30 June, shareholders of limited liability companies
by quotas that gather the necessary votes to approve the amendment of a company’s articles of
association may approve a share capital increase by conversion of shareholders’ loans granted
by them to the company by means of a simple communication to the company’s directors.
After receiving said communication, the directors must inform the remaining
shareholders, who have 10 days to oppose the share capital increase, which only becomes
effective if none of the latter opposes the conversion.
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iii Private equity

The private equity legal regime has also been the object of reform in the past few years,
with the regime enacted by Law No. 18/2015, of 4 March (which partially transposes the
Directive on Alternative Investment Funds Managers,8 and Directive No. 2013/14/EU, of
21 May 2013) replacing the regime enacted in 2007, and which also regulates, for the first
time, investment in social entrepreneurships and in specialised alternative investments.
One of the main modifications is the creation of two different regimes applicable to
private equity companies depending on the value of the portfolios under their management:
a stricter regulatory regime is applicable to entities that manage private equity funds whose
portfolio value is higher than €100 million when such portfolio includes assets acquired with
the use of leverage, or €500 million when such portfolio does not include such assets, and in
relation to which there are no reimbursement rights that may be exercised within a period
of five years as of the date of the initial investment. Private equity companies that do not fall
under these thresholds may also be governed by this stricter regime, provided that they opt in.
The stricter regime applicable to private equity companies entails, in particular:
a an authorisation from the Portuguese Securities Market Commission (CMVM) prior
to their incorporation (as opposed to a prior registration with the CMVM as applicable
for other private equity companies);
b that all reasonable measures shall be taken and adequate procedures shall be implemented
to identify, prevent, manage and monitor conflicts of interest that may be harmful to
the interests of the private equity funds under their management and their investors;
and
c the obligation to functionally and hierarchically separate the functions of risk
management from the operating units, including the portfolio management.
Private equity companies falling under the lighter regime set forth in this Law, but that
manage portfolios whose net value exceeds €250 million, must incorporate an additional
amount of equity that shall be equal to 0.02 per cent of the amount by which the portfolio’s
net value exceeds €250 million.
The management regulations of private equity funds may establish the division of funds
into several independent sub funds represented by one or more categories of investment
units.
In line with this regime, the CMVM has also issued a new regulation governing these
matters: Regulation No. 3/2015.
IV FOREIGN INVOLVEMENT IN M&A TRANSACTIONS 9

i M&A transactions headed by strategic foreign investors
Activity in the Portuguese M&A market in the past has been to a large extent due to the role
of foreign investors – especially Chinese, US, Spanish, German and Angolan investors – who
have played a key role in the revitalisation of the Portuguese economy.
8 Directive No. 2011/61/EU, of 8 June 2011, on Alternative Investment Funds Managers.

9 All amounts indicated for the transactions indicated below result from publicly available sources.
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This phenomenon is related not only to the pressure of Portuguese companies and the
state to divest, which has created excellent opportunities for investors, but also to the fact that
Portugal is regarded as a strategic hub between Europe and countries such as Angola, Brazil,
Mozambique and other former Portuguese colonies.
Chinese investment has played a particularly relevant role in this, beginning with the
acquisition, in 2011, by China Three Gorges Corporation from the state of a 21.35 per cent
shareholding in EDP, the biggest electricity producer, distributor and trader in Portugal,
for €2.7 billion, followed by the acquisition in 2012, by State Grid Corporation of China,
of a 25 per cent shareholding in REN, the largest Portuguese energy grid company, for
approximately €387 million. At the beginning of 2014, Fosun International acquired from
the state 80 per cent of Caixa Seguros, the largest Portuguese insurance group, including
the companies Fidelidade and Multicare, for €1 billion, and in October 2014 Fidelidade
acquired 96 per cent of Espírito Santo Saúde, one of the biggest health groups in Portugal,
after this company’s successful initial public offering at the beginning of 2014 for more than
€455 million.
The following are some of the most relevant recent deals featuring Chinese investors:
a in August 2016, Hainan Airlines acquired 23.7 per cent of Azul, the Brazilian airline
company that is part of the consortium that won the privatisation of TAP, for €450
million. By July 2016, Hainan Airlines had already paid €30 million for bonds
convertible in TAP’s share capital. In March 2019, Hainan Airlines sold its interest in
TAP to Azul and Global Aviation Ventures, both controlled by David Neeleman;
b in November 2016, Fosun acquired 16.7 per cent in Millennium BCP in a share capital
increase reserved to it and increased that stake to 24 per cent in a new share capital
increase that took place in February 2017 for a global investment of €549 million;
c in June 2017, a subsidiary of China Three Gorges Group (ACE Portugal Sàrl) acquired
49 per cent of EDPR PT – Parques Eólicos, a 422MW wind farm, for €248 million;
d in November 2017, China Tianying acquired the insurance companies Groupama
Seguros de Vida and Groupama Seguros for an undisclosed amount.
e in June 2017, EDP sold 49 per cent of EDPR PT – Parques Eólicos to a subsidiary of
China Three Gorges Group for €242 million.
f in May 2018, China Three Gorges launched a takeover offer over EDP and EDP
Renováveis, subject, in particular, to the withdrawal of the voting cap in EDP’s articles
of association by EDP’s shareholders’ general meeting. Since the withdrawal was
not approved, in May 2019 the CMVM put an end to the takeover offer based on
non-compliance with the conditions established by China Three Gorges.
g in November 2018, the Macao businessman Kevin Ho, through KNJ Investment,
acquired a 30 per cent stake in Global Media Group for €15 million;
h in July 2018, Bison Capital Financial Holdings completed the acquisition of Banif
Banco Investimento from Oitante.
European investors have been more active in recent years. Examples include the acquisition of
SAPEC Agro Business (engaged in crop production products and crop nutrition, with sales in
over 70 countries) by Bridgepoint, completed in January 2017, for €456 million; the takeover
launched by Caixabank on Banco BPI, which was successfully completed and entailed an
investment of €645 million; and the acquisition of Ascendi by Ardian for €600 million. In
July 2018, Blackstone sold Fórum Almada to Merlin Properties for €406.7 million. In line
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with this trend, of the 160 inbound acquisitions completed in the past year, 136 were carried
out by European investors, with Spain and the United Kingdom sitting in first and second
place, respectively.10
Angolan investors have been very active in the Portuguese market. Key players include
Isabel dos Santos, daughter of the Angola’s former president and Africa’s richest woman,
who already owns shareholdings in, inter alia, GALP (the largest Portuguese oil and gas
company), NOS (one of the leading companies in the telecommunications sector, resulting
from a merger between Optimus and ZON) and EuroBic (an Angolan private bank based
in Portugal). In June 2015, she acquired 65 per cent of Efacec Power Solutions (the core
company of Efacec Group, the largest Portuguese electric group) from Mello Family and
Têxtil Manuel Gonçalves for approximately €200 million.
American funds have also been very active in the Portuguese market, and have
participated in most of the bids for relevant transactions in the past few years. In particular,
in January 2016, North Bridge acquired a minority stake in OutSystems, a Portuguese
company engaged in the production and development of software, which holds subsidiaries
in Brazil, Dubai, the Netherlands and the United States, for €50 million. In March 2016,
the Carlyle Group acquired 50 per cent of Logoplaste (an industrial group engaged in the
manufacturing of rigid plastic packaging) for €570 million. In June 2018, OutSystems raised
US$360 million from KKR and Goldman Sachs in exchange for a minority stake. In the
third quarter of 2018, Morgan Stanley Infrastructure Partners and Horizon Equity Partners
acquired a 75 per cent stake in Towers of Portugal from Altice for €495 million. In December
2018, the Carlyle Group and Explorer Investments acquired Penha Longa Hotel and Golf
Resort for €100 million and in February 2019, Oaktree acquired a stake in Belas Clube de
Campo, with a global estimated investment of €500 million.
ii M&A transactions headed by national investors in key destinations

In 2018, 60 per cent of the outbound registered deals completed in the past year were carried
out in European companies, with Spain clearly leading the rankings (with approximately 40
per cent of the deals), then followed by two non-European countries: Brazil and the United
States (with 12 per cent and 8 per cent, respectively, of the outbound deals).11

In addition to the transactions listed in the preceding section, the following are some of the
other most important M&A deals that have taken place in the past few years.
i M&A transactions related to financial and insurance institutions

In the context of the requirements both at a local and at an EU level regarding ring-fencing
and the separation of banks’ deposit-taking functions from more risky businesses, several
10 According to the 2018 4Q report released by Transactional Track Record and Intralinks in December
Mercado-Iberico-4T-2018/1849/.
11 According to the 2018 4Q report released by Transactional Track Record and Intralinks in December
Mercado-Iberico-4T-2018/1849/.
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banking and insurance groups have been selling non-core businesses. The increasingly strict
regulatory requirements in both the banking and insurance sectors have also led to strategic
divestments by several players.
The following are examples of deals in these sectors:
a in April 2016, Bankinter (a Spanish bank) acquired the retail and insurance business of
Barclays Portugal for approximately €160 million;
b in December 2016, Real Vida Seguros (pertaining to the Portuguese Patris group)
acquired both a controlling stake in Banif Pensões from Oitante and 100 per cent of
Finibanco Vida from Montepio Geral;
c in February 2017, the Chinese conglomerate Fosun completed the acquisition of a 24 per
cent stake in Millennium BCP for a global investment of €549 million (see above);
d again in February 2017, Caixabank successfully completed its takeover of Banco BPI,
raising its stake from 45 to 84.5 per cent, for €645 million;
e in August 2017, Novo Banco entered into an agreement to sell 90 per cent of its Cape
Verdean subsidiary (Banco Internacional de Cabo Verde) to IIBG Holdings BSC, a
transaction that was approved by the Cape Verdean antitrust authorities in May 2018;
f in October 2017, Lone Star completed the acquisition of 75 per cent of Novo Banco,
a bank that resulted from the transfer of part of Banco Espírito Santo’s businesses
after its collapse in August 2014, for a global investment of €1 billion. Portugal’s bank
resolution fund retained the remaining 25 per cent of Novo Banco;
g in March 2018, Novo Banco sold the business of its Venezuelan subsidiary to
Bancamiga, Banco Universal for an undisclosed amount;
h in May 2018, Santander Totta (a Spanish bank) acquired Banco Popular Portugal for
€1; and
i in June 2019, Deutsche Bank completed the sale of the retail, private and commercial
client business of its Portuguese branch to the Spanish bank Abanca.
ii Energy sector
The energy sector has also been particularly active in the past few years.
As far as renewable energy is concerned, the past couple of years have seen some of the
biggest wind asset portfolios being sold, including the sale of Iberwind to Chinese group
Cheung Kong for €1 billion, the sale of Finerge to First State for €900 million and the sale of
a stake in EDF Energies Nouvelles’ wind business in Portugal to Lancashire County Pension
Fund, all in 2015. In June 2018, New Finerge, the company that acquired the Finerge wind
farm business in 2015, acquired five companies engaged in the wind sector. In May 2019,
Finerge announced the acquisition of two wind asset portfolios from Martifer and SPEE, and
in June 2019 announced that it will be one of the bidders in the solar energy auctions to be
launched by the government as from July 2019. In March 2019, Total Eren acquired from
Novaenergia Fund the company Novenergia Holding Company, which owns, in particular,
Generg, one of the biggest renewable energy players in Portugal that also has activities in six
other European countries.
Several deals also took place in the gas sector. In October 2016, Marubeni and Toho
Gas acquired from Galp Gás a 22.5 per cent stake in its natural gas distribution business for
€138 million. In March 2017, Artá completed the acquisition of Gascan from Portuguese
private equity Explorer for €70 million. In February 2019, Gascan was then sold by Artá to
UBS Asset Management for €100 million. In October 2017, REN completed the acquisition
of EDP Gás from EDP for €532 million.
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In 2018, Aquila Capital acquired the entire share capital of EDP Small Hydro, SA, a
company engaged in the operation of hydro power plants, for €164 million.
The sale of Partex Oil and Gas by Fundação Gulbenkian to Thai company PTTEP for
€622 million was announced in June 2019 and is expected to be completed by year-end.
iii Real estate and construction sectors

The real estate sector contributes very significantly to the activity levels in Portuguese M&A,
and 2018 confirmed this trend: real estate was the most active sector by number of deals, with
some of the highest levels of activity ever seen.
Since 2017, the sale of shopping centres has been particularly prevalent. For instance:
a in 2017, Fórum Coimbra and Fórum Viseu were sold by Locaviseu to Greenbay and
Resilient for a global amount of €220 million;
b in January 2018, Dolce Vita Tejo (the second-biggest shopping centre in Portugal) was
sold by Baupost and Eurofund to AXA Investment Managers for €230 million;
c also in January 2018, Sintra Retail Park, Fórum Sintra and Fórum Montijo, valued at
€400 million, were sold by Blackstone to Auchan;
d in July 2018, Blackstone sold Fórum Almada to Merlin Properties for €406.7 million;
and
e in April 2019, Leiria Shopping was sold by Sonae Sierra Fund to DWS Grundbesitz for
€128 million.
The hospitality and residential sectors have also thrived, with deals such as the acquisition in
December 2018 of the Penha Longa Hotel and Golf Resort by a joint venture formed by the
Carlyle Group and Explorer Investments for €100 million, and the acquisition by Oaktree of
a stake in Belas Clube de Campo, with a global investment estimated of €500 million.
Moreover, several logistic platforms were sold, such as:
a in May 2017, EIPA II in Azambuja, totalling 54,640 square metres, was acquired by
Deutsche Asset Management from ECS Capital;
b in November 2017, Logicor (one of the largest European logistic platforms) was sold by
Blackstone to China Investment Corporation for a global amount of €12.250 billion;
and
c in January 2018, four of DIA’s logistic platforms in Spain and Portugal were acquired
by Blackstone for €90 million.
Related to the dynamism seen in the real estate sector, the construction sector has also been
quite active, with the sale of several construction companies such as Grupo Elevo (sold in
September 2017 by Vallis Construction Sector for €90 million), Opway (sold in December
2017 by the company’s management team for an undisclosed amount) and Ramos Catarino
(sold in May 2018 by the Catarino family for an undisclosed amount), all of which were
acquired by Nacala Holdings.
In addition, Teixeira Duarte, one of the biggest Portuguese construction companies,
put in place a divestment plan, in the context of which it sold Lagoas Park. SA in June
2018, the company that owns a business park near Lisbon, to the private equity fund Kildare
for €375 million, and in August 2018, its 7.5 per cent stake in Lusoponte to Vinci and
Mota-Engil for €23.3 million.
In January 2019, InterCement Brasil completed the sale of the Portuguese and Cape
Verdean business of Cimpor to the Turkish group Oyak for €700 million.
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As a result of the financial crisis, and of the considerable decline of leveraged loan transactions
and longer-term financings by bank syndicates, Portuguese companies have resorted to
alternative sources of financing to support both their M&A investments and their current
businesses. In particular, the issuance of corporate bonds (including high-yield bonds), as
well as factoring and financial leases, have become more and more common.
Bank restructurings in Portugal have also opened a window of opportunity for an influx
of alternative financing to traditional banking, notably through hedge funds, private equity
and capital venture operations.
In particular, private equity funds, both local players and some of the major international
private equity funds, have been quite active in Portugal, seeking to turn the recession into an
advantage for specific investment transactions.
Additionally, a shift from Portuguese-style (short-form) documentation to Loan Market
Association-based documentation governed by Portuguese law is a new trend noted in the
banking sector, triggered by the risk aversion of Portuguese banks.
Currently, and in line with the revitalisation of the Portuguese market, banks are more
willing to finance companies, both local and foreign investors (even though most foreign
players obtain financing abroad). This contrasts with the situation seen until recently, where
companies felt the need to go to foreign markets to obtain financing. In addition, financing
through the issuance of bonds is becoming more and more common.
VII EMPLOYMENT LAW

No significant developments had an impact on M&A activity in the past 12 months.
However, it should be noted that the Portuguese market and legal community are
still adjusting to the substantial amendments, approved by Law No. 14/2018, of 19 March,
on the Portuguese Labour Code, which considerably changed the employment-related rules
governing transfers of undertakings or parts of undertakings. In this regard, a special mention
should be made about the now-express acknowledgement of employees’ right to oppose the
transfer of their employment agreements upon a transfer of an undertaking or establishment.
In fact, the recent changes to the regime now expressly make it possible for employees
who oppose a transfer to stay with their existing employer whenever such a transfer causes
them serious damage. However, the amendments do not give a complete definition of what
is to be considered serious damage but merely provide some abstract examples, such as where
there is an evident lack of solvency or a precarious financial situation of the transferee, or even
when, in the employees’ view, the transferee’s human resources policies do not warrant their
trust. Considering the lack of conceptual rigour of these new rules, it will be up to the labour
courts to determine how easy or difficult bringing an allegation of serious damage will be.
In the past year, the ultimate consequences of an employee’s objection to a transfer have
also been called into question, given the unclear wording of the new provisions. In fact, if an
employee objects to a transfer and stays with the transferor, the latter could refuse to keep
the employee and force him or her to bring a lawsuit to prove the alleged serious damage. If
successful, the employee’s right to stay with the transferor would be recognised, but it is unclear
what would happen if the employee is unsuccessful. Would the employee be deemed to have
transferred to the acquirer of the business? Will the illegal enforcement of the opposition right
be qualified as a resignation without the right to compensation? The answer to these questions
is unclear, and it will be up to the courts to provide additional guidance in this regard.
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The opposition right is particularly ill-designed in respect of situations where a

transferor ceases to exist (notably, in the case of a merger). The most sensitive solution would
be to consider that the right of opposition could only determine that an employee would be
entitled to terminate a employment agreement and claim the payment of an indemnity from
the transferor (equivalent to the severance compensation paid in the event of redundancy),
but until the courts issue rulings with this understanding, the answer will remain unclear.
It is also worth mentioning that the new changes also set forth that an employee who
did not oppose the transfer of his or her employment agreement may later on terminate the
contract with the acquirer of the business and demand payment of a compensation, if he or
she sustains he or she has suffered serious damage as a result of the transfer. However, the
deadline for enforcing this right is controversial: for instance, is there a statute of limitations
or a deadline to operate the termination? Some scholars maintain that the right to terminate
the agreement and claim the payment of severance compensation from the acquirer of the
business would only be possible in relation to the transfer of an undertaking as a whole and
not a (partial) transfer of a business. Again, this is also debatable and, given how recent these
changes are, it is not yet possible to anticipate where the courts will stand in this matter.
These rules concerning a transfer of an undertaking entered into force on 20 March 2018
and apply to all such transfers occurring as of that date.
It should be stressed that these labour rules do not apply to share purchase deals. In fact,
this regime merely concerns the transfer by any means (spin-off, merger, assignment, etc.) of
an undertaking, an establishment, or part of an undertaking or an establishment constituting
an autonomous unit.
VIII TAX LAW

No significant developments had an impact on M&A activity in the past 12 months.
It should be noted, however, that the conditions for the qualification of the relevant
shareholding under the participation exemption regime were changed as of January 2016 as
follows: the minimum percentage of participation was increased from 5 to 10 per cent, but
in turn, the minimum holding period required was decreased from 24 to 12 months prior to
the distribution of dividends or the disposal of the relevant participation.
IX COMPETITION LAW
Even though no relevant modifications to the merger control legal framework were registered
in the past year (the Portuguese merger control framework was further aligned with the EU
merger control framework with the entry into force of the new Competition Act in 2012,
which has remained materially unaltered since), the simplified filing form and pre-notification
contacts have been increasingly used, enabling a swifter assessment and earlier decisions
regarding uncomplicated matters.
To increase transparency, at the end of each year, the Portuguese Competition Authority
(PCA) publishes its strategic priorities regarding competition policy for the following year on
its website. According to a statement issued by the PCA, its main priorities for 2019 include
the following:
a increasing the fight against cartels;
b reinforcing its ex officio capabilities to conduct investigations;
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c increasing knowledge on the use of algorithms or AI by companies that could lead to

anticompetitive practices; and
d obtain greater celerity in merger control investigations.12
In line with this set of priorities, the PCA continues to actively pursue its goal of protecting
and promoting competition in the Portuguese economy.
With regard to merger control, the PCA is expected to continue to promote the use
of the simplified filing form, as well as pre-notification contacts, to deliver swifter decisions
and enhance transparency in the market. Moreover, it seems that the PCA’s merger control
decisions are increasingly subject to judicial review. In 2015, the Portuguese Competition,
Regulation and Supervision Court rejected, on one hand, the appeal by Media, Zon Optimus
and Portugal Telecom related to the PCA’s decision to initiate an in-depth investigation of
this concentration and, on the other, another claim by these undertakings alleging that the
concentration had been tacitly approved.13
Again in 2015, the Portuguese Competition, Regulation and Supervision Court
confirmed the PCA’s decision in Arena Atlântida/Pavilhão Atlântico*Atlântico.14
More recently, the PCA’s clearance decision of the SUMA/EGF concentration (a
merger between two relevant companies operating at different levels of the Portuguese waste
management market), which followed an in-depth investigation, was fully endorsed by the
Portuguese Competition, Regulation and Supervision Court, as all the appeals introduced
by several of the Portuguese municipalities and main competitors against the PCA’s approval
were entirely dismissed by the Court.
X OUTLOOK
M&A activity is expected to continue at a good pace in upcoming months.
The following point to the maintenance of the current levels of activity in the sector
in Portugal:
a the continuing improvement of the Portuguese economy;
b the ring-fencing process and the restructuring of local players;
c increasing access to financing; and
d the sustained interest of foreign investors, including major international investment
funds, in Portugal.
In addition, important deals are ongoing or in the pipeline, such as the sale of Altice’s
Portuguese fibre business and the sale of Tranquilidade by Apollo.
12 Available at http://www.concorrencia.pt/vPT/A_AdC/Instrumentos_de_gestao/Prioridades/Documents/
Prioridades%20de%20Política%20Concorrência%202019.pdf
13 Press release available at www.concorrencia.pt/vPT/Noticias_Eventos/Comunicados/Paginas/Comunicado_
AdC_201502.aspx?lst=1&Cat=2015.
14 Court decision available at www.concorrencia.pt/vPT/Praticas_Proibidas/Decisoes_Judiciais/
contraordenacionais/Documents/AAE_1_13_TCRS1jul2015.pdf.
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Chapter 36
QATAR
Michiel Visser, Charbel Abou Charaf and Mohammed Basama1

During the past year, there has continued to be sustained M&A activity in the domestic
market involving Qatari investors and institutions, while a significant number of outbound
investments have focused primarily on Europe and the United States.
In the local market, Barwa Bank and International Bank of Qatar merged in what is the
largest domestic M&A transaction in Qatar in 2019 thus far. Mergers of other Qatari banks
and financial institutions are, however, still being considered.
That said, outbound activity remains the cornerstone of M&A in the region, as
highlighted by the recent US$200 million investment by the Qatar Investment Authority
(QIA), the sovereign wealth fund of the state of Qatar, in Airtel Africa, and the €506.8
million sale by Qatari Diar of its entire stake in French publicly listed company Veolia
Environnement, representing approximately 26.1 million shares and 4.6 per cent of the share
capital.

i General overview of the legal system
In accordance with the 2004 Constitution, Shariah law is the primary source of Qatari
legislation. In addition, legislation is based on the Civil Code2 and the Commercial
Law.3 The Civil Code gives natural and legal persons the freedom to agree on all matters,
without limitation, provided that their agreement does not conflict with the law, public
policy or morality. The Commercial Law regulates commercial activities, business agencies,
commercial concerns, trade names and commercial contracts in general. The Commercial
Law also regulates banking transactions, bills of exchange, promissory notes and cheques, and
provides a first set of substantive provisions regarding bankruptcy under Qatari law.
ii Other legal frameworks

While they see very little M&A activity, the Qatar Financial Centre (QFC), established by
Law No. 7 of 2005, the Qatar Science and Technology Park (QSTP), established by Law
1 Michiel Visser is a partner, Charbel Abou Charaf is a local partner and Mohammed Basama is an associate
at White & Case LLP.
2 Law No. 22 of 2004.
3 Law No. 27 of 2006.
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No. 36 of 2005, and the Qatar Free Zones Authority (QFZA), established by Law No. 34 of
2005 as amended by Decree Law No. (21) of 2017, provide additional legal frameworks for
companies in Qatar, with considerable advantages.
The QFC
Companies licensed by the QFC are subject to a separate set of rules and regulations that
enable them to enjoy various commercial benefits related to M&A. However, given that most
QFC firms are subsidiaries or branches of parent companies, there is rarely any M&A activity
at the level of QFC entities. This trend could change, given recent developments at the QFC,
with a noticeable increase in newly incorporated holding companies and special purpose
vehicles that could be involved in M&A.
The QSTP
Similarly, the QSTP is a free zone, affiliated with Qatar Foundation, designed to promote
and support research and development, technology and the investment activities that serve
the objectives of the QSTP. It has rarely seen any M&A activity, given that its members are
largely international companies.
The QFZA
The QFZA acts as a regulator for free zones in Qatar and aims to attract foreign direct
investment in the free zones as well as encouraging domestic investors to expand internationally.
Companies can be established in the free zone areas pursuant to the Free Zones Authority
Companies Regulations 2018 and are thereafter regulated by the QFZA. The QFZA’s legal
framework is relatively new and is still in the process of being fully established.
iii Corporate law

General overview
M&A activity is primarily governed by the new Companies Law.4 It is also regulated by
the Qatar Financial Markets Authority’s Law No. 8 of 2012, as amended, and by the Law
Regulating the Investment of Non-Qatari Capital in Economic Activity (New Foreign
Investment Law).5
Under the Companies Law, a company can have multiple forms. The two most
widespread types of companies in Qatar are the limited liability company (LLC) and the
joint-stock company (JSC) in the form of a private JSC.
iv Private acquisitions
Mergers
Under Qatari law, a merger occurs when one company is merged into another company, or
one or more companies are merged into a new company. The merger contract will contain
terms providing for, inter alia, an evaluation of the liabilities of the merged company and
the number of shares allocated to the capital of the merging entity. The merger shall only be
4 Law No. 11 of 2015

5 Law No. 1 of 2019.
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valid if previously approved by the competent corporate bodies of the companies involved, in
accordance with the respective articles of association (articles). Mergers in Qatar are rare, and
the merger provisions of the Companies Law are consequently infrequently invoked.
Demergers
The Companies Law provides that a company can split into two or more companies, whereby
each company will be deemed an independent legal entity and can take on any of the legal
forms mentioned in subsection ii.
A demerger must be approved by a decision issued by the extraordinary general
assembly (EGA) of the company, with the favourable vote of shareholders representing at
least 75 per cent of the share capital. The resolution for demerger should outline the names
of the shareholders and their shareholdings, the rights and obligations in respect of all the
companies resulting from the demerger, as well as the manner by which assets and liabilities
are to be distributed among them.
In the event that the shares of the company to be demerged are traded on Qatar’s main
stock exchange, the Qatar Exchange, the shares of the companies resulting from the demerger
shall be tradable upon issuance of the demerger decision.
Finally, it is important to note that the Companies Law allows shareholders that voted
against the demerger to exit from the company. However, no further details are provided for
in the Companies Law regarding the exit process.
Acquisitions
An acquisition will only be deemed valid if the following requirements are met:
a the acquiring company and the target company must each issue a resolution by their
respective EGA approving the acquisition and setting out the waiver of the right of first
refusal of existing shareholders: these resolutions are to be certified by the Ministry of
Commerce and Industry;
b the acquiring company must issue a resolution to increase its capital and thereafter
allocate that increase to the shareholders according to their shareholdings in the
company, in accordance with its articles;
c completion of the procedures to transfer ownership of the shares of the target, which
will not be opposable until the shares are duly registered in accordance with the
provisions in the Companies Law;
d if the acquisition is a buyout, the acquiring company must pay the value of the shares
and deposit the shares in a special account to distribute them to the shareholders that
were registered at the time the EGA approved the sale of shares;
e if the acquisition was made through a share or bond conversion, the acquiring company
must submit those shares or bonds to the target for the target to distribute them to the
shareholders that were registered at the time the EGA approved the acquisition;
f the target must amend its constitutional documents, including the articles, and elect a
new board of directors accordingly; and
g the acquiring company must take all necessary measures to preserve the rights of the
minority shareholders, including offering to purchase the stock or voting rights of
the minority shareholders for a value not less than the value of the stocks or shares
covered by the acquisition, or the value determined by an expert in accordance with the
provisions of the Companies Law.
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v Public M&A
Overview of the Securities Market Regulation
The Qatar Financial Markets Authority (QFMA) is governed by Law No. 8 of 2012, which
establishes the rights of the QFMA to regulate takeovers and mergers of public companies. The
relevant rules and regulations issued by the QFMA are the Mergers and Acquisitions Rules of
2014, discussed in further detail in Section III. Although it was initially not mandatory for
listed companies to comply with the Corporate Governance Code (CG Code), the version
issued by the QFMA in 2016 operated a comply or clarify principle. However, the most
recent version of the CG Code makes it of compulsory application to listed companies.
The QFMA rules and regulations provide specific listing, disclosure and notification
requirements for listed companies.
vi M&A in certain regulated industries

While M&A activity is generally conducted in accordance with the above-mentioned steps,
certain regulated industries provide for particular processes.
The financial sector

The Qatar Central Bank (QCB) is governed by the QCB Law,6 which details the mechanism
for the merger of financial institutions, subject to the thresholds and procedures set out in the
Companies Law and the restrictions set out in the New Foreign Investment Law.
Under the QCB Law, two or more financial institutions can merge in one of two ways:
two or more companies can merge into a new company or the target can merge into the
acquirer. In both cases, the following steps must be taken:
a approval of the QCB for the merger is required;
b a preliminary agreement, or plan of merger (called an initial agreement under the QCB
Law), must be signed by the parties;
c prior to signing such an agreement, a full due diligence review must be undertaken; and
d an application for the merger containing certain documents and information must be
submitted to the QCB, following which the Governor of the QCB has 60 days to issue
a decision approving or rejecting the merger. That decision is appealable.
In addition, the QCB Law imposes the creation of committees at the level of the companies
intending to merge, on which the QCB must be represented. The exchange of information
between the merging companies is also strictly regulated: any exchange requires prior
approval by the Governor of the QCB, and the content of the exchange and the identity of
its recipients are restricted.
A merger can be imposed by the QCB on any financial institution facing problems that
have a fundamental effect on its financial condition.
The QCB Law does not shed much light on the legal framework governing acquisitions
of financial institutions, but addresses the issue in a single provision requiring the approval
of the QCB on any acquisition, pursuant to the terms and conditions set by the QCB,
and applying the benefits and privileges granted under the merger provisions to any such
acquisition. In practice, it seems that the QCB is applying the acquisition provisions of the
Companies Law as set out in subsection iv.
6 Law No. 13 of 2012.
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The telecommunications sector

Legislation in the telecommunications sector consists of various laws and regulations. The
main governing act is the Telecommunications Law (Telecom Law).7 As the regulator of this
sector, the Supreme Council for Information and Technology (formerly known as ictQATAR
and currently known as the Communications Regulatory Authority (CRA)) plays a key role.
The Executive By-Law for the Telecommunications Law (Executive By-Law)8
and various CRA notices and instructions, including the 2011 instruction regarding the
calculation and payment of the licence fee and industry fee, and the 2012 Radio Spectrum
Policy, have helped shape the sector.
The Telecom Law grants discretionary power to the CRA regarding changes of control.
Under Article 13, the Executive By-Law also requires approval by the CRA if an individual
licence is assigned to another person, where the term assignment includes a transfer of the
licence or a change of control of a licensee.
Finally, the target company must deliver to the CRA written notification of an intended
transaction no later than 60 days prior to the intended completion date of the transaction.

THEIR IMPACT
Until recently, the regulations on securities contained little more than basic provisions on
tender offers for shares traded on the Qatar Stock Exchange. Consequently, the offer structure
and content were primarily based on the contractual arrangements of the parties, which were
often subject to considerable amendments resulting from the rather ‘heavy’ (but necessary)
interaction with the QFMA to obtain guidance throughout each stage of the process. On
9 March 2014, the QFMA published the Merger & Acquisition Rules (M&A Rules), thereby
providing a more comprehensive, albeit complex, legal framework for public takeovers.
i The M&A Rules

Scope
The M&A Rules have a wide scope of application, since they generally apply to all acquisitions
or mergers where one of the parties is a listed company in Qatar (direct acquisitions) or a
subsidiary of a listed company (indirect acquisitions).
Exceptions
With the exception of a few provisions, including certain disclosure obligations, the M&A
Rules do not apply to: acquisitions or mergers performed outside the state of Qatar; and
indirect acquisitions, provided that the subsidiary of the listed company has conducted
business activities in the past three years, or where there was no conflict of interest between
the listed company (or its subsidiary) and the counterparty to the acquisition or merger.
It is unclear from the M&A Rules whether the above conditions are mutually exclusive,
or whether the ‘or’ should rather be read as ‘and’, thus rendering both conditions as
requirements for the purposes of the exemption. A literal approach to interpretation would
7 Decree-Law No. 34 of 2006.

8 ictQATAR Decision No. 1 of 2009.
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militate against considering the conditions cumulative. Furthermore, there is no guidance

in the M&A Rules as to what exactly would constitute a conflict of interest relevant in this
context.
Notwithstanding this exemption, listed companies are required to comply with certain
(rather substantial) disclosure obligations, both prior to an acquisition or merger, with respect
to indirect acquisitions, and immediately upon approval being granted by the regulators of
the offeree company with respect to acquisitions or mergers implemented outside the state,
and at completion of the transaction in both cases.
Pre-completion obligations
In particular, with regard to pre-completion obligations, listed companies are required to
disclose certain information to the QFMA and the market, including:
a details of the offeror, the offeree company (i.e., the target), the major shareholders (i.e.,
shareholders owning 5 per cent or more of the share capital of a company), and the
directors and senior executives;
b with respect to indirect acquisitions only, details of the subsidiary, its business and the
degree of dependency on the listed company;
c details of the minimum and maximum number of shares that can be acquired under
the offer;
d the offer price;
e the purpose of the acquisition or merger;
f the envisaged timetable;
g an indication of the consequences that the offer may have on the financial position of
the listed company and its shareholders;
h the advantages and disadvantages possibly arising from the acquisition or merger; and
i the disclosure of any conflicts of interest among the offeror, the offeree, their
independent advisers and ‘any person having a relationship with the acquisition or
merger’ (collectively, concerned persons), the members of their respective board of
directors or major shareholders.
Completion obligations
Immediately upon completion of an acquisition or a merger, listed companies are required
to provide the QFMA and the market with a statement setting out the outcome of the
transaction, including an indication of the actual percentage and value of the shares that
have been acquired (to rectify any differences or discrepancies with the information disclosed
in the previous communication mentioned above), and the effects of any difference on the
content of any such previous disclosure. In addition, listed companies have to submit to the
QFMA the execution copy of the merger or acquisition agreement.
Finally, the M&A Rules provide that if the procedures for the implementation of the
acquisition or merger are not completed (it is not clear whether partial completion would be
carved out), presumably within the timeline indicated within the timetable outlined below, a
listed company is required to notify both the QFMA and the market of the reasons for this,
and provide information as to whether it is expected that the situation will be temporary
or final. Again, the M&A Rules appear incomplete, as they do not offer guidance on the
triggering event of this disclosure obligation, nor specify the period within which this
obligation must be complied with.
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Intention to launch an offer, application, timetable and offer document

The M&A Rules require listed companies to immediately disclose to the QFMA and the
market the intention to submit an offer, as well as any initial understandings with relevant
parties concerning the offer. We believe that such a disclosure could not be made efficiently
(without otherwise adversely affecting the outcome of the offer) prior to having reached a fair
degree of certainty in respect of the actual intention to launch an offer.
Following that disclosure, the offeror is required to submit to the QFMA the following
main documents: an application for the acquisition or merger, an offer document and a
timetable for the implementation of the acquisition or merger (collectively, documentation).
Timetable
The M&A Rules require the offeror to submit to the QFMA a proposed timetable for the
acquisition or merger within two weeks of the date of notification regarding the intention to
launch an offer. The timetable must include, inter alia:
a the final offer document;
b an opinion issued by the board of directors of the offeree company; and
c proposals with respect to relevant dates, including:
• the first permitted closing date of the offer;
• the date on which the offeree company may announce its profits or dividends
forecast, asset evaluation or proposal for dividend payments;
• the date for the public announcement of the offer;
• the final date for meeting all conditions; and
• the final date by which to pay the relevant consideration to the shareholders of
the offeree.
The M&A Rules do not provide guidance or further details in respect of the above-mentioned
dates, and their actual meaning in this context is therefore unclear. The QFMA must be
notified immediately if it becomes apparent that the offeror or the offeree is unable to comply
with the timetable.
Applicable time periods

The offeror is required to provide the QFMA with the documentation at least 30 days prior
to the date of the meeting of the EGA held to approve the offer. The offeror is also required to
provide the shareholders with the offer document within three days of the QFMA’s approval
of that document and at least 15 days before the date of the EGA meeting.
Unless the QFMA extends this period, the offeror must implement the offer within
one month of the date on which the offer has been approved by the EGA, or of the date of
approval of the offer document by the QFMA if the EGA has not been held.
Additional disclosures
During the offer period, listed companies are required to disclose (presumably to the QFMA
and the market) any dealings of major shareholders concerning the securities that are the
object of the offer. These include details of any person who, individually or jointly with
minor children, a spouse or with others owns or becomes the owner of 5 per cent or more of
the shares in the offeror or the offeree.
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Post-completion obligations
A listed company is required to submit an acknowledgment to the QFMA confirming that
completion of the acquisition or merger has occurred.
Mandatory offer
Every person who owns or intends to own, whether individually or with other persons, more
than 75 per cent of the shares of the offeree company (relevant stake) is required to notify the
QFMA thereof and submit a mandatory offer to buy all the remaining securities (mandatory
offer). The mandatory offer must be launched within 30 days of the date on which the
holding of the relevant stake is achieved. It is therefore unclear how (if at all) the obligations
in relation to the mandatory offer apply to the mere intention or willingness to acquire a
relevant stake.
Exemption from mandatory offer

The QFMA may grant a temporary exemption from the obligation to launch a mandatory
offer provided that the relevant person owns a stake not exceeding 78 per cent of the share
capital, and the 3 per cent in excess of the 75 per cent threshold set out above is disposed of
within three months of the date on which the excess percentage was acquired by that person.

While the two most widespread types of companies in Qatar are the LLC and the JSC, most
foreign investors choose to do business in Qatar through an LLC form because of its lighter
framework.
Through the establishment of the QFC, Qatar has promoted the country as a regional
hub for international finance with the aim of attracting, inter alia, banking, financial services,
insurance and corporate head office function businesses. As mentioned earlier, companies
licensed by the QFC enjoy an array of commercial benefits, such as 100 per cent foreign
ownership and a corporation tax rate of 10 per cent on all locally sourced profits. As a result,
the QFC has seen a large number of international and regional banks, financial institutions
and insurance companies open under the umbrella of the QFC Regulatory Authority.
Similarly, the QSTP and QFZA allow 100 per cent foreign ownership and for companies
to sponsor foreign employees, resulting in the attraction of major international companies.
Foreign involvement in M&A transactions is largely governed by the New Foreign
Investment Law. Under the Old Foreign Investment Law,9 the general rule was that foreign
investors could invest a maximum of 49 per cent of the share capital of a Qatari company in
all sectors of the national economy so long as the remaining 51 per cent of the share capital
is owned by at least one Qatari partner.
The New Foreign Investment Law, which repealed the Old Foreign Investment Law,
allows foreign investors to own up to 100 per cent of the share capital of a Qatari company,
except in the case of banks, insurance companies and commercial agencies, and companies in
any other sector that would be covered by a decision of the Council of Ministers. If a foreign
investor wishes to hold more than 49 percent of the share capital of a company, an application
must be made to the relevant department at the Ministry of Commerce and Industry.
9 Law No. 13 of 2000.
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Pursuant to the New Foreign Investment Law, foreign companies can perform certain
contracts in Qatar if a number of requirements are met, including the contract in question
being performed through the foreign company’s Qatar branch, and the contract being with
a ministry, governmental agency, public body, institution or company in which Qatar is a
shareholder.
Benefits offered to foreign investors include the freedom to repatriate profits as the
foreign investors deem fit, tax exemptions and exemptions in relation to customs duties
regarding the importation of necessary equipment and materials.
With regard to foreign involvement in publicly listed companies, as a general rule,
foreign investors can own up to 49 per cent of the shares listed on the Qatar Exchange
upon approval by the Ministry of Commerce and Industry of the specific foreign ownership
threshold set in the articles of that company. Moreover, a foreign investor can own more
than 49 per cent of the shares of a publically listed company upon approval of the Council
of Ministers.

The key trend in M&A activity has been to focus on the myriad opportunities for Qatari
investors in the global market. Qatar’s most prominent investors, such as QIA, Ooredoo,
Qatar Petroleum, Qatari Diar and Katara Hospitality, have been acquiring assets in both stable
economies and emerging markets; note, however, that since the Brexit referendum, there
have not been any major investments in the United Kingdom by any of the aforementioned
major Qatari investors. This could mean that there are opportunities for Qatari institutions
to benefit from investments in the UK market, whether in the real estate, finance, industry,
hospitality, energy or sports sectors. In parallel, Qatari investors continue to invest in
emerging markets, with a particular focus on real estate.
VI EMPLOYMENT LAW
The Labour Law10 provides the main framework for employment law and applies to Qatari
employers and workers. However, it does not apply to the following individuals:
a employees and workers of corporations and companies established by Qatar Petroleum;
b employees and workers for government and public bodies, including the ministries;
c officers and members of the armed forces, the police and the maritime forces;
d temporary workers; and
e individuals working in domestic employment (including, without limitation, drivers,
cooks and gardeners).
The main government body responsible for individuals working in Qatar is the Ministry of
Labour.
With regard to business transactions, the main applicable provision of the Labour Law
provides that employees of a target company, and their employment-related rights, obligations
and benefits under the relevant employment relationships, transfer to the acquiring company.
In turn, and given that the approval of the Ministry of Labour is required to transfer the
10 Law No. 14 of 2004.
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sponsorship of individual employees, the acquiring company and the target company must
coordinate with the Ministry of Labour to transfer the employees to the acquiring company.
Where approval is given, employment relations between the employee and the acquiring
company (or the new company) continue without interruption, and the transferor and the
transferee are jointly and severally liable for an employee’s pay or other claims deriving from
the employment relationship that have fallen due before the transfer. Finally, under the
Labour Law, a transfer of business does not, in itself, constitute a legal ground to terminate
any employment relationship.
i Trade unions
Although the Labour Law permits a single employees’ committee to be formed by more than
100 Qatari employees employed by the same entity, trade unions are practically non-existent.
The Labour Law requires minimum employee entitlements by which employers must abide,
but can amend these if in favour of the employee.
ii Qatarisation
Because of Qatarisation, whereby priority in employment is given to Qatari nationals,
non-Qatari employees must demonstrate a need for their skills and the unavailability of a
Qatari national to carry out the work, and acquire approval from the Ministry of Labour
prior to commencement of the work.
iii Pension arrangements and social security

Pension arrangements and social security are also regulated by the Labour Law: certain
insurance and social security contributions for Qatari national employees are required.
Moreover, pension schemes are allowed for foreign employees and may be elected by Qatari
employees if they are more beneficial than the minimum benefits provided for by law.
iv Sponsorship
Individuals require a valid residency permit and work permit, which may be applied for by
an individual or an entity. In either case, the applicant is known as the worker’s sponsor.
Employees who hold a valid work permit must only perform work for their sponsors.
Secondment of an employee to a third party requires approval from the Ministry of Labour
and is often restricted in duration.
v Immigration law
On 13 December 2016, the New Immigration Law11 regulating the entry, exit and residency
of expatriates in Qatar entered into force, replacing the previous Immigration Law.12 The New
Immigration Law provides notable changes, including the right for an expatriate working in
Qatar to move between employers without the need for a non-objection letter from his or her
existing employer (subject to the satisfaction of certain conditions), and appeals to a special
committee, the Foreign Nationals Exit Grievances Council, in the event that the conduct of
a current employer hinders or impedes the exit of an expatriate from the country.
11 Law No. 21 of 2015.

12 Law No. 4 of 2009.
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The New Immigration Law has been amended by Law No. 21 of 2017. The amendments
include expatriates’ right to exit the country for holiday and emergency reasons, and to leave
Qatar permanently prior to the expiry of a employment contract, in each case subject to
giving prior notice to the employer.
VII TAX LAW

Several taxes are worth mentioning in relation to the Qatari system: corporate income tax,
withholding tax, capital gains and dividend tax, personal income tax, sales tax and double
taxation.
The income tax system is subject to the Income Tax Law,13 under which a legal entity is
considered a tax resident for tax purposes if the company is incorporated under Qatari law, is
mainly located in Qatar or has its headquarters in Qatar.
A general flat tax rate of 10 per cent applies to profits arising out of taxable activity in
Qatar, but a rate of at least 35 per cent applies to oil and gas operations.
Currently, withholding tax at a rate of 5 per cent is levied on all payments made to
non-residents, including in relation to royalties and any other payments for services carried
out wholly or partly in Qatar.
There is no capital gains tax or dividend tax on Qatari companies.
Similarly, personal income tax, sales tax and VAT are not imposed on operations in
Qatar, although the Qatari authorities are examining the possibility of introducing VAT.
Qatar is a party to treaties for the avoidance of double taxation with several countries,
which provide an important incentive for foreign investors operating in Qatar.
Entities licensed under the QFC are subject to a flat rate of 10 per cent on local-source
profit but are not subject to withholding taxes. Wholly owned government entities
incorporated in the QFC are exempt from taxes.
In the same way, entities licensed by the QSTP are fully exempt from Qatari corporate
income tax, while entities licensed by the QFZA can benefit from renewable 20-year corporate
tax holidays.
Finally, with regard to the financial sector, a preferential tax treatment may be granted
by the QCB to a merging company or a new company resulting from a merger.

Under the current legislative framework, there are no antitrust or merger control laws
applicable to M&A transactions in Qatar. However, an antitrust culture is starting to emerge
with the establishment of a De-monopolisation and Competition Protection Committee at
the Ministry of Commerce and Industry, which has recently issued notices to large Qatari
companies in relation to exclusivity and pricing matters.
13 Law No. 21 of 2009.
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IX DATA PROTECTION LAW

The Data Protection Law, which entered into force in May 2017, aims to establish a certain
degree of protection for the processing of personal data by granting individuals the right to
withdraw consent to that processing, the right to access and review information previously
provided to the data controller, and to request deletions, modifications, or both, to any of
the information. Moreover, data controllers will be required to put in place appropriate
systems and procedures for the processing of personal data to avoid any leaks or unauthorised
disclosure of information. Particular information (e.g., relating to race, religious beliefs,
health and criminal records) will only be processed with the prior approval of the relevant
administrative unit at the Ministry of Transport and Communications. Finally, the Data
Protection Law imposes high financial penalties for non-compliance, ranging between
1 million and 5 million Qatari riyals.
X OUTLOOK
Despite the fall in oil and gas prices in recent years, a heavy flow of investments into the
infrastructure sector and the preparations for the FIFA World Cup in 2022 have continued
apace. Moreover, there has been a significant boost in the media, retail and food industries.
Other sectors that are expected to continue to grow steadily include construction, real estate,
hospitality, fashion and technology.
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Chapter 37
ROMANIA
Horea Popescu and Claudia Nagy1

According to the World Bank’s Doing Business Report 2019, Romania is ranked 52nd
worldwide on the aggregate ease of doing business index, seven positions lower than the
previous year. However, Romania ranks first in the European and Central Asia areas with
regards to the ease of doing business across borders, and is well above the average rankings of
the region in areas such as getting credit, paying taxes and enforcing contracts.2
From an economic perspective, Romania was again one of the fastest-growing economies.
According to estimates published by the Romanian National Institute of Statistics, the
economy rose by 4.1 per cent year on year as compared to 2017 (compared with 7 per cent
year on year the previous year).3 As compared to 2017, there was a slight decrease in M&A
activity after a particularly active 2017 characterised by a significant number of high-value
deals. However, M&A activity seen in 2018 represents the evolution of a year of economic
growth. Investment activity was broadly spread across the telecoms and IT, real estate and
construction, manufacturing and education and healthcare services sectors.
In 2018, there were approximately 130 transactions totalling approximately €1.9 billion
only including transactions with a listed value, while the value of all transactions, including
unlisted ones, is approximated at between €3.8 and €4.3 billion. Of the 130 transactions
in 2018, 26 deals were in the telecoms and IT sector, 24 in the real estate and construction
sector, 23 in manufacturing, 11 in education and healthcare services, nine in wholesale and
retail, eight in the services sector, six in the finance and insurance sector, five in the agriculture
and farming sector, and 18 in other sectors.4

The general framework for M&A activity in Romania is mainly governed by the Civil Code
and Company Law, as republished and further amended and supplemented (Company
Law).5 The Civil Code provides the general legal framework governing legal entities as well as
the general principles applicable to mergers and demergers. The Company Law provides the
applicable rules for the sale and purchase of shareholdings in Romanian companies, as well as
those applicable for share capital increases, mergers and spin-offs.
1 Horea Popescu is a partner and Claudia Nagy is a senior associate at CMS Romania.
2 http://www.doingbusiness.org/content/dam/doingBusiness/country/r/romania/ROM.pdf.
3 http://www.insse.ro/cms/sites/default/files/com_presa/com_pdf/pib_tr4r2018.pdf
4 Emerging Europe M&A Report 2018/189, CMS in cooperation with EMIS.
5 Company Law No. 31/1990.
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Romania
On a more practical note, registrations with the Trade Registry (which is the method
for publicising operations of companies) follow the rules established by Trade Registry Law,6
as republished and further amended and supplemented, in addition to ancillary regulations.
Depending on the business activity of the target company, the following sector regulations
may also be applicable:
a for public companies, the Capital Markets Law7 and various secondary enactments
likely apply, as will Regulation 1/2006 on Issuers and Securities Operations, as further
amended and supplemented, in particular by Law No. 24/2017. Public companies
come under the supervision of the Financial Supervisory Authority (FSA);
b for insurance companies, the general framework is set forth in Law No. 237/2015
on the authorisation and functioning of insurance and reinsurance activities, and the
supervision of the FSA also applies; and
c for banks, the main legislative framework is set forth by Government Emergency
Ordinance No. 99/2006 on credit institutions and Regulation No. 5/2013 of the
National Bank of Romania (NBR), and the supervision of the NBR also applies.
Investors doing business in Europe may find Romanian regulations somewhat familiar,
as they are the product of the implementation of EU directives into Romanian law.
Law No. 137/2002 is the main piece of legislation governing company privatisations, which
continue to be of interest to many major companies that are still state-owned.
Competition law is also relevant in the M&A field, as economic concentrations between
companies must be controlled and competition must remain fair at all times. The Competition
Law,8 as republished and further amended and supplemented, is related to regulations and
EU competition law, and contains provisions on notifications to the Competition Council
and the European Commission, and the related requirements and thresholds.
In addition to the above, other legal provisions applicable to the particularities of
each transaction may become relevant. These include, for example, environmental law,
employment law and insolvency law.

THEIR IMPACT
i Insurance, capital markets and pensions
Following the entry into force of Law No. 24/2017 regarding issuers of financial instruments
and market operations, the FSA issued Regulation No. 5/2018 regarding issuers of financial
instruments and market operations in order to align the legal framework in the capital
markets sector.
In 2018, another significant legislative novelty entered into force, namely Law No.
126/2018 on markets in financial instruments, implementing MiFID II9 in Romania.10
6 Trade Registry Law No. 26/1990.

7 Law No. 297/2004 on capital markets.
8 Competition Law No. 21/1996.
9 Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in
financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU.
10 Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in
financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU.
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Romania
Law No. 126/2018 applies to investment firms, market operators, data reporting service
providers, central depositaries, central counterparties and investment firms from other
Member States operating in Romania, directly or through a branch, and to companies from
third countries providing investment services or carrying out other investment activities in
Romania through a branch. According to Law No. 126/2018, the competent supervisory
authority is the FSA; however, the NBR has special supervisory powers related to the
investment services carried out by Romanian credit institutions as well as by the Romanian
branches of credit institutions authorised in other Member States.
ii Energy
At the end of 2018, Government Emergency Ordinance 114/2018 (GEO 114) introduced
several tax and regulatory measures for various major industries, including the energy sector.
In this respect, the main amendments for the energy sector are as follows:
a the applicability of the tax on the exploitation of natural resources is to be extended
until 31 December 2021;
b capping natural gas prices: from 1 May 2019 to 28 February 2022, producers, including
their subsidiaries and affiliates belonging to the same economic interest group, carrying
out both extraction activities and sales activities of natural gas extracted from the
territory of Romania, have the obligation to sell at a price of 68 lei per MWh the natural
gas resulting from current domestic production activities to the suppliers of natural gas
for household customers, and natural gas for heat producers used for the production of
heat in cogeneration plants and thermal plants serving public consumption;
c a 2 per cent tax on turnover to be charged to licence holders in the sector of electricity
and thermal energy produced in cogeneration and in the natural gas sector (with the
exception of coal-based power generation capacities and electric and thermal energy
cogeneration plants); and
d household customers will benefit from regulated electricity prices between 1 March 2019
and 28 February 2022; household customers were also granted the right to return to
regulated electricity prices.
Notwithstanding the above, it is important to note that there is significant opposition from
the business environment with respect to GEO 114. There are currently ongoing discussions
between the business environment and public authorities to discuss the provisions of GEO
114, which can be further amended through the law that has to approve GEO 114.
In addition, the law for promoting eco-friendly transportation entered into force
in January 2018. Under this law, 30 per cent of public transportation purchased by local
authorities must be green technology vehicles, such as electric, hybrid, hybrid plug-in,
hydrogen (FCV), compressed natural gas propulsion engines, liquefied natural gas propulsion
engines and biogas engines. In addition, starting from 2020, private transportation companies
(including taxi companies) must purchase electric vehicles in proportion of at least 30 per
cent of their fleet.
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iii Tax and tariffs

As further detailed in Section VIII, there have been numerous amendments to the tax
legislation, the most important of which are as follows:
a Government Emergency Ordinance No. 114/2018 on the introduction of measures
in the field of public investments and fiscal measures, the amendment and completion
of some normative acts and the extension of certain deadlines, introduced significant
measures affecting several sectors, as follows:
• tax exemptions with respect to personal income tax for employees in the
construction sector;
• health insurance contributions for dividend income; and
• the application of the VAT reverse charge mechanism has been prolonged for
several sectors;
b through Government Emergency Ordinance No. 89/2018 regarding certain
fiscal-budgetary measures and amending and completing certain normative acts, a 5 per
cent VAT reduction was implemented with respect to several categories of transport
services; and
c Government Emergency Ordinance No. 25/2018 for the repeal of certain legal
provisions in the field of publicly funded investments introduces the following
amendments:
• borrowing costs that are higher than the deductible threshold of €1 million are
deductible for the period in which they were incurred up to 30 per cent of the
calculation base;
• ending the public listing of individual bad debtors;
• a VAT adjustment for bad debts can be performed starting from the moment
when the bankruptcy procedure is opened, based on a judge’s decision.

According to the NBR balance of payments and external debt information for December
2018, foreign direct investment in Romania amounted to approximately €4.9 billion in
2018, as compared €4.8 in 2017.11
The industrial, telecoms and IT and real estate and construction sectors attract the
largest share of foreign direct investment. Other attractive sectors, including consumer
goods, agribusiness, retail and energy, have also attracted investors. In terms of geographical
regions, the areas that attract the most foreign capital are (in order of importance) Bucharest,
the centre and the south.12
Romania has numerous advantages for foreign investors: in addition to a large domestic
market, the country has a strong industrial tradition coupled with low labour costs and taxes
(among the lowest in the European Union).
11 https://www.bnr.ro/page.aspx?prid=15876#peloc2.
12 InvestingRomania.com reports based on the following sources of information: AGERPRES news,
analysis and estimates of financial analysts, current and periodic reports submitted to the Bucharest Stock
Exchange, and news coming from listed companies.
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In this respect, it is clear that Romania actively seeks foreign direct investment, and has
taken steps to strengthen tax administration, enhance transparency and create legal means to
resolve contract disputes expeditiously. However, the pace of privatisation and restructuring
of state-owned enterprises has slowed, yielding mixed results in this respect.

According to merger market reports, in 2018 there were several transactions in Romania
valued at over €100 million. The most attractive sectors for investors in 2018 were energy,
manufacturing, IT, banking and financial services, and pharmaceuticals and healthcare.
i Manufacturing
ArcelorMittal, the world’s largest steel producer, sold steel plants in several European
countries, including in Romania, to Liberty House for an undisclosed amount. ArcelorMittal
Galati is the largest iron-processing plant in Romania. In recent years, ArcelorMittal Galaţi
has recorded average production of approximately 2 million tonnes of steel per year and
employs about 7,000 people. The Liberty House Group is headquartered in London and is
engaged in metal recycling, steel and aluminium processing, and is part of GFG Alliance,
a global group of companies in the energy, mining, metallurgy, engineering, logistics and
financial services. GFC Alliance is present in about 30 countries, with an annual turnover of
over €13 billion.
Damen Shipyards Group NV completed its acquisition of the Mangalia shipyard. In
2017, a Netherlands-based company engaged in shipbuilding and related maintenance and
repair activities, agreed to acquire a 51 per cent stake in Daewoo-Mangalia Heavy Industries
SA, a Romania-based shipbuilder and repair services company, from Daewoo Shipbuilding &
Marine Engineering Co, Ltd, a listed South Korea-based shipbuilding and offshore company,
for a total consideration of €22 million. The Mangalia shipyard, located on the Black Sea, has
three drydocks and was a joint venture between Daewoo Shipbuilding & Marine Engineering
(DSME) and the Romanian government in 1997. In 2018, the Romanian government
informed DSME to exercise its preemption rights over the target sale, and Damen Shipyards
Group entered into negotiations with the government regarding the Mangalia shipyard.
Unilever completed the acquisition of Betty Ice, the Competition Council approving
the transaction on the basis of voluntary commitments by the Anglo–Dutch giant. Betty Ice
was founded in 1994, and is the most important local ice cream producer in Romania with a
total turnover of €30 million. The company owns a factory in Suceava and has over 180 ice
cream kiosks open during the summer. Unilever is one of the world’s leading consumer goods
companies, selling around 400 brands in over 190 countries.
ii Real estate
The largest transaction registered in 2018 was Dedeman’s acquisition of The Bridge office
project from Forte Partners for an amount of more than €150 million. Dedeman is a resident
group of companies that had a turnover of approximately €1.37 billion in 2017, and is one
of the largest Romanian employers with more than 10,000 employees, and the largest retail
network, including 48 DIY stores, two logistics centres and a private car park. The group was
also active in previous years acquiring, among other things, a 50 per cent stake in Cemacon,
a Romanian brick manufacturer, and over 23 per cent of Alro Slatina, the only producer of
primary aluminium and alloys in Romania.
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Lion’s Head Investments, a joint venture between Old Mutual (South African) and AG
Capital (Bulgarian), acquired the Oregon Park office project developed by Portland Trust
and Ares Management LP. The transaction had a value of approximately €135 million. Lion’s
Head is a long-term real estate investor focused on value-added properties in Southeastern
Europe already present in Sofia. The Oregon Park project has an area of 35,000m2 that is
leased entirely to multinational companies. AG Capital is a regional investment fund made
up of investment and real estate development, consulting and asset management companies.
Old Mutual Property is one of the most important South African investors with more than
40 years of experience, being part of the Old Mutual Group.
iii Banking and finance

Romanian investment fund SIF Oltenia has signed a deal for the sale of its 6.29 per cent stake
in Banca Comerciala Romana (BCR) to Austria’s Erste Group for €141.7 million. BCR, a
member of the Erste Group, is the most important financial group in Romania, considering
the operations of the universal bank (retail, corporate and investment banking, treasury and
capital markets), as well as companies in the leasing market, private pensions and housing
banks. BCR is the No. 1 bank in Romania by asset value (over €15 billion), the No. 1 bank
by number of clients and the No. 1 bank on the saving and lending segments.
Leumi Bank has completed negotiations for the sale of its operation in Romania to
Argo Financials Fund Limited, an investment fund of Argo Group Limited for an amount
of €110 million. Argo Group Limited specialises in investing in emerging markets through
the funds it manages. Currently, Argo Group Limited manages several funds investing in
instruments with fixed income, non-performing loans and real estate.
iv Pharmaceuticals
Advent International, one of the largest and most experienced global private equity investors,
completed its acquisition of Zentiva, including Zentiva Romania SA, Sanofi’s European
generics business for €1.9 billion. Advent is one of the largest and most experienced global
private equity investors active in the healthcare sector. This transaction is part of Sanofi’s
plans to simplify and reshape the company by removing non-core businesses.
The Phoenix group has acquired the Romanian pharmaceutical wholesaler Farmexim
SA and the Help Net Farma SA nationwide pharmacy chain. Farmexim is one of the largest
pharmaceutical wholesalers in the country, with 800 employees and 10 national distribution
centres, while the pharmacy chain Help Net operates approximately 220 pharmacies and
has 1,600 employees. German group Phoenix is one of the world’s largest pharmaceutical
companies with annual business of over €20 billion, and is present in 26 countries. In total,
Phoenix operates over 2,000 pharmacies in 26 states across Europe.
v Telecoms and IT
The largest transaction of 2018 was the sale of Liberty Global’s European assets to Vodafone.
Liberty Global, the world’s largest international cable business, sold its European assets to
Vodafone for an amount of €18.4 billion. The transaction included the sale of Liberty’s
Unity media business in Germany, as well as its UPC brand businesses across the Czech
Republic, Hungary and Romania. The deal is part of Vodafone’s push to become the leading
next generation network owner in Europe. Vodafone Romania is Romania’s second-largest
mobile provider, while UPC Romania is the second-largest next generation network operator
in Romania.
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Cognizant Technology Solutions acquired Softvision, a privately held digital engineering

and consulting company focused on the agile development of innovative software solutions
and platforms, for an estimated amount of €478.2 million. Cognizant Technology Solutions
is an IT solutions provider and one of Fortune 500’s fastest-growing companies.
UiPath, a leading enterprise robotic process automation (RPA) software company,
has raised more than €131 million in Series B funding following a year of record growth.
The company eclipses €942 million in terms of valuation, and validates RPA as a strategic
imperative for digital transformation and the path towards artificial intelligence. This
latest round was led by previous backer Accel, along with participation from new investors
CapitalG (one of Google’s investment vehicles) and Kleiner Perkins Caulfield & Byers, as
well as previous investors Earlybird, Credo Ventures and Seedcamp.
vi Agribusiness
Al Dahra Holding took over Agricost Braila, the largest agricultural producer in Romania,
in a deal estimated at over €225 million. Al Dahra is part of Al Ain Holding, controlled
by Sheikh Hamdan Bin Zayed Al Nahyan, former Deputy Prime Minister of the United
Arab Emirates. The group operates in more than 20 countries, owns and operates an area of
more than 200,000 hectares, eight forage presses and production, four rice milling units and
two flour grinders. The investment fund intends to purchase additional agricultural land in
Romania, and will invest in modernising the existing portfolio of agricultural machinery and
technologies.
vii Transportation & Logistics

Private equity fund Mid Europa Partners acquired Urgent Cargus, Romania’s second-largest
courier operator, from Abris Capital Partners for €120 million. Urgent Cargus operates a fleet
of over 2,600 vehicles, with about 2,900 employees and collaborators and a national network
of 72 centres and warehouses. In 2017, Urgent Cargus reported turnover of €80 million and
net profits of €0.44 million. Mid Europa Partners is among the largest private investors in
Central and Eastern Europe, with approximately €5.1 billion of managed assets.

In 2018, the theoretical indebtedness capacity in transactions was estimated at €1.5 billion,
75 per cent of it being financed by equity sources. However, the banks are proving increasingly
willing to finance transactions. As such, more mixed financing is expected to be seen in the
future through credits and private financing.
Pursuant to NBR data, in 2018, credit standards continued the trend of marginal
tightening recorded in the previous period. For 2019, banks expect credit standards to
tighten further for all categories of companies, both for long-term and short-term loans.
While there has been a moderate increase in credit requests from large companies, small and
medium-sized enterprises’ requests for short-term loans have increased significantly, while the
number of requests for long-term loans has increased only marginally.
In addition to the above, EU membership enables potential investors to seek financial
support through EU structural and cohesion funds. Such financing mostly comes in the form
of development grants. A variety of investment incentives are available to applicants active in
different economic sectors, in particular to small and medium-sized enterprises, an area with
significant potential in Romania. The most relevant programmes for investors are:
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a the Sectoral Operational Programme ‘Increase of Economic Competitiveness’ (POS

CCE);
b the Regional Operational Programme (POR);
c the Sectoral Operational Programme ‘Human Resources Development’ (POS DRU);
and
d the National Programme for Rural Development (PNDR).
VII EMPLOYMENT LAW

From an M&A perspective, the rules governing the transfer of employees in an asset deal, set
out by the Law on Safeguarding Employees’ Rights in the Event of Transfers of Undertakings,
Businesses or Parts of Undertakings or Businesses (TUPE Law),13 which transposes EU
Directive 2001/23/EC, should be considered.
Under the TUPE Law, in order to protect employees, every time a transfer of an
undertaking (or a part thereof ) occurs, all of the transferred undertaking’s employees are
transferred automatically by operation of law (no consent is required from the transferor, the
transferee or the employees), and no cherry-picking is allowed. The purchaser must observe
all rights and obligations resulting from existing employment contracts at the time of the
transfer, and has the obligation to honour all rights until the relevant contracts expire or
are terminated. However, the purchaser has the opportunity to renegotiate the collective
agreement with the employees’ representatives one year after the transfer date.
In general, share deals do not impact employment relations at the target level (or at
the subsidiary level), as the identity of the employer remains the same. Romanian legislation
does, however, set out general employee-related information and consultation requirements
in the context of M&A transactions, but they only apply if a proposed share deal significantly
impacts working conditions. Even if the law provides that a consultation should be carried
out regarding decisions that could significantly affect employees, there is no express obligation
to accept employees’ proposals or to sign any related agreements. However, failure to comply
with the information and consultation requirements may be sanctioned with fines.
In addition, in the case of a voluntary takeover of a public company, the target’s board
must inform its employees of the terms of the takeover and the board’s position on the
attempted takeover, as set out in FSA Regulation No.5/2018. The target’s employees may
issue a written opinion on the matter to be provided to the bidder, the shareholders and the
market.
As regards recent developments from an employment law perspective, these have been
limited, and the more material ones are tax-related (as further detailed in Section VIII). In
addition, the following legislation was enacted:
a Law No. 176/2018 implementing more restrictive regulations for employers who
organise internships;
b GEO No. 26/2019 establishing new provisions on various labour areas, such as setting
up a special register for day-to-day workers, additional annual leave for employees
following in vitro fertilisation procedures;
c Government Decision No. 584/2018 regulating additional employee protection from
risks related to the presence of chemical agents;
13 Law No. 67/2006 on Safeguarding Employees’ Rights in the Event of Transfers of Undertakings, Businesses
or Parts of Undertakings or Businesses.
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d GEO No. 60/2018 implementing additional facilities for employers who hire
unemployed people, or conclude apprenticeship contracts or traineeship contracts;
e Law No. 165/2018, creating a unitary framework for the following types of tickets: gift
vouchers, meal vouchers, crèche tickets, cultural vouchers and holiday vouchers that
can be issued both on paper and on electronic support. The amounts corresponding to
these tickets provided by an employer are deductible for the purposes of income tax;
and
f Government Decision No. 937/2018 providing the new minimum wage in Romania
(i.e., approximately €443 per month).
VIII TAX LAW

On 29 December 2018, Government Emergency Ordinance No. 114/2018 on the
introduction of measures in the field of public investments and fiscal measures, the
amendment and completion of some normative acts and the extension of certain deadlines,
which adopted significant measures affecting several sectors, was published in the Official
Gazette and has entered into force, and introduce the following key tax amendments:
a tax exemptions for employees in the construction sector: from 1 January 2019 to
31 December 2028, individuals working for employers that carry out construction
activities, or in the fields of manufacturing construction materials, are exempt from
personal income tax as follows:
• the exemption will apply if at least 80 per cent of the employer’s turnover is
derived from the above-mentioned activities. The turnover will be determined
from the beginning of the year, including the month when the exemption is
applied;
• to be able to apply for this exemption, individuals must have gross income of
between approximately €638 and €6,380 received on the basis of an employment
agreement; and
• this law also impacts the labour insurance contribution due by employers, which
has been reduced to approximately 0.34 per cent;
b a health insurance contribution for dividend income. Any income from dividends
taken into consideration for the calculation of a health insurance contribution is the
income distributed and received as of 2018. Dividends distributed before 2018 but
received in 2018 are excluded; and
c a VAT reverse charge mechanism. The application of the VAT reverse charge mechanism
has been extended until 30 June 2022 for the following: supplies of cereals and
industrial crops, transfers of allowances to emit greenhouse gases, supplies of electricity,
green certificates, mobile telephones, integrated circuit devices, game consoles, tablet
PCs and laptops.
Government Emergency Ordinance No. 89/2018 regarding certain fiscal-budgetary measures

and amending and completing some normative acts sets forth a 5 per cent VAT that started
on 13 January 2019 applicable to the following transport services:
a train or historic steam vehicles on narrow lines used for tourism or leisure;
b cable installations (cable cars, chairs or ski lifts) used for tourism or leisure;
c vehicles having animal traction used for tourism or leisure; and
d boats used for tourism or leisure.
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Pursuant to Government Emergency Ordinance No. 25/2018 for the repeal of certain legal
provisions in the field of publicly funded investments, starting 1 January 2019 (or the first day
of the fiscal year), borrowing costs that are higher than the deductible threshold of €1 million
are deductible for the period in which they were incurred up to 30 per cent of the calculation
base. Furthermore, the Emergency Ordinance put an end to tax collection agency ANAF’s
obligation to publish online a list of taxpayers with outstanding tax liabilities exceeding
approximately €21,246 in the case of individuals carrying on independent activities, and
approximately €3,187 in the case of other individuals; and allows a VAT adjustment for bad
debts to be performed starting from the moment when a bankruptcy procedure is opened,
based on a judge’s decision (and not only after a definitive decision is issued by a judge for
closing the bankruptcy procedure of a debtor). If a bankruptcy procedure has begun and is
not yet finalised, the VAT adjustment can also be applied beginning 1 January 2019.
IX COMPETITION LAW
There was limited development of competition legislation in Romania during the past year.
In this respect, the Romanian Competition Council published new guidelines regarding the
individualisation of sanctions for contraventions set forth in Article 55 of the Competition
Law, which brings further clarity to the terms and conditions under which companies are
sanctioned by the authority for breaches of competition law. Furthermore, it clarifies the
turnover to be considered for sanctioning purposes in the case of a non-resident, referring to
the group turnover generated within the territory of Romania.
X OUTLOOK
After four favourable years, specialists estimate that the Romanian M&A market will continue
its positive trend, despite a degree of slowdown in the market. The record transactions of
previous years have opened the gate for similar deals, and Romania appears to be on the
radar of big investors. Technology start-ups are also expected to grow and attract investors
keen on tapping into the potential of entrepreneurs. In addition, local entrepreneurs, taking
advantage of the constant economic growth and improved financial situations, seem to be
waiting for the right moment or offer to make their exit, thus attracting foreign companies
and investment funds in the market.
The telecoms and IT sector has proven to be the star of the M&A market, and is
predicted to further generate a greater number of high-value transactions. In this regard, the
cybersecurity groups Bitdefender and UiPath are the most eminent examples, and have also
generated some of the biggest transaction yet seen in Romania.
The combination of strong and constant economic growth, the desire and need to
modernise a variety of public services and the political will to work with the private sector
will lead to increasing investments in Romanian infrastructure. With 16 large public–private
partnerships approved for the next two to four years in 2018 alone, this positive trend is due
to continue and generate further transactions on the market.
Looking forward, we also expect increased interest in domestic M&A transactions of
local companies that will want to consolidate the segments in which they operate or enter
new sectors. Romania has seen a number of local companies that have successfully become
national champions capable of international expansion and strong economic growth, which
makes Romanian investment more possible in the region.
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Overall, 2019 also seems bright for the Romanian M&A market, which has good
macroeconomic prospects where companies, whether local or foreign, have more funds
available for investment, generating high hopes for increased dynamism.
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Chapter 38
RUSSIA
Alexander Vaneev, Denis Durashkin and Anton Patkin1
I OVERVIEW OF M&A ACTIVITY2

Views as to the state of the current Russian M&A market vary. On the one hand, generally
business activity is not very high due to a number of reasons (international sanctions, the
average quality of the investment climate, lack of a high number of well-developed industries).
On the other, every week information about this and notable deals appears in the mass
media or becomes known through other sources. Thus, in 2018 and early 2019, the following
transactions caught a substantial amount of the business community’s attention:
a the acquisition by VTB Bank of a 29 per cent share in major food and drinks
retailer Magnit from its founder Sergey Galitskiy for approximately US$2.2 billion.
Subsequently, 11.82 per cent of Magnit’s shares were disposed of by VTB to Alexander
Vinokurov’s Marathon Group for approximately US$1 billion;
b the acquisition by consumer electronics retailer M.Video of the Russian business of its
German competitor Media Markt. That deal was part of a larger transaction involving
an acquisition by Media Markt of a 15 per cent share in M.Video for US$470 million
comprising US$300 million in cash, and of Media Markt’s Russian business valued at
US$170 million. This is important, since from that perspective the deal looks not like
a foreign party leaving the Russian market, but rather vice versa, as it investing into
Russian economy;
c the merger of Uber’s business in Russia, Armenia, Azerbaijan, Belarus, Georgia and
Kazakhstan with its Russian analogue; Yandex Taxi;
d the acquisition by the largest Russian insurance company SOGAZ of VTB’s insurance
business. The united company’s net assets are estimated at about US$10 billion to
US$11 billion;
e the acquisition by Alexey Mordashov’s Severgroup of 41.9 per cent of the shares in
Lenta, one of the largest Russian food and drinks retailers, from EBRD and TPG
private equity fund for approximately US$730 million. As of the date of writing, a
tender offer to minority shareholders is open. The deal is notable due to the attempt of
certain minority shareholders to reverse the sale. Their main argument was that Lenta’s
board of directors did not properly assess other possible sale options, as there was a
competing proposal from Magnit whose terms, it is reported, were better; and
1 Alexander Vaneev is a partner, Denis Durashkin is a senior associate and Anton Patkin is an associate at
BGP Litigation.
2 Hereinafter any statements, data, facts, forecasts, estimates, etc., are made as of May 2019.
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f another resonant matter is the merger between two alcohol retailers, Krasnoye &
Beloye and Bristol, and food retailer Dixy. The united company is expected to become
third-largest food and drinks retailer in Russia.
Thus, the retail sector (whether food and drinks, taxi services or other retail activities) remains
very active, and more deals may be expected during the second and fourth quarters of 2019
and early 2020.
At the same time, oil and gas industry is traditionally hot in Russia, albeit the oil price
declining in recent years. Some recent deals worth emphasising are as follows:
a the acquisition of three 10 per cent shares in Novatek’s Arctic LNG-2 by, respectively,
Total and Chinese CNODC (CNPC’s subsidiary) and CNOOC. Each 10 per cent
share is valued at about US$2.5 billion. It is notable that, in order to meet the tight
deadlines involved, Novatek and Total managed to arrange with the antimonopoly and
foreign investment authorities in Russia a way to avoid the immediate prior regulatory
clearing of the deal. This was achieved by way of pledging the respective 10 per cent
share to Sberbank. Thus, Total having to obtain specified governmental consents has
been postponed until the end of that pledge; and
b the dissolution of the joint venture (JV) between Glencore and Qatar Investment
Authority (QIA), formed to obtain a 19.5 per cent share in Rosneft for €10.2 billion in
early 2017. As a result, QIA will hold a 18.93 per cent share and Glencore will hold a
0.57 per cent share in Rosneft.
Further, there were some more large deals in the hi-tech, digital and TMT areas:
a the formation of the JV between Mail.Ru, Megafon, Alibaba and Russian Direct
Investment Fund (RDIF) aimed at the further promotion of e-commerce in Russia;
b the formation of the JV between Megafon, Gazprombank, Rostec and Alisher
Usmanov’s USM aimed at the development of the IT and digital economy;
c the acquisition by Sberbank of a 46.5 per cent share in one of the leading internet
holdings, Rambler, for approximately US$150 million, which may be viewed as a
conversion into equity of Sberbank’s loan to Rambler’s principal shareholder, Alexander
Mamut; and
d the acquisition by VTB (which may be seen as one of the most active players of Russian
M&A market) of the following TV assets:
• a 75 per cent share in STS Media from Ivan Tavrin. The acquisition was made
through VTB’s JV with Yuri Kovalchuk’s and Alexey Mordashov’s National
Media Group (NMG); and
• a 20 per cent share in First Channel from Roman Abramovich. This asset is
also owned by VTB together with NMG (but each holds its share directly, not
through their JV).
In addition, the possible acquisition by Sberbank of not less than 30 per cent of the shares
of Yandex (considered the Russian Google) was announced in October 2018. From stock
exchange quotations, it appears that this piece of news was perceived negatively by the
market. Further information on the potential deal is not available.
It must be added that the digital sector is one of the few sectors in Russia today that
is demonstrating sustained growth. However, a substantial part of such deals are early stage
(pre-seed) investments. Transaction values in most cases are between US$1 million and
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US$10 million. It should be noted that a substantial part of the relevant information and
data are not available to the public. However, it venture capital (VC) is one of the most
attractive spheres for M&A lawyers in Russia in 2019.
The same, unfortunately, cannot be said about the Russian private equity (PE) sector.
Most of the information on PE deals is also not available to the public; therefore, again,
there may be various facts and indicators known only to the market participants. However,
we possess information such that it may be estimated that there has been low to medium PE
activity in Russia as of May 2019.
Finally, it is important to note that some of the deals are being made in quite distressed
surroundings, as, for example, the following:
a the invalidation by the High Court (UK) of the application of UC Rusal for the
US$770 million sale of a 2.1 per cent share in Norilsk Nickel by Roman Abramovich
to Vladimir Potanin. The Court held that such sale violates the shareholders’ agreement
made between the said parties in relation to Norilsk Nickel;
b the acquisition by Transneft of a 25 per cent share in Novorossiysk Commercial Sea
Port for US$750 million from Summa Group. The deal was negotiated alongside
the arrest of and criminal investigation against Summa’s principal ultimate beneficial
owners (UBOs), brothers Ziyavudin and Magomed Magomedov; and
c the recent arrest of Michael Calvey, founder and managing partner of Baring Vostok
Capital Partners PE fund, as well as of some of his colleagues and business partners,
is also linked to alleged violations and breaches within the framework of corporate
transactions.

The principal laws regulating M&A in Russia are:
a the Civil Code;
b the Federal Law ‘On Joint Stock Companies’;
c the Federal Law ‘On Limited Liability Companies’;
d the Federal Law ‘On State Registration of Legal Entities and Private Entrepreneurs’;
e the Federal Law ‘On Securities Market’; and
f the Federal Law ‘On Competition Protection’.
Foreign investments and their governmental approval are governed by the Federal Law ‘On
Foreign Investments’ and the Federal Law ‘On Foreign Investments into Industries Important
for State Defence and Security’.
Other laws regulating various industries should always be considered and scrutinised,
and in particular the following laws: the Federal Law ‘On Banks and Banking Activity’,
the Federal Law ‘On Central Bank’ and the Law of the Russian Federation ‘On Insurance
Business Organization in Russian Federation’.
There is plenty of subordinate legislation and explanations by the courts of ways to
interpret the law. Among them are the following:
a the Federal Antimonopoly Service’s ‘Explanations of the Order and Methodology of
the Analysis of the Joint Venture Agreements’ dated 8 August 2013;
b a Ministry of Labour and Social Protection letter dated 19 October 2017 concerning
the validity of non-compete clauses within the framework of labour relations;
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c the Supreme Court’s Plenary Session’s Resolutions:3

• on basic rules of civil law dated 23 June 2015;
• on contractual liability dated 24 March 2016;
• on contractual performance dated 22 November 2016;
• on challenging major and interested party transactions dated 26 June 2018;
• on entering into contracts and their interpretation dated 25 December 2018; and
d the High Commercial Court (which was subsequently merged into the Supreme Court)
Plenary Session Resolution on directors’ liability dated 30 July 2013.
Certain aspects of holding general shareholders’ meetings, information disclosure, notarial

certification of transactions (where necessary), performance of share transfers by registrars
and depositories are governed by the below sub-laws:
a Central Bank of Russia (Bank of Russia) recommendations on preparing and holding
general shareholders’ meetings dated 19 December 2017;
b Bank of Russia mandatory rules on general shareholders’ meetings dated
16 November 2018;
c Bank of Russia information disclosure standards for issuers dated 30 December 2014;
d Bank of Russia rules on maintaining a securities register dated 11 September 2014;
e Depository Business Committee’s basic standards dated 16 November 2017; and
f Ministry of Justice rules on notarial records management dated 16 April 2014.
In addition, and especially for listed companies4 (companies publicly traded on the stock
exchange5), the Bank of Russia Code of Corporate Governance dated 10 April 2014 is
non-compulsory but highly persuasive.
Generally, Russian company law is a quite a highly regulated sphere, especially when
it comes to listed companies. Therefore the above laws as well as other applicable rules (e.g.,
company charters, by-laws) should be carefully scrutinised each time it comes to performing
a share transfer, calling and holding shareholders’ and board meetings, and disclosing
information. Less attractive is the fact that Russian contract law is still not so dynamic and
liberal as, for example, English law, although it has made great progress in the past four to
five years.6 That may make deal structuring and principal agreement drafting cumbersome
in some cases. Other archaic limitations may also preclude implementing some traditional
M&A mechanisms. For example, it was discovered recently that it is practically impossible
3 Resolutions’ names are not quoted due to their massiveness – rather, a description of their content is
provided.
4 It must also be noted that recent legal amendments allow companies targeted by international economic
sanctions to ignore certain information disclosure rules. Those amendments’ effect on the securities market
and investment climate is viewed by certain experts as controversial.
5 Formally, a company’s shares do not necessarily need to be listed at the stock exchange in order for the
company to be public. It may have such status provided it complies with legal rules on information
disclosure, and even absent such listing. However, about the date hereof the Bank of Russia suggested
amending the legislation so that only listed companies could have public status. Hereinafter, therefore,
references to listed and non-listed companies shall be read as references to public and non-public ones.
6 Many reviews of the extensive reform of Russian contract law in 2015 are available in the public domain.
Briefly, the principal English law instruments were implemented then, such as representations and
warranties, indemnities and option agreements. Since four years have passed since that reform, we do not
view those amendments as recent developments.
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to give effect to a buy-back call option in relation to the shares in a limited liability company
(LLC)7 when the seller signs a share purchase agreement simultaneously or after signing the
said option in order to be able to return the sold share on certain occasions. That limitation
is due to notaries’ inability, in accordance with the applicable notarial legal rules, to certify an
option whereunder the purchaser agrees to sell a share back where that share does not belong
to him or her at the date of such option; the notary may only certify a disposal of assets
belonging to the party on the day of relevant deal.
In addition, as previously mentioned, regulatory clearings should always be subject to
thorough scrutiny, and each deal must, among other aspects, be assessed with a view as to
whether it is necessary to obtain a respective regulatory approval or consent. Absent such
approval a deal is either void, or voidable, or the new shareholder may not vote on his or her
shares. Sometimes regulatory consents act as deal-breakers: thus, as was widely covered in
the media, the contemplated acquisition by global oil industry services giant Schlumberger
of a 51 per cent share in its Russian competitor Eurasia Drilling Company (EDC) for
approximately US$1.9 billion8 was cancelled earlier this year after about four years of the
buyer’s unsuccessful negotiations with the Russian authorities on its approval.9 Sometimes
such regulatory issues may arise even where less expected. As such, it may be surprising
for less experienced lawyers that acquisitions of even a 0.1 per cent share in an insurance
company requires cooperation with the Bank of Russia in the form of a written notification.
English law10 is frequently utilised by parties to Russia-related deals. However, foreign
law may hardly be relied on at least in the following two cases:
a in the case of making a shareholders’ agreement in relation to Russian company due to
the generally accepted way of interpreting the relevant article of the relevant civil code;
and
b in the case of a sale purchase or other deal with an LLC’s shares, albeit no direct
prohibition is set forth, no notary may in fact certify such deal, with the deal being
void absent such certification.
Notwithstanding the above aspects, Russian law generally allows the structuring of M&A,
JV, PE and VC deals in accordance with the best UK and US practices, even though many
specific issues must be taken into account.
7 Russian law provides for many types of commercial legal entities, however vehicles of vast majority of deals
are listed and non-listed joint-stock companies (JSCs) and LLCs, which are similar in many aspects to
non-listed JSCs; however, their shares may not be listed (and are not securities as opposed to stocks), and
most disposals with such shares (sale-purchase, pledging, etc.) shall be notarised.
8 The deal’s parameters, including the size of share to be acquired and the purchase price, were subject to
several reviews in the course of negotiations.
9 Among other conditions discussed with the regulators then by Schlumberger was the appointment
of Russian directors to EDC, the transfer of certain technologies into Russia, and the mitigation of
international sanctions-related risks related to its possible forced sale of its share in EDC due to sanction
limitations.
10 And less often, other foreign law (e.g., Cypriot, Swiss or German law).
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THEIR IMPACT
Among the most interesting developments affecting corporate deals seen in the period
running from 2017 to 2019 are as follows:
a new rules on major and interested party transactions. The mandatory approval
of interested party transactions by a company’s board of directors or meeting
of shareholders has been superseded by an approval at the request of a director or
shareholder. Major transactions now do not need approval if a company regularly
enters into such transactions. Of particular note in the framework of the interpretation
of that rule is the currently pending11 OVK Corporation case. Among other things, it is
contested by the parties that after certain transactions were approved as being major,
the company’s CEO filed a claim asking to hold them as being non-major to avoid
the necessity for the company to buy back its shares from the shareholders who voted
against the transaction;
b new rules on foreign investment approval. The head of the government was vested
with the authority to put any acquisition by a foreign party of a share in a Russian
company under the necessity of a review by the Governmental Commission on Foreign
Investments. Certain concepts relating to ways to treat offshore (non-disclosing)
companies by the Commission were also clarified (see Section IX);
c a new class of preferred shares was introduced: preferred shares with the attached priority
right of receiving dividends. That class of shares was unofficially called ‘super-preferred
shares’. Relevant anti-dilution provisions were also adopted;
d new rules establishing non-listed JSCs: no state registration of share issuances and no
preparation of a prospectus (offering memorandum) is needed now in certain cases;
and
e the above-mentioned amendments allow certain listed companies12 targeted by
international sanctions to omit information disclosure partly or in full subject to the
provision of that information to the Bank of Russia.13
As mentioned in footnote 13, some of those novelties were adopted as part of a significant
reform of the securities law: approximately half of the new rules are to take effect from 2020,
while the other part is already in force. Although a detailed overview of that topic is rather
the business of capital markets lawyers, many of the new rules have direct relevance to M&A
deals. Some of them are described above.

As previously discussed, foreign involvement in M&A transactions in Russia is subject to
regulatory review in a number of cases, including, without limitation, cases when the target
company (the company whose shares are being acquired) is of strategic importance for state
security and defence, or when it is a bank or insurance company.
11 After an initial decision and several applications for review, the case is to be heard before the Supreme
Court later this year.
12 Or non-listed companies whose debt securities are listed.
13 The latter three amendments are part of a recent significant set of amendments to the Federal Law on the
Securities Market.
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Undoubtedly, US and EU sanctions implemented in 2014 and gradually developed

to date, including the famous US Countering America’s Adversaries Through Sanctions Act,
are a key factor in the reduction of the amount of inbound Russian foreign investment.
Among other things, in June 2019 Morgan Stanley announced the substantial reduction of
its Russian business. A number of international law firms have also left Russia in recent years.
All the other famous global investment houses and international law firms have substantially
reduced their Russian presence.
A change of orientation from the West to the East as declared by Russian authorities
in 2014 and 2015 is not obvious, despite certain case-by-case episodes of inbound deals
by Chinese and other eastern companies (see Section I). Among others, however, the
Russia-Chinese Investment Fund was formed by Russian (RDIF) and Chinese (CIC)
sovereign funds.
These factors also negatively affect Russian outbound M&A activity, including those
activities not directly targeted by the sanctions. Thus, Alisher Usmanov has sold his share
in Arsenal Football Club, while Roman Abramovich is exploring options to sell Chelsea
Football Club. In early 2019 it was announced that US Committee on Foreign Investment
had ordered one of Mikhail Fridman’s companies to dispose of its share in a US cybersecurity
company.
There are also positive episodes. Thus, while this chapter was being prepared, Mikhail
Fridman (with his allies German Khan and Alexey Kuzmicvhev) has obtained a 33 per cent
share in Wintershall DEA, the largest oil and gas producer in Europe formed after the merger
of BASF’s Wintershall and LetterOne’s DEA. LetterOne is Fridman’s, Khan’s and Kuzmichev’s
investment house with a notable presence throughout the world, including by holding shares
in the UK healthy food retailer Holland & Barrett. It must be noted that several years ago,
LetterOne also faced demands by UK authorities to sell some of its assets in the UK.
Although this deal rather sits in the capital markets sphere, and not the M&A sphere,
it is worth highlighting the significantly successful IPO on NASDAQ of HeadHunter, a
Russian web resource for employers and candidates listing job and hiring opportunities.
Returning to inbound M&A in Russia, another negative factor is the passing of the
period of primary accumulation of wealth and capital that took place in Russia in the 1990s
up to 2000. The economy has now entered a more mature phase: in addition to the effect of
the imposed sanctions, no strong growth was seen in the first two decades of the new era of the
market economy in Russia. Accordingly, there are no further super-incomes, which used to
be the main factor attracting many foreign investors. Along with certain legal and regulatory
risks (again, other than sanctions), Russia has become a less attractive investment destination
than it was before 2008 and before 2014. Thus, among other things, EBRD froze its Russian
investment programme in 2014 and later disposed of its share in Promsvyazbank and some
other Russian banks. A similar entity, IFC, has done the same; among other things, it has sold
its share in Asian-Pacific Bank. Both of the mentioned Russian banks have subsequently been
bailed out by the Bank of Russia due to insufficient assets and inadequate liquidity.

See Section I.
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M&A deals are made by purchasers with their own funds or by way of raising debt finance.
Loans may be provided by single banks or by syndicates. The Federal Law on Syndicated
Loans, which entered into force in 2018, made it possible to structure syndicates and lend
respective loans under Russian law. However, to the best of our knowledge there are few legal
teams in Russia who have managed to practically apply the Law in the less-than-one-and
a-half years since its adoption. Therefore, more details of its mechanics are yet to be seen.
As regards private equity aspects, see Section I.
VII EMPLOYMENT LAW

The principal issues of employment and labour law in the context of M&A deals are:
a due diligence of employment-related aspects such as contracts with key employees,
internal policies, compliance with other mandatory rules (relating, among other things,
to trade unions, collective agreements). In VC transactions in particular (although they
may also be applicable in other types of corporate deals), invention clauses in labour
contracts, whereunder the rights to key intellectual assets created by employees shall
belong to the target company, are common;
b enforcement of non-competition and non-solicitation provisions, whereunder,
respectively, key employees waive their right to apply to be hired by the target company’s
competitors, while the seller waives its right to hire such key employees of the target
company. Russian law views such arrangements as ineffective, as they limit the freedom
of labour and employment guaranteed and secured by the Constitution; and
c labour law aspects of the termination of the employment of CEOs and other senior
executives. Among other things, a Supreme Court Plenary Session Resolution dated
2 June 2015 must be considered.
VIII TAX LAW

In the past few years, the Russian economy has been experiencing de-offshorisation changes,
which, of course also has certain impacts on cross-border M&A transactions. Foreign investors
willing to enter the Russian market should understand several aspects that are monitored
closely by the Russian tax authorities.
When considering a sale or purchase of a Russian-based business, foreign investors
should analyse whether the assets of a Russian entity consist of Russian real estate. The rule
of Subparagraph 5, Paragraph 1, Article 309 of the Tax Code states that if more than 50 per
cent of the assets of a Russian entity (or a foreign subsidiary) are real estate, then a 20 per
cent withholding tax should be paid in Russia. The rule is not modern, but compliance with
it is currently strictly supervised by the Russian Tax Authorities, and non-compliance will be
regarded as tax avoidance or as an unjustified tax benefit.
Foreign investors should also consider their exit strategies beforehand. Starting from
the end of 2018, Paragraph 1, Article 250 of the Tax Code was amended in a way that income
in the form of liquidation proceeds is regarded as dividends, which means that the rules for
the taxation of dividends (including withholding taxes in accordance with double taxation
treaties (DTTs)) should apply when a foreign parent company receives liquidation proceeds
from its Russian subsidiary. On the other hand, the same bill introduced new Subparagraph
11.1. Paragraph 1, Article 251 and Paragraph 2.3, Article 309 of the Code relate to the
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taxation of contributions to a company’s assets in monetary form and its gratuitous return.
Now, the income of a parent company received in monetary form as a gratuitous return
of a contribution to the assets of a subsidiary is not subject to corporate income tax or
withholding tax.
Another very important issue is the development of the concept of the beneficial owner
of passive income (dividends, interest, royalties) paid by a Russian company to a foreign
company. The rule on beneficial ownership was introduced into Article 7 of the Tax Code
and came into force in 2015. Since then, there has been plenty of negative court practice
stating that Russian companies cannot use benefits and lower tax rates under DTTs when
making payments to foreign parent companies or counterparties unless the foreign recipient
of the passive income is a beneficial owner of such income.14
In addition, the look-through approach (Paragraph 4, Article 7) was modified in late
2018. Now, when distributing profits from Russia to a foreign jurisdiction, it is possible not
to prove the existence of the beneficial ownership of such income of the first recipient, but
to claim a look-through approach and use the advantages of the DTT between Russia and
the country of residence of the final (real) recipient of the income, notwithstanding who the
intermediary recipients are.
When working on Russian market, Russian controlled foreign company (CFC) rules
applicable since 2015 should also be considered. Namely, if a Russian entity belonging to
a foreign investor holds shares in the capital of another foreign entity, such Russian entity
should submit to the tax authorities the following documents: a notification on participation
in a foreign entity if the Russian entity holds more than 10 per cent of the share capital
of a foreign company; or a notification on the CFC if the Russian entity holds more than
25 per cent of the share capital of a foreign company (or, if the Russian entity holds more
than 10 per cent, while all Russian residents in total hold more than 50 per cent of the share
capital of the foreign company in question).
As a general rule, if the Russian company is regarded as a controlling person, it should
include the undistributed profits of a foreign subsidiary in its taxable base under corporate
income tax.
Finally, in 2018 international companies were introduced to the Russian legal system.
To benefit from this new regime, prescribed by Federal Law ‘On international companies’,
foreign companies should be redomiciled to the special administrative regions of the
Kalinigrad region and Primorskiy territory of Russia.15 In brief, the status of international
holding companies provides for the tax-free receipt of dividends or income from a sale of
shares from Russian-based or foreign companies if an international holding company holds
15 per cent or more in a subsidiary.
14 See the most recent cases of 2019: decision of the Supreme Court of the Russian Federation dated
18 January 2019 No. 304-KG18-22775 case No. A27-331/2017 of Krasnobrodsky Yuzhniy LLC; decision of
the Supreme Court of the Russian Federation dated 18 February 2019 No. 304-KG18-25280 case No. A03
21974/2017 OJSC Melnik; decision of the Supreme Court of the Russian Federation dated 25 April 2019
No. 301-ES19-2319 case No. A11-9880 / 2016 of Rusjam Steklotara Holding LLC.
15 Federal Law of 3 August 2018 N 291-FZ (as amended by 25 December 2018) ‘On Special Administrative
Regions in the Territories of the Kaliningrad Region and Primorsky Territory’.
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IX COMPETITION LAW
At the end of 2018, the government adopted the rules for providing information to the
regulator in the case of making foreign investments in Russian economic entities. An important
point thereof is the fact that foreign investors shall now provide not only information about
their controlling persons, but also information about their UBOs. So, control over the foreign
investors is increased. It must also be noted that foreign inbound M&A deals in Russia are
becoming target of particular attention by the regulators.
In particular, one draft law provides for civil liability when a foreign investor does
not clear a transaction regarding a strategic entity with the regulator. In this case, if the
consequences of the invalidity of the transaction cannot be applied, the regulator will be able
to go to court with a demand to deprive the investor of his or her right to vote and with a
claim of forced sale of the investor’s shares in such strategic entity at an auction.
As far as financial organisations are concerned, the Federal Antimonopoly Service of
Russia (FAS) recently clarified that merger control in relation to foreign banks is carried
out in accordance with the rules of the product market. Thus, the rules relating to financial
organisations do not apply, because foreign banks are not financial organisations in the sense
of the Federal Law ‘On Competition Protection’.
In addition, the enactment of the Fifth Antimonopoly Package, a set of substantial
amendments to the Federal Law ‘On Competition Protection’, is expected soon. Most likely,
the following concepts in the field of M&A transactions will appear in the legislation and will
have to be assessed by FAS within the framework of merger control:
a the value of a transaction. If the value of a transaction exceeds 7 billion roubles, it is
subject to approval regardless of the amount of assets in the perimeter of the deal;
b face-to-face consideration: the parties to the transaction will be able to hold negotiations
with FAS in person in the process of merger control. The procedure is now more
bureaucratic, and is conducted rather through the exchange of the applicant’s filing
and the regulator’s resolutions;
c the regulator’s memorandum or opinion on the substantial aspect of a deal: before
making a decision, FAS will issue an opinion on a transaction. This allows the parties
to provide additional information or to suggest new transactional terms;
d commitments, undertakings and covenants: the parties may at their initiative suggest
to the regulator certain terms and conditions of the negotiated deal;
e trustees: parties and regulators will have an option to appoint an independent person
(as a rule, an expert in a particular field) responsible for monitoring the terms of a
transaction and its performance, as well as parties’ compliance with the relevant
FAS ruling on the deal. Detailed instructions on, inter alia, requirements as to the
candidature of such trustee, and the procedure of his or her appointment, are to be
adopted by FAS; and
f new conditions: the time limit for the approval of cross-border transactions may be
extended for several years.
One of the largest deals approved by FAS in the past year was the merger between Bayer and
Monsanto, global chemical industry leaders. The deal was subject to review by the Russian
regulator because the merger affects, among others, the Russian market. The relevant FAS
ruling included an obligation on Bayer to transfer some of its intellectual property to its
Russian competitors (on the base of licences), as well as to ensure their non-discriminatory
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access to information in the field of precision agriculture. Control over compliance with
the ruling was entrusted to the Center for Technological Transfer at the Higher School of
Economics, a specialised and independent organisation.
X OUTLOOK
It is expected that the hottest sphere in the next few years will be VC transactions. It also
appears that the mid-market segment will be more active than the high-end division. Sanction
risks will be one of the points requiring the most careful attention.
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Chapter 39
SINGAPORE
Sandra Seah, Marcus Chow and Seow Hui Goh1

In 2018, Singapore continued apace with a robust volume of 688 M&A deals valued at
about US$99 billion, buoyed by outbound sovereign wealth fund deals.2 Outbound deals
accounted for a greater share of deal value at approximately 82 per cent, up from 72 per cent
in 2017.3 Domestic and inbound deals accounted for 10 and 8 per cent of total deal value,
respectively.4 In total, 458 cross-border deals were consummated at an approximate value
of US$89 billion.5 Private equity (PE) and venture capital (VC) investments numbered a
collective 154 deals registering approximately US$6.6 billion.6
Overall, the Singapore economy grew a healthy 3.2 per cent in 2018, falling within the
higher of the initial forecasts of between 1.5 and 3.5 per cent.7

i Statute and common law
Under Singapore’s common law system, sources of law include legislation, subsidiary
legislation and judge-made case law. Legislation and subsidiary legislation are passed by
Parliament and interpreted by the courts. The principles of contract law govern the validity
and interpretation of agreements.
Key Singapore legislation relevant to M&A transactions include the Companies Act
and the Securities and Futures Act (SFA), and their respective subsidiary legislation. The
Companies Act is the principal legislation governing Singapore-incorporated companies,
be they private or public. The Companies Act contains, among other things, provisions
that regulate the criteria and processes by which share transfers, schemes of arrangement,
amalgamations and compulsory acquisitions are effected.8 The SFA regulates, among other
things, offers of securities, notifications when a substantial interest is acquired and market
conduct rules, including those relating to insider trading and market manipulation.9
1 Sandra Seah, Marcus Chow and Seow Hui Goh are partners at Bird & Bird ATMD LLP.
2 Duff & Phelps Transaction Trail Annual Issue 2018.
3 Ibid.
4 Ibid.
5 Ibid.
6 Ibid.
7 Ministry of Trade and Industry.
8 Section 126, Section 210, Section 215A and Section 215 of the Companies Act, respectively.
9 Section 240, Section 135, Section 218 and Section 198 of the Securities and Futures Act, respectively.
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Aside from the above statutes, which are of general applicability, companies in
certain sectors are additionally subject to sector-specific legislation. For instance, insurance
companies, banks and publishing companies are regulated by the Insurance Act, the Banking
Act and the Newspaper and Printing Presses Act, respectively.
ii The Singapore Code on Takeovers and Mergers

The Singapore Code on Takeovers and Mergers (Code) is issued by the Monetary Authority
of Singapore, pursuant to the SFA.10 The Code governs the conduct, timing, approach and
documentation in relation to takeovers and mergers of corporations with a primary listing of
their equity securities, business trusts with a primary listing of their units in Singapore and
real estate investment trusts.11 Unlisted public companies and unlisted registered business
trusts with more than 50 shareholders or unitholders, as the case may be, and net tangible
assets of S$5 million or more, must also observe the letter and spirit of the Code, wherever
possible and appropriate.12
The Code is administered and enforced by the Securities Industry Council (SIC) which,
pursuant to the SFA, has the power to investigate any dealing in securities that is connected
with a takeover or merger transaction.13 While the Code itself does not have the force of law,
a breach could result in sanctions imposed by the SIC.14 Such sanctions include a private
reprimand, public censure or, in a flagrant case, further action as the SIC deems fit, including
actions designed to deprive the offender temporarily or permanently of its ability to enjoy the
facilities of the securities market.15
iii The SGX-ST Listing Rules

SGX-listed entities are further subject to compliance with the SGX-ST Listing Rules (Listing
Rules) contained in the SGX-ST Listing Manual (Listing Manual). The Listing Manual
comprises the Mainboard Rules, which apply to companies listed on the Mainboard of the
SGX-ST; and the Catalist Rules, which apply to companies listed on the Catalist Board of
the SGX-ST. In the context of M&A transactions, the Listing Rules applicable to Mainboard
and Catalist listed companies are broadly similar. Listed companies are required to disclose or
obtain shareholders’ approval (or both) for transactions such as acquisitions and realisations
that meet certain thresholds relating to, among other things, net asset value, net profits,
aggregate consideration and number of consideration shares issued.16 Where as a consequence
of an acquisition the public shareholdings of the listed company fall below 10 per cent, the
company may be subject to delisting.17
10 The Singapore Code on Takeovers and Mergers: Introductory Paragraph.

11 Ibid.
12 Ibid.
13 Ibid.
14 Ibid.
15 Ibid.
16 SGX-ST Mainboard Listing Rules: Rule 1006.
17 SGX-ST Mainboard Listing Rules: Rule 724.
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IMPACT
i Securities and Futures Act
Wide-ranging amendments to the SFA took effect from October 2018, including a stronger
enforcement regime against market misconduct. Among the amendments relating to
misconduct was a clarification that disclosures that are false or misleading in a material
particular, and likely to have an effect on the market price of securities, securities-based
derivatives contracts or collective investment scheme units, are prohibited regardless of
whether the effect on price is significant or otherwise.18
To buttress prosecution of insider trading crimes, a further amendment was made to
the SFA to provide for the term ‘persons who commonly invest’ to mean ‘a Section of the
public that is accustomed, or would be likely, to deal in any securities of that kind’. This wider
definition permits a more flexible test in assessing the effect of price sensitivity on common
investors.
In view of these amendments, parties working on the acquisition of a listed company
should be careful to maintain confidentiality and to ensure that no false or misleading
statements are released or made.
ii The Companies Act

In August 2018, amendments to the Companies Act came into effect seeking to reduce the
regulatory burden on companies and improve the ease of doing business in Singapore.
Pursuant to the amendments, the timelines for holding annual general meetings
(AGMs) and filing annual returns are now aligned with a company’s financial year-end. Prior
to the amendments coming into force, a company had to hold its AGM within 15 months of
its last AGM, and its annual return would have to be filed within 30 days after such AGM.
From 31 August 2018, the timeline for holding an AGM is within six months from the
financial year-end of a private company and within four months from the financial year-end
of a listed company.19 Annual returns must be filed within seven months and five months of
the financial year-end for private and listed companies, respectively.20
With effect from 31 August 2018, private companies are exempted from holding
AGMs if they send their financial statements to members within five months of the financial
year-end.21 However, private companies must still hold an AGM if any shareholder so requests
not later than 14 days before the expiry of six months after the financial year-end.22 A further
safeguard requires private companies to hold a general meeting to lay out their financial
statements if any shareholder or auditor so requests not later than 14 days after the financial
statements are sent out.23 Private companies retain the option to dispense with the holding
of AGMs, and the threshold of shareholder approval required to approve such dispensation
remains unchanged.24
18 Section 199 of the Securities and Futures Act.

19 Section 175 of the Companies Act.
20 Section 197 of the Companies Act.
21 Section 175A(1) of the Companies Act.
22 Section 175A(4) of the Companies Act.
23 Section 203(4A) of the Companies Act.
24 Section 175(1) of the Companies Act.
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Such changes to Singapore’s corporate regulatory regime are expected to reduce

compliance costs for private companies exempted from holding AGMs, and to reduce the
administrative burden on both private and listed companies with simplified timelines for
holding AGMs. These amendments are expected to enhance the attractiveness of the Singapore
corporate entity and may encourage relevant corporate actions (including acquisitions).
iii The Listing Manual

In June 2018, SGX-ST approved changes to its Listing Rules to allow for the primary listing
of dual class share companies on the Mainboard. Dual class share companies have two classes
of voting shares: shares in one class carry one vote per share, while shares in another class
carry multiple votes per share. The multiple voting shares now permitted to be listed on the
Mainboard are capped at 10 votes per share.25 Corporate governance safeguards are in place
to restrict the additional voting rights attached to multiple voting shares from being exercised
on key matters. Such matters include the appointment and removal of independent directors
and auditors, a variation of rights attached to any class of shares, a reverse takeover and a
winding up or delisting.26
The opening of Singapore’s bourse to dual class share companies means that new
economy tech-based companies, which often have share classes with different voting rights,
will gain access to fund raising via initial public offerings (IPOs) in Singapore. The advent of
dual class listings may see IPOs becoming a more popular exit strategy for venture capitalists,
over M&A exits, in Singapore.
The revised Code provides that where an offer is made for a dual class share company,
a comparable offer must be made for each class of shares, save for when an offer is only made
for non-voting shares.27 This approach provides a safeguard for ordinary voting shareholders
by ensuring that any premium paid to multiple voting shareholders is also paid to ordinary
voting shareholders.
iv The Takeover Code

Exemption of connected fund managers and principal traders
Under the Code, certain categories of persons are presumed to be acting in concert. Such
categories include parent companies, subsidiaries, fellow subsidiaries, associated companies,
and fund managers and principal traders connected to a financial or other professional adviser
on a deal.28 Acquisitions exceeding certain thresholds will trigger an obligation on the part
of acquirers to make a mandatory general offer, for all the target’s shares, under the Code.29
For the purpose of calculating whether such thresholds are met, the shareholdings of the
acquirer’s concert parties are taken into account.30
Since 1 May 2018, connected fund managers and principal traders can apply for
exemptions from the restrictions, prohibitions and obligations arising out of their status as
concert parties, on an annual renewable basis or per transaction basis, under a new exempt
25 SGX-ST Mainboard Listing Rules: Rule 210(10).

26 SGX-ST Mainboard Listing Rules: Rule 730B.
27 The Singapore Code on Takeovers and Mergers: Rule 18.
28 The Singapore Code on Takeovers and Mergers: Definitions.
29 The Singapore Code on Takeovers and Mergers: Rule 14.
30 Ibid.
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Singapore
status regime.31 Under the Code, fund managers and principal traders from the same financial
group as the financial or other professional adviser of a takeover offer are presumed to be
concert parties of such adviser and its client.32 As a result, the dealings of connected fund
managers and principal traders in the securities of the offeree company are restricted and
subject to certain prohibitions and obligations under the Code.
A fund manager or principal trader exempted under the exempt status regime will not
be regarded as acting in concert with the relevant offeror or offeree and will not be subject to
the connected person restrictions under the Code. The exempt status applies only where the
sole reason for the presumed connection with the offeror or offeree is that the fund manager
or principal trader is in the same group as the financial or other professional adviser that is
advising the offeror or offeree company.
Revisions to the Code to clarify its application to dual class share companies
On 24 January 2019, on the advice of the SIC and incorporating feedback from a public
consultation exercise, the Monetary Authority of Singapore revised the Code to clarify its
application to SGX-listed dual class share companies. Unlike single class share companies, the
voting rights in dual class share companies are not proportionate to shareholding.
The Code amendments provide relief for shareholders who trigger a mandatory general
offer. Under the revised Code, where the obligation to make a mandatory offer is triggered
due to a conversion of multiple voting shares to ordinary voting shares or a reduction in the
number of voting rights per multiple voting share, the requirement to make a mandatory
offer under the Code will be waived if certain conditions are met.33 Such conditions include
that the shareholder is independent of the conversion or reduction event, and has not
acquired any additional voting rights in the company from the date he or she becomes aware
that the conversion or reduction is imminent.34 In the event that such shareholder is not
independent of the conversion or reduction event, the mandatory offer requirement will still
be waived if he or she obtains the approval of independent shareholders to waive their right
to a mandatory offer within a specified time, or reduces his or her voting rights to below the
mandatory offer thresholds.35

Transactions with a foreign element accounted for the lion’s share of Singapore’s M&A
investments in 2018, at 90 per cent of total deal value.36 The profile of cross-border deals
continued to be dominated by outbound investments made by sovereign wealth funds GIC
Pte Ltd (GIC) and Temasek Holdings Pte Ltd (Temasek). In particular, GIC’s outbound
investments constituted most of the year’s highest-valued deals with its consortium investment
in Thomson Reuters Corp (F&R Business), valued at US$17 billion.37 In total, outbound
31 Practice Statement on the Exemption of Connected Fund Managers and Principal Traders under the
Singapore Code on Takeovers and Mergers.
32 The Singapore Code on Takeovers and Mergers: Definitions.
33 The Singapore Code on Takeovers and Mergers: Rule 14
34 Ibid.
35 Ibid.
36 Duff & Phelps Transaction Trail Annual Issue 2018.
37 Ibid.
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Singapore
deals accounted for 69 per cent of all cross-border M&A transactions in Singapore. Despite
the financial crisis, banking, financial services and insurance (BFSI) was the top sector for
outbound investments.38

The BFSI sector had a strong showing in 2018, propelled by two large outbound deals: the
US$17 billion investment in Thomson Reuters Corp (F&R Business) by GIC (together with
its consortium partners), and the US$14 billion investment in Ant Financial Services Co Ltd
by a GIC-led consortium that included Temasek.39 BFSI overtook real estate as the top sector
for 2018, representing 32.9 per cent of total deal value.40 The real estate sector fell to second
place ahead of the materials sector, each capturing 20.6 and 13.4 per cent of total deal value,
respectively.41 Together, the top three sectors accounted for approximately 70 per cent of total
M&A deal values in Singapore for 2018.42
Other notable M&A transactions for 2018 included GIC’s US$12.5 billion consortium
acquisition of Akzo Nobel NV’s Specialty Chemicals business, and its US$5.4 billion
consortium investment in hotel real estate company, AccorInvest.43 Notable PE and VC
transactions included the US$2.45 billion investment in Grab Holdings by Toyota Motor
Corp and other consortium investors.44 The technology sector continued to be a significant
driver of M&A activity. Aside from the Grab/Toyota deal, other transactions in the technology
start-up space included the US$272 million inbound investment in Bigo Technology Pte Ltd
by Chinese video-streaming app maker YY Inc and other consortium investors.45
Singapore continued to be a key contributor to M&A and PE and VC deal activity
in the region46 for 2018, with more than 10 deals valued at more than US$1 billion apiece.

In 2018, M&A transactions continued to be financed by the usual sources of internal
financing, bank and financial institution loans and PE. In particular, local and major
international banks and financial institutions were the most common source of financing for
M&A deals in Singapore. At a combined 154 investments accounting for US$6.6 billion in
2018, PE and VC funding in Singapore remained fairly active.47 The top-valued M&A deals
in 2018 involved investments by sovereign wealth funds GIC and Temasek, together with
their various consortium partners.48
For offers governed by the Code, additional requirements may apply. Where the offer
is for cash or cash alternatives, the offer document as well as the announcement of a firm
38 Ibid.
39 Ibid.
40 Ibid.
41 Ibid.
42 Ibid.
43 Ibid.
44 Ibid.
45 Ibid.
46 Singapore, Malaysia and Indonesia.
47 Ibid.
48 Ibid.
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intention to make an offer should include confirmation from a financial adviser that the
offeror has enough cash resources to satisfy full acceptance of the offer.49 Where external
financing is to be availed of, the terms of such financing must satisfy the requirements of the
financial adviser.
VII EMPLOYMENT LAW

With effect from 1 April 2019, all employees (regardless of rank and salary) fall under
the protection of the Employment Act (1 April Amendment), Singapore’s main labour
legislation.50
This means that in the case of a business sale, all employees employed in the seller’s
business will be automatically transferred to the buyer by operation of law.51 Under the
automatic transfer provisions, all transferring employees are entitled to preserve their existing
terms and conditions of employment and have the length of their service counted towards
their period of employment with the buyer.52 Prior to the transfer, the seller is required
to inform and consult with affected employees on the transfer process.53 If the affected
employees are members of a trade union, the union must also be involved in the information
and consultation process.54
Any dispute or disagreement arising from a transfer of employment may have the effect
of blocking or delaying the business sale. The Ministry of Manpower will be the arbiter of
these disputes and will in many circumstances act as the conciliator.
Prior to the 1 April amendment, the automatic transfer provisions only applied to a
certain employee population (the rank and file, and managers and executives earning less
than S$4,500 per month). The buyer had freedom to agree on new terms of employment for
other employees, and had more selection control over the number and type of employees it
wanted to hire from the seller. Under the current laws, buyers have less leeway in terms of
employee transfers.
VIII TAX LAW

In general, the legal obligation to pay stamp duty in an acquisition falls on the buyer in a
transaction.55 However, as a practical matter, parties are free to negotiate, as a contractual
term, who should bear the costs of paying stamp duty. Stamp duty relief may be available for
qualifying share acquisitions in connection with M&A transactions.56 Stamp duty relief may
also be available for the transfer of a company’s business undertaking or shares in connection
with its reconstruction or amalgamation.57
49 Rule 3.5, Takeover Code.

50 Section 2 of the Employment Act.
51 Section 18A(1) of the Employment Act.
54 Ibid.
55 Third Schedule, Stamp Duties Act.
56 M&A Scheme, Inland Revenue Authority of Singapore.
57 Stamp Duties (Relief from Stamp Duty upon Reconstruction or Amalgamation of Companies) Rules.
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At present, transfers of immovable properties and shares are usually effected by way of
physical documentation such as sale and purchase agreements and share transfer instruments.
If such instruments of transfer were executed in Singapore, or if they were received in Singapore
and relate to property situated in Singapore, they are chargeable with stamp duty under the
Stamp Duties Act.58 The proliferation of digital technology offers increasing opportunities for
transactions to be effected electronically instead of with physical documentation.
In October 2018, the Ministry of Finance brought into effect amendments to the
Stamp Duties Act that aim to ensure that Singapore’s stamp duty regime keeps pace with
digitalisation. The key amendment provides for stamp duty to be levied on electronic records
that effect a transfer of interest in immovable properties and shares.59
i The M&A scheme

The M&A scheme (scheme) was introduced by the government in 2010 to encourage
companies to undertake M&A as a growth and internationalisation strategy.60 To qualify for
the scheme, certain transaction-related thresholds must be met. The scheme is currently valid
up until 31 March 2020 and comprises the following benefits:
a a tax allowance of 25 per cent of the acquisition value, subject to a maximum deduction
of S$10 million for each year of assessment;
b stamp duty relief for qualifying share acquisitions, subject to a relief cap of S$80,000
per financial year; and
c double tax deduction on transaction costs incurred in respect of qualifying share
acquisitions, subject to a cap of S$100,000 on acquisition costs.
IX COMPETITION LAW
i Consumer protection and competition
The Competition Commission of Singapore is the agency tasked with administering
and enforcing the Competition Act, and was renamed the Competition and Consumer
Commission of Singapore (CCCS) after taking on an additional function of administering
the Consumer Protection (Fair Trading) Act (CPFTA) with effect from April 2018.
After this change, the mediation of complaints against errant retailers through
the Consumers Association of Singapore will continue to be the first port of call to assist
consumers. Errant retailers who persist in unfair trade practices will then be referred to the
CCCS for investigation. The CCCS has already obtained a court order in mutual agreement
with one such errant undertaking, the SG Vehicles group of companies, and their director,
which takes effect from 18 April 2019, requiring SG Vehicles to cease various unfair trade
practices including ceasing misleading or deceptive practices and ceasing the making of any
false claims as to any guaranteed delivery date of any vehicles, and also to install a prominent
sign outside their shops stating the full text of the court order.
To enhance the synergies between competition and consumer protection, the CCCS’
powers under the CPFTA work hand in glove with its powers under the Competition Act.
Specifically, the CCCS’ powers under the CPFTA can build on the existing market studies
58 Section 4, Stamp Duties Act.

59 Section 60A, Stamp Duties Act.
60 https://www.mof.gov.sg/Policies/Tax-Policies/Corporate-Income-Tax/Mergers-and-Acquisitions.
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that the CCCS had already been conducting to test the effectiveness of markets in specific
sectors in Singapore. Market studies are already being undertaken to study the impact of
developments in data protection and the online travel booking sector.
ii Amendments to Competition Act

Following a public consultation on the proposed changes to the Competition Act, changes
were made to the Act with effect from May 2018, including:
a codification of the CCCS’ process for providing confidential advice on anticipated
mergers: the CCCS already has a process under its Guidelines on Merger Procedures
2012 for businesses to seek confidential and non-binding advice on anticipated mergers.
This is now given statutory effect under the new Section 55A of the Competition Act.
The advice will be given strictly on the veracity of the information provided by the
merging entities: the CCCS will not request information from third parties or conduct
any public consultation to make a comprehensive assessment. As such, the advice
issued under Section 55A of the Competition Act will not be binding on the CCCS;
b businesses under investigation may offer legally binding commitments: Sections
60A and 60B of the Competition Act now allow the CCCS to accept binding and
enforceable commitments for cases involving anticompetitive agreements and the
abuse of a dominant position. Investigations will cease if the CCCS accepts the offered
commitments. Previously, such commitments were only available in relation to mergers
or acquisitions that substantially lessen market competition; and
c the CCCS is empowered to conduct general interviews during inspections and
searches: CCCS officers are now empowered to ask general questions in relation to the
same investigation without first serving a written notice when conducting inspections
or searches of premises. Previously, occupants of the premises were only required
to provide an explanation of the documents produced or seized on the premises or
information uncovered during inspections. It is critical that corporations now have a
dawn raid response procedure in place to ensure that they fulfil their legal obligations
while safeguarding their own legal rights.
iii M&A
In the past 12 months, there have been 11 notifications and one investigation on the public
register, with two withdrawn or abandoned and one undergoing Phase II review.
Mergers that result in, or may be expected to result in, a substantial lessening of
competition in Singapore are prohibited under Section 54 of the Competition Act (Section
54 prohibition). Merger notification is voluntary under the Competition Act, but parties
to a M&A transaction should conduct self-assessments against the guidelines published by
the CCCS to determine if there may be a substantial lessening of competition and a merger
notification is necessary.
The CCCS has set out the following indicative thresholds that when crossed will likely
require further review to determine if there is a substantial lessening of competition: the
post-merger market share of the top three undertakings is at least 70 per cent, and the market
share of the merged undertaking is at least 20 per cent; or the merged undertaking has a
market share of at least 40 per cent. The assessment of whether there is a substantial lessening
of competition is qualitative and factual and may be undertaken even if the indicative
thresholds are not met. The CCCS will consider various factors in this assessment, including
barriers to entry, market transparency and countervailing buyer power.
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Failure to adhere to merger control procedures may result in financial penalties of up

to 10 per cent of the merger parties’ turnover (for up to three years) in addition to other
remedies such as the dissolution of the merger or subsequent divestments.
On 24 September 2018, the CCCS issued an infringement decision imposing financial
penalties in excess of S$13 million and directions on Uber Technologies, Inc (Uber) and Grab
Inc (Grab) entities to lessen the impact of the sale of Uber’s Southeast Asian business to Grab
for a 27.5 per cent stake in Grab. The directions included the removal of Grab’s exclusivity
arrangements with drivers and taxi fleets, maintenance of Grab’s pre-merger pricing algorithm
and commission rates, and the sale of Uber’s rental fleet to potential competitors if an offer is
made based on fair market value.
The infringement decision revealed that the parties had failed to notify the CCCS of
the merger despite letters having been sent by the CCCS. Further, the CCCS noted that
the parties did not merely provide for antitrust penalties but had ‘precisely’ apportioned
such antitrust penalties suggesting they had given consideration to the likelihood that the
transaction would breach antitrust rules and result in financial penalties. Accordingly, the
CCCS found that they had ‘intentionally, or negligently, infringed the Section 54 prohibition’.
Corporations should be alert to competition law concerns that may arise in their
commercial dealings or even in industry gatherings, bearing in mind that that the CCCS is
empowered to and does conduct investigations into un-notified mergers and that offenders
will suffer both financial and reputational losses.
X OUTLOOK
Officially, Singapore’s economic outlook is positive with forecasts by the Ministry of Trade
and Industry in February projecting growth of between 1.5 to 3.5 per cent.61 However, the
recent escalation of the United States’ trade war with China has caused market volatility and
cast uncertainty on the global economic outlook. Singapore’s small and open economy is
reliant on trade and susceptible to the vicissitudes of the global economic climate. Cautious
buyers may want to adopt more protective provisions and contractual outs in the event of any
adverse change in the external environment. Conversely, cautious sellers may want to structure
more punitive mechanisms, including reverse break fees, for any deal discontinuation.
61 Ministry of Trade and Industry.
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Chapter 40
SPAIN
Christian Hoedl and Miguel Bolívar Tejedo1

In recent years, we have seen an increase in complexity and sophistication in the Spanish
M&A market caused by the emergence of new players, as well as new and more complex
financing formulas and deal structures. 2018 was another excellent year for the Spanish
economy and for Spanish M&A, thus confirming the positive expectations anticipated in the
last edition of The Mergers & Acquisitions Review.
In 2018 and the first quarter of 2019, Spain consolidated and strengthened the recovery
it began in mid-2013. The imbalances accumulated over the years have been substantially
reduced, creating a more favourable environment and increasing Spanish companies’ (as
well as Spain’s) access to capital markets. As a consequence, GDP grew by 2.6 per cent in
2018. High liquidity in the debt and capital markets, increased investment capacity of private
equity and funds (especially international funds), the success of fundraising, low interest rates
and the strategic push of big corporations compensated for macroeconomic uncertainties.
Despite certain unfavourable political conditions, economic growth also remained strong in
the first half of 2019 (with forecasts in the region of 2.4 per cent), backed by improved labour
market prospects, less stringent financial conditions and renewed confidence, and also aided
by favourable external developments. These factors are expected to lay the foundations for a
stable economy in coming years.
The very positive development of Spain’s economy has been counterbalanced
by certain political instability (epitomised by the motion of no confidence that led to a
change of government in June 2018, and by the still-existing challenges fostered by some
pro-independence regional parties in Catalonia) and by uncertainties about the future of the
public pension system. Other uncertainties affecting M&A activity include concerns about
the global economy – particularly the economic situations of the emerging economies, and
in particular the situation of South American countries, which are the traditional target of
Spanish direct foreign investments – uncertainties related to Brexit’s final outcome and its
impact on the European project, and tense trade relations of Europe and China with the
United States.
Despite these apprehensions, M&A activity in Spain has been very solid. M&A
targeting Iberia in 2018 increased considerably in terms of volume from the preceding year
(an approximate increase of €18 billion from 2017), reaching record levels. In 2018, Spain
was one of the leading countries in the eurozone and the fifth in the world in rankings based
on volume of M&A transactions. The number of deals in 2018 was also higher than in 2017
1 Christian Hoedl is partner and Miguel Bolívar Tejedo is a senior associate in Uría Menéndez.
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Spain
(by more than 250 deals). Despite the fact that during the first quarter of 2019 there has been
a relative deceleration in M&A activity, Spain’s outlook for 2019 and 2020 remains strong,
and we expect this to result in a significant increase in deal announcements throughout the
second half of 2019.
The main drivers of M&A activity continue to be the following:
a Spanish targets have become attractive due to the strengthening of their operations
and balance sheets, the significant improvement of the macroeconomic environment,
including the depreciation of the euro, and the availability of debt financing buttressed
by low interest rates, which are not expected to increase.
b Spanish corporate and financial institutions are completing their deleveraging processes.
Spanish banks and other financial institutions have continued selling non-core assets
and branches, divested performing and non-performing loan portfolios, and have
exited from industrial shareholdings.
c Energy, healthcare, tourism, IT and telecommunications have also attracted significant
investments due to an increased consolidation in those industries and changes in the
regulatory framework. In 2018, real estate was also particularly relevant due to the
continuous increase in prices over recent years.
d Foreign strategic and financial investors remain focused on Spain and interested in both
strategic and opportunistic investments. Europe is the main source of those investments,
followed by North American and Latin American investments, mainly from the United
States and Mexico. Certain Asian countries (Hong Kong and Singapore, mainly) have
also been relevant players in terms of foreign investment.
e Europe (and particularly Spain) is still experiencing an increase in private equity M&A
transactions in comparison to previous years. Indeed, private equity investments have
returned to pre-crisis levels, and exits have also increased as private equity sponsors
continue to be under pressure to divest holdings acquired before the financial crisis.
f Outbound foreign investments have also increased, focusing Spanish investments
mainly on Europe, Latin America and the United States, and to a lesser extent Asia.
g Initial public offerings (IPOs) remained strong in the Spanish market.

i Corporate law
The basic Spanish legal framework for corporate acquisitions, mergers and other types of
corporate restructuring includes elements of both contract and corporate law.
Spanish contract law is mainly contained in the Civil and Commercial Codes of the
19th century. Seeking to modernise and update this legal framework, the Ministry of Justice
worked on a new Commercial Code with the aim of codifying the entire body of law on
commercial contracts into a single piece of legislation. The first draft was submitted for public
consultation in June 2013, and the government approved the draft bill in May 2014. However,
the draft bill has not yet been submitted to Parliament. Following the general elections in
April 2019, and thus a possibly new and stable government, this pre-parliamentary activity
is likely to resume.
Spanish corporate law, on the other hand, is primarily based on the Companies Law
and the Law on Corporate Restructuring. The Companies Law governs, inter alia, joint-stock
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Spain
companies (sociedades anónimas) and limited liability companies (sociedades de responsabilidad

limitada), the most common corporate forms in Spain. It also sets out the basic legal
framework for listed companies.
The Law on Corporate Restructurings regulates mergers, spin-offs, conversions, en
bloc transfers of assets and liabilities, and international transfers of registered addresses. It
also specifically regulates mergers following a leveraged buyout (LBO) (i.e., mergers between
companies where one has incurred debt during the three years preceding the acquisition
of control – or the essential assets – of the target company). The Law requires, inter alia,
that an independent expert determines whether an LBO constitutes financial assistance, a
circumstance the Companies Law generally prohibits. It does not, however, establish the
effects of an independent expert’s finding of financial assistance, a situation that creates
uncertainty in LBOs, particularly due to legal interpretations by the Spanish commercial
registries.2
The rules that must be taken into account in connection with the main regulated
markets include the Consolidated Stock Market Law3 (framework for the securities market),
the Law on Discipline and Intervention of Credit Institutions4 (framework for the credit
market) and the Private Insurance Supervisory Law5 (framework for the insurance market).
ii Insolvency law
The general legal framework on insolvency is primarily contained in the Insolvency Law.
The Insolvency Law created a single insolvency procedure applicable to all insolvent
debtors (i.e., debtors who are, or will imminently be, unable to regularly comply in a timely
manner with their payment obligations). The single procedure has a joint phase with two
potential outcomes: a creditors’ agreement (in which the debtor and creditors reach an
agreement on the payment of outstanding claims), or the liquidation of the debtor’s assets
to satisfy its debts. It has also clarified the risks associated with the clawback (rescission) of
transactions carried out within the two years preceding a declaration of insolvency that are
considered detrimental to the debtor’s estate.
The Insolvency Law was generally viewed as a positive development. Nevertheless, the
legislation was passed in a completely different economic and financial climate, rendering it
necessary to amend it in 2009, 2011, 2013, 2014 and 2015.
The most significant recent developments have been Royal Decree-Law 1/2015 of
27 February and Law 9/2015 of 25 May. These reforms generally sought to improve various
aspects of the pre-insolvency institutions to ensure the viability of companies in an attempt
to avoid insolvency (inter alia, to introduce the protective shields of refinancing agreements)
and align the Insolvency Law with current practices and insolvency regulations in other
comparable jurisdictions, as well as to eliminate specific rigidities and improve various
technical aspects criticised by judges, legal scholars and lawyers alike.
According to recent statistics, the number of insolvency proceedings has increased with
respect to 2017, breaking the downward trend since 2013.
2 Translations (into English and French) of these laws are available on the Spanish Ministry of Justice
website: www.mjusticia.gob.es.
3 The securities market is supervised by the National Stock Exchange Commission.
4 The credit market is supervised by the Bank of Spain and credit institutions by the ECB or the Bank of
Spain.
5 The insurance market is supervised by the General Insurances and Pension Funds Directorate.
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iii Other regulations

Other matters relating to, inter alia, tax, employment and competition law also form part of
the M&A legal framework (see below).

THEIR IMPACT
Due to parliamentary inactivity in recent years as a result of the difficulty of obtaining
majorities in Parliament, there has been reduced legislative activity in terms of corporate and
takeover law.
In 2018, the Companies Law and the Commercial Code were amended to further
develop the information rights of shareholders in connection with non-financial matters.
The goal of this amendment, inspired by the Directive 2014/95/EU of the European
Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as
regards disclosure of non-financial and diversity information by certain large undertakings
and groups, is to provide stakeholders with certain non-financial sensitive information, such
as, inter alia, actions aimed at fostering respect for human rights and sustainable growth,
anticorruption mechanisms and fighting against discrimination.
A Business Secrets Law was enacted in February 2019. This new regime, which is
complemented by other existing regulations (such as unfair competition law or the law
regarding the regulation of criminal breaches of confidence) provides companies operating in
Spain with a useful mechanism to protect trade secrets from third parties’ illegal interference.
Likewise, it is worth noting Royal Decree Law 19/2018 on payment services, which
provides comprehensive regulation of the professional activity of payment services; and Royal
Decree Law 14/2018, which modifies Royal Legislative Decree 4/2015 of 23 October on
the Consolidated Stock Market Law and introduces reinforced protection mechanisms for
financial investors.
It is also foreseen that during 2019, a new regulation of the commercial registry will be
approved (the current regulation dates back to 1996) that will modernise its mechanisms and
organisation, and adapt this legislation to the current corporate legal regime.
Apart from these legislative developments, the most recent regulations, which were
further analysed in previous editions, were the following: Royal Legislative Decree 4/2015 of
23 October on the Consolidated Stock Market Law; the Law 11/2015 of 18 June on credit
institutions’ recovery and resolution; and Royal Decree 877/2015 of 2 October on legislative
developments of the Savings Banks and Banking Foundations Law and the Circular of the
Bank of Spain 6/2015 of 17 November (which further developed the provisions of Royal
Decree 877/2015).
Finally, albeit not having an ad hoc regulation under Spanish law, during 2018 we
witnessed a progressive increase in the use of formulas aimed at minimising the risks assumed
by parties in M&A deals. From these formulas, it is worth noting the increasingly important
role of warranty and indemnity (W&I) insurance, which covers losses arising from specific
indemnities and the representations and warranties included in sale and purchase agreements.
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In 2018 saw an increase in the interest of international investors in the Spanish real estate,
energy, tourism, engineering and insurance sectors. Private equity investments continued to
grow, and the outlook for 2019 both for inbound and outbound M&A remains strong.
2018 saw the following:
a the acquisition of Abertis Infraestructuras, SA by a consortium formed by ACS SA,
Atlantia SpA and Hochtief AG, for €32.1 billion;
b Taiyo Nippon Sanso’s acquisition of the industrial gas and related machinery and
equipment business of Praxair, Inc, for €4.9 billion;
c Lone Star’s €3.9 billion acquisition of an 80 per cent stake in the real estate business of
CaixaBank SA as well as Servihabitat Gestion Inmobiliaria, SLU;
d the acquisition of a 20.07 per cent stake in Naturgy by CVC and Corporación
Financiera Alba from Repsol SA for €3.8 billion; and
e the €3.5 billion acquisition of a 59.2 per cent stake in Itinere Infraestructuras, SA from
Gateway Infrastructure Investments, LP, a US-based fund managed by Corsair Capital
LLC, Liberbank SA and Sacyr SA, from APG Group NV, a Netherlands-based pension
fund asset manager, and Corsair Capital LLC, a US-based private equity firm.
The following, among others, were announced in 2019 or are in the pipeline:
a the acquisition by LetterOne, an international investment business based in
Luxembourg, of DIA Distribuidora Internacional de Alimentación, for €1.7 billion;
b PAI Partners SAS, a France-based private equity firm, through its PAI Europe VII
fund, announced its acquisition of Areas, SA, a Spain-based company engaged in food
and beverage services and travel retail business, from Elior SCA, a listed France-based
company, for a consideration of €1.54 billion;
c the acquisition of Universidad Alfonso X el Sabio by CVC for €1.1 billion;
d the acquisition of 89.7 per cent of Hispasat SA by Red Eléctrica de España from Abertis
Infraestructuras for €949 million; and
e the acquisition of Grupo Konectanet by Intermediate Capital Group (UK) from
Santander and PAI Partners, for €700 million.

i Public M&A
Public M&A also witnessed more activity, with the increased interest of international investors
in real estate, construction and infrastructure and energy public megadeals:
a the aforementioned acquisition of Abertis Infraestructuras, SA by a consortium formed
by ACS SA, Atlantia SpA and Hochtief AG;
b the €2.5 billion takeover bid for Saeta Yield, the Spain-based and listed renewable
energy company, by Brookfield Asset Management, the Canada-based and listed
alternative asset manager, through TerraForm Power;
c the Carlyle Group’s acquisition of a significant minority stake in Compania Espanola
de Petroleos, SAU (Cepsa), a Spain-based company engaged in the exploration for and
production of petroleum, and the refining, distribution and sale of crude oil, natural gas
and electricity, from Mubadala Investment Company PJSC, the UAE-based sovereign
wealth fund, for €2.2 billion;
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d the acquisition by a group of investors of a 50.1 per cent stake in Redexis Gas SA from
Goldman Sachs Infrastructure Partners for €2 billion; and
e Minor International’s €2.7 billion offer for NH Hotel Group.
ii Real estate
As mentioned in previous editions, real estate has established itself as a prominent field for
M&A activity after years of market corrections. Attractive prices combined with banks’
need to clear their balance sheets of real estate assets have catalysed the resurgence of real
estate transactions in the Spanish market. To foster this resurgence, the government has not
amended the tax framework applicable to the Spanish SOCIMIs, which are similar to real
estate investment trusts and which are more attractive to investors.
Investor appetite made 2018 a good year in quantitative terms, including the following:
a the acquisition by Lone Star of 80 per cent of the real estate business of Caixabank for
€3.9 billion;
b Minor International, a Thailand-based and listed hospitality group, launched an offer
for NH Hotel Group for €2.7 billion;
c Blackstone Group, via Tropic Real Estate Holding, SL, acquired Testa Residencial
from Merlin Properties Socimi, SA, BBVA SA, Acciona Inmobiliaria SL and Banco
Santander, SA for €2.5 billion;
d Blackstone Group made a takeover offer to buy the remaining shares it did not own in
Hispania Activos Inmobiliarios SOCIMI, SA for €2.29 billion; and
e Inmobiliaria Colonial, SA acquired a 22.19 per cent stake in Societe Fonciere Lyonnaise
SA from Qatar Investment Authority for €718 million.
In addition, Santander sold Testa Residencial to Blackstone, while Cerberus acquired BBVA’s
real estate business. The pipeline for such assets looks healthy, with both Banco Sabadell and
SAREB reportedly looking to sell portfolios.
iii IPOs
Although we have witnessed the launch of Metrovacesa, Árima, Solarpack y Amrest IPOs,
2018 was a bad year for the Spanish Stock Exchange, both on the traditional continuous
market and on the Mercado Alternativo Bursátil, a market (with a special set of regulations)
for small companies seeking to expand.
In general, forecasts for 2019 are much more optimistic, as companies (some of which
had to postpone IPOs initially planned for 2018), including Glovo, Cepsa, Via Célere,
Tendam (formerly Cortefiel) and Cox Energy, among others, could launch IPOs during 2019
and become important actors on the Spanish Stock Exchange.
iv Private equity
Spanish private equity activity in 2018 increased compared to 2017, showing the highest ever
number of buyouts (€26.7 billion in comparison to €13.5 billion in 2017) and the second
highest ever number of exits (€16.6 billion).
Spain has had two consecutive years of record investment volume, which is positive
news not only for private equity activity but for the Spanish economy as a whole. In 2018,
more foreign investors (private equity, hedge funds and investment banks) landed in Spain
looking for investment opportunities. Domestic private equity funds and asset managers
remained interested in co-investment opportunities with foreign-funds, offering their ‘boots
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on the ground’ approach and expertise to larger players, spurring M&A activity. According
to the Spanish Venture Capital & Private Equity Association, the total investment volume in
the Spanish private equity market last year reached a new record of over €6,000 million across
740 investments. This was driven by a number of big-ticket equity deals, the strong activity
of international funds, the outstanding performance of the mid-market, a rise in investments
made by private domestic firms and a clear dynamism on the divestment front.
International funds accounted for 77 per cent of the total investment volume (with
€4.25 billion invested across 118 deals), which keeps suggesting that Spain is the ‘place to
be’. However, domestic players have also been very active. On the divestment front, nearly
50 per cent of exits took the form of sales between private equity houses, while almost a
quarter involved industrial operators.
The most active sectors for private equity deals by deal count were real estate, technology,
media and telecommunications, and energy.
Technology sectors in Spain have made impressive progress in the past few years. They
have showcased the greater number of deals per industry sector in 2018, with steady growth
in deal value. The important international component of technology-driven transactions
evidence how Spanish companies have developed experience at home that they have exported
overseas with great success.
Some of the most active funds included Blackstone, KKR, CVC, Carlyle, Cinven,
Lone Star, Apollo, Cerberus, Oaktree and TPG, while we saw increased activity by other
international players such as Ardian, Bain Capital and EQT Partners. New landings of
foreign investors in 2018 included Orient Hontai, Peninsula Capital or SK Capital Partners.
Average Iberian EBITDA buyout multiples stood at 16.5 times EBITDA in 2018, up
from 11.8 times EBITDA in 2017.
2018 deals
a The acquisition by Lone Star of 80 per cent of the real estate business of Caixabank for
€3.9 billion;
b the acquisition of a 20.07 per cent stake in Naturgy by CVC and Corporación
Financiera Alba from Repsol SA for €3.8 billion;
c APG Group NV’s and Corsair Capital LLC’s €3.5 billion acquisition of a 59.2 per
cent stake in Itinere Infraestructuras, SA from Gateway Infrastructure Investments, LP
(managed by Corsair Capital), Liberbank SA and Sacyr SA;
d Blackstone Group’s €2.5 billion acquisition of Testa Residencial from Merlin Properties
Socimi, BBVA, Acciona Inmobiliaria and Banco Santander; and
e the voluntary tender offer launched by Brookfield Asset Management over shares
representing 100 per cent of the share capital of Saeta Yield for €2.45 billion.
2019 deals
a The previously mentioned Carlyle Group’s acquisition of a significant minority stake
in Cepsa for €2.27 billion. As a part of the deal, Carlyle will acquire a stake of between
30 and 40 per cent.
b the acquisition of Areas, SA from Elior SCA for a consideration of €1.54 billion by PAI
Partners through its PAI Europe VII fund; and
c a consortium led by EQT Partners comprising Groupe Bruxelles Lambert SA and
Corporacion Financiera Alba SA launched a tender offer to acquire Parques Reunidos
Servicios Centrales SA for €1.2 billion.
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There have been no signs of a slowdown in the private equity industry in Spain in 2019: to
the contrary, the fundraising carried out by international and domestic funds in previous
years, the envisaged interest rates and investors’ demands for investment alternatives suggest
that 2019 will continue to be buoyed by the strong tailwinds of the past two years.

i General overview
In 2018, the acquisition finance market continued its expansion following the recovery from
the financial crisis, establishing itself as an essential business within the M&A framework.
Bank liquidity improved, and traditional lenders that were dominant prior to the crisis and
that overcame the restructuring of the financial sector (e.g., BBVA, Caixabank, Sabadell,
Banco Santander) are once again focused on their lending activity with a positive but prudent
approach.
Market estimates suggest that corporate and business loans from Spanish financing
entities will increase during the second half of 2019, and that the availability of funds from
Spanish banks (especially for non-investment grade borrowers) will continue to improve.
Debt funds have taken advantage of investment opportunities and continued low
prices. Shadow banking has significantly increased its presence in the Spanish market, and
traditional private equity players have started new investment activities, including direct
lending.
Debt issuance of Spanish companies in the flexible and liquid Anglo-Saxon markets
were consolidated during 2018 and the first quarter 2019 (in spite of Brexit), most notably
by real estate companies, which used to be a sector financed by traditional lenders. Specific
Spanish companies (including financial entities) have also used the Spanish market for their
debt issuances, some of a considerable volume.
Competition has forced Spanish banks to offer higher leverage, lower pricing and more
flexible structures.
ii Financing conditions
Apart from these general trends, the following continued to be the main features of acquisition
financings in 2018:
a The range of financing products available to borrowers is exceptionally broad:
second-lien facilities, ancillary facilities, unitranche, mezzanine, bridge-to-equity
facilities, bridge-to-bonds and equity-like facilities are being offered by Spanish
banks due to stronger competition. Vendor loans and non-banking loans (e.g. those
originating from debt funds) continue to be frequently used to finance acquisitions.
b Banks still refrain from agreeing to the certainty of funds provision in commitment
letters, whereas the inclusion of material adverse change clauses and ‘diligence out’
provisions continue to be common. Limits to changes in pricing that can be arranged
without the borrower’s consent have widened under the market flex provisions, and
reverse flex provisions have not returned. Facility agreements still include broadly
drafted market disruption clauses.
c Traditional lenders have made efforts to adapt covenants related to the disposal of
assets, corporate restructuring transactions and guarantee thresholds provided by the
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borrower’s group to covenants customarily used in high-yield bond transactions to offer

more flexible financing that does not restrict the borrower’s capacity to take business
decisions if the financial ratios are not breached.
iii Other regulations

The enactment of Law 5/2019 on real estate credit agreements has improved the regulation of
consumer protection in credit agreements relating to residential immovable property. Since
the main goal of this regulation is to improve consumer protection in the field of real estate
credit agreements willing to acquire real estate for residential purposes, it may not affect
contracts between non-consumers.
Likewise, Royal Decree Law 17/2018 was enacted in November 2018 and established
that lenders (and no longer borrowers) are liable in relation to the tax authorities to pay
stamp duty upon the execution of mortgage-backed loans. In practice, however, lenders have
increased the costs of financing to compensate for this new burden, which is often ultimately
borne by the borrower.
VII EMPLOYMENT LAW

The main legal framework of labour law in Spain is the Statue of Workers, which regulates
the rights and obligations of employees and employers within the framework of labour
relationships. The most recent relevant legislation in terms of labour law was Royal Decree-Law
8/2019 on urgent measures on social protection and against labour precariousness with
regard to working hours, which was enacted on 8 March 2019. Royal Decree-Law 8/2019
introduced a set of measures aimed at improving the precariousness of the Spanish labour
market and Spanish social security payments.
Transfers of undertakings are governed by Article 44 of the Statue of Workers on terms
similar to other jurisdictions within the European Union:
a the transferee company must assume all the transferor’s employees assigned to the
transferred business or production unit, maintaining all their previous labour and social
security rights (including pension commitments); and
b transferor and transferee companies will be jointly and severally liable for three years
after a transfer of undertakings takes place in relation to any labour and social security
obligations not met before the transfer.
The legal regime for managing and executive directors is not provided for in the Statute of
Workers, as these directors are not considered employees. Their service contract must be
approved by the board of directors (without the involvement or vote of the relevant director).
Such contract must include all the terms and conditions under which services are provided,
especially all remuneration and compensation, and directors will not be allowed to receive
any payment not expressly set out in their contracts. On 26 February 2018 the Spanish
Supreme Court issued a very controversial judgment declaring that the remuneration of
managing and executive directors is subject to the same requirements and formalities as those
applicable to any other director. Their remuneration must therefore be included in the overall
limit approved by the shareholders’ meeting for all directors.
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VIII TAX LAW

The government approved a significant tax reform that entered into force on 1 January 2015
and that included significant amendments to the Spanish tax regulations through the approval
of Law 27/2014 of 27 November on Corporate Income Tax (CIT Law) and Law 26/2014 of
27 November, which modified the Personal Income Tax Law and the Non-Resident Income
Tax6 (Law 26/2014). Moreover, on 30 September 2016 the government approved Royal
Decree Law 2/2016 of 30 September on tax measures to reduce the public deficit (RDL
2/2016), which also contained relevant measures. The most relevant novelties for the M&A
practice were the following:
i Definition of business activity for CIT purposes

According to the wording of the CIT Law, a business activity exists for CIT purposes when
there are sufficient human and material resources to carry out the corresponding business
activity at the level of the group of companies to which the corresponding company belongs.
ii Non-deductibility of impairments
Impairments of company shares due to the depreciation of real estate assets are no longer
tax-deductible.
iii Deductibility of financial expenses

Interest accrued on intragroup profit participating loans (PPLs) are treated as dividends for
CIT purposes for the lender; consequently, expenses derived from PPLs (when granted to
related entities) are no longer deductible by the borrower for CIT purposes. This measure
affects PPLs signed after 20 July 2014.
Following the OECD recommendations included in the BEPS Actions reports, the
CIT Law modified the treatment of hybrid instruments to tackle hybrid mismatches, stating
that the expenses incurred in related-party transactions will not be tax-deductible if, as a
result of a different tax classification in the country of residence of the recipient, no income
is generated, or income is tax-exempt or subject to a nominal rate lower than 10 per cent.
The CIT Law maintained the general limitation on the tax deductibility of net financial
expenses (30 per cent of operating profits), with a minimum deductibility threshold of
€1 million.
An additional limitation on leveraged acquisitions was introduced: financial expenses
derived from the acquisition of companies that join a CIT tax group after its acquisition or
are subject to reorganisation transactions in the subsequent four years will be deductible from
the buyer’s tax base up to the additional limit of 30 per cent of the operating profit of the
acquiring company. This limit does not apply if the portion of the purchase price financed
with debt does not exceed 70 per cent of the total purchase price and, in the following
eight tax years, the debt is reduced annually by one-eighth of the principal amount until the
principal amount is reduced to 30 per cent of the initial purchase price.
6 Royal Decree 5/2004 of 5 March approving the Revised Non-Resident Income Tax Law.
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iv Transfer pricing rules

The CIT Law modified the definition of a related party between parent and subsidiary entities:
the relevant shareholder’s stake needs to be at least 25 per cent, or the relevant shareholder
must be able to exercise decision-making powers (the threshold was 5 per cent before).
v Participation exemption framework

The CIT Law extended the application of the participation exemption regime to dividends
and capital gains from Spanish-resident companies, which previously was only applicable
to non-resident companies. This essentially implied that, subject to further analysis on a
case-by-case basis, capital gains realised on the sale of a Spanish company by its Spanish
parent company may be exempt, provided that minimum ownership of 5 per cent or a cost
of acquisition of at least €20 million is held during the year preceding the date on which the
transfer is completed or, in the case of dividends, it has been maintained for the time required
to complete that period. Additionally, if a foreign subsidiary is involved, the subsidiary must
be subject to a minimum level of nominal taxation of 10 per cent in its home country.
Although it is not expressly established in the CIT Law, the Spanish tax authorities also
require the holding company to be incorporated for valid economic reasons and not merely as
a conduit company with the main objective of avoiding taxation on the capital gains realised
on the transfer of its subsidiary. Therefore, the holding company should be a real company
that carries out a business activity for tax purposes and not a mere inactive income company.
The amendments to the participation exemption framework have also been introduced
for the branch participation exemption. A minimum level of nominal taxation of 10 per cent
under a foreign corporate tax system similar to the Spanish CIT is required. This requirement
is considered to be met if the branch is resident in a country with which Spain has ratified a
tax treaty for the avoidance of double taxation.
vi Capitalisation reserve
The CIT Law replaced most of the tax credits currently in force (such as the reinvestment tax
credit and the environmental investment credit) with a tax-deductible capitalisation reserve
under which Spanish entities may, under certain circumstances, reduce their taxable base
by 10 per cent of the increase in its net equity during the year. This is done by comparing
the net equity at year-end (excluding the current year’s profits) with the net equity at the
beginning of the year (excluding the previous year’s profits), and excluding any shareholder
contributions and other items.
To be eligible to benefit from this tax relief, the amount of the net equity increase
must be maintained for five years following the application of the tax deduction (except
for accounting losses), and the company must report an accounting reserve in its annual
accounts for the amount of the deduction. Except in certain situations, the capitalisation
reserve cannot be distributed during the following five years.
vii Carry forward losses

According to the CIT Law, offsetting accumulated tax losses is limited to 70 per cent of
taxable income.
This limitation does not apply in the tax year in which a company is dissolved (except if
derived from a restructuring transaction) or to specific types of income, such as that derived
from debt cancellations without consideration when the creditor is not a related entity.
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Despite introducing this limit to the offsetting of carry forward losses, the CIT Law
removed the applicable 18-year limitation, allowing tax losses to be offset indefinitely.
The CIT Law also incorporated additional limitations to the use of tax losses for
medium and large-sized companies. Thus, in the event that the company’s turnover in the
preceding year is between €20 million and €60 million, offsetting the accumulated tax losses
is limited to 50 per cent of the positive CIT base; and if the turnover is above €60 million,
the use of losses is limited to 25 per cent of the taxable base of the company.
viii Tax rate reduction

The CIT Law gradually reduced the CIT rate from 30 to 25 per cent. Moreover, a reduced
15 per cent tax rate was established for newly-created companies that carry out business
activities. The rate applies during the first profitable tax year and the following year.
ix CIT prepayments
RDL 2/2016 established new tax measures on CIT prepayments that applied to those whose
payment period began after 30 September 2016. According to these measures, the CIT
prepayment rate for CIT payers with a turnover exceeding €10 million in the prior fiscal
year increased to 24 per cent (as opposed to the 17 per cent rate applicable to date) over the
ongoing year’s taxable income. In any event, the CIT prepayment will amount to a minimum
of 23 per cent (25 per cent for some types of entities) of the accounting result of the first
three, nine or 11 months of each year; or, for taxpayers whose tax period differs from the
calendar year, of the result of the period between the beginning of the tax period and the day
before the start of each CIT prepayment period.
x CIT group framework

Based on the ruling of the European Court of Justice of 12 June 2014,7 the CIT Law
broadened the scope of companies eligible for the CIT group framework. Under the new
framework applicable to CIT groups, all Spanish companies resident in Spain and permanent
establishments of foreign-resident entities in Spain that have a direct or indirect common
non-resident shareholder (insofar as the common shareholder meets specific requirements)
may form a tax group for Spanish CIT purposes. In that circumstance, the common
non-resident shareholder is considered the parent company of the CIT group, although it
must appoint one of its subsidiaries as the group’s tax representative in relation to the Spanish
tax authorities.
xi Tax neutrality framework for mergers and demergers

The main amendments introduced by this framework were the following.
Unlike the previous regulation, the tax neutrality framework is now considered the
framework applicable to mergers and demergers by default. A decision to not apply the tax
neutrality framework must be communicated to the Spanish tax authorities.
The CIT Law extended the scope of the definition of partial demergers entitled to
benefit from tax neutrality given that maintaining another business unit in the transferring
entity is no longer required (i.e., the new CIT Law allows the application of tax neutrality
when the transferring entity merely retains a controlling stake in a subsidiary).
7 Cases C-39/13, C-40/13 and C-41/13.
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In addition, the CIT Law allows carry forward losses to be transferred to the acquiring
entity simultaneously with the going concern being transferred to the acquiring entity even
if the transferring entity is not wound up.
Merger goodwill and other intangibles arising as a consequence of a merger are not
recognised for tax purposes and will therefore no longer be deductible.
According to the current wording of the CIT Law, the tax authorities are only able to
partly regularise a tax advantage unduly applied. The tax authorities are not able to claim
taxes on unrealised gains by the transferring entity.
xii Non-resident income tax

Law 26/2014 reduced tax rates on income obtained by non-residents in Spain. The general
tax rate is 24 per cent; the rate for EU residents is 19 per cent. Moreover, dividends, interest
and capital gains are taxable at a rate of 19 per cent. The tax rate for permanent establishments
was reduced to 25 per cent.
The most important development in relation to the EU Parent–Subsidiary Directive is
that no Spanish withholding taxes are levied on dividends distributed by a Spanish subsidiary
to its EU parent company when the EU parent company maintains a direct holding of at
least a 5 per cent stake or €20 million in the Spanish subsidiary. The holding must have been
held uninterruptedly for the year preceding the date on which the distributed profit is due or,
failing that, for the time required to complete that period. The anti-avoidance rule was also
amended, and applies when the majority of the parent company’s voting rights are directly or
indirectly held by non-EU residents, unless it can be evidenced that the EU parent company
has been incorporated and operated for valid economic purposes and substantial business
reasons.
IX COMPETITION LAW
Under Law 15/2007 of 3 July on competition, transactions leading to a concentration that
fulfil the following thresholds are subject to mandatory notification to Spain’s National
Markets and Competition Commission (NMCC):
a as a consequence of a transaction, the undertakings obtain a market share of at least
30 per cent in a national market or a substantial part of it regarding a certain product
or service. The market share threshold increases to 50 per cent if the target’s aggregate
turnover in Spain was less than €10 million in the previous financial year; and
b the turnover of the undertakings in Spain in the previous financial year was at least
€240 million, provided that at least two of the undertakings concerned had a minimum
turnover of €60 million in Spain during the same period.
The Competition Law also includes a suspension obligation, requiring that the completion of
a transaction meeting any of the thresholds be suspended until clearance is granted.
In 2018, the number of notifications filed was slightly lower (84) than in 2017 (96).
Most of the notifications filed were cleared in the first phase without commitments, and only
four of them were approved in the first phase with commitments. In one case, the NMCC
initiated a second phase review and finally cleared the transaction with commitments. Real
estate, the manufacturing sector, the chemical industry and the energy industry were the
main sectors in terms of the number of transactions notified to the NMCC in 2018.
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In terms of antitrust enforcement policy, in 2018 the NMCC continued to closely

monitor companies’ compliance with its decisions through a specialised division within
the Competition Directorate established to conduct such investigations. Within these
proceedings, information requests are usually submitted to third parties enquiring about
companies’ compliance with the conditions imposed.
As regards merger control, the NMCC has created a division to identify transactions
that may be subject to merger control clearance in Spain in order to identify potential cases
of gun jumping.
X OUTLOOK
Despite the political uncertainties and rumours of deceleration, M&A prospects in Spain
for the second half of 2019 and 2020 are optimistic. The resilient macroeconomic scenario
will continue to help M&A in general. Likewise, the sustained improvement of the Spanish
economy, continued deleveraging process, consolidation of key industries (tourism,
telecommunications, energy, financial services), prospective political stability following
general elections in April, low interest rates and increased access to credit and other financing
for Spanish corporations and private equity strengthen the belief that the volume and number
of M&A transactions will be maintained in the short and medium term. On the negative
side, high unemployment, despite the undeniable improvements in recent years, is still
dampening consumer spending (although domestic demand has inched up). In this scenario,
the government continues to struggle with a large deficit and some political instability.
The growing appetite of foreign investors for the Spanish economy, as well the global
improvement of the economy and the high activity of M&A transactions worldwide, will
continue to affect the high number of transactions involving foreign investors in Spain.
European and US investors will continue to be the main players.
The new complexity of private M&A deals in Spain has led to multiple structures and
formulas to determine the price of the transaction, such as rollovers, earn-outs and escrow
mechanisms. W&I insurance has also become more prevalent, and not only in private equity
sponsored transactions.
Finally, foreign private equity funds will continue investing in a wider range of industries
including food and drink, retail, tourism, leisure, energy, infrastructure, real estate, and life
sciences and pharma. Healthcare and pharmaceutical industries have potential, as public
and private spending continues to increase in response to an ageing population. Renewables
and technology have attracted investor interest in recent years. These investments are now
appearing in a wider range of forms and vehicles.
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SWITZERLAND
Manuel Werder, Till Spillmann, Thomas Brönnimann, Philippe Weber, Ulysses von Salis,
Nicolas Birkhäuser and Elga Reana Tozzi1

The number of M&A transactions involving Swiss businesses reached a peak in 2018, driven
by strong activity in diverse sectors and an increase in private equity transactions, which
constituted 32 per cent of M&A transactions in the period (up from 17 per cent in 2009).
According to KPMG, there were 230 outbound deals in 2018, which was approximately
double the number of inbound transactions. KPMG calculates the top 10 Swiss M&A
transactions of 2018 as having a total transaction value of US$62.1 billion, with these
transactions targeting the pharmaceutical, energy and utilities, consumer goods, logistics and
fintech sectors. In the past five years, according to Dealogic, there has also been a steady
growth in technology M&A transactions involving a Swiss buyer or target, with a total of
713 deals since 2014 offering an average transaction size of US$39 million.
These numbers show that relative to the size of its population, Switzerland plays a
disproportionately important role in M&A in the DACH (Germany, Austria and Switzerland)
region and offers interesting investment opportunities to foreign investors.
Some of the most notable deals in 2018 and Q1 2019 include the following:
a the spin-off by Novartis of Alcon Inc, with Alcon becoming dual-listed on the SIX
Swiss Exchange and the New York Stock Exchange at a total valuation of 26.85 billion
Swiss francs;
b Sunrise Communications’ announced indirect acquisition of UPC Switzerland from
Liberty Global, with an enterprise value of 6.3 billion Swiss francs;
c the 2.9 billion Swiss franc acquisition of SIX Payment Services from SIX Group by
Paris-listed Worldline;
d CMA’s acquisition of CEVA Logistics by way of a public tender offer at a deal value of
2.3 billion Swiss francs;
e the sale by EQT of a stake in Sportradar to CPPIB and Technology Crossover Ventures
for 1.2 billion Swiss francs; and
f RennaisanceRe’s 1.5 billion Swiss franc acquisition of Tokio Millennium Re.
1 Manuel Werder, Till Spillmann, Thomas Brönnimann, Philippe Weber, Ulysses von Salis and
Nicolas Birkhäuser are partners and Elga Reana Tozzi is a counsel at Niederer Kraft Frey Ltd.
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M&A transactions are mainly governed by:
a the Swiss Code of Obligations, which provides the statutory framework for the
acquisition and sale of companies (share deals) or of their assets and liabilities (asset
deals);
b the Federal Act on Merger, Demerger, Transformation and Transfer of Assets, which
regulates mergers, demergers, conversions and transfers of assets and liabilities; and
c the Federal Act on Financial Market Infrastructures and Market Conduct in Securities
and Derivatives Trading (Financial Market Infrastructure Act (FMIA)) and its
implementing ordinances.
The FMIA applies to public cash and share exchange offers to holders of equity securities of
companies whose equity securities are listed on a Swiss exchange (in the case of non-Swiss
domiciled companies, the FMIA applies only to those companies with a primary, full or
partial listing on a Swiss exchange). The rules and procedures applicable to public tender
offers laid down in the FMIA and its implementing ordinances are designed to ensure fairness,
equal treatment and transparency in voluntary and mandatory public tender offers. The
obligation to launch a mandatory tender offer arises whenever a person or a group of persons
acting in concert, directly or indirectly, acquires equity securities of a Swiss company listed in
Switzerland, or a foreign company with a primary listing in Switzerland, and thereby exceeds
the threshold of one-third of the voting rights (whether exercisable or not). In the case of a
mandatory tender offer (including offers that would result in the triggering threshold being
exceeded), the offer price per share may not be lower than the volume-weighted average stock
price on the relevant Swiss exchange of 60 trading days prior to the formal announcement or
publication of the offer or the highest price paid by the bidder (or persons acting in concert
with the bidder) for equity securities (including options) of the target during the preceding
12 months.
The articles of association of listed companies may provide for a higher threshold of
up to 49 per cent of the voting rights (opting up) or may declare the mandatory tender
offer obligations to be not applicable (opting out). The Takeover Board (TOB) and its
supervisory authority, the Swiss Financial Market Supervisory Authority (FINMA), monitor
public tender offers. The TOB can issue binding orders against parties, which can be appealed
to FINMA. FINMA’s decisions can be appealed to the Federal Administrative Court. The
relevant decisions are published online.2
Various other rules may also be relevant for the acquisition and sale of corporate entities
and of their assets and liabilities, including, among others:
a the listing rules of the respective stock exchange if the transaction results in the listing
of new shares on a stock exchange;
b employment law (automatic transfer of employment relationships and information and
consultation rights of employees);
c the Federal Act on the Acquisition of Real Estate by Persons Abroad, which contains
regulations on the acquisition by foreign persons, or foreign-controlled companies, of
residential property or land in Switzerland;
2 At www.takeover.ch.
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d the Federal Act on Cartels and other Restraints of Competition, which in combination
with the Ordinance of Merger Control regulates merger control; and
e industry-specific laws and regulations, such as financial services, telecommunications,
insurance, and energy laws and regulations.

THEIR IMPACT
i Private M&A
Corporate law is currently under revision in several aspects and with multiple aims. On
23 November 2016, the Swiss Federal Council issued a report on its amendment proposal.
First, the Ordinance against excessive remuneration in listed stock corporations, which
entered into force on 1 January 2014 as a transitional regulation, is to be adopted into federal
law. Second, the rules on the incorporation of companies and the capital structure are to
become more flexible. Third, the draft legislation contains a proposal for transparency rules
for economically significant companies that are active in the extractive industries. Finally,
guidelines on gender representation at board and senior executive level in major listed
companies have been proposed.
The proposed new legal provisions that originate in the Ordinance against excessive
remuneration in listed stock corporations foresee the following:
a sign-on bonuses that do not offset any demonstrable financial disadvantage are to be
prohibited or limited;
b compensation for non-compete clauses that are not commercially justified are to be
prohibited or limited;
c shareholders may vote in advance or ex post on the remuneration for top managers. If
shareholders vote in advance on the variable remuneration for top managers, they must
also be presented with the annual compensation report for a subsequent consultative
vote; and
d more effective ways shall be introduced for claiming the reimbursement of unlawful
payments.
Furthermore, the Federal Council’s report provides for increased flexibility and simplification
in a number of areas. Share capital may henceforth be denominated in a foreign currency.
The new law introduces the possibility for a shareholders’ meeting to foresee a new capital
band, which authorises the board of directors to freely increase (authorised capital increases)
and reduce the share capital (authorised capital reductions) within the capital band without
any need for further shareholder resolutions. In addition, the need for public certification
by a notary for the incorporation of stock corporations, limited liability companies and
cooperatives, and their dissolution and cancellation from the commercial register, will now
be both possible and straightforward.
The Federal Council is further proposing reforms to other specific areas. For example, by
revising the provisions on corporate restructuring, it aims to create incentives for companies
to take necessary actions at an early stage and thus avoid insolvency. In addition, arbitral
tribunals will be able to rule on disputes under company law as well to the public courts, as
is the case at present.
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Furthermore, in an effort to make financial flows in the commodities sector more

transparent, the Federal Council has proposed, in an electronic report, the imposition of
a requirement on significant companies that are active in the extractive sector to disclose
payments to state bodies in excess of 100,000 Swiss francs per financial year.
Finally, the Federal Council proposed the introduction of gender guidelines for the
boards of directors and executive boards of major listed companies, namely that women
should account for at least 30 per cent of a board of directors and at least 20 per cent of an
executive board. The law provides for a comply or explain approach, that is to say if these
thresholds are not met, a stock corporation will be required to state the reasons, and the
action that is being taken to improve the situation, in its remuneration report. The new law
provides for transitory periods of five years for boards of directors and 10 years for executive
boards.
The proposal has been discussed in one chamber of the Swiss Parliament but not yet in
the other chamber. Only the legal commission of the second chamber has held discussions. It
appears that the discussions may be extensive and time-consuming, and that the deliberations
will result in changes to the proposed bill. It cannot therefore be anticipated when the new
legislation will enter into force and in what exact form.
ii Public M&A
Public M&A activity was very active in 2018, and the Swiss Takeover Board issued a number
of decisions. However, no major amendments were made to takeover legislation in 2018.

There is no general foreign investment regime in Switzerland, on the basis of national interest
and regardless of the industry sector, as it has been enacted in several other jurisdictions. In
February 2019 the Federal Council decided against foreign investment controls for the time
being. However, the Federal Council intends to conduct a monitoring procedure and review
the matter within the next four years.
There are few foreign investment control restrictions applying to M&A transactions
involving Swiss target enterprises. There are provisions in the legislation covering specific
sectors. Restrictions apply to sectors such as banking, finance, insurance, telecommunication,
transportation, energy, war materials, lotteries and gambling where approvals, state licences
and concessions may be required (mostly on a federal level, but sometimes also on a cantonal
level).
For example, for the acquisition by a foreign investor of a bank or financial institution
that is prudentially supervised, an approval from FINMA is required, whereas different
tests apply to the acquisition of a controlling stake (i.e., when foreigners holding qualified
participations directly or indirectly hold more than half the voting rights or exert a controlling
influence in any other way) and the acquisition of a minority interest. The approval of
an acquisition of a controlling stake will depend, among other things, on the granting of
reciprocal rights by the country in which the qualified participant is resident or domiciled.
Furthermore, for example, the Federal Law on the acquisition of real estate in
Switzerland by non-residents (known as Lex Koller) restricts the direct or indirect acquisition
of non-commercial real estate in Switzerland by foreigners. These rules may also apply to
a target entity that has a commercial purpose and pursues commercial activities, if it owns
residential real estate in its portfolio or if it has significant unused land reserve.
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One of the most innovative and notable M&A transactions in Switzerland in recent years
was completed in 2018: the takeover of Actelion Ltd, the Swiss-listed biotech company,
by Johnson & Johnson. The purchase price of US$30 billion in cash makes this the largest
biotech transaction in Europe. Johnson & Johnson agreed on 26 January 2017 to launch
a public cash offer for all shares in Actelion, which is listed on the SIX. As part of the
agreed transaction, Actelion made a spin-off of its promising drug discovery operations and
early-stage clinical development assets into a newly created Swiss biopharmaceutical company,
Idorsia Ltd. Before closing, the shares in Idorsia were, by way of an extraordinary dividend
in kind, distributed to Actelion’s shareholders, and at closing the shares in Idorsia were listed
on the SIX, thereby starting a biotech start-up with more than 600 employees, more than
1 billion Swiss francs in cash and an initial public offering (IPO) at its first business day. This
transaction structure allowed the shareholders of Actelion to keep the potential profits of the
research that Actelion had been nurturing for decades with its outstanding research team,
bridging the problem that it would have been very difficult to agree with Johnson & Johnson
on a reasonable valuation of this high-risk, early-stage research business. It also allowed a
large number of the management team at Actelion, including chief executive officer Paul
Clozel, to continue to work in an independent company with a very entrepreneurial spirit.
Johnson & Johnson bolstered its product portfolio with Actelion’s blockbuster drugs while
also receiving an option on Idorsia’s ACT-132577, a compound for resistant hypertension
that is in development.
As part of the transaction, Actelion had to be split by spinning-off its drug discovery
operations and early-stage clinical development assets into a new entity. This complex
undertaking had to be fully implemented within less than six months, including splitting
the intellectual property portfolio and finding solutions for business functions that both
business units had been sharing. As part of the transaction, Johnson & Johnson also acquired
a significant shareholding in Idorsia, whereby a well-designed governance structure had to
be developed to address concerns from the competent merger control authorities. Finally,
Johnson & Johnson is also providing a credit facility to Idorsia.

In general, low interest rates and high cash levels at companies and sponsors continued
to underpin the strong M&A activity in 2018. Large Swiss leveraged acquisition finance
transactions are usually arranged by international banks through the UK or US markets and
placed with banks and institutional investors using Luxembourg or Netherlands acquisition
vehicle structures. In most cases, funding is made through both loans and bonds. The
domestic acquisition finance market is mainly driven by the large Swiss banks and some
smaller ones, such as cantonal banks and other smaller financial institutions. Because of
the particularities of the Swiss tax laws, bonds issued by Swiss issuers are less attractive, in
particular in the context of leveraged acquisition finance transactions. In addition, because
of the negative interest rates, the trend of institutional investors (in particular, insurance
companies and pension funds) and other non-bank lenders providing lending has also
continued. Such investors are particularly interested in real estate, infrastructure and energy
investments offering relatively secure long-term and resilient cash flow and return profiles.
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VII EMPLOYMENT LAW

No major amendments were made to Swiss employment law in 2018. In the context of M&A
transactions, the relevant rules are those governing the transfer of employees in the event
of a transfer of an enterprise by way of an asset transfer, merger or demerger. These rules
do not apply to share transfers. In the event of a transfer of an enterprise, the employment
agreements with the employees transfer by operation of law unless an employee refuses the
transfer, in which case the employment agreements will transfer to the acquiring party but be
terminated within the statutory periods (i.e., one to three months, depending on the number
of years the employee has been employed).
The employee representative body or, if there is none, the employees themselves,
must be informed in due time prior to an anticipated transfer about the reasons for the
transfer and the legal, economic and social consequences. If measures affecting employees are
contemplated as an outcome of the transfer, the employee representative body or, if there is
none, the employees themselves, must be consulted prior to any decision on these measures
being made. This may conflict with stock exchange rules, which require that transactions
are kept confidential until they are executed and that only a confined circle of persons are
involved in the transaction process on a need-to-know basis.
VIII TAX LAW

On 19 May 2019, the Swiss corporate tax reforms were approved by popular vote. As of
1 January 2020, various tax provisions will enter into force, such as the cantons having to
abolish their preferential tax regimes (e.g., holding and domicile privilege, mixed company
status), and as consequence will reduce their corporate tax rates (subject to cantonal
referendum, and in some cantons this will be subject to a vote during 2019). The main
new rules include those regarding the introduction of a patent box regime, a R&D super
deduction and the tax-neutral step up of the tax basis for migration to Switzerland. For
companies losing their privileged tax status, a step up of the tax basis would be possible.
Under the Federal Direct Tax Act (FDTA),3 capital gains arising from the sale of
privately held shares of a Swiss tax-resident person are tax-free. However, the tax law states
some exemptions whereby a capital gain would be subject to income tax and withholding tax
in the following two basic cases:
a an indirect partial liquidation4 (i.e., capital gains arising from the sale of at least 20 per
cent of the capital of a company if the purchaser was a company or an individual person
holding those shares as a business asset). It is a well-known practice that the seller asks
for tax warranties and representations in the sale and purchase agreement, whereas the
purchaser cannot merge the target with the acquisition company or declare a dividend
from distributable non-business-related reserves (available at the date of the purchase)
during a five-year blocking period; and
b a transposition,5 that is to say a realisation of a nominal value gain if a shareholding
of at least 5 per cent was contributed by an individual shareholder to a company in
exchange for shares, with the result that the individual shareholder would own at
3 Article 1b, Paragraph 3 of the FDTA.

4 Article 20a, Paragraph 1(a) FDTA.
5 Article 20a, Paragraph 1(b) FDTA.
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least 50 per cent. The minimum shareholding quota of 5 per cent will be reduced
to zero as of 1 January 2020 (i.e., even a contribution of one share into a controlled
company could result in a transposition treatment). This should not only be considered
for family-owned businesses but also in the case of an IPO. In practice, shareholder
agreements and the execution of call options could also trigger a transposition and
requalify a nominal value gain into taxable income.
In recent years, the Swiss Federal Tax Administration (SFTA) has developed a new practice
for cases of substitutional liquidation, that is to say when a non-Swiss holding company
would sell its Swiss subsidiary to a company that is tax-resident in a third country and the
Swiss subsidiary would be merged with the non-Swiss tax resident acquisition company,
which would result in the distributable reserves of the Swiss subsidiary being transferred
to the non-Swiss tax resident company and, accordingly, no longer being subject to Swiss
withholding tax. The SFTA could in such a case levy a withholding tax at a rate that is the
difference between the residual tax rate applicable pursuant to the applicable double tax
treaty between the seller state and Switzerland and the applicable double tax treaty between
the state of the acquisition company and Switzerland.
The SFTA could in some cases also refuse the refunding of withholding tax if it is
deemed that there has been an international transposition, that is to say if a surplus was
to be returned to a shareholder through the repayment of loans or by distributing capital
contribution reserves instead of a dividend distribution that would be subject to Swiss
withholding tax: for example, a Swiss company held by non-Swiss individuals, which cannot
benefit from a full refund of the Swiss withholding tax, would be transferred to another Swiss
company that could benefit from a full refund of the Swiss withholding tax.
Attention should also be given if a target company has an employee share option plan
in place. The relevant practice is very strict in respect of the requalification of a capital gain
into salary income. In particular, if an employee buys shares (cash settlement of the purchase,
i.e., not when shares are issued as a bonus compensation) at a value that is calculated based
on an agreed formula, and those shares would be sold to a third party based on a different
fair market value calculation, the surplus gain (i.e., the difference between the actual formula
value and the effective fair market value) would be requalified as salary income and be subject
to income tax, and to social security and eventually to pension funds (or even source taxes),
which might be a liability of the company.
Furthermore, the facts and circumstances of purchase price payments related to
certain earn-out clauses need to be analysed carefully given that such payments could also be
requalified as a salary income.
Switzerland still levies stamp duty of 1 per cent on the issue of shares, but restructuring
exemptions are available. Based on a recent Federal Supreme Court case, stamp duty would
be due in the case of a quasi-merger if no new shares were issued (i.e., shares in one company
would be contributed to another company). In practice, until now it has been possible
to contribute to another company without issuing new shares (i.e., in cases of internal
reorganisations), but going forward, it is mandatory to issue at least one share.
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IX COMPETITION LAW
Under the current merger control legislation, the following transactions are deemed to be a
concentration of undertakings subject to merger control:
a a statutory merger of two or more previously independent undertakings;
b the acquisition of control over one or more previously independent undertakings or
parts of undertakings through any transaction, in particular the acquisition of an equity
interest or the conclusion of an agreement; and
c the acquisition of joint control over an undertaking (joint venture).
Control is assumed if an undertaking can exercise a decisive influence over the activities of the
other undertaking by the acquisition of rights over shares or by any other means. The means
of obtaining control may, in particular, involve the acquisition of the following:
a ownership rights or rights to use all or parts of the assets of an undertaking (if those
assets constitute the whole or part of an undertaking, which is a business with a market
presence to which a market turnover can be attributed); or
b rights or agreements that confer a decisive influence on the composition, deliberations
or decisions of the organs of an undertaking.
Partial interests and minority shareholdings are only covered if they allow an undertaking
to exercise a decisive influence over another undertaking (this can also be in combination
with contractual agreements between the parties or factual circumstances). There is a risk
that the acquisition of a minority interest may qualify as an anticompetitive agreement if the
undertakings concerned agree to cooperate.
Planned concentrations of undertakings must be notified to the Competition
Commission before their implementation if in the financial year preceding the concentration
(cumulatively) the undertakings concerned together reported a worldwide turnover of at least
2 billion Swiss francs or a turnover in Switzerland of at least 500 million Swiss francs; and at
least two of the undertakings concerned each reported a turnover in Switzerland of at least
100 million Swiss francs.
In the case of insurance companies, turnover is replaced by annual gross insurance
premium income, and in the case of banks and other financial intermediaries by gross income.
The Secretariat decided that a joint venture is exempted from notification (even if the
parent companies meet the thresholds) if the following two conditions are both met: the
joint venture does not have activities in Switzerland or does not generate any revenues in
Switzerland; and those activities or revenues are not planned in Switzerland and are not
expected to take place in the future.
In addition to turnover, notification is mandatory if one of the undertakings concerned
in proceedings under the Cartel Act in a final and non-appealable decision was held to be
dominant in a market in Switzerland, and if the concentration concerns either that market,
or an adjacent market or a market upstream or downstream of that market.
There is no applicable triggering event or time limit. However, notification must
be made before the concentration is implemented. For public bids for acquisitions of
undertakings, the notification must be made immediately after publication of the offer and
before the acquisition is implemented. The Competition Commission should be contacted in
advance so that it can coordinate the proceeding with the Swiss Takeover Board.
Under the current merger control legislation, the Competition Commission
may prohibit a concentration or authorise it subject to conditions and obligations if the
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investigation indicates that the concentration both creates or strengthens a dominant position
liable to eliminate effective competition; and does not improve the conditions of competition
in another market such that the harmful effects of the dominant position can be outweighed.
The following is currently being debated in Switzerland: the Federal Council has
commissioned the Department of Economic Affairs, Education and Research to draw up
a consultation proposal for adapting the merger control test. It is proposed that the current
market dominance test applicable in Switzerland (under Article 10 of the Cartel Act) should
be replaced by the significant impediment of effective competition test.
X OUTLOOK
Swiss M&A activity continues to punch above its weight, with particularly strong activity in
the traditional powerhouses of the pharma, energy and utilities, consumer goods and fintech
sectors. A steady increase in private equity involvement in Swiss M&A transactions has also
contributed to growth in the market.
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Chapter 42
UKRAINE
Viacheslav Yakymchuk and Olha Demianiuk1

Ukraine has experienced adverse economic and geopolitical conditions since 2014 that have
had a negative effect on overall M&A activity in the country. Following recent economic
and political stabilisation, deal activity significantly picked up, and starting from 2017, the
market has started growing at a double-digit pace per annum.
M&A activity has been largely driven by major domestic Ukrainian players, which
generated the majority of M&A activity in Ukraine and increased their outbound M&A
activities. Foreign investors are also showing growing interest in investing into Ukraine. The
most active sectors for M&A activities in 2018 were metals and mining and agriculture.
The largest M&A transaction in 2018 was a transaction between domestic players in the
metals and mining sector: the US$714 million acquisition of Donetsksteel by Industrial Coal
Holding LLC.
There has been a lot of M&A activity in Ukraine’s agricultural sector, which sector has
been historically the most resilient to the crisis. Agro deals involved land banks, processing
and infrastructure facilities, the largest of which being the acquisition of Mria Agroholding by
Saudi company SALIC UK Ltd, resulting in the investor increasing its land bank in Ukraine
to a total of 210,000 hectares. Another landmark transaction in the agricultural sector
involving outbound investment was the acquisition by MHP SE, a leading international
agro-industrial group, of Perutnina Ptuj, an international meat-processing company and the
largest producer of poultry and poultry meat products in Southeast Europe.
The real estate sector saw a lot of activity in commercial real estate in 2018, majorly
driven by the acquisitions of retail and office spaces by the domestic investment fund, Dragon
Capital, and other domestic players.
A lot of M&A activity is currently ongoing in the consumer good and retail sector.
The landmark transaction in the sector was the merger of the Ukraine’s largest e-commerce
players, Rozetka and EVO, aimed at the creation of a combined e-commerce platform and
the optimisation of the suppliers’ base.
In the energy sector, foreign investors have shown increased interest in investing in
Ukraine’s oil and gas sector through participation in tenders for concluding production
sharing agreements.
In 2016, the government announced the privatisation of several large state enterprises,
including Ukraine’s largest producer of nitrogen fertiliser, the state-owned Odessa Portside
1 Viacheslav Yakymchuk and Olha Demianiuk are partners at Baker McKenzie.
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Plant, referred to by many as the crown jewel of Ukraine’s privatisation. Unfortunately,

both attempts to auction off the plant failed to attract any bids from strategic investors. The
privatisation of other large state enterprises, such as Centerenergo, has been put on hold.

The Civil Code,2 the Commercial Code,3 the Company Law,4 the Limited and Additional
Liability Companies Law (Law on LLCs),5 the Joint-Stock Company Law (JSC Law),6 the
Law on the Securities Law7 and the Law on State Registration8 constitute the legal framework
for M&A in Ukraine. The merger control rules and merger notification thresholds are set out
in the Competition Law.9
A corporate merger or an acquisition involving a joint-stock corporation (JSC) would
also trigger the application of the Depository System Law10 and the Securities Market Law.11
Moreover, there are a number of additional rules and principles that are to be taken into
account when preparing or conducting an acquisition of a JSC, such as:
a the rules relating to the disclosure of significant shareholdings in JSCs and ultimate
beneficial owners;
b the rules relating to insider dealing;
c the rules relating to the public offer of securities and the admission to trading of these
securities on a regulated market; and
d the general rules on the supervision of and control over the financial markets.
The Securities Commission12 supervises compliance with the takeover and JSC-specific
regulations.
At the same time, JSCs have become less popular as a vehicle for conducting business
activities in Ukraine. As of 1 May 2019, only 14,195 JSCs were registered in Ukraine
according to the official statistics. In contrast, the statistics show that there were 646,928
companies in the form of limited liability companies (LLCs) in Ukraine on 1 May 2019,
which is the most common vehicle for conducting business activities in Ukraine. Legal
entities in Ukraine may also be established in the form of a general partnership, a limited
partnership and an additional liability company.
Acquisitions of businesses and companies are usually carried out through the purchase
of the participatory interests of an LLC or through the acquisition of the shares of a JSC.
The majority of M&A deals are privately negotiated deals, as Ukrainian companies usually
2 The Civil Code of Ukraine, adopted on 16 January 2003, effective from 1 January 2004.
3 The Commercial Code of Ukraine, adopted on 16 January 2003, effective from 1 January 2004.
4 Law of Ukraine No. 1576-XII ‘On Companies’, dated 19 September 1991.
5 Law of Ukraine No. 2275-VIII ‘On Limited and Additional Liability Companies’, dated 6 February 2018.
6 Law of Ukraine No. 514-VI ‘On Joint-Stock Companies’, dated 17 September 2008.
7 Law of Ukraine No. 3480-IV ‘On Securities and Stock Market’, dated 23 February 2006.
8 Law of Ukraine No. 755-IV ‘On the State Registration of Legal Entities, Individual Entrepreneurs and
Public Organisations’, dated 15 May 2003.
9 Law of Ukraine No. 2210-III ‘On Protection of Economic Competition’, dated 11 January 2001.
10 Law of Ukraine No. 5178-VI ‘On Depository System of Ukraine’, dated 6 July 2012.
11 Law of Ukraine No. 448/96-VR ‘On State Regulation of the Securities Market in Ukraine’, dated
30 October 1996.
12 The National Securities and Stock Market Commission of Ukraine.
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have one or several significant shareholders. JSCs may be public or private: the shares of a
public JSC may be both privately and publicly placed, whereas the shares of a private JSC
are privately placed among its shareholders. Asset acquisitions are also common, but they
are technically more burdensome and time-consuming, and involve the imposition of VAT.
Because of the mandatory provisions of Ukrainian law and an imperfect court system,
shareholders and participants in Ukrainian companies have traditionally preferred to set up
holding companies in foreign jurisdictions such as Cyprus or the Netherlands, and to choose
foreign law (mainly English) as the governing law of transaction documents. While recent
developments in corporate and takeover law are intended to increase the attractiveness of
structuring M&A deals in Ukraine and expose them to Ukrainian law, we do not expect a
major change in deal structuring in the near future. In those cases where an investment has
already been structured as a joint venture on the Ukrainian level, shareholders may choose
to benefit from the new legislation and conclude Ukrainian law-governed shareholders’
agreements.

THEIR IMPACT
The corporate and takeover laws in Ukraine were significantly amended between 2016 and
2018 in the course of the ongoing corporate reform.
i New takeover rules for JSCs and escrow accounts, and other important changes
The Corporate Governance Law,13 which became effective on 4 June 2017, introduced
into Ukrainian law new takeover rules that are based on EU Directive 2004/25/EC of
21 April 2004 on takeover bids. The Law changed the rules for the acquisition of controlling
stakes, introduced the concepts of squeeze-out and sell-out, and increased the disclosure
requirements and thresholds for the approval of interested-party transactions.
Investors and shareholders should consider the new takeover rules when structuring
M&A transactions that may result in the direct or indirect acquisition of shares in Ukrainian
JSCs (even if such JSCs are not the direct acquisition targets), including:
a disclosing information on acquiring different stakes (for public JSCs: 5 per cent and
more, 50 per cent and more, 75 per cent and more, and 95 per cent and more; for
private JSCs: 10 per cent and more, 50 per cent and more, and 95 per cent and more);
b disclosing information on the highest acquisition price for controlling stakes (50 per
cent plus one share, 75 per cent and more, and 95 per cent and more);
c complying with the procedure for submitting other notices on acquisitions of shares;
d complying with the obligation to make a mandatory bid to the remaining shareholders
to purchase their shares at a fair price in cases of acquisition of the controlling stakes
(50 per cent plus one share, or 75 per cent and more), including the timing of an
irrevocable mandatory bid and the formula for determining the fair price (i.e., the price
to be paid by the majority shareholder for the shares of the minority shareholder);
e squeeze-out: that is, the right of the dominant stakeholder (95 per cent and more) to
require the holders of the remaining shares to sell him or her their shares; and
13 Law of Ukraine No. 1983-III ‘On Amendments to Certain Legislation of Ukraine Regarding Improvement
of Corporate Governance of Joint-Stock Companies’, dated 23 March 2017.
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f sell-out: that is, the right of minority shareholders to require the dominant stakeholder
to buy their shares at a fair price.
The long-awaited squeeze-out procedure entitles a shareholder that acquired the dominant
controlling stake of 95 per cent and more of shares to require the holders of the remaining
shares to sell him or her their shares within 90 days following the date of disclosure of the
information on the acquisition of the shares. The dominant stakeholder intending to exercise
its right to squeeze-out should first comply with the mandatory bid procedure. The price for
the mandatory purchase of shares of minority shareholders should be determined according
to the formula set out in the Corporate Governance Law.
An important highlight of the Corporate Governance Law is the introduction of the
concept of escrow accounts into Ukrainian law. Escrow accounts are a commonly used
instrument for securing payments among parties. Settlement of payment of the purchase price
to minority shareholders as a result of the squeeze-out procedure should be made via escrow
accounts without engaging a securities broker. This mechanism allows the elimination of
‘dead souls’ (i.e., minority shareholders (often deceased persons)) with whom any connection
has been lost. As a result of the introduction of the concepts of squeeze-out and escrow
accounts, dominant stakeholders will be able to consolidate 100 per cent of the shares in
their hands.
According to information publicly available as of 31 May 2019, 259 JSCs have already
launched squeeze-out procedures in Ukraine. Several court and administrative proceedings
have also been initiated disputing the squeeze-out price, while the respective court practice
is yet to be formed.
Another revolutionary development in Ukrainian corporate law is the introduction
of the sell-out procedure. Minority shareholders now have the right to require a dominant
stakeholder to buy their shares at a fair price to be determined similarly to the squeeze-out
price. According to the transitional provisions, minority shareholders may exercise their
sell-out right at any time following the acquisition of at least one additional share of a JSC by
the dominant stakeholder after 4 June 2017.
At the same time, the Corporate Governance Law allows private JSCs to disapply
rules or establish different rules in their charters regarding acquisitions of controlling stakes,
squeeze-out and sell-out procedures, subject to having complied with the majority voting
requirements set out in law.
Additionally, the materiality thresholds in excess of which interested party transactions
should be approved by the respective corporate body of a JSC were changed from 100
minimum wages to 1 per cent of the assets value, based on the latest financial statements of
a JSC.
The implementation of the Corporate Governance Law has facilitated changes in the
types of JSCs from public to private, and cleared the market of quasi-public JSCs, particularly
because the acquisition of shares in private JSCs is subject to less stringent regulation. In
addition, private JSCs may disapply rules or establish different rules in their charters regarding
the acquisition of controlling stakes, and squeeze-out and sell-out procedures.
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ii New transparency rules for JSCs

Further to the Corporate Governance Law, the Parliament adopted the Law on Business
Simplification14 on 16 November 2017, aimed at reloading the Ukrainian stock market,
mainly through clearing it of quasi-public JSCs and aligning the requirements regarding
public JSCs to the EU regulations.
According to the Law on Business Simplification, all JSCs in Ukraine are considered to
be private JSCs as of 6 January 2018, except for public JSCs whose shares are listed at a stock
exchange or that make a public announcement that they shall remain public.
Public JSCs are now required to be more transparent by, inter alia, disclosing more
extensive information, maintaining a supervisory board with independent members (the new
requirements on such independence were introduced), and establishing supervisory board
committees on appointments, remuneration and audit. On the other hand, wholly owned
private JSCs are exempt from disclosure requirements, while other private JSCs shall disclose
less information in comparison to public JSCs. Moreover, private JSCs may choose whether
to elect independent members to their supervisory board or establish supervisory board
committees, or both.
Public JSCs and banks had to align their charters and by-laws with the Law on Business
Simplification by 1 January 2019, while other JSCs shall make the respective changes by
1 January 2020, unless a JSC’s charter is amended earlier.
The Law on Business Simplification also improves corporate governance in JSCs by,
inter alia, prohibiting general shareholders’ meetings from deciding any matter about a
company’s activities falling under the exclusive competence of the supervisory board by virtue
of law or a JSC’s charter. This rule may be disapplied in a private JSC. The new corporate
governance rules are expected to provide foreign investors with more comfort when investing
into Ukraine.
The Law on Business Simplification also introduces the possibility for legal entities to
provide disclosure-of-information services on behalf of stock market participants, including
JSCs, disseminate information on financial instruments and stock market participants,
and submit reports or administrative information, or both, to the Securities Commission.
Legal entities wishing to provide these services need an authorisation from the Securities
Commission that enables them to provide these services from 1 January 2019.
The Law also implements the major requirements of the EU Prospectus Directive15 into
Ukrainian law.
iii Introduction of corporate agreements into Ukrainian law

Another recent development in corporate law is that concluding corporate agreements
among the shareholders of JSCs and participants in LLCs is now expressly permitted by the
Corporate Agreements Law16 and the Law on LLCs, respectively. The Laws allow participants
14 Law of Ukraine No. 2210-VIII ‘On Amendments to Certain Legislative Acts of Ukraine
Regarding Simplifying Business Activity and Attraction of Investments by Securities Issuers’, dated
16 November 2017.
15 Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the
prospectus to be published when securities are offered to the public or admitted to trading and amending
16 Law of Ukraine No. 1984-VIII ‘On Amendments to Certain Legislation of Ukraine Regarding Corporate
Agreements’, dated 23 March 2017.
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(founders) in LLCs and shareholders of JSCs to conclude corporate (shareholders’)

agreements. Corporate agreements may establish, inter alia, an obligation for parties to vote
at general meetings in the manner determined by such agreement, to approve the acquisition
or disposal of participatory interests or shares in a company according to the pre-determined
price, and to undertake other actions related to a company’s management. Parties may
include in corporate agreements transfer instruments common in other jurisdictions such as
tag-along rights, drag-along rights, call options and put options.
While information on the content of a corporate agreement is confidential under
both Laws, the JSC Law requires a party to a corporate agreement to notify a JSC on the
conclusion of the corporate agreement within three business days of its conclusion, and in the
case of a shareholder acquiring voting rights attached to more than 10, 25, 50 or 75 per cent
of shares under a corporate agreement. A public JSC must also publicly disclose information
on concluding a corporate agreement. If a shareholder concludes an agreement in breach of
the terms of a corporate agreement, such agreement will be null and void if a third party knew
or ought to know about such breach.
In addition, the creditors of a company shall have the right to conclude a corporate
agreement with the participants and shareholders of such companies. The Laws also provide
for a possibility to issue an irrevocable power of attorney to ensure the fulfilment of the
obligations of participants and shareholders.
The express permission and regulation of corporate agreements is important for
Ukrainian M&A deals. The use of this instrument by market participants will greatly depend
on subsequent court practice.
iv Increased investor protection rules

The Investor Protection Law,17 which came into effect on 1 May 2016, introduced important
developments, inter alia, as to the liability of corporate officers of companies and the ability
of minority shareholders to bring a lawsuit against a corporate officer on behalf of a company.
According to the Investor Protection Law, corporate officers are responsible for damage they
cause to the company through their actions. Such damage will be compensated if incurred
through:
a actions committed by officers in excess of their authority or through an abuse of their
powers;
b actions committed by officers in violation of the procedure of their prior approval or
other decision-making procedures as established by the constituent instruments of a
company;
c actions committed by officers in line with the procedure of their prior approval or other
decision-making procedure where such officer has filed false information to obtain such
approval or decision;
d omissions of a corporate officer when he or she was obliged to take certain actions in
accordance with his or her duties; and
e other abusive actions of corporate officers.
Before these changes, the liability of corporate officers was limited in most cases by the
amount of their monthly salary.
17 Law of Ukraine No. 289-VII ‘On Amendments to Certain Legislative Acts of Ukraine Regarding
Protection of Investors’, dated 7 April 2015.
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Moreover, the notion of a derivative action has been introduced into Ukrainian law.
A minority shareholder (participant) holding at least 10 per cent of all shares (participatory
interests) in a company may file a claim with a commercial court on behalf of a company
against a corporate officer for recovery from damage caused by such corporate officer to a
company. The derivative action may be brought against individuals falling under the definition
of a corporate officer. For JSCs, the corporate officers are the head and the members of the
supervisory board, executive body, audit commission and auditor of a JSC, and the head and
members of other bodies if the creation of such body is envisaged by a company’s charter. In
LLCs, the members of the executive body, the supervisory board and any other individuals
occupying a post named in the company’s charter are considered to be the corporate officers.
If a derivative action was brought against a corporate officer, he or she may neither represent
the company in the proceedings nor appoint a representative to participate in the proceedings
on behalf of the company.
v Simplified M&A for banks

Starting from 29 April 2017 and running until 1 August 2020, banks in Ukraine may benefit
from a simplified procedure for their capitalisation and reorganisation according to the
Simplified Bank Reorganisation Law.18 Under the Law, banks may either use the simplified
procedure to merge with another bank or withdraw a banking licence without liquidating the
company. The second option will enable banks to exit the banking market and continue their
operation in the financial or other sector.
The duration of capitalisation and reorganisation procedures was shortened by way
of accelerated terms for regulatory and corporate approvals, as well as a reduction in the
paperwork to be submitted to the regulators: the National Bank of Ukraine, the Antimonopoly
Committee, the State Fiscal Service and the Securities Commission. The Simplified
Bank Reorganisation Law also disapplies the list of rules in cases of the capitalisation and
reorganisation of banks under simplified procedures, such as:
a the requirements to notify all creditors of decisions of the general assembly on mergers;
b the satisfaction of creditors’ claims;
c the obligatory purchase of shares upon the request of participants in banks participating
in a merger; and
d determining the market price.
vi The new Law on LLCs

The new Law on LLCs, which became effective on 17 June 2018, fundamentally changed
the regulation of LLCs. The previous regulation of LLCs was very restrictive, and mandatory
provisions left little room for participants to adjust the rules on LLC operation to their
business needs. The Law on LLCs provides participants with wide discretion in establishing
the rules on LLC corporate governance and transfers of participatory interests.
The Law on LLCs expressly permits the establishment of a supervisory board for the
purpose of controlling and supervising the management of an LLC. This change means that
LLCs are now able to follow the two-tier corporate governance model, which has historically
18 Law of Ukraine No. 1985-VIII ‘On Simplified Procedures of Bank Capitalisation and Restructuring’, dated
23 March 2017.
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been widely used in JSCs in Ukraine. Moreover, LLC participants may appoint independent
members to the supervisory board and determine requirements for such independence. The
establishment of an audit commission is no longer required.
The Law introduces a number of changes to the rules on conducting general participants’
meetings, including the following developments:
a new majority vote requirements instead of quorum: the decisions of participants may
be adopted by a unanimous vote of all LLC participants, by three-quarters of all LLC
participants or by a simple majority of all LLC participants;
b limitations to decisions, which can be adopted by written polling;
c the ability to conduct meetings via video conference, provided all participants have the
ability to see and hear all other participants;
d the introduction of absentee voting (i.e., the ability of an LLC participant to take part
in a meeting by providing his or her written decisions on the matters on the meeting’s
agenda; and
e simplified rules for conducting meetings where the LLC is wholly owned. In this case,
the sole LLC participant prepares a written decision without complying with the rules
on holding the meeting.
The Law on LLCs also establishes new duties and obligations of corporate officers, namely
duties to declare a conflict of interest and of confidentiality, and non-compete obligations.
Breaching any of these obligations is a ground to terminate a corporate officer without
payment of compensation. In addition to the duties of a corporate officer, the executive
body members will also be responsible for monitoring the LLC’s net assets, while the LLC’s
obligation to maintain positive net assets no longer exists.
The Law on LLCs provides participants with discretion in establishing the rules for
transfers of participatory interests, including the ability to:
a modify or disapply the preemptive right of participants;
b restrict the disposal of a participatory interest;
c improve the procedure for the exit and expulsion of participants; and
d introduce an anti-dilution mechanism in an LLC’s charter.
The Law on LLCs has also introduced the notion of significant and interested-party
transactions to the regulation of LLCs. LLC participants may modify the default rules on
significant transactions in a company’s charter, while the rules on interested party transactions
will not apply to an LLC unless such mechanism is expressly established by a company’s
charter.
Other important changes introduced by the Law on LLCs include:
a the abolishment of the anti-chaining rule;
b the abolishment of restrictions on the number of LLC participants;
c new restrictions on dividend payments;
d the abolishment of the prohibition on debt-for-equity swaps; and
e changes to the charter capital increase procedure.
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vii Other changes

Another development in foreign investment regulation in Ukraine is the adoption of the Law
on Attraction of Foreign Investments.19 The Law simplifies the procedure of acquiring and
storing securities (including shares of JSCs) by foreign investors by providing an alternative
to opening a securities account in Ukrainian depository institutions. Foreign investors may
use the services of a global custodian (a nominal holder) who shall, in turn, open a nominal
holder securities account with a Ukrainian depository institution and disclose information
on the foreign investor for financial monitoring purposes.
Among other positive developments in corporate M&A regulation aimed at facilitating
the conducting of business in Ukraine by both local and foreign investors are the cancellation
of the registration of foreign investments in Ukraine, which was previously required for the
application of guarantees under Ukrainian law, the final abolishment of the requirement for a
legal entity to use a corporate seal and improvements in corporate governance in state-owned
companies.

According to the information provided by the Ministry of Foreign Affairs,20 in 2018 foreign
investments into the Ukrainian economy came mainly from Cyprus, the Netherlands, the
United Kingdom, Germany, Austria, the British Virgin Islands and Switzerland.
Since Cyprus and the Netherlands are popular jurisdictions for setting up holding
companies for large Ukrainian groups, investments coming from these countries are most
likely to see the return of Ukrainian capital that flowed out of the country at the outset of the
crisis in 2014. This is a good sign, proving that Ukrainian investors believe that the economy
is past the worst of the downturn. This positive trend has also become possible because of
the gradual relaxation by the National Bank of Ukraine of certain capital control and foreign
currency restrictions relating to the repatriation of dividends, repayment of cross-border
loans, and import and export transactions involving foreign currency.
As for outbound investment, Ukrainian companies that are leaders in their respective
industries are currently looking at possible acquisition targets abroad, in particular within the
EU and in Gulf countries.

The hottest industries in 2018 and to date in 2019 have been the metal and mining,
agricultural, consumer goods and retail and real estate sectors.
The highest value M&A deal of 2018 was the US$714 million acquisition of the
assets of Donetsksteel, which is the largest coking coal extraction and production business in
Ukraine, by Industrial Coal Holding LLC.
19 The Law of Ukraine No. 2418-VIIII ‘On Amendments to Certain Legislation of Ukraine Regarding
Assistance in Attraction of Foreign Investments’, dated 15 May 2018.
20 Investment activities in Ukraine, available at https://mfa.gov.ua/ua/article/open/id/6349.
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There have been a number of major M&A developments in the agricultural sector
involving land banks, processing and infrastructure facilities. The most significant transactions
were the previously mentioned acquisition of Mria Agroholding by SALIC UK Ltd and the
acquisition by MHP SE, of Perutnina Ptuj.
The highest-value transaction in the consumer goods and retail industry was the
increase of the stake of Ukrainian investment company ICU in Burger King Russia of up to
35 per cent. The landmark transaction in this sector was the previously mentioned merger of
Rozetka and EVO.
Dragon Capital Investments Limited, a Ukrainian private equity fund, has been
actively acquiring assets in Ukraine. In 2018, it acquired 160,000m2 of prime office space,
as well as the Aladdin Retail Complex from Meyer Bergman, a British investment fund.
The highest-value deal in 2018 in real estate was the sale of Renaissance Business Centre
(17,100m2) by Alfa Bank.

Financial institutions such as the European Bank of Reconstruction and Development, the
International Finance Corporation and the Overseas Private Investment Corporation have
been actively investing into Ukraine-focused private equity funds.
Other than international financial institutions investing in private equity funds, no foreign
commercial banks have been financing acquisitions in Ukraine: current risks would make the
cost of acquisition financing impermissibly high. Furthermore, no bank would lend money over
the long term. For example, since 2014, the Ukrainian hryvnia has lost more than 60 per cent
of its value. This sharp depreciation has significantly inflated all foreign currency-denominated
loans. Accordingly, most M&A deals are financed by acquirers from their own funds. In those
cases where big multinational companies with access to cheap financing abroad acquire a
company in Ukraine, they may use foreign financing to refinance expensive Ukrainian debt
upon completion. This financing is not available to most Ukrainian investors.
VII EMPLOYMENT LAW

The Labour Code of Ukraine, dated 10 December 1971, remains the principal legislative
act governing employment relationships in Ukraine. Due to numerous amendments to the
Labour Code in the recent years, the document is generally adequate for current business
needs. For this reason, developments in employment legislation are not usually seen as the
hottest topic in an M&A context in Ukraine.
On 27 September 2017, a law simplifying the procedure for obtaining work permits
and temporary residence permits for foreigners came into effect.21 The law facilitates the
engagement of foreign managers and skilled employees serving Ukrainian companies by
establishing clear, transparent and foreigner-friendly work permit and temporary residence
permit procedures. The adopted law contains a number of novelties. In particular:
a it extends the list of grounds to apply for a temporary residence permit;
b it permits parallel employment of a foreign employee by two or more Ukrainian
companies;
21 Law of Ukraine No. 2058-VIII ‘On Amendments to Certain Legislative Acts of Ukraine On Eliminating
Barriers to Foreign Investments’, dated 23 May 2017.
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c it simplifies the procedure for obtaining a work permit by reducing the number of
documents to be submitted to the state authorities;
d it extends the term of a work permit from one to three years for certain categories of
foreign employees, including highly paid foreign professionals, founders and beneficial
owners of Ukrainian companies, and IT professionals;
e it establishes an affordable minimum salary that must be paid to certain categories of
foreign employees; and
f it establishes a possibility for an employer to amend a work permit in certain cases
instead of applying for an entirely new one.
Since 1 June 2018, temporary residence permits are issued in the form of a card with a
contactless electronic chip. Because the chip contains certain biometric data (the digitalised
signature, photograph and fingerprints of a foreign national), which are obtained at the time
of filing the application, the foreign national is required to file an application for a temporary
residence permit in person. A temporary residency permit for a foreign employee will be
issued for the term of the relevant work permit (i.e., for up to three years) and must be
exchanged after it expires (previously, a temporary residency permit could be extended).
In recent years, the minimum monthly salary has been increased significantly, from
1,600 hryvnias in December 2016 to 4,173 hryvnias in January 2019.22 This change may
affect the purchase price of target companies with a significant amount of low-paid employees,
especially in the agricultural and manufacturing sectors.
A new Labour Code of Ukraine has been developed and prepared for a second reading
in Parliament. It is expected to make Ukrainian labour law more investor-friendly, but does
not contain any game-changing provisions, thus ensuring predictability for businesses with
respect to labour relations and obligations toward employees in the future.
VIII TAX LAW

The Tax Code of Ukraine, dated 2 December 2010, as amended, remains a comprehensive
legal act regulating tax matters in Ukraine. There have been no significant changes to the Tax
Code in recent years that are relevant to M&A transactions.
Ukraine has the double tax treaty network with around 70 jurisdictions, with treaties
with Luxembourg, Malta and Qatar being the most recent.23 While historically Luxembourg,
and, in certain cases, Malta were used in multilayer group structures, ratification of these
double tax treaties has a positive effect on the structuring of M&A deals in Ukraine.
22 Law of Ukraine No. 2629-VIII ‘On the State Budget of Ukraine for 2019’, dated 23 November 2018,
which became effective on 1 January 2019.
23 Convention between the Government of Ukraine and the Government of the Grand Duchy of
Luxembourg ‘On Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes
on Income and on Capital’ ratified by the Law of Ukraine No. 1918-VIII, signed on 6 September 1997,
as amended by the Protocol of 30 September 2016. Convention between the Government of Ukraine
and the Government of the Republic of Malta ‘On Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with respect to Taxes on Income’, ratified by the Law of Ukraine No. 2018-VIII, signed on
4 September 2013. Convention between the Government of Ukraine and the Government of Qatar ‘On
Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and
on Capital’, ratified by the Law of Ukraine No. 2690-VIII, signed on 20 March 2018.
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The Ministry of Finance has also started to gradually review the existing tax treaty
network, specifically targeting those offering full exemptions from withholding tax (WHT).
This issue should be taken into account while structuring M&A deals.
Among the most significant developments, mention should be made of the Ministry:
a signing a protocol amending the Ukraine–Netherlands double tax treaty with the
domestic ratification procedures still in progress;
b signing a protocol amending the Ukraine–UK double tax treaty with the domestic
ratification procedures still in progress;
c signing a protocol amending the Ukraine–Switzerland double tax treaty with the
domestic ratification procedures still in progress; and
d signing a protocol amending the Ukraine–Cyprus double tax treaty with the domestic
ratification procedures still in progress.
Ukraine has also recently signed and ratified the Multilateral Convention to Implement
Tax-Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (MLI). The
application of the MLI is aimed at combating abuse of bilateral tax treaties in a synchronised
and efficient way by amending about 40 of Ukraine’s treaties. Among other novelties, it
introduces the principal purpose test concept, requiring companies seeking treaty benefits to
substantiate the commercial rationale behind relevant structures and transactions. The MLI
also broadens the definition of permanent establishment, expanding the profits base taxable
in Ukraine. Ukrainian and foreign entities operating in Ukraine should reassess their current
corporate structures to be in compliance with the new rules.
On a separate note, some of Ukraine’s tax treaties currently extend the taxing authority
of Ukraine to capital gains derived from the direct or indirect disposal of shares deriving their
value directly or indirectly from immovable property located in Ukraine. These provisions
have not been transposed into Ukrainian legislation yet. Thus, Ukraine does not levy WHT on
such capital gains. However, the Ministry of Finance considers a fundamental redevelopment
of the tax rules landscape in Ukraine, including, inter alia, a legislative initiative aimed at the
introduction of the above provisions into Ukrainian legislation. If such provisions were to be
adopted, capital gains realised on the disposal of shares deriving their value from Ukrainian
real estate would generally be subject to WHT at a rate of 15 per cent in Ukraine.
Ukraine has also committed to implement the de-offshorisation package, which will
affect the corporate aspects of structuring Ukrainian M&A transactions. More specifically, in
April 2016, the President established a working group with a view to transposing anti-BEPS
measures into Ukrainian legislation. While the draft law on the implementation of the
anti-BEPS measures (e.g., controlled foreign company rules, enhanced transfer pricing rules)
has been developed, to date it has not been adopted in Ukraine.
Additionally, in November 2016, Ukraine became a member of the Inclusive Framework
on the OECD/G20 base erosion and profit shifting (BEPS) project, thus committing to
implement four minimum standards of the BEPS package:
a Action 5 (countering harmful tax practices);
b Action 6 (prevention of treaty abuse);
c Action 13 (implementation of country-by-country reporting); and
d Action 14 (enhancing dispute resolution mechanisms).
It is worth mentioning that recently, Ukraine reformed its currency control legislation with an
aim to harmonise the Ukrainian rules on the movement of capital with the EU standards (the
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undertaking prescribed in the EU–Ukraine Association Agreement). This step has liberalised
and significantly changed the Ukrainian currency control rules. Lifting some of the existing
currency control restrictions is still conditioned on the implementation of various anti-BEPS
measures (e.g., controlled foreign company rules, new rules on the taxation of permanent
establishments, enhanced transfer pricing rules) and mechanisms for the automatic exchange
of information.
IX COMPETITION LAW
Although the economic crisis has slowed M&A activity, the Antimonopoly Committee of
Ukraine (AMCU) has demonstrated its strong desire to adjust the merger control rules in
line with the best practices of other European countries. As a result, a number of significant
and long-awaited reforms to competition law have taken place during the past few years.
Following the recommendations of the OECD and the United Nations Conference on Trade
and Development, in January 2016 the Parliament amended the rules on merger control.24
The changes increased the merger notification thresholds that had been in effect for over
15 years. In particular, since May 2016, transactions are subject to prior approval of the
AMCU if:
a the parties’ combined worldwide turnover or assets exceeds the hryvnia equivalent of
€30 million, and the domestic turnover or assets of either of the two parties exceeds the
hryvnia equivalent of €4 million;
b the target’s domestic assets or turnover exceeds the hryvnia equivalent of €8 million,
and the buyer’s worldwide turnover exceeds the hryvnia equivalent of €150 million; or
c in the case of the establishment of a business entity, the domestic assets or turnover
of one of the parties exceeds the hryvnia equivalent of €8 million, and the worldwide
turnover of the other party exceeds the hryvnia equivalent of €150 million.
All thresholds are to be calculated on a group level for the last financial year preceding the
contemplated transaction.
In addition to amending the rules on merger control, the merger control procedures
have been simplified by allowing parties to conduct preliminary consultations with the
AMCU. Furthermore, the new merger control procedures have significantly simplified the
disclosure requirements for parties during the course of filing preparation, but at the same
time they require profound economic analysis for transactions that may impact competition
in Ukraine. A further sign of liberalisation has been the introduction of a fast-track procedure
for certain cases, with decisions to be issued within 25 calendar days instead of 45 calendar
days.
As part of the reform in the antitrust sphere, the AMCU’s transparency has been
enhanced. Previously, AMCU decisions did not have to be published; however, a law adopted
in November 2015 requires the publication of all decisions on the AMCU’s official website
within 10 working days from the adoption of a decision.25
24 Law of Ukraine No. 935-VII ‘On Amendments to the Law of Ukraine ‘On Protection of Economic
Competition’, dated 26 January 2016, which became effective on 18 May 2016.
25 Law of Ukraine No. 782-VIII ‘On Amendments to Certain Legislative Acts of Ukraine Concerning
Transparency of the Antimonopoly Committee of Ukraine’, dated 12 November 2015, which became
effective on 3 March 2016.
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In September 2015, the AMCU approved fining guidelines that make its process of
calculating fines more predictable and transparent.26
In November 2017, the Parliament adopted changes to the Ukrainian competition
and sanctions laws that allow the AMCU to deny merger clearance of transactions involving
entities included in the sanctions list.
Another step towards the alignment of the Ukrainian competition legislation to the
EU competition legislation was the AMCU’s approval of the Guidelines on the Assessment
of Horizontal Mergers at the end of December 2016 and the Guidelines on the Assessment
of Non-Horizontal Mergers in March 2018.
In November 2018, the AMCU adopted the new Guidelines on Definition of Control,
which were developed around a concept of control similar to that of the EU competition
legislation.
The completed reforms represent a broader effort to harmonise Ukrainian competition
law with that of the EU, and generally make Ukraine a more business friendly place. In
addition to these initiatives, a number of legal changes are making their way through the
legislative process. Several are responses to recommendations cited in reviews carried out by
the OECD and the United Nations Conference on Trade and Development. These legislative
proposals address, for example, a revision of the concerted actions regulation, the AMCU’s
increased discretion in determining which cases to investigate and the establishment of a
specialised court chamber for hearing antitrust-related disputes.
X OUTLOOK
The Ukrainian M&A market is certainly showing signs of recovery, and we expect positive
developments in future years. While the majority of purchasers on the M&A market are
domestic investors, foreign investors are once again showing interest in the Ukrainian M&A
market and considering Ukraine as a prospective investment opportunity.
26 Recommendation No. 16-pp approved by the Antimonopoly Committee of Ukraine on

15 September 2015.
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Chapter 43
UNITED ARAB EMIRATES
Danielle Lobo and Abdus Samad 1

Despite a relatively strong start to the year, M&A activity appears to be facing strong
headwinds in 2019. Geopolitical and regulatory developments appear to have encouraged
both purchasers and sellers to delay or reconsider the particular value proposition that a
deal presents. With the advent of ever-increasing regulation (including in the UAE), M&A
transactions are becoming more complex to structure and to implement, and consequently
have also become significantly more expensive.
In the UAE, headline M&A transactions continue to be driven by government-owned
or controlled businesses, in particular the banking and finance industry. Of note, the
much-rumoured three-way merger between Abu Dhabi Commercial Bank, Union National
Bank and Al Hilal Bank was completed in the second quarter of 2019. The merged entity has
an asset base exceeding 420 billion dirhams and is the third-largest lender in the UAE. The
merger follows a trend of consolidation in the banking sector and represents the desire of the
UAE authorities to see consolidation in sectors where cost-saving synergies can be made. On
a similar note, media reports suggest that Dubai Islamic Bank and Noor Bank are currently
engaged in merger talks. Talks are said to be ongoing and it is not yet certain whether a deal
will materialise.

The UAE is a federation of seven emirates that was formed on 2 December 1971 by Abu
Dhabi, Ajman, Dubai, Fujairah, Sharjah and Umm Al Qaiwain following the end of the
British protectorate over the ‘Trucial States’. The Emirate of Ras Al Khaimah joined the
federation the following year.
The currency is the UAE dirham. The exchange rate is pegged at approximately
3.67 dirhams per US dollar since 1997. There are no currency import or export controls.
The UAE Federal Constitution apportions powers between the federal government
(based in Abu Dhabi) and the governments of the constituent emirates. Some fields are
regulated only at the federal level (e.g., immigration and labour relations) although local
interpretations and practices sometimes differ from one emirate to another. Other matters are
regulated only at the emirate level (e.g., each emirate retains sovereignty over its own natural
resources, including its crude oil and natural gas reserves). Still other matters are regulated at
both the emirate and federal levels (e.g., company formation and registration).
1 Danielle Lobo is a partner and Abdus Samad is an associate at Afridi & Angell.
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Any business operating in the UAE must hold a licence authorising its business activity
in the UAE. These licences are issued by the concerned authorities in each emirate. A licence
allows the licensed entity to carry on the business it is licensed to conduct within the emirate
that issues the licence from the business premises identified in the licence. For example, a
Dubai business licence authorises the conduct of business in the Emirate of Dubai. If the
licence holder wishes to conduct business in the Emirate of Abu Dhabi (for example), then it
must apply for and obtain a business licence in Abu Dhabi.
In addition to the licensing rules that are imposed in each emirate, there is a separate
layer of federal regulation that a business must comply with. Business licences are available
to foreign and local businesses, although there are restrictions that vary from emirate to
emirate on the types of business activities that are available to foreign businesses and to local
businesses with partial foreign ownership. A foreign business is required to appoint a UAE
national shareholder as part of its application for a licence. Companies that are incorporated
in the UAE (outside a free zone) must be at least majority-owned (51 per cent) by a UAE
national or wholly Gulf Cooperation Council (GCC)-owned. Companies established in
any of the UAE’s many free zones may be wholly foreign-owned. No corporate or personal
income tax is currently imposed anywhere in the UAE, except for the income taxes that are
paid by foreign banks and foreign petroleum companies.
A business that wishes to operate in a free zone must obtain a licence from the authority
for that free zone. The resulting licence authorises the conduct of the licensed activity within
the geographical limits of the free zone. For example, a company licensed to trade certain
goods in the free zone can import its goods into the free zone and re-export to destinations
outside the free zone (and the wider UAE). However, the free zone licence does not authorise it
to engage in any of these commercial activities in the UAE (outside the geographical limits of
the free zone). No local ownership requirements are imposed in the free zones. An additional
feature of most of the free zones is that they are not part of the customs territory of the UAE.
The import of goods into a free zone from overseas does not attract customs duty. Instead,
customs duty (5 per cent on most items) is paid when goods move from the free zone into
the UAE proper. The free zones also observe a simplified process for hiring personnel. Shares
in onshore and free zone entities can be freely transferred, but it is important to note that
any transfers are subject to approval by the relevant authority of the incoming shareholder.

THEIR IMPACT
The government has recently introduced changes to the foreign ownership requirements
under UAE law for companies that are registered outside a free zone.
Federal Decree-Law 19 of 2018 (FDI Law) was issued on 23 September 2018. The
FDI Law adopts a similar approach to majority foreign ownership as the UAE Commercial
Companies Law.2 An amendment to Article 10 of the UAE Commercial Companies Law
adopted in September 2017 (pursuant to Federal Decree-Law 18 of 2017) stipulated that
the Federal Cabinet may adopt resolutions permitting foreign nationals to hold in excess of
49 per cent of the share capital of UAE companies. The Federal Cabinet remains responsible
for making key decisions with respect to the administration of the FDI Law. In addition to
the Federal Cabinet, the Foreign Direct Investment Committee (to be presided over by the
2 UAE Commercial Companies Law (Federal Law 2 of 2015, as amended).
470
Ministry of Economy and appointed by the Federal Cabinet) has been made responsible
for reviewing and making recommendations to the Federal Cabinet in respect of matters
concerning foreign direct investment. Any recommendations made by the Foreign Direct
Investment Committee shall continue to be subject to the approval of the Federal Cabinet.
The FDI Law contains a negative list of 13 sectors that will not be subject to the proposed
relaxation of the current foreign ownership restrictions. These sectors are the following:
a exploration and production of petroleum products;
b investigations, security, military sectors and manufacturing of weapons, explosives as
well as military hardware, equipment and clothing;
c banking and financial activities and payment and cash handling systems;
d insurance services;
e hajj and umrah services3 and labour supply and recruitment services;
f water and electricity services;
g services related to fisheries;
h postal, communication and audiovisual services;
i land and air transport services;
j printing and publishing services;
k commercial agents services;
l retail medicine (such as private pharmacies); and
m poison centres, blood banks and quarantines.
The Federal Cabinet is empowered to add to or remove activities from the foregoing list.
The FDI Law stipulates that the Federal Cabinet shall, in consultation with the Foreign
Direct Investment Committee, propose a positive list of sectors in which foreign nationals
shall be permitted an ownership interest of up to 100 per cent. On 2 July 2019, the Prime
Minister issued a statement announcing the Federal Cabinet’s approval of this positive
list of 122 economic activities in sectors such as agriculture, manufacturing, renewable
energy, electronic commerce, transportation, arts, construction and entertainment. The
list of 122 economic activities is divided into 51 industrial activities, 52 service activities
and 19 agricultural activities. While allowing up to 100 per cent foreign ownership, the
positive list does not do this unconditionally. On the contrary, the list imposes additional
requirements such as minimum capital requirements on some activities, obligations to employ
advanced technology on other activities and requirements to contribute to the emiratisation
of the workforce on others. For many business and service activities, existing restrictions
and qualifications are expressly retained. Despite these requirements, this relaxation of the
foreign ownership restrictions could act as trigger for a fresh wave of inbound M&A activity
into, and also assist in the development of homegrown businesses in, the UAE. It is expected
that the licensing authorities in each emirate will ultimately determine the permitted foreign
ownership percentages for specific projects.
3 Hajj and umrah are forms of pilgrimage that Muslims undertake and that comprise visits to Mecca in the
Kingdom of Saudi Arabia. While Hajj is considered obligatory to perform at least once in a lifetime of an adult
and physically able Muslim, and must be performed at a prescribed time every year, Umrah is optional and can be
performed at any time of the year.
471

Despite recent headwinds, the year in review witnessed substantial M&A activity, with many
transactions concerning foreign involvement. Reports indicate that 77 cross-border deals
worth US$14.21 billion were completed in 2018 in the Middle East and North Africa region,
making it the year with the highest volume of inbound M&A. Deals in the UAE more than
doubled in 2018 to US$10.4 billion, with the energy sector being a key sector of interest for
foreign acquirers. As noted above, substantial M&A activity (including transactions involving
a foreign party) continues to be driven by businesses and sectors with significant government
involvement or investment. Examples include the oil and gas and banking sectors.
In April 2019, it was announced that Emirates NBD (a commercial bank
majority-owned by the government of Dubai) would be acquiring Denizbank for US$2.8
billion with combined assets of about US$180 billion. Denizbank is the fifth-largest bank in
Turkey. Due to the depreciation of the Turkish lira and in light of the ongoing political and
economic uncertainty in Turkey, the deal was ultimately revised and completed at a 20 per
cent discount to a previously agreed price of US$3.2 billion.4
In the oil and gas sector, Italy’s Eni and Austria’s OMV have agreed to pay a combined
US$5.8 billion to buy a stake in Abu Dhabi National Oil Company’s (ADNOC) refining
business and establish a new trading operation owned jointly by all three. Eni and OMV will
acquire 20 and 15 per cent shares in ADNOC Refining.5 Similarly, KKR and BlackRock are
reported to have formed a consortium to hold a 40 per cent stake in a new entity known as
ADNOC Oil Pipelines, with ADNOC owning the remainder. The deal has been reported to
have been completed at a value of US$ 4 billion.6
In March 2019, the much-anticipated deal between Uber Technologies Inc and
Careem Networks FZ-LLC (Uber’s key competitor in the Middle East) was announced. This
transaction is discussed further in Section V.

As discussed further in Section VIII, the UAE, Saudi Arabia and Bahrain have introduced
VAT to their respective local markets. In a first (at least for the UAE), vendors and purchasers
must consider, seek advice on and address tax matters in their transaction documentation.
Furthermore, the advent of VAT will no doubt put pressure on the cashflows of many small
and medium-sized businesses, and it remains to be seen whether this will in turn have an
effect on distressed M&A activity.
Furthermore, we have seen the Federal Ministry of Economy (the regulator in charge
of administering the competition regime) become active in accepting and reviewing merger
control notifications filed in connection with UAE transactions. Although still a developing
area of law, the very fact that merger control notifications are now being submitted and
reviewed indicates that the relevant authorities are serious about ensuring that those who are
party to transactions concerning the UAE market consider and, where required, notify their
4 https://www.reuters.com/article/us-sberbank-denizbank-sale-emirates-nbd/dubais-emirates-nbd-to-
buy-turkeys-denizbank-for-2-8-billion-in-revised-deal-idUSKCN1RF0FO
5 https://www.reuters.com/article/us-emirates-oil-adnoc/adnoc-seals-5-8-billion-refining-
and-trading-deal-with-eni-omv-idUSKCN1PL07W.
6 https://www.adnoc.ae/en/news-and-media/press-releases/2019/adnoc-signs-landmark-strategic-
partnership-agreements.
472
transactions. It is also of note that the lack of publicly available decisions concerning such
notifications creates a degree of uncertainty for transactions that are caught by the relevant
filing requirements.
In terms of key trends and active industries, we continue to see transactions take place
in the financial services sector, with the ongoing consolidation in the banking industry
continuing to be a driver of M&A activity. The insurance industry also remains an industry
of interest insofar as M&A transactions are concerned, with consolidation being a continuing
trend.
In the technology sector, a number of UAE free zones (in particular the Dubai
International Financial Centre (DIFC) in the Emirate of Dubai and the Abu Dhabi Global
Market (ADGM) have made an effort to attract, support and grow technology-related
business. The government of Dubai has also launched the Dubai future accelerators
programme7 aimed at encourage young entrepreneurs to address the challenges we are
currently facing. Similarly, the DIFC has introduced a fintech accelerator programme8 aimed
at providing startups access to leading accelerator programmes and mentorship from leading
financial institutions and insurance partners, along with a dedicated space to work alongside
a community of like-minded individuals. In Abu Dhabi, the ADGM has introduced a
licensing regime specifically catered towards tech startups that allows entrepreneurs to obtain
an operational licence in the ADGM and that gives them access to a professional services
support programme aimed at allowing entrepreneurs’ entry to a community of businesses,
financial services and professional advisers.9 Given these developments and the stated aim of
the UAE government to encourage and support hi-tech businesses and startups, technology
businesses will likely also continue to be a source of M&A activity in the UAE.
A transaction of note in the technology sector was the acquisition by Uber Technologies
Inc of Careem Inc, with the result that Careem will (upon completion of the acquisition)
operate as a wholly owned subsidiary of Uber, while at the same time maintaining its own
brand and independent operations. The acquisition is reported to have been agreed for a
price of US$3.1 billion, consisting of US$1.7 billion in convertible notes and US$1.4 billion
in cash.10 Similarly, in May 2018, Dubai-based The Entertainer (a lifestyle and coupon
application based in the UAE but operating across the Middle East, Europe, Asia and Africa)
reported that GHF Financial Group, a Bahrain-based investment bank listed on the Dubai
financial market, had acquired an 85 per cent stake in The Entertainer. Media reports suggest
that the investment was agreed at a price of at least US$100 (although further details were
not disclosed).11

External financing for acquisitions continues to be less prevalent in the UAE in comparison
to other jurisdictions, and a large majority of acquisitions continue to be financed in cash.
7 https://dubaifutureaccelerators.com/en/.
8 https://fintechhive.difc.ae/programmes/2019-fintech-accelerator-programme.
9 https://www.adgm.com/mediacentre/press-releases/adgm-launches-new-commercial-license-for-tech-start-
ups-and-professional-services-support-programme-to-transform-abu-dhabi-s-start-up-sectors/.
10 https://www.uber.com/newsroom/uber-careem/.
11 https://www.menabytes.com/the-entertainer-acquisition/; https://www.arabianbusiness.com/
banking-finance/395738-150m-to-be-invested-in-takeover-of-uaes-the-entertainer.
473
Where acquisition financing is made available on a transaction, it is usually structured

as a long-term loan, which is almost always secured by personal or corporate guarantees,
including securities over target assets. In addition to the primary facility documentation,
borrowers may also issue a promissory note, a subordination agreement for any remaining
debt and an assignment of certain identified assets depending on the nature of the acquisition.
Although most acquisitions that are financed are funded through conventional finance,
various other Islamic finance structures are used as well, particularly the murabahah,12
musharakah,13 mudarabah14 and ijarah15 structures. However, note that the financial covenants
of these Islamic structures are often more onerous than those found in conventional facilities.
In terms of the availability of private equity investment, the private equity market
continues to feel the effects of global financial uncertainty, including the US and European
sovereign debt crises. Regionally, the UAE continues to lead the market in terms of volume
and value, partly due to the stability and availability of investable companies. However, gaps
are still visible between company valuations and investors’ expectations for returns, which
hinder activity. A move away from traditional sectors such as oil and gas was witnessed in
2017, with an uptrend into consumer-driven sectors such as education, retail, food and
beverages and healthcare, where added-value opportunities have arisen.
VII EMPLOYMENT LAW

The UAE Labour Law16 regulates most employment relationships in the UAE. The Labour
Law imposes minimum standards on termination of employment, working hours, annual
leave and safety standards, among other things, which cannot be contracted out of. In
addition to the Labour Law, certain UAE free zones have implemented their own employment
regulations, which apply to all companies licensed to operate in that free zone. In general,
these employment regulations act as a supplement to the Labour Law, with the exception of
the Dubai International Financial Centre free zone, where DIFC Law No. 4 of 2005 applies,
and the Abu Dhabi Global Market, where the ADGM Employment Regulations 2015 apply.
On the sale of a business, there is nothing in the UAE that is akin to the Transfer
of Undertakings (Protection of Employment) Regulations 2006 of the United Kingdom.
Consequently, for employees to be transferred to a purchasing entity, the employees’
employment contracts with the selling entity must be terminated and new employment
contracts entered into with the purchasing entity.
On the termination of employment, transferring employees must be paid their share of
service gratuity in accordance with the Labour Law, their salary for any accrued but unused
annual leave, and any other entitlements as set out in their employment contracts.
End-of-service gratuity payments must be paid to any employee who completes one
year or more in continuous service. If an employer has terminated his or her employment
12 A shariah-compliant form of financing that involves a sale contract in which the seller includes a profit
margin in the sale price along with the actual cost of the subject matter of the contract.
13 A shariah-compliant joint venture or partnership.
14 A shariah-compliant form of financing in which two or more investors collaborate and pool their capital
and appoint an agent to manage their investment in return for the payment of a fee.
15 A shariah-compliant lease, most commonly used to finance the acquisition of assets, for example in the
context of a sale and leaseback arrangement.
16 The UAE Labour Law (Federal Law No. 8 of 1980 on Regulating Labour Relations (as amended)).
474
contract, the gratuity is 21 days’ basic salary for each of the first five years of employment
and 30 days’ basic salary for each additional year over five years. The Labour Law caps the
end-of-service gratuity to an amount equal to an employee’s basic salary for two years. An
employee will also be entitled to a gratuity payment for fractions of the year worked provided
that the employee has completed one year in continuous service. The selling entity would
therefore be required to make payment of the end-of-service gratuity and all other contractual
payments to employees when they are transferred to the purchasing entity. Alternatively, the
end-of-service gratuity and all other contractual payments due to employees could be paid
by the purchasing entity and then deducted from the consideration payable for the business.
However, one practical matter to consider with the latter approach is that the transferring
employees will, on termination of their employment with the selling entity, be required to
sign an undertaking confirming receipt of all amounts due by the employer. An employee
will be reluctant to do so unless this is in fact the case, and it is unlikely that a prospective
purchaser will want to make any payments in connection with the transferring employees
until after the completion of the transfer of the business.
Transferring employees may also raise concerns about the termination of their current
employment contracts and the payment of their end-of-service gratuity as this will result
in the end of their period of continuous service, and they will therefore be required to
work for the purchasing entity for a year before being entitled to an end-of-service gratuity
payment. Generally there is no procedure for the transfer of the continuous service period
from one employer to another. However, depending on where within the UAE the employee
is employed, it may be possible for a period of continuous service to be acknowledged by the
new employer and thereby preserve valuable end-of-service benefits for the employee.
As part of the sale of a business in the UAE and the transfer of employees, the amendment
or cancellation and reissuance of UAE residence visas for each transferring employee will also
need to be considered. As the number of employees that a company can sponsor for visa
purposes is dependent on the space that it leases or owns, a purchasing entity will also need
to ensure that it occupies sufficient space to sponsor all transferring employees.
In addition, the applicability of the Pensions Law17 (as amended) will also need to be
considered in any transfer of a business in the UAE. The Pensions Law will have implications
for any company that employs UAE or GCC nationals.
In a noteworthy development, the DIFC has recently initiated consultations on a
proposed reform of the system of end-of-service gratuity payments in respect of employees
that work in the DIFC. The DIFC has proposed that the current regime (which consists of
a lump sum payment to employees at the termination of their employment relationship, and
which is generally unfunded) be replaced with a DIFC employment workplace saving scheme
into which DIFC employers contribute on a monthly basis. The proposed saving scheme
shall be administered by the DIFC Authority. While the proposal is still at an early stage, the
DIFC proposes implementing the new structure for end-of-service benefits by January 2020.
As previously noted, changes to DIFC employment law will not have an effect on employers
operating outside the DIFC (e.g., in other free zones or onshore in the UAE). It remains to
be seen whether the UAE federal government will follow the DIFC in introducing similar
reforms.
17 The Pensions Law (Federal Law No. 7 of 1999 concerning Pensions and Social Securities) (as amended).
475
VIII TAX LAW

The UAE issued a substantive law on value added tax (VAT) in 2017. Pursuant to the VAT
Law,18 the imposition of VAT in the UAE commenced on 1 January 2018 at a rate of 5 per
cent.
Registration for VAT is mandatory for any taxable person or business if the total value
of its taxable supplies made within the UAE exceeds the mandatory registration threshold
of 375,000 dirhams during the previous 12 months, or if it is anticipated that the taxable
supplies will exceed the threshold in the next 30 days.
A taxable supply refers to a supply of goods or services made by a business in the UAE
that may be taxed at a rate of either 5 or zero per cent. Reversed charge supplies and imports
are also taken into consideration for this purpose if a supply of such imported goods and
services would be taxable if it were made in the UAE.
Entities that are not based in the UAE but that provide goods or services in the UAE are
also required to apply for registration if they meet the threshold requirements.
The supply by a taxpayer of either exempt or zero-rated goods or services will not attract
VAT; however, a supplier of zero-rated goods or services will be able to claim a refund on
any VAT paid on their purchases, unlike a supplier of exempt goods or services who will be
unable to recover any VAT paid on their purchases. The VAT Law sets out a list of zero-rated
and exempt supplies.
The VAT Law also permits tax grouping, which allows group companies to be treated
as one entity for the purposes of VAT. Each group company will be jointly and severally
responsible for each other group company’s VAT liabilities, and no VAT will be payable on
transactions between entities within the group.
Generally a VAT-registered customer must account for VAT paid in respect of purchases;
however, certain transactions between entities within the GCC will be subject to VAT by
reverse charge. The concept of reverse-charging VAT allows the simplification of transactions
within a single market (i.e., the GCC states). The reverse charge removes the obligation
to account for VAT on a sale from a supplier and places it on the customer. It should be
noted that for the purposes of a single market VAT treatment, only those countries that
have implemented VAT at the relevant time will be taken into account; non-implementing
countries would be treated like any foreign country.
Cabinet Decision No. 59 of 2017 specifies all designated zones for the purposes
of implementing the designated zone provisions in the VAT Law. A designated zone is
required to be a specific fenced area with security measures and customs controls in place
to monitor the entry and exit of individuals and the movement of goods to and from the
area. Concessional VAT treatment may be available for transactions involving the supply of
physical goods within designated zones. No VAT concessions are available for transactions
involving the supply of services within designated zones. The Cabinet has the authority to
amend the list of designated zones as required.
With respect to the applicability of the VAT Law to M&A transactions, it provides that
‘the transfer of the whole or independent part of a Business from a Person to a Taxable Person
for the purposes of continuing the Business that was transferred’19 shall not be considered
a supply, and therefore will not be subject to VAT. Consequently, in common with some
18 The VAT Law (Federal Decree Law No. 8 of 2017).

19 Article 7 of Federal Decree Law No. 8 of 2017.
476
European jurisdictions, the sale and purchase of a business in the UAE should not attract
VAT. Note, however, that there is no clear guidance in the law as to what continuing a
business involves; nor is there any detail on what constitutes the whole or independent part
of a business.
Note also that pursuant to Article 42 of Cabinet Decision No. 52 of 2017, a transfer of
title to equity securities is exempt from VAT.
It is noteworthy that in May 2019, the Minister for Justice issued a number of executive
resolutions concerning the establishment of the requisite government machinery for the
consideration and resolution of tax disputes. This includes the establishment of a specialised
tax department in the Abu Dhabi Federal Court of First Instance and one in the Abu Dhabi
Federal Court of Appeal. At present, these resolutions are limited to the Emirate of Abu
Dhabi; accordingly, it is expected that similar specialised departments will be established in
other emirates (the courts of the Emirates of Dubai and Ras al Khaimah are not a part of the
UAE federal court system) to consider tax disputes.
IX COMPETITION LAW
The Competition Law20 was introduced into the United Arab Emirates as a means of regulating
anticompetitive practices. The Competition Law deals with three key areas: a restriction on
anticompetitive agreements, the regulation of dominant market positions and a requirement
that acquisitions over a threshold combined market share obtain merger clearance from the
UAE Ministry of Economy (Ministry).
Although the Competition Law was introduced in 23 February 2013, it initially had
minimal impact as a result of it failing to establish the market share thresholds at which
its restrictions became applicable. It also failed to define the small and medium-sized
establishments that were stated to be outside the purview of the Law.
In 2016, two new Cabinet decisions were introduced that supplemented the
Competition Law and provided guidance on these outstanding aspects: Cabinet Decision
No. 13/2016 (Ratios Decision) in respect of market share thresholds and Cabinet Decision
No. 22/2016 (SME Decision) in respect of small and medium-sized establishments.
As a result of the Competition Law and the two Cabinet Decisions, merger clearance
will be required in advance of any proposed merger, acquisition or other consolidation of two
or more entities that would result in a market share of 40 per cent or more. The concerned
market is broadly defined in the Competition Law to comprise markets in which commodities
or services are replaceable or may be substituted to meet specific needs according to price,
properties and use. Although it is difficult to define the relevant market in legislation, and
more often than not markets are only identifiable on a case-by-case basis, on a practical level
the application of the Ratios Decision is somewhat difficult because the concerned market is
not clearly defined.
In addition, as a result of the SME Decision, the Competition Law does not apply
to certain small and medium-sized establishments as detailed in the SME Decision. The
definition of small and medium-sized establishments varies according to whether the
relevant entity operates in the trade, industry or services sector. Small and medium-sized
establishments are also identified in the Ratios Decision according to turnover and number
of employees.
20 The Competition Law (Federal Law No. 4 of 2012 on the regulation of competition).
477
Finally, note that the Ministry also has the power to investigate a potential violation of
the Competition Law on its own initiative or following a complaint brought before it. Failure
to notify a reportable economic concentration may result in a fine of between 2 and 5 per
cent of turnover generated by the relevant undertaking in the UAE in the last financial year
or, if data is not available, a fine of between 50,000 and 5 million dirhams.
X OUTLOOK
The legal framework for corporate transactions with a UAE element has no doubt changed
drastically over the past year. With the advent of the FDI Law, the implementation in earnest
of VAT and the proposed introduction of key corporate governance and employment law
reforms, those looking to buy, sell or invest in businesses that have a presence in the UAE
would be well advised to consider the new regulatory landscape before concluding such
transactions.
With more realistic valuations now being seen across the spectrum of M&A activity,
potential purchasers may indeed find that deals that were not practicable in the past are now
possible (and are potentially also more lucrative). There is therefore cautious optimism that
M&A activity will remain buoyant through the next 12 months.
478
Chapter 44
UNITED KINGDOM
Mark Zerdin1

In the UK, 2018 was truly a year of two halves: after the first six months of record-breaking
levels of activity, deal-making plummeted by a remarkable 47.6 per cent in H2.2 Nevertheless,
thanks to the exceptional start to the year, the total value of UK M&A activity in 2018 still
reached £182.6 billion, the highest annual value since 2015. Of this figure, £119.9 billion
was recorded in H1.
There were 1,560 recorded deals in 2018. The largest of these was Comcast
Corporation’s high profile takeover of Sky plc, which, after months of dramatic negotiations,
ultimately resulted in a deal valued at over €42 billion. Other high-value deals included
GlaxoSmithKline’s acquisition of the remaining 36.5 per cent stake in its consumer
healthcare joint venture with Novartis for €10.5 billion – the largest deal in the rapidly
growing pharmaceutical, medical and biotech sector – and Melrose’s hostile takeover of GKN
for €9.8 billion.3 One of the most notable deals in the second half of 2018 was the shake up
in the European telecoms sector as a result of Vodafone’s £16 billion acquisition of Liberty
Global’s operations in Germany, the Czech Republic, Hungary and Romanial, Vodafone’s
largest acquisition for almost two decades.4
The value of inward M&A, which was driven by US investment, increased from £35.2
billion in 2017 to £71.1 billion in 2018, largely due to the number of high profile deals in the
first half of the year. By contrast, the value of outward M&A fell from £77.5 billion in 2017
to £22.7 billion in 2018. None of these outward acquisitions were ranked as very high value
deals (above £10 billion).5 These trends are consistent with the fall in the value of the pound.
Although public M&A deal volume decreased slightly in 2018 compared with 2017,
with 42 firm offers announced for Main Market or Alternative Investment Market (AIM)
companies, it was still a driver of much of the deal-making. Indeed, there was a substantial
rise in deal value, with an aggregate deal value of £122.1 billion in 2018 in contrast to £45
billion recorded in 2017.6 Schemes of arrangement remained the most popular choice of
structure, accounting for 74 per cent of all firm offers announced in 2018.
1 Mark Zerdin is a partner at Slaughter and May.

2 Mergermarket, ‘Deal Drivers EMEA 2018’.
3 Mergermarket, ‘Deal Drivers EMEA 2018’.
4 Experian Market IQ, ‘United Kingdom and Republic of Ireland M&A Review, H1 2018’
5 ONS – Office for National Statistics, ‘UK Mergers and Acquisitions Activity in Context, 2018’.
6 LexisNexis, ‘Public M&A Trend Report 2018’
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United Kingdom
At the time of writing, there is still significant political uncertainty in the United
Kingdom, particularly concerning the final stages of negotiations to leave the European
Union and the looming threat of a no deal Brexit. This lack of clarity has subdued the market,
and dealmakers are likely to remain cautious while this uncertainty persists.

The Companies Act 2006 provides the fundamental statutory framework, and with the law
of contract forms the legal basis for the purchase and sale of corporate entities. In addition,
the City Code on Takeovers and Mergers (Takeover Code) regulates takeovers and mergers
of certain companies in the United Kingdom, the Isle of Man and the Channel Islands. The
Takeover Code has statutory force and the Takeover Panel (Panel) has statutory powers in
respect of transactions to which the Takeover Code applies. Breach of any of the Takeover
Code rules that relate to the consideration offered for a target company could lead to the
offending party being ordered to compensate any shareholders who have suffered loss as a
consequence of a breach. In addition, breach of the content requirements of offer documents
and response documents may constitute a criminal offence. The Panel also has the authority
to issue rulings compelling parties who are in breach of the requirements of the Takeover
Code to comply with its provision, or to remedy the breach. These rulings are enforceable
by the court under Section 955(1) of the Companies Act. The Takeover Code has a wider
scope than the EU Takeovers Directive, and applies if the offeree (or potential offeree) is a UK
public company and, in some instances, if the company is private or dual-listed.
The Financial Services and Markets Act 2000 (FSMA 2000) regulates the financial services
industry and makes provision for the official listing of securities, public offers of securities,
and the communication of invitations or inducements to engage in securities transactions.
Following substantial amendments to the FSMA 2000, brought about on 1 April 2013
when the Financial Services Act 2012 (FS Act) came into force, financial regulation is split
between two bodies: the Financial Conduct Authority (FCA), which regulates conduct in the
retail and wholesale markets, and the Prudential Regulation Authority, which is responsible
for the prudential regulation of banks and other systemically important institutions. As a
consequence of the FS Act, more than 1,000 institutions (including banks, building societies,
credit unions and insurers) are now dual-regulated. The UK Listing Authority Sourcebook
of Rules and Guidance (which includes the Listing Rules, the Prospectus Rules and the
Disclosure Guidance and Transparency Rules (DTRs)), promulgated by the FCA in its
capacity as the UK Listing Authority (the competent authority for the purposes of Part VI of
the FSMA), includes various obligations applicable to business combinations involving listed
companies, and contains rules governing prospectuses needed for public offers by both listed
and unlisted companies. The Listing Rules, in particular, set out minimum requirements
for the admission of securities to listing, the content requirements of listing particulars and
ongoing obligations of issuers after admission. The Criminal Justice Act 1993 contains the
criminal offence of insider dealing and, from 3 July 2016, the EU Regulation on Market
Abuse (MAR) (with the Listing Rules, the DTRs and the Takeover Code) regulates the civil
regime for insider dealing.
Merger control rules are contained in the Enterprise Act 2002, although they do not
generally apply to mergers in relation to which the European Commission (Commission)
has exclusive jurisdiction under the EU Merger Regulation. In addition, specific statutory
480
United Kingdom
regimes apply to certain areas, including water supply, newspapers, broadcasting, financial
stability, telecommunications and utilities, and these separate regimes may have practical
implications in merger situations.

IMPACT
i Takeover Panel: changes to the Takeover Code and practice
There have been relatively few changes to the Takeover Code since the last edition of The
Mergers & Acquisitions Review. The two main updates this year were the amendments to Rule
29 and the approval of provisional legislation that will come into force if and when the UK
leaves the EU.
In addition, while there have been no further legislative changes to the Code regarding
the increased disclosure obligations, which, as outlined in the previous edition, came into
force on 1 January 2018, there has been a shift in practice in reaction to this legislation. It
has been noticeable that the Panel does now expect parties to disclose substantially more
information – about, for example, the future of their business – than they may previously
have been accustomed to providing.
It is also worth considering how wider trends impact takeovers in practice. In particular,
the increasing influence of the Pensions Regulator (which now has greater powers to intervene
in transactions) and the global rise in protectionism are both likely to affect how takeovers
are conducted. It is foreseeable that legislation will be updated in the future to reflect these
trends, but in the meantime practitioners should consider how such changes may impact the
structure of their transactions.
Rule 29
On 17 October 2018, the Takeover Panel introduced a series of amendments to Rule 29 (on
asset valuations). The amendments do not materially alter the current application of Rule
29; rather, the changes primarily codify existing practice and provide increased clarification.
Subject to some remaining variations, the amendments broadly bring Rule 29 in line with
Rule 28 (on profit forecasts). These variations include, for example, the requirement for
parties to undertake asset valuations fully; unlike Rule 28, there is no cover for ordinary
course profit forecasts, which enable parties to circumvent the reporting requirements under
Rule 28. The Panel has justified this on the basis that asset valuations are more subjective than
profit forecasts. Additionally, Rule 29 requires the parties to produce a valuation report. This
has always been the case, but the amended Rule 29 now sets out the requirements for this
report in much more detail.
Brexit – provisional amendments

On 6 March 2019, Response Statement (RS 2018/2) was published, in which the Panel
adopted the majority of the changes proposed by the Code Committee in relation to the
UK’s planned withdrawal from the European Union. The amendments will take effect on
exit day (within the meaning of Section 20 of the European Union (Withdrawal) Act 2018).
Two particularly notable points arise from the Response Statement. First, the rules regarding
shared jurisdiction and the rules aligning the treatment of EEA shareholders with other
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overseas shareholders will be removed. Secondly, it is interesting that the Panel decided not
to get rid of the EU conditions, a decision that the Panel has acknowledged is for purely
pragmatic reasons.
ii Contractual interpretation
Contractual interpretation is an ever-changing landscape, and it is important for M&A
practitioners to keep abreast of recent developments, which may provide useful lessons when
drafting transaction documents. A selection of noteworthy cases that have come before the
courts in the past year are highlighted below.
In Rock Advertising v. MWB Business Exchange, the Supreme Court held that a variation
clause in a contract, which required modifications to be in writing, invalidated a subsequent
oral agreement to vary a contract.7 The Court gave effect to the contractual provision and
reasoned that it would be contrary to party autonomy if parties were not able to bind
themselves as to the form of future variations. This means that, from the point that a contract
is made, the parties’ autonomy is qualified according to what the parties have agreed. While
Rock Advertising does not disturb the general law that parties are able to vary a contract
subject to the necessary conditions being met, the decision does mean that parties can now
be more certain that their written agreements fully reflect the terms of their agreement.
The Court of Appeal considered a dispute concerning the interpretation of a force
majeure clause in National Bank of Kazakhstan v. BNY Mellon.8 The appellants, NBK, sought
declarations to the effect that BNY Mellon was not entitled to freeze assets located in London
on the basis that Belgian and Dutch orders were not recognisable in England. BNY Mellon
relied upon a clause in a global custody agreement that excused any non-performance (here,
the failure to follow the NBK’s instructions) caused by ‘any order [. . .] imposed by any
[. . .] judicial [. . .] authority’. The Court interpreted the clause broadly, giving the words their
plain meaning, and held that the scope of the clause did extend to the Belgian and Dutch
orders. This case is also an important reminder that international parties may be exposed to
(potentially) conflicting laws in the different jurisdictions in which they operate.
Chudley v. Clydesdale Bank concerned the identification of a class for the purposes of
the Contracts (Rights of Third Parties) Act 1999 (Act).9 The Court of Appeal ultimately held
that, where a bank had (wrongfully) entered into a contract with an investment company that
specified how investors’ money should be held, the investors were entitled to claim the benefit
of the contract, despite being unaware of the existence of the contract at the time of their
investment. Crucially, the Court confirmed that the use of the term client account in the
contract was sufficient to expressly identify a class (namely clients investing in the scheme)
for the purposes of the Act, and that the appellant investors were within that class. This case
is of particular interest because, in reaching this decision, the Court determined that the
identification of a class relied on the construction of the contract as a whole.
7 Rock Advertising Ltd v. MWB Business Exchange Centres Ltd [2018] UKSC 24
8 National Bank of Kazakhstan & Anor v. The Bank of New York Mellon SA/NV London Branch [2018] EWCA
Civ 1390.
9 Chudley and others v. Clydesdale Bank Plc (t/a Yorkshire Bank) [2019] EWCA Civ 344.
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Inward M&A increased notably in 2018: foreign acquisitions of UK companies were valued
at a total of £71.1 billion, compared with £35.2 billion in 2017.10 Foreign investment was
largely driven by the US, and resulted in a number of high profile deals such as US media
firm Comcast’s acquisition of Sky. Nevertheless, although the UK retained its position as the
top investment destination in Europe, research indicates that foreign direct investment (FDI)
to the UK has fallen by 19 per cent since the vote in favour of leaving the EU.11 In contrast,
neighbouring countries appear to be reaping the benefits of Brexit-related uncertainty, as FDI
into other western European economies (such as Luxembourg, France and the Netherlands)
has been on the rise.12 While the UK remains in its current state of limbo, investors are likely
to adopt a more cautious approach to investing in the UK.

i Technology, media and telecoms
The technology, media and telecoms (TMT) sector was a particularly fruitful area for M&A
activity in 2018, with some of the largest deals ever recorded in this industry. The strong
performance in the UK was mirrored globally: the TMT sector increased by 4 per cent, the
biggest growth worldwide.13 In the Americas, for example, the TMT sector was by far the
highest in terms of deal volume, and the second highest (behind the energy, mining, oil and
gas sector) in terms of deal value in 2018.14
The focus of the media industry was dominated by two headlines in 2018: the merger
between Disney and 21st Century Fox, and the battle for Sky. Disney’s US$71.3 billion
acquisition of the film and TV assets held by 21st Century Fox, which was approved by
shareholders in July 2018 and completed in March 2019, was one of the biggest media
mergers ever recorded. While Fox does still exist independently of Disney, the direction
of the corporation has now shifted away from entertainment to focus on news and sports.
Commentators have speculated that this transaction will trigger a wave of similar mergers in
the media business, as media providers react to the ever-growing influence of streaming films
and television online.
In September 2018, Comcast outbid rival 21st Century Fox in a US$39billion
takeover of the broadcaster Sky, acquiring more than 75 per cent of shares in the British
telecommunications company. After months of negotiations, the deal was ultimately struck
by means of a blind auction with three rounds, an unusual process for a deal of this nature.
Another megadeal in the TMT sector was Vodafone’s €18.4 billion purchase of Liberty
Global’s cable assets in the Czech Republic, Germany, Hungary and Romania. This was
the largest telecom deal and the second-largest deal in the TMT sector in 2018. Subject to
regulatory approval – which at the time of writing has not yet been confirmed – the deal will
make Vodafone the largest provider of high-speed broadband and cable services in Europe.
10 Office for National Statistics, ‘Mergers and Acquisitions Involving UK Companies, Annual Overview:
2018’.
11 Financial Times, ‘The fDi Report 2018’.
12 Ibid.
13 CityAM, ‘UK bags Europe’s M&A top spot with $247 billion of deals in 2018 as TMT mergers grow’.
14 Mergermarket, ‘Deal Drivers Americas 2018 Full Year Edition’.
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Driven by the continued growth of AI, cloud computing and advanced security
solutions, the importance of the TMT sector looks set to continue into 2019. Within the
TMT sector, areas such as 5G, smart speakers, radio and 3D printing are predicted to prove
popular among dealmakers in the coming year.15
ii Shareholder activism
As noted in the previous edition, the past few years have seen a considerable increase in
shareholder activism. Looking forward into the remainder of 2019, US-style activism in the
UK and across Europe is likely to continue, with activists both affecting the course of, and
acting as a catalyst for, future deals. The influence of activists has been particularly notable
in transactions structured as schemes of arrangement. As schemes of arrangement allow the
bidder to acquire 100 per cent control of the target if the scheme is approved, the statute
governing them contains a series of protections for minority shareholders. Activist investors
have been making increased use of these statutory provisions in the hope of securing more
favourable economic terms in a trend known as ‘bumpitrage’.16
In 2018, activist investors launched campaigns at 25 companies (spending £5.72
billion on shares), in contrast to the 11 companies targeted in 2017.17 Notable examples of
activist shareholder involvement in 2018 include Elliott’s influence both in Melrose’s takeover
of GKN and in a campaign prompting UK retailer Whitbread to offload Costa Coffee to
Coca-Cola. Elliott was also publicly hostile to Temenos’s recommended offer for Fidessa, and
came out in support of the competing bid from ION investments instead.
iii Protectionism and national security implications in the M&A context

One of the major trends that has emerged over the past 12 months has been the rise in
protectionism, both within the UK and globally. The recent upsurge in protectionist measures
has been fuelled by heightened concerns about national security and chiefly relates to foreign
investment restrictions, antitrust regimes and takeover rules enabling regulators to influence,
or even prevent, the outcome of a deal. It is predicted that this emerging trend will cause a
sharp slowdown in takeover activity over the course of 2019 and add to trade tensions as the
government increases its power to scrutinise investments.
Under the Enterprise Act 2002, the government has powers to intervene in relevant
merger situations that are deemed to affect national (or public) security, media plurality or
the stability of the financial system. Recently, there have been growing concerns that national
security is insufficiently protected under the current regime as, for example, the CMA can
only assess a proposed merger referred to it by the government if two or more enterprises
have ceased to be distinct enterprises, and one of two tests is satisfied: the acquired company’s
annual turnover exceeds £70 million; or the merged entity would have a minimum 25 per
cent share of sales or purchases in the United Kingdom of goods or services of a particular
description.18
Against this background, during the past year the government made a series of short-term
and long-term proposals to address national security concerns, and on 15 March 2018, the
15 Deloitte’s TMT UK Report.

16 ‘Bumpitrage in schemes: the growing threat’, PLC, 27 October 2016; PLC, ‘Public M&A Trends and
Highlights 2017’.
17 Lazard’s Annual Review of Shareholder Activism, 2018
18 Enterprise Act 2002, Section 23.
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Department for Business, Energy and Industrial Strategy (BEIS) published the government’s
response to its consultation on short-term proposals, which amend the merger control
jurisdictional thresholds.19
On 15 March 2018, the government confirmed its decision to lower the turnover
threshold from £70 million to £1 million in the dual use and military use sector, and in
parts of the advanced technology sector. Lowering the threshold to £1 million means that
the turnover threshold will obviously be easier to meet, and a higher number of deals will
be open to review by the CMA. Second, the government decided to introduce a new share
of supply test in these two sectors. The new test, instead of only looking at the share of sales
that a merged entity has, will also look at the share of sales of the target business before the
merger. If the pre-merger share of sale of the target is 25 per cent or more, then the new
share of supply test will be met, and the transaction will be subject to CMA scrutiny. These
two changes will not replace the existing turnover and share of supply tests, but will exist
alongside the existing CMA referral regime. The proposals will be brought into effect by the
Enterprise Act 2002 (Share of Supply Test) Amendment Order 2018 (which has been laid
before Parliament) and the Enterprise Act 2002 (Turnover Test) (Amendment) Order 2018.20
On 24 July 2018, the government went a step further by publishing proposals to review
transactions on national security grounds. The proposals are directed at investments from
potentially hostile foreign states, which are seen as more risky than UK-based acquirers,
particularly in sectors such as national infrastructure and advanced technologies. The
proposals would give the government the power to call in transactions for review (which could
be a lengthy process), and parties would be able to voluntarily notify their transactions. The
proposed national security regime would, where legal, take priority over applicable merger
control regimes. For example, the government could clear an anticompetitive transaction in
circumstances where it had national security grounds for allowing the transaction to proceed.
In June 2018, for example, the government intervened, on grounds of national security,
in the proposed £44 million acquisition of Northern Aerospace Limited by a subsidiary
of China’s Shaanxi Ligeance Mineral Resources. Although this transaction was ultimately
cleared, it lapsed on account of the delay and uncertainty. Thus, in an increasingly challenging
regulatory environment, parties may be less inclined to engage in large, transformative deals.
Melrose Industrial’s hostile takeover of GKN plc in the first quarter of 2018 is the best
recent example of increased levels of government scrutiny over deals with public interest
implications. In the final stages of this dramatic acquisition, the CEOs of Melrose and
GKN were required to appear before the BEIS Committee and, 48 hours before the GKN
shareholder vote, the UK government intervened by writing a letter demanding binding
commitments from Melrose. The intervention was justified on the grounds that GKN was
important to the UK’s national security. The demands, including commitments to continue
operating GKN as a UK business and investing in research and development projects, were
considered the latest example of the government being increasingly willing to intervene in
19 Department for Business, Energy and Industrial Strategy, ‘National Security & Infrastructure Investment
Review’ (15 March 2018) and ‘Enterprise Act 2002: Changes to the Turnover and Share of Supply Tests for
Mergers’ (15 March 2018).
20 Department for Business, Energy and Industrial Strategy, ‘National Security & Infrastructure Investment
Review’ (15 March 2018).
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takeovers.21 In addition to the post-offer undertakings agreed with the Panel, Melrose also
entered into deeds of covenant and undertakings in favour of the Ministry of Defence and the
BEIS with respect to the GKN business. As a result of these commitments, the government
ultimately decided that statutory intervention was not required.

In 2018, 42 firm offers were announced for AIM or Main Market companies that were
subject to the Takeover Code.22 The use of debt financing to fund or part fund offers rose
when compared to 2017, with 21 offers involving a debt portion (compared to 15 in 2017).
The use of short-term bridge facilities remains popular, particularly for larger deals; the
facilities are typically refinanced in the bond markets or with longer-term loan refinancing.
Rule 24.3(f ) of the Takeover Code requires that offer documents must contain a
description of how an offer is to be financed and the source or sources of the finance. In
particular, an offer document must provide details of the key terms of the debt, including
the interest rates and any step up or variation provided for (which would include market flex
rights). Following the publication of the announcement of a firm intention to make an offer,
any documents relating to the financing of the offer must be published on a website no later
than 12 noon on the following business day (Rule 26.2(b)). The disclosure of any market
flex provisions included in the financing arrangements can therefore be a contentious issue.
Disclosure of negotiated flex rights pursuant to Rule 26.2 may lead to higher funding costs,
as it can put potential syndicate members on notice of the arrangers’ ability to increase the
interest payable (within the agreed parameters).
Rules 24.3(f ) and 26.2 were introduced in 2011; in its 2012 review of the 2011
amendments to the Takeover Code, the Panel noted that as a result of the concerns
outlined above, dispensation had been granted from the Rule 26.2 requirement in relation
to disclosure of flex rights. This gives the parties a period of up to 28 days to complete
syndication before publication of the offer document, which must then include details of the
flex in accordance with Rule 24.3(f ). Whether this 28-day concession will be long enough to
complete syndication will depend upon the proposed timetable.
VII PENSIONS AND EMPLOYMENT LAW

i TUPE risk in M&A transactions
Although a pure share transfer typically does not engage the Transfer of Undertakings
(Protection of Employment) Regulations 2006 (TUPE), two key cases in 2017 highlighted
the risk of employees successfully arguing that TUPE applies in relation to intra-group
integration activities following completion of an M&A deal.
In ICAP Management Services Limited v. Dean Berry and BGC Services (Holdings) LLP,23
the court considered the application of TUPE in the context of a share sale of a parent
company. The court held that the TUPE argument failed on the basis that there was no
21 Financial Times, ‘UK issues demands over Melrose’s £7.8 billion hostile bid for GKN’. Accessed
13 April 2018.
22 PLC, ‘Public M&A Trends and Highlights 2018’.
23 ICAP Management Services Limited v. Dean Berry and BGC Services (Holdings) LLP [2017] EWHC
1321 (QB).
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transfer of the business in which employees were employed, as opposed to control of that
business. The mere fact of control is insufficient to show that a transfer has taken place from
the target subsidiary to the new parent company. The critical test is whether the new party
has become responsible for carrying on the business, has incurred the obligations of the
employer, and has taken over the day-to-day running of the business. The relevant test can be
summarised as whether the new party has ‘stepped into the shoes of the employer’.
This test was expounded by the Employment Appeal Tribunal (EAT) in Guvera Ltd v.
Ms C Butler and others,24 in which the EAT rejected the idea that it is a necessary condition
of a TUPE transfer that the transferee has assumed the obligations of employer towards the
employees of the undertaking (for example, by paying the employees’ wages). Rather, the
factors outlined in ICAP Management were said to be important, but not necessary, aspects of
a multifactorial test to find a TUPE transfer has taken place. In Guvera, the parent company
went beyond exercising ordinary supervision of the subsidiary, including making and directly
implementing key business decisions and directly handling a redundancy process. The EAT
therefore found this gave rise to a TUPE transfer.
From a practical perspective, it is important to analyse the TUPE risk at the level
of the day-to-day management of the business. While the purchaser may have a clear
commercial interest in integrating the target’s business into its own, integration affecting
day-to-day management (such as hirings and firings) will lead to a greater risk of a TUPE
transfer occurring. In contrast, the kind of global strategic oversight that is inevitable in
group companies with shared ownership will not be sufficient. Having group-wide policies
on HR and remuneration matters, for example, should be seen as low risk, provided that
implementation of those policies is a matter for each individual company.
Businesses should therefore be aware of this potential TUPE risk when structuring a
transaction and planning post-completion integration steps.
ii Employment status
Employment status remains a hot topic, particularly in those sectors (such as the gig economy)
in which workers have traditionally been classified as self-employed but are now claiming to
be entitled to certain employment rights. The government commissioned Matthew Taylor,
the Chief Executive of the Royal Society of Arts, to conduct a review of modern employment
practices;25 the result report was published in July 2017.26 The Taylor Review recommended
significant reforms to the current categorisation of workers and self-employed individuals,
and the rights attaching to each status.
The government issued its response in February 2018,27 in which it generally agreed
with the Taylor Review, but has chosen to consult on many of the recommendations before
setting firm policy changes. It therefore launched a number of consultations in conjunction
with its response, including regarding employment status.28
24 Guvera Ltd v. Ms C Butler and others UKEAT/0265/16/DM.

25 www.gov.uk/government/groups/employment-practices-in-the-modern-economy.
26 www.gov.uk/government/uploads/system/uploads/attachment_data/file/627671/good-work-taylor
-review-modern-working-practices-rg.pdf.
27 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/
file/679765/180206_BEIS_Good_Work_Report.pdf.
28 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/679853/
FINAL_-_Employment_Status_consultation_-_FOR_UPLOADING_and_PRINTING.pdf.
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The employment status consultation contemplated new legislation that would set out
the test to be met for an individual to be categorised as an employee, either using existing
case law criteria or on the basis of new criteria. The paper also considered the possibility of
aligning the definitions of employed and self-employed under the employment rights system
and the tax system. However, the consultation makes clear that no decisions have been made
about whether or how to reform employment status, so imminent legislative change appears
unlikely for the moment. The consultation closed on 1 June 2018.
The government responded to the Taylor Review consultations in December 2018,
publishing a policy paper – the Good Work Plan.29 This included a commitment by the
government to legislate to improve the clarity of the employment status tests and tackle
misclassification. There will also be proposals on how to align the employment status
framework for tax and employment rights. However, the government said it first needs to
conduct yet more research into employment status, so imminent legislative change appears
unlikely for the moment.
For now, businesses should remain alive to the risk that the individuals within their
workforce may be incorrectly classified, and that the rights and responsibilities attaching
to those individuals may be subject to change. This could have significant financial and
reputational implications for businesses, particularly in the current political climate.
Purchasers should therefore conduct thorough due diligence on the employment status of a
target’s workforce and seek appropriate indemnity protection where necessary.
iii Minimum contribution rate increases under auto-enrolment

There is mandatory auto-enrolment in the United Kingdom. This means that companies
are required to offer (most) workers at least a defined contribution tax-registered pension
plan providing a minimum level of contributions. These requirements have been introduced
on a staged basis. Since 6 April 2019, the minimum total contribution is 8 per cent of an
employee’s qualifying earnings30 (of which the employer must contribute at least 3 per cent).
This recent increase to the cost of auto-enrolment will need to be taken into account by
purchasers as part of a target’s continuing employment costs.
iv Abolition of contracting out for defined benefit schemes

On 6 April 2016, contracting out of the state pension in defined benefit schemes was
abolished as part of the introduction of the reformed UK state pension system. Employers
have therefore lost the national insurance rebate to which they were previously entitled as a
result of contracting out of the state pension.
The abolition of contracting out could be a relevant consideration for those purchasers
considering taking on a target’s (now formerly contracted out) defined benefit scheme that is
still open to future accrual (although such schemes are now rare), as the employer would be
required to pay a higher level of national insurance contributions.
However, a statutory modification power has been introduced that allows employers
unilaterally to amend scheme rules governing accrual rates and member contribution levels
29 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/766167/
good-work-plan-command-paper.pdf.
30 The contribution rates do not apply to all of an employee’s pay, but only to the amount falling within
the qualifying earnings band. For the 2019–2020 tax year, qualifying earnings are gross annual earnings
between £6,136 and £50,000.
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so far as is necessary to compensate the employer for the loss of its national insurance rebate.
This power is subject to certain restrictions and would require consultation with employees.
The power is available until 5 April 2021.
v Transfers of previous service benefits

A seller may require the purchaser to continue to offer a target’s employees membership
of a defined benefit pension scheme, including accepting a transfer of the employees’ (and
possibly former employees’) previous service benefits into that scheme, although this is now
relatively unusual.
If a transfer is to be carried out on a without consent basis,31 certain requirements
must be met. Prior to 6 April 2018, it was not possible to transfer contracted-out rights
without consent to a scheme that had never been contracted out. The abolition of contracting
out on 6 April 2016 meant that newly established schemes could not therefore receive a
without-consent transfer of contracted-out rights. Since 6 April 2018, such transfers are
permissible, but only if certain conditions are met. On acquisitions, transfers would usually
be made with members’ consent, but they could be made on a without-consent basis,
particularly if it is intended also to transfer the benefits of any former employees.
vi Further scrutiny planned of corporate activity impacts on pensions

The government is planning to intensify the Pensions Regulator’s scrutiny of how corporate
activity may affect pension provision. A number of changes (announced in a response to
consultation, published in February 2019) may be introduced through the 2019 Pensions
Bill.
One change will introduce a requirement for employers or parent companies to make a
declaration of intent, addressed to the pension scheme trustees and shared with the Pensions
Regulator, ahead of certain business transactions, such as the sale of the controlling interest
in a sponsoring employer, stating how the employer proposes to mitigate any detrimental
impact on the pension scheme.
There will also be new civil penalties of up to £1 million, and new criminal penalties
involving unlimited fines, up to seven years’ imprisonment (the custodial sentence could be
imposed for wilful or reckless behaviour in relation to a pension scheme), or both. The targets
of some of these new punitive measures would be the employer sponsoring the pension
scheme and anyone associated or connected with that employer.
Changes are also planned for the Pensions Regulator’s financial support direction
(FSD) regime, including an extension of the regime’s scope to capture employers’ controlling,
individual shareholders, and a broadened range of targets for a contribution notice (issued
where an FSD has not been complied with) to include persons associated or connected with
the FSD recipient.
vii Guaranteed minimum pension equalisation requirement

Purchasers taking on a target’s defined benefit scheme containing a form of contracted-out
benefit known as guaranteed minimum pensions (GMPs) will need to understand any
funding implications of an equal treatment ruling. Every pension scheme containing GMPs
is affected by the 2018 ruling because the unequal design of GMPs is mandated by legislation.
31 That is, without the consent of the members whose benefits are to be transferred.
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The High Court decided that schemes must address the sex inequalities brought about by
GMPs earned by service from 17 May 1990 (the ability of members to earn GMPs stopped
on 6 April 1997).
VIII TAX LAW

While Brexit loomed large in 2018, we have seen some significant (non-Brexit-related)
changes to the UK’s domestic tax landscape. Among others, the taxation of non-residents in
respect of UK land was overhauled, a new tax charge on offshore receipts from intangibles
was introduced and the transferable tax history, an innovative measure in the oil and gas area,
became reality.
i Brexit
HM Revenue & Customs (HMRC) have published a large volume of information setting
out, in particular, how businesses should prepare for a no-deal Brexit, but a lot is still to
play for. Given the uncertainty at the time of writing, the precise tax consequences of Brexit
remain unclear.
It should, however, be noted that, in addition to creating potential VAT and customs
issues on cross-border transactions, Brexit may mean that UK companies are no longer able
to avail themselves of certain tax-related benefits of the UK’s membership of the European
Union, for example benefits under the Parent–Subsidiary Directive.32 If UK parent companies
can no longer rely on this Directive (which abolishes withholding taxes on payments of
dividends between associated companies of different Member States), dividends would be
received subject to withholding tax at the relevant double tax treaty rate, and this is not
necessarily zero (for instance, in respect of dividends from German and Italian subsidiaries, it
would be 5 per cent). Intra-group payment flows should, therefore, be reviewed, and holding
structures for future acquisitions designed, with this in mind.
ii Investing in real estate, equity or debt

Over the past year, the government has introduced a number of changes to the taxation of
non-residents investing in UK land. With effect from April 2019, any gain on a disposal of
an interest in UK land (irrespective of whether it is a residential property) by a non-resident
is subject to UK capital gains tax or corporation tax. The charge also applies in respect of a
disposal of assets (such as shares) that derive at least 75 per cent of their value from UK land
if a non-resident has a substantial indirect interest in that land. Offshore corporate landlords
will be subject to corporation tax rather than income tax from April 2020 (although the
non-resident corporate landlord scheme will continue to apply). It should also be noted that,
from 1 March 2019, the time limit for filing a stamp duty land tax return has been shortened
from 30 to 14 days.
Private equity structures are often set up so as to allow managers to benefit from
entrepreneurs’ relief (ER) in respect of capital gains realised on an exit. Broadly, ER is
available where an individual has held a minimum 5 per cent interest in a company for a
certain minimum period, and its effect is to reduce the capital gains tax rate to 10 per cent.
32 Council Directive 90/435/EEC of 23 July 1990.
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For disposals on or after 6 April 2019, qualifying for ER has become more difficult.
The minimum holding period has been extended from 12 to 24 months, and an economic
substance requirement has been added to the 5 per cent interest test; previously, this test was
satisfied if an individual held 5 per cent of the voting rights and 5 per cent of the ordinary
share capital in a company. The application of this test may be further complicated by a
recent decision that preference shares with cumulative and compounding return count as
ordinary share capital.33 On a more positive note, if, on or after 6 April 2019, an individual’s
stake is diluted to below 5 per cent, he or she may be able to elect to protect the availability
of ER in respect of gains accrued before such dilution. Raising additional capital is likely to
be more straightforward as a result.
With effect from 29 October 2018, the government introduced a market value rule for
transfers of listed securities to a connected company. It is likely that this measure is only the
first step towards the introduction of a broader market value rule, given that the government
has already consulted on extending it to transfers of unlisted securities and transfers to
connected persons that are not companies.
From 1 January 2019, the regulatory capital securities regime has been replaced by
the hybrid capital instruments regime. At a debtor’s election, the new regime applies a
favourable tax treatment to instruments under which the debtor is entitled to defer or cancel
a payment of interest, but that do not contain any other significant equity features. Under
the new regime, it is irrelevant whether the instrument forms part of the debtor’s regulatory
capital, as the regime is open to non-regulated as well as regulated entities. This may result
in more diverse investment opportunities as other players, such as utilities, move into a space
previously reserved for banks and insurers.
iii Withholding tax on interest

The UK imposes a 20 per cent withholding tax on yearly interest arising in the UK. The
concept of yearly interest was considered by the Supreme Court in the Lehman Brothers
case.34 The case concerned statutory interest that did not accrue from day to day, but was
payable at the end of the Lehman Brothers administration. Given that the administration
lasted more than one year, the Supreme Court decided that the statutory interest was yearly
interest and subject to withholding tax. On this basis, it is possible that contractual interest
on late payments could be subject to withholding tax if the period of default runs for a year
or more.
iv Using tax losses

As part of the overhaul of the relief of corporate income losses that took effect in 2017, the UK
introduced provisions limiting the set-off of carried forward losses to 50 per cent of a group’s
profits above £5 million (with stricter restrictions for banks). On 29 October 2018, the
government announced its intention to introduce a similar limitation in respect of the relief
of carried-forward capital losses. The measure is intended to take effect from 1 April 2020
and, based on HMRC’s consultation on its delivery, anti-forestalling rules are likely to be
introduced in respect of transactions signed before, but completing after, that date.
33 Warshaw v. HMRC [2019] UKFTT 0268 (TC).

34 HMRC v. Joint Administrators of Lehman Brothers International (Europe) (In Administration) [2019]
UKSC 12.
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In the previous edition of The Mergers & Acquisitions Review, we noted that the
use of tax losses through surrenders as group or consortium relief may be affected by the
Farnborough case,35 in particular in the context of joint ventures, because the case called
into question whether, for the purposes of the grouping rules, a shareholders’ agreement is
a constitutional document, and therefore whether its provisions can be taken into account
to determine an entity’s controller. During the case’s appeal, the appellate court36 did not,
unfortunately, address this point. Therefore, joint venture partners may wish to consider
locating provisions on voting rights in the joint venture entity’s articles of association rather
than the shareholders’ agreement.
v Anti-avoidance, transfer pricing and controlled foreign companies

Buyers may want to focus due diligence on, and seek robust warranties in respect of,
remuneration structures for UK employees. In 2017, the government introduced the loan
charge, a tax charge on certain disguised remuneration loan balances outstanding as at
5 April 2019. Given the recent public backlash following reports of a number of suicides
linked to the measure and calls for action against employers, there is a risk of financial and
reputational damage for companies that made use of the relevant disguised remuneration
schemes.
Under the off-payroll working rules commonly known as IR 35, individuals providing
services through a personal services company may be treated as employees for tax purposes.
Currently, the service provider determines whether IR 35 applies where services are provided
to a private sector client. The government intends to change this such that, from April 2020,
the determination must, instead, be made by the client – a move likely to substantially
increase compliance burdens.
Shareholder transactions also call for caution. The recent Union Castle case37 indicated
that share issues are within the scope of the transfer pricing rules. It remains to be seen
whether HMRC would seek to use this decision to re-characterise shares issued by a fatly
capitalised subsidiary as debt and what ramification this may have for other shareholder
transactions, such as the payment of dividends.
The government has amended the group financing exemption under the UK controlled
foreign companies regime with effect from 1 January 2019, so as to exempt finance income
that would otherwise be brought into charge as a result of it being derived from UK-connected
capital, but not finance income that would otherwise be brought into charge as a result of it
being derived from UK activity. Given the Commission’s recent decision in this area,38 it is
expected that the exemption, as amended, should not be state aid.
vi VAT
The UK’s VAT grouping rules have been amended so as to allow certain eligible individuals
and partnerships to join a VAT group. However, at the time of writing, these amendments
have not yet taken effect, and the date on which they will become effective has not yet been
confirmed.
35 Farnborough Airport Properties Ltd and others v. HMRC [2017] UKUT 394.
36 Farnborough Airport Properties Company & others v. HMRC [2019] EWCA Civ 118.
37 Union Castle Mail Steamship Company v. HMRC [2018] UKUT 316 (TCC).
38 Press release IP/19/1948 and decision (2019) 2526 final.
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The European as well as the UK courts have had to grapple with questions around
holding companies’ ability to recover input tax. In the Ryanair case,39 the Court of Justice
of the European Union held that a holding company intending to provide management
services to a takeover target can recover input tax on the cost of an abortive takeover. In
contrast, input tax on the cost of a share sale was held to be irrecoverable.40 A recent UK
case concerned a holding company that provided management services to its two subsidiaries
on the condition that it would not invoice for the services until the subsidiaries became
profitable.41 It was decided that the holding company did not carry on an economic activity
and was, therefore, unable to recover input tax.
vii Intangibles, offshore receipts and digital services

The tax treatment of intangibles is bifurcated. Broadly, depending on the date of their
creation or acquisition, intangibles are either treated as capital assets (CGT regime) or their
tax treatment follows their accounting treatment (IFA regime). In an M&A context, the
differences between the de-grouping rules under the two regimes has been a major point of
criticism. In circumstances where CGT de-grouping charges would be added to the seller’s
disposal proceeds and covered by the substantial shareholding exemption (SSE), the IFA
regime imposed de-grouping charges on the target, thereby increasing the tax costs associated
with the transaction. It is welcome that, with effect from 7 November 2018, IFA de-grouping
charges are disapplied where a SSE is available to the seller. In addition, a limited tax relief in
relation to goodwill has been introduced with effect from 1 April 2019.
Where the due diligence process reveals that the target group holds its intangibles
in a jurisdiction with which the UK does not have a double tax treaty containing a
non-discrimination provision, the application of the UK’s new income tax charge on offshore
receipts from intangible property should be considered. Where a group’s UK sales exceed £10
million, the new charge applies to the extent that the relevant offshore receipts are derived
from UK sales. While it is imposed on the offshore recipient, the tax can be collected from its
UK affiliates. It should be noted that transfers of intangibles made to avoid the new charge
may be caught by anti-avoidance rules.
The government has further announced that, with effect from 1 April 2020, it will
introduce a digital services tax chargeable at a rate of 2 per cent on revenues derived by certain
digital businesses, such as search engines, social media platforms and digital marketplaces,
from activities linked to UK user participation. The tax will not apply unless certain revenue
thresholds are exceeded, and it is intended as an interim measure until an international
consensus on the taxation of the digital economy has been reached.
viii Oil and gas

As announced in November 2017, the government has introduced certain measures to
facilitate the transfer of late-life oil and gas assets, including the innovative transferable tax
history.
Previously, pure mature field specialists with little prior activity in the North Sea were
unable to obtain effective corporation tax relief for decommissioning costs. This was because the
39 Ryanair Ltd v. The Revenue Commissioners (case C249/17).

40 C&D Foods Acquisition ApS (case C-502/17).
41 W Resources PLC v. HMRC [2018] UKFTT 746.
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resulting losses would sit in the specialist buyer whereas the capacity to use those losses (by way
of carry-back against tax previously paid) would be locked away in the seller. The government
has addressed this by introducing the transferable tax history with effect from 1 November 2018.
This measure allows a seller to transfer all or part of its tax history to the buyer.
The petroleum revenue tax rules have also been amended to allow a buyer to obtain
tax relief for decommissioning costs incurred by the seller where the seller retains the
decommissioning liability.
IX COMPETITION LAW
i The UK merger regime
The CMA has the power to carry out an initial Phase I review, and has a duty to refer any
qualifying transaction for a detailed Phase II investigation if it believes that the merger will or
may give rise to a substantial lessening of competition. Phase I decision-making is undertaken
by the Senior Director of Mergers (or another senior CMA official). Phase II decision-making
is undertaken by an independent panel of experts drawn from a pool of senior experts in a
variety of fields.
Notification is voluntary in the sense that there is no obligation to apply for CMA
clearance before completing a transaction. The CMA may, however, become aware of
a transaction through its market intelligence functions (including through the receipt of
complaints) and impose interim orders preventing further integration of two enterprises
pending its review. There is a risk that it may then refer the transaction for a Phase II
investigation, which could result in an order for divestment.
The CMA strongly encourages parties to enter into discussions in advance of formal
notifications to seek advice on their submission to ensure that a notification is complete and
to lessen the risk of burdensome information requests post-notification. The CMA aims to
start the statutory clock within 20 working days (on average across all cases) of submission of
a substantially complete draft merger notice. The average length of the total pre-notification
period was 33 working days in the 2018 to 2019 financial year.42 Some cases, however, require
much longer pre-notification periods.
Once a transaction is formally notified, Phase I begins, and the CMA has a statutory
time limit of 40 working days to reach a decision. The average length of Phase I was 36
working days during the 2018 to 2019 financial year.43 The CMA may extend the 40 working
day period in certain exceptional circumstances, such as if it is waiting for information from
the merging parties. The CMA formally paused the statutory timetable in two Phase I cases
during the 2018 to 2019 financial year.44
If the CMA’s duty to refer a transaction to a Phase II investigation is engaged, the
parties have five working days from the substantial lessening of a competition decision (SLC
decision) to offer undertakings in lieu of a reference to the CMA (although they may offer
them in advance should they wish to do so). If the parties offer undertakings, the CMA
has until the 10th working day after the parties receive the SLC decision to decide whether
the offer might be acceptable, in principle, as a suitable remedy to the substantial lessening
42 Mergers updates, Law Society Competition Section seminar, 12 March 2019. This figure was accurate as at
28 February 2019.
43 Ibid. This figure was accurate as at 28 February 2019.
44 Ibid. This figure was accurate as at 28 February 2019.
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United Kingdom
of competition. If the CMA decides the offer might be acceptable in principle, a period of
negotiation and third-party consultation follows. The CMA is required to decide formally
whether to accept the offered undertakings, or a modified form of them, within 50 working
days of providing the parties with the SLC decision, subject to an extension of up to 40
working days if there are special reasons for doing so.
At Phase II, the CMA must issue its decision within a statutory maximum of 24 weeks;
this period is extendable in special cases by up to eight weeks. If remedies are required,
the CMA has a statutory period of 12 weeks (which may be extended by up to six weeks)
following the Phase II review within which to make a decision on any remedies offered by
the parties.
The CMA has significant powers to impose interim measures to suspend or reverse all
integration steps and prevent preemptive action in relation to both completed and anticipated
mergers. This ensures that, although notification is voluntary in the United Kingdom, the
CMA is able to prevent action being taken that would result in irreversible damage to
competition. Severe financial penalties may be imposed for breaches of any interim orders or
undertakings (capped at 5 per cent of the aggregate group worldwide turnover).
The CMA levies substantial filing fees in respect of the mergers it reviews (between
£40,000 and £160,000), depending on the turnover of the target business.
ii Treatment of mergers by the CMA

The number of Phase I merger decisions made by the CMA in the 2018 to 2019 financial
year (56) was down from the 62 taken in the preceding financial year, and significantly down
from the peak of 210 merger decisions made by the Office of Fair Trading in the 2005 to
2006 financial year. Since the 2005 to 2006 financial year, 56 is the lowest annual figure for
Phase I decisions, the average being 90 decisions per year over that period.
Of the 56 cases decided during 2018 and to date in 2019, 41 were cleared unconditionally,
representing around 73 per cent of cases, up from around 66 per cent in the preceding year
(including cases cleared under the de minimis exception). Eleven cases were referred for Phase
II review (around 20 per cent), up from 15 per cent in the preceding year. Undertakings
in lieu of a reference were accepted in two cases, down significantly from the 12 see in
the preceding year. Of the 11 transactions referred to Phase II, one was prohibited, three
were cleared unconditionally, four were cleared with remedies and three were cancelled or
abandoned. Overall, the CMA intervened (i.e., prohibited or accepted remedies) in around
13 per cent of cases in the 2018 to 2019 financial year, which is around twice the rate of
intervention from the Commission over a similar period. The higher intervention rate may be
explained by the voluntary nature of the UK merger control regime, which means that parties
may elect not to notify transactions that do not give rise to significant competition issues.
iii Recently published statements and consultations relevant to mergers

Lord Tyrie, the current Chair of the CMA, outlined proposals for the significant reform
of the UK’s competition policy in February 2019. With regards to merger control, the
proposals include mandatory notification in the case of larger mergers that are likely to be the
subject of review by multiple competition agencies globally while maintaining the voluntary
system for smaller mergers. The rationale for the change is to avoid a situation post-Brexit
whereby parties focus on notifications in mandatory regimes, which could put the CMA at a
disadvantage when seeking remedies for UK-specific competition concerns if a global remedy
package has already been agreed with other competition authorities.
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Further proposals to change the merger control regime were included in the ‘Unlocking
digital competition’ report published in March 2019 by the Digital Competition Expert
Panel that was appointed by HM Treasury. The report recommends that the largest digital
companies with strategic market status should be required to make the CMA aware of all
their intended acquisitions. The report also recommends the introduction of a balance of
harms approach to the UK regime, which would require the CMA to assess the likelihood
and the magnitude of the impact of a merger (both positive and negative), with mergers
being prohibited where the harmful effects are expected to outweigh any merger benefits. The
proposal follows from the review’s conclusion that there has been under-enforcement in UK
merger control in the past, especially in digital markets. The CMA is not, however, in favour,
and has warned about the unintended consequences of introducing such a test.
The CMA also aims to continue to tidy up its existing guidance in the year ahead, with
a focus on ongoing consolidation and refreshing its guidance to reflect current practice (at
the time of writing, a consultation on interim measures has been reissued). The CMA also
intends to consider further revision of its jurisdictional and procedural guidance and merger
assessment guidelines depending on the status of the UK’s exit from the European Union
following the vote to leave on 23 June 2016.
iv Brexit and merger control

At the time of writing, it is expected that the United Kingdom will withdraw from both the
European Union and the European Economic Area, which could cause significant changes to
merger control regulation. It is likely that businesses will need to submit parallel notifications
in the United Kingdom and European Union to obtain clearance for a deal, as the one stop
shop principle should no longer apply (that is, the principle that if a merger has an EU
dimension as defined in the EU Merger Regulation, it falls under the exclusive jurisdiction
of the Commission). This could lead to a number of challenges for merging businesses,
including increased regulatory burden. The CMA has emphasised in its Annual Plan for 2019
and 2020 that, from its perspective, the removal of the one stop shop principle would lead
to an increased workload and may have an impact on its ability to cover other priority (but
discretionary) areas such as market studies and investigations. In addition, the CMA expects
its role in global mergers to change, with more extensive engagement with international
regulators on both substance and potential remedies anticipated.45
X OUTLOOK
2018 was a lopsided year for M&A in the United Kingdom: following a bumper start to
the year, activity fell dramatically during the second half of the year as political headwinds
dampened deal-making spirits. Going into 2019, UK M&A suffered a third successive
quarterly decline, hitting its lowest value since the EU referendum in June 2016. Q1 2019
saw just £27.4 billion spent on UK assets – a 36.6 per cent decrease from Q1 2018 – and no
deals over the £5 billion mark were recorded.46
While Brexit uncertainty rages on, UK dealmakers are likely to remain cautious until
greater political clarity is reached. Nevertheless, the availability of cheap debt, attractive
45 Competition and Markets Authority Annual Plan 2019/20.

46 Mergermarket, ‘EMEA MA Activity Q1 2019’.
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bid financing costs and a weak sterling means that the UK is likely to remain a favourable
environment for foreign investors. The rise in shareholder activism and developments in the
technology sector – which supplied 16 per cent of the UK’s deal count in Q1 2019 – are also
likely to fuel M&A activity for the remainder of the year.
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Chapter 45
UNITED STATES
Richard Hall and Mark I Greene1

Following declines in 2016 and 2017, US M&A activity reversed trajectory in 2018. Aggregate
US M&A deal value increased significantly, although the number of transactions fell. With
US$1.73 trillion in M&A activity during 2018, deals for US targets increased by 32.1 per
cent compared to 2017.2 However, the number of deals for US targets decreased 7.8 per cent
from 13,500 in 2017 to 12,442 in 2018.3 These figures demonstrate a trend toward fewer,
larger deals, reversing the trend seen in 2016 and 2017 of a larger number of lower-value
deals. Narrowing in on acquisitions of US public companies valued at US$100 million or
more, there were 165 such deals announced in 2018, a decrease of 5.2 per cent from 2017
(174 deals).4 Looking further back, the 165 deals signed in 2018 constituted a decrease of
12.2 per cent (188 deals) and 13.6 per cent (191 deals), and an increase of 9.3 per cent
(151 deals) from 2016, 2015 and 2014, respectively.5
Consistent with the trend in overall US M&A value versus volume, large-cap US M&A
saw marked increases in 2018. There were 34 announced US public M&A deals valued over
US$5 billion announced in 2018, and 65 valued between US$1 billion and US$5 billion,
compared to 26 and 58, respectively, in 2017.6 Much of the 2018 large-cap activity was
in the first half of the year (21 deals, compared to 13 deals in the second half of the year).
Announced US public M&A deals valued between US$100 million and US$500 million
decreased in 2018, from 56 in 2017 to 34 in 2018.7 M&A activity in 2018 varied throughout
the year, with more active first and fourth quarters and a relatively quieter third quarter.
There were 46 announced deals for public US companies valued over US$100 million in the
first and fourth quarters of 2018, compared to 40 and 33 in the second and third quarters,
respectively.8
1 Richard Hall and Mark I Greene are corporate partners at Cravath, Swaine & Moore LLP. The authors
would like to acknowledge the contributions of fellow partners Daniel Slifkin, Eric Hilfers, Len Teti
and Margaret D’Amico and associates Philip Cernera, Andrew Davis, Aaron Feuer and Amanda
Lamothe-Cadet.
2 Mergers & Acquisitions Review, Full Year 2018, Financial Advisors, Thomson Reuters (2018).
3 Id.
4 What’s Market tracks and summarises agreements for acquisitions of US reporting companies valued at
$100 million or more. Practical Law Company, ‘What’s Market: 2018 Year-End Public M&A Wrap-Up’,
22 February 2019.
5 Id.
6 Id.
7 Id.
8 Id.
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For a discussion of cross-border deal volume, see Section IV.

US public M&A in 2018 was dominated by strategic rather than financial acquirers
in 2018, as was the case in 2017. Approximately 136 US public M&A deals valued over
US$100 million, or 82 per cent, involved strategic acquirers, up very slightly from 2017
(81 per cent).9 However, financial sponsors, including private equity buyers, have become
well-established players in the US M&A landscape with relatively stable participation for
the past few years. For example, the percentage of US public M&A transactions valued
over US$100 million that involved private equity buyers has ranged between 13 and 21 per
cent over the past four years.10 These numbers remain stable, among other reasons, because
private equity activity is constrained by a cycle of low supply of quality targets, increasing
levels of dry powder, and resultant competition among private equity buyers that contributes
to high prices. Meanwhile, robust debt financing and stable equity markets have offered
viable financing options to strategic buyers. Strategic buyers are even more dominant among
large-cap deals. Of the 34 large-cap deals for US public targets entered into in 2018 (valued
at US$5 billion or more), 31 were strategic (91 per cent), again up from 2017 (85 per cent).11
Like US M&A, global M&A grew in value and declined in volume in 2018. Global
M&A activity reached US$4.02 trillion in 2018, compared to US$3.37 trillion in 2017,
featuring 47,585 deals, compared to 51,474 in 2017.12 Global cross-border M&A rose
significantly to US$1.6 trillion, up 32 per cent from 2017.13 China’s outbound M&A
dropped 5.3 per cent in 2018 after a steep 35 per cent decline in 2017 from a record year
in 2016, in part as a result of government policies inhibiting US-inbound deals.14 However,
cross-border China-targeted M&A continued to grow in 2018, with a total value of US$56.1
billion, the highest on record.15
Compared against the fourth quarter of 2018, the first quarter of 2019 saw a decrease
in volume and an increase in the value of announced US M&A deals. There were 3,219
deals worth US$475.5 billion announced in the first quarter of 2019, compared to 3,422
deals worth US$393.9 billion in the fourth quarter of 2018 (a decrease of 5.9 per cent and
an increase of 20.7 per cent, respectively).16 Compared against the first quarter of 2018, the
first quarter of 2019 saw an increase in volume and a decrease in the value of announced
US M&A deals. There were 3,137 deals worth US$545.2 billion in the first quarter of
2018 (an increase of 2.6 per cent and a decrease of 12.8 per cent compared to the first
quarter of 2019, respectively). Globally, while worldwide M&A activity reached a record
high of US$1.0 trillion in value during the first quarter of 2018, it decreased 30.7 per cent
to US$693.4 in the first quarter of 2019, and the number of announced deals fell from
9,023 to 8,727.17 While 2017 brought increased certainty on the tax reform front, 2018 saw
additional uncertainty related to US policies regarding trade tariffs on Chinese imports and
national security (including President Trump’s executive order blocking the US$128.5 billion
9 Id.
10 Id.
11 What’s Market: 2018 Year-End Public M&A Wrap-up, footnote 4.
12 Mergers & Acquisitions Review, Full Year 2018, Financial Advisors, footnote 2.
15 Id.
16 Flashwire Advisor Quarterly: 1st Quarter 2019, FactSet, https://www.factset.com/hubfs/mergerstat_em/
quarterly/AdvisorQuarterly.pdf.
17 Id.
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proposed acquisition of Qualcomm Inc (Qualcomm) by Singapore-based Broadcom Ltd

(Broadcom) in March). It remains to be seen how M&A activity, globally and in the US, will
progress for the remainder of 2019.

M&A in the US is governed by a dual regulatory regime, consisting of state corporation
laws (e.g., the Delaware General Corporation Law (DGCL)) and the federal securities laws
(primarily, the Securities Act of 1933 (Securities Act) and the Securities Exchange Act of
1934).18 The Securities and Exchange Commission (SEC) is the regulatory agency responsible
for administering the federal securities laws. Federal securities laws apply in the context of
a merger, including federal proxy rules governing solicitation of target shareholder approval
and federal securities laws relating to tender offers in the context of an offer to purchase shares
of a publicly held target company. Furthermore, an acquisition or merger will imply fiduciary
duties, as developed and applied in the target company’s state of incorporation.
Unlike most other jurisdictions, the US patchwork of federal and state acquisition
regulation is not focused on substantively regulating changes of control of target companies.
Rather, US regulation focuses on disclosure, ensuring that target company shareholders have
the time and information required to make a fully informed decision regarding accepting a
tender offer or voting in favour of a merger.
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act), an
acquirer is normally required to make a filing with US antitrust authorities prior to completing
an acquisition if the transaction size exceeds US$90 million (adjusted annually for inflation);
the requirement was increased in April 2019 from US$84.4 million in 2018.19
There is no general statutory review process governing foreign investment in the US.
Under the Exon-Florio Amendment to the Defense Production Act of 1950, however, the
President, through the Committee on Foreign Investment in the United States (CFIUS),
has the power to review, investigate, prohibit or unwind transactions involving investments
by non-US entities that threaten to impair national security.20 The 1992 Byrd Amendment
requires CFIUS to conduct a full Exon-Florio investigation whenever CFIUS receives notice
of a foreign government-led takeover of a US business that may affect national security.21 A
CFIUS review is formally a three-step process. The initial informal review step has evolved
over time to give both transaction parties and CFIUS additional time to resolve any national
security concerns without the time constraints imposed by the formal review process.22
Historically, parties would pre-file a draft notice, address any initial comments and questions
from CFIUS, and then formally file approximately one week later. However, CFIUS now
regularly conducts detailed pre-filing reviews, asking extensive questions that must be
18 Securities Act of 1933, 15 U.S.C. § 77a (amended 2015); Securities Exchange Act of 1934, 15 U.S.C. §
78a (amended 2018).
19 HSR Threshold Adjustments and Reportability for 2019, Federal Trade Commission,
7 March 2019, https://www.ftc.gov/news-events/blogs/competition-matters/2019/03/hsr-threshold-
adjustments-reportability-2019.
20 50 U.S.C. § 4565 (2015).
21 Pub. L. No. 102-484 (1992).
22 James K Jackson, ‘The Committee on Foreign Investment in the United States (CFIUS)’, Congressional
Research Service, 19 February 2016, www.fas.org/sgp/crs/natsec/RL33388.pdf.
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answered before the formal filing is made, which often takes several weeks.23 The formal
review process is usually (although not exclusively) initiated based on voluntary notice filings,
with an initial 45-day period during which CFIUS reviews a transaction to consider its effects
on US national security. If CFIUS still has national security concerns after the initial period, a
second 45-day investigation is launched (with a potential 15-day extension). Few transactions
progress to the third step: presidential review and final determination, which determination
is not subject to judicial review.24 Except for certain transactions, filing a notice to CFIUS is
a voluntary measure. CFIUS may, however, review a transaction at its discretion, even after
it is completed, which may affect the parties to an M&A transaction’s anticipated benefits,
and the rise in CFIUS reviews is pushing parties to address their possibility early in the
transaction process.
On 13 August 2018, President Trump signed the John S McCain National Defense
Authorization Act for fiscal year 2019 into law, which included the Foreign Investment Risk
Review Modernization Act of 2018 (FIRRMA).25 The legislation expands both the scope
of activities subject to CFIUS review and the level of scrutiny directed towards transactions
involving certain ‘countries of special concern’.26 Significantly, FIRRMA extends CFIUS’s
jurisdiction to include the review of non-controlling investments in certain US businesses, and
imposes mandatory filings for transactions in certain industries involving a foreign investor in
which a foreign government has a substantial interest. The legislation also extended the time
frame for the review of transactions. While formal regulations have not yet been proposed
to implement all of the FIRRMA modifications to CFIUS, a pilot programme was rolled
out in November 2018 mandating notification for certain critical technology transactions.
After playing an active role in 2017 and 2018, CFIUS continues to be a substantial player in
the US M&A landscape moving forward (see Section IV for a discussion of recent executive
action and CFIUS review).
There are also additional industry-specific statutes that may require advance notification
of an acquisition to a governmental authority. Examples of regulated industries include
airlines, broadcasters and electric and gas utilities.
23 Farhad Jalinous et al. of White & Case, ‘CFIUS: Recent Developments and Trends’, February 2017, www.
whitecase.com/publications/alert/cfius-recent-developments-and-trends; Michael Gershberg and Justin
Schenck, ‘CFIUS Takeaways from Blocked Aixtron Deal’, Law 360, 16 December 2016, www.law360.
com/articles/873348/cfius-takeaways-from-blocked-aixtron-deal.
24 Nicholas Spiliotes, Aki Bayz and Betre Gizaw of Morrison & Foerster, ‘Getting the Deal Done: China,
Semiconductors, and CFIUS’, The M&A Journal, Vol. 16 No. 5, www.mofo.com/~/media/Files/Articles/20
16/04/160400ChinaSemiconductorsCFIUS.pdf.
25 H.R. 5515, 115th Congress (2017–2018): John S McCain National Defense Authorization Act for fiscal
year 2019.
26 Id.
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IMPACT
i Fair value in appraisal actions
In the wake of the 2013 Dole Food Company, Inc management buyout, hedge funds added
the battle for appraisal rights to their activist repertoires.27 As hedge funds sit on large reserves
of cash, they continue to seek ways to earn returns. While appraisal rights are generally not
a lucrative pursuit for the average shareholder, activist funds have the resources to make it
worth their while, and the values involved in appraisal arbitrage rose substantially in recent
years. Appraisal arbitrage claims were valued at US$1.5 billion in 2013.28 Claims continued
to rise through 2016, with 76 petitions challenging 47 deals.29 However, after years of steady
increases, the tide turned in 2017.30 Appraisal petitions fell even further in 2018, with
26 petitions challenging 22 deals.31
Developments in the law governing appraisal actions in recent years, both legislative
and judicial, have had a substantial impact on an appraisal’s upside and therefore on the
incentive to bring appraisal actions in Delaware. In 2016, the Delaware legislature passed
two amendments to Section 262 of the DGCL aimed at curbing appraisal arbitrage. The
first imposed a de minimis exception for certain appraisal claims, requiring that more than
1 per cent of the outstanding shares entitled to appraisal perfect their appraisal rights or that
the merger consideration for shares with perfected appraisal rights exceed US$1 million.32
The second allows a corporation to prepay the claimant any portion of the transaction price,
limiting the principal on which interest accrues while the claim is disputed.33
Delaware judicial decisions have also significantly undermined appraisal arbitrage.
In several 2015 decisions, the Delaware Court of Chancery relied entirely upon, or gave
substantial weight to, the merger price in determining fair value in shareholder appraisal
actions where there was a robust, conflicts-free sales process.34 Subsequently, three important
2016 Delaware Court of Chancery decisions cut back on what had appeared in 2015 to be
strong deference to valuations based on per-share merger price minus any merger-related
synergies, suggesting that other financial analyses would still be used.35 In 2017, however,
Delaware courts reinvoked 2015’s deference to deal price. First, in May 2017, the Delaware
Court of Chancery in In re Appraisal of PetSmart, Inc gave zero weight to the proffered
27 Steven M Davidoff, ‘A New Form of Shareholder Activism Gains Momentum’, New York Times,
4 March 2014, dealbook.nytimes.com/2014/03/04/a-new-form-of-shareholder-activism-gains-momentum/?_
php=true&_type=blogs&_r=0.
28 Liz Hoffman, ‘Hedge Funds Wield Risky Legal Ploy to Milk Buyouts’, The Wall Street Journal,
13 April 2014, online.wsj.com/news/articles/ SB10001424052702303887804579500013770163966.
29 Cornerstone: Appraisal Litigation in Delaware: Trends in Petitions and Opinions (2006-2018).
30 Id.
31 Id.
32 Ronald Brown III and Keenan Lynch, ‘Key 2016 Appraisal Decisions that Rejected Merger Price’, Law360,
6 December 2016, www.law360.com/articles/868758/key-2016-appraisal-decisions-that-rejected-merg.
33 Id.
34 See, e.g., Merlin Partners LP v. AutoInfo, Inc, 2015 WL 2069417 (Del. Ch. 30 April 2015); LongPath
Capital, LLC v. Ramtron Int’l Corp, CA No. 8094-VCP (Del. Ch. 30 June 2015); and Merion Capital LP v.
BMC Software, Inc, No. 8900VCG (Del. Ch. 21 October 2015).
35 ‘M&A Update: Highlights from 2015 and Implications for 2016’, Cadwalader, Wickersham & Taft LLP,
19 January 2016, www.cadwalader.com.
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discounted cash flow (DCF) analyses, finding them speculative and that the claimants had
not shown they were reliable, whereas the deal price resulted from a robust pre-signing
auction with well-informed, appropriately incentivised bidders.36
In August 2017, the Delaware Supreme Court reversed the Court of Chancery’s 2016
decision in In re Appraisal of DFC Global Corp, disagreeing that future uncertainty of the
private equity buyer undermined the deal price and finding that the Court of Chancery was
not justified in giving the deal price equal, rather than substantially more, weight relative to
the other valuation methods proffered.37 With regard to future uncertainty, the Court stated
that absent any academic or empirical evidence to the contrary, there was no reason to think
market participants would be incapable of factoring regulatory uncertainty into their analysis,
and that the market’s collective judgment would be more likely to be accurate in assessing
the related risk than any individual’s estimate.38 The Court also found no logical basis for the
notion that the deal price deserves less weight in the context of a private equity buyer, stating
that all buyers take the potential return on equity into account to justify the costs and risks of
an acquisition, and the fact that a private equity buyer may demand a certain rate of return
does not mean that the price it is willing to pay is not a meaningful indication of fair value.39
Similarly, in December 2017, the Delaware Supreme Court reversed the Court of
Chancery’s 2016 decision in In re Appraisal of Dell Inc on the basis that the Court of Chancery
did not afford the deal price any weight, stating that the deal price need not be shown to be
the ‘most reliable’ indicator of fair value for it to receive any weight at all and that ‘[t]he issue
in an appraisal is not whether a negotiator has extracted the highest possible bid. Rather,
the key inquiry is whether the dissenters got fair value and were not exploited.’40 The Court
criticised several components of the trial court’s reasoning. First, the Court found that any
perceived ‘valuation gap’ based on investor ‘myopia’ was contrary to the proffered evidence,
which indicated that analysts considered the company’s long-range outlook, as well as to the
efficient market theory, which suggests that for widely traded companies lacking a controlling
shareholder, the market is well informed and able to digest available information to adjust its
valuation for a long-range outlook.41 As in DFC, the Court rejected the proposition that the
absence of strategic bidders undermined the deal price, seeing no rational connection between
status as a financial sponsor and fair price.42 The Court also rejected the proposition that
the go-shop was fatally flawed, including due to the alleged ‘winner’s curse’ in management
buyouts, because bidders had full access to requested data and affirmative steps were taken
to remedy the inherent information asymmetry.43 Furthermore, the Court rejected the
proposition that Michael Dell’s alignment with one bidder had meaningfully deterred rival
bidders absent evidence that he would not participate with such rival bidders.44 In July 2018,
the Chancery Court in In re Appraisal of Solera Holdings, Inc applied Dell to conclude that
deal price was the best evidence of fair value.45 The Court accepted Solera’s valuation, which
36 In re Appraisal of PetSmart, Inc, WL 2303599 (Del. Ch. 26 May 2017).

37 DFC Global Corporation v. Muirfield Value Partners, LP, 172 A.3d 346 (Del. 2017).
38 Id. at 349.
39 Id. at 349-50.
40 Dell, Inc v. Magnetar Global Event Driven Master Fund Ltd, 177 A.3d 1, 33 (Del. 2017).
41 Id. at 24-25.
42 Id. at 28.
43 Id. at 32.
44 Id. at 34-35.
45 In re Appraisal of Solera Holdings, Inc, C.A. No. 12080-CB, 2018 WL 3625644 (Del. Ch. 30 July 2018).
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excluded synergies from the deal price and resulted in a valuation that was 3.4 per cent
below deal price. The Court found that Solera was ‘sold in an open process that, although
not perfect, was characterized by many objective indicia of reliability’, and that such process
therefore provided the most reliable evidence of fair value.
Further undermining appraisal prospects, when Delaware courts have found flaws in
a sale process, they have increasingly, although not universally, found fair value below rather
than above the deal price, emphasising the statutory mandate to exclude synergies. In May
2017, the Delaware Court of Chancery in In re Appraisal of SWS Group, Inc found the
US$6.92 per share merger price unreliable in light of a number of factors, including that the
buyer, Hilltop Holdings, Inc, was a major creditor of the target’s, and informed the target
board that it would not waive its credit agreement’s merger covenant for any alternative
transaction.46 The Court also found flaws with the proffered company comparables due to
substantial differences in size, business lines and performance. The Court instead relied on
its own DCF analysis to reach a value of US$6.38 per share.47 Similarly, in ACP Master, Ltd
et al v. Sprint Corp et al, Clearwire Corp was purchased by Sprint Corp (Sprint), its majority
shareholder, for US$5 per share, but the Delaware Court of Chancery came to a valuation of
US$2.13 per share.48 The parties had not argued for use of the transaction price for fair value,
and the Court acknowledged that while Sprint had in some ways controlled the sales process,
Sprint’s DCF analysis provided a better proxy for fair value than the dissenting shareholders’
because it was prepared by management in the ordinary course of business and pertained
to the stand-alone company, without synergies.49 In two 2018 decisions, Blueblade Capital
Opportunities LLC v. Norcraft Cos50 and In re Appraisal of AOL Inc,51 Delaware Chancery
Courts found significant flaws in the respective sales processes and assigned no weight to the
deal price in determining fair value. In each instance the Court instead applied its own DCF
analysis, resulting in fair value determinations that were 2.5 per cent above the deal price in
Norcraft and 2.6 per cent lower than the deal price in AOL.
The Delaware Court of Chancery continued to explore new theories of fair value in
2018. Regardless of the soundness of the sales process, one Delaware court articulated a
preference for unaffected market price over deal price as a means to exclude synergies, at least
where the target’s stock is widely traded and absent evidence that the market was not well
informed at the time. In February 2018, the Delaware Court of Chancery in Verition Partners
Master Fund Ltd v. Aruba Networks found fair value equal to the 30-day unaffected market
price of US$17.13 per share, well below the US$24.67 per share deal price. The Court found
that the deal price was reliable even though, unlike Dell and DFC, there was only one bidder
but, citing the statutory mandate to exclude synergies, instead utilised the 30-day average
unaffected market price.52 Absent expert testimony against the efficient market theory, and
given that the company was widely traded and lacked a controlling shareholder, the Court
46 In re Appraisal of SWS Group, Inc, WL 2334852 (Del. Ch. 30 May 2017).

47 Id. at 30.
48 ACP Master, Ltd v. Sprint Corporation, WL 3421142 (Del. Ch. 8 August 2017).
49 Id. at 48-49.
50 Blueblade Capital Opportunities LLC v. Norcraft Cos, No. 11184-VCS, 2018 WL 3602940 (Del. Ch.
27 July 2018).
51 In re Appraisal of AOL Inc, No. 11204-VCG, 2018 WL 1037450 (Del. Ch. 23 February 2018).
52 Verition Partners Master Fund Ltd v. Aruba Networks, Inc, WL 922139 (Del. Ch. 15 February 2018).
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found unaffected market price to be more direct and less speculative than deal price less
synergies.53 The Court’s decision in Aruba would have both undermined appraisal prospects
for public targets and also encouraged expert testimony challenging market efficiency.
In April 2019, the Delaware Supreme Court reversed the Court of Chancery’s decision
in Aruba on the basis that the Court of Chancery abused its discretion in arriving at Aruba’s
30-day average unaffected market price as the fair value of the appellants’ shares.54 In
a per curiam decision that was ‘stunningly tough on Vice-Chancellor Laster’,55 the Court
thoroughly rejected the idea of trading price as a proxy for fair value and awarded the
petitioners US$19.10 per share, a price which reflected Aruba’s estimation of the deal price
excluding synergies.56
Appraisal will continue to be an important area of Delaware corporate law as courts
will continue to address which methods produce the best indication of a company’s fair
value, with a particular emphasis on merger price (with potential adjustments for synergies
or reduced agency costs). As courts delineate the circumstances in which sale processes
should be respected, they will alter the appraisal landscape, deterring appraisal actions in
circumstances where the merger price is likely to be treated as a ceiling, with adjustments
reducing recoveries. Based on Delaware rulings in 2017, 2018 and early 2019, the territory
where appraisal remains profitable is shrinking, and may well ultimately be confined to
private company transactions and controller squeeze-outs, for which the deal price may be
deemed unreliable.57
ii Standard of review in fiduciary duty actions

The success of a claim that the members of a board of directors have breached their fiduciary
duties, or that a financial adviser has aided and abetted such breach, is largely dependent
upon the standard of review applied to the relevant directors’ actions. In recent years,
Delaware courts have expanded the territory in which the business judgment rule, requiring
gross negligence, applies, thereby drastically increasing deference to boards of directors and
discouraging fiduciary duty actions. In 2015, the Delaware Supreme Court in Corwin v. KKR
Financial Holdings LLC clarified that the voluntary approval of a merger (other than with a
controlling shareholder) by fully informed, disinterested shareholders invoked the business
judgment rule standard of review in post-closing damages actions even where Revlon-enhanced
scrutiny would otherwise apply.58 According to the Court, Unocal and Revlon were designed
as tools of injunctive relief to address important M&A decisions in real time and not as tools
for obtaining post-closing money damages.59
53 Id. at 30.
54 Verition Partners Master Fund Ltd v. Aruba Networks, Inc, No. 368, 2018 (Del. 16 April 2019) at 3.
55 ‘Appraisal litigation after Aruba? It’s still a bad bet for shareholders’, Reuters, 17 April 2019, https://
www.reuters.com/article/us-otc-appraisal/appraisal-litigation-after-aruba-its-still-a-bad-bet-for-share
holders-idUSKCN1RT2N4.
56 Verition Partners Master Fund Ltd v. Aruba Networks, Inc at 3, footnote 54.
57 ‘The New New Regime in Delaware Appraisal Law’, Harvard Law School Forum, 1 March 2018, https://
corpgov.law.harvard.edu/2018/03/01/the-new-new-regime-in-delaware-appraisal-law/.
58 ‘Delaware Corporate Law and Litigation: What Happened in 2015 and What It Means for You in 2016’,
DLA Piper, www.dlapiper.com; Corwin v. KKR Fin Holdings LLC, 125 A.3d 304, 309-11 (Del. 2015).
59 Corwin v. KKR Fin Holdings LLC at 312, footnote 58.
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Subsequently, in 2016 and early 2017, Delaware courts continued to apply Corwin to
fiduciary duty cases in a manner that clarified and extended the application of the decision.60
For example, in Singh v. Attenborough, the Delaware Supreme Court clarified the Corwin
ruling by holding that the business judgment rule applies irrebuttably to any post-closing
judicial review of a merger that received the uncoerced, fully informed vote of disinterested
shareholders.61 Then, in In re Volcano Corporation Stockholder Litigation, the Delaware
Supreme Court affirmed the Court of Chancery's holding that if fully informed, uncoerced
and disinterested stockholders tender their shares to approve a merger under Section 251(h)
of the DGCL, such approval has the same effect as a vote under Corwin and the business
judgment rule applies irrebuttably to the transaction.62
However, in cases in 2017, Delaware courts applied Corwin more narrowly,
demonstrating the limits of Corwin’s reach.63 This narrowing continued in 2018. In Appel
v. Berkman,64 the Delaware Supreme Court overruled a Court of Chancery finding that a
stockholder vote was adequately informed. In reviewing the stockholder vote approving
the acquisition of Diamond Resorts International, the Delaware Supreme Court found
stockholders were not fully informed because the board failed to disclose that the Diamond’s
chair, the company’s founder and largest stockholder, was opposed to the transaction.
The Supreme Court found that the ‘Chairman’s views regarding the wisdom of selling the
company were ones that reasonable stockholders would have found material in deciding
whether to vote for the merger or seek appraisal, and the failure to disclose them rendered the
facts that were disclosed misleadingly incomplete’.65
In November 2018, the Delaware Court of Chancery decided the In re Tangoe, Inc
Stockholders Litigation, denying directors who approved a sale of the company Corwin
protection because stockholders were inadequately informed when tendering into the
transaction. Audited financials were not available at the time of the transaction due to a
pending restatement, and while neither federal securities nor Delaware law mandated
disclosure of audited financials in this particular context, the Court found that the absence
of audited financials supported a reasonable inference that stockholder approval of the
transaction was not fully informed.66 The Court stated that directors making “difficult
decisions amid a ‘regulatory storm’” (such as a restatement of financials) may still achieve
business judgment rule deference if they carefully and thoroughly explain all material aspects
of the situation to stockholders. This may require providing information to stockholders
beyond what is legally required.
Subsequently, in December 2018, the Delaware Court of Chancery denied a motion to
dismiss fiduciary duty claims against the CEO of Xura, Inc in the In re Xura, Inc Stockholder
Litigation.67 The CEO was involved in negotiating the sale of the company, and the Court
60 Lisa A Schmidt, ‘Recent Developments in Delaware Corporate Law’, Tulane University Law School 29th
Annual Corporate Law Institute, 30 March 2017.
61 Singh v. Attenborough, 137 A.3d 151 (Del. 2016).
62 ‘Recent Developments in Delaware Corporate Law’, footnote 60.
63 See, e.g., In re Saba Software, Inc Stockholder Litigation, WL 1201108 (Del. Ch. 11 April 2017);
Sciabacucchi v. Liberty Broadband Corporation, WL 2352152, 3 (Del. Ch. 31 May 2017); and In re Massey
Energy Company Derivative and Class Action Litigation, 160 A.3d 484, (Del. Ch. 4 May 2017).
64 Appel v. Berkman, 180 A.3d 1055 (Del. 2018).
65 Id. at 2.
66 In re Tangoe, Inc Stockholders Litig, 2018 WL 6074435 (Del. Ch. 20 November 2018) at 29.
67 In re Xura, Inc Stockholder Litig, 2018 WL 6498677 (Del. Ch. 10 December 2018).
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found that Corwin protection did not apply because stockholders were not fully informed
about aspects of the negotiations when they approved the deal. The Xura CEO had pursued
his own interests (including employment) over those of stockholders in undisclosed
negotiations.
After Delaware courts’ 2015 and 2016 decisions seemed to nearly sound the death knell
for post-closing fiduciary duties actions challenging transactions that had been approved by
disinterested shareholders, cases in 2017 and 2018 suggest at least some continued vitality.
One could argue that the facts in certain of these instances were extreme, but courts have
now shown a repeated willingness to deny Corwin cleansing. It remains to be seen if Delaware
courts continue to find shareholder votes uninformed or coerced in other contexts to preclude
the application of Corwin, or if the trend will reverse.
iii Material adverse effect clauses in Delaware

October 2018 marked the first time that a Delaware court found that an M&A target had
suffered a material adverse effect (MAE) such that an acquirer could walk away from a deal.
The Delaware Court of Chancery issued a 246-page opinion in Akorn, Inc v. Fresenius Kabi
AG, holding that Fresenius had validly terminated its merger agreement with Akorn on
multiple independent grounds. The Court found that Akorn had breached its representation
concerning regulatory compliance, which could reasonably be expected to amount to an
MAE; materially breached a covenant to operate its business in the ordinary course; and
suffered a general MAE as a result of its financial performance.68 The Delaware Supreme
Court upheld the decision in December 2018 on the grounds that Akorn’s breach of its
regulatory representation could reasonably be expected to amount to an MAE, and separately
that Akorn had suffered a general MAE as a result of its financial performance.69
Akorn and Fresenius entered into a merger agreement shortly after the announcement
of Akorn’s results for the first quarter of 2017. During the second quarter of 2017, Akorn’s
business performance, in the words of the court, ‘fell off a cliff’, delivering results that fell
materially below Akorn’s prior-year performance on a year-over-year basis despite the fact that
Akorn had reaffirmed its full-year guidance on the day the merger agreement was announced.70
Akorn’s performance fell well below that guidance, forcing management to adjust Akorn’s
full-year guidance downward.71 Additionally, following signing, Fresenius received multiple
anonymous letters regarding regulatory and data-integrity issues at Akorn, and initiated an
investigation. Two days prior to the outside date, Fresenius delivered notice to Akorn that it
was terminating the merger agreement because of, among other reasons, Akorn’s breach of its
regulatory representation and warranty, which could reasonably be expected to amount to an
MAE; Akorn’s material breach of a covenant to operate its business in the ordinary course;
and Fresenius’ right not to close once the outside date passed because Akorn had suffered
an MAE.72 The court agreed that Fresenius was within its rights to terminate the merger
agreement.
68 Akorn, Inc v. Fresenius Kabi AG, C.A. No. 2018-0300-JTL (Del. Ch. 1 October 2018).
69 Akorn Inc v. Fresenius Kabi AG, ___ A.3d ___, 2018 WL 6427137 (Del. 7 December 2018) (unpublished
table decision).
70 Akorn, Inc v. Fresenius Kabi AG at 2, footnote 68.
71 Id.
72 Id. at 4.
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The court found that Akorn’s performance decline was significant. In the five quarters
following signing but prior to Fresenius’ termination of the merger agreement, Akorn’s revenue
was down between 25 and 34 per cent each quarter, its operating income was down between
84 and 292 per cent each quarter, and its earnings per share was down between 96 and 300
per cent each quarter, in each case year-over-year. With respect to the finding that Akorn
had suffered a general MAE, the court called Akorn’s dramatic downturn in performance
‘durationally-significant’, having ‘already persisted for a full year and show[ing] no sign of
abating’,73 and noted that the problems were specific to Akorn rather than industry-wide.74
The court also found that Akorn’s regulatory issues were significant. In reviewing
whether Akorn had breached representations it made regarding its compliance with regulatory
requirements and whether such breach could reasonably be expected to result in an MAE, the
court found that there was ‘overwhelming evidence of widespread regulatory violations and
pervasive compliance problems at Akorn’.75 The court found the problems to be qualitatively
and quantitatively significant, with the regulatory issues expected to result in a decline in
value of Akorn of 21 per cent.76

Like US M&A overall, US cross-border activity increased in value in 2018. There was a
12.6 per cent increase in the value of US cross-border M&A from 2017.77 For the first time
since 2011, the US was a net acquirer in the context of cross-border M&A, with US companies
acquiring US$321 billion of foreign companies, and foreign companies acquiring US$260
billion of US companies.78 As a percentage of all US M&A, US inbound cross-border deals
had a relatively smaller presence in 2018. As tracked by What's Market, compared to total
deals, only 25, or 15.1 per cent, were reached with foreign buyers, compared to 36, or 20.7
per cent, in 2017.79 China announced outbound M&A continued to fall in 2018, compared
to its record levels in 2016, slowing to US$116.6 billion in deal value, a 5.3 per cent decline
from 2017.80 The depressed US–China deal volume was because of risks pertaining to deal
certainty due to potential failures to receive regulatory approvals from Chinese regulators or
CFIUS.81
73 Id. at 137.
74 Id. at 144.
75 Id. at 163.
76 Id. at 184.
77 Bob Carroll, James Mackie and Brandon Pizzola, ‘Insight: U.S. Cross-Border Mergers and Acquisitions
Rise in 2018’, Bloomberg Tax, 4 April 2019, https://news.bloombergtax.com/daily-tax-report/insight-
u-s-cross-border-mergers-and-acquisitions-rise-in-2018.
78 Id.
80 Id.
81 ‘How M&A Agreements Handle the Risks and Challenges of PRC Acquirors’, Harvard Law School
Forum, 8 September 2017, https://corpgov.law. harvard.edu/2017/09/08/how-ma-agreements-handle-the
-risks-and-challenges-of-prc-acquirors/.
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i Acquisition inversions and earnings stripping

Acquisition inversions, whereby US corporations reincorporate in low-tax jurisdictions via
cross-border M&A (hereinafter, inversions), have in previous years been fundamental to
foreign involvement in US M&A. Historically, US tax rates were some of the highest globally,
and US-based companies consistently looked for ways to shield their international earnings
from those rates. In the past, US-based companies could accomplish this by reincorporating
in a foreign jurisdiction, or by moving to a country in which it was already doing a substantial
amount of business in order to benefit from that country’s lower tax rate.82 For this to work,
25 per cent of the company’s sales, assets and employees had to be domiciled in the new
jurisdiction.83 This was a difficult burden for most companies to meet and, as a result,
inversions became popular.84 Under the rules governing inversions, a foreign target company
and acquirer can be combined under a new holding company formed under the laws of
a lower-tax foreign jurisdiction, whether or not it is the target company's jurisdiction of
organisation, if less than 80 per cent of the combined entity's stock is owned by the former
shareholders of the US company.85 By 2015, acquisition inversions accounted for 66 per cent
of all proposed US outbound deals, up from 1 per cent in 2011.86
Recent statutory and regulatory changes, however, have made inversion transactions
substantially less attractive. In December 2017, massive US tax reform through the passage
of the Tax Cuts and Jobs Act of 2017 (TCJA) substantially undercut the advantages of
inversions and earnings stripping.87 On the one hand, the lower corporate tax and the
dividend exemption reduced the tax benefits associated with inverting by excluding foreign
earnings from US tax or taxing them at a lower rate. On the other hand, the legislation
contains a number of provisions that specifically penalise inverters. These include further
limitations on the deductibility of interest expense, increased transition taxes, and the BEAT
tax (as defined below), a minimum tax that is calculated without taking into account certain
deductions from related-party transactions (like earnings stripping) (see Section VIII for a
detailed discussion of the TCJA and its implications for US M&A).
ii CFIUS review
CFIUS plays a key gatekeeping role when it comes to foreign involvement in US M&A. In
2017 and 2018, CFIUS review has presented an increasingly significant obstacle, as CFIUS
continues to interpret its jurisdiction broadly and Congress has broadened its authority. As
discussed in Section II, new legislation has expanded the reach of CFIUS. Evidence suggests
CFIUS received over 235 filings in 2017, compared to 172 in 2016 and 143 in 2015.88 CFIUS
82 David Gelles, ‘New Corporate Tax Shelter: A Merger Abroad’, New York Times, 8 October 2013, dealbook.
nytimes.com/2013/10/08/to-cut-corporate-taxes-a-merger-abroad-and-a-new-home.
83 David Gelles, ‘Obama Budget Seeks to Eliminate Inversions’, New York Times, 5 March 2014, dealbook.
nytimes.com/2014/03/05/obama-budget-seeks-to-eliminate-inversions.
84 Id.
85 Press release, Department of the Treasury, ‘Fact Sheet: Treasury Actions to Rein in Corporate Tax
Inversions’, 22 September 2014, www.treasury.gov/press-center/press-releases/Pages/jl2645.aspx.
86 ‘The continuing appeal of inversions’, Financier Worldwide, November 2015, www.financierworldwide.
com/the-continuing-appeal-of-inversions/#.V0S9fmcUVaR.
87 Tax Cuts and Jobs Act of 2017, Pub. L. 115–97, 131 Stat. 2054 (2017).
88 ‘CFIUS: Recent Developments and Trends’, footnote 23; ‘Presidential Order—Regarding the Proposed
Acquisition of a Controlling Interest in Aixtron SE by Grand Chip Investment GMBH’, The White
House, Office of the Press Secretary, 2 December 2016, https://obamawhitehouse.archives.gov/the-press-
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United States
has interpreted its jurisdiction to include deals between non-US companies with a US nexus.
For example, in 2016, the proposed acquisition of Lumileds by a Chinese consortium from
Philips NV (a Dutch company) was abandoned by the parties at CFIUS’ request. CFIUS also
requested that the parties abandon the acquisition of Aixtron SE (a German company) by a
Chinese investor due to national security concerns. The parties refused to abandon the deal
and opted to submit the matter to President Obama for review, which led to the first-ever
presidential order proactively blocking an acquisition. Additionally, the parties abandoned
the sale of Global Communications Semiconductors, LLC to San’an Optoelectronics Co,
Ltd (a Chinese semiconductor company) due to CFIUS’ concerns. In September 2017,
President Trump issued an executive order to block the acquisition of Lattice Semiconductor
Corporation by Chinese private equity fund Canyon Bridge Capital Partners (Canyon
Bridge).89 Finally, on 12 March 2018, President Trump again stepped in with an executive
order following CFIUS review, blocking Broadcom’s US$128.6 billion proposed acquisition
of Qualcomm on the basis that it threatened US national security.90 Although Broadcom
is a Singapore-based company, the order came during a period of intense technological
competition between the US and China, and CFIUS expressed concerns that Broadcom
would undergo its typical cost-cutting measures to stymie research and development (R&D)
and therefore undermine Qualcomm’s ability to compete with Chinese and other foreign
rivals in the domain of wireless technology.91
CFIUS’ recent history of enforcement demonstrates a focus on national security
concerns, and increasingly general competition concerns, implicated in the context of Chinese
buyers. In addition to Canyon Bridge, the Trump administration opposed billions of dollars
worth of takeovers of US targets in 2017 and 2018.92 In early 2019, CFIUS announced that
it had forced three separate divestitures and had imposed a US$1 million fine, its first-ever
civil penalty, for repeated violations of a 2016 mitigation agreement.93 Two of the forced
divestitures related to concerns about the potential exploitation of sensitive data relating to
US citizens, part of the expanded scope of CFIUS granted by FIRRMA.94 In its proposal for
the fiscal year 2020 budget, the Department of Justice requested additional resources to assist
with reviewing CFIUS cases.95 Failure to obtain regulatory approvals can trigger break-up
fees for acquirers, and the rise in CFIUS reviews could push more M&A parties to address
it in termination fee provisions. In particular, Chinese buyers may have to offer a higher bid
office/2016/12/02/presidential-order-regarding-proposed-acquisition-controlling-interest.
89 Id.
90 ‘Presidential Order Regarding the Proposed Takeover of Qualcomm Incorporated by Broadcom Limited’,
The White House, 12 March 2018, https://www.whitehouse.gov/presidential-actions/presidential-order-
regarding-proposed-takeover-qualcomm-incorporated-broadcom-limited/.
91 ‘Trump Orders Broadcom to Cease Attempt to Buy Qualcomm’, The Wall Street Journal, 13 March 2018,
https://www.wsj.com/articles/in-letter-cfius-suggests-it-may-soon-recommend-against-broadcom-bid-
for-qualcomm-1520869867.
92 David McLaughlin and Kristy Westgard, ‘All About CFIUS, Trump’s Watchdog on China Dealmaking:
Quick Take’, Bloomberg, 23 March 2018, https://www.bloomberg.com/news/articles/2018-03-23/
all-about-cfius-trump-s-watchdog-on-china-dealmaking-quicktake.
93 ‘CFIUS Means Business, Unwinding Non-Notified Transactions and Penalizing Non-Compliance with
Mitigation Agreements’, Morrison Foerster, 15 April 2019, https://www.mofo.com/resources/publications/
190415-cfius-mitigation-agreements.html.
94 Id.
95 ‘CFIUS Developments: Notable Cases and Key Trends, Gibson, Dunn & Crutcher LLP, 24 April 2019,
https://www.gibsondunn.com/cfius-developments-notable-cases-and-key-trends/.
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to overcome a perceived increased CFIUS risk.96 Parties may also want to consider carving
off any sensitive portions of their US businesses, which recently has included, among other
things, finance and technology.97

In 2018, the leading industry sector in the US on the basis of announced deal value data
provided by Thomson Reuters was the energy and power sector.98 Deal value in this sector
reached US$407.5 billion in 2018, which was a 23.6 per cent market share.99 The technology
sector fell from first to second place with US$324.8 billion (18.8 per cent of the market) and
healthcare was again third with US$215.4 billion (12.5 per cent of the market).100 The top five
deals signed in 2018 for a US target were Cigna Corp’s acquisition of Express Scripts Holding
Co (US$68.5 billion), Energy Transfer Equity, LP’s acquisition of Energy Transfer Partners,
LP (US$61.8 billion), T-Mobile US, Inc’s acquisition of Sprint Corp (US$58.7 billion),
International Business Machines Corp’s acquisition of Red Hat, Inc (US$32.3 billion) and
Marathon Petroleum Corp’s acquisition of Andeavor (US$31.3 billion).101
i Shareholder activism and engagement

Like 2017, 2018 was a busy year for shareholder activists in the US, and shareholder activism
is becoming increasingly concentrated among established activist players. In 2018, there were
268 total activist campaigns announced against US companies, compared to 254 in 2017.102
There were a total of 51 proxy fights in 2018, up 8.5 per cent from 47 in 2017.103 Activists
invested approximately US$2.5 billion more dollars in new activist positions in 2018 than
2017, and won more board seats in 2018 than in 2017, mostly through settlements.104 While
2017 saw a focus by such activists on large-cap companies,105 in 2018 they reversed course
and focused on fewer targets with market caps in excess of $50 billion.106
In connection with US M&A, activists continue to play a key role by arguing for
alternatives to proposed mergers or by demanding a higher price, undermining target
shareholder approval of proposed transactions. Activism and M&A often overlap. When
96 Shayndi Raice, ‘Europe-China Deals Get More U.S. Scrutiny’, The Wall Street Journal, 24 January 2016,
www.wsj.com/articles/europe-china-deals-get-more-u-s-scrutiny-1453680070.
97 ‘Chinese Investments and the Committee on Foreign Investment in the United States’, Lexology,
15 January 2018, https://www.lexology.com/library /detail.aspx?g=6889957f-16e2-4e24-bbe7-db382a66c0d6.
99 Id.
100 Id.
102 ‘Review and Analysis of 2018 U.S. Shareholder Activism’, Sullivan & Cromwell LLP, 14 March 2019,
https://www.sullcrom.com/files/upload/SC-Publication-SandC-MnA-2018-US-Shareholder-Activism-
Analysis.pdf.
103 Id.
104 Melissa Sawyer, Lauren S Boehmke, and Nathaniel R Ludewig, ‘Review and Analysis of 2018 U.S.
Shareholder Activism’, Harvard Law School Forum on Corporate Governance and Financial Regulation,
5 April 2019, https://corpgov.law.harvard.edu/2019/04/05/review-and-analysis-of-2018-u-s-shareholder-
activism/.
105 Id.
106 ‘Review and Analysis of 2018 U.S. Shareholder Activism’, footnote 102.
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activist investors buy up company stock and engage in various campaigns, they produce
disruption and uncertainty that acquirers can leverage to garner support for a transaction, as
occurred at Campbell’s, Magellan Healthcare, Dell and Hyundai in 2018.107 Activists may
also advocate in favour of a sale of a target company to benefit from short-term increases
in value. Pro-M&A activism was prominent in 2018, with approximately 33 per cent of
campaigns launched in 2018 being M&A-driven.108 As institutional investors continue to
concentrate ownership, activist investors benefit from having to convince fewer of their fellow
investors to pursue their agenda. As of December 2018, one of BlackRock, Vanguard or State
Street was the largest shareholder in 438 of the S&P 500 companies, roughly 88 per cent, and
collectively the three firms owned 18.7per cent of all shares in the S&P 500,109 compared to
14.7 per cent in 2013, while retail holders now hold less than 30 per cent.110 With the rise in
shareholder activism, companies have increased their level of shareholder engagement with
both activists and institutional investors.111
ii Shifts in merger litigation to federal courts and away from disclosure-only

settlements
Increasing deference towards boards of directors, exemplified by the legal developments in
appraisal and post-closing fiduciary duty actions for damages discussed in Section III, have
in part led to a shift in litigation away from appraisal and fiduciary duty claims in Delaware
in favour of challenges in federal courts through federal securities claims alleging proxy fraud
under Rule 14a-9 under the Securities Act of 1933.112 In 2017, 73 per cent of deals valued
over US$100 million were challenged by shareholders, down from 94 per cent in 2013,
but 87 per cent of those lawsuits were filed in federal court compared to only 32 per cent
in 2013.113 The number of M&A litigated in Delaware has dropped precipitously in recent
years, declining 81 per cent from 37 in 2016 to seven in 2017.114
Also fuelling the migration to federal courts has been Delaware’s disdain towards
disclosure-only settlements. In 2014, 93 per cent of US M&A deals over US$100 million
resulted in shareholder litigation, with the first lawsuit in a challenged deal being filed
an average of 14 days after the announcement of the deal and 59 per cent of all such
litigation being resolved before deal closing.115 Of the litigation resolved before closing,
107 Id.
108 ‘2018 Review of Shareholder Activism’, Lazard, January 2019, https://www.lazard.com/media/450805/
lazards-2018-review-of-shareholder-activism.pdf.
109 ‘Review and Analysis of 2018 U.S. Shareholder Activism’, footnote 102.
110 Id.
111 ‘M&A Update: Highlights from 2015 and Implications for 2016’, footnote 35.
112 Securities Act of 1933, footnote 18; False or Misleading Statements, 17 CFR 240.14a-9 (2000).
113 ‘The Continuing Shift Of Merger Litigation To Federal Courts’, Robert Long and Andrew Sumner,
Law360, 18 December 2019, https://www.law360.com/articles/1112193/the-continuing-shift-of-
merger-litigation-to-federal-courts.
114 ‘Shareholder Litigation Involving Acquisition of Public Companies: Review of 2017 M&A Litigation’,
John Gould, Harvard Law School Forum on Corporate Governance and Financial Regulation,
19 July 2018, https://corpgov.law.harvard.edu/2018/07/19/shareholder-litigation-involving-acquisition-
of-public-companies-review-of-2017-ma-litigation/. This post examines litigation challenging M&A deals
valued over $100 million announced from 2008 through 2017.
115 ‘Shareholder Litigation Involving Acquisitions of Public Companies – Review of 2014 M&A Litigation’,
Cornerstone Research (2015), www.cornerstone.com.
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close to 90 per cent settled, with the remainder being withdrawn or dismissed.116 Of the
78 settlements reached in 2014, only six settlements, or 8 per cent, provided monetary
consideration to shareholders, nearly 80 per cent only provided disclosure and 9 per cent
included changes to deal protection provisions in the merger agreements.117 However, after
years of building criticism of routine disclosure-only settlements within the Delaware Court
of Chancery, the Court was particularly critical in 2015, resulting in the rejection of two
such proposed settlements in key cases: Acevedo v. Aeroflex Holding Corporation and In re
Aruba Networks, Inc Stockholder Litigation.118 Similarly, in its January 2016 decision in In re
Trulia, Inc Stockholder Litigation, the Delaware Court of Chancery reaffirmed its disfavour of
disclosure-only settlements in class action M&A litigation on the basis that such settlements
fail to create meaningful value for the class while providing defendants with broad releases.119
Such rulings have led to fewer M&A challenges in Delaware and increasing challenges
in federal courts under federal securities laws. However, after Trulia, the Seventh Circuit
Court of Appeals overturned a lower court order approving a disclosure-only settlement
using the same rationale as Trulia.120 Judge Posner's endorsement of Trulia is binding on all
federal courts in the Seventh Circuit, and is likely to convince other federal courts outside
the Seventh Circuit to apply Trulia as well.121 A number of federal district court judges have
also raised questions about these settlements in recent years.122 Additionally, the New York
Supreme Court in New York County recently declined to approve what the court described
as a ‘peppercorn and a fee’ disclosure-only settlement.123 It remains to be seen whether other
federal circuits will follow suit, but this development does not bode well for litigants who wish
to use forum shopping to find a court that will rubber stamp a disclosure-only settlement.
A recent US Supreme Court case has additional implications for forum selection in
securities litigation. The Supreme Court held in March 2018 that plaintiffs may bring class
actions under federal securities laws in state courts, even where such lawsuits are comprised
entirely of federal securities law claims, and companies may not then remove such claims
to federal courts.124 Some companies attempted to circumvent that outcome contractually.
Some companies used forum selection clauses in their by-laws, selecting the federal district
courts as the exclusive forum for asserting claims under the Securities Act. While Delaware
companies happily subject themselves to state forums for substantive claims such as fiduciary
challenges, in light of increasingly deferential outcomes described above, they have looked
to the federal courts for relief from the harsh scrutiny towards disclosure-only settlements to
116 Id.
117 Id.
118 ‘The Shifting Landscape in M&A Litigation’, Hunton and Williams LLP, January 2016, www.hunton.com.
119 In re Trulia, Inc Stockholder Litig, 129 A.3d 884, 895 (Del. Ch. 22 January 2016).
120 The Seventh Circuit Court of Appeals is based in Chicago, Illinois. Its jurisdiction covers the states of
Illinois, Indiana and Wisconsin. In re Walgreen Co. Stockholder Litigation, 832 F.3d 718 (2016).
121 ‘The End of Disclosure-Only Settlements in Securities Class Actions?’ BakerHostetler, 11 November 2016,
www.bakerlaw.com/alerts/-the-end-of-disclosure-only-settlements-in-securities-class-actions.
122 Alexandra C Boudreau and Daniel W Halston, ‘Fighting the Rising Tide of Federal Disclosure Suits’,
Harvard Law School Forum on Corporate Governance and Financial Regulation, 29 December 2018,
https://corpgov.law.harvard.edu/2018/12/29/fighting-the-rising-tide-of-federal-disclosure-suits/.
123 City Trading Fund v. Nye, 2018 WL 792283 (N.Y. Sup. Ct., 8 February 2018).
124 ‘Supreme Court Clarifies State Court Jurisdiction for Securities Claims and Opens Door to
Plaintiff Forum Shopping’ Lexology, 23 March 2018, https://www.lexology.com/library/detail.
aspx?g=6de86471-6e96-4ca7-808d-ddabe1daec06.
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resolve Securities Act claims. In late December 2017, a class action complaint by stockholders
of Blue Apron Holdings, Inc, Stitch Fix, Inc and Roku, Inc (three of several recent companies
that included forum selection by-laws requiring that federal securities cases be heard in federal
district court), was filed in the Delaware Court of Chancery challenging such provisions
under the DGCL.125 In December 2018, the Delaware Court of Chancery held that Delaware
law does not permit corporations to use charter provisions to require stockholders to litigate
certain claims brought under the federal securities laws in a specific forum.

In US financing markets, 2008 to 2010 were difficult years, plagued by tumult and recession.126
2011 to 2015 were characterised by recovery and growth, with record-setting financing
activity and ever-lower yields.127 However, 2016 marked a turning point as interest rates
experienced a sustained rise after hitting record lows in the first half of the year.128 In 2017,
investment-grade corporate bond deal values reached record highs for the sixth consecutive
year.129 During the first three quarters of 2018, the strong credit market continued. Leveraged
loan issuance in the first half of 2018 fell just short of its first-half 2017 record.130 High-yield
bonds also performed well, with the spread between junk bonds and US treasuries touching
a 10-year low.131 However, the market turned dramatically in the fourth quarter of 2018,
particularly in December. There was zero dollars of new high-yield issuance in December, the
first such month since 2008.132 Leveraged loan prices also fell significantly, and multiple loan
syndications were aborted due to lack of demand.133
Several notable deals demonstrated that borrowers were able to achieve successful results
at various credit levels in 2018. Permanent financings and major financing commitments
included T-Mobile’s US$38.0 billion of financing commitments for its combination with
Sprint; Cigna’s US$26.7 billion of bridge commitments, US$20.0 billion of senior notes
and US$6.3 billion of bank facilities to fund its acquisition of Express Scripts; Broadcom’s
US$20.3 billion of loan facilities for its acquisition of CA; and United Technologies’
US$6.5 billion bridge and US$11.0 billion of notes to support its acquisition of Rockwell
Collins.134 In light of shakier financial markets, one trend to watch for in 2019 will be
potential downgrades of investment grade borrowers. Commentators note that bonds rated
in the lowest investment grade tier (BBB) now constitute more than half of the US$5 trillion
125 Complaint, Matthew Sciabacucci v. Matthew B Salzberg, No. 2017-0931-JTL (Del. Ch.
29 December 2017).
126 Eric M Rosof, et al., ‘Acquisition Financing: the Year Behind and the Year Ahead’, Harvard Law School
Forum on Corporate Governance and Financial Regulation, 17 January 2017, https://corpgov.law.harvard.
edu/2017/01/17/acquisition-financing-the-year-behind-and-the-year-ahead-3/.
127 Id.
128 Id.
129 Id.
130 Eric M Rosof, Gregory E Pessin, Michael S Benn, John R Sobolewski and Emily D Johnson,
‘Wachtell Lipton Offers Acquisition Financing Year in Review: From Break-Neck to Brakes-On’,
The CLS Blue Sky Blog, 14 January 2019, http://clsbluesky.law.columbia.edu/2019/01/14/
wachtell-lipton-offers-acquisition-financing-year-in-review-from-break-neck-to-brakes-on/.
131 Id.
132 Id.
133 Id.
134 Id.
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US investment grade bond market, up from about one-third in 2008.135 This uptick in triple
B debt suggests that if the economy were to fall into a recession, a ‘wave of downgrades
could push many BBB companies (and hundreds of billions of dollars of debt) out of the
investment grade club entirely and potentially swamp the high-yield debt markets’.136
Overall, US-syndicated lending reached an all-time high of US$2.5 trillion in 2018,
an increase of 6 per cent over 2017, due primarily to increased investment grade lending
volume.137 US-leveraged lending in 2018 was US$1.4 trillion, down 6.9 per cent from 2017,
largely attributable to a reduction in refinancing activity.138 Despite the decline, US M&A
leveraged loan issuance was robust, increasing 22 per cent to US$381 billion, the highest
level post-crisis.139 In 2018, there were 78 leveraged acquisitions of US reporting companies
valued at US$100 million or more, compared to 80 in 2017 and 88 in 2016, but leveraged
acquisitions as a percentage of overall M&A activity was steady at 46 and 47 per cent in 2017
and 2018, respectively.140 The second half of 2018 saw a significant decline in leveraged deals,
dropping from 56per cent in the first half to 38per cent in the second half.141 Average debt to
EBITDA multiples for large US leveraged buyout (LBO) transactions stayed at elevated levels
in 2018, remaining at an average 6.2 times.142 While the average debt to EBITDA multiples
remained stable, the number of highly leveraged deals grew. Of LBOs completed in 2018,
almost 40 per cent were levered seven times or more, a return to levels not seen since 2007.143
US tax reform has had a significant impact on M&A financing moving forward (see
Section VIII). In particular, new Section 163(j) of the Code caps taxpayers’ net interest
expenses at 30 per cent of the taxpayer's ‘adjusted taxable income’, which approximates
EBITDA for tax years beginning before 1 January 2022, and EBIT thereafter. As a result of
the limitation, highly levered acquirers are more likely to shift acquisition debt from the US,
where interest deductions may be limited, to other jurisdictions. Acquirers may also limit
their debt financing of acquisitions altogether in favour of equity financing (the new 21 per
cent corporate tax rate has this effect as well). Because the limitation applies even to existing
debt, financing for past acquisitions may also be compromised. However, it remains to be
seen how the TCJA’s various provisions will interact to impact acquisition finance dynamics
going forward.
135 Id.
136 Id.
137 Joshua Thompson and Korey Fevzi, ‘Global Trends in Leveraged Lending: Lending and Secured Finance
2019’, International Comparative Legal Guides, 9 April 2019, https://iclg.com/practice-areas/lending-an
d-secured-finance-laws-and-regulations/05-global-trends-in-leveraged-lending.
138 Id.
139 LPC Leveraged Loan Monthly: Year-End 2018, Practical Law Finance, 9 January 2019.
141 Id.
142 ‘2018 Annual US PE Breakdown’, PitchBook, (2019), https://pitchbook.com/news/
reports/2018-annual-us-pe-breakdown.
143 ‘Global Private Equity Report 2019’, Bain & Company (2019), https://www.bain.com/insights/topics/
global-private-equity-report/.
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VII EMPLOYMENT LAW

At its best, executive compensation can incentivise corporate performance by aligning the
interests of shareholders and management. At its worst, as seen in the bankruptcy of Enron
Corporation, executives’ pay can come at the direct expense of a company’s shareholders and
stakeholders.144 Executive compensation has come under increased scrutiny from all directions
– from institutional and retail investors, proxy advisers, courts and legislators – in efforts to
minimise the agency problem that arises when directors and management are permitted to
set their own compensation. As certain management-friendly pay practices are phased out in
response to shareholder activism and proxy adviser recommendations, companies are crafting
increasingly complex pay-for-performance programmes to better respond to shareholder and
institutional investor concerns.
i Shareholder engagement and institutional adviser influence

In 2018, shareholders continued to remain engaged with executive compensation issues
through say-on-pay (SOP) advisory votes and the approval of both new and amended equity
plans. Although SOP votes are non-binding, public companies are generally concerned with
their outcomes given the ability of SOP votes to influence director elections.145 In 2018,
57 Russell 3000 companies failed SOP votes, which is the highest failure rate since 2015.146
The 2018 failure rate represents a marked increase from the number of failed SOP votes in
2017 and 2016, and is generally consistent with the number of failed SOP votes in the three
years preceding 2016.147
Proxy advisory services such as Institutional Shareholder Services (ISS) and Glass,
Lewis & Co continue to play a role in the increasingly complex landscape of executive
compensation and equity programmes. However, data suggests that the connection between
an ‘against’ recommendation from ISS and the shareholder vote to approve a company’s
compensation programme is tenuous. While just 2.6 per cent of companies failed SOP votes
in 2018, ISS issued against recommendations on approximately 14 per cent of SOP votes
in 2018, which is the highest observed rate of against recommendations issued by ISS since
2013.148 Approximately, 20 per cent of companies that received against recommendations
144 Jerry W Markham, A Financial History of Modern U.S. Corporate Scandals: From Enron to Reform
87–88 (Routeledge, 1st ed. 2006) (comparing the severance payments of Enron executives to those of
non-executive employees).
145 15 U.S.C. § 78n-1(a).
146 ‘2018 Say on Pay Results and Proxy Results – End of Year Report’, Semler Brossy, 24 January 2019,
https://www.semlerbrossy.com/wp-content/uploads/SBCG-2018-Year-End-SOP-Report.pdf. Compare to
2016 and 2017, in each of which 35 Russell 3000 companies received failed SOP votes. Id; see also Robert
Kalb, et al., ‘A Preliminary Review of the 2018 US Proxy Season’, ISS Analytics, 20 July 2018, https://
www.issgovernance.com/library/a-preliminary-review-of-the-2018-us-proxy-season/.
147 ‘2018 Say on Pay Results – End of Year Report’.
148 ‘2018 Say on Pay Results – End of Year Report’; ‘U.S. Executive Pay Votes – 2018 Proxy Season Review’
Willis Towers Watson, 1 August 2018, https://www.towerswatson.com/-/media/Pdf/Insights/Newsletters/
Global/executive-pay-matters/2018/08/say-on-pay-update-august-15-2018-wtw.pdf?la=en-GB&hash=D61
C310C4DBA015905C5F81593DC7006615956EB.
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from ISS failed their SOP vote in 2018.149 By comparison, 14 and 12.5 per cent of companies
that received against recommendations from ISS failed their SOP vote in 2016 and 2017
respectively.150
Although the extent of ISS and other proxy advisers’ influence on the corporate
governance landscape is unclear, data shows that ISS recommendations do carry some
weight. In 2018, shareholder support was 31 per cent lower at companies that received
an against SOP recommendation from ISS.151 However, proxy advisers’ influence is not
absolute, and not all US publicly traded companies engage with proxy advisers. Many of the
major institutional investors, including BlackRock and Vanguard, maintain in-house proxy
analysis and governance groups to inform their own voting decisions in lieu of engaging
proxy advisory firms.152
Criticism of proxy advisers has also increased in recent years. Some critics have
argued that proxy advisers serve a quasi-governmental role without the necessary regulatory
safeguards.153 For example, lawmakers have argued that ISS is inherently conflicted because
it provides both proxy voting recommendations to shareholders and also consulting services
to public companies.154 As a result, in October 2017, HR 4015, the Corporate Governance
Reform and Transparency Act of 2017, was introduced with the purpose of regulating
proxy advisory firms.155 Under HR 4015, proxy advisers would be required to register with
the SEC, disclose any potential or actual conflicts of interest relating to the provision of
proxy advisory services and provide an opportunity for companies to comment on draft
recommendations. HR 4015 passed the House of Representatives and was referred to the
Senate on 21 December 2017, which has held a number of hearings on the bill.156
149 Id.
150 ‘2017 Say on Pay Results – End of Year Report’, Semler Brossy, 25 January 2018, https://www.
semlerbrossy.com/wp-content/uploads/SBCG-2017-Year-End-Say-on-Pay-Report-01-24-2018.pdf.;
‘2016 Say on Pay Results – End of Year Report’, Semler Brossy, 1 February 2017, www.semlerbrossy.com/
wp-content/uploads/SBCG-2016-Year-End-Say-on-Pay-Report-02-01-2017.pdf.
151 ‘2018 Say on Pay Results – End of Year Report’; ‘U.S. Executive Pay Votes – 2018 Proxy Season Review’.
Compare to a 26 per cent decrease in shareholder support at such companies in 2017; ‘U.S. Executive Pay
Votes – 2018 Proxy Season Review’; ‘2017 Say on Pay Results – End of Year Report’.
152 ‘Proxy voting guidelines for U.S. securities’, BlackRock, January 2019, https://www.blackrock.com/
corporate/literature/fact-sheet/blk-responsible-investment-guidelines-us.pdf; ‘Vanguard funds – Proxy
voting guidelines for U.S. portfolio companies’, effective 1 April 2019, https://about.vanguard.com/
investment-stewardship/portfolio-company-resources/proxy_voting_guidelines.pdf.
153 ‘A Long/Short Incentive Scheme for Proxy Advisory Firms, Asaf Eckstein and Sharon Hannes’, Wake Forest
Law Review 2018 (29 January 2018). Available at SSRN: https://ssrn.com/abstract=3098008 or http://
dx.doi.org/10.2139/ssrn.3098008.
154 Id.; see also ‘Examining the Market Power and Impact of Proxy Advisory Firms: Hearing Before the
Subcomm. on Capital Mkts. & Gov’t Sponsored Enters. of the H. Comm. on Fin. Servs.’, 113th Cong. 2
(2013), https://www.govinfo.gov/content/pkg/CHRG-113hhrg81762/pdf/CHRG-113hhrg81762.pdf.
155 H.R. 4015, 115th Cong. (2017), https://www.congress.gov/bill/115th-congress/house-bill/4015/
all-info?r=13. The latest action was hearings held by the Senate Committee on Banking, Housing, and
Urban Affairs on 6 December 2018.
156 Id.
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ii Golden parachutes and executive severance developments

ISS has singled out certain change in control (CIC) benefits historically provided to executives
in connection with M&A transactions (such as single-trigger acceleration of equity-based
awards and gross-ups of the excise tax imposed under Section 280G of the US Internal
Revenue Code of 1986 (Code)) as problematic.157 ISS’s published policy guidance states
that it is likely to render an against or withhold vote recommendation when single-trigger
acceleration or a Section 280G gross-up is included in a new CIC agreement.158 In addition,
ISS considers whether a company’s plans and agreements that were in place prior to a
transaction contain excise tax gross-up and single-trigger equity acceleration provisions in
determining its recommendation on say on golden parachute (SOGP) proposals.159
Given the range of shareholder responses to SOGP proposals and pressure from
proxy advisers to limit excessive compensation package strategies, it is likely that companies
will continue to review and restructure CIC benefits and may shift increasingly towards a
transaction-based gross-up model.160 Although many companies have eliminated Section 280G
gross-ups from their CIC and employment agreements to avoid negative recommendations
from proxy advisory firms, recent data suggests that companies are increasingly providing for
Section 280G gross-ups in the context of acquisitions.161 Although shareholder dissatisfaction
with outsized golden parachute payments has increased over the years to historically high
levels, 2018 saw an decrease in the failure rate compared with 2017, with 14.7 per cent of the
95 Russell 3000 companies conducting an SOGP vote in 2018 failing versus 19.5 per cent of
the 123 Russell 3000 companies conducting an SOGP vote in 2017.162
iii Director compensation

In recent years, director compensation has come under scrutiny after a series of shareholder
lawsuits alleging excessive director pay.163 Until recently, the Delaware Court of Chancery
reasoned that potential conflicts of interest that occur when directors set their own
compensation are nonetheless subject to business judgment deference where stockholders
approve a plan that contains ‘meaningful limits’ on director compensation.164
However, the Delaware Supreme Court held in In re Investors Bancorp Stockholder
Litigation in December 2017 that certain awards to directors are subject to an ‘entire fairness’
review rather than business judgment deference.165 Following Investors Bancorp, the business
157 ‘United States Proxy Voting Guidelines’, ISS, 6 December 2019, https://www.issgovernance.com/file/
policy/active/americas/US-Voting-Guidelines.pdf; ‘U.S. Compensation Policies – Frequently Asked
Questions’, ISS, 20 December 2018, https://www.issgovernance.com/file/policy/active/americas/
US-Compensation-Policies-FAQ.pdf.
158 Id.
159 Id.
160 Margaret Black and Jane Park, ‘Think the Tax Gross-Up is Obsolete? Not Necessarily’, Pearl Meyer, July
2018, https://www.pearlmeyer.com/knowledge-share/article/think-the-tax-gross-up-is-obsolete-not-
necessarily; ‘280G Tax Gross-Ups Make a Comeback During Merger Negotiations’, Equilar,
15 September 2017, http://www.equilar.com/blogs/307-tax-gross-ups-make-a-comeback.html.
161 Id.
162 ‘2018 Say on Pay Results – End of Year Report’.
163 See, e.g., Calma v. Templeton, C.A. No. 9579-CB (Del. Ch. 30 April 2015); Seinfeld v. Slager, C.A. No.
6462-VCG (Del. Ch. 29 June 2012); In re 3COM Corp, C.A. No. 16721-VC (Del. Ch. 25 October 1999).
164 Seinfeld v. Slager, at *40.
165 In re Investors Bancorp Stockholder Litigation, C.A. No. 12327-VCS (Del. 19 December 2017).
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judgment rule will apply to judicial review of director compensation in Delaware only
where directors submit specific compensation decisions for approval by fully informed and
disinterested stockholders or where the stockholder-approved plan is self-executing and does
not permit director discretion.166 Otherwise, directors must prove that their compensation
is entirely fair to the company, which may require the support of peer-group data and
analysis by independent consultants.167 However, where a shareholder-approved plan limit
is reasonable, and where directors receive board approval to make grants to themselves
within such limit, then it is possible that a board’s decision will continue to receive business
judgment deference.168 Therefore, maintaining restrictive plan share limits that minimise
director discretion will reduce the threat of shareholder litigation and maximise the chances
of receiving business judgment review.169
Notably, ISS has recently turned its focus to director compensation and revised its
proxy voting guidelines to specifically address non-employee director compensation.170 Under
ISS’s guidelines for 2019, ISS will make recommendations on a case-by-case basis and take
into consideration qualitative factors such as the existence of a meaningful limit on director
compensation and ownership as well as ownership and holding requirements for equity
awards.171 Effective as of the 2020 proxy season, ISS has updated its methodology to identify
pay outliers representing individual pay figures to directors above the top 2 to 3 per cent of
all comparable directors within the same index or sector in both 2019 and 2020, followed
by a qualitative evaluation of a company’s director pay practices.172 Relatedly, the number of
proposals seeking shareholder ratification of director pay increased from one in 2017 to seven
in 2018, with six such proposals receiving majority support.173
iv Looking ahead
High levels of shareholder and proxy adviser involvement with SOP and SOGP votes
indicate that boards of directors are increasingly restricted in their ability to set executives’
compensation. In addition, Delaware directors will now have their own compensation
analysed under the more rigorous standard of In re Investors Bancorp, which aims to mitigate
the conflicts of interest that arise when directors set their own pay, and will be subject to the
166 Id. at 3.
167 ‘Delaware Supreme Court Heightens the Review Standard for Discretionary Equity Awards to Directors’,
John Spidi, 22 February 2018, https://www.natlawreview.com/article/delaware-supreme-court-heightens-
review-standard-discretionary-equity-awards-to.
168 ‘New Year’s Resolutions For Director Compensation From Investors Bancorp’, Jennifer Conway, et al.,
Cravath, Swaine & Moore LLP, 23 January 2018, https://www.cravath.com/files/Uploads/Documents/
Publications/3699393_1.pdf.
169 Id.
170 Brian Myers and Alex Pattillo, ‘ISS policy updates for 2017: Focus on director compensation’, Willis
Towers Watson, 23 November 2016, www.towerswatson.com/en/Insights/Newsletters/Global/
executive-pay-matters/2016/ISS-policy-updates-for-2017-Focus-on-director-compensation.
171 ISS US Compensation Policy FAQ (updated 20 December 2018), Q&A 67 and 68, https://www.
issgovernance.com/file/policy/latest/americas/US-Compensation-Policies-FAQ.pdf (Last year, ISS
announced a policy to potentially issue adverse vote recommendations for those board members responsible
for approving/setting [non-employee director] pay when there is a recurring pattern of excessive NED pay
magnitude without a compelling rationale).
172 Id.
173 ‘A Preliminary Review of the 2018 US Proxy Season’, footnote 146.
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increased focus of proxy advisory companies. Companies should continue to review their
compensation and equity programmes (including those for directors) and carefully document
compensation decisions, particularly in the context of acquisitions given the continuing
impact of the SOP vote and the enhanced focus on director compensation.
Shareholders are also likely to continue exploring other avenues for influencing the
pay practices of companies that are unresponsive to SOP votes and SOGP votes. Thus far,
director reelection generally has been affected but not swayed by failed SOP votes, although
shareholders increasingly express frustration over compensation practices by voting against
reelection of directors, particularly those involved in compensation decisions.174 The practices
identified as most troublesome by ISS and other proxy advisory firms will likely continue
to disappear, and compensation, even with respect to perquisites and other fringe benefits,
is expected to continue to shift away from cash-to-equity and performance-based awards
under increasingly complex pay-for-performance programmes. It is unclear what effect
the migration to equity and performance-based pay, coupled with the elimination of the
performance-based compensation exception under Section 162(m) of the Code, will have on
future M&A transactions. Given the market uncertainty surrounding recent changes in law
and practice, investors should engage with management and boards of directors in the early
stages of the acquisition process to maximise both executive retention and shareholder value.
VIII TAX LAW175

Congress passed the TCJA at the end of 2017, and with it transformed the US tax system. The
TCJA’s changes affect a significant number of rules that are relevant to US and cross-border
M&A transactions, including those governing interest deductibility, bonus depreciation, net
operating losses and the US international tax system.176 Notwithstanding the significance
of the TCJA’s changes, however, the process behind it was rushed and chaotic, and left
significant issues in the statute to be addressed by regulation. Throughout 2018 and early
2019, the Treasury Department released extensive regulatory guidance on topics related to
the TCJA. We highlight two significant areas below.
i Tax on global intangible low-taxed income

One of the TCJA’s most significant changes is the introduction of a tax on global intangible
low-taxed income (GILTI). Section 951A requires each US person (US shareholder) that
owns at least 10 per cent of the stock of a controlled foreign corporation (CFC) to include
in his or her income the US shareholder’s GILTI, which is calculated based on the income
and loss of its CFCs. Mechanically, the calculation of a US shareholder’s GILTI inclusion is
complex and can vary unexpectedly, because attributes of one CFC can interact with, and
offset, the attributes of another CFC owned by the same US shareholder.
174 ‘Is Say on Pay All About Pay? The Impact of Firm Performance’, Jill E Fisch, Darius Palia and Steven
Davidoff Solomon, Harvard Law School Forum on Corporate Governance and Financial Regulation,
30 October 2017, https://corpgov.law.harvard.edu/2017/10/30/is-say-on-pay-all-about-pay-the-
impact-of-firm-performance/.
175 Section references in this part are to the Internal Revenue Code of 1986, as amended (Code), unless
otherwise specified.
176 See, e.g., Section 163(j) (interest deductibility); Section 179 (bonus depreciation); Section 172 (net
operating losses).
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Because a US shareholder must include GILTI in income, it is taxed at the US

shareholder’s regular tax rate. Corporate US shareholders, however, are entitled to a
deduction that is intended to reduce GILTI’s effective rate to 10.5 per cent for taxable years
prior to 2025, and 13.125 per cent thereafter.177 Corporate shareholders are also entitled to
offset the inclusion by an 80 per cent credit for foreign taxes, subject to certain complicated
limitations.178
Given these complexities, what were once reasonably straightforward structuring
decisions (e.g., making a Section 338 election) now frequently require considerable numerical
analysis. Smart taxpayers will engage their tax advisers before making decisions that affect
structure.
Proposed regulations
Notwithstanding the complexity of GILTI, the statute does not address many important
questions about how the GILTI regime actually operates.179 In late 2018, the Treasury
Department issued two sets of proposed regulations to address these questions, and we
discuss certain issues raised by the proposed regulations below.180 Although these regulations
remain in proposed form, they will apply retroactively if finalised.
Net operating losses

The GILTI rules permit losses from one CFC to offset the income of other CFCs held by
the same US shareholder; generally, this ensures that a US shareholder will owe GILTI tax
only if its CFCs are profitable overall. The statute, however, does not address whether those
same losses can be carried forward to offset income in later tax years (or carried back to offset
income from previous tax years). Practitioners generally believed that permitting some form
of loss carry forward would be fair and consistent with the intent of the GILTI regime.181
Nevertheless, the proposed regulations provide that US shareholders cannot be carried back
or forward for GILTI purposes.
CFC basis reduction rule

The proposed regulations add a new rule that requires US shareholders to reduce their basis
in a CFC’s stock to the extent that the CFC had losses that offset the income of other CFCs
held by the US shareholder. The calculation of this reduction is complicated but, critically,
it occurs at the time the US shareholder disposes of its CFC stock. One consequence of this
change is that US shareholders will frequently have more gain on the sale of a CFC than they
thought, because their basis may be reduced unexpectedly as a result of this rule. The rule
may also affect the desirability of certain US tax elections, including those under Section 338.
177 Section 250. The deduction may be carved back if the applicable US shareholder has net operating loss
carry forwards.
178 Section 960; Section 904(d).
179 See New York State Bar Association Tax Section Report No. 1394, Report on the GILTI Provisions of the
Code (4 May 2018).
180 See REG-104390-18, Federal Register Vol. 83, No. 196, 10 October 2018 at 51072-51111; REG-105600-
18, Federal Register Vol. 83, No. 235, 7 December 2018 at 63200-63266.
181 See NYSBA Tax Section Report No. 1394, at 34.
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Consolidated groups
Another issue left open by the TCJA is the interaction of GILTI with the US consolidated
group rules. Groups of commonly controlled US corporations can elect to file a consolidated
federal tax return, which is intended to minimise the effect of the existence of the separate
group entities on the group’s consolidated tax liability. Consistent with this rationale,
commentators believed that the GILTI calculation should be performed at the consolidated
group level, taking into account all of the CFCs held by group members.182 The proposed
regulations adopt this approach, but also introduce complex rules that govern the basis
consequences of offsetting income and loss for consolidated group members that own CFCs.
Partnerships
One implication of the GILTI rules is that foreign corporations held by US partnerships are
treated as CFCs (and therefore create GILTI for the US partners of the partnership), even
though the same entities would frequently not be CFCs if the partnership were foreign. This
is a harsh result because partnerships are flow-through entities for US tax purposes: for this
reason, commentators believed that it was inappropriate to have the application of the GILTI
rules depend on whether the partnership was domestic or foreign. Indeed, the difference
in treatment has led many taxpayers to convert US investment partnerships into foreign
partnerships to avoid this result.
The proposed regulations do not resolve this issue, and instead further complicate the
treatment of partnerships under the GILTI rules. On a high level, the new rules make the
treatment of a partner dependent not only on whether a partnership is domestic or foreign,
but also on whether the partner’s indirect ownership of the CFC is 10 per cent or more.
Compliance with this approach may be very costly for domestic partnerships: in certain
circumstances, the rules will require domestic partnerships to perform many individualised
GILTI calculations for their US partners.
ii Dispositions of interests in partnerships with a US business

The TCJA made important changes to the taxation of foreign persons that dispose of an
interest in a partnership that conducts business in the United States. Prior to the passage of
the TCJA, it was settled law that, under the US rules governing effectively connected income
(ECI), a foreign partner in a partnership conducting business in the United States would be
taxed on its share of the ECI generated by the partnership’s activities. It was unclear, however,
whether gain on the sale of an interest in that same partnership would also constitute ECI.
The IRS position, set out in Revenue Ruling 91-32,183 was that a portion of the gain was ECI;
this position ensured that the ECI consequences to a partner selling its partnership interest
mirrored those of the partnership’s ordinary course business activities. Taxpayers frequently
took the opposing view that the gain was not ECI, consistent with the general rule treating
gain on the sale of a partnership interest as capital gain.184
The issue went unresolved until a taxpayer ultimately challenged the IRS’s position
before the Tax Court in the 2017 case Grecian Magnesite, Mining, Industrial & Shipping Co.
182 See New York State Bar Association Tax Section Report No. 1406, Report on Proposed GILTI Regulations
(26 November 2018).
183 See Rev. Rul. 91-32, 1991-1 C.B. 107.
184 See Section 741.
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SA v. Commissioner.185 In Grecian Magnesite, the Tax Court held that a foreign partner did
not have ECI upon the redemption of its partnership interest, even though the taxpayer
conceded that it would have been allocated ECI upon a sale of the partnership’s assets. In so
holding, the Tax Court explicitly rejected Revenue Ruling 91-32, finding it so flawed that it
‘lack[ed] the power to persuade’.186
The taxpayers’ victory in Grecian Magnesite, however, was short-lived. The TCJA
overturned Grecian Magnesite by adopting Section 864(c)(8), which provides that gain on
the sale of an interest in a partnership is ECI to the extent that the partner would have
been allocated ECI on a deemed sale of the partnership’s assets. In addition, the TCJA
introduced Section 1446(f ), which imposes a new withholding tax in connection with the
sale of a partnership interest if that sale results in ECI under the new Section 864(c)(8) rule.
Notably, the withholding tax equals 10 per cent of the amount realised by the foreign partner
(including the partner’s share of partnership liabilities). If the withholding tax applies, the
transferee of the partnership interest is responsible for collecting it, although the partnership
must also withhold on distributions to the transferee if the transferee fails to remit the tax.
Proposed regulations
Although the TCJA created a new withholding regime in adopting Section 1446(f ), it offered
taxpayers no guidance as to how to satisfy their withholding obligations.187 In May 2019,
however, the Treasury Department released proposed regulations to flesh out new Section
1446(f ).188 The regulations generally allow selling partners to avoid withholding if they
provide an appropriate certification to the purchaser. The certification can take a number of
different forms: for instance, it may address the seller’s status as a US person or the nature
of the income and assets of the partnership. The proposed regulations also provide rules for
collecting withholding tax on dispositions of interests in publicly traded partnerships.
IX COMPETITION LAW
In 2018, the Antitrust Division of the DOJ and the FTC (together, the agencies) carefully
examined transactions in a variety of industries, including healthcare, entertainment and
agriculture. The agencies continued to employ a rigorous approach to merger enforcement
towards both proposed transactions and consummated mergers. Furthermore, the DOJ
announced a number of new processes to streamline merger reviews.
Through both enforcement actions and statements from public officials, the agencies
have continued to demonstrate a preference for structural remedies and a scepticism towards
behavioural remedies. Agency officials have reasoned that structural remedies eliminate the
185 149 T.C. 63 (2017).

186 Id.
187 The IRS did mitigate the disruption caused by the TCJA’s changes by suspending a portion of the new
rules and allowing taxpayers to follow the related withholding rules under Section 1445 (pertaining to
dispositions of interests in US real property) in the interim. See Notice 2018-08, 2018-7 I.R.B. 352
(29 December 2017); Notice 2018-29, 2018-16 I.R.B. 495 (2 April 2018).
188 See REG-105476-18, Federal Register Vol. 84, No. 92, 13 May 2019 at 21198-21225. The Treasury
separately proposed regulations that address the calculation of the amount of ECI that is generated on the
sale of a partnership interest under Section 864(c)(8). REG-113604-18, Federal Register Vol. 83, No. 247,
27 December 2018 at 66647-66655.
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incentive and ability of merged companies to engage in harmful conduct while removing the
necessity for monitoring of parties’ compliance with consent decrees.189 Of the 17 consent
decrees entered into in 2018, the agencies required divestitures for 15 of the transactions.190
The remaining two consent decrees were issued by the FTC, and required behavioural
remedies including implementing firewalls, instituting monitors and limiting the sharing
of competitively sensitive information, among other conditions.191 As in previous years, the
FTC increased the filing thresholds under the HSR Act. Under the new thresholds, the size of
transaction test is satisfied for most transactions valued over US$90 million (increased from
US$84.4 million).192
In 2018, the agencies also took a few enforcement actions in connection with consent
decrees that were entered in previous years. For example, in March 2018, the FTC modified
its consent decree against CoreLogic, Inc concerning the company’s acquisition of DataQuick
Information Systems, Inc in 2014.193 The FTC alleged that CoreLogic failed to adhere to
the 2014 order’s condition that it provide all of the required data and information to the
189 Public statement, Department of Justice, ‘Assistant Attorney General Makan Delrahim Delivers Keynote
Address at American Bar Association’s Antitrust Fall Forum’, 16 November 2017, https://www.justice.
gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-keynote-address-american-bar; Public
Statement, Federal Trade Commission, ‘Vertical Merger Enforcement at the FTC’, 10 January 2018, https://
www.ftc.gov/system/files/documents/public_statements/1304213/hoffman_vertical_merger_speech_final.pdf.
190 Amneal Holdings, LLC, 83 Fed. Reg. 19,764 (aid to public comment); Marathon Petroleum Corp, 83 Fed. Reg.
55,368 (aid to public comment); Seven & iHoldings Co, Ltd, 83 Fed. Reg. 4,051 (aid to public comment);
CRH plc, 83 Fed. Reg. 28,647 (aid to public comment); Air Medical Group Holdings, Inc, 83 Fed. Reg. 11,527
(aid to public comment); Linde AG, 83 Fed. Reg. 55,533 (aid to public comment); CVS Health Corporation,
83 Fed. Reg. 52,558 (proposed final judgment and competitive impact statement); The Walt Disney Company,
83 Fed. Reg. 40,553 (proposed final judgment and competitive impact statement); Martin Marietta Materials,
Inc, 83 Fed. Reg. 19,822 (proposed final judgment and competitive impact statement); Bayer AG, 83 Fed.
Reg. 27,652 (proposed final judgment and competitive impact statement); United Technologies Corporation,
83 Fed. Reg. 52,542 (proposed final judgment and competitive impact statement); press release, Federal Trade
Commission, ‘FTC Requires Grifols S.A. to Divest Assets as Condition of Acquiring Biotest US Corporation’,
1 August 2018, https://www.ftc.gov/news-events/press-releases/2018/08/ftc-requires-grifols-sa-divest-as
sets-condition-acquiring-biotest; press release, Federal Trade Commission, ‘FTC Requires Casino Operators
Penn National Gaming, Inc. and Pinnacle Entertainment, Inc. to Divest Assets in Three Midwestern Cities
as a Condition of Merger’, 1 October 2018, https://www.ftc.gov/news-events/press-releases/2018/10/
ftc-requires-casino-operators-penn-national-gaming-inc-pinnacle; press release, Department of Justice,
‘Justice Department Requires Divestitures to Resolve Antitrust Concerns in Gray’s Merger With Raycom’,
14 December 2018, https://www.justice.gov/opa/pr/justice-department-requires-divestitures-resolve-antitru
st-concerns-gray-s-merger-raycom; press release, Department of Justice, ‘Justice Department Requires CRH to
Divest Rocky Gap Quarry in Order to Proceed with Pounding Mill Acquisition’, 22 June 2018, https://www.
justice.gov/opa/pr/justice-department-requires-crh-divest-rocky-gap-quarry-order-proceed-pounding-mill.
191 Press release, Federal Trade Commission, ‘FTC Imposes Conditions on Northrop Grumman’s Acquisition
of Solid Rocket Motor Supplier Orbital ATK, Inc.’, 5 June 2018, https://www.ftc.gov/news-events/
press-releases/2018/06/ftc-imposes-conditions-northrop-grummans-acquisition-solid-rocket; press release,
Federal Trade Commission, ‘FTC Imposes Conditions in Joint Venture Among Three Producers of
PET Resin’, 21 December 2018, https://www.ftc.gov/news-events/press-releases/2018/12/ftc-imposes-
conditions-joint-venture-among-three-producers-pet.
192 ‘HSR threshold adjustments and reportability for 2019’, https://www.ftc.gov/news-events/blogs/
competition-matters/2019/03/hsr-threshold-adjustments-reportability-2019.
193 Press release, Federal Trade Commission, ‘FTC Adds Requirements to 2014 Order to Remedy CoreLogic
Inc.’s Compliance Deficiencies’, 15 March 2018, https://www.ftc.gov/news-events/press-releases/2018/03/
ftc-adds-requirements-2014-order-remedy-corelogic-incs-compliance.
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divestiture buyer.194 Under the modified consent order, CoreLogic is required to provide bulk
data to the divestiture buyer for an additional three years beyond the term of the original order
and to adhere to certain quality metrics and service requirements.195 Similarly, in December
2018, the FTC approved an application by Teva Pharmaceuticals Industries Ltd to reopen
and modify its decision and order concerning the merger of Watson Pharmaceuticals, Inc
and Actavis, Inc in 2012.196 Under the previous decision and order, the merged company was
required to divest a generic drug, supply it to Pfizer, Inc for no more than four years after the
relaunch of the drug and assist with a technology transfer to a third party for manufacturing
the drug.197 The drug was relaunched in 2015, and in 2016 Teva assumed the rights and
obligations of Activis through another acquisition.198 At Pfizer's request, Teva sought to
extend the supply agreement for an additional period since Pfizer had not yet completed the
technology transfer.199
The DOJ also announced and began the implementation of a number of processes
to streamline the merger review process. In particular, in September 2018, Assistant
Attorney General Makan Delrahim announced that the DOJ had set a goal to resolve most
merger investigations within six months, provided that the parties to a merger promptly
comply with DOJ requests throughout the review period.200 The DOJ has since published
a model voluntary request letter, which seeks information from parties during the initial
30-day waiting period, and a revised model timing agreement, which governs the longer
Second Request review process, on its website.201 The DOJ has stated that its model timing
agreement is designed to speed the merger review process by providing for fewer custodians
whose documents must be searched as part of the Second Request, fewer depositions and a
shorter time period for the DOJ to complete its review following the parties’ certification of
substantial compliance with a Second Request.202 In exchange, the DOJ expects parties to
provide faster and earlier productions of documents, and for data and to be forthcoming and
accurate about privilege issues in the parties’ document production.203
Some recent, significant DOJ and FTC actions are described below.
194 Id.
195 Id.
196 Press release, Federal Trade Commission, ‘FTC Approves Teva Petition to Reopen and Modify
Decision and Order in Case Involving Watson Pharmaceuticals Inc.’s Acquisition of Actavis Inc.’,
18 December 2018, https://www.ftc.gov/news-events/press-releases/2018/12/ftc-approves-teva-petition-
reopen-modify-decision-order-case.
197 Id.
198 Id.
199 Id.
200 ‘It Takes Two: Modernizing the Merger Review Process’, https://www.justice.gov/opa/speech/
assistant-attorney-general-makan-delrahim-delivers-remarks-2018-global-antitrust.
201 Antitrust Division Spring Update 2019, https://www.justice.gov/atr/division-operations/
division-update-spring-2019/merger-review-reviewed.
202 Id.
203 Id.
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i DOJ
Bayer/Monsanto
In September 2016, Bayer AG (Bayer) announced that it would acquire Monsanto Company
(Monsanto) in a transaction valued at US$66 billion.204 The DOJ approved the transaction
in May 2018 subject to divestitures of certain businesses and assets totalling US$9 billion,
the largest negotiated merger divestiture ever required by the agencies.205 The DOJ alleged
that without the divestiture, the transaction, which combined two of the largest agricultural
companies, would have resulted in higher prices for farmers, and by extension consumers,
and would have stifled innovation in the industry.206 Under the consent decree, Bayer was
required to divest its businesses that competed with Monsanto, including its cotton, soybean,
canola, vegetable seed and herbicide businesses.207 The consent decree also required a number
of other divestitures related to the parties’ seed treatment businesses, intellectual property
and research capabilities, including pipeline R&D projects, and assets that would provide the
divestiture buyer with similar innovation incentives, capabilities and scale.208
Disney/Fox
In December 2017, The Walt Disney Company (Disney) announced it would acquire
Twenty-First Century Fox, Inc (Fox); the parties subsequently announced they had signed
an amended agreement valued at US$71.3 billion in June 2018, following a bidding war
with Comcast for Fox.209 Shortly thereafter, the DOJ approved the transaction subject to
divestitures, alleging the parties competed to sell cable sports programming licences to
multichannel video programming distributors (MVPDs) in several local markets, and that
as a result of the proposed transaction, MVPDs would face increased prices.210 Under the
consent decree, Disney was required to divest Fox’s 22 regional sports networks.211 The
transaction was completed in March 2019.212
204 Press release, Bayer AG, ‘Bayer and Monsanto to Create a Global Leader in Agriculture’,
14 September 2016, https://media.bayer.com/baynews/baynews.nsf/id/ADSF8F-Bayer-and-Monsanto-
to-Create-a-Global-Leader-in-Agriculture.
205 Press release, Department of Justice, ‘Justice Department Secures Largest Negotiated Merger Divestiture
Ever to Preserve Competition Threatened by Bayer’s Acquisition of Monsanto’, 29 May 2018, www.justice.
gov/opa/pr/justice-department-secures-largest-merger-divestiture-ever-preserve-competition-threatened.
206 Id.
207 Id.
208 Id.
209 Press release, The Walt Disney Company, ‘The Walt Disney Company Signs Amended Acquisition
Agreement to Acquire Twenty-First Century Fox, Inc.’, 20 June 2018, https://www.thewaltdisneycompany.
com/the-walt-disney-company-signs-amended-acquisition-agreement-to-acquire-twenty-first-century-fox-
inc-for-71-3-billion-in-cash-and-stock/.
210 Id.
211 Id.
212 Press release, The Walt Disney Company, ‘Disney’s Acquisition of 21st Century Fox Will
Bring an Unprecedented Collection of Content and Talent to Consumers Around the World’,
19 March 2019, https://www.thewaltdisneycompany.com/disneys-acquisition-of-21st-century-fox-will
-bring-an-unprecedented-collection-of-content-and-talent-to-consumers-around-the-world/.
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CVS/Aetna
In December 2017, CVS Health announced it would acquire Aetna, Inc in a transaction
valued at US$69 billion.213 In October 2018, the DOJ approved the transaction subject to
Aetna’s divestiture of its Medicare Part D prescription drug plan for individuals business.214
The consent decree also required that Aetna assist the divestiture buyer with operating the
plan during the transition period.215 The DOJ reasoned that without the divestiture, the
combined company would result in increased prices, decreased innovation and decreased
quality service in 16 Medicare Part D regions.216 The parties completed the transaction in
November 2018.217
ii FTC
Northrop Grumman/Orbital ATK
Despite the agencies’ stated preference for structural remedies, in June 2018, the FTC
utilised behavioural remedies in its consent decree concerning Northrop Grumman Corp’s
acquisition of Orbital ATK, Inc.218 The transaction, which was announced in September
2017, was valued at US$9.2 billion.219 The FTC reasoned that because the defence industry
only has the one buyer, the Department of Defense (DoD), it would allow the acquisition
subject to certain conditions. Specifically, the consent decree required Northrop Grumman
to supply solid rocket motors to competitors on a non-discriminatory basis, separate its solid
rocket motors business via a firewall and allow the DoD to monitor its compliance with the
order.220 The parties completed the transaction in June 2018.221
213 Press release, CVS Health, ‘CVS Health to Acquire Aetna; Combination to Provide Consumers with
a Better Experience, Reduced Costs and Improved Access to Health Care Experts in Homes and
Communities Across the Country’, 3 December 2017, https://cvshealth.com/newsroom/press-releases/
cvs-health-acquire-aetna-combination-provide-consumers-better-experience.
214 Press release, Department of Justice, ‘Justice Department Requires CVS and Aetna to Divest Aetna’s
Medicare Individual Part D Prescription Drug Plan Business to Proceed with Merger’, 10 October 2018,
https://www.justice.gov/opa/pr/justice-department-requires-cvs-and-aetna-divest-aetna-s-medicare-
individual-part-d.
215 Id.
216 Id.
217 Press release, Aetna, ‘CVS Health Completes Acquisition of Aetna, Marking the Start of Transforming the
Consumer Health Experience’, 28 November 2018, https://news.aetna.com/news-releases/2018/11/cvs-healt
h-completes-acquisition-of-aetna-marking-the-start-of-transforming-the-consumer-health-experience/.
press-releases/2018/06/ftc-imposes-conditions-northrop-grummans-acquisition-solid-rocket.
219 Press release, Northrop Grumman Corp., ‘Northrop Grumman to Acquire Orbital ATK for $9.2 Billion’,
18 September 2017, https://news.northropgrumman.com/news/releases/northrop-grumman-to-acquire-
orbital-atk-for-9-2-billion.
press-releases/2018/06/ftc-imposes-conditions-northrop-grummans-acquisition-solid-rocket.
221 Press release, Northrop Grumman Corp, ‘Northrop Grumman Completes Orbital ATK Acquisition,
Blake Larson Elected to Lead New Innovation Systems Sector’, 6 June 2018, https://news.
northropgrumman.com/news/releases/northrop-grumman-completes-orbital-atk-acquisition-blake-larson-
elected-to-lead-new-innovation-systems-sector.
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Tronox/Cristal
In February 2017, Tronox Limited announced it had reached a definite agreement to acquire
Titanium Dioxide (TiO2) business from Cristal in an acquisition valued at US$1.7 billion.222
The FTC challenged the proposed transaction at the end of 2017 by filing an administrative
complaint and then subsequently seeking a preliminary injunction in federal district court.223
The FTC alleged that the acquisition would substantially lessen competition in the North
American market for chloride process TiO2 and would increase the risk of both coordination
among competitors and anticompetitive strategic output reductions by Tronox in the
future.224 In September 2018, the court granted a preliminary injunction.225 Following this
decision, in December 2018 an administrative law judge issued an initial decision upholding
the complaint and requiring the parties to terminate the proposed transaction.226 Tronox
ultimately reached a settlement agreement with the FTC in April 2019. Under the proposed
consent decree, Tronox was required to divest Cristal’s North American TiO2 business to
INEOS.227
Ottobock/FIH Group Holdings

In September 2017, Otto Bock HealthCare North America, Inc (Ottobock) acquired FIH
Group Holdings, LLC, the owner of Freedom Innovations, in a transaction that was not
reportable under the HSR Act.228 The FTC issued an administrative complaint against
Ottobock in December 2017, alleging the transaction harmed competition in the US
microprocessor prosthetic knees market by eliminating a significant competitor.229 While
Ottobock had taken steps to integrate the Freedom Innovations business, it subsequently
agreed to hold the business separate pending the FTC litigation.230 In April 2019, an
222 Press release, Tronox Limited, ‘Tronox Announces Definitive Agreement to Acquire Cristal TiO(2)
Business’, 21 February 2017, http://investor.tronox.com/news-releases/news-release-details/
tronox-announces-definitive-agreement-acquire-cristal-tio2.
223 Press release, Federal Trade Commission, ‘FTC Challenges Proposed Merger of Major Titanium Dioxide
Companies’, 5 December 2017, https://www.ftc.gov/news-events/press-releases/2017/12/ftc-challenges-
proposed-merger-major-titanium-dioxide-companies.
224 Id.
225 Press release, Federal Trade Commission, ‘Administrative Law Judge Upholds FTC’s Complaint
Allegations that Merger of Major Titanium Dioxide Companies would have Harmed Competition’,
17 December 2018, https://www.ftc.gov/news-events/press-releases/2018/12/administrative-law-
judge-upholds-ftcs-complaint-allegations.
226 Id.
227 Press release, Federal Trade Commission, ‘FTC Requires Divestitures by Tronox and Cristal, Suppliers of
Widely Used White Pigment, Settling Litigation over Proposed Merger’, 10 April 2019, https://www.ftc.
gov/news-events/press-releases/2019/04/ftc-requires-divestitures-tronox-cristal-suppliers-widely-used.
228 Press release, Ottobock, ‘Ottobock Issues Statement on U.S. Federal Trade Commission Decision
Regarding Acquisition of Freedom Innovations’, 7 May 2019, https://www.ottobock.com/en/press/
press-releases/ottobock-us-ftc-freedom-innovations.html.
229 Press release, Federal Trade Commission, ‘FTC Challenges Consummated Merger of Companies
That Make Microprocessor Prosthetic Knees’, 20 December 2017, https://www.ftc.gov/news-events/
press-releases/2017/12/ftc-challenges-consummated-merger-companies-make-microprocessor.
230 Id.
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United States
administrative law judge upheld the FTC’s administrative complaint.231 The judge also issued
an order that requires Ottobock to divest FIH Group Holding to an approved buyer within
90 days of the order being final.232
iii Conclusion
The DOJ and FTC have continued to engage in active enforcement, demonstrating a
willingness to challenge both proposed and consummated transactions, engage in litigation
where necessary and require significant remedies where they believe these are necessary to
preserve competition.
X OUTLOOK
In 2018, US M&A activity increased in value, but decreased in volume, recovering from
two years of declining deal values. Delaware courts continued to be deferential to corporate
boards of directors, further reinforcing deal price as the starting point for fair value in
appraisal actions. In terms of cross-border M&A, CFIUS review presented an increasingly
significant obstacle, particularly for Chinese acquirers. Energy and power was the leading
US M&A sector, driven in part by the increasing prevalence of combinations of technology
companies with non-technology companies. Shareholder activism continued to exert
significant influence, although the attacks on large-cap companies has subsided somewhat.
As in 2017, all-cash transactions by strategic buyers were the norm, supported by robust
financing opportunities. Antitrust enforcement continued to be aggressive. Finally, in light of
the CFIUS developments, and the myriad of other dynamic forces that shape the US M&A
landscape, it remains to be seen how M&A activity will progress for the remainder of 2019.
231 Press release, Federal Trade Commission, ‘Administrative Law Judge Upholds FTC’s Complaint
Challenging Consummated Merger of Companies that Make Microprocessor Prosthetic Knees’,
7 May 2019, https://www.ftc.gov/news-events/press-releases/2019/05/administrative-law-judge-upholds-
ftcs-complaint-challenging.
232 Id.
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Chapter 46
VENEZUELA
Guillermo de la Rosa Stolk, Juan Domingo Alfonzo Paradisi, Valmy Diaz Ibarra and
Domingo Piscitelli Nevola 1

During 2018, M&A activity in Venezuela was not very significant, apart from the very
few implementations in Venezuela of international acquisitions between multinational
conglomerates.

Although the Venezuelan Code of Commerce does not define mergers, Articles 343 to 346
provide the registration and publication requirements that must be complied with for a
merger to become effective; specifically, each entity must notify the respective mercantile
registry (attaching the merging entities’ balance sheets) to record the merger agreement.
Additionally, the Code states that a merger will not become effective until a waiting period
of 90 days has elapsed counted from the date of publication of the merger resolution and its
registration data.
With respect to acquisitions, these can be divided into two kinds.
As per Article 296 of the Code of Commerce, the transfer of ownership of shares is
accomplished by the execution of the respective transfer entry in the company’s share registry
book by the transferor and the transferee. Moreover, a review of the articles of incorporation
of the company whose shares are being transferred must be conducted, as the company may
have preferential rights granted to other shareholders.
In addition to the Code of Commerce, there are certain statutes that are relevant to
the acquisition of shares, such as the Security Markets Law and the rules issued by virtue of
said Law for shares that are publicly traded. Additionally, the Law to Promote and Protect
the Exercise of Free Competition is applicable in cases where, inter alia, the acquisition could
produce an economic concentration.
With regards to acquisitions of shares in areas such as telecommunications and banking,
previous authorisation or clearance may be needed, depending on the pertinent statute.
1 Guillermo de la Rosa Stolk, Juan Domingo Alfonzo Paradisi and Valmy Diaz Ibarra are senior partners and
Domingo Piscitelli Nevola is an associate at Torres, Plaz & Araujo.
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ii Acquisition of assets
Depending on the type of assets, different requirements must be met:
Real estate
The provisions of the Venezuela Civil Code and the pertinent statute that establishes and
organises the public registry system shall be applicable. Therefore, for a transfer of ownership
of real estate to be effective before third parties, registration of the deed of transfer at the
public registry office that has jurisdiction over the aforementioned property must be made.
Movable goods or chattel property

Requirements will depend on the type of good or asset.
If a transaction comprises the transfer of ownership of a business by the disposal of
chattel property and the transferee wishes to avoid joint liability for the business obligations
of the transferor,2 then the provisions of Articles 151 and 152 of the Code of Commerce shall
be applicable; such provisions contain the obligation for three notifications to be published in
a local newspaper announcing the disposal of the ownership of a business.
If the transaction involves intangible assets such as intellectual or industrial property,
then registration at the competent registry office must be made for the transfer to become
effective before third parties.
In general, all the aforementioned transactions could have tax consequences, which will
be explained in Section VIII.
III FOREIGN INVOLVEMENT IN M&A TRANSACTIONS

According to governmental sources, investment was the product of strategic alliances between
Venezuela and Argentina, Belarus, China, Cuba, Spain, France, Iran, Japan, Portugal and
Vietnam. The economic sectors that were recipients of investment include manufacturing,
telecommunications, automobiles, petroleum and infrastructure (construction). The
aforementioned investments were the product of associations between entities from those
foreign countries and the Venezuelan government, and also between non-governmental
entities of the respective foreign country and Venezuela.
Additionally, the world economic crisis – together with the country’s risk factors –
continue to have an impact on the investment and profitability levels of multinational entities
operating in Venezuela, which have implemented budget cuts and reviewed their investment
programmes.
IV SIGNIFICANT TRANSACTIONS, KEY TRENDS AND HOT INDUSTRIES

In developing its policy to become the leader in the food industry and marketing chain,
between 2002 and 2012 the government announced the acquisition of almost 1,200
companies. Most of those companies are still in the process of nationalisation.
2 The conveyance of property or goods must result in the cessation of the business activities of the transferor
that were carried out within its premises.
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V FINANCING OF M&A: MAIN SOURCES AND DEVELOPMENTS

There have not been any new relevant ways of financing acquisitions made by the state;
its primary source has been revenue from the sale of oil and from the placement of debt
instruments.
VI EMPLOYMENT LAW
In connection with the merger of companies in Venezuela and also with the acquisition
of businesses, it is worth bearing in mind from a labour relations point of view that such
negotiations will have several consequences for a company’s employees, as follows. In May
2012, a new Organic Labour and Employees Law was published that establishes the following.
i Employer substitution
Article 66 of the Organic Labour Law provides: ‘There will be an employer substitution when
the property, ownership or the running operation of a company is transferred for any reason,
from a natural or juridical person to another, and the operation of the company continues.’
In the same manner, Article 68 of the Law provides:
Substitution of the employer will not affect existing work relationships. The substituted employer will
be jointly responsible, with the new employer, for obligations derived from the Law or from contracts
in effect prior to the substitution and until expiration of the prescription period provided for in Article
61 of this Law.

Upon termination of this period, only the new employer’s responsibility will subsist, unless
previous labour suits exist, in which case the final judgment shall be executed indistinctly
against the substituted owner or against the substitute. The responsibility of the substituted
employer will only subsist, in this case, for five years as of the date on which a definite
sentence has been declared.
Article 32 of the Organic Labour Law Regulation states:
The transfer or assignment of the worker is verified when the employer agrees or requires the worker to
render his services on a permanent basis under the dependency of and on account of another, with the
consent of the latter. The worker transfer or assignment shall be subject to the employer substitution
regime and will produce the same effects.
On the other hand, by motion of Justice Dr Omar Mora Díaz, the Social Court of Appeal
of the Supreme Court of Justice, in his decision issued on 19 September 2001, in the lawsuit
brought by R Cameron against Compañía Occidental de Hidrocarburos, Inc, published in
Ramírez y Garay, Book CLXXX, September 2001, stated ‘[T]his Social Court of Appeal
before deciding on the appropriateness of the accusation, wishes to make, in the first place,
some considerations regarding the form known as employer substitution’.
In fact, Dr Rafael Alfonzo Guzmán, in his book Estudio Analitico de la Ley del Trabajo
Venezolana, mentions the point in question with the following considerations:
There is a substitution of employer when the owner or holder of a company, establishment, running
operation or work, transfers his rights to another natural or juridical person who continues the same
economic activity or, at least, continues it without substantial changes.
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Mario de la Cueva states that for the employer substitution to take effect, it is not enough
to sell the products of the negotiation or part of the machinery, utensils or equipment: it
is necessary to transfer them to the company as an economic–juridical unit or part of the
company itself, which in turn constitutes an economic–juridical unit; in the first case, the
employer’s substitution is total. In the second case, it only works with respect to workers who
provide their services in a branch or the transferred premises.
From the above, it is evident that there may exist two types of employer substitution as
provided for in the Mexican doctrine, which has been influential on the Venezuelan Labour
Law. These are on the one hand total substitution, which materialises when a company itself
is transferred as an economic–juridical unit, and on the other, the company itself that in turn
constitutes an economic unit.
In applying such criteria to the case under study, we may determine that what the
defendant showed is that there was an employer substitution, which opinion was shared
by the court, since, as can be seen from the records, on being transferred to Venezuela, the
defendant continued to provide his services to a branch of the company domiciled in the
United States, evidencing the continuity of the labour relationship.
By virtue of the foregoing, it is evident that when the transfer of an employee from
one company takes place, because the company merges and the business continues to
operate, there is what the law, the doctrine and the jurisprudence have defined an employer
substitution.
ii Effects of an employer substitution

An employer substitution is intended to maintain stability for the workers. Therefore, the
existing labour relations are not affected, and thus the workers are entitled to continue
receiving all legal and contractual benefits that they were already receiving.
In fact, when an employer substitution takes effect and the existing labour contracts are
not affected, the transferred workers shall enjoy the benefits and conditions that they were
enjoying when they worked for the former company: that is, all the legal and contractual
benefits to which they were entitled. In the same manner, the new employer shall be
responsible for all the benefits, fringe benefits and indemnities that may be due to the workers
who now provide their services to the substituted employer from the beginning of the labour
relationship.
On the other hand, it is important to point out that pursuant to the provisions of
Article 70 of the Organic Labour and Employees Law, assuming that workers receive some
payment on account of fringe benefits or indemnities due to the employer substitution, and
continue to provide their services, the payment received will be considered an advance of the
payment to which they are entitled upon the termination of the labour relationship.
VII TAX LAW

i Income tax
Under the Venezuelan tax framework, particularly under the Decree with Rank, Value and
Force of the Master Tax Code (MTC) and the Decree with Rank, Value and Force of Partial
Reform of the Decree with Rank Value and Force of the Income Tax Law (ITL), in the
scenario of a statutory merger, any outstanding benefits (attributes) or liabilities remain with
the surviving company regardless of whether the merger is carried out as an incorporation or
absorption merger.
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According to Article 24 of the MTC3 and Paragraph 5, Article 16 of the ITL,4 for
income tax purposes, the subsisting entity will assume all the liabilities and benefits of the
merged entity, as well as future liabilities and benefits, including income tax credits (ITCs),
which may arise after the merger becomes effective, all of which are based on activities carried
out prior to such merger.
The surviving company would be in a position to use all the tax attributes that will
be used in the absorbed entity, including, but not limited to, ITCs, net operating losses
(NOLs) as applicable, other tax losses (i.e., losses resulting from the adjustment per inflation
(API) system, where applicable), and other tax credits such as those resulting from excess
withholding (i.e., taxes paid in excess in prior fiscal years), input VAT (tax credits) and VAT
withholding.
In a merger by absorption, from a fiscal standpoint, the fixed assets and liabilities
of the merged company maintain their tax cost basis (including revaluation for inflation
where applicable), that is, tax basis carryover. In this regard, such assets and liabilities may be
restated for inflation at the first fiscal year-end following the date on which the merger took
place. Non-monetary items would be adjusted for inflation from the date of the merger as
applicable. As a result, no major effect arises with regards to adjustment for fiscal inflation of
fixed assets, as these maintain the same date of acquisition, historical costs and restated values
they held in the books of the merged company.
A merger by absorption interrupts the current fiscal year and begins a new fiscal year
for the combined operations of the merging companies. Therefore, the merged company
must file its income tax return for the fiscal year in which it performed individual operations
within the three months immediately following the cessation of its activities in accordance
with Articles 1465 and 1506 of the ITL Regulations. This final year may be shorter than 12
months, and could further cut short the carryover term for attributes (i.e., three fiscal years
for ITCs and NOLs and one year for losses pursuant to API, as applicable). The surviving
entity must notify the Tax Administration of the transaction under Articles 35.47 and 155.6
of the MTC.8
3 Article 24 MTC: ‘In the case of mergers, the company that subsists or that is created from the original
one(s) will assume any tax benefit or responsibility that corresponds to the merged company(ies).’
4 Article 16 Paragraph 5 ITL: ‘For tax purposes, any tax benefit or liability corresponding to merged
companies shall subsist for the company resulting from the merger, notwithstanding the rights and
obligations of the merged companies.’
5 Article 146 ITL Regulations: ‘Definitive income tax return will be presented within the three (3) months
following to the completion of the taxable period of the taxpayer without prejudice to the prorogations
granted by the Tax Authorities.’
6 Article 150 ITL Regulations: ‘In case of legal entities or communities who ceased their business by sale,
exchange, cession of their assets, business or commerce fund, merger or any other cause different from the
dissolution, the tax period will be finished the day of cessation.’
7 Article 35 MTC: ‘The Taxpayers have the obligation to inform the Tax Administration, within a period
not exceeding one (1) month, the following facts: [. . .] ‘4 Cessation, suspension or paralysation of the
Taxpayer’s regular economic activity. ‘
8 Article 145 MTC: ‘The Taxpayers, persons in charge and third persons are compelled to fulfil the formal
duties related to the control tasks and investigation made by the Tax Authorities and especially, must: [. . .]
‘6 Communicate any change in the situation that could originate on their tax responsibility, specially when
the charge is related to the beginning or ending of activities of the taxpayer.’
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ii Other taxes (stamp tax and real property tax)

The registration of acts and documents with the civil law registry office or the commercial
registry office is subject to registration tax.
Real estate transfer taxes are due and payable by the transferring company upon the
transfer of assets from the target company to the acquiring company. Normally, upon the
registration of purchase–sale documents for real property and any other events, a 1 per cent
fee on the value of the property must be paid.
In the case of a sale of real property to a third party, the 1 per cent payment would
apply, in addition to a 0.5 per cent withholding prepayment, in either cash or credit form,
for income tax determined on the sale price. This prepayment shall be credited to the income
tax amount resulting from the final income tax return of the year.
iii Value added tax

The VAT Law provides that sales of tangible goods, including any part of their property
rights as well as withdrawals or retirements of movable goods by taxpayers, are subject to
VAT. However, sales of intangible goods, such as fiscal rights, stocks, bonds, mortgage bonds,
mercantile effects, and other securities and personal goods in general that represent money,
credit, or rights other than property rights over tangible goods, are not subject to VAT.
As a general rule, under the Venezuelan VAT legal framework, in the case of a merger,
the property transferred (i.e., movable property) qualifies as a sale operation and constitutes a
taxable event for VAT purposes under Article 3.1 of the VAT Law9 in accordance with Article
10.5 of the VAT Law’s Regulations.10
However, the VAT Law’s Regulations (Article 10.5) state that if the surviving company
carries on with the same purpose or activities that the dissolving companies pursued, wholly
or partially, it should not be deemed that there has been a transfer of ownership of corporate
goods attributable to a sale for VAT purposes, and hence no taxes should be applicable.
Finally, the surviving company would be in a position to use all of the VAT tax
credits that will be used in the absorbed entity, including those resulting from excess VAT
withholding (i.e., taxes paid in excess in prior fiscal years) and input VAT (tax credits) under
Article 41 of the VAT Law.11
9 Article 3 VAT Law: ‘For the purposes hereof, the following activities, legal transactions or operations shall
constitute taxable events: ‘Sale of tangible movable property, including aliquot parts on the property right
on such property, and the retirement or disincorporation of movable goods by the taxpayer of this tax.’
10 Article 10 VAT Law’s Regulations: ‘For the purposes of this tax, sale is considered, among others, the
following acts and contracts that deal with onerous transfers of real personal domain of an aliquot
of property rights over them: [. . .] ‘5 Contributions or act to transferring rights to assets for the
establishment, expansion, modification, merger, takeover or the other similar, with respect of companies or
legal entities or economic. In any case, if the new companies emerged continue the same line of activities
of the predecessor companies, whether in whole or in part, it should not be deemed that there had been
an act, transaction or transfer of ownership of corporate goods attributable to a sale for purposes relating
to the application of this tax, unless an increase in the capital take place through contributions of new
movable property.’
11 Article 41 VAT: ‘The right to deduce the tax credit from the tax debits is individual for each ordinary
taxpayer and it not be assigned to third parties, except for the case indicated in Article 43 or when it is a
merger or take over of companies, in which case, the resulting partnership of said merger shall enjoy the
remaining tax credit that corresponded to the companies that formed part of such fusion.’
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iv Municipal tax (tax on industrial, commercial and services activities)

In Venezuela, a municipal tax is applicable to all industrial, commercial and service activities
(except professional services) performed in the territory of a municipality. The taxable base is
the turnover (gross proceeds) received by the taxpayer and arising from the activity performed
in the locality. Tax rates vary from locality to locality and range from 0.5 to 5 per cent. It is
usually paid and a return filed yearly.
Regarding municipal tax on industrial, commercial and services activities, an absorbed
company must notify the relevant municipal tax authorities of the suspension (or termination)
of its activities in the municipality where it conducted its activities in accordance with Articles
35.4 and 155.6 of the MTC,12 and pay any debt owed to the municipal tax authorities.
Municipal tax rates vary depending on the municipality in which the business was conducted.
The surviving company shall request a business licence to incorporate new activities (if
any) and to carry out the activities of the absorbed company within the jurisdiction of the
municipality in which the surviving company operates.
v Science and technology contribution

A science and technology contribution is provided for in the recent amendment to the
Organic Law of Science and Technology, which applies to entities defined in the law as large
ventures (companies with a turnover of 100,000 tax units or more).
The contribution amounts to 2 per cent of turnover (gross proceeds) for entities engaged
in the manufacturing or commercialisation of alcohol and spirits, as well as tobacco and
tobacco products. Gambling activities are subject to a similar rate. Hydrocarbon and mining
activities, when carried out by private parties, are taxed at a rate of 1 per cent on turnover.
When these activities are carried out by entities in which capital is considered public capital
(i.e., wholly or partially state-owned, but controlled by the state), then the same are taxed at
a rate of 0.5 per cent of turnover; any other industry or commercial activities (i.e., general
activities) are subject to the latter 0.5 per cent rate on their turnover.
Regarding the science and technology contribution, an absorbed company must notify
the relevant tax authorities of the special science and technology fund, Fonacit, about the
suspension (or termination) of its activities in accordance with Article 155.6 of the MTC,
and pay any debt owed to Fonacit.
vi Anti-drug enforcement contribution

A contribution for the purposes of illegal drug enforcement and education is provided for,
computed at a rate of 1 per cent on the net earnings of the relevant taxpayers engaged in
commercial, industrial or services activities; for those taxpayers engaged in manufacturing
spirits and liquor, and cigarettes and tobacco, a 2 per cent contribution on their net earnings
applies. The tax basis is net earnings (accounting income before taxes) as per the Venezuelan
generally accepted accounting principles (GAAP) and as per the regulations (Provisions
006-2011 and 007-2011 of March and May 2011).
12 Article 155 MTC: ‘The taxpayers, person in charge and third persons are compelled to fulfil the
formal duties related to the control and investigation made by the Tax Authorities and, especially, they
must: [. . .] ‘6 Communicate any charge in the situation that could originate alterations on their tax
responsibility, especially when the change is related to the beginning or ending of activities of the taxpayer.’
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A new anti-drug enforcement law, the Organic Law of Drugs, was passed in November
2010 and covers the relevant contributions in Articles 32 and 34. These contributions are
paid into a special fund, FONA, created for that purpose, and are used for projects identified
in the law, which may include reinvestment (up to 40 per cent) in approved activities or
projects regarding payors and payors’ employees (Provision 0001-2011).
Regarding the anti-drug enforcement contribution, an absorbed company must notify
the relevant tax authorities of the FONA of the suspension (or termination) of its activities in
accordance with Article 155.6 of the MTC, and pay any debt owed to FONA.
vii Sport contribution

A contribution for the purposes of funding a special fund – the National Fund for the
Development of Sport, Physical Activity and Physical Education – was established in the
Sport Law passed in August 2011.
The contribution under the Sport Law arises upon the exercise in Venezuela of any
commercial, industrial or services activity by any person (inter alia, individuals, companies,
partnerships) resulting in net earnings in a given year in excess of 20,000 tax units, and is
computed as 1 per cent of the net earnings of the relevant taxpayers.
The tax basis is net earnings (accounting income before taxes) as per Venezuelan GAAP,
as identified in Regulation No. 1 of the Law. The contribution may be paid in cash in full, or
part of the same may be used for projects identified in the Law and approved by the National
Sports Institute, which may include reinvestment (up to 50 per cent) in approved activities
or projects for payor and payor employees.13
Regarding the sport contribution, an absorbed company must notify to the relevant
tax authorities of the National Fund for the Development of Sport, Physical Activity and
Physical Education of the suspension (or termination) of its activities in accordance with
Article 155.6 of the MTC, and pay any debt owed to such authorities.

The Venezuelan legal framework in terms of economic concentrations (mergers and
acquisitions) in the field of the analysis of competition is based on Article 113 of the Venezuelan
Constitution, which establishes an express prohibition on monopolies. Specifically, any acts,
activities, behaviours or agreements between private parties that are intended to establish
monopolies are declared unconstitutional.
i Rules pertaining to economic concentrations in the field of antitrust laws

From the viewpoint of competition, the following norms contain all regulation existing in
Venezuela, starting with the Free Competition Promotion and Protection Law, published in
Official Gazette No. 34,880, dated 13 January 1992, which was derogated by the Decree
with Rank, Value and Force of Antitrust Law, published in Gazette Extraordinary No. 6,151,
dated 18 November 2014.
To ensure the correct application of the Decree Law, the Superintendency of Antitrust
was created as the public institution in charge of applying the law, with functional autonomy
in the matters within its jurisdiction and administratively managed by the ministry with
13 Provision 0001-2011.
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jurisdiction over matters of internal commerce. All administrative proceedings culminate in

decisions of the Superintendency. They may be appealed through judicial proceedings, at the
contentious administrative courts at first instance, and through second instance appeals to
the Supreme Court.
Under Chapter II of the Decree Law, the following are prohibited: all economic
concentrations that produce or reinforce a dominant position in all or part of the market,
that may cause adverse effects to effective competition, or that may cause democratisation in
the production, distribution and marketing of goods and services. Nevertheless, small and
medium-sized companies, and cooperatives that are covered by the system of communal
economy are exempted. The procedures of evaluation and approval will be established by the
regulation of this Decree Law. The Decree Law on Antitrust states that the procedures for
the notification, evaluation and approval of economic concentrations shall be established in
regulations that have not yet been published.
Furthermore, Instruction No. 3 regarding Economic Concentration Operations,
published in Official Gazette No. 36,209 (Instruction No. 3), dated 20 May 1997, contains
the information required by the Superintendency for the authorisation of an economic
concentration operation. Prior notification of an economic concentration operation is not
mandatory under the current laws: it is voluntary for those concerned. This does not preclude
the Superintendency from opening an investigation once an operation is declared certain to
determine whether it could have a negative impact on free competition. The Superintendency
of Antitrust has up to one year to conduct such investigation, as of the date on which the
economic concentration operation is actually closed.
Moreover, in Venezuela there are no exceptions regarding the economic activity or
sector in which the economic agents are involved. Therefore, both profit and non-profit
private and public economic agents engaged in economic activities inside the national
territory or in operations with effects on the national market are subject to the regulations
governing matters of economic concentrations.
A resolution by Procompetencia (which was the institution that was in charge of
applying the law before the Superintendency of Antitrust) No. 2451, dated 11 July 1996,
published in Official Gazette No. 36,000, dated 15 July 1996, establishes, based on Article
2 of Regulation No. 2 of the Free Competition Promotion and Protection Law (Regulation
No. 2), the minimum limits that shall apply to economic concentration operations subject
to antitrust laws. These include when the overall volume of the business of the companies
involved in the economic concentration operation is greater than 120,000 tax units,14 and
when the merging companies involve divisions from several companies where the overall
volume of business of the divisions participating in the operation shall be taken into
consideration.
Additionally, the Decree with Rank, Value and Force of Organic Law of Fair
Prices (Organic Law of Fair Prices), published in Official Gazette No. 40,787 and dated
12 November 2015, establishes similar provisions to those established in the repealed Free
Competition Promotion and Protection Law. Among those provisions, Article 53 provides
for the crime known as boycotting in the following terms:
14 At the time of writing, the value of the tax unit is 50 bolivares.
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Those who jointly or separately develop or carry out actions, or incur in omissions that directly
or indirectly prevent the production, import, storage, transportation, distribution, and
commercialization of goods, as well as the rendering of services, shall be punished with prison of
twelve (12) to fifteen (15) years. When said actions or omissions have been committed in detriment of
the public patrimony, the assets shall also be subject to confiscation, in accordance with the provisions
of the Constitution of the Bolivarian Republic of Venezuela.
Likewise, they will be sanctioned with the temporary occupation of the establishment up to
one hundred and eighty (180) days extendable for a single time.
In addition to the above, Article 70 of the Organic Law of Fair Prices states that the National
Superintendency for the Defence of Socioeconomic Rights (SUNDDE) may adopt and
execute preventive measures if, during the inspection of any stage of the administrative
procedure, there are indications of non-compliance with the obligations set forth in the
Organic Law. Such measures may consist of:
a the preventive seizure of goods;
b the temporary occupation of establishments or essential goods for the development of
an activity;
c the temporary closure of an establishment;
d the temporary suspension of licences, permits or authorisations issued by the SUNDDE;
e the immediate adjustment of the prices of the goods to be marketed or services to be
provided, in accordance with those established by the SUNDDE; or
f all those measures that are necessary to protect the rights of citizens as under the
Organic Law.
Moreover, the Organic Law provides that in cases where temporary occupation is dictated,
such measure will last up to 180 days, and will ensure the operationality and use of such
establishment or local vehicle by the SUNDDE.
Recently, the SUNDDE issued a temporary occupation preventive measure for 90 days
for a site, administrative offices, and establishments and property owned by a renowned wood
and chip-making company for allegedly committing the crime of boycotting. The SUNDDE
also found that an estranged citizen had been appointed to the company as the head of the
pro tempore administration board. Subsequently, this citizen, in his capacity as head of the pro
tempore administration board, was named president in charge of the company, and proceeded
to appoint a director of legal affairs and a finance director of the aforementioned board.
The case was brought to the Venezuelan courts, and on 12 December 2018, the First
Contentious Administrative Court issued judgment No. 2018-0501, under which a claim
for annulment made by the company against the measure of temporary occupation issued by
the SUNDDE was provisionally admitted, and a precautionary amparo action was declared
appropriate based on the violation of the constitutional economic rights of the company,
since the preventive measure that materialised seemed more an administrative intervention
rather than a temporary occupation, as stated in Article 70 of the Organic Law of Fair Prices.
On 19 March 2019, a ratification and extension of the sentence handed down by the Court
was obtained.15
15 The aforementioned case has been brought by Torres, Plaz & Araujo.
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ii Economic concentration modalities according to Regulation No. 2

Mergers among independent companies include:
a the incorporation of a company where the resulting company acts permanently as an
independent company;
b operations whereby one or more companies acquire control of one or more companies
that were independent, or parts of those companies; and
c acquisitions of production assets, going concerns, and any other act or contract whereby
companies, divisions or parts of companies are concentrated.
In addition, Chapter II of Regulation No. 2 establishes the procedure for the prior evaluation
of an economic concentration operation for its authorisation by the Superintendency.
Considering that the prior notification system is voluntary, there are no limitations for making
such notification, and there are no penalties in the event of such notification not being made.
According to the provisions of Article 6 of Regulation No. 2 to the Law, the process for
requesting a prior evaluation does not prevent an economic concentration operation from
following its natural course and even taking place before a decision is obtained from the
Superintendency, notwithstanding whatever is ultimately indicated.
iii Procedures
Prior authorisation procedures are governed by the provisions of Chapter I of Title III of the
Organic Administrative Procedure Law as regards ordinary proceedings.
The penalty procedure is governed by the provisions of Title V, Chapter I, Articles 43
et seq. of the Decree with Rank, Value and Force of Antitrust Law when, once an economic
concentration has taken place, it is presumed that it could have anticompetitive effects or
create or strengthen a dominant position on the market.
iv Terms
The ordinary proceeding contained in the Organic Administrative Procedure Law establishes
a term of four months from the time that the request for a prior evaluation is formally
presented. This term may be extended for another two months if necessary, depending on the
complexity of the study.
During this proceeding, the Superintendency receives all the information for its
opening contained in Instruction No. 3 from each party involved in the proceeding. It may
later send questionnaires to independent third parties, whether they are competitors or are
located at another level of the chain, to complete the information required to determine the
dynamics of the market.
If necessary, the evaluating agency may require additional information or clarification
of information from the parties for its final decision.
The term established for the substantiation of the penalty procedure is 15 business
days, which term is extendible for another 15 business days. The file then enters the decision
stage, which lasts 30 business days with the possibility of being extended for an additional
three days (in other words, the minimum term for the penalty procedure is 45 business days).
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v Sectoral regulations
Public companies
Merger operations of capital market companies must be informed to, and gain the prior
approval of, the National Exchange Superintendency. Likewise, economic concentration
operations among companies participating in the capital markets are also subject to the
Decree with Rank, Value and Force of Antitrust Law. Although a request for prior evaluation
is voluntary, the Superintendency may investigate an operation when it suspects that it could
have restrictive effects on competition or could create or strengthen a dominant position on
the market.
Banking
Economic concentration operations in the banking sector require the prior approval of the
Superintendency of Banks and Other Financial Institutions. Additionally, a request for the
prior evaluation of this type of institution is voluntary in the area of antitrust law; once
notified, such institution may be subject to investigation and penalties imposed by the
Superintendency.
Insurance
Transfers of portfolios, mergers or split operations of insurance and reinsurance companies
require the prior approval of the Superintendency of Insurance Activity once it has heard the
Antitrust Superintendency’s opinion, which has binding character.
Consequences and penalties

The Decree Law establishes that those who engage in prohibited practices or acts described
in Chapter II shall be punished by the Superintendency with a fine of up to 10 per cent of
the value of their gross annual revenue if there are mitigating circumstances. If aggravating
circumstances attend an offender’s conduct, that amount may be increased to 20 per cent. In
cases of recidivism, the fine will be increased to 40 per cent as a general penalty. Furthermore,
the Decree Law states that the notification, evaluation and approval procedures for economic
concentrations shall be established in regulations that have not yet been published.
However, under Instruction No. 3 there are no penalties for not requesting a prior
authorisation for economic concentration operations, as such request is voluntary.
In the case of prior evaluations, the Superintendency may recommend the modification
of some of the conditions of the economic concentration operation to minimise any
anticompetitive effect that could derive from the evaluation, or recommend divestment in
part of the market.
If the parties do not accept the observations of the Superintendency, it may open, once
the economic operation takes place, a penalty procedure for presumptive anticompetitive
effects, which could include the following: full or partial divestment of the economic
concentration operation; other orders of lesser magnitude, such as the modification of
territories, exclusive rights in the distribution of products or in the purchase of inputs, or
non-compete clauses; or a fine of up to 20 per cent of the aggregate gross sales of the parties
involved in the operation.
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Finally, the Superintendency of Antitrust has not issued any resolution about
economic concentrations under the terms of this new Decree Law, and the procedures for
evaluation and approval will be established by the regulation of this Decree Law, which is
pending publication.
IX OUTLOOK
In view of the global and national economic crisis, it is expected that the Venezuelan economy
will have somewhere between very moderate or no growth during 2019. Moreover, it is
expected that if foreign private investments are made, they will be derived from bilateral
cooperation agreements and mainly in the construction, oil, gas and mining sectors.
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Chapter 47
VIETNAM
Hikaru Oguchi, Taro Hirosawa and Ha Hoang Loc1

According to the 2018 Annual Report of the Ministry of Planning and Investment,2 there were
a total of 6,496 acquisition and subscription deals by foreign investors registered nationwide
with a total value of US$9.89 billion, which is a 59.8 per cent increase compared to 2017.

M&A activity has developed in Vietnam during the past 12 years following the government’s
issuance of a large number of new legal regimes, which was considered the government’s
preparation for Vietnam’s official accession to the World Trade Organization (WTO) on
11 January 2007. However, there is no united legal platform for M&A activities, and
investors need to consider the requirements, guidance and other information concerning
the interpretation or practice regarding investments found in different pieces of legislation.
The principal regulations for M&A activities may be classified under the following main
categories:
a international treaties and agreements to which Vietnam is a contracting party include
Vietnam’s commitments to the WTO applicable to foreign investment into Vietnam
from other state party investors, and other mutual agreements between Vietnam and a
specific country or countries;
b general regulations, including the Civil Code 2015, which is the key general law
regulating the ‘legal status and standards for conduct of individuals and legal entities,
the rights and obligations of individuals and legal entities in property and personal
relations arising from relations established based on equality, freedom of will,
independence of property and self-responsibility’. (Article 1 of the Civil Code 2015);
c the primary sources for regulating M&A activities are the Law on Enterprises 2014
(which governs the establishment, management, organisation and operation of
enterprises) and the Law on Investment 2014 (which mainly focuses on investment
activities within Vietnam);
d regulations on land, including the Law on Land 2013. Ownership of all land lies with
the entire population, with the state acting as the representative owner. Therefore, no
1 Hikaru Oguchi is the partner in charge of the Vietnam practice, Taro Hirosawa is a local partner and
Ha Hoang Loc is a Vietnam partner at Nishimura & Asahi.
2 The 2018 Annual Report of the Foreign Investment Agency under the Ministry of Planning and
Investment: http://fia.mpi.gov.vn/tinbai/6110/Tinh-hinh-thu-hut-Dau-tu-nuoc-ngoai-nam-2018.
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enterprise, whether a domestic private enterprise, state-owned enterprise or foreign

private enterprise, is the actual owner of the land. Investors may use land through a
land use right;
e regulations on specialised business areas, which specifically govern the relevant
investment businesses of investors in, for instance, the areas of finance, education,
distribution or restaurant services;
f regulations applicable to public companies, including the Law on Securities 2006 (as
amended in 2010) and its implementing decrees and circulars. In 2015, total foreign
investment in a public company was relaxed by the government (see Section III.
iii). According to Article 25 of the Law on Securities 2006, a public company is a
joint-stock company that has already conducted the public offering of its shares, has its
shares listed on the Stock Exchange or at the Securities Trading Centre, or has its shares
owned by at least 100 investors, excluding professional securities investors, and has a
contributed charter capital of 10 billion dong or more;
g regulations on competition, including the Laws on Competition 2004 and 2018 and
their implementing decrees and circulars (Section IX on the Law on Competition); and
h regulations on other relevant matters, including foreign exchange management and
labour.
Some parts of the above regulations are not sufficiently well developed, such as the overlapping
and inconsistent regulations between the Law on Enterprises and the Law on Investment, as
well as regulations on securities and on competition. In addition, similar to other new market
economies, foreign restrictions still play an important part, and foreign investors should look
at both domestic laws and international treaties, including bilateral and multilateral treaties,
to understand the differences and decide the most appropriate type of M&A arrangement.
In addition, if state-owned enterprises (SOEs) or state-owned capital are involved in the
contemplated transactions, investors should also pay attention to the regulations applying to
those SOEs or state-owned capital, which sometimes prolongs the closing of an M&A deal.

THEIR IMPACT
i The Law on Enterprises 2014 and the Law on Investment 2014
According to the old regime (before 1 July 2015), upon establishment, all companies,
including domestic companies, had to be issued with a business registration certificate (or,
after 1 June 2010, an enterprise registration certificate), except where foreign investors
invested in Vietnam for the first time and were issued with investment certificates that
concurrently acted as their business registration certificates.
The Law on Enterprises 2014 and the Law on Investment 2014, which have come into
effect since 1 July 2015, introduced a new regime. Accordingly, an enterprise registration
certificate will be required for the establishment of all companies with or without foreign
capital; in addition, foreign investors have to apply for and obtain an investment registration
certificate. Specifically, foreign investors (i.e., foreign individuals or foreign organisations
incorporated under foreign laws) that wish to set up a new entity in Vietnam will first need to
apply for investment approval from the investment licensing authorities (under the form of an
investment registration certificate) for their investment projects in Vietnam. Upon issuance
of the investment approval, the foreign investors will carry out the establishment procedure
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for the issuance of an enterprise registration certificate. These steps are also applicable if a
company of which foreign shareholders together hold (directly and indirectly) 51 per cent or
more of the total shares or equity wishes to set up its subsidiary in Vietnam.
In the case of a share acquisition or subscription in an existing Vietnamese company,
foreign investors must register the proposed acquisition or subscription with the investment
licensing authority if the target company engages in conditional business sectors, or the
proposed transaction would result in 51 per cent or more of the total shares being held (directly
or indirectly) by foreign investors. This registration step is not required in other acquisition or
subscription situations. Upon completion of the registration, the target company shall carry
out the procedure for the amendment of its enterprise registration certificate or enterprise
registration details in accordance with the Law on Enterprises 2014, namely changes in the
foreign shareholders of a joint-stock company or members of a limited liability company,
or to the charter capital of a company, or both. This procedure is also applicable when the
acquirer or subscriber is a foreign-invested company based in Vietnam of which 51 per cent
or more of the total shares is held (directly and indirectly) by foreign shareholders.
In March 2019, the government introduced the draft law on amendments to the
Law on Enterprises 2014 and Law on Investment 2014, which is expected to enhance the
competitiveness of Vietnam’s business market. One notable point of the draft law is that
foreign investors may not be required to register a proposed acquisition or subscription if
such acquisition or subscription causes no increase in foreign shareholding in the target
companies. In addition, the law reduces the requirements for the establishment and operation
of a company.
ii The Law on Land 2013

For the first time, the Law on Land 2013 allows foreign-invested companies to use land
in allocation form where foreign-invested companies develop a residential-house-for-sale
or for-lease-sale project.3 Nevertheless, domestic entities still have more mechanisms and
options to acquire a land use right than foreign-invested companies. Specifically, domestic
economic organisations, households and individuals can obtain a land use right by:
a being allocated land from the state;
b leasing land from the state;
c receiving a transfer, donation or inheritance of land use rights;
d receiving land use rights as in-kind capital contribution from a lawful land user
(applicable to economic organisations);
e recognition by the state of land use rights;
f leasing and subleasing land from a developer of an industrial zone, high-technology
zone or economic zone;
g receiving the transfer of an ongoing project using land; or
h receiving land use rights in accordance with the result of a land dispute settlement.
Foreign-invested companies cannot acquire land under method (c) above.

Corporate real estate M&A in Vietnam are not commonly conducted in the form of
an asset or land direct transfer, as asset or land direct transfers involve rather complicated
processes, not to mention that where the transferee is a foreign-invested company, the land
3 Article 55.3 of the Law on Land No. 45/2013/QH13.
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must be returned to the government before being transferred to the transferee. In practice,
corporate real estate M&A in Vietnam are normally structured in the form of a project or
asset holding company M&A, as this will save the new owner from having to re-obtain the
necessary licences for the real estate project’s development (if the permits and licences have
already been obtained), as well as offering more options for tax planning.
If a project or asset holding company M&A changes the status of the target company
from a domestic private company into a foreign-invested one, the target company can still
retain the licences and permits and the rights of a land user over the target land or asset that
were obtained as before the transaction.
Another key point under the Law on Land 2013 relates to the definition of offshore
entity, under which it is clear that an offshore entity itself may not obtain a land use right.
Additionally, with respect to a foreign-invested company being a land user in Vietnam, there
is no difference whether it is a 1 or a 100 per cent foreign-invested company.
iii The Law on Securities

Decree 60/2015/ND-CP, providing guidance on the Law on Securities, took effect on
1 September 2015, thereby relaxing the restrictions imposed on foreign investment in public
companies. Foreign ownership in a public company is regulated as follows:
a if an international treaty to which Vietnam is a party has provisions governing the
foreign ownership ratio, then such provisions apply;
b if a public company operates in a business investment line for which the law on
investment and other relevant laws have provisions on foreign ownership ratio, then
those provisions apply. If a public company operates in a business investment line with
conditions applicable to foreign investors, but there is not yet any specific provision on
the foreign ownership ratio, then the maximum foreign ownership ratio is 49 per cent;
c if a public company operates in several business lines with different provisions on the
foreign ownership ratio, then the foreign ownership ratio shall not exceed the lowest
ratio of the business lines (in which the company operates) wherein there are provisions
on foreign ownership, unless otherwise provided in international treaties; and
d for public companies not falling into any of the above scenarios, foreign ownership is
unrestricted, unless otherwise provided in the company charter.
A proposal for an amended Law on Securities as a replacement for the current Law on
Securities (Report No. 97/TTr-CP of the government) was submitted to the National
Assembly’s Standing Committee on 22 March 2019, with key highlights on notable changes
being as follows:
a the maximum foreign ownership ratio will be governed specifically by the government
from time to time, and will not be specified in the Law on Security. In 2017 and
late 2018, the Ministry of Finance kept introducing draft amendments to the Law on
Securities to lift the maximum foreign ownership ratio to 100 per cent with respect to
business investment lines not prescribed in Vietnam’s WTO commitments;
b the conditions for the first public offering of securities are as follows: an increased
requirement on the offering company’s charter capital from 10 billion dong to 30
billion dong, and profitable business results from the previous one to two years;
c adding a new condition that the new share issuance’s par value must not be higher than
the total par value of the issued shares;
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d the conditions for the public offering of bonds are as follows: an increased requirement
on the offering company’s charter capital from 10 billion dong to 30 billion dong;
e supplementing the conditions on reliance ratings applicable to certain organisations
that issue bonds;
f linking public offerings of securities with the listing and registration of transactions on
the securities trading floor, accordingly requiring that companies that apply for their
public offering of securities via the State Securities Committee must also apply for
listing or registering transactions on a securities trading floor at the same time; and
g for private offerings of shares, specifying the entities eligible to take part in the
private offering of shares or convertible bonds that include only strategic investors
and professional security investors, and a restriction on the transfer of the shares
or convertible bonds post-purchase lasting for a period of three years or one year,
respectively.

According to StoxPlus, investors from Thailand and Singapore have aggressively seized
megadeals since 2017 and also lead in terms of deal value. Meanwhile, Japanese and Korean
investors, although they have contributed the largest number of deals, usually conduct small
and medium-sized deals.
The accumulated inbound M&A deal value entering Vietnam since 2013 amounts
to US$26.89 billion from 535 transactions. The inbound deal value in 2017 increased by
more than double compared with 2016. By the first half of 2018, US$2.83 billion from 40
transactions had already been recorded.
The shift in inbound M&A in 2017 and the first half of 2018 was to megadeals. In
these agreements, foreign investors acquired a majority stake in leading Vietnam-domiciled
enterprises, including leading brewery SABECO, real estate conglomerate Vinhomes and
Vincom Retail, dairy corporation Vinamilk, Ho Chi Minh City Infrastructure Investment,
Techcombank and Nam Long Investment Corp.4

M&A deals that focused on real estate, processing and manufacturing, wholesale and retail
were the most attractive deals for investors in 2018.
The real estate sector continues to be one of the most active in M&A due to a high
demand for real estate, policies on tightening capital flow to the real estate sector and State
Bank Vietnam’s control over non-performing loans. The physical transfer of land, buildings
and other types of real estate, however, is a problematic issue and can take a long time,
especially if it is a transfer to a foreign investor. In particular, an offshore investor may need
to set up its subsidiary in Vietnam, apply to the licensing authorities to implement projects
in connection with the use of the real estate to be transferred and register the physical transfer
of the real estate with the relevant authorities. Therefore, in practice, foreign entities often
4 Stoxplus’ Vietnam M&A 2018 Research Report, Issue 8, September 2018.
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consider acquiring vendors’ shares in the project company that owns the real estate. The
procedure for share acquisition is much simpler, and offshore investors still own the real
estate through the project company. Highlight transactions in 2018 included the following:
a GIC Private Limited (a Singapore government fund) purchased 5.74 per cent of shares
of Vinhomes Joint Stock Company for a value of approximately US$853 million.
Vinhomes Joint Stock Company Vietnam is the biggest integrated real estate developer
in Vietnam with a focus on residential and office property;
b Singapore-based Frasers Property Limited acquired, through its subsidiaries Frasers
Property Investments (Vietnam) 2 Pte Ltd and Frasers Property Investments (Vietnam)
1 Pte Ltd, 75 per cent of the shares of Phu An Dien Real Estate JSC (PAD) and Phu An
Khang Real Estate JSC (PAK) for the respective prices of US$35.2 million and US$18
million. PAD and PAK are developers of the residential-cum-commercial projects in
Thu Duc District and District 2 of Ho Chi Minh City;
c Hanoi Hotel Tourism Development Limited Liability Company acquired 75 per cent
of the shares in TPC Nghi Tam Village Ltd, which operates the international five-star
hotel Intercontinental Hanoi West Lake Hotel in Hanoi, for about US$53.3 million;
d through its wholly owned subsidiary, CVH Nereus CapitaLand acquired 16.97 million
shares, or 99.49 per cent of the charter capital, of Hien Duc Tay Ho Joint Stock
Company for about US$29.7 million. Hien Duc Tay Ho Joint Stock Company, which
changed its name to Capitaland - Hien Duc Joint Stock Company after the acquisition,
is the developer of a real estate complex located on 0.9 hectares of land in the Tay Ho
District in Hanoi; and
e Mapletree Logistics Trust Management Ltd, as the manager of Mapletree Logistics
Trust, announced its acquisition of a warehouse in Vietnam–Singapore Industrial Park
I, Binh Duong province, for a purchase consideration of about US$31.5 million from
Unilever International Company Limited in November 2018.
M&A activities in manufacturing and processing remain active in 2018. Notable deals
include:
a The Nawaplastic Industries (Saraburi) Co, Ltd additionally acquired 27,823,623
shares in Binh Minh Plastics Joint Stock Company for US$107 million to increase its
shareholding to 54.39 per cent;
b Sojitz Corporation acquired over 95 per cent of the shares in Saigon Paper Corporation
for US$91.2 million;
c Kyoei Steel additionally acquired more than 50 per cent of shares of Viet Italy Steel
Company 2018; and
d Itochu Textile Prominent (ASIA) Ltd, a subsidiary of ITOCHU Corporation, paid
around US$47 million to additionally acquire 10 per cent of the shares in Vietnam
National Textile and Garment Group (Vinatex), raising its shareholding in Vinatex to
15 per cent.
In the wholesale and retail sector, M&A activities were bolstered by local retailers, as they
have the edge in expanding their reach via M&A amid fierce competition; specifically, they
are closer to local consumers and not subject to the requirement of an economic needs test.
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Vingroup continued its M&A activities in 2018, either directly or through its retail
brand, to acquire various smaller companies and expand its retail chain, including:
a 23 supermarkets in the Fivimart chain;
b 87 convenience stores in the Shop&Go chain;
c the acquisition of mobile retail chain mobile Vien Thong A; and
d becoming the exclusive distributor of the Chevrolet in Vietnam.
In early 2018, the Malaysia-based private equity firm Creador announced its acquisition of
35 per cent of the shares of Mobile World Investment JSC, which is one of Vietnam’s biggest
retailers with over 2,200 retail shops in Vietnam, for US$43 million.
M&A deals in the banking and finance sector, consumer finance received attention
thanks to strong growth in recent years, with the following being notable deals:
a Shinhan Card acquired a 100 per cent stake in Prudential Finance Vietnam for around
US$150.8 million from Prudential Hoborn Life Limited;
b Lotte Card Company Limited wholly acquired Technological and Commercial Finance
Company Limited (Techcom Finance) from Techcombank for US$74.67 million; and
c Southeast Asia Commercial Joint Stock Bank (SEABank) won an auction to wholly
acquire Vietnam Posts and Telecommunications Group for 710 billion dong;
d in March 2018, Techcombank announced that two legal entities managed by Warburg
Pincus would invest over US$370 million into the bank, subject to appropriate
regulatory approval, which was one of the most notable deals in banking that year.
The food and beverage sector also saw one of the biggest deals of the year when South Korean
Group acquired 109.9 million Treasury shares, accounting for a 9.5 per cent stake in Masan
Group Corporation for around US$470 million.
With respect to the sale of state-owned capital, the state equalised and sold shares to
strategy shareholders in 30 enterprises in 2018 according to Government Notice No. 39/
TB-VPCP dated 25 January 2019, which falls short of its target of 181 enterprises. The
equalisation and divestment of state-owned capital continues to face obstacles due to many
factors, such as a lack of accuracy in evaluating state-owned capital, foreign ownership
limitations in several sectors, lack of transparency and consistency in the process, and a
complicated procedure.5 The government’s goal, by 2020, is to retain only 150 state-owned
enterprises in the following vital sectors:
a electricity transmission;
b cartography related to national security and military operations;
c railway infrastructure;
d air traffic services;
e postal services;
f irrigation management;
g lending for socioeconomic development;
h banking safety; and
i the lottery.
5 Saigon Online, available at http://sggpnews.org.vn/business/economy/transparency-must-be-improved-

in-soe-equitisation-to-attract-strategic-investors-71602.html.
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Foreign investment is the main factor driving M&A in Vietnam, especially in the real estate
sector. Foreign investors may mobilise capital from overseas countries and pour it into
the domestic market. Regarding Japanese acquirers, they seem to prefer to finance their
acquisitions of Vietnamese companies by using their existing equity capital and retained
profits.
Local investors, by contrast, rarely disclose the source of their purchases’ financing.
For example, in the largest M&A deal by a local investor in 2018, An Quy Hung Limited
Company, with charter capital of 500 billion dong, succeeded in acquiring a 57.71 per cent
stake in Vietnam Construction and Import-Export JSC (Vinaconex), which is one of the
largest conglomerates in construction, for 7.366 billion dong, but the financing of the deal is
still unclear. Considering that there is a limit on the amount of credit that can be extended by
banks and security companies for the acquisition of stakes, it is assumed that the acquisition
was sourced by the acquirer’s partners, which are various real estate companies. Other
domestic acquirers tried to mobilise capital from their shareholders and foreign investors to
fund M&A deals in 2018, such as Saigon Thuong Tin Real Estate JSC, which sought the
approval of the general shareholders’ meeting to issue and sell new shares to mobilise a total
of US$90 million for M&A.
For the first time in three years, the State Bank of Vietnam (the central bank of
Vietnam) has reduced its lending interest rate by 0.25 per cent, to 6.25 per cent, to boost
economic growth.6 However, enterprises, especially small and medium-sized ones, continue
to face difficulties in gaining financing from domestic banks because of high interest rates.
Vietnamese parties are familiar with the typical clauses applicable to offshore loan
arrangements, such as financial covenants and security requirements. However, while an
offshore creditor’s right to collect payment from debtors in the event of default is protected,
enforceability of some terms may in practice be questionable. For instance, offshore creditors
may face challenges if they wish to exercise the right to acquire secured shares in the event of
default if a project company is operating in areas that are conditional or restricted for foreign
investment. In addition, offshore creditors are not allowed to have collateral over a land use
right in Vietnam.
According to foreign exchange management regulations, offshore loans with terms of
more than one year are subject to registration with the State Bank of Vietnam. However, the
loan registration requirement is just an administrative tool for the State Bank of Vietnam to
manage and control the flow of foreign exchange currencies in Vietnam from time to time;
it is not a confirmation or certification of the state that an agreement is legally recognised.
VII EMPLOYMENT LAW

The current Labour Code7 has been effective since 1 May 2013. According to Article 106, the
number of overtime hours worked by employees must not exceed 50 per cent of the normal
working hours in one day. In the case of working on a weekly basis, the total of the normal
6 VN Express International, available at https://e.vnexpress.net/news/business/vietnam-cuts-lending-interest-

rate-to-spur-economic-growth-3611173.html.
7 Labour Code 10/2012/QH13.
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working hours plus overtime hours must not exceed 12 hours in one day, 30 hours in one
month, and 200 hours in one year. The previous law simply provided that the number of
overtime hours must not exceed four hours per day and 200 hours per year.
Key provisions of the current Labour Code also include:
a adding one more day off during the lunar new year period (Article 115);
b extending the maternity leave period for female employees from four to six months in
general (Article 157);
c extending the limitation period for dealing with breaches of labour discipline from
three to six months, or 12 months in some special cases (Article 124); and
d providing more details regarding cases in which foreign workers are exempted from
work permit requirements (Article 172). In particular, exemption cases include:
• capital-contributing members or owners of limited liability companies;
• members of the boards of directors of joint-stock companies;
• chiefs of representative offices and directors of projects of international
organisations or non-governmental organisations in Vietnam;
• those who stay in Vietnam for less than three months to offer services for sale;
• those who stay in Vietnam for less than three months to deal with complicated
technical or technological problems that adversely affect or are at risk of adversely
affecting production and business activities where these problems cannot be
handled by Vietnamese and foreign experts who are currently in Vietnam;
• foreign lawyers possessing a professional practice licence in Vietnam in accordance
with the law on lawyers;
• cases that are in accordance with a treaty to which Vietnam is a contracting party;
• those who are studying and working in Vietnam, provided that their employer
shall notify the provincial level state management agency of labour of their
employment seven days in advance;
• internal transfers within an enterprise and within the scope of the 11 services
on the List of Commitment on Services of Vietnam with the WTO, namely,
business, information, construction, distribution, education, environment,
financial, medical health, tourism, culture and entertainment, and transportation;
• entering Vietnam to provide expert technical consultancy services or to undertake
other tasks servicing the work of research, formulation, evaluation, monitoring
and assessment, management and implementation of a programme or project
using official development assistance (ODA) in accordance with an international
treaty on ODA signed by the competent authorities of both Vietnam and the
foreign country; and
• entering Vietnam to work as an expert, manager, executive director or technician
for a working period of less than 30 days and for a total cumulative period not
exceeding 90 days in any one year.
In 2017, the government introduced a draft of the new Labour Code to replace the existing
Labour Code, which is scheduled to be submitted for approval by the National Assembly in
October 2019. The second version of the new law was presented for the solicitation of the
public’s opinion from April to June 2019, and includes some notable changes as follows:
a the maximum overtime of employees in specific situations regulated by the government
increases to 400 hours per year from the existing limit of 300 hours;
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b the retirement ages, which are currently 60 for men and 55 for women, are proposed to
be gradually raised to 62 and 60, respectively, from January 2021;
c the executive committees of trade unions at the directly superior level are no longer able
to perform the rights and duties of trade unions in workplaces. In other words, there
must be a trade union at workplaces to carry out certain procedures relating to labour
matters, such as disciplinary procedures;
d probation for managerial positions may be extended to six months from the current
limit of 60 days; and
e the term of work permits may not exceed two years, and may be extended once for a
maximum term of two years.
VIII TAX LAW

The current Law on Tax Administration was enacted in 2006 and amended three times in
2012, 2014 and 2016, and is now proposed to be replaced by a new version. The draft
Law on Tax Administration (amended) has been reviewed at the National Assembly of
Vietnam (National Assembly) meeting in February 2019, and will be continuously updated
as determined by the National Assembly in this meeting. The proposed changes are mainly
based on technical aspects.
In 2017 and early 2018, the Ministry of Finance introduced its draft proposals for
some amendments to certain tax laws. Nevertheless, there has been no update or any agenda
for reviewing this draft in the National Assembly meeting schedule for 2019.
IX COMPETITION LAW
On 12 June 2018, an entirely new Law on Competition 2018 was adopted by the National
Assembly, effective from 1 July 2019. Below is a summary of the merger control provisions
introduced by this new Law.
Unlike its predecessor, which sets the trigger for a merger filing requirement based on
the combined market share of the parties concerned, the new Law prescribes several general
factors, one of which the government may use as a basis to set the thresholds for triggering
an obligation of the parties concerned to keep the local competition authority notified of a
deal. These factors are:
a the total assets in the Vietnam market of the parties to the M&A transaction;
b the total revenue in the Vietnam market of the parties to the M&A transaction;
c the value of the M&A transaction; and
d the combined market share in the relevant market of the parties to the M&A transaction.
If a notification is required, the parties involved in the M&A transaction will need to submit
a number of documents to the National Competition Committee for the purpose of the
notification. The Committee will then carry out a two-phase appraisal: a preliminary one,
which may take up to 30 days, and an official one, which will take up to 90 or 150 days,
depending on the complexity of the case.
A transaction may be carried out, but the parties concerned must undertake to conduct
one or more of the following pre-closing or post-closing measures as a condition for the
National Competition Committee to allow it:
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a to divide, separate or sell part of the shares or assets of the companies participating in
the transaction;
b to control the price of goods or services and other terms and conditions in contracts
signed by the company formed from the transaction; or
c to conduct other measures to overcome the effect of restricting competition in the
market or to enhance the positive impact of the transaction.
An M&A transaction is prohibited if it significantly restricts or is capable of significantly

restricting competition in the market. The significant competition-restraining impact or the
ability to cause a significant competition-restraining impact will be assessed based on any or
a combination of the following factors:
a the combined market share of the parties participating in the contemplated transaction;
b the extent of concentration in the relevant market before and after the contemplated
transaction;
c the relationship of the parties participating in the contemplated transaction;
d the competitive advantages brought by the contemplated transaction in the relevant
market;
e the ability of the company formed from the contemplated transaction to significantly
increase prices or the rate of return on sales;
f the ability of the company formed from the contemplated transaction to exclude or
hinder other businesses from entering or expanding the market; and
g special factors in the industry or sector in which the companies taking part in the
contemplated transaction operate.
i The Grab/Uber case

Grab’s acquisition of Uber’s business remains the most recent notable merger control case in
Vietnam (it was handled under the Law on Competition 2004, which was replaced by the
new Law on Competition 2018).
On 25 March 2018, Grab Inc announced its acquisition of all of Uber’s assets and
operations in South East Asia. As a result, GrabTaxi Company Limited and Uber Vietnam
Company Limited entered into an agreement under which Uber Vietnam Company Limited
transferred to GrabTaxi Company Limited all of its assets, operations and interests in Vietnam.
On 16 April 2018, the Vietnam Competition Authority (VCA) issued a decision to conduct a
preliminary investigation into the acquisition. In an explanatory document submitted to the
VCA, the parties claimed that as their combined market share in Vietnam was less than 30
per cent, they did not need to comply with the merger notification requirement. However, an
official investigation was carried out from May 2018, and the investigation results were issued
on 30 November 2018. Accord to these, the VCA found signs of violations of competition
law, including failure to notify an economic concentration under Article 20 of the Law on
Competition 2004 and falling into the prohibited category of economic concentration under
Article 18 of the Law on Competition 2004. In addition, it was held that Grab and Uber
had market power and competed directly with each other; therefore, Grab’s acquisition of
Uber’s business in Vietnam would change the market structure, undermine competition,
and potentially result in a powerful enterprise that may abuse its dominant market position.
The VCA delivered the investigation’s conclusion to the Competition Council, which
subsequently established a council to deal with the case. By law, within 30 days from the
receipt of the file, the Council is authorised to decide whether to conduct an investigative
553
Vietnam
hearing, to return the file for additional investigation or to suspend resolution of the case.
After the discovery of new evidence, the file was returned and the investigation procedure
extended.8
X OUTLOOK
Vietnam experienced strong economic growth in 2018, with the gross domestic product
(GDP) rate sitting at 7.08 per cent (exceeding its target of 6.7 per cent), the highest rate in the
past 11 years. According to the Annual Report of the General Statistics Office,9 foreign direct
investment reached US$35.46 million10 and Vietnam’s total import and export turnover
reached over US$480 billion,11 and Vietnam remains a very attractive place for investment
in the private sector. Vietnam is expected to benefit greatly from the Comprehensive and
Progressive Agreement for Trans-Pacific Partnership, which it signed in March 2018;
according to the World Bank, the Agreement is expected to increase Vietnam’s GDP from
1.1 to 3.5 per cent by 2030.
The banking sector could be more active than ever as the government works hard to
reform the banking system. Foreign ownership limits relating to the restructuring of weak
commercial banks may be relaxed by the Prime Minister on a case-by-case basis, allowing for
greater participation by foreign investors under a restructuring plan approved by the State
Bank of Vietnam.
Real estate will remain one of the most attractive sectors for foreign investors, given
the speed of the country’s urbanisation with the rise of the middle-income class. In 2017,
the National Assembly issued a resolution aimed at easing the procedures for enforcement
of property mortgages by banks. This is also one of the key factors to facilitate M&A in
the real estate sector, as banks will find it easier to sell mortgaged properties and real estate
development projects.
Both foreign and domestic deal makers continue to seek to acquire pharmaceutical
distribution chains. Given the existing stringent restrictions on foreign investments in this
sector, foreign deal makers should structure their deals creatively.
Retail, energy, and fast-moving consumer goods will continue to lure foreign
investments. There are also opportunities in renewable energy projects, high-tech agriculture
and other high-tech industries.
The speeding up of the privatisation of state-owned companies offers foreign investors
many more opportunities to enter the market through M&A. The government’s plan to
further divest the following enterprises may draw the attention of foreign investors: Petrolimex,
8 Vietnam Competition Authority, Annual Report (2018), page 24: http://moit.gov.vn/tin-chi-tiet/-/

chi-tiet/ket-qua-%C4%91ieu-tra-vu-viec-grab-mua-lai-uber-13470-22.html and http://www.vca.gov.vn/
NewsDetail.aspx?lg=1&CateID=1&ID=3964.
9 The 2018 Annual Report of the General Statistics Office: https://www.gso.gov.vn/default.aspx?tabid=
621&ItemID=19037.
10 The 2018 Annual Report of the Foreign Investment Agency under the Ministry of Planning and
Investment: http://fia.mpi.gov.vn/tinbai/6110/Tinh-hinh-thu-hut-Dau-tu-nuoc-ngoai-nam-2018.
11 The 2018 Annual Report of the General Department of Vietnam Customs was published on 15 January 2019:
https://www.customs.gov.vn/Lists/ThongKeHaiQuan/ViewDetails.aspx?ID=1559&Category=Ph%C3%A2n%
20t%C3%ADch%20%C4%91%E1%BB%8Bnh%20k%E1%BB%B3&Group=Ph%C3%A2n%20t%
C3%ADch.
554
Vietnam
Airports Corporation of Vietnam, Vietnam Machinery Installation Corporation (LILAMA),

Viglacera Corporation, Vietnam National Textile and Garment Group (Vinatex), Vietnam
Steel Corporation (VNSteel), Vietnam Rubber Group and Vinachem.
According to Nikkei Asian Review, as efforts by manufacturers to establish a business
in Vietnam have stabilised, infrastructure exports are creating a new wave of investment as
Vietnam lures private sector funding in infrastructure development, with an anticipated need
for US$400 billion in infrastructure spending over the next 10 years.
555
Appendix 1
ABOUT THE AUTHORS
OLE K AABØ-EVENSEN
Aabø-Evensen & Co Advokatfirma
Ole K Aabø-Evensen is one of the founding partners of Aabø-Evensen & Co, a Norwegian
boutique M&A law firm. He assists industrial investors, financial advisers, private equity
funds and other corporations in friendly and hostile takeovers, public and private M&A,
corporate finance and other corporate matters. He has extensive experience in all relevant
aspects of transactions, both nationally and internationally, and is widely used as a legal and
strategic adviser in connection with follow-ups of his clients’ investments.
Recognised by international publications such as The Legal 500, IFLR1000 and
European Legal Experts, during the past 14 years he has been rated among the top three M&A
lawyers in Norway by his peers in the annual surveys conducted by Finansavisen. In the 2012,
2013, 2017, 2018 and 2019 editions of this survey, Finansavisen named Mr Aabø-Evensen
as Norway’s number one M&A lawyer. He is also the author of a 1,500-page Norwegian
textbook on M&A.
Mr Aabø-Evensen is also the co-head of the firm’s M&A team and the former head of
M&A and corporate legal services at KPMG Norway.
CHARBEL ABOU CHARAF

White & Case LLP
Charbel Abou Charaf is a local partner in the mergers and acquisitions group. Previously
based in the firm’s New York office, Charbel focuses on domestic and cross-border mergers,
acquisitions, joint ventures, equity investments and capital markets transactions in a broad
range of industries.
Charbel has been involved in transactions in the Middle East, Europe, the Americas,
Asia and Africa. He also advises clients on general corporate matters and restructurings. He
is ranked as a notable practitioner by Chambers Global and a next generation lawyer by The
Legal 500. ‘Charbel Abou Charaf receives a raft of praise from interviewees, who describe
him as “very sharp and extremely knowledgeable, not only on regional and local laws and
regulations, but also on their global context”’. (Chambers Global 2019). Charbel was also
awarded the ‘Rising Star of the Year’ award at the 2016 IFLR Awards.
557
About the Authors
MARANATHA ABRAHAM
ÁELEX
Maranatha is an associate at ÁELEX in the corporate and commercial, energy and banking
and finance practice groups. She regularly advises on business restructuring transactions as
well as regulatory compliance issues. She is currently advising the Federal Ministry of Power,
Works and Housing on the development of a 215MW power plant as part of the federal
government’s Nigerian Electricity and Gas Improvement Project.
Maranatha was educated at the Nigerian Law School (BL) and University of Lagos
(LLB). She is a member of the Nigerian Bar Association.
NEELY AGIN
Winston & Strawn LLP
Neely Agin, a partner in Winston’s Washington, DC office, focuses her practice on antitrust
and competition matters. She has steered hundreds of transactions through the US and global
merger control review process and regularly represents clients in merger and other antitrust
investigations by the Department of Justice, the Federal Trade Commission and state attorneys
general, as well as in Hart-Scott-Rodino matters. Neely uses her deep experience to counsel
clients on a variety of antitrust issues, including distribution restrictions, the formation and
operation of joint ventures, trade association activities, information exchanges and pricing
practices. She also advises clients in developing, implementing and enforcing global antitrust
compliance programmes.
JOHN AGUILAR QUESADA

Aguilar Castillo Love
John Aguilar Quesada is a partner at Aguilar Castillo Love. He was born in San José in
1967 and was admitted to the Bar in 1989. He is also qualified as a notary public. He
obtained his degree in law from the Autonomous University of Central America (summa cum
laude, Academic Crown Award, 1988). In 1989, he attended a legal English course at Tulane
University, and then received his LLM from Harvard University Law School in 1991. His
publications include Foreign Investment and Development in Costa Rica (Harvard Law School,
1991), Foreign Investment: A New Proposal for Costa Rica and Intellectual Property, Economic
Development and Costa Rica. He is a member of the Costa Rican Bar Association and the
International Bar Association, and speaks Spanish and English.
JUAN DOMINGO ALFONZO PARADISI

Torres, Plaz & Araujo
A senior partner and member of the firm’s board of directors, Juan Domingo Alfonzo Paradisi
graduated from the Universidad Católica Andrés Bello in 1987. In 1990, he obtained a
postgraduate degree in administrative law from the same university. In 1992, he obtained a
doctorate in administrative law from Universidad Complutense de Madrid, and a doctorate
in superior studies in public administration from the National Public Administration
Institute, graduating cum laude. From 1996 to 1999, he served as an alternate judge for the
First Contentious Administrative Court.
558
About the Authors
Dr Alfonzo Paradisi is a board member of the Association of Graduates of the National

Institute of Public Administration of Spain. He is a also a member of the Venezuelan Tax Law
Association, the Administrative Law Foundation, the Venezuelan Financial Law Association
and the Venezuelan Law and Economy Association.
Dr Alfonzo Paradisi is the Vice President of the Venezuelan Chapter of ECSA-Andina
(the European Community Studies Association). He is also a member of the board of directors
of the European–Latin American Integration Institute (IELEPI).
He is a professor of the chair of protection of free competition for postgraduate courses
and a coordinator of the postgraduate programme in economic law at the Universidad
Católica Andrés Bello. At the Universidad Central de Venezuela, he is a professor of the
chair in administrative and fiscal decentralisation for the postgraduate programme in tax law,
administrative law and constitutional law for the Law School, and on administrative law for
the School of Political Studies. He speaks Spanish and English.
LAWRENCE FUBARA ANGA

ÁELEX
L Fubara Anga heads the banking, finance and transportation practice groups at ÁELEX.
He advises on M&A strategy, as well as on financial, corporate and commercial issues
affecting projects and companies, especially in the oil, gas, electricity, aviation, maritime,
banking and financial services sectors.
Mr Anga has been involved in project finance, banking and capital market transactions
for several years. He is a former chair of the Capital Markets Solicitors Association.
He advised the government on the review of the Investment and Securities Act and
was a member of the National Committee on the Review of Capital Market Structure and
Processes.
He was invited to become a member of the Presidential Policy Advisory Committee;
he was also a member of the subcommittee on finance and investment and authored the
committee’s policy paper on foreign investment and privatisation. He is currently the chair
of the board of trustees of the Investors Protection Fund of the Nigerian Stock Exchange. He
was a member of the Securities and Exchange Commission’s (SEC) master plan committee
and is currently a member of the rules and compliance subcommittee of the capital markets
committee of the SEC.
Mr Anga was educated at Yale University and the University of Cambridge. He is
admitted to practise law in Nigeria, England and Wales, and Ghana.
MIHÁLY BARCZA
Oppenheim Law Firm
Dr Barcza graduated from the József Attila University Szeged in 1994 and studied at
University of Economics Budapest between 1995 and 1997. He was a trainee at the Budapest
Stock Exchange and later was in-house counsel at CO-Nexus Investment House. He was a
trainee, then attorney and later partner with a reputable Hungarian law firm, Réti Szegheő
and Partners, from 1995 to 2004, spending seven months at Clifford Chance, London, on
a scholarship. He was senior counsel and co-head of corporate with international law firm
Freshfields Bruckhaus Deringer from 2004 to 2007. He is a founding partner of Oppenheim.
He has been a member of the Money and Capital Market Arbitration Court since 2000.
559
About the Authors
MOHAMMED BASAMA
White & Case LLP
Mohammed is an associate in our corporate and M&A group, based in Doha. Mohammed
advises clients on a range of matters including cross-border mergers and acquisitions, joint
ventures, reorganisations and general corporate advice. Before joining White & Case,
Mohammed worked for an international law firm in its London office.
OMAR S BASSIOUNY
Matouk Bassiouny & Hennawy
Omar S Bassiouny is the founding partner of Matouk Bassiouny & Hennawy and head of the
corporate and M&A practice group. He is consistently ranked in top tiers and bands by legal
periodicals in the areas of corporate law and M&A for his considerable expertise in setting
up joint ventures and new projects in Egypt, as well as ensuring compliance with local laws
and corporate governance.
Omar is also the founding partner in Matouk Bassiouny’s Dubai office, where he
heads the corporate and M&A work, along with Malack Habashi and Ahmed Ibrahim in
association with Amal Advocates.
CAMERON BELSHER
McCarthy Tétrault LLP
Cameron Belsher is the leader of McCarthy Tétrault’s M&A group. He focuses his practice
on public and private M&A, corporate finance and private equity, frequently advising on
international and cross-border deals. A senior member of the firm’s business law group, Cam
is one of the most sought-after corporate lawyers in Canada and the relationship partner for
some of McCarthy Tétrault’s key clients.
Cameron is a former member of the Toronto Stock Exchange (TSX) Listings
Advisory Committee, which is composed of individuals representing legal, brokerage and
securities-related industries, and provides feedback on TSX listings initiatives. He has lectured
extensively on M&A and public corporation matters and is a former adjunct professor at the
Faculty of Law, University of British Columbia. He received his LLB from Osgoode Hall Law
School in 1987, and was called to the British Columbia Bar in 1988.
Cameron is ranked among Canada’s top business lawyers by a multitude of publications,
including Chambers and Partners, The Legal 500, Lexpert, Best Lawyers in Canada, Who’s Who
Legal and IFLR1000.
JUSTIN BHARUCHA
Bharucha & Partners
Justin is a partner at Bharucha & Partners and his practice focuses on M&A and finance.
He advises on acquisitions by and from non-residents, especially in sectors where foreign
investment is subject to restrictions, illustratively, real estate, defence and retail. Justin has
also structured transactions and advised Indian clients acquiring companies offshore.
560
About the Authors
NICOLAS BIRKHÄUSER
Niederer Kraft Frey Ltd
Nicolas Birkhäuser specialises in merger control proceedings and cartel and abuse of dominance
investigations, including multi-jurisdictional coordination, high-profile investigations and
transactions, set-up of business (including cooperation, distribution, sourcing, research
and development, dominance) and compliance. A particular focus of his practice lies on
intellectual property-related aspects of competition law (including cooperation agreements,
distribution systems and licensing).
MIGUEL BOLÍVAR TEJEDO

Uría Menéndez
Miguel Bolivar joined Uría Menéndez in 2010, and he has been a senior associate at the firm
since 2018. From March 2016 to September 2016, he was seconded to the London office of
Slaughter and May. Miguel practises as a lawyer in Uría Menéndez’s corporate department.
His main practice areas are commercial law in general, corporate law, M&A, and
refinancing and restructuring of companies. He has advised on very diverse operations,
including financing and debt restructuring operations, both bilateral and syndicated; buying
and selling of companies; real estate transactions and the purchase and sale of asset portfolios;
merger and restructuring operations of groups of companies; and contracting in general.
FRANCISCO BRITO E ABREU

Uría Menéndez – Proença de Carvalho
Francisco Brito e Abreu joined Uría Menéndez in 2001 after working as in-house counsel in
the Portuguese subsidiary of a multinational corporation, a privately owned holding company
and a listed Portuguese company, and as a lawyer in another prestigious Portuguese law firm.
He was made a partner of Uría Menéndez in January 2005.
He focuses his practice on commercial and corporate law issues, and has extensive
experience in corporate restructuring, M&A and private equity transactions.
He is recognised by major publications (Chambers Global, IFLR1000, PLC Which
Lawyer?) for his work in M&A and private equity.
THOMAS BRÖNNIMANN
Thomas Brönnimann’s practice focuses on capital markets and private and public M&A
transactions, with a particular focus on listed entities and other large enterprises. His M&A
practice includes private transactions for both strategic and financial buyers and sellers, and
public tender offers. He represents clients before the Swiss Takeover Board.
ADRIANO CASTELLO BRANCO

Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados
Adriano focuses his practice on a wide range of corporate matters, mergers and acquisitions
and restructuring transactions, with an emphasis on listed companies and private equity
investments. He is the Director of the Brazilian Institute of Business Law (Ibrademp) and
has experience in law firms in Brazil and abroad, having worked as an international associate
561
About the Authors
in the New York office of Davis Polk & Wardwell LLP. He has also held executive in-house
positions and been a board member of listed domestic corporations. He is author of the book
The Board of Directors in Corporations and several academic articles in collective works and
law reviews.
JOÃO MARCELINO CAVALCANTI JÚNIOR

João counsels national and international companies (including listed companies), private
equity funds and investors on corporate matters, including mergers, acquisitions, joint
ventures and divestments. He is admitted to practise in Spain and Brazil. From 2007 to
2012, he gained international experience in Spain, where he practised at a Big Four firm,
a multinational company and top-tier Spanish law firms. He holds a LLM degree in
international business law from the ESADE Law and Business Schools and a LLM degree in
taxation from University of Barcelona. He has also received a bachelor of laws degree from
the Federal University of Pernambuco.
HO KYUNG CHANG
Bae, Kim & Lee LLC
Attorney Ho Kyung Chang is a partner in the corporate and M&A practice group of Bae,
Kim & Lee LLC. He advises domestic and international clients in connection with a broad
range of general corporate and transactional matters, including M&A, foreign investments,
private equity investments, capital markets and corporate governance since he joined Bae,
Kim & Lee LLC in 2009.
Mr Chang gained experience of working as a secondee in the foreign affairs and
transactions team at LG Display Co, Ltd in 2011, and as a foreign attorney in the Washington,
DC, office of Arnold & Porter LLP in 2014 and 2015. He was appointed by the Ministry of
Justice of Korea as a member of the Legal Advisory Committee for International Investment
Disputes in 2011.
Mr Chang received a bachelor of law degree from Seoul National University in
2005, completed the Judicial Research and Training Institute in 2009 and graduated from
Georgetown University Law Center (LLM) in 2014. He was admitted to the Korea Bar in
2009 and the New York Bar in 2015.
WEI (DAVID) CHEN

DeHeng Law Offices
Mr Wei (David) Chen is a managing partner and head of cross-border transactions. His
diversified practice includes advising state-backed investment funds, state-owned enterprises
and private enterprises in outbound M&A, especially in semiconductors and mining. He
was named in the March 2018 edition of Asian Legal Business magazine as one of the top
10 M&A lawyers in China. He advised JAC Capital in its US$2.5 billion acquisition of
the Standard Products Unit of NXP Semiconductors. In mining mandates, Mr Chen has
represented China Gold and other major miners as lead counsel in big ticket global deals. Mr
Chen also has a long track record of representing foreign investors in their establishment and
market entry in China and their negotiation of joint ventures with Chinese partners.
562
About the Authors
MARCUS CHOW
Bird & Bird ATMD LLP
Marcus is head of the corporate group at Bird & Bird ATMD LLP.
His transactional practice includes venture capital investments, private and public
M&A, as well as private equity entries and exits. He has experience advising clients across
a range of industries including manufacturing, retail, construction, real estate, food and
beverage, banking and finance, airlines, mining, agriculture and technology.
Marcus graduated with an LLB from the National University of Singapore and an LLM
from the University of Virginia. He also holds a certificate in governance as leadership from
the Harvard Kennedy School of Government. Marcus is qualified to practise in Singapore
and New York, USA.
VASSILIS S CONSTANTINIDIS
Dryllerakis & Associates
Vassilis S Constantinidis is active in the fields of M&A, employment law, commercial law,
intellectual property, litigation and arbitration. He is specialised in employment law, having
extensive experience in all HR issues (including code of conduct policies, data protection
policies, employers’ handbooks, business-level collective labour agreements and individual
employment contracts of any kind). He has worked for 18 years as an in-house lawyer and
legal director in the holding company of Boutari Group and Mythos Brewery SA (part of
S&N and subsequently Carlsberg Group), and was also in charge of the HR and corporate
affairs department, contributing to several international projects of Carlsberg Group.
He is a graduate of the Athens University Law School, and is a member of the Athens
Bar. He is qualified to practise before all courts of all levels of jurisdiction. He speaks Greek,
English and French.
ROGER A COOPER
Cleary Gottlieb Steen & Hamilton LLP
Roger Cooper is a partner at Cleary Gottlieb Steen & Hamilton LLP, based in New York.
Mr Cooper’s practice focuses on complex civil litigation, with an emphasis on disputes
arising out of securities, M&A and derivative transactions, and on corporate governance
issues.
Mr Cooper has been recognised as a leading lawyer by Chambers USA, Benchmark
Litigation and The Legal 500 US and has written for numerous publications, including
New York Law Journal: Complex Litigation, New York Law Journal Litigation, US Law Week,
Derivatives, White Collar Crime and Derivatives Litigation in Business and Commercial
Litigation in Federal Courts.
Mr Cooper joined the firm in 2003 and became a partner in 2011. He received a
JD from Columbia University School of Law, a PhD in political philosophy from Duke
University and an undergraduate degree from the University of Wisconsin. He also served as
a law clerk to the Honourable B Avant Edenfield of the US District Court for the Southern
District of Georgia.
Mr Cooper is a member of the Bar of New York, and is currently a member of the
Committee on Securities Litigation of the Bar Association of the City of New York and of
the Board of The Fund for Modern Courts.
563
About the Authors
SUZANNE CORREY
Maples Group
Suzanne Correy is a member of the Maples Group’s corporate and Latin American teams.
She has extensive experience in all aspects of corporate work, including joint ventures, IPOs
and M&A, and also advises on a wide variety of structured finance, capital markets and
investment fund transactions. Suzanne maintains a strong focus on public company work,
advising clients through all stages of their growth from start-up to IPO and beyond.
Through her Latin American practice, Suzanne advises clients both originating from
and investing into the region. She has also advised telecommunications clients and hardware
companies on Cayman Islands licensing and regulatory issues.
GUILLERMO DE LA ROSA STOLK

Guillermo de la Rosa Stolk has been a senior partner at Torres, Plaz & Araujo since 1992 and
became a member of its board of directors in 1996. He joined the firm in 1984 and became
a junior partner of the firm in 1988. Before joining Torres, Plaz & Araujo, he worked at
Chadbourne, Parke, Whiteside & Wolf (currently Chadbourne & Parke LLC) in its New
York office as a foreign associate (1983 to 1984).
He received his graduate degree from the Universidad Católica Andrés Bello (Caracas)
in 1982. Furthermore, he completed postgraduate studies in comparative law at the
Inter-American Law Institute, New York University School of Law (1983) and in financial
law at the Universidad Católica Andrés Bello (1994).
He has devoted his practice not only to assisting the firm’s clients’ regular corporate
needs, but has also been very active in numerous domestic and international transactions,
including,but not limited to asset protection and cross-border structuring. He also advises
on both federal and municipal taxes and estate planning. In his practice, Mr de la Rosa Stolk
deals with domestic and international clients, the latter being from America, Europe and the
Far East.
On the academic side, Mr de la Rosa Stolk has taught as a guest professor on the
masters of economic law programme at the Pontificia Universidad Javeriana in Bogotá, and
also on the specialisation in finance at the Instituto de Estudios Superiores de Administración
in Caracas.
He is a member of the International Bar Association and the Inter-American Bar
Association (Venezuelan Chapter), and represents Torres, Plaz & Araujo at the Capital
Markets Committee of the Venezuelan-American Chamber of Commerce & Industry and
at the Venezuelan-Colombian Economic Integration Chamber, of which he has been head
of the legal committee and a member of its board of directors. Mr de la Rosa Stolk was a
member of the board of directors of Mavesa SA, a former publicly traded large industrial food
conglomerate, from 1994 to 2000. He speaks Spanish and English.
OLHA DEMIANIUK
Baker McKenzie
Olha Demianiuk is a partner in Baker McKenzie’s corporate M&A practice group and the
head of the firm’s healthcare industry group in Kiev. Olha advises on private M&A, both
cross-border and domestic, and cross-border equity capital market deals in various industries.
564
About the Authors
Olha also advises clients on the establishment of joint ventures and corporate restructuring.
Olha is recognised by Chambers Europe, IFLR1000, The Legal 500 EMEA and Ukrainian law
firm legal directories in M&A and healthcare practices in Ukraine.
VALMY DIAZ IBARRA

Valmy Diaz Ibarra is a graduate of the Universidad Católica Andrés Bello (2001), and has a
postgraduate degree in tax law from the Universidad Central de Venezuela (UCV).
He joined the Torres Plaz & Araujo team in 2011 as a general partner. He has been
involved in tax advice, litigation and planning for 18 years. As a litigator, he has represented
local companies and multinationals before the superior tax courts and the Supreme Tribunal
of Justice, challenging tax laws and regulations, as well as tax-deficiency memos issued by
federal, state and municipal tax authorities.
He offers tax advice activities related to the application of tax rules, and the tax
consequences in personal and corporate reorganisations and contracts.
He is currently an active member of the Venezuelan Tax Law Association (AVDT). He
speaks Spanish and English.
ROBERT DOOLEY
Bae, Kim & Lee LLC
Robert Dooley is an Australian foreign attorney in the corporate group at Bae, Kim & Lee
LLC. Robert advises public and private companies, multinationals and regulated entities on a
wide variety of corporate and commercial matters, including M&A, joint ventures, corporate
governance, commercial contracts, infrastructure investments and corporate restructures.
Before joining Bae, Kim & Lee LLC, Robert practised privately in Australia for nine years,
including eight years with Norton Rose Fulbright.
DENIS DURASHKIN
BGP Litigation
Denis Durashkin is a senior associate at BGP Litigation. Denis is focused on M&A transactions
and has more than 10 years of extensive M&A experience, which includes advising major
Russian and international companies on complicated multinational deals.
WILHELM EKLUND
Dittmar & Indrenius
Wilhelm Eklund is a partner at Dittmar & Indrenius and co-head of the firm’s M&A
and private equity practice. His work focuses on M&A as well as private equity, securities
and corporate law. Mr Eklund has a law degree from University of Helsinki and an MSC
(economics) degree in finance from Hanken School of Economics in Helsinki.
565
About the Authors
MAHA EL-MEIHY
Matouk Bassiouny & Hennawy
Maha El-Meihy is an associate at Matouk Bassiouny & Hennawy and a member of the
corporate and M&A team.
Maha has worked on several due diligences, specifically corporate and commercial
matters. Further, she has given advice on multiple daily matters in connection with the
commercial law, the labour law relating to the termination and redundancy of employees
as well as working on matters associated with the companies’ law, in particular to the
establishment of corporate entities, giving advice on daily matters, organising and drafting
the minutes of meetings, and drafting contracts including share and purchase agreements in
addition to various contracts depending on the needs of the client.
RICHIE FALEK
Richie Falek, a partner in Winston’s New York office, has been lead antitrust counsel in
hundreds of domestic and multinational transactions covering myriad industries including
numerous multi-billion dollar transactions. He has closed transactions representing more
than US$1 trillion in value. Richie’s primary goal is to get transactions closed with as
little impact and distraction caused by the antitrust process as possible. He takes a holistic
approach, overseeing all aspects of a transaction, beginning with the analysis of potential
antitrust issues before the transaction is structured, through the negotiation of asset purchase
or similar agreements, and then through the completion of the Hart-Scott-Rodino process
and any other regulatory approvals. He has extensive experience with the Department of
Justice, the Federal Trade Commission, and state and foreign regulators.
JÓZSEF BULCSÚ FENYVESI

Oppenheim Law Firm
Dr Fenyvesi graduated from the Janus Pannonius University of Pécs in 1998 and pursued
postgraduate studies in EU law at the University of Pécs. He obtained an LLM in international
economic law at the University of Warwick in 2004, and attended the University of Oxford
as a Chevening scholar and received a magister juris degree in 2006. Mr Fenyvesi joined
the Budapest office of Freshfields Bruckhaus Deringer in 2005. He became an associate of
Oppenheim in 2007 and has been a partner at the firm since 2010. Mr Fenyvesi has been the
head of the corporate practice of Oppenheim since 2014.
LAURA FERNÁNDEZ-PEIX PÉREZ

Russin, Vecchi & Heredia Bonetti
Laura Fernández-Peix Pérez is a senior associate at Russin, Vecchi & Heredia Bonetti. She
provides legal assistance and consulting to firms and investment projects in all matters relating
to their legal needs, particularly in areas related to contracts, commercial and corporate
law. She has represented several companies in corporate reorganisation processes, such as
mergers, spin-offs, acquisitions, dissolutions, corporate restructuring, tax planning, in-kind
contributions, transfers of shares, transfers of assets, and the incorporation and registration
of non-profit organisations.
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About the Authors
SEOW HUI GOH

Seow Hui leads the Bird & Bird Singapore employment practice, and her practice encompasses
the full range of employment issues, including HR regulatory and compliance issues. She
regularly advises corporate clients on employee issues arising from business restructuring
needs, mergers and acquisitions, including employment due diligence, managing employee
terminations, particularly complex exit negotiations, protection of employer trade secrets
and confidential information, employment contracts, executive compensation and benefits,
workplace policies, employee relations, workplace grievances and investigations, workplace
ethics and compliance, workplace safety and health, work injury claims, industrial relations
and collective bargaining, HR personal data protection, global mobility and immigration.
Seow Hui frequently represents companies in employment disputes, and clients value
her methodical approach and pragmatic advice.
Her work covers Singapore and cross-border work into the region, with a particular
focus on ASEAN. Seow Hui is also experienced in managing large-scale and complex regional
restructuring and integration projects.
Seow Hui is an accredited mediator with the Singapore Mediation Centre and a
member of the Association of Workplace Investigators.
EDUARDO GONZÁLEZ
Creel, García-Cuéllar, Aiza y Enríquez, SC
Eduardo González is a partner in the Mexico City office. His practice focuses on M&A,
representing buyers, sellers, boards of directors and financial advisers in connection with
complex transactions, including M&A, private equity deals, spin-offs, joint ventures, strategic
alliances, minority investments and asset sales. Among other things, Mr González regularly
advises large multinationals and global private equity investors and sponsors on acquisitions
and investments in Mexico across multiple industries.
Mr Gonzalez has been repeatedly recognised as one of the country’s leading practitioners
in M&A by specialised publications such as Chambers and Partners Latin America, Who’s Who
Legal and The Legal 500.
Mr González has authored and co-authored several articles on M&A and private
equity-related topics for prestigious publications including The Chambers Legal Practice Guide
and The Private Equity Review.
MARK I GREENE
Cravath, Swaine & Moore LLP
Mark I Greene serves as the head of Cravath’s corporate department and as the leader of its
international practice. His practice focuses on M&A, corporate governance and securities
matters, including advising on cross-border transactions, private equity deals, complex
restructuring transactions, proxy fights, takeover defences, hedge fund activism and global
securities offerings.
Mr Greene has long been recognised as one of the world’s leading M&A practitioners
by, among others, Chambers USA, Chambers Global, The Legal 500 United States, The Legal
500 Latin America and IFLR1000. In 2018, he was named the ‘Cross-Border Dealmaker of
the Year’ by The Deal.
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About the Authors
Mr Greene received a BA from Cornell University in 1989 and a JD from the

University of Pennsylvania in 1993. After a clerkship with the Honourable Charles Legge of
the US District Court for the Northern District of California, he joined Cravath in 1994 and
became a partner in 2001.
RICHARD HALL
Cravath, Swaine & Moore LLP
Richard Hall is a partner in Cravath’s corporate department. His practice focuses on M&A,
corporate governance advice and matters relating to activist defence. Mr Hall is the head of
Cravath’s M&A practice for EMEA.
Mr Hall has been repeatedly cited as one of the country’s leading practitioners in M&A
by, among others, Chambers USA, Chambers Global, The Legal 500 United States, The Legal
500 Latin America and IFLR1000. He was named a ‘Dealmaker of the Year’ by The American
Lawyer in 2018.
Mr Hall received a B Com with honours in 1984, an LLB with honours in 1986 from
the University of Melbourne and an LLM from Harvard University in 1988. He joined
Cravath in 1988 and became a partner in 1996.
ROBERT HANSEN
Robert Hansen is a partner in McCarthy Tétrault’s business law group. His practice focuses
on the purchase and sale of shares and assets of public and private companies, with additional
experience in continuous disclosure and corporate governance matters. Recognised as a skilled
dealmaker, Robert has acted as lead counsel in a range of complex transactions, providing
strategic advice and innovative insight on some of Canada’s most high-profile deals while
successfully pursuing his clients’ objectives.
Robert is on the faculty of the Directors College, Canada’s first university accredited
corporate director development programme, founded by the Conference Board of Canada
and the DeGroote School of Business at McMaster University. He also teaches an advanced
securities law seminar at the University of Windsor and Western University. Robert received
his LLB from Osgoode Hall Law School in 1997, and was called to the Ontario Bar in 1999.
Robert is recognised as a leader in corporate law, securities, M&A and private equity
by Chambers and Partners, Lexpert and IFLR1000. In 2008, he was named a ‘Rising Star’ by
Lexpert, an accolade given to Canada’s top 40 lawyers under 40.
TARO HIROSAWA
Nishimura & Asahi
Taro Hirosawa is a partner at Nishimura & Asahi and is admitted to the Japan Bar (2005)
and the New York Bar (2014), and is registered as a foreign attorney in Vietnam (2013). He
is a graduate of Tokyo University (LLB, 2004) and Duke University School of Law (LLM,
2013). Since August 2013, he has practised law at Nishimura & Asahi’s Vietnam office.
He has varied experience in cross-border transactions between Japan and Vietnam, and in
providing legal advice to foreign-invested companies in Vietnam.
568
About the Authors
CHRISTIAN HOEDL
Uría Menéndez
Christian Hoedl is a lawyer in the Madrid office of Uría Menéndez. He joined the firm
in 1987 and became a partner in 1998. He was resident partner in the firm’s Bilbao office
between 1999 and 2001.
Christian focuses his practice on M&A and private equity.
He heads the M&A and private equity practice area at Uría Menéndez. He has
participated in a large number of private equity deals for national and international funds,
with or without a presence in Spain, both in private and P2P deals. Christian has extensive
experience in M&A and joint ventures, and has also advised on financing, directors’ bonuses
and refinancing in private equity-owned companies. He acts as secretary to the board of
several companies.
He is recognised as a leading lawyer by the main international legal directories
(Chambers & Partners, PLC, Who’s Who Legal, etc.).
HANS HENNING HOFF

Heuking Kühn Lüer Wojtek
Hans Henning Hoff is qualified in both Germany and Iceland. He studied law, Scandinavian
languages and history at the universities of Erlangen, Reykjavík and Bonn, and obtained his
Dr jur summa cum laude from the University of Munich with a thesis on the influence of
Roman law on the oldest written Icelandic law.
Hans advises domestic and international corporate clients and financial institutions
in Germany and in Iceland. His areas of practice are corporate and commercial law with a
special focus on energy-related projects. Hans also has considerable experience in real estate
transactions. Regarding corporate law, he advises his clients with regard to M&A transactions,
corporate restructurings and joint ventures on an ongoing basis.
PHILIPPE HOSS
Elvinger Hoss Prussen
Philippe Hoss became a member of the Luxembourg Bar in 1987 and joined Elvinger Hoss
Prussen in 1988, where he has been a partner since 1990.
Philippe holds a maîtrise en droit and a postgraduate degree (DEA) in business law from
the Université Paris 1 Panthéon-Sorbonne (France).
He lectures on various business and financial matters at the University of Luxembourg,
and on company law as part of the course for admission to the Luxembourg Bar.
He has been a member of the board of directors of the ILA (Luxemburg Institute of
Directors) since 2010 and a member of the Capital Market Committee set up by the CSSF
(Financial Sector Supervisory Commission).
Philippe’s principal fields of activity are M&A, capital markets, banking and finance,
and securitisations.
Philippe authored the first published English translation of the law of 10 August 1915 on
commercial companies and of all subsequent updates thereof.
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About the Authors
MASAKAZU IWAKURA
TMI Associates
Masakazu Iwakura is a senior partner at TMI Associates. He obtained an LLB from the
University of Tokyo in 1985 and a LLM from Harvard Law School in 1993, and is qualified
to practise in Japan and the state of New York.
Mr Iwakura has handled a variety of large-scale and unprecedented M&As, inter alia,
Japan Post’s acquisition of Toll Holdings, Idemitsu Kosan’s acquisition of Showa Shell Sekiyu
shares from Royal Dutch Shell, the integration of UFJ Bank Group and Mitsubishi Tokyo
Financial Group (MUFG), the acquisitions of AIG Edison Life Insurance and AIG Star Life
Insurance by Prudential Financial, and the demutualisation and GPO of the Dai-ichi Mutual
Life Insurance Company.
Mr Iwakura has lectured on corporate law, M&A law and other laws at various law
schools and universities for more than 25 years. He was a visiting professor of law at Harvard
Law School in 2007 and 2013 academic years and a lecturer at Kyoto University Law school
from 2005 to 2007; furthermore, he has been professor of law at Hitotsubashi University,
Graduate School of Law, Department of Business Law, since 2006.
THIERRY KAUFFMAN
Elvinger Hoss Prussen
Thierry Kauffman became a member of the Luxembourg Bar in 2009 and joined Elvinger
Hoss Prussen the same year; he became a partner in 2018.
Thierry holds a maîtrise en droit from the Université Paris 1 Panthéon-Sorbonne
(France) and a master’s degree in international private and business law from the Université
Paris II Panthéon-Assas (France).
He was the president of the Luxembourg young bar association in 2018 and 2019.
Thierry’s principal fields of activity are M&A, capital markets, corporate and finance.
HEINRICH KNEPPER
Hengeler Mueller Partnerschaft von Rechtsanwälten mbB
Heinrich Knepper received his law degree after studying at the universities of Regensburg,
Germany and Paris II Panthéon-Assas. He was admitted to the German Bar in 1996 and
began his career at the Berlin office of Hengeler Mueller.
Mr Knepper has been a partner at Hengeler Mueller since 2001. From 2003 to 2006 he
headed Hengeler Mueller’s London office, before returning to Frankfurt. He advises both
German and international corporate and financial clients on private and public M&A
and on debt financing, in particular acquisition finance with a focus on leveraged buyout
transactions, as well as restructuring transactions.
MELTEM KONING-GUNGORMEZ
Kennedy Van der Laan
Meltem specialises in private equity and venture capital transactions, M&A, corporate
governance and international restructurings. She advises private equity and venture capital
investors, management teams and entrepreneurs on management buyouts and exits.
Corporations often seek her advice on reorganisations, acquisitions and disposals. Meltem
570
About the Authors
works extensively with (mostly US or UK-based) international corporations who want to

add the Netherlands to their geographical footprint, and advises foreign investors doing
business in the Netherlands. She has a particular track record in the technology, media
and retail sectors. Meltem helps her clients to achieve their goals by providing practical,
stage-appropriate, business-oriented advice. Prior to Kennedy Van der Laan, Meltem advised
high-profile clients on public and private M&A and private equity transactions in both
Amsterdam and New York.
MEREDITH KOTLER
Meredith Kotler is a partner at Cleary Gottlieb Steen & Hamilton LLP based in New York.
Ms Kotler’s practice focuses on securities, M&A, general commercial and shareholder
derivative litigation, in federal and state trial and appellate courts. She regularly represents
clients in securities class actions and a host of corporate governance matters.
Ms Kotler has been recognised as a leading lawyer by Chambers USA, Benchmark
Litigation and The Legal 500 US, and has spoken on securities issues and other topics before the
Practising Law Institute, the SEC Institute and the Compliance, Governance and Oversight
Council. Her writings on the latest developments in Delaware courts and deal litigation have
been published in the Harvard Law School Forum on Corporate Governance and other outlets.
Before entering private practice, Ms Kotler served as an assistant US attorney in the
Southern District of New York from 1998 to 2004. During the last year and a half of her
tenure, she was the Deputy Chief Appellate Attorney in the Civil Division.
Ms Kotler joined the firm as a partner in 2009. She received a JD from Harvard Law
School and an undergraduate degree from Princeton University. She also served as a law clerk
to the Honourable Barbara S Jones of the US District Court for the Southern District of
New York.
Ms Kotler is a member of the Bar of New York.
JASPER KUHLEFELT
Dittmar & Indrenius
Jasper Kuhlefelt is a senior associate in Dittmar & Indrenius’ M&A and private equity team.
His work focuses on M&A as well as corporate law and intellectual property. Mr Kuhlefelt
has a law degree from University of Helsinki.
ALAN PEUM JOO LEE

Bae, Kim & Lee LLC
Attorney Alan Peum Joo Lee graduated from Seoul National University (BS in economics)
in 2006 and from Yonsei University Law School (LLM) in 2014. He joined Bae, Kim &
Lee LLC in 2014. His current work areas include corporate legal advisory, legal advisory for
Japanese companies and corporate litigations.
571
About the Authors
DANIEL LEE
Maples Group
Daniel Lee is a member of the Maples Group’s corporate team. His experience includes
advising on a broad range of corporate and commercial work, including private equity, IPOs,
M&A and joint ventures. He also advises on all types of investment funds, and has extensive
experience in finance and capital markets.
DANIELLE LOBO
Afridi & Angell
Danielle Lobo specialises in M&A, private equity and general corporate matters. She has
considerable experience in, and has advised vendors, trade purchasers and management on,
both the acquisition and disposal of companies, as well as on private equity investments,
including the funding of start-up companies and a number of oil and gas technology
companies.
Ms Lobo is qualified as a solicitor in Scotland. She obtained a bachelor of laws degree
from University of Aberdeen.
HA HOANG LOC
Nishimura & Asahi
Ha Hoang Loc is a partner at Nishimura & Asahi. He has extensive experience in cross-border
M&A deals and other corporate transactions in a wide range of sectors. He has been practising
since 2001 at both domestic and international law firms. He is a graduate of Ho Chi Minh
City University of Law (LLB, 2001) and Southampton Solent University (LLM, 2008), and
is admitted to the Ho Chi Minh City Bar Association.
GREGORY LYONS
Debevoise & Plimpton LLP
Gregory Lyons is a corporate partner and co-chair of the firm’s financial institutions group.
Mr Lyons is also chair of the New York City Bar Association Committee on Banking Law.
His practice focuses on serving the needs of financial institutions, as well as private equity and
other entities that invest in financial institutions, with a particular emphasis on domestic and
cross-border bank regulatory, transactional and examination matters.
MARK MCDONALD
Mark E McDonald’s practice focuses on commercial litigation and arbitration, including in
disputes involving M&A, commercial contracts and financial institutions.
Mark joined the firm in 2011. He received a JD from New York University School of
Law, magna cum laude, where he was an Allen Scholar and notes editor of the Law Review. He
is a member of the Bar of New York, and is currently a member of the Second Circuit Courts
Committee of the Federal Bar Council.
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About the Authors
MARK MCEWAN
Mark McEwan is an associate in McCarthy Tétrault’s business law group. He practices in
the areas of corporate finance, M&A, corporate governance and private equity. He works
alongside clients and senior partners on complex domestic and international matters.
In 2019, Mark completed a six-month secondment with a global private equity firm,
and gained experience on a variety of transactional, investment and regulatory matters,
working closely with investment and internal legal professionals. He graduated with great
distinction in economics from McGill University in 2009 and from McGill’s Faculty of Law
in 2013. He was called to the Quebec Bar in 2014 and the Ontario Bar in 2015.
YOZUA MAKES
Makes & Partners Law Firm
Yozua Makes is the senior and managing partner at Makes & Partners Law Firm, a Jakarta-based
boutique law firm focusing on the areas of corporate finance, mergers and acquisitions,
capital markets, banking and foreign investments. He has over 30 years of experience in these
areas and has handled a broad range of complex cross-border commercial transactions. He
has been regularly recognised as a leading corporate lawyer in Indonesia, most recently as the
‘Most Commended External Counsel in South East Asia’ in the 2017 Asian-Mena In-house
community awards in Hong Kong in October 2017.
Yozua is an alumnus of the Faculty of Law at the University of Indonesia, the University
of California at Berkeley (Boalt Hall School of Law), the Asian Institute of Management and
Harvard Business School. In 2015, he obtained his doctorate decree from the University of
Indonesia after successfully defending his dissertation on the takeover of public companies
under Indonesian securities regulations. Yozua is also actively involved in various professional
and social organisations: he was the first appointed member of the National Commission
of Good Corporate Governance, and is a member of the board of experts of the Indonesian
Publicly Listed Company Association. He is a registered legal consultant with the Indonesian
Capital Market and Financial Institution Supervisory Board (Bapepam-LK, now OJK), has
formerly worked as special adviser to the Minister of Defence, and is a distinguished associate
professor at the Faculty of Law at the University of Pelita Harapan. Yozua was a member of
the expert staff of the Minister of the Cooperatives, Medium and Small-Scale Industries, the
Steering Committee for Indonesian State Policy Guidelines and the Steering Committee for
the Jakarta Stock Exchange/Surabaya Stock Exchange merger. He is on the board of trustees
of World Vision Indonesia. Yozua’s paper, ‘Challenges and Opportunities for the Indonesian
Securities Takeover Regulations: General Framework and Analysis from Dutch Law and
Theoretical Perspectives’, was recently published by the University of Pennsylvania East Asia
Law Review.
DIDIER MARTIN
Bredin Prat
Didier Martin is a partner at Bredin Prat and one of the leading specialists on French public
tender offers, securities laws and privatisations. He also devotes a significant part of his time
to litigation in various areas such as securities law and takeovers, white-collar crime and
bankruptcy.
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About the Authors
He is a member of several committees and associations, including the Financial

Transactions Committee of the MEDEF (the French employers’ federation) and ANSA (a
French business association), as well as the recently created Haut Comité Juridique de la Place
Financière de Paris. He is also a founding member of the Observatoire de la Communication
Financière and co-president of Commission Europe within the French legal think-tank, the
Club des Juristes.
He has written numerous books and articles on corporate law and securities law, and
has recently published Les Offres Publiques d’Acquisition, Les Sociétés Holdings and Mergers &
Acquisitions in France and Le Code Monétaire et Financier.
Admitted to the Paris Bar in 1977, Didier Martin is a graduate of the University of
Paris II Panthéon-Assas (DEA in private law, 1976; DEA in criminal law, 1977).
JORGE MONTAÑO
Creel, García-Cuéllar, Aiza y Enríquez, SC
Jorge Montaño is a partner in the Mexico City office. His practice focuses on M&A,
private equity and capital markets transactions. He has actively represented domestic and
international companies in cross-border transactions, including advising on the structuring
and execution of joint ventures and private equity transactions. Mr Montaño also represents
fund managers in the creation of their investment platforms, in Mexico and abroad, in both
the private equity and venture capital sectors. In the field of capital markets, he represents
US and Mexican underwriters and Mexican issuers in equity capital market transactions,
including initial public offerings, and in investment-grade and high-yield bond transactions.
Mr Montaño has been ranked in M&A and capital markets by many publications,
including Chambers Latin America, The Legal 500 and Latin Lawyer 250.
Mr Montaño collaborated in the publication of the International Financial Law Review’s
Guide to Mergers & Acquisitions and the article ‘SAPIs to Promote Private Equity in Mexico’
(both in 2006). He has also co-authored the overview of the Practical Legal Guide to M&A
in Mexico 2013 published by Chambers and Partners and the Mexico chapter in The Private
Equity Review (2014, 2015 and 2016 editions) published by Law Business Research.
ALEXANDRA MONTEALEGRE
Baker McKenzie
Alexandra Montealegre is an associate in Baker McKenzie’s Bogota office. She joined the
firm’s mergers and acquisitions practice in August 2016. Prior to joining the firm, she worked
at local and international firms, including a New York-based office as a member of the Latam
mergers and acquisitions group. Alexandra graduated from Los Andes University as a lawyer
and as a philosopher, and received her master in laws from Columbia University, New York.
She also worked as a teaching assistant for the cross-border M&A class at New York University.
Alexandra focuses on cross-border M&A, representing mainly private equity investors,
multinational corporations and international clients in the acquisition of domestic companies,
as well as representing Colombian companies in acquisitions abroad. She also advises
Colombian and multinational companies in their day-to-day corporate affairs in Colombia.
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About the Authors
CLAUDIA NAGY
CMS Romania
Claudia Nagy is a senior associate in the corporate and M&A team of CMS Romania, with
a great deal of experience in corporate and commercial transactions. She advises a variety of
international clients on transactional and regulatory matters with respect to their acquisitions
or divestments in Romania. Her practice includes M&A, competition law, regulatory, tax
matters and commercial issues. She regularly advises clients on projects and transactions
in the sector, as well as working with public institutions, including both local level projects
(e.g., with the Romanian Competition Council) and EU-level projects of the European
Commission.
HIKARU OGUCHI
Nishimura & Asahi
Hikaru Oguchi leads the South East Asia practice, including Vietnam, providing legal
consultation in a broad range of areas in relation to foreign investment (i.e., greenfield
investment, M&A and post-investment general corporate, such as labour and compliance
matters). She is admitted to practise in Japan (since 1998) and in New York (since 2005),
and is registered as a foreign attorney in Vietnam (since 2010). She has been recognised by
Chambers Global as a leading individual in corporate and M&A in Vietnam every year since
2012.
CLAUDIO OKSENBERG
Claudio’s practice focuses on mergers and acquisitions, corporate reorganisations and private
equity transactions, debt restructurings, as well as regulatory matters involving publicly listed
companies. His experience also includes capital markets transactions and financing. Claudio
is a director of the Corporate Law Committee of the Rio de Janeiro Bar Association. He
has vast experience as a New York lawyer at the law firms of Shearman & Sterling LLP and
Milbank Tweed Hadley & McCloy LLP. He holds a LLM degree from Columbia Law School
and a postgraduate degree from IBMEC-RJ, and has received a bachelor of laws degree from
the Pontifícia Universidade Católica do Rio de Janeiro.
JAN OLLILA
Dittmar & Indrenius
Jan Ollila is senior partner at Dittmar & Indrenius and head of the firm’s M&A and private
equity practice, advising international and domestic public and private corporate clients,
private equity houses and financial institutions on a wide range of matters, with a particular
emphasis on public and private M&A, financing arrangements and related dispute resolution.
Mr Ollila joined Dittmar & Indrenius in 1992, became a partner in 2000, managing partner
in 2007 and senior partner in 2015.
575
About the Authors
STEFANIA OLMOS
Baker McKenzie
Stefania Olmos is an associate in Baker McKenzie’s mergers and acquisitions group in Bogotá.
She graduated as a lawyer from EAFIT University and specialised in commercial law at Los
Andes University.
Stefania’s practice focuses on the transactional field. She has assisted in the structuring
of transactions, including both national and international acquisitions, sales of companies’
shares and assets, and corporate and project finance (especially in the infrastructure industry),
among other complex operations.
JOHN M PAPADAKIS
John M Papadakis is active in the fields of tax law, accounting law and commercial law, having
assisted both in tax litigation and tax planning issues, including intra-group transactions
and transfer pricing. He also advises on day-to-day commercial law issues, such as customer
contracts and agency agreements.
He is a graduate of the Democritus University of Thrace Law School and holds an
LLM in commercial law from the same University. He is a member of the Athens Bar and
is qualified to practise before courts of appeal of all jurisdictions. He speaks Greek, English
and German.
ANTON PATKIN
BGP Litigation
Anton Patkin is an associate at BGP Litigation specialising in cross-border mergers and
acquisitions, joint ventures, private equity and venture capital. Anton regularly advises listed
companies, large multinationals and private equity funds on complex public and private
transactions in a variety of industries.
DOMINGO PISCITELLI NEVOLA

Domingo Piscitelli Nevola is a graduate of the Universidad Católica Andrés Bello (2015).
Domingo worked as a law clerk for the administrative–economic department at Torres Plaz &
Araujo from 2012 to 2014 and joined our staff in 2016. Between 2014 and 2016, Domingo
Piscitelli Nevola worked at Grau, García, Hernández & Mónaco. He is author of ‘Primeras
aproximaciones al problema de temporalidad surgido de la modificación del régimen del
traslado de pérdidas en la reforma de la Ley de Impuesto Sobre la Renta’, published in Revista
de Derecho Público No. 140, and ‘Notas sobre la reforma a la Ley Orgánica de Precios Justos
del 19 de noviembre de 2014’, published in Revista Electrónica de Derecho Administrativo
(REDAV) No. 5.
His professional practice at the firm has focused on constitutional law, administrative–
economic law and commercial law.
He has advised in expropriation processes and matters of prior temporary occupancy,
and has specialised in audits and inspections by the National Superintendency for the
Defence of Socioeconomic Rights. He has also assisted in administrative and contentious–
administrative proceedings.
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About the Authors
HOREA POPESCU
CMS Romania
Horea Popescu is head of the corporate and M&A practice of CMS Romania. A
Bucharest-based corporate partner, Horea has broad experience in advising on all aspects
of corporate and M&A transactions in Romania and the CEE region, and has worked on
some of the most significant M&A deals in Romania in recent years. Horea specialises in
M&A, capital markets transactions, corporate transactions, competition law, private equity,
privatisations, restructuring and commercial transactions. He has substantial experience in
working on complex, multijurisdictional M&A transactions throughout Eastern Europe
and beyond, regularly working with colleagues throughout CMS and elsewhere. Horea was
recently ranked in Band 1 for corporate and M&A in Chambers Global and Chambers Europe,
being described as a ‘commercial, smart and fast’ M&A lawyer who ‘anticipates the issues that
may come up in a case’. The International Financial Law Review guide to leading law firms
states that Horea Popescu is ‘very quick, attentive, intelligent, a good coordinator with very
good communication skills’.
DAVID PORTILLA
David L Portilla is a corporate partner and a member of the firm’s financial institutions group
and banking group. His practice focuses on advising international and domestic banking
organisations and other financial institutions on transactional, regulatory, supervisory and
governance matters. Mr Portilla has particular experience in matters relating to financial
regulatory reform, including the Volcker Rule, enhanced prudential standards and the
prudential regulation of non-bank financial companies.
NICHOLAS POTTER
Nicholas Potter is a corporate partner, co-chair of the firm’s financial institutions group
and a member of the firm’s M&A and capital markets groups. Mr Potter’s practice focuses
on corporate transactions in the insurance industry; and advising insurers and reinsurers,
private equity firms, investment banks and other industry participants on public and private
mergers, acquisitions, restructurings, corporate governance, regulatory issues, capital markets
transactions and financings.
CONOR REIDY
Conor Reidy, a partner in Winston’s Chicago office, concentrates his practice on complex
commercial litigation, antitrust merger review and antitrust counselling. Conor frequently
shepherds clients through the Hart-Scott-Rodino antitrust merger review process. He also
assists clients in coordinating clearances of transactions from multiple foreign competition
authorities. He has significant experience with antitrust litigation and counselling. He has
represented clients in antitrust litigations concerning numerous issues, including allegations
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About the Authors
of price fixing, supply restrictions, collusive standard setting, unlawful mergers and
monopolisation. He has experience with multi-district litigations, class action litigations, and
appeals in federal and state courts.
ROBERT RICHARDSON
Robert (Bob) Richardson is a partner in McCarthy Tétrault’s M&A, capital markets and
financial services groups. A seasoned securities lawyer and former senior banking executive,
Bob’s clients include a variety of deal participants on both sides of the table.
After spending several years near the beginning of his career at McCarthy Tétrault,
he joined the in-house legal team at the Canadian Imperial Bank of Commerce (CIBC)
and CIBC World Markets Inc., where he managed the legal aspects of almost all of CIBC’s
strategic transactions globally and led a large legal team that spanned across several continents.
He served on the board of directors of CIBC’s Canadian and European investment banking
subsidiaries, and was a member of most of CIBC’s key governance and deals committees. He
returned to McCarthy Tétrault in 2018.
Bob is an adjunct professor at Osgoode Hall Law School and the Western University
Faculty of Law. He received his LLB and LLM from Osgoode Hall Law School, and was
called to the Ontario Bar in 1993.
Bob has been recognised by Lexpert as a ‘Top 500 Lawyer in Canada’, and was a ‘Rising
Star (Top 40 Lawyers under 40)’ in 2004.
VANESSA C RICHARDSON
Vanessa Richardson is an associate at Cleary Gottlieb Steen & Hamilton LLP based in New
York.
Ms Richardson’s practice focuses on litigation, with an emphasis on M&A and
shareholder derivative litigation, and on corporate governance issues.
Ms Richardson joined the firm in 2014. She received a JD from New York University
School of Law, where she was a Robert McKay scholar and the managing editor of the New
York University Law Review. Additionally, she was awarded the Daniel G Collins Prize for
Excellence in Contract Law. She received an undergraduate degree from American University,
where she was a presidential scholar. She also served as a law clerk to the Honourable Leo E
Strine, Jr of the Delaware Supreme Court and the Delaware Court of Chancery.
Ms Richardson is a member of the Bar of New York.
BOANERGES RODRÍGUEZ VELÁSQUEZ

Coronel & Pérez
Boanerges obtained his law degree at the Universidad Católica de Santiago de Guayaquil, where
he graduated in 2012 with the highest honours. Between 2014 and 2015, Mr Rodríguez was
a Russell Baker Scholar at the University of Chicago Law School, where he obtained a master
of laws degree (LLM).
578
About the Authors
He originally joined Coronel & Pérez in 2008, and has been an associate since 2012.
Between 2015 and 2016 he worked as a foreign consultant in the Office of International
Affairs of the Federal Trade Commission (Washington, DC) on antitrust issues and public
policy.
Boanerges advises our local and foreign clients on a wide range of corporate affairs
and complex regulatory matters. His practice also involves counselling foreign financial
institutions in structuring innovative financial products and their collaterals.
His practice areas are antitrust, M&A and project finance.
He speaks both Spanish and English fluently and is proficient in French.
ANDRÉS N RUBINOFF
Arias, Fábrega & Fábrega
Andrés N Rubinoff is a partner of the firm and focuses his practice on mergers, acquisitions
and joint ventures, banking and finance, international business transactions and corporations.
Prior to joining the firm, Mr Rubinoff worked as an associate with Greenberg Traurig, PA
in Miami (2006–2009). He also worked as a senior research associate for the Corporate
Executive Board Company, Washington, DC (2001–2003). Mr Rubinoff holds a JD from the
University of Miami School of Law and a bachelor of science from Georgetown University.
ABDUS SAMAD
Afridi & Angell
Abdus Samad specialises in M&A and transactional work, as well as general corporate and
commercial matters. He has extensive knowledge and experience in cross-border transactional
and corporate advisory matters, including complex acquisitions and divestures, for a broad
range of public and private clients.
Mr Samad is a member of the Punjab Bar Council. He obtained a bachelor of laws
degree from King’s College London.
MARIO SANTA MARIA

Greenberg Traurig Santa Maria Law Firm
Mario Santa Maria is a partner at Greenberg Traurig Santa Maria Law Firm in the M&A
department. His practice is focused on corporate law and M&A, and in particular on joint
ventures, public offerings, restructurings, the purchasing and selling of assets, corporate
governance and international commercial contracts.
He has been involved in a number of M&A transactions, including tender offers,
residual tender offers and squeeze-outs. He has been counsel to financial advisers in
connection with M&A and securities transactions. Mario Santa Maria was a member of the
Italian desk based at Greenberg Traurig, New York and worked at another important US law
firm. He is a Columbia University School of Law LLM graduate (Harlan Fiske Stone Scholar)
and is admitted to practise both in Italy and in New York.
579
About the Authors
GEORGES SANTONI RECIO

Russin, Vecchi & Heredia Bonetti
Georges Santoni Recio is the managing partner of Russin, Vecchi & Heredia Bonetti. He has
developed a strong practice in foreign investment law, international trade and related matters,
providing specialised consulting services to private sector clients on corporate (M&A),
foreign investment, tax, finance structuring, agreements and real estate law matters, and is
also a practising litigator, specialising in general civil and commercial litigation. He has been
internationally ranked by Chambers and Partners and The Legal 500.
CARLO SCAGLIONI
Greenberg Traurig Santa Maria Law Firm
Carlo Scaglioni is a partner at Greenberg Traurig Santa Maria Law Firm in the M&A
department. He represents public and private companies in domestic and cross-border
transactions. He has been involved in a significant number of major M&A deals, mainly
involving banking, chemical, energy, financial, healthcare and industrial companies.
Additionally, he drafts and negotiates international and domestic commercial contracts.
He regularly advises foreign and Italian clients on commercial, banking and corporate
matters, assisting them in the completion of corporate transactions, including joint ventures,
commercial cooperation agreements and settlement negotiations. He worked at the New
York offices of Greenberg Traurig LLP, and is a New York University LLM graduate admitted
to practise in both Italy and New York.
CLEMENS PHILIPP SCHINDLER

Schindler Rechtsanwälte GmbH
Clemens Philipp Schindler is a founding partner of Schindler Attorneys. Before establishing
the firm, he spent six years as partner at Wolf Theiss, where he led some of the firm’s most
prestigious transactions and headed its Brazil operations.
Prior to that, he practised with Haarmann Hemmelrath in Munich and Vienna, and
with Wachtell Lipton Rosen & Katz in New York.
Mr Schindler’s practice focuses on corporate and tax advice in relation to public and
private M&A, private equity and corporate reorganisations (such as mergers, spin-offs and
migrations), most of which have a cross-border element. Furthermore, he is specialised in
international holding structures, including charter financing and leasing operations. His
practice is complemented by private client work (e.g., as counsel to families owning stakes in
large corporations).
Mr Schindler holds law degrees from University of Vienna (Dr iur) and New York
University Law School (LLM), and a degree in business administration from the Vienna
University of Economics and Business Administration (Dr rer soc oec).
Mr Schindler is admitted in Austria as both an attorney-at-law and a certified public
tax adviser. He has authored and co-authored more than 50 articles, books and commentaries
in his fields of expertise, for which he is also much sought after as a speaker at conferences
and seminars.
Mr Schindler is ranked by international legal directors such as Chambers Global,
Chambers Europe, The Legal 500, IFLR1000, Best Lawyers and Who’s Who Legal. The German
legal directory JUVE lists him as one of Austria’s top 20 corporate and M&A lawyers, while
580
About the Authors
the Austrian business magazine TREND has named him among Austria’s top 10 corporate
lawyers and among Austria’s top 10 tax lawyers. Besides their Austrian listings, Chambers
Global and Chambers Europe acknowledge his Brazilian expertise in a special ranking on
outstanding expertise in foreign jurisdictions.
SANDRA SEAH
Sandra is the joint managing partner of Bird & Bird ATMD LLP.
She has considerable experience in public procurement, corporate and commercial law,
competition law, regulatory and environmental laws, and real estate.
Sandra has extensive experience in public projects and regulatory work in Singapore,
and is the adviser to a large number of state agencies including Energy Market Authority
(EMA), Building and Construction Authority (BCA), Jurong Town Corporation, Ministry
of Health, Tripartite Alliance Limited, People’s Association (PA) and National Arts Council.
She is also experienced in anti-competitive analysis and legislative strategy and has advised
clients in a number of key sectors, including energy, infrastructure and utilities, aerospace,
logistics, infrastructure, tech and communications, pharmaceutical and petrochemicals.
She is an experienced transactional lawyer for large-scale infrastructure projects and
tenders, being experienced in PPP, public procurements, energy regulatory work, state
leasing, regulations, and technical contracts in Singapore and the Asia Pacific region.
Sandra has acted as lead coordinator for a large number of innovative public projects in
Singapore, including the electricity futures market for EMA, SportsHub PPP for SportsHub,
the first microgrid testbed on Pulau Ubin, the first energy performance contract template for
the Singapore Green Building Council (SGBC) and BCA, the first community club in a mall
for PA, the first sectoral competition appeal in the gas sector for EMA, the first tri-generation
project in Singapore for Pfizer and the first LNG terminal project in Singapore for SLNG.
Sandra has spoken widely on contract, governance and competition issues. She is
also the co-author of Business Guide to Competition Law, published by Sweet & Maxwell in
2011. She sits on the council and executive committees of industry associations such as the
Sustainable Energy Association of Singapore, the Energy Studies Institute, SGBC and the
Waste Management & Recycling Association of Singapore, and is a director of two local
charities.
MARCO SOLANO
Aguilar Castillo Love
Marco Solano is a partner in the corporate and finance department at Aguilar Castillo Love.
He holds an LLM from Georgetown University Law Centre, Washington, DC, and a JD from
the University of Costa Rica. He has practised for almost 20 years in the Aguilar Castillo Love
office in Costa Rica, and with Sidley Austin, in Washington, DC, and Greenberg Traurig, in
New York, to gain exposure to cross-border transactions throughout the Americas.
His practice focuses on corporate and financial matters, including structure finance,
M&A, private equity and project finance.
581
About the Authors
TILL SPILLMANN
Till Spillmann specialises in large and complex international and domestic private and
public M&A, capital markets and corporate finance transactions. In addition, he advises on
corporate governance and other corporate and commercial law matters.
CHRISTIAN THALER
Schindler Rechtsanwälte GmbH
Christian Thaler is a partner at Schindler Attorneys. Prior to joining the firm, Christian
Thaler was a partner in a top 10 Austrian firm, heading its capital market practice and being a
member of its corporate and M&A and banking and finance (including restructuring) teams.
Christian Thaler’s practice comprises the full spectrum of corporate and financial
transactions with a particular focus on public M&A, insolvency, restructuring and distressed
M&A and capital markets transactions, largely in a cross-border context. In addition,
Christian Thaler will take on select, high-profile litigation cases compatible with his core
practice areas (such as corporate and investor litigation).
Christian Thaler is a graduate of the Law School of Vienna University and, after
graduation, spent several years as an assistant professor and lecturer in the civil law and
business law departments of Vienna University and spent an Erasmus term at Université
René Descartes – Paris V in France.
Christian Thaler is admitted as an attorney-at-law (Rechtsanwalt) in Austria (Vienna
Bar). He is a regular speaker at conferences and author of numerous publications in his fields
of practice.
Finally, Christian Thaler is recognised as a highly regarded individual (in particular, for
M&A and capital markets – debt and equity) by several international legal directories.
GYO TODA
TMI Associates
Gyo Toda is a partner at TMI Associates. His practice areas include corporate and securities
law and M&A. He received his LLB degree from Kyoto University (1995) and his LLM
degree from Harvard Law School (2002). He is an attorney-at-law admitted to practice in
Japan.
JOANA TORRES EREIO

Uría Menéndez – Proença de Carvalho
Joana Torres Ereio joined Uría Menéndez as a trainee lawyer in September 2007 and became
a senior associate in September 2012.
She spent the period from October 2011 to February 2012 on secondment to the Uría
Menéndez offices in Madrid.
Joana focuses her practice on corporate and commercial law, M&A, private equity
and restructurings.
582
About the Authors
Joana has a postgraduate qualification in commercial law from the Universidade

Católica, and also completed an intensive course on corporate finance at the Universidade de
Lisboa and an executive course on finance and accounting at Universidade Católica’s Business
School.
ELGA REANA TOZZI

Elga Reana Tozzi is a certified tax expert and specialises in large and complex cross-border
M&A, initial public offerings, management buyouts and private equity transactions. She
advises national, international and listed companies as well as substantial investors and
shareholders.
HANNE VAN ‘T KLOOSTER

Kennedy Van der Laan
Hanne specialises in venture capital, private equity and M&A transactions. This involves
advising investors on setting up investment fund structures, management teams and
entrepreneurs on various investment rounds, from early-stage through Series C/D,
management buyouts and exits. Furthermore, she has worked extensively with international
corporations who want to add the Netherlands to their geographical footprint, and has
advised foreign investors entering the Dutch market.
ALEXANDER VANEEV
BGP Litigation
Alexander Vaneev is a partner and the head of international and domestic dispute resolution
at BGP Litigation. Alexander has been representing clients’ interests in Russian courts and
before arbitral tribunals for over 15 years. Alexander focuses on disputes in construction,
corporate law, securities, insurance, mergers and acquisitions, joint ventures and international
corporate restructurings. Alexander is ranked in Chambers and Partners, Best Lawyers and
Who’s Who Legal.
MICHIEL VISSER
White & Case LLP
Dual-qualified in New York and England, Michiel Visser regularly represents sovereign
wealth funds, private equity funds and corporations in an array of transactions, including
mergers and acquisitions, joint ventures and other corporate matters.
Michiel is a corporate and M&A partner. Active in the region since 2009, Michiel has
represented some of the leading state-owned and private sector companies in the Middle East
on a range of M&A and corporate finance transactions. He led the team on the US$5.3 billion
Barwa/Qatari Diar asset sale transaction, which was recognised as the ‘Domestic M&A Deal
of the Year’ at the 2014 IFLR Middle East awards. Chambers has praised him as ‘an excellent
lawyer on M&A transactions’.
583
About the Authors
Michiel’s experience is both extensive and truly global. He has advised on closed M&A
transactions involving targets located in the United States, Brazil, Russia, Qatar, the United
Arab Emirates, France, Germany, the Netherlands, Turkey, Spain, Italy, the United Kingdom,
Greece and Japan.
ULYSSES VON SALIS

Ulysses von Salis specialises in private equity, financing and M&A transactions, with a
particular focus on large companies and financial institutions. He regularly advises investors,
managers and target companies on private equity transactions.
BENEDIKT VON SCHORLEMER

Ashurst LLP
Dr Benedikt von Schorlemer, LLM (NYU), is a partner at Ashurst in the Frankfurt office and a
member of the corporate department. Benedikt studied at the universities of Freiburg, Geneva
and Munich and received his doctoral degree (Dr jur) from the University of Regensburg.
Benedikt is specialised in the areas of private equity and M&A. In the area of M&A, he
advises German and international clients on private acquisitions and divestitures, including
all related matters. Benedikt assists private equity investors in all phases of an investment cycle,
from the acquisition, including management participations, through portfolio management
to exit. Benedikt has a particular focus on infrastructure and renewable energy transactions
where he advises as a member of Ashurst’s global infrastructure and energy M&A team.
JASON WEBBER
Slaughter and May
Jason Webber is a partner at Slaughter and May who is based in Hong Kong. He joined
the firm in 1991 and became a partner in 2001. Mr Webber is involved in a wide range of
corporate, commercial and financing work, advising companies, financial institutions and
fund management groups. He regularly advises in relation to complex matters involving the
Hong Kong regulatory authorities and governmental bodies. Mr Webber has also worked in
the London office of Slaughter and May.
Mr Webber’s experience includes advising MTR Corporation Limited, Hong Kong’s
mass transit railway operator, in relation to various projects, including its privatisation
(being Hong Kong’s first and, to date, only privatisation of this kind), its merger with the
Kowloon-Canton Railway Corporation (being one of the largest and most complex mergers
in Asia), and various significant new railway projects such as the Disney Resort Line, the West
Island Line, the Shatin to Central Link, the Express Rail Line, the South Island Line, the
West Island Line, the Kwun Tong Extension, and the construction and operation of the Tung
Chung Cable Car on Lantau Island; advising various financial institutions on numerous
regulatory matters involving the Hong Kong Monetary Authority, the Hong Kong Securities
and Futures Commission, the Hong Kong Stock Exchange and other Hong Kong regulators,
such as advising a consortium of financial institutions in relation to the Hong Kong
regulatory aspects of operating an automated trading and clearing system; advising Mercer
on its agreement to acquire SCM Strategic Capital Management AG; advising one of the
largest international asset management groups on the launch of retail funds in Hong Kong;
584
About the Authors
advising various asset management groups in relation to acquisitions and disposals of asset
management vehicles; advising the Oxford Asset Management Group on the launch of the
OxAM Quant Fund, a Cayman Island-based hedge fund; and advising several international
hedge fund groups on the establishment of operations in Hong Kong. Mr Webber has also sat
on one of the disciplinary committees of the Hong Kong Securities and Futures Commission.
He is qualified in England and Wales, Hong Kong and Ireland.
PHILIPPE WEBER
Philippe Weber specialises in large cross-border M&A and financing transactions in various
industries, including technology, luxury, industrial goods, travel and retail, life sciences and
financial services. He regularly advises international companies and investors (including
foreign sovereign wealth funds, state-owned enterprises, private equity) in important
investments and other business transactions.
MANUEL WERDER
Manuel Werder’s practice focuses on corporate law and domestic and cross-border M&A
transactions (including corporate restructurings, private equity and venture capital
transactions). His expertise also includes commercial, contract, securities and stock exchange
law issues.
KAI XUE
DeHeng Law Offices
Mr Kai Xue is a counsel. He focuses on cross-border banking and financing and outbound
M&A. He advises on a wide range of mandates with a cross-border element, ranging from
Belt and Road infrastructure lending to facilitating recovery in fraud cases in China. He often
writes commentary about the connection between the international political economy and
cross-border investment with op-ed columns published in the South China Morning Post,
Times of India, Ottawa Citizen and other newspapers. Mr Xue is often sought out as an ‘Africa
expert’ and has been quoted by Reuters, the Wall Street Journal, African Business magazine,
the BBC World Service, the Africa Report, Le Monde Africa and other media on African
political economy and business.
VIACHESLAV YAKYMCHUK
Baker McKenzie
Viacheslav Yakymchuk is an expert in handling cross-border M&A transactions and has
extensive knowledge of corporate, M&A, private equity and equity capital markets. Mr
Yakymchuk heads the firm’s corporate and M&A and private equity practice groups in the
Kiev office. He frequently advises major private equity funds on their investments in Ukraine.
Viacheslav is ranked as a top-tier practitioner in the areas of corporate law, M&A
and capital markets by Chambers, IFLR, The Legal 500 EMEA and Ukrainian law firm
legal directories. He frequently speaks on the diverse aspects of M&A and private equity
transactions in Ukraine. Viacheslav is admitted to practise in Ukraine and in New York, US.
585
About the Authors
MAKIKO YAMAMOTO
TMI Associates
Makiko Yamamoto is a partner at TMI Associates. She received her LLB degree from Keio
University and her LLM degree in 2005 from University of Cambridge. She is qualified as
an attorney-at-law to practice in Japan and as a solicitor in England and Wales. Her practice
areas include corporate, M&A and commercial matters.
CLEOMENIS G YANNIKAS
Cleomenis G Yannikas is active in the fields of corporate law, mergers and acquisitions,
competition law and investment incentives, and has experience in major M&A and project
finance deals with an international profile. He is an author and contributor to several local
and international publications on corporate law, investment incentives and competition law.
He is a graduate of the Athens University Law School, a member of the Athens Bar
and the European Academy of Law, and is qualified to practise before courts of appeal of all
jurisdictions. He speaks Greek, English and German.
MARK ZERDIN
Slaughter and May
Mark Zerdin has been a partner at Slaughter and May since 2007. He advises on a wide range
of corporate and commercial transactions for both corporate and private equity clients. His
principal areas of work are public takeovers, private acquisitions and disposals, private equity
investments, initial and secondary public equity offerings and joint ventures.
FERNANDO S ZOPPI
Martínez de Hoz & Rueda
Fernando S Zoppi is primarily focused on mergers and acquisitions and business law. He
regularly advises clients on a variety of domestic, regional and cross-border transactions,
including M&A, joint ventures and other business associations, private equity and venture
capital and foreign investments.
Mr Zoppi obtained his LLM degree from Columbia University – School of Law
(New York) in May 2004. He graduated (with honours) from University of Buenos Aires in
December 1999.
He was a foreign associate at O’Melveny & Myers, LLP (New York) in 2005 and 2006.
He was also associated with Latham & Watkins, LLP (New York) in 2007. Mr Zoppi was
a partner at Perez Alati, Grondona, Benites, Arntsen & Martinez de Hoz until 2018. In
February 2018, he founded Martínez de Hoz & Rueda.
Mr Zoppi has been an assistant professor at University of Buenos Aires (private
international law and civil law). He has also lectured at the Instituto Universitario ESEADE.
He is admitted to practise law in Argentina and is a member of the Bar Association of
the City of Buenos Aires.
586
Appendix 2
CONTRIBUTORS’
CONTACT DETAILS
AABØ-EVENSEN & CO AGUILAR CASTILLO LOVE

ADVOKATFIRMA Centro Corporativo Plaza Roble
Karl Johans gate 27, Fifth Floor Edificio El Pórtico, 3rd Floor
0122 Oslo Escazú
Norway San José 1000
Tel: +47 2415 9000 Costa Rica
Fax: +47 2415 9001 Tel: +506 2222 3838
oka@aaboevensen.com jaq@aguilarcastillolove.com
www.aaboevensen.com msg@aguilarcastillolove.com
www.aguilarcastillolove.com
ÁELEX
4th Floor, Marble House ARIAS, FÁBREGA & FÁBREGA
1 Kingsway Road, Falomo Ikoyi ARIFA Building, 10th Floor
Lagos West Boulevard
Nigeria Santa Maria Business District
Tel: +234 12793367 8/4617321 3/ Panama
7406533 Tel: +507 205 7000
Fax: +234 1 4617092 Fax: +507 205 7001
lfanga@aelex.com arubinoff@arifa.com
mabraham@aelex.com www.arifa.com
www.aelex.com
ASHURST LLP
AFRIDI & ANGELL OpernTurm
Jumeirah Emirates Towers Bockenheimer Landstraße 2-4
Office Tower, Level 35 60306 Frankfurt
Sheikh Zayed Road Germany
Dubai Tel: +49 69 97 11 26 00
United Arab Emirates benedikt.schorlemer@ashurst.com
Tel: +971 4 330 3900 www.ashurst.com
Fax: +971 4 330 3800
dlobo@afridi-angell.com
asamad@afridi-angell.com
www.afridi-angell.com
587
Contributors’ Contact Details
BAE, KIM & LEE LLC BHARUCHA & PARTNERS

133 Teheran-ro Hague Building
Gangnam-gu 9, SS Ram Gulam Marg
Seoul 06133 Ballard Estate
Republic of Korea Mumbai 400 001
Tel: +82 2 3404 0000 India
Fax: +82 2 3404 0001 Tel: +91 22 6132 3900
hokyung.chang@bkl.co.kr Fax: +91 22 6633 3900
alan.pj.lee@bkl.co.kr justin.bharucha@bharucha.in
robert.dooley@bkl.co.kr www.bharucha.in
www.bkl.co.kr
BIRD & BIRD ATMD LLP

BAKER MCKENZIE 2 Shenton Way, #18-01
Avenue 82, No. 10-62 6th Floor SGX Centre 1
Bogotá Singapore 068804
Colombia Tel: +65 6534 5266
Tel: +57 1 634 1500 Fax: +65 6223 8762
Fax: +57 1 376 2211 sandra.seah@twobirds.com
alexandra.montealegre@bakermckenzie.com marcus.chow@twobirds.com
stefania.olmos@bakermckenzie.com seowhui.goh@twobirds.com
www.twobirds.com/en/regions/
Renaissance Business Center asia-pacific/singapore
24 Bulvarno-Kudriavska (Vorovskoho)
Street
Kiev 01601 BREDIN PRAT
Ukraine 53 Quai d’Orsay
Tel: +380 44 590 0101 75007 Paris
Fax: +380 44 590 0110 France
viacheslav.yakymchuk@bakermckenzie.com Tel: +33 1 44 35 35 35
olha.demianiuk@bakermckenzie.com Fax: +33 1 42 89 10 73
didiermartin@bredinprat.com
www.bakermckenzie.com www.bredinprat.com
BGP LITIGATION CLEARY GOTTLIEB STEEN &

Imperia Tower Business Center HAMILTON LLP
6 Presnenskaya emb, bld 2 One Liberty Plaza
Moscow 123112 New York, NY 10006
Russia United States
Tel: +7 495 777 2820 Tel: +1 212 225 2000
alexander.vaneev@bgplaw.com racooper@cgsh.com
denis.durashkin@bgplaw.com mkotler@cgsh.com
anton.patkin@bgplaw.com memcdonald@cgsh.com
en.bgplaw.com vrichardson@cgsh.com
www.clearygottlieb.com
588
CMS ROMANIA CREEL, GARCÍA-CUÉLLAR, AIZA Y

S-Park ENRÍQUEZ, SC
11-15, Tipografilor Street Torre Virreyes
B3-B4, 4th Floor Pedregal No. 24, 24th Floor
District 1 Col Molino del Rey
013714 Bucharest Mexico City 11040
Romania Mexico
Tel: +40 21 40 73 800 Tel: +52 55 4748 0600
Fax: +40 21 40 73 900 eduardo.gonzalez@creel.mx
horea.popescu@cms-cmno.com jorge.montano@creel.mx
claudia.nagy@cms-cmno.com www.creel.mx
www.cms.law
DEBEVOISE & PLIMPTON LLP

CORONEL & PÉREZ 919 Third Avenue
9 de Octubre y Malecón New York, NY 10022
Edificio La Previsora, Floor 24 Tel: +1 212 909 6000
Guayaquil gjlyons@debevoise.com
Ecuador dlportilla@debevoise.com
Tel: +593 4 2519 900 nfpotter@debevoise.com
bhrodriguez@coronelyperez.com www.debevoise.com
Avenida de los Shyris, No. N35-174 y

Suecia DEHENG LAW OFFICES
Edificio Renazzo Plaza Tower B Focus Place, No. 19
Quito 12th Floor
Ecuador Financial Street
Tel: +593 2 6014 000 Beijing
China
www.coronelyperez.com Tel: +86 10 5268 2888
Fax: +86 10 5268 2999
davidweichen@dehenglaw.com
CRAVATH, SWAINE & MOORE LLP kaixue@dehenglaw.com
Worldwide Plaza www.dehenglaw.com
825 Eighth Avenue
New York, NY 10019
United States DITTMAR & INDRENIUS
Tel: +1 212 474 1000 Pohjoisesplanadi 25 A
Fax: +1 212 474 3700 00100 Helsinki
mgreene@cravath.com Finland
rhall@cravath.com Tel: +358 9 681 700
www.cravath.com Fax: +358 9 652 406
wilhelm.eklund@dittmar.fi
jasper.kuhlefelt@dittmar.fi
jan.ollila@dittmar.fi
www.dittmar.fi
589
DRYLLERAKIS & ASSOCIATES HEUKING KÜHN LÜER WOJTEK

5 Chatzigianni Mexi Street Neuer Wall 63
115 28 Athens 20354 Hamburg
Greece Germany
Tel: +30 211 000 3456 Tel: +49 40 35 52 80 0
Fax: +30 211 000 5200 Fax: +49 40 35 52 80 80
cy@dryllerakis.gr h.hoff@heuking.de
vc@dryllerakis.gr www.heuking.de
jp@dryllerakis.gr
www.dryllerakis.gr
KENNEDY VAN DER LAAN
Molenwerf 16
ELVINGER HOSS PRUSSEN 1014 BG Amsterdam
2 Place Winston Churchill Postbus 58188
1340 Luxembourg 1040 Amsterdam
Tel: +352 44 66 44 0 meltem.koning@kvdl.com
Fax: +352 44 22 55 hanne.van.t.klooster@kvdl.com
philippehoss@elvingerhoss.lu www.kvdl.com
thierrykauffman@elvingerhoss.lu
www.elvingerhoss.lu
MAKES & PARTNERS LAW FIRM
Menara Batavia, Seventh Floor
GREENBERG TRAURIG SANTA Jalan KH Mas Mansyur Kav 126
MARIA LAW FIRM Karet Tengsin
Largo Toscanini, 1 Kota Jakarta Pusat
20122 Milan Daerah Khusus Ibukota
Italy Jakarta 10220
Tel: +39 2 771971 Indonesia
Fax: +39 2 794675 Tel: +62 21 574 7181
mario.santamaria@gtlaw.com Fax: +62 21 574 7180
carlo.scaglioni@gtlaw.com makes@makeslaw.com
www.gtlaw.com www.makeslaw.com
HENGELER MUELLER MAPLES GROUP

PARTNERSCHAFT VON Ugland House
RECHTSANWÄLTEN MBB South Church Street
Bockenheimer Landstrasse 24 PO Box 309
60323 Frankfurt Grand Cayman KY1-1104
Germany Cayman Islands
Tel: +49 69 17095 653 Tel: +1 345 949 8066
Fax: +49 69 17095 099 Fax: +1 345 949 8080
heinrich.knepper@hengeler.com suzanne.correy@maples.com
www.hengeler.com daniel.lee@maples.com
www.maples.com
590
MARTÍNEZ DE HOZ & RUEDA MCCARTHY TÉTRAULT LLP

Torre Fortabat 66 Wellington Street West
Bouchard 680, 19th Floor Suite 5300, TD Bank Tower Box 48
C1106ABJ Buenos Aires Toronto
Argentina Ontario M5K 1E6
Tel: +54 11 2150 9785 Canada
Mobile: +54 911 4041 1841 Tel: +1 416 362 1812
fernando.zoppi@mhrlegal.com Fax: +1 416 868 0673
www.mhrlegal.com cbelsher@mccarthy.ca
rhansen@mccarthy.ca
cmmcewan@mccarthy.ca
MATOUK BASSIOUNY & HENNAWY rrichardson@mccarthy.ca
12 Mohamed Ali Genah www.mccarthy.ca/en
Garden City
11451 Cairo
Egypt NIEDERER KRAFT FREY LTD
Tel: + 2 02 2796 2042 Bahnhofstrasse 53
Fax: + 2 02 2795 4221 8001 Zurich
omar.bassiouny@matoukbassiouny.com Switzerland
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Plaza de Rodrigo Uría www.whitecase.com
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Spain
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Mergers &

© 2019 Law Business Research Ltd

Reproduced with permission from Law Business Research Ltd

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PRODUCT MARKETING EXECUTIVE

CHIEF EXECUTIVE OFFICER

Published in the United Kingdom

© 2019 Law Business Research Ltd

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ARIAS, FÁBREGA & FÁBREGA

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BHARUCHA & PARTNERS

BIRD & BIRD ATMD LLP

CLEARY GOTTLIEB STEEN & HAMILTON LLP

CORONEL & PÉREZ

CRAVATH, SWAINE & MOORE LLP

CREEL, GARCÍA-CUÉLLAR, AIZA Y ENRÍQUEZ, SC

DEBEVOISE & PLIMPTON LLP

DEHENG LAW OFFICES

DITTMAR & INDRENIUS

DRYLLERAKIS & ASSOCIATES

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GREENBERG TRAURIG SANTA MARIA LAW FIRM

HENGELER MUELLER PARTNERSCHAFT VON RECHTSANWAELTEN MBB

HEUKING KÜHN LÜER WOJTEK

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MAKES & PARTNERS LAW FIRM

MARTÍNEZ DE HOZ & RUEDA

MATOUK BASSIOUNY & HENNAWY

MATTOS FILHO, VEIGA FILHO, MARREY JR E QUIROGA ADVOGADOS

MCCARTHY TÉTRAULT LLP

NIEDERER KRAFT FREY LTD

NISHIMURA & ASAHI

OPPENHEIM LAW FIRM

RUSSIN, VECCHI & HEREDIA BONETTI

SCHINDLER RECHTSANWÄLTE GMBH

SLAUGHTER AND MAY

TORRES, PLAZ & ARAUJO

WHITE & CASE LLP

WINSTON & STRAWN LLP

Chapter 2 EUROPEAN PRIVATE EQUITY�������������������������������������������������������������������������������������10

Chapter 4 REGULATION OF FINANCIAL INSTITUTION M&A IN THE

Chapter 5 UNITED STATES ANTITRUST OVERVIEW��������������������������������������������������������������34

I OVERVIEW OF M&A ACTIVITY

1 Mark Zerdin is a partner at Slaughter and May.

II RECENT EUROPEAN LAW MEASURES RELATING TO CORPORATE LAW

6 Mergermarket, ‘EMEA MA activity during Q1 2019’.

ii General Data Protection Regulation

iii New Prospectus Regulation

iv The Fifth Anti-Money Laundering Directive

12 The Fifth Money Laundering Directive ((EU) 2018/843)(MLD5).

Chapter 2 EUROPEAN PRIVATE EQUITY��10

Chapter 5 UNITED STATES ANTITRUST OVERVIEW��34