GLOBAL Mergers Acquisitions & GUIDE 2015

GUIDING THE WAY A country by country guide to the global M&A landscape

Expert analysis from leading M&A law firms around the world Global M&A Guide 2015 1

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We support our clients as they reach out and enter new markets. Contents GLOBAL MERGERS & ACQUISITIONS GUIDE 2015 JANUARY 2015

5 PUBLISHER’s Note

OVERVIEWS:

6 EUROPEAN OVERVIEW Eversheds: The M&A Market and Approach to Dealmaking in Europe

10 GULF STATES OVERVIEW Al Tamimi & Co.: Business Conditions in the Arabian Gulf

COUNTRY REPORTS:

18 AUSTRALIA King & Wood Mallesons: M&A in Australia

22 AUSTRIA Schoenherr: Austrian Public M&A in 2014 62 INDIA 102 RUSSIA Amarchand Mangaldas: Through the Lens: BBH: M&A Market in Russia: Turbulent Times 26 BELGIUM Rewriting the Rules of M&A in India Van Bael & Bellis: M&A Trends in Belgium 106 SLOVENIA 66 IRELAND Rojs, Peljhan, Prelesnik & Partnerji: Crisis 30 brazil A&L Goodbody: M&A Activity in Ireland: and New Beginnings Mattos Filho: Brazil’s Evolving Private a Positive Outlook Equity Scene 110 SPAIN 70 israel Garrigues: Spain’s Road to Recovery 34 canada Herxog Fox & Neeman: Israel M&A Outlook: Excellence means Fasken Martineau Partners: Promising Cautiously Optimistic 114 SWITZERLAND Outlook for M&A in Canada Homburger: Switzerland: Inversion Transactions 78 ITALY new opportunities 38 cHILE Willkie Farr & Gallagher: The Introduction of 11 8 TURKEY Bahamondez, Alvarez & Zegers: Multiple Voting and Loyalty Shares in Italy Bener Law Office: Turkey: An M&A Gateway M&A Involving Family-Owned Businesses with arthur cox you can expect sound judgment and advice. You can expect in-depth sectoral 82 LUXEMBOURG 122 UNITED KINGDOM 42 china Allen & Overy: Luxembourg: A Global Herbert Smith Freehills: M&A in the UK expertise that will find new solutions to secure your success. You can expect a total commitment Shearman & Sterling: Cross-Border Platform 126 VENEZUELA to your business – a genuine partnership that gives you the confidence to move forward and M&A in China D’Empaire Reyna Abogados: Venezuela: Oil To find out how Arthur Cox can help you, 86 MEXICO embrace new opportunities.call us on: +000 With (0)0 000 Arthur 0000 Cox you can always expect excellence. 46 czech republic Creel, García-Cuéllar, Aiza y Enríquez: and Gas M&A BBH: M&A in the Czech Republic: Energizing Growth: Mexico’s M&A Scene 130 VIETNAM Optimism Continues to Grow is Set to Boom LNT & Partners: A New Wave of Mergers and 50 FRANCOPHONE AFRICA 90 nordics Acquisitions in Vietnam Liedekerke: Seizing Opportunities and Borenius: Finland: A Favorable Outlook 135 TECHNOLOGY: SPECIAL REPORT Mitigating Risk in the DRC 94 peru Astrea: Belgium: Technology M&A Focus 54 GERMANY Miranda & Amado Abogados: Peru: Funds To find out more about our firm and how we can assist Jones Day: Trends in German Public M&A at the Forefront your organisation, please contact Conor Hurley, 58 HUNGARY 98 pOLAND The ALM editorial team was not involved in this Resident New York Partner on: +1 212 782 3299 Bán, S. Szabo & Partners: The Main Trends Greenberg Traurig: Mergers and Acquisitions publication. All contributions are from the local www.arthurcox.com of Mergers and Acquisitions in Hungary in Poland representative law firm.

Global M&A Guide 2015 3

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004pGMA0115.indd 4 12/12/14 6:28 PM Welcome

The global M&A market strengthened considerably in 2014, driven by increased boardroom confidence to invest through M&A. We have seen the return of strategic deals and transformational M&A, some of which have been in the pipeline for years, as well as increased appetite for unsolicited moves. US investment is flooding back into Europe with American investors seeking opportunities to purchase European brands, patents and technologies, and to access European supply chains. We are also seeing strong M&A activity across the Asia Pacific region, as well as Latin America. The deal pipeline is strong across all major regions and in certain key sectors. This bodes well for M&A activity levels into 2015. Our guide provides expert analysis and updates from some of the leading law firms in jurisdictions across the globe. We hope you find it informative and useful.

Danny Collins Managing Director International Division ALM

[email protected]

Global M&A Guide 2015 5

M&A_FOB_Final.indd 5 12/12/14 6:25 PM European OVERVIEW

The M&A Market and Approach to Dealmaking in Europe Amidst healthy M&A activity, dealmakers need to be mindful that a deal is not necessarily the same in every country across Europe

s far as M&A is concerned, often, would instead need to focus on the particular coun- Europe, and in particular the EU, tries involved, who the sellers are, and what the reg- is seen as one region by North ulatory environment is in any particular country. American commentators. People talk about doing “deals in Europe”. Economic Health AIn addition the statistics which are produced often At the time of writing this article, economic surveys support this concept of a “European deal”. How- indicate moderate growth on a global basis provid- ever in reality, and while this is slowly changing, ing a supportive environment for M&A activity in the processes and style and the documentation can Europe. The Global all Industry Purchasing Man- vary dramatically depending on the particular agers Index (“PMI”) for the third quarter is just be- country in which an “M&A transaction in Europe” low the three year high of July 2014 reflecting solid is taking place. While cross border deals tend to contributions from the manufacturing and service be more Anglo-Saxon in style, if you are dealing sectors along with a continued acceleration of new with a transaction in a particular jurisdiction, let’s orders for manufacturing. say Poland or Sweden, there can be big variations It is fair to say the countries in Europe outside to what you might consider as the norm. The deal the Eurozone are seeing more M&A activity but the documentation in a domestic French deal will look Manpower Survey of hiring intentions reveals that very different to an English domestic deal. employers in 36 of 42 countries surveyed expected Also, often people talk about EU law. And workforce additions in quarter 4 2014 - pointing to while of course there are Directives coming down a wider optimism required for sustained growth in from the European Commission in Brussels to be M&A. Notwithstanding this, the combination of implemented at a national level in particular re- the need for growth and minimal inflation caused lating to social policy, to a large degree in rela- the European Central Bank to cut interest rates to tion to the corporate law, there is no EU law. Even record lows in the Eurozone in early September in where a directive could apply to a transaction, for an attempt to support the Eurozone economy. example in relation to the transfer of employees on a business sale otherwise known as the Acquired Deal Totals/Valuation Rights Directive or “TUPE”, each country will By the end of the third quarter, the mid-market interpret that directive in a different way so local transaction totals in Europe year on year increased advice is required. by just under 30% with a similar incremental in- A US acquirer should therefore not treat Europe crease in dollar value from 2013. This would in- as a single market for the purposes of M&A and dicate a healthy pipeline. The medium EBITDA

6 Global M&A Guide 2015

Global M&A_Eversheds_Final.indd 6 12/14/14 3:38 PM transaction multiple was 8 times for the first nine mentary in the marketplace that financial sponsors months of 2014, with transactions below £100 mil- would prefer to sell to another financial sponsor to lion having an EBITDA multiple of around 7 times move transactions on faster. However to date this and above £100 million at around 9 times. has not been seen as a genuine disadvantage for In terms of cross border activity and in par- strategics in processes but of course this potential ticular acquirers from North America, tradition- trend needs to be monitored on a regular basis. ally the UK has been the main country in which acquisitions take place followed by Germany, Equity Markets France, Spain, Italy, the Netherlands, Ireland, In Europe the equity markets have shown some- Belgium, Sweden and Switzerland. The UK and what of a revival in 2014. On significant assets there Germany represent approximately 60% of all is now normally a triple track process of talking to North American inward investment by way of strategic buyers, talking to financial sponsors and deal activity. North America remains by far the largest acquirer of European assets and the antici- pated flow from Asia still remains small compared “The UK and Germany to North America notwithstanding signs that this could increase. There is still a view that Asian represent approximately companies are not as comfortable in dealing in an 60% of all North American auction process as North American strategics are and, in particular, are uncomfortable with finan- inward investment by way cial sponsor deals. of deal activity.” Financial Sponsor Exits While the UK is inevitably closer to the US market also looking at IPO opportunities. It is uncertain than a number of other European countries, both how long this will last. Already the uncertainties in terms of culture and language as well as risk ap- of the global economy and investors concerns with petite, there are however important differences to valuations being too high and financial sponsors the way deals are structured. This is particularly unwillingness to holding stock long term after an the case in relation to financial sponsor deals. IPO have pointed towards a number of IPO’s be- As an example on exits, financial sponsors will ing pulled with then a emphasis on a strategic sale. not expect to give any reps or warranties. They will resist any working capital or net debt adjustment Ocean Divide post deal and will more than likely insist upon a There are a number of other key differences which locked box mechanism. If a strategic buyer is seek- a North American buyer should be aware of be- ing more contractual protection, a financial spon- tween the US style of documentation and the Euro- sor would normally direct them towards a war- pean style of documentation. ranty and indemnity insurer for coverage. This is 1. Firstly, European deals envisage the concept of an increasing trend in financial sponsor sales, in general disclosures rather than specific exhibits. order to bridge the gap for the clean exit for the The issue of the general disclosure, for example, financial sponsor and the risk that imposes on a of a data room as opposed to specifically disclos- strategic buyer, for more extensive, less material ing documents from a data room by way of exhib- due diligence. This is inevitably slowing up trans- its is something which should be addressed at an actions and there is no question that transactions LOI stage. are taking longer as more due diligence is required 2. In Europe, typically, the maximum liability for to be done upfront. sellers is closer to 100% of the consideration value. Unfortunately this has led to timetables being 3. In the UK in particular, domestic sellers may regarded as “meaningless” as they just do not re- well resist the concept of indemnity basis of damage flect the time that will need to be spent on due dili- and instead insist on a buyer establishing a diminu- gence in Europe. Anecdotally, there is regular com- tion in the value of the shares being acquired.

Global M&A Guide 2015 7

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4. Importantly non-competes cannot be longer good examples being French Ministry of Defence than three years other than in extreme exception- or Commerce consents. al circumstances. The European Courts do not like non-competes unless they are specific and are Time Management & Materiality genuinely needed to protect the value of the busi- and other Peculiarities ness being acquired. In the author’s view, on any particular cross bor- 5. While deals are often conditional upon anti der deal in Europe, project management is key. trust clearance, deals are less contingent on fi- One cannot assume that if you have got lawyers nancing contingencies and MAC clauses are often in the UK they will be able to deal efficiently with tightly drawn up and are linked to a significant issues say in Italy, Germany or Spain. Eversheds diminution in turnover or EBITDA often around realised this several years ago and have a dedi- the 25% level. cated cross border international team to handle 6. It is important to note that in a number of Eu- these types of deals. ropean jurisdictions the concept of good faith ap- While every buyer will have their own levels of plies. While litigation is rare there has been cases materiality on any cross border deal, it is important relating to not acting in good faith in relation to a to focus on the corporate and regulatory aspects particular transaction. including compliance even at a non-material level. 7. Agreeing the governing law clause and whether Employees have more rights in Europe than they arbitration or courts should be used in any dis- do in the States and are protected by legislation in pute is something which should be addressed relation to their employment. If for tax reasons you at the LOI stage. Domestic sellers in Europe will are doing a mixture of a share and asset deal you often insist upon a local governing law clause will need to consult with employees either at a local basis ie each individual country or at a collective basis if the target has a European works council. “...the cost of integration on Typically on a cross border deal there would be a tax analysis which dictates the structure of a trans- cross-border deals in Europe action from a tax efficiency for both the sellers and should not be underestimated.” buyers perspective. This can lead to individual deals under an umbrella arrangement. Avoiding duplication of cost and having tight and addressing that upfront as part of any deal is project management is essential. Nevertheless it is important. important to note local rules. For example in many 8. While the concept of fundamental warranties re- countries in Europe there is the concept of notarial lating to title and capacity is more widely accepted, fees which requires local transfer agreements to be obtaining other fundamental warranties for ex- registered locally, in person, at closing. In addition ample in relation to trade or bribery compliance to the extent that debt financing on a secured basis is only a trend that has recently been introduced. has been put in place the rules on recording secu- 9. In Europe the concept of VDD is more common rity vary considerably from country to country. than in the States and you should expect to receive, Further it is often a requirement that whilst Eng- in auction processes, VDD reports which you are lish language and English law may be the govern- expected to then to negotiate with the provider. ing language and law of the contract, local require- 10. On a cross border transaction you should as- ments require documentation in the local language sume that you will have an umbrella agreement which again can increase the cost and process time and a local transfer agreements in each individual involved. territory; and Doing a cross border transaction in Europe re- 11. Finally you should also bear in mind, depend- quires more management time and more time that ing on the industry sector, that there could well you might expect than doing a domestic deal in the be governmental consents required before any ac- US. Time is a critical element in putting together any quisition by an overseas entity can be approved, cross border timetable. You should anticipate that

8 Global M&A Guide 2015

Global M&A_Eversheds_Final.indd 8 12/14/14 3:39 PM any cross border European deal to business understands the require- take at least 50% longer and devote ments of US compliance, getting at least 75% more management buy-in from senior management time than a domestic deal. to the process and allowing senior management locally a role, as well Anti Trust as actually conducting the com- The final area to watch in terms pliance training in local languag- of cross border European deals is es, are often seen as being more anti-trust analysis. You should not effective than simply introducing assume that there is only a need a North American perspective. for one filing at a European level. It is essential that you get con- In fact each member state has its Robin Johnson trol of any corporate records, real own cartel authority and its own Partner, Eversheds LLP estate records, financial records rules in relation to filings. There and HR records as soon as pos- is not a consistent approach across sible. Leaving these until the next Europe. Therefore it is necessary right at the begin- accounting period, again, can lead to a lack of inte- ning of any transaction to analyse where you might gration and inefficiency. need to file in Europe and what the timescales are. While customers and suppliers often understand Some European countries adopt a turnover thresh- the rationale for an acquisition, internal communi- old but some also adopt a market share test and cations can be missed and there is strong evidence, some look at the aggregate of the parties turnover. particularly in Europe that personal contact is seen In most countries filings are mandatory and you to be more effective than email correspondence. cannot complete a deal in the meantime. It is also important that you do not lose the peo- In summary, scoping and processing and agree- ple that have control of local permits and under- ing up front timetables and understanding the ap- stand local regulatory requirements. This is regu- proach that has been taken by a seller particularly if larly an issue due to often a lack of understanding it is a financial sponsor are critical. from both the acquirer and local management as to the regulations. Post Deal On larger acquisitions involving many countries, Integration will be a key factor, as it is in any trans- the approach to integration is even more critical. action, but the cost of integration on cross-border You should not underestimate the time and cost it deals in Europe should not be underestimated. The will take to integrate the business to extract the syn- retention of people and the focus on cultural differ- ergies and to maximise the return. There have been ences are important. The author would recommend too many war stories of acquiring companies find- a 100 to 180 day plan which focuses on people and ing out 12 months later of either a sales office they processes as well as compliance. weren’t aware of or a reporting line they weren’t In addition, there will, of course, be issues that aware of. Understanding post deal existing report- have been raised during the deal which require ing lines is essential, even more so on a larger cross immediate rectification. Getting buy-in from local border deal. management to those actions as early as possible so In summary, Europe is a very large marketplace that they are working with the acquiring company with relatively stable macro economic and political is critical. structures but do not assume a deal in Europe is the Often, it is reported that post deal the strategic same in every country. ■ rationale for an acquisition is not clearly set out to target senior management who then feel isolated, Robin Johnson, Partner, Eversheds LLP then pass their concerns on to people at a lower lev- +44 (0)845 497 4754 • [email protected] el in the organisation resulting in a disenchantment Robin Johnson developed “Eversheds M&A Blueprint: from the acquired workforce. While it is essential to Inception to Integration.” Copies are available from carry out necessary compliance training so that a www.eversheds.com.

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Business Conditions in the Arabian Gulf Economic growth and favorable demographics are driving M&A writes Al Tamimi & Company’s Gary Watts, Grahame Nelson and Alex Saleh.

he economies in the Arabian Gulf sible by high oil and gas reserves and prices over continue to grow rapidly, despite most of the period since 2008, coupled with a will- instability and unrest afflicting ingness on the part of governments in the region their neighbouring countries in to increase spending and to move aggressively to the Middle East. The Arabian diversify their economies away from energy pro- GulfT countries are the members of the Gulf Coop- duction. High rates of government expenditure eration Council (GCC) namely Saudi Arabia, the continue in most GCC countries, as governments United Arab Emirates, Kuwait, Qatar, Bahrain invest these significant oil and gas reserves to and Oman. These GCC countries are collectively boost social services and infrastructure. At the important for any business with global aspirations time of writing the outlook for oil prices was un- and ambitions. certain, but the major producers have built signifi- According to the International Monetary Fund cant reserves from big surpluses over recent years, (IMF), in the five-year period following the finan- so in the short-term public spending should not be cial crisis of 2008, the real gross domestic prod- affected. uct of the GCC countries grew by 24%, a stark Aside from these advantages, all GCC coun- contrast to negative growth experienced over the tries have rapidly increasing populations. The same period in the U.K. and in the Eurozone IMF also reported that between 2008 and 2013 countries. the population of the GCC countries grew by a staggering 18.9%, emphasising the youthful de- Growth Drivers in the mographic. Arabian Gulf Importantly, most of the Gulf countries are This impressive growth in the Gulf was made pos- zero tax or low tax jurisdictions. Labour markets

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Global M&A_AlTamimi_Final.indd 10 12/14/14 3:46 PM Gary Watts Grahame Nelson Alex Saleh Partner, Partner, Partner, Regional Head of Head of KSA Office Head of Kuwait Office Corporate Commercial

are flexible, and local businesses import and de- ner owns 51% of the company, the foreign in- ploy expatriate workers across a wide spectrum of vestor will put in place side agreements which skilled and unskilled occupations (literally from allow the foreign partner to retain almost all labourers to rocket scientists). Under the GCC the profit, carry all the risk and exercise full legal systems, residency visas are linked to em- control over the business. ployment contacts and are generally weighted in Both types of arrangements are extremely favour of employers. common throughout the region. Despite the political unrest across the wider Middle East, all the GCC countries seem politi- cally stable at present, with only Bahrain having a recent history of civil disorder and sectarian po- All GCC countries have rapidly litical issues. increasing populations. Critical Issues for Foreign The IMF also reported that Investors in the GCC All GCC countries impose restrictions on the level between 2008 and 2013 the of foreign ownership and control in local business- es. These restrictive rules often pose a challenge population of the GCC for foreign investors when setting up companies countries grew by a staggering or businesses in the GCC; or when investing in established GCC companies. 18.9%, emphasizing the The foreign investment rules are intended to protect national entrepreneurs and to limit for- youthful demographic. eigners to minority ownership positions. Foreign —Gary Watts, Partner and Regional Head of Corporate investors usually have two options: Commercial, Al Tamimi & COMPANY • Pursue the path of joint venture—the inves- tor identifies a local company which will con- tribute to the business, share any financial The restrictions on foreign ownership go hand risk and facilitate business development and in hand with a prescriptive business licensing re- operations on the ground; or gime that prevails in all the GCC countries. Any • Conclude arrangements with a local business- business must obtain a “gateway” licence to carry man (or company) who will become a partner on business from the government authorities. This in name only; even where such a local part- is a substantive approval process and applicants

Global M&A Guide 2015 11

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must demonstrate that they have employed staff Conducting Due Diligence with appropriate skills and experience and track Foreign investors find it difficult to identify targets record to operate the business. Highly regulated for acquisition or partnership in the Middle East, types of business (e.g. healthcare and education) let alone conduct detailed due diligence on their also require further regulatory approvals and li- targets. In Western countries it is normal to elicit cences to be obtained, in addition to basic “gate- considerable background information about tar- way” licences. get companies from corporate registers, real estate

SAUDI ARABIA

Deals in Saudi Arabia: Mixed Messages

Saudi Arabia is the biggest economy and market The Foreign Investment Law identifies a num- in the GCC. So it offers the greatest rewards but ber of business activities reserved for Saudi owners. also presents significant challenges in making in- This is referred to as the “Negative List”. vestments. Politically, Saudi Arabia is After a liberal beginning to the SA- stable at present and business activity GIA administration about three years is strong, although a major crackdown SAUDI ARABIA: ago there was a change in leadership on expatriate workers without proper at SAGIA which led to a tightening Foreign visas has led to labor shortages in some of foreign investment rules. SAGIA is investors may sectors, particularly in the building in- be allowed now selective about the applications dustry. to own up to it approves. Nevertheless, for many The gateway to foreign investments 100% of the business activities it is feasible to is the Saudi Arabian General Invest- capital of the achieve foreign ownership up to 75%. ment Authority (“SAGIA”), a regulato- enterprise. Foreign investors may be allowed to ry body that must approve any foreign However, own up to 100% of the capital of the investment application from outside there are enterprise. However, there are some the GCC countries. some business activities where at least some SAGIA was established in 2000. It business level of Saudi ownership would be re- administers a foreign investment re- activities quired. where at gime dependent on the issue of foreign But it is easier to secure approval if least some investment licences by SAGIA. level of Saudi your investment is large; or is viewed For those foreign businesses wanting ownership as bringing new technology or signifi- to carry on a business activity in Saudi would be cant job creation to Saudi Arabia. Arabia, they can only do so if they have required. Foreign players can often gain ac- a legal presence in Saudi Arabia and cess to the Saudi market without car- they have a foreign investment licence rying on a business in Saudi Arabia. which authorises that activity to be conducted. In many cases, the restrictions on foreign owner- Foreign investors may acquire ownership of ship encourage companies to enter into distribu- business in all sectors of the economy subject to two tion, commercial agency and franchise arrange- broad qualifications: ments with parties allowed to carry on those Foreign investment is not allowed in oil explora- businesses in Saudi Arabia. The foreign company tion, drilling and production (although there is no will not need a foreign investment licence to enter prohibition on foreign investment in refining and into these arrangements and won’t need to estab- petrochemical development). lish a legal presence in Saudi Arabia. ■

12 Global M&A Guide 2015

Global M&A_AlTamimi_Final.indd 12 12/14/14 3:47 PM registers, court registers, credit checks and other This lack of publicly available records makes it public sources. However, in the GCC countries, difficult to source or corroborate reliable informa- not much information is recorded on public regis- tion from public sources to verify basic facts about ters, there is no accessible credit reporting system the target. It is usually necessary to rely wholly on (except in Bahrain) and most of the information information and documents furnished by the pro- maintained is not available is not available to the spective seller. ■ public or to any third party.

THE UNITED ARAB EMIRATES UAE: Deals in THE UAE: It is forecast Business is Brisk that over the next few years, Business in the UAE is extremely positive. Dubai, the healthcare industry. It is forecast due to factors in particular, has reinforced its position as the that over the next few years, due to such as the rapidly leading financial centre in the region as a result factors such as the rapidly expanding expanding of its superior lifestyle and infrastructure, coupled population, greater public awareness population, with its unequalled air transport connections with of medical conditions and treatment greater public the region and the rest of the world. Dubai is a ma- available, higher incidence of life- awareness jor beneficiary of the difficulties elsewhere in the style diseases and deeper insurance of medical Middle East. It is now the major tourist destination penetration, this sector will continue conditions and focus for property investment in the region. to grow exponentially (becoming and treatment Abu Dhabi is likewise constructing the first a $12 billion industry by 2015 accord- available, high- offshoot of the iconic Louvre Museum and a new ing to the Dubai Chamber of Com- er incidence Guggenheim Museum, has built theme parks and merce & Industry). of lifestyle significantly upgraded its hospitality and trans- The UAE seeks to promote itself diseases and deeper port infrastructure (including the beginning of a through the development of health- insurance trans-Arabian railway network). There is also a care tourism, attracting patients to penetration, major port and industrial zone being developed in its premium facilities from around the healthcare Abu Dhabi near the main freeway between Abu the region. The Government and sector will Dhabi and Dubai. the government-subsidized insur- continue The UAE has pioneered the development of ance schemes also recognize the op- to grow economic free zones, which are designated areas portunity to save costs by treating exponentially. within urban or industrial precincts where foreign the national population at home, investors are permitted to set up 100% owned com- rather than paying for expensive panies and businesses. UAE free zones, particularly treatment abroad as has been common previous- those in Dubai and Ras Al Khaimah, have been ly. This forecast growth has fuelled a significant very successful and a staggering array of businesses increase in both public and private sector invest- operates from the free zones, ranging from manu- ment in healthcare facilities with high-profile facturers to banks and consulting firms. However, names, such as Cleveland Clinic, John Hopkins there are strict limitations on the types of business and Mayo Clinic now operating in the UAE. activities which can be conducted from free zones. The UAE’s non-oil sectors expect continued Also, to set up in a free zone, it is necessary to buy growth in 2015, driven by strong real estate de- or lease premises in the free zone areas. velopment activity, tourism, leisure and retailing One sector that is currently seeing exceptional buoyancy and a continuation of major infrastruc- growth in the UAE, particularly in Abu Dhabi, is ture projects. ■

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KUWAIT: This KUWAIT long-delayed “makeover” Deals in KUWAIT: of Kuwait Building Infrastructure Is Key and its infra- structure Of all the GCC countries, Kuwait is closest geo- will act as ment cost burden away a major graphically to the serious ongoing violence in the from the government and stimulus as region, as it has a long land border with Iraq. How- it emerges toward private investors), ever, the GCC’s only parliamentary democracy over time. while giving the investor remains relatively stable and prosperous. It retains management control of significant oil reserves. the joint stock company The government of Kuwait has vast foreign as- and the project. Since the PPP Law was passed in sets, but much of the local infrastructure is overdue 2008, over $25 billion worth of projects have been for overhaul and enhancement. However, it contin- announced and significantly more are expected to ues to take time for the political processes to work be announced over the next few years as Kuwait through how Kuwaiti’s plentiful sovereign resourc- sets out to expand and diversify its economy. es will be spent. This long-delayed “makeover” of In January 2014, Kuwait reached financial Kuwait and its infrastructure will act as a major close on the Az Zour North Independent Water stimulus as it emerges over time. & Power Project, Kuwait’s ground-breaking PPP/ In response to its growing need for robust lo- IWPP project. Considered as Kuwait’s flagship in- cal infrastructure projects, the Kuwait govern- frastructure project under the PPP and IWPP laws, ment passed the country’s first PPP (Public Private the $1.8 billion project will result in the construc- Partnership) and IWPP (Independent Water Power tion of combined cycle power plant and associated Plant) laws in 2008 and 2010 respectively. On the water desalination plant. heels of the passing these laws, Kuwait embarked To improve upon gaps in the PPP regime and on a mission to procure numerous midsize and lessons learned following the success of the Az Zour large infrastructure projects under a PPP regime. North project, Kuwait recently passed a new PPP The PPP projects anticipated by the issuance of law, which is more flexible and conducive to -at these laws cross a business areas that include (but tracting foreign private investment. As such, Ku- are not limited to) electricity and power, waste wa- wait believes large infrastructure projects to gain ter management, transportation, communications, momentum, including projects such as the Umm hospitality, healthcare and land development with- Al Hayman Wastewater Treatment Plant, Az Zour in the State of Kuwait. North Phase 2 IWPP, Al Abdaliyah Integrated So- The aim of the PPP Law is to create wider own- lar Combined Cycle Plant and Al Khiran IWPP, ership in larger projects (i.e. to shift the develop- amongst many others in the pipeline. ■

BAHRAIN

Deals in BAHRAIN: All Investors Welcome has moved away from dependence on oil, diversify- ing into other sectors. During the 1980s and 90s, it Bahrain has long established roots in international was seen as the banking hub of the GCC. trade and in 1932 it was the first GCC country to Bahrain has close ties with the US and is the discover significant oil reserves. Over the past 40 first and only GCC state to have a bilateral Free years Bahrain has put in the place foundations for a Trade Agreement with the U.S., which came into modern economy. As Bahrain no longer has signifi- force in 2006. As a result, there are few restrictions cant oil reserves like some of its GCC neighbours, it for U.S. individuals and companies wanting to do

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Global M&A_AlTamimi_Final.indd 14 12/14/14 3:47 PM QATAR

Deals in qatar: Countdown to the World Cup

Qatar is the wealthiest country in the GCC per Whilst infrastructure works are proceeding, capita and enjoys vast gas reserves. There have the policy of attracting industrial activity to the been major new developments in Doha and im- country has not achieved significant success. Dif- portant cultural attractions established (such as ficulties with registration of businesses with over the magnificent Islamic Art Museum). However 49% foreign-ownership and slow paced industrial the real stimulus to activity in Qatar is expected to licensing are proving to be significant hurdles and be the major infrastructure which must be built to the under-developed state of Qatar’s industrial permit the staging of the 2022 World zones are hampering efforts to at- Cup. tract the larger players in the manu- The country’s economic prog- Dubai: facturing industry. ress has slowed following a change The World Cup Significant mergers and joint in leadership in 2013 (the old Emir infrastructure ventures in Qatar are still largely stepped down in favour of his son) has an driven by governmental initiatives. as the government and the publicly implacable The Qatar Exchange is now wholly- owned businesses continue to digest deadline for owned by the sovereign wealth fund the implications of the change. How- completion, entity Qatar Holding. There are ever, the World Cup infrastructure so significantly still proposed mergers and strategic increased has an implacable deadline for com- consolidations being considered by activity is pletion, so significantly increased ac- expected in the government entities and Qatar Pe- tivity is expected in the near future. near future. troleum and its subsidiary organisa- The Qatar railway project is also tions are involved in joint ventures underway with contracts now filter- with a number of global companies. ing downstream. The Msheireb “Heart of Doha” Despite encouragement from various sources, new project revamping the old central business district listings on the Qatar Exchange are few and far be- is making significant progress; and development of tween and the capital markets lag behind largely the new Doha satellite city of Lusail is expected to more buoyant regional financial markets such as move up a gear during the next 12 months. the UAE and Saudi Arabia. ■

business in Bahrain. Bahrain is also home to the has a well developed legal system with relatively U.S. Navy’s Fifth Fleet. advanced companies law, financial services laws There are many advantages to doing business and even a trust law. It has well developed sectors in Bahrain. It has a relatively liberal lifestyle com- in financial services, manufacturing, professional pared to some other countries in the GCC, e.g. services, logistics and ICT. It has a relatively lib- Saudi Arabia and Kuwait. It is strategically posi- eral foreign investment ownership regime with no tioned between Saudi Arabia (to which it is con- restrictions on foreign investors in certain sectors nected to by a causeway), Qatar and Kuwait. It and no restrictions on U.S. investors at all. Bahrain

Global M&A Guide 2015 15

Global M&A_AlTamimi_Final.indd 15 12/14/14 3:47 PM GULF STATES

BAHRAIN: There are many advantages to doing business also has an educated and diversified result of a latent sectarian divide in Bahrain. work force comprising both expa- between the Shia majority and the It has a relatively triates and Bahrainis. Like all other Sunni monarchy. The uprising ex- liberal lifestyle GCC states, Bahrain is tax free in pressed in some civil disorder and compared to some most sectors of industry. a degree of political violence. The other countries Bahrain’s Economic Develop- situation has however stabilized in in the GCC. ment Board is responsible for at- recent months. Bahrain is acutely Bahrain also tracting inward investment into aware of the loss of business and has an educated Bahrain and is charged with lead- investor interest which has been and diversified ing implementation of the Govern- a side effect of the recent disorder work force ment’s 2030 Economic Vision. and as a result it has become in- comprising both expatriates and Bahrain was affected adversely creasingly investor and business Bahrainis. by the Arab Spring and in 2011 an friendly, whilst also trying to ad- attempted uprising took place as a dress its political issues. ■

OMAN

Deals in OMAN: An Oasis of Stability

The Sultanate of Oman has a long record of po- countries. Moody’s and Standard and Poor’s both litical stability under the dynasty of Sultan Qaboos view Oman’s investment outlook as stable and Doing Business in and continues to be on good terms with all its neigh- have reaffirmed Oman’s A1 and A/A1 sovereign bors. Major industrial development is occurring at credit rating, respectively. the Middle East? Sohar, whilst near the capital Muscat Oil exports remain the major there is outstanding hospitality infra- source of foreign earnings and signifi- structure on the coast, catering to trav- oman: cant revenue earners for the Sultan- So are we... elers who prefer five star resorts. ate; the impact of depressed oil prices Moody’s As the largest law firm in the Middle East, The legal infrastructure is likewise and Standard towards the end of 2014 on the eco- good and the government has made a and Poor’s nomic health of the Sultanate is yet Al Tamimi & Company knows more than just comprehensive assessment of the in- both view to be seen. It is likely that marginal the law. We pride ourselves on understanding vestment sector to define the obstacles Oman’s infrastructure projects will re-evalu- the business environment in which we operate, investment and challenges faced by the existing le- ate or postponed whilst the oil price benefiting the clients we work with. gal framework. Oman offers attractive outlook as continues to fluctuate. investment concessions to U.S. nation- stable and The Sultanate’s finite oil resources als and U.S. companies under treaty have have propelled the Government of We have the knowledge, expertise and cultural reaffirmed arrangements designed to create a Oman to embark on a strategy of eco- Oman’s A1 and awareness to ensure that our clients are at the more market friendly environment for A/A1 sovereign nomic diversification to lead the Sul- forefront of doing business in the Middle East. U.S. investors. credit rating tanate away from an economy driven Oman was ranked above Saudi respectively. by oil to one more reliant on tourism, Arabia, Bahrain and the U.S. in the real estate and trade through better 14 Offices I 8 Countries I 305 Lawyers 2014 Global Peace Index put together utilisation of its geographic position- by the Institute of Economics and Peace, ranking ing as the gateway to Asia. World Bank projec- 59th out of a total of 162 countries. The Index tions indicate growth in GDP of 5% during 2015, www.tamimi.com of Economic Freedom 2014, an indicator of ease making the Sultanate an attractive market for in- of doing business, ranked Oman 48th out of 178 vestment. ■

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Global M&A_AlTamimi_Final.indd 16 12/14/14 3:47 PM Doing Business in the Middle East? So are we... As the largest law firm in the Middle East, Al Tamimi & Company knows more than just the law. We pride ourselves on understanding the business environment in which we operate, benefiting the clients we work with.

We have the knowledge, expertise and cultural awareness to ensure that our clients are at the forefront of doing business in the Middle East.

14 Offices I 8 Countries I 305 Lawyers

www.tamimi.com

Global M&A Guide 2015 17

Global M&A_AlTamimi_Final.indd 17 12/14/14 3:48 PM AUSTRALIA

M&A in Australia Four key developments are setting the stage for an uptick in M&A activity in Australia.

everal factors have combined in 2014 to ganized, professional activism compared with the create a positive environment for merg- United States. Nevertheless, the market has seen ers and acquisitions (M&A) in Australia. some high-profile campaigns in recent years and First, private equity sponsors, hedge activism could soon become a more prominent fea- funds and sovereign wealth funds are ture of the Australian market. Strong shareholder moreS actively pursuing Australian Securities Ex- rights enshrined in Australian legislation and case change-listed companies in order to deploy pan- law provide shareholders with greater leverage Asian and global funds into mature investments against Australian listed companies than in some in the region. This is in line with an increasing other jurisdictions. We expect that Australian trend for activist shareholders to take advantage companies will be targeted more frequently once of shareholder-friendly features of the Australian experienced value-driven activist investors obtain regulatory environment. greater familiarity with the shareholder-friendly Second, corporate boards are more comfort- features of the Australian regulatory environment. able with their own view on value, which has led Unlike many jurisdictions in the U.S., Aus- to a greater propensity by directors to market and tralian law allows shareholders with a 5% stake promote sale auction processes. While not quite at to requisition a meeting to consider a resolution, the level of the “don’t ask don’t waive” (DADW) including a resolution to remove directors. Only a provisions in the U.S., there are similarities. simple majority (50% +1) of votes cast is needed for Third, bidders for public companies are able to such a resolution to be passed. Australian boards take advantage of relatively loose disclosure rules are also much more vulnerable than boards in ju- for derivative positions to gain momentum in un- risdictions that permit “staggered boards.” Some solicited bids. jurisdictions, such as Delaware, ensure that only Finally, China’s interest in Australian M&A ac- one-third of the directors are vulnerable to a con- tivity has continued to rise, representing its highest tested election at any annual general meeting and, growth since 2009. accordingly, that an activist needs no less than two annual general meetings to take control of the Shareholder Activism board. This is not the case in Australia. While economic activism has been a significant Shareholders of Australian companies also have driver of activity in the global M&A market over the ability to nominate directors directly on the com- the past few years, Australia has seen very little or- pany’s ballot. At the requisitioning shareholder’s re-

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Global M&A_KWM_Final.indd 18 12/14/14 3:44 PM quest, the company is required to distribute a state- stakes significant leverage over boards of Austra- ment provided by the requisitioning shareholder to lian companies. Activists who encourage even a other shareholders in relation to the proposed ap- small coalition of minority investors now pose a pointments. The proxy forms mailed to shareholders meaningful threat to incumbent directors. By con- must list all the resolutions proposed, including the trast, “say on pay” votes in the U.S., while poten- resolutions to appoint the shareholder-nominated tially embarrassing to directors, are advisory only. directors. By contrast, shareholders of companies in While shareholder rights plans, or “poison the U.S., while having certain rights to submit pro- pills,” have long been used by corporations in posals for inclusion on the company ballot, are gen- Delaware to defend takeovers and hostile activists, erally not permitted to use the proposal mechanism an Australian company’s ability to implement a for the purposes of nominating directors. tactical poison pill in the face of an unsolicited ap- Directors of Australian companies also have a proach or activist accumulation is constrained by duty to give balanced disclosure to shareholders. likely Takeover Panel opposition and an ASX re- The board must comply with continuous disclo- quirement that shareholder approval be obtained. sure requirements and disclose to the market any This inability to stop activists means that Austra- material intentions or plans. Communications lian boards have potentially less ability to control must be neutral in tone. By contrast, activists have process and additional accumulation by activists. no duty to disclose their plans and are free to use Some jurisdictions permit boards to spend cor- emotive language, so long as they do not make de- porate funds to defend against a contested elec- famatory or misleading statements. tion, but directors in Australia are restricted from Some jurisdictions require full disclosure of de- rivative positions if 5% is reached when aggregat- ed with any physical securities holdings, although “Derivatives continue to be a that is not the current position in Australia. Ac- tivists frequently hold derivative positions in listed very effective tool for gaining entities and do not file substantial holder notices based on derivative holdings or movements unless momentum in competitive a control transaction is in progress or they are tak- bidding situations.” ing preparatory steps for one. The “two strikes” rule requires a listed com- pany to put adoption of an executive remunera- using corporate resources to campaign against tion report to a nonbinding shareholder vote at the election of incumbents, even if it is in the best each annual general meeting. If the company’s interests of the corporation. Unless directors are remuneration report receives a “no” vote of 25% willing to make use of their personal wealth, they or more of votes cast on the non-binding approval cannot compete on an equal footing against the resolution, a “strike” will be recorded against the actions of wealthy hedge fund activists. board. A strike at two consecutive annual general meetings triggers a requirement for the company Competitive Sale Processes to submit a “spill” resolution to shareholders. Australia has seen a fairly recent emergence of The spill resolution, if approved by a simple competitive sale processes in connection with the majority of shareholders, forces the company to acquisition of controlling (or significant) stakes in hold another meeting within 90 days, at which listed companies. The most recent example in- all of the company’s directors (other than manag- volved Wotif running a competitive sale process ing directors) who were serving at the time of the for all of its shares, which ended with Expedia suc- second “strike” must stand for re-election. The cessfully acquiring Wotif following that process. rule is intended to provide an additional level of Preferred bidders in these circumstances run the accountability for directors and to give greater risk that other participants do not put forward their voice to shareholders. However, given that only best offer under the company led sale process, and 25% of votes cast are needed to record a strike, the seek instead to disrupt the preferred transaction rule potentially affords activists holding minority once the bidder’s offer price is announced.

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The typical standstill arrangement does not ers would be better off with a preferred bidder ac- completely address this risk of being overbid as an quiring a blocking stake (such as happened in the approach by an under-bidder to a target board in acquisition of Wotif) or enforcing DADW provi- those circumstances may mean the directors feel sions effectively to lock out other participants from compelled (due to fiduciary duties) to waive the bidding. In our view, provided the target company standstill provision to allow a superior offer to be can demonstrate that the process was designed to presented to shareholders. While targets are willing elicit highest shareholder value, we believe the Pan- provide representations and warranties to preferred el would support and maintain standstills in com- bidders as to the scope and tenure of all under- petitive sales processes. However, the onus would be bidder standstill restrictions, they have not been on the preferred bidder and the target company in as willing to provide enforceable undertakings to each case to show that the process gave each par- enforce these standstill restrictions. There is some ticipant the opportunity to present the highest bid. guidance from the Takeovers Panel in the Interna- tional All Sports decision, which indicates support Derivatives Positions as for the use of appropriately structured standstills Pre-Bid Stakes which “Failure to enforce the agreements could Bidders (and potential bidders) continue to use a disrupt the process of negotiating and consum- variety of methods to acquire interests in potential mating business transactions.” However, it is gen- targets prior to launch of the bid. However, in re- erally considered that a preferred bidder will need cent years, bidders have increasingly turned to cash and physically settled equity derivatives to obtain a foothold in Australian listed targets. Recent exam- “Recent changes by the ples include Crown’s efforts to pressure its competi- tor for Echo Entertainment and Dexus’ takeover Chinese government to bid for the Commonwealth Property Office Fund. simplify approval processes Derivatives offer two primary benefits. First, a bidder gets a hold on a pre-bid stake in the target for Chinese outward invest- for minimal cash outlay. Given the current market conditions, this may be a major benefit since the ment are having a positive cost of acquiring a physical holding is significantly effect on Australian M&A.” higher. Second, traditional pre-bid arrangements require the bidder to find target shareholders who are willing to dispose of their shares pre-bid (or at to demonstrate to the Panel why a standstill should least indicate that they will accept a takeover of- be enforced against another bidder if that standstill fer from the bidder) and this has both insider trad- prevents a higher bid being offered to shareholders. ing and misleading and deceptive conduct issues By contrast, the recently adopted DADW provi- to navigate. With a derivative, the counterparty is sions in the U.S. appear to have become a signifi- able to borrow shares from institutional sharehold- cant tool for target boards running public auction ers and deliver them to the bidder (with an obliga- processes. These provisions prohibit potential pur- tion to return equivalent shares to the institutional chasers from submitting a bid without the target shareholder at a later date) and thereby build a company’s invitation (“don’t ask”), and prevent the stake without those concerns and without moving bidder from publicly or privately requesting that the market price. the target company waive the standstill provision The position in relation to disclosure of de- (“don’t waive”). Whilst DADW provisions are yet to rivatives in Australia depends on whether they permeate the Australian market, their use is being are physically settled or cash settled. A physically closely examined. Despite the Panel’s limited en- settled derivative (in excess of 5% of the target’s dorsement of standstills, it is unclear whether they shares) must be disclosed, whereas a cash settled would support the use of DADW provisions. The equity derivative is generally not required to be dis- policy question for the Panel is whether sharehold- closed unless in the context of a “control transac-

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Global M&A_KWM_Final.indd 20 12/14/14 3:45 PM tion.” While holder notices are required to include a copy of any document setting out the terms of any “relevant agreement” that contributed to the situation, what is generally disclosed in practice has been relatively inconsistent. While in the case of physically settled derivatives, the look-through holding of the counterparty should be disclosed (whereas the actual aggregated long position for cash settled derivatives should be disclosed), this is often not the case. The lack of timely and accurate disclosure of derivative positions has caused participants to seek orders from both the Panel and Federal Court to obtain proper disclosure of derivative positions (including collar/capped forward documentation DAVID FRIEDLANDER LEE HORAN where collars or capped forwards are used for the PARTNER PARTNER benefit of the counterparties to cash-settled and physical holdings, to enable them to fund their short position and, therefore, enter into the deriva- sets Supervision and Administration Commission tive). This has in turn led some to argue for reform (SASAC). The NDRC process alone involves a on the use and disclosure of derivative positions. In preliminary NDRC “road pass” before undertak- the meantime, they continue to be a very effective ing “substantive work” on an investment and final tool for gaining momentum in competitive bidding approval from NDRC for the transaction prior situations. to signing or announcing the transaction. Due to the complexity of these procedures, China out- The Australia China Free bound investment deals were often burdensome Trade Agreement and time-consuming, even for powerful and well- Recent changes by the Chinese government to sim- connected SOEs. plify approval processes for Chinese outward in- The impact of the reform was felt almost im- vestment are having a positive effect on Australian mediately in Australia with the joint bid by Chi- M&A activity. The changes follow the decision by nese steel giant Baosteel and Aurizon Holdings the Central Committee of the Communist Party of for control of the $1.4 billion Australian iron ore China on Certain Major Issues Pertaining to Com- and coal target, Aquila Resources. That Bao- prehensively Deepening Reform, which urged re- steel’s contribution to the joint bid was less than form of government review of investment projects. US$1billion meant NDRC approval was not for- The key reform was to distinguish between mally required. Such market liberalization has “Special Projects” and “General Projects.” Only the capacity to make Chinese investors more com- “Special Projects,” investments of US$1billion or petitive in the global capital and M&A markets more, or that involve sensitive countries and re- and able to react more opportunistically to off- gions or sensitive industries, require verification shore investment proposals. The reduced need for by the National Development and Reform Com- bidder conditionality as well as various seller deal mission (NDRC), whereas other “General Proj- protections which had become commonplace, ects” are subject to record filing requirements. such as reverse break fees in Australia and the rest Prior to the reform, Chinese investors contem- of the world, is driving transaction costs down. plating outward investment typically needed ap- The extent to which Australia can further in­ provals from the NDRC, Ministry of Commerce crease its share of Chinese outward investment (MOFCOM), State Administration of Foreign from 15% currently may depend upon the political Exchange (SAFE) and, for state-owned enter- climate in Australia and in particular the outcome prises (SOEs), approval from the State-owned As- of November’s bilateral Free Trade Agreement. ■

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Global M&A_KWM_Final.indd 21 12/14/14 3:45 PM AUSTRIA

Austrian Public M&A in 2014

uring 2014, the private M&A mar- launched a PTO on Telekom Austria with an offer ket remained below expectations term from 15 May 2014 to 10 July 2014, subject both as to transaction value and to fulfillment of various regulatory CPs. Based number of transactions. Transac- on the offer price of EUR7.15 per share, the total tions have been mainly driven by offer volume was above EUR1.4 billion. Following consolidationD or workouts in the banking and in- conversion into a mandatory offer, Carso Tele- dustrial sectors. com/AMX increased its participation in Telekom From January through November 2014, the Austria to 50.9 percent. Austrian public M&A market saw nine public offers, with the public offer by Carso Telecom, 2. Flughafen Wien. Netherlands/America Movil, Mexico, for Telekom On 7 November 2014 Airports Group Europe Austria and the offer by Airports Group Europe for SaRL launched a partial offer for up to 6, 279m Flughafen being significant as to transaction value. shares in Flughafen Wien with a minimum ac- Compared to three public offers in 2013, this is a ceptance condition of 20 percent and a maximum substantial increase in public M&A activity both as of 29.9 percent in the target. On 1 December, to number of public takeover offers (PTOs), includ- the bidder announced the increase of the offer ing full and partial offers and mandatory tender to EUR82/share and dropped the minimum offers (MTOs), and in volume. acceptance condition. Based on the offer price of EUR82 per share, the total offer volume is above 1. Telekom Austria. EUR500 million. The partial offer runs until 18 Carso Telecom/America Movil (AMX), which December 2014. held about 26.8 percent in Telekom Austria, entered into an April 2014 shareholder agreement 3. CA Immo. with OIAG, which held about 28.2 percent in O1 Group Limited acquired 16.5 percent in Telekom Austria. This allowed Carso Telecom/ target CA Immo in an off-market transaction and AMX to take control of Telekom Austria. Due subsequently launched a public offer to acquire to the control change Carso Telecom/AMX shares of up to 26 percent in Target. Based on an

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Global M&A_Schoenherr_Final.indd 22 12/14/14 4:01 PM offer price of EUR18.50 per share the total offer from 26 September 2014 to 17 October 2014 and volume is above EUR180 million. The partial of- had a total offer volume of EUR21.2 million. On fer will run until 6 February 2015. 13 October the offer was converted into a man- datory offer. Upon completion of the initial offer 4. S Immo AG. term, the bidder had increased its shareholding in The partial offer from 21 May 2014 to June 2014 the target to 85.37 percent. was directed at a repurchase by the Vienna Stock Exchange (VSE) listed real estate company S 9. Schlumberger. Immo AG of parts of its profit participation cer- Sastre SA, Switzerland, launched a mandatory of- tificates. With an offer price of EUR79.11 per cer- fer for the outstanding shares and preference shares tificate, the total offer volume was about EUR90 of the spirits company Schlumberger AG. The of- million. On completion of the offer, the limited fer period was from 30 September 2014 through 25 offer was oversubscribed and therefore curtailed November 2014. On commencement of the offer, as to acceptances. the bidder had 71.46 percent of the share capital, the total offer volume was below EUR10 million. 5. Hirsch Servo. Upon completion of the initial offer term the bid- Herz Beteiligungs GmbH launched a mandatory der had increased its participation in the target by offer for the VSE listed small cap company Hirsch around 5 percent to 76.52 percent. Servo AG, with an initial offer term of 14 May 2014 to 28 May 2014. With an offer price of EUR7.94 MTO ordered on Hirsch Servo per share, the total offer volume was about EUR1.5 (Ruling by the ATC of 27 January 2014) million. At the end of the initial offer period the In a ruling dated 27 January 2014, and upheld bidder had increased its participation in Hirsch upon appeal by the Austrian Supreme Court by its Servo from 61.92 percent to 67.1 percent. decision of 13 March 2014, the Austrian Takeover Commission ordered Lifemotion SA, Switzerland 6. GEP I B-GmbH in liquidation. to launch a mandatory offer to all shareholders Under a 2013 ruling by the Austrian Takeover of Hirsch Servo AG. The decision was based on Commission (ATC), GEP Beteiligung Manage- the following facts: in December 2013, Lifemo- ment was required to launch a mandatory offer. tion had acquired a controlling shareholding in This offer was launched from 11 July 2014 to 25 the distressed listed target inter alia by acquiring July 2014 with a total transaction value of below 51 percent of the voting capital from the previ- EUR0.5 million. On completion of the initial offer ously controlling shareholder against EUR3.92/ term, the participation quota of the bidder in the share plus various other considerations, granting a target increased to 88.03 percent. shareholder loan to the target and acquiring credi- tor bank loans against the target of EUR24 million 7. BWT. for EUR1, with a partial waiver of debt and a sub- The controlling shareholder Aqua Invest GmbH sequent subordination of the loan. Moreover, the launched a partial offer from 15 September 2014 to supervisory board of the target was reorganized 29 September 2014. The total transaction volume to include representatives of the new controlling was EUR62 million. On completion of the initial shareholder. offer term, Aqua Invest had increased its participa- The Austrian Takeover Commission held that tion by 9 percent to 79.8 percent. the – distressed- target did in fact fulfill the two core criteria for an exemption from a mandatory 8. UBM. offer as to the acquisition of shares for purposes of The controlling shareholder PIAG of UBM, a real financial restructuring of the target, namely the estate developer, already holding 49.71 percent in objective restructuring need (financial distress of the target, launched a voluntary public offer for all target close to insolvency) and the intention of the shares of UBM reserving the right to convert the investor to restructure the target. However, the offer into a mandatory offer. The public offer was Austrian Takeover Commission denied the exemp-

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Global M&A_Schoenherr_Final.indd 23 12/14/14 4:02 PM AUSTRIA key to success tion from a mandatory offer holding that the inves- of the PTO prior to the capital increase, irrespec- tor had violated the principle of equal treatment of tive of whether these shares are acquired in the ex- shareholders: the investor had granted the former ercise of subscription rights or taken up in the capi- controlling shareholder an exit against payment tal increase as a consequence of other shareholders of a not unsubstantial consideration, whereas the failing to exercise the subscription right. remaining free float would bear the risk of the fi- nancial restructuring without having at least the BUWOG possibility of an exit from the target under a PTO. (Ruling by the Takeover Commission There was no possibility to protect the free float in dated 14 November 2013) their financial interests by commitments by the in- The VSE listed real estate company Immofinanz vestor. The Austrian Takeover thus held that the AG intended to spin off of its subsidiary BUWOG investor Lifemotion was under an obligation to and to list the shares of BUWOG. On a ruling re- launch a mandatory offer. The Austrian Supreme quest by Immofinanz, the ATC held that both: Court upheld the decision of the Takeover Com- mission against the appeal of investor. The spin off, which were to be implemented in a In 2013/14 the ATC issued a number of other linear manner (that is, respecting the participation rulings. The following rulings are significant. rights of free float shareholders in Immofinanz) and to reduce the shareholding of Immofinanz in its Telekom Austria AG subsidiary BUWOG to 43.9 percent from 100 per- (Ruling by the ATC of 16 April 2014) cent would not trigger a mandatory offer for either In connection with the PTO by Carso Telecom the shareholders or the holders of bonds with con- launched in May 2014, Carso Telecom/AMX an- version rights, if proportionate conversion rights nounced that it intended to participate in an up to were created as to the spun-off BUWOG shares. one billion capital increase of the target Telecom Austria, to take place on completion of the PTO. The acquisition of shares in BUWOG by Im- In such a capital increase Carso Telecom/AMX mofinanz to re-transact financings with JP Morgan would possibly take up shares of shareholders that Securities plc and others in March 2015 and Janu- did not exercise its mandatory subscription rights. ary 2016 will not trigger mandatory offer obliga- Carso Telecom/AMX therefore obtained a ruling tions of Immofinanz AG to BUWOG shareholders. by the ATC as to the inapplicability of the nine months price warranty under the Austrian Take- UBM over Act (TA) relating to the shares, if any, then ac- (Ruling by the Takeover Commission quired in the capital increase. The ATC held that of 13 August 2014) Carso Telecom/AMX and parties acting in con- The listed Porr construction group internally re- to be a good lawyer you must, of course, have a perfect command of your cert with it would not be required to pay the differ- organized its real estate business. This reorganiza- legal instruments. But being a great lawyer demands more: intuition, passion, ence between the offer price per share paid under tion, among other things, involved a demerger of the PTO and a possibly higher price per share in the UBM participation to NewCo and a merger and joy at hitting just the right note – as well as the zeal to think ahead for your the capital increase provided that both: of NewCo and UBM, a real estate developer. The clients and to get the best results for them. That’s what we call Lawyering. ATC held that these corporate reorganizations The cash capital increase did not exclude the did not trigger mandatory offers as the controlling subscription right of shareholders. shareholder syndicate remained unchanged on completion of the reorganization. ■ The principles of equal treatment of sharehold- ers was observed in the implementation of the capi- tal increase. Christian Herbst, Dr., LL.M. (Harvard) is a partner of Schönherr, Attorneys at Law, Vienna The ruling is a precedent for capital increases Tel: +43 1 534 37 50129 Fax: +43 1 534 37 66129 following a PTO. The ATC also held that no price Email: [email protected] warranty applied to shares acquired by the bidder Web: www.schoenherr.eu AustriA | BELGiuM/Eu | BuLGAriA | CroAtiA | CzECh rEpuBLiC | hunGAry MoLDoVA | poLAnD | roMAniA | sErBiA | sLoVAkiA | sLoVEniA | turkEy | ukrAinE www.schoenherr.eu 24 Global M&A Guide 2015

Global M&A_Schoenherr_Final.indd 24 12/14/14 4:02 PM key to success

to be a good lawyer you must, of course, have a perfect command of your legal instruments. But being a great lawyer demands more: intuition, passion, and joy at hitting just the right note – as well as the zeal to think ahead for your clients and to get the best results for them. That’s what we call Lawyering.

AustriA | BELGiuM/Eu | BuLGAriA | CroAtiA | CzECh rEpuBLiC | hunGAry MoLDoVA | poLAnD | roMAniA | sErBiA | sLoVAkiA | sLoVEniA | turkEy | ukrAinE www.schoenherr.eu

Global M&A_Schoenherr_Final.indd 25 12/14/14 4:02 PM BELGIUM Q&A M&A Trends in reporter maria Belgium jackson puts the questions Leading independent law firm Van Bael & Bellis outlines the to Van Bael key developments driving M&A deals in Belgium & Bellis

Brussels-based Van Bael & Bellis is one of Belgium’s For its size, it has a surprisingly high number of most prominent law firms. The firm is amongst airports and seaports, providing companies the best-ranked independents for corporate M&A, with quick access to the four corners of the and is, in addition, widely recognized as a top- globe. In particular, the Port of Antwerp figures tier expert in EU competition law, EU trade and among the busiest ports worldwide and is customs law and EU regulatory law. This makes home to one of the largest concentrations of it perfectly placed to comment on the headline chemical companies in the world, only second trends affecting transactional work in Belgium. to the Port of Houston.

Michel Bonne Michel Bonne, corporate M&A head at Van Bael & Foreign investors are also particularly keen head of Bellis, along with senior associate Tom Swinnen on entering the Belgian market itself as the corporate M&A and associate Mattias Verbeeck, discuss the main country is well known for its high average Van Bael & Bellis opportunities opening up for investors. income per household and its open economy. It is not only the favorite market of many WHAT ARE THE KEY FEATURES OF enterprises globally, due to the avant-gardist BELGIUM’S INVESTMENT ENVIRONMENT mind-set of the Belgians, multinationals THAT MAKES IT AN ATTRACTIVE oftentimes use it as a laboratory for new JURISDICTION FOR INTERNATIONAL products or business strategies. Finally, Belgium INVESTORS? is globally renowned for the abundance of VB&B: Some of the core tenets of Belgium’s available, highly-educated staff, and the success as an investment environment for country tops the global productivity rankings international investors are its location and year after year. accessibility. It is located in the very center Tom Swinnen of Europe, on the crossroads of economic senior associate WHAT HAVE BEEN THE KEY BUSINESS powerhouses such as France, Germany and Van Bael & Bellis SECTORS DRIVING M&A DEALS IN the United Kingdom. It also boasts one of the BELGIUM DURING 2014? highest densities of highways and railways in the VB&B: Because of the relatively modest size of entire world. the Belgian M&A market, it is hard to discern real From a political perspective, as the host of the key sectors in terms of deal flow. Rather than capital of the European Union and a sheer one particular business sector stealing the infinite number of other international institutions, spotlight, the Belgian market has witnessed Belgium has found itself located in the heart of several bigger deals spread across all segments Europe for over five decades. In the slipstream of the Belgian market over the last year. For of these international organizations, dozens example, the recent deals in which Van Bael & of multinationals have chosen Belgium as Bellis’ corporate and M&A team acted as counsel Mattias Verbeeck their global or regional headquarters. This has for either the seller or the buyer took place in a associate resulted in a large and very active international variety of economic sectors, ranging from the Van Bael & Bellis community, with all ensuing facilities (such as automotive sector through to the entertainment international schools and shops). business and renewable energy.

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Global M&A_VBB_Final.indd 26 12/14/14 3:11 PM Nevertheless, in line with the global M&A IN OCTOBER, THE BELGIAN WHAT IS THE INVESTMENT trend, there has clearly been a noticeable GOVERNMENT ANNOUNCED OUTLOOK FOR THE BELGIAN heightened M&A activity in the Belgian NEW TAX MEASURES; WHAT ARE CORPORATE MARKET GOING healthcare sector, with two major deals in THE KEY FEATURES OF THOSE INTO 2015? OTC and generic pharmaceuticals, each PROPOSALS? VB&B: One of the possible game worth over EUR 1 billion in the month of VB&B: The new government coalition, changers in the Belgian M&A October alone. which came to power in the fall of 2014, environment may be the governmental has pledged to implement a more agreement of the newly elected coalition. PRIVATE EQUITY ACTIVITY SPED business friendly tax regime. In general, Among other proposals, the government UP AT THE BEGINNING OF THE the tax administration was instructed has committed itself to reevaluating YEAR, TO WHAT EXTENT HAS THIS to apply the presumption of innocence the stakes it holds in various private CONTINUED INTO THE LATTER and public companies with a view to PART OF 2014? a possible privatization. Historically, VB&B: Recent surveys show that “As the host of the capital of the Belgian state has been, directly or the Belgian M&A market has not the European Union and a indirectly, an important shareholder in experienced a surge in acquisitions as a variety of companies, including the was the case in, for example, the British sheer infinite number of other national postal company, the country’s market. One explanation that has been international institutions, largest telecom provider and one of the used to explain this difference, is the four Belgian major banks. Consequently, more risk-averse attitude of Belgian Belgium has found itself located a string of divestments initiated by the companies. This, of course, opens up government could give an important possibilities for private equity firms who in the heart of Europe for over boost to M&A activity in Belgium. This can fill the gap that has been left by five decades.” effect would even be amplified if regional industrial investors. Consequently, it is and local governments, historically no surprise that private equity activity important participants in the utilities has remained at an increased level on a more consistent basis and only use sectors, would follow suit and increase throughout the second half of 2014 with those investigation methods that are the their divestments efforts as well. insiders speculating on a steady climb in least disruptive for the businesses under Although the economic outlook has activity in the sector in 2015. scrutiny. significantly improved since the height of In addition, it was announced that the financial crisis, quite a few companies Are there any other significant certain penalties imposed by the tax are still experiencing financial distress. trends driving the M&A administrations were to be reduced Since the introduction of the Law on the environment in Belgium? and the use of them further restricted. Continuity of Enterprises in 2009 (the A particular trait of the Belgian private The possibility to avoid the recently Belgian equivalent of Chapter 11), such equity landscape is that it is, to a certain imposed 25 percent liquidation tax, by financial distress has proven to offer an extent, dominated by government- contributing the company’s distributable interesting opportunity for potential backed or owned funds. The federal reserves into its share capital and to investors. This law provides for the government, nearly all regions and even which only a 10 percent withholding tax possibility to implement an 85 percent some provinces wholly or partially own applies, has also been extended for an haircut on all outstanding unsecured one or more investment vehicles, most unlimited period of time. debt and at the same time implements of which have become “regulars” in the Finally, following the sale of a large a procedure which can trigger the sale Belgian M&A environment. OTC pharmaceutical company, political of the distressed company or its assets Another leverage in the market relates to debate was spurred over the possible to an interested third party without the fact that many small and medium- introduction of a capital gains tax for the consent of either the board or the sized companies are privately held by the private individuals. It goes without saying shareholders. The increasingly well- so-called “baby-boom generation”. This that the introduction of such tax could known cherry-picking opportunities that highly successful generation is about to make it significantly less appealing for are inherent to this procedure may prove retire, causing generational and follow-up private sellers to sell their company, to spur increased interest in distressed issues which fuel the M&A environment which, in turn, could have a negative M&A by both domestic and international significantly. effect on M&A activity in Belgium. strategic investors.

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Global M&A_VBB_Final.indd 27 12/14/14 3:11 PM BELGIUM

Finally, there has been much speculation & Bellis, where he heads the corporate Tom Swinnen about a consolidation in the telecoms M&A practice. Michel has advised a Senior Associate sector. Belgium still has a rather high wide range of listed and privately held [email protected] Van Bael & Bellis / number of cable providers for its limited corporate, private equity and financial Tom Swinnen is a senior associate at Van size and it has been argued that a merger clients on Belgian and cross-border M&A Bael & Bellis, where his practice focuses between two or more of them would transactions. His experience includes on all aspects of Belgian business law, make sense from an economies of scale (cross-border) restructuring work with a strong emphasis on corporate Bringing quality point of view. In addition, many foreign (distressed or not), private M&A, capital M&A. His experience includes advising industrial investors have expressed their on restructuring work, public and private interests in entering the Belgian telecom M&A, private equity and venture capital sector, through an acquisition. “Recent surveys show that expertise to your placements, real estate transactions, joint the Belgian M&A market ventures, acquisition finance structures, IN AN ERA OF INCREASED insolvency and corporate law issues in REGULATORY SCRUTINY, HOW has not experienced a surge general. In addition to his advisory work, DOES VAN BAEL & BELLIS’ LEADING european M&A project. he is a teaching assistant at the Financial COMPETITION AND REGULATORY in acquisitions as was the Law Institute of the University of Ghent LAW PRACTICES AUGMENT ITS case in, for example, the CORPORATE AND M&A OFFERING? and lectures on corporate law at Syntra Van Bael & Bellis, a leading independent law firm established in Brussels (Belgium), offers high-end Management School. advice in complex cross-border issues for major corporate clients, ranging from large multinationals and VB&B: The fact that the firm has in-depth British market. This, of course, financial institutions to private equity houses and innovative SMEs. Our extensive expertise in all aspects knowledge of, and decades of experience opens up possibilities for Tom is recognized for his expertise in in, competition and regulatory law allows corporate M&A by Chambers & Partners, of corporate M&A includes private M&A, public M&A, private equity and venture capital transactions, us to identify potential legal and business private equity firms who can IFLR1000 and Legal 500. Clients laud insolvency and restructuring, corporate real estate transactions, corporate governance and litigation. threats to a deal at a very early stage. The fill the gap that has been left him for his “service-minded and client- With our headquarters in the capital of Europe, we also built up particular expertise in coordinating cross- unique set of in-house competences of oriented” style. He speaks Dutch, English border transactions throughout European jurisdictions in addition to our Belgian law expertise. Van Bael & Bellis subsequently enables by industrial investors.” and French. us to elaborate, in close contact with the client, a number of creative solutions to counter these issues in a manner markets (IPOs, secondary offerings Mattias Verbeeck that serves the interests of the client and take-over bids), private equity and Associate in the best possible way, ranging from venture capital placements, real estate [email protected] including specific protective clauses transactions, privatizations, mergers, Mattias Verbeeck is an associate at Van Anti-trust and Competition | Corporate M&A and Finance | or sophisticated mechanisms in the joint ventures and reorganizations, Bael & Bellis, where his practice focuses ‘A rising player Customs & Export Controls | Data Protection | Employment | transactional documents to an entire acquisition finance structures, corporate on corporate and finance law. His in the market.’ Environmental | Intellectual Property | Life Sciences | remodeling of the deal. governance, corporate litigation experience includes assisting a state- IFLR 1000 2015 (M&A) Litigation & Arbitration | Market / Unfair Practices | (shareholders’ disputes, board issues) Moreover, the fact that our corporate owned investment fund in relation to and corporate law advisory in general. Product Safety & Consumer Protection | Trade | WTO M&A team has a world-class merger its successful bid on the wind division He also works across a broad range filing team in-house guarantees more of a renewable energy producer in of sectors, including the (renewable) efficient information exchanges, better the framework of the latter’s judicial energy, media, financial, telecom, IT, responsiveness towards the competent reorganisation; a China-based private retail, real estate, life sciences, aviation authorities and the client, and overall equity firm in relation to its acquisition and biotech sectors. quicker and more effective results. of a 30 percent stake in a transmissions Michel is recognized for his expertise in and powertrains manufacturer; and a About the authors: corporate M&A in all leading directories, U.S. private equity fund in relation to the including Chambers & Partners, IFLR1000 Belgian aspects of the financing of the Michel Bonne and Legal 500. Clients describe him USD 20 billion management buyout of Partner as “very quick, very precise and very an international hardware manufacturer. BRUSSELS OFFICE GENEVA OFFICE [email protected] effective”. He speaks Dutch, English, Mattias speaks Dutch and English, with a Avenue Louise 165 Louizalaan 26, Bd des Philosophes Michel Bonne is a partner at Van Bael French and Spanish. good command of French. B-1050 Brussels CH-1205 Geneva Belgium Switzerland

Phone : +32 (0)2 647 73 50 Phone : +41 (0)22 320 90 20 www.vbb.com Fax : +32 (0)2 640 64 99 Fax : +41 (0)22 320 94 20 [email protected]

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Global M&A_VBB_Final.indd 28 12/14/14 3:11 PM Van Bael & Bellis / Bringing quality expertise to your european M&A project.

Van Bael & Bellis, a leading independent law firm established in Brussels (Belgium), offers high-end advice in complex cross-border issues for major corporate clients, ranging from large multinationals and financial institutions to private equity houses and innovative SMEs. Our extensive expertise in all aspects of corporate M&A includes private M&A, public M&A, private equity and venture capital transactions, insolvency and restructuring, corporate real estate transactions, corporate governance and litigation. With our headquarters in the capital of Europe, we also built up particular expertise in coordinating cross- border transactions throughout European jurisdictions in addition to our Belgian law expertise.

Anti-trust and Competition | Corporate M&A and Finance | ‘A rising player Customs & Export Controls | Data Protection | Employment | in the market.’ Environmental | Intellectual Property | Life Sciences | IFLR 1000 2015 (M&A) Litigation & Arbitration | Market / Unfair Practices | Product Safety & Consumer Protection | Trade | WTO

BRUSSELS OFFICE GENEVA OFFICE Avenue Louise 165 Louizalaan 26, Bd des Philosophes B-1050 Brussels CH-1205 Geneva Belgium Switzerland

Phone : +32 (0)2 647 73 50 Phone : +41 (0)22 320 90 20 www.vbb.com Fax : +32 (0)2 640 64 99 Fax : +41 (0)22 320 94 20 [email protected]

Global M&A_VBB_Final.indd 29 12/14/14 3:11 PM BRAZIL Q&A BRAZIL’S EVOLVING reporter PRIVATE EQUITY SCENE MARIA JACKSON puts the Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados discusses questions to the evolution of M&A deals through private equity MATTOS FILHO

São Paulo-headquartered Mattos Filho, Veiga markets boom, liquidity increased; with more Filho, Marrey Jr. e Quiroga Advogados is one liquidity, a fertile ground was created for private of Brazil’s most prestigious law firms. The firm equity funds to establish permanently in the houses a top-tier corporate practice that is country. regularly instructed by major multinational The most active industries in recent years in Brazil corporations, financial institutions, investors and have been healthcare, insurance, agriculture, real government bodies and it is particularly well estate, intellectual property and retail. A special known for its extensive experience in serving note must be dedicated to the retail industry Fortune Global 500 companies. as a whole. As a result of economic stabilization Rodrigo As Brazil continues to attract the lion share after the Plano Real (a set of measures taken Figueiredo Nascimento, of private equity capital invested in the Latin to stabilize the Brazilian economy in 1994), the Partner American region, Rodrigo Figueiredo Nascimento population was able to tap into credit markets mattos filho and Pedro Whitaker de Souza Dias - both partners strongly. Without entering into the merits of at Mattos Filho - discuss the key developments that policy, it generally fostered retail activity. in the evolution of the country’s private equity As retailers positioned themselves to tackle landscape. a new client base with more access to credit, M&A activity (including purchase and sales, What are the headline business reorganizations and joint ventures) naturally trends driving M&A activity in Brazil? followed. MATTOS FILHO: M&A activity in Brazil has been thriving for several years. There are multiple To what extent has investor underlying reasons for that, but the main factors appetite for deals increased are probably related to: over recent months? Pedro Whitaker MATTOS FILHO: 2014 was a unique year, in de Souza Dias, (i) The intrinsic characteristics of the Brazilian the sense that it was affected by extraordinary Partner internal market. With a population of over events, such as the 2014 World Cup and general mattos filho 200 million inhabitants, M&A activity is able to elections, including the presidential elections. leverage from an active internal economy that, Considering the positive and negative effects although affected by macroeconomic dynamics, of those events in the Brazilian economy, deal generates acquisitions, reorganizations and joint activity seems to have continued in 2014 if ventures at a consistent and strong level. compared to 2013. 2015 is expected to be a (ii) A capital markets boom that enabled publicly sensitive period, considering that the Brazilian held companies to be strongly capitalized re-elected government is expected to face during 2004-2006. Several IPOs occurred during important macroeconomic challenges that may that period, most of them attracting strong have a direct impact on M&A activity. international investments that created side effects At the time the article is being written, the in the Brazilian economy, particularly in M&A. uncertainty over the performance of the re- (iii) As a result of all the investments that poured elected government is creating strong foreign into Brazilian companies during the capital exchange fluctuation; with the depreciation of

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Global M&A_Mattos_Final.indd 30 12/14/14 3:12 PM the Brazilian real, private equity funds that elections) may have had a short- How has legislation changed are funded in dollars are, once again, well term impact in decision making, it in Brazil to facility new positioned to potentially take advantage seems that medium-to-long term private equity structures? of investments in Brazilian assets. Another investment decisions are based on MATTOS FILHO: The private equity attractive factor for new private equity the general perception that Brazil industry in Brazil has developed in investments is the lack of long term credit is a solid democracy, with a strong an aggressive way over recent years. lines in the Brazilian market. Companies internal market and sizable economy. Macroeconomic factors and the general find in private equity funds an important characteristics of the country have an alternative for new capital for long term important impact in such developments investments and expansion. Private equity funds find in Brazil (see above). However, specific legal improvements helped the industry to Brazil represented 68 percent fertile ground for investments reach the current level of influence in the of TOTAL Private equity Brazilian mergers and acquisitions market. capital invested in LATAM in with interesting rates of return. 2013; why are PE funds looking A significant proportion of One specific milestone is the formation so closely at Brazil? of “fundo de investimentos em internationally recognized participações”, or FIPs. Regulated by Rule MATTOS FILHO: As articulated in prior 391, dated July 16, 2003, as amended, FIPs inquiries of this paper, private equity private equity funds have funds find in Brazil fertile ground for are closed-end investment funds that are investments with interesting rates established in Brazil with local allowed to invest in shares, debentures, of return. A significant proportion of teams and structures, such as subscription bonds, convertible securities internationally recognized private equity issued by Brazilian corporations, among funds have established in Brazil with Actis, Advent, Apax, Blackstone, others, provided that such investment local teams and structures, such as Actis, Carlyle, General Atlantic and assures to the FIP significant influence in Advent, Apax, Blackstone, Carlyle, General the management and decision-making of Atlantic and KKR, among others. Also, KKR, among others. the investee companies. local private equity funds are extremely FIPs were created to meet the demands active including Gávea, GP, Pátria and of the Brazilian capital markets, as well as BTG, among others. As an example, Advent, a United States the interest of both Brazilian and foreign private equity fund (that has had a local The main type of private equity deals investors investing in small and medium- presence for more than 15 years), just in Brazil are structured as plain vanilla sized companies based in Brazil, whose raised a fund of over $2 billion for the buy-outs. LBOs are not common, since equity interests are not listed and traded region. the cost of debt is high in Brazil (the in the stock exchange or organized Brazilian prime rate is currently at 11.25 It is expected that foreign investors over-the-counter markets. This is the only percent). Last October, the first IPO of the will continue to use structures through type of investment fund in Brazil that year went public, with strong support jurisdictions that are not considered is allowed to invest in equity interests from a private equity firm, General tax heavens under Brazilian legislation issued by non-listed, privately-held Atlantic, which entered into an anchoring and use “fundos de investimentos em companies. agreement with the issuer and the selling participações” (FIPs) as their preferred One significant aspect of the FIP structure shareholders. alternative while investing in private is that gains realized by a FIP are not equity in Brazil. taxable until a distribution is made to To what extent are PE houses It is also expected that Brazilian pension investors. Such deferral of taxes is often a looking to fundraise in the key consideration. region? funds become more active in the investment process (as co-investors, Also, as Brazilian and international MATTOS FILHO: The general perception for instance), to the extent that they authorities have intensified enforcement is that fundraising in the region, seem to be increasingly open to some of anticorruption, antitrust, environmental, specifically in connection with Brazil, is historic demands, such as governance social and other compliance rules, private still active. aspects, particularly the requirement equity investors have responded by Although macroeconomic factors and to participate in general partner’s heightening due diligence standards, recent events (such as the general investment committees. strengthening covenants regarding

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Global M&A_Mattos_Final.indd 31 12/14/14 3:12 PM BRAZIL

controls and procedures, and exercising Accordingly, the requirements for requirement that they hold certain greater oversight. registration of such offerings mirror governance rights in investee companies, the general registration requirements so long as such investees represent no Due diligence of compliance matters has for public offerings of other types of more than 35 percent of total fund assets. been significantly expanded. Interviews securities. The offering registration with senior officers and third parties have CVM rules also have been amended requirement is waived as to offerings of become more common and, for certain recently to remove the prohibition FIPs that receive investments from 20 or sectors, routine. on FIPs guaranteeing obligations and fewer investors. Registration of the FIP assuming joint and several obligations, Representations and warranties and itself, however, is always required. subject to approval by at least two- covenants dealing with anticorruption, Sponsors are engaged as managers thirds of the FIP’s investors. This ability antibribery and other compliance matters of the FIPs and are entitled to receive to provide guarantees eliminates a have become increasingly common in management and performance fees. significant constraint on deal-making. deals involving private equity investors. Management fees generally correspond A new Brazilian anticorruption law to a percentage of the commitments entered into force in January 2014 and What are the most common of the investors (during the investment exit strategies utilized by is also having an impact on transactions period) or the net equity of the FIP PE houses in Brazil? involving Brazilian companies. (during the holding and divestment MATTOS FILHO: As a result of a Oversight is generally exercised through periods). Performance fees are typically developed capital market in Brazil, private the board of directors, and it is now due and paid only after total distributions equity firms have two main routes for standard practice to adopt codes of to investors exceed the amount invested implementing their exits strategies: ethics enunciating rules and prohibitions adjusted by inflation, plus a hurdle private sales and/or capital market relating to bribes, third party agents, rate. Rules relating to the catch-up of transactions. gifts, conflicts of interest, and other performance fees vary. compliance issues and creating channels In contrast to other emerging countries FIPs are organized as joint ownerships of for anonymous complaints. Although with inactive public equity markets, Brazil assets, and each quota corresponds to a not yet a trend, some private equity has experienced strong capital market notional fraction of assets owned by the investors have initiated programs activity since 2006, and private equity FIP. FIPs are not formed as legal entities tailored specifically to create a culture firms are one of the most important and do not confer limited liability. Under of corporate social responsibility and players in this trend. A significant number Brazilian law, if the net asset value of environmental awareness in portfolio of the companies that have gone public the FIP is negative, investors are directly companies. had a private equity investor as an responsible for the FIP’s obligations as investor. Having the public sale as an a matter of law and will be required to exit strategy was one of the headline What are the key features of make additional capital contributions reasons for several international private a FIP that makes it a preferred to the FIP to meet such obligations. equity firms to start investing in Brazil private equity vehicle? Note that administrators and portfolio and establishing their local offices in the MATTOS FILHO: In addition to the managers of FIPs may only be liable for country. Despite the few number of initial aforementioned attractions of a FIP liabilities of the FIP if they have not acted public offerings in Brazil over the last two structure, the main features of a FIP could in compliance with the investment policy years, private equity firms still consider be summarized as follows. or applicable laws. the capital markets exit as one desirable FIPs must be registered with the CVM As also mentioned in question 5 above, and realistic opportunity. (Comissão de Valores Mobiliários), investors may prefer a FIP because gains In relation to private sales, private equity the Brazilian securities and exchange realized by a FIP are not taxable until funds generally aim at a sale to strategic commission. They are subject to the distributed to investors. and/or financial buyers. Fund-to-fund oversight of the CVM and have periodic According to the CVM regulation, it is transactions are becoming increasingly reporting requirements. Registration is mandatory for a FIP to have significant common in Brazil, considering that large typically automatically granted upon the influence in the management and funds identify portfolio companies of filing of certain documents with the CVM. decision-making of the investee smaller funds as an attractive target. In Issuances of quotas of FIPs are generally companies. However, CVM has recently order to implement the private and/or considered public offerings of securities. issued rules releasing FIPs from the public sales, private equity funds generally

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Global M&A_Mattos_Final.indd 32 12/14/14 3:12 PM have all typical exit rights regulated in In contrast to other emerging reorganizations. Nascimento previously their Shareholders Agreements, such served as a foreign associate in the as tag along, drag along, put option, countries with inactive public New York office of the law firms Cleary, demand rights, among others. equity markets, Brazil has Gottlieb, Steen & Hamilton and Robinson, Silverman, Pearce, Aronsohn, and Berman Although currently not so typical as experienced strong capital (now Bryan Cave). in key markets (such as the U.S.), it is becoming increasingly common to see market activity since 2006, and Education: dual-track exits locally. private equity firms are one of Bachelor of Laws, Universidade de São Paulo Master of Laws (LL.M.), Cornell Law School the most important players in To what extent is it important Languages: English for investors to instruct this trend. a leading Brazilian law firm, Bar Admission: such as Mattos Filho, when São Paulo looking to navigate their In recent years, we have acted for various Rio de Janeiro way through Brazil’s private international private equity funds with a Brasília equity landscape? presence in Brazil, such as Actis, Advent, MATTOS FILHO: Mattos Filho has around Apax, Carlyle, Darby and General Atlantic, Pedro Whitaker de Souza Dias, Partner 350 attorneys and enjoys a reputation among others, as well as for various Telephone: +55 11 3147 7681 for providing high-quality legal services, domestic private equity funds such E-Mail: [email protected] to both Brazilian and foreign clients, as BTG, Gávea, GP and Pátria, among Practices: in support of a full range of business others. Among Mattos Filho’s recent Corporate / Mergers and Acquisitions activities across every major industry experience we have acted in: Singapore’s and business sector. Our presence at sovereign wealth fund GIC’s acquisition Experience: the top of all the major league tables of Abril Educação (education); the sale Pedro Whitaker de Souza Dias is a and rankings attest to our national and of Intermédica Group (healthcare) to corporate transactional attorney who international reputation. In recent years, the private equity fund Bain Capital; the represents both domestic and foreign our firm has won a series of awards from acquisition by Actis of XP Investimentos clients in connection with a wide range leading industry publications, including (brokerage services), Universidade Cruzeiro of mergers and acquisition transactions “Best Latin American Law Firm” and “Brazil do Sul and Editora CNA (education); the with particular focus on agro-business, Law Firm of the Year” from Chambers and acquisition by Gávea of Camil (food), private equity, and in-bound investment Partners. Hermes Pardini (healthcare) and Colombo matters. He also advises public Specifically in relation to private equity (retail); the acquisition by Carlyle of a companies on corporate compliance transactions, it is fair to say that our controlling stake in Tok Stok (retail). and regulatory issues. He is the President industry-leading private equity practice of the Agribusiness Committee of the advises funds and other large investors About the Authors: Brazilian Bar Association for the triennium 2013/2015. Whitaker serves as an adjunct in connection with all sorts of private Rodrigo Figueiredo Nascimento, Partner equity investments. We believe that our professor in the Masters of Laws (LL.M.) Telephone: +55 11 3147 7629 experience in private equity deals and program in Corporate Law at the Instituto E-Mail: [email protected] our knowledge of the local market allows de Ensino e Pesquisa (INSPER). us to provide clients with sophisticated Practices: Education: advice in a broad array of legal services, Corporate / Mergers and Acquisitions Bachelor of Laws, Pontifícia Universidade such as corporate, tax, labor, antitrust, Experience: Católica de São Paulo regulatory, environmental, litigation, Rodrigo Figueiredo Nascimento advises Master of Laws (LL.M.), University of intellectual property, among others. domestic and foreign businesses, Pennsylvania Such expertise is of the essence in the financial institutions, and institutional Languages: English context of private equity transactions, investors in connection with a wide when oftentimes local counsel is variety of domestic and cross-border Bar Admission: required to “translate” and adapt to local corporate transactions, including mergers, São Paulo rules concepts that are common to the acquisitions, private equity investments, Rio de Janeiro industry abroad. joint ventures, divestitures, and corporate Brasília

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Global M&A_Mattos_Final.indd 33 12/14/14 3:13 PM CANADA Q&A Promising Outlook Fasken for M&A in Canada Martineau Partners on Fasken Martineau Partners discuss trends and opportunities Canada’s M&A Market for investing in Canada.

As with many countries around the world, the activity can be expected in the agriculture sector post-2008 economic environment has proved over the coming years. challenging for Canada, which has suffered from a softening of exports and commodity prices In which other sectors are you and the recent decline in value of the Canadian seeing increased M&A activity? dollar. The Canadian economy is expected to see Fasken Martineau: Apart from commodities, growth in 2015, where key contributors over the we are seeing increased activity in food, including next few years are anticipated to be consumer the large Burger King/Tim Horton’s and Loblaw/ non-durable goods (such as food and clothing) Richard Steinberg Shoppers Drug Mart transactions. Other notable and exports. Business investment is expected to sectors include transportation, real estate and be strong in 2015. telecom. There has been a lot of discussion in American Lawyer spoke to global M&A experts Canada about what’s going to happen in the and Fasken Martineau Partners Aaron Atkinson, telecom sector in 2015 regarding Mobilicity and Blair Horn, Richard Steinberg and Niko Veilleux Quebecor and whether Canada will produce a about the state of M&A in Canada—where it fourth national wireless carrier. stands, and where it’s headed. In October the sale of 175 papers by Quebecor to Post Media was announced. The deal is expected What is the outlook for M&A to close in the first quarter, which will significantly Blair Horn in Canada? alter the country’s print media industry. Fasken Martineau: We’re expecting a busy 2015 in Canada for M&A, as buyers take What about the Canadian advantage of a strong equity market, cheap mining sector? financing and healthy cash balances. Cross- Fasken Martineau: It is a conservative border deals have been a prevailing theme in time for mining companies, some of which are recent times, with significant increases in both rationalizing certain assets, either by finding inbound and outbound deal value. We’re also strategic partners to develop large projects or seeing a lot of private M&A activity. entering into risk sharing arrangements. We’ve By sector, commodities remain the leaders in value also witnessed some companies selling assets Aaron Atkinson and volume, with the energy sector playing a which fall outside of their core portfolios, such significant role. One sector to note in particular is as IAMGOLD’s sale of its niobium mine to a liquefied natural gas (LNG). There are approximately consortium led by foreign investors. 17 different LNG projects underway in Western Lower commodity prices are also expected to Canada, and we expect some consolidation among trigger M&A activity as certain mining companies those proposing these projects. will have difficulty obtaining financing and may Canada is uniquely positioned to benefit from look for strategic partners. In particular, there has the increasing global demand for food due to been quite a dry spell in fundraising by junior its vast tracts of arable land, abundant water, miners and a growing likelihood that they may infrastructure and long experience in agriculture. become targets for some of the larger players Niko Veilleux Therefore, significant M&A and investment looking to consolidate.

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Global M&A_Fasken_Final.indd 34 12/14/14 3:36 PM Which countries provide most guided by the Investment Canada Act evaluate the threat to the organization, of the M&A flow in and out of (ICA) since 1985. The ICA liberalized policy and if they perceive that even a low stock Canada, and why? on foreign investment by recognizing price doesn’t take into consideration Fasken Martineau: Canada and that investment is central to economic the company’s long-term future, Airgas the U.S. have one of the largest and would likely tell you that the company most comprehensive investment has a relatively free hand to operate. In relationships in the world, so it is to We are also seeing an increase Canada, the proposed rules are expected be expected that a significant amount in European-based private to give a target board greater leverage, of cross-border M&A activity is with as the board will have 120 days to find a the U.S. We’re witnessing increased equity firms looking to Canada white knight or convince shareholders U.S./Canada cross-border activity, and for investments. We expect the bid isn’t right for them, but at the given relative valuations and exchange end of that period it’s the shareholders’ rates, we expect to see it continue. European interest to be decision to make. This is a very Canadian We’re perhaps seeing less activity from significant in the coming years. solution, giving the board more time China and other Asian countries than while maintaining the shareholder choice in the past. The Canadian government model we have in Canada. announced regulations regarding further growth and key to technological acquisitions in Alberta’s oil sands, which advancement. Canada has only turned What were the proposed has dampened activity there. down investment offers three times since changes to the early warning the ICA came into force 25 years ago. reporting system in Canada? We are also seeing an increase in European-based private equity firms Fasken Martineau: The key change What are the implications looking to Canada for investments. We is that the Canadian Securities Admin- of proposed changes to expect European interest to be significant istrators proposed reducing the early the takeover bid regime in the coming years. warning reporting threshold (which in Canada? triggers disclosure by a shareholder of its Many large Canadian pension funds Fasken Martineau: The main change shareholding in a company) from 10% to are internationally focused in their is that the new rules provide a mandatory 5% to match the U.S. This would give the investments, and we’ve seen them minimum at which bids have to remain market advance notice that an investor is complete a number of infrastructure open, from 35 days to 120 days subject accumulating a block of shares. and other investments in Asia-Pacific, to an ability to waive and requiring the Europe and the U.S. These firms also majority of shareholders to tender to any What may have gotten lost in that short- often partner with other large pension or bid. These two key changes will no doubt hand analysis was the reporting timeline. institutional funds. draw out the bid process and afford In the U.S., investors have to report at 5% shareholders a measure of comfort but have 10 days to file their report, and can keep buying during that period. So What makes Canada an that their shares won’t be taken up by attractive destination for a lesser majority. a situation where Pershing Square was foreign investors? accumulating a block in Canadian Pacific This legislative scheme is intended to Railway and crossed the 5% line in the Fasken Martineau: Foreign incorporate into the law shareholder- U.S., but bought a substantial number of investors are attracted to Canada’s strong friendly elements of typical poison pills shares within that 10-day window is pos- economic fundamentals, its proximity that we have today. This would allow sible. By the time they went public they to the U.S. market, its highly skilled more time for shareholders to decide had approximately 12%, and were able work force and abundant resources. without feeling potentially coerced to use our alternative system in Canada Canada also has very competitive knowing that they will be pressured to so they didn’t get tripped up by the 10% corporate tax rates and a fairly stable tender, because shares won’t get taken rule. In Canada, when you hit 10% you and sophisticated tax policy. With few up unless a majority is along for the ride. must stop buying and report immedi- exceptions, Canada offers full national The proposed changes do not, however, ately, which is a big difference. treatment to foreign investors within the move Canada to a Delaware model. For context of a developed open market example, if we simplify the decision in The thinking that simply reducing the economy operating with democratic Airgas to a great degree, the directors early warning reporting threshold to 5% principles and institutions. Foreign are more or less put in the driver’s seat in would help to align Canada with the U.S. investment policy in Canada has been the U.S., because they’re the ones who is actually not quite the case. Canadian

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investors wouldn’t be able to do, for Financial players from around markets areas. Blair’s clients include public example, what Pershing Square did, and private technology companies, because they would have had to stop the world are looking for industrial and mining concerns, boards, buying at 5% and tell the public. Once a opportunities in Canada, and independent committees of boards, respective activist shareholder publicly underwriters, private equity and venture discloses its investment, the stock price this will continue to increase capital providers and financial advisors. typically jumps, becoming uneconomic over the next five years. for the activist to keep accumulating. Aaron J. Atkinson Partner The investor community argued that the Financial players from around the world Full Biography: current 10% threshold allows activists are looking for opportunities in Canada, www.fasken.com/Aaron-Atkinson to accumulate a significant block at and this will continue to increase over the T: +1 416 865 5492 prices that allow investors to generate next five years. E: [email protected] an appropriate return as they finance the activism. Everyone gains because there’s Aaron’s practice is focused on mergers and About the authors: enough upside for activists to get skin in acquisitions, corporate governance and the game and try to change a com- Richard J. Steinberg corporate finance. In each of these areas, pany’s corporate culture. As a result, all Partner Aaron has extensive experience advising shareholders reap the benefits. If Canada Full Biography: on both domestic and international were to reduce this threshold, we might www.fasken.com/Richard-Steinberg cross-border matters, including contested see less activism due to substantially T: +1 416 865 5443 matters such as unsolicited take-over bids decreased economic incentives. E: [email protected] and proxy contests, as well as financing Richard is the Global Chair of Fasken transactions, negotiated acquisitions, How significant a force is Martineau’s Securities and Mergers & and strategic transactions such as joint shareholder activism in the Acquisitions Group. Richard’s practice ventures and partnerships. Aaron also has Canadian market? focuses on both M&A and corporate extensive experience advising boards and board special committees on transactional Fasken Martineau: This year we saw finance. He has developed particular matters as well as internal investigations fewer cases of high-profile shareholder expertise in significant cross-border M&A and complex governance issues. activism, although we witnessed a few and similar strategic transactions, both more hostile bids than usual, and there negotiated and unsolicited, involving Niko Veilleux seems to be an inverse relationship Canadian targets and foreign buyers and Partner between the two. investors. Richard also regularly advises Full Biography: companies, directors and shareholders A possible reason for fewer well-publicized www.fasken.com/Niko-Veilleux on proxy contests, corporate governance proxy fights is the success of various T: +1 514 397 5236 and securities law disclosure and Leading M&A expertise. activist shareholders the last couple of E: [email protected] compliance matters. He also acts for years in Canada, perhaps prompting Acquisitions and divestitures. Contested corporate transactions, including hostile Special Committees on change of control Niko’s practice focuses on public and boards to engage in settlement transactions and governance issues. private mergers and acquisitions, corporate take-over bids and proxy contests. Board and Special Committee representation. discussions at an earlier stage. The reduced finance, securities and private equity / Joint ventures and strategic alliances. number of publicly launched proxy fights Blair Horn venture capital, notably complex cross- may just be that boards are increasingly Partner And that’s just the beginning. border and multi-jurisdictional transactions. being advised to settle matters outside the Full Biography: He advises on corporate governance public limelight. www.fasken.com/Blair-Horn At Fasken Martineau our extensive M&A experience is just one of the reasons we matters, as well. Niko has represented T: +1 604 631 3172 were recommended by The Best Lawyers in Canada 2015, ranked by Chambers foreign public and private companies, E: [email protected] Global 2014 and recognized for our work in 3 of Lexpert’s Top 10 Deals of 2013, Where do you see the Canadian boards and independent committees, M&A market headed? Blair focuses on mergers and acquisitions, underwriters and private equity funds in including Deal of the Year. Fasken Martineau: If we consider public equity and debt financings, venture connection with mergers and acquisitions, Local insights ... global know-how. historical trends, five years is probably a capital, private equity financings and takeover bids, going private transactions, good window for resources to be front corporate governance matters. Early in public and private financings, private and center again. Our economy being his legal career, Blair was seconded to placements and corporate governance. what it is, we suspect resources will come the Ontario Securities Commission in Niko also teaches “Mergers and Acquisitions back to be the driver of Canadian M&A. the mergers and acquisitions and capital Law” at McGill Law School.

VANCOUVER CALGARY TORONTO OTTAWA MONTRÉAL QUÉBEC CITY LONDON PARIS JOHANNESBURG 36 Global M&A Guide 2015

Global M&A_Fasken_Final.indd 36 12/14/14 3:37 PM Leading M&A expertise. Acquisitions and divestitures. Contested corporate transactions, including hostile take-over bids and proxy contests. Board and Special Committee representation. Joint ventures and strategic alliances. And that’s just the beginning. At Fasken Martineau our extensive M&A experience is just one of the reasons we were recommended by The Best Lawyers in Canada 2015, ranked by Chambers Global 2014 and recognized for our work in 3 of Lexpert’s Top 10 Deals of 2013, including Deal of the Year. Local insights ... global know-how.

VANCOUVER CALGARY TORONTO OTTAWA MONTRÉAL QUÉBEC CITY LONDON PARIS JOHANNESBURG

Global M&A_Fasken_Final.indd 37 12/14/14 3:37 PM CHILE Q&A M&A involving family- reporter owned businesses MARIA JACKSON puts the Bahamondez, Alvarez & Zegers provides a guide for multinationals questions to BAZ looking to acquire family-owned businesses in Chile.

Foreign investors are flocking to Chile in record From a legal standpoint, a historically steady numbers. According to research from corporate legal framework and a trustworthy judicial intelligence agency Mergermarket, during the system has contributed to the accountability of first half of 2014 inbound M&A hit $7.8 billion, the market’s players. However, as in many other which saw the country reach its highest inbound jurisdictions, we are seeing an increasing use deal value since 2011 with six months of the year of local and international arbitration to resolve still to go. conflict in sophisticated transactions. As new players continue to enter the local Based on a Continental Law System, multiple market, law firms are witnessing several Matías Zegers bodies of law have to be articulated to accurately important themes emerge in terms of M&A Partner represent to foreign investors the rules that will structuring. In Particular, Chile’s business govern their ventures in Chile. landscape is dominated by family-owned businesses, which can cause unique challenges As in any other country, there are many issues for international companies looking to create a that could be improved on, but the main footprint in the country. As Chile’s investment guidelines have remained stable for the last 30 profile continues to skyrocket, Santiago- plus years; this stability gives foreign investors headquartered law firm Bahamondez, Alvarez & the capacity to plan and execute deals without Zegers explains how to overcome the potential major disruptions due to the specific economic pitfalls presented by these types of deals. or political environment of the country.

how has Chile established itself How open is Chile to foreign Marco Salgado as one of Latin America’s most investment? SENIOR ASSOCIATE stable economies? BAZ: It is said that Chile has the largest network BAZ: Chile has built its reputation on three key of Free Trade Agreements in the world (more foundations: the robustness and consistency than 20 trade agreements with 60 countries and of its macroeconomic policies; dialogue and regional organizations in accordance with public cooperation between its public and private registries). Further, Chile is one of the world’s sector; and low corruption levels – notably, it ten freest countries, according to the Index is ahead of countries like France and Austria of Economic Freedom 2013, published by the and just behind the U.S. after being ahead Heritage Foundation and the Wall Street Journal. for some years, according to Transparency According to the World Investment Report 2013, International. In this regard, an independent, released by the United Nation Conference on autonomous, technical and very well-recognized Trade and Development (UNCTAD), Chile was Central Bank has been the key element behind the world’s 11th largest recipient of foreign direct such macroeconomic policies. All this has investment in 2012. allowed Chile to safely walk through multiple international crises, relatively maintaining its Last, Chile also has a very extensive network of growth ratios for almost three decades. Double Taxation Treaties, most of which follow

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Global M&A_Chile_BAZ_Final.indd 38 12/14/14 3:45 PM the OECD model. Currently there are 25 attention during the last three to four grant broad power to the partner and/ Treaties in force, with three signed but years, as there has been an international or shareholder holding the majority pending Congress approval (including player present in almost all of these of the equity. In fact, in private and a treaty with the U.S.) and more under deals, such as Principal Financial Group public corporations (sociedades negotiation. (U.S.) in the acquisition of AFP Cuprum anónimas), the shareholders meeting is (pension funds administrator), TAM the supreme body of the entity, being Despite all of the foregoing, it is not airlines (Brazil) in the merger with Lan the board of directors subordinated to unusual to hear international investors Airlines, Metlife (U.S.) in the acquisition the shareholders. The most important and companies landing in Chile criticize of AFP Provida (also a pension funds decisions in the life cycle of a company, the bureaucracy they face when setting administrator) and Abbott (U.S.) in the such as amendments to the bylaws, up a company and initiating activities in acquisition of CFR (pharma company). mergers, divestitures, sale of relevant the country. However, the government assets, are directly made by the More recently, we have been witnessing shareholders, despite the existence an increasing flow of European of a certain degree of involvement of investors targeting the highly regulated “Chile has built its reputation the board of directors in these matters. infrastructure and energy markets and Nevertheless, the board members have on three key foundations: the related areas of service. fiduciary duties within the company, robustness and consistency Mining is also a key industry in Chile, but whether or not they are also controlling of its macroeconomic as the main projects have already been shareholders or elected them, being developed by multinational companies, forbidden by the directors to favor policies; dialogue and any M&A activity in this sector occurs particular interests within the company. cooperation between its abroad. Further, mining activity has been The directors cannot adopt any decision affected by the decreasing demand which is not aimed at the so-called public and private sector; for such commodities from China. This ‘company interest’ (interés social), which has caused a decline in the activity has been consistently understood and low corruption levels.” of servicers providers in the mining as the legal right of all shareholders industry, which in turn, opens business to participate in the revenues of opportunities for prospective players the company in accordance with its and policy makers have taken some of willing to enter into this market. Finally, participation in the equity. these complaints on board and have we are seeing an increasing activity in responded by implementing a package Despite the foregoing, there are strong smaller projects, which take advantage of measures to break down some of incentives for a close cooperation of different ownership or financing the barriers caused by red tape. The between majority shareholders and structures (i.e. junior companies). most important of these measures directors. Shareholders not only include the so-called ‘Tu Empresa en appoint directors but also determine un Día’ (your company in one day) and To what extent do family- their remuneration, can replace them the internationally-renowned ‘Start-up owned businesses remain anytime and also limit their powers. As a Chile’ program, which supports Chilean a key driver of Chile’s consequence, defensive measures such and foreign entrepreneurs in innovative economy? as staggered boards, poison pills and/or fields. BAZ: In fact, private companies and white knights, and hostile takeovers are publicly traded corporations owned and almost absent from the Chilean takeover What are the key industry driven by family - or groups related by landscape. Thus, being able to close a sectors currently driving family ties- constitute the landscape of takeover in prior negotiations with the M&A in Chile? property ownership in Chile, where in controlling shareholders is a must. average controlling shareholders own 53 BAZ: Recent deals have demonstrated As a final note, this scenario places percent of the stock of listed companies that Chile is loyal to its open market challenges on the corporate governance and more in private companies. reputation. Multimillion dollar of family-owned companies, in particular, M&A deals in the pension funds, Chilean law governing companies, in regards to the relation between pharmaceutical, soft drinks, and corporations and the most commonly majority and minority shareholders and transport markets have attracted lots of used forms of legal entities, implicitly the agency costs arising out of such an

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ownership structure, something that discussions. In fact, it is common that companies have their own set of rules, foreign investors might want to bear into this type of company is managed by one procedures and documents that they account when analyzing the feasibility or more family member, but the family try to apply to any deal without due of acquiring a minority stake in such equity is not individually held by him consideration to the specifics of the companies. or her. Further, the family might be well case and/or the country, jeopardizing the deal with requirements of a different What challenges do multina- nature that have nothing to do with the tionals face when looking to “Recent deals have case, or at least adding complexity that acquire a family-owned busi- oftentimes only increases frustration ness in Chile? demonstrated that Chile among the parties. Many times a soft landing is required to secure the success BAZ: Depending on the size and type of is loyal to its open market of the deal so being able to build family-owned business, multinationals reputation. Multimillion dollar up a relationship based on trust and face multiple but similar challenges. knowledge of the business is key to a In both cases, takeovers are initiated M&A deals in the pension good outcome. by direct discussions with the majority funds, pharmaceutical, shareholder rather than with the board. Finally, upon closing, the organization of the acquired company might be stressed Regarding public corporations controlled soft drinks, and transport by the need to rapidly adapt to the by families, when a multinational is markets have attracted lots international standards applied by the looking to acquire such a corporation, multinational. In addition, sellers, now the acquisition has to be made via the of attention.” in many cases managers, might find it stock market through a public offering difficult to stop conducting themselves with some exceptions. In most cases, as owners and accepting the existence the controller or family controlling the prepared for managing the day-to-day of a new (foreign) boss within the company will have to participate in business of the company (which in many organization. the said public offering for the same cases was initiated two generations ago) consideration per share that minority but may lack the sophistication and cold- shareholders will be receiving. Thus, bloodedness needed to successfully How have Chile’s new before launching a public offering, the conclude a deal of this nature. The corporate governance rules multinational will have to contact and participation of financial advisors and helped to insert transparency secure the participation of the owner external counsels (which, in the first into the country’s business of the family-controlled company to place, would have to win the family’s environment? reach a successful deal. Our experience trust) accompanying sellers through the BAZ: New corporate governance rules in these sort of deals have demonstrated deal is a must. have increased the accountability of the that multinationals and these sort of During the development of the most relevant stakeholders in Chile’s corporations, despite the latter being negotiations, multinationals might want business environment. More important, controlled by families, are able to to assess the importance of personal however, is the increasing supervisory speak the ‘same language’ and conduct leadership of family members in the scrutiny from the Superintendencia de their discussions with high levels of internal and external (i.e. client and Valores y Seguros (Superintendency of sophistication. The development of providers) deals of the company. Buyers Stocks and Insurance) and the pension the Chilean stock market rules and the might also want to give a close look funds administrators. ‘upgrade’ that this mean in terms of at the need to maintain sellers in key As a consequence, any deal is subject sophistication for any company, certainly managerial positions after closing to to a greater deal of inspection and not plays a role in this. facilitate transition. always what can be done is what is In regards to family-owned private Likewise, as buyers approach sellers and achieved. Such actions have lead into corporations, the first challenge a conduct negotiations, multinationals an increasing judicialization of matters. multinational faces when looking to should be aware that a ‘one size fits all’ Corporate scandals are not unknown acquire such a corporation, is identifying approach is not necessarily applicable to to Chile. In recent years, cases such a correct counterparty for initiating the local landscape. Many multinational as Fasa, la Polar, Enersis, and more

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Global M&A_Chile_BAZ_Final.indd 40 12/14/14 3:46 PM recently Cascadas, have shaken the local regulations and culture is more He is also a law professor at the corporate landscape - being controlling of a challenge and key not only for Pontificia Universidad Católica de shareholders questioned for breaching the success of the deal, but also to the Chile Law School, where he chairs the their fiduciary duties towards minority success of the future operation. corporate and tax law department. shareholders in matters such as related He is also a director of the Center for Last, in terms of local capabilities, going party transactions and appropriation of Corporate Governance at the Pontificia to the right team rather to a brand is corporate opportunities, among others. Universidad Católica de Chile. very relevant. Well-known brands do not Despite the foregoing, unveiling, prosecuting, judging and sanctioning Marco Salgado corporate scandals is a demonstration “Private companies and Senior Associate of maturity and development of the [email protected] Chilean stock market, which might lead it publicly traded corporations to even higher standards of transparency Marco Salgado has been a senior favoring the business environment. owned and driven by family associate at Bahamondez, Alvarez & constitute the landscape of Zegers since 2013. Prior to that, he We are also seeing an increasing worked at Alcaíno | Abogados and Shutts level of self-regulation, mostly driven property ownership in Chile, & Bowen LLP (Miami). by institutional investors (local and foreign), and a market more willing to where in average controlling Mr. Salgado received his law degree from the Pontificia Universidad Católica see corporate governance rules as an shareholders own 53 de Chile Law School in 2003 and a excellent tool to increase value to its Master of Laws degree from the same companies. percent of the stock of listed University in 2006. companies and more in private He is a law professor at the Pontificia What advantages does companies.” instructing Bahamondez, Universidad Católica de Chile Law Alvarez & Zegers provide School, where he lectures on mergers to multinationals looking and acquisitions and corporate governance and heads the Law School’s to acquire a Chilean family- always possess the hands-on approach participation in the LawWithoutWalls owned business? or the flexibility and agility to provide program organized by University of BAZ: The acquisition of family-owned the levels of service needed to assist Miami, School of Law. businesses places multiple challenges multinational enterprises in Chile. before multinationals as foreign investors, and not only from a legal About the authors: standpoint. The assistance of a local Matías Zegers corporate full-service firm is a must Partner in these sorts of deals. Clients need [email protected] to instruct a firm that can speak the ‘client’s language’ and successfully Matías Zegers has been a partner at transmit and adapt such language to Bahamondez, Alvarez & Zegers since a local counterparty. If the latter is not 2007. Prior to that, he worked at Davis achieved, the future of the deal could be Polk & Wardwell (New York) and Cariola jeopardized. Diez Pérez-Cotapos, with a secondment as General Counsel at Unilever Chile. Local firms have a good level of sophistication, with most lawyers Mr. Zegers received his law degree from having trained in U.S. and U.K. law firms. the Pontificia Universidad Católica de Therefore, understanding the standard Chile Law School in 1994 and a Master documents and language is not an of Laws degree from The University of issue - having the buyers understand Michigan Law School in 2002.

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Cross-Border M&A in China More transactions, bigger deals, reports Lee Edwards, Managing Partner in Shearman & Sterling’s Beijing office and head of its China M&A practice.

nbound and outbound China M&A activ- foreign investors already present in China looking to ity have both experienced steady growth enhance the competitiveness of their China opera- over the past three decades. That growth tions. The value of outbound investment activity has is likely to continue as China continues to also increased steadily in recent years, rising from pare down restrictions on foreign invest- US$52.1 billion in 2008 to US$107.8 billion in 2013, Iment at the same time as it seeks to promote the reflecting the increased need for Chinese industry global reach of Chinese enterprises and pushes leaders to find new markets for their products as well reforms aimed at increasing the competitiveness as China’s insatiable thirst for the natural resources, of state-owned enterprises (“SOEs”). Chinese par- skills, intellectual property and technology lack- ticipants in the global M&A market have become ing in China. Europe and North America remain more sophisticated in recent years, contributing to the top destination markets for China outbound the increasing size and complexity of transactions M&A. SOEs have continued to focus on resources, involving Chinese buyers or sellers. energy and power, as well as heavy industry, while Total China M&A deal value reached US$260.2 outbound acquisition activity by private enterprises billion in 2013, up 40.4% from US$185.3 billion in has been focused more on the telecommunications, 2008. The aggregate volume of inbound and out- technology and real estate sectors. bound China M&A transaction slightly reduced from 4,805 in 2008 to 4,448 in 2013. This trend has Streamlining Inbound continued in 2014, with the aggregate China M&A Investment Approvals deal value reaching US$183.1 billion in the first six 2014 saw a number of significant developments in months of 2014, up 18.7% from the same period in China’s foreign direct investment regulatory regime. 2013. The value of foreign inbound investment ac- The State Council, the National Development and tivity has climbed to record highs in recent years, Reform Commission (“NDRC”), the Ministry of rising from US$ 108.3 billion in 2008 to US$123.9 Commerce (“MOFCOM”), the State Administra- billion in 2013, reflecting increased efforts by mul- tion for Industry and Commerce (“SAIC”) and tinational companies to capitalize on the rapid the State Administration of Foreign Exchange growth in Chinese consumer buying power, as well (“SAFE”)) all individually or jointly issued new reg- as substantial investment and acquisition activity by ulations intended to streamline the approval process

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Global M&A_China_Shearman_Final.indd 42 12/14/14 3:04 PM for acquisitions and other investments in China by Stimulating Outbound foreign and foreign-invested companies. Investment On October 31, 2014, only eleven months after The 2014 Governmental Approval Index also fur- the State Council issued the 2013 version of the ther relaxed the regulatory approval requirements Index of Investment Projects Subject to the Gov- with respect to outbound investment by Chinese ernmental Approval (the “Governmental Approval entities. Previously, substantive review and approv- Index”), the State Council issued a revised Gov- al by the NDRC, MOFCOM or one of their local ernmental Approval Index, effective on the same branches was required for outbound investments date, which further shortens the list of investment exceeding certain size of investment thresholds. projects subject to governmental approval: Under the 2014 Governmental Approval Index, 15 categories of investment projects which were such “investment-size” thresholds have been aban- previously subject to substantive review and ap- doned. Substantive NDRC and MOFCOM ap- proval by the NDRC (“hezhun”) are now only re- proval (involving a detailed review and assessment quired to be “reported” to the NDRC and subject of the merits of the proposed transaction) will only to an expedited and ostensibly procedural approval be required where the outbound investment project process (“bei’an”) and 23 categories of investment is in a “sensitive country or region” or in a “sensi- projects which were previously subject to central tive industry.” Projects not in a sensitive country level government approval are now only subject to (region) or in a sensitive industry are only subject local level approval; and to the “bei’an” requirement. Projects involving For most inbound foreign investment projects, the “investment-size” thresholds triggering cen- tral level governmental approval were lifted from Regulatory changes have US$300 million (for projects in the “encouraged” foreign investment category) and US$ 50 million greatly simplified the (for projects in the “restricted” category), to US$ 1 billion and US$ 100 million, respectively. regulatory process for At almost the same time, the NDRC published Chinese entities seeking to a draft amendment to the 2011 version of the Cata- logue of Industries for Guiding Foreign Investment make outbound acquisitions (the “Foreign Investment Catalogue”), soliciting public comments. Pursuant to the draft amend- or other overseas investments ment, the number of industry sectors within the and reduced uncertainty. “restricted” category would be reduced from 79 to 35; and the number of industry sectors which are subject to foreign ownership restrictions would be investment by an SOE under the direct control of reduced from 44 to 32. The revised version of the central government (a “Central SOE”) and projects Foreign Investment Catalogue is expected to be involving investment by entities other than Cen- promulgated and become effective early next year. tral SOEs with an investment amount exceeding 2014 has also seen the reform by MOFCOM US$300 million should be filed with NDRC and and the SAIC of the corporate registered capital MOFCOM for record-keeping and expedited, pro- system and the corporate annual inspection sys- cedural approval purposes. Other projects should tem. The two-year time limit for foreign inves- be filed with the relevant local branches of NDRC tors to contribute all of the registered capital of a and MOFCOM. foreign invested entity (an “FIE”) has been elimi- These regulatory changes have greatly simplified nated, leaving foreign investors and their Chinese the regulatory process for Chinese entities seeking partners free to decide their own capital contribu- to make outbound acquisitions or other overseas in- tion schedule. The annual inspection requirement vestments and reduced the uncertainty with respect has also been repealed; foreign invested companies to the ability of a prospective Chinese purchaser of now only need to submit their annual report online a foreign business or assets to obtain the requisite through the SAIC information system. Chinese government clearance. These changes, if

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fully implemented, should enhance Chinese buyers’ cash pool, the foreign investor may simply inject likelihood of success in competitive sales processes. RMB funds into, and the Chinese subsidiary may withdraw RMB funds from, the cash pool without Cross-Border RMB Cash PRC governmental approval and without being Pools: A New Way to Invest constrained by the statutory debt-registered capital in China? ratio. When the Chinese subsidiary has extra funds, Traditionally, foreign investors have only been able instead of remitting such funds as dividend or repay- to move cash into China by contributing capital, or ment of loan, it may inject the cash back into the extending a loan, to an FIE, in the former case, sub- cash pool which the foreign investor may withdraw ject to the approval of MOFCOM or the relevant from time to time. Some banks in the Shanghai local branch of MOFCOM and in the latter case, FTZ, such as HSBC and Shanghai Pudong Devel- subject to strict foreign exchange controls. Funds opment Bank, have started to offer such cash pool- contributed to registered capital must remain in the ing services to their clients. FIE unless the FIE obtains MOFCOM approval for Trial Procedure for Notification of “Simple a capital reduction or the FIE is dissolved. Concentrations”: Getting to the Finish Line Faster 2014 has seen the issuance of two regulations The PRC Anti-Monopoly Law (the “AML”), designed to facilitate the development of the RMB promulgated in August 2008, requires investors to cross-border business in the China (Shanghai) Pilot file an anti-monopoly notification with the Anti- Free Trade Zone (“Shanghai FTZ”). Entities estab- Monopoly Bureau of MOFCOM if their proposed lished in the Shanghai FTZ (each, an “FTZ Entity”) transaction meets certain thresholds. As of Sep- are allowed under these regulations to engage in tember 30, 2014, MOFCOM had reviewed the RMB cross-border business, including cross-border anti-monopoly notifications of 904 projects among which 878 projects were unconditionally approved, 24 projects were approved with conditions and 2 Notwithstanding the rigorous projects were blocked. MOFCOM has been widely criticized for the examination of VIE companies time-consuming nature of its anti-monopoly review by regulators in recent years, process. Under the AML, the statutory timeline for MOFCOM to review an anti-monopoly notification reports of the impending is 120 (+60) calendar days, including: 30 calendar days for the first-stage review and additional 90 cal- demise of the VIE structure endar days (which may be extended for another 60 appear to have been premature. calendar days if necessary) for the second-stage re- view if MOFCOM identifies any anti-competition concerns during the first-stage review and decides mutual RMB cash pooling. These new regulations to conduct a second-stage review. As a matter of are intended to provide an efficient means for multi- practice, however, the MOFCOM review frequently national companies to channel funds across the bor- takes five to six months or longer from the first time der of China and to make corporate treasury more the notification is filed. According to MOFCOM’s convenient and transparent. 2013 Annual Anti-trust Report, MOFCOM has An FTZ Entity that satisfies certain qualifica- cleared 161 anti-trust notifications in the first ten tion requirements would be allowed to establish a months of 2013. Only 21 out of the 161 cases (13%) “cross-border RMB cash pool”. Entities, either in- were cleared during its first-stage investigation, 130 side of China or outside of China, that have a direct cases were cleared after a second-stage review, and or an indirect shareholding relationship with such the other 10 cases ran into the extra 60-day investi- FTZ Entity may be included in the cash pool (each, gation. In recent years, the pre-review period (i.e., a “Cash Pool Member”). Each Cash Pool Member the period from the date the parties make the ini- may inject RMB into, or withdraw RMB out of, tial filing to the date MOFCOM confirms the fil- such cash pool without any governmental approval. ing being complete) has become longer: in 2011, If the Chinese subsidiary establishes a cross-border the average pre-review period generally lasted 2

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Global M&A_China_Shearman_Final.indd 44 12/14/14 3:04 PM to 3 weeks, whereas in 2013 it was offshore listing in order to circum- approximately 2 months. In some vent certain regulatory approval cases, MOFCOM may ask for ad- requirements. The VIE structure ditional information to prolong the had been adopted by more than pre-review period or initiate a sec- one hundred Chinese companies ond-stage review in order to allow for their offshore listings. it to process the backlog of antitrust However, in recent years, the filings that it has received. VIE structure has attracted sub- As part of its effort to expedite stantial scrutiny from domestic and anti-monopoly reviews, MOF- overseas regulators, including the COM introduced “simplified pro- State Council, MOFCOM and the cedures” in 2014 for anti-monopoly United States Securities and Ex- filings in relation to qualified “sim- change Commission (the “SEC”). ple concentration cases”. The rel- The legality of the VIE structure evant rules and regulations define LEE EDWARDS has also been the subject of litiga- tion in Chinese courts. A number the key criteria for determination MANAGING PARTNER of whether an M&A or investment of transactions involving compa- project constitutes a “simple con- nies using a VIE structure failed centration” and enumerate the notification require- to make it through the PRC antitrust review pro- ments applicable to simple concentration cases. cess, leading to speculation that Chinese regulatory On 22 May 2014, MOFCOM published the first authorities were considering a crackdown on VIE simple concentration case-”Rolls-Royce Holding/ companies. MOFCOM indicated that it was con- Rolls-Royce Power Systems” on its website for pub- ducting a review of VIE policies. Both the SEC and lic comment. As of November 20, 2014, 54 simple The Hong Kong Stock Exchange issued a number of concentration cases have been publicly announced rules setting out more stringent listing and disclosure and many of them were cleared within two months rules applicable to companies with a VIE structure. following the expiration of the 10-day public an- The long-term viability of the VIE model has nouncement period. always been uncertain due to the fact that its funda- However, it is worth noting that newly intro- mental purpose is to allow foreign investors to invest duced opposition procedures create the risk that in businesses engaged in activities for which foreign MOFCOM could withdraw its certification of a investment is restricted or prohibited. However, not- transaction as a “simple concentration” and require withstanding the more rigorous examination of VIE a re-filing if it determines that an opposition petition companies by regulators in recent years, reports of filed by a third party has merit. Parties considering the impending demise of the VIE structure appear filing for a simple concentration review should con- to have been premature. sider the likelihood of third-party opposition and Recent overseas listings by companies with a the resulting risk of a review process potentially even VIE structure provide further evidence of the struc- longer than the standard review timeline. ture’s continued viability. In particular, two leading PRC e-commerce giants that utilize a VIE struc- VIEs: Still Viable? ture, Alibaba Group and Jingdong Group, complet- The variable interest entity (“VIE”) structure, ed their initial public offerings in 2014. However, which is also commonly referred to as the “Sina while it seems likely that VIEs will remain an im- structure” as it was first used by Sina in 2000, is a portant feature of the foreign investment landscape contractual arrangement that has been widely used in China for the foreseeable future, it is also likely by Chinese companies operating in industries in that regulatory scrutiny of such entities will continue which foreign investment is restricted or prohibited to increase, with Chinese authorities looking for new to attract foreign venture capital or private equity ways to increase the transparency of these structures financing or to effect offshore listings. Some Chi- and to enhance the government’s ability to monitor nese companies not facing such foreign investment and enforce compliance by VIE entities with Chi- restrictions also adopted such structure in their nese laws and regulations. ■

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Global M&A_China_Shearman_Final.indd 45 12/14/14 3:04 PM CZECH REPUBLIC

BBH – YOUR TRUSTED ADVISOR IN CENTRAL AND EASTERN EUROPE AND THE CIS REGION

Key practice areas: • M&A, Corporate Law • Banking and Finance, Insurance Business • Insolvency and Restructuring • Litigation, Arbitration and other Proceedings • Capital Markets • Real Estate • English Law M&A in the Czech Republic: Optimism Continues to Grow What is the current M&A landscape in the Czech Republic? Will optimism continue to grow? What challenges does the M&A market face?

hanks to foreign investments, EU deals currently happening on the market are in funding, developed EU links be- the value of below €100 million. The majority of tween EU countries and politi- transactions are so-called secondary sales, which cal stability, CEE region is often signify forward-looking strategic decision making ranked among the most promis- by market leaders. The size of the Czech M&A ingT regions in Europe. Czech Republic, which lies market can be estimated to be USD 8.32 billion, in the heart of the CEE region, is one of the most which represents a year-on-year increase of 39% successful CEE countries in terms of attracting or USD 2.34 billion. foreign direct investment. In 2014, foreign direct Czech investors are investing mainly at home, investment reached almost USD 8 billion. Most with domestic transactions amounting to 56%. of investments flew from German, US, Japanese, Nonetheless, Czech investors are also year on year Austrian, Swiss and UK investors into automotive, more active on foreign markets. Main acquisitions machinery, real estate, pharmaceutical and food in the past year took place in Slovakia and Ger- industries. many, however higher rates were also reported in In 2013, the Czech Republic was ranked third Bulgaria, where the number of acquisitions closed in number of completed transactions behind Po- by Czech investors rose from 1 to 4. land and Turkey. In 2014, market confidence con- The nature of the Czech market is changing, tinued to grow. Despite the fact that there was no with established investment groups like PPF, EPH, multibillion Euro deal as seen on the Czech market KKCG or Penta taking the lead and being respon- in 2013, 2014 has seen activity on the M&A mar- sible for a significant share of the largest transac- ket as well as in private equity houses. Most of the tions. This is apparent by looking at the list of the

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Global M&A_CzechRepublic_BBH_Final.indd 46 12/14/14 3:05 PM most significant transactions of the past two years, tions affecting mergers or acquisitions have been where the finance groups dominated the M&A ac- issued. Generally, Czech tax residents are taxed tivity, mainly in the utility sector. on their worldwide income whilst non-Czech tax One of the top transactions of the year 2013, residents are taxed on their income from Czech which completed in 2014, was the acquisition of sources. Certain exemptions are granted under controlling stake in Telefónica Czech Republic by the EU legislation and double taxation is elimi- finance group PPF, assisted by BBH. PPF acquired nated by double taxation treaties. The government a majority stake of Telefónica for a total consid- has introduced a number of investment incentives, eration of €2.47 billion. This came after PPF sold such tax allowances, which may be granted un- its 25% stake in insurance company joint venture der Investment Incentive Act No. 72/2000 Coll. Generali PPF Holding to Assicurazioni Generali Companies considering investing in the Czech Re- of Italy for €1.3 billion, a deal which was also as- sisted by BBH. Another significant transaction was the acquisition of Slovak Gas by Czech fi- “Companies considering investing nance group EPH for €2.6 billion or the departure of E.ON from a Czech gas distribution company in the Czech Republic by establish- Pražská Plynárenská, where E.ON’s stake was ac- ing a new business or expanding quired by the City of Prague for €302 million. An- other significant deal was the sale of RWE’s 100% their current business are share in NET4GAS, s.r.o., a Czech gas transmis- sion system operator, to a consortium of Allianz encouraged to take advantage of and Borealis Infrastructure. the current investment incentives.” The main driver of the M&A activity in the Czech Republic over the past few years was the exit of Western utility and energy companies. public by establishing a new business or expand- Looking forward, succession issue will become ing their current business are encouraged to take another powerful driving force. Many founders advantage of the current investment incentives. of companies which were established in the early The merger control regime is stipulated in Act post-Communist years are looking for new own- No. 143/2001 Coll., on Protection of Economic ers due to absence of a successor. Many of these Competition. The Office for the Protection of companies are high quality companies with skilled Competition is the central authority of state ad- labour force. ministration in the field of public procurement and competition. It controls any arrangements distort- LEGAL FRAMEWORK FOR M&A ing economic competition such as price-fixing or Mergers and acquisitions are in the Czech Repub- other cartel arrangements. The business conduct lic regulated by Act No. 125/2008, on the Trans- of companies with a dominant market position is formations of Business Companies and Coopera- subject to special regulations. It is mandatory to tives, which came into force on 1 July 2008 and file a transaction which represents a concentration which implemented EU Directive 2005/56/EC on of businesses and exceeds a minimum threshold cross-border merger of limited liability companies. based on world-wide and net turnover. It is pos- The Act governs both national and international sible to make a simplified merger filing in case transactions. Pursuant to this Act, it is possible to the transaction’s impact on the relevant markets transform companies in the Czech Republic by would be minimal. There is no specific time limit merger or acquisition, demerger, transfer of busi- for making a filing, however clearance should be ness assets to shareholders or conversion of their le- obtained prior to implementation. If the Office gal form. These transformations, which are gener- perceives the transaction as a potential threat to ally tax neutral, require compliance with complex effective competition, it may prevent the transac- legal and tax procedures. tion from going through. No recent modifications to Czech tax regula- As of 1 January 2014, the Czech Republic has

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implemented a new Civil Code and Business Cor- for the benefit of the legal entity. Moreover, the Act porations Act (Act No. 89/2012 Coll.), which lead enables piercing of the corporate veil in order to to a complete transformation of Czech private punish individuals who try to escape liability by law. The new Civil Code is based on the Austrian, acting in the name of a legal entity. Legal entities French, German, Italian, Quebec and Swiss civil normally face financial penalties, although they codes. The new Civil Code introduced better flex- can also face punishments such as closure of the ibility in contractual arrangements and represents business or prohibition of accepting donations. It should be noted that the impact of the Act on Criminal Liability of Legal Entities reaches be- “It is expected that demand for yond the borders of the Czech Republic. If a Czech work relating to criminal corpo- legal entity engages abroad in a criminal activity such as corruption, the activity falls within the rate investigations will continue scope of this Act as well as within the scope of the relevant foreign anti-corruption legislation such as to increase as many businesses the US’s FCPA or UK’s Bribery Act. Following the realise that taking steps such introduction of this new legislation, there has been a noticeable increase in demand for legal services as training employees or putting in compliance and regulatory matters as well as in place specific procedures can investigations. It is expected that demand for work relating to criminal corporate investigations will mitigate their potential future only continue to increase. Many businesses realise that taking steps such as training employees or losses and exposure.” putting in place specific procedures can mitigate their potential future losses and exposure. a step closer to freedom of contract by limiting reasons for invalidating contracts. Nonetheless, OPPORTUNITIES AND CHALLENGES contractual freedom is not completely unrestrict- Key M&A players remain cautiously optimistic ed; the code for example introduced a number of about the Czech market. With a stable economy concepts protecting weaker parties. The new code predicted to grow in 2015 1% quicker than in the also places much more emphasis on pre-contrac- rest of the EU and with a friendly climate towards tual arrangements. In respect of liability of statu- foreign investors, there is a consensus that the tory bodies, the new code favours corporations Czech Republic will remain a favourable market by restricting powers of statutory officers. The for mergers and acquisitions. Even though the code introduced a so-called “business judgment Ukraine crisis has introduced a new level of un- rule” which means that a statutory officer will not certainty to the CEE region, optimists believe that be liable for negative effects of his decisions on a this should not have a long lasting impact on the company only if he can show that he acted with Czech M&A market. It is expected that the en- diligent care. Even though it is yet to be seen how ergy, utility, industrial, pharmaceutical and con- the new Civil Code will impact business activities sumer sectors will continue to be the most active in the Czech Republic in the future, it is predicted sectors in the Czech Republic in 2015. that the increased legal flexibility will have a posi- It is expected that there will be a consolidation tive impact on the M&A activity in the Czech Re- of and changes in the media and telecom market public. through acquisitions of certain media houses. In Further, from 1 January 2012 the Czech Re- the last two years, we have already seen a number public introduced Act No. 418/2011 Coll. On of substantial transactions, such as the acquisition Criminal Liability of Legal Entities which enables of MAFRA and Andel Media Centrum, being criminal prosecution of legal entities. Corpora- entities forming a major online and print media tions or other legal entities are prosecuted when it house in the Czech Republic by Agrofert Holding. is apparent that an individual committed a crime Another significant deal was the sale of the media

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Global M&A_CzechRepublic_BBH_Final.indd 48 12/14/14 3:06 PM house Ringier Axel Springer CZ to entrepreneurs Daniel Kretínský and Patrik Tkác. It is also believed that there is still a potential for financial sector consolidation, which could mean both, large banking transactions as well as smaller transactions in the consumer credit business and insurance. Even though Czech banks were not hit by the economic crises as hard as banks in some other European countries, the fact that the Czech economy did not grow in years 2012 and 2013 did have an impact on the banks’ performance. More- over, many Czech banks were affected by prob- lems of their parent companies. This, as well as JUDr. Ing. Veronika the fact that many project developments failed due Petr Precechtel Št’ovícková to developers’ financial difficulties, had an impact PARTNER SOLICITOR on Czech banks’ willingness to lend money and fi- nance developments. The Czech National Bank reacted in 2012 and quired law firms operating in the region to grow 2013 to the economic slow-down by fixing interest with them. BBH, originally a Czech law firm, was rates and weakening the Czech currency. Many one of such firms which responded to the regional have perceived this as a step preventing deflation changes by opening offices in both Bratislava and and boosting Czech economy by encouraging ex- Moscow and by establishing a special legal advi- ports, foreign investments and decreasing unem- sory group comprised of English qualified lawyers ployment. Reports of the Czech National Bank focused on cross-border as well as domestic trans- show that the intervention boosted the economy actions governed by English law. ■ by almost 3% in the year 2014. About the Authors WHAT IS NEXT? JUDr. Ing. Petr Precechtel, Partner In the ever-globalised world, individual players Petr Precechtel is a partner at BBH specializing in become more and more dependent on each other. banking, finance, M&A, securities and capital mar- This enables increased global supply of investment kets. He focuses, above all, on bonds and equity is- opportunities however it also carries a risk of being sues, structured financing, syndicated and bilateral susceptible to shifts on markets which are thousands debt financing and derivatives. of kilometres away. The challenge for the Czech M&A market is to place itself as a stable secure Veronika Št’ovícková, Solicitor market with good investment opportunities. With Veronika Št’ovícková is a Core Team Member this in mind, the vast majority of companies on the of the BBH English Law Desk. She specialises in M&A market believe in positive development of the corporate and commercial transactions governed Czech economy and more merger and acquisition by English law. Her practice involves cross-border opportunities. Although investors remain cautions, mergers and acquisitions, joint ventures and private data reflecting M&A activity on the Czech market equity investments. shows that 2014 was a year of an increased confi- dence in future growth. In the past 2 years, we have seen a number of noteworthy transactions happening on the Czech market as well as transactions on foreign markets completed by Czech investors. Czech companies are growing and becoming key to the whole mar- ket. The growth of many Czech businesses re-

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Global M&A_CzechRepublic_BBH_Final.indd 49 12/14/14 3:06 PM FRANCOPHONE AFRICA

& SEIZING OPPORTUNITIES Q A AND MITIGATING RISK IN reporter MARIA JACKSON puts the THE DRC questions to Liedekerke Lawyers from Belgian law firm Liedekerke Wolters Waelbroeck Kirkpatrick discuss best practices for investment into the Democratic Republic of Congo

As the first country to have concluded a and services industries. Both sectors need to double tax treaty with the Democratic Republic create brand awareness and convince their local of Congo (DRC), Belgium provides a useful clients that they are in the DRC to stay. springboard for investors into the African nation, Richard Steinberg As global appetite for natural resources remains and the wider region. strong, in particular from Asia, diversification into Aimery de Brussels-headquartered Liedekerke Wolters central Africa does make sense for the leading Schoutheete Waelbroeck Kirkpatrick is one of Belgium’s global and regional players in terms of extraction Senior Partner foremost business law firms. Liedekerke has costs and proximity to customers. However, a comprehensive international outlook and for these projects to yield, infrastructure will regularly acts for clients from China, India, Russia need to improve to facilitate and speed up the and other CIS states, as well as Middle-Eastern movement of these goods. Hence the extractive and Latin American corporations. The firm has and infrastructure industry combine to make a particularly extensive experience in Africa-related virtuous pair. work and its Africa practice serves Belgian and In parallel, a middle class is coming to the fore international clients in countries such as the and is looking to ‘invest’ in products that will DRC, Rwanda, Burundi, the Ivory Coast, Tanzania underline their success and provide them and and South Africa. their families with a better, more comfortable Damien Conem As the DRC continues to present attractive living standard. Here, the main FMCG titans see Partner opportunities for foreign investors, partners from an opportunity. For this opportunity to turn into Liedekerke Wolters Waelbroeck Kirkpatrick discuss a success, it is our view that many specialized the key points that should be considered when services providers will be required: accountants, contemplating doing business in the country. bankers, consultants, healthcare workers, lawyers, real estate brokers and developers, university What are the headline business professionals etc. The persons providing these trends currently driving foreign services will strengthen the middle class and investment into the DRC? reinforce the virtuous circle referred to above, since they will consume more FMCGs but also Liedekerke: Although the DRC offers an will require improved infrastructure. unlimited number of opportunities for the ‘right’ Thibaut investor, the focus of foreign investments seems Hollanders to run along two lines: ‘heavy and long term’ How has the DRC’s business Senior Associate investment on the one hand, which covers the landscape evolved OVER extractive industry and infrastructure (for which RECENT YEARS? there is an enormous need); and ‘mid-term’ Liedekerke: Here again, we see a couple investment on the other hand, which broadly of positive evolutions that should reassure covers the fast-moving consumer goods (FMCG) investors. The first significant development

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Global M&A_Liedekerke_Final.indd 50 12/14/14 3:06 PM is the change in the mentality of the Africa, can only benefit investment by clearly in vital need of improvement, as political establishment; there is an providing companies doing business we mentioned earlier. increased awareness and consensus in the DRC with a single, modern, However, a considerable hurdle for that a sound business environment is flexible and reliable business law investors is the challenge to find the right required to achieve the development advisers to assist them along the way. objectives that they wish to pursue. The services sector in the DRC is still in its This change in attitude vis-à-vis the “Regulations are no longer infancy and knowledgeable and properly business community in general, goes trained ‘facilitators’ of business processes together with a legislation that aims at blind to the commercial (from accountants to strategy consultants) ensuring growth is shared fairly among reality but are increasingly are thin on the ground. In certain sectors, investors and the local population legal monopolies remain in place that and that knowledge is spread. These designed to encourage allow the members of the local association aims sometimes take the form of an business in a framework that obligation to employ local people to demand a premium for their work. or utilize local competences to fulfill allows its benefits to reach Similarly, the pool of commercial experts certain missions but, generally, the legal available is small. And, now the stringent provisions allow for an exception when the less well served members UK Bribery Act and US Foreign Corrupt that competence is not (yet) sufficiently of the community.” Practices Act are in force, it is essential present. In other words, the regulations for any company doing business in the are no longer blind to the commercial country to rely on the right commercial reality but are increasingly designed to framework which already applies in the and legal partner to mitigate the business encourage business in a framework that other 16 OHADA member states and and regulatory risk. This being said, within allows its benefits to reach the less well supersedes previous or subsequent the same association, more and more served members of the community. national legislation. OHADA commercial, members realize what they could gain in corporate, securities, accounting and quality of service and productivity would This ‘change of mind’ has been fairly arbitration law entered into force in they embrace the management methods well received by foreign investors if one the DRC on 12 September 2012, and that have now become the norm in the is to use the DRC’s growth rate and FDI many efforts have been made – backed Western world. And these persons are the figures as a measure; over the last five especially by the EU, the World Bank, ones seeking to collaborate more closely years, the DRC’s average growth rate was the U.K.’s Department for International with foreign experts in their fields to in excess of seven percent. Development and other funders – to ‘outsmart’ their local competitors. Last but not least, the DRC has a wealth support national agencies in assisting of graduate students who have gained the administrations and courts with the To what extent can Belgium their degrees abroad at outstanding application of OHADA in the DRC from provide a useful stepping academic institutions (mainly in Belgium 2013 until 2017. stone for investment into and France but also in the U.S.) and who, the DRC? more often than in the past, view their What are the key challenges Liedekerke: Having a shared historical best career opportunities as lying in the for foreign investors into and linguistic heritage with the DRC, DRC. These ‘brains’ are the local talent the DRC? equips Belgium-based companies and that investors will also need to turn their Liedekerke: We believe that the corporate advisers with the necessary ventures into a resounding success. challenges in the DRC are not that tools to help familiarize foreign investors different from what an investor would with the local environment. Additionally, How has the DRC’s accession face in other developing countries. There Belgium has an extensive network of to OHADA cemented its is still a significant amount of red tape, Bilateral Investment Treaties which credentials as an although the government is trying to provides Belgian companies – or Belgian attractive venue for reduce bureaucracy and simplify the subsidiaries of international groups FOREIGN investment? life of the business community. Some that are especially set up for follow-on Liedekerke: Accession in July 2012 legal steps that take a matter of days investments elsewhere in the world – to OHADA, the organization for the in a sophisticated jurisdiction can take with strong protection for their foreign harmonization of business law in weeks. In addition, infrastructure is investments.

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Global M&A_Liedekerke_Final.indd 51 12/14/14 3:07 PM FRANCOPHONE AFRICA Inspiring trust Finally, Belgium has entered into a very the region. Our familiarity with the local and transfer of undertakings. His attractive double taxation treaty with institutions, as well as the deep links we practice encompasses such issues as the DRC (so far, DRC has only entered have established with the local legal employment termination, freelance into DTTs with Belgium, South Africa and participants, grants us an edge over contracts, employment litigation, stock Zimbabwe), which can be combined any newcomer to the region. We are options, incentive plans, international with flexible corporate legislation and law in relation to employment contracts various tax incentives (e.g. the favorable and social security and Congolese To seize commercial opportunities in Africa, local insight tax regime available to all holding “Having a shared historical employment law. companies). and strong partners on the ground are essential. and linguistic heritage with Damien Conem Partner If a deal does turn the DRC, equips Belgium- [email protected] contentious, what options From our newly established office in Kinshasa, DRC, are available to foreign based companies and Damien is a partner in the corporate investors looking to resolve corporate advisers with and finance practice group. He advises Liedekerke assists clients to navigate the challenges and a dispute? international and national clients in the necessary tools to help relation to multi-jurisdiction and cross- seize the opportunities in this rapidly developing market. Liedekerke: The basic recipe remains border transactions in the areas of M&A to make all contracts and deals subject familiarize foreign investors (including private equity and regulated to arbitration. The Congolese business undertakings), corporate (re)structuring community, as well as government with the local environment.” Contact us and see how we can help with your project. (outside insolvency proceedings) and representatives, are used to arbitration equity capital markets. Before rejoining and understand the need to have Liedekerke, Damien practiced with disputes governed by well known and passionate about central Africa and are two major international players after neutral arbitration proceedings rules. strongly committed to this region. Most completing his traineeship with the firm. ICC arbitration is the most common importantly, we are ready to share our currently but could leave some room knowledge and experience in the region to OHADA arbitration in the future. with those among the investment Thibaut Hollanders Arbitration under the aegis of CEPANI community who are ready to take their Senior Associate (the Belgian Center for Arbitration) or business into Africa. We believe that [email protected] these attributes are the key qualities the Swiss Chambers of Arbitration are Thibaut is a senior associate in Liedekerke was shortlisted for the “Litigation & Dispute Resolution Team investors are looking for when seeking also welcome. In the long term, the Liedekerke’s corporate and finance of the Year” at the African Legal Awards 2013. assistance in a transaction. fact that the OHADA Common Court practice group. He advises clients in of Justice (based in Ivory Coast) acts relation to multi-jurisdictional and cross- “Aimery de Schoutheete [is] highly visible on Congolese mandates. He as supreme court throughout the About the authors: border transactions in the areas of M&A advises on commercial matters, with a focus on the mining and natural 17 OHADA countries for all matters Aimery de Schoutheete and corporate (re)structuring. Before resources sector, and is also active on contentious matters.” regulated by OHADA uniform acts will Senior Partner joining Liedekerke, he practiced with have a positive impact on national [email protected] three major international law firms where Chambers and Partners judicial systems. Global 2014 - DRC Aimery de Schoutheete is senior he was also part of the Africa desk. Based partner and head of Liedekerke’s Africa in Kinshasa (DRC), Thibaut has in-depth How does LIEDEKERKE’s practice. He has extensive experience experience of the various legal aspects experience mark it as a top in drafting and negotiating commercial of doing business in Africa, specifically choice for investors contracts and in handling litigation in mining and corporate law in the looking to do their first and arbitration proceedings (ICC and Democratic Republic of the Congo deal in the region? BRUSSELS KINSHASA LONDON CEPANI). He has particular expertise in Boulevard de l’Empereur 3 Keizerslaan Immeuble TILAPIA, 3ème étage 33 Sun Street Liedekerke: We have been active in the fields of distribution, international 1000 Brussels Avenue Batetela n° 70 London EC2M 2PY the DRC for over 25 years and in central sale of goods and commodities, Belgium Commune de la Gombe - Kinshasa United Kingdom Africa for over ten years. We have gone manufacturing, chemicals, agribusiness République Démocratique du Congo through various tense episodes with and insurance as well as Congolese T: +32 2 55 15 15 T: + 243 8484 39326 T: +44 207 151 03 60 our clients and have developed a good law. Aimery also advises corporate Contact: [email protected] Contact: [email protected] Contact: [email protected] sense of how to tackle the challenges clients on labor and employment law, that political change can bring about in with a focus on company restructuring www.liedekerke.com

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Global M&A_Liedekerke_Final.indd 52 12/14/14 3:07 PM Inspiring trust

To seize commercial opportunities in Africa, local insight and strong partners on the ground are essential.

From our newly established office in Kinshasa, DRC, Liedekerke assists clients to navigate the challenges and seize the opportunities in this rapidly developing market.

Contact us and see how we can help with your project.

Liedekerke was shortlisted for the “Litigation & Dispute Resolution Team of the Year” at the African Legal Awards 2013.

“Aimery de Schoutheete [is] highly visible on Congolese mandates. He advises on commercial matters, with a focus on the mining and natural resources sector, and is also active on contentious matters.” Chambers and Partners Global 2014 - DRC

BRUSSELS KINSHASA LONDON Boulevard de l’Empereur 3 Keizerslaan Immeuble TILAPIA, 3ème étage 33 Sun Street 1000 Brussels Avenue Batetela n° 70 London EC2M 2PY Belgium Commune de la Gombe - Kinshasa United Kingdom République Démocratique du Congo T: +32 2 55 15 15 T: + 243 8484 39326 T: +44 207 151 03 60 Contact: [email protected] Contact: [email protected] Contact: [email protected]

www.liedekerke.com

Global M&A_Liedekerke_Final.indd 53 12/14/14 3:07 PM GERMANY Q&A Trends in German reporter Public M&A maria jackson puts the Jones Day Frankfurt partner Johannes Perlitt discusses the questions key market issues for takeover offers in Germany to JONES DAY

Following a relatively quiet period for public and the duties of the target company and its M&A in Germany, there have been a number of management during the offer period. Because in significant transactions that have recently raised many circumstances the issues facing acquirors interest in this area. of German publicly traded companies prior to, during, and after the acquisition differ from those One of the main trends is a revival of share-for- under other legal regimes, it is important that share transactions. Whereas the 2011 Deutsche non-German acquirors be familiar with such Börse AG/New York Stock Exchange merger failed issues and the developments that have recently because the European Commission refused to facilitated public-to-private transactions. provide merger control clearance, there is now Johannes Perlitt partner a sizeable activity in the real estate sector in Jones Day Germany has specific experience JONES DAY the form of three share-for-share transactions: with the expectations and questions raised by Deutsche Wohnen AG/GSW Immobilien AG in international, and in particular U.S. clients, in the 2013, ADLER Real Estate AG/ESTAVIS AG in 2014 public M&A space. (in both cases there were shareholder resolutions to create the consideration shares by way of a What are the most important legal capital increase, a rare structure in Germany), and, ramifications that U.S. investors just announced in December 2014, Deutsche need to understand when doing Annington Immobilien SE’s envisaged offer to a transaction in Germany? the shareholders of GAGFAH S.A. (where a mix of shares and cash shall be offered). JONES DAY: For many investors who are not familiar with the German rules it is not obvious Another remarkable trend is the important and that in Germany, where the entire transaction influential role that shareholder activism and, is less influenced by the target board(s) and in particular, hedge funds and opportunistic more based on procedural rules, the target investors now play. The 2013 transactions that company cannot provide representations and stand out in this regard (due to U.S. hedge fund warranties for the benefit of the bidder. Pre- Elliott’s active role) are the takeover of Kabel launch conditions are not legally permissible, Deutschland Holding AG by Vodafone and the and offer conditions are permitted only where acquisition of Celesio AG by U.S. buyer McKesson. their fulfillment is not solely influenced by the In Germany, the acquisition of publicly traded bidder. Material adverse change provisions companies is principally governed by the are possible, but do not protect the bidder German Takeover Act and the regulations during the period beginning on the date of promulgated thereunder. The Takeover Act announcement of the intention to make an offer provides the principal construct under which through the beginning of acceptance period. acquirors may offer to purchase the securities Break fees should only be agreed as a lump sum of a publicly traded company. It regulates the cost compensation. Deal protection is typically conduct of the acquiror prior to, during and after obtained by securing larger shareholders (but a tender offer. It also provides for the rights of strict disclosure provisions have to be observed). shareholders in connection with tender offers, Particular attention has to be given to the so-

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Global M&A_Germany_JonesDay_Final.indd 54 12/14/14 3:39 PM called Acting in Concert of shareholders, perceived as attractive by investors if commenced to effect a court decision which can trigger an obligation to make the premium offered by the bidder for the registration of the domination a mandatory offer once the relevant 30 considers a potential flow back of the agreement with the commercial register percent threshold has been reached or consideration shares to the home irrespective of the pending litigation, exceeded (whereas a simple change market). but a claim alleging the inadequacy of in control through the acquisition of a the compensation will result in so-called • A combination where the statutory block of shares alone does not trigger appraisal proceedings (legal proceedings minimum consideration is only partly a mandatory offer with respect to a to verify the adequacy of the offered covered by shares with a listing on a company with a pure U.S. listing). compensation). regulated market in Europe and partly in cash. Putting a 75 percent minimum acceptance threshold condition in a Precedents for a mix of shares and cash “What requires some takeover offer to obtain the necessary are the UCB/Schwarz-Pharma transaction majority to ensure the votes required for explanation to U.S. bidders and the recently announced Deutsche a domination agreement can provoke Annington Immobilien SE/GAGFAH S.A. is the fact that you need a opportunistic investors to buy shares. combination. shareholder resolution, with a This is done in order to (i) put pressure on the bidder to increase the offer price, majority of 75 percent of the How can an acquirer obtain but also (ii) in view of a potentially higher full control over a German votes cast, in order to be able consideration obtained in connection stock corporation? with a subsequent structural measure to fully control a German stock JONES DAY: What requires some such as a domination agreement or a corporation by entering into a explanation to U.S. bidders is the fact squeeze-out, particularly in appraisal that you need a shareholder resolution, proceedings. domination agreement.” with a majority of 75 percent of the votes Recent steps taken to facilitate public- cast, in order to be able to fully control to-private transactions (in addition to a German stock corporation by entering the release procedure) include the 2011 Another condition that may come as a into a domination agreement which introduction of an upstream merger surprise for a U.S. bidder is that German permits the majority shareholder to give squeeze-out at a shareholding of at least law limits the consideration you may instructions to the target management. 90 percent (instead of 95 percent). And in offer to the target shareholders: it must Under such a domination agreement, 2013, the German Federal Supreme Court be either cash (Euro only) or shares, the remaining shareholders may (BGH) decided that for a delisting stock but, as of the settlement of the offer, choose to receive either an adequate corporation law requires no shareholder the shares must be listed at a regulated annual guaranteed dividend or an resolution and does not trigger an market in the European Economic Area adequate compensation for selling their obligation to make a purchase offer to (EEA), which covers the European Union shares, which is based on the higher the minorities. plus Iceland, Liechtenstein and Norway. of the equity value of the shares and For a bidder whose shares are not listed the three-months-volume-weighted in the EEA, there are three potential What influence has U.S. average market share price prior structures available: securities law on offers to announcement of the intention in Germany? • The target shareholders receive the to enter into such an agreement. JONES DAY: The German Takeover Act statutory minimum consideration More importantly, the German stock requires the tender offer to be addressed fully in cash, but the bidder offers, corporation has a claim against to all shareholders unless an exemption in addition, as an alternative the controlling shareholder for a is granted. This is an issue in particular consideration, shares that are listed compensation of its losses, if any. with respect to countries such as the solely outside the EEA. If a claim is asserted to set aside the U.S., where the securities law protects • The statutory minimum consideration shareholder resolution of the general its citizens also in cases of offers where is fully covered by the bidder’s shares meeting and thus challenge the both the bidder and the target company with a dual listing on a regulated agreement becoming valid, a so- are from outside the U.S., and is mainly market in Europe (this structure is only called release procedure is usually relevant for exchange offers. In several

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Global M&A_Germany_JonesDay_Final.indd 55 12/14/14 3:39 PM GERMANY 1947 Marshall Plan Administered From What Is Now Our Paris Office* 1957 German Stock Market Index Established 1990 German Reunification previous German share-for-share that have accepted a public offer and (outside the stock exchange), but only transactions, if shares of a foreign private tendered their shares are entitled to to the benefit of those shareholders that 1991 Frankfurt Office Opened – Stock Index at 1,578 issuer were offered as a consideration, claim that a higher offer compensation have accepted the offer; in the event the German regulator (BaFin), upon (in line with statutory minimum price of a low rate of acceptance of the offer, 2003 Munich Office Opened – Stock Index at 3,965 application and in view of the burden rules) should have been offered, whereas this may open an attractive strategy for caused by U.S. securities law, excluded the shareholders that kept their shares the bidder. 2012 Düsseldorf Office Opened – Stock Index at 7,612 U.S. shareholders (at least other than have no such rights. institutional shareholders). This is of most 2014 Stock Index at 10,029 In this context, the markets observed About the Author: importance where the so-called Tier I Johannes Perlitt, partner relief of the U.S. Federal Securities Laws Jones Day (Frankfurt). is not available because the percentage As underlined by a decision of of target company shares held by U.S. Johannes Perlitt advises German and shareholders exceeds 10 percent. the German Federal Supreme international clients in corporate and transactional matters. His practice The BaFin insists on the bidder arranging Court rendered in July 2014, is focused on public mergers and for measures to comply with foreign only shareholders that have acquisitions. He was recognized by JUVE laws. In share-for-share transactions, 2013/14 as one of 14 leading senior difficulties may arise where the period accepted a public offer and partners for corporate law in Germany 2400 Lawyers. 41 Locations. 5 Continents. www.jonesday.com for the review of an S-4/F-4 document tendered their shares are and recommended for M&A. by the SEC cannot be easily brought in line with the strict timetable as set by entitled to claim that a higher He served as lead or co-lead partner German Takeover Law. Under German offer compensation (in line advising clients on numerous law it is compulsory to submit the transactions including: DAB Bank AG in German language offer document, with statutory minimum connection with Unicredit Bank AG’s sale of its stake to BNP Paribas Group and the including a prospectus-like description price rules) should have of the bidder and the bidder shares, parallel tender offer; the financing banks within four (or with permission of the been offered, whereas the on the Douglas Holding AG takeover offer made by Advent; Volkswagen BaFin within eight) weeks after the shareholders that kept their announcement of the transaction at AG on the mandatory tender offer of the latest. The BaFin has to approve shares have no such rights. Porsche SE; Evonik Industries AG on the the offer document within 10 to 15 acquisition of a 25.01 percent stake by working days after it is submitted. The CVC Capital Partners; and RAG AG on the reasoning for this tight timetable is to with strong interest that in the 2013 Degussa takeover offer. McKesson/Celesio transaction the protect the shareholders of the target, Johannes Perlitt is co-author of leading as they generally wish the announced BaFin decided that prices paid at the parallel acquisition of convertible bonds legal commentaries on stock corporation offer to proceed as quickly as possible. issued by the target company were law and reorganizations. Immediately after the approval by not relevant for the calculation of the the BaFin, the offer document has to Career: minimum consideration payable for the be published at the same time to all Joined Jones Day in 2014. Partner at a target shares. shareholders (assuming the BaFin grants major international law firm (2000-2014). no permission to exclude shareholders). In 2013, the German Federal Supreme Education: Court decided that shareholders have no Higher Regional Court of Hamburg; What are the rights of right to sue in order to force a mandatory University of Göttingen. shareholders who believe offer that was not implemented that the offer price is lower (however, the acquirer of the target than statutorily required company can face a fine and a loss of or when no offer was made? shareholder rights). JONES DAY: As underlined by a decision In any case there is a statutory of the German Federal Supreme Court obligation to increase the offer price in rendered in July 2014, only shareholders case of certain subsequent acquisitions

* Our Paris Office opened in 1970 and moved in 2010 into the historic Hôtel de Talleyrand, where the Marshall Plan was administered. 56 Global M&A Guide 2015

American Lawyer_Germany Stock Market Ad_Final_120414.indd 1 December4 4:22 PM

Global M&A_Germany_JonesDay_Final.indd 56 12/14/14 3:40 PM 1947 Marshall Plan Administered From What Is Now Our Paris Office* 1957 German Stock Market Index Established 1990 German Reunification 1991 Frankfurt Office Opened – Stock Index at 1,578 2003 Munich Office Opened – Stock Index at 3,965 2012 Düsseldorf Office Opened – Stock Index at 7,612 2014 Stock Index at 10,029

2400 Lawyers. 41 Locations. 5 Continents. www.jonesday.com

* Our Paris Office opened in 1970 and moved in 2010 into the historic Hôtel de Talleyrand, where the Marshall Plan was administered.

American Lawyer_Germany Stock Market Ad_Final_120414.indd 1 December4 4:22 PM

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The Main Trends of Mergers and Acquisitions in Hungary Hungary: an attractive destination for international M&A

istorically, Hungary has been the Recent trends main target of foreign investments During 20131 the number of merger and acquisition in the Central-Eastern European transactions grew by 11%, while the estimated vol- region since the late 1970s. Hun- ume of the M&A market increased to 250% com- gary, being the first in the region, pared with the previous year. This latter data is hard Hopened its doors for foreign capital and invited for- to estimate since the actual value of transactions is eign companies with more flexible regulations than typically confidential and becomes published only in neighboring countries. The peak time for foreign one quarter of the overall transactions. Most investors companies establishing in Hungary was between targeted the IT and technology sectors, the number 1989 and 2010 when, following the fall of the social- of deals in these areas amounting to 20% of the entire ist system, over 90% of the previously state owned M&A market. A significant number of the transac- enterprises become privatized. Due to a lack of local tions were concluded in the media and telecommu- capital, the privatization was driven and carried out nications industries and in the financial services sec- mostly by foreign companies. tor. The most important driver of the M&A market Ever since Hungary has been an attractive des- was the Hungarian State. The aggregate value of tination for international investment due to its cen- the transactions in which the Hungarian State was tral location in Central-Eastern Europe and highly involved as purchaser or seller amounted to USD 1.3 developed infrastructure, good highway systems billion. For example, MVM Magyar Villamosipari connecting to neighboring countries, highly edu- Mú ́vek Zrt. (a holding for electricity supply owned by cated professionals, cheap but skilled labor force, the Hungarian State) purchased the entire gas indus- low social charges, low company income tax and try business of E.ON (E.ON Földgáz Trade Zrt. and a sophisticated legal system. A member of the Eu- E.ON Földgáz Storage Kft.) for approximately EUR ropean Union since 2004, Hungary is an inviting 870 million, as well as 49.83% ownership in Fó ́gáz location for companies looking to establish their Zrt. (the municipal gas supply company) from RWE presence in the European Union. International B.V. for EUR 137 million (the majority

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Global M&A_Hungary_BSP_Final.indd 58 12/14/14 3:08 PM owner of Fó ́gáz Zrt. is the Munici- clearing house) from its member pality of Budapest). banks for USD 33.45 million. The During the first half of 2014 2, 48 Hungarian State purchased MKB M&A transactions were published, Bank Zrt. from Bayerische Landes- which represented a 14% increase bank for USD 74 million. compared to the first half of 2013. The estimated market size in- Legal environment creased by 250% compared to the In general: same period of 2013, while, based Two decades of privatization on the publicly available informa- proved to be decisive in importing tion, the estimated M&A market the legal methods and economic size was USD 0.85 billion. The DR. CHRYSTA BÁN solutions of established and widely market was dominated by domestic MANAGING PARTNER used western market economies. transactions. In 58% of the deals From 1989 Hungary introduced both the target and the purchaser were Hungarian new legislation to establish the legal framework companies. As a new characteristic of the market, the of a market economy. This process was greatly in- financial investors were in the majority throughout fluenced by Hungary’s accession to the European the first half of 2014, performing 60% of the M&A Union in 2004 which resulted in the implementa- transactions. The overwhelming majority (86%) of tion of European community law into the Hungar- the deals completed by financial investors were do- ian legal system and the enactment or modification mestic transactions. The IT and technology sector of several statues in order to make the legal system was the most attractive during the first half of 2014, compliant with EU requirements. As a result of tre- with 20 transactions completed. The largest deals in mendous efforts on behalf of the lawmakers dur- this sector were the acquisition of Hungarian IND ing the last 25 years, today Hungary offers a highly Group by the UK based Misys Digital Channels and developed legal environment and court system that the C5 Capital’s investment in Balabit. The second most popular sector was telecom and media, in- cluding, amongst others, the acquisition of Sanoma “Hungary offers a highly Media by Central Fund and VCP Capital Partners purchasing certain elements of Ringier and Axel developed legal environment Springer. In the field of Energy and mining MOL’s and court system that can acquisition of gas stations from ENI in the Check Republic, Slovakia and Romania, and MET Power satisfy the demands of foreign AG’s acquisition of the Dunamenti Eró́mú́ (Duna- menti power plant) are worth mentioning. investors and the needs of a Also in 2014, the market was dominated by the developed market economy.” transactions carried out by the Hungarian State. It made directly, or through its state owned entities significant acquisitions, primarily in the IT, energy can satisfy the demands of foreign investors and the and banking sectors. Acting through Nemzeti Info- needs of a developed market economy. To name kommunikációs Szolgáltató Kft. (the national info only a few of the most important legislative acts we communication provider company) it purchased need to mention the elaboration of a new tax sys- 100% of Antenna Hungária Zrt, the national broad- tem, including VAT legislation, an EU compliant casting company from TDF, for USD 251.2 million. antitrust law, including a flexible merger clearance The National Bank of Hungary purchased 100% regulation, the liberalization of the energy and of GIRO Elszámolásforgalmi Zrt. (the national telecommunications market, the law on economic

1 source of summary: Ernst & Young Barometer March, 2014 2 source of summary: Ernst & Young Barometer, Hungary H1 2014

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entities introducing company formations similar to merger clearance regulations as well. Under the new other market economy countries, the act on finan- regime the procedural framework of early closing of cial institutions, the act on securities and the act on a transaction under merger clearance proceedings insolvency and liquidation. has also been regulated in detail. For a long time, Hungarian law on conflicts Latest developments in the legal framework: has allowed the selection of foreign law by the par- The biggest legislative effort of the last 20 years, the ties in the sale and purchase agreement if there is new Civil Code entered into effect on March 15, a foreign element in the transaction, for example if 2014, accompanied by several parallel legal changes the purchaser is a foreign entity. Similarly, the law in related fields. The new Civil Code introduced a on conflicts allows, in most cases, to select a foreign new company law (law on corporations and other forum for the settlement of disputes, including for- economic company formations), a new law on con- eign arbitration. Since January 1, 2012, due to a tracts (general rules of obligations, general rules of new regulation, only Hungarian regular courts have contracts and regulations specific to different con- jurisdiction with respect of legal disputes related to tract types, including special rules on sale and pur- any property situated in the territory of Hungary chase contracts) and new laws on torts and liability that belongs to Hungarian national ownership, as issues. The new Civil Code includes regulations es- well as any right or claim related thereto. From 13 sential in the field of mergers and acquisitions. June 2012, issues related to real property located in As a result of a continuous improvement and Hungary (eg.: title issues, rental or use, usufruct or most recent modification of the legal and technical other rights in rem) between parties with a registered conditions of the company registration system, the abode or other location exclusively in Hungary, if ar- bitrated, can only be arbitrated by Hungarian arbi- tration courts, if the governing law of the issues is “The biggest legislative effort Hungarian law. of the last 20 years, the new Future expectations The Hungarian government launched two signifi- Civil Code entered into effect cant policies which are likely to influence the acqui- on March 15, 2014, accompa- sition market in the near future. Several steps have already been taken in order to reduce the different nied by several parallel legal utility prices (gas, electricity, water, etc). In order to enhance this movement, the Hungarian State may changes in related fields.” purchase some of the utility companies in the future in order to provide certain utilities on a low or no current law provides for one of the quickest registra- profit basis. tion system in Europe. New company foundations Furthermore, the government expressed its desire and ownership changes, like merger and acquisition according to which more than 50% of the banking transactions, as well as any other company changes sector in Hungary should be held by Hungarian en- need to be registered in the company registry main- tities. This may result in purchasing further banking tained by courts organized at a county level. institutions by the Hungarian State either directly, Recent modifications of the Labor Code added or through its state owned companies. Following the to the most important legislative results of this year, purchase of MKB the Hungarian Trade Bank, there whereby the Code reduced, to some extent, the pre- are rumors regarding the possibility of purchasing viously extremely high protection level of employees. Budapest Bank Zrt. from GE Capital. The new regulations on termination of employment The biggest investment to be financed by the give more flexibility to the employers in structuring Hungarian State in the future shall be the expan- their needs of workforce and reducing the number of sion of the Paks nuclear power plant. employees if and when necessary. One can also read about the potential nation- A significant modification of the antitrust legisla- alization of the whole-trade market of tobacco and tion that came into force during 2014 affected the pharmaceuticals. ■

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In cooperation with Gleiss Lutz with offices in Berlin, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and Brussels

Dr. Chrysta Bán, Dr. János Rausch, Dr. Péter S. Szabó senior partners

Bán, S. Szabó & Partners is a full service Hungarian law firm, primarily with international clients, whose practice includes mergers and acquisitions and other transactions, as well as a well- balanced corporate law practice. In addition to corporate law and mergers and acquisitions, the particular areas of our expertise include antitrust and competition, telecommunications, media and technology (“TMT”), energy and utilities, employment and labour, real estate, and banking and finance matters. Our team has participated in several major privatization and acquisition transactions in the fields of banking, real estate, TMT, oil and gas utilities and other industrial areas, including food processing, pharmaceuticals and agro-chemicals. We have provided general corporate advice in the areas of corporate, commercial, competition, labour, real estate, intellectual property, and procurement law matters in Hungary to international clients and the largest local companies operating in various fields of industries such as telecommunications, aviation, pharmaceuticals, food processing and car industry.

Bán, S. Szabó & Partners has seven partners and five qualified Hungarian associated lawyers. All of our lawyers are fluent in English. Several of our lawyers work in German, while some of our attorneys speak French as well.

Bán, S. Szabó & Partners, József nádor tér 5-6. H-1051 Budapest e-mail: [email protected]; tel.: +36-1-266-3522; fax: +36-1-266-3523 For further information please visit our website www.bansszabo.hu

Global M&A_Hungary_BSP_Final.indd 61 12/14/14 3:08 PM INDIA

Through the Lens: Rewriting the Rules of M&A in India Red zone to red carpet: Good times ahead…

ergers and acquisitions (M&A) Regulatory Changes in India have recently risen to 1. Companies Act, 2013 (the 2013 Act): The 2013 a record high and witnessed a Act has been a game-changer for M&A practitio- promising double-digit growth ners in India. Highly anticipated, the 2013 Act has as compared to the previous brought sweeping changes to the extant company year,M with cross-border deals accounting for more law regime in India. While, there have been cases than 75% of the total value of deals in India. The of missed opportunities, the 2013 Act is definitely a first half of 2014 witnessed inbound M&A activity to step in the right direction. Some of the major chang- the tune of US$ 17.1 billion; a towering 46% growth es introduced in the 2013 Act, which are likely to as compared to the first half of 2013. Further, the have a direct impact on the M&A deal-making, are second quarter of 2014 is seeing a flurry of activi- set out below: ties, especially in the pharmaceutical, real estate and Fast-track and Cross-border Mergers: The concept of telecom sectors. fast-track mergers has been introduced under the Renewed interest in India is a combination of 2013 Act, whereby mergers between two or more a number of factors. Firstly, the investment com- small companies and between a holding company munity (domestic and global) believes that the new and its wholly owned subsidiary may be effected, government with a decisive mandate and a pro without being referred to the National Company policy and investment bent of mind will result in Law Tribunal (the NCLT, which is a specialized India coming back strongly on the growth track. agency created under the 2013 Act for approving Secondly, the global economy also seems to have the mergers and acquisitions) for approval, subject bottomed out and more corporates are confident of to certain approvals obtained from the sharehold- expansion and investment in different geographies ers and creditors of the company and the Central of the world. Government. The 2013 Act has introduced the Concerted efforts amongst regulators towards NCLT and the National Company Law Appellate overhauling dated regulations and the promise of Tribunal, which seek to replace the Company Law a friendlier, more liberal regime have also ensured Board and Board for Industrial and Financial Re- the resurgence of deals in the Indian M&A market. construction and also assume the role of the com- This chapter deals with the recent key changes in pany court at the concerned High Court. As such, the regulatory regime, and the road that lies ahead this is likely to catalyse the process of getting ap- for the M&A activities in India. provals and reduce onerous timelines for effecting

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Global M&A_India_Final.indd 62 12/14/14 3:48 PM mergers through conventional court process. Further, foreign market access for Indian com- panies has been widened with outbound mergers of an Indian company with a foreign company now being permitted, in certain notified jurisdictions, subject to the prior approval of the Reserve Bank of India (RBI). Minority Buy-out and Reverse Mergers: The 2013 Act provides for a minority buy-out as an exit option to the minority shareholder(s). An acquirer holding 90% or more of equity share capital of a company has an option to offer to buy the remaining equity Cyril Shroff Himanshu Dodeja shares of the company. Similarly, minority share- MANAGING PARTNER Principal Associate holders have an option to offer their shares to the majority shareholders. Further, as regards reverse mergers, the 2013 Act allows the shareholders of list- on transferability of shares are typical in share- ed company to exit in case of a merger where trans- holder agreements. The 2013 Act now identifies the feror is a listed company and transferee is an unlisted enforceability of transfer restrictions in private ar- company. However, it specifies that the transferee rangements between shareholders, which was not can continue to remain unlisted and shareholders the case earlier (due to various judicial pronounce- deciding to opt-out of the transferee company shall ments). However, the 2013 Act does not clearly sup- be paid the value of their shares and other benefits port the view that public company can be bound by on the basis of a pre-determined formula or after a contracts restricting transfer of shares. Therefore, valuation is made. The introduction of these provi- while enforceability of such provisions vis-à-vis the sions is a significant step that would provide more flexibility to the M&A players with their restructur- ing plans and effecting 100% acquisitions. “With the regulatory changes Concept of “Control”: The 2013 Act defines ‘con- trol’ as the right to appoint majority of the directors, providing clarity, transparency or to control the management or policy decisions, and certainty, coupled with strong exercisable directly or indirectly, including by vir- tue of their shareholding or management rights political will to take India’s or shareholders agreements or voting agreements economic growth trajectory or in any other manner. This definition has been aligned with the definition of control under the Se- upward, India has almost (if not curities and Exchange Board of India (Substantial already) become a coveted M&A Acquisition of Shares and Takeover) Regulations, 2011, as well as under the Consolidated Foreign Di- destination on the world’s map.” rect Investment Policy issued by the Government of India (FDI Policy). In the same light, it must be noted that the definition of a promoter, inter alia, company may be a remote question to consider and means a person who has ‘control’ over the affairs of debate, the long standing debate on the enforce- the company, directly or indirectly, as shareholder, ability of transfer restrictions amongst the share- director or otherwise. As such, this could result in holders has now been put to rest and this change a shareholder who has secured some affirmative (or has been well cheered by the M&A participants. veto) voting rights or management rights be cat- Insider Trading Restriction: The 2013 Act, for the egorized as a promoter, which attracts extensive first time introduces insider trading restrictions liabilities and obligations under the 2013 Act and on shares of private or public unlisted company. other applicable laws. Now, no director or key managerial personnel of a Transfer Restrictions: Exit rights and restrictions company shall engage in insider trading; which is,

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inter alia, described to include, subscribing or selling shares by such persons or providing any price sensi- tive information to any person. Given that almost every deal in the unlisted companies space, involves sharing of information by directors or key employ- ees, this change is likely to impact deal structuring. Although this provision is well founded, it requires a carve-out for a private company, and a closely held public company because there are no retail/ dispersed shareholders in such companies. Some of the other provisions of the 2013 Act, which are likely to impact the deal-making are Smruti Shah Paridhi Shroff entrenchment (i.e., specified provisions of the arti- Principal Associate Associate cles of a company may be altered only upon the satisfaction of conditions or procedures that are more restrictive than those applicable in the case automatic route) and railway infrastructure (100% of a special resolution), layering (i.e., restriction on through automatic route), with many more in the a company from making investments through more waiting to open up. Allowing crucial sectors, such than two layers of investment companies), enhanced as the above, is likely to have a positive impact on regulation for private companies, etc. the M&A activities in India. Also, the RBI has relaxed the valuation norms 2. Other Regulatory Changes: Apart from the under the FDI Policy for issue and transfer of monumental changes with respect to M&A in the shares, involving non resident parties. Now, the 2013 Act, there are other regulatory changes that pricing has to be arrived at by internationally ac- change the turf of M&A, which are as follows: cepted pricing methodology for pricing of shares. Call and Put Option: There was always a cloud Earlier, the applicable norm was the discounted surrounding enforceability of option linked agree- cash flow method, and with the above change in ments till recently. Put and call options with as- the pricing norms, the RBI has brought the Indian sured returns in-built in the agreements were valuation norms in line with international valua- frowned upon by the regulators. However, the Se- tion guidelines. curities and Exchange Board of India (SEBI) and the RBI have recently passed notifications clarify- The Way Forward ing that call/put options are enforceable as long as As stated above, the regulatory regime in India is there is no assured return provided for such instru- undergoing metamorphosis, especially with respect ments. Again, it is a well intentioned step, although to M&A. If the above changes did not amount to such notifications come with conditions attached rewriting the rules of M&A in India to any reader, to them. there are more changes which are on the cusp of in- Foreign Investments: Foreign investments are sub- troducing and consolidating a new era for M&A in ject to limits and conditions prescribed under the India, such as SEBI insider trading regulations, the FDI Policy. Since 1991, the economy has opened General Anti Avoidance Rules (on taxation policy up and various sectors are eligible to receive for- providing clarity on M&A cross-border deals), sin- eign investments. Recently, there has been a strong gle-window system for environment, industry and push by the Central Government to allow and open labour-related clearances, consolidation of the for- more sectors to receive foreign capital. For instance, eign exchange regulations and increase in sectoral the following sectors have now been opened up – caps of important sectors. In short, with the regu- pharmaceutical (100% through automatic route in latory changes providing clarity, transparency and greenfield investment), defence (49% through the certainty, coupled with strong political will to take approval route), telecom (100% of which upto 49% India’s economic growth trajectory upward, India is through automatic route), single brand product has almost (if not already) become a coveted M&A retail trading (100% of which upto 49% is through destination on the world’s map. ■

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Global M&A_India_Final.indd 64 12/14/14 3:49 PM V, Peninsula Chambers, Peninsula Corporate Park, Paridhi Shroff Associate Ganpatrao Kadam Marg, Lower Parel, Mumbai - 400 013

Tel: (91 - 22) 2496 4455, 6660 4455 Fax: (91 - 22) 2496 3666, 666 8466 E-mail: [email protected]

Contact Person: Mr. Cyril Shroff, Managing Partner [email protected]

Offices also at Ahmedabad, Bangalore, Chennai, Delhi, Gurgaon, Hyderabad & Kolkata

IFLR Asia Awards 2014 - National Law Firm of the Year (India) | ALB SE Asia Law Awards 2014 - India Deal Firm of the Year Acritas’ Sharplegal Asia Pacific Law Firm Brand Index - Ranked No.4 in 2014 | RSG India - Ranked No. 1 amongst India’s Top 40 Law Firms 2013, 2012, 2011 & 2010

Global M&A_India_Final.indd 65 12/14/14 3:49 PM IRELAND

M&A Activity in Ireland: a Positive Outlook

he Irish M&A market continued to latter half of the year to deter such deals, inversions grow in 2014, built upon a steady re- remained a key driver behind M&A growth in covery in recent years. The market is 2014, with a number of deals in the pharmaceutical now showing renewed impetus with sector continuing the trend of recent years. foreign investment through M&A The stand out deal of the year, responsible for andT a number of stand out deals. Ireland suffered a large portion of the latest total deal value mile- a painful economic contraction from 2008 onwards stone reached by the Irish M&A market, was the requiring external assistance from the “Troika” of US-based medical device maker Medtronic’s €33.9 the EU / the ECB and the IMF. Having entered its billion acquisition of healthcare company Covidien external assistance programme in 2010, the end of plc. The Medtronic/Covidien deal was the largest 2013 saw Ireland become the first eurozone country deal in Europe in 2014 by value when announced to exit such a program. This progress along the road and was ranked third globally and fourth in the US. to economic recovery set an encouraging tone for The transaction is expected to close in early 2015. 2014, leading to a more buoyant M&A market and Since its inversion into Ireland in 2013 by way of the long-awaited return to some domestic driven ac- a $8.5 billion acquisition of Warner Chilcott, Ac- tivity. This positive outlook was reflected in the first tavis has continued to be the most active buyer of half of 2014 with an 18.5% increase on the number drug companies in recent years. 2014 saw Actavis of deals from the first half of 2013 and €97.4 billion announce two notable deals – its €18 billion acqui- worth of deals announced, the highest figure ever sition of Forest Labs and its proposed $66 billion recorded for a half year. acquisition of Allergan. Actavis emerged as the suc- cessful counter-bidder for Allergan after months Key factors behind the rise of battling between Valeant and Allergan, during in Irish M&A in 2014 which Allergan pursued several lines of defence. Corporate Migrations Another deal highlighting the popularity of inver- While 2014 has seen more of a variety of deals in sions in the pharma sector in 2014 saw US-based terms of sector and type than in recent years, there Horizon Pharma acquire Irish-based Vidara Ther- is still no denying the impact which corporate mi- apeutics for €474 million. grations/inversions deals have had on the market in 2014. These are transactions that, if structured Sale of State Assets correctly, enable a US corporation to re-incorpo- The Government’s program for the sale of state assets rate and change its tax domicile to Ireland without has been another factor in the 2014 market, stemming triggering the US anti-inversion rules. While moves from the economic downturn. Having committed to were taken by the US Treasury Department in the the sale of a number of State assets including Coillte

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Global M&A_Ireland_ALGoodbody_Final.indd 66 12/14/14 3:50 PM (State forestry), Bord Gáis London Stock Exchange in Energy (the State gas utility) December 2013 while Green and its remaining share (25%) REIT Plc raised a further €400 in Aer Lingus (airline), 2014 million in 2014. The Dalata saw the conclusion of the first Hotel Group also raised €265 of these sales, being the sale of million in funding through Bord Gáis Energy. The third an initial public offering in most valuable deal of H1 2014 Dublin and London in March was the privatisation of Bord 2014. All three have invested Gáis Energy, following its significantly in Irish properties sale for €1.1 billion to a group during 2014, with Dalata cur- including UK multi-national rently in talks with the Moran Centrica and Canada’s Brook- & Bewley’s Hotel Group about a field Renewable. This was the possible reverse takeover for an most significant sale of a semi- estimated €450 million. In an- state corporate asset by the Irish other encouraging development, State since the privatisation of the Irish Residential Properties Aer Lingus in 2006. Cian McCourt REIT plc, a subsidiary of Toron- RESIDENT PARTNER to-based Canadian Apartment Bank Deleveraging A&L Goodbody Properties Real Estate Invest- The recent trend of delevearag- New York ment Trust, secured €130 mil- ing by domestic Irish banks and lion debt funding in addition to a number of foreign banks continued throughout €200 million raised from its IPO in April 2014. 2014 at an even more accelerated pace than in re- cent years. Ireland was the busiest loan sales market Projections for continued in Europe in 2014, with portfolios with a face value growth in 2015 of €28.5 billion sold in the first nine months of the A real positive from 2014 is the greater proportion year, more than 14 times the level achieved in the of domestic driven M&A activity, which we project same period in 2013. will continue into 2015. As Ireland makes strong This has been a key factor in driving M&A activ- progress on the road to recovery, nearly one third of ity with a large number of loan portfolios coming all deals in the first half of 2014 were domestic, com- to the market from the likes of RBS / Ulster Bank, pared with 27% in the whole of 2013. Driving this Bank of Scotland and most notably IBRC. The liq- are highly competitive domestic markets in need uidator appointed to wind-up IBRC (formerly Anglo of consolidation. A notable example is the flurry of Irish Bank plc) by the Irish government under spe- activity in the food and food services sector, which cial emergency legislation in 2013 has overseen as- included the management buyout of Freshways set sales of €19 billion in 2014. Again, US acquirers from Kerry Group, the acquisition of Rowse Honey were to the fore with groups such as Apollo, CarVal, by Valeo Foods, Cardinal Caryle’s acquisition of Kennedy Wilson and Oak Hill all acquiring various Lily O’Briens, WHW Bakeries’ acquisition of Irish assets and loan pools. Pride Bakeries and the acquisition of Nutramino by Glanbia. We expect a similar level of activity to Capital Markets continue in 2015, given the highly competitive na- Irish companies are beginning to return to the capi- ture of this market. tal markets following the listing of two real estate An example of international interest in this sec- investment trusts (REITs), the Green REIT Plc and tor was the proposed Fyffes-Chiquita merger in the Hibernia REIT plc, in 2013. Hibernia REIT plc, fruit and fresh produce industry, which was ulti- launched less than a year after Ireland introduced mately rejected by Chiquita shareholders in light the tax framework to facilitate REITs, raised €365 of a competing bid from Brazil’s Cutrale-Safra. million and listed on the Irish Stock Exchange and This deal would have granted US-based Chiq-

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uita Brands International access to Dublin-based uity participants to re-enter the Irish M&A market Fyffes’ 16% market share of European banana dis- in the next year. tribution - the largest on the continent - as well as allowing the combined company to control 14% of Long term prospects the global banana market. for the Irish M&A market Another sector likely to continue its recent up- In summary, the M&A market in Ireland is mostly ward trend is in IT & Telecoms, which saw a large reflective of the Irish economy, that is it is under- going a broad and increasingly quicker recovery, an increase in growth with strong international “We believe there are real prospects investment and improving levels of domestic de- mand. We believe there are real prospects for for long-term growth in the Irish long-term growth in the Irish M&A market as M&A market as the country the country continues to attract foreign investors, as evident from the continued dominance of US continues to attract foreign investors, companies as the top acquirers into the country. This international commitment is augmented by as evident from the continued the recent rise in domestic M&A across a variety dominance of US companies as of sectors, with the number of Irish purchasers increasing in 2014. While domestic targets in re- the top acquirers into the country.” cent years have included distressed assets as part —Cian Mccourt, A&L Goodbody of bank deleveraging programmes, there are now numerous examples of investors targeting strong performing Irish companies showing prospects of amount of activity in 2014. Notable deals included continued growth. Charterhouse Capital Partners LLP’s acquisition of Another positive development looking ahead to Skillsoft Limited for €1.4 billion and the acquisition 2015 is the expected enactment of the Irish Com- of CarTrawler by a consortium including BC Part- panies Bill. This will introduce the most significant ners and Insight Venture Partners for €450 million. reform in Irish company law in 50 years, consoli- dating the existing legislation as well as a number of MOST ACTIVE Jurisdictions court judgments. Positive reforms envisaged by the Given the continued level of international interest, Bill include the establishment of an omnibus statu- it is no surprise that nine of the top ten deals in tory validation procedure for certain activities (such the first half of 2014 involved overseas acquirers. as transactions with directors, financial assistance, This highlights the positive sentiment among for- capital reductions and solvent windings up) and the eign corporates towards Ireland, with the economy introduction of a domestic merger regime for cer- improving and valuations continuing to be attrac- tain companies. When it becomes law, the Bill will tive, particularly with a weakening euro fx rate. add greater clarity to the existing Irish company The US remains the number one source of direct law framework, further enhancing Ireland’s attrac- investment. The growing political opposition to tiveness as an investment location. ■ inversion transactions by US companies did ulti- mately slow progress in the latter half of 2014, fol- Cian McCourt, Resident Partner lowing measures introduced by the US Treasury A&L Goodbody, New York Department to make inversion by US companies Email: [email protected] more difficult. However, such deals will always be Tel: +1 646 545 3395 largely driven by strategy and it is likely that US bidders will continue to look to Ireland because of A&L Goodbody the quality of Irish targets. The Chrysler Building With signs of recovery in the UK also apparent, 405 Lexington Avenue, New York 10174 we expect a number of UK trade and private eq- www.algoodbody.com/usa

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Global M&A_Ireland_ALGoodbody_Final.indd 68 12/14/14 3:50 PM Global M&A_Ireland_ALGoodbody_Final.indd 69 12/14/14 3:50 PM ISRAEL

Israel M&A Outlook: Cautiously Optimistic Over the past year, the corporate and M & A space in Israel has given many reasons to be optimistic, and many reasons to be realistic.

ver the past year, the corporate ket. These two deals are indicative of the growing and M & A space in Israel has giv- wave of interest from China in the Israeli mar- en many reasons to be optimistic, ketplace. Since the acquisition in 2011 by China and many reasons to be realistic. National Chemical Corporation (ChemChina) of Israel remains a technologi- Makhteshim Agan Industries, the world’s largest calO powerhouse. A powerful combination of in- generic agrochemical producer (now rebranded as novation and entrepreneurial drive continues to “Adama”), there has been a remarkable increase in attract the world’s leading technological compa- Chinese investment in Israeli technology and Is- nies, venture funds and, more recently, “crowd- raeli know-how. funding” investors, all of whom are looking for the Some of the world’s largest Private Equity Funds idea, the development, the product that is ahead are looking closely at Israel for opportunities. As of the field, either for strategic reasons or simply a general rule, these Funds are looking for more for a financial return. mature companies, with proven revenue history Following the huge (by Israeli standards) acqui- and especially with export sales. There are numer- sition by Google in 2013 of Waze, the interactive ous such opportunities in Israel of companies still navigation App, in early 2014 Rakuten Inc. of Ja- controlled by the founding shareholders or by the pan acquired the Israeli internet messaging service second generation, or owned by Kibbutzim. At the company “Viber” in a deal worth close to US$1 time of writing, Oaktree Capital is completing its billion. Microsoft, Apple, Facebook have all made acquisition of the water, waste and energy activities recent acquisitions in Israel, highlighting Israel as in Israel of Veolia, and many other Funds are look- a focal point of technological development for these ing at “old economy” targets in Israel. global giants. 2014 has seen a resurgence of IPO activity for And it is not just in the technological sector. Israeli companies on exchanges overseas. Mo- The Chinese State-owned Bright Food Group has bileye, a manufacturer of software aimed at pre- agreed to buy control of Tnuva, Israel’s largest venting motor accidents, completed the largest dairy concern, in a deal valuing Tnuva at approxi- ever IPO of an Israeli company in the USA. Also mately US$2.5 billion. noteworthy were ReWalk Robotics, a developer The seller is Apax Partners, one of the world’s of robotic skeletons enabling paraplegics to walk largest investment funds. More modestly, the San- again, which completed its IPO on NASDAQ and power Group of China has acquired Natali Secu- Matomy Group, an online marketing and digital life, a telemedicine provider, with a view to rolling advertising group, which completed its IPO on the out Natali’s technology in the vast Chinese mar- London Stock Exchange.

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Global M&A_Israel_HFN_Final.indd 70 12/14/14 3:13 PM So there are many reasons to be optimistic, yet fall was that of Nochi Dankner, whose IDB Hold- not all published deals have come to fruition. Wood- ing Group imploded under the weight of public side Petroleum of Australia cancelled its plans to and bank debt, but this was just one of a number acquire a 25% stake in the Leviathan natural gas of large corporate groups that had borrowed too field in a deal worth more than US$2.5 billion, and easily in the public debt markets and could not ser- Spanish satellite operator Hispasat cancelled its vice their debt when market conditions changed. plans to acquire SpaceCom, the Israeli company In mid-2014, Zim Integrated Shipping Services, that operates the Amos satellite fleet. Although this Israel’s national shipping line, completed Israel’s was not stated expressly, there were indications in largest ever debt rescheduling (US$3.4 billion), as a each case that the deal failed due to difficulties to result of which control of the company passed from reach an understanding with the Israeli regulators. the Ofer Family to the company’s creditors. In November, Adama postponed its planned IPO The high-profile corporate insolvencies dur- on the New York Stock Exchange, when investors ing 2014 drew attention to the “Corporate Reha- failed to agree the target listing price. bilitation” Chapter recently introduced into Israel’s Much has been written about Israel’s Law for the Promotion of Competition and Reduction of Concentration which came into effect at the end of “A powerful combination 2013. One of the main provisions of the Concen- tration Law is to mandate separate ownership for of innovation and entrepre- Significant Real Entities (broadly defined as an en- neurial drive continues to tity which is not a Financial Entity, with an annual group turnover in excess of NIS 6 billion or which attract the world’s leading has raised credit with Israeli banks and financial in- stitutions in excess of NIS 6 billion) and Significant companies.” Financial Entities (defined as a bank, an insurer, a company managing provident or pension funds and Companies Law, modeled closely on Chapter 11 of so on, whose group assets exceed NIS 40 billion). the US Bankruptcy Code. However, as a number As a result of the Law, some of Israel’s largest cor- of high profile rehabilitation proceedings dragged porate groups will have to reorganise, subject to a through the courts in Israel, with controlling share- transitional period of up to 6 years. It is this need to holders fighting hard not to lose their corporate separate the ownership of “Real” and “Financial” empire and struggling to avoid lawsuits for past Entities that prompted Apax Partners to sell its con- corporate practices of questionable validity, the trolling interest in Tnuva to Bright Food (Apax also feeling began to grow that the rules embodied in owns Israel’s largest provident fund manager), and the new “Corporate Rehabilitation” Chapter in has prompted the Delek Group (the major Israeli the Companies Law still gives the management of a player in the recent Mediterranean Sea natural gas failing corporation (and in Israel there is very often discoveries, among its many business operations) to an extremely strong nexus between ownership and sell control of the Phoenix Insurance Company to management) the ability to prolong and manipu- the New York based Kushner Group, in a deal valu- late a corporate insolvency situation for the benefit ing Phoenix at approximately US$1 billion. In light of controlling shareholders and at the expense of of the Concentration Law, many of Israel’s largest public bondholders. A Committee headed by the corporations are for sale (banks, financial institu- Director General of the Ministry of Finance has tions, real estate, traditional industries) without any recently submitted its final recommendations after obvious buyers on the horizon. The traditional Is- reviewing the legal arrangements for re-scheduling raeli buyers for such assets are in practice barred for of indebtedness in Israel. The principal recommen- acquiring these “Significant Entities” by the terms dation is that a company that defaults in making of the Concentration Law itself. payments due to public bondholders must immedi- The year 2014 showed that many of Israel’s so- ately apply to the court to commence an insolvency called “tycoons” had “feet of clay.” The heaviest (or rehabilitation) process. Another important rec-

Global M&A Guide 2015 71

Global M&A_Israel_HFN_Final.indd 71 12/14/14 3:13 PM ISRAEL MORE THAN ANY OTHER LAW FIRM IN ISRAEL ommendation is that all new issu- tified control group which holds a ances of public debentures must substantial portion of the equity include financial covenants, with in the bank (the size of the con- a stipulation that if the corpora- trol block in each case depended tion does not comply with these on the size of the bank in ques- covenants, an observer on behalf tion). After the Bank of Israel MORE "Israel Law Firm of the Year" Awards of the bondholders will immedi- refused to grant a permit for the by IFLR, Financial Times and MergerMarket ately be added to the Board of Di- Cerberus Funds to control Bank rectors of the company, to ensure Leumi in 2005, the State of Israel that the assets of the company are failed to find an alternative buyer MORE Partners Recognised as Leading Individuals not disposed of at an undervalue for a control block of shares of the in Top Legal Directories and that the company does not alan sacks Bank (then owned by the State as enter into reckless transactions. A Herzog Fox & Neeman a legacy of the bank share crisis far-reaching interim recommen- that hit the Israeli economy in MORE Top-Tier Rankings dation of the Committee—that a the mid 1980s). Israel’s banking controlling shareholder of a corporation would au- legislation was amended in order to accommodate in Domestic and International Directories tomatically lose control in the event of a delay in re- the possibility of a bank without a clearly-defined payment of any public indebtedness—was left out control group. The legislation was aimed at ensur- of the final recommendations of the Committee. ing that either a substantial shareholder in a bank Foreign investors looking to invest in any reg- could control that bank, or that no one could con- ulated industry in Israel (this will include the fi- trol the bank. In 2014, for the first time, we saw the nancial sector, telecommunications, the defence control of a centrally-controlled Israeli bank being “decentralised”, when the Bronfman Group began selling a portion of its control block of shares in Is- “The year 2014 showed that rael Discount Bank, as a result of which the Group many of Israel’s so-called immediately lost effective control of the Bank, in line with new guidelines set down by the Bank of “tycoons” had “feet of clay.” Israel. It is expected that more banks may follow in this direction, due at least in part to the ownership restrictions set down in the Concentration Law. sector and others) must always be aware of Israeli Along with all the optimism, there are many bureaucracy. The approval process for any share- reasons to be realistic too. 2014 was an extremely holder wanting to take a significant interest in a active and a very positive year for M&A and corpo- company operating under licence will be thorough rate activity in Israel. This is all the more remark- and detailed, and may take many months. In mid- able in light of the fact that the most significant 2014, the Supervisor of Capital Markets at Israel’s event in Israel during the year was the “Protective Ministry of Finance refused to approve a Chinese Edge” military operation in Israel which captured consortium as acquirer of Clal Insurance (a major the world’s attention throughout the summer. The Israeli insurance, pensions and finance group being business sector is vibrant again after a number of sold off as part of the fall-out of the IDB Holding quiet summer months, so we look forward to 2015 Administrative Law | Antitrust & Competition | Banking & Finance | Capital Markets & meltdown). for optimism, but never leaving reality behind. ■ Securities | Energy | Homeland Security | Intellectual Property | Internet & E-Commerce | In one sector at least, the unwillingness of the regulator to approve a potential acquirer has led Alan Sacks Labour and Employment Law | Litigation & Dispute Resolution | Mergers & Acquisitions | to a fundamental change in how the regulator will Alan Sacks heads HFN’s international practice. Private Clients | Private Equity | Project Finance | Real Estate & Construction | Tax control that particular industry. It has tradition- Alan arrived in Israel shortly after having quali- ally been a condition of the Supervisor of Banks fied as a Solicitor in England, and since then has at Israel’s central bank, the Bank of Israel, that all divided his practice between two main areas of Asia House, 4 Weizmann St.| Tel-Aviv 6423904, Israel commercial banks are controlled by a clearly iden- corporate law and banking and finance. Tel: (972)-3-692-2020 | Fax: (972)-3-696-6464 [email protected] | www.hfn.co.il | Twitter: @hfnlaw blog: unfolding.co.il

72 Global M&A Guide 2015

Global M&A_Israel_HFN_Final.indd 72 12/14/14 3:13 PM MORE THAN ANY OTHER LAW FIRM IN ISRAEL

MORE "Israel Law Firm of the Year" Awards by IFLR, Financial Times and MergerMarket MORE Partners Recognised as Leading Individuals in Top Legal Directories MORE Top-Tier Rankings in Domestic and International Directories

Administrative Law | Antitrust & Competition | Banking & Finance | Capital Markets & Securities | Energy | Homeland Security | Intellectual Property | Internet & E-Commerce | Labour and Employment Law | Litigation & Dispute Resolution | Mergers & Acquisitions | Private Clients | Private Equity | Project Finance | Real Estate & Construction | Tax

Asia House, 4 Weizmann St.| Tel-Aviv 6423904, Israel Tel: (972)-3-692-2020 | Fax: (972)-3-696-6464 [email protected] | www.hfn.co.il | Twitter: @hfnlaw blog: unfolding.co.il

Global M&A_Israel_HFN_Final.indd 73 12/14/14 3:14 PM ISRAEL

A Year for the Books: Israeli M&A Reaches New Heights in 2014

WRITTEN BY srael might be a small raeli companies, specifically in the cording to which the technology Idan Nishlis, country, the size of New hi-tech and biomed sectors, have sector was the most attractive with CEO, Nishlis Jersey, but it is a hotbed remained attractive to foreign in- 42% of all related M&A’s and the Legal for innovation and 2014 vestors over the past ten years re- biomed sector accounting for ap- Marketing has seen a number of suc- gardless of any foreign influences proximately 8.5%, even though and Deborah Icessful investments and exits, with such as politics, security issues the largest deal for 2014 was in Kandel, Israeli companies being bought by and domestic economy. More spe- the consumer sector. Additionally, head of some of the world’s largest compa- cifically, 2014 has already proved Israeli companies are becoming international nies and an impressive increase in to be the most lucrative year for more attractive targets for the Far desk at the value of Israeli M&A transac- Israeli M&A, with transactions East, especially China. In the past Nishlis Legal tions. summing up to approximately year at least five M&A transac- Marketing Although 2013 was reported $10.7 billion. The previous two tions were conducted between Is- as being a ground breaking year years saw a significant drop in the raeli and Far Eastern companies, for Israeli companies, with M&A number of Israeli companies mak- including the largest M&A deal of transactions reaching $8.3 billion, ing acquisitions internationally, the year so far, which was the ac- an increase of 16% from 2012, but 2014 has seen an upturn in quisition of Tnuva (one of Israel’s data so far for 2014 have already these transactions and it looks like leading food suppliers) by China’s beaten that. A recent recap of Is- this trend will continue. Bright Food Group Co. This raeli M&A transactions conducted The 2014 M&A “map” of transaction is believed to have by Globes, one of Israel’s largest transactions involving Israeli com- helped set the positive tone for the financial papers, revealed that Is- panies reveals a clear image, ac- future, allowing Israeli companies

Israeli Law Firm Deal Count Foreign Law Firm Deal Count

TOTAL DEAL Deal TOTAL DEAL Deal FIRM FIRM VALUE Count VALUE Count Herzog, Fox and Neeman $10.1B 14 Freshfield Bruckhaus Deringer LLP $2.7B 4 Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. $2.8B 10 Wilson Sonsini Goodrich & Rosati P.C. $2.1B 4 Yigal Arnon & Co $1.2B 10 Fenwick & West LLP $280M 4 Meitar, Liquornik, Geva, Leshem, Tal & Co. $1.7B 9 DLA Piper $480M 3 Fischer, Behar, Chen & Co. $2.1B 5 Davis Polk & Wardwell LLP $1.5B 2 Gornitzky $382M 5 White & Case LLP $1.3B 2 Naschitz, Brandes, Amir $277M 5 Linklaters $1.2B 2 Erdinast, Ben Nathan & Co. $251M 4 Latham & Watkins LLP $560M 2 Epstein, Rosenblum, Maoz (ERM) $113M 4 Clifford Chance LLP $397M 2 M. Firon & Co. $65M 4 Dorsey & Whitney LLP $380M 2 Goodwin Procter LLP $350M 2

Source: Based on data collected by Mergermarket and Nishlis legal marketing Schwell Wimpfheimer & Associates $50M 2

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Global M&A_Israel_Nishlis_Final.indd 74 12/14/14 3:57 PM to bloom both in Western markets, as it has done thus far, but also in the new, uncharted territories of the Far East. This steady increase in cross-border M&A transactions has resulted in an increase of international law firms in the Israeli market and has also changed the playing field among local Israeli firms. While in the past only the top ten Israeli law firms were involved with cross border M&A, we are now seeing smaller firms, with specific expertise in certain jurisdictions being involved, representing both the bidders and the targets. Similarly the international firms involved in these deals is no lon- ger limited to a handful of names and more international firms are setting up official Israel desks to try to emphasize their experience in Israel and maxi- mize on new opportunities. ■

Foreign Law Firm Deal Count

TOTAL DEAL Deal FIRM VALUE Count Freshfield Bruckhaus Deringer LLP $2.7B 4 Wilson Sonsini Goodrich & Rosati P.C. $2.1B 4 Nishlis Legal Marketing is the premium legal marketing and business Fenwick & West LLP $280M 4 development one-stop-shop for leading Israeli law firms and foreign law firms venturing into Israel. The consultancy is best positioned to DLA Piper $480M 3 serve law firms in all stages of the marketing cycle, from marketing to Davis Polk & Wardwell LLP $1.5B 2 business development through client retention. With expertise and White & Case LLP $1.3B 2 knowledge, second to none in Israel, Nishlis Legal Marketing will grow Linklaters $1.2B 2 your bottom line and deliver measurable results to your business. Latham & Watkins LLP $560M 2 Clifford Chance LLP $397M 2 For all your Israel related business development and marketing, Dorsey & Whitney LLP $380M 2 contact us at: [email protected] or visit our website Goodwin Procter LLP $350M 2 www.legalmarketing.co.il Schwell Wimpfheimer & Associates $50M 2

Global M&A Guide 2015 75

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076pGMA0115.indd 76 12/15/14 10:01 AM The State of the Big Law Market

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077pGMA0115.indd 77 12/15/14 10:04 AM ITALY

The Introduction of Multiple Voting and Loyalty Shares in Italy A recent amendment to the Italian corporate law grants investors with more flexibility in structuring their deals in Italy.

ith the recent enactment of portion of the shares held by a given shareholder Law Decree No. 91/2014 (the (e.g., up to a number of shares representing 4% or “Competitiveness Decree”), whatever different percentage of the company’s some important changes have corporate capital). been made to the Italian Civil The resolutions amending the By-laws for the WCode and Legislative Decree No. 58/1998 (the introduction of multiple voting shares shall be con- “Finance Act”) in terms of voting rights in joint sidered as extraordinary resolutions. As a result, a stock companies, both listed and non-listed. notary shall act as secretary of the relevant share- holders’ meetings and the concerned resolutions The old principle of “One shall require – with respect to companies that have share, one vote” been registered in the Register of Enterprises up to Article 2351, paragraph 4, of the Italian Civil Code August 31, 2014 – the favorable vote of a number has been entirely replaced by the Competitiveness of shares which shall be equal to at least two thirds Decree which has introduced the possibility - until of the corporate capital represented at the relevant now expressly forbidden - to envisage in the By-laws meetings. of any non-listed joint stock company the issuing of Furthermore, all the shareholders existing shares with multiple voting rights, with a maximum at the time of the issuance of the multiple voting of three votes per share, which may be granted shares shall have the right to obtain, on a pro rata without restrictions or only “for decisions concerning basis, their portion of the concerned shares at the particular topics or subject to the fulfillment of conditions time when they are issued. which shall not be merely potestative.” The old principle of “one share, one vote” aimed The Competitiveness Decree has also intro- at ensuring a direct link between the investment duced in our legal system the possibility of frac- made (and the risk borne) by a shareholder and the tioning the multiple voting shares by attributing, influence that such shareholder shall have on the for instance, to the holder thereof 1.5 or 2.5 votes company, on the assumption that the shareholders for each share held, as well as the possibility to making the largest investments (and bearing, as a grant multiple voting rights in relation only to a result, the highest risks) have the interest to maxi-

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Global M&A_Italy_WillkieFarr_Final.indd 78 12/14/14 3:14 PM mize the value of the company alty shares” (see the pertinent para- and, therefore, to pursue the in- graph below) should incentivize terest of the company and not the the long-term investments in the (sometimes conflicting) interest of relevant company and increase the the individual shareholders. value thereof. The principle of “one share, one vote” ultimately aimed at ensuring Listed Companies a proportionality between power For listed companies, the Compet- and risk, within the context of a itiveness Decree has introduced, in general depersonalization of the the Finance Act, the possibility to shareholding. issue both (i) loyalty shares, and (ii) multiple voting shares. The Competitiveness Decree Loyalty Shares The Italian company law was the MAURIZIO DELFINO Pursuant to Article 127-quinquies of the Finance Act, all listed com- subject of a deep reform in 2004 PARTNER which introduced into our legal panies are allowed to grant an in- system the possibility of creating creased right to vote, up to a maxi- different classes of shares which better suited the mum of two votes per share, as “loyalty bonus” to nature and extent of the investment made by the long-term shareholders and specifically with respect shareholders in a company. to shares which remain in the ownership of the same However, the reform did not overrule the prin- shareholder for a continuous period of not less than ciple of “one share, one vote” and it provided that 24 months. the majority of the corporate capital shall, in any The loyalty shares do not constitute a special event, be represented by ordinary shares. class of shares. Therefore, the increased right to With the introduction of the Competitiveness vote which result from the holding of such shares Decree, the old principle of “one share, one vote” has depends on the shareholders and the holding pe- been finally overruled, thereby granting a great- er flexibility to the shareholders in determining the organization of the company and the criteria “The non-proportional based on which they may influence its functioning. In the opinion of the Legislator, although such assignment of voting flexibility may (i) encourage the controlling share- rights should increase the holder (who might no longer be the shareholder bearing the highest risk) to pursue opportunistic opportunities of the company self-interests which are detrimental to the company and the minority shareholders; and (ii) reduce the to collect new resources contestability of the company (due to the reduction from the markets.” of costs required to hold a significant stake in the company); it should also (a) incentivize the listing of private companies; and (b) reduce the financial riod and does not pertain to the shares, with the barriers existing under the previous system in order consequence that such increased voting right can- to achieve a controlling position in a company. not be transferred to any other person by means Finally, the assignment of voting rights in a of assignment of the relevant share certificates, way which is not proportional to the investment with the exception only of a succession upon the made by the relevant shareholders, if carried out death of an individual shareholder or a merger or through the issuance of multiple voting shares, demerger involving a corporate shareholder. should increase the opportunities of the relevant The increased right to vote is automatically company to collect new resources from the finan- extended to any new share issued pursuant to a cial markets, whereas, if carried out through “loy- gratuitous capital increase of the company. The

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By-laws of the company may, in turn, provide for shares by listed companies is allowed only upon (i) such extension to apply also in the event of a non- a gratuitous capital increase (Article 2442 of the gratuitous capital increase, as well as for the right Italian Civil Code); (ii) a non-gratuitous capital in- of the relevant shareholders to waive the extension. crease, to the extent, however, that all the existing The Competitiveness Decree clarifies that the shareholders are granted an option right to acquire decision amending the By-laws for the introduction the new shares, on the same terms and conditions, of the loyalty shares does not give rise to the with- on a pro rata basis; and (iii) a merger or a demerger of the relevant company. Differently from the loyalty shares, the multiple “Loyalty shares can incentivize voting shares issued by a listed company shall be considered as a special class of shares. Therefore, the listing of companies as the increased voting rights which result from the they are an instrument to possession of such shares shall be considered as a characteristic of the relevant shares and shall not obtain financial resources depend on the shareholder or the holding of the relevant interest for a given period. This means without losing control.” that the increased right to vote pertaining to the multiple voting shares is automatically assigned to drawal right otherwise set forth under Article 2437 any person who acquire such shares, by means of of the Italian Civil Code, to the benefit of the dis- any transaction, and become a new shareholder of senting shareholders. the company. The increased right to vote has no effects on any other rights which pertain to the relevant shares, for Conclusions example, the quorum required for a shareholder to The issuance of multiple voting shares may favor call a shareholders’ meeting, or to bring or waive an the listing of private companies and the carrying action against the directors or the statutory auditors out of their recapitalization in a more efficient way. of the company, or to challenge a resolution adopted The issuance of loyalty shares and the possibility to by the shareholders’ meeting. increase the number of votes of a shareholder based The Legislator believes that the loyalty shares on the holding period of the relevant shares may, in can incentivize the listing of private companies turn, encourage a more active participation of the as they constitute an instrument for the existing shareholders in the company and their long term shareholders to obtain financial resources from the investments. market, without putting their control at risk. In this However, such new instruments should be ac- respect it should be noted that the loyalty shares companied by the introduction of new tools in or- can be issued - to the benefit of existing share- der to protect the interests of minority shareholders. holders - during the listing process, without the 24 In addition to the measures already existing in our months continuous holding of the relevant partici- legal system, new forms of protection for minority pations being required in such a case. shareholders could be further enhanced by the in- troduction of specific provisions in the By-laws of Multiple voting shares. the relevant companies, for example, (i) a limit to the The issuance of multiple voting shares by listed number of votes attributable to each share; (ii) an companies (Article 127-sexies of the Finance Act) is overall limit to the number of multiple voting shares allowed, unless the By-laws otherwise provide, only which may be issued in relation to the corporate cap- to the extent that such shares have the same char- ital of the company; (iii) a limit to the increased vot- acteristics and rights of the pre-existing shares, in ing rights pertaining to the multiple voting shares, in order to keep unchanged the proportions between relation to certain topics only; or (iv) the sterilization the various classes of shares already circulating in of the multiple voting shares in accordance with the the market. provisions of the EU Takeover Directive in case of a Furthermore, the issuance of multiple voting public offer occurring. ■

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STUDIO LEGALE DELFINO E ASSOCIATI WILLKIE FARR & GALLAGHER LLP

Studio Legale Delfino e Associati is the Italian affiliate law firm of Willkie Farr & Gallagher LLP. The firm has over 600 attorneys in New York, Washington (DC), Houston, London, Paris, Frankfurt and Brussels. Our partners regularly represent Italian and foreign privately and publicly held corporations in complex transactions and draw on their extensive experience in diverse industries to provide the highest quality legal services. We are able to assist our clients with respect to virtually all the aspects of their corporate activity in Italy and abroad, including transactions of any kind, size or complexity. ______

PRACTICE AREAS:

M&A and Private Equity

Capital Markets

Insolvency and Business Restructuring

Corporate Law and Contract Law

Litigation and Alternative Dispute Resolution

Labor

Tax

Antitrust & EU Law

Real Estate

Finance, Insurance and Banking

Trust and Estate Planning

Intellectual Property

Telecommunication and Media

Energy

Rome: Milan: Via di Ripetta No. 142 Via Michele Barozzi No. 2 00186 Rome – Italy 20122 Milan - Italy Tel: +39 06 68 63 61 Tel: +39 02 76 36 31 Fax: +39 06 68 63 63 63 Fax: +39 02 76 36 36 36 E-mail: [email protected] E-mail: [email protected]

www.willkie.com

Global M&A_Italy_WillkieFarr_Final.indd 81 12/14/14 3:15 PM LUXEMBOURG Q&A LUXEMBOURG: reporter A Global Platform maria jackson puts the International law firm Allen & Overy discusses Luxembourg’s questions to ALLEN & OVERY advantages for multinational investors.

What headline factors underpin often subtle balance between safety and investor Luxembourg’s success as a global protection on the one hand and business financial center? friendliness, liberal foreign investment policy and A&O: Judging Luxembourg by its area of 999 pragmatism on the other; (iv) its traditional social square miles or by its population of around half a and political stability; and (v) a legal and regulatory million people would not do justice to its political framework that is continuously updated as a result and economic importance in relative and absolute of regular consultation between the government, terms. Luxembourg is a founding member of the the legislative bodies and the private sector. European Union (EU) and hosts the head offices of Creative legal and protective regulatory Marc Feider some of the most influential EU institutions, such frameworks associated with local expertise and corporate and as the European Court of Justice and the European know-how have helped drive a major expansion in senior partner Investment Bank. investment funds, pension funds, venture capital Luxembourg has developed over the last 80 and private equity companies, securitization years into one of the most prominent and vehicles, hedge funds, specialized investment visible continental, if not global, platforms for funds, family offices, IP holding companies and investment funds, private banks, insurance and covered bonds. reinsurance companies as well as finance and Various financial institutions and major holding companies. Luxembourg has some 150 international corporations have established their banking institutions, a dynamic investment fund European headquarters in Luxembourg or are and fund distribution industry and a thriving operating out of Luxembourg via holding and insurance and reinsurance sector. It is the second finance companies. The structuring industry Fabian largest center for investment funds globally, the Beullekens first for fund distribution globally, the leading involving, amongst others, holding companies, corporate captive reinsurance market in the EU and the finance companies and securitization vehicles partner leading wealth management center in the all leverage what Luxembourg stands for: value Eurozone. The investment fund industry is one of creation and preservation in a safe (Luxembourg the most important pillars of the financial sector, has a AAA rating), stable, predictable and business- with top quality services across the value-chain, friendly environment. most notably in fund creation, distribution, custodianship and administration. How has Luxembourg managed to establish itself as a preeminent Whilst the financial sector is a key contributor location for structuring private to Luxembourg’s GDP, the country’s GDP is equity solutions? also boosted by other diverse sectors such as A&O: Over the last decade, Luxembourg has satellites, logistics, the automotive industry, ICT, become a leading global private equity center, biotech and greentech. providing private equity players with a gateway The success of Luxembourg is due to a large for private equity investments into and/or from number of factors such as: (i) its strategic location Europe. This position has been consolidated at the heart of Europe; (ii) its skilled and multi- through the use of both regulated and lingual workforce; (iii) its capacity to strike an unregulated investment vehicles that are both

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Global M&A_Lux_A&O_Final.indd 82 12/14/14 3:58 PM flexible and attractive, starting with the separate legal personality), offering a Besides the structuring of pe introduction of Luxembourg’s Investment high degree of contractual flexibility investments and the set-up Company in Risk Capital (SICAR) in 2004, (including when determining voting and of joint ventures, what other the Specialized Investment Fund (SIF) in distribution rights). corporate AND M&A-related 2007, and more recently, the new limited matters does the firm handle? partnership regime in 2013. What are some other types A&O: A substantial proportion of our of vehicles which make practice relates to legal services to SIF or SICAR structures are commonly used Luxembourg an attractive multinational corporates who have chosen if there is a need to establish a regulated jurisdiction? Luxembourg as their international or private equity fund. Both are subject European headquarters. This often involves to the supervision of the Luxembourg A&O: Luxembourg is also a jurisdiction advising across a wide variety of subjects, regulatory authority for the financial sector of choice for the establishment of joint venture vehicles (which may be established from general Luxembourg corporate law compliance to the set-up of complex Luxembourg has developed either as companies or partnerships with or without legal personality). management incentive packages and over the last 80 years into one strategic advice on the most appropriate Corporate joint ventures present some corporate governance structure. of the most prominent and advantages (e.g. the limited liability In addition, we are regularly requested to visible continental, if not global, of partners), but they are usually seen as being structurally less flexible than provide pre-litigation or litigation advice, platforms for investment funds, contractual joint ventures. Luxembourg in particular for issues relating to directors’ liabilities or minority shareholders’ claims. private banks, insurance and law allows joint venture partners to determine their respective rights and While tax factors are among the drivers reinsurance companies as well as obligations (whether governance related for migration to and incorporations in finance and holding companies. or financial) with a high level of flexibility, Luxembourg, other compelling reasons for example in relation to veto rights on often exist. For example the decision by key matters and disproportionate funding five major Chinese banks (Agricultural and benefit from very flexible corporate obligations and profit entitlements. rules, including rules on redemption of Bank of China, China Merchants Bank and shares and distributions. They can also These rights and obligations are usually Bank of Communications, Bank of China, be organized as umbrella vehicles with set out in a joint venture agreement which ICBC and China Construction Bank) to several ring-fenced compartments. does not need to be filed or published choose Luxembourg as their European in Luxembourg and may be governed headquarters was driven in part by the Unregulated holding companies by Luxembourg law, or by any other law pragmatic regulatory framework and (Soparfis), whose purpose is limited to which the partners feel more familiar with. general business-friendly environment. holding participations in other companies This trend for ‘substantive’ operations Subject to confidentiality concerns, the and carrying out related activities (such as being based in Luxembourg is further main provisions of the joint venture group financing activities), are commonly illustrated by the planned launch of the agreement are often integrated into the used in private equity transactions, first European Islamic Bank, Eurisbank, in articles of association of the joint venture including as holding/financing vehicles the Grand Duchy. and as acquisition vehicles. They are vehicle (assuming it is established as a generally incorporated in the form of company) with a view to enhancing the Luxembourg has risen to enforceability of such provisions towards a public limited liability company or a become a leading European the joint venture vehicle itself and, as private limited liability company, which market for captive reinsur- are subject to the general provisions of the the articles of association are filed and ance; how has it found favor Luxembourg companies act. published, towards third parties. with investors in this space? Following the recent introduction of The articles of association or the A&O: A reinsurance captive is a company the new limited partnership regime partnership agreement of a Luxembourg set up to reinsure the risks of a group. in Luxembourg, many private equity vehicle may be drafted in English but, Luxembourg established a comprehensive investments are starting to be structured as the articles of association are to be legal, tax and regulatory legislation through limited partnerships and special filed and published, a French or German for reinsurance companies (including limited partnerships (which have no translation will need to be attached. captives) two decades before the

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adoption of the 2005 European Directive producer, and RTL, the leading European This is just one example of our capability on reinsurance. This early legislation, which entertainment network, several internet – we lead complex transactions from among other things allowed captives companies such as Amazon, PayPal and Luxembourg and do not just provide to cover significant or exceptional risks eBay have established their European structuring advice. through the ‘equalization provision’ (in activities in Luxembourg. We won the award for Benelux Law addition to the technical reserves), made The presence of these global players Firm of the year at the FT Mergermarket Some things just stand out Luxembourg an attractive place for the combined with an active promotion policy M&A Awards 2013 for the sixth time, setting-up of captives. Today Luxembourg by the government creates a vibrant and and topped the league table rankings has become the largest domicile for dynamic environment for start-ups, which as number 1 in Benelux for M&A deals in reinsurance captives in the EU. is supported by a favorable legal regime. 2013 both by volume and value. Our Luxembourg Corporate and M&A practice The best illustration of this local ‘silicon Benefits of setting up a captive typically Beyond our core M&A and corporate valley’ is Skype, which was founded in include the reduction of costs and a expertise, ours is a full service office with Luxembourg in 2003 and financed in its better management of a group’s risks. top tier capability in every area. One We are the law firm of choice in Luxembourg for some of the world’s most early stages by a local private equity fund. Although captives are usually (very) example is banking & finance - we work sophisticated financial institutions, sponsors and multinational corporations. long-term vehicles, captive owners may Another example is logistics – closely with our market leading banking at some point want to exit their captive We help our clients by providing quick, commercially viable and (where needed) Luxembourg has developed significant and finance team on transactions in the innovative solutions on a full range of corporate matters, including M&A, vehicles (e.g. as a result of a merger expertise as an intercontinental logistics financial sector and in advising financial between groups each having their hub in Europe, in particular for contract, air institutions on the myriad of legal issues joint ventures, restructurings and reorganisations, migrations, equity listings and own captives). In terms of exit options, and rail freight-based logistics activities. that affect their businesses. stock exchange related work, corporate litigation and general corporate law advice. Luxembourg offers multiple solutions including an active market for selling What skills and experience About the authors: In addition to being experts locally in Luxembourg law and market practice, captives. We regularly advise sellers and distinguish Allen & Overy as a Marc Feider, corporate and senior partner we draw upon the expertise of our global network, enabling us to better buyers of reinsurance captives and we key partner for multinational understand global trends and the wider context of clients’ instructions. have developed a specific expertise with investors looking at conduct- Marc heads the Luxembourg corporate our insurance colleagues to ensure a ing a deal in Luxembourg? practice. He specializes in private equity, Our lawyers are experienced negotiators, transaction managers and draftsmen/women at one of the few law firms in Luxembourg offering smooth and efficient sale process. Those A&O: At Allen & Overy, we distinguish mergers and acquisitions, securities sales are conditional on the approval ourselves through our experience in and stock exchange-related work, a full and top tier service across all practice areas and sectors. of the transaction by the Luxembourg acting on a range of complex and takeovers and joint ventures. He has vast Insurance Regulator (the Commissariat high-value work, be they cross-border experience advising clients across all For further information, please contact Allen & Overy in Luxembourg, aux Assurances) and usually require the or domestic transactions. Thanks to our sectors, particularly financial institutions, Tel +352 44 44 55 1, [email protected] seller to undertake a portfolio transfer or global network comprised, to date, of private equity, insurance, energy, novation prior to completion. 46 offices in 32 countries and strongly communications, media and technology. established relationships with ‘best-friend’ Marc is a board member of the Beyond the financial sector, law firms in countries where we have no Luxembourg Private Equity and Venture has Luxembourg any specific physical presence, we are able to offer Capital Association (LPEA). expertise in other industries? our clients seamless multi-jurisdictional A&O: Luxembourg’s economy is legal advice. diversified. While, as mentioned, Fabian Beullekens, corporate partner Our status as market leaders in corporate financial services play an important Fabian has extensive experience in and M&A in Luxembourg can be role (the financial sector accounts for corporate law, mergers and acquisitions, reflected through the number and approximately 25 percent of GDP), private equity, joint ventures and equity calibre of deals we have led from our other sectors such as steel production capital markets across all sectors, in Luxembourg office. A highlight of the (the world’s largest steel company, particular insurance and reinsurance, year, and a demonstration of both our ArcelorMittal, is headquartered in financial institutions and media and M&A expertise in Luxembourg and our Luxembourg and is the country’s biggest telecoms. He is a member of the ability to strengthen our relationships with private sector employer), logistics and car Luxembourg, Brussels and New York Bars. major private equity firms, was our role components are very well developed. in Pamplona Capital Partners’ acquisition Fabian regularly publishes articles In addition, Luxembourg has developed of healthcare giant Alvogen. Our and speaks at seminars on a broad a vibrant ICT sector over the last two Luxembourg office led a multi-disciplinary range of topics, including recently on decades. Besides the national flagships, A&O team drawn from nine offices, as public takeover bids, directors’ duties SES, the world’s largest satellite well as five ‘best friend’ relationship firms. and M&A trends. Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. allenovery.com © Allen & Overy 2014 84 Global M&A Guide 2015

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Global M&A_Lux_A&O_Final.indd 84 12/14/14 3:59 PM Some things just stand out

Our Luxembourg Corporate and M&A practice

We are the law firm of choice in Luxembourg for some of the world’s most sophisticated financial institutions, sponsors and multinational corporations. We help our clients by providing quick, commercially viable and (where needed) innovative solutions on a full range of corporate matters, including M&A, joint ventures, restructurings and reorganisations, migrations, equity listings and stock exchange related work, corporate litigation and general corporate law advice.

In addition to being experts locally in Luxembourg law and market practice, we draw upon the expertise of our global network, enabling us to better understand global trends and the wider context of clients’ instructions. Our lawyers are experienced negotiators, transaction managers and draftsmen/women at one of the few law firms in Luxembourg offering a full and top tier service across all practice areas and sectors.

For further information, please contact Allen & Overy in Luxembourg, Tel +352 44 44 55 1, [email protected]

Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. allenovery.com © Allen & Overy 2014

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& Energizing growth: Q A Mexico’s M&A scene reporter MARIA JACKSON puts the questions is set to boom to Creel, García-Cuéllar, Creel, García-Cuéllar, Aiza y Enríquez outlines the Aiza y Enríquez opportunities heralded by Mexico’s reform package

GLOBAL Mexican President Enrique Peña Nieto 2014 Doing Business Report issued by the World M&A Practice continues to focus on strengthening Mexico’s Economic Forum, which highlights Mexico’s Group attractiveness to foreign investment. The M&A ‘sound banking system’, ‘reasonably good transport team from leading business law firm, Creel, infrastructure’ and ‘a large and deep internal Jean Michel García-Cuéllar, Aiza y Enríquez, highlight how market allowing for important economies of scale’. Enríquez these changes will boost the country’s already The structural reforms that the Federal partner favorable M&A environment. Government has managed to approve during the jean.michel. past two years, coupled with sound economic enriquez@ What are the headline factors under- fundamentals, have caused many analysts to creel.mx pinning Mexico’s attractiveness as suggest that the Mexican economy is well a hub for Latin American deals? positioned for a period of steady growth. Despite Luis Gerardo CREEL: Mexico’s demographic trends show an the fact that Mexican and foreign investors alike García economy less dependent on exports, a growing recognize that questions regarding the ability of Santos-Coy middle class and an increased consumerism the country’s institutions to deal with the current partner (with more access to consumer credit), which crisis of security, justice and the rule of law are luis.garcia@ suggests investment opportunities in sectors warranted, it seems that for now they have creel.mx serving domestic consumption, such as financial embedded such issues as part of the country services, healthcare, retail, education, lodging and risk. While it cannot be assumed that investors Carlos del Rio agro-industry. In addition, considering that labor will be willing to live with the current climate partner and other costs have risen in other emerging indefinitely, it is positive sign that Mexico’s carlos.delrio@ economies, such as China, coupled with the government has now recognized the existence creel.mx fact that Mexico is a leading nation in terms of of such problems and the necessity to react with free trade agreements, Mexico has regained structural changes that will resolve the issues Eduardo competitiveness, becoming an attractive and bring a new political agenda to the table. Gonzalez destination for foreign investors. This is undoubtedly a step in the right direction, partner although it remains to be seen how such issues, Even though the Mexican stock exchange has eduardo. together with the structural reforms that have experienced periods of volatility in recent years, gonzalez@ been taken since late 2012 and that ended creel.mx Mexico’s stock exchange index has reached in 2014, will be reflected in improvements to record highs, with active domestic equity and Mexico’s competitiveness, its environment for debt capital markets slowly achieving greater Jorge Montaño doing business, and in turn, to its GDP. Valdés depth. The availability of credit to Mexican small partner and mid-cap businesses from local financial In any case, it is still undeniable that the executive jorge.montano@ institutions is evident and is expected to show branch of all levels of government need to creel.mx consistent growth as a result of the recent reforms address security issues, while doing everything to the financial system. In general, the business within their power to strengthen the functioning environment in Mexico has been welcoming of Mexico’s judicial institutions and consequently and is still improving, as reflected in the 2013- build up the rule of law. Equally important

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Global M&A_Creel_Final.indd 86 12/14/14 3:16 PM is that federal and local members funds (including pension funds) seeking this respect, as a result of the recent of the justice system take palpable the stable yields provided by these type amendments to the General Law on actions that promote and send clear of projects will boost infrastructure M&A Commercial Companies (GLCC) published signals to domestic and international activity in the coming years. in June 2014, the Sociedad Anónima (or investors that the rule of law is a primary SA), the Sociedad Anónima Promotora de Looking at the TTRecord.com quarterly concern in Mexico and that impunity is Inversión (or SAPI) and the Sociedad de reports for Q1 through Q3 2014 confirms unacceptable. Equally, all Mexicans and Responsabilidad Limitada (or SRL) are the a trend of a constant increase in the foreigners alike that do business or live most adequate investment vehicles for a number of deals by strategic, private in Mexico need to take strong actions capital contributing minority partner to equity and venture capital investors (in against corruption. accomplish its negative control objectives each case, both foreign or domestic). The which, before such amendment, could comparison among 2012, 2013 and 2014 What are the key industry only be had through a SAPI governed by is indeed impressive and it clearly appears sectors currently driving the Stock Market Law (SML). One of the that 2014 will indeed surpass prior years deals in Mexico? most important developments that came on all counts, either by deal value or by CREEL: As expected, activity in real estate into effect as a result of the amendments number of deals (e.g., 112 M&A deals and to the GLCC, is that it now expressly M&A this year remains bolstered not only 61 PE/VC to date in 2014). by active Mexican capital markets, which recognizes (as it is done in the SML with are a reflection of the solid investment respect to the SAPI) the validity and What are the most common opportunities that institutional and effectiveness of shareholders’ agreements investment vehicles used by among the shareholders of an SA. retail investors consider can be found investors into Mexico? in Mexico, but also by the Mexican Furthermore, with such amendments Government reforms. CREEL: Two general considerations to the GLCC, strategic or other investors should be taken into account by any (e.g., private equity or venture capital) can In addition to the technology and investor when deciding upon an now provide for and agree on provisions internet sectors which have clearly been investment vehicle in Mexico; first, the readily available in the U.S. and other very active during 2014, the ability to tax treatment of the different Mexican jurisdictions such as voting agreements, capture funds through the issuance of vehicles in the respective jurisdiction of lock-ups, calls, puts, repurchases or equity, debt, certificados de capital de the investor, because, for example, it is our redemptions, drag-alongs, tag-alongs, desarrollo, or CKDs, as well as certificados understanding that U.S. ‘check the box’ registrations rights and squeeze-outs of fiduciarios bursátiles inmobiliarios by treasury regulations distinguish between minority shareholders. FIBRAS, continues to contribute to the ‘partnerships’ (pass-through entities) flurry of domestic transactions in the real and ‘corporations’ (non pass-through Are there any rules restricting estate M&A market in Mexico. Another entities) for federal tax purposes. In such foreign investment in Mexico? regard –as we have been informed- CREEL: In general, under the Foreign “As a result of the energy reform, Treasury regulation number 301.7701-2(b) Investment Law (FIL), foreign investors (8) issued by the U.S. Internal Revenue may invest in both listed and unlisted opportunities for investment will Service (IRS) sets forth a list of foreign Mexican companies, subject to a limited be available across the whole entities which per se shall be considered number of restrictions on investment as ‘corporations’ (including the “Sociedad in certain economic sectors which are, Mexican energy sector.” Anónima”). under the FIL, specifically reserved to Second, the most convenient vehicle Mexican nationals and/or the Mexican Government. Therefore, foreign investors sector that has grown significantly, and will depend on whether the investor need to take foreign investment laws is expected to continue growing, is will be purchasing 100 percent of the and its regulations into account during infrastructure-related M&A. During the target company (or its assets), or whether the initial phase of any project in order to last six years, private sector participants the purchaser shall have minority ascertain that the investment is viable. interested in investing in projects with shareholders; in which case, the investor long-term and stable revenue streams should not only consider tax implications Since 2013, Mexico has focused on a have participated in Mexican public- of its structure but also different corporate general all-encompassing overhaul of the private partnership opportunities in which governance, exit strategies and other laws regulating foreign investment in very include toll roads, hospitals, and schools. provisions sought out by investors important sectors as telecommunications It is expected that domestic and foreign that have minority shareholders. In and media. Other than such specific

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limitations on foreign investment it will receive the purchase price or that it the indemnifying party) and capped participation, the Foreign Investment will be timely indemnified from any losses indemnities (i.e., a maximum amount to Commission also needs to approve any or purchase price adjustments. be indemnified) are common practice proposed investment by foreigners in in Mexico as are the survivability of any • Representations and Warranties: even if a a company whose assets are worth in indemnity for a misrepresentation. In complete due diligence is performed, it is excess of the Mexican pesos equivalent of any case, counsel should keep in mind essential for the buyer to request extensive approximately $200 million. that these provisions are an elementary representations and warranties from the clause of the agreement because Mexican seller as well as for the latter to assume the statutory dispositions do not provide To what extent does the obligation to indemnify the investor in the framework of purchase a suitable protection in the event of a event of inaccuracy of any representation, agreements differ from other breach to the representations contained should there be claims in the future that international jurisdictions? in the agreements subject to Mexican law. would affect the target company and or CREEL: The execution of documents the acquirer of the assets. aimed to evidence the preliminary What reforms has Mexico agreements of the parties and to build-up • Covenants: Pre-closing and post- recently undertaken that the framework in which the preparation closing covenants of the parties in a could strengthen its and negotiation of a definitive agreement Mexican transaction are those commonly investment profile? will be structured are common practice in used in other jurisdictions. As in other CREEL: In the past year and a half, Mexico. Although no specific regulation jurisdictions, prior to closing parties Mexico approved significant changes to exists, these types of preparatory should focus on covenants aimed to its regulatory framework across several agreements are commonly drafted to assure that the parties will collaborate sectors, such as energy, telecoms and resemble an offer, a promise to execute and take all necessary steps required to financial services, as well as in respect of a definitive agreement or an atypical obtain and fulfill closing conditions. Stand antitrust, tax and employment matters. contract not specifically set forth in still provisions regarding the conduct of These reforms, coupled with sound the statute (gentlemen’s agreement, business between signing and closing of economic fundamentals, are expected memorandum of understanding, head the transaction with respect to the target to result in a period of steady expansion of terms agreement or other) but that company, its assets and business are for the Mexican economy. The critical generally has the same framework as common practice. question is how and when the impact the former. Provisions commonly used • Closing Conditions: In both stock of such structural reforms will be deal with due diligence, a no-shop or and asset acquisitions –as in other reflected in improvements to Mexico’s exclusivity, confidentiality and binding or jurisdictions- additional closing conditions competitiveness and its environment for non-binding effect. could consist of buyer completing its doing business. For the last decade, Mexican commercial due diligence process, the accuracy of The overhaul relating to telecoms and practitioners involved in cross-border representations and warranties made antitrust, includes, among other relevant transactions have undoubtedly been by either party, the parties obtaining changes, the regulators’ authority to influenced by foreign investors that antitrust approvals, third party consents require a preponderant company (agente prefer agreements that ‘look and feel’, in (from clients or suppliers) or other preponderante) to divest assets, the governmental approvals or the execution many respects, like those used in other auctioning of new private television of other transactional agreements jurisdictions, but that comply with all networks and the elimination of foreign (shareholders’ agreements, stock options, particular formalities that need to be investment restrictions in telecoms license agreements, services agreements, followed in order to execute a valid and media, as well as the imposition and enforceable agreement in Mexico. and transition agreements). of asymmetric conditions applicable Customary arrangements commonly • Indemnity: Usually the most important to companies that are designated as used in definitive agreements include and negotiated provisions of any preponderant in their industry to level • Purchase Price: holdbacks, carve-outs, acquisition agreement. No standard the playing field for smaller players in cash-outs and escrow provisions used to indemnity provision exists for Mexican those industries (to date, Televisa and adjust the purchase price and give the acquisitions. De minimis amounts or America Movil have been designated as necessary certainty to the purchaser and deductibles (i.e., a minimum amount preponderant). Thus far, the reform has the seller (as applicable) that sufficient that shall be exceeded before any resulted in the resurgence of M&A activity funds to pay the purchase price exist, that indemnification right is owned by in this market, including the sale by AT&T

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Global M&A_Creel_Final.indd 88 12/14/14 3:16 PM of its stake in America Movil for over has been dependent on the importation companies acquiring Mexican entities to $6 billion, the acquisition by Mr. Salinas of refined oil and gas for years, and given gain a foothold and local talent (which Pliego of Televisa’s interest in Iusacell, and the natural resources available in Mexico, may become important to satisfy the the announced acquisition by AT&T of with the proper infrastructure and legal new ‘local content’ rules), and will then 100 percent of Iusacell. Likewise, America framework, Mexico could eventually continue with joint ventures to bid for the Movil has publicly announced that it will remove such dependence. E&P contracts and to develop the new be divesting sufficient assets so as to opportunities in the oil, gas and power Furthermore, a well-implemented cease qualifying as a preponderant agent, sectors. energy reform should lead to significant although through the date of publication, investment in a wide range of services no transaction has been announced. The and infrastructure that is required to What credentials distinguish flurry of activity is expected to continue, Creel as a key partner for support those kinds of projects (e.g., roads, and given the capital intensiveness foreign investors looking hospitals, schools, shopping centers, retail of the industry, it is likely that large to do a deal in Mexico? office space, housing projects, etc.), which multinationals as well as private equity would result in an undoubted positive CREEL: Among the key considerations firms will be key participants. effect on the Mexican economy. that a foreign investor should bear in The reform that has many fingers mind when choosing a law firm in Mexico pointing to Mexico relates to the oil and to advise on an M&A transaction is (i) energy sector. If the sector that has been “Not only traditional strategic the level of quality and expertise of the individuals at the firm performing the monopolized by the state-run Petroleos investors are searching for Mexicanos (PEMEX) since the 1938 work and (ii) the alignment of interests expropriation of all oil and gas companies opportunities in the Mexican of the individuals performing the work with those of the client. We believe that operating in Mexico can be opened to market, but also private equity international and domestic investors on Creel’s full service offering is unique in a transparent basis, providing adequate and other financial sponsors.” the market for transactional firms that are legal certainty to investors in respect involved in sophisticated transactions. of their investment, the result will be The ability to provide clients with a The pillars of the reform that encourage significant opportunities that can boost one-stop shop that can render tailored private participation lie in the fact that the country’s economy to a next level. The and in-depth advice in respect of M&A, PEMEX will be allowed to partner with challenge lies in implementing the reform tax, environmental, antitrust, IP, labor and companies that bring the necessary in a nation that continues to be plagued employee benefits, banking and finance, experience as well as the required by corruption scandals and shady real estate, insurance, etc. by professionals capital to finally be able to realize the transactions, which practices Mexicans that are focused in their respective areas potential of natural resources available must begin to eradicate, in order to fully of expertise places Creel in a distinct in Mexico and its waters. The framework realize its potential. position in the market. implemented through recently-enacted In addition, Creel’s innovative secondary legislation seeks to provide To what extent is the energy organizational and compensation greater transparency, certainty and reform particularly expected model fosters collaboration and team accountability to those who participate in to boost M&A in Mexico? work among partners and associates these type of projects. CREEL: As a result of the energy of the Firm, truly aligning the interests reform, opportunities for investment We have seen that not only traditional of the Firm with the interests of our will be available across the whole strategic investors are searching for clients. The sophisticated transactions Mexican energy sector (e.g. exploration opportunities in the Mexican market, but regularly managed by the Firm denotes and extraction of hydrocarbons; oil also private equity and other financial the confidence that clients deposit in processing and refinement; natural gas sponsors, who have a limited investment our ability to handle complex matters processing; shale gas; transport, storage horizon and should bolster M&A activity by assembling transaction execution and distribution of hydrocarbons and in the years to come, when they seek teams that deliver high-quality product their derivatives; power generation and to realize their exits. With the legal in respect of identifying key issues commercialization; and transmission and framework for Mexico’s Energy Reform in the diligence process, as well as in distribution, construction, maintenance now fully in place, we believe substantial negotiating transaction agreements in and operation of power grids). Mexico M&A activity will start first with foreign terms satisfactory for investors.

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& Finland: Q A A favorable outlook reporter MARIA JACKSON As the Finnish M&A market continues to perform strongly, puts the questions to Helsinki-headquartered law firm Borenius highlights the increasing BORENIUS convergence of capital markets with traditional M&A.

Finland’s M&A environment remains robust. strong in 2014 after a busy 2013. According to Figures from corporate intelligence agency data compiled by Mergermarket there were 134 Mergermarket show that during the first 11 announced deals during the first 11 months of months of 2014, deal volume climbed to 134 2014, compared to 130 deals during the same deals, up from 130 during the same period in 2013. period in 2013. The aggregate disclosed deal value Importantly, Finland’s transactional performance for announced acquisitions of Finnish targets is supported by several factors, with good access decreased slightly to approximately EUR9.8 billion to financing being a prominent driver of M&A. in the first 11 months of 2014, compared to EUR10.1 billion in the same period in 2013. Part of Finland’s private equity scene also continues Jari Vikiö the reason for the slight year-on-year decline in to look healthy. The first six months of 2014 managing value was Nokia Corporation’s EUR5.44 billion sale represented one of the most active years ever partner of its mobile phone business to Microsoft in 2013. for private equity in Finland, with 223 private equity investments made in Finnish companies, The deal-making environment remained on a according to figures from the Finnish Venture similar level to 2013, despite the turmoil in Russia, Capital Association (FCVA). Most notably, early which is providing a challenging outlook for the stage companies attracted a record amount Finnish economy. The availability of financing has of foreign investment, with foreign venture remained good, with the adoption of the Finnish capitalists investing around $24 million (EUR20 high-yield bond market in the beginning of 2014 million) through a total of 22 investments - the adding liquidity to the leveraged finance market. highest number of investments since 2008. There are certain signs that the market will As foreign investors flock to Finland, partners from continue to improve, which is supported by the JUHA KOPONEN Attorneys at law Borenius discuss the key trends increased level of large structured deals and the partner and affecting the country’s M&A market. enhanced presence of dual-track processes. Most head of capital deals are still being prepared and negotiated markets Established in 1911, Attorneys at law Borenius is quite extensively and the number of failed one of the largest and most experienced law firms structured sales processes has increased. The in Finland. The firm’s services cover all areas of number of IPOs have also contributed to the corporate law. market in 2014, as the market regulated (MTF) In addition to its national offices in Helsinki and First North Helsinki NASDAQ OMX has attracted Tampere, the firm also has a well-established several growth companies to seek listings. There office in St. Petersburg, which regularly advises have been six completed listings to the NASDAQ both Russian and foreign clients in cross-border OMX Helsinki First North market in 2014 and two transactions involving Russia. The firm also has a listings to the NASDAQ OMX Helsinki official list. representative office in New York. JOHANNES PIHA WHAT HAVE BEEN THE MOST ACTIVE Partner WHAT IS THE CURRENT ENVIRONMENT INDUSTRY SECTORS FOR M&A DEALS IN FOR M&A DEALS IN FINLAND? FINLAND OVER THE PAST YEAR? BORENIUS: Activity in Finnish M&A remained BORENIUS: We saw a rebound in big-ticket

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Global M&A_Nordics_Borenius_Final.indd 90 12/14/14 3:59 PM deals within the more traditional sectors expected to come under increased financing, mezzanine is quite seldom used. during 2014. In the biggest deal of the pressure to dispose of portfolio Deals are also leveraged, as everywhere year, valued at EUR3.24 billion, Finnish companies already held beyond the else in Europe, depending on the banking group Pohjola acquired the planned investment horizon and to market conditions and availability of shares it did not own in its subsidiary invest committed capital. In sales debt financing. In 2014, we saw a strong Pohjola Bank. In another sizeable deal, processes, the trend has moved towards emergence of the Finnish high-yield Swedish steel company SSAB acquired a higher level of differentiation in terms bond market and some of the deals were Finnish metal company Rautaruukki in financed by high-yield. a EUR1.8 billion transaction. In October 2014, Danish energy company Danfoss “Activity in Finnish M&A A traditional senior secured term loan made a EUR1.04 billion tender offer for facility made available by a bank or a Finnish electric drive maker Vacon. remained strong in 2014 after club/syndicate of banks is still the most Activity in the healthcare sector has a busy 2013. There are certain common source of debt financing in remained strong and the expected the Finnish private equity market. Credit growth in future spending in the public signs that the market will funds and other non-traditional lenders health and social services sector has continue to improve, which is have not been active in Finland so far. resulted in numerous deals and a supported by the increased level In 2014, high-yield bonds made their strong pipeline. Headline healthcare foray into Finland, both as corporate transactions in 2014 included Nordic of large structured deals and bonds as well as private equity bonds, Private equity fund CapMan’s public the enhanced presence of and instantly became a real alternative tender offer for Finnish nationwide to replace part of the senior financing (or dental clinic Oral Hammaslaakarit Plc, dual-track processes.” the entire mezzanine financing). Investors Swedish private equity fund Adelis’ seem to have an increasing appetite acquisition of healthcare provider Med for them. Similarly, the absence of Group, Finnish private equity fund Intera of structure, with the popularity of large- maintenance-based financial covenants Partner acquiring Finland’s largest eye scale controlled auctions decreasing is deemed by private equity sponsors care provider and second-largest optical and the focus instead shifting to more as a key benefit of high-yield bonds. retailer Silmäasema, as well as Triton concentrated efforts with a limited For example, in May 2014, Paroc Group, and KKR-owned healthcare provider number of bidders. Also the above which was taken over by its lenders in Mehilainen acquiring healthcare mentioned healthcare sector has been 2009, issued a EUR430 million six-year provider Mediverkko. one significant driver, although some U.S. high-yield bond and Elematic Oy Activity also remained strong in the sponsors are arguing that the valuation Ab, a portfolio company of Pamplona energy and infrastructure sectors. In levels in healthcare are already too high. Capital Management, issued a EUR35 November 2014, E.ON and Fortum million four-year high-yield bond. In September, AC Alpha Oyj, a portfolio sold their shareholdings (20 percent WHAT ARE THE MOST COMMON company of Ahlstrom Capital Oy, and 31 percent, respectively) in Finnish FINANCING ALTERNATIVES FOR issued a EUR65 million unsecured and gas company Gasum to the Finnish TRANSACTIONS? State for an aggregate compensation unguaranteed high-yield bond to finance BORENIUS: Most investments take of EUR510 million. the acquisition of Destia Oy, a Finnish the form of equity. There is a tendency infrastructure company. We expect towards preference shares replacing THE FIRST HALF OF 2014 SAW more private equity sponsors to tap the traditional shareholder loans. The high-yield bond market in the future, 223 PRIVATE EQUITY INVESTMENTS reasons for this relates to new restrictions particularly as a source of refinancing MADE INTO FINNISH COMPANIES, in the deductibility of interest in loans existing portfolio company debt. WHAT IS ATTRACTING PE HOUSES from related parties as well as to the fact TO THE FINNISH MARKET? that without a shareholder loan the parties BORENIUS: The activity of private may avoid the need for an intercreditor WHAT ARE THE PREFERRED equity investors remained relatively high agreement. There also are some STRATEGIES FOR EXIT IN FINLAND? during 2013–2014, with the majority of mezzanine funds actively operating in BORENIUS:The most common exit deals falling into the midsize category. the market, but given the relatively small strategy is still through a trade sale. Many private equity investors are still deal sizes and good availability of senior However, unlike in the past, genuine

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dual-track sale processes have become “In 2014, high-yield bonds specialists join the company. The much more popular. This is due in great current Finnish Corporate Governance part due to the demand for European made their foray into Finland, Code requires that the majority of the equity by many institutional investors and both as corporate bonds as directors shall be independent of the due to successful IPO exits in Sweden. company and in addition, at least two of well as private equity bonds, the directors representing the majority Trade sale shall be independent of the significant Finnish funds generally limit their and instantly became a real shareholders of the company. liability extensively in sale and purchase alternative to replace part of agreements when exiting an investment. Usually, only the most fundamental the senior financing (or the WHAT IS THE PLAYING FIELD FOR PUBLIC-TO-PRIVATE warranties (title, capitalization) are entire mezzanine financing). given in the name of the funds, and TRANSACTIONS? management shareholders tend to take Investors seem to have an BORENIUS: We occasionally see private on more extensive liability. It is very increasing appetite for them.” equity players launching tender offers typical for general liability to be limited for listed companies in Finland. Such to 10-30 percent of the exit value and for deals are often friendly negotiated deals with an attractive premium where the warranties to be in force for no longer for the unattractiveness of the IPO exit majority stakeholders are committed than 12–18 months (usually liability past market in Finland. At the same time, the to the deal. A few years ago, despite the next audited accounts is accepted). trade sale exit alternative has proven lower valuations, the unavailability of Title and capitalization warranties are faster and cheaper to implement and acquisition finance hindered such offers, usually excluded from the general generally more effective to investors and but more recently the market has picked limitations of liability. shareholders. up and deals have been announced, or It is not uncommon for escrow The substantive liability of the investors as are being negotiated or proposed. Under structures to be used in order to selling shareholders depends largely on the Finnish takeover rules, a bidder must guarantee the availability of funds in the detailed contents of the underwriting disclose the financing arrangement cases of breach. A typical escrow period agreement or similar contractual necessary to consummate the bid, and tends to reflect the agreed claim period arrangement with the lead arranger of the target’s board will most likely require and covers some 10 percent of the the IPO. Typically, the issuing company that a financing commitment be in purchase price paid, again depending itself will give more extensive warranties place at the time of the execution of the on the agreed total liability cap. to the underwriter. The selling majority combination agreement. shareholders (such as private equity However within the last12 months The Finnish mid-cap listed companies investors) generally succeed in limiting Finland has seen a surge in the use of have been attractive acquisition targets their warranties to the fundamental facts W&I insurances. Although the insurance due to their small size and concentrated such as ownership and authority etc. is usually taken by the buyer, especially in ownership pools, combined with strong It is more likely that the management an auction process it is often encouraged local positions in their respective markets or other private shareholders have to to do so by a private equity seller. and global potential. agree to more extensive substantive IPO warranties as well as lock-up periods, The key issues in a public tender offer in While the London Stock Exchange saw which usually range from six to 12 Finland for a private equity fund are no 10 times as many IPOs in the first half months. Also private equity shareholders different from other markets. Financing is of 2014 as in the first half of 2013 and often have to agree to lock-up periods. clearly a concern, as well as getting firm while the Swedish market also had very As the board of directors of the issuer is commitments from main shareholders increased activity in terms of private required to guarantee the accuracy of the and negotiating the terms of the deal equity exits, this unfortunately has not IPO prospectus, the composition of the (including pricing, premium and closing materialized as an exit strategy in Finnish board of an IPO candidate is sometimes conditions among other things) with leveraged buyouts. There have been a changed prior to the IPO itself as the the target’s board. Larger cross-border few dual-track processes, which in the investor’s representatives in the board deals would naturally be subject to end have led to trade sales. The rather may wish to drop out and other outside competition law scrutiny as well. The small size of the private equity target industry experts or professional board acquisition of a Finnish target company companies is one of the primary reasons members and corporate governance in a defense-related or otherwise

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Global M&A_Nordics_Borenius_Final.indd 92 12/14/14 4:00 PM strategically crucial sector may also be during the first 11 months of 2014. These Jari has been involved in numerous large subject to government approval. transactions included, among others, domestic and cross border mergers and the voluntary public tender offer for the acquisitions and frequently represents An updated and slightly revised shares in NASDAQ OMX Helsinki-listed various domestic and international private Takeover Code came into force on 1 equity houses and other companies in January 2014. Much like its predecessor, transactions. He also acts as a member of the new Takeover Code contains the board of directors in many portfolio recommendations regarding the actions “The Finnish mid-cap listed companies advising on corporate issues. applicable to public takeover bids. companies have been The Helsinki Takeover Code addresses Jari has been a partner at Attorneys at questions and practices related to the attractive acquisition targets law Borenius since 2001, and managing actions of both the bidder and the target due to their small size and partner since 2008. company, as well as the management Juha Koponen, partner and head of and shareholders of the target company. concentrated ownership pools, capital markets The obligation to comply with the combined with strong local [email protected] Helsinki Takeover Code is based on the provisions of the Finnish Securities positions in their respective Juha Koponen is a dual-qualified (Finland Markets Act and the ‘comply or explain’ markets and global potential.” and New York) transactional lawyer, who principle. Hence, in its announcement, focuses his practice on capital markets, the bidder must also declare whether M&A and private equity transactions. He it will adhere to the Code or not and has advised issuers and underwriters on Oral Hammaslääkärit plc, where we give a reasonable explanation for public and private offerings of equity acted as the legal advisor to the offeror non-adherence, if any. The Code is and debt securities, including IPOs, CapMan, the sale of Paroc Oy to the funds also available in English, as are the high-yield debt offerings, convertible managed by CVC for EUR700 million, Finnish Securities Markets Act and all debt issuances and rights offerings. which was preceded by the EUR430 of the regulations issued by the Finnish He has also advised bidders and target million high-yield bond Paroc issued a Financial Supervisory Authority. companies on tender offers. few months earlier, and most recently the sale of a 50 percent stake in Gasum Prior to joining Attorneys at law Borenius WHAT SUPPORT CAN BORENIUS to the Finnish State for EUR510 million, in March 2014 as the head of capital PROVIDE TO CLIENTS LOOKING where we represented the sellers E.ON markets, Juha was a partner with AT M&A AND PRIVATE EQUITY and Fortum. another major Finnish law firm. His TRANSACTIONS? prior experience includes working as an In 2014 our capital markets practice BORENIUS: Our strategic initiatives that associate at Fried, Frank, Harris, Shriver & was particularly active in high-yield derive from the 1990s private equity Jacobson LLP for three years (New York transactions for corporate and private environment in Finland have helped us and London) and as a corporate legal equity issuers. In the first eleven months to secure a leading position both in fund counsel at Nokia Corporation focusing on in 2014, we advised on six completed formation and deal making. Our market securities regulation. high-yield deals, which is more than share in fund formation and secondaries any other Finnish firm on the market. In Johannes Piha, partner has for many years been over 50 percent, addition to our high-yield experience, [email protected] giving the firm unprecedented access we have also been involved in IPOs as to both to private equity funds and their an exit alternative for private equity and Johannes advises clients on a wide investors. We have represented a deep corporate shareholders. range of issues relating to private equity, list of private equity and venture capital mergers and acquisitions, ownership houses in making investments and exits, structuring and fund formation. as well as target companies’ management About the authors: Johannes has been involved in numerous in these transactions. Additionally our Jari Vikiö, managing partner domestic and cross-border transactions tax practice, which is the largest of any [email protected] acting for both private equity sponsors Finnish law firm, puts us in the excellent Jari advises on banking and finance, M&A and industrial clients. Further he has position where we can provide ‘the and private equity related transactions advised clients in ownership and equity whole deal’ to our PE customers. with particular emphasis on large and structuring in infrastructure projects, and We advised on 30 M&A transactions medium size deals. in general corporate matters.

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& Peru: Funds at Q A the Forefront reporter MARIA JACKSON As local and foreign investment funds step up their participation puts the questions to in Peru, Miranda & Amado Abogados explains the key trends MIRANDA underpinning growth.

Miranda & Amado Abogados is one of Peru’s and security enforcement systems, and also leading full-service law firms, with top-tier to diversify the country’s production (with a expertise in corporate, banking, projects and current discussion on whether this should be regulatory work. The firm regularly advises local purely driven by the private sector or with the and multinational clients in some of the largest help of government). The fact that the country’s and most sophisticated transactions to hit the economic performance is solid, with low debt Peruvian market. and good levels of reserves, is not in itself the Richard Steinberg source of Peru’s future growth, but the basis As recent reforms put Peru’s funds space into the upon which the country will have the space it spotlight Roberto MacLean, partner at Miranda Roberto needs to adapt to a new environment of low MacLean & Amado, discusses Peru’s attractions for foreign commodity prices. Partner investors. to what extent are private equity The IMF expects Peru to be the houses, and asset managers fastest-growing economy in Latin generally, increasingly looking America and the Caribbean region at Peru? in 2014; what are the key market M&A: Private equity firms began their activities fundamentals driving growth? in Peru at the end of the 1990s. Prominent M&A: Local opinions are divided as to how private equity firms Nexus Group, AC Capitales much Peru will grow in 2015. Growth has and Enfoca were among the key names to classically depended on mining projects. begin their activities around this time. At first However, with several mining projects slowing fundraising was limited and transactions were down, Peru is beginning to look at other sources small, but in the last few years private equity of growth to try to broaden its economic houses have begun to enter the league of much potential. Among these are the agriculture larger transactions. Success begets success, so sector, ports, irrigation, airports, urban highways as fundraising became more interesting and and transport, education, services, and goods for more opportunities began to appear in the the growing middle class, as well as construction. market, larger funds such as Carlyle, Advent and Peru is a mining country and remains strongly Citigroup Alternative Investments started to dependent on commodity prices, but the explore Peru and eventually set up shop, either government has realized that it must develop in Peru or in Bogotá or Santiago de Chile. policies to unlock other sources of wealth, Currently, M&A transactions are being driven increase local demand and diversify production by several trends. On the buy side, many local capacity in ways that make the country less companies are looking to consolidate their local vulnerable to the cycles of commodity prices. operations (and Peru has no merger controls Recent discussions at the largest national yearly in place to restrict this). In addition, foreign executive conference focused on the need to companies are moving to launch operations upgrade the country’s infrastructure, education in Peru, Peruvian and other businesses from

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Global M&A_Peru_Miranda_Final.indd 94 12/14/14 3:17 PM the MILA are pressing ahead with notably, in 2014 Canada’s Pension Plan infrastructure or real estate. In this strategies to grow within the region, Investment Board purchased a stake in category are Brookfield and Sigma, both and investment funds are looking for Peru’s main natural gas pipeline operator. of whom have received mandates from investment opportunities in Peru as it Other international pension funds and local pension funds mainly. In real estate, has reached investment grade. On the Terranum has been very active. sell side, we are seeing a considerable There is still no developed market in Peru number of family companies whose “Private equity firms began for venture capital. owners have decided to give way to competition and cash in their returns their activities in Peru at the How are the recent (often, returns that have escalated end of the 1990s. Prominent way beyond their expectations) and changes to Peru’s pension eventually become the clients of private equity firms Nexus funds law expected to boost those same funds trying to buy their alternative investments? companies. Group, AC Capitales and M&A: In 2014, the regulations relating to investment by pension funds evolved However, Peru is still a relatively small Enfoca were among the dramatically to allow pension funds to economy and the size of its companies key names to begin their find more investment options at both is also relatively small. Outside of the the local and international level. mining and energy sectors, few industrial activities around this time. At companies are worth $100 million With respect to investment funds, the or more. first fundraising was limited main change is that the regulation now treats funds differently and provides Peru’s financial and capital markets are and transactions were small, for certain investment limits according not too developed, meaning that exit but in the last few years to the type of fund. Before the new strategies for funds will not necessarily regulations, all funds fell into the same be under the most ideal conditions. Our private equity houses have bucket; now investments in infrastructure market has not seen many exits yet. begun to enter the league of funds will not take away a pension fund’s Former Citigroup Alternative Investments capacity to invest in real estate funds or fund (now with Rohatyn group) made a much larger transactions.” in private equity funds investing in other successful investment in a local fishing commercial companies. company, and exited the company via a combination of an IPO and private sovereign funds have also been looking Another relevant change is that sale. Similarly, local fund Enfoca invested at potential investments in Peru, but have the regulatory limit on investments successfully in a local home improvement not closed transactions yet. outside of Peru is now 42 percent of company and in 2014 exited through a the portfolio. This creates fundraising As mentioned before, private equity private sale to a competitor. opportunities for funds that wish to raise funds have also been active. Many funds in Peru for investment abroad. With its pros and cons, Peru presents are looking for opportunities, but only a a developing opportunity for private few have actually invested. As mentioned To what extent will private equity funds in many sectors, including above, local funds Nexus Group, AC investors have a role to Capitales and Enfoca have paved the real estate, construction, infrastructure, play in Peru’s ambitious energy, retail and manufacturing. way, but now global funds such as infrastructure plans? Carlyle, Advent, Rohatyn, Compass, Altra M&A: Peru’s infrastructure program Investments and Linzor Capital Partners What types of funds are depends heavily on private investors. are becoming progressively more visible currently the most active The country has a great deficit of small, in the market. Not all of them necessarily in Peru? medium and large infrastructure projects, compete for the same assets, which M&A: Local pension funds are the most from local highways and sanitation makes it all more interesting, since we active and currently hold more than 60 to large highways, gas pipelines, are now seeing different types of funds percent of their investments in Peruvian transmission lines, etc. While the targeting companies of different sizes. debt (mostly) and equity instruments. government may tackle small projects Foreign pension funds have also Then there are certain specialized funds, with its own budget, it lacks the capacity been increasingly active in Peru. Most focused in specific areas like energy, and funds to invest in every sector in

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need of modernization. In this context, increase activity in oil and gas, energy, upon our extensive resources to ensure large projects are developed through logistics, transport, telecoms and all supplementary demands are met. public-private partnerships, where entertainment. Third, we possess all the skills necessary the government grants concessions to avoid or resolve disputes among for private parties to develop energy What skills and experience shareholders or between shareholders projects, ports, highways, mines, distinguish Miranda & Amado and management. These qualities mark sanitation infrastructure, irrigation Abogados as a top choice us as a top choice for legal advice when projects, among others. While many for multinational clients entering into an investment that is not large projects are promoted by the looking to invest in Peru? merely the purchase of a 100 percent government, many important projects M&A: First, we have a large and interest in a company. begin as private initiatives, and all large experienced team comprised of a projects are developed by private Fourth, our lawyers speak fluent Spanish, combination of transactional lawyers, investors. Over recent years, most of English, German and Portuguese. Most of industry experts and regulatory Peru’s infrastructure projects have been our attorneys have received LLM and/or specialists, which enables the firm to led by construction companies who other postgraduate degrees abroad, and use the concession model as a way to nearly all of our transactional lawyers have develop their construction businesses. “With its pros and cons, spent some time working for firms in the Since all of these projects require a certain U.S. and U.K. This international perspective amount of equity, and an enormous Peru presents a developing means that we can engage totally with the amount of debt, investment funds look opportunity for private equity global corporate structure of our clients for opportunities to participate in these and assist individual managers meet their projects by purchasing debt instruments funds in many sectors, including corporate policies and standards. and, if possible, taking positions on the equity side as well - this is when funds like real estate, construction, About the author: Sigma provide access to pension funds infrastructure, energy, retail and Roberto MacLean, partner into projects. Partner manufacturing.” [email protected] The investment trust created by the pension funds is intended not only to Partner since 1999, with diverse provide funds for infrastructure projects, assist buyers and sellers across a wide experience in corporate, financial and but also to provide opportunities for range of sectors and industries. Our capital markets transactions. MacLean is pension fund administrators to take lawyers also stay ahead of global trends focused mainly on M&A, private equity, advantage of the current stage of to provide cutting-edge advice in joint ventures, corporate reorganizations, Peruvian development. relation to new industries opening up in as well as matters related to corporate Peru, which is evidenced by the fact that law for both private and listed companies. we dominate pathfinder deals in every He covers many sectors of the economy, What are the other headline business trends single sector. among them financial, insurance, energy, infrastructure and industrial matters. driving deals in Peru? Second, in addition to our ample He also has experience in several types experience in negotiating and closing M&A: In 2013, according to weekly of commercial contracts. Regular and M&A transactions, our team has business journal Semana Económica, current clients include Abengoa, Duke expertise in structuring long-term the hottest sectors for M&A in Peru in Energy, Willis Group, Moody’s, Driscoll’s, arrangements between investors, terms of value were energy, fishing, SSAB, Intel, Natixis, STX Offshore & through company bylaws, shareholder pension funds, mining and telecoms. Shipbuilding and Corficolombiana. Local agreements and other legal and In terms of number of transactions, clients include Banco de Crédito, Sigma contractual mechanisms designed the energy, mining and manufacturing SAFI, a Peruvian infrastructure fund, to build trust and resolve inevitable sectors scored highly. During the last two and Gas Comprimido del Perú, a local conflicts. Our corporate and M&A years, the energy sector has witnessed distributor of natural gas. a particularly high level of M&A activity. practice is used to working closely with Looking forward, according to a all practice areas of the firm. Our lawyers Masters of Law from New York University recent forecast by Semana Económica, are transactional heavyweights and Law School, Lawyer from Pontificia investment funds are expected to know how to lead transactions and call Universidad Católica del Perú.

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Mergers and Acquisitions in Poland The Polish M&A market emerged with strength and is poised to continue to outpace regional peers.

oland emerged over the last decade as Polish government controlled most of the country’s the leading location for foreign invest- businesses and there were few private enterprises. ment in Central and Eastern Europe In early 1991, the Warsaw Stock Exchange (WSE) (CEE), and one of the prime markets was re-opened. Later that year, the government an- in the entire European Union (EU). In nounced a sweeping privatization program, calling addition,P the domestic capital and investment mar- for half of state-owned assets to be privatized in the ket has been stimulated by consumer demand as well next three years. The development of the WSE as as export market opportunities, enhanced by stable a regional leader facilitated several key privatiza- economic growth and prudent fiscal management tions by initial public offering (IPO), such as the promoted by the government. As a result, the Polish listings of Telekomunikacja Polska, copper min- M&A market emerged in strength as the economy ing giant KGHM and petrochemical leader PKN developed, and based on recent deals and trends it Orlen. This active public equity market has seen seems well-positioned to continue to outpace region- the full range of acquisition transactions that have al peer jurisdictions. become more commonplace on the London or New Since the beginning of the market transforma- York exchanges, including simple take-overs, hos- tion following the collapse of the Soviet era, Poland tile take-overs and “white knight” defenses. has distinguished itself from its CEE peers. In 1989, All of the CEE countries experienced a boom, Poland was nearly bankrupt, and home to a large or at least strong growth, from their relatively but inefficient agricultural sector, inadequate and low bases prior to 2007. Since the financial crises, nearly unbearable roads and rail services. Popular GDP growth in most CEE economies has been de- wisdom regarded CEE neighbors like Hungary pressed. But Poland, which uniquely avoided reces- and pre-split Czechoslovakia as more likely pros- sion, has delivered a healthy 3.5% per year growth pects. But rigorous economic “shock therapy” and rate, fueled by lower exposure to weak export de- a large, hard-working and aspirational population mand generally and a close connection to the ro- put Poland on the right track. bust German economy. The early days of the market in Poland and As Poland joined the EU in 2004, huge export across the region involved many privatization sales markets were made much more easily accessible. as national governments sought to generate income EU funds have poured in (over $100 billion through and revitalize moribund industries. In 1989, the 2013), along with private investment, to stimulate

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Global M&A_Poland_GT_Final.indd 98 12/14/14 4:00 PM the improvement of the transportation and energy infrastructure necessary to support a world-class economy. Foreign investors recognized that Po- land’s large population would create demand for consumer goods and services, and that Poland’s highly educated and reasonably de-regulated and lower cost work force would make the country a prime location for manufacturing, R&D, off-site services and technology centers.

THE IPO MARKET By the end of the first decade of the 21st century, most of the country’s largest companies had listed their shares on the WSE. The WSE is the largest Jarosław Grzesiak Stephen Horvath national financial instruments exchange in CEE MANAGING PARTNER PARTNER and one of the fastest-growing exchanges in Eu- Greenberg Traurig Greenberg Traurig Warsaw London rope. As at 31 December 2013, WSE was a leader in the CEE region in terms of capitalization of listed companies, the value of turnover in shares and the Branch, raising PLN 238.6 million for Polski Hold- volume of turnover in derivatives. Nearly all of the ing Nieruchomos´ci (PHN). PHN, a state-owned largest banks, industrial companies, energy produc- company, is one of the largest (in terms of market ers and distributors and private sector media opera- value of real estate portfolio) developers, holders tors trade as public companies. More than 400 com- and managers of commercial and residential real panies are now listed on the main market, including property in Poland. It holds and manages 305,000 Italian bank UniCredit, which has a secondary list- square meters of office, retail, logistic and residen- ing in Warsaw. Another 220 smaller firms are listed tial properties. on New Connect, Warsaw’s equivalent of London’s 2013 was brought to a rousing close by the IPO Alternative Investment Market. of Energa S.A. on the WSE. The value of the IPO While the world-wide economic crises that was PLN 2.4 billion ($780 million), making it the began in 2007 certainly has affected the pace of largest IPO in Central Europe in over two years. IPOs, Poland has continued to experience a vi- Energa is a regulated power-distribution business, brant equity market. delivering electricity to 2.9 million homes and busi- Zespół Elektrowni “Pa ̨tnów-Adamów-Konin” nesses. It is the third largest energy supplier in Po- S.A., the fifth largest electricity producer in Po- land, and a national leader in production of energy land in terms of installed generation capacity and from renewable sources. electricity output, made its debut public offering The prime example of a 2014 capital market on the WSE in October 2012. The IPO, valued at transaction is the PLN 995.5 million rights issue over PLN 680 million (approximately $212 million) launched by Grupa Lotos S.A., Poland’s second- was Poland’s largest IPO in more than a year, since largest refiner. The prospectus was approved by the PLN 5.37 billion sale of state-owned coal mine the Polish Financial Supervision Authority (PFSA) Jastrzębska Spółka Węglowa S.A. in June 2011. in November 2014. The largest IPO in Poland in 2012 was the $640 million initial public offering by Alior Bank S.A. FINANCIAL SERVICES SECTOR on the WSE in December 2012. The underwriters With deregulation and economic stabilization, on that blockbuster deal were Barclays Capital, J.P. Western European banks moved aggressively into Morgan, Morgan Stanley and Ipopema S.A. Poland to help consolidate the banking sector, and The first IPO of 2013 was coordinated by Citi- to expand the scope and depth of the offered ser- group Global Markets Limited, DMBH, Société vices. At the same time, a few of the leading do- Générale, UBS and Deutsche Bank AG, London mestic players, adopted modernization strategies

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to keep them at the front of the pack. Transaction proximately PLN 2.8 billion. As part of the acqui- activity over the past few years has continued the sition, Nordea Bank AB will provide PKO BP over consolidation trend, with opportunities driven by a period of seven years with approximately PLN regulatory and commercial pressure resulting from 15 billion of financing for mortgage loans granted the financial crises. Many sellers are facing distress by Nordea Bank Polska. This acquisition supports in their home markets, or pressure from sharehold- execution of PKO BP’s strategy, enhancing its posi- ers and regulators to scale back expansion. Buyers tion as the leading bank in CEE. It was an attrac- are seeking opportunities to capitalize on their own tive opportunity for PKO BP to expand its leader- strength and accelerate market share growth by ac- ship position in retail, grow its distribution network quisition. All activity in the sector is closely super- in large Polish cities, increase its affluent client base vised by the PFSA, the financial sector regulator. and significantly strengthen its corporate fran- chise. The transaction was approved by the PFSA in March 2014, clearing the way to completion of “In one major move, BNP one of the largest finalized acquisitions in the Polish banking sector announced in 2013. Paribas has positioned itself PKO BP also has been active on other fronts. In late 2013 PKO BP sold a majority stake in eService to become an increasingly S.A. to the American company EVO for PLN 430 important player in the million. eService is Poland’s largest payments pro- cessing operator in terms of the number and value Polish banking market.” of transactions involving payment cards. EVO is —Stephen Horvath, Partner, Greenberg Traurig London the largest private firm acquiring and processing payments for merchants in terms of the value of the transactions processed in the USA and Canada. The The PFSA is deservedly proud of its stewardship transaction comprised, among other things, a share of the Polish market, avoiding any bank failures purchase agreement, the establishment of a joint or bail-outs during the financial crisis. The PFSA venture, a shareholders’ agreement and a strategic has supported both foreign investment and domes- alliance agreement to govern cooperation between tic development in the banking sector, while also PKO BP and EVO over the next 20 years. This deal insisting on opportunities for public investment by introduced a new concept in the Polish market by requiring listing of large banks and provision of ad- combining bank payment processing with a state of equate free float in the shareholding. This strong the art technology, and know-how offered through regulatory posture has not, however, limited the a joint-venture structure by one of the leading and acquisition and consolidation opportunities over most innovative electronic payment companies in the past few years. the world. It is expected that this deal will revolu- In early 2012, the Austrian bank Raiffeisen Bank tionize the electronic payment system in Poland, and International snatched up the Polish business of the will provide the Polish bank with a platform for ex- troubled Greek bank EFG Eurobank for over €500 pansion into other markets. million. The business, Polbank EFG, was operated In December 2013, the French bank BNP as a branch of the Greek bank, and the transaction Paribas announced its agreement with the Dutch was complicated by having to first convert Polbank Rabobank Group for the acquisition of the 98.5% from a branch into a licensed bank, which was then stake held by Rabobank in Bank Gospodarki combined with Raiffeisen’s own Polish bank. Zywnos´ciowej̇ S.A. (BGZ). Valued at PLN 4.2 billion The last year has witnessed two other milestone (€1 billion), this was the largest banking acquisition transactions in the banking sector, as well as con- in Poland completed in 2014. BNP Paribas expects solidation at the smaller end of the scale. to consolidate its own Polish subsidiary, BNP Pari- Poland’s largest bank PKO Bank Polski S.A. bas Polska, as well as its Polish consumer finance (PKO BP) acquired Nordea Bank Polska and cer- operations, into BGZ. tain affiliates from Norway’s Nordea AB for ap- Recently, the local Alior Bank agreed to acquire

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Global M&A_Poland_GT_Final.indd 100 12/14/14 4:01 PM its smaller rival Meritum Bank S.A. The purchase largest transactions in the history of CEE M&A. agreement was signed in October 2014 for a value In 2013, Cyfrowy Polsat agreed to acquire of PLN 352.5 million. Polkomtel, which will allow it to offer a modern Consolidation and change will continue to quad-play service. Cyfrowy Polsat completed the characterize the banking sector in the coming year. deal by acquiring Metelem Holding Company Already, GE is mooting the sale of Bank BPH, a Limited, the sole owner of Polkomtel, in exchange major market participant, and it is likely that Ali- for Cyfrowy Polsat shares valued at PLN 6.15 bil- or Bank itself may be the subject of a significant lion. The acquisition closed in mid- 2014, creating change of ownership. Recently the country’s largest the largest media and telecommunication group in lender PKO BP, its top rival Bank Pekao (controlled the region and one of the largest corporations in by Italy’s UniCredit), and the third-ranked player Poland. BZ WBK (controlled by Spain’s Banco Santander) Part of the transaction included the refinanc- have all signaled that they would look into possible ing of the existing indebtedness of Cyfrowy Polsat. acquisitions. From a consortium of more than 20 financial insti- tutions led by ING, PKO BP and Société Générale, MEDIA & TELECOMMUNICATIONS the company raised new loans totaling PLN 3 bil- SECTORS lion, which enabled it to repay its existing term loan The media and telecommunications sectors in Po- facility and Senior Secured Notes (totaling in ex- land have exploded, as elsewhere, with new tech- cess of PLN 1.9 billion as at the end of 2013). nologies pushing digital services in place of older Another key player in the sector is Telekomuni- traditional media and land-line phones. kacja Polska S.A. (Orange Poland), which in 2013 The leading transactions in this area are a series sold its Wirtualna Polska portal to its peer o2 Group, of deals put together by Polish media entrepreneur Zygmunt Solorz-Żak. Solorz-Żak is the Chairman and founder of Cyfrowy Polsat, the largest digital broadcaster in CEE. In April 2011, Cyfrowy Pol- “The Polkomtel acquisition sat acquired Telewizja Polsat for approximately €1 was an historic milestone billion in the largest ever deal in Poland’s media sector. The transaction was financed by a PLN 3 in Poland’s post-credit billion LBO and revolving facility, followed by a high yield offering of €350 million senior secured crunch economy. The notes in May 2011. market is primed for major Later that year, Solorz-Żak paid PLN 18.1 bil- lion ($ 6.6 billion) to acquire Polkomtel, Poland’s transactions again.” second-largest mobile network operator. The com- —Jarosław Grzesiak, Managing Partner, pany had been placed on the market by its origi- Greenberg Traurig Warsaw nal shareholders: Poland’s largest power group, PGE Polska Grupa Energetyczna; oil refiner and petrochemical giant PKN Orlen; Poland’s leading in a transaction financed by private equity firm copper concern KGHM Polska Miedz ́; the leading Innova Capital, for PLN 375 million. Wirtualna exporter of Polish coal We ̨glokoks; and mobile op- Polska is Poland’s oldest web portal, ranked second erator Vodafone. The debt financing was arranged among all Polish portals, before its merger with the by a consortium of banks, co-ordinated by Crédit o2 Group, the owner of the o2.pl portal. Agricole and Deutsche Bank, and underwritten by The markets are already looking ahead in the Crédit Agricole CIB, Deutsche Bank, The Royal coming year to the proposed sale of the controlling Bank of Scotland, Société Générale and PKO BP. stake in TVN S.A. (Poland’s other leading private The transaction was one the largest leveraged buy- sector broadcaster) by TVN’s lead shareholders out in Europe since 2008, the largest acquisition ITI Group and Groupe Canal+, which most likely ever made in Poland at that time, and one of the will be the major M&A transaction in 2015. ■

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BBH – YOUR TRUSTED ADVISOR IN CENTRAL AND EASTERN EUROPE AND THE CIS REGION

Key practice areas: • M&A, Corporate Law • Banking and Finance, Insurance Business • Insolvency and Restructuring • Litigation, Arbitration and other Proceedings • Capital Markets • Real Estate • English Law M&A Market in Russia: Turbulent Times In 2014 M&A value was at its lowest level in 5 years but small deal activity was booming. How did the Ukrainian crisis affect the M&A market in Russia and what are the predictions for 2015?

ith vast natural resources and market, 2014 saw a drop in the aggregate value of an ever-growing domestic M&A deals to the lowest level since the 2009 cri- market, Russia has long had sis. The ongoing geopolitical situation and reduced the potential to be an attrac- market confidence led to the aggregate value of tive country for M&A activity. large deals worth over USD 500 million to 50% WMoreover, Russia’s accession to the World Trade lower than comparable numbers for 2013. This is Organisation in 2012 opened new opportunities for no doubt in large part due to the European and economic advancement and diversification. The au- American sanctions which target some of Russia’s tomotive sector is said by many to be one of the key- largest corporations such as Gazprom, Rosneft, stones of Russia’s economic rebirth, but it is clear that state owned banks and other financial institutions, the energy and natural resources sector, stemming together with the impact of lower oil prices, a sig- from the vast array of natural resources, has also nificant devaluation of the rouble and an economy had an indisputable impact on Russia’s economic in recession. growth. Russia is not always a straightforward place An absence of large privatisations in 2014 led to to do business, and is a country of controversies. The inbound M&A by volume of deals to drop by over Ukrainian crisis and Crimea accession, followed by 50% when compared with value of deals in 2013. introduction of U.S. and EU sanctions on Russia, Whilst the number of mid-size deals in 2014 re- have brought business uncertainty and this has had mained broadly comparable with numbers in 2013, dramatic impact on the M&A landscape. volume of smaller transactions concluded in 2014 After a number of buoyant years on the M&A which were worth less than USD 250 million ap-

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Global M&A_Russia_BBH_Final.indd 102 12/14/14 4:03 PM pears to be unaltered by the political situation. 2014 average price of the transaction is almost 50% Whilst there was a significant decrease in the total lower than in January 2014). value of M&A transactions in 2014 (when com- pared to comparable value of deals undertaken SHIFTING EASTWARDS in 2013), a large transaction between Rosneft and Another development in the current times of tense TNK-BP due to its size had a big impact on the ag- relationships between Russia and EU/US, is seen in gregate value of M&A transactions in 2013. Russia’s shifting of focus eastwards. The first quar- In 2014, the energy and natural resources sec- ter of 2014, has witnessed an intensified business tor continued to dominate the M&A market. One co-operation between Russia and China. Russia’s of the largest deals in the energy sector was a joint shift towards Asia in energy, infrastructure, finance venture deal worth USD 2.4 billion between Alli- and natural resources sectors was exemplified at ance Oil and Independent Petroleum Co. Another noteworthy deal was the consolidation of four utility companies by Volzhskaya TGK for a total of USD 4 “Many domestic low-value billion. This sector has always been a driver to other sectors of Russian economy and in 2014 it triggered transactions along with a small the growth of the total value of M&A transactions. number of big M&A transactions An increase in the number of transactions can be noticed in a non-manufacturing retail & servic- involved non-Russian investors.” es sector. This sector amounts to 25% of the total value of all M&A transactions in 2014 providing this years’ APEC summit in Beijing, where Rus- around 20% of the total amount of transactions sia signed 17 major bi-lateral business deals with while the energy sector up makes around 40% of China. It is anticipated that the alliance between the total value providing for about 5% of the total the world’s second and eighth largest economy will amount of the transactions. lead to further M&A activity. We have already seen Another well-known driver of Russian economy a high profile deal agreed between Russia’s Gaz- - the real estate market has recorded a decrease of prom and China’s National Petroleum Corporation investments by 43% in the first 9 months of 2014; in May 2014 for USD 400 billion. This deal could nevertheless 5 real estate transactions took place in see China, to a certain extent; replace Europe as September 2014. Russia’s main gas export market. The other major Corporate and retail banking deals drove the energy deal was Rosneft’s subsidiary Vankorneft’s banking and insurance sector, where one of the offer to China National Oil and Gas Exploration largest deals was Alfa Group’s acquisition of Bank and Development to control a 10% stake in its sec- of Cyprus for USD 304 million. ond largest oil field, Vankor. It is also worth noting that about 85% of trans- It is expected that China will continue to look actions on the Russian M&A market were domes- for sources in Russia to power its growing economy. tic transactions with around 7.5% constituting One of the deals on the list is the construction of outbound and inbound M&A. However both out- a storage pump plant on the Shapsha River in the bound and inbound transactions made 30% of the Leningrad Region by the Power Construction Cor- total value. Many domestic low-value transactions poration of China, which will cost in the region of along with a small number of big M&A transac- USD 3 billion. Another scheduled deal is a trans- tions involved non-Russian investors. action between Russian hydroelectricity generator Completed transactions in Russia amounted to RusHydro and Sanxia, the “Three Gorges” compa- only about 20% of the total value of the market in ny, to finance, construct and operate several hydro autumn 2014. The average value of a transaction electronic power plants in the far east of Russia. has decreased by 40% as compared to 2013, but the exact figures are still yet to be published follow- M&A LEGAL FRAMEWORK ing the end of the year since dispersion heavily de- The Federal Antimonopoly Service of the Russian pends on the exact month of the year (e.g. autumn Federation (“FAS”) is the central authority to en-

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force merger rules in Russia. Since the introduction Under the Russian merger control legislation, of the strategic clearance under the Federal Law there are also specific rules on acquisition of major- No. 57-FZ on the Procedure for Making Foreign ity stakes in companies operating in sectors such as Investments in the Companies Which Have Strate- nuclear energy, media, gas transportation etc. Fur- gic Importance for National Defence and State Se- thermore, there are specific rules on investments in curity (“Strategic Investments Law”), governmental the banking and insurance sector. Joint ventures are interference in merger control procedures has been currently subject to the FAS only if they result in es- reduced substantially. Federal Law No. 135-FZ on tablishment of a new entity. There are no additional the Protection of Competition sets out competition jurisdictional or financial thresholds which would rules for both domestic and foreign mergers. Trans- qualify joint ventures for FAS approval. There actions that may be caught by Russian merger con- are ongoing debates about a possible reform of the trol include acquisitions, incorporations, mergers merger control rules in Russia which would intro- and accessions of companies. duce clearance procedure for joint ventures. The Russian legislation contains special rules in Specific rules on transfer of LLC shares should respect of mergers in particular sectors. These rules also be taken into account. In 2009 a new ruling on are set out in the Strategic Investments Law and re- the sale and purchase of LLC shares was enacted. late to 42 strategic economic sectors. Foreign inves- In particular, all sale and purchase agreements tors who wish to invest in a sector which falls within should now be signed in the presence of a Russian one of the strategic sector categories need to obtain notary. Prior to signing the documents on LLC clearance from the Governmental Committee prior share purchases, the sale and purchase agreement to completing the transaction. There is no formal should be reviewed by the notary. Since notariza- deadline for submission; however parties should tion of Russian level share-purchase agreements be- allow sufficient time for review of the underlying ing mandatory is quite a lengthy process, parties to documents by the authorities. There are no forms a transaction opting for English law should always of accelerated procedures for any types of mergers. consider such notarization as a CP. All filings and formalities need to be complied with, However, the most recent changes to the Rus- irrespective of whether the transaction raises a con- sian Civil Code and changes to the corporate leg- cern about fair competition or not. islation planned to be introduced in spring 2015 Transactions need to be cleared if they fall with- already stipulate for more flexible post-M&A struc- in the definition of concentration and if they meet turing of company governance. Ability to limit ex- certain jurisdictional and financial thresholds. If ecutive powers of the sole executive body by using clearance is not obtained, companies could face a a number of directors with interdependent powers fine of up to USD 14,000. A fine can be imposed on and diversified governance structure if supervisory entities as well as individuals. FAS also has a power and management boards are used are the key novel- to retrospectively invalidate a transaction if clear- ties in Russian corporate law. ance has not been obtained prior to completion. By analysing FAS’s past decisions, it appears that in WHAT DOES THE FUTURE HAVE instances where FAS has concerns about the abuse IN STORE? of a dominant position on the market or unfair There remains a question mark over how the M&A competition, it tends to issue conditional clearances activity in Russia will develop in the short or me- rather than blocking the transaction completely. dium term. It remains to be seen how much the Conditional consents normally contain behavioural Ukrainian crisis will affect Russia’s M&A pipeline. remedies, such as specific actions or information Companies are no doubt revising their strategic disclosure requirements. Data shows that only 2% plans and waiting to understand how the geopoliti- of transactions were prohibited from going ahead cal situation in the region will evolve. Some compa- last year, whereby half of those prohibited transac- nies have postponed their commercial activities in tions were caused by the parties’ non-compliance the hope that the situation will be resolved in due with administrative formalities leading to lack of course and some companies have perceived it as an transparency of the ownership structure. opportunity to exploit the domestic market.

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Global M&A_Russia_BBH_Final.indd 104 12/14/14 4:03 PM There is also an unexpected market driver which may provide for an additional number of “internal” M&A transactions in 2015 to help companies sur- vive turbulent times, namely “deoffshorization”, a new Russian government initiative to bring part of its residents’ income back to the country. The initiative is not new compared to the OECD activ- ity related to tax haven use, but it is expected that it will cause a number of holding restructurings if tax haven-based structures are used and these are used in Russia quite extensively. A small number of transactions aimed at securing properties aimed at optimization of existing holding structures in order to decrease possible extensive tax and administra- Mgr. Jirí Šterba Chris Watkinson tive burden may also add to the number of M&A managing PARTNER SOLICITOR transactions in 2015, following the introduction of bbh moscow BBH English Law Desk deoffshorization deals. Despite the fact that the law is fairly onerous and is promised to be eased in the spring of 2015, there are lengthy transition periods tion”, meaning further strengthening of the role set by the law to give Russian beneficiaries of the of state-owned players, particularly in the energy holding structures enough time to think the situa- and financial services sectors. Further, it is assumed tion over and start optimizing their asset holding that the German model, which entails increased lo- structures. cal production and distribution, often using joint Due to the slowdown of Russian GDP growth, ventures, and increased investments in local plants decrease in capital investments, an insignificant and staff trainings, will be increasingly applied. It dropdown in industrial production and the con- is also believed that privatisation programmes will tinuing sanctions-war preventing major Russian remain open to foreign strategic investors, espe- companies to obtain long-term borrowings and in- cially in the transportation and utilities sectors. ■ vestments abroad, the M&A market has shrunk in its value. It is also expected that the slowing-down About the authors of the Russian economy, depreciation of the Rus- Mgr. Jirí Šterba, Managing Partner of BBH sian rouble and political issues may keep pressing Moscow the market down even in the first quarter of 2015. Jirí Šterba is the Managing Partner of BBH Mos- Economic and political issues may install a degree cow office. Mr. Šterba focuses on mergers and ac- of uncertainty about the trends and future of inves- quisitions, real estate and acquisition and project tors’ investments, but since the market has turned financing in the Russian federation. Mr. Šterba ad- back to domestic sources, it is time to think whether vises clients in significant acquisition transactions, it is time to consolidate Russia-based production especially in the areas of real estate, insurance, re- resources which may be underestimated and more tail and energy. Jirí is regularly sought by clients for accessible to buy in this turbulent time. joint-venture projects. The most favourable sectors to invest in are: oil  and gas sector with project discontinuation by Exx- Chris Watkinson, Solicitor onMobil, Total, Shell, Statoil, Schlumberger and Chris Watkinson leads the English Law Desk at Halliburton; cement production where the price of BBH. He has extensive experience advising on in- cement has decreased or the real estate sector with a ternational corporate transactions, including merg- general dropdown of prices because of the deprecia- ers and acquisitions, private equity investments and tion of Russian rouble and the economy slowdown. buy outs, re-financings and corporate structuring/ It is commonly believed that the long term trend reorganizations, with a particular focus on Russia, on the Russian market will be further “russifica- CIS and CEE markets.

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Crisis and New Beginnings How the sovereign debt crisis and a systemic failure of the domestic banking sector have brought about what promises to be an exciting period in the local M&A market.

he obverse of the Slovenian one- For various reasons— some grounded in a genuine denomination Euro coin carries restraint against destabilizing the economy after the the phrase “to stand and with- State’s secession from the Yugoslavian market and stand”. The expression is taken others in the struggle of daily politics to perpetu- from and signifies the first printed ate its importance— the State retained controlling Tliterary work in Slovene, published in 1550. With ownership stakes in a significant number of major an admittedly interpretative and slightly critical companies. These stakes ranged from what where undertone, the content of the phrase can also be designated strategic investment sectors (energy, tele- put to use in order to describe two facets of Slove- communications, transport, banking and insurance) nia’s corporate M&A market. One had character- to indiscriminate remnants of the planned-economy ized the market, until recently — namely Slovenia’s era (stakes in retailers, breweries, clothing com- stance towards foreign investment and privatization panies and the like). Coupled with an ungracious in the larger part of the past two decades, since the administrative and tax environment this platform State’s proclamation of independence in 1991— a persisted and (with occasional exceptions) withstood subtle inclination to withstand any significant in- notable foreign investment. flux of foreign investment. The other relates to the The reality of the sovereign debt crisis in the State’s recent struggle to cope with and withstand EU, intensified by a capital shortfall in the bank- the consequences of the recent recession, followed ing system, has revamped this context. Faced with by a sovereign debt crisis and a simultaneous criti- the EU’s demand to consolidate the State’s finances, cal capital-shortfall in the domestic banking sector. the Slovenian government has initiated in 2013 an This second facet also designates a turn in percep- extensive privatization process, covering 15 of the tion, which entails some exciting “new beginnings” State’s majority stakes in Slovenian companies. To for the local M&A market. date, the sales of Helios Group (one of the largest re- gional paint and coatings manufacturers, acquired THE NEW PROPELLERS OF by the Austrian Ring Group), Aerodrom Ljubljana M&A ACTICITY (the principal airport in the country and hub for Slovenia’s transition from a centrally planned social- the national carrier Adria, acquired by the Ger- ist economy, marked by the State as the owner of man Fraport) and Fotona (a manufacturer of high- all capital, has generally been denoted as gradual. performance lasers for medical, dental and aesthetic

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Global M&A_Slovenia_RPPP_Final.indd 106 12/14/14 3:41 PM applications, acquired by Gores Group, a Los An- purchased by the Croatian Atlantic Grupa. geles-based investment firm) have been concluded. The footprint of US private equity is expected to The process is set to cover twelve other companies, increase in 2014 and 2015, most notably with sev- including the national telecommunications opera- eral US private equity firms rumored to be throwing tor Telekom Slovenije, the national airline carrier their hats into the race for Telekom Slovenije. Oth- Adria, one of the largest regional sport equipment erwise, potential Chinese and Indian investors seem manufacturers Elan, and the second largest bank in to be testing the market, but remain cautious, and the country’s financial system NOVA KBM. These there has yet been no palpable sign of a significant deals are expected to be the main drivers of M&A change in approach from these regions. activity in 2014 and 2015. At the same time, through the enforcement of se- FINANCING curity interests on non-performing assets, State-held Debt rather than equity remains the primary source banks have set in motion an unprecedented activity of financing for acquisitions in Slovenia, which is on the selling side, driven by the sale of distressed perhaps a consequence of the overall uncertainty in assets. This process has for example led to the initial- the equity market. A macroscopic refinancing and ization and in 2014 the closing of likely the largest restructuring procedure continues to dominate the M&A transaction on the Slovenian market to date, domestic debt market, which was heavily affected the acquisition of Mercator (the largest Slovenian re- by the impact of the financial crisis. A wide-spread tailer, with a significant market presence in Croatia, capital shortfall made Slovenian banks particularly Serbia and Bosnia and Herzegovnia) by Agrokor to create a regional mammoth stretching through six countries. Since sales of distressed assets form a part “Faced with the EU’s demand of the banking sector’s restructuring, which remains an absolute necessity for Slovenia, they are expected to consolidate the State’s to significantly boost activity on the M&A market, particularly in respect of small and mid-sized M&A finances, the Slovenian transactions. A wide portfolio of assets, ranging government has initiated in from non-performing receivables to hotel properties is on sale. 2013 an extensive privatization

FOREIGN INVOVEMENT process, covering 15 of the The majority of recent M&A transactions have been State’s majority stakes in fuelled by foreign investment, with private equity increasing its presence in Slovenia. The Report on Slovenian companies.” Direct Investment 2013, issued by the Bank of Slove- —David Premelc˘, Partner, Rojs, Peljhan, Prelesnik & partners nia1, indicates a net increase of foreign direct invest- ment amounting to EUR 1,147.2. Investments from EU Member States prevail and account for 82,3 % reluctant to finance any substantial acquisition. In of the value of all foreign direct investment in the an effort to stabilize and recover the failing bank- first. Neighboring Austria accounts for by far the ing sector the State has segregated and taken over most significant share, with 34,3 % of all foreign di- roughly EUR 4.6 billion in non-performing assets rect investment, followed by Italy (8,4%), Germany from the banking sector with the creation of the (7,7%) and France (7,3%). Well-informed buyers Bank Assets Management Company. An economy- from neighboring countries have indeed played a wide private debt restructuring process is now un- key role in some of the more notable transactions derway under the umbrella of the BAMC. It aims to recently: aside of the sale of Mercator to Croatian reignite the economy by recovering what there is to Agrokor and the acquisition of the Helios Group by recover from non-performing assets, and revamping the Austrian Ring Group, Fructal, a fruit products the crediting activity of Slovenian banks. manufacturer, was sold to a Serbian investor in 2011 The “cleaning-up” of banks’ balance sheets and Droga Kolinska, a drink and food producer was through the BAMC should bring an increase of ac-

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tivity on the domestic debt market in the following Agency. The individual exception applies for five years. But for now, perhaps as a consequence of a years, which is considered sufficient time for lenders turn in mentality brought about by the brutal ef- to restructure the target and sell it to an investor. fect of financial crisis, local lenders remain cautious An important consequence of any person (acting to say the least. It should therefore not come as a alone or with its concert parties) exceeding the take- surprise that in nearly all cases acquisition financ- over threshold, yet failing to publish a successful ing sources have come from foreign financiers. An takeover bid, is the standstill of that person’s voting increasing number of transaction in Slovenia are rights. Foreign investors should however not fear being financed through the high-yield bond market. “losing” voting rights as all necessary steps towards Typically, the target’s existing debt remains in reaching a successful takeover bid are firmly in their place upon a change of control. Investors are how- scope of control. Of particular importance in this ever usually required to enter into protracted discus- regard is the interpretation given by the Securities sions with existing lenders and restructuring nego- Market Agency to the requirement that an acquirer tiations have become an important aspect of deals. who exceeds the takeover threshold of one-third of voting rights in a target company cannot exercise RECENT DEVELOPMENTS IN THE any voting rights until the acquirer “issues a man- LEGISLATIVE FRAMEWORK datory takeover bid” (Article 63 of the Takeovers The financial crisis highlighted certain shortcom- Act). The Securities Market Agency has adopted a ings of local legislation, which had not been well- wide interpretation of this rule and considers that suited to deal with the predicament. Prior to the an acquirer has and keeps its voting rights even af- economic meltdown, financial restructurings were ter exceeding the threshold, provided that the ac- a rarity. After the economic downturn hit, one of quirer then follows all procedural steps necessary to publish the takeover bid. In practice, the Securities Market Agency’s interpretation permits an acquir- “With stability and certainty er to take action and obtain management control over the target immediately upon completion of the returning to the economy the acquisition of shares without the need to wait until completion of the takeover bid. Recent practice of local market should become the Agency suggest that this view has firmly settled an exciting option for investors in and may be relied on in future deals. in the coming years.” OUTLOOK —Bojan Šporar, Partner, Rojs, Peljhan, Prelesnik & partners For Slovenia, 2014 seems to have marked a turning point in the long-lasting crisis. With stability and certainty returning to the economy the local market the practical risks that lenders were facing was that should become an exciting option for investors in the through measures of financial restructuring and coming years. The processes, which have been initi- realization of share pledges they had the ability to ated to cope with the consequences of the financial step into the share-holder structure of the borrow- turmoil, are expected to continue – they will repre- ers and take control. The resulting change of con- sent the primary context of M&A activity in 2015 trol in joint-stock companies would typically trigger and onwards. The anticipated sale of Telekom Slo- a requirement to publish a mandatory takeover bid venije and the sale of Nova KBM Bank are pegged for shares of minorities. The additional fund-flow to represent the keynote transactions. Distressed as- that this would require was (for obvious reasons) not set sales are also expected to continue, albeit with an option. This issue stimulated an amendment of some fears that they will bring about subsequent the local Takeovers Act, which now provides for an withdrawals of foreign bank activity from Slovenia. exception from the requirement to publish a take- Several foreign banks are rumored to have been over bid in respect of cases, where the threshold is preparing an exit strategy. In addition, as a result exceeded in the course of financial restructuring, of large capital-shortfall, two local banks (Factor subject to prior approval by the Securities Market banka and Probanka), have been ordered to close-

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Global M&A_Slovenia_RPPP_Final.indd 108 12/14/14 3:41 PM shop and put under regu- lated liquidation which will result in full divestment and the cessation of their activi- ties. This should have the effect of further concentrat- ing the domestic financial sector, but since local debt financing is not expected to represent the principal mo- tor for future M&A activity, it should not be of any rel- ˘ ˘ evance to the prospects of David Premelc˘ BOJAN ŠPORAR JAKOB IVANcIc the market. ■ PARTNER PARTNER JUNIOR ASSOCIATE

ABOUT THE AUTHORS finance transactions, in which he regularly assists foreign and domestic institutions on banking rules David Premelc̆ and financial regulations. Bojan’s recent M&A work Rojs, Peljhan, Prelesnik & partners includes advising a client on takeovers, project docu- David joined RPPP in 2006 and has since practiced mentation and financing with respect to the Helios corporate law, with a primary focus on mergers and privatisation and heading the core legal team advis- acquisitions, corporate litigation and arbitration, ing Agrokor in its acquisition of Mercator, the larg- media law and data protection. As part of his com- est Slovenian retailer, these being the largest trans- mercial law and M&A specialization, David has actions in Slovenia since Novartis’ acquisition of Lek advised many domestic and foreign clients in M&A (also handled by the firm). He has advised among transactions and corporate restructuring, which in- other OMV AG with respect to a real estate stor- clude some of the most notable transactions in the age capacity acquisition in Slovenia and Kimberly financial, media, retail and industry sectors. His Clark in its acquisition of Balder, a high-technology recent M&A work includes advising NKBM, the company. Bojan’s recent work also concerned inno- second largest Slovenian bank, in its sale of Zava- vative work in bank and leasing companies’ origi- rovalnica Maribor (the third-largest insurance com- nated securitisations (synthetic and traditional) and pany in Slovenia), advising Agrokor in its acquisition structured finance deals. of Mercator, advising Cimos in its sale of Litostroj Jakob Ivanc̆ic̆ Power, advising Antenna Group in its joint venture Rojs, Peljhan, Prelesnik & partners with Telekom Slovenije, advising Zavarovalnica Jakob Ivanc̆ic̆ holds a bachelor’s degree in law from Triglav (the largest insurance company in Croatia), the University of Ljubljana. He graduated with hon- advising Styria Media Group in its acquisition of ours (cum laude) in 2013 and joined Rojs, Peljhan, Moje delo. David also regularly represents clients in Prelesnik & partners immediately upon graduation. administrative litigation as well as in international Jakob has worked on several M&A projects recently, and domestic arbitration proceedings and is con- including the acquisition of Mercator, Slovenia’s sulted with on a daily basis on data protection and largest retail chain, by Agrokor, the sale and finan- media law issues. cial restructuring of Helios Group and the acquisi- Bojan Šporar tion of LIV, one of the largest regional manufactur- Rojs, Peljhan, Prelesnik & partners ers of sanitary products, by Fluidmaster. Jakob’s Bojan Šporar joined (the then) Colja, Rojs & Part- practice areas include banking and finance, restruc- nerji in 2007 after his traineeship at Linklaters and turing and insolvency law, and intellectual property. court articling at the High Court in Ljubljana. His Jakob was seconded to Allen & Overy, A Pe ̨dzich sp. fields of expertise include M&A, and banking and K’s banking department in September 2013.

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Global M&A_Slovenia_RPPP_Final.indd 109 12/14/14 3:41 PM SPAIN Q&A Spain’s road to reporter maria recovery jackson puts the questions As foreign investors flock to Spain, Garrigues maps the to GARRIGUES key trends driving deal flow.

Spain’s M&A outlook looks vibrant. Long-term the Spanish government have resulted in Spain investors continue to bet on recovery, which becoming one of the top ten countries worldwide is translating into a healthy pipeline of deals, in terms of foreign direct investment inflows. particularly in the real estate and financial As a result, Spanish private equity investment services sectors. volume in 2013 reached EUR2.35 billion - 80 Ferran Escayola, New York-based partner percent of which was realized during the at preeminent Spanish law firm Garrigues, second half of the year, according to research examines the key features of the strengthening published by the Spanish Private Equity and FERRAN ESCAYOLA investor climate. Venture Capital Association. Spanish private PARTNER entities raised EUR478 million during 2013, GARRIGUES What are the key trends driving which marks a 90 percent increase compared to M&A activity in Spain? 2012. Still well below the 2004-2008 peak levels, the Spanish economy is on track for recovery Garrigues: The Spanish M&A market is on and international investors are positioning a path to recovery, supported by the overall themselves for the uptick. The most significant positive performance of Spain’s economy during trends for private equities are the return of the last 12-18 months. This positive regional large, strategic, cross-border deals, particularly performance, combined with a global low in the biotechnology/genetic engineering (10.4 interest rate environment, the return of CEO percent of investment), healthcare (7.4 percent of confidence, and key structural reforms in both investment) and telecoms, media and technology the Spanish financial and labor markets, has sectors (52.5 percent of investment). set the stage for a recovery in activity and an increase in international investor interest. We have also seen significant activity in the real estate sector due to low prices, an increase Since 2013, the Spanish economy has been of alternative financing, and new investment showing signs of stabilization and has in fact options such as the Spanish REITs, or ‘SOCIMIs’ (ex. returned to a path of slow but continuous Lar España Real Estate, Triangle, GMP, Hispania growth, with GDP projected to grow 1.3 percent Inmobiliarios and Merlin Properties). Also, a in 2014 and 1.7 percent by 2015, according to considerable number of deals have been driven the International Monetary Fund. This growth by financial institutions offloading portfolios such has been largely driven by domestic demand, as of non-performing loans, consumer loans reflecting the improvement in financial conditions and residential mortgages (ex. Caixabank, Banco and consumer confidence. Industry activity is Sabadell, Cataluña Banc and Bankia). Private accelerating, the positive pulse of the services equity funds such as Blackstone purchased sector has been maintained, and tourism Cataluña Banc’s real estate platform of foreclosed indicators are at record highs. As a consequence, real estate assets. and with inflation and interests rates remaining at low levels, investors have started to place their During 2014, we have seen a number of strategic money back in the country, as evidenced by the M&A transactions driven by further consolidation decrease of the Spanish sovereign risk premium. of the European telecoms, media and technology The various stimulus measures undertaken by sector, such as the sale of ONO to Vodafone, or

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Global M&A_Spain_Garrigues_Final.indd 110 12/14/14 3:35 PM the acquisition of Jazztel by Orange, “Private equity buyers are eDreams Odigeo, a Spanish online travel which are pending completion. company which it had acquired in 2010. pulling the trigger Another trend has been a number of But we have also seen examples of Spanish corporates seeking growth on deals in Spain after underlying companies acquired by third via M&A in attractive markets outside companies. In March 2014, Providence the Eurozone (Telefonica acquired several years of remaining Equity Partners sold ONO, Spain’s second Brazilian GVT, Ferrovial acquired on the sidelines.” largest cable operator to Vodafone for Australian Transfield) or streamlining $10 billion. The transaction enabled their portfolios by disposing of non-core Vodafone to take advantage of the rapid assets (Telefonica sold Telefonica Czech Spanish infrastructure assets were increase in the adoption of Internet and Republic to PPF). also in the spotlight: in June 2014, mobile products and services in the Cinven acquired the fiber network Spanish market. To what extent has the of Gas Natural Fenosa (Gas Natural market witnessed a renaissance Fenosa Telecomunicaciones) for over In 2014, Spain set out new in private equity deals? EUR500 million, allowing it access to legislation governing 30,000 kilometers of network across Garrigues: Private equity buyers are private equity investments; Spain, Central America, Panama and pulling the trigger on deals in Spain what are the key features Colombia; and in October, KKR acquired after several years of remaining on the of the new regulations? a 33 percent stake in Acciona Energia sidelines, as evidenced by the capital International for EUR400 million. Garrigues: The new regulation inflows and number of transactions. The regarding private equity was published main reasons behind this trend are the on November 13, 2014. Law 22/2014 on How successful have recent lack of traditional lending by domestic private equity and close-ended collective PE exits been; what are the banks and that the belief valuations investment (inversion colectiva de tipo preferred exit methods? are relatively low matching the spread cerrado) (the ‘PE Law’) is the result of the between sellers and buyers. Garrigues: There have been a number implementation of UE Directive 2011/61 of private equity divestitures during This trend has been shared by both and has been enacted for the purposes of 2013 and 2014, with funds seeking to national and international private equity generating efficient investment channels, monetize investments they completed funds, although the most important ensuring market stability and investor during the last economic cycle either transactions have been carried out protection and fostering balanced via trade sale, IPO or disposing their by international names such as Triton growth. portfolios at a secondary level. Trade sale Partners (acquisition of Befesa Medio to a third party has been the dominant The PE Law establishes five types of Ambiente to Abengoa), Doughty route for private equity firms to unload collective investment entities, the Hanson (acquisition of Clínica Teknon their Spanish investments (39 percent of existing private equity entities (entidades to Magnum Industrial Capital Partners) divestments in 2013), followed by sales de capital riesgo); close-ended collective and Bridgepoint (acquisition of the stake to the previous owners (20.5 percent of investment entities (entidades de owned by CVC in Dorna Sports) in 2013, the divestments in 2013) and secondary inversion colectiva de tipo cerrado) to name a few. buy outs (11 percent of the divestments that without having a commercial or Also in 2013, the U.S. private equity group in 2013). Notwithstanding, funds have industrial purpose, raise capital from a Apollo acquired via auction process a started considering IPOs as an alternative number of investors through marketing unit of one of Spain’s nationalized banks, exit route for their investments. activities to invest in all types of financial EVO Banco, in the first investment of its or non-financial assets under a defined In May 2014, Carlyle and Investindustrial kind in the country since the start of the investment policy; the European private listed Applus, the industrial testing financial crisis. equity funds (fondos de capital riesgo specialist which they acquired in 2007 on europeo); and a special type of private In April 2014, CVC acquired Deoleo, the the Madrid Stock Exchange, for EUR1.1 equity entities - SME private equity Spanish olive oil producer, outbidding billion. They rejected interest from rivals entities (ECR-Pyme). Carlyle, PAI and Rhone Capital, and last looking to acquire the company outright, July CVC acquired 62 percent of Grupo choosing instead to sell part of its stake The main legal features contained in Hospitalario Quiron for EUR1.2 billion to in an IPO. Another U.K. fund decided to the PE Law are the simplification of create the leading Spanish hospital group. turn to the market in April: Permira listed the incorporation requirements, the

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inclusion of restrictions for investments managed by an asset management American investment in Spain was in their investment policies, disclosure corporation owned by the Spanish greater than Spanish investment in Latin requirements regarding strategy, government. The so called Spanish ‘Bad America. Headline M&A transactions regulation on leverage and investment Bank’ received most of the ‘bad assets’ from included the acquisition of Campofrio risk policies. Also regulated is the Spanish banks and ‘cajas’ with the aim to Food Group by a subsidiary of Mexican minimum share capital: EUR1.2 million for dispose the approximately 200,000 assets Alfa, the acquisition by Mexican Grupo a private equity entity; EUR1.65 million as transferred by financing entities, which Alsea of Spanish Grupo Zena (Fosters minimum commitment for private equity represents an investment opportunity due Hollywood, La Vaca Argentina Domino’s funds; and EUR0.9 million for SME private to low asset prices. Pizza and Burger King franchises), or the equity entities; which may be divided most recent $875 million investment by On the venture capital side, the Spanish into different classes of shares. Carlos Slim’s Inmobiliaria Carso in Spanish government implemented an investment builder FCC. The PE Law also introduces a new regimen vehicle named Axis, which is a venture of commercialization and marketing, capital manager owned by Instituto We expect Ibero-American deal flow establishing differences between de Crédito Oficial (a state-owned bank to continue and increase in equity and commercialization in Spain and in the UE attached to the Ministry of Economic debt transactions, particularly in retail, together with penalties and sanctions in Affairs and Competitiveness). Axis consumer goods, hospitality, media and the event of non-compliance. manages four different funds –‘Fond- financial services. ICO Global’, ‘Fond-ICOpyme’, ‘Fondo What other reforms has ICOinsfraestructuras’ and ‘Isabel La About the author: C Católica Fund’- to promote the creation Spain recently undertaken Ferran Escayola, partner M of venture capital funds, provide support or proposed that could Y significantly strengthen its for SME’s expansion plans, in the form of Ferran Escayola is the managing partner CM investment profile? finance and a long-term business vision, of Garrigues’ New York office. His participate in projects involving transport practice focuses on Spanish corporate MY Garrigues: While the Spanish infrastructure, energy and services and commercial law, domestic and economy and its real estate market are CY and provide equity co-investment cross-border mergers and acquisitions, expected to show little growth for the CMY with business angels and other non- private equity and acquisition finance. next three years, the Spanish government institutional investors for the financing of In particular, Ferran has significant K is taking the necessary steps to improve innovative companies. experience in multijurisdictional the financial situation and provide private equity acquisitions and foreign comfort to international investors, investments. through different measures ranging from In 2013 Garrigues launched the restructuring of the banking sector independent offices in Mexico, Ferran has 15 years of professional to the enactment of new legal solutions Peru and Colombia; to what experience. Prior to joining Garrigues extent are you seeing increased Not every to attract direct investment, such as: in 1999, he was an associate in the (i) a reviewed regime for Spanish REITs demand from Latin American corporate and business law department (SOCIMIs); (ii) legal reforms to promote investors into Iberia? of an international firm. company the Spanish Alternative Fixed-Income Garrigues: Through our new offices Ferran graduated from Universidad Market (MARF) and boost the high-yield in Mexico, Peru and Colombia, and the Autónoma de Barcelona in 1995 and bond market; and (iii) allowing new asset existing Sao Paulo office, Garrigues offers completed a specialization in European disposal structures such as Banking Asset a multidisciplinary focus on practice is equal Community Law. He proceeded to obtain Funds (BAFs) to acquire, in very attractive areas and industries that are particularly a Masters of Law (L.L.M.) in International tax terms, real estate assets, portfolios, relevant to the increased demand in Economics Law (with honors) from loans or credits related to developers’ Ibero-American two-way investment Howard University School of Law and activities. M&A, not only to serve intra-regional or supplemented his studies by completing Garrigues: among the most U.S.-related transactions, but also the From July 2012 to January 2014, the a post-graduate program at Harvard Law new cross-Atlantic investment market for Spanish government undertook a major School. From July 2005 through June innovative firms in Europe Latin American investors into Spain and program of financial sector reform. The 2006, he worked as a foreign associate in Portugal. program included the incorporation of the M&A department of Skadden, Arps, SAREB, a majority-private-owned company 2013 was the first year in which Latin Slate, Meagher & Flom, LLP, in New York. www.garrigues.com

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& Switzerland: Swiss law firm Q A Homburger discusses reporter the key advantages maria jackson Inversion of Switzerland as puts the questions a destination for to HOMBURGER Transactions corporate inversions

Switzerland continues to be a jurisdiction of Switzerland has so far not been as prominent in choice for companies to locate their international inversion transactions achieved through mergers corporate and tax headquarters, as evidenced with other companies. Many of these inversions by the steady stream of multinationals that have resulted in a move of the corporate and tax set up operations in the country over recent headquarters of the group holding company to years. The incentives for companies to come to Ireland (e.g., Actavis / Warner Chilcott), the U.K. Switzerland remain unchanged: competitive tax (AbbVie / Shire plc) or the Netherlands (Applied rates, excellent transport links, a central European Materials / Tokyo Electron). Transactions that did location, access to a highly-skilled and diverse involve Switzerland were the combination of Daniel Daeniker workforce, clusters of business competence and Lafarge and Holcim, where the top company will managing flexible labor laws. be domiciled in Switzerland, and the proposed PARTNER Sulzer-Dresser Rand (triangular) merger, which Daniel Daeniker and David Oser, both partners ultimately did not go through. in the corporate team at Homburger, discuss the recent uptick of inversion transactions, in The new wave of inversions has sparked particular out of the United States, and the key controversy, particularly in the U.S., and calls for features that make Switzerland and its legal reform to make inversions less attractive or flatly regime an attractive jurisdiction. prohibit them. U.S. legislation dating back to 2004 effectively eliminated group-internal inversions In basic terms, what is an from the U.S. If a company wants to invert, it “inversion” transaction? must therefore merge with another company. U.S. law also requires that the inverted company’s HOMBURGER: Most inversions today are shareholders own less than 80 percent of the David Oser accomplished via a merger with another combined entity in order to qualify for the lower PARTNER company, often a smaller company incorporated taxes of the foreign country where it inverts to. in the foreign country of choice. Early deals were reverse mergers: a company incorporated in one jurisdiction was acquired by a foreign Inversion transactions first became prevalent in the 1990s, subsidiary incorporated in the target jurisdiction. what has driven the recent uptick The exiting company’s corporate structure was in these types of deals? How does thus “inverted”. Switzerland compare? Switzerland has seen a number of these early HOMBURGER: There are various factors that inversion transactions, when companies such influence a company’s decision to reincorporate as Paris Re, Orascom, Noble Biocare, Ace, to another jurisdiction. In the case of Switzerland, Transocean, Noble Corporation, Weatherford, reasons often given are its central location that Foster Wheeler and Allied World moved permits management better to coordinate and the corporate and tax headquarters of their interact with the group’s worldwide operations, its respective group holding companies to liberal labor laws (in particular its absence of works Switzerland. These companies mostly originated council consultation and approval requirements), from Bermuda or the Cayman Islands, where U.S. its long-term stability and predictability and its companies had inverted to in the early 2000s. excellent infrastructure and education system.

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Global M&A_Homburger_Final.indd 114 12/14/14 4:04 PM Of course, tax benefits are also relevant that they find in their jurisdictions egregious breach of duties. factors that led, and continue to lead, of choice. Homburger has recently • Companies incorporated in Switzerland companies to make Switzerland their participated in a detailed analysis of that are only listed on a foreign, jurisdiction of choice. Tax has likely Swiss, Irish and Delaware law, and one of particularly a U.S. exchange, are, unlike been the biggest driver in the most the key findings has been that – while in companies incorporated in other recent uptick of inversion transactions. its tradition a civil law jurisdiction – Swiss European jurisdictions, not subject to Particularly since U.S. companies’ law’s flexibility and its overall approach the “home country’s” securities and corporate tax rates are among the takeover rules. Among other things, highest in the world, compared with this means that there is no additional countries such as Switzerland where Tax benefits are relevant layer of complex prospectus and related corporate tax rates are significantly lower: factors that continue to lead requirements in connection with equity • In Switzerland, group holding companies companies to make Switzerland issuances that need to be reconciled are exempt from cantonal taxes and only with the applicable U.S. rules and federal tax is payable at an effective tax their jurisdiction of choice. regulations, including those of the SEC. rate of 7.8 percent. A holding company Tax has likely been the biggest Companies that elect to also list on SIX privilege applies to companies whose Swiss Exchange are at liberty to prepare primary activity is the holding of qualifying driver in the most recent uptick consolidated financial statements investments, who have no active trade or of inversion transactions. under U.S. GAAP; no reconciliation business in Switzerland and if two-thirds of to International Financial Reporting their total assets/income are in the form of Standards (IFRS) is required. subsidiary investment/dividends. come very close to the U.S. approach. Some commentators have noted that • A full dividend income exemption is In particular, the rules applicable to Switzerland may have lost favor in recent generally available for shareholdings of at directors’ duties and decision-making are years because, among other things, of least 10 percent with no holding period applied in practice very similarly: tighter banking regulations and new requirement. rules stipulating that shareholders • Board meetings can be conducted and should be allowed to vote on directors’ • While the domestic rate of withholding decisions made in the same way as for a and executives’ compensation. Our tax applied to dividends is generally 35 Delaware corporation. percent, there are significantly reduced experience is that the new regulations are rates with countries where a double • Switzerland has its own version of not as relevant as has been suggested: the business judgment rule, which in taxation treaty exists. Moreover, in most • Tightening banking regulation is rarely its effect is almost identical to the inversion transactions, in particular if a factor to consider in connection with U.S. original. effected through a merger transaction, inversion transactions, since financial the holding company of the combined • Derivative actions by shareholders on institutions have so far not used group will acquire significant additional behalf of the company against directors these structures in merger or similar paid-in capital (APIC), also referred to as are possible in some circumstances, but transactions. Moreover, Switzerland is in contribution reserves, which will allow are very rare in practice. There has not line with the general regulatory trend the combined company to pay back been any successful director’s liability following the recent financial crisis. cash to shareholders in the form of lawsuit on record outside bankruptcy. withholding tax free dividends for years. • It is true that Switzerland has introduced U.S. courts, which have ruled on derivative new “say-on-pay” rules in 2014, requiring actions brought by U.S. plaintiffs against Swiss-incorporated companies listed on What are the key features of directors of Swiss companies, have Switzerland and its legal a stock exchange to, among other things, consistently rejected jurisdiction and regime that distinguishes it seek annual shareholder ratification of insisted on the application of Swiss AS a leading jurisdiction for directors’ and executives’ compensation. corporate law. inversion transactions? The rules implement a popular ballot HOMBURGER: In addition to the reasons • Directors’ and officers’ indemnification initiative sponsored by a group outlined above, what we believe has is possible, D&O insurance at the spearheaded by Thomas Minder, today a also become increasingly important for expense of the company is permitted, member of Switzerland’s Senate, and are companies considering an inversion and companies can advance costs to therefore often referred to as “Minder” or transaction, is the corporate law structure directors and officers, except in case of an the “Minder Ordinance.” Unlike in other

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jurisdictions, the shareholder vote on for any prejudice incurred in connection to inverted companies. Homburger compensation is binding, rather than with the change of employment; sign-on was involved in the first wave of advisory. bonuses thus remain possible. redomestication moves to Switzerland in 2006 to 2010, when companies such Switzerland has therefore gone into There is general consensus that the proxy as Paris Re, Noble Biocare, Orascom, the lead when it comes to “binding” season 2015, where Switzerland will be Transocean, Tyco International or TE shareholder votes on compensation seeing the first Minder say-on-pay votes, Transactions, Connectivity moved their corporate and (recognizing though, that the EU is will be no different. In particular, there tax headquarters of their group holding currently proposing a “binding” say-on-pay should hardly ever be a situation where companies to Switzerland. More recently, regime across the EU applicable to EU- companies will not be able to pay out we have been involved in transactions registered companies that have a listing compensation because of a shareholder Disputes, Advice that were accomplished through a merger on an EU-regulated market). However, a “No” vote. The Minder Ordinance allows or similar M&A structure; for example, review of the 2014 proxy season shows companies to seek shareholder approval both authors have been advising Holcim that the effects of these rules are not as on a forward-looking basis. This means on its merger with Lafarge. Homburger drastic as has been suggested. In all but that shareholders, for example at the continues to advise a number of inverted a single exceptional case, shareholders 2015 AGM vote on the compensation for companies on Swiss corporate law and approved all director-proposed charter fiscal year 2016. If there ever should be a tax issues and has developed a broad, amendments to implement the Minder “No” vote, there is plenty of time for the international view of corporate law Ordinance with overwhelming majority. company to convene an extraordinary that is essential in servicing companies Proxy advisory firms such as ISS or Glass general meeting and seek shareholder contemplating, implementing and Lewis have consistently supported these approval of an alternative proposal. succeeding in inversion transactions. proposals, except where companies Moreover, the Minder Ordinance does have not complied with “overboarding” not prohibit companies to pay out recommendations or have not excluded compensation during any “interim” period About the Authors: stock option grants to non-executive during which shareholder approval Daniel Daeniker, Managing Partner directors, something companies with remains outstanding. [email protected] a U.S. background have long been Daniel Daeniker is managing partner familiar with. It should also be recognized that shareholders do not vote on the individual of Homburger AG, one of Switzerland’s The implementation effort in the 2014 director’s and executive’s compensation, leading law firms based in Zurich. He proxy season has also brought clarity but rather on the aggregate amount of studied law at the Universities of Neuchâtel to a number of important issues that compensation that the company can and Zurich, from where he graduated in were debated because of some of the pay during the forward-looking period. In 1987 and obtained a doctorate in 1992. prohibitions Minder introduced, such substance, even though shareholders are He also studied at The Law School of the as the vaguely defined prohibition to presented with specific aggregate figures, University of Chicago, from where he pay severance, “advance compensation” shareholders thus in effect vote on the graduated as an LL.M. in 1996. He was or certain transaction-related incentive remuneration policy of the company. This admitted to the bar in 1990, became payments. In particular, it has been is similar to what is required in the U.K. and partner of Homburger in 2000 and has established that it remains permissible: is currently being proposed at the EU level. been managing partner since 2013. Homburger provides high quality legal advice and • to pay full compensation (including Overall, it is therefore fair to say that David Oser, Partner representation both domestically and internationally variable compensation based on prior Switzerland continues to have a [email protected] practice or at target) during a 12-month competitive and flexible corporate law David Oser is a partner in Homburger’s garden leave period; in significant transactions, disputes and complex structure that is well geared to inverted Corporate | M&A Team. He graduated • to pay consideration for non-compete companies. from the University of Basel, from where legal matters to businesses and entrepreneurs. covenants after termination of he also received his PhD. David Oser employment; What skills and experience holds an LL.M. degree from Columbia marks Homburger as a partner Law School and was admitted to the Corporate | M&A Employment Law Homburger AG • to have plans provide for accelerated Prime Tower for inversion transactions bar in Switzerland and New York in 1998 Financial Services Private Clients vesting of equity awards, including in a Hardstrasse 201 | CH-8005 Zurich involving Switzerland? and 2001, respectively. Prior to joining Litigation | Arbitration Restructuring | Insolvency P.O. Box 314 | CH-8037 Zurich change of control situation, and vesting HOMBURGER: Homburger is uniquely Homburger he practiced at a New IP | IT White Collar | Investigations at target. positioned for inversion transactions York law firm. He has been a partner of Competition Insurance T +41 43 222 10 00 F +41 43 222 15 00 Further, new hires can be compensated and the subsequent ongoing advice Homburger since 2008. Tax www.homburger.ch [email protected]

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Homburger_Imageinserat_210x297mm_001_PLC.indd 1 15.02.13 12:03 Transactions, Disputes, Advice

Homburger provides high quality legal advice and representation both domestically and internationally in significant transactions, disputes and complex legal matters to businesses and entrepreneurs.

Corporate | M&A Employment Law Homburger AG Financial Services Private Clients Prime Tower Hardstrasse 201 | CH-8005 Zurich Litigation | Arbitration Restructuring | Insolvency P.O. Box 314 | CH-8037 Zurich IP | IT White Collar | Investigations Competition Insurance T +41 43 222 10 00 F +41 43 222 15 00 Tax www.homburger.ch [email protected]

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Homburger_Imageinserat_210x297mm_001_PLC.indd 1 15.02.13 12:03 TURKEY

& TURKEY: Q A AN M&A GATEWAY reporter maria jackson puts the questions Bener Law Office discusses Turkey’s growing profile as a center to bener for international M&A deals

Bener Law Office is a full-service, independent young and powered by a dynamic private-sector Turkish law firm with a strong international economy. Its business infrastructure surpasses practice. Around 70 percent of the firm’s clients those in emerging Asian countries, as well as those are multinational companies, and its core in similar EU markets. activities range from advising on entry into the A sound macroeconomic strategy, in combination Turkish market through to IPOs, high-profile M&A, with prudent fiscal policies and major structural privatization projects and dispute resolution. In Cem Davutoğlu reforms in effect since 2002, has integrated the Partner 2014, the firm merged with corporate boutique Turkish economy into the globalized world, while Davutoğlu Attorneys at Law, which boosts the transforming the country into one of the major firm’s capability in complex M&A and finance recipients of foreign direct investment (“FDI”) in its deals. This comes on the back of its recent region. high-profile hire of Şelale Kartal, formerly head of litigation at Cerrahoglu Law Firm, and its As structural reforms have strengthened the acquisition of four-lawyer litigation boutique macroeconomic fundamentals of the country, the economy has continued to perform strongly: Onur Kordel Küçük & Küçük Law Firm in 2011. Bener has also Partner recently moved into new offices, demonstrating Turkey posted a real GDP growth rate of 5 percent its commitment to an ambitious growth strategy. between 2002 and 2012. Turkey’s impressive economic performance over the past decade has Partners Cem Davutoğlu, Onur Kordel, Onur Küçük, encouraged experts and international institutions Win Michaelsen, and Gözde Esen Sakar outline to make confident projections about Turkey’s Turkey’s key attractions for investors, and explain economic future. According to the OECD, Turkey how Bener’s recent growth marks it as a key is expected to be the fastest-growing economy partner for foreign companies looking to conduct among the OECD members during 2012-2017, Onur Küçük deals in the country. with an annual average growth rate of 5.2 percent. Partner HOW DO TURKEY’S SOLID BUSINESS Alongside stable economic growth, Turkey has FUNDAMENTALS DISTINGUISH IT AS also reined in its public finances; the EU-defined AN ATTRACTIVE MARKET FOR FOREIGN general government nominal debt stock fell to INVESTORS? 36.3 percent from 67.7 percent between 2003 and 2013. Hence, Turkey has been meeting the BENER: Turkey is similar to other emerging “60 percent EU Maastricht criteria” for public debt economies in some aspects, yet very different stock since 2004. Similarly, during 2003-2013, with respect to others. Recently, Turkey’s political Win Michaelsen the budget deficit decreased from more than 10 Partner situation has stabilized somewhat and the country percent to less than 3 percent, which is one of the regained its investment grade credit rating after EU Maastricht criteria for the budget balance. an 18-year hiatus. Turkey’s obvious advantages include a geographically strategic position and Turkey’s GDP has increased dramatically, climbing its 1995 Custom Union with the European Union to $820 billion in 2013, up from $305 billion in (EU). The agreement allows free circulation of 2003 - during the same period, GDP per capita industrial and processed agricultural products in has soared from $4,565 to $10,782. The visible Europe and harmonizes Turkey’s trade policies, improvements in the Turkish economy have also Gözde Esen Sakar Partner legislation and custom tariffs with those of the EU. boosted foreign trade, while exports reached $152 Turkey’s large and relatively high-income market is billion at the end of 2013, up from $47 billion in

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Global M&A_Bener_Final.indd 118 12/14/14 4:06 PM 2003. Similarly, tourism revenues, which such as Izmir, Ankara and were around $14 billion in 2003, exceeded Bursa are also significant Stunning view from Bener’s $32.3 billion in 2013. sources of FDI. Real estate, new building hospitality, construction, Turkey is the 16th largest economy in the energy and heavy industries world and would equate to the 6th largest have been the dominant economy in the EU, according to GDP sectors in terms of FDI, figures in 2013. however, knowledge-driven sectors such as business TO WHAT EXTENT DOES TURKEY’S services, information POSITION AS A GATEWAY BETWEEN and communication THE EU AND THE MIDDLE EAST technologies, and financial PROVIDE GREAT OPPORTUNITIES FOR INVESTORS? services generated more than one third of FDI BENER: Turkey is a natural bridge between projects in recent years. both East-West and North-South axes, thus the Turkish health sector, in 2011 we saw creating an efficient and cost-effective Although investors across the globe the acquisition of a 50 percent stake of outlet to major markets. It is a springboard recognize Turkey’s potential, most of its Acibadem Hospital Group by Khazanah to 1.5 billion customers in Europe, FDI derives from developed countries. and Integrated Healthcare Holdings, Eurasia, the Middle East and North Africa, International investors are expecting which is 70 percent owned by Khazanah providing access to multiple markets Turkey to become a regional and global and 30 percent owned by Japan’s Mitsui, worth an aggregate $25 trillion in GDP. hub in the next decade. from Dubai-based private equity firm Abraaj Capital. Turkey has been able to Turkey is also the second biggest reformer IN 2013, TURKVEN ACQUIRED attract an impressive level of FDI into its among OECD countries in terms of easing A MAJORITY STAKE IN MEDICAL health and social work sector. FDI inflows its restrictions on FDI. It has a very business- PARK SAGLIK HIZMETLERI, to the industry increased at a CAGR of 39 friendly environment; notably, it takes an TURKEY’S LARGEST HEALTHCARE percent from 2008 to 2012, reaching to average of six days to set up a company GROUP; TO WHAT EXTENT DOES $545 million in 2012. Turkey is expected in Turkey, while the average among OECD THE DEAL ILLUSTRATE SOME to experience continued economic members is more than 11 days. OF THE KEY TRENDS DRIVING TURKEY’S M&A MARKET? expansion and rising incomes which, in turn, will create more demand for health A sound macroeconomic strategy BENER: The transaction clearly shows that services and products. These increases private equity firms still see opportunities are reflected in the healthcare spending in the healthcare market. We represented in combination with prudent projections. Furthermore, the Turkish the CEO of Medical Park and his family in fiscal policies and major structural government also has plans to increase the deal, who owned a 30 percent share of the number of foreign patients and boost the company. He and his family members reforms has integrated the Turkish health tourism by setting up new hospitals transferred 5 percent of his shares and under PPP schemes. economy into the globalized remained one of the major minority world, while transforming the shareholders. After several negotiations with private equity firms, the shareholders Bener ALSO ADVISED POLISAN IN ITS ACQUISITION OF A CHEMICALS country into one of the major agreed to sell 50.1 percent of the shares PRODUCTION FACILITY IN GREECE; recipients of FDI in its region. of Medical Park to Turkven, a local private IS IT FAIR TO SUGGEST THAT TURKISH equity firm. It is important to note that COMPANIES ARE BECOMING MORE the Carlyle Group, which acquired a 40 Turkey receives both industrial and ACQUISITIVE INTERNATIONALLY? percent stake in Medical Park in 2009, services projects in terms of FDI. Istanbul BENER: We acted for Turkish company fully exited from Medical Park. As a part is the key conduit for these investments Polisan in the acquisition of a chemicals of transaction, another reputable Turkish and attracted over half of the country’s production facility in Greece together with group, Sancak Group, also sold around 5 total FDI projects between 2007 and 2012, a local law firm, Dryllerakis & Associates. percent of its shares to Turkven. benefiting from its geographical location, Polisan is mainly active in the coating well-developed infrastructure and In another high-profile indicator of business in Turkey but it also has interests educated workforce. Other major cities international private equity interest in in companies in the ports, textile and

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chemicals sectors. For diversification Turkey is a natural bridge deal value of $0.5 billion. In addition to purposes, it looked to enter into a new line energy assets, Galataport (an infrastructure of business (the PET production business) between both East-West and project) has been retendered for the within the chemicals industry. The main North-South axes, thus creating amount of $702m to Dogus Holding. reasons behind the investment are: In 2013, energy took the lead in terms of Greece is geographically close to Turkey, an efficient and cost-effective number and value of M&A deals. Food which makes shipments easier; Greece is outlet to major markets. It is & beverage, retail, services, wholesale & a member of the EU, which opens a door distribution were also among the most into Eastern Europe and the Balkans; and a springboard to 1.5 billion active M&A sectors. M&A in e-commerce there is also a chance of an economic customers in Europe, Eurasia, the and the internet & mobile services sectors rebound in Greece in the near future. Middle East and North Africa. also increased. Many Turkish companies are now During 2014, M&A targeting Turkish investing abroad. The investments are companies was valued at $9.6 billion for generally made by way of acquisition of mandates. The presence of several the first three quarters. Until the end of Q3 companies operating in the same or very global firms in Turkey means that, to of 2014, the most active sector by value similar sectors. Generally speaking, the compete effectively, a domestic firm must was energy, mining and utilities. Recent continuous economic growth of Turkey bring all the experience and resources headline deals included IC Ictas Energy’s has created significant liquidity among that the foreign law firms offer, while $2.67 billion acquisition of Yeniköy Yatagan Turkish companies, providing excellent remaining flexible enough to tailor the Elektrik and Kemerköy Elektrik from the conditions for outbound investment. strategy and approach to the individual Government of Turkey; Elsan Elektrik’s On top of this, the economic crisis in deal. Davutoğlu’s firm founder, Cem $1.09bn acquisition of Yatagan Termik Europe gifted Turkish companies with Davutoğlu, has 16 years’ experience of from the Government of Turkey; and Safi the opportunity to acquire competitors providing bespoke corporate and financial Kati Yakıt’s acquisition of Derince Port from in Southern Europe, or enter into similar services advice. Plus, Cem’s reputation for the Government of Turkey, which was business lines there. From a different uncompromising integrity means that the worth $543 million. angle, the economic crisis in Europe put Bener name continues to be recognized as some Southern European companies a dynamic solutions provider that puts the We believe that the consumer and retail into financial distress and they have client’s interests first. On a personal level, sector has shown a very high level of been forced to sell foreign subsidiaries Cem’s positive demeanor is a welcome activity in 2014. Also, financial investors to survive. For example, La Seda de addition to an already great team. are focusing strongly on the e-commerce, Barcelona, which is a leading Spanish retail, healthcare and food & beverage company operating in the PET production WHAT IS THE OUTLOOK FOR THE sectors. business, entered into bankruptcy TURKISH M&A MARKET GOING proceedings and the court-appointed INTO 2015? About the authors: administrator sold its Turkish subsidiary, BENER: Turkish M&A activity remained Cem Davutoğlu, Partner Artenius TurkPET, to Indorama, which was robust in 2013: there were 217 deals [email protected] selected through a bidding process. We recorded with a total deal value of around +90 (212) 270 70 50 acted for the administrator during the sale. $17.5 billion. Onur Kordel, Partner In 2013, privatizations mostly occurred in [email protected] IN 2014, BENER LAW OFFICE the energy sector, which reached a deal MERGED WITH Davutoğlu +90 (212) 270 70 50 volume of around $6.6 billion. Toroslar, ATTORNEYS AT LAW, HOW DOES Onur Küçük, Partner THE COMBINATION AUGMENT Ayedas, Baskent Dogalgaz, Kangal Thermal Power Plant, Dicle Elektrik, Doğu Aras [email protected] THE FIRM’S CORPORATE AND +90 (212) 270 70 50 M&A EXPERTISE? Elektrik, Vangölü Elektrik and Hamitabat Elektrik were among the target energy Win Michaelsen, Partner BENER: The merger with Davutoğlu companies acquired by Turkish groups via [email protected] solidifies Bener as a leader in advising privatization. +90 (212) 270 70 50 on cross-border, complex M&A and finance transactions. The legal market The Turkish Privatization Authority also Gözde Esen Sakar, Partner today is more competitive than ever, tendered two media companies (Show [email protected] especially for mid-to-large cross-border TV and Aksam Media Group) with a total +90 (212) 270 70 50

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M&A in the UK The market landscape and key issues for international participants

he UK M&A market remains by There are very limited areas where English law far the leading target jurisdiction principles will override the express terms of the con- in Europe for cross-border M&A. tract and terms are rarely implied into a contract by Purely domestic deals are increas- English law or the English courts. This means that ingly uncommon with cross-border the principle of “caveat emptor”, or “buyer beware,” Tactivity accounting for the majority of deal count applies – a buyer will only get the protection that is and almost 80% of value (see pie charts below). written into the contract; there is also a lower pos- sibility of claims outside the contract. M&A Deal Mix by Value M&A Deal Mix by Deal Count In terms of dispute resolution, generally English (2013 - Nov 2014) (2013 - Nov 2014) courts are considered fair and of good quality. Cases are decided by a judge rather than a jury and dam-

Domestic Outbound ages are also determined by a judge. Litigation costs 22% 30% Domestic generally are borne on a “loser pays” principle and Outbound 44% 44% unlike other jurisdictions there is little risk of puni- tive damages.

Inbound As well as English contract law, buyers may need Inbound 34% 26% to consider the requirements of the UK Companies Act 2006 (the main statute regulating companies in the UK), the UK Takeover Code (discussed fur- Source: Thomson The US is a key jurisdiction – US entities are by ther below) and relevant securities laws including Reuters far the largest acquirers of European (including UK) the Listing Rules applicable to companies with UK targets. Deals involving financial buyers now account listed shares. for around a quarter of all M&A and almost 40% of value (see graph on next page). With the UK econo- Public M&A my performing more strongly than many European In the UK, an acquisition (or takeover) of a publicly neighbours and inbound M&A set to increase, it is im- traded company is generally effected in one of two portant for non-UK buyers to understand where UK ways. Which method is used will be driven by cer- practice may differ from M&A in other jurisdictions. tain factors on the deal, for example whether the takeover is hostile or recommended by the target English law and dispute board of directors. resolution The first method is a “contractual offer”, simi- English law is chosen by buyers and sellers around lar to a US tender offer, where an offer is made by the world to govern M&A agreements even where the bidder to the target shareholders who choose the deal has little or no connection to the UK. The whether or not to accept. The offer will be subject to basic principle under English law is that parties have a series of conditions, in particular an “acceptance freedom to contract on whatever terms they choose. condition”. If the bidder acquires or receives accep-

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Global M&A_UK Chapter_Final.indd 122 12/14/14 4:07 PM tances in respect of more than 50% of the shares in ments is tightly policed and enforced by the Takeover the target company, the bidder will be able to close Panel. AT&T was forced to announce the end of its the deal, though often it will decide only to close interest in a possible offer for Vodafone during 2014 once it receives a higher level of acceptances. Gener- following press speculation of a possible bid. ally, if the bidder acquires 90% of the target shares it is able to “squeeze out” the minority. The other method is by way of a court approved On public M&A, the Panel is a very “scheme of arrangement” proposed by the target active regulator and it is important board. Under this statutory procedure the scheme must approved by a majority in number, represent- to understand and pay heed to the ing at least 75% in value, of target shareholders who Takeover Code from the outset vote. The scheme must then be sanctioned by the court and is only effective once the court order sanc- tioning the scheme has been registered at the com- A particular requirement of the Takeover Code is panies’ registry. The effect of the scheme is to make that once a bidder announces a firm intention to make the bidder the holder of all of the shares in the target an offer it will generally be required to proceed with company. the offer. Aside from the acceptance condition, and Whichever method is used, a takeover of a UK UK or EU anti-trust conditions, an offer will often public company is governed by the UK Takeover contain detailed business conditions including relat- Code and overseen by the UK Takeover Panel. The ing to material adverse change in the target (MAC). Takeover Code is based on a set of six General Prin- However, the threshold at which the Takeover Panel ciples underpinned by more detailed rules which will permit a bidder to invoke such conditions is very govern, amongst other things, the timetable for the high meaning that a bidder is rarely permitted by the offer and the information which each party must Takeover Panel to invoke such conditions. give to the target shareholders. The Takeover Panel itself is not US$bn UK Cross-Border Deal Value Involving Financial Buyers interested in the merits of the bid but 80 ensures that the Takeover Code is % of total of M&A values adhered to. It plays a very important, 35% 70 and active, role in regulating bids 41% and its hands-on approach is differ- ent to most regulators. There is very 60

little court intervention or tactical Outbound litigation in public M&A in the UK Outbound 38%

in part because of the role that the 50 28% Takeover Panel plays. 31% 20%

Under the UK regime if a possible Outbound 40 bidder’s interest becomes known in Inbound 47% 32%

the market, for example if there is a Inbound leak, then the interest of the possible Inbound 13% 32% 30 26% Outbound

offeror must be publicly announced Domestic and under the “put up or shut up” re-

gime the bidder then has 28 days to 20 Inbound

Domestic 34% announce either a firm intention to Domestic make an offer or that it does not in- 10

tend to make an offer (after which it Domestic will be locked out for six months). The

requirement to announce potential 0 bids when there has been market ru- 2008-09 2010-11 2012-13 2014 ‡ ‡ 30 Nov 2014 mour or untoward share price move- Source: Thomson Reuters

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There will be only limited due diligence, particu- process is led by an administrator (appointed usually larly in a hostile situation, and very limited warranty by the creditor bank(s)) is likely to contain only the protection. mechanics of the deal required to transfer title, with Unlike in the US and most other European ju- little protection for the purchaser other than the ca- risdictions there is also a wide-ranging prohibition pacity of the administrator to effect the transfer. on the target entering into offer-related arrange- ments, such as break fees and other deal protection Conditions measures, so a bidder will typically have little or no Typically the conditions to an acquisition will be comfort that its offer will succeed when launched. limited to specific issues which go to the heart of Conversely the target board is not allowed to take the deal, for example antitrust approvals without action which might frustrate a bid and in the UK which the deal cannot lawfully close, as well as any companies do not use “poison pills” or similar de- other similar third party approvals and consents vices to ward off an unwanted bidder. from key counterparties without which either party is not prepared to proceed. As discussed above, the Private M&A UK Listing Rules may also require a UK listed The sale and purchase agreement company that is party to the transaction to get A private or unlisted company is usually sold pursu- shareholder approval for significant transactions or ant to a sale and purchase agreement entered into transactions with ‘related parties’. The inclusion of between the buyer and seller. The common form, a general MAC condition concerning the target’s used on a bilateral acquisition of shares or assets, is economic condition is not standard practice, al- a long form sale and purchase agreement, prepared though their use did increase in popularity during by the purchaser and its advisers. It will set out in the last recession. full the terms of the transaction, its conditions and extensive warranties. Price adjustment In an auction process, a shorter seller-drafted The most common price adjustment method is agreement is used at least as a starting point. The through the preparation of full completion accounts, initial covenants offered by the seller are usually lim- or at least to reflect the key variables such as cash ited, and the prospective purchasers are invited to and working capital. Locked box processes became add protections that they feel are necessary and their popular for sellers for their simplicity, speed and approach to the documents will form part of the as- the certainty of price. Under a locked box mecha- nism, the price is agreed by reference to a historic but relatively recent balance sheet, the idea being On private deals, there is freedom that economic risk and benefit passes to the buyer to contract, but it is a ‘buyer as of the locked box date. This is then backed up by an indemnity from the seller in relation to any beware’ regime and the conditions “leakage” after the locked box date such as transfers, and protection package may look dividends or other payments in favour of the seller group. However, as the locked box method is not different to that found in the appropriate in all cases and does not protect a pur- US and other jurisdictions chaser in respect of changes in the trading position of the target after the locked box date, sellers will still seek completion accounts as a favoured adjustment sessment of their ‘bid’. Private equity sellers will also in appropriate cases. look to limit any warranty package effectively to title and capacity, reflecting their role in the manage- Warranties ment of the business and in part so that the proceeds The starting point in the UK is for detailed warran- of sale can be distributed to investors once the deal ties to be set out in a schedule to the agreement. A has completed without risk of recourse. “disclosure letter” will be produced by the sellers The form of agreement used on a “distressed setting out any specific disclosures against the war- deal” where the seller is facing insolvency and the ranties and it is standard in the UK for there to be

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Global M&A_UK Chapter_Final.indd 124 12/14/14 4:07 PM general disclosure made of all the data which has been provided in the data room. The remedy for a warranty breach is a contractual action for dam- ages, requiring the buyer to demonstrate that the breach of the warranty has reduced the value of the target company – often difficult to establish. It is un- usual to have warranties on an indemnity basis i.e. a recovery on a pound-for-pound (or dollar-for-dollar) basis. In the UK market, indemnities tend to be re- served to specific matters where a particular issue has been identified by the buyer. Representations are different from warranties under English law. They give rise to a different mea- Gavin Davies STEPHEN WILKINSON sure of damages, and can also give rise to the rem- PARTNER Global Head of M&A edy of rescission, allowing the buyer to walk away. Accordingly, they are infrequently given. any pension scheme the target has. Employee repre- There is no “standard” set of limitations on the sentatives and pension scheme trustees also have an protection package in the UK and each deal will be opportunity to publish their opinion. driven by its own dynamics. An example of what Where a target has a defined benefit pension parties may agree is as follows. scheme, trustees can wield considerable power in Some warranties, such as those relating to tax, the M&A process – they will often scrutinise a trans- accounts and fundamental warranties like title to action to assess whether it will have negative effect shares, will be capped at the overall consideration on the scheme and the employers’ ability to fund for the deal. Depending upon the counterpar- scheme liabilities. They may seek assurances and ties and the competitive pressure, there is likely to commitments to mitigate against that risk. Depend- be a different cap on liability for other warranty ing on the terms of the scheme, the trustees may breaches. This will probably be capped somewhere have powers to impact the contributions required in the range of 20% - 70% of the overall consider- from the participating employers including the tar- ation. The warranties are likely to have a duration get. The UK Pensions Regulator also has power to of around 18 months to two years. There are likely require parties to contribute to or support a pension to be minimum thresholds which have to be reached scheme. These powers need to be fully understood before a claim can be made. In a share sale, there before embarking on an M&A process. will be a stand-alone tax indemnity for certain his- toric and current year tax liabilities. Merger control The UK is an open market and foreign investment Employee and pensions issues has been encouraged for a number of years. Inter- There are rules (known as TUPE) which are de- vention by the government on the grounds of public signed to protect businesses and employees on busi- or national interest has not historically featured in ness and asset sales (they do not apply on a share sale). the UK M&A market. The rules operate to transfer the employees of the The basic principle is that, with a few exceptions, business automatically and on exactly the same em- UK merger control is based on a competition test ployment terms to the buyer. It is difficult to change assessed independently of government, not a wider the terms of employment or exclude employees from public interest test. Where a merger has a European the transfer. There is also an obligation to inform dimension, the EU Merger Regulation will apply and consult with the employees before closing. which is again a competition-based test. On public M&A, the Takeover Code requires The UK government has only limited power to bidders to state their intentions with regards to intervene where there are specific public interest employees and the impact of their strategy on the concerns, and which are currently limited to three workforce. Parties to a takeover bid must also pro- areas: national security; media plurality, quality and vide information to employees and the trustees of standards; and financial stability.■

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Global M&A_UK Chapter_Final.indd 125 12/14/14 4:08 PM VENEZUELA Q&A Venezuela: reporter Oil and gas M&A MARIA JACKSON puts the Business law firm D’Empaire Reyna Abogados highlights the key questions to opportunities in Venezuela’s oil and gas sector D’Empaire

Venezuela houses some of the largest oil and public law, in addition to corporate and and natural gas proven reserves in the world. M&A. The firm has participated in most of the The country was a founding member of the headline transactions to involve Venezuela Organization of the Petroleum Exporting in recent years and other key deals include Countries (OPEC) and is a global giant in terms advising BTG Pactual on the local aspects of its of production and export of crude oil. In 2013, acquisition of Globenet and advising Citi in a $5 Venezuela was the fifth-largest petroleum billion financing to PDVSA. producer in the Americas, behind the U.S, Canada, Mexico and Brazil. what recent finds have augmented Fulvio Italiani Since the 1970s, the oil industry has remained venezuela’s position as a global Partner in the hands of state-run oil and natural gas leader in oil and gas? company Petróleos de Venezuela S.A. (PDVSA) D’Empaire: Venezuela has the fifth largest and the company’s royalties and tax payments proven oil reserves in the world and the second have historically represented over half of the largest proved natural gas reserves in the Western government’s revenues. However, PDVSA’s Hemisphere. According to Petróleos de Venezuela, production is declining. The strategic importance S.A. (PDVSA)’s consolidated financial statements of the oil and gas industry to Venezuela, combined as of December 31, 2013, proved reserves were with a slump in oil prices, has made it more 40 billion barrels of conventional crude and 258.3 imperative than ever that the country invests in billion barrels of extra-heavy crude (making a total new frontier developments to revitalize the sector. of 298.3 billion barrels). There is no doubt that Venezuela is one of the countries with the largest Carlos Omaña Fulvio Italiani, Carlos Omaña and Arnoldo oil potential in the world. Partner Troconis, partners at D’Empaire Reyna Abogados, discuss the key features of Venezuela’s oil and gas The extent of Venezuela’s natural gas reserves is investment regime and the opportunities that are also impressive. According to PDVSA’s financial opening up for foreign investors in this field. statements, as of December 31, 2013 the total D’Empaire Reyna Abogados is one of proven developed and undeveloped reserves of Venezuela’s elite law firms. The firm has a strong natural gas were 197 trillion cubic feet. track record in advising on energy deals, making Venezuela has been a major oil producer it perfectly placed to advise multinational for 100 years and state-owned oil and gas companies looking at investing into Venezuela’s company, PDVSA, is one of the world’s largest oil and gas sector. Among its recent experience, oil companies. PDVSA is one of the largest the firm advised Rosneft on the Venezuelan foreign oil suppliers to the U.S. and an important Arnoldo aspects of its acquisition of Precision Drilling oil supplier to several countries in the region. Troconis from Weatherford. Partner However, despite the large reserves and solid oil D’Empaire Reyna Abogados is a full-service industry infrastructure and experience, PDVSA law firm and is also widely considered to be a has been struggling with stagnant (or declining) leader in finance, tax, dispute resolution, labor production and exports over the last few years.

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Global M&A_D'Empaire_Final.indd 126 12/14/14 3:09 PM PDVSA’s business plan for 2013-2019 investment will be required to fulfill the sector companies hold a minority outlines the development of production expectations of its business plan - in participation. and refining projects totaling $257 2014, the company estimated the value New refining activities as well billion and an increase in Venezuela’s of these requirements as approximately as commercialization of other total crude oil production to 6 million $20 billion. Recent joint venture hydrocarbons by-products not reserved barrels per day, as well as 10,494 million agreements with foreign companies, as by the government can be carried out: of cubic feet per day of gas, and to well as certain financing deals signed (a) directly by the Venezuelan increment the natural gas liquids with international partners, indicate government; (b) by the Venezuelan extraction capacity by 130,000 cubic feet that PDVSA will not be making the government through wholly-owned per day and the refining capacity to 1.8 necessary investments alone and could state entities; (c) through joint venture million barrels per day. be counting more and more on external with the direct or indirect participation financing. of the Venezuelan government and the According to Francisco Monaldi, a leading participation of the private sector in any PDVSA has acknowledged Venezuelan expert in the oil and gas proportion; or (d) by private companies. that significant additional industry, Venezuela is clearly moving in Companies interested in carrying out the direction of opening out its oil sector. refining activities must obtain a license foreign investment will The reasons are a consequence of the from the Ministry of Oil and Mining following conditions: be required to fulfill the All activities related to non-associated • the government is in a critical fiscal gaseous hydrocarbons reservoirs located expectations of its business situation; in Venezuela (exploration, exploitation, plan - in 2014, the company • the local national oil company is in industrialization, transportation, bad shape; distribution and domestic and foreign estimated the value of • production is declining; commercialization) can be carried these requirements as • large and risky investments in out: (a) by the Venezuelan national executive directly; (b) by the Venezuelan approximately $20 billion. exploration and new frontier developments are needed (particularly government through state-owned in the Orinoco Belt); entities; or (c) by foreign or national private entities, with or without • PDVSA needs technology that only the participation of the Venezuelan The Orinoco Oil Belt is the most some international oil companies government. important area for PDVSA in terms of control; production (representing 42 percent •  oil prices are declining. Companies interested in engaging in the of the national production according exploration and exploitation of reservoirs to official information as of December of non-associated hydrocarbons must How are oil and gas activities 31, 2013). Therefore, achieving the obtain a license from the Ministry of Oil governed by Venezuelan law? company’s business plan goals will and Mining, which determines which highly depend on increasing production D’Empaire: All hydrocarbon and areas will be opened for exploration in this region. gaseous reservoirs located in Venezuela and production of non-associated belong to the Republic, are under the Experts in the business have suggested hydrocarbons gas (such areas can be regime of public ownership and therefore that PDVSA’s business plan is too awarded directly by private negotiation are inalienable and indefeasible. ambitious considering the current or pursuant to a public bid). All licenses production and infrastructure status. Oil and associated gas upstream activities must include the following provisions: The government seems to be aware of can only be carried out: (a) directly by (a) a description of the project, with an this since it recently announced that the Republic; (b) through wholly-owned indication of who will or may consume PDVSA expects to reach a production state entities (e.g. PDVSA or its affiliates); or utilize any resulting production; (b) the of 3.3 million barrels per day, despite or (c) through joint venture companies term of the license (maximum of 35 years, the higher forecast in its business (empresas mixtas) where the Venezuelan subject to a maximum possible extension plan. PDVSA has also acknowledged government must hold more than 50 of a further 30 years); (c) a maximum that significant additional foreign percent equity participation and private exploration program of five years; (d) a

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precise indication of the exploration area; 2013-2014 reached $12 billion, mainly official exchange rate, restrictive labor and (e) special payments in favor of the from the following companies: CNPC ($4 laws which make it very difficult (if not Republic. billion to be invested in the joint venture impossible) to dismiss workers who do company Sinovensa), Chevron ($2 not comply with their duties, insufficient Companies interested in engaging in billion in Petroboscan), ENI ($1.7 billion human resources, nationalization the transportation and distribution of risk and governmental reluctance to non-associated gas must also obtain give private sector investors increase a permit from the Ministry of Oil and participation in the management of the Mining. In general, the rules on gas “In recent years, the oil and gas joint venture companies. licenses described above also apply to government has signed gas permits. Despite the significant challenges and joint venture agreements risks, Venezuela’s oil and gas sector To what extent is private for the development of oil provides opportunities for high returns. And as the government looks for new participation encouraged and gas projects with many in Venezuela’s oil and gas ways to boost production, a more industry? international partners. These favorable regime could potentially develop around the need to secure D’Empaire: As mentioned above, agreements intend to boost the foreign investment. private sector investment in upstream activities is permitted through joint current stagnant production What protections are venture companies (empresas mixtas) through foreign investment.” where the investors can hold a minority available to foreign interest (49 percent or less, although the investors looking to invest government generally limits the private in Venezuela? sector participation to 40 percent). In for PetroJunin), Gazprom ($1 billion for D’Empaire: Venezuela is a party to addition, the government allows the PetroZamora), Repsol ($1.2 billion for bilateral investment treaties (BITs) with private sector minority shareholder to PetroQuiriquire), Perenco ($400 million several countries, which allows private participate in the management of the for Petrowarao), Suelo Petrol ($625 million investors to resort to arbitration to seek joint venture company, especially in for PetroCabimas) and Repsol & ENI compensation in foreign currency and the procurement and in the technical ($1 billion in Perla). market value in case of expropriation operation of the company. or nationalization. Despite Venezuela’s withdrawal from ICSID, several of the In recent years, the government has What are the advantages for existing treaties permit arbitration under signed joint venture agreements for the foreign clients looking at the Uncitral Arbitration Rules and the development of oil and gas projects investing in Venezuela? ICSID’s Additional Facility rules. Therefore, with international partners from China, D’Empaire: Venezuela has significant channeling oil and gas investments India, Italy, Japan, Russia, Spain, the U.S., competitive advantages in the oil sector through entities that are eligible for Brazil and Vietnam, among others. These when compared to other countries in the BIT protection provide adequate agreements, along with some financing region. Most importantly, Venezuela has protection for private investors against agreements, intend to boost the current one of the largest oil reserves globally. nationalization or expropriation risk. stagnant production through foreign Unlike other countries, such as Mexico, investment. The most important partners the cost of finding and development In addition, Venezuela is also a party to are: Chevron, CNPC, Rosneft, Repsol, ENI, is very low, which results in one of the double taxation treaties with several Petrobras, Statoil and Total. highest margins per barrel. On the other countries, which protect investors against hand, Venezuela is a net exporter of oil. certain changes in tax legislation. In many cases, the Venezuelan In other words, the fundamentals for an government requires the private sector PDVSA frequently accepts the inclusion oil investment in Venezuela are generally investors to provide financings to the of arbitration provisions in the oil and very attractive. oil and gas joint venture companies as a gas financings, but continues to be condition to allow equity participation However, investments in the oil reluctant in include such provision in the in such companies. Financing from sector still face significant challenges, agreements governing the joint venture foreign joint venture partners during including a significantly overvalued company.

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Global M&A_D'Empaire_Final.indd 128 12/14/14 3:09 PM How does D’Empaire Reyna ABOUT THE AUTHORS: Abogados’ experience in oil Fulvio Italiani and gas mark it as a valuable Partner partner for clients looking [email protected] at business opportunities in Venezuela? Fulvio Italiani is considered among the leading M&A and corporate lawyers in D’Empaire: D’Empaire Reyna Abogados Venezuela. He has participated in most of the significant acquisition, financing advises leading foreign oil and gas and oil and gas transactions in Venezuela in recent years. Fulvio Italiani has companies (including several oil majors) been consistently ranked as a star individual for M&A/Corporate by Chambers on a regular basis in connection with Latin America. In addition, Fulvio was honored with an award for Outstanding investment in the oil and gas sector. Our Contribution to the Legal Profession at the 2013 Chambers Latin America main strength is our full commitment and Awards for Excellence. According to Chambers & Partners, Fulvio Italiani was effectiveness in complex projects; we are selected for the prestigious award in recognition of ‘his business skills and well-equipped to resource sophisticated legal expertise which have been of great benefit to national and multinational M&A transactions due to our expertise in companies investing in the challenging economic climate of Venezuela’. the key supplementary practice areas that Fulvio has also been named one of ‘Latin America’s Top 50 Legal Stars’ by Latin clients also need to support an oil and gas Business Chronicle. deal, including tax, finance, public law and environmental law. Carlos Omaña The firm fields 47 attorneys, including 17 Partner partners, and we pride ourselves on our [email protected] ability to maintain international service standards. Most notably, our team includes Carlos Omaña is a partner in D’Empaire Reyna Abogados. He is a general several lawyers that are admitted to practitioner, with emphasis on Venezuelan sovereign and quasi-sovereign practice in the State of New York. international financings, corporate law and gas projects. It is also very important to add that D’Empaire’s oil and gas team is deployed Arnoldo Troconis on the ground in Venezuela, which Partner gives the firm a firsthand look at current [email protected] developments in the local oil and gas sector, ranging from relevant regulatory Arnoldo Troconis is widely regarded as a top corporate lawyer in Venezuela. changes to key appointments in regulatory Chambers Latin America has ranked Arnoldo Troconis as a leading lawyer and managerial positions in the oil and for several years. Troconis acted as a lead outside Venezuelan counsel to gas industry. This is a significant advantage Telecom Italia Mobile (TIM) for more than eight years, from the date TIM first for foreign companies looking to get up considered an acquisition in Venezuela in 1998 until the sale of its Venezuelan to speed with Venezuela’s investment mobile subsidiary (Digitel) in 2006. Arnoldo Troconis was appointed by TIM to environment. PDVSA and its affiliates are serve as a member of the Board of Directors of Digitel until 2006. He received the only game in town in terms of the his law degree cum laude from Universidad Católica Andrés Bello in 1988, oil and gas business in Venezuela and an M.C.J from the University of Texas, Austin, in 1991, and a Tax Degree from through our ability to maintain excellent Universidad Católica Andrés Bello in 1994. Before becoming a partner at DRA professional working relationships with the in 1996, he worked as an associate at Graves, Dougherty, Hearon & Moody, key oil and gas executives and regulators, Austin in 1991. He is fluent in Spanish and English, and speaks Italian. we are optimally positioned to serve our clients’ interests.

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A New Wave of Mergers and Acquisitions in Vietnam Significant changes in the law should spur a surge in M&A activity

ince the early 2000s, Vietnam’s steady US$ 3.8bil (370 deals). In somewhat of a rebound, economic growth and ongoing efforts the market is slowly regaining some momentum in to reform its legal system provided en- 2014. The market has so far witnessed 400 deals val- couraging signs for a thriving M&A ued at US$ 4bil, an appreciable difference from the marketplace to develop. This progress year before. continuedS to gain traction in 2005 when Vietnam The three most active sectors are consumer engaged in earnest preparations to join the World goods, finance and real estate. Among those, the Trade Organization (WTO), finally acceding in consumer goods sector ranked first with total deal 2007. In order to become a member, Vietnam is- value of US$ 960 mil (accounting for 24% of the sued a number of new laws and amended many M&A market), the finance sector came in second others to satisfy WTO requirements. with total deal worth of US$ 880 mil (accounting for The market responded favorably, and despite 22% of the M&A market) and the real estate sector the global financial crises from 2007 to 2009, cor- lagged behind at US$ 400 mil (accounting for 10% porate investment into and within Vietnam steadily of the total M&A market). grew and the value of M&A transactions increased While it is comforting to see that the total number 15-30% annually until 2012. However, in 2013 the and deal size of M&A transactions have regained an value of M&A transactions in Vietnam dropped upward trend, the most interesting developments, precipitously from US$ 5.3bil (520 deals) in 2012 to portends a robust and active M&A market in the short- to mid-term. The emergence of local com- 6 600 panies taking a more active role 520 in buying companies will contrib- 5 500 ute to a stronger M&A market. 420 400 The most active among them is 4 370 400 340 Value of the Vingroup JSC, a listed Viet- transactions 280 3 300 (US$billion) namese company specializing in 5.3 real estate development. Howev- Number of 180 4.2 2 3.8 4 200 er, foreign companies from Japan 3.4 transactions 110 2.8 and Korea continue to lead the 1 100 35 40 1.85 pack in volume for M&A deals in 0.1 0.3 1.1 Vietnam. 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Another critical improvement is the new policies Vietnam in- Fig. 1: Flowchart of M&A in Vietnam, source: MAF Research Group stituted to manage banks, a key

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Global M&A_Vietnam_LNT_Final.indd 130 12/14/14 3:43 PM Fig. 2: Comparison of M&A transaction value among SE Asia countries in 2013 source: MAF Research Group sector for M&A activity. A strong 30 and vibrant banking sector will further spur more M&A in the 28 25 26 market. Along with an improved regulatory banking framework, 20 the Vietnam government man- dated the equitization of state- 15 16 Value of 14 transactions owned-enterprises (SOEs) within 13 10 (US$billion) a clear timeframe and has even allowed the purchase price to be 5 lower than par value in some cas- 3.8 es. These developments have cre- 0 ated and will continue to create Vietnam Thailand Phillipines Malaysia Indonesia Singapore new opportunities for investors to buy larger stakes in local banks as well as SOEs in key economic sectors. the first transaction between a bank and finance The final macro-level development this past year company. In addition, a number of other commercial involves key legal changes to the law. In the past, banks and financial companies successfully closed Vietnam’s M&A landscape faced legal and adminis- M&A deals, including HDBank and DaiA Bank, trative barriers, including a lack of transparency ow- MBS and VIT, VP Bank and TKV, and Sumitomo ing to insufficient disclosure of information from the and Mobivi. target companies. Furthermore, a lack of clarity on the applicable laws unnecessarily prolonged transac- Real Estate Sector: tions, as well as created a need for third-party inter- In this sector, most of the M&A transactions were vention to reconcile differences caused by this lack completed by Vincom through property transfer of clarity. Foreign buyers also had to manage WTO schemes instead of project or capital transfers. In restrictions and foreign ownership limitations when particular, Center A of VinGroup was sold to VIPD structuring deals. for US$ 470 mil. Gemadept Tower was purchased Many of these issues have been addressed by the by CJ from Korea with the purchase price of US$ recently enacted changes to the Law on Investments 45 mil. In addition, Mapletree purchased Center and the Law on Enterprises on November 26, 2014. Point Tower for US$54 mil. EXS also became a new These changes will greatly contribute to the im- shareholder of Son Kim Land after paying US$ 37 provement of the investment environment in Viet- mil to the sellers. A number of shares of the Shera- nam. (See below for more details on these changes.) ton Nha Trang project were transferred to an undis- Additional amendments are due to be considered closed buyer for US$ 42 mil. and passed in June 2015. Moreover, as of January 14, 2014, Vietnam must now fully comply with WTO Consumer Products and Distribution Sectors: requirements in almost every industry sector. With the 14th largest population in the world, com- panies in the consumer sector in Vietnam have al- SIGNIFICANT TRANSACTIONS ways been a top target for M&A. Family Mart, a AND HIGHLIGHTS chain of convenient stores and Metro Cash & Carry In 2013 and 2014, Vietnam was graced with sig- Vietnam, a leading company in the wholesale sec- nificant M&A transactions in a broad spectrum of tor, was acquired by BJC from Thailand. Likewise, sectors, particularly in banking, real estate and con- CDH Electric Bee Ltd acquired 20% of thegioidi- sumer products. A number of key transactions have dong.com, a famous electronics retailer in Vietnam, been internationally recognized. for an undisclosed price. In July 2014, thegioididong. com became a listed company on the Ho Chi Minh Banking Sector: City Stock Exchange. Masan, a leading company PVFC and WesternBank merged to create PVCom- in the consumer products sector, also acquired 75% bank with charter capital of US$ 430 mil. This was of Vinh Hao, a mineral water company, after pay-

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ing US$ 26 mil to the sellers. In addition, Kinh Do conditions .The issuance of these new Laws will be Corp., one of the leading food companies in Viet- a tremendous boost for M&A activities in Vietnam nam, engaged in a number of M&A transactions, in the near future. buying and selling assets before it sold 80% of its Foreign ownership of real estate in Vietnam has confectionary business to Mondelez International finally been approved and enacted into law under the Inc. for US$ 380 mil in December 2014. new Law on Housing. Foreigners can legally lease and sublease real estate. The new Law also simpli- Other Sectors: fies, shortens and makes more transparent the proce- Other notable transactions include: (1) UPS’ 49% dure to obtain approvals for real estate projects. acquisition of VN Post’s shares in a joint venture Corporate income tax will be reduced to 20% company, converting it into a 100% foreign owned after January 1, 2016 and the new Law on CIT entity; (2) en-Japan’s acquisition of approximately provides more favorable treatment and incentives 90% of the offshore parent of Vietnamworks.com, for enterprises. Apart from this, the tax system the biggest recruitment services company in Viet- has been simplified to facilitate the application of nam, for US$ 25 mil; (3) in early November 2014, the International Financial Reporting Standards GEM announced an investment of US$ 80 mil in starting in 2020. Significantly, tax payers can now HAGL, one of the biggest conglomerates with a use the internet to submit and manage tax reports wide range of business lines in Vietnam and the In- and filings. dochina region; and (4) REE, a leading listed com- However, among these many positive changes, pany in the electronics sector, also acquired a num- M&A transactions in Vietnam still face difficulties. ber of hydroelectricity projects and feed projects. According to a survey conducted in 2011, Gov- ernment red tape, together with corruption, and in- LEGAL DEVELOPMENTS frastructural issues, the legal system in Vietnam was IMPACTING THE M&A MARKET cited by 82% of respondents as one of the main fac- This year there has been a number of legal develop- tors constraining their investments. Because Viet- ments that should generate many more opportuni- nam follows a civil law system, the written laws must ties for foreign investment into Vietnam’s dynamic be updated and clearly defined to ensure consistent economy. interpretation by relevant authorities. Inconsistent Under the WTO roadmap requiring equal treat- and even contradicting interpretations remain a ment regardless of citizenship, Vietnam opened up substantial barrier to conducting business in Viet- many different sectors to 100% foreign ownership in nam. It negatively impacts the appetite for M&A January 2014. However, this does not apply to res- transactions as well as causes unnecessary delays taurant services until after 21 January 2015. This de- and increases transaction costs. velopment would legally allow a number of foreign While these amendments were a necessary step investors to join the Vietnam market or restructure to improve business conditions in Vietnam, they are their holdings to become 100% foreign owned in subject to further detailed implementing guidelines many different sectors which was previously restrict- by Decrees and Circulars. Thus, if the law makers ed and/or allowed limited shareholdings. do not put adequate efforts to properly prepare these The new Law on Enterprises and Law on In- Decrees and Circulars to implement the intent of the vestment now allow investors to conduct all busi- new Laws, the current challenges will remain and ness activities which are not prohibited or subject to the business environment will not improve even with conditions under the law. The M&A procedure for the passage of these new Laws. foreign buyers were also clarified and the timeline Another challenge remains limited access to cer- shortened. With respect to joint stock companies, tain economic sectors. Under the WTO, Vietnam re- except for limited circumstances, many corpo- serves the right to restrict foreign ownership (entirely rate matters can be passed with 51% of the voting or majority control) in a number of services including capital instead of 65% as was the case under the road transportation, high school education, certain previous version. The Law on Enterprises also al- financial and securities services, leasing, film pro- lows third parties to request authorities to provide duction, recording services and others. These sectors financial statements and information under certain are subject to high scrutiny by relevant authorities

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Global M&A_Vietnam_LNT_Final.indd 132 12/14/14 3:44 PM and many transactions in these sectors remain un- completed due to these ownership restrictions. Majority control still remains a sticking point in certain industries. Under Decision 55/2009/QÐ- Ttg only 49% of shares/securities are available for foreign investors to buy when it relates to public companies, listed companies, investment funds and securities companies. A draft of new regulations to increase the cap for foreign ownership to 60% is under consideration, but, to date, these regulations have not been officially issued. According to a re- port from the State Security Commission, these new regulations are set to be issued in October 2015. Finally, mergers and acquisitions may still be Quyen Hoang Thuy Nguyen stalled when reviewing for antitrust issues. The basis Corporate Group Head Senior for calculating the “market share” in relation to an Managing Partner Associate “economic concentration” is not currently addressed clearly by the Law on Competition and correspond- ing regulations. Therefore, this may impact clear- of corporate and commercial compliance, mergers ance reviews by the local competition authorities. and acquisitions, contract drafting and negotiation, investment, labor, and intellectual property. She A NEW WAVE OF M&A has been ranked by Chamber and Partners as a TRANSACTIONS Corporate/M&A expert. Ms. Hoang and her team Vietnam remains a challenging market to conduct have been proactively involved in the successful business. The government, however, has made an completion of various projects, including numerous earnest effort to engage the business and investment foreign-invested projects, mergers and acquisitions, community to address their concerns. In 2014, after restructuring and corporate management. a number of open discussions and productive dia- Ms. Hoang has been highly recommended by logue, Vietnam’s legislature successfully passed into the Asia Law Profiles for having “all the important law a number of material changes reflecting feed- connections and experience” that corporate clients back received from the commercial sector. Investors need. Ms. Hoang is also a regular columnist for the should be pleased to know that further positive re- PhapLuat Newspaper, the Vietnam Investment Re- forms are underway. view and several other legal periodicals, providing These changes have galvanized the marketplace updates on new legal and M&A trends. and many investors believe a new page of M&A transactions in Vietnam will emerge. In fact, as re- Mr. NGUYEN Xuan Thuy ported by the MAF Research Group, 72% of the Tel: +84 (0) 938 907 701 surveyed investors believe that a new wave of M&A Email: [email protected] transactions in Vietnam would start in early 2015. Mr. Xuan Thuy Nguyen, with 8 years of experience We believe investors are justified in their optimism in legal practice, is a Senior Associate at LNT & about entering Vietnam or expanding their presence Partners. He has successfully advised a number of in Vietnam. ■ foreign investors, domestic companies and regulato- ry agencies in Vietnam on mergers and acquisitions, ABOUT THE AUTHORS corporate and real estate law. Ms. HOANG Nguyen Ha Quyen Furthermore, Mr. Nguyen also achieved the Best Tel: +84 (0) 909 860 779 Graduation Thesis on competition law after gradu- Email: [email protected] ating from Ho Chi Minh City University of Law. He Ms. Nguyen Ha Quyen Hoang is the Managing is frequently sought after for comments on drafts of Partner of LNT & Partners. She heads the firm’s legal regulations for investment law, enterprise law Corporate practice group, and advises in matters and planning law.

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Global M&A_Vietnam_LNT_Final.indd 133 12/14/14 3:44 PM TECHNOLOGY Q&A BELGIUM: Technology reporter M&A Focus maria jackson puts the Leading Belgium-based law firm Astrea summarizes the questions to ASTREA headlines driving deals in the technology space in Belgium

As global deal figures show, technology-related volatility for future revenue streams, the privacy M&A is on the up. Steven De Schrijver, M&A during the M&A process, the valuation of the and technology partner at Astrea, discusses the quality of earnings, the complex integration current pitfalls and windfalls awaiting investors processes and convergence strategies, and the into Belgium’s technology space. estimation of the market authority’s response with respect to monopolies, can curb the success Astrea is a leading independent Belgian law firm, rate of these types of transactions. with offices in Antwerp and Brussels. The firm has a strong international outlook, and regularly advises national and multinational clients across a HOW IS BELGIUM MAKING MOVES STEVEN wide range of specialist areas including corporate TO ESTABLISH ITSELF AS A LEADING DE SCHRIJVER TECHNOLOGY HUB? PARTNER law, banking & finance, tax law, labor law, real ASTREA estate law, environmental law, IP law and IT law. ASTREA: Driven by innovation, creativity, technological expertise and entrepreneurship, technology companies in Belgium have TO WHAT EXTENT WAS 2014 A BOUYANT acquired European as well as global leadership YEAR FOR TECHNOLOGY M&A? positions. In Belgium’s open business culture, ASTREA: In the first quarter of 2014, technology ICT companies can rely on a high-tech M&A reached the highest value recorded in environment well-suited to the development 14 years, driven largely by the social networking of tomorrow’s technologies. In particular, the sector, cloud computing, smart mobility, big high density of ICT businesses, research centers data analytics, security and future technology and knowledge clusters provides them with (i.e. omnipresent digital environments sensing a stimulating technology community, which and responding to human activities and interests). enables companies to nurture specific niches, In the U.S., for example, Facebook contributed for example in innovative banking products. significantly to the value growth through a An early innovator in broadband, wireless and string of high-profile deals, such as its $19 satellite communication in the 1990s, Belgium billion acquisition of mobile-messaging service was one of the first countries in Europe to install WhatsApp and its $2 billion acquisition of Oculus a broadband network infrastructure that could Rift. While some skeptics maintain that without reach the entire population. Furthermore, the these mega deals, M&A values for the first quarter optimum connectivity offered by the country’s of 2014 would have looked significantly less fiber optic network convinced Google to install impressive, the figures are still based on a stable a data center here, not far from the Microsoft growth in the digitization process, making cloud Innovation Centre. and mobility applications gain in value and appeal. The new government remains committed to Also in the second quarter of 2014, the technology focus on the competitiveness of Belgium as an M&A figures remained strong. international business hub. The interesting tax It is important to note, however, that a technique of notional interest deduction is still in technology M&A deal remains a challenging force and the rules concerning company law will process. Issues such as the assessment of be simplified.

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Global M&A_Tech_Astrea_Final.indd 134 12/14/14 3:42 PM There are also a substantial number “In the first quarter of 2014, closing. Finally, it is common practice of tax incentives for research and in the technology sector to outsource development (R&D) activities in Belgium, technology M&A reached the employees to other companies to carry which makes Belgium a particularly highest value recorded in out specific assignments. Nevertheless, interesting jurisdiction for technology companies should be careful when investment, including: patent income 14 years, driven largely by the doing this. The Belgian Act of July 24, deduction (‘patent box’), investment social networking sector, cloud 1987 on the Secondment of Employees deductions for R&D-related investments for the Benefit of Users, prohibits placing and patents, R&D tax credits, partial computing, smart mobility, employees at the disposal of third parties. wage tax exemptions for researchers big data analytics, security Employers breaching this law can be employed in Belgium, expatriate tax held criminally and civilly responsible. and future technology.” status in R&D, tax allowance for additional Consequently, this liability risk needs to be employees, accelerated depreciation for well assessed and covered by adequate R&D investments, tax exoneration for warranties from the target company. excess of €100 million (approximately regional grants provided by the Flemish, $123 million) and at least two of the Walloon or Brussels Region and favorable parties each generate a turnover in WHAT ARE THE MOST IMPORTANT tax rulings. Belgium of €40 million (approximately CONSIDERATIONS FOR CLIENTS $49 million). ON THE IP AND IT DUE DILIGENCE WHAT ARE THE MAIN FEATURES OF SIDE? In combination with the ability to control BELGIUM’S LEGAL FRAMEWORK ASTREA: In addition to confirming the post-merger internal market disruptions, THAT APPLY TO TECHNOLOGY legal ownership of the software, clients both the EU and Belgian market INVESTORS? need to take the legal implications of authorities have the power to stop or cloud computing into account. When ASTREA: Belgian patent law provides for dissolve an M&A transaction. the exclusive right of exploitation, the right acquiring or merging with a provider to transfer or license and the right to act Also, on the employment side there are of cloud applications, platforms or against infringements, with a far-reaching a number of issues that tech companies infrastructure in the cloud, attention authority granted to the judge to assess wishing to acquire a company in Belgium should be paid to issues such as the ownership of the data or applications run infringements. In addition to the high level should take into account. Companies in the cloud, compliance with mandatory of protection, there is also a guarantee in the technology sector often work rules with respect to international data on the income side. For example, 80 with independent contractors or transfers, exit possibilities, etc. percent of the net income from patents is so-called freelancers. Often, however, exempt from taxes, 15 to 80 percent of the these contractors work exclusively for Since the target’s technology and accepted costs can be subsidized and the one company, as a result of which their intellectual property are the most valuable tax of €5 for the patent delivery is barred working conditions are very similar to assets to an acquiring tech company, to make the Belgian patent system even those of employees performing their a thorough and comprehensive due more attractive, since the collection of duties upon instruction and under diligence of such assets is essential to this would significantly delay the patent the supervision of their employer. The ensure future revenue streams and acquiring company should therefore application. restrict legal actions in the post-merger make a thorough assessment of the phase. An important feature of the In terms of M&A deals generally, it is working situation of these freelancers review is analyzing the ownership of also important to mention competition and their relationship with the target the intellectual property. You need to regulations. Unless a transaction falls company. It should also obtain ask the questions: what is the duration under the EU merger notification appropriate warranties from the target of the protection against copies or thresholds set out in EU Council company in case the independent infringements? Who is the legal owner Regulation 4064/89, a mandatory contractors would be re-qualified as and are there any contestations with notification is required under the employees by tax and social security regards to the creation? Under Belgian Belgian Act of 5 August 1991 on the authorities, as such requalification gives copyright law, software is protected Protection of Economic Competition if rise to additional taxes and social security for up to seventy years after the death all parties concerned have an aggregate contributions. Possibly also their working of the author. However, only the form consolidated turnover in Belgium in situation will need to be reviewed post- and expression of the idea is protected.

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Global M&A_Tech_Astrea_Final.indd 135 12/14/14 3:42 PM TECHNOLOGY Corporate

Anyone is allowed to write a program with of the company’s software, have validly To ensure all the various obligations are the exact same functionality, provided assigned all their intellectual property met, it is important to partner with a Banking & that it is based on a self-developed source rights in relation to such software to firm that is specialized in all the requisite finance code. Just because the target company the target. Belgian law provides that if supplementary areas of law. In addition In Belgium an M&A deal owns the intellectual property of a an employee develops new software in to its expertise in company law, IP and IT certain software, does not mean that it is the execution of his duties or upon the law, Astrea can provide strong experience requires expertise in many protected against the copying of the idea. instructions of his employer, economic in real estate, environmental, labor and Tax A solution could be found in patenting and IP rights in relation to such software tax law. This comprehensive offering the software but that method is, in the are automatically assigned to the equips the firm with all the necessary legal areas. European context, no guarantee, since employer, unless otherwise provided tools to effectively resource a complex there is great disagreement about the by contract. Thus, the target company’s technology M&A deal. Labor patentability of software. employment contracts should be checked And we master them all. for clauses preventing the automatic About the Author: assignment of the intellectual property Driven by innovation, creativity, rights to the employer. If software is Steven De Schrijver, partner [email protected] We are Astrea. technological expertise and developed by freelance contractors, there Real estate is no automatic assignment of IP rights, Steven De Schrijver has 20 years’ Pleased to meet you. entrepreneurship, technology so it should be verified who holds the experience in advising Belgian and foreign companies in Belgium have intellectual property rights under the companies on mergers and acquisitions, contract. Another aspect that is often joint ventures, corporate restructurings, Environ- acquired European as well as overlooked is the presence of open acquisition financing, private equity and mental global leadership positions. In source code in the developed software. venture capital, debt structuring and Such open source codes are available secured loans. He has been involved Belgium’s open business culture, to everyone. Cisco experienced the in many national and cross-border consequences of the presence of open ICT companies can rely on a transactions mostly in the IT, media, IP Source codes in the target’s software energy and life sciences sectors. high-tech environment well when it acquired Linksys in March 2003 ASTREA PROVIDES SPECIALIST LEGAL ADVICE TO MULTINATIONALS, Steven is also recognized as one of INVESTORS AND START-UPS suited to the development of for $500 million. After the deal was closed Cisco was contacted by the Free the leading commercial IT lawyers in tomorrow’s technologies Software Foundation, which determined Belgium specializing in new technologies Legal issues are rarely limited to a single area of law. IT that the Linksys software contained open (such as data protection, e-commerce, Astrea is an independent law firm with more than 35 lawyers, each of them specialized in source code. Since it would be very cost software licensing, website development The due diligence should not only a particular area of law. Together, they cover every field of law that might be encountered prohibitive to reengineer the software, and hosting, technology transfer, focus on the ownership and value of by multinationals, investors and start-ups in an M&A deal involving Belgium. Cisco had to release the source code, digital signature, IT-outsourcing, cloud the intellectual property rights, but also which then became available to anyone computing, gaming and gambling etc.). Our firm’s broad-based composition allows us to offer a comprehensive approach. Based - and foremost - on their transferability. at no cost. In 2012 and 2014 Steven was elected by on the individual client’s needs and the specific issues at hand, we assign a customised In respect of intellectual property that is Who’s Who Legal as Global Information team of specialist lawyers to each case. This enables us to consider every relevant area of not owned, but merely licensed by the Technology Lawyer of the Year. law and provide the most efficient solution. target, it is crucial to examine whether WHAT SKILLS AND EXPERIENCE the license agreements contain a change MARKS ASTREA AS A KEY PARTNER Steven De Schrijver graduated as a A unique blend of passion and respect is the strength of the Astrea team. The of control clause, prohibiting the target FOR TECHNOLOGY M&A? Master in Law (magna cum laude) at approach of every team member is always client-oriented and client-driven. We respond company transferring the licenses to ASTREA: As shown above, an M&A deal the University of Antwerp in 1992. He quickly, and we are proactive and pragmatic. Quality is essential, but we also aim to be as the acquirer without the licensor’s prior on foreign ground requires a 360-degree obtained a LL.M. at the University of cost-efficient as possible. consent. Another potential pitfall in approach. Not only is it necessary Virginia Law School in 1993, a diploma in transferring IP consists of exclusive rights to have clear insight into the ruling Business Law (magna cum laude) at the CONTACT PARTNER: Steven De Schrijver / [email protected] / +32 476 609 182 granted to local distributors in a specific market authorities, labor law formalities University of Antwerp in 1995, as well as a region, which could be incompatible with and company rules, a thorough diploma in Corporate Law (cum laude) at the existing distribution network of the understanding of the legal guaranties the EHSAL (Brussels) in 1997 and a post- acquirer. Moreover, it should be verified towards intellectual property rights and graduate diploma in EC Competition Law whether the target’s employees, who tax benefits are also needed to get the at King’s College London in 1999. have contributed to the development most out of the M&A process. ― ATTORNEYS-AT-LAW Antwerp - Brussels

136 Global M&A Guide 2015

14005.ASTREA.ad.global.v3.indd 1 2/12/14 18:04 Global M&A_Tech_Astrea_Final.indd 136 12/14/14 3:42 PM Corporate

Banking & finance In Belgium an M&A deal

requires expertise in many Tax legal areas.

And we master them all. Labor

We are Astrea. Real Pleased to meet you. estate

Environ- mental

IP ASTREA PROVIDES SPECIALIST LEGAL ADVICE TO MULTINATIONALS, INVESTORS AND START-UPS

Legal issues are rarely limited to a single area of law. IT Astrea is an independent law firm with more than 35 lawyers, each of them specialized in a particular area of law. Together, they cover every field of law that might be encountered by multinationals, investors and start-ups in an M&A deal involving Belgium.

Our firm’s broad-based composition allows us to offer a comprehensive approach. Based on the individual client’s needs and the specific issues at hand, we assign a customised team of specialist lawyers to each case. This enables us to consider every relevant area of law and provide the most efficient solution.

A unique blend of passion and respect is the strength of the Astrea team. The approach of every team member is always client-oriented and client-driven. We respond quickly, and we are proactive and pragmatic. Quality is essential, but we also aim to be as cost-efficient as possible.

CONTACT PARTNER: Steven De Schrijver / [email protected] / +32 476 609 182

― ATTORNEYS-AT-LAW Antwerp - Brussels

14005.ASTREA.ad.global.v3.indd 1 2/12/14 18:04 Global M&A_Tech_Astrea_Final.indd 137 12/14/14 3:42 PM LATINAMERICA Maximize Your Recognition. Order your reprints as published in Focus Latin America. Contact 877.257.3382 or [email protected].

LATINAMERICA SPRING 2014

Sowing the Seed Best Name of foreign associa S: prominen of Te programsT laaTin Jaime Robledo american alumni Foreign Associate Progr T inT ernaTional firms Manuel Echave Pintado am Friends Allen & Overy Pilar Duarte Dates International firms have been building strong ties to local players in Latin Allen & Overy Juan Pablo Schwencke September 2002 - January 2004 America—and the connections are paying dividends with clients. Allen & Overy Coming mples of Daniel Muñoz Díaz together: June 2001 - July 2002 DATE inT with local Cleary Gottlieb Steen & Ham ernaTional and l york Stock Exchange offering of Banco Mac- DEAL June 2001 - August 2001 Daniela Anversa Sampaio Do n 220 February 2014 ilton aTin america firms and Cabanellas teamed up to advise the underwriters on the Cleary- Gottlieb Steen & Hami Fabiane Pereira Ortiz ria current $10.57 billion merger of1997 Brazili - 1998 Team up on big By Chris Johnson $300 million New rica. lton Portugal Telecom SGPS SA. Cleary Gottlieb Steen & Hami an phone company Oi SA and ADVISORS TickeT m&a ro—at the time the first Argentine institution to list internation- 2002 - 2003 Maria Luisa Petricioli Caste in lton ally for almost a decade. (See ‘Coming Together’ for exa Cleary GottliebFebruary Steen 2013 & Hami Advising Oi: White & Case; Bar other M&A deals where international firmsllón teamed up most 2003 - 2004 Advising Portugal Telecom: Nicolas Piaggio lton Constellation Brands, Inc.’s bosa, Müssnich & Aragão (Brazil) LegaL business is aLL about reLation- finance cochair at Mayer Brown. “Any counsel in Latin America.) Cleary Gottlieb Steen & Hamilt Souza, Cescon, Barrieu & Flesch Advo Cleary Gottlieb Steen & Hamilton says that more tha brewery Compañia Cervecera $2.9 de billion acquisition of Brazilian Simpson Thacher & Bartlett; Gar Bruno Ferla d 2011 - 2012 ships. Nowhere is this more true than in firm looking to do business here needs to on Busch InBev NV. alumni of its half-century-old foreign associate program are Linklaters Coahuila from Anheuser- gados (Brazil) rigues (Spain); November 2013 Advising Constellation: Latin America. understand that you have to put the time ly working Marinaat law firmsBericua and as in-house oucounsel can doin aLatin deal Amefor a com- 2004 - 2005 “The legal communities in these countries are quite small, Brazilian state-run oil company Advising Anheuser-Busch: Baker & McKenzie; Nixon Peab With legal markets in the United in to build and maintain those personal Linklaters Cromwell; Mijares, Angoitia, Cort billion sale of its Peruvian oil and Skadden Arps Slate Meagher & F so relationshipsRoberto Guerrero can be very viral,” says Antonia Stolper, Lat SeptemberPetroleo 1997 - BrasileiroNovem SA’s $2.6 y Sierra (Mexico) ody. States and Europe broadly flat, leading relationships. This isn’t a market you can and gas company China Nation és y Fuentes Abogados (Mexico) Linklaters gas assets to Chineseber 1998 oil lom; Sullivan & international firms have been increas- just do on your Blackberry.” America group head at Shearman & Sterling, which has al February 2013 Advising PetroChina: V Rodrigo Hinzpeter L August 1997al Petroleum - March 1998 Corp. 30 partners active in the region. “y Mattos Filho, Veiga Filho, Marrey Jr ; Von Wobeser ingly eager to tap into the region’s vi- One of the main tools international Simpson Thacher & Bartlett Leading Colombian bank Banco inson & Elkins; Miranda & Amado Abogad LATINpany and someone on that board knows somebody on theAMERICA boar a (PetroBras used inhouse counse Ricardo Coelho tion of the Panama bankingSeptember 1998 - JulySPRING 1999 2014 brant and growing economy. But gaining law firms have used in developing re- and internationa Advising Bancolombia: Sullivan . e Quiroga Advogados (Brazil) of the next company that is thinking of doing a Ldeal.Simpson I’ve Thacher had a & Bartlettocal HSBC Latin American Holdin lombia S.A.’s $2.23bn acquisi- os (Peru); Loca and insurance operations of l.) access to these dynamic markets is not lationships with local firms—and indi- wholeSantiago series Gutierrez of deals where the reason I got hired all tracedAugust back2013 1994 - 1995 gs (UK) Limited. Advising HSBC: Linklaters; Arias Fabre& Cromwell; Tapia, Linares & Alfaro (P to one initial relationship.” Simpson Thacher & Bartlett so simple. rectly with clients—is foreign associate g in- Mexican soft drink bottler Coca-C Advising Coca-Cola FEMSA Pablo Iacobelli Lawyers between 2000 - 2001 $1.86 billion acquisition of Brazili Silva Advogados (Brazil) ga & Fabrega (Panama) anama) More than two dozen international programs. These initiatives see associ- Simpson Thacher & Bartlettrosen & : INTERNATIONAL FIRMS; Tozzini Freir S.A. Industria Brasileira de Be ola FEMSA, S.A.B. de C.V.’s firms have bases in Brazil and a growing ates seconded from independent firms, Marcelothe Etchebarne movement of - 1996 an bottling company Spaipa SimpsonFebruary Thacher &2013 Bartlett bidas. Advising Spaipa: Cravath, Swa e Teixeira e number are also present in Mexico, but usually for a period of between three firms is not entirely one way. Some firms, such as Spain’s Urí Advising MetLife: Skadde Clara María Bozzo MetLife- Inc.’s $1.809 billion1996 acq - 1997 Menéndez, also regularly send associates on secondment to l Ponce (Ecuador); Prieto & Cia ( ine & Moore; Pinheiro Neto Ad most Latin American economies are in- and 12 months. During this time, the Simpson Thacher & Bartlett fund administrator AFP Prov n Arps Slate Meagher & Flom; Pere practices. Uría’s international strategy primarily revolves around uisition of Chilean pension Roberto Paes Bilbao Vizcaya Argentaria1998 SA. Chile) vogados (Brazil) dividually too small to justify a global law attorneys become full employees of the LATINAMERICA a network of so-called “best friends”—an alliance of leadin ida S.A from Spanish bank Banco z, Bustamante & SPRING 2014 MayerBest BrownNovember 2013 ically Advising Provida: Davis Pol firm having a permanent base. international law firm, which provides dependent firms that also includesrodríguez- Wachtell,rovira Lipton, says has more than — of 1996 - 1998 Advising BBVA: Sullivan an The $1.588 billion acquisition b katz and London-based SlaughterMayer and Brown May. k & Wardwell; Morales & Besa (Chile) For firms, that fact puts the empha- them with training, support and experi- Shuanghui International Ho Uría has an active foreign associate program that Latin Amerbogados; - 1997 - 1997 & Cromwell; Carey (Chile) companyyrar Sigma Alimentos SA dey ChineseC meat processor sis on developing and maintaining close ence. The idea is that they then return sti- ica practice head Eduardo ldings Ltd and Mexican food firms, although Simpson Thacher will shortlyFriends send Novemberan incoming 2013 sor Campofriorey, Food Group SA. Advising Shuanghui: relationships with local counterparts. home with a favorable impression of the 2001 - 2003 V of Spanish food proces- 250 alumni, of which approximately 40 are now working at cur izosa Commerce & Finance Law O first-year associate on a secondment to Mexican firm Mijares, French phone company Orange Paul Hastings; Cuatrecasas, Gonçalves These domestic law firms still hold the host firm, which subsequently results in rent or potentialInternational clients of firms the firm. have Butbeen unlike building most strong interna- ties to local players in Latin Advising Sigma: Linklaters Angoitia, Cortés y Fuentes.) One exception is Argentina, where Dominican Republic unit to ffices (China); Maples and Calder (Cayma tional firms,America—and Uría has for themore connections than 15 years arealso payingsystemat dividends with clients. (Campofrio used inhouse cou cards when it comes to market knowl- referrals. Many of the partners at lead- Uría has its own branch office. If the firm plans to send a lawyer investor ALTICE VII SA. SA’s $1.435 billion sale of its Pereira (Spain); placed senior associates with its Latin American best friends cable and telecommunications edge, client contacts and, in the case of ing Latin American law firms and the says Sergio Galvis, head of the Latin America practiceto Argentina at Sulliv for more than a year, the attorney will remain with more than 50 lawyers from its best friend firms, includingAdvising repre Orange:- Jones Day; nsel.)Ji n Islands) Dias Carneiro Advogados inCruz Brazil; explains. Mexico’s ‘Building Galicia Aa true Ar & Cromwell. “They’ve been a real positive in thethe development firm and ofwork from its base in Buenos Aires. (Uría alwaysreyna has Bermúdez sentatives Abogados from andnine Latin American firms. Advising ALTICE: Ropes Brazil, the ability to practice local law. general counsel of some corporations top Argentinian firm Marval,able toO’Farrell compete & effectivelyMairal; Philippi, (Dominican Republic) menez Cruz Peña (Dominican Repub They all wenT Latin American firms. They’ve become so muchat leastmore one sophi associate based in the office full time.) For shorter & Gray; Franklin Associes (France); C “In Latin America, more so than in are alumni of international firm foreign rázaval, Pulido & Brunnersignificant in Chile;By Peruvian investment Chris outfit Johnson for Payet, any i gentine practice that would be cated and international in their perspective.” stints, the lawyer will be seconded at Marval. lic) firm Cauvi, Pérez, Mur;v enezuela.Brigard & Uría Urrutia recently and workedPrieto & alongside Carrwith the Dias local firms would be a very astillo y Castillo the United States or Europe, personal associate programs. Sullivan & Cromwell’s visiting lawyers programv hason Wobeserbeen in y Si- work became morem profitable,ost internationaL firms “Law is something where localin Colombia; knowledge—knowing and D’Empaire the lo- nternational firm,” even if the a possibility to do that in another relationships are crucial,” says Douglas “Latin American law firms put a lot of to e partners f Not everyone agrees. The influ place for more than six decades, and the firmcal practices says it and receives the right peopleAraquereyna in the right in places—is very im- relationships he with says. a selection of firms in each jurisdiction in LegaL business isMexico aLL about has seen reLation a number- finance develop cochair at Mayer prefer Brown. to retain “Any nohave a lot of faith in the Mexi Doetsch, Latin America head and global value on these visiting lawyer programs,” several hundred applications for the eight-or-soportant,” spots says it offers Carneiro in advising China’s Shandong LatinLuneng America. Taishane small, Doing Football so allows them to gain access to a greater ships. Nowhere iscountry. this more Baker true &than Mc in Tfirm lookingx of to international do business firmshere needs into to to grow significantly over time, market, why wouldn’t we? We each year. Of the nine foreign associates currently practicing at that we assign rtoodríguez- a specificnsr ovira. aspartner “LatinClub or practiceon America its acquisition group—it’s isn’t something of aa trainingcore centernumberqui in Saoof potential Paulo—theolper. referrals; provide existing clients withnexc inLusive- can economy and think it is going mexico the firm, three are from Latin America. (One is from Pinheiro Latin America. Jones Day, and White & Caseunderstand sT thatlocal you law have practices to put in the the time presence on the ground.” part of our business. We have relationships with [the local firms] troductionskenzie, toDLA lawyers Piper, with Greenberg the right Trau expertise and experience so we do want to be a significant Neto Advogados in Brazil, one from Mexico’s With legal marketsMexico. (Forin the a moreUnited detaile in to build and maintain those personal If local law grows in prominenc we consider to be the best in each location—doing thatT rieson our arefor any given mandate; and to more effectively manage conflicts. ILLUSTrATION By DAvE WINk Sweeping pro-business reforms in the energy and telecom sectors, erra, another from Aninat Schwencke & Cia in Chile.) The States and Europeket, broadlysee “Land flat, of Opportunity,”leading relationships. pall provide This local isn’t law a market advice you in can york law’s dominance over transa own by establishing local offices and starting from scratch wouldhearman’s This, however,d analysis is ofnot the true Mexican of all firms. legal mar Inrig, 2002, Spanish firm international firms haves been increas- just do on your Blackberry.” firms may begin to reassess their appe and starts challenging New and in tax, labor and competition laws says that about half of the foreignbe associates too much becom effort.” “We serve clientsGarrigues on a global founded basis and the th‘Affinitas’ alliance, bringing together Ar . 14.) jority of international firms beli ctions in Latin America, other at their home firms after completing the program, with half o Theseingly eager coun to says service,”tap into saysthe Stuartregion’sgentina’s Berkson, vi- Bruchou, One of Fernandez the main Maderotools international, & Lombardi; Barros & have created vast opportunities, firms say. those ultimately moving into managementrodríguez- rolesrovira at those says firms. that in Uría providesbrant and its growing local“We best economy. practice friends local But gaininglaw in the lawU.S., firms have used in developing- re- with lawyers throughout Latin A roach. But for now, the ma- with support in areas suchies as training and development to ensure Errázuriz in Chile; Colombianey want firm a seamlessGomex Pinzon Zuleta; Mex- Around 20 percent of its alumni go on to take seniorT positio access to theseU. dynamic markets is not lationshipsDLA Piper’s with Latin local America firms—and chair. indi-credible practice in the region. eve having strong relationships very viral,” k., in Belgium, inico’s France, Mijares, the Angoitia,Nether Cortés y Fuentes; and Miranda & Amado in-house counsel. they “meet the right standards.” Immediatelyso simple. after an interview rectly with clients—is foreign associate merica to be a prerequisite to a in Peru. But Garrigues we practice quit the local network law in last the May afterAs its Sullivan plans &- Cromwell’s Galvis says, “ in early April, he travelled to Chile to hostMore a training than eventtwo dozen for international programs. These initiatives see associ-solutely critical in Latin America. first investment by a Chineseto merge football the memberclub in Latin lands,firms America. Italy.were …thwarted. If there’s By SUSan BeCK firms of have Uríabases initiallyin Brazil sent and its a associatesgrowing toates Latin seconded America from for upindependent to away, its firms, Local relationships are ab legal communi Reprinted with pe o pay numberpent are also present in Mexico,“The but idea usually was to havefor a one period associated of between firm inthree each Chrisrelevant Johnson can be contactedyou a just can’t do it on your own.” “The Tionships can be three years at a timermission countryto establishfrom the in S Latin the firm America, within and the ultimatelyregion, but to integratety in all of - pring 2014 editi mostn toLatin asAmerican its relationships economies with are Furtherlocal in duplicati-firmsand and 12 clients months. have During deepened this time,ri- the the firms,” says Javieron of FOCUS LATIN Since December, when the Mexican government passed sweeping constitutional reforms to dividually too small to justify a global law attorneyson without permissibecome full employees of the t [email protected]. so rela amargo that has dropped to two years in Mexico and one year AMERICA every -an ALM U.S. on is prohibited. For firm having awhere permanent else. Uría base. typically has betweeninternational six yandbáñez, laweight firm,Garrigues’ associates which onLatin provides Supplement America to THE head. create a more competitive businesses climate, change has come at a dizzying pace. New tax, veirano. In information, c For$1.85 firms, secondmentthat fact puts in Latinthe empha America- themat any withone time—atraining, relatively support sigand- experiontact- 877-257-3382AMERICAN LAWYER © am- or reprints@alm. 2014 ALM Me sis on developingnificant and maintaining investment forclose a firmence. of just The 120 idea partners. is that theyWhile then return dia Properties, LLC That was the case for one of the Latin American alumni com. # 001-06-14-02 education and labor laws have been enacted, the gether to craft wide-ranging economic reforms. relationships withlawyers local generally counterparts. become employeeshome with of theira favorable host firms, impression wh of the . All rights reserved. Linklaters’ foreign associate program, Bruno Ferla, who sThese domestic lawthe lawyers’firms still salaries—and hold the collecthost firm, their billings.which subsequently (The dispari results in telecom sector is being revamped, and the coun- in February, Moody’s upgraded Mexican 6 eight months with the firm from March 1997. Ferla wentcards o when it comesassociate to market salaries knowl between- referrals.the United Many States of and the Latin partners Ame at lead- try’s competition laws are being rewritten. Most sovereign debt to single a status, making Mexico become general counsel at Brazilian conglomerate C las, edge, client contactscan and, countries in the meanscase of the practiceing Latin is lessAmerican common law among firms and the significantly, the government is set to end its mo- one of only two latin america countries with a Correa S.A. and is now a partner at Brazilian firm Brazil, the ability to practice local law. general counsel of some corporations 2008, Linklaters was appointed as project counsel on the“In Latin America, more so than in are alumni of international firm foreign nopoly on the energy sector this year, opening it rating so high (the other is chile). at the davos billion Mphanda Nkuwa hydroelectric power plant inthe Moz United States or Europe, personal associate programs. to competition for the first time in 75 years. economic summit that same month, Peña Nieto bique, which was developed by Camargo Correa. Similarly, Marcelo Etchebarne, a member of Simpsonrelationships are crucial,” says Douglas “Latin American law firms put a lot of “these are some of the most ambitious re- announced that Pepsico inc., Nestle s.a. and Doetsch, Latin America head and global value on these visiting lawyer programs,” Thacher & Bartlett’s foreign associate program between 199 Wooden Plaque forms ever seen in Mexico, especially in the cisco systems inc. would be making combined kelly & Dell’Oro Maini. In 2006, Simpson Thacher and 1998, is now a name partner at Argentine firm Cabanel energy sector,” says Vincente corta Fernán- new investments of more than $7.3 billion. Etchebarne, ILLUSTrATION By DAvE WINk dez of White & case’s Mexico city office. an- For years, law firms and their clients in- drés ochoa-Bünsow of Baker & McKenzie’s terested in south america focused on Brazil Mexico city office says the changes have come and its booming economy. But much of that so quickly it’s been a challenge to stay current: attention has shifted north with Brazil strug- “all law firms are scrambling just to keep up to gling with a stalled economy and political un- date with a whole slew of reforms. the energy rest. “Brazil was the sexy lady of the region,” reform is the mother of reforms.” says luis riesgo, who heads Jones day’s latin this transformation began soon after the american operations from são Paulo. “Now 2012 election of President enrique Peña Ni- Mexico is the sexy lady.” glossy Prints Digital lUnlikeicense Brazil, Mexico doesn’t ban inter- eto, who outlined his vision for the country’s fu- ture in his Pacto por Mexico (Pact for Mexico). national law firms from practicing local law. Many in the business community greeted the “in Brazil we have to keep ourselves small,” plan with skepticism, given the disappointing says riesgo. “in Mexico we can be as big as track record of previous presidents’ attempted we want to be. it’s a huge difference.” reforms. But in a striking example of collabora- But it can be a challenge for a U.s.-based tion, Mexico’s political parties have worked to- or international law firm to gain a solid foot-

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