Mergers & Acquisitions 201 Seventh Edition 8

Editors: Michael E. Hatchard & Scott V. Simpson GLOBAL LEGAL INSIGHTS – MERGERS & ACQUISITIONS 2018, SEVENTH EDITION

Editors Michael E. Hatchard (Retired Partner), Skadden, Arps, Slate, Meagher & Flom (UK) LLP Scott V. Simpson, Skadden, Arps, Slate, Meagher & Flom (UK) LLP

Production Editor Andrew Schofi eld

Senior Editors Suzie Levy Caroline Collingwood

Group Consulting Editor Alan Falach

Publisher Rory Smith

We are extremely grateful for all contributions to this edition. Special thanks are reserved for Michael E. Hatchard & Scott V. Simpson for all of their assistance.

Published by Global Legal Group Ltd. 59 Tanner Street, London SE1 3PL, Tel: +44 207 367 0720 / URL: www.glgroup.co.uk

Copyright © 2018 Global Legal Group Ltd. All rights reserved No photocopying

ISBN 978-1-912509-10-2 ISSN 2048-6839

This publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice. Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication. This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualifi ed professional when dealing with specifi c situations. The information contained herein is accurate as of the date of publication.

Printed and bound by CPI Group (UK) Ltd, Croydon, CR0 4YY May 2018 CONTENTS

Preface Michael E. Hatchard & Scott V. Simpson

Austria Hartwig Kienast, Horst Ebhardt & Jiayan Zhu, Wolf Theiss Rechtsanwälte GmbH & Co KG 1 Christel Van den Eynden & Wim Dedecker Liedekerke Wolters Waelbroeck Kirkpatrick 7 Bolivia Jorge Luis Inchauste & José Carlos Bernal, Guevara & Gutiérrez S.C. Servicios Legales 17 Brazil Lior Pinsky & Rodrigo Martins Duarte, Veirano Advogados 24 Bulgaria Yordan Naydenov & Dr. Nikolay Kolev, Boyanov & Co 29 Canada Kurt Sarno, Shlomi Feiner & Matthew Mundy, Blake, Cassels & Graydon LLP 39 Cayman Islands Ramesh Maharaj, Rob Jackson & Melissa Lim, Walkers 53 China Jianjun Guan & Will Fung, Grandall Law Firm 61 Cyprus Elias Neocleous & Demetris Roti, Elias Neocleous & Co LLC 67 Coralie Oger, FTPA 75 Sebastian Graf von Wallwitz & Heiko Wunderlich, SKW Schwarz 85 Ghana Esine Okudzeto, Victoria Derban & Maame Yaa Kusi Mensah, Sam Okudzeto & Associates 93 Hong Kong Joshua Cole, Ashurst 99 Iceland Garðar Víðir Gunnarsson & Helgi Þór Þorsteinsson, LEX Law Offi ces 104 India Apoorva Agrawal, Sanjeev Jain & P. Srinivasan, PRA Law Offi ces 114 Indonesia Barli Darsyah & Eric Pratama Santoso, Indrawan Darsyah Santoso, Attorneys At Law 123 Alan Fuller, Aidan Lawlor & Bruff O’Reilly, McCann FitzGerald 134 Annick Imboua-Niava, Osther Tella & Hermann Kouao Imboua-Kouao-Tella & Associés 144 Japan Yuto Matsumura & Hideaki Roy Umetsu, Mori Hamada & Matsumoto 150 Macedonia Kristijan Polenak & Tatjana Shishkovska , Polenak Law Firm 160 Malta David Zahra, David Zahra & Associates Advocates 166 Mexico Erika Olguin, Gonzalez Calvillo, S.C. 177 Alexander J. Kaarls & Willem J.T. Liedenbaum, Houthoff 182 Ole K. Aabø-Evensen, Aabø-Evensen & Co Advokatfi rma 192 Slovenia Matej Kavčič, Simon Bračun & Jana Božič, Law fi rm Kavčič, Bračun & Partners, o.p., d.o.o. 211 Ferran Escayola & Rebeca Cayón Aguado, J&A Garrigues, S.L.P. 217 Sweden Jonas Bergquist, Jennie Thingwall & Hanna Reiding, Magnusson Advokatbyrå 227 Dr. Mariel Hoch & Dr. Christoph Neeracher, Bär & Karrer Ltd. 237 Ukraine Sergii Zheka, Mykhailo Razuvaiev & Olga Ivlyeva, Wolf Theiss LLC 241 United Kingdom Jan Mellmann, Vineet Budhiraja & Andrea Bhamber, Watson Farley & Williams LLP 250 USA Eric L. Cochran & Robert Banerjea, Skadden, Arps, Slate, Meagher & Flom LLP 262 PREFACE

e are pleased to present the seventh edition of Global Legal Insights – Mergers & Acquisitions. The book contains W31 country chapters, and is designed to provide general counsel, investment bankers, government agencies and private practice lawyers with a comprehensive insight into the practicalities of M&A by jurisdiction, highlighting market trends and legal developments as well as practical and strategic considerations.

In producing Global Legal Insights – Mergers & Acquisitions, the publishers have collected the views and opinions of a group of leading practitioners from around the world in a unique volume. The authors were asked to offer personal views on the most important recent developments in their own jurisdictions, with a free rein to decide the focus of their own chapter. A key benefi t of comparative analyses is the possibility that developments in one jurisdiction may inform understanding in another. We hope that this book will prove insightful and stimulating reading.

Michael E. Hatchard & Scott V. Simpson

Hartwig Kienast, Horst Ebhardt & Jiayan Zhu Wolf Theiss Rechtsanwälte GmbH & Co KG

Overview Compared to 2016, the M&A market in Austria showed only a very minor decrease in terms of the number of M&A transactions in 2017. According to an Ernst & Young market analysis for 2017, there were 345 acquisitions involving Austrian parties (i.e., announced or signed transactions involving Austrian target companies or Austrian buyers), which is nine fewer compared to 2016 (354). While the number of transactions was stable, the total transaction value increased signifi cantly by 37%, from €10.7bn to €14.7bn, which was mainly driven by the following four major transactions: (1) The acquisition of BUWOG AG, the Austria-based and mainly Germany-listed residential real estate company by Vonovia SE (€5,029m); (2) the acquisition of UPC Austria GmbH from Liberty Global Plc. by T-Mobile Austria GmbH (€1,900m); (3) the acquisition of the Russian gas fi eld Yuzhno-Russkoye by OMV (€1,700m); and (4) the acquisition of the real estate portfolios of RFR-Holding GmbH by SIGNA (€1,500m). The real estate, technology and industry sectors have been the liveliest in terms of M&A activity in 2017, with 86 transactions in the real estate sector, followed by 76 deals in technology and 60 deals in the industrial sector. It is noteworthy that three of the fi ve largest transactions in 2017 took place in the real estate sector. The Austrian market is largely driven by private M&A transactions; public M&A transactions have not played a signifi cant role in recent years. But, against that trend, in 2017, the largest transaction (as well as by value) was a public M&A transaction; the takeover of BUWOG AG by Vonovia, which had a transaction value of €5,029m. The most active sector in 2017 for Austria inbound M&A investors was the real estate sector with 42 deals, followed by the , media and technology (“TMT”) sector, with 34 deals in total. The total inbound deal volume was around €6.5bn. As to outbound M&A transactions last year, Austrian investors appeared to mainly acquire stakes in industrial companies, which accounted for 33 transactions, followed by the real estate sector, with 19 deals, and the TMT sector, with 15 deals. Compared to 2016, the volume of outbound transactions by Austrian buyers decreased by 10% in 2017. At the same time, inbound transactions have slightly increased (2.3%) and the number of domestic transactions has remained stable. In terms of geography, 28% of all acquisitions of Austrian companies have been conducted by German buyers and another 32.6% by buyers from other European countries, which makes European companies the single largest M&A investor group in Austria.

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Germany is by far the most attractive M&A market for Austrian investors, accounting for 35.3% of the number of all outbound M&A transactions by Austrian buyers. From a transaction value perspective, out of a total outbound deal value of €4.5bn in 2017, 41.5% related to acquisitions in Germany, 38.7% to purchases in Russia, and 17.3% to M&A transactions involving other European targets. Surprisingly, and venture capital investors have only played a minor role in Austrian M&A transactions in 2017: out of 325 transactions, only 20 involved private equity or venture capital investors. This may be a refl ection of the majority of Austria’s companies being mid-sized companies that prefer dealing with strategic counterparties. Austria has a small economy and many of its companies are family-owned. Family control is often structured through trust (Stiftung) structures that facilitate (and all too often, cement) long-term ownership structures, with family members as benefi ciaries and trust- boards exercising corporate control. On the other hand, in every auction sale, a signifi cant portion of the bidders will be made up of private equity bidders, and private equity generally is very active in scouting transaction opportunities. An example of that competition is the upcoming sale by General Electric of Jenbacher, its industrial gas engine business which, according to a Reuters report, has attracted the interest of strategic players such as Cummins and Wartsila, as well as large buyout groups such as Advent, Bain, CVC and KKR. Another example is Addiko, the Advent-owned banking group headquartered in Austria which operates fi nancial institutions in the West Balkans and is rumoured to plan a dual-track exit process in 2018.

Signifi cant deals and highlights 1. Vonovia SE [ETR: VNA], the Germany-based and listed residential real estate company, has made an indicative offer to acquire BUWOG AG [ETR: BWO], the Austria-based and mainly Germany-listed residential real estate company, with a deal volume of €5.2bn. The deal, fi rst announced in December 2017, would increase the size of Vonovia’s portfolio to almost 400,000 fl ats (from around 350,000 now), and has already been cleared by the German and Austrian regulators, according to Vonovia. 2. Raiffeisen Bank International AG has agreed to acquire Raiffeisen Zentralbank Oesterreich AG from Raiffeisen-Landesbanken-Holding GmbH. (€4,129m). 3. T-Mobile Austria GmbH has agreed to acquire UPC Austria GmbH, the Austrian cable provider, from Liberty Global Plc, the largest international cable network operator, for €1.9bn. By way of this the acquisition, Deutsche Telekom is hoping to challenge the dominance of local incumbent Telekom Austria, which has around 1.5 million fi xed- line broadband subscribers, compared to roughly 500,000 for UPC Austria. 4. Thailand’s U City Plc acquired Vienna International Hotelmanagement AG from Warimpex Finanz- und Beteiligungs AG and UBM Development AG for €333m. The acquisition is through a 100%-held Austrian acquisition company (AcquiCo) which will acquire Vienna International Hotel Management AG (Vienna House) and eight hotels in Central and Eastern from Austrian and Polish-listed property developer Warimpex Finanz- und Beteiligungs AG. 5. Knauf International GmbH has agreed to acquire the EMEA and Pacifi c Rim businesses of Armstrong World Industries, Inc. (“AWI”). Knauf International GmbH is a Germany- based manufacturer of building and construction materials, headquartered in Iphofen. The agreement includes the businesses of the WAVE joint venture in EMEA and the Pacifi c Rim, as well as Armstrong France and WAVE France, for which Knauf made

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a binding and irrevocable offer, subject to consultation with the local works councils. AWI currently anticipates that after customary closing adjustments, taxes and fees it will realise approximately US$250m in transaction-related net cash. The transaction, which is subject to regulatory approvals and other customary conditions, is currently anticipated to close in mid-2018.

Key developments Important changes in Austrian competition law On 25 April 2017, important changes have been introduced to the Austrian competition law. Among those changes is an additional jurisdictional threshold test in Austrian merger control regulation which applies to all transactions signed after November 2017. The new test aims at capturing transactions such as Facebook/WhatsApp, where the value of an undertaking is not (predominantly) based on the turnover the undertaking generates. In addition to the existing (low) Austrian merger clearance thresholds, concentrations now trigger a merger control fi ling requirement, if: (i) the undertakings’ combined worldwide turnover exceeds €300m; (ii) their Austrian turnover exceeds €15m; (iii) the value of the consideration for the transaction exceeds €200m; and (iv) the target is active in Austria to a signifi cant extent (“signifi cant extent”, meaning that the target operates a site in Austria or is signifi cantly active in Austria, based on key fi gures relevant in its industry). As a result, the already rather high number of mergers notifi able under Austrian merger control law may further increase. General Data Protection Regulation (GDPR) The Austrian legislature published the national Data Protection Amendment Act 2018 (Datenschutz-Anpassungsgesetz 2018) on 31 July 2017. It will enter into force simultaneously with the General Data Protection Regulation on 25 May 2018. Based on the new law and the risk of severe fi nes for breaches of the law (up to 4% of worldwide revenues of the company that commits a breach, or up to €20m), a due diligence on target companies in Austria will have to focus on data-protection compliance, including the actual steps taken by targets in bringing about compliance with the new regulations. Ultimate benefi cial owner register Articles 30, 31 of the Fourth Anti-Money Laundering Directive EU 2015/849 (“Directive”) provide for a mandatory register on ultimate benefi cial owners that is to be implemented in the EU. Many European countries will, or have already, set up such a new benefi cial ownership register. These countries have required, or will require, the benefi cial owners of companies, other legal entities and trusts to be registered under local law. In Austria, the Directive has been transposed into national law by the Benefi cial Ownership Register Act (Wirtschaftliche Eigentümer Registergesetz – “WiEReG”). The law provides for a mandatory registration of benefi cial owners by 1 June 2018. Access to the benefi cial owner register will be available for the fi rst time starting 2 May 2018. Generally, entities required to fi le information on their economic owner (“Registering Entities”) need to make such fi ling within four weeks after they have been registered in the relevant register (for trusts and trust-equivalent agreements, only after the administration has been set up in Austria). Changes have to be fi led within four weeks of knowledge thereof by the Registering Entity. All Registering Entities are obliged to confi rm the correctness of their data on their economic owners at least once per year.

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Public authorities can impose forced penalties on a repeated basis to enforce the fi ling obligation until the fi ling obligation is met. Furthermore, if the fi ling obligations are violated with intent or gross negligence, fi nes of up to €200,000 (intent) or up to €100,000 (gross negligence) can be imposed.

Industry sector focus Austria has a strong and stable economy and a diverse industry structure that is mostly made up by small and mid-sized companies. This industrial diversity makes it somewhat immune from developments in specifi c sectors or industries. The country historically has a strong base, and many companies have been able to upgrade their operations to meet the requirements of the digital economy and by servicing global markets. There is a signifi cant number of Austrian niche players that, through innovation, have succeeded in building a global customer base. Examples include steel manufacturing, water technology, cranes, vehicles, construction engineering, industrial engineering, plastic components, vehicle components, machinery or automation technology. Many of these companies do not grow by M&A but by refi ning their products and by gradually expanding market share. These companies are typically very profi table, with a stable market position. However, based on a tradition of family ownership (often preserved by family trust structures, as already mentioned), the owners of such companies do not typically exit their companies even when courted by private equity of trade buyers. This conservative approach is often seen as an obstacle to even more lucrative expansion strategies by such companies. While, as a consequence, there is a signifi cant number of interesting targets, the actual M&A transactions occurring in the market do not mirror such vast potential. However, we do see an increasing trend of such companies also coming on to the market. Real estate has been an attractive sector due to companies building and owning real estate not only in Austria but in the wider region; initially by way of close corporate or fi nancing ties to the large Austrian banks and, following the Lehman crisis, as restructured and agile real estate investors. Some of these companies had to undergo massive restructurings and have again become very attractive, in particular for even larger real estate funds and investors searching for the stable returns that these assets offer. There is still a wave of consolidation occurring in that segment, and additional transactions and tie-ups are likely to materialise in the course of 2018. Other large Austrian corporations such as Andritz, OMV, VOEST or Borealis pursue very different and sector-specifi c growth strategies, looking at geographic diversifi cation, add- on acquisitions or industry diversifi cation that cannot easily be summed up by reference to general local trends. The large Austrian banks historically owned stakes in Austrian industrial companies and, to a more limited degree, continue to do so today. An example is the Raiffeisen group which has signifi cant investments in sugar manufacturing, mills, catering and credit card operations. The markets expect that banks will, over time, further reduce such holdings, in part also by virtue of regulatory capital requirements. For example, Card Complete, a credit card company jointly owned by UniCredit and Raiffeisen, is currently being prepared to undergo an auction sale process. Cerberus, the US buy-out fund, which had bought BAWAG, a troubled bank in Austria, in 2007 for an all-cash consideration of €3.2bn, has succeeded in turning around the bank and has (partially) exited the bank by way of an IPO in 2017 (Austria’s largest ever IPO).

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Within the fi nancial institutions space and, again, based on regulatory considerations, signifi cant additional consolidation is expected to occur with respect to private banks; a recent example is the acquisition of Semper Constantia Privatbank by LGB of Liechtenstein. Large Austrian banks such as Raiffeisen or ERSTE are again expected to grow by way of M&A, though by outbound acquisitions aimed at rounding up their regional expansion strategy into Central- and Southeastern Europe over the last 20 years, including by upcoming privatisations or private equity exiting banks. The outlook for M&A in Austria in 2018 is very positive, with buyers from China, the US and Europe circling attractive targets. Technology companies see intensive interest from buyers from the Far East. By way of illustration, only in late April 2018, LG, the Korean conglomerate, has acquired the Austrian-based automotive light maker ZKW for US$1.7bn, in the company’s biggest acquisition. ZKW is a major supplier to BMW and Mercedes Benz, and the acquisition is likely to strengthen LG’s auto parts business portfolio.

The year ahead In line with the international trend, Austria has seen a strong M&A market in the fi rst quarter of 2018, with buyers from the US, Europe and China pursuing acquisitions. Based on such strong M&A appetite by international buyers, it may be expected that additional companies will come to the market in order to benefi t from the positive transaction environment. So far, it appears that strong valuations support such approach. The sectors that are expected to see the strongest buy-side interest in 2018 are TMT (including Fintech), manufacturing and consumer goods. As in 2017, real estate and companies investing in real estate are likely to be involved in transactions. For example, Starwood has recently launched a voluntary partial bid for up to 5% of all shares of Immofi nanz (VIE:IIA) which, for the time being, is not supported by the management board of Immofi nanz. Based on the increasing oil price and in line with its announced strategy, OMV, Austria’s oil and gas incumbent, is expected to continue investments globally in order to expand and optimise its supplies. This includes an asset swap with Gazprom-neft, which has been announced in principle in 2017. While past statistics do not seem to support the expectation of increasing M&A investments by venture capital and private equity into Austria’s technology sector, our fi rm’s perception is that there is a growing interest in Austrian start-ups as well as high-growth companies by such investors. We expect a few such transactions to materialise in 2018. This includes acquisition structures that will provide for a relocation of target companies (or their holding companies) to the US in order to benefi t from the easier availability of fi nancial funds for US-based companies, and the potential of future access to US capital markets as well as attractive exit valuations. However, we generally expect deal-making in 2018 to be more opportunistic rather than sector-based, in part due to the diversifi ed structure of the Austrian mid-market.

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Hartwig Kienast Tel: +43 1 51510 5863 / Email: [email protected] Hartwig Kienast is a Partner at Wolf Theiss and a member of the practice group Corporate/M&A. He specialises in mergers & acquisitions, corporate reorganisations and day-to-day corporate matters. He has gained extensive professional experience with transactions in the infrastructure, energy, consumer goods and pharmaceutical sectors, as well as in domestic and cross- border reorganisations. Prior to joining Wolf Theiss, Hartwig worked for a Big Four accounting fi rm and at other major law fi rms in Austria. Hartwig studied law in Vienna (Mag. iur.). He also holds a degree from the Vienna University of Economics and Business Administration (Mag. rer. soc. oec).

Horst Ebhardt Tel: +43 1 51510 5100 / Email: [email protected] Horst Ebhardt, Partner and Head of the Practice Group Corporate/M&A at Wolf Theiss, specialises in complex cross-border M&A transactions, privatisations and restructurings in Austria and throughout the CEE/SEE region. He regularly advises clients from a broad range of industries, including fi nancial institutions, life sciences and private equity, on corporate fi nance and governance matters. Over the last 12 years, Horst has served as the lead attorney on approximately 90 transactions, several involving a value of more than €1bn. In addition to his practice, Horst teaches an M&A programme at the law school of the University of Vienna. He is admitted in Austria and holds an LL.M. degree from the London School of Economics and Political Science.

Jiayan Zhu Tel: +43 1 51510 5355 / Email: [email protected] Jiayan Zhu is a Senior Associate at Wolf Theiss Vienna. Her main practice areas cover corporate law, mergers & acquisitions and commercial law. Jiayan has recently been involved in major Austrian and cross-border M&A transactions and reorganisations in various industry fi elds, including real estate, manufacturing, consumer/ and the . Prior to joining Wolf Theiss, she gained extensive experience at other prominent Viennese law fi rms. Jiayan is a member of the China Desk and regularly advises Chinese major state-owned and private companies entering into the European market and doing outbound investments in CEE and SEE regions. Jiayan studied in Vienna and Nottingham and obtained a law degree (Mag. iur.). She speaks Chinese (Mandarin), German and English.

Wolf Theiss Rechtsanwälte GmbH & Co KG Schubertring 6, 1010 Vienna, Austria Tel: +43 1 51510 / : +43 1 51510 66 / URL: www.wolftheiss.com

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Christel Van den Eynden & Wim Dedecker Liedekerke Wolters Waelbroeck Kirkpatrick

Overview Relevant laws that govern M&A and the principal regulators In Belgium, mergers and acquisitions are typically governed by an amalgam of legal rules ranging from general contract and company law to competition law. The rules on transferability of shares and company restructurings stem from the Belgian Company Code (“BCC”). A new company code is in the making and the draft text is expected to pass through the Parliament in the autumn (see below). The framework for Belgian competition law is set out in Book IV of the Code of Economic Law and determines, amongst others, when a prior approval of the Belgian Competition Authority is required for a specifi c transaction. The European equivalent can be found in the Council Regulation (EC) No. 139/2004 on the control of concentrations. In asset transactions, the applicable legal framework and transfer processes highly depend on the type of transferred asset(s). Additionally, public M&A is subject to the Law of 1 April 2007 on public takeover bids (and its implementing Royal Decree) and the Royal Decree of 27 April 2007 on squeeze- out procedures. Furthermore, there are a few specifi c sections of the BCC expressly dedicated to listed companies and public takeover procedures. The Belgian fi nancial markets regulator, the Financial Services and Markets Authority (Autoriteit voor Financiële Diensten en Markten / Autorité des Services et Marchés Financiers – “FSMA”), is competent for the supervision of public takeovers. Specifi c rules apply in the case of M&A transactions involving fi nancial institutions or insurance companies, in which case the FSMA and/or the Belgian National Bank will have to be notifi ed and, in some circumstances, confi rm that they do not object to the transaction. The same goes for transactions involving companies in the energy sector, where the change of control, mergers or demergers must in some cases be notifi ed to the relevant regulator (VREG for the Flemish region, the Walloon Commission for Energy for the Walloon Region, and BRUGEL for the region). M&A in 2017 Even though 2016 was a relatively fruitful year for M&A in Belgium, the total number of transactions in which a Belgian bidder or target was involved, slightly increased in 2017. This was also the case for the total value of M&A deals. Especially the last quarter of 2017 showed a peak in M&A activity, whereas it slightly decreased over the year-end, resulting in a slower but steady start for 2018.

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In particular, private equity players showed great interest in the Belgian M&A market as the total number of private equity deals rose. In addition, a substantial number of US investors were involved in some of the largest transactions in the country. Five public bids were launched on Belgian target companies in 2017 (i.e., Resilux, Sapec, Dalenys, Option Trading Company and TiGenix), which is an increase compared to 2016, during which only three public bids were launched on Belgian targets (i.e., FNG Group, Sucraf and Zetes Industries). Furthermore, the year 2018 seems to have taken quite a strong kick-off with four public takeover bids in the fi rst quarter already (i.e., Ablynx (Novo Nordisk), Vastned Retail Belgium, Ablynx (Sanofi ) and RealDolmen). Mergermarket data indicates that the amount of inbound and domestic M&A transactions remained at a healthy level in 2017. The number of outbound M&A transactions increased signifi cantly compared to the previous year. The fact that foreign investors are increasingly attracted by investment opportunities in Belgian companies may have consequences for local economies if Belgian companies’ decision centres or headquarters are moved abroad pursuant to cross-border transactions. This was the case for the Praesidiad transaction (Betafence, see below). In 2017, private equity fi rms held record levels of dry powder which incentivised them to approach potential targets more actively. More risky industries and smaller deal segments were also being explored by private equity players. Prices were being pushed upwards, which may have a negative impact on potential returns, because of an intensifying competition between potential acquirers on a national and international level. Given these trends, the market was still a seller’s one in 2017. From a pure Belgian perspective, Belgian acquirers still believed in domestic investment opportunities, as the number of domestic deals remained stable (i.e., approximately 80 deals).

Signifi cant deals and highlights D’Ieteren sells a minority stake in Belron On 2 May 2017, D’Ieteren SA ( Brussels: DIE), a Belgium-based holding company of a group active in automobile distribution and automotive glass repair and replacement and, also, owner of the paper-based products and accessories provider Moleskine, announced that it was looking for a minority partner in Belron SA, its 94.85% owned Belgium-based subsidiary which is one of the largest global players in vehicle glass repair and replacement services (better known under the name “Carglass”). Belron is a global player active in 34 countries with franchisees located all over the globe. D’Ieteren aimed to remain the majority shareholder of Belron while at the same time strengthening its investment capacity and enabling it to diversify its investment portfolio. In September 2017, Reuters announced that CVC Capital Partners, and Clayton, Dubilier & Rice (“CD&R”) were admitted to the second round of the auction process. On 19 November 2017, it was publicly announced that D’Ieteren had entered into exclusive discussions with the US-based private equity fi rm CD&R and, on 28 November 2017, the parties entered into a fi nal agreement regarding the acquisition by CD&R of a 40% ownership interest in the Belron group. The transaction was completed on 7 February 2018. The transaction valued Belron at €3 billion (enterprise value) which, after deduction of debt-like items, resulted into an equity value of approximately €1.55 billion. CD&R paid a consideration of €620 million for the acquisition of the 40% stake in Belron. D’Ieteren and management retained the remaining 60% majority stake in Belron.

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CD&R intends to accelerate growth of and pursue operational excellence in Belron by building on the latter’s established market position. The transaction is the fi rst direct investment of CD&R in Belgium. Earlier in 2017, the fi rm invested indirectly in Belgium by acquiring a majority stake in the Belgian consultancy fi rm Capco from the American group FIS to whom the Belgian founder had sold its majority stake in 2010. CVC Capital Partners acquires Corialis Group The UK-based private equity fi rm CVC Capital Partners entered into exclusive negotiations with Advent International Corporation, a US-based venture capital and private equity fi rm, in December 2016 with a view to acquiring from the latter the Corialis Group, a Belgium- based manufacturer of aluminium frames for glasshouses and a supplier for windows and doors (formerly known as Aliplast). The sale process was organised through an auction in which CVC Capital Partners participated as well as, amongst others, The Carlyle Group, Kohlberg Kravis Roberts and PAI Partners. The transaction valued Corialis Group at an enterprise value of approximately €1 billion. On 30 March 2017, the transaction closed. CVC Capital Partners intends to achieve the further growth of Corialis Group in its core business countries as well as to increase its activity into new ones, and to make Corialis Group the leading aluminium profi le systems player in Europe. The Carlyle Group shows a strong interest in Belgian investment opportunities In July 2017, US-based private equity fi rm The Carlyle Group (NASDAQ: CG) announced two major acquisitions in Belgium in the sector of industrial products and services, making it one of the largest investors in Belgium-based companies during the year 2017. First, on 17 July 2017, The Carlyle Group announced its plans to acquire ADB Safegate, a Belgium-based global airport performance solutions provider, from France-based private equity fi rm PAI Partners, following the entry into a defi nitive agreement with the latter in relation to the said acquisition. The transaction structure also allowed the existing management of ADB Safegate to invest in the company alongside The Carlyle Group. The sale of ADB Safegate was organised by way of an auction process in which, besides The Carlyle Group, CVC Capital Partners, EQT Partners AB and Kohlberg Kravis Roberts also showed interest. No fi nancial details of the transaction were communicated by The Carlyle Group or ADB. Several media reported, however, that the transaction valued ADB Safegate at €900 million, including debt, being more than 10 times its expected 2017 EBITDA. The transaction closed in October 2017. The investment by The Carlyle Group was aimed at providing ADB Safegate with the required resources to achieve its growth goals and to consolidate its position in the aviation industry. According to The Carlyle Group, ADB Safegate will benefi t from The Carlyle Group’s global scale, network and expertise, as it already has an established and signifi cant presence in the aviation and transportation sectors. Furthermore, The Carlyle Group announced on 18 July 2017 that it had entered into exclusive negotiations to acquire Praesidiad from CVC Capital Partners. Praesidiad is the holding company of the Betafence group, a Belgium-based group specialised in the manufacturing of fences, access control and detection products for perimeter protection, which used to be a division of the listed Belgian steel wire company, Bekaert. In the context of the transaction, Praesidiad relocated its corporate headquarters from Ghent to London in September 2017 with a view to better connect with customers, expertise and brands within the group.

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The terms of the transaction were not disclosed but some media indicated that the transaction valued Praesidiad at around €720 million (including debt), which would correspond to 11 times EBITDA on the basis of which the price was calculated. The transaction closed in October 2017. In addition to the aforementioned transactions, The Carlyle Group was also involved in the bidding processes for Belron and Corialis, but did not make it to the fi nal round. BASF to acquire Solvay’s global polyamide business On 19 September 2017, it was publicly announced that German chemical company BASF (DAX: BAS, LSE: BFA, SIX: BAS) intended to acquire the polyamide business of the Belgium-based chemical and advanced materials company Solvay (Euronext Brussels: SOLB) for a consideration of €1.6 billion on a cash and debt-free basis. Based on the fi nancials of the deal, the purchase price refl ects more or less eight times EBITDA of FY2016, and approximately seven times EBITDA of the past 12 months prior to the announcement. According to Solvay, the net cash proceeds amounted to €1.1 billion. BASF is the world’s largest chemical producer and envisaged to strengthen its position on the Asian and South American market via this transaction. Besides enhancing BASF’s current engineering plastics business, the transaction will also broaden BASF’s position as service provider in various industries (such as construction, transportation and consumer industries). Furthermore, the acquisition is aimed at realising operational and fi nancial synergies for both listed companies. The transaction is expected to close in the third quarter of 2018. Bpost acquires US-based company Radial On 9 October 2017, bpost (Euronext Brussels: BPOST), Belgium’s (formerly state-owned) postal services company and provider for the delivery of letters and packages, announced its intention to acquire Radial, a US-based company active as an e-commerce solution provider in North America. Bpost’s intention was to accelerate the expansion of its e-commerce business by using Radial’s knowhow and scale, which it expects to result in an industry-leading and cross-border value proposition for its European and North American customers. Furthermore, bpost anticipates that the deal will create new job opportunities in Belgium, and will allow Belgian companies to access a global market. Bpost acquired Radial from Sterling Partners, a US-based private equity fi rm, and Longview Asset Management Ltd, a Canada-based investment management fi rm, for an enterprise value of US$820 million (approximately €700 million). This enterprise value corresponds to an amount equal to 11.7 to 12.6 times EBITDA expected for 2017 at the time of the valuation. The transaction closed on 16 November 2017. Bpost also launched a takeover bid on PostNL, the Dutch postal services company, during the fi rst quarter of 2017. After months of negotiating and several revised offers, the deal did not materialise. Nevertheless, it appeared that bpost had a substantial amount of liquid means on its balance sheet and was on the look-out for interesting investment opportunities. KBC Groep acquires United Bulgarian Bank AD and Interlease On 14 June 2017, KBC Groep (Euronext Brussels: KBC), the largest Belgian bank and insurance company not controlled by a foreign fi nancial group, completed the acquisition of a majority stake (99.91%) in United Bulgarian Bank AD (“UBB”), a Bulgarian corporate and retail bank providing services to individuals, microbusinesses and corporate clients. Indirectly, KBC Groep also acquired UBB’s 100% subsidiary Interlease, the third-largest provider of lease services in Bulgaria. The seller, the National Bank of (ATHEX:

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ETE), received a cash consideration of €610 million in cash, which KBC Groep fi nanced entirely via internal resources. KBC Groep intends to integrate UBB within CIBANK and DZI Insurance, KBC Groep’s Bulgarian subsidiaries that are respectively active in the banking sector and (non-)life insurance sector, to form the largest group in the Bulgarian banking and insurance sector. Combining UBB with CIBANK is expected to result in a market share of approximately 11% and to create synergies expected to amount to more or less €20 million. Because of this transaction, KBC Groep will for the fi rst time enter the leasing, asset management and factoring market Bulgaria. KBC Groep announced that the acquisition would have an impact on its capital position, but that the CET1 ratio remained well above regulatory minimum capital requirements. Given the sectors in which the purchaser and the target are active, the completion of the transaction was subject to specifi c closing conditions (i.e., obtaining prior approval from the Financial Supervision Commission of the Republic of Bulgaria, the respective national banks, the ECB and the competition authorities). The transaction closed on 13 June 2017. Astellas acquires Ogeda Astellas Pharma Inc. (TSE: 4503.T, OSE: 4503), a Japanese company developing, manufacturing and selling pharmaceutical products, decided to acquire Ogeda SA, a Belgium-based company active in (amongst other things) clinical-stage drug discovery. The target was sold by a group of private equity players (including BNP Paribas Fortis Private Equity, Capricom Venture Partners, Fund+ and Vesalius Biocapital Partners) for a total consideration of €500 million at closing. The purchaser will owe an additional amount in the form of an earn-out of €300 million, if and when certain milestones (i.e. clinical development and regulatory approval) are reached with respect to the fezolinetant drug. The transaction closed on 17 May 2017. Ogeda, a spinoff of the Université Libre de Bruxelles (ULB), specialises in menopause- related drugs. The deal is expected to generate synergies on the level of R&D for the target because of Astellas’ experience in unique medical treatments. The transaction is in line with Astellas’ strategy to develop and provide pharmaceutical products in areas of unmet medical needs. The takeover of Ogeda was rather unexpected in the market, as the target had already broadcast its consideration of going public in the near future. Nevertheless, the deal emphasises the trend that large pharma players focus on relatively small and niche takeover candidates to further develop and strengthen their existing medical product portfolio. Ablynx hostile takeover bid by Novo Nordisk Belgium-based biotech company Ablynx (Euronext Brussels: ABLX, NASDAQ: ABLX) frequently featured in the media just before the end of 2017, as it was faced with a hostile takeover bid by Novo Nordisk (CPH: NOVO-B) launched on 7 December 2017. On that date, the Scandinavian healthcare company launched its fi rst non-binding offer to acquire Ablynx for a cash consideration of €26.75 per share. One week later, the offer was unanimously rejected by Ablynx’ board of directors. Novo Nordisk pursued its quest to acquire the biotech company and revised its non-binding offer on 22 December 2017 up to €30.50 per share (of which €28.50 in cash and a Contingent Value Right with total cash payment of up to €2.50 over time). The offer was declined the day after. The Ablynx board held that the Novo Nordisk offer fundamentally under-valued the company and its main assets.

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The hostile takeover attempt reached a climax when the CEOs of both companies, Mr Lars Fruergaard Jørgensen and Mr Edwin Moses, sat around the table to discuss the takeover and, fi nally, after the holiday period, Novo Nordisk attempted to seal the deal with another revised offer which it publicly disclosed in an attempt to have Ablynx’ shareholders put pressure on its board of directors to accept the offer. Yet, the parties did not reach an agreement. On 29 January 2018, however, the French-based pharmaceutical company Sanofi (Euronext Paris: SAN, NYSE: SNY) and Ablynx announced that an agreement had been reached under which Sanofi would offer to acquire Ablynx. This white knight’s offer put an end to the hostile takeover story, as Novo Nordisk stated that it would not reiterate its fi nal offer. Sanofi signifi cantly outbid its Scandinavian competitor with a bid that was a 48% premium to the €30.50 per share offer from Novo Nordisk on 8 January 2018. On 29 March 2018, it was announced that the tender offer to acquire Ablynx would commence on 4 April 2018, and that the acceptance period would expire on 4 May 2018 subject to extension.

Key developments Belgian company law reform On 20 July 2017, the Belgian government approved a draft bill for a new Belgian Company Code which is expected to be adopted by the parliament in the second half of 2018. Although the legislative texts have not yet been made public, the main features of the intended reform are generally known. The purpose of the new Belgian Company Code is to modernise Belgian company law by making it more simple, fl exible, and not unimportantly, more appealing to foreign investors. The company law reform will have an impact on Belgian M&A practice as the BCC lays down some of the main principles for Belgian M&A and provides for company law mechanisms which are inextricably linked to M&A practice, such as provisions relating to the transfer of shares and the corporate restructuring procedures. One of the main features of the upcoming company law reform is the reduction of the number of company types to seven types: the public limited liability company (NV/SA); the private limited liability company (the BV/SRL – previously the BVBA/SPRL); the company (CV/SC – previously the CVBA/SCRL); the partnership (VOF/SNC); the silent partnership (CommV/SComm); the European Company (SE); and the European Cooperative Company (SCE). The BV/SRL and the NV/SA will remain the most customary type of company, but with the NV/SA becoming the appropriate legal form for large companies that are listed or have a large shareholder base and the BV/SRL (strongly infl uenced by the Dutch “besloten vennootschap”) becoming the “default” company for any other type of company (ranging from very large enterprises to small and medium-sized enterprises (“SMEs”)). The CV/SC will be strictly limited to entities having an actual cooperative purpose. Consequently, joint ventures – often structured as cooperative companies – will have to take the form of a BV/ SRL under the new Belgian Company Code. The BV/SRL will be a fl exible company type that can be customised up to a certain extent and that can either be a very closed or a very open vehicle, at the choice of the founders or shareholders. In contrast to the BVBA/SPRL, there will no longer be a (minimum) share capital requirement for BV/SRLs (instead the company will need to have suffi cient starting means, which could also consist of subordinated shareholder loans), and it will become possible to freely transfer a BV/SRL’s shares and to list these on a stock exchange market.

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In the NV/SA, the governance model will be signifi cantly modifi ed as the shareholders will be able to opt for either a one-tier governance structure (i.e., a board of directors or one single director) or for a two-tier governance system with a management board and a supervisory board based on the German model. Both for the NV/SA and the BV/SRL, it will become possible for a single shareholder, either a natural person or a legal entity, to hold all the issued shares in such company without resulting in a joint liability of such shareholder for the company’s liabilities. Current legislation requires international groups to hold Belgian subsidiaries through at least two different shareholders. Absent such second shareholder, the single shareholder would be jointly liable for the obligations of its subsidiary. Another signifi cant modifi cation is that certain company types will be able to issue multiple- vote securities. For listed companies, this possibility will be limited to a double voting right for “loyal shareholders” that have been holding the securities for at least two years. In general, the rules relating to corporate restructurings will be simplifi ed and modernised taking into account the European rules in this respect. The new Belgian Company Code will now provide for a procedure for cross-border (partial) de-mergers and for cross-border company transformations. Furthermore, the liability of directors will be limited to a capped amount determined by the company’s turnover and balance sheet total (with a minimum of €125,000 and a maximum of €12 million). Additionally, it will no longer be allowed for a company to fully exempt its directors from any liability, nor make indemnifi cation arrangements for the benefi t of its directors. This does, however, not limit a company’s right to enter into a D&O insurance for the benefi t of said directors. Finally, whether Belgian corporate law applies to a company will no longer be determined by the location of its effective place of management or conduct of business but, rather, by the location of its registered offi ce. Under the current regime, only companies that are effectively managed in Belgium are allowed to use one of the Belgian company forms. This was often burdensome within international groups, where the local Belgian subsidiary was in practice managed from the corporate headquarters abroad, requiring the Belgian subsidiary’s directors to organise the majority of the board meetings on Belgian soil. The new Belgian Company Code will very likely enter into force at the beginning of 2019, but it is expected that the entry into force will take place in different stages, given the fact that some of the modifi cations fundamentally change the Belgian corporate law landscape. The new Belgian Company Code will enter into force on the 10th day after its publication in the Belgian Offi cial Gazette (expected to occur by the end of the year 2018), on which date the code will apply to all newly incorporated companies. Existing companies will be subject to the new rules as from 1 January 2020, and will have to update their articles of association in this respect at the latest on the date that is the earlier of: (i) the fi rst time the company amends its articles of association; or (ii) 1 January 2024. Corporate income tax reform In December 2017, Belgium enacted a major corporate income tax reform. Set out below is a short overview of the elements that appear most relevant for M&A. One of the most important features is the reduction of the corporate income tax rate from 33.99% to 29.58% as from 2018, and further to 25% as from 1 January 2020. The rate for the fi rst €100,000 of profi ts of SMEs is decreased to 20.40%, and will further drop to 20% in 2020.

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As of 2018, dividends received by a Belgian company from its subsidiaries are, under certain conditions, not subject to corporate income tax. Previously 5% of such dividends were subject to tax. The 95% dividend deduction has now been increased to 100%. As a consequence, the 1.7% tax leakage on upstream dividends in Belgian holding companies, which was a competitive disadvantage compared to other jurisdictions, has now been eliminated. As of 2019, Belgian companies and their permanent establishments will have the possibility to opt for a tax consolidation regime within their group. Accordingly, companies within a group will be allowed to transfer, subject to certain conditions, all or part of their taxable profi t for tax purposes to their parent, subsidiary, or “sister” company with which they have a direct relationship in terms of capital of 90% at least. In such case, the transferor has to pay a compensation to the transferee equal to the saved taxes. The conditions for the capital gains exemption on shares are now linked to those applicable to the deduction for dividends received. Consequently, this exemption is now also subject to the minimum participation requirement (10% or an acquisition value of €2.5 million), in addition to the minimum holding period (one year) and the subject-to-tax condition at the level of the subsidiary. The 0.412% minimum tax on exempt capital gains was abolished. Two other important changes are: (i) the proportional attribution of capital reimbursements from a tax perspective to the fi scal capital and reserves; and (ii) the limitation of the use of certain tax assets (such as carried-forward tax losses) per taxable year to €1 million plus 70% of the taxable income exceeding €1 million. Finally, as a part of the corporate tax reform, the rules of the EU Anti-Tax Avoidance Directive (ATAD, Directive 2016/1164/EU as amended by Directive 2017/952) are implemented into Belgian law: rules regarding exit/entry taxation (applicable as of 2019); controlled foreign corporation (CFC) rules (applicable as of 2019); rules against hybrids (applicable as of 2019); and an interest deduction rule (applicable in principle as of 2020).

Industry sector focus No particular sector strongly dominates the M&A market in Belgium. Investors have shown a particular interest in the Belgian personal, leisure and business services sectors in 2017. According to Bureau van Dijk, more than 20% of the total value of all investments with a Belgian target or acquirer, has been generated in these sectors. Notable deals include the Carlyle – ADB Safegate transaction (see above) and the acquisition of Ogeda by Astellas Pharma (€800 million, see above). The segments of computer, IT and services also showed a lot of activity in 2017. Bpost took over Radial (see above); Clayton, Dubilier & Rice purchased a majority stake in The Capital Markets Company by (€424.792 million); Digitran Innovations acquired Getronics Belgium (€220 million); and Belgacom bought Telesign Corporation for approximately €200 million.

The year ahead The global trend of an increasing number of M&A deals in tech sectors (e.g., FinTech, BioTech, HealthTech and IT in general) is also refl ected on the Belgian market. In 2018, this trend is expected to continue. The upcoming year promises to be very interesting for the biotech sector, even though the sector has not made the newspapers a lot during the past year. At the end of 2017, the Danish pharma company Novo Nordisk launched a number of

GLI - Mergers & Acquisitions 2018, Seventh Edition 14 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Liedekerke Wolters Waelbroeck Kirkpatrick Belgium consecutive (hostile) takeover bids on Ablynx, pursuant to which the French pharma giant Sanofi stepped in and reached an agreement with the Ablynx board (for €3.679 billion) (see above). Another remarkable headliner is the takeover bid of the Japanese company Takeda on Tigenix (for €475.52 million) with whom it already had an existing partnership. According to KBC Securities, the rationale for an increasing number of biotech deals is twofold and links back to the US tax reforms (which supposedly will accelerate large investments by major pharmaceutical companies, given the decrease in the corporate tax rate from 31% to 21% and the repatriation tax rate from 35% to 14.5%) on the one hand, and non- US companies’ fear of missing out on investment opportunities on the other hand. Of course, biotech deal activity is also linked to M&A appetite of pharma players in general. Other tech deals that were announced in 2018 include the purchase of RealDolmen, the information and communication technology solutions provider, by the French IT company GFI Informatique (€164 million), the acquisition of Systemat by SPIE (said to be around €70 million). and the merger between the payment solution providers Payconiq and Bankcontact. Furthermore, the energy and renewable industry is hot with Elia System’s acquisition of 50Hertz Transmission for €977 million, and the telecoms sector has been in the media as well, given recent announcements in Belgian newspapers regarding the potential takeover of VOO, the Walloon telecom company, by the Belgian telecommunication and entertainment services provider Telenet (Euronext Brussels: TNET) for an offered amount of €1.3 billion combined with an additional investment of €300 million. In more general terms, the M&A agenda of numerous decision-makers may be impacted by oil price vulnerability, the USA’s increasing protectionism, trade embargoes and the policies of the Committee on Foreign Investment in the United States (CFIUS).

* * *

Acknowledgments The authors acknowledge with thanks the contribution to this chapter by Ellen Vermeire & Maurits Arnauw, associates in the corporate and fi nance practice group.

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Christel Van den Eynden Tel: +32 2 551 15 35 / Email: [email protected] Christel Van den Eynden is the Head of our corporate and fi nance practice group. She advises international and national clients (listed and non-listed companies) on (cross-border) mergers & acquisitions and private equity investments, and has built up an extensive practice in project-fi nanced transactions, PPP and complex industrial projects. She is recognised as a leading M&A practitioner in Belgium by Chambers Europe, and was named the number one Thought Leader M&A in Europe in the 2018 edition of Who’s Who Legal – M&A. Christel obtained her law degree at the University of Antwerp (UA 1987) and in addition, holds a Master of Arts in international relations from Johns Hopkins University, Paul H. Nitze School of Advanced International Studies (Bologna, , and Washington D.C.) and is a Fulbright Scholar. Christel has been a member of the Brussels Bar since 1994.

Wim Dedecker Tel: +32 2 551 16 02 / Email: [email protected] Wim Dedecker is counsel in the corporate and fi nance practice group. He focuses on mergers and acquisitions (including private equity), capital market transactions and corporate reorganisations. He also provides advice on general corporate and securities laws matters. Prior to joining Liedekerke, Wim worked at the Brussels and New York offi ces of a US law fi rm and at the Brussels offi ce of a Magic Circle fi rm. Wim holds a law degree from the University of Antwerp (2009) and a Master of law (LL.M.) from the University of California Berkeley (2011) where he was a Fulbright scholar. He has been a member of the Brussels Bar since 2009.

Liedekerke Wolters Waelbroeck Kirkpatrick Keizerslaan 3, 1000 Brussels, Belgium Tel: +32 2 551 15 15 / Fax: +32 2 551 14 14 / URL: www.liedekerke.com

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Jorge Luis Inchauste & José Carlos Bernal Guevara & Gutiérrez S.C. Servicios Legales

Overview of the market and the country In the last couple of years, the Bolivian mergers and acquisitions market, which for a considerable amount of time was limited to very few deals principally structured abroad with effects in the country, has seen some signifi cant developments that have revived the market and made the M&A practice relevant again. Authorities and legislation The legislation governing mergers is dispersed. In general terms, mergers of Bolivian corporations are mainly regulated by the Bolivian Commercial Code, which requires that Bolivian companies involved in a merger give notice to their creditors and shareholders, and allows them to object to the merger process. In the case of Bolivian companies that have outstanding instruments issued in public securities markets, they must inform the markets and the Supervisory Authority of the Financial System (ASFI) of any relevant change regarding the company, including mergers, acquisitions and spin-offs. There are also a number of specifi c regulations applicable to different regulated industries, as merger control is imposed on certain sectors and industries in Bolivia. As a result, regulations that pertain to mergers can be found in the Electricity Law, the Law, the Hydrocarbons Law, the Banks and Financial Institutions Law, the Securities Law and the Insurance Law. These specifi c regulations are administered and enforced by the supervisory and control authorities for each sector. Therefore, any merger within the electricity industry in Bolivia, for example, will have to be notifi ed and sometimes approved by the Supervisory and Control Authority for Electricity prior to the merger taking place; to the extent the operator, subject to the merger, has instruments issued and traded in public markets, then it must also inform the Bolivian Stock Exchange. Foreign exchange rules and controls in Bolivia are . Currently there are taxes and Central Bank commissions on, but no restrictions to, the entry or exit of capital, or the remittal of dividends, interests and royalties for the transfer of technology or other commercial concepts. Foreign investments and loans into Bolivia, as well as payments to foreign investors, must be reported to the Bolivian Central Bank, but there are no prior approvals or restrictions to foreign investment, provided such investments do not involve the acquisition of property within 50km of Bolivia’s international borders. In addition, there is freedom to hold and deal in foreign currencies, there are close-to-market exchange rates that can be easily and safely accessed through regulated exchange, and the law allows the remittal abroad of foreign currency with few restrictions. However, there is a growing public policy towards the “Bolivianization” of transactions in Bolivia. As a

GLI - Mergers & Acquisitions 2018, Seventh Edition 17 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Guevara & Gutiérrez S.C. Servicios Legales Bolivia result, there is a Financial Transaction Tax on any operation with foreign currency involving Bolivian fi nancial institutions. This tax has recently been raised to 0.3% from 0.2%. In addition, there is a tax on the exchange of foreign currency, and there is an obligation to inform of the origin and destination of currency or account movements that exceed US$ 10,000. Further, the Bolivian Central Bank imposes a commission of 2% on the remittance of funds from Bolivia to any offshore accounts. Principal mechanics of acquisition As to the principal mechanics of an acquisition at present, it is important to bear in mind that the number of publicly traded fi rms in Bolivia is minimal. Most companies are either limited liability partnerships or stock corporations, and are closely held. Furthermore, the structure of most corporations in Bolivia generally involves a principal who owns a majority of the corporation’s stock (unlike other countries in the world where dispersed ownership is common). For the purposes of this analysis, we are going to refer to the Bolivian corporation structure as a ‘concentrated ownership’ structure. In this structure, the dominant shareholder usually owns a suffi cient amount of shares to allow him or her to appoint all directors of the board, or at least a majority of them. As a result, the possibility of hostile acquisitions of companies is minimal (or, at least, different in its essence) because acquisitions must generally be consented to and recommended by the majority shareholder of the target, and the concentrated structure leaves little room for hostile takeover attempts through proxy fi ghts or tender offers. The transfer of stock or share participations in corporations is generally unrestricted and straightforward, requiring only registration in the company books with no prior fi ling. Transfer of participation in limited liability partnerships is more cumbersome, as it requires that documentation evidencing the existence and legal representation of the acquirer be legalised in Bolivia and thereafter fi led before the Registry of Commerce. Mergers and acquisitions between large international companies that hold assets in Bolivia generally do not trigger regulatory scrutiny, unless they take place in a regulated sector. As a result – and unless the acquisition involves the merger of two Bolivian companies – most acquisitions can proceed without regulatory fi lings and approvals. In many cases, an acquisition is completed by acquiring interests in holding companies that may be several levels above the target with assets in Bolivia. This form of acquisition may be rapid and outside the scrutiny of certain regulators. Further, joint ventures that do not result in a merger or change of ownership of the relevant regulated company typically do not fall under the scrutiny of merger control. However, joint ventures that involve regulated companies are subject to some review and could be opposed by the relevant regulator to the extent that they could be considered contrary to antitrust or competition policies. Asset purchase deals, as opposite to stock purchase deals, are also common. This method avoids certain tax and labour liabilities in the underlying target. However, this ‘cherry picking’ – which requires adequate identifi cation of the productive assets that are of interest – may take more time than a stock purchase and may involve a tax impact on the value of the assets being acquired. Overview of market and key sectors As mentioned before, the Bolivian M&A market has revived in the last few years. Bolivia is still a small market in comparison to most of its neighbours in Latin America, but the growth perspectives are encouraging.

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So, why has the level of activity resurged during the last few years? It is hard to ascribe the increased level of activity to a single factor. In all likelihood, it is the result of a series of developments and events in the economic, legal and political arenas. Among these several factors, one should include the continuous and sustained growth of Bolivian GDP during the last years, the enactment of a new investment promotion law, and the fast-paced development of the city of Santa Cruz. All these points are further developed below in this report. It is also hard to point out specifi c key sectors of development. M&A transactions have ranged from mining companies to hospitality to telecoms and media. Nevertheless, the largest mergers in the last year involve the agro-industrial sector, in which two of the largest vegetable oil producers and distributers have been acquired. This is also covered below. Most M&A activity in Bolivia takes place in private transactions; public M&A transactions (i.e. through the Bolivian Stock Market) are rare, but there are some notable exceptions. In December of 2014, CIMSA (part of the Doria Medina family group) sold its controlling shares in the largest Bolivian cement company, Sociedad Boliviana de Cemento (SOBOCE), for US$ 300m, and listed the sale on the Bolivian Stock Exchange. The stock was acquired by the Peruvian company “Consorcio Cementero del Sur”, and this transaction is recorded as the largest in the history of the Bolivian Stock Exchange. Because of tax benefi ts, when transacting through the Bolivian Stock Exchange, it is expected that the acquisition of large companies will occur in this manner.

Signifi cant deals and highlights The most signifi cant deals very recently, involve the acquisition of the agro-industrial fi rm Industrias de Aceite S.A. (IASA) by a subsidiary of the Peruvian Alicorp S.A.A. IASA is the leading agro-industrial fi rm in the Bolivian Market, over 70 years in existence with 750 employees. It has the following four primary business units: Milling, Agriculture, Massive Consumption, and Distribution. At the time this article is being drafted, the transaction is in its fi nal steps and should close by the time this book is published. In addition, IASA acquired, earlier this year, one of its competitors in the agro-industrial and milling sector: ADM SAO S.A., a subsidiary of Archer Daniels Midland Company (ADM) in Bolivia. ADM SAO processes soy and sunfl ower into oils and fl ours from its plant in Santa Cruz, where it has over 400 employees. It also provides commercialisation and logistics services to foreign and Bolivian clients. In the recent past, one of the most signifi cant deals took place in the cement industry. Sociedad Boliviana de Cemento (SOBOCE) is the leading cement company in Bolivia, and one of the largest companies of the country. Samuel Doria Medina and his family were the controlling shareholders in this company. At the end of 2014 and beginning of 2015, Doria Medina sold his shares in the company to the Peruvian company, “Consorcio Cementero del Sur”, which amounted to around 50% of the market capital of the company. The remaining shares were the subject of arbitration between Doria Medina, Consorcio Cementero del Sur, and the Mexican company, Grupo Cementos de Chihuahua. This transaction was made through the Bolivian Stock Exchange, and is recorded as the largest in the history of the Bolivian Stock Exchange. Other important deals took place in the banking sector. The fi nancial institution “Mutual La Paz” was undergoing economic distress during 2016 and, in May, the Bolivian comptroller of banking institutions (ASFI) intervened in the bank, fearing that it would go into bankruptcy. There was also a general panic of a bank rush, as other fi nancial entities of similar

GLI - Mergers & Acquisitions 2018, Seventh Edition 19 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Guevara & Gutiérrez S.C. Servicios Legales Bolivia characteristics (mutuales) could also be under risk. As a result of this, the bank “Mercantil Santa Cruz” bought the client and deposits portfolio of the distressed Mutual La Paz. In October of 2016, Mercantil Santa Cruz started a merger process with another fi nancial entity, bank “Los Andes ProCredit”. The combined entities will have close to 20% of market share over the fi nancial industry of Bolivia. This transaction was approved by the comptroller of fi nancial institutions (ASFI) in December of 2016. There were also many cases where the M&A activities of foreign giants have had effects on the companies and assets of those companies in Bolivia. In these cases, the acquisition is completed by acquiring interests in holding companies that may be several levels above the target with assets in Bolivia. For example, the mergers of American Airlines and US Airways, or the merger of AB InBev and SABMiller, had regulatory repercussions in Bolivia.

Key developments Some important developments in Bolivian legislation have impacted, and will continue to propel changes, in the mergers and acquisitions market during the next couple of years. At least one of these legislative developments is still at the proposal stage, but it is expected to be enacted soon. Investment promotion law and related norms The fi rst relevant development in the Bolivian legislation was the approval of a new investment promotion law on April 5, 2014 in order to establish a general legal framework for the promotion of investments in Bolivia. Up to that point, the framework for investment in Bolivia had been on hold, because the previous investment law of Bolivia, which was enacted in 1990, had been largely made inapplicable by the Bolivian constitution of 2009 and the political reforms of the government of Evo Morales. So, until 2014, the legal framework applicable to investments in Bolivia was uncertain. The new law regulates not only foreign investments, but also domestic and public investments. The law follows the same political and economic principles set out in the Constitution and, as a result, it gives greater importance to Bolivian State participation – particularly with regard to the exploitation of natural resources. The law focuses on investments that: 1) promote economic and social growth; 2) generate employment; and 3) contribute to the eradication of poverty, and reduce inequality. There are several sections of the new investment law that are unclear and are far from ideal for increasing the fl ow of investment to the country (for example, the regulation of international arbitration as a means of solving investment disputes is largely rejected by the law). Nevertheless, the issuance of the new investment law has provided a certain degree of certainty to the market, which was lacking since the previous law seemed to lose validity in 2009. The most relevant aspect of the investment promotion law on this subject is that any acquisition or merger that involves a change in control, or a foreign direct investment or loan to a Bolivian company, must now be registered before the Bolivian Central Bank. The Registration before the Bolivian Central Bank involves the periodic fi ling of certain forms and should be performed after the acquisition or merger has been completed. Project of a new antitrust law As of now, there are no regulations in Bolivia applicable to non-regulated industries. This means that, at this moment, an M&A transaction that does not involve a regulated industry would not have to comply with any particular requirements in order to be completed, in

GLI - Mergers & Acquisitions 2018, Seventh Edition 20 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Guevara & Gutiérrez S.C. Servicios Legales Bolivia regard to merger control. However, there is a proposal for a “general” antitrust law, which will develop merger control regulations. This new law would apply to all non- regulated industries and is currently under consideration by the Bolivian senate. It is likely that this law will be enacted at some point soon. The content of the draft law is, unfortunately, very broad and unspecifi c. Most of the relevant sections of the law are reserved to a regulatory supreme decree to be issued later by the executive branch, and which will contain the rules of application of the law. Therefore, it is not possible at this point to analyse at large the impact that the law may have on mergers. In any case, it seems obvious that the implementation of the new merger control law will signifi cantly impact the M&A practice, probably impose further requirements for the completion of a merger or acquisition, and even impose restrictions thereon. Increased level of activity of the regulator The third novelty is the increased level of activity of the enterprise supervision and regulation entity, Autoridad de Supervisión de Empresas (AEMP). This entity is in charge of regulating Bolivian companies in regard to corporate governance, restructuring, and antitrust. It is expected that AEMP will become a more active participant and enforcer of corporate governance and merger control regulations in the future (in the same way that it has gradually become a more active participant in the fi eld of antitrust law during the past fi ve years). Because of its scope of regulatory authority, this entity may play an important role in the Bolivian M&A market in the future. It is hard to know, however, what is going to be the impact of the increasing level of activity of the regulator in the M&A market. It is logical to think that the increased level of regulation (by both the new law and the involvement of AEMP) will impose more obligations on the companies, and this could adversely affect the market. It is also obvious that the increased involvement of the regulator is due to the increased activity of the market, as a reaction to it. The effects of the involvement of the regulator will be seen in the long-run.

The years ahead There are mixed signals regarding the M&A market for the following years. M&A thrives in stable and predictable environments. Although Bolivia has continued to be politically and economically stable and predictable over the past decade, its “socialist” economic orientation has, however, created somewhat of a hostile investment environment for certain industries. Such is the case with Hydrocarbons (where the State has taken a much larger role) and Mining (where transfers of ownership have been restricted), and which are traditionally the largest productive sectors of the Bolivian economy. Notwithstanding the above, certain events and legislative alterations may change this scenario and positively impact the investment market, even in complicated and regulated sectors such as those mentioned above. In general terms, we consider that it is likely that the M&A market will continue to grow and expand in coming years. It is important to remark that the next presidential elections will take place in 2019, but the political panorama of Bolivia is certainly unclear, as president Evo Morales (currently serving his third term as president) has lost a referendum that would have allowed him to modify the constitution so as to run again. However, the Bolivian Constitutional Court has declared the articles that would bar him from running again as contrary to the “human right of being elected”. As a result, Evo Morales and his political party has publicly announced that he will run again for a fourth, fi ve-year term.

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On the other hand, a change in the government might be benefi cial for M&A markets. The legal and economic panorama of the country under the left-leaning government of Evo Morales is not very favourable to investment and business development. Over the last decade, Bolivia has undergone a shift in economic orientation that has resulted in the “nationalisation” of over 15 companies since 2006. The great majority of these “nationalisations” affected former state-owned companies that were privatised during the 1990s as a form of recuperating the companies and assets that originally belonged to the Bolivian State. In this sense, the new investment promotion law is intended to bring clarity and certainty to investors and the market, signalling that the nationalisations are over and that the new laws of the country are solid. It is still unclear whether the markets are going to agree with the signals sent by the Bolivian government, and increase the fl ow of capital to the country. The economic perspectives of the country also seem uncertain. The annual growth rate of Bolivian GDP was, for several years, higher than 5%, and it relied heavily on gas and minerals. The low prices of these commodities have hit the Bolivian economy, and the growth rate of GDP has started to slow down its pace. Notwithstanding, it continues to be one of the highest in Latin America, at around 4.4%, according to offi cial government reports.

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Jorge Luis Inchauste Tel: +591 2 2770808 / Email: [email protected] Jorge Luis Inchauste has been a partner at Guevara & Gutiérrez for more than 15 years, and focuses his practice in the fi elds of project fi nance and corporate law. He is widely regarded as one of the leading experts in Bolivia in the fi elds of M&A and merger control. Mr. Inchauste obtained an LL.M. degree from Georgetown University Law Centre and is admitted to practise law in Bolivia and in the State of New York, United States.

José Carlos Bernal Tel: +591 2 2770808 / Email: [email protected] José Bernal is a senior associate at Guevara & Gutiérrez and focuses his practice in the fi elds of corporate law and banking & fi nance. Mr Bernal obtained an LL.M. degree from Harvard Law School, and is admitted to practise law in Bolivia and in the State of New York, United States.

Guevara & Gutiérrez S.C. Servicios Legales Torre Ketal, Piso 4, Of. 2, Esq. Calle 15, Calacoto, La Paz, Bolivia Tel: +591 2 227 70808 / Fax: +591 2 279 6462 / URL: www.gg-lex.com

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Lior Pinsky & Rodrigo Martins Duarte Veirano Advogados

Overview Brazilian law applicable in M&A transactions The purchase and sale of companies or businesses in Brazil is governed mainly by the chapter on law of obligations of the Brazilian Civil Code (Law No. 10,106 of January 10, 2002), and by certain provisions of the Brazilian Corporation Law (Law No. 6,404 of December 15, 1976). Some M&As require regulatory approval (either prior to the closing or as a post-closing action), and these include fi nancial institutions, insurance companies, certain telecoms activities, and certain concession holders. As a general rule, foreign-controlled buyers are not restricted from investing in most industries, subject to a few exceptions (namely, nuclear energy, post offi ce and telegraph services, and the launch and orbital positioning of satellites, vehicles, aircraft and related activities). Brazil does not have a Committee on Foreign Investments (as is the case, for example, with the United States’ CFIUS) but the prior consent of the General Offi ce of the National Security Council is required for acquisition of lands along frontier areas (or of equity in a company that holds such lands). Listed companies (either as acquirers or targets) are subject to securities and disclosure rules. Brazilian Corporation Law ensures a 80% tag-along for holders of common shares in the event of a sale of control. By virtue of having adhered to a superior governance standard on the Brazilian Stock Exchange (or “B3”), several listed companies have increased such percentage to 100% and included all types of shares, if applicable. Most deals (including those involving public company targets) are privately negotiated with controlling or large shareholders. Tender offers to acquire control of Brazilian companies are still rare. The main rule dealing with tender offers (CVM Rule No. 361/2002) requires any tender offer to be fully guaranteed by an intermediary (broker, dealer or fi nancial institution) and to be irrevocable and not subject to conditions (except for conditions which are not under the offeror’s control). Mandatory tender offers after a sale of control are sometimes combined with a delisting tender (which requires the acceptance of ⅔ of shareholders who show up for the tender auction to be effective, and a report stating that the offer is being made at a fair value). Since 2011, the pre-merger consent of the Brazilian Competition Authority (“CADE”) is required for M&A transactions involving parties that meet certain net revenues criteria (before 2011, approval was made post-merger). CADE has been extremely quick in reviewing fast- tracked transactions (usually 15-20 days, but sometimes less). In more complex transactions, the decision by CADE can take six months or more. CADE has recently issued gun-jumping guidelines stating what is permitted and what is not, pre-approval.

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Overview of M&A activity in 2017 The number of M&A transactions in Brazil in 2017 has shown a slight growth from 2016, which may indicate a reversal of the decreasing trend in the number of M&As that Brazil has seen in years 2015 and 2016. A similar conclusion can be drawn when one looks at the amounts involved:

Year/M&A Volume 2013 2014 2015 2016 2017 Number 811 879 742 597 643 Amount (US$ billion)* 88.1 108.3 34.8 37.6 48.9 *Transactions with disclosed amounts only. Source: https://www.pwc.com.br/pt/estudos/servicos/ assessoria-tributaria-societaria/fusoes-aquisicoes.html.

Based on our perception, Chinese investment has grown signifi cantly, particularly with respect to deal size.

Signifi cant deals and highlights 2017 continued to be a year of large deals, partially driven by the sale of rarely available assets from companies that were forced to sell because of corruption allegations. State Grid/CPFL The largest cash M&A of 2017 was State Grid International Development’s acquisition of CPFL Energia S.A. (the largest privately owned electricity conglomerate in Brazil). The two-step deal was concluded in 2017, both through a private acquisition of control (from Camargo Correa, a Brazilian conglomerate, and certain Brazilian pension funds) for R$14.1 billion and a mandatory tender offer for the remaining shareholders of CPFL Energia S.A. amounting to R$11.3 billion. The mandatory tender offer for the shareholders of CPFL Renováveis S.A. (a publicly listed subsidiary of CPFL Energia S.A.) is expected to occur in 2018. Paper Excellence & Eldorado Papel Celulose In 2017, J&F (a holding entity controlled by the Batista family who allegedly participated in corrupt acts) concluded the sale of Eldorado Celulose e Papel, a large pulp and paper company, to Paper Excellence (owned by the Widjaja family). The amount of the deal was R$15 billion. The sale by the Batista family is part of the plan to liquidate certain assets and revert the gains towards the cooperation agreement executed with Brazilian and foreign authorities, involving an amount of approximately R$10 billion. Itaú Unibanco/XP Investimento Brazil’s biggest bank, Itaú Unibanco S.A., acquired 49% of XP Investimentos, a security broker, for the amount of R$6.3 billion. Itaú also secured a call option for the purchase of 100% of the shares in 2033. The transaction was approved by CADE, subject to restrictions. The decision was not unanimous and was criticised by sections of the Brazilian media, as the banking segment in Brazil is perceived to be highly concentrated.

Key developments New rules of the “Novo Mercado” Novo Mercado is the most prestigious listing segment of the B3, and has recently undergone

GLI - Mergers & Acquisitions 2018, Seventh Edition 25 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Veirano Advogados Brazil a change in its regulations following a long process of public hearings with member companies and other market participants. As it concerns M&A, the opinion of the Board of Directors in a public tender offer is now required. Such change in regulations also provides for new mechanisms for the sale of control of companies, withdrawal of the Novo Mercado and certain corporate reorganisations. Tougher CADE Several market commentators have noted that CADE has been more strict in its decisions in 2017. Before that time, it very rarely rejected mergers. In 2017 alone it rejected: (a) the R$5.5 billion merger involving Estácio and Kroton Educacional, the two biggest companies operating in Brazil’s higher education sector; and (b) the R$2.17 billion acquisition by Ipiranga Produtos de Petróleo S.A. of retail fuel distributor Alesat Combustíveis S.A. In the Estácio/Kroton case, CADE argued that the new company would be almost fi ve times bigger than the second competitor in the sector, and that both companies had purchased a relevant number of other companies in the past few years. The decision was not unanimous. In the Ipiranga/Alesat case, CADE rejected the deal, considering that an increase in the level of market concentration would favour the adoption of collusive strategies within a market that already has a history of collusion. It also concluded that entry barriers were signifi cant, and that the transaction would not generate any effi ciencies. It remains to be seen whether CADE’s tougher stance refl ects a shift in the thinking of the commissioners. If that is the case, buyers must start thinking about rapidly securing M&A assets in the market before a market becomes too concentrated for further M&A activity to be allowed, much like a game of musical chairs where the last one to act remains standing. Non-binding nature of LOIs In the Univar/Coremal case, in December 2016 the São Paulo Appeals Court denied an indemnity request by a Brazilian group that was negotiating the sale of two chemical distribution companies valued at R$100 million with an American company. The indemnity request was made because, after two years of negotiations (having provided detailed information for due diligence, including fi nancial information, clients and management), grounded on a letter of intent (“LOI”) executed by the parties, the American company decided to interrupt the negotiations and, months later, acquired another entity in Brazil. The Brazilian group fi led a lawsuit requesting the indemnifi cation of R$16.5 million for the reimbursement of lawyers’ and fi nancial advisors’ fees and for loss of the chance to sell the companies on the same conditions, as they previously had other investors interested in the deal. The Court analysed the case based on contractualand non-contractual liabilities, the signed documents, and the facts presented by the parties. As the LOI provided that until the fi nal agreement there would not be any legal obligations of the parties to the deal and there were many negotiation points not defi ned by the parties up to that moment, the Court found that the Brazilian group could not argue that they expected the fi nal execution of the deal. Private equity comfort letter A leading case (Carlyle/Itaú) relating to the binding nature of private equity comfort letters is under analysis by the Superior Court of Justice (“STJ”). Itau is requesting that Carlyle honours its comfort letter (in the amount of R$40 million), stating that it is in effect a guarantee. Carlyle’s view is that the comfort letter does not create a binding obligation to provide funding.

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The outcome of this decision may be critically important for the private equity industry in Brazil, as the use of comfort letters is very common in M&A involving private equities, and GPs may not be willing to issue them if they are understood as a fi rm commitment to fund. In any event, it is more important than ever to include clarifying language in any such letters to avoid future misunderstandings or disputes.

The year ahead On a local or national level, the resumption of good news relating to the Brazilian economy stimulated the M&A ecosystem during the year 2018. The better economic scenario of 2018 (when compared to 2016 and 2017) contributed to renewed foreign interest in Brazil. Furthermore, the Brazilian Central Bank has aggressively cut interest rates, which are now at an all-time low (6.5% p.a.), which has made M&A fi nancing cheaper. These factors have brought about M&A involving large, once-in-a-generation assets, such as the recently announced acquisition of Fibria by Suzano Papel e Celulose (two of the biggest world producers of eucalyptus pulp), the announced hostile and friendly tender offers for Eletropaulo (a large electricity distributor), and the announced intended acquisition of Embraer (a airplane maker) by Boeing. 2018 is a general election year in Brazil and, given the large number of candidates, it is diffi cult to anticipate results. Depending on who gets elected to the presidential chair and Congress, Brazil may experience market-oriented reforms and continuity (which could bring about robust M&A activity) or, conversely, if the next president is not well perceived by the markets, the impact on M&A would be quite negative.

* * *

Sources This articles is based on reports in the press, specialist reports, company and fi nancial websites.

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Lior Pinsky Tel: +55 11 2313 5708 / Email: [email protected] Lior Pinsky represents corporations, funds and SOEs in their most pressing legal needs. He has been recognised as a leading Brazilian lawyer in M&A, banking & fi nance and capital markets by publications such as Chambers Global, IFLR, Latin Lawyer and LACCA. Mr. Pinsky has advised clients in dozens of completed M&A transactions, in various different perspectives including buy-side, sell-side, public company M&A, control and minority stakes, inbound and outbound investment. He advises clients in a wide variety of industries, notably pharma. He is also active with CVM compliance and investigations, particularly involving hedge funds, and has counselled clients in several high-profi le crisis-management situations. Lior practised as a foreign associate at Cravath, Swaine & Moore LLP, a leading NY-based law fi rm, from 2004 through 2006. Mr. Pinsky also has been active in fi rm management, including on the fi rm’s Management Committee.

Rodrigo Martins Duarte Tel: +55 11 2313 5927 / Email: [email protected] Rodrigo has been working in the segment of national and international mergers and acquisitions, advising clients on the purchase and sale of shares, purchase and sale of assets, as well as corporate restructuring and commercial contracts. He frequently advises companies on their corporate and contractual routines, providing legal consultancy focused on regularising practices, structuring operations and enabling commercial opportunities for clients.

Veirano Advogados Av. Brigadeiro Faria Lima, 3477 - 16º andar 04538-133 - São Paulo SP, Brazil Tel: +55 11 2313 5700 / Fax: +55 11 2313 5990 / URL: www.veirano.com.br

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Yordan Naydenov & Dr. Nikolay Kolev Boyanov & Co

Legal background General and special legislation The main legislative act setting out the legal framework for M&A transactions in Bulgaria is the Commerce Act (State Gazette Issue 48 of 1991, as amended), which contains the general rules for sales of shares, sales of businesses as going concerns, and company reorganisations. The general civil law rules, regulating the validity and forms of the contracts, the rules for performance and the sanctions for the non-performance of transactions, which are set out in the Obligations and Contracts Act (State Gazette Issue 275 of 1950, as amended), would also apply to contractual aspects of the M&A transaction which are not subject to any special regulation in the Commerce Act. Public companies are heavily regulated and any M&A transaction involving public companies is subject to specifi c regulatory requirements set out in the Public Offering of Securities Act (State Gazette Issue 114 of 1999, as amended). M&A transactions that relate to state-owned and municipality-owned shares, or separate parts of the property of companies with more than 50% equity interest owned by the state or municipality, are regulated by a special procedure for privatisation under the Privatisation and Post-Privatisation Control Act (State Gazette Issue 26 of 2002). In specifi c regulated sectors such as banking, insurance and social security, M&A transactions are subject to special regulation and close scrutiny, as provided for in the Credit Institutions Act (State Gazette Issue 59 of 2006, as amended), the Insurance Code (State Gazette Issue 102 of 2015, as amended), and the Social Security Code (State Gazette Issue 110 of 1999, as amended). Each M&A transaction has its employment law aspects and these are regulated primarily by the Labour Code (State Gazette Issue 26 of 1986), which sets out the requirements for notifying employees and establishes protective mechanisms to safeguard workplaces in case of transfer of shares or ongoing concerns, etc. Various other Acts may affect an M&A transaction, depending on the nature of the deal and the sector of the economy in which it is to be carried out, like the Personal Data Protection Act, the Environment Protection Act, the Foods Act, the Markets of Financial Instruments Act (State Gazette Issue 52 of 2007, as amended), the Companies with Special Investment Purposes Act (State Gazette Issue 46 of 2003, as amended), the Collective Investment Schemes and Other Entities for Collective Investment Act (State Gazette Issue 77 of 2011, as amended), etc. Taxation The tax aspects of an M&A deal would depend primarily on: (i) the Bulgarian Corporate

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Income Tax Act (State Gazette Issue 105 of 2006, as amended); (ii) the more than 60 bilateral double-taxation treaties to which Bulgaria is a party; and (iii) the VAT Act (State Gazette Issue 63 of 2006, as amended), regulating the VAT treatment of the transfer of ongoing concerns, mergers and other types of corporate reorganisation, etc. The Bulgarian Corporate Income Tax Act (‘the CITA’) provides for special rules on tax treatment in cases of reorganisation, transfer of business as a going concern and the taxation of capital gains. The Local Taxes and Fees Act may also affect certain aspects of an M&A deal like the taxation applicable to cancellation of receivables (often, M&A deals are accompanied by various debt restructuring elements). Taxation of capital gains and dividends The CITA provides for a 10% tax payable on the capital gains if a foreign legal entity or individual disposes of shares held in a Bulgarian company. The tax is levied on the positive difference between the documented acquisition price and the documented sale price. Bulgaria is a signatory to a number of double tax treaties that may provide for a lower rate of tax on the capital gains, or for a complete tax exemption (e.g., the tax treaties with Austria, Netherlands, Greece, etc.). In order to benefi t from the lower tax rate, if the income is above BGN 500,000, the benefi ciary owner of the shares must obtain clearance from the Bulgarian revenue authorities. Clearance can be obtained before the deadline for payment of the general 10% tax or following its payment, in which case the amount overpaid will be refunded. Otherwise, it is suffi cient that the owner has a tax residency certifi cate and a declaration for benefi cial ownership and absence of permanent establishment in Bulgaria. Capital gains from sale of shares at a regulated Bulgarian market and, in most cases, at an EU or EEA regulated market, are exempt from taxation. M&A transactions are often associated with payment of dividend by the target company to its former owner. The dividends are subject to 5% taxation – provided, however, that the dividends payable to companies which are tax residents of other EU Member States, or of states that are parties to the Agreement on the , are tax-exempt. The residents of non-EU countries may benefi t from more favourable tax treatment under a double-taxation treaty to which Bulgaria and their country of tax-residence are signatories. The clearance procedure is identical to that mentioned above. Bulgarian tax residents (individuals) who are selling their shares have to include in their overall annual tax income, which is subject to 10% tax, an amount equal to the positive difference between the profi t realised and the loss incurred during the fi nancial year determined for each concrete transaction. Bulgarian legal entities are also not subject to a separate tax with respect to capital gains from the sale of shares. Instead the capital gains will be included in their annual tax result, which is subject to 10% corporate tax. Taxation of mergers Under the CITA, companies and permanent establishments which cease to exist after the reorganisation (e.g., merger into another company or new company) are subject to 10% corporate tax for the last tax period; in other words, the period from the beginning of the calendar year until the date of the registration of the reorganisation in the Commercial Register, which date is considered for tax purposes as the reorganisation date. After the reorganisation, the newly established or acquiring company shall submit a tax return regarding the corporate tax for the last tax period of the merging company within a period of 30 days following the reorganisation date. The corporate tax shall be paid within the same period, after deducting the advance contributions made.

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Merger control The primary instrument laying down the Bulgarian merger control law is the Protection of Competition Act (PCA), State Gazette Issue 102 of 2008, as amended. The act follows the relevant European Union law acts and determines the status of the Bulgarian Commission for Protection of the Competition (‘the CPC’), its rights to grant or refuse concentration clearances, as well as the range of transactions that are subject to such clearance. One of the tasks of the CPC is to assess the concentrations and to clear or to prohibit these, based on whether they may signifi cantly impede competition, as a result of the creation or strengthening of a dominant position. In line with European law, a concentration is defi ned in the PCA as a merger of two or more previously independent undertakings or the acquisition, by a person or persons already controlling one or more undertakings, of direct or indirect control of the whole or part(s) of another undertaking, or the creation of a joint venture, performing on a lasting basis all of the functions of an autonomous economic entity. The fi rst type of concentration covers ‘legal mergers’ where two or more undertakings merge to create a new legal entity, the former legal entities ceasing to exist. It also covers the takeover by one legal entity of the legal personality of another by infusion, whereby the latter ceases to exist and the former acquires through universal succession all its rights and obligations. The second type of transaction caught by Bulgarian merger control law is the acquisition of control. Within the meaning of the PCA, control is constituted by rights, contracts or any other means that, either separately or in combination, and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive infl uence on an undertaking, in particular by acquiring ownership or the right to use the entirety or part of its assets; or the possibility of exercising rights, including on the basis of a contract, that provide a possibility for decisive infl uence on the composition, voting or decisions of the organs of the undertaking. The jurisdictional thresholds determine whether a concentration should be notifi ed to the CPC and clearance be obtained, before it is implemented. The CPC has jurisdiction to review concentrations only where they do not have a ‘Community dimension’, or where even though such concentrations have a Community dimension, the case has been referred to the CPC according to the rules of the EU Merger Regulation. A transaction that does not have a Community dimension will be subject to mandatory advance notifi cation and clearance by the CPC where: (1) the combined aggregate Bulgarian turnover of the undertakings concerned exceeds 25 million levs (1.96 Bulgarian levs = 1 EUR) in the latest complete fi nancial year; and (2) the turnover of each of at least two of the undertakings concerned in the territory of Bulgaria during the previous fi nancial year exceeds 3 million levs; or (3) the turnover of the target company in the territory of Bulgaria exceeds 3 million levs. A concentration is likely to be cleared where it will not lead to the creation or strengthening of a dominant position as a result of which effective competition would be signifi cantly impeded. The CPC may clear a concentration, even where it does lead to the creation or strengthening of dominance, where it aims at modernising the relevant economic activity, improving market structures or better meeting the interests of consumers, and where overall the positive effect outweighs any negative infl uence on competition. The parties may offer and negotiate remedies that would bring the effect of the merger in

GLI - Mergers & Acquisitions 2018, Seventh Edition 31 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Boyanov & Co Bulgaria line with the above rules, which remedies, when accepted by the CPC and included in its decision, will become obligatory conditions attached to the clearance. At the end of merger review, the CPC may: (1) declare that the transaction does not represent a notifi able concentration; (2) clear the transaction; (3) issue a clearance subject to conditions and obligations; or (4) prohibit the concentration. Where the thresholds are met, the fi ling with the Commission is mandatory. It should be performed upon the execution of the agreement on the transaction or the launch of the public offer, except in certain cases where the parties have managed to demonstrate their intention to accomplish a notifi able concentration, even before these events. If the parties have failed to notify a transaction prior to its implementation, they are subject to fi nes of up to 10% of their aggregate turnover for the previous fi nancial year. Fines in an amount of up to 10% of the annual turnover can also be imposed if: a) the concentration is completed under conditions and in a manner that differs from the ones notifi ed to the CPC and on the basis of which its clearance decision was issued, including upon failure to honour commitments and obligations imposed; b) the concentration is completed in violation of an express prohibition of the CPC; or c) the concentration is completed in violation of the general suspension obligation that applies prior to a clearance decision. In addition, the CPC is entitled to impose a sanction of up to 1% of the total turnover for the preceding fi nancial year in cases of: a) failure to cooperate with the concentration investigation; b) delay in the provision of information or the provision of incomplete, incorrect, untrue or misleading information; or c) failure to notify the CPC of the performance of its decision in the term specifi ed in it (if the decision provides for such an obligation). The CPC may also impose periodic sanctions of up to 5% of the average daily total turnover for the preceding fi nancial year for each day of failure to comply with conditions and obligations attached to the clearance decision, and up to 1% of the average daily total turnover for the preceding fi nancial year for each day of failure to provide complete, true and non-misleading information upon demand. Further to the sanctions enforced on the entity at fault, the CPC may impose a fi ne on the executive director/s or other offi cers of the defaulting party who have allowed the commitment of the infringement. The amount of the fi ne varies between BGN 500– 50,000. Additionally, the failure to provide evidences requested or complete, correct, true and non-misleading information may lead to a fi ne for the individual in the range of BGN 500–25,000. Employees The Labour Code is the main applicable Bulgarian law, which regulates employment issues in cases of M&A transactions. The Labour Code complies with the European Acquired Rights Directive regarding the transfer of employees in case of reorganisation of the employer, providing explicitly that the employment relationship will not be terminated in case of change of the employer due to: (i) Merger of enterprises by the formation of a new enterprise (merger). (ii) Merger by acquisition of one enterprise by another (merger by acquisition). (iii) Distribution of the operations of one enterprise among two or more enterprises (split up). (iv) Passing of a separate part of one enterprise to another (spin-off). (v) Change of the legal form of the enterprise (e.g., from LLC to JSC).

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(vi) Change of the ownership of the enterprise or a separate part thereof (transfer of a going concern). (vii) Assignment or transfer of business from one enterprise to another, including transfer of tangible assets (transfer of business). (viii) Rent, lease, or concession of the enterprise or of a separate part thereof. Prior to effecting the M&A transaction, the transferring and the acquiring enterprises must inform the trade union representative and employee representatives of each enterprise of the change and the scheduled date of the transfer; the reasons for the change; the possible legal, economic and social consequences of the change for the employees; and the measures to be undertaken with respect to the employees, including the performance of the obligations arising from employment relationships existing as at the date of the transfer. The transferring enterprise must submit this information within a period of at least two months prior to effecting the change. The acquiring enterprise must submit this information in due course, however no later than at least two months before its employees are directly affected by the change in the employment conditions. If one of the employers has planned changes with respect to the employees, timely discussions must be held and efforts made to reach an agreement with the trade union and the employee representatives regarding these measures. If there are no trade unions and appointed employee representatives in the respective enterprise, the information must be submitted to the affected employees. In the above cases of transfer of a business, the rights and obligations of the transferring enterprise, prior to the change, arising from employment relationships existing as at the date of the transfer, are transferred to the acquiring enterprise. The acquiring enterprise is bound to take on the employee obligations which have originated before the change, in the case of a merger or joining of enterprises and a change of the legal form of the enterprise. In the other cases, the acquiring enterprise and the transferring enterprise are jointly liable for the obligations to employees before the change. The Labour Code does not require explicit employee consent for effecting the M&A transaction, however the employees are entitled to terminate their employment contracts without notice in case that after such transfer, the working conditions with the new employer materially deteriorate. Offshore companies legislation The Act on Economic and Financial Relations with Companies Registered in Preferential Tax Treatment Jurisdictions, the Parties Controlled by Them and Their Benefi cial Owners (the “Offshore Companies Act”) entered into force on 1 January 2014 and provides for certain restrictions on companies registered in offshore jurisdictions (hereinafter “offshore companies”) and the parties controlled by them to carry out certain business activities. The defi nition of “control” includes, in general, holding of more than 50% of the voting rights in the general shareholders’ meeting or in the management bodies of the other company. The offshore jurisdictions are any state/territory wherewith Bulgaria does not have an effective double taxation treaty and wherein the income tax or corporate tax or the substitute taxes on any income are lower by more than 60% than the income tax or corporation tax on the said income under the Bulgarian tax law. The Minister of Finance is competent to publish a list of the offshore jurisdictions. The last one includes 26 jurisdictions and territories.

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The acquisition of participation in: (i) credit institutions; (ii) insurance, reinsurance or insurance brokerage companies; (iii) pension insurance companies; (iv) investment intermediaries; (v) mobile, radio and television operators; (vi) collective investment schemes or other undertakings for collective investments; and (vii) payment institutions, is subject, in some instances, to a special permission issued for the specifi c transaction, and such permission will be rejected for any offshore company or the parties controlled by them. Types of M&A transactions The most common types of M&A transactions used in Bulgarian legal practice are the following: (i) the acquisition of a majority or all of the shares or stocks of a company – the acquirer would assume control over the target by acquiring the majority of its voting rights and the right to appoint the Board members; (ii) the transfer as a going concern of one entity to another – the transferor shall transfer all or part of its assets, liabilities and goodwill as a changing pool to the acquirer through a single transaction; (iii) the transfer of all the assets, receivables and contracts piece by piece by one company to another – the transferor shall transfer all or some of its assets and contracts via a series of transactions; normally this option is used in case of uncertainty about undisclosed or hidden liabilities on the transferor’s side; (iv) merger by way of acquisition (one or more entities are absorbed into another entity and the absorbed entities cease to exist) or by way of incorporation (two or more entities combine to establish a new one, and all of the combined entities cease to exist); (v) demerger by way of acquisition – a portion of the assets and liabilities of an entity are split off and pass on to another entity; and (vi) the entering into of various contractual arrangements leading to the establishment of joint ventures, consortia or similar unincorporated/contractual structures for joint businesses. Timeline and waiting periods The time for completing an M&A transaction depends mainly on the form chosen. Generally, mergers and demergers are completed within a period of eight to ten (less in some specifi c cases) months (including the waiting period for the concentration clearance and regulatory permits). The procedures for transfer of going concerns are slightly shorter, including where associated with concentration clearance and regulatory permits. The Commerce Act provides for less complicated procedures in terms of mergers and demergers, in case such combinations are made between daughter companies or a mother and a daughter company, and such daughter companies have one shareholder only. In such cases, a merger or demerger may be completed within three to four months. It must be noted that after the M&A transaction in the form of a transfer of a going concern or a merger is registered with the Commercial Register, a six-month period starts to run within which the assets of the acquired business shall be managed separately. No special actions have to be performed when this term expires. The combinations involving companies from regulated industries are normally subject to regulatory permits (banking, insurance, investment brokerage, etc.). Disclosure of information The information that shall be made public depends primarily on the type of M&A transaction as well as on the legal form of the participants. In certain cases, there is no requirement for

GLI - Mergers & Acquisitions 2018, Seventh Edition 34 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Boyanov & Co Bulgaria public announcement (e.g., acquisition of less than 100% of shares in a private joint-stock company in cases where no concentration clearance is triggered). In other cases, the parties may have to disclose material amounts of information to the general public, the regulators or the CPC. By way of example, in the case of a planned transformation of non-publicly traded companies, the public will be informed about the planned merger or demerger by way of acquisition through advance announcement in the Commercial Register of the merger documents and the invitation for the general meeting on which the transformation decision would be passed. Given that the Commercial Register is public, any person (not just the shareholders) may collect information about all of the details with respect to the transformation, such as its form, the participants therein, the proposed exchange of shares, the amount of cash payments, if any have been envisaged, and the time period within which any payments must be made, etc. Each person acquiring 5% or more of the shares in a publicly traded company should make an announcement. An announcement is also required in case of acquisition (direct or indirect) of fi nancial instruments giving the right to acquire shares in a publicly traded company and fi nancial instruments with similar economic effect. A similar requirement applies with respect to subsequent acquisitions where the total amount of the shares and/or fi nancial instruments would exceed 10%, 15% and other percentages divisible by fi ve. In the case of acquisition of ⅓ of the voting capital (assuming no shareholder is holding more than 50%) or more of a publicly traded company, the acquirer should launch a tender offer to the minority shareholders. The minimum content of the tender offer is determined by law and includes, inter alia, information about the acquirer, its business plans for the future, plans with respect to the employees, offer to acquire the minority shares, an indication of the price at which this will be done, etc. A notice about the tender offer and the text of the tender offer are to be published in at least two national daily newspapers. The information disclosed to the CPC usually covers a wide range of commercially sensitive information, therefore the parties may indicate in their fi lings the data that they consider to be covered by commercial secrecy. The CPC may then disclose only the non-confi dential information to the public via announcements on its offi cial website. For the purposes of obtaining a regulatory permit (if required), the applicant may also need to disclose to the regulator a material amount of information, including on their business plans; however, as a general rule, this information will not be made public.

Financing of the M&A transactions Banking fi nance remains an important source of fi nancing of M&A transactions, although the requirements with respect to the applicants and the provided security have materially hardened in recent years since the start of the fi nancial crisis. Acquirers belonging to stable economic groups, or who are able to provide sound collateral, enjoy better conditions in terms of interest rates and fees. In many cases, the debt fi nancing is raised at the level of the foreign parent company. It may then be extended to the local acquirer, in the form of either a loan or capital. Banks and fi nancial institutions provide the option to arrange or co-fi nance syndicated loans for customers. Loan syndication is used for risk diversifi cation and for securing compliance with the large exposure rules contained in the Credit Institutions Act. At the same time, this tendency can make the deals more complex and extend the period needed for their negotiation and completion.

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It is common for the credits extended to investment companies to be refi nanced after the completion of the transaction as an element of the corporate and fi nancial reorganisation of the target group. Bulgarian law prohibits ‘fi nancial assistance’. Bulgarian joint-stock companies are precluded from providing loans or granting collateral securing the acquisition of their own shares by a third party. This restriction will not apply to transactions entered into by banks or fi nancial institutions in the ordinary course of business provided that, following the completion of the transaction, their net assets value continues to be within the thresholds specifi ed by the law. The prohibition of fi nancial assistance is not applicable to the acquisition of limited liability companies, which are the other typical target company in M&A transactions. The other main source of fi nancing of M&A transactions is a loan from a foreign holding company to its local subsidiary (usually acting as a typical SPV) that is particularly created to effect the acquisition. These loans are often capitalised (in full or partly) by increasing the share capital of the local subsidiary in order to make the SPV comply with existing thin capitalisation rules, or in order to minimise the interest expenses and associated withholding tax.

Signifi cant deals and highlights M&A activity in 2017 was primarily in the sectors of Media and Telecommunications & IT; Real Estate (Hotels, Retail Stores, Malls); Manufacturing; Retail; and Banking & Finance. The most signifi cant deals of the year 2017 in terms of volume were: (i) acquisition of United Bulgarian Bank by KBC (Belgian bank) for a price of €610m; (ii) acquisition of four business centres (malls) in Bulgaria, as follows: • acquisition of Mall “Paradise Center” in Sofi a by the South African fund NEPI for a price of €252.9m; • acquisition of Business centre “Serdika” in Sofi a by the South African fund NEPI for a price of €207.4m; • acquisition of Business centre “the Mall” in Sofi a by the South African company Hyprop Investments Limited for a price of €176m; and • acquisition of Business centres “Galleria” in Burgas and Stara Zagora by the South African fund MAS Real Estate for a price of €62m. (iii) acquisition of bottled water company Devin by the Belgian Spadel Group for a price of €120m; (iv) acquisition of automobile company MOTO-PFOHE by the Japanese corporation Sumitomo for a price of €60m; (v) acquisition of software company Dynamo Software by the American fund Francisco Partners for a price of €59m; and (vi) acquisition of Drujba Glassworks and Ambalaj by the Portuguese company B.A. Vidro.

Key developments The principal trends and key development for 2017 may be summarised as follows: (i) domestic players continued to play a signifi cant role in M&A transactions in 2017; (ii) small-scale acquisitions concerning primarily small-to-medium enterprises continued to determine the M&A market in terms of number of deals;

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(iii) synergies driving acquisitions, i.e. foreign strategic companies acquiring local companies to provide access to cheap resources and affordable labour; (iv) “classic” M&A transactions where a large strategic investor is attracted by a successful, developed company with potential for synergies and future development were rare; and (v) de-investment of foreign investments given the unstable political situation, poor administration and court system, unpredictability of the business sector, small size of the market.

Industry sector focus The 2017 M&A activity shows that the M&A deals are focused on the sectors of Media and Telecommunications & IT; Real Estate (Hotels, Retail Stores, Malls); Manufacturing; Retail; and Banking & Finance. Inbound investments still prevail in respect of the large M&A deals.

The year ahead Although the level of activity on the M&A market in 2017 is still low, expectations for its growth in coming years are optimistic, including based on indications for arousing the interest of foreign investors. The banks will continue to play an important role in M&A, not as fi nancing institutions but as sellers. Indeed, both Bulgarian and foreign creditors have been seeking to restructure and reorganise their defaulting debtors in order to revive their business; however, there have been examples of banks starting to enforce their collaterals and we may expect this trend to continue throughout 2018. During 2014, one of the largest Bulgarian banks – Corporate Commercial Bank AD – had signifi cant fi nancial diffi culties and the Bulgarian National Bank started insolvency proceedings against it. Given its participation, whether direct or not, in various businesses, the liquidation of its bankruptcy estate will lead to a number of transactions.

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Yordan Naydenov Tel: +359 2 8 055 052 / Email: [email protected] Yordan Naydenov is a partner at the law fi rm of Boyanov & Co and head of the corporate law and M&A practice group. He joined the fi rm in 1994 and became a partner in 2000. His primary areas of speciality are corporate law, M&A, banking and telecommunications. Mr. Naydenov graduated from the Law Faculty of the St. Kliment Ohridski University of Sofi a (LL.M., 1994). He was team leader or team member advising on a number of M&A transactions, such as the transfer of BTC; the acquisition by Dundee Precious Metals of the largest gold-copper mine in Bulgaria; the acquisition by Eurobank of Alpha bank – Bulgaria Branch; the sale of Credit Agricole by its French parent; the acquisition by Kraft Foods International of the largest Bulgarian confectionery and coffee-producing companies; and the acquisition by UniCredito Italiano of Bulbank AD.

Dr. Nikolay Kolev Tel: +359 2 8 055 048 / Email: [email protected] Nikolay Kolev is a senior associate in Boyanov & Co specialising in corporate law/M&A, concessions and underground resources, energy, litigation and arbitration. He graduated from the legal faculty of the St. Kliment Ohridski University of Sofi a (LL.M., 2005) and completed his Ph.D. in civil and family law with the State and Law Institute at the Bulgarian Academy of Sciences (Ph.D., 2011). Mr. Kolev is admitted to the Sofi a Bar and is an associate professor in civil and family law at the State and Law Institute at the Bulgarian Academy of Sciences. He was a team member in a number of M&A transactions, such as the acquisition by Warburg Pincus of more than 20 cable and internet providers, and the takeover of Bulgarian Plus business by , etc.

Boyanov & Co 82, Patriarch Evtimii, 1463 Sofi a, Bulgaria Tel: +359 2 8055 055 / Fax: +359 2 8055 000 / URL: www.boyanov.com

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Kurt Sarno, Shlomi Feiner & Matthew Mundy* Blake, Cassels & Graydon LLP

Overview Canadian M&A in 2017 was record-breaking in several respects. Although total deal value decreased from C$392 billion in 2016 to C$351 billion in 2017, total deal volume increased from 3,088 in 2016 to 3,196 in 2017, marking the highest level in the past fi ve years.1 Cross-border transactions gained momentum throughout 2017 as well, with an increase from 77% of total deals by value in 2016, to 83% of total deals by value in 2017, the highest proportion in the last 10 years.2 Compared to 2016, in 2017 domestic deals increased 25%, from C$77 billion to C$96 billion; inbound deals increased 15% from C$37 billion to C$43 billion; and outbound deals decreased 29% from C$251 billion to C$179 billion.3 The decrease in outbound deal volume may partially have been the result of instability in Canada’s relationship with its closest trading partner, as ongoing U.S. political headwinds, and uncertainty regarding the re-negotiation of the North American Free Trade Agreement (NAFTA), remain unsettled. As NAFTA negotiations are still ongoing, the geopolitical uncertainty regarding cross-border transactions with the U.S. will likely continue into much of 2018.4 Consistent with historic activity, Canadian buyers acquired more businesses in the U.S. than in any other country in 2017.5 There were fewer mega-deals in the Canadian market in 2017 – the contribution of the top 10 M&A deals in 2017 to total deal volume declined signifi cantly, dropping from 41% in 2016 to only 28% in 2017.6 Nonetheless, several large deals helped fuel Canadian M&A growth in 2017, such as the C$17.6 billion acquisition of ConocoPhillips’ oil sands assets, the C$11.0 billion acquisition of Royal Dutch Shell Plc’s (Royal Dutch) oil sands assets, and the C$8.4 billion acquisition of U.S.-based WGL Holdings Inc.7 The most active target industries in 2017 were the energy, fi nancial and consumer sectors, accounting for 26%, 19% and 15% of total deal volume, respectively.8 Half of the 10 largest global deals of 2017 (including the largest) were in the consumer sector and over half of the 10 largest Canadian deals of 2017 were in the energy sector.9 Overall, 2017 was another signifi cant year for Canadian M&A.

Deal landscape and highlights “Mega”-market M&A Average transaction value decreased substantially in 2017 and the proportion of deals valued at C$1 billion or more decreased from 79% of total deal volume in 2016 to 73%

* The authors gratefully acknowledge the assistance of Andrew Wang, Liz Litwack-Landsberg and Taher Ladha.

GLI - Mergers & Acquisitions 2018, Seventh Edition 39 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Blake, Cassels & Graydon LLP Canada of total deal volume in 2017. Nonetheless, 2017 saw a number of blockbuster deals, particularly in the energy and utilities sectors, as noted above. In addition, consolidation continued to play a signifi cant role in 2017, with competitors in both the crop nutrients and investment management sectors joining forces in the the Agrium / Potash Corp. merger and the CI Financial acquisition of Sentry. Mid-market M&A The Canadian mid-market segment continues to play a central role in Canadian deal- making. Since 2014, transactions valued under C$500 million have constituted over 93% of domestic public company acquisitions. In 2017, public Canadian M&A transactions, on average, were valued at C$195 million, which represents a signifi cant decline from 2016, when transactions were valued on average at C$281 million.10 Private equity and pension funds Private equity and pension funds accounted for a large amount of Canadian M&A activity, with activity growing 35% in volume for buy-side and sell-side deals in 2017.11 With private equity fi rms currently sitting on a cash hoard in excess of US$1-trillion globally,12 a portion of this capital was deployed and invested in Canada in 2017, with the volume of private equity deals experiencing signifi cant growth, jumping from 26% in 2016 to 45% in 2017.13 Both private equity and pension funds were at the heart of several mega-deals in 2017. Noteworthy transactions included New York-based Rhône Capital’s US$2.2 billion acquisition of Montréal-based private security company GardaWorld Security Corp., and Los Angeles-based investment fi rm Platinum Equity’s US$3.85 billion acquisition of Ontario-based plastic specialist, Husky IMS International Ltd. Notably, the latter involved the Ontario Municipal Employees Retirement System giving up its Canadian ownership of the company.14 Canadian private equity and pension funds continued to commit signifi cant capital to global expansion. For example, in the past year, Brookfi eld Asset Management announced a US$4.6 billion bid to acquire the nuclear power giant Westinghouse Electric Co. from Japan’s Toshiba Corp. Another notable acquisition was Caisse de dépôt et placement du Québec’s acquisition of a C$288 million stake in Boralex Inc., a wind, solar and hydro project operator in Canada, France and the U.S.15 On the mid- to small-cap transaction side, 2017 experienced a growth of transactions in the C$20 million and C$50 million deal value range. While many private equity and pension funds generally do not participate in deals valued at under $50 million, some niche funds have started to participate in transactions in the $20–$40 million range.16 Although Canadian pension funds, often in partnership with local private equity fi rms, continue to pursue overseas investments and may continue to do so in 2018, international buyers may look to Canada for mid-market acquisition, particularly in fast-growing sectors like cannabis and technologies such as blockchain, where Canada has gained recognition and competitive strength as a result of its expertise. Sector highlights Energy and utilities Canadian oil and gas companies were able to pursue M&A opportunities in 2017 due to the relative stability of global oil prices. However, it is unlikely that the same pattern will continue in 2018. Given that many large foreign investors divested themselves of their Canadian oil sands assets, there may be a decrease in big domestic energy deals in Canada

GLI - Mergers & Acquisitions 2018, Seventh Edition 40 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Blake, Cassels & Graydon LLP Canada going forward.17 One possible exception to this trend may be in the energy infrastructure space. A number of major oil and gas infrastructure projects are under way to produce, transport or add value to the industry in 2018, such as the construction of the C$7.4 billion Kinder Morgan Trans Mountain pipeline expansion – although this was recently put on hold – and the C$3.5 billion Inter Pipeline Heartland Petrochemical Complex.18 Leading the notable transactions of 2017 in the sector, a consortium led by Energy Capital Partners, LLC, along with Access Industries, Inc. and Canada Pension Plan Investment Board, agreed to acquire the U.S.-based integrated power generating and solutions company, Calpine Corporation, for a cash purchase price of C$7 billion (and, with debt, a transaction value of more than C$21.5 billion).19 Calgary-based Cenovus Energy Inc. (Cenovus) doubled its production capacity by acquiring the oil sands assets of ConocoPhillips in a cash-and-share transaction valued at C$17.7 billion, making it the largest energy asset acquisition ever in Canada. As part of the transaction, Cenovus acquired a 50% interest in the Foster Creek and Christina Lake oil sands projects. The acquisition will consolidate Cenovus’ control of top-tier oil sands assets, making it Canada’s largest thermal oil sands producer.20 Canadian Natural Resources Limited (CNRL) acquired a 60% stake in the Athabasca Oil Sands Project and a 100% interest in the Peace River Complex in situ assets from Royal Dutch for an acquisition price of C$11.0 billion, allowing CNRL to achieve effi ciencies across its operations while providing sustainable cash fl ows.21 In a signifi cant outbound transaction, Calgary-based AltaGas Ltd., an energy infrastructure company focusing on owning and operating assets to provide clean and affordable energy, acquired U.S.-based WGL Holdings, Inc., which provides clean, effi cient and diverse energy solutions, for approximately C$8.4 billion.22 The deal follows closely on the heels of two of 2016’s larger transactions, TransCanada Corp.’s acquisition of Columbia Pipeline Group, and Enbridge Inc.’s purchase of Spectra Energy Corp., refl ecting an ongoing trend of major outbound acquisitions by Canadian energy companies.23 Hydro One Limited (Hydro One) announced that it would acquire all outstanding shares of Avista Corporation, a U.S.-based energy company engaged in energy generation, transmission and distribution, for C$6.7 billion, allowing Hydro One to enhance its position as a pure-play regulated power utility company in North America.24 Highlighting the strength of domestic Canadian energy companies, Pembina Pipeline Corp. acquired Veresen Inc., pursuant to a plan of arrangement valued at C$9.4 billion to create one of the largest energy infrastructure companies in Canada.25 Calgary-based diversifi ed oilfi eld services company Total Energy Services Inc. (Total) acquired all of the outstanding common shares of another Calgary-based oilfi eld services company, Savanna Energy Services Corp. (Savanna), by way of an unsolicited takeover bid (the fi rst successful unsolicited takeover since the new takeover regime took effect in 2016). Following closing, Savanna was delisted from the TSX and became a wholly- owned subsidiary of Total.26 Nutrients One of the most notable deals of 2017 was the US$18.3 billion merger between agricultural giants Potash Corporation of Saskatchewan and Agrium, which was completed almost a year and a half after the transaction was initially announced in 2016. The merged entity, known as Nutrien, is the world’s largest provider of crop inputs and services. Nutrien employs approximately 20,000 employees and has operations and investments in 14 countries.27

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Telecom In March of 2017, BCE Inc. (BCE) announced the launch of Bell MTS following the completion of its acquisition of Manitoba Telecom Services (MTS). The C$3.9 billion transaction, which involved substantial regulatory efforts and Competition Bureau and Federal Department of Innovation, Science and Economic Development approval, allowed BCE to obtain over 710,000 , television and internet customers. Following the completion of the transaction, Bell announced that its Western Canadian headquarters will be based in Winnipeg. As part of the deal, Bell MTS will signifi cantly update Manitoba’s wireless technology infrastructure by investing over C$1 billion over a fi ve-year period to upgrade the .28 Investment management On the asset-management side, CI Financial Corp. (CI) acquired Sentry Investments Inc. (Sentry) in a cash-and-share consideration transaction valued at C$780 million, effectively merging two of Canada’s largest independent asset managers. In connection with the transaction, CI will signifi cantly strengthen its mutual fund portfolio by increasing its assets under management to US$140 billion, and total assets under management to approximately US$181 billion. Sentry will remain a standalone brand, with the companies believing that the merger will enable it to face increased competition in the space going forward.29 Insurance Canadian insurance M&A activity experienced a slight decline in 2016, but reversed course upwards in 2017, in contrast to a general decline in the global insurance industry.30 Notably, Canada’s largest independent and privately owned insurance services provider, SCM Insurance Services (SCM), announced in August that it received a majority investment from the global private equity fi rm Warburg Pincus. The deal aims to provide SCM with access to capital and strategic resources to grow its business in Canada as well as bolster its recent entry into the U.S. market.31 Technology The technology industry continued to experience growth in 2017, with the number of deals and deal value increasing from 327 to 426 and US$11 billion to US$16 billion, respectively.32 Overall, the Canadian technology industry experienced a 34% increase in deal volume as compared with 2016.33 Noteworthy trends within the technology industry in 2017 included signifi cant growth in fi ntech M&A activity. Highlighting this was U.S.-based Vista Equity Partners LLC’s C$4.8 billion acquisition of Toronto-based DH Corp.34 The fi ntech market has continued to attract major institutional investors, including pension funds, as evidenced by Caisse de dépôt et placement du Québec’s investing US$100 million in AvidXchange, a U.S.-based payments automation company, in 2017.35 Canadian banks have also started to develop international fi ntech strategies. For example, in the third quarter of 2017, TD opened an offi ce in Tel Aviv to focus on cybersecurity, while Scotiabank recently announced a partnership with NXTP Labs in order to gain valuable access to technology start-ups in Central and South America.36 Cannabis Throughout 2017, the cannabis industry in Canada experienced intense competition among licensed producers to increase their production capacity, market capitalisation and access to capital ahead of the federal government’s plan to legalise recreational cannabis in mid- to-late 2018.

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Aurora Cannabis Inc. (Aurora) was particularly active in the industry. It launched the fi rst-ever hostile take-over bid in the cannabis industry for CanniMed Therapeutics Inc. (CanniMed). Aurora ultimately acquired CanniMed by way of a negotiated cash-and-share deal valued at C$1.1 billion, the largest acquisition to date in the sector.37 In addition, prior to launching its bid to acquire CanniMed, Aurora successfully acquired H2 Biopharma, a Montréal-based cannabis production company, and Larssen Ltd., a Canadian-based greenhouse facility design company.38 As has long been expected, the alcohol industry made its fi rst foray into the cannabis industry, with the announcement by Canopy Growth Corporation that U.S.-based alcohol- conglomerate Constellation Brands Inc. acquired a 9.9% stake in the company for C$245 million, signalling a potential partnership in the cannabis-infused beverages and edibles space.39 Other top cannabis producers announced similar expansion strategies in 2017, such as Ontario-based Aphria Inc. (Aphria), which expanded into the U.S. cannabis market through a reverse take-over transaction resulting in a new company, Liberty Health Sciences Inc., set to operate in Florida as a fully licensed cannabis producer and dispenser.40 However, this seems unlikely to augur any trend in outbound cannabis transactions. In late 2017 the Toronto Stock Exchange (TSX) announced that TSX-listed companies operating in U.S. states where marijuana is legal run the risk of being delisted as they are not in compliance with TSX listing requirements because of the classifi cation of marijuana as a Schedule 1 illegal drug under U.S. federal law. As a result, Aphria announced a proposed divestment of its Florida stake, and we expect the regulatory uncertainty to discourage other similar outbound transactions, from listed companies.41 As the legalisation date nears, it is likely that a drive towards further consolidation will lead to even more M&A activity in Canada’s nascent cannabis industry.42

Key developments Regulatory review of material confl ict-of-interest transactions In July 2017, staff of the securities regulatory authorities in each of the provinces of Ontario, Québec, Alberta, Manitoba and New Brunswick (Staff) published Multilateral Staff Notice 61-302 – Staff Review and Commentary on Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (Notice), which reported on Staff’s review of material confl ict-of-interest transactions, including insider bids, issuer bids, business combinations and related party transactions, but not transactions that are incidentally captured by Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (MI 61-101) (i.e., those that are business combinations only as a result of employment-related collateral benefi ts).43 Real-time review The Notice advised that Staff review material confl ict-of-interest transactions on a real-time basis to assess compliance with MI 61-101. In its review, Staff will consider, among other things: (i) the level of disclosure provided to, and protection of security holder interests; (ii) formal valuations, if required, and disclosure thereof; (iii) the exclusion of appropriate security holders for minority approval, if required; and (iv) the provision of reasonable bases for any reliance on exemptions to the formal valuation or minority approval requirements. Staff may seek one or more of the following remedies upon identifying non-compliance: (i) timely corrective disclosure or other actions on the part of the issuer; (ii) appropriate orders

GLI - Mergers & Acquisitions 2018, Seventh Edition 43 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Blake, Cassels & Graydon LLP Canada under securities legislation in relation to the transaction (such as a cease trade order); or (iii) enforcement action in certain circumstances. Special committees Although a special committee is not required under Canadian securities law other than in connection with insider bids subject to MI 61-101, Staff recommend that a special committee be constituted for all material confl ict-of-interest transactions (subject to limited exceptions). The Notice provided guidance on effective special committees, which should, among other things, be: (i) formed prior to a proposed transaction being substantially negotiated; (ii) comprised entirely of independent directors; (iii) operated with a robust mandate, including the ability to negotiate or supervise the negotiations, consider alternatives to the proposed transaction, make recommendations and engage its own legal and fi nancial advisors; and (iv) prepared to determine whether a fairness opinion is necessary to assist in making a recommendation to security holders. Enhanced disclosure and fairness opinions The Notice affi rmed that the disclosure document provided to security holders in connection with a material confl ict-of-interest transaction should contain suffi cient detail to enable them to make an informed decision in respect of the transaction. Staff expects such disclosure to contain: (i) a thorough discussion of the review and approval process; (ii) the reasoning and analysis of the board of directors and/or special committee; (iii) the views of the board of directors and/or special committee as to the desirability or fairness of the transaction; (iv) the reasonably available alternatives to the transaction, including the status quo; and (v) the pros and cons of the transaction. Following the 2016 decision by the Yukon Court of Appeal in InterOil Corporation v. Mulacek regarding the provision of fairness opinions by fi nancial advisors in Canadian M&A transactions, the practice of market participants has been mixed. The Notice provided formal guidance on fairness opinions in the context of material confl ict-of-interest transactions. In cases of insider bids, issuer bids, business combinations and related party transactions subject to MI 61-101, where a board of directors or special committee decides to proceed with a fairness opinion, the disclosure document provided to shareholders should provide: (i) disclosure of the compensation arrangement with the fi nancial advisor, including whether the compensation is in the form of a fl at or contingent fee; (ii) an explanation of how the board of directors and/or special committee took into account the compensation arrangement when considering the advice provided; (iii) details of the relationship between the fi nancial advisor and the issuer or an interested party; (iv) a summary of the methodology, information and analysis underlying the fairness opinion suffi cient to enable a reader to understand the basis for the opinion; and (v) an explanation of the relevance of the fairness opinion to the board of directors or special committee in arriving at a determination to recommend the transaction, if applicable.44 The Notice demonstrates heightened focus by Canadian securities regulators on both the process behind and disclosure of fairness opinions where a transaction may involve confl icts of interest. It remains unclear whether, and to what extent, this guidance and the enhanced-fairness opinion-disclosure requirements will become standard in public M&A transactions generally in Canada.45 Proxy contests In April 2017, the Ontario Securities Commission (OSC) overturned a decision by the TSX conditionally approving a private placement of shares in the context of a proxy contest. The

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TSX approved the issuance of common shares of Eco Oro Minerals Corp. (Eco Oro) to satisfy partial pre-payment of convertible notes held by shareholders who were supportive of the incumbent board of directors eight days prior to the record date for a shareholders’ meeting requisitioned for the reconstitution of Eco Oro’s board of directors. The OSC set aside the approval and required Eco Oro to obtain shareholder approval of the private placement or, at the instruction of shareholders, to take all steps to reverse the issuance of the shares.46 Though the OSC is empowered to review and overturn the TSX’s decisions, such powers are not exercised lightly. In this case, public interest considerations in favour of subjecting the private placement to shareholder approval and maintaining the integrity of the shareholders’ vote on the composition of Eco Oro’s board of directors outweighed the complexity in reversing the private placement and the impact of such reversal on the affected parties. Going forward, the TSX and other stock exchanges in Canada may place greater scrutiny on applications seeking approval of share issuances in circumstances of ongoing proxy contests or other contested situations, such as during or immediately prior to a formal take- over bid. Affi rmation of the new take-over bid rules For the fi rst time since the adoption of the new Canadian take-over bid rules in 2016, discussed in our 2017 Canadian M&A update, in the case of the unsolicited take-over bid by Aurora (Aurora Bid) to acquire CanniMed, discussed above, Canadian securities regulators considered the use of a shareholder rights plan to impose restrictions and conditions on a hostile bidder that go beyond those restrictions contained in the take-over bid rules themselves. After entering into “hard” lock-up agreements with signifi cant shareholders of CanniMed and making an unsuccessful acquisition offer to CanniMed’s board of directors, Aurora launched the Aurora Bid, conditional upon the cancellation of a previously-negotiated proposed acquisition by CanniMed of another company. In response, CanniMed adopted a shareholder rights plan (CanniMed Rights Plan), which prevented Aurora from acquiring, without CanniMed’s approval, any shares of CanniMed other than those tendered to its bid and from entering into any further lock-up agreements with CanniMed’s shareholders. After applications to the securities regulatory authorities of Saskatchewan and Ontario (together, the Commissions), the Commissions: (i) denied Aurora’s request to shorten the minimum deposit period from 105 days (the prescribed period for take-over bids under Canadian securities laws) to 35 days (the minimum period a target may permit under Canadian securities laws); but (ii) granted Aurora’s request to cease trade the CanniMed Rights Plan; and (iii) permitted Aurora to rely on the take-over bid exemption to acquire up to 5% of CanniMed’s shares outside the Aurora Bid while the Aurora Bid was outstanding, rejecting CanniMed’s application to prohibit Aurora from doing so. The Commissions also rejected CanniMed’s argument that Aurora and the locked-up shareholders of CanniMed were acting “jointly or in concert”, which would have made the Aurora Bid an “insider bid” and subjected it to increased disclosure and valuation requirements under MI 61-101. The decision signalled the Commissions’ confi dence that the new take-over bid regime is structured to appropriately balance the rights of the bidder and target in a hostile take- over bid scenario. Market participants can expect that exemptions from the new take- over bid regime will likely be diffi cult to obtain, absent unique circumstances. Additional restrictions imposed by a target on a bidder through rights plans, or other mechanisms that alter the balance between bidders and targets established by the new take-over bid regime, may be subject to the Commissions’ intervention.47

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Given the longer bid period in the new take-over bid regime, the Commissions also appeared to be sympathetic to the tactical motivations of bidders in seeking “hard” lock-ups to achieve greater bid certainty, and will permit such arrangements in the future. “Hard” lock-up agreements, therefore, may (if target shareholders are prepared to give them) also play an increased role in facilitating take-over bids or similar transactions going forward.48 Chinese foreign investment The federal Liberal government was active in 2017 in its efforts to attract foreign direct investment, particularly from China. Consistent with such efforts, it has taken an open approach to reviewing foreign investments, which may promote foreign capital investment growth in 2018.49 In addition to Canada’s Natural Resources Minister, Jim Carr, stating on a June trade mission that Canada welcomes Chinese investment, the two countries have begun holding exploratory discussions regarding a possible free trade agreement. There is much to build on already – Chinese investment in Canada was second only to investments from the U.S. in 2017, and total investment from China actually exceeded that of the U.S. in terms of asset value.50 Other noteworthy developments with respect to Chinese foreign investment in 2017 included: • The ongoing national security review of the proposed C$1.5 billion takeover of Aecon Group Inc. by a Chinese state-owned fi rm.51 • The reversal of a decision of the previous Conservative government requiring a Chinese investor, O-Net Communications Holdings Limited, to divest its controlling interest in a Canadian company on the grounds that it would be injurious to Canada’s national security. • The approval of a C$1 billion acquisition of Vancouver-based Retirement Concepts by Cedar Tree Investment Canada, which is controlled by China’s Anbang Insurance. The Liberal government found the investment to be a net benefi t to Canada after conducting only a preliminary security screening process, as opposed to the full national security review. • The approval of an acquisition of Vancouver-based Norsat International Inc. by the privately owned Chinese company, Hytera Communication, after conducting just the preliminary security screening process rather than a full national security review.52 Interest rates For the fi rst time in seven years, the Bank of Canada increased interest rates. Rates were increased by 25 basis points twice in 2017, with the overnight lending rate rising from 0.50% to 1.0%. In January 2018, the Bank of Canada raised rates for a third time, increasing its overnight interest rate an additional 25 basis points to 1.25% due to concerns over higher household debt and infl ation. These and further anticipated interest rate increases may negatively affect Canadian M&A activity in the long term, as access to capital becomes more expensive. Conversely, in the short term, Canadian M&A activity may spike, as purchasers look to borrow ahead of any further interest rate increases.53

The year ahead 2017 and 2018 to date have witnessed an almost unprecedented pace of political and legislative change on the international landscape, and a brewing trade war between the U.S. and China, and escalating diplomatic brinksmanship between Russia and various Western

GLI - Mergers & Acquisitions 2018, Seventh Edition 46 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Blake, Cassels & Graydon LLP Canada countries, promise continued upheaval in the months ahead. These have brought with them ever-growing uncertainty, risks and volatility, which are likely to have mixed results on Canadian M&A in 2018, as indicated in the areas examined below. U.S. tax reform and NAFTA Although U.S. tax legislation amendments have now been brought into force, the effects they will have on M&A activity are still being assessed.54 On the one hand, some have suggested that U.S. tax reform may serve as a catalyst for increased Canadian M&A activity in 2018 and may lead to an increase in U.S. outbound investment activity into Canada, as the estimated US$1.5 to $2 trillion of overseas cash subject to mandatory repatriation may promote U.S. outbound M&A activity into Canada.55 On the other hand, the tax reforms may stifl e Canadian competitiveness, as a lower U.S. tax rate reduces Canada’s attractiveness to companies looking extra-jurisdictionally to set up their headquarters.56 Additionally, NAFTA-related uncertainty raised concerns in 2017, and is likely to continue to do so in 2018. Although the fate of NAFTA is yet to be determined, it is possible that Canadian companies may use outbound M&A activity into the U.S. to establish and grow their presence and access to a growing U.S. economy as a hedge against protectionist legislation.57 On the inbound front, Canada may also benefi t from the geopolitical uncertainty surrounding the U.S. and some of its protectionist policies, as foreign investors looking to invest in North America may steer towards Canada instead of the U.S.58 Global oil prices Although the North American West Texas Intermediate (WTI) benchmark for oil prices experienced a signifi cant recovery to US$60 per barrel by the end of 2017 – the highest year-end price since 2013 – the spread between WTI and Alberta’s Western Canada Select (WCS) benchmark signifi cantly widened59 during the same period, with the result being that Canadian oil sells at a deep discount.60 The spread between WTI and WCS is expected to maintain or worsen throughout 2018 as pipeline capacity issues and rising production both continue to exert downward pressure on the price of WCS.61 If these trends persist throughout 2018, Canadian heavy oil producers will continue to lose billions in revenue as WCS prices remain depressed and stockpiles increase.62 Decreased valuations for such companies may present buying opportunities for foreign investors. Interest rates In the fi rst three months of 2018, Canadian infl ation increased at its fastest rate in more than three years, with consumer prices accelerating from an annual pace of 1.7% in January to 2.2% in February.63 Canada’s budding infl ation could add further pressure on the Bank of Canada to continue hiking interest rates throughout 2018, and the expectation is that the Bank of Canada will further raise interest rates in April 2018 by another 25 basis points, to 1.50%.64 Ultimately, the general consensus among major fi nancial institutions in Canada is an expectation that the Bank of Canada will raise interest rates twice in 2018, potentially resulting in the overnight rate increasing by at least 50 basis points to 2.0%, which may discourage M&A activity.65 From an overall perspective, we believe the Canadian M&A markets will remain active this year, especially in the historically strong mid-market, which may be less impacted by the macroeconomic factors that will dominate the headlines this year. In particular, mid-market activity will be encouraged by the continuing trends of generally favourable lending markets, economic stability and a surplus of dry powder among industry players and private equity buyers. Finally, succession-driven M&A amongst retiring boomers is

GLI - Mergers & Acquisitions 2018, Seventh Edition 47 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Blake, Cassels & Graydon LLP Canada also likely to positively infl uence deal fl ow, with the ongoing strength in the mid-market sector counterbalancing any uncertainty-related caution in the mega-deal category. All told, another eventful year in Canadian M&A seems a certainty.

* * *

Endnotes 1. Blakes Intelligence, 2017 MA Trends Update Feb 2 . 2. CITI, Q4 2017 M&A Update . 3. CITI, Q4 2017 M&A Update; Blakes Intelligence, 2017 MA Trends Update Feb 2. 4. Reuters, Canadian M&A seen picking up in 2018 on market rally, U.S. tax reform: https://www.reuters.com/article/canada-ma/canadian-ma-seen-picking-up-in-2018-on- market-rally-u-s-tax-reform-idUSL1N1OY0RH. 5. Canadian Mergers and Acquisitions FAQs and 2018 Trends: http://www. blakesbusinessclass.com/wp-content/uploads/2018/02/MA_Canadian_Trends_FAQ_ Feb_2018_digital.pdf . 6. Confi rmed with Blakes Intelligence, April 11. 7. CITI, Q4 2017 M&A Update; CNW News Releases https://www.newswire.ca/news- releases/shell-completes-divestment-of-oil-sands-interests-in-canada-625504083.html and http://www.marketwired.com/press-release/canadian-natural-resources-limited- announces-acquisition-working-interest-athabasca-2201690.htm and Altagas News Release https://www.altagas.ca/newsroom/news-releases/altagas-ltd-acquire-wgl- holdings-inc-c84 billion-transaction. 8. CITI, Q4 2017 M&A Update . 9. CITI, Q4 2017 M&A Update . 10. M&A in Canada: Resilient Market, Smart Investors: https://www.torys.com/insights/ publications/2018/01/m-and-a-in-canada-resilient-market-smart-investors confi rmed by Blakes Intelligence on April 11 . 11. Canadian Mergers and Acquisitions FAQs and 2018 Trends: http://www. blakesbusinessclass.com/wp-content/uploads/2018/02/MA_Canadian_Trends_FAQ_ Feb_2018_digital.pdf . 12. Private Equity’s $1-trillion question: https://www.theglobeandmail.com/report-on- business/canadian-private-equitys-1-trillionquestion/article37516264/. 13. Blakes Intelligence, 2017 MA Trends Update Feb 2 . 14. Blakes Canadian Mergers and Acquisitions FAQs and 2018 Trends; Omers sale of Husky IMS latest example of U.S.-funded megadeal: https://www.theglobeandmail. com/report-on-business/streetwise/omers-sale-of-husky-ims-the-latest-example-of-us- funded-megadeals/article37377985/. 15. Blakes Canadian Mergers and Acquisitions FAQs and 2018 Trends . 16. Canadian M&A ahead of last year as PE and outbound deal activity increases through Q3: https://www.pwc.com/ca/en/services/deals/whats-the-deal-blog/canadian-m-and- a-volume-soars-with-strong-pe-and-outbound-deal-activity.html. 17. Canadian Mergers and Acquisitions FAQ and 2018 Trends http://www. blakesbusinessclass.com/wp-content/uploads/2018/02/MA_Canadian_Trends_FAQ_ Feb_2018_digital.pdf. 18. Canadian Mergers and Acquisitions FAQ and 2018 Trends http://www. blakesbusinessclass.com/wp-content/uploads/2018/02/MA_Canadian_Trends_FAQ_ Feb_2018_digital.pdf .

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19. News Release https://www.businesswire.com/news/home/20180308006089/en/ Consortium-Led-Energy-Capital-Partners-Completes-Acquisition and Mergermarket, CPPIB-Calpine Corporation. 20. Cenovus News Release https://www.cenovus.com/news/news-releases/2017/03-29- 2017-asset-acquisition.pdf . 21. CNW News Releases https://www.newswire.ca/news-releases/shell-completes- divestment-of-oil-sands-interests-in-canada-625504083.html and http://www. marketwired.com/press-release/canadian-natural-resources-limited-announces- acquisition-working-interest-athabasca-2201690.htm. 22. AltaGas News Releases https://www.altagas.ca/newsroom/news-releases/altagas-ltd- acquire-wgl-holdings-inc-c84 billion-transaction. 23. Blakes Canadian Public Mergers and Acquisitions 2017 Trends and FAQs . 24. Hydro One – Avista Joint Press Release http://www.marketwired.com/press-release/ hydro-one-acquire-avista-create-growing-north-american-utility-leader-with-c312 billion-tsx-h-2226861.htm. 25. Pembina News Release https://www.newswire.ca/news-releases/pembina-announces- closing-of-business-combination-with-veresen-declares-increased-common-share- dividend-and-provides-business-update-649046603.html. 26. Total News Release http://www.totalenergy.ca/news/total-energy-services- inc-completes-acquisition-of-savanna-energy-services-corp/ and http://www. lexpert.ca/article/total-energys-unsolicited-takeover-of-savanna-energy-services- corp/?p=14%7C119 and Total Energy’s unsolicited takeover of Savanna Energy Services Corp. http://www.lexpert.ca/article/total-energys-unsolicited-takeover-of-savanna- energy-services-corp/?p=14%7C119. 27. Nutrien News Release https://www.newswire.ca/news-releases/agrium-and-potashcorp- merger-completed-forming-nutrien-a-leader-in-global-agriculture-667653553.html and https://www.sedar.com/GetFile.issuerNo=00000973&issuerType=03&projectNo=0267 3437&docId=4178722. 28. BCE Press Release http://www.bce.ca/news-and-media/releases/show/BCE-completes- acquisition-of-Manitoba-Telecom-Services-Bell-MTS-launches-in-Manitoba-today- activates-province-wide-investment-and-innovation-plan-1. 29. CI-Sentry News Releases https://www.newswire.ca/news-releases/ci-fi nancial- completes-acquisition-of-sentry-investments-649098623.html and https://www. newswire.ca/news-releases/ci-financial-acquires-leading-independent-canadian- investment-fi rm-sentry-investments-639619453.html. 30. Blakes Canadian Mergers and Acquisitions FAQ and 2018 Trends http://www. blakesbusinessclass.com/wp-content/uploads/2018/02/MA_Canadian_Trends_FAQ_ Feb_2018_digital.pdf . 31. SCM Insurance Services Announces Strategic Investment from Warburg Pincus: https:// www.prnewswire.com/news-releases/scm-insurance-services-announces-strategic- investment-from-warburg-pincus-642351013.html. 32. Canadian Mergers and Acquisitions FAQs and 2018 Trends: http://www. blakesbusinessclass.com/wp-content/uploads/2018/02/MA_Canadian_Trends_FAQ_ Feb_2018_digital.pdf. 33. Canadian M&A Activity was a Big Deal in 2017: https://www.pwc.com/ca/en/media/ release/canadian-m-a-activity-was-a-big-deals-in-2017.html . 34. Global M&A: How does Canada compare?: https://www.canadianunderwriter.ca/ insurance/global-ma-canada-compare-1004123716/.

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35. The Pulse of Fintech – Q3 2017: https://home.kpmg.com/xx/en/home/insights/2017/10/ the-pulse-of-fi ntech-q3-2017.html. 36. The Pulse of Fintech – Q3 2017: https://home.kpmg.com/xx/en/home/insights/2017/10/ the-pulse-of-fi ntech-q3-2017.html . 37. Aurora Cannabis and CanniMed Therapeutics Agree to Terms on Friendly Transaction: https://www.newswire.ca/news-releases/aurora-cannabis-and-cannimed-therapeutics- agree-to-terms-on-friendly-transaction-670879623.html. 38. Aurora Cannabis Completes Larssen and H2 Biopharma Acquisitions: https://www. newswire.ca/news-releases/aurora-cannabis-completes-larssen-and-h2-biopharma- acquisitions-662037443.html. 39. Alcohol Industry Targets Pot With Constellation-Canopy Deal: https://www.bloomberg. com/news/articles/2017-10-30/liquor-industry-pushes-into-pot-with-constellation-s- canopy-deal. 40. Aphria takes medical marijuana model to U.S. with $25 million investment in Florida: http://business.fi nancialpost.com/investing/aphria-takes-medical-marijuana-model-to- fl orida-with-25 million-investment. 41. Cannabis company Aphria selling part of its stake in Liberty Health Sciences: http:// www.cbc.ca/news/business/aphria-liberty-health-1.4520113. 42. Canadian cannabis companies on $2 billion fundraising spree as legalization looms: http://business.financialpost.com/investing/canadian-cannabis-companies-on-2 billion-fundraising-spree-as-legalization-looms. 43. Staff Notice 61-302 – Staff Review and Commentary on Multilateral Instrument 61- 101 Protection of Minority Security Holders in Special Transactions. 44. Regulators Shine Spotlight on Material Confl ict of Interest Transactions http://www. blakesbusinessclass.com/regulators-shine-spotlight-on-material-confl ict-of-interest- transactions/. 45. Blakes Canadian Mergers and Acquisitions FAQs and 2018 Trends. 46. Re Eco Oro Minerals Corp., 2017 ONSEC 23. 47. Securities Regulators Tell Aurora and CanniMed to Play by the (New) M&A Rules http://www.blakesbusinessclass.com/securities-regulators-tell-aurora-and-cannimed- to-play-by-the-new-ma-rules/. 48. Securities Regulators Tell Aurora and CanniMed to Play by the (New) M&A Rules http://www.blakesbusinessclass.com/securities-regulators-tell-aurora-and-cannimed- to-play-by-the-new-ma-rules/. 49. Blakes Canadian Mergers and Acquisitions FAQs and 2018 Trends . 50. Blakes Canadian Mergers and Acquisitions FAQs and 2018 Trends . 51. https://www.theglobeandmail.com/news/politics/ottawa-orders-national-security- review-of-aecon-sale-to-china-owned-construction-fi rm/article37937182/. 52. Blakes Canadian Mergers and Acquisitions FAQs and 2018 Trends. 53. Blakes Canadian Mergers and Acquisitions FAQs and 2018 Trends . 54. The US brings disruption and opportunity for Canadian M&A: year-end review and 2018 outlook: https://www.pwc.com/ca/en/services/deals/whats-the-deal-blog/the-us- brings-disruption-and-opportunity-for-canadian-m-and-a-year-end-review-and-2018- outlook.html. 55. Canadian M&A Activity was a Big Deal in 2017: https://www.pwc.com/ca/en/media/ release/canadian-m-a-activity-was-a-big-deals-in-2017.html; Canadian M&A seen picking up in 2018 on market rally, U.S. tax reform https://www.reuters.com/article/ canada-ma/canadian-ma-seen-picking-up-in-2018-on-market-rally-u-s-tax-reform- idUSL1N1OY0RH and US companies will pay billion in tax offshore cash piles http:// money.cnn.com/2018/01/02/investing/us-tax-companies-overseas-cash/index.html.

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56. Canadian banks warn about negative fallout from U.S. tax reforms: http://www.cbc.ca/ news/business/canada-us-tax-reforms-1.4533411. 57. Canadian M&A Activity was a Big Deal in 2017: https://www.pwc.com/ca/en/media/ release/canadian-m-a-activity-was-a-big-deals-in-2017.html . 58. Law Times, Focus: Protectionist rhetoric could help Canadian companies: http:// www.lawtimesnews.com/author/shannon-kari/focus-protectionist-rhetoric-could-help- canadian-companies-13193/. 59. Crude oil prices increased in 2017, and Brent-WTI spread widened: https://www.eia. gov/todayinenergy/detail.php?id=34372. 60. Canadian oil selling at a deep discount – and it hurts: http://www.cbc.ca/news/business/ wti-wcs-gmp-dwarkin-rseg-oil-1.4491527. 61. WCS vs. WTI: Canadian Heavy Crude Discount Demystifi ed: https://seekingalpha. com/article/4135266-wcs-vs-wti-canadian-heavy-crude-discount-demystifi ed. 62. Canada is bleeding billions in excess oil: https://www.kelownanow.com/news/news/ National_News/Why_Canada_s_experiencing_a_10B_loss_in_oil/. 63. Canadian Infl ation Accelerates to Fastest Pace in Three Years: https://www.bloomberg. com/news/articles/2018-03-23/canada-infl ation-accelerates-to-fastest-pace-in-three- years. 64. Key interest rate will likely rise again in April: PBO: https://globalnews.ca/news/3981574/ interest-rate-likely-increase-april-parliamentary-budget-offi cer/. 65. How banks differ on future BoC rate hikes: http://www.advisor.ca/news/economic/ how-banks-differ-on-future-boc-rate-hikes-252699.

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Kurt Sarno Tel: +1 416 863 2681 / Email: [email protected] Kurt Sarno is a Partner in the Firm’s Toronto offi ce. Kurt specialises in mergers and acquisitions, private equity and joint ventures. He advises buyers, sellers and targets on domestic and cross-border mergers and acquisitions; private equity investors and sponsors on buy-outs, investments and exits; and businesses across various industries on complex joint ventures and strategic corporate and commercial matters. Kurt is the Co-Leader of the Firm’s Private Equity Group. Before becoming a Partner at Blakes, Kurt practised at a pre-eminent law fi rm in New York, concentrating on mergers and acquisitions and private equity.

Shlomi Feiner Tel: +1 416 863 2393 / Email: [email protected] Shlomi Feiner is a Partner in the Firm’s Toronto offi ce. Shlomi’s practice focuses on mergers and acquisitions, securities and corporate law, as well as private equity. He has acted as counsel to international purchasers and target companies in public company acquisitions, and purchasers and vendors in asset and share purchase transactions. He has also acted as counsel to issuers and dealers in various securities offerings, and has provided general corporate and commercial law advice to a range of Canadian and international clients. Shlomi joined Blakes in December 2005 after practising for fi ve years with a New York-based international law fi rm.

Matthew Mundy Tel: +1 416 863 2191 / Email: [email protected] Matthew Mundy is an Associate in the Firm’s Toronto offi ce. Matt’s practice covers a wide range of corporate and commercial matters, including mergers and acquisitions, corporate reorganisations, and corporate governance. He advises purchasers, vendors and targets on domestic and international transactions, and his experience includes acting for clients in a variety of sectors, including the private equity, fi nancial services, cannabis, and manufacturing sectors. In 2014, Matt was seconded to a large telecommunications fi rm, where he worked on a number of general corporate matters. In 2012–13 Matt clerked at the Ontario Court of Appeal for Chief Justice Warren Winkler and Justice Gloria Epstein. Matt is also an active member of the Blakes Cannabis group and frequently writes on matters relating to the industry.

Blake, Cassels & Graydon LLP 199 Bay Street, Suite 4000, Commerce Court West, Toronto ON, Canada M5L 1A9 Tel: +1 416 863 2400 / Fax: +1 416 863 2653 / URL: www.blakes.com

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Ramesh Maharaj, Rob Jackson & Melissa Lim Walkers

Overview The Cayman Islands’ global appeal means it services clients from all corners of the globe, thereby offering a hedge against the full brunt of economic fl uctuations which ordinarily affect a single jurisdiction. Worldwide M&A activity remained fl at in 2017, relative to a down year in 2016,1 whilst Cayman Islands M&A activity remained steady. During the fi rst 11 months of 2017, 10,3652 exempted companies, 607 limited liability companies and 3,5363 exempted limited partnerships were incorporated or formed (as relevant). The continued use and attraction of Cayman Islands entities is not surprising, as the nature of capital has changed dramatically in the last few years, with investments increasingly being made on an international scale. Investors are at ease moving their capital from one jurisdiction to another to achieve the highest returns. The more international capital becomes, the more likely Cayman Islands entities are to be used to facilitate the investment of such capital due to the tax neutrality afforded, and the sophisticated and stable nature of the jurisdiction. The Cayman Islands has historically been, and continues to be, successful in attracting funds (both hedge funds and private equity funds) as well as structured fi nance issuers. Over time, the Cayman Islands has become recognised as a jurisdiction that is central to M&A transactions, particularly cross-border M&A transactions in downstream private equity transactions. As noted above, with global M&A decreasing in 2016 and remaining fl at in 2017, the need for strategic global structuring solutions has increased. Given that Cayman Islands exempted limited partnerships are the vehicle of choice for offshore private equity funds, the private equity sector has embraced the use of Cayman Islands vehicles as holding companies, joint venture vehicles and listing vehicles for M&A deals. In light of the increase in private equity-backed M&A, the Cayman Islands has benefi ted from a number of deals involving Cayman Islands vehicles. Furthermore, the recent introduction in July 2016 of a Cayman Islands Limited Liability Company, or “LLC”, has further supplemented the attractiveness of the jurisdiction for clients familiar with the benefi ts of such vehicles in onshore jurisdictions such as Delaware. Despite the volatility and uncertainty in the global equity markets, a key factor in the increase in private equity-backed M&A deals is the relative resiliency of the debt markets. According to Thomson Reuters, global syndicated lending for the fi rst nine months 2017 reached US$3.1trn.4 Loans in the Americas accounted for 65% of global loan volume during the fi rst nine months 2017, supported by a 23% increase in the region compared to 2016. With greater access to loans and favourable market expectations, particularly in the

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US, private equity funds have the capital available to complete their buyout transactions, thereby increasing the number of private equity-backed M&A deals. Not only is the Cayman Islands a jurisdiction favoured by private equity houses, it is a jurisdiction that is recognised to be creditor-friendly and therefore favoured by leverage providers. Accordingly, the use of Cayman Islands vehicles is expected to increase, with such buoyant private equity- backed M&A activity and the associated leveraged loans to fund such activity.

Reasons why the Cayman Islands are a preferred jurisdiction to facilitate M&A activity The Cayman Islands is the destination of choice for the offshore structures that run parallel to onshore private equity structures. This is in large part due to the fact that it delivers the ability to raise capital effi ciently, in a tax-neutral environment. It is common for a Cayman Islands entity to be used in international M&A transactions, whether it is to act as a holding vehicle for a bidco in an acquisition context, to act as a joint venture vehicle, or to act as the issuer to be listed on stock exchanges. The reasons for doing so are varied and can include any of the following: • Simplicity and speed of incorporation − incorporation can usually be completed within 24 hours (using an express service) following completion of relevant “KYC” and “AML” requirements. • Major international fi nancial and banking centre − the Cayman Islands is a major international fi nancial and banking centre and has many leading international banks, trust companies, accounting fi rms, law fi rms and other such service providers. • Well established legal system and fl exible corporate governance − the Cayman Islands are administered as a British Overseas Territory, but have a signifi cant degree of internal self-government. The Cayman Islands have a combined common law and statute-based legal system. English common law is of persuasive authority and the courts of the Cayman Islands are of good repute. Corporate governance is based on such common law and statute-based legal systems, with the fl exibility to take into account the different needs of the parties whether it is for a listing vehicle, bidco or joint venture vehicle. • No direct or indirect taxation − exempted companies, exempted limited partnerships and LLCs are free from any form of income tax, capital gains tax or corporation tax, and no withholding tax is imposed by the Cayman Islands on any cash fl ows. Exempted companies are eligible to apply for an undertaking from the Cayman government to the effect that they will remain tax-free for a period of 20 years (which can be extended to 30 years for exempted companies, or to 50 years for exempted limited partnerships and LLCs, where the term of the transaction requires this) in the event of any legislative changes relating to taxation matters. • No exchange controls − the Cayman Islands has no exchange control or currency regulations. • Corporate documents not publicly available − the constitutional documents, the identity of the shareholders and directors of an exempted company are not available to the public. • Compliance − there is in place stringent compliance and know-your-client procedures to target money laundering, which includes the recent introduction of a non-public benefi cial ownership regime. Subject to certain exceptions, any individual who holds,

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directly or indirectly, more than 25% of the shares or voting rights in a Cayman Islands company, or the right to appoint or remove a majority of the board of directors of a Cayman Islands company, must be recorded in such company’s benefi cial ownership register. • Ability to merge or consolidate with a non-Cayman Islands company − the Cayman Islands Companies Law permits an exempted company or LLC to merge or consolidate with Cayman Islands and/or overseas companies. See below for greater detail on the statutory merger regime. • Reporting − annual reporting requirements are minimal and consist only of a statement, signed by the company secretary or a director, that the company has conducted its operations mainly outside the Cayman Islands and has complied with the provisions of the Companies Law. • Directors − there are no requirements that directors of an exempted company or managers of an LLC be resident in the Cayman Islands. • Regulatory regime – the Cayman Islands has a fl exible regulatory regime in order to stay at the forefront of offshore fi nancial centres and to encourage further investment through the Cayman Islands. Examples of this include the introduction of the new Cayman Islands LLC in 2016 (see below), foundation companies in 2017, and the growth of insurance, reinsurance and captives in the Cayman Islands. • Time zone and geographical proximity – the Cayman Islands is favoured as an offshore jurisdiction by the US, given its location in the same time zone and its geographical proximity.

Deals and highlights Take-private transactions “Take-private” deals are being driven by private equity and/or management of listed companies in the belief that they can increase the value of the company once it is de-listed and no longer subject to the increased reporting and regulatory costs associated with a listing. In some cases, management has teamed up with private equity houses to effect the buyout of the relevant company, which raises issues of director duties and confl icts of interests. In such cases, where the target is a Cayman Islands company, Walkers has been involved in advising on such matters, whether it is from the perspective of the acquirer, the target, or the special committee of non-confl icted directors that may be formed to consider the buyout proposal. The duties that govern the actions of the directors of a target company are not codifi ed in the Cayman Islands, and so are set out in the common law as it has been developed in the Commonwealth courts, in particular. The abiding general principle is that the directors of a Cayman company owe their duties to the company and not to its shareholders. It is likely in a management buyout scenario that the Cayman courts will focus carefully on the following areas when considering the discharge by the company’s directors of their fi duciary duties: (i) directors are not precluded by Cayman law from voting on, or prosecuting, a transaction in which they have a personal interest provided that the nature of that interest is disclosed, and any company information held by the directors in that capacity and which is material to the consideration and approval of the proposed transaction by shareholders is disclosed to them; and (ii) it will be important that any valuation of the company forming the basis of any offer to shareholders under the proposed transaction is supportable by reference to independent, informed third-party advice.

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The following are some high-profi le take-private transactions involving Cayman Islands companies: • Bohai Leasing and its take-private acquisition of NYSE-listed Avolon Holdings. • Morgan Stanley and Credit Suisse in connection with the leveraged buyout of Goodpack Ltd by IBC Capital Ltd., the largest ever buyout of a Singapore-listed company by a private equity fund. • Consortium led by Blackstone, in its US$625m privatisation of Pactera Technology International Limited. • Acquity Group Limited, in connection with the US$316m take-private acquisition of NYSE-listed e-commerce and digital marketing company Acquity Group Limited by consulting fi rm Accenture PLC. • China Fire & Security Group, Inc., in its US$265.5m take-private acquisition of NASDAQ-listed China Fire & Security Group, Inc. China Fire & Security Group, Inc. is a leading total solution provider of industrial fi re protection systems in China. • Giant Interactive, in connection with the takeover of NYSE-listed Chinese online game developer Giant Interactive, with a total value of approximately US$2.9bn. • International Mining Machinery Holdings Limited, in connection with the going private acquisition by Joy Global Asia Limited, a wholly owned subsidiary of Joy Global Inc. Strategic corporate acquisitions Strategic corporate acquisitions are also on the rise in light of the buoyant state of the global economy: • Microchip Technology Incorporated and its approximately US$3.5bn acquisition of NASDAQ-listed Atmel Corporation. • Liberty Media Corporation and its acquisition of Formula One, the iconic global motorsports business, from a consortium of sellers led by CVC Capital Partners. • Avago Technologies Limited and its acquisition of Broadcom Limited. • Uber China and its merger with Didi Chuxing. • Petroamerica Oil Corp. and its acquisition of all of its issued and outstanding shares by Gran Tierra Energy Inc. • Funds managed by Blackstone and the sale of Center Parcs, a UK-based holiday village company, to a fund managed by Brookfi eld Property Partners. • Home Loan Servicing Solutions and its US$1.2bn acquisition by New Residential Investment. • Valeant Pharmaceuticals International, Inc. and its acquisition of Mercury (Cayman) Holdings, the holding company of Amoun Pharmaceutical, for approximately US$800m. • Atlantica Hotels International Ltd., the holding company for Atlantica Hotels International (Brasil) Ltd, the largest privately held hospitality company in South America, and its sale to Quantum Strategic Partners Ltd (an affi liate of Soros). • The Carlyle Group and Warburg Pincus, a global private equity fi rm, and the acquisition of DBRS, the fourth-largest global credit rating agency. • Tiger Media, Inc., a Shanghai-based multi-platform media company, and the acquisition of The Best One, Inc., parent company of US-based data solutions provider Interactive Data, LLC.

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• Baring Private Equity Asia and its acquisition of Vistra Group, a global provider of trust, fi duciary and fund administration services. • Accenture/Acquity and its US$316m take-private acquisition of NYSE-listed e-commerce and digital marking company Acquity Group Limited by consulting fi rm Accenture PLC. • Alibaba Group and its US$586m acquisition of an 18% stake in China’s largest internet portal and media website Sina Corp’s microblogging service, Weibo. • Baidu and its US$306m acquisition of Qunar, one of China’s oldest and biggest online travel agents.

M&A activity in the domestic market of the Cayman Islands Cayman Islands entities are commonly used in offshore international M&A transactions, and the focus of the Cayman Islands tends to be on activities offshore rather than onshore in the Cayman Islands. However, within the domestic market of the Cayman Islands itself, M&A activity has been on the rise with the consolidation of the fi nancial services industry, such industry being one of the main pillars of the economy of the Cayman Islands. Recent notable transactions include the acquisition by Mitsubishi UFJ Financial Group of UBS’ Alternative Fund Services business in the Cayman Islands, and Intertrust’s acquisition of Elian Group’s fi duciary business.

Merger regime as a means of acquisition One area of particular growth involving Cayman Islands companies has been the utilisation of the Cayman merger statute as a preferred method for acquisitions. In the M&A arena, it is the merger and consolidation provisions of the Cayman Islands Companies Law (based on the statutory merger regime of Delaware) which have been used as the acquisition method of choice in a plethora of transactions upon which Walkers has advised. It is surprising to note that, prior to 2009, the Cayman Islands did not have a statutory merger regime. When fi rst introduced, it was perhaps not envisaged that it would be used as an alternative to a scheme of arrangement or tender offer as a means of effecting a takeover.

Limited Liability Company – a new Cayman Islands vehicle In light of the popularity of the use of the Delaware limited liability company, the government of the Cayman Islands has introduced a new Cayman Islands vehicle similar to such entity, also called a Limited Liability Company (the “LLC”). The LLC Law is based on the Delaware LLC Law and became operational in mid-July 2016. An LLC is similar to a Delaware LLC. It is a body corporate with separate legal personality and requires at least one member. The liability of a member to make contributions to the LLC are limited to such amount set out in the LLC Agreement (unless otherwise agreed by the member). Registration of the LLC may be effected by the payment of a fee and fi ling of a certifi cate of formation with the Registrar of Limited Liability Companies in the Cayman Islands (the “Registrar”). The LLC Agreement is not required to be fi led with the Registrar. There is a focus on giving the members the fl exibility to agree the governance of the LLC. Members are free to agree the internal workings of the LLC amongst themselves via the LLC Agreement. This allows the members to agree mechanisms such as capital accounts and capital commitments, allocations of profi ts and losses, allocations of distributions, voting

GLI - Mergers & Acquisitions 2018, Seventh Edition 57 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Walkers Cayman Islands methods (including negative consents) and classes of interests. The management of the LLC shall vest in its members acting by a majority in number unless the LLC Agreement provides for the management of the LLC by one or more managers, in which case, the management of the LLC shall vest in the managers. The LLC Agreement may provide for classes of managers having such rights, powers and duties for the relevant class as specifi ed therein. The LLC addresses the needs of clients who wish to have a body corporate that has the characteristics of a partnership in terms of capital accounts and capital commitments. The LLC is seen as a hybrid between an exempted Cayman Islands company and a Cayman Islands exempted limited partnership. As a Cayman Islands exempted limited partnership does not have separate legal personality, an LLC fi lls such gap, as it has separate legal personality but also has the partnership concepts of capital accounts and capital commitments. A Cayman Islands company has certain restrictions on return of capital and is required to maintain its capital, so distributions made by a Cayman company are not as fl exible as those of a partnership. Accordingly, an LLC also fi lls such gap where a client may be looking for a corporate entity but want fl exibility in its distributions. Since their introduction, LLCs have been formed mainly to act as general partners of Partnerships, holdings companies and joint venture vehicles.

Industry sector focus Private equity We have continued to act on numerous downstream private equity fund transactions from a variety of industry sectors. These deals are being closed where the opportunities arise on a case-by-case basis without any particular trend towards an industry sector (outside of energy and power, and the intellectual property and information technology sectors, as described above). Telecommunications, intellectual property and information technology The boom in has resulted in a very busy M&A world in telecommunications, IP and IT. Companies that specialise in software solutions, cloud-based services, information technology services and are becoming attractive targets as they start establishing their revenue streams. Private equity houses are on the lookout for value opportunities, whilst management are focusing on extracting value from their companies. The rapid growth of cryptocurrencies and blockchain technology has led to numerous Cayman Islands companies being used as token issuers for initial coin offerings, developers of blockchain technology and other FinTech initiatives. These companies, along with other fi rms investing and creating IT solutions, are often established in the Cayman Islands as special economic zone companies in its Special Economic Zone known as Cayman Enterprise City. Such companies enjoy the benefi t of a quick and straightforward start-up process while creating and holding IP in the Cayman Islands. Energy and power Despite the declines in commodity prices in recent years, the energy and power sector remains active. Certain companies look to acquire undervalued assets and establish cost effi ciencies through consolidation during volatile times, while other producers in need of cash to service debt may seek to divest of certain non-core assets. Although certain valuations may have decreased for many energy companies in recent years, energy prices appear to have stabilised and rebounded of late, which should improve M&A activity in the sector going forward.

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Due to its capital-intensive nature, many companies continue to refi nance existing debt obligations. Technology providers who service the energy and power sector have found themselves an object of desire as the search for cost-effective production techniques and downstream effi ciencies continues. Real estate Generally, real estate M&A transactions require the use of onshore vehicles, therefore Cayman Islands vehicles are not generally used as holding companies for real estate. Having said this, given that many real estate funds are Cayman Islands exempted limited partnerships, it is common for a Cayman Islands partnership to grant guarantees or sponsor support in M&A transactions in which its real estate holding subsidiaries are involved. Infrastructure and projects We have been involved in a number of large infrastructure projects; however it is diffi cult to discern any upward trend. These projects have a long shelf life, and many have not yet progressed to fi nalisation.

The year ahead We hold positive expectations for 2018 in light of current global market conditions. In the year ahead, we anticipate a continued need for Cayman Islands entities to structure investments either in or from the United States. The Asian markets are predicted to remain strong and we expect the growth of Cayman Islands entities in that region to continue. We expect that there will be a continued appetite for private market opportunities, although the stabilisation of commodity prices and low volatility environment seen in 2017 should support further public M&A activity as well. The potential for corporate tax reform in the US market is also likely to fuel additional deal-making and transactions in private and public markets as companies adapt to changes and plan for the future.

* * *

Endnotes 1. As reported in Mergers & Acquisitions Review, Financial Advisors, First Nine Months 2017, Thomson Reuters. 2. Cayman Islands Register of Companies. 3. Cayman Islands Register of Partnerships. 4. As reported in Global Syndicated Loans Review, Managing Underwriters, First Nine Months 2017, Page 1, Thomson Reuters.

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Ramesh Maharaj Tel: +1 345 914 4222 / Email: [email protected] Ramesh Maharaj is based in Walkers’ Cayman Islands offi ce where he is a partner in the Global Finance and Corporate Groups. Ramesh specialises in corporate and fi nance transactions involving Cayman Islands entities. He regularly advises on take-overs, mergers, acquisitions, joint ventures, shareholders arrangements, injection of capital (by contribution or otherwise), return of funds to shareholders, IPOs, group reorganisations, corporate restructurings and corporate note/bond offerings. He advises a broad cross- section of clients including those in the resources and energy industry sectors, as well as Canadian-based or related transactions and advises private equity houses on a multitude of corporate down-stream transactions. Ramesh is active in advising clients (both banks and borrowers) on lending and security transactions with a Cayman Islands element. Rob Jackson Tel: +1 345 914 4281 / Email: [email protected] Rob Jackson is a partner in Walkers’ Global Finance and Corporate Groups, and advises on a broad range of fi nance and corporate transactions involving Cayman Islands companies and partnerships. In the fi nance arena he acts for lenders, borrowers and sponsors on project fi nance transactions, hedge fund and private equity fi nancings, secured cross-border transactions and fi nancial restructurings. Rob’s fi nance clients include leading international banks and fi nancial institutions, asset management fi rms and private equity houses as well as leading onshore law fi rms. In relation to corporate transactions, Rob regularly advises major public and private companies on share acquisitions and disposals, joint venture and shareholder arrangements, IPOs and secondary public offerings, corporate note/bond issues and corporate restructurings including statutory mergers, schemes of arrangement and takeovers, across a wide range of industry sectors. He has extensive experience in advising on the formation and structuring of Cayman Islands private equity vehicles and related downstream transactions. Melissa Lim Tel: +1 345 814 4512 / Email: [email protected] Melissa Lim is based in Walkers’ Cayman Islands offi ce where she is a partner in the Global Investment Funds Group. She has extensive experience in a broad range of investment fund structures including private equity funds, hedge funds and unit trusts. Melissa regularly acts for leading investment banks, investment managers, private equity houses and corporate trustees, advising on the structuring and formation of funds, their downstream transactions and exit mechanisms. An integral part of her practice involves advising in relation to mergers and acquisitions, joint ventures, preference share issues, corporate restructurings and other corporate transactions. She also has signifi cant expertise in advising on fi nance transactions (in particular, capital commitment subscription fi nancing and LBO fi nancing) and related issues of security creation and perfection. Walkers 190 Elgin Avenue, George Town, Grand Cayman KY1-9001, Cayman Islands Tel: +1 345 949 0100 / Fax: +1 345 814 8232 / URL: www.walkersglobal.com

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Jianjun Guan & Will Fung Grandall Law Firm

Overview Compared with 2016, China’s M&A market was generally stable and slightly cooled down in 2017. According to research data released by ChinaVenture (www.chinaventure.com),1 there were a total of 8,096 M&A transactions which were announced in China in 2017, 14.54% less than in 2016 (being 9,473 cases) on a year-on-year basis. The aggregate value of M&A transactions disclosed in 2017 reached US$537 billion, 10.33% lower than in 2016 (being US$598.87 billion). Further, the number of completed M&A transactions and aggregate trading volume as disclosed in 2017 were down by 16.94% and 12.07% respectively from those of 2016 on a year-on-year basis. Based on the above data released by ChinaVenture, M&A transactions completed in China are classifi ed into (i) domestic M&A deals, (ii) inbound M&A deals, and (iii) outbound M&A deals. In so far as percentages are concerned, the proportion of domestic M&A deals in 2017 duly completed stood at 91.29%, 2.03% down from the 93.32% compared to previous year; the percentage of inbound M&A deals (i.e. 1.79%) was 0.54% higher than that of 2016 (being 1.25%); and the percentage of outbound M&A deals (i.e. 6.92%) increased by 1.49% from that of 2016 (being 5.43%) despite the perceived tightening of capital outfl ow control.

Signifi cant deals and highlights China Unicom’s mixed ownership reform According to the information disclosed by China United Network Communications Limited (“China Unicom”),2 China Unicom has issued a limited number of 9.037 billion shares to its strategic investors, and the funds so raised represented no more than RMB61.725 billion. The Unicom Group, i.e. China Unicom’s shareholder, transferred 1.9 billion shares at a total consideration of RMB12.975 billion to China Structural Reform Fund Corporation Limited, while China Unicom granted up to 848 million restricted shares to its employees. As calculated based upon the upper limit of this issuance, after the completion, Unicom Group shall hold 36.67% shares while the other strategic investors, including China Life, Cinda and Baidu Penghuan, shall hold collectively 35.19% shares, causing a more diversifi ed mixed ownership equity structure of China Unicom. As a pilot listed company undergoing the Reform, China Unicom’s reform scheme may serve as a reference for other listed companies controlled by the State. Metro ends the battle between Baoneng and According to the public information disclosed by China Vanke Co., Ltd. (“Vanke”),3 this deal consists of two steps, i.e.: Shenzhen Metro’s acquisition of approximately 15.31% of

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Vanke shares from Co., Ltd. and Zhongrun Domestic Trading Co., Ltd. at a total consideration of RMB37,171,195,974.00; and Shenzhen Metro’s acquisition of approximately 14.07% of Vanke shares from and its affi liated company at a total consideration of RMB29,200,366,311.20. After completion, Shenzhen Metro would directly hold 29.38% of Vanke shares, becoming the largest shareholder thereof. Therefore, the battle between Baoneng Group and Vanke, which lasted for two years, ended by virtue of Shenzhen Metro being the largest shareholder, and Vanke is now gradually resuming its normal operations. At its height, the tussle between the enterprise administration vs. capital, as witnessed via this classic battle, drew much attention and discussion not just from market players, but the market capital regulators, to a signifi cant extent. 360 Software back to China A-share market According to the information disclosed by SJEC Corporation (“SJEC”),4 this deal consists of the sale of material assets, replacement of material assets and purchase of assets by issuing shares. After the completion of the deal, 360 Software is now listed on A-Share market by way of replacement of assets between its shareholder and SJEC, and SJEC has since changed its name in 2018. As one of the internet technology companies that has chosen to list abroad, 360 Software’s re-listing on the A-share market serves as a positive example for the return of those IT-related companies listed abroad wishing to return to China’s domestic listing. It also served to restore investors’ confi dence in, especially, the A-share market, and provides a highly appealing option for enterprises in their fi nancing strategy. Didi Chuxing acquires subsequent fi nancing According to data released by Mergermarket,5 Didi Chuxing, the leading car-sharing service provider in the China market, acquired a round of fi nancing valued at US$5.5 billion in April 2017, with investors such as Soft Bank, Silver Lake, Bank of Communications and China Merchants Bank. It is noteworthy that the year 2015 recently witnessed the merger of Didi and Kuaiche, the two largest service providers in the car-sharing market. Didi Chuxing has acquired several rounds of fi nancing since then;6 it is now taking a leading position in this industry. However, it still faces many challenges, including how to deal with the relationship between the investors, and that between the investors and the company.

Key developments In respect of M&A involving listed companies, in order to support the amended Administrative Measures on Material Asset Restructuring of Listed Companies, China Securities Regulatory Commission (“CSRC”) has amended the Implementation Regulations for Private Offering of Shares of Listed Companies and the Standards on Contents and Formats of Information Disclosure by Companies Publicly Offering Securities No.26 − Material Asset Restructuring of Listed Companies, which to some extent enhances regulatory constraints over all parties to the deal, from multiple angles. With respect to reforms of state-owned assets and enterprises, since the release of the Guiding Opinions of the Central Committee of the Communist Party of China and the State Council on Deepening State-Owned Enterprise Reform, Opinions of the State Council on Developing the Mixed-Ownership Economy by State-owned Enterprises and other documents, from 2016 to 2017, local governments throughout China have promulgated opinions one after another to support and promote the mixed-ownership reform of state-owned enterprises (the “Reform”). For example, the People’s Government of Municipality released its Implementation Opinion on Development of Mixed-Ownership Economy by Municipal State- owned Enterprises in August 2016, and the People’s Government of Chengdu Municipality

GLI - Mergers & Acquisitions 2018, Seventh Edition 62 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Grandall Law Firm China released the Opinion of the People’s Government of Chengdu Municipality on Development of Mixed-Ownership Economy by Municipal State-owned Enterprises in March 2017, etc. In respect of regulations relating to foreign investment, the National Development and Reform Commission (“NDRC”) and the Ministry of Commerce amended the Catalogue of Industries for Guiding Foreign Investment, whereby the scope of industries encouraged for foreign investment has been further expanded and relaxed, and 30 entries have been removed from those industries restricted from foreign investments. As can be seen from this, China is further opening its market to the world in a highly positive direction. The Administrative Measures for Outbound Investment by Enterprises, which was released by the NDRC on 26 December 2017, and came into force on 1 March 2018, has a great adjustment to the administration of outbound investment, whereby the scope of projects subject to administration by record-fi ling has been extended to non-sensitive projects directly carried out by investors. Meanwhile, the Catalog of Sensitive Sector for Outbound Investment (2018 Edition) issued by the NDRC on 1 March 2018 has classifi ed certain sectors as sensitive industries for outbound investment; this includes the real estate industry, hospitality industry, cinemas, entertainment industry, sports clubs, and equity investment funds or investment platforms that are established in foreign countries or regions not for specifi c industrial projects. Whether the said changes to the outbound investment policies will cause a positive or negative impact on China’s outbound M&A deals in 2018 is yet to be seen.

Industry sector focus The year 2017 has witnessed continued activity in the industry of Technology, Media, and Telecom (“TMT”), with a leading position in M&A rankings in terms of number of deals and monetary value. In addition to M&A transactions concerning China Unicom, 360 Technology and Didi Chuxing, Mobike (bike sharing), Ele (online meal ordering), and Toutiao (internet news media) have all undergone several rounds of fi nancing, accounting for a substantial market share in China M&A transactions. Of late, China’s real estate industry has witnessed a large surplus in many cities, after years of vigorous development. With several rounds of restrictions launched by governments targeting property companies’ fi nancing, development qualifi cation and sales, etc., with the main objective to reduce the chances of a “bubble” in the real estate industry, generally, we have witnessed across the board a relatively great re-integration of the property sector in recent years, and the year 2017 is no exception. The ‘Top 10 M&A Deals in Asia Market (EX Japan) (for deal value)’ disclosed by Mergermarket7 has listed three deals from China, i.e.: Shenzhen Metro being the controlling shareholder of Vanke; the acquisition of a 91% stake in 13 companies and 76 city hotels8 of Dalian Wanda by a subsidiary of Sunac China Holdings Limited; and the capital increase into Evergrande Group by several strategic investors including Shenzhen Baoxin Investment Holding Co., Ltd.9

The year ahead Mixed-ownership reform of state-owned enterprises to be continued One of the highlights in the China M&A market in 2017 must be state-owned enterprises’ further promotion and implementation of the Reform. In addition to China Unicom’s reform as mentioned earlier, other cases in the pipeline would include the reforms of China Eastern Airline and Yunnan Baiyao. The mixed ownership reform will lead to a win-win

GLI - Mergers & Acquisitions 2018, Seventh Edition 63 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Grandall Law Firm China situation for state-owned enterprises, balance the relevant equity structure, and improve the governance system for legal persons with a modern enterprise management system. It is foreseeable that the Reform will be enhanced further in year 2018, based upon the successful experience learned from current cases and thus, there will be more and more mixed ownership reform cases, and the Reform will continue to play an important role in the development of the China M&A market. TMT remains active The year 2017 has witnessed continued activity in the TMT industry. It is easy to expect that such active development in the TMT industry will go further in the current climate, and its M&A deals will continue to play an important role in the China M&A market in 2018 and going forward in the next few years. It is noteworthy that most overseas-listed TMT companies have adopted a mode of back- door listing to return to the A-share market; however, the General Offi ce of the State Council released a notice regarding forwarding the CSRC’s Opinions on the Trial of Developing Innovative Enterprises’ Issue of Shares or Depository Receipts in China on 22 March 2018, whereby those pilot enterprises which meet relevant requirements (including red-chip enterprises) may list on the A-share market by means of applying for issuing shares or depository receipts in China. If the said opinions are implemented accordingly, the number of traditional back-door listings will likely drop. The acceleration of the opening-up of fi nancial industry Towards the later part of 2017, China announced that measures would be taken to raise foreign equity caps in the banking, securities and insurance industries. China will launch a number of landmark measures in 2018 to signifi cantly broaden its market access and accelerate the opening-up of fi nancial industry, ease restrictions on the establishment of foreign fi nancial institutions in China and expand their business scope. It is expected that there will be more M&A deals in China’s fi nancial sector. Real estate industry’s re-integration China’s real estate industry has witnessed a large number of surplus properties in many cities after years of vigorous development. With the government’s continuing control upon the real estate industry, it is expected that re-integration in the industry, and M&A deals in China’s real estate industry, in 2018 will go further.

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Endnotes 1. Data source: ChinaVenture Statistics: M&A Market Slightly Dropped in 2017, Cross- border M&A Increases by WANG, Yuejin, website link: www.chinaventure.com.cn/ cmsmodel/report/detail/1369.shtml. 2. Information source: http://www.sse.com.cn/home/search/?webswd=%E4%B8%AD%E 5%9B%BD%E8%81%94%E9%80%9A, announcements including the Announcement on China Unicom’s Mixed Ownership Reform issued on 21 August 2017. 3. Information source: http://disclosure.szse.cn/m/drgg_search.htm?secode=000002, Vanke A – Equity Change Report II dated 14 January 2017, and Vanke A – Equity Change Report dated 12 June 2017, and other announcements. 4. Information source: http://www.sse.com.cn/assortment/stock/list/info/announcement/ index.shtml?productId=601360, Report on SJEC’s Material Assets Sale, Replacement

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and Purchase of Assets by Issuing Shares (Draft) dated 3 November 2017 and other announcements. 5. Information source: http://www.mergermarket.com/info/mergermarket-envision/. 6. Information source: http://tech.sina.com.cn/roll/2017-12-21/doc-ifypxmsq8873580. shtml. 7. Information source: http://www.mergermarket.com/info/mergermarket-envision . 8. Information source: http://www.hkexnews.hk/listedco/listconews/advancedsearch/ search_active_main_c.aspx, Sunac China (1) Material Acquisition and (2) Shares Trading Resumption dated 11 July 2017 and other announcements. 9. Information source: http://www.hkexnews.hk/listedco/listconews/advancedsearch/ search_active_main_c.aspx, Evergrande China Further Capital Increase to Evergrande dated 13 June 2017.

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Jianjun (Charles) Guan Tel: +86 21 5234 1668 / Email: [email protected] Mr. Jianjun Guan (Charles) is the managing partner of Grandall Law Firm Shanghai offi ce. Mr. Guan is a graduate of East China University of Politics & Law, graduated with an LL.B. in 1992 and LL.M. in 1998. Charles’ practice areas include inbound and outbound investment, mergers & acquisitions and capital markets. He has been consistently honoured or ranked as a leading lawyer in relevant areas by Asia Legal Business, Chambers & Partners, IFLR1000, etc. Recent deals include: China’s three major exchanges’ joint purchase of shares of Pakistan Stock Exchange; outbound investment in Europe by Jinjiang International Group; privatisation and acquisition of Giant Interactive Group, etc. Some of his notable clients include: China Eastern Airlines, Jinjiang International Group, Giant Interactive Group, China Financial Futures Exchange, SAIC Motor Corporation Limited, etc.

Will Fung Tel: +86 10 6589 0633 / Email: [email protected] Mr. Will Fung is a Senior Foreign Counsel of Grandall Law Firm, based in the Beijing offi ce. Mr. Fung is a graduate of University of Leeds Law School, who graduated with an LL.B. (Hons) in 1999. Mr. Fung advises clients on merger and acquisition transactions, corporate restructuring and joint-ventures in industries such as Media, Arts, Advertising & PR companies, Information Technology & Communications, Pharmaceutical & Petrochemicals, and Oil & Gas. Will has acted as leading counsel in several deals involving both inbound and outbound transactions. Deals that he has handled include: Zebra Technologies’ acquisition of Motorola Solutions Enterprise Business; the high- speed train bidding project of CSR Corporation Limited in South East Asia; the acquisition of Australia Mining Company by China Minmetals; exploration for oil & gas in Nigeria; outbound investment in Europe by CGNPC, etc. Some of his notable clients include: WeCapital, CRRC (previously CSR Corporation Limited (China)), CGN (China), China Minmetals (China), Zebra Technologies (USA), IVC Corporation (USA), Huntsworth PLC (UK), Pitney Bowes (USA/UK), PureCircle Limited (UK), MayAir Group PLC (UK), Omnilife (Mexico), Malaysia Airlines Berhad (Malaysia), Khazanah Nasional Berhad (Malaysia) and UMW Oil & Gas (Malaysia).

Grandall Law Firm www.grandall.com.cn

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Elias Neocleous & Demetris Roti Elias Neocleous & Co LLC

Overview According to the European Commission, in 2017 Cyprus was one of the fastest-growing economies in the euro area with a GDP growth of 3.8% (up from 2.9% in 20161). While growth is expected to moderate in 2018 and 2019, to 3.2% and 2.8% respectively, it is still above the average growth forecast of 2.3% and 2.0% respectively for both the euro area and the EU.2 The unemployment rate in Cyprus, which peaked at almost 18% in 2013 following the fi nancial crisis, fell substantially to 13% in 2016. The downward trend in the unemployment rate continued in 2017, as it fell below 11%. It is projected that by 2019 the unemployment rate will be around 9.3%, which is just over half the rate for 2013. Infl ation showed a slight increase in 2017, reaching an annual level of just under 1%. It is forecast to slowly increase to 2% by 2022.3 Taking into account the percentage at which infl ation stands, the increase is considered a positive sign – and moving away from defl ation territory, with its adverse consequences. The infl ation fi gures are within the parameters set by the ECB, which aims at infl ation rates of below, but close to, 2% over the medium term in order to maintain price stability according to the primary objective of the ECB’s monetary policy.4 The recapitalisation of the systemic banks in Cyprus, upgrades by the independent credit rating agencies, and bond issues raising more than €3 billion, all contributed to the 9.1% increase in foreign direct investment (“FDI”) in Cyprus in 2016 compared with the previous year (the 2017 fi gures for 2017 are not yet available). Cyprus’s attractiveness as an international fi nancial centre was consolidated in 2004 when it became a member of the European Union (and subsequently became a core member when it joined the eurozone in January 2008). Cyprus is a common law jurisdiction, which makes it easy to structure and implement commercial contracts, fi nancing and collateral contracts and similar agreements in Cyprus in a way which is familiar to fi nanciers and their advisors. Most such agreements involving international business in Cyprus are governed by English law. In addition, being a member of the EU, Cyprus has aligned its laws with the relevant directives and regulations of the EU regarding M&A. Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids (“the Takeover Directive”), was transposed into Cyprus law by the Public Takeover for the Acquisition of Shares in a Company and Related Matters Law, Law 41(I) of 2007 on takeover bids (as amended from time to time) (“the Takeover Bids Law”). The Takeover Bids Law is complemented by directives issued by the Cyprus Securities and Exchange Commission (“CySEC”).

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The Companies Law, Cap. 113, which dates back to the colonial era, but which has been amended to align it with EU law, provides for various methods of acquisition, mergers, schemes of arrangement and compulsory acquisitions of minority shareholdings (“squeeze out” provisions). The Companies Law is aligned with Directive 2005/56/EC of the European Parliament and of the Council of 26 October 2005 on cross-border mergers of limited liability companies. According to section 201(I) of the Companies Law, Cap 113, “merger” means an operation whereby: (a) one or more companies, on being dissolved without going into liquidation, transfer all their assets and liabilities to another existing company, the acquiring company, in exchange for the issue to their members of securities or shares representing the capital of that other company and, if applicable, a cash payment not exceeding 10% of the nominal value, or, in the absence of a nominal value, of the accounting par value of those securities or shares; or (b) two or more companies, on being dissolved without going into liquidation, transfer all their assets and liabilities to a company that they form, the new company, in exchange for the issue to their members of securities or shares representing the capital of that new company and, if applicable, a cash payment not exceeding 10% of the nominal value, or in the absence of a nominal value, of the accounting par value of those securities or shares; or (c) a company, on being dissolved without going into liquidation, transfers all its assets and liabilities to the company holding all the securities or shares representing its capital. In addition, the following statutory provisions are also important in regulating M&A transactions in Cyprus: • The Cyprus Stock Exchange Law, Law 14(I) of 1993 (as amended from time to time), which sets out detailed disclosure requirements in respect of certain interests in shares. • The Market Abuse Law, 102(I) of 2016. • The Transparency Requirements (Securities Admitted to Trading on a Regulated Market) Law, 190(I) of 2007, on transparency requirements in relation to information concerning issuers whose securities are admitted to trading on a regulated market.

Signifi cant deals and highlights The number and value of Cyprus domestic mergers and acquisitions are much smaller than those of international M&A transactions involving Cyprus entities, refl ecting the fact that Cyprus is geared towards international M&A activity and restructurings. For example, a transaction completed in 2017, in which the authors were involved, namely the US$12.9 billion acquisition of India’s Essar Oil Ltd by a consortium including Trafi gura, one of the largest physical commodities trading groups in the world, UCP Investment Group, an independent, private investment group and Rosneft, the leader of Russia’s petroleum industry, was carried out using Cyprus corporate vehicles. The Trafi gura-UCP consortium and Rosneft each acquired a 49.13% stake in Essar, via the Cyprus companies Kesani Enterprises Company Limited and Kesani Holdings Limited, with the remaining 1.74% of Essar’s share capital remaining in the hands of retail shareholders. The transaction is India’s largest ever FDI transaction. Nevertheless, there is a signifi cant level of domestic M&A activity, some of it arising from privatisations which the Cyprus government is promoting and which fl ow from consolidation in the various sectors of Cyprus industry (notably the hotels industry). The following are some notable M&A transactions in Cyprus for 2017:

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1. Acquisition in January 2017 by Eurogate Container Terminal Limassol Ltd of the operation of the Limassol port, which is Cyprus’s principal port, handling 90% of imports and exports in terms of volumes of containers. The transaction involved EUROGATE International GmbH, Interorient Navigation Co. Ltd and East Med Holdings S.A.5 This deal followed the 25-year concession granted by the government of the Republic of Cyprus to DP World Limassol (which is part of the Dubai-based port and terminal operator6). 2. Acquisition of part of the share capital of Athiari Commercial (Paphos) Ltd by Philelia Ltd. The transaction involved the Kings Avenue Mall, the biggest shopping mall in Paphos, with 100,000 square metres of indoor space.7 3. Merger creating a joint venture under the name of VLPG PLANT LTD, which will engage in the construction and operation of the installation, storage and management of LPG on an industrial site within the Vassilikos industrial zone by the companies Hellenic Petroleum Cyprus Ltd, Petrolina Holdings (Public) Ltd, Synergas Cooperative Society and Intergaz Ltd. The Commission for the Protection of Competition originally gave its consent to the merger subject to specifi ed conditions but, following the withdrawal of Hellenic Petroleum Cyprus Ltd, the competition authority is reviewing the proposal again. 4. Acquisition of part of the share capital of Neurosoft AE by OPAP SA, via OPAP Investment Ltd for the sum of €34.2 million.8 5. Acquisition of the share capital of Kalisee Ltd by Hellenic Bank Public Company Ltd and APS Recovery Cyprus Ltd for the sum of €20.6 million. In addition, Hellenic Bank Public Company Ltd sold its non-performing loan portfolio and real estate management business to APS Debt Servicing Cyprus Ltd. APS Debt Servicing Cyprus Ltd manages NPLs of approximately €2.3 billion and real estate assets with a value of approximately €150 million.9 6. Takeover in 2017 of A&P (Andreou & Paraskevaides) Enterprises Public Company Limited by A&P (Andreou & Paraskevaides) Investments Ltd.10 7. Galileo Global Education, a company under the umbrella of Providence Equity, a leading global asset management fi rm, acquired three institutions in Italy and Cyprus from Laureate Education, Inc., the world’s largest global network of higher education institutions. The €225 million deal involved the European University Cyprus and affi liated Cyprus entities and higher educational institutions.11 8. Acquisition in March 2017 of the Cypria Maris, Cypria Bay and Laura hotels in Paphos by Fattal Hotels in a joint transaction with a subsidiary of Issta Lines, ’s largest tourist company. The €80 million deal was fi nanced by Phoenix Insurance Company Limited.12

Key developments MiFID II On 7 July 2017, Law 87(I)/2017 was published in the Offi cial Gazette of Cyprus, transposing the revised European Union Markets in Financial Instruments Directive (MiFID II) into Cyprus law. The new law, which applies from 3 January 2018, introduces signifi cant changes to the Investment Services and Activities and Regulated Markets Law of 2007 to 2016. The original Markets in Financial Instruments Directive, commonly known as MiFID, has

GLI - Mergers & Acquisitions 2018, Seventh Edition 69 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Elias Neocleous & Co LLC Cyprus been in force in Cyprus since November 2007, bringing Cyprus within the European legal framework regulating the provision of investment services within the European Economic Area. The principal aim of the previous legislation was to create a single market for investment services and activities and to ensure a uniformly high degree of protection for investors in fi nancial instruments throughout the single market. The 2008 fi nancial crisis revealed shortfalls in the regulatory regime and showed the need for increased transparency, better protection for investors, examination of unregulated areas and provision of adequate powers to supervisors. The changes introduced by MiFID II, which are refl ected in the new law, include the following: • Extension of the scope of application of the law to include new fi nancial instruments, such as emissions allowances and new investment products such as structured deposits. • Widening of the categories of persons subject to authorisation and regulation requirements, such as persons dealing on their own account or those applying high- frequency algorithmic trading techniques. • Redefi nition of the current exemptions under MiFID I and the introduction of new exemptions. • Introduction of a new concept of management body, and strengthening of corporate governance requirements. • More rigorous conduct-of-business rules, including the introduction of an extended scope for the appropriateness test and enhanced information to clients. • New transparency requirements, which will apply to a broader range of trading venues than previously. There are signifi cant penalties for breach of the new law, and businesses potentially falling within its scope should seek professional advice in order to ensure that they comply with their obligations. The Cyprus Securities and Exchange Commission, as the competent regulatory body, is expected to issue secondary and implementing legislation in line with the relevant EU authorities. Competition law Competition law issues have to be taken account of from the outset to avoid penalties or, at worst, the transaction falling through. As noted earlier, the Commission for the Protection of Competition is the national competition authority, and the Cyprus competition and merger regime is fully aligned with EU norms. Most recently, Law 113(I)/2017, the Actions for Damages for Infringements of Competition Law of 2017, which was published in the Offi cial Gazette on 21 July 2017, transposes Directive 2014/104/EU into Cyprus law. The new law provides rules to ensure that any physical or legal person or public authority who has suffered damage as a result of infringement of the competition law by an undertaking or association of undertakings can effectively claim compensation against those undertakings. It establishes rules concerning the disclosure of evidence, whether this is in the possession of the parties or any third parties or included in the fi le of the national competition authority. There are limits on the use of evidence obtained solely through access to the fi le of a competition authority relating to leniency statements and settlement submissions. The courts are given the power to impose a fi ne of up to €250,000, imprisonment for up to six months or both on the parties, any third parties or their legal representatives for a range of misdemeanours including:

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(a) failure or refusal to comply with a disclosure order of the court; (b) destruction of relevant evidence; (c) failure or refusal to comply with the obligations imposed by an order of the court protecting confi dential information; and (d) infringement of the limits on the use of evidence. In addition, the new law lays down rules on the liability of undertakings or associations of undertakings which have infringed competition law in relation to the damage suffered. It also gives an ‘indirect purchaser’ the right to claim compensation against an infringer of the competition law. An ‘indirect purchaser’ is anyone who indirectly (for example, via an intermediary) acquired products or services that were the object of an infringement of competition law, or products or services containing them or deriving from them, rather than acquiring them directly from the infringer. The law provides that compensation for damage can be claimed irrespective of whether the claimant is a direct or indirect purchaser from an infringer. Compensation is limited to the damage caused by the infringement. In order to avoid claims for excessive compensation, defendants in an action for damages for infringement of competition law may raise a defence that they have passed on the overcharge resulting from the infringement, either wholly or in part. This means that the amount of compensation to be awarded depends on whether or to what degree an overcharge was passed on to the claimant, taking into account the commercial practice that price increases are passed on down the supply chain. The limitation period for actions under the new law is six years. The limitation period may be suspended while the competition authority takes action for the purpose of investigation. Final decisions of the national competition authority or of the administrative court are deemed to be an irrefutable presumption in proceedings under the law, while a fi nal decision of a foreign member state is prima facie evidence of infringement of competition law, which may be assessed on a case-by-case basis in the light of any other evidence produced by the parties. Market Abuse Law The Market Abuse Law of 2016, which was enacted towards the end of 2016, repealed and replaced in its entirety the Inside Information and Manipulation of the Market (Abuse of the Market) Law, Law 116(I) of 2005, on the rules for the prevention of insider dealing and market manipulation in both regulated and unregulated markets. The new law brought the Cyprus legislation fully in line with Regulation (EU) 596/2014.

Industry sector focus Following the bail-in under the Resolution of Credit and Other Institutions Law (17(I)/2013) involving Cyprus Popular Bank Public Co Ltd and the transfer of certain of its assets to the Bank of Cyprus Public Company Limited, the increase of legislative and regulatory activity in Cyprus and at EU level (including the Bank Recovery and Resolution Directive 2014/59)13 has contributed to further M&A activity in the banking sector in Cyprus.14 This trend is likely to continue in 2018, with negotiations currently in progress for the sale of the Cooperative Central Bank Ltd of Cyprus.15

The year ahead Given the importance of the historic economic and legal ties between Cyprus and the United Kingdom, there is a concern that M&A activity (especially international M&A involving

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Cypriot entities) may be negatively affected by Brexit, especially if a ‘hard Brexit’ takes place.16 However, in times of economic turbulence, some assets may become more attractive and companies may have to amalgamate, which may give rise to more M&A activity. Most of the international M&A deals involving Cypriot entities are governed by English law. Regulation (EU) 1215/2012 of the European Parliament and of the Council on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast) currently regulates jurisdiction and the recognition and enforcement of judgments between EU member states. It has direct effect in Cyprus and in other member states including the UK (only is outside its geographic scope). Unless Brexit is reversed or if some form of soft Brexit is agreed upon, the UK will leave the EU in the next year or so and the regulation will no longer apply in the UK, with the consequence that judgments delivered in UK courts will no longer be recognised automatically and enforceable in other EU member states under the regulation. However, under separate laws, Cyprus has reciprocal arrangements with the UK, British dominions, protectorates and mandated territories and certain other foreign countries for recognition and enforcement of judgments. In common law, a foreign judgment is recognised when the Cyprus court concludes that a particular claim has already been adjudicated and determined once and for all by the foreign court. Therefore, Cyprus is in the advantageous position of being able to rely on the reciprocal arrangements on the one hand, and the recast Brussels Regulation on the other. Together with the excellent legal, accounting and banking services and the most competitive tax regime in the EU, combined with an attractive tax treaty network, this gives Cyprus a signifi cant advantage over other EU members post-Brexit. In addition, the discovery of new fi elds of hydrocarbons in Cyprus’ exclusive economic zone, the ongoing exploration efforts by international blue-chip conglomerates such as ENI, Total and ExxonMobil, and the possible synergies between inter alia Cyprus, Israel, Egypt and/or Lebanon, are likely to offer signifi cant M&A opportunities.

* * *

Endnotes 1. https://ec.europa.eu/info/business-economy-euro/economic-performance-and- forecasts/economic-performance-country/cyprus/economic-forecast-cyprus_en. 2. https://ec.europa.eu/info/business-economy-euro/economic-performance-and- forecasts/economic-forecasts/winter-2018-economic-forecast_en. 3. https://www.statista.com/statistics/382109/infl ation-rate-in-cyprus/. 4. https://www.ecb.europa.eu/mopo/html/index.en.html. 5. http://www1.eurogate.de/en/Terminals/Limassol. 6. http://www.dpworldlimassol.com/. 7. http://archive.inbusinessnews.com/inbusiness/news/business/retail/h-nea-metoxikh- domh-toy-king%E2%80%99s-avenue-mall. 8. http://www.capital.gr/xrim-anakoinoseis/3230865/opap-neurosoft-a-e-auxisi- summetoxis-tou-opap-kata-pososto-38-19. 9. http://global.aps-holding.com/2017/07/03/aps-spravuje-nesplacene-kyperske- pohledavky-za-24-miliardy-eur/. 10. http://www.ape.com.cy/gr/investor/an-195.pdf. 11. https://thepienews.com/news/galileo-global-education-acquires-three-schools/.

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12. https://www.neo.law/2017/07/07/acquisition-fi nance-purchase-cypria-maris-cypria- bay-laura-hotels-paphos/. 13. https://www.globalbankingandfinance.com/bailing-in-depositors-lessons-from- cyprus/. 14. http://cyprustimes.com/2017/03/16/dynamiko-entry-tis-trapezas-pireos-kyprou-sti- diekdikisi-tis-ethnikis-trapezas-ellados-stin-kypro/. 15. http://cyprus-mail.com/2018/03/20/investment-not-sale-co-op/. 16. https://www.gov.uk/government/publications/exporting-to-cyprus/exporting-to- cyprus.

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Elias Neocleous Tel: +357 251 10110 / Email: elias.neocleou [email protected] Elias graduated in law from Oxford University in 1991 and is a barrister of the Inner Temple. He was admitted to the Cyprus Bar in 1993. He is managing partner of Elias Neocleous & Co LLC, and heads the fi rm’s corporate and commercial department as well as the specialist banking and fi nance, tax and company management groups. His main areas of practice are banking and fi nance, company matters, international trade, intellectual property, trusts and estate planning and tax. Elias has extensive experience in providing international businesses with advice at the highest level. The Legal 500 describes Elias as ‘consummate professional’ who is ‘at the top of his game’. Elias speaks Greek, English and Spanish, and has numerous publications to his credit in the fi elds of corporate, taxation and trusts law.

Demetris Roti Tel: +357 251 10161 / Email: [email protected] Demetris is a partner in Elias Neocleous & Co LLC, specialising in corporate, M&A and banking and fi nance work. He graduated in law from the University of Manchester in 2005. Having initially worked in the City of London, he moved to Cyprus in 2009. Demetris has extensive experience in corporate and commercial law, capital markets, mergers and acquisitions and banking and fi nance. He has acted in numerous multi-billion transactions on behalf of international businesses, institutional fi nanciers, credit agencies and commercial and development banks and is a member of the private companies committee of the Cyprus Bar Association. The Legal 500 recognises Demetris as one of the ‘next generation lawyers’ in Cyprus for commercial, corporate and M&A, quoting reports from clients that he ‘makes sure that the service the client receives is always excellent’.

Elias Neocleous & Co LLC Neocleous House, 195 Makarios III Avenue, 1-5th, Limassol, CY-3030 Cyprus Tel: +357 251 10110 / URL: www.neo.law

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Coralie Oger FTPA

Overview Among the last 10 years, 2017 recorded the highest level of mergers and acquisitions (“M&A”) deals in France, amounting to $245.8 billion (€205 billion). This fi gure contrasts with a mitigated 2016 fi nancial year, marked by the failure of several major deals in France, among them the acquisition of SFR by Altice. France benefi ted from both domestic and international factors that strengthened the attractiveness of the French market and boosted French actors’ confi dence. Indeed, according to Thomson Reuters, worldwide M&A activity amounted to $3.6 trillion during full year 2017. Therefore, 2017 was the fourth consecutive year to surpass $3 trillion. While worldwide deal-making remained stable, the distribution between different areas changed signifi cantly. Whereas M&A activity for European targets amounted to $867.5 billion (an increase of 17% compared to 2016), United States M&A decreased by 16% compared to the previous year, with $1.4 trillion in announced deals during 2017. Overall, 49,448 worldwide deals were announced during 2017, which represents a 3% increase compared to the previous year. 2017 was the strongest year for M&A since records began in 1980. Back to France, in 2017, M&A activity increased strongly to 50%, to reach an amount of $245.8 billion (€205 billion), whereas in 2015, the volume of transactions amounted to $155.7 billion (€148.5 billion). French companies have been on the offensive. France was the driving force behind M&A activity in Europe, accounting for nearly 29% of European transactions, compared to the usual 15%. Cross-border transactions made by French actors almost tripled in 2017 (an increase of 180%), as illustrated by several examples developed hereunder. On the one hand, the French leveraged buy-out (“LBO”) market increased by 13.3% during full year 2017 compared to 2016, with 315 transactions. This fi gure highlights the good health of French LBO market. Moreover, according to the “Global Private Equity Barometer” published in 2018 by Coller Capital, two-fi fths of European LPs believe that the UK is becoming a less attractive market for buyouts. Concurrently, a similar proportion of LPs believe France is becoming a more attractive market. Eight large cap (over €1 billion) LBO transactions were recorded in 2017, which is far higher than the previous year (three large cap LBO transactions in 2016). The biggest LBO transaction that took place in France last year was the acquisition of DOMUSVI by ICG and its founder Yves Journel, for a total amount of €2.3 billion.

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On the other hand, the French initial public offering (“IPO”) market remained quite stable in 2017, with €2.43 billion raised. However, transactions operated on Euronext’s Compartment A drove the market. For instance, ALD Automotive, a Société Générale subsidiary, went public in 2017 and raised €1.15 billion. We anticipate that the trend towards a strong French M&A market will continue in 2018, and that the French market will remain at a high level, with 2018 a more stable year.

Signifi cant deals and highlights Acquisitions of non-listed companies by French actors in 2017 • 2017, a busy year for Total First, Total achieved external growth by acquiring the Danish exploration/production company Maersk Oil & Gas for a total amount of €6.33 billion. The deal was fi nanced through Total’s shares up to €4.95 billion and debt assumption up to €2.5 billion. The transaction was signed on August 21st, 2017. It is expected to procure more market share for Total and allow the group to consolidate its position. Second, Total was also involved in another deal with Engie, by acquiring its liquefi ed natural gas portfolio. By doing so, Total became world number two in the liquefi ed natural gas sector. The closing of this deal, amounting to €1.49 billion, should take place mid-2018. • Suez joins forces with Caisse de dépôt et placement du Québec and acquires GE Water The French world number two in the water and wastes sector acquired its American competitor GE Water (the “water” subsidiary of the American giant General Electric) for a total value of €3.2 billion, through a 70% / 30% partnership with Caisse de dépôt et placement du Québec. The transaction was closed in October 2017. • Acquisition of General Motors’ activities in Europe by PSA Opel, and Vauxhall, both owned by the American General Motors, were acquired in 2017 by the French group PSA for a global amount of €1.3 billion. The latter became consequently European number two in the car sector, with 17% of market share. This acquisition was fi nanced in cash up to €670 million and through the issuance of share warrants to the benefi t of General Motors up to €650 million. The closing took place during summer 2017. • Other signifi cant non-listed companies acquired by French actors On the one hand, French actors acquired several companies in the United States. Altran acquired (an American engineering and design company) for a total value of €1.7 billion. This deal should close before summer 2018. Moreover, another French giant crossed the ocean last year. In January 2017, L’Oréal completed its biggest deal since 2008 with the acquisition of three personal care brands from the Canadian Valeant, for a total value of €1.2 billion. These brands, CeraVe, AcneFree and Ambi, enable L’Oréal to enhance its leading position in the US. On the other hand, French actors were also very active in Europe. For instance, Xavier Niel announced in 2017 the acquisition, through its company NJJ Capital, of the Irish telecommunications provider, Eir, for a global amount of €3.5 billion. The transaction is expected to be closed in 2018. Another example is the acquisition by , the French “integrated payment solution” global leader, of its Swedish competitor Bambora.

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Public offers involving at least one French party in 2017 • Acquisition of The WhiteWave Foods by Danone Danone, the French food giant, announced in July 2016, its merger with the American The WhiteWave Foods for €11.7 billion. The deal was delayed due to a decision of the American Anti-Trust authorities requesting Danone to sell its American subsidiary Stonyfi eld, which has the same activity as The WhiteWave Foods (organic milk manufacturers). After the commitment by Danone to sell Stonyfi eld, the deal received the approval of the U.S. District Court for the District of Columbia, and was completed in April 2017. Due to this transaction, Danone becomes the organic milk global leader and consolidates its leadership in the organic dairy manufacture. In July 2017, following its commitment, Danone sold Stonyfi eld to Lactalis, which offered €769 million. • Merger between the French Essilor and the Italian Luxottica We mentioned last year the merger between two giants operating in the optical sector, the French company, Essilor and the Italian company, Luxottica. This merger will lead to the setting-up of a key actor in the optical sector. European and American competition authorities gave their approvals to the transaction at the beginning of 2018. Consequently, closing should take place mid-2018. This merger will give birth to a new French group with a market capitalisation of around €46 billion. • Merger between Siemens and Alstom Two major European groups, Siemens and Alstom, announced last year the merger of their railway activities through the capital contribution of Siemens’ rail activity to Alstom. The new entity, Siemens Alstom, will be quoted on the Paris stock exchange. The said merger is expected to be completed by the end of 2018. The transaction will give birth to a new giant in the railway sector, right behind the Chinese group, CRRC. • Other major deals in which the target was listed French actors have been active abroad; but French companies were also prime targets for overseas investors. Aveva, the British software publisher, announced in 2017 its merger with the French company Schneider Electric Software. The new entity, listed on the , is valued at over €3 billion. L’Oréal also sold its brand The Body Shop to the Brazilian Natura Cosméticos, which offered €1 billion for this acquisition.

Key developments Labour law reform After his election, the French President, Emmanuel Macron, announced a French labour law reform, in order to increase France’s economic attractiveness and competitiveness. Five Orders were adopted on September 22nd, 2017, in order to reform the French Labour Code: • Order n°2017-1385 on strengthening collective bargaining;

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• Order n°2017-1386 on the new organisation of social and economic dialogue within the company and promoting the exercise and enhancement of trade union responsibilities; • Order n°2017-1387 on the predictability and security of industrial relations; • Order n°2017-1388 on various measures relating to the collective bargaining framework; and • Order n°2017-1389 on prevention and taking into account the effects of exposure to certain occupational risk factors and the professional account of prevention. The measures adopted by these orders entered into force the day after the publication of each Decree, which were adopted between October and December 2017. The orders were also recently ratifi ed by the law n°2018-217 of March 29th, 2018. Termination of employment Dismissal procedure: • The right for the employer to supplement the grounds stated on the dismissal letter: Before the reform, the French Labour Court could only take into consideration the grounds given in the dismissal letter. Employers now have the possibility to complete the dismissal letter even after it has been notifi ed to the employee. Nevertheless, the employer is not allowed to add new grounds but only supplement the grounds that have already been set out in the letter. • Restriction of the scope of assessment of the economic cause in case of economic dismissal: The scope of assessment of the economic cause of the redundancy (economic diffi culties, technological changes or the need to safeguard the company’s competitiveness) in companies belonging to a group, currently assessed at international level, would now be assessed at the level of the sector of activity common to that company and to the companies of the group to which it belongs, established on national territory, except in the case of fraud. This restriction to French territory facilitates the justifi cation of redundancies. • Simplifi cation of the redeployment obligation: After dismissing an employee, companies have to make an effort to redeploy the employee within the company or its group. If the group has an international activity, the employer had to, before the reform, offer redeployment for positions abroad. With the reform, this obligation of redeployment is now limited to positions available within the French territory. • Reduction of the time limitation to challenge the termination of an employment contract: Prior to the reform, employees had a period of two years from the notifi cation of the termination of the employment contract to challenge such decision. Now, this period has been reduced from two years to one year from the notifi cation of the termination of the employment contract. Financial consequences of unfair dismissals: • Implementation of a mandatory matrix of compensation for unfair dismissals: The amount of compensation granted by the judge to an employee who has suffered unfair dismissal, has to comply with a mandatory matrix setting a minimum and maximum amount, depending on the seniority of the employee and the company’s size. This matrix is not applicable in the event where the dismissal is ruled null and void, such as in case of violation of a specifi c protection or fundamental freedom. No maximum amount is provided in such case.

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The amount of damages shall be determined as follows: For companies with less than 11 employees: • Minimum amount of damages: 0.5 month of gross salary (as from one year of seniority). • Maximum amount of damages: 2.5 months of gross salary (as from nine years of seniority). For companies with at least 11 employees: • Minimum amount of damages: one month of gross salary (as from one year of seniority). • Maximum amount of damages: 20 months of gross salary (as from 29 years of seniority). • Easing the conditions for granting severance indemnities: The length of service required for an employee under a permanent employment contract to be entitled to the legal dismissal indemnity, is eight uninterrupted months in the company, instead of one year before the reform. The severance indemnity amounts to 25% (instead of 20% before the reform) of the employee’s average monthly gross salary for the fi rst 10 years of service. For 10 years and beyond, the severance indemnity has not changed and remains equal to ⅓ of the employee’s average monthly gross salary. Voluntary departure plans: • The voluntary departure plan is a new scheme proposed by the reform and aims to avoid the burden of collective redundancy. Employees can now apply for a voluntary departure plan, which is a collective agreement defi ning the conditions to implement a mutual termination plan, excluding the obligation for the employer to offer redeployment leave. Furthermore, the employer does not need to provide a valid economic justifi cation. Nonetheless, employers have to inform the Labour authority of their intention to implement a voluntary departure plan. Fixed term contracts and temporary work Industry-wide agreements relating to fi xed-term contracts and temporary work can be adopted and fi x rules differing from the legal provisions. These industry-wide agreements may fi x the maximum duration of the contract, the maximum number of renewals and the necessary waiting period between two successive contracts. If no industry-wide agreement is adopted, the legal provisions shall apply. Also, from September 24th, 2017, if the employer provides the employee an employment contract or placement contract after the required timeframe, the sanction is now only a penalty of a maximum of one month’s gross salary, whereas before the reform, the contract was automatically qualifi ed as an indefi nite-term employment contract. Simplifi cation of the social dialogue The reform merged the three employee representation bodies: the Staff Delegates (“délégués du personnel”), the Works Council (“Comité d’entreprise”) and the Health and Safety Committee (“CHSCT”) within one representative body called the Social and Economic Committee (“comité social et économique”) which will have to be set up on January 1st, 2020 at the latest. The implementation of such committee is mandatory for companies having more than 11 employees for an uninterrupted period of 12 months. Strengthening of collective bargaining • Negotiation in companies deprived of trade union representatives: since few companies have trade union representatives, the reform aims to fi nd solutions for companies that do not have any trade union representatives:

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• Companies having less than 11 employees: in this case, the employee may submit for the employees’ approval a draft agreement covering all subjects open to collective bargaining. • Companies having from 11 to 49 employees: in this case, employers have two options: (i) agreements at company or establishment level may be negotiated with employees mandated by the trade union at industry or national level and shall be approved by the majority of employees, in the absence of the Social and Economic Committee; or (ii) the agreement may be negotiated by the members of the Social and Economic Committee and shall be approved by the members of the Social and Economic Committee representing the majority of the votes cast on the occasion of the latest professional elections. • Strengthening the company-level agreement: the reform reorganises how company and industry-level agreements interact and strengthens the importance of company- level agreements. In some areas, such as minimum wage and job classifi cation, industry-level agreements prevail over company-level agreements, unless the company-level agreements may be considered as providing equal benefi ts. In other areas, such as the prevention of hardship in the workplace, a company-level agreement providing less favourable provisions prevails if it is subsequent to industry-level agreement, unless the latter expressly provided otherwise. Finally, concerning other subjects, such as notice period or 13th month bonus, for example, a company-level agreement providing less favourable provisions prevails over industry agreements, disregarding the fact that it is prior or subsequent to the latter. Decision-making and participation of shareholders After the law n°2016-1691 of December 9th, 2016, an order was adopted in order to clarify the latter and also make signifi cant amendments to several articles of the French Commercial Code. These modifi cations mainly concern limited liability companies (French “SARL”), and intend to simplify decision-making and the shareholders’ participation within the company. The main modifi cations are: • Article L.223-27 of the French Commercial Code, concerning the French SARL, gives the right, for one or more shareholders holding 5% of the company’s share capital, to include resolutions during the annual shareholders’ meeting. • Article L.225-103-1 of the French Commercial Code, concerning the French unlisted “SA”, introduces the possibility to provide in the company’s by-laws that shareholders’ meetings can be held exclusively by means of videoconference. However, this article also provides that shareholders holding more than 5% of the share capital have the possibility, for each shareholders’ meeting, to refuse the use of videoconference. • Article L.225-10 of the French Commercial Code, concerning the French “SASU”, simplifi es the scheme of the regulated agreements between the SASU and its sole shareholder or its controlling company. If the sole shareholder is a company, the regulated agreements are no longer subject to the establishment of the auditor’s report but shall only be mentioned in the book of the shareholders’ decisions. • Article L.227-19 of the French Commercial Code, concerning the French “SAS”, provides that the modifi cation or the adoption of by-laws requiring the prior approval of the shareholders in case of share transfer, is no longer subject to a unanimous

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decision of the shareholders but to a decision of the shareholders, in compliance with the conditions provided in the by-laws. Blockchain: French legal framework The fi nancial sector is the fi rst area where there is an actual legal recognition of the use of blockchain technology. France recently became a pioneer in blockchain legal framework, by adopting the use of distributed ledger technology (“DLT”) for the issuance of minibonds by certain types of companies, in case of crowdfunding transactions (order of April 28th, 2016). The order n°2017-1674 on December 8th, 2017, known as the DLT order, was adopted, allowing the use of distributed ledger technology for the representation and transmission of fi nancial securities for non-listed companies. This order was adopted after the law dated December 9th, 2016 n°2016-1691 on transparency, the fi ght against corruption and the modernisation of economic life, known as “Sapin 2”, authorised the government to adapt the law applicable to fi nancial securities in light of new technology. The transfer of shares of the non-listed companies may be recorded with blockchain technology, instead of being recorded manually in the share ledger. The DLT Order applies to all fi nancial securities for which European law does not require the use of a central securities depository (“CSD”). The shares may be recorded with the blockchain technology upon a unilateral decision of the issuing company (article L.211-7 of the French Monetary and Financial Code). However, if the company’s by-laws provide that the issued shares must be recorded in a share ledger, the by-laws shall be amended in order to authorise the use of blockchain technology. The entry into force of the order shall be subject to pending implementing decree that should be published by July 1st, 2018, at the latest. The contract law reform: the ratifi cation bill The Order n°2016-131 of February 10th, 2016 which substantially amended 350 articles of the French Civil Code, has been applicable since October 1st, 2016. A fi rst draft bill was adopted by the Senate on October 17th, 2017, with new amendments to the modifi cations made by the Order n°2016-131 of February 10th, 2016. The Senate sought to clarify and rectify certain points raising interpretation issues, but the amendments proposed by the Senate were criticised for making further amendments to the reform. After successive readings between the National Assembly and the Senate between December 2017 and March 2018, the fi nal version of the bill was fi nally adopted on April 11th, 2018. Twenty of the 350 articles have been modifi ed by this new bill. Two major innovations of the contract law reform raised signifi cant debates between the National Assembly and the Senate: i.e. the prohibition of unfair terms; and revision for unforeseen circumstances. The scope of the prohibition of unfair terms was fi nally limited to non-negotiable terms in standard contracts. The principle of contract revision was not contested, but there were divergent views concerning the judge’s ability to rule at the request of one of the contractual parties. After several debates, article 1195 of the French Civil Code has not been modifi ed on this aspect. The next step is now to reform the French civil liability law. 2018 Finance law The 2018 Finance law n°2017-1837, dated December 30th, 2017, amended numerous

GLI - Mergers & Acquisitions 2018, Seventh Edition 81 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London FTPA France and various French tax legislations. We selected the three most important modifi cations affecting both companies and individuals. • French corporate income tax rate gradually reduced to 25% Article 84 of the 2018 Finance law amended the modalities of the fi ve-year period during which a gradual decrease of the French corporate income tax rate will be implemented. Indeed, as was already provided for by the 2017 Finance law, such rate will be reduced from 33⅓% to 25% in 2022. As from January 1st, 2018, a 28% corporate income tax rate will apply to companies whose taxable profi t does not exceed €500,000. The remaining companies will apply the standard rate of 33⅓%. As from January 1st, 2019, the standard corporate income tax rate shall be reduced to 31%, but the 28% will remain for companies whose taxable profi t does not exceed €500,000. The 31% standard corporate income tax rate shall be reduced to 28% in 2020, 26.5% in 2021 and 25% in 2022. • Implementation of a fl at tax Article 28 of the 2018 Finance law implemented a deep reform of the taxation mechanism on incomes from capital (which include in particular, dividends, interests, capital gains). Before the said reform, incomes from capital were subject to social taxes at a cumulative rate of 15.5%, plus the income tax assessed at progressive rate (up to 45%, but with certain abatements depending on the length of ownership of the fi nancial assets). From January 1st, 2018, a “fl at tax” of 30% has been put in place for all eligible individuals’ incomes from capital. This “fl at tax” comprises: (i) a 17.2% social taxes rate; and (ii) a 12.8% fl at income tax rate. Individuals can still opt for the former mechanism. • French wealth taxation limited to real estate assets Before the 2018 Finance law, a French “Impôt sur la Fortune” (“ISF”) was applicable on global wealth taxation applicable to individuals’ estate. Article 31 of the 2018 Finance law deleted this tax scheme and created, as from January 1st, 2018, the “Impôt sur la fortune immobilière” (“IFI”), which could be summarised as a taxation on real estate wealth only. Most of the rules applicable to the ISF are still applicable to the IFI, such as the threshold from which wealth is taxed (€1.3 million). However, the taxation base is only calculated on real estate assets (fi nancial assets are no longer included in the taxation base).

Industry sector focus The food & consumer and real estate sectors were particularly active in 2017. Food & consumer This sector could also be named the retail sector, which has been strongly dynamic in France last year. The food & consumer sector recorded a 176% increase since 2016, with a total deal value amounting to €40 billion, despite a lower number of deals in 2017 (241 against 303 in 2016). The activity in this sector was mostly driven by six mega-deals amounting to more than €1 billion, such as the deal previously mentioned concerning Danone and L’Oréal.

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Group Arnault decided in 2017 to launch a public offer for the shares of its subsidiary, Christian Dior, owned up to 74% by the former. By doing so, Group Arnault valued its subsidiary at €46.93 billion. Real estate Real estate was one of the key sectors for French M&A deals in 2016. Indeed, this sector saw a highlight in 2016 with the acquisition of Foncière de Paris by Eurosic. Real estate was also a major sector for M&A transactions in 2017 and was marked here again by one important transaction announced in December 2017. Unibail-Rodamco, European number one in the commercial real estate sector, launched a public offer for its Australian competitor Westfi eld. The said offer values Westfi eld at €21 billion. This transaction will give birth to a global giant, owning real estate assets amounting to €61.1 billion in 27 of the most dynamic cities in the world.

The year ahead We anticipate that the trend towards a strong French M&A market should continue in 2018, and that the French market should remain at a high level. Indeed, specialists expect M&A transactions in France to remain at least stable in 2018. France had a 2% gross domestic product growth according to the last estimate published by INSEE. Such growth should remain stable in 2018. The IMF predicts a 1.9% gross domestic product growth in France. We already know that 2018 will record several deals of importance. Two major public offers will take place or took place in 2018. Gemalto’s board recommended the public offer made by Thales, following the rejection of Atos’ public offer. Gemalto, a digital security specialist listed on the Amsterdam stock exchange, is valued up to €5.6 billion. At the very end of 2017, Safran launched another public offer on Zodiac, valuing the latter at €8.7 billion. As a conclusion, optimism seems to fl ourish when it comes to the M&A market in France. Emmanuel Macron’s election has been a positive sign for cross-border transactions. Nevertheless, one should remain cautious. Specialists note that Brexit talks, tax reforms in the US, growth stability in China and North Korea’s nuclear programmes, constitute many risks to be taken into account for 2018.

* * *

Sources This article is based on reports in the fi nancial press, specialist reports, company and fi nancial websites (Thomson Reuters, CF News, etc.).

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Coralie Oger Tel: +33 1 45 00 93 23 / Email : [email protected] Coralie Oger’s practice focuses on Mergers and Acquisitions and Corporate Law, and in particular in international and domestic Mergers and Acquisitions, LBO, Private Equity transactions and Restructurings. She holds a Specialised Master in International Law and Management from HEC and a postgraduate degree in International Business Law from Jean Moulin University – Lyon III. She was admitted to the Paris Bar in 2003. Prior to joining FTPA, Coralie Oger worked at Latham & Watkins (Paris) for seven years, including one year in the Corporate Department of Orange County offi ce (USA), where she developed a good familiarity with many aspects of Corporate and Securities Laws. She teaches seminars and publishes articles in the areas of Mergers and Acquisitions and Corporate Law. She works in French and English.

FTPA 1 bis Avenue Foch – 75116 Paris, France Tel: +33 1 45 00 86 20 / Fax: +33 1 45 00 85 83 / URL: www.ftpa.fr

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Sebastian Graf von Wallwitz & Heiko Wunderlich SKW Schwarz

Overview The following article provides an overview of the M&A landscape in Germany in 2017. We will address key market trends and transactions as well as key legal practice developments in the German M&A market. An overview of the German tax regime as applicable to M&A transactions is also included. The German M&A market remained robust also in 2017, even though the number of transactions declined as compared to 2016. The reason for this decline is largely attributed to a certain market saturation and rising asset prices around the world. Volume and value of transactions According to the Institute of Mergers, Acquisitions and Alliances (IMAA) and Clifford Chance, deals worth approximately US$131 billion (€106 billion) (+45%) were closed in Germany in 2017 in total. According to a study by PwC, there were a total of 709 deals with foreign participation by mid-November 2017. PwC expected around 870 transactions until the end of 2017, slightly less than the 883 transactions with a foreign aspect that were recorded in 2016. Although more transactions were carried out in 2016, the total deal value amounted only to US$90 billion (€72 billion). In other words, a smaller number of transactions in 2017 generated signifi cantly higher transaction values. Again, this is due to the global rise in asset prices. On a global level, Europe achieved a volume of about US$924 billion (€747 billion) in total, an increase of around 14% relative to 2016. According to PwC, most buyers of German companies came from the USA by mid- November, with 158 announced transactions. Switzerland came in second (80 deals), followed by the UK (72). Investors from France accounted for 55 deals, and Chinese investors (including Hong Kong) for 47. Signifi cant deals and highlights in 2017 The largest transaction of the year in Germany was the announced merger of Linde with its US competitor Praxair, with a volume of around €40.5 billion. Second place went to the controversial takeover of the power plant operator Uniper by Fortum from Finland for €11.7 billion. This went ahead after Eon’s approval. The third- largest transaction was the merger of Siemens Mobility with the French company Alstom, with a transaction volume of around €8.7 billion. Another highlight is the – protracted – efforts by Cinven to purchase Stada, a pharmaceutical company. The deal has not yet been completed, even though the British PE investor, together with Bain Capital, had already crossed the decisive threshold of 63% of Stada

GLI - Mergers & Acquisitions 2018, Seventh Edition 85 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London SKW Schwarz Germany shares in August. Overall, the transaction amounts to €4.6 billion, making it the fourth- largest transaction in 2017. The dialysis group Fresenius Medical Care acquired its U.S. competitor NxStage Medical for approximately US$2 billion. The purchase of Opel, the German car manufacturer formerly owned by General Motors, by Peugeot of France with a volume of €1.1 billion was also among the top 10 transactions at the end of 2017. The Bertelsmann Foundation acquired a 22% stake in Penguin Random House for an estimated US$ 1 billion, and now owns 75% of the US publisher. Rocket Internet has agreed to sell 13% of its shareholding in Delivery Hero to the South African media group Naspers for €660 million. Companies from the USA were also active. For example, the U.S. pharmaceutical group Merck & Co Inc. is taking over the Munich-based biotechnology company Rigontec for around US$ 553 million.

Key legal practice developments New rules for foreign investment in Germany As a result of increased criticism of, in particular, growing Chinese investment in Germany, the rules for foreign companies purchasing companies in Germany have been tightened. The Foreign Trade Ordinance (“Aussenwirtschaftsverordnung”) has been amended to provide the German Economics Ministry with additional tools to examine transactions which may raise concerns from the perspective of safeguarding national interests. Already under the existing provisions of the FTO, the Economics Ministry had the opportunity to examine whether public safety was endangered by the acquisition of a participation of at least 25% in a German entity. This general rule has now been amended to provide that an endangerment is, in particular, present in the event that the German entity is active in one or more of specifi cally listed areas of particular sensitivity. Those areas include information technology (such as cloud computing services), utilities, health care, agriculture, telecommunications, payment services and transportation. A further focus is, not surprisingly, the military sector. The already existing list has been expanded to include drones, optical equipment and robotics. Also, the examination periods have been amended: the authorities now have two months to examine (as compared to one month in the past) and four months to prohibit a relevant transaction. Transactions involving military goods can be prohibited within three months (rather than one month) following the application. With these changes, the German legislator has reacted to increased pressure to better safeguard national interests with respect to the sale of German companies to foreign entities. Use of foreign notaries The use of foreign – mostly Swiss or Austrian – notaries in transactions involving the purchase of German limited liability companies (GmbH) has been a subject of dispute for decades. Under the Act on Limited Liability Companies, a signifi cant number of measures involving a GmbH, including the founding of and the transfer of shares in a GmbH, requires a notarial deed. Given that the German notary fees are set by law and are calculated as a fraction of the deal value – i.e., the purchase price or the balance sheet of the company – this may be a costly exercise. Therefore, in the past, a large number of high-volume transactions were notarised in Switzerland, as notary fees are freely negotiable there.

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The validity of transactions notarised in Switzerland has, however, been disputed by legal literature and, not surprisingly, the German notary lobby. While the Federal Supreme Civil Court (Bundesgerichtshof) held in 1989 that the transfer of shares in a GmbH notarised by a Swiss notary is to be recognised in Germany (decision of 22 May 1989 – II ZR 211/88), recent changes in Swiss law have led to a resurfacing of this discussion. In a decision of 24 January 2018, however, the Berlin High Court (Kammergericht) held that a GmbH, the founding documents of which were notarised by a Swiss notary, is to be registered by the relevant German commercial register (GmbHR 2018, p.376). This very much suggests that the transfer of shares in a GmbH will also be held to be valid, and that the Swiss notary’s fi ling of the revised shareholder list is to be accepted by the commercial register. It is likely that the use of foreign notaries will again become more popular as a result of this decision, in particular if it is followed up by further rulings along those lines. Tax • Taxation and important taxes in an M&A process From an M&A perspective, the most important taxes are income taxes – including Corporate Income Tax, (CIT) and Trade Tax (TT) – as well as Value Added Tax (VAT). Where real estate property is concerned, Real Estate Transfer Taxes (RETT) are also of importance. Regarding income tax, a number of specifi c rules such as thin capitalisation rules or change-in-ownership rules for tax losses carried forward have to be taken into account besides the Reorganization of Companies Tax Act (RCTA) and the Foreign Tax Act (FTA). Although German tax law distinguishes between several different types of income, in this article we only address business income, as this is the most important income source from an M&A perspective, although especially Private Equity/Venture Capital Funds normally do not derive business income. • Tax rates and general taxation principles of companies The general income tax rate for natural persons is progressive. The highest tax bracket is 45%. Additionally, a solidarity surcharge of 5.5% on top of the tax applies; thus, the overall tax rate is up to 47.475%. The income tax rates apply to income derived at a personal level by natural persons and to income derived from partners in partnerships, as partnerships are regarded as transparent for income taxation purposes. Thus, any income derived on the level of a partnership will be attributed proportionally to the partners and taxed at the partner’s level. Correspondingly, profi t distributions (withdrawals of profi t) are non-taxable events in a partnership. If a shareholder (natural person or partnership) derives business income dividend payments from and capital gains in connection with corporations, 40% of that income is tax-exempt; the assessment basis is therefore only 60% of the income. Corporations (like limited liability companies (GmbH), stock corporations (AG) and also foundations (Stiftungen)) are regarded as non-transparent for tax purposes. A corporation itself is therefore regarded as an income taxpayer. Corporations are subject to CIT at a fl at rate of 15%, and also to the solidarity surcharge of 5.5% on the CIT (altogether the income tax rate is 15.825%). However, as corporations are not transparent, profi t distributions (dividend payments) are taxable as income on the level of the shareholders. Moreover, the corporation is obliged to withhold and pay to the fi scal authorities a withholding tax of 25% plus solidarity surcharge of 5.5% (altogether 26.375%), which the shareholder is allowed to set-off in his/her tax return, or to apply for a refund if the shareholder itself is a corporation.

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For corporations, a participation exemption for dividend payments and capital gains exists if a corporation is a shareholder of another corporation. The tax exemption is 95% (the assessment basis is therefore only 5% of the profi t). However, regarding dividend payments, the 95% this exemption is only granted if the directly held participation quota in the company is at least 10% at the beginning of the calendar year. • Trade tax Whereas regarding income tax – including CIT – a distinction is made between corporations and partnerships, for TT purposes, both corporations and partnerships are treated as taxpayers. Thus, not only corporations but also partnerships are subject to TT. TT is based on a 19th century idea that the business as such is taxable. Thus, to determine the TT, additions and reductions from the profi t have to be made. For instance, lease payments have to be added to the profi t as well as interest payments. On the other hand, profi t distributions which have been taken into account for TT on the level of the subsidiary, will be taken out of the TT assessment basis on the shareholder’s or partner’s level. TT is (together with VAT) one of the taxes for which the buyer in an asset deal may also be liable even if the tax relates to periods prior to the closing date. • Loss carried forward In case of a loss, for income tax (including CIT) and TT purposes, the loss can be carried forward and set off with profi ts derived in the future. With the exception of TT losses, a loss can also be carried backward for one year. However, there are limitations regarding the set-off per fi scal year. A loss carry-forward can be set off against profi ts up to €1 million without limitations. Above that, only 60% of the profi ts can be set off against losses carried forward per year. As regards income and partnerships, in general a loss carried forward will be taken into account on the partner’s level to be set off with other income (in general) or to be carried forward. However, if a partner’s liability is limited, e.g., for the limited partner in a limited partnership, and the accumulated loss derived is in the amount of the equity contributed (or higher), in general the loss is trapped on the partnership level and will not be attributed to the partner. In such an event, the loss can be set off only against profi ts and capital gains deriving from the respective partnership. • Change in ownership rule A loss carried forward for CIT and TT purposes may be extinguished in part or in full if a change in ownership of a corporation takes place. The decisive quota is a change in ownership of over 25% for a partial extinguishing in the respective quota, and 50% change in ownership for a total extinguishment of the losses carried forward. However, the loss carried forward will not be lost if hidden reserves exist in a suffi cient amount. The same applies for the TT loss carried forward of a partnership. For restructuring measures, it should be taken into account that in general, a capital increase will be treated also as a change in ownership for the aforementioned purposes to the extent the participation quota changes. Due to a new regulation which entered into force retroactively as from 1st of January 2017, a loss carry-forward will not be extinguished in case of a change in ownership with the respective, harmful quota if – upon application – the taxpayer is able to

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prove inter alia that the business performed has been identical since at least three years before the harmful change in ownership. If the business is to be quit, the loss carry-forward will cease accordingly. This regulation aims to enable start-ups as well as other enterprises with new investment rounds to still take advantage of their loss carried forward after the investment round. Thus, the regulation could actually become as important for the German M&A market as it is intended to, as now loss carried forward can again – in a positive way – be taken as a valuable asset for an ongoing enterprise. • Thin Capitalization Rule (Interest Barrier Rule and Licence Barrier Rule) Germany’s current Thin Capitalization Rule (a.k.a. Interest Barrier Rule) is based on the premise that international groups shift profi ts from German companies to companies abroad by granting interest-bearing loans to the German companies which are thereby designated to limit the tax deduction of interest paid by the company. The Thin Capitalization Rule does not apply if: (i) the difference between interest earned and interest paid is less than €3 million; (ii) the business is not part of a group; or (iii), if the business is part of a group, the equity ratio of the respective business is equal to or higher than the equity ratio of the group. If the aforementioned criteria are not met, the interest paid can only be deducted for taxation purposes in the amount of interest earned and – if exceeding – in the amount of the “clearable EBITDA”. Clearable EBITDA is defi ned as 30% of the profi t, modifi ed by some additions and some subtractions. Clearable EBITDA not used can be carried forward for the purpose of the Thin Capitalization Rule. The rules for determining the equity ratio are especially complex, and a detailed database of all group companies is necessary. The Thin Capitalization Rule has recently been considered as possibly unconstitutional by the German Fiscal High Court. The German Fiscal High Court has therefore submitted the question to the German Constitutional Court for fi nal resolution. The new introduced Licence Barrier Rule, which entered into force as from 1st of January 2018, is another aspect of Germany’s Thin Capitalization Rule concept. The idea of the concept is to hinder German taxpayers from deducting licence fees paid to a licensor abroad which is part of the same group as the licensee and which is subject to a low-tax regime (whereby low tax is defi ned within the law more specifi cally). However, the deduction at the licensee’s level is allowed if the taxpayer can prove that the licensor takes advantage of a nexus approach according to the OECD defi nition. • Reorganisation of Companies Tax Act Under the RCTA, most reorganisations can be made tax-neutral unless from an economic point of view, a sale or a similar transaction is intended rather than a reorganisation. Correspondingly, the RCTA contains a number of control periods that may not be violated by the parties in a reorganisation to benefi t from the tax neutrality. Moreover, very often an ongoing German taxation right is one of the requirements to be met for obtaining tax neutrality. As the RCTA is in line with the EU Merger Directive (Directive of the Council from 23 July 1990, 90/434/EEC, on a common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States), in general also cross-border reorganisations within the EU can be tax-neutral under special requirements. Some of the measures dealt within the RCTA will not be considered as measures under the Reorganization of Companies Act (RCA) but e.g. as a capital increase in kind.

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• Value Added Tax As within the EU there is – based on an EU directive – a common system of VAT; in general, the VAT rules are the same in every EU member state. There is only little space for a few and small national deviations. VAT is one of most important taxes concerning the revenues derived by the state. And VAT is also a very formal tax, which means that very often, it is decisive that formal requirements are met to be able to deduct income VAT. However, the transfer of shares as well as an asset deal, if the business is sold as a whole, is generally VAT-exempt. Nevertheless, VAT is important for the buyer in an asset deal, as it is one of the taxes for which the buyer may be liable even if relating to pre-closing periods. • Going abroad and Foreign Tax Act In general, income tax is still national and, consequently, shifting business or transferring single assets abroad will trigger exit tax. Conversely, doing business will lead to taxation in Germany. However, Germany has concluded almost 100 double taxation treaties regarding income tax and thus, very often the German taxation rules will be modifi ed (fully or partly overruled) by the regulations of the respective double taxation treaties. With few exemptions, Germany applies the exemption method (and not the credit method) in its treaties in order to avoid the double taxation. As is the case in most industrialised countries, Germany has quite sophisticated rules for Controlled Foreign Companies (cfc rules) and if the income of such a cfc is considered as passive income, the income for taxation purposes will be attributed proportionally to the German shareholders. Thus, when structuring a business by using companies abroad, cfc rules should be considered. Moreover, Germany does have Transfer Pricing Rules (TP), including rules to tax the transfer of a function as a whole when being transferred abroad (exit tax). TP should be taken into account when doing business in Germany.

Industry sector focus Industrial production, retail and consumer and technology sectors were the most attractive sectors for foreign investment in German targets in 2016. Pursuant to M&A data from ThomsonReuters, Mergermarket and Preqin, the number of deals concerning German targets amounted to: 188 in the industrial production sector; 142 in the retail and consumer sector (which lost its fi rst place from 2015); 141 in the technology sector; 59 in the healthcare sector; and 55 in the materials sector. These sectors were followed by: the real estate sector with 54 deals; the technology, media and telecom sectors with 41 deals; and other sectors (energy, telecommunication, transport and fi nancial services) with 76 deals.

The year ahead The German Council of Economic Experts (GCEE) in its annual forecast expects a very positive overall macroeconomic development in the near future. Real gross domestic product in Germany is expected to grow by 2.2% in 2018 after 2% in 2017. For the euro area, growth of 2.1% is expected.1 This constitutes a signifi cant increase in growth perspectives for the European economy as compared to 2016. The GCEE sees this highly positive overall economic environment as an ideal platform to re-adjust economic policy to better address issues like globalisation, demographic change

GLI - Mergers & Acquisitions 2018, Seventh Edition 90 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London SKW Schwarz Germany and digitalisation, rather than focusing mainly on income distribution.2 Given the muted enthusiasm with which the new German government, which was fi nally formed in March 2018, has been met, it is however rather unlikely that real reforms will be implemented in the foreseeable future. A particular risk is seen in the tightening of the labour market, with a shortage of skilled labour. This will eventually have to come from increased acceptance of migrants into the labour market, again a political issue. Despite those risks and a certain political inertia as a result of the Federal elections in 2017, the German economy remains exceedingly healthy and the environment for a sustained high level of M&A activity also in 2018 continues to be positive.

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Endnotes 1. Annual Economic Report, 2017/2018 – German Council of Economic Experts, Executive Summary (see recital 1). 2. Annual Economic Report, 2017/2018 – German Council of Economic Experts, Executive Summary (see recital 2) .

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Sebastian Graf von Wallwitz Tel: +49 89 28640 109 / Email: [email protected] Dr. Sebastian Graf von Wallwitz is an equity partner with the German law fi rm SKW Schwarz, specialising in corporate law and antitrust. Dr. von Wallwitz studied law in Heidelberg, Freiburg and New York. He obtained a Ph.D. in law (University of Freiburg Law School) and an LL.M. (New York University). Prior to joining SKW Schwarz, Dr. von Wallwitz worked as an antitrust attorney in the Brussels offi ce of Cleary Gottlieb Steen & Hamilton. Dr. von Wallwitz advises national and international clients on mergers & acquisitions, joint ventures, restructurings and antitrust matters, mainly in the technology, media, hospitality, retail and manufacturing sectors. His clients include Fenix Outdoor, Kadant, the Schörghuber Group, Perform Media Group, Sotheby’s, Orbian and Thomson Reuters.

Heiko Wunderlich Tel: +49 89 28640 321 / Email: [email protected] Heiko Wunderlich gives legal advice to companies and individual persons as regards tax planning, as well as tax-related procedural and litigation law. His practice focuses on the tax-related advice on company acquisitions, restructuring and fi nancing as well as the succession and estate planning of entrepreneurs and individual persons, as well as authorisation in relation to opposition and fi scal court proceedings. Furthermore, Heiko Wunderlich gives advice regarding tax-related conception of closed funds, private equity investments and property transactions as well as conception of international foundations and trusts under private law. In addition, he gives advice in the fi eld of international fi scal law and has a profound knowledge regarding media and entertainment in this sector.

SKW Schwarz Rechtsanwälte Wittelsbacherplatz 1, 80333 Munich, Germany Tel: +49 89 28640 0 / URL: www.skwschwarz.de

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Esine Okudzeto, Victoria Derban & Maame Yaa Kusi Mensah Sam Okudzeto & Associates

Overview Ghana is one of the “big three”1 countries in African which dominate the African M&A landscape. A survey conducted by Control Risks and Mergermarket indicates that 29% of those surveyed cited Ghana as a country in which they had more than three deals. Ghana is therefore one of the dominant countries in , with active and impressive performance in M&A deals.2 This in turn has spurred a growth in investor confi dence, which may increase inbound investment through M&A activity. In recent years, there has been a steady growth of M&A activity, especially in the banking and the telecommunications industry, in 2017 as compared to 2016. Once, takeover or hostile activities were considered rare in Ghana, although there is no specifi c law preventing it. In recent times, however, this form of M&A has been prevalent in the banking industry, as seen through the takeover of UT Bank and Capital Bank by GCB, as the former companies were heavily insolvent.3 Takeovers and mergers of public companies are regulated by the Securities and Exchange Commission (SEC). The SEC Code on Takeovers and Mergers (2008) (The Code) is the law that regulates the procedures and obligations to be complied with during such transactions involving public companies. A brief overview of the relevant laws are as follows: • The Companies Act 1963 (Act 179) (the Companies Act) is the primary legislation governing business combinations in Ghana. The Companies Act provides for the manner in which business combinations should be effected. It provides for schemes of arrangement and amalgamation as the modes of achieving business combinations for companies incorporated in Ghana. These schemes, found in sections 230 and 231 of the Companies Act, are usually initiated based on a shareholders’ special resolution and consummated with or without court approval. • The Securities Industry Act 2016 (Act 929) (the Securities Industry Law), the Securities and Exchange Commission Regulations 2003 (LI 1728), the Securities and Exchange Commission Takeovers and Mergers Code (the Takeovers Code), the Central Securities Depository Act 2007 (Act 733), and the Securities and Exchange Commission (SEC) Compliance Manual all serve to govern and regulate trading in securities in publicly listed companies. The Takeovers Code also provides for the obligations and procedures to be complied with during M&A activity. The Takeover Code applies to: • all takeovers and mergers where the target company is a public company; and

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• all takeovers and mergers between or among public companies, whether listed or unlisted on the Ghana Stock Exchange (GSE). Certain industry-specifi c legislation also regulates business combinations. These include: • the Banks and Specialised Deposit-Taking Institutions Act 2016 (Act 930) (the Banking Act), which regulates the banking industry; • the National Communications Authority Act 2008 (Act 769), its Regulations 2003 (LI 1719) and the Electronic Communications Act 2008 (Act 775), which regulate the telecommunications industry; • the Insurance Act 2006 (Act 724), which regulates the insurance industry; • the Minerals and Mining Act 2006 (Act 703), as amended by the Minerals and Mining (Amendment) Act 2015 (Act 900), which regulates the minerals and mining industry; • the Petroleum (Exploration and Production) Act 2016 (Act 919) and the Petroleum (Local Content and Local Participation) Regulations, 2013 (LI 2204); • the Fisheries Act 2002 (Act 625); and • the Ghana Investment Promotion Centre Act 2013 (Act 865). It is pertinent to note that in addition to the above industry-specifi c laws, all companies are also required to comply with the general applicable provisions in the Companies Act. Ghana does not particularly have a competition authority as seen in some other countries, so the clearance for a merger or a takeover is obtained from industry-specifi c regulators and must meet statutory legal requirements as set out in the industry-specifi c legislation.

Signifi cant deals and highlights The mergers that occurred in the telecommunications sector and fi nancial sector in 2017 are the most signifi cant deals in Ghana within 2017. Airtel-tigo merger Millicom International Cellular S.A. (“Millicom”), the parent company of mobile operator Tigo Ghana Limited, merged with Bharti Airtel Limited (“Airtel”), the parent company of Airtel Ghana, to combine their operations in Ghana. This merger has created the newly formed entity by the name “Airtel-Tigo”, the second-largest telecommunications network provider in the country. The merger is said to provide and improve on the service delivery to customers of the network and offer better value for money for its customers. Approval for the above transaction was obtained from a number of regulatory bodies including the National Communications Authority, being the regulator for the telecommunications industry; the Labour Commission and the Labour Offi ce; who oversee any redundancy provisions of employment contracts, given that the restructuring led to the laying-off of many workers. The transaction can be said to have been fuelled by competition, as Mobile Telephone Networks (MTN) still stands as the Number 1 telecommunications network provider, with over 17 million subscribers.4 Although Ghana does not have a competition regime or policy currently,5 it will be interesting to see how Ghana tackles such a merger from a competition law perspective, considering the market share or dominant positions both MTN and Airtel- Tigo may have in the coming years. Bayport – CFC merger Bayport Financial Services and CFC Savings & Loans, both companies within the banking

GLI - Mergers & Acquisitions 2018, Seventh Edition 94 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Sam Okudzeto & Associates Ghana and fi nancial sector, merged in November of 2017 following approval from the Bank of Ghana. Bayport Financial Services provides fi nancial solutions to its target audience. CFC, Bayport’s sister company, also provided fi nancial solutions. Therefore, the merger was necessitated by the need to “reduce operational costs and result in a bigger and better fi rm under the same management”.6 The business of the newly formed company, now known as Bayport Savings & Loans Limited, is to operate as a Specialised Deposit-Taking institution carrying on the business of savings and loans. In August 2017 there was an acquisition of some of the assets of UT Bank and Capital Bank by Ghana Commercial Bank (GCB). The acquisition was via a Purchase and Assumption agreement, which allowed GCB “to take over all deposit liabilities and selected assets of both UT Bank and Capital Bank”.7 The acquisition was made after the Bank of Ghana revoked the banking licences of the two banks under section 123 of the Banks and Specialised Deposit Taking Institutions (SDIs) Act, 2016 (Act 930).

Key developments Overall, M&A activity in Ghana, in terms of volume, may not have increased signifi cantly over the past year; 2016/2017. There is, however, a steady growth in business innovation and investor confi dence which inspires hopes for an increase in the volume of M&A activity in Ghana. With respect to legislation, it is useful to note that an Anti-Competition Bill has been laid before Parliament, and is expected to be passed in mid-2018. This will affect M&A activity, as the focus of competition law and policy is to protect consumers and prevent cartelisation or market dominance by one or a few players in the market. On an industry-specifi c focus, the policy of the Bank of Ghana towards the liquidity requirements of all banks in Ghana, has caused a stir in the banking industry and will likely lead to increases in M&A activities in this sector. As stated earlier, GCB has taken over UT Bank and Capital Bank and, even more recently, the Bank of Ghana has taken over the management of UniBank. This is a more intrusive approach than the Bank has undertaken in previous years.

Industry sector focus The increasing stability in Ghana’s business environment continues to boost investor confi dence in the country. For this reason, many sectors have seen a large number of merger and acquisition transactions over the last two decades, the most notable among them being the fi nancial and telecom sectors. The fi nancial sector In the last decade in particular, Ghana’s banking sector has witnessed a number of mergers and acquisitions which have changed the ownership structure of many banks in Ghana from local to expatriate banks. These M&As were motivated in part by the Bank of Ghana’s regulations requiring an increase in the minimum capital requirement of banks operating in Ghana, and in part by growing investor confi dence in the industry. Following this, many smaller banks, who were unable to raise this capital on their own, resorted to mergers and acquisitions in order to comply with the Bank of Ghana’s regulations. A recent example of this was in 2012, with Ecobank’s acquisition of the Trust Bank of Ghana by taking over 100% of Trust Bank’s shares, and absorbing all the staff of the Trust Bank.

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Trinidad & Tobago’s retail banking group Republic Financial Holdings Limited (RFHL) has also steadily increased its shareholding in HFC Bank since it fi rst became a shareholder in 2012 with an original 8.7% equity stake, acquiring over 40% additional shares in the last fi ve years. With RFHL currently having a majority shareholding of HFC at 57.10%, the bank recently announced its rebranding and change of name from HFC Bank to Republic Bank (Ghana) Limited to refl ect the brand name of the bank’s parent company, Republic Financial Holdings Limited (RFHL), and this rebranding took effect on 24th April 2018. Another recent takeover was seen in August 2017, when there was a takeover of UT Bank and Capital Bank by GCB Bank under a Purchase and Assumption transaction. The telecoms sector M&A activities in Ghana have also been notable in the telecommunications industry. Ghana Telecom was acquired by Vodafone in 2008, while Scancom Areeba was taken over by MTN in 2007. The most recent M&A in the telecom industry was the Airtel-Tigo merger which was offi cially completed in October 2017. It is projected that the sheer scale of this transaction is bound to trigger more deals in the sector in 2018 and beyond, and is likely to pave the way for more future mergers of not just mobile service providers but also between smaller technology companies in Ghana, who will begin to realise that joining forces makes sense at a time when everyone in the industry faces highly capital-intensive demands for investment in technology and building networks. As previously noted, M&A activity in Ghana is governed by the Companies Act 1963 (Act 179); the Securities Industry Act 1993 (PNDCL 333) as amended by the Securities Industry (Amendment) Act 2000 (Act 590); the Securities and Exchange Commission Regulations 2003 (LI 1728); the Takeovers and Mergers Code (Code); and the Central Securities Depository Act 2007 (Act 733). In addition, consent requirements for M&As in certain industry-specifi c laws such as in the banking, insurance and communications industries must be sought from the relevant regulatory bodies and complied with.

The year ahead In the coming years it is expected that there will continue to be a rise in M&As in numerous sectors of the country. Analysts believe that the positive press about Ghana over the past decade, which highlights its open economy and stable political climate, is one of the major contributory factors that has spurred growth and sustained foreign investment in Ghana. The fi nancial sector particularly is expected to continue to see M&A transactions, since the Bank of Ghana again recently increased the minimum capital requirement from 120 million cedis to 400 million cedis in September 2017. The Governor of the Bank of Ghana has indicated that some proposals have already been received for mergers and takeovers in the light of the increase in the minimum capital requirement. To this end, it was recently announced during the latter part of last year that there were plans under way to merge ADB Bank and National Investment Bank (NIB) to become the National Development Bank (NDB). In the insurance sector, it is also projected that the minimum capital requirement of 15 million cedis which was set by Ghana’s insurance regulator, the National Insurance Commission, in 2014 is likely to create more mergers in the insurance sector in order to meet regulatory demands. A recent report by Goodman AMC LLC8 projects that there will be an increase in Ghana’s beer industry in the coming years. BMI Research further projects that beer volumes in

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Ghana will experience the fastest growth rate in sub-Saharan Africa region over the 2015- 2020 forecast period, rising at an average rate of 14.5%. This projection is based on the fact that local alcoholic beverage producer Kasapreko acquired a US$ 30 million bottling plant in 2012, commissioned a US$ 70 million factory in 2015 to help expand its operations to East Africa, and is also growing from strength to strength. SAB Miller, through its local subsidiary, Accra Brewery Limited, also continues to be a worthy competitor of Diageo’s Guinness Ghana Breweries Limited, and SABMiller’s huge access in Africa is believed to be a key driver and motivation for a potential merger between SAB Miller and AB InBev, since SAB has a huge market in Africa.

Conclusion The growing size, depth and sophistication of Ghana’s economy is creating more opportunities for M&As. For this reason, it is expected that the coming years will continue to see a steady increase in M&A transactions in the country, and takeovers and mergers will become increasingly common.

* * * Endnotes 1. Resourceful Deal making: outlook for M&A in Africa: https://s3.eu-west-2. amazonaws.com/acuris-live/Control_Risks_2017_LR.pdf. 2. Supra. 3. https://www.bog.gov.gh/privatecontent/Public_Notices/FAQs%20CLEANrev%20 (002)b.pdf. 4. https://www.graphic.com.gh/business/business-news/airtel-tigo-merger-to-bring- value-to-customers.html. 5. An Anti-Competitive Bill has been laid before Parliament and is expected to be passed during mid 2018. 6. Bayport fi nancial services merges with CFC, http://www.gbcghana.com/1.11421211. 7. GCB Bank Takes Over UT Bank and Capital Bank, Frequently Asked Questions, https://www.bog.gov.gh/privatecontent/Public_Notices/FAQs%20CLEANrev%20 (002)b.pdf. 8. Goodman AMC LLC – Ghana’s Mergers & Acquisitions Report 2017 at pp 27-30.

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Esine Okudzeto Tel: +233 202 050 280 / Email: [email protected] Esine is a partner and heads Sam Okudzeto & Associates’ Corporate/ Commercial law group. Her focus is on Mergers and Acquisitions, Capital Markets, Oil & Gas law, Corporate law, Commercial law, Intellectual Property and Arbitration. Esine has performed due diligence for several international clients, advising her clients on mergers and acquisitions and the formation of Joint Ventures in Ghana. Esine played a leading role in a Fortune 500 company’s acquisition of Unilever Plc’s oil palm business in Ghana. Esine was also the lead transactional advisor for the creation of a joint venture that set up a cargo hub, and handling services at the Kotoka International Airport. In the aforementioned transactions, Esine was instrumental in the incorporation of companies, the negotiation and drafting of licensing agreements, the drafting of shareholders’ agreements, the drafting of leases and company regulations, the registration of trademarks, the registration of leases, as well as providing legal advice on tax and labour issues. She has represented a number of clients before arbitration tribunals. Esine is a board member of Sena Chartered Secretaries Ltd, the fi rm’s sister company which specialises in company secretarial and investment consultancy. Esine serves as a corporate secretary for various clients, where she attends board meetings and advises companies on their corporate responsibilities and powers. She also helps corporations with fi ling relevant documents in compliance with the Company’s Act of Ghana. Esine is also a Board member of the Ghana Oil Club, Conship, and she teaches as an adjunct lecturer in Advocacy and Legal Ethics at the Ghana School of Law.

Victoria Derban Tel: +233 501 619 335 / Email: [email protected] Victoria is a pupil at Sam Okudzeto & Associates and was admitted to the Ghana Bar in 2017. Her areas of focus are Corporate, Commercial and Intellectual Property. Her recent work includes drafting of contracts, reviewing agreements, writing legal opinions and intellectual property registration and assignments. Victoria is a member of the Ghana Bar Association and Young ICCA; she holds an LL.M. from Queen Mary University of London, an LL.B. from the University of Surrey and a Diploma in Legal Practice from the University of Law in Guildford.

Maame Yaa Kusi Mensah Tel: +233 501 619 335 / Email: [email protected] Maame Yaa is a pupil at Sam Okudzeto & Associates and was admitted to the Ghana Bar in 2017. Her areas of focus are Corporate, Commercial and Alternative Dispute Resolution. Her recent work includes drafting of contracts, writing legal opinions and reviewing agreements. Maame Yaa is a member of the Ghana Bar Association and Young ICCA. Sam Okudzeto & Associates 1st Floor, Total House, 25 Liberia Road, Ridge, Accra, Ghana Tel: +233 302 666 377 / 668 114 / Fax: +233 302 668 115 / 666 545 / URL: www.senachambers.com

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Joshua Cole Ashurst

Overview M&A activity in Hong Kong is directly linked to outbound M&A activity from mainland China and there were two signifi cant mainland events which impacted on the level of M&A activity in Hong Kong in 2017. First of all, M&A activity at the beginning of 2017 was signifi cantly impacted by rules introduced by the Chinese government in November 2016 to dampen “irrational outbound investments”. The impact was noticeable and immediate. However, it was not until August 2017 that the offi cial guidelines were published by the Chinese government. Those guidelines clarifi ed “encouraged”, “restricted” and “prohibited” outbound activities. The Chinese government’s attempt to dampen irrational outbound investments certainly led to a number of transactions being suspended, postponed or terminated. However, the market determined relatively early on in 2017 the types of investments that were likely to be prohibited under the new policy and, although no doubt a number of “megadeals” were cancelled (especially acquisitions of diverse investments by PRC insurance companies), activity quickly increased again – especially in the small and mid-cap markets. The second signifi cant event in mainland China that impacted deal activity was China’s 19th Party Congress. A number of mainland China companies (and, perhaps more importantly, a number of mainland China fi nanciers) dramatically halted activity in the weeks leading up to the Congress, taking a “wait and see” approach in case there were any major policy shifts by the Chinese government. There were not. At least partially due to these factors, outbound M&A activity from mainland China declined by 32% in 2017. It may have declined more were it not for the impact of the stabilisation of the Yuan in early 2017 – which was at least partly as a result of the restrictions imposed on certain outbound investment. Notwithstanding this decline in outbound M&A activity from mainland China, by the end of 2017 M&A activity for the year was more than 40% higher than the previous year, although it was still not at the heady levels of 2015.

Signifi cant deals and highlights There were three signifi cant sectors worthy of note for M&A activity in Hong Kong in 2017. The fi rst two – real estate and insurance – were signifi cant due to the signifi cant volume of transactions over the year. The third – the New Economy – was signifi cant because of what it says about likely future M&A activity. Much of the M&A activity in Hong Kong over 2017 related to mainland China purchasers

GLI - Mergers & Acquisitions 2018, Seventh Edition 99 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Ashurst Hong Kong acquiring interests in Hong Kong property and insurance fi rms. There has also been a trend of smaller transactions by which mainland companies acquired SFC licensed entities as a means of short-cutting the licence application process. More than one third of all transactions involved the real estate sector. The largest of these was the restructure of Wharf Holdings, under which the entire share capital of Wharf Real Estate was spun out to Wharf Holdings’ shareholders. The total transaction value was US$29.4 billion. Another signifi cant transaction in the sector was the sale of the Centre Tower for US$5.15 billion. The focus on this sector was not surprising given the growth in property prices and rental rates in Hong Kong. Property prices in Hong Kong have been increasing steadily since April 2016 and the index was 16.7% higher (year on year) at the end of 2017. Rental rates have similarly continued to rise and were 7.89% higher (year on year) at the end of 2017. In the insurance sector there were a number of transactions under which mainland companies acquired interests in Hong Kong companies as well as Hong Kong-based insurers making acquisitions in other jurisdictions (such as AIA’s acquisition of an Australian and New Zealand life insurance business for US$3.05 billion). There was also an increase in activity in the public equity capital markets, mainly in connection with Hong Kong listed companies with underlying assets or businesses in mainland China. There has been signifi cant growth and development in mainland China’s technology sector. This has been in part driven by the Chinese government’s 13th Five Year Plan Information that was launched in 2016 and made ICP the highest-priority sector in the 13th Five Year Plan. The growth in this sector has resulted in signifi cant liquidity in the sector and that has, in turn, led to a number (albeit usually smaller) transactions in the sector. There has also been a noticeable increase in private equity and venture capital investments in this space through Hong Kong – often into Southern China cities such as or Shenzhen or into South East Asia. Consistent with the increase in activity in the New Economy, one of the larger public M&A transactions of 2017 was the sale of a 35.2% interest in the HKSE-listed China Unicom to 14 large companies for US$11.6 billion.

Key developments After many years of pressure, the Hong Kong Stock Exchange and the Securities and Futures Exchange are now set to enable dual class listings in Hong Kong. Previously, a number of Chinese businesses (such as Alibaba) have listed in the US due to dual listings being available there. This change is expected to make Hong Kong a much more attractive venue for listing and it is anticipated that there will be a number Chinese tech sector businesses that will now choose Hong Kong as their primary listing venue. It is also anticipated to lead to dual listings of technology companies that are currently listed in the US as ADRs. Importantly, such structures are still not permitted on mainland Chinese exchanges and so this may also create an incentive for mainland companies which would otherwise list on a mainland Chinese exchange. The Chinese Belt and Road initiative is starting to lead to noticeable levels of activity across the region, much of which will or already does involve Hong Kong. Although the initial focus of this initiative has been in relation to investments in “traditional” infrastructure, the

GLI - Mergers & Acquisitions 2018, Seventh Edition 100 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Ashurst Hong Kong second phase of the initiative relates to improving connectivity, and there is likely to be a continuing increase in technology infrastructure investment in the region as a result. At the end of 2017 the Chinese National Development and Reform Commission (NDRC) simplifi ed the regulatory procedure for outbound investments, including the removal of the pre-clearance requirement. This change is likely to have a positive impact on the level of mainland China outbound investments, many of which will be in to, or will pass through, Hong Kong, although it is not clear to what extent this will counterbalance the restrictions on “irrational outbound investments” discussed above. The fact that the Chinese government has recently demonstrated its willingness to quickly impose restrictions on capital fl ows has been a cause for concern around completion risk for a number of participants involved in cross-border transactions with mainland counterparties, and is likely to continue to be so for at least the short to medium term. There is also an expectation in some quarters that China will further open itself to foreign inbound investments in an attempt to reduce the restrictions on its outbound investment imposed by other jurisdictions. This is yet to play out, but if it does occur Hong Kong is likely to benefi t signifi cantly as it is likely to continue to be a favoured jurisdiction for PRC inbound investment due to its common law system and a court system that is predictable and familiar to western businesses. Given the continued innovation and growth in China’s New Economy, this may be one area where western technology fi rms will see acquisition opportunities in China. Notwithstanding this potential development, it is likely that the overwhelming proportion of Chinese cross-border activity will be China-outbound transactions. Although there were not any major Hong Kong legislative developments in 2017 that would be likely to impact on M&A activity levels in 2018, the effect of the company law improvements that were implemented under the Companies Ordinance and the general competition law that was implemented under the Competition Ordinance, both of which came into effect a number of years ago now, are slowly beginning to be felt. The simplifi cation of corporate actions such as capital reductions and corporate amalgamations will continue to result in businesses being more comfortable using Hong Kong corporate vehicles than previously. The fact that there is no general merger competition regime in Hong Kong has meant that the Competition Ordinance has had little noticeable impact on acquisitions, although uncertainty around the ordinance’s application to joint ventures in Hong Kong may continue to deter joint ventures between participants in the same sector (whereas acquisitions will not be affected).

Industry sector focus A signifi cant volume of Hong Kong transactions do not involve assets which are located in Hong Kong, but which either use Hong Kong as a hub from which to undertake the transaction or Hong Kong’s capital markets as a source of funding. This can be expected to continue. The deal pipeline for 2018 appears strong and most analysts seem to expect more of the same, with continued growth in the real estate, insurance and New Economy sectors. Regionally, China’s “Belt and Road” initiative is likely to result in continuing signifi cant activity in infrastructure, power and utilities and Hong Kong can be expected to play a role in many transactions in these sectors. Transactions involving Hong Kong assets are likely to continue to be very heavily focused on the real estate and fi nancial services sectors (and, for fi nancial services, insurance in particular).

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China is continuing to switch its focus from manufacturing to the New Economy and it is likely that a large number of Asia-based transactions in the New Economy will have a signifi cant Hong Kong element. This is particularly the case for mainland Chinese businesses and is likely to give rise to a combination of corporate, private equity and venture capital transactions, as well as some consolidation, as the larger players in the sector acquire some of the smaller start-ups in this space. A number of deals in this space are liquidity- driven, and so it is less likely to feel the impact of any future interest rate rises.

The year ahead The medium- to long-term impact of the Chinese government’s restrictions on outbound investments will continue to be felt in Hong Kong and it seems unlikely that there will be a return to some of the more excessive acquisitions that we saw in 2016, although the improvements to the NDRC process will likely result in a steady increase in outbound corporate acquisitions. As a result, there may be a greater proportion of private equity and venture capital investments (compared to corporate acquisitions) over the coming year. It is also expected that the complexity of these deals will continue to increase. It is expected that Hong Kong property prices will increase somewhere between 5 and 20% over the course of 2018 due to the severe supply-demand defi cit and high levels of liquidity. As a result, it is expected that there will continue to be transactions in this space, although the increasing property prices and rental rates may have a negative impact on businesses which are looking to establish in Hong Kong, and those who do not have a signifi cant China focus may look to other centres (particularly Singapore) to establish operations. China’s Belt and Road initiative will continue to be one of the dominant factors affecting investment in the region for 2018 and further into the future. This, coupled with the PRC government’s policy of encouraging investment in the New Economy in substitution for manufacturing, will likely result in continued growth in activity around infrastructure and technology (and technology infrastructure, in particular) for many years to come.

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Joshua Cole Tel: +852 2846 8905 / Email: [email protected] Joshua is the Managing Partner of Ashurst’s Hong Kong offi ce. He specialises in cross-border mergers & acquisitions and joint ventures. He has advised on a number of high-profi le international acquisitions, disposals and joint ventures across a number of industry sectors, including energy and resources, telecommunications and fi nancial services. He has also advised several companies on the implications of Hong Kong’s new competition law. He has been named as a leading lawyer by IFLR 1000 and Chambers Asia Pacifi c.

Ashurst 11/F Jardine House, 1 Connaught Place, Hong Kong Tel: +852 2846 8989 / Fax: +852 2868 0898 / URL: www.ashurst.com

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Garðar Víðir Gunnarsson & Helgi Þór Þorsteinsson LEX Law Offices

Overview It may be diffi cult to imagine, looking back to the autumn of 2008, that at the beginning of 2018 the outlook for Iceland’s economy would be strong, and indeed stronger than, many western economies. In March 2017, the Government of Iceland lifted the currency controls which had been in place since the global fi nancial crisis in 2008, and thereby making investment in Iceland signifi cantly easier and, in particular, the prospect for direct foreign investment. Indeed, this positive outlook has for the past couple of years been one of the driving forces in the M&A environment in Iceland. Although the global fi nancial crisis in 2008 hit Iceland particularly hard, the assertive response to the crisis has resulted in a swift recovery. The extensive depreciation of the Icelandic currency (ISK) in 2008 resulted in a positive environment for the Icelandic export industries, especially the fi sheries industry. Further, as a result of its depreciated currency, and the attention Iceland got because of the volcanic eruption in the glacier Eyjafjallajökull in 2010, tourism has grown at an unprecedented rate of more than 25% year-on-year from 2010 to 2018. This boost in tourism, which is likely to continue for a few years more, has signifi cantly boosted the economy in Iceland. This has resulted in positive side-effects that are associated with numerous investment opportunities both locally and globally. Almost every company in Iceland is either a private limited liability company or a public limited liability company. Other structures are available though, such as partnerships limited by shares, co-operative partnerships and other limited partnerships. Another positive side effect of the boost in tourism in Iceland is increased connections to Iceland. With direct fl ights to more than 20 destinations in the US and Canada, and around 40 destinations in Europe, Iceland is an ideal location for businesses that require good connections for transport of goods and services. Moreover, since the vast majority of Icelandic tourism companies are start-ups run by entrepreneurs, there has yet to take place a signifi cant consolidation of the many newly established tourism companies. Although this development has already begun there are, nonetheless, numerous companies that will be ideal targets for acquisition in a business that is likely to be consolidated in the coming years.

The Icelandic M&A market Following the near-total collapse of the Icelandic fi nancial system in late 2008, the majority of companies listed on the NASDAQ Iceland stock exchange were delisted, with some of those subsequently entering into either insolvency proceedings or composition with creditors. Subsequently, a signifi cant number of medium-sized businesses were acquired by

GLI - Mergers & Acquisitions 2018, Seventh Edition 104 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London LEX Law Offices Iceland the newly established Icelandic banks as a result of enforcement of collateral for defaulted loans. In the following years the Icelandic transactional market was effectively hamstrung, with most transactions involving the banks divesting themselves of the various companies they had acquired through enforcement of collateral. Furthermore, the enactment of stringent currency controls in 2008, however, signifi cantly increased investments by the Icelandic pension funds. Without the ability to invest their funds abroad, the Icelandic pension funds directed their attention to the domestic market. As a result, almost every major transaction in Iceland in the early 2010s involved the Icelandic pension funds as stakeholders, whether directly or investing through private equity funds. Since 2010, however, the Icelandic transactional market has mostly recovered, it has seen new listings of companies on the NASDAQ Iceland stock exchange, with the number of listed companies now being 16. Additionally, with the liberalisation and, fi nally, effective lifting of the currency controls in 2017, the Icelandic pension funds have now turned their eyes to investments abroad, although still maintaining signifi cant stakes in a number of Icelandic companies and projects. Combined with the steady increase of listed companies on the NASDAQ Iceland stock exchange, this provides interesting opportunities for foreign investors looking to expand into the expanding Icelandic market.

Legal framework General principles and primary acts of law applicable to M&A transactions in Iceland Icelandic law does not contain a comprehensive legal framework on the subject of mergers and acquisitions (“M&A”). The principle that governs private transactions in general, including M&A transactions, is the parties’ freedom to negotiate. Thus, contracting parties may establish any covenants, clauses and conditions deemed convenient, provided that they are not contrary to laws, morals or public policy. However, in the absence of the parties’ contractual relationship having addressed certain issues, the legal relationship will fall back to rules prescribed for in several acts of law, primarily: Act No 50/2000 on the Sale and Purchase of Chattels (shares being considered as chattels under Icelandic law); Act No 7/1936 on Contracts, Agency and Invalid Legal Instruments; in addition to Act No 107/2008 on Securities Transactions, being extremely relevant to certain, larger transactions. Other acts of law which must be considered include: the Competition Act No 44/2005; Act No 90/2003 on Income Tax; and the two limited companies acts, Act No 2/1995 on Public Limited Liability Companies and Act No 138/1994 on Private Limited Liability Companies (collectively referred to as the “Companies Acts”). Merger provisions Provisions on corporate mergers are provided for in the Companies Acts. The provisions of the two Companies Acts are mostly analogous, albeit applicable to the two primary types of limited liability companies provided for under Icelandic law. The aforementioned acts defi ne a merger as the dissolution of a company without liquidation in such a way that: (i) the company is completely united with another corporation through acquisition of assets and liabilities (merger by acquisition); or (ii) when two or more limited liability companies join a new limited liability company (merger by the establishment of a new company). To effect a merger, the boards of directors of the merging companies jointly draft and execute

GLI - Mergers & Acquisitions 2018, Seventh Edition 105 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London LEX Law Offices Iceland a merger plan which contains basic information on the companies involved along with the consideration of the shareholders for their shares. The respective boards of directors shall each prepare a commentary on the merger plan, which shall subsequently be reviewed by independent evaluators with a view to whether the consideration offered is fair and equitable. Should all shareholders in both companies so decide, this may be dispensed with and the merger plan delivered directly to the Register of Enterprises. The merger must be approved by the shareholders’ meeting of the acquired company, whereas the approval of the board of directors is suffi cient in the case of the takeover company. Financial assistance The Companies Acts provide for certain restrictions on fi nancial assistance with the aim being to prevent the self-fi nancing of acquisitions. A limited liability company is thus prohibited from granting a loan, guarantee or any collateral for the purposes of fi nancing the acquisition of shares in itself or its parent company. The prohibition does, however, not apply to acquisition of shares by employees, whether directly, through a company in their ownership or on their behalf. Liability, disclosure and transfer of risk Contracts in this area are normally detailed and address customary transactional issues. If, however, some issues have not been dealt with directly, it is necessary to examine whether such issues come within the scope of a particular act that might be applicable in such circumstances. Several principles have also developed in practice that may settle such issues. The main rule on delivery is that the sales item shall be available for receipt at the place where the seller had his place of business when the purchase was made, and the item shall be considered delivered when the buyer has received it. If a sales item is to be sent to the buyer, it is considered to be delivered when it has been handed over to the carrier, taking care of the shipment, or if the seller himself takes care of the shipment, when the buyer has received the item. Parties are free to derogate from these provisions and may negotiate differently. If an item is not to be delivered on demand or without delay and the delivery period does not otherwise result in a contract, the item shall be delivered within a reasonable period of time from the time purchase was made. If the seller has not granted a loan or a grace period, it is not obliged to hand over the item, transfer documents or otherwise transfer the right of disposal over the item, unless the buyer at the same time pays the agreed price. The main principles are: that the seller is not obliged to fulfi l his obligations unless the buyer does the same and vice versa; and that the seller is responsible for the item and payment of costs until delivery has taken place. The risk transfers from the seller to the buyer when the item is considered delivered and after that, the buyer is obliged to pay for the item, even if the item is subsequently lost, damaged or has deteriorated in the case of an incident that is not attributable to the seller. It is therefore important to determine whether an incident may be attributed to the seller, because if so, the buyer’s obligation to pay is cancelled. Thus, and in light of shares being considered as chattels that fall under the scope of Act 50/2000, it is recommended that contracting parties clearly defi ne the time when the risk passes from the seller to the buyer. For example, this may be particularly relevant when there is a delay from signing of the purchase agreement and until closing, such as when closing is conditional upon approval from regulatory bodies. Regarding disclosure, the main principle is that the seller must provide all the information necessary for the buyer to assess the sales item and which the buyer had reasonable

GLI - Mergers & Acquisitions 2018, Seventh Edition 106 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London LEX Law Offices Iceland expectation it would receive. In the case of M&A transactions this would, for example, be information contained in the company’s annual accounts, the company’s fi nancial position, nominal value and share price. In the M&A environment, the purchaser almost always conducts a due diligence on the target, although vendor due diligence is sometimes conducted as well. Purchasers have a certain obligation to inspect what they are purchasing and should therefore proceed with care and only after having conducted the due diligence process they deem necessary. Taxation of M&A transactions An M&A transaction generally constitutes a taxable transaction under Icelandic Act No 90/2003 on Income Tax, but falls outside the scope of the VAT regime. However, in the event of a merger where the shareholders in an acquired limited liability company only receive shares in the merged company as compensation for their shares, then the transaction will not entail taxable income for said shareholders, subject to further conditions being met. This exemption applies to mergers of domestic limited liability companies, as well as mergers that involve limited liability companies resident within the European Economic Area (“EEA”) and the Faroe Islands. In such mergers of limited liability companies, the acquiring company shall receive all taxable obligations and the rights of the acquired company at book value as opposed to market value of the transferred assets. In cases where this exemption does not apply, an exit tax is levied in the case of a cross-border merger where an Icelandic company is acquired. (i) Thin capitalisation Iceland has been involved in the BEPS (base erosion and profi t shifting) project (“BEPS”) with the OECD from the outset. In October 2016, three amendments were introduced into Icelandic tax law that implemented some factors of BEPS, including a provision on interest deduction (thin capitalisation). This rule entails that the maximum deduction of interest expenses derived from loans between related parties is thirty per cent (30%) of the debtor’s EBITDA. However, some exemptions apply, which result in no limit to deduction of interest from loans between related parties. For example, such exceptions may apply when: (i) the total amount of interest per year from loans between related parties is less than ISK 100 million; (ii) the lender is resident in Iceland; (iii) the equity ratio of the taxable entity is up to a certain standard; or (iv) the taxable entity is considered as a fi nancial corporation or insurance corporation under Icelandic law, or is owned by such corporations. (ii) Capital gain deductions Under Icelandic law, limited liability companies are granted full deduction in terms of capital gains related to the sales of shares in limited liability companies. This means that net taxation on such capital gains is zero. The rule also applies to limited liability companies in the EEA area and the Faroe Islands. Furthermore, changes in ownership registration for real estate and ships in offi cial registers are exempt from stamp duty when the change occurs in relation to a merger of two or more companies. (iii) Anti-avoidance Finally, it should be noted that Act No 90/2003 on Income Tax includes a provision under which it may be possible to disregard a transaction if its purpose is only to circumvent tax. However, the wording of the provision does not provide for clear conditions under which it is applicable. This provision has been construed as constituting a general anti- avoidance rule.

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Competition law issues The Icelandic Competition Act No 44/2005 (the “Competition Act”) defi nes a merger in a similar manner as set out in the EU Merger Regulation.1 Thus, a merger within the Competition Act occurs where a change of control on a lasting basis results from rights, contracts or any other means that, either separately or in combination, confer the possibility of exercising decisive infl uence on an undertaking, in particular by: (a) ownership, or the right to use all or part of the assets of an undertaking; or (b) rights or contracts that confer decisive infl uence on the composition, voting or decisions of the organs of an undertaking. In this regard, it should be noted that the concept of control is defi ned in a similar manner as under the EU merger control regime. Pursuant to the Competition Act, a merger must be notifi ed to the Icelandic Competition Authority (the “ICA”) if the combined aggregated annual turnover of the relevant undertakings is ISK 2,000 million or more in Iceland, and the annual turnover of at least two of the undertakings party to the merger is at least ISK 200 million in Iceland. The turnover of a parent, subsidiary and other undertakings within the same group as the merging undertakings shall be taken into account, as well as the turnover of undertakings under the direct or indirect control of the merging undertakings. Furthermore, in the event that the ICA considers a merger which falls below the thresholds to substantially impede effective competition, the ICA can bring the merger under the regime if the combined aggregated annual turnover of the relevant undertakings is over ISK 1,000 million. If the relevant thresholds for turnover are met, the merger must be notifi ed to the ICA prior to taking effect but after the conclusion of the purchase agreement. A fi ling fee of ISK 250,000 is charged by the ICA. A merger that falls within the regime, or has been brought under it by the ICA, shall not take effect while it is being examined by the ICA, which effectively means that delivery of shares or a change of control in an M&A transaction cannot take place until the ICA has approved the merger. Violations are subject to administrative fi nes up to ten per cent (10%) of the total turnover for the preceding business of the undertaking(s) involved in the violation. However, it is possible to request an exemption from this requirement, if it can be established that delaying the implementation of the merger could harm the undertakings concerned or their business partners and distort competition. The maximum time for the ICA to either approve, annul, or intervene in a merger is 115 working days, counting from the fi rst day after the ICA received a merger notifi cation fulfi lling the conditions set out in the Competition Act and Rules No 684/2008 on the Notifi cation of Mergers. Labour issues Labour matters also require attention in the context of M&A transactions under Icelandic law. Act No 72/2002 on Workers’ Rights in the Event of Transfers of Undertakings, stipulates that a transfer of an undertaking does not in itself constitute valid grounds for dismissal of workers or cessation of employment. However, dismissals for economic, technical or organisational reasons that entail changes in the workforce do not fall within the scope of the aforementioned Act. Pursuant to the Act, workers’ terms and conditions arising from existing contracts are transferred to the new employer upon transfer of an undertaking. Furthermore, the employer has a duty to disclose as the workers are entitled to certain information regarding the transfer, before the transfer is carried out. Finally,

GLI - Mergers & Acquisitions 2018, Seventh Edition 108 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London LEX Law Offices Iceland workers are not obliged to continue their employment if the change of ownership implies an adverse change for them with respect to their pre-existing terms and conditions of employment.

Signifi cant deals and highlights Below are the highlights of some of the largest transactions which took place (or were to take place) in 2017: Hagar hf. & Olíuverzlun Íslands hf. In April 2017 Hagar hf., a listed company owning a number of retail stores, announced the signing of a purchase agreement for the acquisition of the entire share capital in the petrol company Olíuverzlun Íslands hf. (“Olís”). According to NASDAQ Iceland, the total value of Olís was ISK 15.1 billion and the interest-bearing debt of the company amounted to just over ISK 5.9 billion. News coverage referred to the purchase price of the share capital being close to ISK 9.2 billion; subject to change, however, should the EBITDA for the year 2017 be higher than ISK 2.1 billion. The purchase price could increase to a maximum of ISK 10.0 billion should the EBITDA for the year 2017 be ISK 2.3 billion or higher. The purchase agreement was entered into subject to the results of due diligence, as well as the approval of the shareholders’ meeting of Hagar hf. for the increase of share capital and the approval of the ICA. In early 2018, the ICA objected to the proposed merger as it would distort competition. The ICA announced that the merger would not be approved without conditions. In March 2018, the merging parties withdrew their merger notifi cation. N1 hf. & Festi hf. In October 2017 N1 hf., a listed petrol company, announced the signing of a purchase agreement for all shares in Festi hf., a company operating a number of retail stores and with signifi cant real estate holdings. The announcement referred to the total value of Festi hf. being considered to be ISK 37.9 billion, with the fi nal purchase price, however, being determined by reference to Festi’s debts at the end of the current fi nancial year in February 2018. The purchase price was to be discharged by 76,086,957 shares in N1 hf. at the price of ISK 115 each, or ISK 8,750 million, and by additional borrowings by N1 hf. The estimated synergistic effect of the merger was between 500 and 600 million ISK, according to a report from N1. The transaction was subject to approval by the ICA. The proposed merger was notifi ed to the ICA in late October 2017. In late February 2018, the ICA responded by noting that it considered the proposed merger to distort competition and that it would not be approved without conditions. Following ongoing discussions and negotiations between the merging parties and the ICA, the merger notifi cation was withdrawn in mid-April. The merging companies announced that they would deliver a new merger notifi cation to the ICA in due course. Hagar hf. & Lyfja hf. In November 2016, Hagar hf., a listed company owning a number of retail stores, announced that it had signed a purchase agreement for all shares in Lyfja hf., a holding company for a number of pharmacies. The total value of Lyfja hf. was estimated at ISK 6.7 billion at that time. The purchase agreement was subject to the results of due diligence and approval by the ICA. In June 2017, the ICA annulled the proposed merger on the basis that it would have resulted in Hagar hf. strengthening its dominant position, and that harmful compression would have occurred in the markets in which Hagar and Lyfja both operate, not the least in the

GLI - Mergers & Acquisitions 2018, Seventh Edition 109 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London LEX Law Offices Iceland sanitary and cosmetics market where the merger would have resulted in the elimination of competition between the merging fi rms. The ICA considered the changes to have a detrimental effect on competition, the public and the economy, and thus it was inevitable to annul the merger. Kvika & Virðing In June 2017, Kvika hf., an Icelandic investment bank, made an offer for the acquisition of Virðing hf., a securities company. News reports suggested that the deal value had been ISK 2.65 billion. Both companies were licensed as fi nancial undertakings and the acquisition thus consolidated certain fi nancial services. The merger was subject to the approval of the ICA, which approved the merger in November 2017.

Key developments Certain key developments have taken place in the Icelandic transactional market in the last few years. These include: the liberalisation of the currency controls, which had been in place since 2008; case law from the courts on the tax effects of merger procedures; mergers being subject to conditions due to competition law issues; and increasing competition in the Icelandic market with the arrival of large-scale international companies to the Icelandic market. Lifting of the currency controls Since November 2008, Iceland had been subject to stringent currency controls. These were implemented shortly after the collapse of the Icelandic fi nancial system in October 2008 and were intended to minimise the effects of foreign currency transactions on the Icelandic economy. The currency controls involved wide-sweeping restrictions on most kinds of cross-border transfer of capital, including the granting and receiving of loans, transactions in securities, and foreign investment, to name but a few. The expansive application of the currency controls resulted in many (if not most) transactions involving a foreign element being required to apply to the Central Bank of Iceland for an exemption from the prohibitions of the currency controls. The basis for granting such exemptions was, however, frequently opaque and could take anything from a number of weeks to several months. With the lifting of the currency controls in March 2017 (although notifi cations to the Central Bank after the fact are still required in some cases), the Icelandic market presents a signifi cantly more hospitable environment for foreign investment. Reverse lateral merger In the late 2000s and early 2010s, it was fairly common practice in Iceland that a subsidiary would, through a merger, acquire its parent company, following a leveraged buyout where the parent purchased the subsidiary. However, in recent years, the practice became the focus of investigations by the Icelandic tax authorities. In numerous cases of such merger, the tax authorities concluded that the merged company, post-merger, was not allowed to deduct interest stemming from the loans related to the leveraged buyout. This resulted in reassessment of these companies’ income taxes, and taxes being increased, in some cases by hundreds of million ISK. A number of such rulings by the tax authorities have been challenged at the courts, without success so far. The rulings of the tax authorities have also given rise to a number of claims for damages against advisory fi rms, which provided advice on the process, although such claims have been without success so far. Competition law developments In the years following the fi nancial crisis, a signifi cant part of the mergers processed by the ICA involved banks taking over commercial undertakings, for the purposes of fi nancial

GLI - Mergers & Acquisitions 2018, Seventh Edition 110 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London LEX Law Offices Iceland restructuring and reselling of the companies, their commercial business, or assets on the open market. Although most of the cases in question involved conglomerate mergers, the ICA established detailed conditions for the banks’ ownership of these companies to ensure that such ownership would not lead to harmful disruptions to competition as a result of these unusual circumstances. The current enforcement concerns of the authorities remain connected to the aftermath of the economic crisis in 2008, where pension funds’ involvement in ownership of commercial undertakings has increased substantially, which has raised concerns within the ICA, which believes that this can possibly impede competition, especially if the same pension funds hold shares in two or more competitors. Increasing competition from large-scale international business Finally, recent merger cases involving large international retail businesses and oil companies, as well as the increase in e-commerce, give cause for refl ections as to the effect of the entry of large international retailers to the Icelandic market and the opening of markets through the internet. The effect on the wholesale and retail sectors of such competition remains to be seen, although the proposed consolidation of companies in potentially synergistic business sectors, as set out in “Signifi cant deals and highlights” above, may be an early indication of the response by Icelandic companies to such international competition, as well as the high number of mergers in the consumer goods sector, as demonstrated in the table in the section below.

Industry sector focus Mergers notifi ed to the ICA in 2017 were classifi ed into industry sectors as follows:2

Sector Number Building services – Manufacture of construction material 2 Consultancy services and other services 5 Consumer goods, supplies etc. 28 Energy – Electricity (production, transportation, distribution and sales) 1 Environmental issues 2 Financial services 3 Industrial production, not specifi ed elsewhere – Consumer goods, supplies etc. – 1 Various non-specifi ed consumer goods Telecommunications, information technology and media – Broadcasting 4 Transportation and tourism 10

The year ahead The outlook for the Icelandic M&A market in 2018 is positive. Several companies are currently considering listing on the NASDAQ Iceland stock exchange and others are considering dual listing in different jurisdictions. Furthermore, the Government is contemplating further divestment of its holdings in the fi nancial sector and a sales process is already ongoing with respect to the shares in Arion bank hf. Also, as can be seen from the highlighted deals referred to above, the current market trend is in the direction of increased consolidation, both within potentially synergistic business sectors and cross-sectors. It is likely that this trend of consolidation will continue throughout the year 2018. In a transaction that took place this April, the sale of an approximately 35% share in the

GLI - Mergers & Acquisitions 2018, Seventh Edition 111 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London LEX Law Offices Iceland listed fi sheries company HB Grandi hf. was announced, triggering the obligation to submit a takeover bid to all other shareholders of HB Grandi hf. Furthermore, the lifespans of some of the private equity funds set up as part of the pension funds’ investments post 2008 are now reaching their end. Thus, it is likely that some of these investments will be divested in the near future, which will in turn generate further opportunities on the Icelandic M&A market.

* * *

Endnotes 1. Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings. 2. Based on the classifi cation categories used by the ICA itself.

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Garðar Víðir Gunnarsson Tel: +354 590 2600 / Email: [email protected] Garðar Víðir Gunnarsson joined LEX in 2009 and has been a Partner since 2013. He is the fi rm’s leading specialist in tax law and M&A and frequently advises clients, both domestic and international, on various-sized M&A transactions’ tax-related matters. Garðar’s practice is particularly focused on corporate taxation, mergers & acquisitions and cross-border investments. In addition, Garðar specialises in corporate law and is one of the country’s chief specialists in the fi eld of arbitration law. He is a member of, inter alia, the Icelandic Bar Association, the ICC International Court of Arbitration and the International Council for Commercial Arbitration. He has been a lecturer at Reykjavík University since 2008. He holds an LL.M. degree in International Commercial Arbitration Law from Stockholm University.

Helgi Þór Þorsteinsson Tel: +354 590 2600 / Email: [email protected] Helgi Þór Þorsteinsson joined LEX is in 2006 and has been a Partner since 2018. Helgi is a member of LEX’s banking and fi nance team and has advised numerous clients, both foreign and domestic, on fi nancings, collateral, capital markets and company law. Recently, Helgi has been involved in a signifi cant number of large-scale fi nancings to Icelandic corporates in addition to advising on securities issuances, and the buying and selling of companies. Helgi is a member of the Icelandic Bar and an experienced litigator before the Icelandic courts. He holds an LL.M. degree in International Financial Law from King’s College London.

LEX Law Offi ces Borgartúni 26, 105 Reykjavík, Iceland Tel: +354 590 2600 / URL: www.lex.is

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Apoorva Agrawal, Sanjeev Jain & P. Srinivasan PRA Law Offices

Overview M&A activity in India in 2017 experienced a slowdown and recorded only US$ 55bn worth of deals in comparison to approximately US$ 60bn of 2016. Even though the deal value of 2017 was only slightly lower than 2016, the deal volume dipped by almost 16%. However, after experiencing a fall in 2016, Private Equity (“PE”) activity picked up and India received a record high investment of more than approximately US$ 23bn in 2017. PE exits also increased considerably in 2017 in comparison to 2016. While outbound M&A in 2017 was stable, on the other hand, inbound deals went down by approximately 15%. Q1 of 2017 witnessed increased activity in the M&A space attributable to the spillover of the ‘feel good’ factor of the surging economy attributable to the various reforms, including relaxation of Foreign Direct Investment (“FDI”), by the Government of India. Consequently, India contributed almost 13.2% to total deal value in the Asia-Pacifi c region, which is the highest recorded since 2001. However, the effects of demonetisation,1 and procedural roadblocks in the implementation of Goods and Services Tax (“GST”), were experienced in the second half of 2017 which seemingly led the GDP of the Indian economy to decelerate to 5.7%, the lowest in three years. M&A activities slowed down considerably in Q3 of 2017, wherein deal value declined by 63.4% as compared to the same period in 2016. Legal framework The following governs the regulatory framework of M&A in India: Law governing companies The Companies Act, 2013 (“2013 Act”), after much deliberation, was passed by the Parliament of India and notifi ed in August 2013, which replaced the erstwhile Companies Act, 1956 (“1956 Act”). Apart from a special criterion for Producer Companies (i.e. companies with objects involving farmers’ produce) as laid down in Chapter IX-A of the 1956 Act, the 2013 Act is in full swing as on date. National Company Law Tribunal (“NCLT”) and National Company Law Appellate Tribunal (“NCLAT”) The NCLT and NCLAT have been constituted under the 2013 Act to provide for a mechanism for corporate restructuring activities, insolvency and bankruptcy of corporates and other corporate actions which require approval from the tribunal. The Ministry of Corporate Affairs (“MCA”), with effect from 15th December 2016, transferred all the proceedings relating to the compromise arrangements and reconstruction of companies under the 1956 Act, pending with the State High Courts of the country, to the jurisdictional NCLTs.

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Compromises, arrangements and amalgamations The provisions under the 2013 Act concerning schemes of mergers, amalgamations, demerger, compromise or arrangement amongst companies, their shareholders and/or creditors were enforced towards the end of 2016. The jurisdictional NCLTs have cleared many schemes in the past year and have provided reasonable clarity concerning the provisions of the Act. The provisions relating to compromises, arrangements and amalgamations are applicable to private and public companies, equally. Further, the MCA has notifi ed the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 which specifi cally lay down the procedure to be followed by the NCLT/ NCLAT in cases involving compromises, arrangements or amalgamations. In addition, during 2017, the MCA notifi ed the provisions of the 2013 Act which contemplates the merger or amalgamation of an Indian company with a foreign company with effect from 13th April 2017. While merger or amalgamation between an Indian company and a foreign company was not expressly provided under the erstwhile 1956 Act, certain state High Courts had approved such transactions on a case-by-case basis, with conditions. However, the new regime under the 2013 Act specifi cally provides for such cross-border corporate restructuring. Furthermore, certain benefi cial provisions under the 2013 Act were notifi ed which provide for a fast-track route for certain companies including two unrelated small companies (private companies which do not have a paid-up share capital of more than INR 5m), and between a holding company and its wholly owned subsidiary. M&A between such companies have been made possible without approaching the jurisdictional NCLT. Takeover Code and Listing Agreement The Securities and Exchange Board of India (“SEBI”) regulates M&A transactions involving entities listed on recognised stock exchanges in India. Listed public companies, in addition to the 2013 Act, are required to be in compliance with applicable SEBI laws and the listing regulations. The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Code”) regulates both the direct and indirect acquisition of shares, voting rights and control in listed companies that are traded over the stock market. SEBI also notifi ed the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Listing Regulations”) which replaced the erstwhile Listing Agreements (entered into by a company with a recognised stock exchange). Under the Listing Regulations, entities are required to execute a fresh Uniform Listing Agreement with stock exchange(s), in the format prescribed by SEBI. Laws regulating Foreign Direct Investment The Foreign Exchange Management Act, 1999 (“FEMA”) and the rules and regulations made thereunder regulate foreign exchange transactions. The Reserve Bank of India is responsible for the formulation and enforcement of foreign exchange regulations. FDI is regulated by the FEMA and the FDI Policy, formulated by the Department of Industrial Policy and Promotion (“DIPP”) of the Ministry of Commerce and Industry of the Government of India. FDI Policy provides for sector-specifi c regulations, in the form of investment caps, requirements for investment, and sectors in which FDI is prohibited (such as gambling, atomic energy and agricultural activities). Under the FDI Policy, an overseas investor can make an investment in India either under

GLI - Mergers & Acquisitions 2018, Seventh Edition 115 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London PRA Law Offices India the ‘automatic route’ (i.e., without requiring any prior approval for FDI from the concerned Administrative Ministries/Departments) or under the ‘approval route’ (i.e., requiring prior approval for FDI from the concerned Administrative Ministries/Departments). Any infl ow that is covered under the ‘approval route’ and is more than INR 5,000 Crore (INR 50bn) requires prior approval of the Cabinet Committee on Economic Affairs, a special committee formed to oversee the economic policy framework of the Government of India. Competition/Anti-trust laws Anti-trust issues in India are regulated by the Competition Act, 2002 which replaced the Monopolies and Restrictive Trade Practices Act, 1969. The Competition Commission of India (“CCI”) has notifi ed the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (“Combination Regulations”), which regulate ‘combinations’ such as mergers and acquisitions which are likely to cause an appreciable adverse effect on competition in the relevant market in the country. Other relevant laws Other relevant laws that govern M&A transactions are the Income-tax Act, 1961, laws relating to goods and services tax, and stamp duty on certain instruments.

Signifi cant deals and highlights Even though the total M&A in 2017 dipped, the sectors of telecommunication, technology and fi nancial services saw increased activities and dominated the market in 2017 as compared to 2016. Telecommunications (“Telecom”) Deal value in the telecommunications sector topped 2017 and rose to approximately US$ 20.4bn in 2017, from US$ 718m in 2016. Some of the major deals in the year are discussed below. • Vodafone – Idea This deal was the highlight of 2017 and is expected to result in the creation of India’s largest telecom operator, worth more than US$ 23bn and with a 35% market share. The merger between UK-based Vodafone Group Plc’s India unit – Vodafone India Limited (“Vodafone”) – and Idea Cellular Limited (“Idea”) was announced in March 2017. All the operations of the two companies, excluding Vodafone’s 42% stake in Indus Towers Limited, would be amalgamated. Post the completion of the merger, Vodafone will own 45.1% of the combined entity. On the other hand, the promoters of Idea would hold 26% of the new entity while the rest would be held by the public. The combined entity of Vodafone and Idea would take the fi rst position in the Indian market, which up to now has been occupied by Bharti Airtel in India, and provide tough competition to Reliance Jio Infocomm Limited, which has entered the telecom market recently. Furthermore, the amalgamation would also leverage the 3G and 4G spectrums of the two entities to capture a market which is tilting towards consumption of data services. The merger has already been approved by the market regulators, SEBI and CCI. One of two jurisdictional NCLTs have sanctioned the scheme of amalgamation between the two telecom companies in early 2018. However, a pertinent approval of the Department of Telecommunications is awaited by the companies to formalise the amalgamation.

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• Airtel – Telenor and Airtel – Tata Teleservices The merger between the telecom major Bharti Airtel Limited (“Airtel”) and Indian unit of Norwegian fi rm Telenor (India) Communications Private Limited (“Telenor”) was approved by the Boards of the companies in February–March 2017. The acquisition of Telenor by Bharti Airtel would boost Airtel’s 4G spectrum holdings, thereby sustaining its market share in light of the Vodafone–Idea deal. Also, Airtel would acquire the employees and approximately 44 million customers of Telenor. Additionally, in a composite scheme of arrangement, the consumer mobility business of Tata Group Companies – Tata Teleservices Limited (“TTSL”) – and its listed Tata Teleservices (Maharashtra) Limited (“TTML”) unit would merge with Airtel. In this cash-free deal announced in October 2017, Airtel would absorb the employees of TTSL and also partly pay its spectrum-related liability to the authorities. Airtel would also acquire the spectrum and approximately 40 million subscribers of TTSL to increase its hold in the market. Both the mentioned deals have received the nods of SEBI and CCI. Certain other statutory approvals are, however, still pending to be received for fi nalisation of the arrangement. • Reliance Jio – Reliance Communications This deal involves the purchase of wireless assets including telecom towers, spectrum, optic fi bre network and media convergence assets by Reliance Jio Infocomm Limited (“RJio”) of Reliance Communications Limited (“RCom”) for a whopping US$ 3.7bn. This deal is seen as a move to restructure its debts by RCom, and a strategic move to strengthen its place in the telecom sector in India in the wake of increased consolidations of companies involved in telecom services. Private Equity (PE) PE activity saw large amounts being invested in the Indian economy in 2017, which was the highest since 2015. The amplifi ed investor confi dence can be attributed to the stable government and instrumental macroeconomic changes in the regulatory landscape of India. A series of investments valuing up to US$ 4bn was made by Japanese investor Softbank Group Corporation (“Softbank”) in India in 2017. For instance, in May 2017, an amount of US$ 1.4bn was invested by Softbank into the digital payment platform (of One97 Communications Private Limited). Similarly, in November 2017, Softbank also invested around US$ 2.4bn in Flipkart Limited (“Flipkart”), the biggest e-commerce platform in the country, following primary fund infusion and share purchase from Flipkart shareholders in August 2017. Indian taxi aggregator Ola Cabs (ANI Technologies Private Limited) also raised approximately US$ 1.1bn from Softbank and China’s Tencent Holding Limited, in a move to strengthen its position in comparison to its rival Uber. Apart from the above, in light of the rising non-performing assets, Axis Bank Limited, the third-largest private sector bank in the country, raised an amount of US$ 1.8bn from US- based investment fi rm Bain Capital, and fi nancial service fi rm Capital Group. In another deal, KKR & Co. L.P and Canada Pension Plan Investment Board bought a 10.3% stake in telecom tower company and Airtel’s Subsidiary, Bharti Infratel Limited, for US$ 948m from Airtel. 2017 also saw one of the largest FDIs in the Indian real estate sector, wherein the Singaporean sovereign wealth fund GIC Pte. Ltd acquired a 33.34% stake in DLF Cyber City Developers Limited from DLF Limited for approximately US$ 1.39bn.

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Key developments The period since 2014 has seen historic changes in the legal and regulatory scenario in India. Bold moves such as ‘Make in India’, ‘Digital India’ and ‘Swachh Bharat’ (clean India) have changed the economic landscape of the country, ushering in an era of increased investments and consolidations. Be it the implementation of the GST or the consolidation of the insolvency regime for corporates and natural persons in one legislation, investor confi dence has grown, and the effects can be seen in the economic growth achieved by India in these last few years. 2017 has been a lively year for the M&A space in the country. Abolition of Foreign Investment Promotion Board (“FIPB”) In May 2017, the Government of India phased out the 25-year-old FIPB, the inter-ministerial body responsible for the processing of FDI proposals. Post the abolition of FIPB, responsibility for granting approval to FDI proposals has been entrusted to the concerned Administrative Ministries/Departments. The Foreign Investment Facilitation Portal (“FIFP”) is the new online single-point interface of the Government of India for investors, for the submission of proposals for FDI. Proposals for FDI are to be examined by concerned Administrative Ministries/Departments, as per the Standard Operating Procedure laid down by DIPP. FDI Policy further liberalised As in Q1 of 2017, approximately 95% of the FDI proposals accessed the automatic route and did not require the approval of the Government. After the relaxation of FDI in June 2016, India became one of least restricted economies for FDI in the world. Per the statistics released by DIPP, FDI in India during April–September 2017 stood at almost US$ 34bn. Furthering its efforts to improve the ease of doing business and relaxation of the FDI norms, the Government of India further liberalised FDI in 2017 and in early 2018, to augment its objective of making India one of the most attractive nations to invest in. In light of this, the FDI Policy of 2017 provided for 100% FDI in food retail, including through e-commerce, through the automatic route in respect of food products manufactured/produced in India. Also, FDI Policy 2017 allows the conversion of an FDI-funded LLP into a company and vice-versa, which was not permitted previously, conditional upon certain requirements. Furthermore, in January 2018, FDI in Single Brand Trading was increased to 100% under the automatic route, from the previous 49%. Additionally, a single brand trading entity has been permitted to set off incremental sourcing of goods in India for global operations against the mandatory sourcing requirement of 30% purchases from India, subject to certain conditions. Moreover, 100% FDI in Non-Banking Financial Institutions by the automatic route is now permitted. Outbound cross-border mergers The erstwhile 1956 Act did not provide for the merger of an Indian company with a foreign company. This position had changed with the enactment of the 2013 Act. The MCA notifi ed the relevant provisions of the 2013 Act by which an outbound cross-border merger is also possible. In relation to this, corresponding amendments were also made to the Companies (Compromises, Arrangement and Amalgamation) Rules, 2016 for ensuring the operationalisation of the provisions. However, a merger or amalgamation of an Indian company is permitted only with those foreign entities which are situated in permitted jurisdictions which qualify as such, per the requirements set out by the Government of India. Companies (Amendment) Act, 2017 The Companies (Amendment) Act, 2017 (“2017 Amendment”) received the assent of the President of India on 3rd January 2018 and will come into force on such date as may

GLI - Mergers & Acquisitions 2018, Seventh Edition 118 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London PRA Law Offices India be appointed by the Central Government through a notifi cation in the Offi cial Gazette. The 2017 Amendment purports to address certain diffi culties that existed in the 2013 Act and, in some cases, attempts to bring some much-needed clarity to existing requirements under the 2013 Act. The 2017 Amendment also aims at harmonising the 2013 Act with the Accounting Standards, SEBI and FEMA for facilitating the ease of doing business in the country. For instance, the 2017 Amendment has clarifi ed that the expression ‘holding company’ would include a ‘body corporate’, which can be a foreign company. Insolvency and Bankruptcy Code (Amendment) Act, 2018 A distinguishable change brought in the regulatory scenario of India was the Insolvency and Bankruptcy Code, 2016 (“Code”). The Code, which consolidated the scattered law on the subject, provides for time-bound settlement of matters regarding insolvency and bankruptcy of corporate and natural persons. The Code has put the creditors in control of the corporate insolvency process, which has boosted investor confi dence thereby improving the debt recovery timelines and maximisation of asset value. The Code underwent some signifi cant amendments in 2017 per the inputs and suggestions received from the stakeholders to plug the lacunae in the law, for a better functioning of the Code. The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 (“Ordinance”) was assented by the President of India in November 2017 with a view to bring certain amendments into force with immediate effect. The modifi cations made by the Ordinance were crystallised by the Insolvency and Bankruptcy Code (Amendment) Act, 2018 (“IBC Amendment”), which came into force in mid-January 2018. The Ordinance/IBC Amendment has brought personal guarantors of corporate debtors within the ambit of the Code. Furthermore, based on the criteria laid down in the Code, certain persons have been barred from making bids for companies under insolvency. For example, the management or the promoters of a company under insolvency are excluded from bidding for the company, in case they have been holding non-performing assets for more than a year or provided guarantee to a creditor of a company under insolvency, among others. This amendment aims at bringing transparency to the operation of the Code. In light of the above, foreign players who have partnered with the promoters of an Indian company under insolvency need to conduct a proper due diligence prior to making bids, in light of the Ordinance/IBC Amendment. Implementation of GST The regime of the GST was implemented in India from July 2017. The Constitution (122nd Amendment) Bill, 2014 passed by both the Houses of Parliament in August 2016, provided a framework for a goods and services tax. GST has replaced all the indirect taxes such as excise duty, sales tax and service tax in the country, thereby consolidating and simplifying the prevalent complex tax regime. Since July 2017, the Government of India has introduced the GST rules, the tax rates for the goods and services and the exemption list. The Government has been proactive in resolving the issues being faced by it and the business community, post the implementation of the GST. Certain hurdles such as the IT systems and solutions, classifi cation and valuation of goods and services, which were not contemplated prior to rolling out the GST, have decelerated economic growth to a certain extent. However, providing benefi ts to players by way of relaxation of tax rates for goods and services, introduction of an e-wallet system for crediting refund to exporters, etc. by the Government have been a relief to the business world.

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Even with all the practical challenges posed, the GST has been a welcome reform and is a huge step towards the ease of doing business in India. M&A transactions in the country are expected to rise in future, in light of a simplifi ed and universal indirect tax regime in place.

Industry sector focus Telecom The overall M&A market may not have been very eventful in 2017, however, deal value in the telecom sector increased by an astounding 28.4 times, to US$ 20.4bn in comparison to 2016. The telecom sector contributed approximately 37% to India’s total deal value in 2017. The reformist and liberal attitude of the Government of India has greatly contributed towards the rapid growth of the telecom sector. The ‘Digital India Program’ has initiated a wave of technological awareness in the country. The campaign aims at digital literacy of the people of India, thereby increasing the online infrastructure of the country. The relaxed FDI norms of the sector have acted as a catalyst to increased M&A activity in the sector. Per the statistics compiled by DIPP, the telecom sector has seen FDI worth US$ 30.08bn during the period April 2000 to December 2017. Furthermore, consolidations and restructuring in the Indian telecom sector seen in the last two years can also be credited to a new entrant, Reliance Jio Infocomm Limited (RJio), in 2016. The competitive pricing and the deals offered by RJio to its customers pushed the entire telecom industry into overhauling and rewriting their future strategies. The consolidations of Vodafone–Idea, or Airtel–Telenor and Airtel–Tata Teleservices, are the biggest examples whereby drastic steps have been taken by companies for survival in a competitive market.

The year ahead 2017 has been a stable year for M&A activity in the country. With continued political stability since 2014, the current Government has left no stones unturned for reforming the business environment in India. In fact, India is now among the top 100 nations in terms of ease of doing business. Per the World Bank’s Report on Ease of Doing Business 2018, India has climbed up 30 positions to mark its space in the world. In partnership with the World Bank Group, DIPP released a Business Reform Action Plan 2017 (“BRAP 2017”) for implementation by the States in India. This move was in line with the ‘competitive federalism’ promoted by the Government to bring in reforms in the States by encouraging healthy competition amongst them. The BRAP 2017 included 405 recommendations for reforms to regulatory processes, policies, practices and procedures spread across 12 reform areas including labour and environmental regulation, contract enforcement, registration of property, single window system, payment of taxes and certain sector-specifi c reforms. Even though the investor sentiment has been haphazard in the past decade, moving from second position to take the top one, India was ranked as the most attractive emerging market for global partners investment in 2017 per the market attractiveness survey conducted by the Emerging Market Private Equity Association. In 2013, India had ranked as low as ninth out of the 10 geographies included in the survey. Furthermore, per the report of the World Bank, ‘India Economic Update’ of 2017, it has been forecast that the private investment scenario in India is likely to grow by almost 8.8%

GLI - Mergers & Acquisitions 2018, Seventh Edition 120 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London PRA Law Offices India in FY 2018–19 to overtake private consumption as the main driver of India’s GDP growth. With general elections of the Lok Sabha (House of the People) in the pipeline for 2019, 2018 may be expected to have increased activity in the M&A space. The increased business opportunities in the country, with an investor-friendly environment and a liberal outlook of the Government in refurbishing the legal and regulatory scene of India, the M&A space for 2018 appears to be positive.

Sources The statistics, fi gures and information contained in this chapter are based on the reports of Mergermarket India and VCCEdge India, which are fi nancial research platforms and have been collated from other fi nancial, company and government websites.

* * *

Endnote 1. In November 2016, the Legal Tender status of INR. 500 and INR. 1,000 denominations of banknotes of the Mahatma Gandhi Series issued by the Reserve Bank of India were withdrawn by the Government of India.

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Apoorva Agrawal, Associate Tel: +91 11 4067 6767 / Email: [email protected] Apoorva Agrawal, an Associate at PRA Law, focuses her practice in the areas of Labour Laws, Intellectual Property Rights, Mergers and Acquisitions, Food Safety and Legal Metrology Laws and Real Estate Laws. Apoorva’s practice verticals include advising clients engaged in the FMCG sector, telecom and automotive components. Apoorva is part of the acquisition team which is involved in conducting legal audits and due diligence for various domestic and multi-national companies. Apoorva has made presentations on topics relating to e-commerce and challenges, sexual harassment in the workplace and labour laws. She has contributed articles to various websites and journals. In addition to the above, Apoorva has been involved in various pro bono activities including voluntary service with local non-government organisations. Sanjeev Jain, Partner Tel: +91 11 4067 6723 / Email: [email protected] Sanjeev Jain is a partner at PRA Law and began his practice with an established law fi rm based in prior to his association with PRA. Presently, his practice areas focus on corporate and commercial laws, mergers and acquisitions, insolvency and bankruptcy laws, competition laws and real estate. Sanjeev has handled matters relating to mergers and acquisitions for leading national and international companies in sectors relating to software, foods and drinks, pharmaceuticals, household fi ttings, automotive components, FMCG Products, IT/ITES industry, infrastructure and mining, fi nancial services, amongst others. Sanjeev advises leading multinational companies in negotiating contracts with vendors, customers and third parties and has assisted various international companies in establishing their presence in India. Sanjeev has made presentations on topics relating to mergers and amalgamations, and competition laws and has submitted articles to various international journals and magazines.

P. Srinivasan, Partner Tel: +91 11 4067 6703 / Email: [email protected] P. Srinivasan is a Partner at PRA Law and a graduate in Mathematics, and received his Bachelor’s degree in Law in 1992. He is qualifi ed in areas of Finance, Cost Accounting and Company Secretarial areas. Srini’s practice is focused in the areas of corporate and commercial laws, and he spends a substantial part of his time advising clients on matters relating to restructuring, including mergers and acquisitions. As part of his work, he has been conducting extensive due diligence exercises in diverse sectors, and has also been assisting clients in negotiating and executing transaction documents. He has advised clients in areas relating to entry strategies for foreign investors, internal and external restructuring, mergers and acquisitions, apart from ongoing corporate legal advice to clients in different sectors. Srini has contributed to various publications and also written a monograph on Competition Law in India for a European publication. PRA Law Offi ces W-126, Ground Floor, Greater Kailash II, New Delhi- 110048, India Tel: +91 11 4067 6767 / Fax: +91 11 4067 6768

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Barli Darsyah & Eric Pratama Santoso Indrawan Darsyah Santoso, Attorneys At Law

Overview Indonesia is a civil law country and an emerging market, wherein local companies are mostly owned by either families or, in the case of state-owned companies, by the government. As home to more than 260 million people, Southeast Asia’s biggest economy has long been recognised as a big market for global corporations. Since taking presidential offi ce in October 2014, President Joko Widodo has stressed the importance of creating a more business-friendly environment so as to improve the perception of Indonesia as a major investment destination. Through his series of economic policy packages, the President has focused on cutting red tape and investment costs as well as fast- tracking business-licensing processes in various business sectors by instructing all ministries and regional administrations to gradually streamline their business licensing regulations. These policy packages are proving to bear fruit, as the ranking of Indonesia in the World Bank’s Ease of Doing Business chart shows steady improvement: Indonesia ranks 72 in 2018,1 climbing from 109 in 2016,2 and 91 in 2017.3 According to the 2017 edition of Duff & Phelps’s Transaction Trail (“Duff & Phelps”), M&A deal volume during 2017 reached a total of 137 deals in Indonesia, with a total announced deal value of around US$ 6.6 billion.4 Duff & Phelps also points out that M&A deal activity in 2017 continued to witness a strong momentum in transaction volume; however, M&A deal values were lower in 2017 compared to US$ 8.4 billion in 2016.5 For M&A activities in Indonesia, appetite from foreign investors depends on several determining factors; among others, the potential for economic growth, ease of doing business, political stability and legal certainty. We list below the laws and regulations relevant to M&A transactions in Indonesia that we have used in the preparation of this chapter: • Law No. 40 of 2007 on Limited Liability Company (“Company Law”); • Law No. 25 of 2007 on Investment (“Investment Law”); • Law No. 8 of 1995 on Capital Markets; • Law No. 5 of 1999 on Prohibition of Monopolistic Practices and Unfair Business Competition; • Law No. 13 of 2003 on Manpower (“Manpower Law”); • Government Regulation No. 27 of 1998 on Merger, Consolidation and Acquisition of Limited Liability Company; • Government Regulation No. 57 of 2010 on Merger or Consolidation of Business Entity

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and Acquisition of Company Shares which May Cause Monopolistic Practices and Unfair Business Competition; • Presidential Regulation No. 44 of 2016 on List of Lines of Business Closed and Conditionally Open to Investment (“2016 Negative List”); • Regulation of Head of Investment Coordinating Board (Badan Koordinasi Penanaman Modal or “BKPM”) No. 13 of 2017 on Guideline and Procedures of Licensing and Investment Facility; • Bapepam-LK Rule No. IX.H.1 on Public Company Takeover (“Rule No. IX.H.1”); • Financial Services Authority (Otoritas Jasa Keuangan or “OJK”) Rule No. 74/ POJK.04/2016 on the Merger or Consolidation of Public Companies; and • other sector-specifi c laws and regulations (along with certain others cited in the elaboration below). It is important to note that different M&A rules apply to publicly listed companies, foreign investment companies (companies with foreign shareholding), and companies engaging in certain business sectors. The rules for these types of companies either take precedence or complement the general M&A laws and regulations. M&A-related rules in Indonesia vary from sector to sector, and may include: limitations on foreign shareholding; a requirement to report or obtain prior approval for changes in share ownership; a requirement to divest after a certain period; requirement to enter into a joint venture with local companies engaged in a similar sector; a restriction on being the controller of more than one company; “fi t and proper” test for the controlling shareholder; and holding company restrictions. The Company Law generally provides the following types of M&A transaction: merger; consolidation; acquisition; and spin-off. • Merger is when one company or more merges into another company, resulting in assets and liabilities of the merging company being transferred by operation of law to the surviving company, and consequently the merging company dissolves by operation of law (without liquidation). • Consolidation is when two companies or more consolidate themselves, resulting in the existence of a newly consolidated company which, by operation of law, acquires the assets and liabilities of the consolidating companies, and consequently the consolidating companies dissolve by operation of law (without liquidation). • Acquisition is when a legal entity or person acquires shares in a company resulting in a change of control of the said company. • Spin-off is when: (i) all of the assets and liabilities of a company are being transferred by operation of law to two companies or more, and consequently the transferring company dissolves by operation of law (without liquidation); or (ii) a part of the assets and liabilities of a company are being transferred by operation of law to one or more companies, in which case the transferring company still maintains its existence. In practice, acquisition has proven to be the most popular type of M&A transaction, considering the straightforward procedure and the method of entering the Indonesian market by acquiring already operational companies or expanding an investor’s already existing business in Indonesia. Merger comes second, and is usually undertaken by a certain group

GLI - Mergers & Acquisitions 2018, Seventh Edition 124 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Indrawan Darsyah Santoso, Attorneys At Law Indonesia to unify several companies within its group for effi ciency and branding purposes. Spin-off is rarely undertaken, save for some cases where an existing company with multiple businesses is forced under the prevailing regulations to engage in one particular business sector, obliging the company to spin-off the other businesses. Consolidation is the least popular type, as business owners typically prefer to undertake a merger transaction and maintain one surviving company compared to having a new company as a result of consolidating two or more companies.

Key issues of M&A transactions Change of control Referring to how the term ‘acquisition’ is defi ned under the Company Law, there must be a change of control of the target company for a transaction to be qualifi ed as an acquisition transaction. If the intended transaction will cause a change of controller of the target company, there are strict procedural steps to be complied with under the Company Law, which inevitably prolongs the time needed to consummate the transaction. The procedural steps involve, among others: announcements in an Indonesian daily newspaper (addressed to creditors of the target company) and in writing to employees of the target company regarding the proposed transaction; the need to sign the sale and purchase of shares agreement in notarial deed form; and another newspaper announcement regarding completion of the transaction. The foregoing steps are not mandatory for transactions which do not cause a change of control of the company. Having said the above, the Company Law does not provide a defi nition or threshold of ‘control’. In practice, the generally accepted interpretation of ‘control’ is the ability to infl uence, directly or indirectly, the management and/or policies of a company. In its implementation, control may be gained through various means, e.g. by ownership of more than 50% issued shares (either individually or acting in concert), control over the majority of voting rights, and/or the ability to control and nominate key management positions in a company. In the context of public companies, Rule No. IX.H.1 defi nes ‘controller’ as a party (i.e. an individual, a company, a partnership, an association or an organised group) that: (i) owns more than 50% of the total paid-up shares; or (ii) has the ability to determine, directly or indirectly, in whatsoever manner, the management and/or policies of a public company. The concept of control does not only mean owning more than 50% shares of the public company. The key element would be whether or not after the transaction, even though the existing controller owns less than 50% shares, it retains control over the public company due to the consideration of point (ii) above. Caution should be exercised when each of several parties owns less than 50% shares but they are seen to form an organised group that cumulatively owns more than 50% shares. An organised group exists when members of the group have a similar plan, agreement or decision to work for a certain goal. The words ‘a certain goal’ refer to control and consequently, the organised group will be deemed to be a controller. In light of the foregoing, the determination of whether a transaction triggers a change of control needs to be made on a case-by-case basis. Foreign investment General requirements The Investment Law dictates that foreign investments in Indonesia must be conducted in the form of a foreign investment company (PT Penanaman Modal Asing or “PMA Company”)

GLI - Mergers & Acquisitions 2018, Seventh Edition 125 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Indrawan Darsyah Santoso, Attorneys At Law Indonesia established under Indonesian laws and domiciled within Indonesian territory. The general requirements applying to PMA Companies are as follows: • The total investment is more than IDR 10 billion or its equivalent in US$, not including the value of land and buildings, subject to certain statutory exceptions. • Out of such total investment amount, at least IDR 2.5 billion, or its equivalent in US$, must be injected as the issued and paid-up capital of the PMA Company. • The minimum capital participation by each shareholder in a PMA Company is IDR 10 million or its equivalent in US$. It is important to note that a company is considered to be a PMA Company, and hence will be subject to PMA Company requirements, if there is a foreign shareholder owning even one share in the said company. Foreign investments in certain business sectors do not fall under the BKPM’s jurisdiction. For example, in the fi nancial services sector, OJK as the main authority has its own set of regulations overseeing the procedure and requirements of foreign investment in fi nancial services. Negative List and grandfather clause In the context of M&A transactions, foreign investors must fi rstly observe whether the line of business of the target company is open to foreign investments. The Indonesian Government has issued the 2016 Negative List (periodically updated, taking into account the business environment in Indonesia), which determines and itemises the lines of business that are closed and conditionally open to foreign investments. When a certain line of business is not expressly specifi ed in the 2016 Negative List, the general presumption is that such line of business is open to 100% foreign investment. Due to the limitative nature of the 2016 Negative List, normally additional research needs to be conducted at the BKPM to ascertain whether the intended line of business is fully open or conditionally open to foreign investment. Aside from foreign shareholding limitations, for certain lines of business, the 2016 Negative List also sets out other requirements pertaining to location of the business, specifi c licences to be obtained or the need to enter into partnership with local businesses. Depending on the line of business of the target company, sector-specifi c laws and regulations may also set out foreign shareholding limitation, divestment requirement, or shareholder eligibility criteria, among others, in banking and mining sectors. When a foreign investor intends to acquire a local target company having two lines of business or more, analysis must be done on whether there is a foreign shareholding limitation on each of the relevant lines of business. If a company has two separate lines of business, each with its own foreign shareholding limitation, the more restrictive limitation applies. For example, if a company engages in both (i) employee outsourcing services (with maximum of 49% foreign shareholding), and (ii) job training services (with maximum of 67% foreign shareholding), then the foreign investor may only own up to 49% shares in the company. On the other hand, the foreign shareholding limitations stipulated in the 2016 Negative List may not apply in the context of a M&A transaction pertaining to an already existing PMA Company. The 2016 Negative List contains the so-called ‘grandfather clause’ which allows PMA Companies to retain their foreign shareholding percentage in the event of merger or acquisition, as further elaborated below: • In the event of a merger, the surviving company may retain the foreign shareholding composition as already stated in its investment licence.

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• In the event of an acquisition, the target company may retain the foreign shareholding composition as already stated in its investment licence. • In the event of a consolidation, the newly consolidated company (as a result of consolidation of two or more companies) must adhere to the foreign shareholding limitation prevailing at the time of its establishment. In some cases, the grandfather clause cannot be applied due to the existence of a sector- specifi c law or regulation which governs its own foreign shareholding limitation. For instance, in October 2009 the Government enacted Law No. 38 of 2009 on Post (“Post Law”) which stipulates that a foreign post operator that intends to engage in courier services business in Indonesia must enter into a joint venture with a local post operator, where the majority shares in the joint venture company must be owned by the local post operator. The Negative List prevailing in 2007 (prior to the issuance of the Post Law) did not limit foreign shareholding in non-small scale courier services business, thus there have been PMA Companies majority-owned by foreign shareholders. To implement the Post Law, the Government further enacted Government Regulation No. 15 of 2013 on Implementation of Law No. 38 of 2009 on Post (“GR No. 15/2013”), which provides that post operators must obtain a Post Operator Licence, and pre-existing post operators are required to comply at the latest within two years after the enactment of GR No. 15/2013. Consequently, a PMA Company that is majority-owned by foreign shareholders is forced to adjust its shareholding composition so as to be majority-owned by local post operators before it can apply for the Post Operator Licence. Although not ideal to maintain legal certainty, the Post Law and GR No. 15/2013 are superior in terms of regulatory hierarchy compared to the Presidential Regulation containing the 2016 Negative List and the grandfather clause provisions. Accordingly, in the event of confl ict between those regulations, the Post Law and GR No. 15/2013 prevail as the higher- level regulations. Venture Capital Company (“VCC”) In relation to the issue of foreign shareholding limitation as provided in the Negative List, the BKPM formally recognises the possibility of foreign investors investing through a VCC. Any shares participation by a VCC is not regarded as foreign investment even if the VCC itself is foreign-owned. By using a VCC, the foreign investor will be able to invest in businesses subjected to foreign shareholding limitation. However, investment through a VCC can only be done on a temporary basis of not more than 10 years, with possible extension of up to 10 years. Aside from its temporary nature, investing through a VCC is deemed to be fairly unattractive considering that foreign investors may only own up to 85% shares in a VCC, and the extensive set of OJK requirements surrounding the establishment and operation of a VCC. Limited Participation Mutual Funds (Reksa Dana Penyertaan Terbatas or “RDPT”) RDPT has been considered as an alternative structure to avoid the issue of foreign shareholding limitation. RDPT is a vehicle used to collect funds from professional investors which will be managed by a local investment manager in a securities portfolio. RDPT can only own controlling shares in private companies that engage in real sector activities, and will appear as a local shareholder when investing in those private companies. Setting up RDPT is administratively not easy because there are several formalities to be complied with under OJK Rule No. 37/POJK.04/2014 on Limited Participation Mutual Funds in the Form of Collective Investment Contracts.

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RDPT is formed through a collective investment contract (kontrak investasi kolektif). It is a contract between a local investment manager and a local custodian bank, which extends to bind holders of participation units. Even if all the participation units of RDPT are held by foreign investors, the RDPT will still be regarded as a local shareholder. Given RDPT is just a contract and the Company Law provides that only individuals and legal entities can hold shares in Indonesian limited liability companies, a question then arises whether RDPT is eligible to become a registered shareholder from the Company Law point of view. Notifi cation requirement to the Business Competition Supervisory Commission (Komisi Pengawas Persaingan Usaha or “KPPU”) An acquisition, consolidation or merger transaction that occurs between non-affi liated companies must be notifi ed within 30 business days from the effective date of the acquisition, consolidation or merger to the KPPU if the transaction meets the following threshold: • the value of assets of the combined businesses in Indonesia exceeds: (i) IDR 2.5 trillion; (ii) IDR 20 trillion for banks, or • the sales turnover of the combined businesses in Indonesia exceeds IDR 5 trillion. KPPU is authorised to impose administrative sanction in the form of a fi ne of IDR 1 billion per day of delay, with a maximum of IDR 25 billion, for failure to notify KPPU of a transaction that meets any of the above thresholds. Employees’ rights The Manpower Law provides that when an employer has undergone a change of status, merger, consolidation or change of ownership, the employee may choose not to continue his employment relationship with the employer. If the employee decides to terminate his employment, the employee will be entitled to receive severance package in the amount of one-time severance pay, one-time service appreciation pay and compensation in line with the calculation formula as stipulated in the Manpower Law. This provision seeks to protect the interest of employees in case of certain corporate actions which may affect the decision-making policies of the employer. It is important to note that the right to seek a termination and receive a severance package will only be applicable for employees hired under an indefi nite period employment agreement (permanent employees), and not for employees hired under defi nite period employment agreement (contract employees). The Manpower Law does not provide any elucidation as to what constitutes a change of ownership, leading to wide-ranging interpretations. Although there is no explicit connection between ‘change of ownership’ under the Manpower Law and the term ‘change of control’ under the Company Law, in practice, the change of ownership in this context is generally interpreted as a direct change of control of the employing company. It is therefore understood that transfers of shares in a company that do not result in a change of control of said company, will not trigger employees’ rights to seek termination and receive a severance package. In its implementation, it is not uncommon to see a target company procuring a statement letter from each of its employees, principally stating that the employee is willing to continue employment with the company under the same terms and conditions. Rights of minority shareholders In M&A transactions that do not result in 100% ownership over a target company, it is also important to be observant of the rights of minority shareholders. As provided in the

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Company Law, the rights of a minority shareholder include, among others, the following: • to be registered in, and have access to, the shareholders’ register of the company; • fi le a claim against the company to the relevant district court for any damage caused by the acts of the company considered to be unfair and unreasonable resulting from decisions made by the general meeting of shareholders (“GMS”), the board of directors and/or the board of commissioners; • require the company to purchase its shares at a fair price, if the shareholder does not agree with the acts of the company deemed to be damaging the relevant shareholder or the company, specifi cally in (i) amending the articles of association of the company, (ii) transfer or encumbrance of more than 50% of the net assets of the company, or (iii) merger, consolidation, acquisition or spin-off of the company; • shareholder(s) representing at least 10% of the total number of issued shares with valid voting rights (unless the articles of association of the company provide for a smaller percentage of representation) is/are entitled to request a GMS to be convened by the board of directors or board of commissioners of the company, and to request a permit to the head of relevant district court to convene the meeting by itself if the board of directors or board of commissioners fails to convene the requested GMS within a certain period; and • shareholder(s) representing at least 10% of the total number of issued shares with valid voting rights is/are entitled to: (i) fi le a claim on behalf of the company against a negligent director or commissioner to the relevant district court for causing loss to the company; (ii) fi le a request to the relevant district court to conduct an investigation on the company, only after the company fails to provide certain requested information and if there is reason to believe that the company or its director or commissioner has committed an unlawful act causing loss to shareholders or third parties; or (iii) propose dissolution of the company at the GMS. Public company acquisition Typical route The popular structural means of obtaining control of a public company in Indonesia is by way of (i) shares acquisition from an existing controller of the public company, and (ii) shares subscription for pursuing a backdoor listing. This backdoor listing requires the existing majority shareholder to: (i) procure the public company to commence and complete a rights issue procedure whereby the public company will issue pre-emptive rights to purchase new shares in the public company to all shareholders in proportion to their ownership percentage; and (ii) transfer its pre-emptive rights to the acquirer during the rights issue period. Instead of injecting cash for the subscription, the acquirer may consider its majority shares in another company as the payment which must be disclosed in the rights issue prospectus by the public company as the use of rights issue proceeds. This gives the acquirer the opportunity to have a tight grip on control over both companies. The acquirer usually takes the role as a standby buyer to also purchase the newly issued shares which are not subscribed by the other existing shareholders, eventually causing even further dilution to the public shareholding. Other than the above means, the acquirer also has the option of undertaking a voluntary tender offer under which it makes a public offer (via a newspaper advertisement) to all shareholders of the target public company to purchase their shares (“VTO”). It may choose

GLI - Mergers & Acquisitions 2018, Seventh Edition 129 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Indrawan Darsyah Santoso, Attorneys At Law Indonesia to pay in cash or through exchange with other securities, under the condition that the shareholders must be given the opportunity to choose cash consideration. However, the VTO is uncommon as a tool of obtaining control. Disclosure and secrecy obligations Prior to closing, negotiations are almost always done under a shroud of secrecy and the content of negotiations would be deemed to be insider information. This ‘insider information’ means any material information that an insider has, which is not yet available to the public. An ‘insider’ includes, among others, a director, commissioner, employee or principal shareholder (i.e. a party indirectly or directly owning at least 20% voting rights) of a public company. An insider is prohibited from providing insider information to a party that would reasonably be expected to use the insider information in shares trading. Violation of the insider trading rule is subject to imposition of criminal sanctions in the form of imprisonment of up to 10 years and a fi ne of up to IDR 15 billion. A controlling shareholder, director or employee of the target public company should take precautions in the event each of them provides any insider information to a prospective controller (i.e. acquirer) with respect to negotiation or due diligence. OJK has the authority to investigate insider trading allegations; however, it exempts off- the-exchange securities transaction between an insider (i.e., the seller) having insider information and a non-insider (i.e., the acquirer) from the insider trading rule if certain requirements are met: among others, the acquirer must provide a written statement to the seller certifying that the insider information to be received will be kept in secrecy, and will not be used for purposes other than transaction with the seller. If the acquirer decides not to make an announcement on the negotiation, all parties involved in such negotiation must keep confi dential the information resulting from the negotiations. In practice, the parties will typically sign a confi dentiality agreement to avoid possible allegations of insider trading. Under Rule No. IX.H.1, the prospective controller may voluntarily announce information on the negotiation in at least one Indonesian daily newspaper having national circulation, and provide the announcement to the target public company, OJK and Indonesia Stock Exchange (“IDX”). Since the date of the announcement will infl uence the mandatory tender offer (“MTO”) pricing, careful consideration of disclosure content and timing is important to be discussed by all parties in the transaction. Any further material changes to such negotiation (including postponement or cancellation of the acquisition) must be announced within two business days after occurrence of each material change. Caution should be exercised if the acquisition is made through a VTO because the acquirer cannot withdraw the VTO after a public announcement is made, unless OJK approves such withdrawal. Obligations to announce the acquisition, via at least one Indonesian daily newspaper with national circulation, and to submit a notifi cation to OJK at the latest one business day following the closing, arise when there is a new controller. The disclosure must include the number of acquired shares and the new controller’s total ownership, the new controller’s detailed identity and, if applicable, a statement that the new controller is an organised group. MTO requirements and pricing, and sanction for non-compliance A change of control arising from a direct or indirect acquisition of a public company, unless the acquisition falls under certain exemptions set out in Rule No. IX.H.1, must be followed by an MTO.

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The MTO is an offer that must be made by a new controller to purchase the remaining shares of the target public company, and a way for minority shareholders to exit should they not agree with the acquisition. The MTO does not extend to shares owned by principal shareholders and other controlling shareholders of the target public company. The pricing for the MTO will depend on whether or not the shares of the target public company are listed and traded at IDX, and the change of control is caused by direct or indirect acquisition. As an example, for direct acquisition of a target public company whose shares are listed and traded at IDX, the MTO price is the higher of: (i) the average of the highest daily traded price during the 90-day period prior to the acquisition announcement or the negotiation announcement (if the negotiation announcement is made prior to closing); or (ii) the acquisition price. If the new controller fails to conduct the MTO, OJK has the authority to: (i) invalidate the acquisition and impose monetary fi nes on the new controller; or (ii) impose monetary fi nes on the new controller and force it to conduct the MTO. Re-fl oat obligations If the new controller owns more than 80% of the shares after the MTO is carried out, the new controller must re-fl oat a certain portion of its shares back on to the market until at least 20% of the target company’s shares are owned by the public (at least 300 public shareholders) within two years. Exemptions A new controller is not required to conduct an MTO if the change of control is triggered by, among others, a rights issue, merger or VTO. Share ownership reporting As a general rule, a party, directly or indirectly holding 5% or more shares in a public company, must submit a report to OJK no later than 10 calendar days after the relevant party effectively acquires ownership of the shares. This deadline also applies to the subsequent reporting. Any party that holds at least 5% shares is also required to submit a report to OJK if there is a subsequent change of the party’s shares ownership, through a single transaction or a series of transactions, equivalent to at least 0.5% shares. OJK allows the report to be submitted by a proxy by virtue of a written power of attorney from the relevant party, provided that the deadline will be shorter (i.e., at the latest fi ve calendar days after the relevant party effectively acquires ownership of the shares). In 2017, OJK introduced the prescribed disclosure forms for this matter, as set out in OJK Rule No. 11/POJK.04/2017 on Share Ownership Reporting in Public Companies. Failure to comply with the reporting obligation is subject to a fi ne in the amount of IDR 100,000 for each day of delay, with a maximum amount of fi ne of IDR 100 million.

Signifi cant deals and highlights The rapid growth of the e-commerce sector has led to a rising number of M&A deals over the past fi ve years. According to Bain & Company’s market research, in the e-commerce sector the number of M&A deals escalated from 12 in 2013 to 28 in 2014, 55 in 2015, and 56 in 2016.6 One of the notable deals in 2017 was Alibaba Group Holding Ltd.’s stake acquisition in one of Indonesia’s biggest online marketplaces, namely PT Tokopedia, with a value of US$ 1.1 billion.7

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Key developments On 12 July 2017, OJK issued Rule No. 39.POJK.03/2017 on Single Ownership of Indonesian Banks. This OJK Rule marks the transfer of authority from the Bank of Indonesia to OJK on the implementation of a single ownership policy for Indonesian banks. Consequently, banks and controlling shareholders of banks must now submit their mandatory reports and submissions to OJK (instead of the Bank of Indonesia). On 11 January 2017, OJK issued Rule No. 1/POJK.05/2017 on Business Licensing and Organisation of Guarantee Company. This OJK Rule implements a stricter foreign shareholding limitation for guarantee companies, to a maximum of 30% (previously 49%). Existing foreign shareholders are forced to adjust and divest by 19 January 2018 at the latest, in order to comply with the new limitation.

Industry sector focus According to Duff & Phelps, the top sectors with high-value deals in 2017 were: (i) agriculture (21%); followed by (ii) technology (19%); (iii) materials which include among others, mining (16%); (iv) industrials (15%); and (v) others (29%).8

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Endnotes 1. “Economy Rankings”, Doing Business, The World Bank, 2017, www.doingbusiness. org/rankings. 2. The World Bank. Doing Business 2016: Measuring Regulatory Quality and Effi ciency, 13th Edition, World Bank Group, 2016, p.6. Open Knowledge Repository, openknowledge. worldbank.org/bitstream/handle/10986/23272/Doing0business0fi ciency000Indonesia. pdf. 3. The World Bank. Doing Business 2017: Equal Opportunity for All, 14th Edition, World Bank Group, 2017, p.6. Open Knowledge Repository, openknowledge.worldbank.org/ bitstream/handle/10986/25532/109851-WP-DB17-PUBLIC-Indonesia.pdf. 4. McLaren, Ashish, et al. Transaction Trail: Annual Issue 2017, Duff & Phelps, 19 Dec. 2017, p.14. www.duffandphelps.com/-/media/assets/pdfs/publications/valuation/2017- transaction-trail-annual-issue.ashx. 5. McLaren, Ashish, et al. p.14. 6. Mergers & Acquisitions (M&As) on the Rise in Indonesia, Indonesia Investments, 7 Sept. 2017, www.indonesia-investments.com/news/todays-headlines/mergers-acquisitions- m-as-on-the-rise-in-indonesia/item8160? 7. Indonesia Investments, 7 Sept. 2017. 8. McLaren, Ashish, et al. p.13.

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Barli Darsyah Tel : +62 21 250 6737 / Email: [email protected] Barli is the Partner leading the Securities practice at Indrawan Darsyah Santoso. His practice covers the whole spectrum of equity and debt transactions, including IPOs, offshore securities offerings, rights offerings, bonds issuances, joint ventures, public M&As and tender offers. He has also advised numerous listed companies in connection with their related-party transactions involving confl icts of interest, material transactions and mandatory disclosure issues. His practice also encompasses corporate governance. He advises the boards and management of public and securities companies, as well as investors, on all aspects of compliance with securities laws and regulations in Indonesia. Barli is a member of the Indonesian Advocates Association (PERADI) and the Indonesian Association of Capital Market Legal Consultants (HKHPM).

Eric Pratama Santoso Tel : +62 21 250 6737 / Email: [email protected] Eric is one of the Partners leading the Corporate & Securities practice at IDS. Eric regularly acts as Indonesian counsel in a multitude of M&A transactions, representing either side of parties in acquisition transactions, joint ventures as well as being lead counsel in merger and restructuring arrangements. Eric has counselled clients on a variety of M&A matters, such as foreign shareholding restrictions, direct or indirect change of control, employment benefi ts triggered by change of ownership, closing conditions, representations & warranties, escrow/holdback arrangement, intellectual property ownership, limitation of liability, indemnifi cation, governmental and third party consents, non-competes, non-solicits and choice of dispute resolution forum. He is a member of Indonesian Advocates Association (PERADI) and Indonesian Association of Capital Market Legal Consultants (HKHPM).

Indrawan Darsyah Santoso, Attorneys At Law Sona Topas Tower 15th Floor, Jalan Jenderal Sudirman Kav. 26, Jakarta 12920, Indonesia Tel: +62 21 250 6737 / Fax: +62 21 250 6738 / URL: www.idsattorneys.com

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Alan Fuller, Aidan Lawlor & Bruff O’Reilly McCann FitzGerald

Overview For the fourth successive year, Ireland is reported to have remained the fastest-growing economy in the European Union. In spite of economic uncertainty caused by the political disruptions of 2016 on both sides of the Atlantic, Irish M&A activity returned to a strong, healthy level refl ecting a European trend. The Central Bank of Ireland (“CBI”) estimates that GDP grew by 7.0% in 2017, and the European Commission is forecasting GDP growth of 4.4% for 2018 and 3.1% for 2019, respectively. This expansion continues to be driven by the buoyancy of domestic economic activity, which is benefi ting from sustained employment growth and underlying investment. Although the growth is likely to moderate in coming years, the CBI indicates that the economic outlook for Ireland remains fundamentally positive. There was strong M&A activity in Ireland in 2017, with 143 deals announced worth in total €14.9bn, representing an increase in deal volume of 5.9% compared to 2016, according to recent data from Mergermarket. Domestic and inbound M&A accounted for 58% of the total share of deal volume, up from 53% in 2016. It would appear that the increase in activity over 2016 represents the market’s adaption to uncertain conditions, and desire to forge ahead with deals that had failed to materialise in 2016. 2017 featured a more traditional, strategic approach to M&A, as global buyers sought out indigenous Irish companies to diversify and expand their existing international offerings, and was marked by strong, consistent deal-making activity rather than the “mega deals” of previous years. Only three deals exceeded €500m in value, down from seven transactions in 2016 when a number of tax inversion deals served to increase overall deal value. Instead, the mid-market (€5m-250m) range accounted for 93.5% of total deal volume, increasing from 82.4% in 2016. These 72 mid-market deals, spread evenly across all sectors, illustrate the continued strength and diversity of the Irish SME bracket. Outbound M&A in 2017 saw a total of 93 deals announced worth in total €9.4bn, making up 42% of the total M&A activity, up from 39% in 2016. Irish companies, with surplus cash reserves and increased access to capital, sought out strategic, bolt-on opportunities globally. Most notably, building materials giant CRH and diversifi ed logistics company DCC followed through on several large acquisitions, making up six of the top 10 outbound deals in 2017. Ireland’s strong M&A activity in 2017 was an important part of a larger European growth story, with Mergermarket reporting an increase of 14% in the value of M&A activity across Europe when compared against 2016. This represented 29.6% of global M&A, the highest amount since 2012. According to data from Experian, there was an Irish element in 3.3% of all European transactions in 2017 by volume, up from 2.8% in 2016.

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Signifi cant deals and highlights Inbound In the context of inbound M&A activity, the more signifi cant deals in Ireland in 2017 were in the fi nancial services, technology media and telecommunications, and energy sectors. The largest deal was reported in April 2017 when Dubai Aerospace Enterprise announced its purchase of Dublin-based Aircraft lessor AWAS for €6.8bn. The transaction will see Dubai Aerospace Enterprise become one of the world’s top aircraft lessors with a fl eet of about 400 aircraft. In December 2017, Irish telecoms company eircom Group agreed to sell a majority stake to a consortium led by French billionaire Xavier Neil, for €3bn. For eircom the deal represents a signifi cant shift in strategy, having considered an IPO prior to the purchase. The new majority stake owners have now stated that an IPO is no longer on the table. The sale of Royal Dutch Shell’s 45% stake in Corrib oilfi eld to CPPIB, Canada’s biggest public pension fund and Vermilion Energy, an international oil and gas producer, represents the largest energy deal of 2017, with the minority stake sold for €830m. The €180m acquisition of a 60% stake in Invis Energy, a company engaged in electricity generation from onshore wind, by Kansai Electric Power, Sojitz Corporation and Mitsubishi UFJ Lease & Finance Co, represents the continued strength of the Irish wind energy sector. The following table, produced by Mergermarket, sets out the top 10 inbound deals which took place in Ireland last year:

Date Sector Target Bidder € Deal value

24/04/2017 Financial AWAS Aviation Capital Dubai Aerospace Enterprise 6,908m Services Limited 20/12/2017 Telecoms eircom Group Limited Iliad SA; NJJ Holding 2,994m (64.5% Stake) 12/07/2017 Energy Royal Dutch Shell Plc Vermilion Energy Inc.; CPP 830m (Corrib oilfi eld) (45% Investment Board European Stake) Holdings S.ar.l 18/12/2017 Financial Generali PanEurope Life Company Consolidation 286m Services Group Limited 03/04/2017 Media Experian Plc (75% stake) Vector Capital; Peter 281m McCormick (Private Investor) 31/07/2017 Energy Invis Energy (60% Stake) The Kansai Electric 180m Power Co., Inc.; Sojitz Corporation; Mitsubishi UFJ Lease & Finance Co., Ltd. 10/08/2017 Financial Aegon Ireland plc Athene Holding Ltd. 179m Services 31/07/2017 Services (other) Noonan Services Group Bidvest Group Limited 175m Limited 02/02/2017 Financial Allianz - Irish Life Allianz SE 160m Services Holdings plc (33.5% Stake) 27/07/2017 Telecoms E-Nasc Eireann Teoranta AMP Capital Investors 156m (78% Stake) Limited; Irish Life Investment Managers Limited (Source: Mergermarket, 2018)

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Outbound In the context of outbound M&A activity, the key major deals in 2017 were in the construction, medical and utilities sectors. Building materials giant CRH pursued an aggressive acquisition strategy, making up three out of the top fi ve M&A deals. The landmark acquisitions of Ash Grove Cement, Suwannee American Cement, and Fels- Werke for €2.9bn, €640m, and €600m respectively, saw CRH expand and consolidate its operations on both sides of the Atlantic. In the medical sector, Botox maker Allergan agreed to pay €2.01bn in cash for Zeltiq Aesthetics, a company that specialises in non-invasive fat reduction procedures. Diversifi ed Irish logistics and sales support group DCC played a particularly active role in the consumer and utilities sectors, with three large acquisitions made to expand their international footprint. The acquisition of Esso Norge for €275m in Norway; of AS NGL Energy Partners LP for €173m in the United States; and of Royal Dutch Shell for €141m in Hong Kong and Macau; demonstrated the growing global reach of the company. Insulation giant Kingspan also expanded its operations through acquisitions across the globe, most notably through the purchase of Grupo Synthesia for €250m to enhance its presence in Spain and Central and South America. The following table, produced by Mergermarket, sets out the top 10 outbound deals from Ireland which took place last year:

Date Sector Target company Bidder company € Deal value 20/09/2017 Construction Ash Grove Cement company CRH Plc 2,923m 13/02/2017 Medical ZELTIQ Aesthetics, Inc. Allergan plc 2,068m 26/12/2017 Medical: Sucampo Pharmaceuticals Mallinckrodt Plc 898m Pharmaceuticals Inc 21/11/2017 Construction Suwannee American CRH Plc 639m Cement LLC 07/08/2017 Construction Fels-Werke GmbH CRH Plc 600m 08/11/2017 Construction Fermacell GmbH James Hardie Industries SE 473m 07/02/2017 Consumer: Esso Norge AS (142 retail DCC Plc 275m Retail petrol stations) 15/12/2017 Chemicals and Grupo Synthesia Kingspan Group Plc 250m materials 07/11/2017 Utilities (other) NGL Energy Partners LP DCC Plc 173m (Certain Retail Propane Businesses) 05/04/2017 Utilities (other) Royal Dutch Shell Plc DCC Energy Ltd. 141m (liquefi ed petroleum gas business in Hong Kong and Macau) (Source: Mergermarket, 2018)

Funding environment Ireland’s M&A growth in recent years has largely been attributable to increased access and choice with regard to sources of fi nance. Ireland has continued to attract capital from

GLI - Mergers & Acquisitions 2018, Seventh Edition 136 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London McCann FitzGerald Ireland different sources, including private equity and traditional debt fi nanciers. A number of factors, including the favourable tax regime, access to debt, and the large pool of private equity funds have created an excellent environment for M&A activity. In particular, private equity played an important role in 2017. Private equity investment rose to record levels, with a total of 37 deals worth €12.2bn, representing an increase in value of 141% from 2016. This represents the further development of private equity funding both from international investments in Ireland, as well as Irish private equity funds – such as Carlyle Cardinal Ireland and Broadlake, both of which had notable exits in 2017.

Key developments Increase in stamp duty In October 2017 the Irish government increased the rate of stamp duty payable on the sale of non-residential properties from 2% to 6%. The 2% rate had been introduced in 2011 during the economic downturn as an incentive to increase commercial property transactions. However, given the signifi cant upturn in activity in the commercial property sector in recent years, the Irish government has now increased the stamp duty rate as a revenue-raising mechanism, a tool to rebalance construction activity towards residential development and also as a way to avoid overheating the construction sector. It should be noted that the increased rate remains far below the 9% maximum rate charged between 2002 and 2008. The increased rate applies to instruments that are, or are deemed to be, conveyances or transfers on sale of any property (other than stocks or marketable securities or a policy of insurance or a policy of life insurance) or to certain leases executed on or after 11 October 2017. As such, the increased rate will likely impact on acquisitions taking effect by way of business purchase or asset sale after this date, and acquirers should be cognisant of this higher rate which will apply on the transfer of certain categories of asset. In addition, the Irish government introduced measures to impose the new 6% stamp duty rate on transfers of commercial property holding companies conducted by way of share sale or similar-type sales. This measure was introduced to prevent persons from availing of the lower 1% stamp duty rate on share sale transactions in property holding companies, and to ensure uniform stamp duty treatment whether the commercial property is sold directly or indirectly through a company, fund or partnership interest. To reduce the potential impact of the stamp duty increase on Ireland’s residential housing sector, the sale of development land with the ultimate intended use as residential property will be subject to a stamp duty refund scheme. The refund will be subject to certain conditions, including a requirement that the relevant development is commenced within 30 months of the land acquisition. Further details of the scheme have yet to be announced. Companies (Accounting) Act 2017 The Companies (Accounting) Act 2017 (the “2017 Act”) was commenced in June 2017 to transpose the EU Accounting Directive 2013/34/EU into Irish law. This sizeable piece of legislation amended many of the provisions of the Companies Act 2014 relating to the statutory fi nancial statements and related reports of companies and should therefore be borne in mind in the context of M&A transactions. Merger relief The 2017 Act amends the Companies Act 2014 (the “2014 Act”) to provide that transactions involving foreign targets can avail of merger relief. The 2014 act provides that where an

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Irish company acquires 90% or greater interest in an Irish company in exchange for shares issued at a premium, then the company issuing the shares does not have to transfer the share premium to its share premium account. The 2017 Act amends the defi nition of a company for the purposes of merger relief to provide that this provision now applies to the acquisition of a foreign company. Extension of US GAAP provision in limited circumstances The 2014 Act provides that certain Irish companies who have not previously fi led non- US GAAP accounts with the CRO and whose securities are registered with the Securities and Exchange Commission may prepare their fi nancial statements in Ireland using US GAAP. This was initially introduced as a temporary measure and was due to expire on 31 December 2020. The 2017 Act has now extended this provision for a further 10 years, until 31 December 2030. However, the extension only applies to companies incorporated in Ireland on 18 July 2017. Defi nition of “branch” Under the 2014 Act, a foreign incorporated limited liability body corporate with a branch establishment in Ireland has to register certain details at the CRO and fi le accounts on an annual basis. The 2017 Act extends the registration and fi ling obligation to unlimited foreign incorporated bodies that are subsidiaries of limited liability bodies corporate. Private unlimited companies The 2017 Act has reduced the scope for private unlimited companies to avoid fi ling fi nancial statements. Under the 2014 Act, a private unlimited company (“ULC”) incorporated in Ireland must fi le its fi nancial statements with the Companies Registration Offi ce (“CRO”) if it is deemed to be a designated type. The defi nition of designated ULCs was previously very narrow and allowed for ULCs that had set up in certain group structures to avoid fi ling fi nancial accounts with the CRO. The 2017 Act increased signifi cantly the number of designated types and has therefore made it much more diffi cult for a ULC to avoid the fi ling obligation. This has had the effect of preventing organisations from taking advantage of the relaxed ULC fi ling obligation while simultaneously allowing their ultimate shareholders to benefi t from limited liability. Financial statements – Directors’ report The Companies Act 2014 requires a company to disclose remuneration details, for both the current and the preceding fi nancial year, in respect of company directors, including gains made by directors on the exercise of share options. The 2017 Act introduces an additional obligation to disclose any consideration to third parties for the services of any person as a director of the company or of any of its subsidiaries, or otherwise in connection with the management of the company’s affairs or that of any of its subsidiaries. In relation to the acquisition or disposal of its own shares, the 2017 Act provides that the company will have to give reasons in the report for any acquisition of its own shares during the fi nancial year as well as the proportion of called-up share capital held at the beginning and end of the fi nancial year. General Data Protection Regulation The General Data Protection Regulation (“GDPR”) will come into force across the EU on 25 May this year, but its impact on M&A deals in Ireland has already been felt, as its presence has increased consideration, by buyers and sellers of companies and businesses, of data protection issues in the M&A process. For potential buyers, the consequences of purchasing a company that is at risk of

GLI - Mergers & Acquisitions 2018, Seventh Edition 138 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London McCann FitzGerald Ireland conducting its operations in breach of the GDPR are very signifi cant. The robust penalties to be introduced under the GDPR mean that organisations that commit a serious breach of its provisions face potential fi nes up to the greater of €20m or 4% of global annual revenue. Up to now, in Ireland no fi nes could be levied for data protection issues (aside from fi nes for limited criminal offences relating to data protection and direct marketing). In addition, the potential reputational damage for low levels of data protection compliance is necessarily higher and this becomes even more signifi cant where, as is the case under the GDPR, the data protection obligations companies are required to discharge have themselves been substantially increased. As such, companies are examining potential targets in this new light: this has implications for the amount that acquirers are prepared to pay to complete deals, and has also increased data protection due diligence and given rise to a greater desire on the part of buyers of Irish targets to seek relevant warranty and other contractual protection. Sellers, for their part, are keen to progress GDPR compliance programmes to demonstrate to buyers good levels of compliance in companies and businesses which they are attempting to sell, while at the same time seeking to resist taking on disproportionate levels of risk by minimising the data protection deal protections offered, such as data protection indemnities. Non-fi nancial disclosures for large companies The European Union (Disclosure of Non-Financial And Diversity Information By Certain Large Undertakings and Groups) Regulations 2017 (the “Non-Financial Disclosure Regulations”) came into operation on 21 August 2017, and transposed into Irish law Directive 2014/95/EU on disclosure of non-fi nancial and diversity information by certain large companies and groups. Under the Non-Financial Disclosure Regulations, certain companies must disclose information about their policies and practices relating to matters such as environment, anti-corruption as well as report on the company’s diversity policy, for fi nancial years beginning on or after 1 August 2017. The Non-Financial Disclosure Regulations apply to companies or holding companies that are classifi ed as both an “ineligible entity” and a “large” company under the Companies Act 2014 and which also employ on average over 500 employees. An “ineligible entity” includes entities that are listed on a regulated market of an EEA member state as well as banks, insurance undertakings or other companies designated as public interest companies. The directors of these companies must publish a “non-fi nancial statement” describing, among other factors, environmental matters, anti-corruption and bribery matters, social and employee matters, and human right matters. Where a company does not have policies in these areas, it must provide an explanation as to why not. The “non-fi nancial statement” may form part of the annual director’s report, or may be prepared as a separate statement. The Non-Financial Disclosure Regulations also require that directors of a “traded company” that is a “large company” must prepare a diversity report on its diversity policy. This report must include description of the diversity policy that applies in respect of their board of directors, and address factors such as gender, age, professional background and educational attainment. The diversity policy must form part of the corporate governance statement in the directors’ report. Where a company does not have a diversity policy, it must provide an explanation as to why not. A “traded company” includes public companies listed on a regulated market in an EEA state as well as certain other company types which have debt securities admitted to trading on such a market.

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Industry sector focus Following a quiet 2016, the fi nancial services sector accounted for 53% of deal value in 2017. The headline €6.8bn acquisition of AWAS Aviation Capital by Dubai Aerospace Enterprise accounted for much of the sector’s deal value. The insurance market also saw notable activity with the €281m purchase of Dublin-based Generali PanEurope by Life Company Consolidation Group; the €179m purchase of Aegon Ireland by Bermuda-based re-insurance fi rm Athene Holding; and the purchase of the remaining 33.5% stake in Allianz-Irish Life Holdings by its German parent, Allianz, for €156m. Activity in the technology, media and telecommunication (“TMT”) sector remained strong, accounting for 15% of volume and 25% of value. The most notable deals in this sector were Iliad’s purchase of a 64.5% stake in telecoms company eircom Group for €3bn, and the sale of cross-marketing business Experian to private equity fi rm Vector Capital for €281m. These examples illustrate that the highly innovative and attractive Irish targets in this sector are seen to provide signifi cant competitive advantage to their acquirers in allowing them to pursue important bolt-on strategies. Additionally, Irish companies have ambitions abroad. The purchase by the Irish Infrastructure Fund of a majority stake in Enet, the now sole- bidder for Ireland’s National Broadband Plan tender, for €156m was made with the aim that such investment will allow the company to expand its pan-European operations. The energy sector saw a notable increase in deal value, from 3% to 8% of the 2017 total. The wind energy sector was particularly active in 2017, with the €180m acquisition of a 60% stake in Invis Energy, owner of a portfolio of wind farms in Munster and Connaught, by a consortium comprising Kansai Electric Power, Sojitz Corporation and Mitsubishi UFJ Lease & Finance Co., this coming after the fl otation of Greencoat Renewables on the Irish Stock Exchange in July which raised €270m from investors. The Greencoat Renewables fl otation should lead to additional deal-making activity, with the funds from the listing earmarked for several acquisitions across Europe in the near future. The consumer sector grew from 8% to 14% in deal volume and from 1% to 4% of total deal value. Foreign investors were particularly active in this sector. For example, major US household product manufacturer Church & Dwight acquired hair growth vitamin supplement producer Viviscal for €150m, while US-based private equity Carlyle Cardinal Ireland purchased an undisclosed majority stake in pharmacy group Sam McCauley Chemists for €50m. The agri-food and beverage sector recovered well from its initial post-Brexit shock. With Irish exports reaching record levels, there was a commensurate uplift in M&A activity, with a signifi cant proportion of cross-border deals. Manor Farm, Ireland’s largest chicken processor, was bought by Swedish group Scandi Standard for €70m. The acquisition of chocolate manufacturer Lily O’Brien by Colian Holdings, a Polish food company, for €40m also stands out as another notable deal.

The year ahead The outlook for M&A activity in Ireland in 2018, as gauged by market participant sentiment, indicates a greater level of optimism than previous years, with 92% of M&A executives and advisors in a survey conducted by KPMG (“KPMG Survey”) expressing their belief that 2017 will prove to be an equally, if not more prolifi c, year than 2017. This renewed optimism arises from the ability demonstrated by the Irish market to weather the impact of the macro shocks and political upheaval of previous years.

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The progressive withdrawal of quantitative easing by the European Central Bank (“ECB”) and the US Federal Reserve, and an associated increase in interest rates in the world’s largest economies, poses a possible threat to continued high levels of M&A activity. In October 2017 the ECB announced a plan to gradually unwind the monetary stimulus measures it has put in place that served to stabilise European economies during the economic downturn, starting with a process of halving its bond-buying programme from €60bn to €30bn a month, commencing in January 2018. This measure has brought the ECB’s policy position closer to that of the US Federal Reserve. However, with the ECB unlikely to increase interest rates until 2019 and the US federal interest rate rising slowly, there may be increased buyer appetite in 2018 to seek out M&A opportunities while the cost of debt fi nancing remains low. The market may see a number of deals completed in 2018 while interest rates remain at lower levels. On 22 December 2017, the Tax Cuts and Jobs Act 2017 was enacted by President Trump. These wide-ranging tax reforms involve the reduction of business and individual tax rates and the inclusion of a number of measures intended to modernise US international tax rules and incentivise American corporates to repatriate their offshore funds. The impact of these reforms could adversely affect inward investment into Ireland, which is currently incentivised in part by Ireland’s relatively low corporate tax rate. However, the new corporate rates established by the US reforms are still higher than the 12.5% corporate rate offered in Ireland, and the effective tax rate of many companies in Ireland is lower still. While the full impact of these reforms remains to be seen, the opinion held by many appears to be that Ireland remains highly competitive from an international tax perspective. The initial shock of the Brexit result, most apparent in the reduced M&A activity in Q3 2016, has gradually worn off as buyers became accustomed to transacting in a relatively uncertain political and economic environment. The conclusion of the Phase 1 negotiations at the end of 2017 provided some degree of comfort, particularly in terms of the likely impact on trade on the Island of Ireland and between Ireland and Britain. The cautiously optimistic mood that emerged from the Phase 1 negotiations was refl ected in the KPMG survey, where only 34% of respondents said that they expected Brexit to have a negative impact on M&A volumes (compared with almost half of respondents in a similar survey last year.) Indeed, 36% of respondents felt that Brexit would spur an increase in deal activity. The agri-food and beverage, TMT, healthcare and property sectors are expected to see the most deal activity in 2018. The TMT sector promises to deliver another impressive year, driven by the desire of companies to make strategic acquisitions of tech-enabled companies as a safeguard against growing competition and disruption. For example, the purchase by Kerry Group of US-based tech company Ganeden, a specialist in probiotics and related technologies, in October 2017 for an undisclosed sum illustrates the trend of large corporates acquiring smaller, innovative companies to ensure competiveness moving forward. Respondents to the KPMG Survey indicated that Irish investors would seek out opportunities across the globe – with continental Europe (23%), the United States and Canada (18%), and the emerging markets (10%) making up more than half of the estimated destinations for Irish acquirers. The Mergermarket Spotlight 2018 Outlook found that that a majority of respondents believe M&A deal count will increase in the next 12 months, with 68% predicting an increase of 5% or more. This increase in confi dence, matched with the robust performance of the Irish M&A market in 2017 and forecast growth in GDP of 4.4% in 2018, should mean that Ireland will experience another impressive year of M&A activity in 2018.

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Sources The information in this chapter is based on reports in the fi nancial press, publications of the Central Bank of Ireland and European Commission, specialist reports, company and fi nancial websites (Mergermarket, Experian, Investec, etc.) and other publicly available information.

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Alan Fuller Tel: +353 1 607 1372 / Email: alan.fuller@mccannfi tzgerald.com Alan is a partner in, and head of, the fi rm’s Corporate Group and specialises in private company M&A and private equity transactions, and has advised on a number of energy sector transactions. Alan has advised a number of private equity funds in relation to acquisitions of large portfolios of loan assets and has also advised institutional sellers of loan portfolio assets.

Aidan Lawlor Tel: +353 1 607 1450 / Email: aidan.lawlor@mccannfi tzgerald.com Aidan is a partner in, and head of, the fi rm’s Corporate Finance Group and specialises in equity capital markets, corporate fi nance and private and public company M&A. Aidan also advises on private company acquisitions and disposals.

Bruff O’Reilly Tel: +353 1 511 1592 / Email: bruff.oreilly@mcannfi tzgerald.com Bruff trained with McCann FitzGerald and qualifi ed into the Corporate Group as an associate in 2018 having previously worked on the team as a trainee. Since qualifi cation Bruff has gained experience in a range of practice areas including mergers and acquisitions, corporate reorganisations and joint ventures. He also advises on general corporate law issues.

McCann FitzGerald Riverside One, Sir John Rogerson’s Quay, Dublin 2, Ireland Tel: +353 1 829 0000 / URL: www.mccannfi tzgerald.com

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Annick Imboua-Niava, Osther Tella & Hermann Kouao Imboua-Kouao-Tella & Associés

Overview Ivory Coast is one of the 17 members of the Organization for the Harmonization of Business Law in Africa (OHADA). The foremost aim of this organisation is to standardise business law in member countries, which formerly each had different rules dealing with legal and economic business issues. The other goals are: • to offer common rules to inspire more confi dence in the African legal environment and economic development and integration; • to improve the skills of judges, lawyers and all actors of the legal system; and • to encourage international investors to operate within the African continent. The Treaty between member states has several appendices called Uniform Acts which apply directly in the member states and prevail over confl icting national provisions. The advantageous geographical location of Ivory Coast attracts many investors, and it explains the choice of this country for the OHADA’s Common Court of Justice and Arbitration. There has been a continuous increase of economic activity since the beginning of the 2000s. As such, Ivory Coast remains a key economic power in the sub-region. The decline of some commercial activities in the past decade has resulted in company mergers to limit losses and strengthen the position of companies in the national and international market. Merger and acquisition deals over the past decade have been concluded under the Uniform Act on Commercial Companies and Economic Interest Groups which was revised on January 30th 2014, and came into force on May 5th 2014; also these deals have been concluded with other Uniform Acts regarding general commercial law and local tax law.

Signifi cant deals and highlights Financial market Mergers in the Ivory Coast have been mostly recorded in the fi nancial market. In June 2001, the merger of the International Bank for Trade and Industry of Côte d’Ivoire (BICICI) and PARIBAS bank was conducted. This merger uncorked all of PARIBAS bank’s assets for the benefi t of BICICI on the transfer. The reason for the merger was that both banks were part of the same group BNP PARIBAS and, for the sake of effi ciency and harmonisation of the new group at the international level, the group decided to carry out the merger of all affi liated entities across the world. Thus, the merger would reduce operating

GLI - Mergers & Acquisitions 2018, Seventh Edition 144 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Imboua-Kouao-Tella & Associés Ivory Coast costs while maintaining market share thanks to the synergies that would result. The share capital of BICICI increased by 1,666,670,000 CFA francs (€2,540,822) in compensation for the contribution made by the dissolving PARIBAS bank. The share capital of the bank was set at 16,666,670,000 CFA francs. In 1978, the Banque Atlantique Group created the Atlantic Bank of Côte d’Ivoire (BACI) and, ten (10) years later, Compagnie Bancaire Atlantic Ivory Coast (COBACI) by the resumption of the activities of Barclays Bank in Ivory Coast. The group has worked since then with two brands in Ivory Coast. Since January 1st 2009, we have witnessed the merger between BACI and COBACI, seeking to establish itself as the leading banking group operating with a regional synergy in West and Central Africa and become a key player in the private banking sector. This merger, which consisted in BACI absorbing COBACI, has resulted in the disappearance of COBACI for the benefi t of BACI, which stimulated several advantages on the acquisition of COBACI agencies. The merger prevented BACI from fi nancing a costly deployment for the expansion of its branch network. BACI also saw an increase in capital resulting from the merger contribution in the amount of 336,580,000 CFA francs (€513,113), bringing the share capital up to 12,336,580,000 CFA francs (€18,806,995). Other deals within the Ivorian fi nancial market: (i) the merger by absorption of the company SOBFI by the company SAFCA-ALIOS FINANCE, to which the company SOBFI brought of all of its assets estimated at 2,577,442,455 CFA francs (€3,929,328); and (ii) the acquisition by Access Bank Plc of Nigeria of Omnifi nance Bank Ivory Coast with a stake of 98% for an amount exceeding 10bn CFA francs (€15,244,902). Agro-industrial sector In this area, we have seen GMG Investment Ltd, a major Singapoean group, acquire a maximum of 60% of the share capital of the company Ivoirienne de Traitement de Caoutchouc (ITCA). The sole shareholder, Fonds Interprofessionnel de Solidarité Hevea (FISH), has become a minority shareholder. Following this acquisition, the ITCA company changed its method of administration. Thus ITCA has become a public limited company with a Board of Directors and CEO, instead of a sole shareholder public limited company with a General Administrator. The share capital was increased from 200m to 500m CFA francs by issuing 30,000 new shares. This merger has allowed ITCA, despite its many losses, to avoid bankruptcy, renew its processing equipment and occupy a place of choice among domestic companies in direct contact with farmers because it needed signifi cant working capital to continue its activities. Medical insurance sector A recent merger and acquisition operation has been conducted in Ivory Coast with a leading insurance company, SAHAM, whose medical branch had decided to acquire hospitals and clinics and medical laboratories to expand its network. The main challenges during this operation were to bear in mind that since the medical sector is a regulated activity, in buying the assets or operating a change of control by acquiring the majority of shares, the actors had to maintain in the new company, as one of its shareholders, the owner/holder of the ministerial authorisation to conduct the medical activity. The entire operation in Ivory Coast amounted to 10,000,000,000 CFA francs (€15,244,902,000). IKT Law fi rm assisted for part of the operation, amounting to 4,000,000,000 CFA francs (€6,097,960).

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Agricultural sector Major rubber companies in Ivory Coast have been acquired by Singaporean companies lately. Our fi rm has been involved in the operations and is still assisting the companies in fi nalising them.

Key developments Mergers and acquisitions transactions certainly have common problems. A merger would be the result of two companies deciding to form only one entity. An acquisition would be the result of the transfer of all the assets of one company to the dominant or absorbing company. In light of these two results, there are two tax regimes that apply: (i) the common regulation system; and (ii) the special merger regime. In the common regulation system, the dissolution of the absorbed company implies a multitude of taxation related to any liquidation. The contribution to the acquiring company of the absorbed company’s estate then drives the registration fees. The exchange of the absorbed company’s securities against those of the acquiring company then results in taxing shareholders due to capital gains that may be released by this action. Suffi ce to say that such a tax can be suicidal in some cases and prohibit any merger, which would no longer make economic sense. Alongside the common regulation system, Ivory Coast has a special tax regime that seeks to assist the necessary adaptation of businesses, and to facilitate the merger or consolidation of businesses. The special merger regime only applies to corporations and to two situations, namely: (a) The acquiring company or the new company has its headquarters in Ivory Coast. They are either Private limited companies or Public limited companies. (b) The companies involved in the operation have specifi cally expressed the wish in the act of contribution to benefi t from this regime (Article 757 of the General Tax Code). Taxation of the special merger regime is done on a sliding scale for the taxable value of capital contributed: • From zero to 5bn CFA francs of capital contributed − 0.3%. • Above 5bn CFA francs of capital contributed − 0.1%. In cases where the acquiring company takes over all or part of the acquired companies, it must be paid a fi xed fee of 18,000 CFA francs. As for capital gains (Article 32) conducted as part of the merger, they are exempt from the tax on business profi ts and income tax. In the special merger regime, the tax administration allows that depreciation, as recorded in the accounts of the acquired company, may continue in the acquiring company. One of the major interests of the practitioner is in tax optimisation: • How to reduce the tax risk for both companies involved, and especially for the company that remains? • How to evaluate and assess bad debts from a fi scal and accounting point of view for the new company? Has the merger or acquisition been properly decided by each company’s governance bodies?

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Furthermore, due diligence is a necessary step before moving forward in an M&A operation. Indeed, it is important, for instance, to pay particular attention to the case of the staff, as there is a risk of overuse of employees or doubling of positions. At this level, it is possible to conduct a dismissal for economic reasons, insofar as the acquiring company will not be physically able to keep all employees. It should be noted, however, that an employee dismissed for economic reasons has a right of re-employment in the two years following his dismissal. It remains a constraint for the new entity because, during this period, it may be exposed to litigation in social matters if that rule is not complied with. Regarding acquisitions or equity investments, it is important that a thorough audit is performed before the acquisition transaction, to avoid excessive taxation. The decision to merge is primarily an economic and fi nancial analysis that incorporates varying degrees of tax parameters. The tax treatment of mergers is governed by the provisions of the General Tax Code. The merger decision is preceded by a pre-acquisition phase which is a legal, tax and accounting due diligence, so that investors have a better understanding of potential target companies. Therefore a decision to conduct a merger or an acquisition will determine the tax implications. The tax authorities are now closely analysing these operations. Since the tax law of January 2016, all transfers of shares are subject to a 1% tax on the price of the transfer. In case of transfer of a business real estate (acquisition of assets), a 10% fee is paid on the selling price. Regarding merger activities, in Ivory Coast, they obey both the provisions of the OHADA Uniform Act and the national provisions, including the tax law under penalty of nullity. As for confl icts of law, companies submit their merger agreement to the court to which they intend to submit in case of substance or form of dispute. Usually they opt for arbitration for disputes on the formalities of the merger. However, if not, the competent court shall be determined according to national legislation.

Industry sector focus The fi nancial sector has registered the most fusion and acquisition operations during the past 10 years. Merger activity is allowing businesses to strengthen their market position with respect to increasing competitive pressure and a tendency to overproduction and falling prices. The increase in equity values in the stock market is one of the positive impacts of merger activity. As such, it has allowed the development of the stock exchange in the region due to the substantial increase in the market value of the companies participating in M&A operations. Companies merge with a view to combining skills and savings to increase their productivity and profi tability.

The year ahead Ivory Coast has shown strong economic potential within the past fi ve years. Indeed, fi nancial institutions have been extending their networks by building several agencies throughout the country, and infrastructures are developing also. The efforts of Ivory Coast to be an emerging economy are considerable. Based on the year 2014 fi gures, the country was solely responsible for 45% of the monetary capacity of

GLI - Mergers & Acquisitions 2018, Seventh Edition 147 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Imboua-Kouao-Tella & Associés Ivory Coast countries of the West African Economic and Monetary Union (UEMOA), as well as 60% of agricultural exports. Several sectors, such as food processing, have developed to achieve the economic emergence referred to by the authorities. Ivory Coast attracts investors because trade with other countries has doubled in frequency in recent years. The traditional agricultural crops such as oil palm, cashew and rice have very strong growth prospects in the long term. The oil sector, hydrocarbons and mining sectors have promising new discoveries which have attracted large new Moroccan, South African, Chinese and European competitors. The transportation sector and IT sector are also quite active and, according to “Doing Business 2014”, Ivory Coast appears among the economies that have made the most progress in 2012/2013 in the 10 areas studied by the report. The growth of the Ivorian economy accelerates well and direct foreign investment is contributing signifi cantly to this growth.

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Annick Imboua-Niava Tel: +225 22 44 74 00 / Email: [email protected] Annick Imboua-Niava, LL.M., assists English-speaking clients within cross- border transactions implying international contracts, mining investment and community law in OHADA and UEMOA. She has been involved in the entry of the Indian company TATA Steel into the mining sector in Ivory Coast. She is also well experienced in intellectual property and telecommunications law.

Osther Tella Tel: +225 22 44 74 00 / Email: [email protected] A well experienced corporate lawyer, Osther Tella advises important local companies as well as international fi nancial institutions such as Afrexim Bank, AFRICINVEST FUND, FORTIS, etc. He is also mainly in charge of building and following up on structured fi nancing projects for several international banks including development and investment banks. He often executes various missions, especially due diligence on general legal issues and labour law issues for parent companies, subsidiaries and branches of large groups in West and Central Africa. In addition, Osther Tella is specialised in Sports law, as the sector is in need of competent legal professionals in Africa.

Hermann Kouao Tel: +225 22 44 74 00 / Email: [email protected] Hermann Kouao is mainly in charge of counselling companies, taxation and litigation cases. He also ensures the proper running of transactions such as holdings, mergers and acquisitions, asset disposal on behalf of Francophone and English-speaking fi nancial groups. The past fi ve years have involved Hermann Kouao in employment law counselling for companies during their merger and acquisitions operations. He is preparing a Ph.D. on taxation of insurance contracts.

Imboua-Kouao-Tella & Associés BP 670 Cidex 03 Abidjan, Ivory Coast T el: +225 22 44 74 00 / Fax: +225 22 44 29 51 / URL: www.ikt-avocats.com

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Yuto Matsumura & Hideaki Roy Umetsu Mori Hamada & Matsumoto

Overview Since December 2012, under the leadership of Prime Minister Shinzo Abe, Japan has been in the process of implementing economic policies popularly known as “Abenomics”, comprising three components (called the three arrows): massive monetary easing; expansionary fi scal policy; and long-term growth strategy. The Abe administration received further support for its policies by calling an election of the House of Representatives on October 22, 2017, and securing a two-thirds ‘supermajority’ in that election. Although the full results of its policies are still unclear, the initial impact was a surge in the Japanese stock market together with a signifi cant depreciation of the Japanese yen against other major currencies: comparing the fi gure as of year-end 2017 and 2012, the Nikkei 225 was up 119.0% (to JPY 22,765 from JPY 10,395), and the yen was approximately 30% cheaper against the US dollar. The yen depreciation certainly helped the competitiveness of Japanese companies abroad. More than six years after the massive earthquake in Northern Japan, and resulting tsunami and nuclear power plant accident, the region close to the epicentre is still struggling to rebuild its economy. However, business activities in other parts of the country have returned to normal, and Japanese M&A activity in the following years has been quite active. In particular, outbound M&A activity has been strong across a variety of industries, including telecommunication, healthcare, fi nancial services, industrials, energy and consumer products. Many Japanese companies that have no international presence or experience now list overseas strategies or expansion as one of their top priorities. We have also seen a number of domestic deals, particularly consolidations within the same industry. The March 2011 earthquake and nuclear disaster presented serious challenges to Japan’s energy strategy. As of the end of 2017, only one of the 50 nuclear plants in the country is operating, even though nuclear power had previously accounted for more than 30% of Japan’s energy supply. In the M&A context, it is no surprise that this energy predicament has continued to lead to investment, mainly by major trading houses, into natural resources all over the world.

Active cross-border M&A The volume of outbound M&A in 2017 was about JPY 750 billion, which was signifi cantly lower than that of 2016. However, the total value of outbound M&A into Asia was much higher than that of 2016. There has been particular M&A activity by Japanese companies in North America and South-East Asia.

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Among Asian countries, Myanmar has been the focus of signifi cant attention from Japanese companies. After the US started to relax sanctions, more and more Japanese companies have indicated their interest in Myanmar. The Japanese government is also supporting the Myanmar government by, for example, helping to establish a stock exchange in Myanmar. M&A activities by Japanese companies in Myanmar began to develop in 2013, a trend that we expect to continue over the next few years. “China plus” strategy As a result of a fl are-up in a dispute between Japan and China over small islands in the East China Sea, there were quite a few anti-Japan protests across China. Business activity by Japanese companies in China decreased and many of them began diversifying their investments into other countries. As a consequence, many Japanese companies in all industrial sectors have already or are now planning to invest not just in China but also in other parts of the world, particularly in Southeast Asia.

Signifi cant deals Large inbound M&A deals – Toshiba and Takata While over the past few years the largest M&A deals have generally been outbound deals, the largest Japanese M&A deal in 2017 was an inbound deal. On September 28, 2017, Bain Capital announced that it had agreed with Toshiba Corporation (“Toshiba”) to purchase all the shares of Toshiba Memory Corporation (“TMC”), Toshiba’s wholly owned subsidiary, at JPY 2 trillion (approximately US$ 18 billion). Besides Bain Capital, the consortium includes Hoya, a global diversifi ed company in the fi eld of innovative high-tech and medtech products based in Tokyo; SK Hynix, which will own convertible bonds; and some additional US investors such as Apple, Dell Technologies Capital, Kingston Technology and Seagate, which will own non-voting shares and not participate in the governance or operations of TMC. Toshiba will remain a signifi cant investor and continue to control the board and the governance of the company. According to their press release, the consortium will abide by and respect all the contractual terms of the Western Digital joint venture. On December 13, 2017, Toshiba entered into a global settlement agreement with Western Digital Corporation to resolve their ongoing disputes in litigation and arbitration, which ensures that all parties are aligned on Toshiba’s sale of TMC. Another large inbound M&A deal in 2017 involved Takata Corporation (“Takata”), a leading global supplier of automotive safety systems such as seat belts, airbags and child seats. On June 26, 2017, Takata announced that it had reached agreement with Key Safety Systems (“KSS”), a global leader in mobile safety headquartered in Sterling Heights, Michigan, under which KSS will acquire substantially all of Takata’s global assets and operations for a purchase price of approximately US$ 1.59 billion. Takata fi led civil rehabilitation proceedings in the Tokyo District court for certain Japanese entities, and Chapter 11 in the United States Bankruptcy Court for certain North America affi liates and subsidiaries. Activity by SoftBank SoftBank Group Corp. (“SoftBank”) is a global technology company with a portfolio of companies including those in advanced telecommunications, internet services, AI, smart robotics, IoT and clean energy providers. SoftBank acquired ARM Holdings plc, the leading IP company, in September 2017, and also announced several other large M&A deals in 2017.

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On February 14, 2017, SoftBank announced that it had entered into a merger agreement to acquire Fortress Investment Group (“Fortress”) for approximately US$ 3.3 billion. Fortress is a leading, highly diversifi ed global investment fi rm publicly listed on New York Stock Exchange, with US$ 70.1 billion in assets under management (as of September 2016), which manages assets on behalf of over 1,750 institutional clients and private investors worldwide across a range of private equity, credit, real estate and traditional asset management strategies. The acquisition was completed on December 28, 2017. On June 9, 2017, SoftBank announced an intention to acquire robotic pioneer Boston Dynamics, the developer of advanced robots, such as BigDog, Atlas, Spot and Handle, from Alphabet Inc. On July 18, 2017, SoftBank announced a joint venture with WeWork Companies (“WeWork”), a platform for creators, providing more than 130,000 members around the world with space, community and services through both physical and virtual offerings. SoftBank and WeWork will each own 50% of the joint venture, which will operate under the name of WeWork Japan, and will bring to Japan WeWork’s transformational platform of space, community, and services for companies of all sizes. On July 24, 2017, SoftBank and Didi Chuxing, the world’s leading mobile transportation platform, announced that they will invest up to US$ 2 billion in Grab, the leading on- demand transportation and mobile payment platform in Southeast Asia. Private equity deals Kohlberg Kravis Roberts (“KKR”), which announced the completion of the acquisition of Casonic Kansei for approximately US$ 4.5 billion in early 2017, was also active in 2017. On January 13, 2017, KKR announced an intention to acquire Hitachi Koki Co., Ltd., a publicly listed company and a leading power tool and life science equipment manufacturer for the professional market, for approximately US$ 1.28 billion. On April 26, 2017, KKR announced its intention to acquire Hitachi Kokusai Electric Inc. (“Hitachi Kokusai”), through an entity owned by investment funds managed by KKR. Hitachi Kokusai, a publicly listed subsidiary of Hitachi Limited (“Hitachi”) operated in two business segments: a video and communication solutions business; and a thin-fi lm process solutions business. The tender offer was completed on December 9, 2017. After the tender offer, the thin-fi lm process solution business will be wholly owned by KKR, and the video and communication solutions business will be jointly owned by KKR, Hitachi and an entity backed by funds managed and serviced by Japan Industrial Partners. An absorption-type company split (kyushu-bunkatsu) will be used as the method to transfer the thin-fi lmed solutions business. Bain Capital, which led the TMC deal, also announced on October 2, 2017 the acquisition of Asatsu-DK Inc. (“ADK”), the third largest advertising agency in Japan, through a tender offer process, for total consideration of approximately US$ 1.35 billion. Through a series of procedures following the tender offer, Bain Capital intends to make ADK a wholly owned subsidiary of the acquisition vehicle. M&A in the fi nancial sector M&A in the banking sector was also active. The Bank of Tokyo Mitsubishi UFJ Ltd., the commercial banking entity of Mitsubishi UFJ Financial Group Inc. (“MUFG”), one of the world’s leading fi nancial groups headquartered in Tokyo with total assets of approximately US$ 2.7 trillion (as of September 30, 2017), announced on December 26, 2017, that it had entered into a conditional share purchase agreement with Asia Financial (Indonesia) Pte

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Ltd., and other affi liated entities, to acquire their shareholding interests in PT Danamon Indonesia, Tbk (“Danamon”), currently the fi fth-most profi table Indonesian commercial bank by earnings. The acquisition is structured as a three-step transaction. At step one, MUFG acquires an initial 19.9% stake in Danamon at an investment amount of approximately US$ 1.17 billion. At step two, MUFG intends to seek regulatory approval to increase its stake in Danamon to 40%, and at step three, MUFG intends to seek necessary approvals to increase its stake above 40%. Eventually, MUFG’s stake in Danamon is expected to be over 73.6%. On September 26, 2017, Resona Holdings Inc (“Resona”), Sumitomo Mitsui Financial Group Inc. (“SMFG”), the Minato Bank Ltd. (“Minato”), Kansai Urban Banking Corporation (“Kansai Urban”) and the Kinki Osaka Bank Ltd. (“Kinki Osaka”), announced that they had agreed to proceed with a business integration of the three banks – Minato, Kansai Urban and Kinki Osaka. Under the business integration agreement, Resona will conduct a tender offer for the shares of common stock in Minato and Kansai Urban; a new holding company will conduct a stock-for-stock exchange (kabushiki kokan) with Minato and Kansai Urban so that it will own 100% shares of the two banks; and Resona will transfer all of the shares in Kinki Osaka to the new holding company. As a result, SMFG will own 22.3% to 26.3%, and Resona will own approximately 51% of the new holding company. Other signifi cant outbound M&A The second-largest M&A deal in 2017 was in the healthcare sector. On January 9, 2017, Takeda Pharmaceutical Company Limited (“Takeda”), a global research and development-driven pharmaceutical company based in Tokyo, announced that it had entered into an agreement with ARIAD Pharmaceuticals, Inc. (“ARIAD”), a NASDAQ listed company based in Cambridge, Massachusetts that is focused on discovering, developing and commercialising precision therapies for patients with rare cancers, under which Takeda acquires all of the outstanding shares in ARIAD for an enterprise value of US$ 5.2 billion. The acquisition is structured as an all-cash tender offer for all of the common stock, followed by a cash merger. On April 6, 2017, Seven & i Holdings Co., Ltd., the parent company of 7-Eleven Inc., the largest chain in the convenience-retailing industry, announced its intention to acquire approximately 1,108 convenience stores located in Texas and the eastern United States, from Sunoco LP for US$ 3.3 billion. The acquisition was completed on January 23, 2018.

Key developments Amendment to the Companies Act The Companies Act was completely overhauled in 2006, and is therefore a relatively new law compared to the other fundamental laws of Japan. Nonetheless, the rapidly changing business, fi nancial and economic environment faced by Japanese companies has already highlighted the shortcomings of the rewritten Companies Act. As a result, an amendment of the Companies Act was passed by the Japanese Diet in June 2014 and came into effect in May 2015 (the “2015 Amendment”). Thereafter, the Ministry of Justice has continued discussions of a possible additional amendment of the Companies Act (the “Additional Amendment”), and a draft plan of the Additional Amendment was published in February 2018 in order to start the process of public comments on such draft. While the 2015 Amendment focused on certain corporate governance issues, including an option to introduce a new corporate governance system that includes an audit and supervisory committee (defi ned as “kansa-tou iinkai secchi kaisha” in the Amendment) and the introduction of double derivative actions in certain circumstances, there were some major reforms that have directly impacted M&A practice including, among others: (a)

GLI - Mergers & Acquisitions 2018, Seventh Edition 153 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Mori Hamada & Matsumoto Japan regulation on the issuance of shares that results in creating controlling shareholders; and (b) minority squeeze-out procedures. Regarding (a), while the Companies Act originally required only board approval for the issuance of new shares (unless it was deemed a discounted issuance), the 2015 Amendment obliges any company which plans to issue new shares to send written notice to all shareholders, or to make a public notice of its intention to issue the shares (unless it submits a security registration statement separately required under the Financial Instruments and Exchange Act), if the acquirer of the shares will own a majority of the voting rights as a result of the share issuance. Regarding (b) above, the 2015 Amendment introduced a new minority squeeze-out procedure which became frequently employed after the 2015 Amendment took effect. If a controlling shareholder directly or indirectly owns 90% or more of the total voting rights of the company after the completion of a tender offer, that shareholder is able to require the remaining shareholders to sell their shares without the need for shareholder approval or a court order, subject to the approval of the board of the target company. Dissenting shareholders have the right to seek an injunction to prevent such a purchase if it is illegal or extremely unjust. Dissenting shareholders also have an appraisal right. Other reforms in the 2015 Amendments also had an impact on M&A practices in Japan (e.g., shareholder remedies which include the ability to seek an injunction of mergers and other reorganisations). The Additional Amendment also focuses on corporate governance issues, such as the procedures for shareholders’ meetings, requirements of appointment of outside directors, and incentive and remuneration of the directors. These possible amendments may have an impact on M&A practices and therefore we should keep an eye on the discussions of the Additional Amendment in 2018 and onward. Developments in corporate governance Recently, corporate governance has become a hot issue in Japan and we have seen important developments in this area. As described above, the Amendment of the Companies Act contains certain corporate governance developments including the introduction of an audit and supervisory committee. In addition, in February 2014, the Japanese Financial Services Agency (FSA) introduced a Japanese version of the “Stewardship Code”, which is entitled “Principles for Responsible Institutional Investors”. The FSA announced that, as of February 2018, 219 institutional investors have adopted the stewardship code as a result of such introduction by the FSA. This development is affecting the relationship of Japanese companies with their institutional shareholders, which is also affecting M&A practices in Japan. Furthermore, in May 2015, the Tokyo Stock Exchange (“TSE”) adopted the Corporate Governance Code (the “Code”), entitled “Japan’s Corporate Governance Code − Seeking Sustainable Corporate Growth and Increased Corporate Value over the Mid- to Long- term”, which was included in its listing rules. The adoption of the code had a signifi cant impact on corporate governance system and M&A practices in Japan. The Code was a product of the joint efforts of the FSA and the TSE, which in August 2014 organised the “Council of Experts Concerning the Corporate Governance Code”. The Code is intended to establish fundamental principles for effective corporate governance for listed companies in Japan. It includes not only important principles on corporate governance, such as a requirement for at least two independent directors, but also principles relating to M&A, such as principles relating to anti-takeover measures, capital policies that could result in a change of control or in signifi cant dilution (e.g., management buyouts or share offerings), and cross-shareholdings. Since the Code is based on the notion that companies need proper corporate governance to achieve sustainable and mid- to long-term growth, it has become

GLI - Mergers & Acquisitions 2018, Seventh Edition 154 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Mori Hamada & Matsumoto Japan more important for companies to explain to their shareholders how a proposed M&A transaction would result in the sustainable and mid- to long-term growth of the company. The Code also recommends that remuneration to directors include incentives that refl ect mid- to long-term performance or potential risks. As one of the reactions to this recommendation, the introduction of new types of remuneration has become a very hot issue in Japanese corporate governance. For example, so-called “restricted stock”, which is commonly used as a long-term incentive in western countries, has been rapidly introduced. Restricted stock is granted to management with certain conditions including transfer restrictions, and the relevant laws and practices have been recently amended for issuing restricted stock in Japan. In 2016, the Ministry of Economy, Trade and Industry of Japan (“METI”) issued a practical guide for issuing restricted stock under current Japanese law. Additionally, the tax laws were amended in 2016. Under the amended tax laws, management is not taxed upon grant of the stock, but rather when the restriction on transfer is lifted. The ordinance of the Financial Instruments and Exchange Act has been also amended to grant certain exceptions to required disclosures regarding the restricted stock. These amendments will facilitate the introduction of new management remuneration structures in Japan. Although Japanese companies are active in cross-border M&A deals, they have not typically granted long-term incentives in M&A transactions. However, with the rapid movement toward introduction of long-term incentives, we may see more cases in the near future of Japanese companies giving long-term incentives to the management of overseas target companies in cross-border M&A. Court decisions regarding the fairness of price in M&A In recent years, an increasing number of minority shareholders who are to be squeezed out have begun questioning the fairness of the squeeze-out price, especially in MBO transactions or acquisition by a majority shareholder where there is an issue of a confl ict of interest between the minority shareholders and the management or majority shareholder of the company. The Companies Act allows shareholders who oppose the squeeze-out to request the courts to determine the “fair price” of their shares. However, it does not defi ne the parameters in determining the fairness of the share price, and the courts are free to make that determination at their own discretion. This uncertainty in price determination poses a major risk when conducting a squeeze-out process, and has contributed to the rise in challenges of the squeeze-out price by minority shareholders. Court challenges started in now famous cases such as the Rex Holding, the Sunster and the Cybird cases. Each of the courts in these cases considered various factors in deciding the fair price but stressed the importance of the market price among other pricing measures. Since the determination of the fair price was made on a case-by-case basis, it was diffi cult to establish exactly what factors will be taken into account in addressing the issue. In this context, the Supreme Court made an important decision in 2016 in the Jupiter Telecommunications Co., Ltd. case (J:COM case), reversing the lower court decisions that followed the previous framework in deciding the fair price in squeeze-out procedures after the tender offer. Under the previous framework, as described above, the court tried to determine the fair price itself, taking into account various factors and using certain calculation measures. On the other hand, in the J:COM case, the Supreme Court held that, even in a case where there is a confl ict of interest between the majority shareholder (i.e. acquirer) and the minority shareholders, if the tender offer is conducted in accordance with “generally accepted fair procedures”, the court should in principle approve the tender offer price as a fair squeeze-out price.

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This Supreme Court decision is regarded as a paradigm change from the previous framework. Although there was a similar Supreme Court decision in the Tecmo, Ltd case in 2012 involving a corporate reorganisation transaction, the J:COM case is the fi rst time the Supreme Court has made it clear in the context of a post-tender offer squeeze-out that the court will basically review the fairness of the procedures rather than the fairness of the price itself. In the J:COM case, the Supreme Court cited examples of the “generally accepted fair procedures” that were followed, including the fact that: (i) J:COM established an independent committee and obtained its opinion; and (ii) it was clearly announced in the tender offer procedure that the squeeze-out price would be the same as the tender offer price. While the J:COM ruling should provide much more predictability in this type of transaction, there are still certain open issues, including: (i) any other factors that would be regarded as a “generally accepted fair process”; (ii) the scope of application of this Supreme Court decision; and (iii) how the court would determine the squeeze-out price in cases where it fi nds that “generally accepted fair procedures” were not followed. In this regard, there was a court decision at the Osaka District Court in January 2017. This decision implemented the abovementioned framework as the Supreme Court proposed in the J:COM case, but the court determined that the procedures were not enough to determine the fairness of the price, and it actually reviewed the price itself. As such, although it is still diffi cult to predict how this J:COM ruling will be implemented in subsequent court decisions, it will likely have a signifi cant impact on Japanese M&A practices, making it more important to consider carefully the factors that would be regarded as “generally accepted fair procedures” in each transaction. Not only an independent committee as described in the J:COM case, but other approaches, including setting the so-called “majority of minority condition”, may be more commonly taken in this type of transaction. It will be important to follow how Japanese M&A practices are actually affected in the coming years. Court decision regarding the issuance of new shares in case of dispute over control of company In July 2017, there was a Tokyo High Court decision regarding the public offering of new shares in a situation involving a dispute over control of a company among existing shareholders. In this case, Idemitsu Kosan Co., Ltd (“Idemitsu”), the second-largest petroleum company in Japan, conducted a public offering of its shares of common stock. Thereafter, the founding family of Idemitsu fi led a petition to enjoin such issuance of shares. The founding family directly and indirectly owned more than one-third of Idemitsu’s voting rights, which enabled the founding family to veto Idemitsu’s material corporate actions such as mergers or other corporate re-organisations. Actually, the founding family was against the combination of Idemitsu and Showa Shell Sekiyu K.K proposed by the incumbent management. The founding family fi led the petition because issuance of the new shares would cause the shareholding ratio of the founding family to fall below one-third, and they would lose their veto right over material corporate actions. Over the last decades, courts have developed the “primary-purpose” (shuyo mokuteki) test for this type of situation. Under the primary-purpose test, the court will determine whether the primary purpose of the issuance of new shares is to dilute the shareholding of a specifi c shareholder and to maintain control of the incumbent management and shareholders. In the Idemitsu case, the court also used the primary-purpose test. The court ruled that the issuance of shares by Idemitsu was not for the primary purpose of diluting the shareholding of the founding family because, among others: (a) this was a public offering of the shares to general subscribers rather than an offering of shares to a specifi c third party, and therefore,

GLI - Mergers & Acquisitions 2018, Seventh Edition 156 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Mori Hamada & Matsumoto Japan it was less likely that the current management could control who would be the new shareholders and the opinions of such new shareholders; and (b) Idemitsu actually needed new money through this issuance of new shares in order to refi nance the bridge loan which would be due within a few months. There have been some arguments regarding the Idemitsu case, particularly since it seems the court easily concluded the necessity of fi nancing without a thorough review. However, given the court’s conclusion that a public offering of shares may be more acceptable from the perspectives of the “primary-purpose” rule, this case may have an impact on Japanese M&A practices going forward, especially in a situation involving a dispute over control of a company. Amendment of the Foreign Exchange and Foreign Trade Act The Foreign Exchange and Foreign Trade Act (the “Foreign Exchange Act”) was amended in 2017 and it took effect on October 1, 2017. The Foreign Exchange Act regulates foreign transactions, including inbound and outbound M&A transactions. The purpose of the amendment of the Foreign Exchange Act was, among others, to strengthen the regulation of cross-border transactions including M&A transactions. Even before the amendment, certain cross-border M&A transactions were subject to a pre- notifi cation fi ling, but the sale and purchase of shares of a non-listed Japanese company between foreign shareholders had been excluded from such notifi cation requirements. Under the amendment, such share transfers of non-listed Japanese companies in certain industries between the foreign shareholders have become subject to the pre-notifi cation fi ling. The government may now review such transactions and, if necessary, the government may recommend or order discontinuation or change of such transactions. Amendment of M&A-related taxation There were several M&A-related tax amendments in 2017 and 2018, which will potentially have a signifi cant impact on M&A structuring. Among others, there were amendments to the taxation of: (a) a squeeze-out transaction; (b) a spin-off transaction; and (c) a share-to- share tender offer transaction. Due to these amendments, we will have broader structuring options for squeeze-out transactions, and we may also newly be able to conduct a tax-free spin-out transaction under certain conditions. Additionally, we will be able to enjoy a tax deferral in a share-to-share tender offer transaction under certain conditions. Since a share- to-share tender offer has not been used mainly for tax reasons, this amendment to tax law will likely result in the use of this type of transaction in the near future. M&A practices relating to anti-corruption regulations As described above, we are still seeing a strong trend of out-bound investments by Japanese companies into emerging markets including ASEAN countries. Expansion into these new markets has heightened concerns about potential corruption and other compliance risks, which have begun to have an impact on outbound M&A transactions. For example, Japanese companies have increased their focus on compliance issues in the conduct of M&A due diligence. The Japanese government has also begun looking more closely at corrupt practices involving Japanese companies and foreign offi cials. In 2014, the Tokyo District Public Prosecutor’s Offi ce indicted a Japanese railway consulting fi rm and its executives on charges of making illegal payments to offi cials in Vietnam, Indonesia and Uzbekistan. In July 2015, METI published an amendment to the “Guideline to Prevent Bribery of Foreign Public Offi cials”, and also in July 2016, the Japan Federation of Bar Association published the “Guidance on Prevention of Foreign Bribery”. In this very active situation relating to

GLI - Mergers & Acquisitions 2018, Seventh Edition 157 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Mori Hamada & Matsumoto Japan anti-corruption practices in Japan, we expect to see further developments in M&A practice from the perspective of compliance with anti-corruption policies. Representations and warranties insurance Representations and warranties insurance is a relatively new topic on the Japanese M&A scene. This insurance is infrequently used in Japanese M&As, except for certain cross- border M&As. But recently Japanese insurance companies have started to actively provide representations and warranties insurance in Japan. Also, in recent Japanese M&A practice, we have started to see transactions where the representations and warranties provided by the seller are limited compared to previous practice, and buyers are seeking alternative protection. As a result, this insurance is becoming much more common, and will become more widespread even in domestic M&As. Since this insurance is relatively new in Japan, practitioners face practical or legal issues in introducing it under the Japanese M&A legal framework and practice. But we believe that representations and warranties insurance will become an important tool to hasten negotiations between sellers and buyers.

The year ahead Overall M&A trends Given the current Japanese economic conditions and intensifi ed global competition, coupled with the abundant cash reserves of Japanese companies, we believe that outbound M&A activities will continue to grow strongly, with particularly strong growth in outbound deals into Asian countries. Outside Asia, North America and Europe are likely to continue to be favourite destinations but increasingly, Latin American countries and African countries are also being added to the mix. Amendment of the Companies Act; the Corporate Governance Code As discussed above, the Additional Amendment of the Companies Act may cause some important changes in Japanese corporate culture as well as M&A practices. Several tax amendments mentioned above may also affect M&A transactions going forward. However, we must bear in mind that this new M&A landscape in Japan is still young and evolving, and it is important to follow how it develops going forward as practices become more well- established.

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Yuto Matsumura Tel: +81 3 5223 7762 / Email: [email protected] Yuto Matsumura is a partner in the Corporate/M&A Practice team at Mori Hamada & Matsumoto. His areas of practice include mergers and acquisitions in many different industries, corporate and securities laws, private equity, banking and international dispute resolution. In particular, he has extensive experience in cross-border M&A. He has assumed leading roles in a number of deals that were selected as Japan Deal of the Year. He has consistently been selected as one of the leading lawyers in Japan for Corporate/M&A in the International Who’s Who of Merger & Acquisition Lawyers, IFLR1000, Chambers Global, Chambers Asia, Best lawyers in Japan, PLC, Which Lawyer? and Asialaw Profi les; for Banking in the International Who’s Who of Banking Lawyers and Asialaw Leading Lawyer; and for Dispute Resolution in Asialaw Leading Lawyer. He is an active member and frequent speaker at the International Bar Association, where he serves as an offi cer of the Corporate/M&A committee. From 2002 to 2003, he worked with Sullivan & Cromwell in New York. He is a graduate of Columbia Law School (LL.M. 2002) and the University of Tokyo (LL.B.1996). He joined Mori Hamada & Matsumoto in April 1998, and has been partner since January 2005. He served as Visiting Associate Professor at the University of Tokyo Law School from 2013 to 2016, where he taught corporate law and M&A among other classes. He is fl uent in Japanese, English, and French.

Hideaki Roy Umetsu Tel: +81 3 6212 8347 / Email: [email protected] Hideaki Roy Umetsu is a partner at Mori Hamada & Matsumoto. He focuses on, among others, international and domestic M&A transactions, Asia practice, anti-corruption, and general corporate law and securities. He also has expertise in other emerging markets including Brazil, Mexico and Turkey. He was admitted to the Bar in 2004 in Japan and to the New York Bar in 2010. Umetsu was educated at the University of Tokyo (LL.B., 2003) and the University of Chicago Law School (LL.M., 2009). From 2006 to 2007, he worked as an associate director at the Ministry of Economy, Trade and Industry of Japan, where he was in charge of M&A-related laws and regulations with a particular focus on management buy-outs. He also worked as a foreign temporary associate at Davis Polk & Wardwell from 2009 to 2010. He served as a lecturer at Seikei University Faculty of Law from 2011 to 2015, and he served as a member of the Overseas Risk Management Research Group organised by the Organization for Small & Medium Enterprises and Regional Innovation under the METI in 2016. He is an active member at the International Bar Association, where he serves as an offi cer and a treasurer of the Asia Pacifi c Regional Forum.

Mori Hamada & Matsumoto Marunouchi Park Building, 2-6-1 Marunouchi, Chiyoda-ku, Tokyo 100-8222, Japan Tel: +81 3 5223 7762 / Fax: +81 3 5223 7662 / URL: www.mhmjapan.com

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Kristijan Polenak & Tatjana Shishkovska Polenak Law Firm

Overview The legal framework governing mergers and acquisitions (M&A) in the Republic of Macedonia comprises laws defi ning corporate and contractual steps of the process, as well as the reporting obligations of participating companies. The Law on Trade Companies, published in 2004 (Company Law), and the Takeover Law, published in 2013 (Takeover Law), are the primary sources of law relating to M&A. The Company Law stipulates the general conditions, processes and procedures and other forms of company reorganisation, applicable to all types of companies. Under the Company Law, M&A are carried out either as a share purchase deal, on the basis of a notarised share purchase agreement, or as a regulated reorganisation on the basis of the merger agreement entered in a form of notarial deed, following strict corporate steps and disclosure requirements. The change of ownership as a consequence of an M&A transaction is subject to registration in the trade registry maintained by the Central Registry of the Republic of Macedonia. A revised Takeover Law was passed in May 2013, regulating the takeover procedure. The takeover rules are mandatory for share transactions in companies listed on the Macedonian Stock Exchange and for transfers of securities issued by joint stock companies with special reporting requirements pursuant to the Law on Securities. The provisions of the Takeover Law apply for a period of one year after a company ceases to meet these criteria. The threshold that triggers a mandatory takeover bid is more than 25% of the voting shares in a company. The additional takeover thresholds are each acquisition of an additional 5% of the voting shares of the target company within a period of two years of the successful takeover, and the highest takeover threshold is 75% of the voting shares. The provisions of the Takeover Law do not apply to purchase of shares owned by the Republic of Macedonia, including shares owned by benefi ciaries of funds from the State Budget, agencies, funds and public companies and other institutions and legal entities performing activities of public interest established by state-owned assets. In addition, the Securities Law, passed in 2005, regulates the manner and conditions for issuance and trading in shares, and sets the general legal framework of the capital market and the licensed market participants, disclosure obligations of joint-stock companies with special reporting obligations, and other issues with regard to shares. The Macedonian Security and Exchange Commission (SEC) and the Commission for Protection of Competition (CPC) are the principal regulators related to M&A transactions.

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The SEC is established as an autonomous and independent regulatory body with public authorisations prescribed by the Securities Law, the Law on Investment Funds and the Takeover Law. It extends the regulatory framework with secondary legislation relative to M&A, and in particular the acquisitions of listed and reporting companies, to which Takeover Law applies. The CPC is a state body with the status of a legal entity, independent in its work and decision-making process within the competencies provided by the Law on Protection of Competition. It controls the application of the provisions stipulated in the Law on Protection of Competition, and monitors and analyses the conditions on the market to the extent necessary for the development of free and effi cient competition. The CPC, inter alia, gives clearance in cases of mergers and acquisitions that meet the regulatory thresholds. The publicly available information published on the CPC’s website show the following statistics:1 Thirty-six merger notifi cations were reviewed and approved by the CPC in the period from January until the end of August 2017, of which: • only two transactions involved Macedonian companies directly, and the relevant M&A were performed in the Republic of Macedonia; and • 34 M&A were performed outside of the Republic of Macedonia and between foreign companies. No data are published on the CPC’s website for any M&A which took place between the end of August 2017 until the end of 2017. The CPC clearances involved various sectors, including but not limited to the TV media sector, IT sector, sector related to trade with medicine products, construction sector, the telecommunications sector, etc. Both of the transactions performed in the Republic of Macedonia were acquisitions of shares by way of execution of notarised share-purchase agreements, in accordance with the Law on Trade Companies. The trend, pursuant to the statistical data of the CPC, shows an increase in the total number of transactions relative to the whole of 2016, when the CPC reviewed and approved: • four M&As performed in the Republic of Macedonia; and • 22 M&As performed outside the Republic of Macedonia. However, although there was a rise in the total number of M&A transactions which were notifi ed to the CDC, only two of them were completed in the Republic of Macedonia, one of which is of low signifi cance.

Signifi cant deals and highlights The most signifi cant M&A transaction that has taken place in the Republic of Macedonia in 2017 is in the sector related to the issuance and administration of credit cards. Acquisition of Diners Club International MAK DOOEL Skopje by Erste Card Club DOO Erste Card Club DOO, a Croatian company, by way of entering into a share purchase agreement, has acquired from SKB Capital S.A. of Luxembourg 100% direct ownership of the companies Diners Club International Belgrade DOO, Diners Club International MAK DOOEL Skopje, and indirect ownership of the companies Diners Club International Montenegro DOO and DC Travel from Belgrade. The transactions relating to the acquisition of the companies, including Diners Club International MAK DOOEL Skopje, were fi nalised in the fi rst quarter of 2017. “As the largest issuer in the region, Erste

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Card Club DOO will bring new payment solutions from the products of Diners Club on the territory of Serbia, Montenegro and Macedonia and therefore will enrich the offer on the markets in the three countries…” stated Mr. Obrad Simovikj who, in the fi ve years following the fi nalisation of the transaction, will be appointed as chairman of the supervisory board of DCI Belgrade.2 The other M&A transaction in the period from January until the end of August 2017 was in the sector of housing and gardens, and the same included the acquisition of 100% of the shares of the Company BRIKO MAKEDONIJA DOOEL Skopje for production, trade and services, by BRIKO KOSOVO SH.P.K., by way of entering into a notarised share purchase agreement.

Key developments The signifi cant decrease in M&A transactions in 2017 arose mostly as a result of the political crisis which has been ongoing in the country for the past two years, culminating in the fi rst half of 2017. Namely, the failure to establish a new government from the beginning of December 2016 until the end of May 2017, accompanied by protests and political tension which dominated everyday life in the country during this period, have affected foreign investors’ decisions to undertake any large investments in the Republic of Macedonia. An unproductive period of an additional four months after the appointment of a new government followed, while the government settles and selects new management in most of the institutions relevant for investments and the business sector as a whole. The change of the political scenery represented by a new government was also relevant to M&A in 2017, in particular in relation to the need to identify stability and certainty in the business environment. Nearing the end of the year, the effect of the political crisis slowly faded, and the potential of the Macedonian market is once again being noticed by international companies. Notably, M&A transactions are frequently triggered by the attractiveness of the market, and specifi cally its size. In this sense, the Republic of Macedonia, being a small market, has relatively limited M&A opportunities. The interest of international fi nancial institutions has shifted from equity investments into increasing their loan portfolio on the market. Also, international fi nance institutions have several divestments in the fi nancial sector. The role of local institutional investors in M&A transactions is not expected to increase. Pension funds tend to diversify their portfolio between investments in state securities and securities tradeable on local and foreign markets issued by listed companies, and private equity funds are not suffi ciently developed. However, regional private equity and investment funds may fi nd interest in the opportunities on the Macedonian market, though none has stepped in, for the reasons of instability and small size. For a large part of 2017, the Parliament was not in session and no new legislation was adopted during this period. In the second part of 2017 a signifi cant amount of legislation was adopted, although none of it is expected to affect the M&A market. The Law on Technological Industrial Development Zones (TIDZ) and the benefi ts for investors they provide, has garnered increased investment activity, resulting in the presence of international companies in the zones. Indirectly, this has affected the M&A market via several transactions with companies operating in these zones. However, the political crisis in 2017 affected these types of investments as well, and no new investments were made in TIDZ.

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Industry sector focus There has been a signifi cant decrease in foreign direct investment (FDI) in the Republic of Macedonia in all sectors, and the most signifi cant increase can be seen in the Mining & Quarrying sector. Mining & Quarrying sector The largest part of FDI was made in the Mining & Quarrying sector: in the fi rst three quarters of 2017, the total amount of FDI in this sector was worth €27.84m. This increase is due to the large number of concessions granted by the Government of the Republic of Macedonia for exploitation of minerals in the country in the years prior to 2017. Large numbers of such concessions have started or are in the process of starting with exploitation of minerals. 2017 inbound investments3 There has been a general decrease of investments in the Republic of Macedonia in 2017 in all sectors. Namely, in comparison to 2016 when FDI totalled €338.43m, FDI in 2017 reached only €45.65m, which is more than seven times lower than in 2016. Most inbound foreign direct investments in Macedonia originated from Austria, Germany, St. Vincent & the Grenadines and Luxembourg.

The year ahead The political crisis which affected investments in Macedonia during 2017 has now ended, and signifi cant political fl uctuations which may affect investment in Macedonia are not expected to happen in the coming years. The political crisis affected economic growth in Macedonia, being 1.5% at the end of 2017, which is a signifi cant decrease in comparison to 2016 when economic growth was 2.4%. However, it is expected that this negative trend will end, and economic growth of 3−4% is foreseen in 2018 (depending on the institution making the economic analysis and prognosis). Low taxation rates still remain attractive for investors and may lead to particular interest in acquisitions in the hospitality and tourism sectors, as well as in the information and communication technology sector. The opportunities in various sectors, including telecommunication, fi nancial institutions, IT, mining, retail, real estate and the health sector are burgeoning and it is expected that the near future will see increased investments in Macedonia and revived M&A. Government incentives, new export-oriented facilities, labour market growth and solid credit support are expected to maintain the assumption of economic growth in Macedonia, thus enabling stability. Moreover, the revival of the accession processes to NATO and the EU will consolidate the long overdue stability. Overall, it is expected that the Macedonian M&A market will follow the wider trends in the south-east Europe region.

* * *

Endnotes These statistics are not comprehensive and are based only on the information available from the CPC. They do not include all M&A transactions, but only those that triggered the notifi cation requirements. There is no offi cial record of all M&A transactions.

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1. http://www.kzk.gov.mk/mak/zapis_decision.asp?id=9. 2. http://faktor.mk/erste-card-club-doo-go-prezema-rabotenjeto-na-diners-club--vo- srbija-makedonija-i-vo-crna-go. 3. http://www.nbrm.mk/ns-newsarticle-direktni-investicii-vo-republika-makedonija--- metodologija-bpm6.nspx.

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Kristijan Polenak Tel: +389 2 3114 737 / Email: [email protected] Kristijan Polenak, attorney at law, admitted to the Macedonian Bar Association, 1997, is a managing partner of Polenak Law Firm and heads the Banking and Finance Team. His 20-year experience in various projects, mostly focused on privatisations, M&A, and fi nancial arrangements of IFIs and international banks, as well as his corporate experience, give him an excellent track record and know-how for transactions involving fi nancing structures. His experience in several industries, combined with his banking experience and various independent corporate positions in companies (including serving as member and Chairman of the Board of Directors of the Macedonian Stock Exchange; Board member in a still processing plant; a zinc and lead smelter; a brokerage house; and an insurance company) and banks (including his current participation as an independent member of the Supervisory Board in a local bank), represent a solid basis for taking important roles as legal advisor to fi nancial institutions as well as companies in various industries.

Tatjana Shishkovska Tel: +389 2 3114 737 / Email: [email protected] Tatjana Shishkovska, attorney at law, admitted to the Macedonian Bar Association, 2009, is a junior partner of Polenak Law Firm and co-chair of the Corporate Law and Corporate Governance Team. She has 10 years of experience in various projects, mostly focused on M&A, corporate law, project fi nance, cross-border secured transactions, and fi nancial arrangements of IFIs and international banks, which with her corporate experience gives her an excellent track record and know-how for transactions involving fi nancing structures.

Polenak Law Firm Orce Nikolov 98, 1000 Skopje, Macedonia Tel: +389 2 3114 737 / Fax: +389 2 3120 420 / URL: www.polenak.com.mk

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David Zahra David Zahra & Associates Advocates

Overview of the Maltese market The year 2016 proved to be a turbulent and tumultuous one globally, and while the prospect of Brexit, coupled with the United States presidential election, prompted fears of a severe economic slump in 2017, naysayers’ predications did not quite come to fruition. This certainly rings true of the Maltese islands: in a post-crisis Europe plagued by anaemic growth, Malta has continued to shine as a lone star. The unprecedented levels of growth registered in 2014 and 2015 are a testament to Malta’s newfound status as an economic and fi nancial hub in the heart of the Mediterranean. And while the fi gures for the subsequent years have not quite lived up to previous highs, this does not in any way imply that the Maltese economic growth has plateaued. In fact, it was reported that during the third quarter of 2017 the Maltese economy posted an increase of €186.3m of Gross Value Added, mainly generated by professional, scientifi c and technical activities,1 with a further predicted growth by the European Commission of 4.4% in 2018.2 Malta’s magnetism for foreign direct investment persists in an unwavering fashion. According to the National Statistical Offi ce (“NSO”), inward fl ows increased by 1.2% during the fi rst six months of 2016 to a staggering €156.7bn, capping off four successive years of growth since June 2013. On top of that, Malta has continued to tap into its human resource potential, chipping away at its unemployment rate and clocking in as the third- lowest in the European Union in 2017. Financial services have for years been the fuel that has stoked the fi re of the Maltese raging economy. As a matter of fact, fi nancial and insurance constitute the overwhelming majority of Malta’s foreign direct investment. The successes experienced by businesses have prompted a rush in undertakings using Malta as an effective base for tailoring their international operations. A strong and coherent legislative framework based on European best-practice, serves as the bedrock of the Maltese fi nancial services sector, and fosters an environment that facilitates business transactions whilst ensuring the highest levels of compliance. The jurisdiction has come a long way since the fi rst wave of liberalisation in the late 1980s and early 1990s, and its current regulatory framework is built upon solid foundations. This favourable and dependable legal climate, coupled with the ever-increasing sophistication of its knowledge- oriented workforce, has boosted the tiny island to new heights. Ironically, in a day and age when the farthest corners of the globe are only a couple of hours away, Malta’s successes can be very much pinned down to factors that have remained very much unchanged in over 2,000 years of history. Malta’s strategic geographic location at the crossroads of the Mediterranean provides the ideal platform for businesses to build

GLI - Mergers & Acquisitions 2018, Seventh Edition 166 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London David Zahra & Associates Advocates Malta bridges into new and exciting markets in Europe, North Africa, the Baltics, the Middle East and Western Asia, all the while basking in 300 days of sunshine annually. Naturally, the advantages don’t stop there. The accession of Malta to the European Union in 2004 presented the jurisdiction with a wealth of opportunities in terms of access to the Single Market. Moreover, membership of the Schengen Area has provided hitherto unprecedented levels of freedom when moving between member countries. The concept of passporting even extends to institutions and operators in the fi nancial services sector: the ease of penetrating EU Member State markets has never been simpler.

The legal framework governing mergers and acquisitions The Companies Act Mergers and acquisitions of companies registered under the laws of Malta are predominantly regulated by the Companies Act (Cap. 386 of the laws of Malta) which was promulgated in 1995. The Companies Act is considered by many to be one of the greatest legislative achievements of the past generation, notable for its straightforward and comprehensive drafting. The team responsible for the drafting of its provisions drew heavily from the experiences of Common law jurisdictions with which the Maltese legal system has an affi nity due to its colonial heritage. Indeed, the Companies Act incorporates some of the most striking features of its English law counterpart, while simultaneously transposing the full suite of European company law directives, pursuant to Malta’s obligations under European Union law. It regulates the registration, management and administration of commercial partnerships, their dissolution and winding-up (including in the case of insolvency), the granting of pledges over shares in companies, and the offering of securities in companies to the public (including the relevant prospectus requirements for such offers).3 Part VIII of the Companies Act (dealing with ‘Amalgamation of Commercial Partnerships’) contemplates a number of detailed provisions allowing for the mergers of companies. The amalgamation of two or more companies may be effected by: (i) a merger by acquisition whereby the acquiring company acquires all the assets and liabilities of one or more other companies in exchange for the issue to the shareholders of the companies being acquired of shares in the acquiring company (and a cash payment, if any, not exceeding 10% of the nominal value of the shares so issued);4 or (ii) the formation of a new company whereby two or more companies transfer into a newly set-up company all their assets and liabilities in exchange for the issue to the shareholders of the merging companies of shares in the new company (and a cash payment, if any, not exceeding 10% of the nominal value of the shares so issued).5 In the case of corporate entities which are not registered under the laws of Malta, reference should be made to the Cross-Border Mergers of Limited Liability Companies Regulations (Legal Notice 415 of 2007), which transposes the European Community Directive 2005/56/ EC of the European Parliament and of the Council of 26 October 2005 on cross-border mergers of limited liability companies. In terms of such regulations, in the case of cross- border mergers, the law to be followed is that of the Member State in which the company has its registered offi ce, central administration or principal place of business, provided that at least two of the companies are regulated by the laws of different Member States, and one of them is registered under the laws of Malta. Other legislative instruments of note, issued in terms of the Companies Act, are the Companies Act (SICAV Incorporated Cell Companies) Regulations6 and the Companies Act

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(Incorporated Cell Companies) Regulations,7 which provide for the possibility of establishing investment companies with variable share capital (“SICAV”), as well as grouping limited liability companies into an incorporated cell company. In this way, a cluster of incorporated cells can be grouped under an incorporated cell company structure where their combined assets and liabilities can be attributed to a particular individual cell of the cell company, in order to limit the availability of assets and liabilities only to creditors and shareholders of that single cell. This is a very attractive feature of the Maltese legislative framework, particularly in view of the particular nature of the insurance sector. As a matter of fact, the international fi nancial media had reported that Lloyd’s of London actively considered Malta as its new European headquarters outside of Britain following the Brexit vote for a while, particularly because of the unique cell structure found in Maltese law. The Civil Code Another important, yet often underestimated, piece of legislation in the fi eld of mergers and acquisitions is the Civil Code (Cap. 16, laws of Malta). First enacted in 1861 and claiming the Code Napoleon as its major source of inspiration, the Civil Code, inter alia, lays down a comprehensive framework for the rules governing the law of obligations. Although the Companies Act is primarily responsible for articulating the general framework within which mergers and acquisitions can be carried out in or through Malta, it is the Civil Code that is responsible for regulating those contractual relationships that allow for the execution of such transactions. Indeed, the Civil Code, which is primarily principle-based, lays down the rules concerning the validity of contracts, the effects of obligations, suretyship, mandate (which is broadly similar to the Common law notion of agency), joint and several liability, security trusts and nominate contracts (such as sale, lease, loan and contract of works). The Commercial Code The Commercial Code (Cap. 13, laws of Malta) is another indispensable point of reference for practitioners in the mergers and acquisitions fi eld. Amongst other things, it regulates agency contracts, management arrangements as well as modes of payment used in the commercial world, such as bills of exchange and promissory notes. It regulates traders and acts of trade and commercial contracts in general. As a matter of technicality, the Maltese private law system operates on the basis of a dichotomy: indeed, the Commercial Code states that the commercial law is the lex specialis that shall apply in commercial matters. However, where a lacuna exists in the Commercial Code, the usages of trade shall apply and, in the absence of such usages, the Civil Code shall apply. These (at times not so subtle) differences continue to maintain a degree of importance, in particular with respect to statutes of limitation. The consolidation of commercial and civil controversy under the roof of the First Hall, Civil Court has effectively extinguished jurisdictional disputes that were predominant prior to 1995. The Financial Markets Act and the Listing Rules Another relevant legislative instrument is the Financial Markets Act (Cap. 345 of the Laws of Malta)8 which regulates the authorisation of regulated markets, central securities depositories and the orderly trading in transferable securities. Financial instruments may only be listed on a regulated market in Malta if they are fi rst authorised by the Listing Authority. The Listing Authority (which, in Malta, forms part of the single fi nancial services regulator known as the Malta Financial Services Authority) is established and regulated by the Financial Markets Act. Listing shall take place in

GLI - Mergers & Acquisitions 2018, Seventh Edition 168 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London David Zahra & Associates Advocates Malta accordance with the Listing Rules which are issued by the Listing Authority in terms of the said Financial Markets Act. The Listing Rules are applicable to companies whose fi nancial instruments have been admitted to listing on a regulated market. Importantly, Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids is transposed by Chapter 11 (and Chapter 5 with respect to article 10 of the said Directive). The Listing Rules provide that where a person acquires a controlling interest in a company as a result of the acquisition of shares, either directly or by persons acting in concert, that person must make a bid as a means of protecting the minority shareholders of that company. However, the obligation to launch a mandatory bid does not apply where control has been acquired following a voluntary bid made to all the holders of securities for all of their holdings. The Listing Rules impose particular obligations on takeover bids for the securities in companies registered in Malta and which are authorised, licensed or otherwise supervised by the Malta Financial Services Authority (such as credit institutions, entities carrying out insurance business, insurance intermediaries and trustees). In this case, a person must obtain the written consent of the Malta Financial Services Authority prior to the take-over. The Listing Rules also impose an obligation on the offeree company and its board of directors to notify the Malta Financial Services Authority upon becoming aware that any person intends taking any one of the actions mentioned above. In addition to the Companies Act (The Prospectus) Regulations, the Listing Rules regulate the content and the approval of the prospectus for issue. The Listing Rules set out the conditions that need to be met by prospective issuers and sponsors, the minimum corporate governance requirements, the reporting requirements and shareholder rights. The Listing Rules also transpose the Prospectus Directive9 and Transparency Directive10 (the “TD”). Control of Concentrations Regulations The Control of Concentrations Regulations11 bind persons or undertakings to notify the Malta Competition and Consumer Affairs Authority (hereinafter “MCCAA”) of the merging of two or more undertakings that were previously independent from each other, or the acquisition by one or more undertakings, or by one or more persons already controlling at least one undertaking, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more other undertakings. This oversight ensures that undertakings carrying out a merger or acquisition transaction are in full compliance with the principles established by the Treaty on the Functioning of the European Union that seek to prevent the distortion of the single market through unfair competition. The requirement for notifi cation is then further subject to a turnover threshold in Malta in the preceding fi nancial year exceeding €2,329,373.40, and each of the undertakings concerned having a turnover in Malta equivalent to at least 10% of the combined aggregate turnover of the undertakings concerned. The minimum threshold carves out those undertakings of a size too insignifi cant to pose any real threat to integrity of the free market. For the purposes of notifi cation, it is therefore irrelevant whether one or more undertakings is not present in Malta, as the MCCAA only requires that the undertaking makes sales in Malta in order to fall within the parameters of notifi cation. Notifi cation to the MCCAA is done by the acquiring party unless the concentration is that of a merger or acquisition of joint control, in which case it shall be notifi ed by the

GLI - Mergers & Acquisitions 2018, Seventh Edition 169 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London David Zahra & Associates Advocates Malta parties jointly by virtue of a form detailing the parties to the concentration, the nature of the concentration, ownership and control, personal and fi nancial links, and previous acquisitions and supporting documentation. Notifi cation must be made within fi fteen (15) working days from the conclusion of the agreement, announcement of public bid or the acquisition of a controlling interest. Without such notifi cation, the concentration cannot be put into effect. The Control of Concentrations Regulations also delves into the possibility of a simplifi ed procedure in certain instances. The MCCAA’s decisions with regard to concentrations are publicly available and can conveniently be found on the MCCAA online portal,12 with three (3) notifi cations having been listed in 2017. Employment and Industrial Relations Act The Employment and Industrial Relations Act (Cap. 452, laws of Malta) is of particular relevance to mergers and acquisitions due to the rules set out in case of acquisitions of going concerns. In the event of a transfer of business, persons in the employment of a transferring business, or as at the date of the transfer of the business, are to be deemed to be in the employment of the transferee, and will maintain any and all rights and obligations which they held under the previous employer. This obligation on the prospective employer is an important factor which must be considered during the due diligence process which takes place prior to the acquisition of a company having employees registered with the Employment and Training Corporation in Malta. In addition, old and new employers are duty bound to keep informed the representative of the employees who are to be affected by the transfer. The specifi c rules governing such transfers of business are contained in the Transfer of Business (Protection of Employment) Regulations.13 Judicial pronouncements on this subject-matter have been few and far between, however the decisions rendered by the Employment Tribunal, which is vested with competence to hear disputes of such nature, which occasionally rear their head, are a testament to the rigorousness of the safeguards built into the legislative framework. A case in point was the decision Alessandro Bruno (ID 046017A) v. GVC New Limited and Gaming VC Corporation Limited, wherein a former employee of a gaming company had his employment contract wrongfully terminated following its acquisition by a third party. In the case under review, the former employee was presented, upon the acquisition, with a revised employment contract that featured considerably worse working conditions, including a lower salary and discontinued benefi ts. The Employment Tribunal concluded that the former employee ought not have been offered inferior working conditions, and moreover that the law was clear insofar as it stated that it is the employer that is deemed for the contract’s termination in such a scenario. The Tribunal went on to award the employee restitution for the unlawful termination. The Income Tax Act Undertakings contemplating corporate reorganisations must be sensitive to the potential income tax consequences that the series of transactions may give rise to. Indeed, the spectre of taxation poses some concern to companies that in many cases are simply effecting “paper- for-paper” transactions, with little or no cash actually exchanging hands.

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Under the Maltese tax law, companies incorporated in Malta are taxable on their worldwide income and certain capital gains. Article 5 of the Income Tax Act stipulates those transfers that are considered to be chargeable capital gains, including but not limited to the transfer of immovable property (although this is regulated by another special provision, article 5A), securities, goodwill and intellectual property. The specifi c inclusion of securities is of a particular concern in corporate reorganisation transactions insofar as the merger transaction results in the cancellation of shares in the merging or acquired entity. Said cancellation could create a potential tax liability for the shareholders of the said merging or acquired entity. The law, being mindful of the specifi c nature of corporate reorganisation transactions, provides for a specifi c carve-out where there is an exchange of shares on restructuring of holding upon mergers and acquisitions, deeming that no gain or loss arises from such transfers, with the new shares being deemed to have a cost of acquisition equivalent to the shares held prior to the restructuring.14 Moreover, in 2003, Malta fully transposed the provisions of the Merger Directive, which inter alia seek to encourage cross-border reorganisations by means of tax-neutral treatment. The relevant rules have been incorporated in Article 27A of the Income Tax Act as well as the Mergers, Divisions, Transfers of Assets and Exchanges of Shares Regulations (Subsidiary Legislation 123.72 of the Laws of Malta), the latter of which makes an explicit cross-reference to the provisions of Directive 90/434/EEC 1990 as amended by Council Directive 2005/19/EC. Markets in Financial Instruments Directive (MiFID II) Whilst not having direct impact on the regulation of mergers and acquisition, MiFID II is still predicted to have important ramifi cations for undertakings, service providers and regulators operating within this fi eld. As from January 2018, MiFID II seeks to ensure higher safety standards for consumers interested in investment services.15 The more rigorous standards being set by the regulatory authorities may prove to pose considerable diffi culties for smaller asset management companies, with profi t margins squeezed and competitiveness stifl ed. It is anticipated that the new regulatory climate may stimulate increased interest in mergers and acquisitions involving these smaller asset management companies, which will seek to tap into the economies of scale associated with such transactions to adequately cope with new regulatory realities. Prospects Multilateral Trading Facility (MTF) The Prospects MTF is a multilateral trading facility (MTF) operated by the Malta Stock Exchange (MSE), allowing the possibility for small and medium-sized enterprises to raise capital through the issuance of bonds or equity.16 The Prospects MTF Rules create an obligation on the enterprise to engage a Corporate Advisor who will be in a position to assist the company through the admission process as well as ensure continued compliance with the Rules.17 Prospects MTF is aligned with the European Union’s Markets in Financial Instruments Directive (MiFID). Throughout 2017, a total of seven companies had been admitted to Prospects MTF. One of the companies admitted to Prospects MTF was Orion Finance PLC, a company set up as a special purpose vehicle with the main object being to raise fi nance for the business of the Orion Group. Orion Finance PLC is a subsidiary of Orion Retail Investments Limited, which is in turn a subsidiary of Camilleri Holdings Limited.

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This is interesting for the purposes of this article as Camilleri Holdings Limited, this year, notifi ed the MCCAA of its intention to acquire sole control of CYKA Limited. CYKA Limited was an importer and distributer within the retail industry in Malta, primarily of the brands: George, Promod, Miss Selfridge, Morgan and Jules. This request was in fact approved by the MCCAA on 7 December 2017.18

Recent developments Act No. XI of 2017 amended the Companies Act. The new amendments sought to ban share warrants to bearer, as well as improve company reconstruction procedures. The Registry of Companies was at the forefront of the amendments, as share warrants to bearer used to cause serious complications in the task of determining the ultimate benefi cial ownership, and therefore having implications on record-keeping and anti-money laundering procedures. The amendment also permitted private companies to admit debt securities to listing, so long as these are not offered to the public. This is only applicable for debt securities and not equity securities, in which case a public company is still required. Procedural amendments were also made to the company recovery procedure for those companies undergoing fi nancial diffi culties with specifi c reference to creditors, members and employees. Moreover, the Companies Act (Register of Benefi cial Owners) Regulations, 2017 will come into force on 1 January 2018, implementing the relevant provisions on benefi cial ownership information of Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015. New companies shall be requested to complete a declaration of the ultimate benefi cial owners of the company and submit this to the Registrar of Companies upon registration; companies shall be required to keep an internal register at their registered offi ce. The same changes will need to be implemented for existing companies; however, no information has yet been released on the procedural details of this change.

Signifi cant deals and highlights Given the high incidence of publicly undisclosed corporate reorganisations among private companies, it is often tricky to track down precise fi gures. However, annual fi gures compiled by the Malta Financial Services Authority demonstrate that nearly 300 company mergers took place in 2015, a year-on-year increase of 56%. Melita and Vodafone Group PLC In February 2016, Apax Partners Midmarket SAS, a French company, and Fortino Capital, a Belgian company, announced that they had completed the acquisition process of Melita, one of Malta’s largest telecommunications companies. In 2017, these new shareholders announced their intention to combine Melita with another of Malta’s telecommunication companies, Vodafone Group PLC. The intended plan for this newly created company was to operate under the Vodafone brand and benefi t from the two companies’ diverse expertise in both local and global mobile and fi xed operations. The end result would see Melita holding a 51% share interest and Vodafone Europe B.V. (the current shareholder of Vodafone Malta) holding a 49% share interest in the newly created company. However, this proposal was subject to the fi nal decision of the MCCAA, as this transaction fell squarely within the remits of the Control of Concentrations Regulations discussed above.

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On the initiation of an in-depth investigation into the proposed concentration, the MCCAA outlined the following concern: • the transaction could prima facie limit competition, mainly in the market and possibly in the fi xed markets, without providing suffi cient pro-competitive effects. This is primarily based on the potential harm to competition and consumer welfare arising from the fact that the concentration would signifi cantly curtail the possibility for three players to operate in the relevant markets, as it would instead create a dominant player within a duopolistic set-up. This assessment refl ects serious concerns arising from the proposed concentration with regards to the horizontal effects of the transaction in the mobile-only market, and the potential for co-ordinated and foreclosure effects in the mobile-only and multi-play markets.19 This resulted in what is referred to as a Phase II investigation, through which each of these concerns and potential risks were further assessed. Despite all parties involved cooperating with the MCCAA, the proposed concentration between Melita and Vodafone had to be terminated due to the impossibility of satisfying the MCCAA’s requirements, thereby withdrawing the notifi cation of concentration to the authority. Given the size of the Maltese islands and the fact that there are at present three competing telecommunications companies, two of which were proposing to merge, the MCCAA could not be assured that dominance would not arise and that consumers would be protected. Vitals Global Healthcare The healthcare industry has seen a rapid change throughout this past year and a considerable number of mergers and acquisitions. As a fi rm, we were involved in two material transactions in the healthcare sector – a management buy-out of a notable Maltese supplier of medical equipment (where we acted for one of the selling shareholders) as well as an acquisition of a distributor of quality health-related products by a company that is consolidating itself as a leader in the medical supplies sector. However, the most notable transaction in 2017 was the taking-over by Vitals Global Healthcare of the management of three previously State-run hospitals in Malta, with plans to invest in a new hospital, new medical school and provide hospitals with the necessary upgrades. As of December 2017, it was announced that Vitals Global Healthcare was in the midst of an agreement to sell its stake in the management of the above-mentioned hospitals to Steward Healthcare, an operator of close to 40 community hospitals in the United States. Hili Logistics Another acquisition taking place at the end of 2017 was that of 1923 Investments PLC. On 12 December, 1923 Investments PLC acquired Hili Logistics Limited from Hili Ventures Limited. This was carried out for a consideration of €25.575m, which consideration was settled through the issuance of new shares in 1923 Investments PLC to Hili Ventures Limited. This transaction aimed to diversify the business operations of 1923 Investments Limited whilst also stimulating the company’s profi tability. The MCCAA was notifi ed of and approved three major mergers and acquisitions throughout the past year. These related to three sectors: insurance, shipping and apparel retail; none of these transactions raised serious doubts as to their lawfulness and were therefore ruled to be lawful concentrations.

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Conclusion At the time of writing, no major reforms or adjustments to the regulatory framework concerning mergers and acquisitions appear to be in the pipeline at a domestic level. Notwithstanding this, the European Commission has been engaged in a consultation process with a view to comprehensively evaluating the various procedural and jurisdictional aspects of EU merger control.20 Having successfully weathered the credit crunch, the Maltese M&A market continues to remain rather buoyant. The confi dence displayed by stakeholders is a testament to the sound foundations of the local regulatory regime. Of course, one cannot ignore the impact that the data leaks in 2017 could have on the reputation of the Maltese jurisdiction, particularly the ‘Paradise Papers’ – despite Malta repealing its offshore legislation in 1994. The constant attempts at tax harmonisation within the EU, as well as the political pressure on those European jurisdictions that are fi scally competitive, will continue to challenge the sustained growth of Malta’s fi nancial services sector. However, the European Parliament (through its PANA Committee) has endorsed Malta’s long-stated position that the country is and will remain committed to international standards of transparency and effective exchange of information through a broad network of information-exchange instruments with a signifi cant number of jurisdictions. More so, Malta’s tax regime respects the required OECD standards. After all, Malta’s tax system was discussed (in detail) and agreed to, in March and November 2006, with both the European Commission (as well as with DG Competition, from a State Aid perspective) and with the EU Member States within the Code of Conduct Group (which reviews tax measures) to enable a determination as to whether they are harmful in terms of the Code of Conduct for Business taxation. The European Parliament’s vote of confi dence in Malta’s tax system should continue to sustain Malta’s success, particularly as it now looks to regulate innovative sectors, such as blockchain, cryptocurrencies and fi ntech, so as to assume a more important role regionally and internationally.

* * *

Acknowledgment The author would like to thank Francesca Ferrando for her contribution towards the preparation of this chapter.

* * *

Endnotes 1. NSO News Release | 6 December 2017 | 1100 hrs | 193/2017. 2. Spring 2017 Economic Forecast: steady growth ahead. (2017, July 19). Retrieved January 12, 2018, from https://ec.europa.eu/malta/news/spring-2017-economic-forecast-steady- growth-ahead_en. 3. Vide the Companies Act (The Prospectus) Regulations, Legal Notice 389 of 2005, as amended. 4. Article 343(2), CA.

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5. Article 343(3), CA. 6. Legal Notice 559 of 2010. 7. Legal Notice 119 of 2012. 8. Financial Markets Act (Cap. 345 of the Laws of Malta), 1992. 9. Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC. 10. Directive 2013/50/EU of the European Parliament and of the Council of 22 October 2016 amending Directive 2004/109/EC of the European Parliament and of the Council on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market; Directive 2003/71/EC of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading, and Commission Directive 2007/14/EC laying down detailed rules for the implementation of certain provisions of Directive 2004/109/EC. 11. Legal Notice 294 of 2002, as amended by Legal Notices 299 of 2002, 49 of 2007 and 349 of 2011. 12. http://mccaa.org.mt/en/mergerdecisions. 13. Legal Notice 433 of 2002, as amended by Legal Notices 427 of 2007, 195 of 2010, 129 and 443 of 2011, 363 and 467 of 2012, 483 of 2014, and 285 of 2017. 14. Article 5(14) of the Income Tax Act. 15. Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in fi nancial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU Text with EEA relevance [2014] OJ L 173/349 (MiFID II). 16. Malta Stock Exchange, Prospects Multilateral Trading Facility, https://www. borzamalta.com.mt/markets-prospectsmtf. 17. Ibid. 18. Malta Competition and Consumer Affairs Authority, COMP-MCCAA/26/2017 – Acquisition by Camilleri Holdings Limited, 7 December 2017. 19. Malta Competition and Consumer Affairs Authority, News 12 July 2017, The Offi ce for Competition Opens an In-Depth Investigation into the Proposed Concentration of Apax Partners Midmarket Sas (Paris, France) and Vodafone Malta Limited (Luqa, Malta), http://www.mccaa.org.mt/en/mccaa-news. 20. European Commission, Competition, Public Consultations, Consultation on Evaluation of procedural and jurisdictional aspects of EU merger control, http://ec.europa.eu/ competition/consultations/2016_merger_control/index_en.html.

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David Zahra Tel: +356 212 40019 / Email: [email protected] David Zahra is an advocate admitted to practice in Malta. He is founding partner of David Zahra & Associates, a law fi rm based in Valletta, Malta, specialising in commercial and fi nancial services law with particular focus on M&A and corporate fi nance transactions, both locally and internationally. He holds an LL.D. from the University of Malta and, on a Chevening Scholarship, subsequently gained an LL.M. in Corporate and Commercial Law at King’s College London.

David Zahra & Associates Advocates Level 3, Theuma House, 302, St. Paul Street, Valletta, VLT 1213, Malta Tel: +356 212 40019 / URL: www.davidzahra.com

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Erika Olguin Gonzalez Calvillo, S.C.

Overview During a time of uncertainty in Mexico, where the North American Free Trade Agreement (NAFTA) is being renegotiated with the U.S., where there will be presidential elections mid-year, where the Mexican peso’s value has declined over the past three years, and where relations are tense with President Donald Trump, Mexico continues to maintain its fair share of local, international and cross-border M&A transactions. As we will review below, M&A during the years 2016 and 2017 have varied, and factors such as reforms to certain industry regulations have contributed to such variations. M&A in Mexico is mainly regulated under the following laws: • The General Business Organizations Law (Ley General de Sociedades Mercantiles). • The General Law of Negotiable Instruments and Credit Operations (Ley de Títulos y Operaciones de Crédito). • The Foreign Investment Law (Ley de Inversión Extranjera). • The Code of Commerce (Código de Comercio). • The Federal Civil Code (Código Civil Federal). • The Securities Exchange Law (Ley del Mercado de Valores). • The Federal Antitrust Law (Ley Federal de Competencia Económica). In addition to the foregoing, there are other industry-specifi c laws and regulations that can be applicable to M&A in Mexico, depending on the type of transaction. The typical forms of M&A seen in Mexico are asset sales, stock sales, public tender offers, and mergers/consolidations. At some point in the past, the most active industries for M&A were real estate, consumer products and fi nance; however, during recent years, M&A activity has grown signifi cantly in the energy, telecommunications, industrial, fi nancial services and agriculture sectors. During the year 2016, approximately 266 M&A transactions were completed in Mexico, with an aggregate approximate total value of US$17.3 billion. The industries which saw the most M&A activity were real estate, consumer products and industrial, with other industries such as mining, fi nance and energy falling close behind. In 2017, approximately 220 M&A transactions were completed in Mexico, with an approximate total value of US$20.9 billion. Compared to 2016, the number of transactions decreased by 17%, but the overall value of such transactions increased by 21%. The industries which saw the most M&A activity during 2017 were fi nancial, energy, consumer products, insurance, infrastructure and mining.

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The decrease in M&A transactions from 2016 to 2017 can mainly be attributed to investors, banks, companies, etc. being more cautious as to the investment and destination of their funds, considering that in early 2017, the value of the Mexican peso was at an all-time low, and that President Trump took offi ce with his unfortunate series of threats towards Mexico and international relations between the two countries. However, we must keep in mind that the overall value of the transactions completed in 2017 showed a considerable increase over the value of those reported in 2016. So far, during the fi rst quarter of 2018, the aggregate amount of M&A transactions completed in Mexico is approximately 51, with an approximate total value of US$2.5 billion, involving real estate, infrastructure and energy as key sectors.

Signifi cant deals and highlights The most notable and highest-value M&A deals in Mexico during the year 2017 were the following, as selected by Seale & Associates, Inc.: • Grupo Financiero Banorte, S.A.B. de C.V., a banking and fi nancial services institution in Mexico, acquired Grupo Financiero Interacciones, S.A. de C.V., also a fi nancial services provider, for approximately US$1.4 billion (October 2017). • Caisse de dépôt et placement du Québec and CKD Infraestructura México, S.A. de C.V. acquired a portfolio of 1.7Gw renewable energy facilities from Enel Green Power, for approximately US$1.3 billion (October 2017). • Actis, LLP, a private equity fund, acquired the remaining 50% of Energía Sierra Juárez, S. de R.L. de C.V., a developer and operator of windfarms, as well as an asset portfolio from InterGen Services, Inc., a global energy developer and generator, for approximately US$1.2 billion (December 2017). • OHL Concesiones, S.A., together with IFM Global Infraestructure Fund, acquired 43% of the capital of OHL México, S.A.B. de C.V., a company specialised in the design, operation and construction of road infrastructure, for US$737 million, representing a multiple company value of 7.1 × sales and 9.6 × EBITDA (June 2017). • Infraestructura Energética Nova, S.A.B. de C.V., a company specialising in the operation of energy infrastructure, acquired Ductos Energéticos del Norte, S. de R.L. de C.V., an oil and gas duct operating company, from Gasoductos de Chihuahua, S. de R.L. de C.V., for US$547 million (October 2017).

Key developments There have been no relevant changes or reforms in the laws and regulations governing M&A in Mexico in the last year, and none are expected to occur during 2018. However, past reforms to laws and regulations affecting M&A have generally been well received and have been benefi cial to all industries in Mexico. Notwithstanding the fact that no recent M&A regulatory reforms have occurred, potential investors seeking to participate in the Mexican M&A market should keep in mind that the role of the Mexican Federal Antitrust Commission (Comisión Federal de Competencia Económica) has, in recent years, evolved into that of a much more active regulator in M&A transactions, given that it has forged a new path in establishing criteria when analysing merger control, and has set new criteria for the review process and eventual authorisation of M&A deals.

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Industry sector focus For the time being, the most active sectors for M&A in Mexico are: • energy; • infrastructure; • real estate; • consumer products; and • health. As discussed, M&A activity within industries such as energy; and the telecommunications industries, has increased as a result of certain legal reforms which now permit larger investments by foreign entities in these sectors, and which has already attracted a large number of foreign leaders in these industries to invest in Mexico. M&A activity in other industries such as real estate, infrastructure and consumer products has continued to grow as a result of consistent market conditions allowing for continued interest in these sectors over the years. Regarding the balance of inbound and domestic M&A transactions, inbound M&A transactions have always been largely predominant over domestic M&A transactions. Mexico is nowadays considered to have one of the most attractive business environments in Latin America for inbound investment, considering major constitutional and other regulatory reforms which have recently encouraged and allowed foreign investment in certain industries which were formerly restricted to investment opportunities. As to friendly vs. hostile takeovers, although hostile bids are permitted under Mexican law, specifi cally the Securities Exchange Law (Ley del Mercado de Valores), there is no specifi c regulation dealing with hostile takeovers. Thus, it is not common to see hostile takeovers in Mexico, and the majority of M&A transactions are friendly.

The year ahead There are two main concerns for the year ahead. The fi rst is the renegotiation of NAFTA, which could signifi cantly affect cross-border transactions between Mexico and the U.S., and foreign investment in Mexico in general, as well as create higher tariffs on certain Mexican industries, such as manufacturing and agriculture. The second is the presidential elections in Mexico to take place in July of this year, which not only imply a change of the President and quite possibly a change in the currently ruling political party, but which also contemplate the possibility of a left-wing candidate winning the elections – who threatens to, if elected, modify some of the legal reforms made in past years by the current administration, which have proven to be very benefi cial for our country. Even though the probability of any legal reforms being modifi ed is in reality low, the campaign carried out by this left wing-candidate has made a lot of noise both locally and internationally, and has alerted potential investors to tread with caution until election time. Regardless of the foregoing, certain industries such as the energy; and telecommunications industries, should see an increase in M&A activity. The Trump administration has stated that it wishes to reinforce the hydrocarbon industry and fossil fuel production, over the renewable energy industry. With this, given that Mexico has a thriving supply of these assets, investment by the U.S. in Mexico’s energy industry looks positive, and could very well see an increase this coming year. Also, foreign investment in the telecommunications industry should continue to grow as a result of this industry’s legal reforms some years ago which eliminated foreign investment restrictions. Other industries which will maintain

GLI - Mergers & Acquisitions 2018, Seventh Edition 179 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Gonzalez Calvillo, S.C. Mexico strong activity in M&A are the services, consumer, infrastructure, health, mining and real estate industries. In general, experts forecast a continuance and steady increase of both domestic and foreign M&A transactions in Mexico. 2017 initially saw uncertainty, with investors not sure of how relations between the U.S. and Mexico would progress; however, the country was able to maintain a strong amount of both local and foreign transactions, closing the year with a 21% increase in the overall value of M&A transactions as compared to 2016. The fact that by the end of 2017, the industries involved in M&A transactions in Mexico had not been signifi cantly affected by the political tensions with the U.S., proved that many of the fears existing in early 2017 were unnecessary, and that investments made in Mexico would continue to provide returns for their investors. Thus, even though the fi rst half of 2018 may see a more cautious approach by investors in Mexico, it is expected for 2018 to see the culmination of multiple M&A transactions, with another increase in overall value vs. 2017.

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Erika Olguín Valencia, Of Counsel Tel: +52 55 5202 7622 / Email: [email protected] Erika Olguin has been a member of the fi rm since 1999. She is a transactional lawyer with a developed practice in the areas of mergers and acquisitions, joint ventures and strategic alliances, real estate, corporate law and private equity. She has participated in a wide range of transactions involving local and foreign clients, rendering legal services to companies and individuals in such practice areas, representing clients in stock acquisitions, asset purchases, mergers, joint ventures and commercial transactions in general. She counsels clients in domestic and cross-border transactions involving corporate structures for investments, mergers and acquisitions, strategic alliances, stock purchase and sale, corporate restructures, guarantee mechanisms, shareholder disputes and foreign investment; leading cross- border transactions with private equity funds with investments in Mexico. Moreover, Ms. Olguín assists clients in the purchase and sale of real estate properties and portfolios, project fi nance thereof, real estate guarantees and structuring of joint ventures for the development and construction of real estate projects in Mexico, leasing agreements in general and with all types of operating agreements related to the real estate sector. Ms. Olguín is an active member of Abogadas MX, a non-profi t leadership and professional development organisation, created to promote women’s career advancement in the legal profession, and has had an active participation in the Mentoring Program of this organisation for the past two years and other related activities. She has also developed and supported an internal initiative at the fi rm, focused on the development, mentoring and talent retention of women lawyers. Regarding pro bono work, she actively collaborates with Fundación González Calvillo in related activities. Erika Olguin obtained her law degree (J.D. equivalent) from the Universidad Iberoamericana, Mexico City, Mexico and a Master of Laws degree (LL.M.) from Northwestern University, Chicago, Illinois, United States.

Gonzalez Calvillo, S.C. Montes Urales 632, Piso 2, Lomas de Chapultepec, 11000 Ciudad de México, Mexico Tel: +52 55 5202 7622 / URL: www.gcsc.com.mx

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Alexander J. Kaarls & Willem J.T. Liedenbaum Houthoff

Overview Apart from relevant case law, the key legal framework for public M&A in the Netherlands consists of the Financial Supervision Act (Wet op het fi nancieel toezicht) and the Civil Code (Burgerlijk Wetboek) which lay down the main principles, and the Public Bid Decree (Besluit Openbare Biedingen) which contains detailed regulations that govern the public bid process (including the bid timetable, required announcements and contents of the offer memorandum). The Authority for the Financial Markets (Autoriteit Financiële Markten, AFM) is generally competent to supervise a public bid for (voting) securities that are listed on a regulated market in the Netherlands (in particular, Euronext Amsterdam). The AFM does not supervise self-tender bids (made by the relevant issuer itself) for such securities, as these are exempt from the public bid rules. If the AFM is competent, no public bid may be launched without the publication of an AFM-approved offer memorandum. The AFM will not act as an arbiter during a public bid (unlike, for example, the UK Panel on Takeovers and Mergers). Instead, the AFM supervises compliance with the (mainly) procedural aspects of the bid process, and may take enforcement actions in case of infringement, including fi nes. The AFM is not competent to rule on whether a mandatory bid is triggered. This is the exclusive competence of the (specialised) Enterprise Chamber (Ondernemingskamer) at the Amsterdam Court of Appeals. Other relevant legislation includes the Works Councils Act (Wet op de ondernemingsraden), which may require employee consultation, as well as the Competition Act (Mededingingswet) and the EU Merger Regulation, which may require merger clearance from the Authority for Consumers and Markets (Autoriteit Consument & Markt, ACM) or from the European Commission, respectively. M&A activity in the Netherlands increased by more than 10% in 2017, compared to 2016, in terms of number of deals, but decreased in deal value. It should be noted, however, that there would also have been somewhat of an increase in deal value were it not for the €42.1bn takeover bid for NXP announced by Qualcomm in 2016. In 2017, we saw increased activity in public bids for Dutch targets. In particular, a substantial amount of unsolicited/hostile deals were announced, all of which ultimately resulted in failed public takeover attempts: • Talpa’s €273m (increased up to €301m) bid for TMG (which was ultimately acquired in a board-supported deal by the competing joint bidders Mediahuis and the Van Puijenbroek family for €278m); • Kraft Heinz’s $143bn bid for Unilever;

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• PPG’s €20.9bn (increased up to €26.9bn) bid for AkzoNobel; • Pon’s €846m (increased up to €872m) bid for Accell; and • Atos’ €4.3bn bid for Gemalto (which was ultimately withdrawn as a result of the competing Thales bid for Gemalto that was announced six days later). All recommended/friendly public bids that were announced in 2017 were successful (or are currently pending): • Intel’s $15.3bn bid for Mobileye; • Thermo Fisher’s $5.2bn bid for Patheon; • PAI Partners’ €1.6bn bid for Refresco; • Thales’ pending recommended €4.8bn bid for Gemalto; and • McDermott’s pending $6bn merger agreement with Chicago Bridge & Iron Company (which potentially may be broken up as a result of a $2bn hostile bid for McDermott by Subsea 7). In addition to the increased public bid activity, several (successful) major private deals involving Dutch targets were announced in 2017, including the €3bn acquisition of Bureau van Dijk Electronic Publishing by Moody’s, and KKR’s €3bn acquisition of Q-Park. Approximately 38% of the deals in 2017 were domestic transactions. Both inbound and domestic M&A were healthy, whereby the largest deals taking place in the Netherlands tend to be inbound cross-border deals, or have at least signifi cant cross-border angles. The Netherlands is and appears to generally remain an attractive, and relatively receptive, market for non-domestic acquirers. Having said that, we note that the new Dutch government that took offi ce in October 2017 proposed several measures, which – if adopted – could make the acquisition of certain Dutch companies by non-Dutch prospective buyers more onerous (see ‘Key developments’, below). The continued healthy deal fl ow appears to refl ect an ongoing, general market confi dence, whereby the current consensus seems to be that the uncertainty stemming from ‘U.S.- Chinese trade war’ threats may ultimately have a somewhat depressing effect on the multi- billion euro deal market. At the same time, the continued availability of private equity funds and further improved debt availability have arguably resulted in a (continued) level of upward pressure in valuations in the mid and lower market segments.

Signifi cant deals and highlights Qualcomm’s attempt to acquire NXP On 27 October 2016, Qualcomm Incorporated (NASDAQ: QCOM) and NXP Semiconductors N.V. (NASDAQ: NXPI) announced a defi nitive agreement, unanimously approved by the boards of directors of both companies, under which Qualcomm agreed to make a public bid for NXP. Under the agreement, a subsidiary of Qualcomm commenced a tender offer to acquire all of the issued and outstanding common shares of NXP for $110 per share in cash, translating into an equity value of $38.5bn and a total enterprise value of approximately $47bn. At announcement of the bid, the transaction was expected to close by the end of 2017. The bid was subject to receipt of regulatory approvals in various jurisdictions and other closing conditions. Shareholders representing at least 95% of the outstanding shares of NXP or, if NXP shareholders would approve the asset sale contemplated in the purchase agreement, 80% of the outstanding ordinary shares of NXP, would need to tender their shares.

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On 4 August 2017, Elliott Management disclosed a 6% stake in NXP and indicated that it was seeking a higher price for NXP, arguing that the $110 price tag did not represent fair value for the NXP shares. Over the next six months, NXP’s stock price consistently closed above the bid price. Backed by other major shareholders, Elliott Management was ultimately successful. Qualcomm and NXP agreed to an increased offer price of $127.50 per NXP share on 20 February 2018. In the meantime, Singapore-based Broadcom had announced (a move to the US as well as) a $103bn hostile bid for Qualcomm on 6 November 2017. One of the conditions of the Broadcom bid was that Qualcomm would not increase its bid price for NXP. Both the Broadcom/Qualcomm and the Qualcomm/NXP bids were subject to substantial scrutiny by regulatory authorities. On 12 March 2018, U.S. President Donald Trump signed an order to halt the Broadcom/Qualcomm deal on concerns that a takeover of Qualcomm by the Singapore-based company would erode the United States’ lead in mobile technology and give China the upper hand. Subsequently, on 19 April 2018 it was reported that Qualcomm had withdrawn and refi led its application from Chinese regulator Mofcom earlier that week following further requests for additional Qualcomm concessions. Qualcomm and NXP agreed on a further extension of their merger agreement until 25 July 2018. The takeover fi ght for De Telegraaf (TMG) On 14 December 2016, Mediahuis N.V., the Belgian newspaper publishing house, and VP Exploitatie N.V., the family vehicle of the Van Puijenbroek family, announced their intention to jointly commence a public bid for Telegraaf Media Groep N.V. (Euronext Amsterdam: TMG), the publisher of, in particular, the leading Dutch morning paper De Telegraaf. The joint bidders’ stated intention was to integrate TMG’s business into the Mediahuis (newspaper) business. The announced bid price was €5.25, subject to ongoing due diligence. On 11 January 2017, the parties announced that they had, in the meantime, received tender commitments covering 55% of TMG’s outstanding share capital, including the 41.3% stake in TMG’s share capital held by VP itself. On 23 January 2017, Talpa, the TV production fi rm run by high-profi le Dutch media entrepreneur John de Mol (The Voice, etc.), announced that it intended to make a competing bid to acquire TMG with the aim of forming an independent Dutch multimedia company, with strong positions in print, radio, television and online content. Talpa noted that it had sent the boards of TMG a proposal for an intended public bid for all outstanding shares of TMG for an offer price of €5.90 per TMG share (cum dividend) in cash. Subsequently, on 19 February 2017, Mediahuis and VP announced that they would be increasing their indicative bid price from €5.25 to €5.90. They announced that Mediahuis had acquired a 6.7% stake (previously committed to be tendered) at that €5.90 price. Including the irrevocable commitments, the consortium already held close to 60% of TMG’s outstanding share capital. In response to the consortium’s increase, Talpa announced a further increased offer price of €6.35 per TMG share on 1 March 2017. At that time, TMG’s supervisory board – knowing that Talpa was contemplating an improved bid proposal – informed Talpa that it had decided to enter into exclusive negotiations with the consortium and suspend further discussions with Talpa. Just days later, on 5 March 2017, the Mediahuis and VP consortium issued a joint press release with TMG announcing agreement on a recommended €6.00 cash offer for TMG subject to certain conditions, including a fi duciary opt-out for TMG at an 8% higher bid price. That same day, Talpa issued a press release of its own, further increasing its offer

GLI - Mergers & Acquisitions 2018, Seventh Edition 184 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Houthoff Netherlands price to €6.50 per TMG share (just above the competing offer threshold). In its press release, Talpa further concluded that TMG’s supervisory board rendered a level playing fi eld illusory by not continuing negotiations with Talpa, and announced that it would shortly announce what steps it would take in that respect. On 8 March 2017, TMG confi rmed receipt of the request fi led by Talpa with the Enterprise Chamber at the Amsterdam Court of Appeals, requesting an investigation into the affairs of TMG and appointment of an independent supervisory board member. TMG defended its position by stating in the press release that Talpa’s bid would not have any real chance of success given that the consortium (holding a 59% interest in TMG) had explicitly excluded accepting any further increased bids by Talpa. The Enterprise Chamber ultimately dismissed Talpa’s request on 21 March 2017, stating that there were no substantiated grounds to doubt a proper course of affairs at TMG. Neither the Enterprise Chamber ruling nor the announcement on 16 June 2017 by the consortium that it declared its public bid for TMG unconditional discouraged Talpa from continuing to pursue its public bid for TMG. Talpa ultimately announced on 9 August 2017 that it would cease its takeover attempt because it did not obtain more than 50% in tender commitments during its tender period. On 1 December 2017, Talpa announced the sale of its 29% interest in TMG to Mediahuis at the consortium’s €6.00 offer price, and at the same time announced the acquisition from TMG of the latter’s 23% interest in Talpa Radio (resulting in Talpa acquiring 100% control). As regards this Talpa Radio deal, we note that a bidder is not allowed to purchase shares in the target at more favourable terms than the public bid terms during a period of one year following publication of the offer memorandum. Although strictly speaking not the bidder (the consortium) anyway, but the target (TMG), sold its interest in Talpa Radio to its (former) shareholder and unsolicited bidder Talpa, we would assume that Talpa acquired the remaining 23% in Talpa Radio from TMG at arm’s length terms. Kraft Heinz unsuccessful in acquiring Unilever On Friday, 17 February 2017, the Kraft Heinz Company (NASDAQ: KHC) acknowledged recent speculation regarding a possible combination of Kraft Heinz and Unilever PLC/ Unilever N.V. Unilever as a dual-headed structure, whereby its business is held by LSE and NYSE listed Unilever PLC (LSE: ULVR, NYSE: UL) and Euronext Amsterdam and NYSE- listed Unilever N.V. (Euronext Amsterdam: UNA, NYSE: UN). A contractual equalisation agreement and several other agreements are in place between the two companies, so that they operate economically as a single group, and so that the shares have the same economic value. On 15 March 2018, Unilever announced that it intends to simplify from two legal entities, N.V. and PLC, into a single legal entity incorporated in the Netherlands (refl ecting the fact that the shares in the N.V. account for approximately 55% of the group’s combined ordinary share capital, and trade with greater liquidity than the PLC shares). At the time, in February 2017, Kraft Heinz confi rmed that it had made a comprehensive proposal to Unilever about combining the Kraft Heinz and Unilever groups to create a leading consumer goods company with a mission of long-term growth and sustainable living. Kraft Heinz noted that while Unilever had declined the proposal, Kraft Heinz looked “forward to working to reach agreement on the terms of a transaction”. On the same day, Unilever announced that it had noted the announcement made by Kraft Heinz to the effect that it had made a potential offer for all of the shares of Unilever PLC, and Unilever N.V. Unilever went on to say that Kraft Heinz’s proposal represented a premium of 18% to Unilever’s share price as at the close of business on 16 February

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2017, and that that fundamentally undervalued Unilever. Unilever further noted that it had rejected the proposal as it saw no merit, either fi nancially or strategically, for Unilever’s shareholders. Unilever further noted that it did “not see the basis for any further discussions”. The Unilever release went on to specify Kraft Heinz’s proposal: Unilever common shareholders would receive $50.00 per share in a mix of $30.23 per share in cash payable in US dollars and 0.222 new enlarged entity shares per existing Unilever share, valuing Unilever at a total equity value of approximately $143bn. The release also noted that, as at the close of business on 16 February 2017, a mix of $30.23 in cash payable in US dollars and 0.222 Kraft Heinz shares per existing Unilever share would value each Unilever common share at $49.61, representing the premium of 18% to Unilever’s share price. Unilever confi rmed, in line with the requirements under the UK Takeover Code, that its announcement was not being made with the agreement of Kraft Heinz. Unilever’s (unsolicited) specifi cation of Kraft Heinz’s proposal triggered the commencement of statutory bid timetables, effectively putting (further) pressure on the bidder. Following the above announcements, Kraft Heinz, under the rules of the UK Takeover Code (which are slightly more tight than, but ultimately have the same effect as, the Dutch takeover rules, which also applied to this situation) had to, by not later than 17 March 2017, either announce a fi rm intention to make an offer for Unilever or announce that it does not intend to make an offer for Unilever (i.e., triggered by the respective “put up or shut up” rules). The $143bn takeover, if completed, would have constituted the largest cross-border merger since Vodafone’s $183bn acquisition of Mannesmann in 2000. However, on Sunday, 19 February 2017, Unilever and Kraft Heinz, in a joint statement, announced that Kraft Heinz had amicably agreed to withdraw its proposal for a combination of the two companies. They added that “Unilever and Kraft Heinz hold each other in high regard. Kraft Heinz has the utmost respect for the culture, strategy and leadership of Unilever”. These kind words have “kept” Kraft Heinz away from a possible Unilever bid for the following six months, but not necessarily indefi nitely. PPG fails to acquire AkzoNobel On 8 March 2017, news was leaked of a contemplated unsolicited public bid for AkzoNobel N.V. (Euronext Amsterdam: AKZA) by PPG Industries, Inc. (NYSE: PPG). PPG directly confi rmed the rumours the next day. It was willing to pay €54 per share in cash and an additional 0.3 PPG share for every share in AkzoNobel. At the same time, on 9 March 2017, AkzoNobel issued its own press release rejecting the PPG bid, without having entered into any discussions with PPG, and announcing “a review of strategic options for the separation of its Specialty Chemicals business”. Not to be discouraged by AkzoNobel’s prompt rejection, PPG made a second proposal on 20 March 2017 of €57.50 per AkzoNobel share in cash and an additional 0.331 PPG share (valuing each AkzoNobel share at €88.72, adjusted for fi nal dividend). AkzoNobel again swiftly rejected the (undisclosed) revised bid two days later, without having entered into any discussions with PPG, by issuing a press release arguing that the bid was too low and neglected to address signifi cant uncertainties and risks, which rejection was directly followed by a PPG press release confi rming the second proposal. On 5 April 2017, PPG reiterated its invitation to AkzoNobel to enter into discussions for the combination of the two companies. This press release was followed by another press release on 24 April 2017 in which PPG made a third proposal of €61.50 in cash and 0.357 PPG share, valuing each AkzoNobel share at €96.75 (cum dividend). AkzoNobel directly

GLI - Mergers & Acquisitions 2018, Seventh Edition 186 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Houthoff Netherlands acknowledged receipt of the third proposal, saying that its management and supervisory boards would carefully review and consider the proposal in accordance with their fi duciary duties. Following a brief meeting between representatives of PPG and AkzoNobel on 6 May 2017, AkzoNobel rejected the third proposal on 8 May 2017, concluding that its own strategy (to spin off its Specialty Chemicals Business) would offer “a superior route to growth and long- term value creation and is in the best interests of shareholders and all other stakeholders”. Disagreeing with AkzoNobel’s boards’ strategy (and their refusal to enter into discussions with PPG), a group of shareholders (among them Elliott Advisors, as one of the largest shareholders of AkzoNobel) exercised their statutory right as shareholders to request such boards to call an extraordinary general meeting in which the shareholders would be given the opportunity to vote on the dismissal of the supervisory board’s chairman, Mr Antony Burgmans. The request was denied, following which several shareholders fi led a request with the Enterprise Chamber on 9 May 2017 to force AkzoNobel’s boards to allow the vote on Mr Burgmans’ position. On 29 May 2017, the Enterprise Chamber ruled on the shareholders’ requests. Given that, according to the Enterprise Chamber, entering into discussions with a potential bidder is a matter of strategy, which is within the remit of the board(s) of a Dutch company, the Enterprise Chamber held that AkzoNobel’s boards could not be forced to enter into discussions with PPG. Arguing that seeking to dismiss Mr Burgmans as chairman was de facto an attempt by the shareholders to affect AkzoNobel’s strategy, the Enterprise Chamber dismissed that request. The Enterprise Chamber did, however, acknowledge that the relationship between AkzoNobel’s boards and its shareholders was severely disrupted and that it expected AkzoNobel to repair the relationship. The attorney-general with the Dutch Supreme Court later noted, in an advice to that court in a different case on 12 January 2018 that, regardless of any underlying intention to affect strategy, shareholders should in principle be allowed to exercise their statutory rights to dismiss board members. On 1 June 2017, just days after the Enterprise Chamber’s ruling, PPG withdrew its third proposal, but not after having made one fi nal attempt to engage by means of a letter to AkzoNobel that was sent on 30 May 2017. AkzoNobel did not respond to that letter before PPG’s deadline to fi le an offer memorandum with the AFM expired on 1 June 2017.

Key developments Proposals for a statutory 250-day waiting period and a 1% notifi cation threshold In an interview with the Dutch fi nancial daily Het Financieele Dagblad that was published on 28 March 2017, Mr Jan Hommen proposed the introduction of new legislation that would give Dutch public companies that are subject to a hostile takeover bid the ability to invoke a so-called “response period” of one year, subject to a one-time extension for another maximum period of 180 days at the target’s discretion. During that response period, the board(s) of the Dutch target would be given the opportunity to review the bid and assess to what extent it would be in the interests of all of the target’s stakeholders (e.g. shareholders, but also creditors, employees, etc.), effectively creating a stand-still period. This response period would be in addition to the already existing response period of 180 days laid down in the Dutch Corporate Governance Code (applicable to Dutch public companies on a comply- or-explain basis), which may be invoked by boards if shareholders request items to be put on the agenda of the general meeting that may result in a change of strategy, such as the dismissal of one or more management board or supervisory board members.

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In its Coalition Agreement, the Dutch government that took offi ce in October 2017 proposed several measures protecting Dutch companies, including proposals to protect such companies against short-term-focused shareholders. It was proposed to prepare legislation giving Dutch listed companies the right to invoke a (total) 250-day response time when confronted with proposals from shareholders for fundamental strategy changes, which response time may not be combined with takeover defences of the target company (e.g. the issue of preferred shares to a friendly foundation). In addition, Dutch listed companies with an annual turnover of more than €750m would be given the right to request their shareholders to register with the AFM upon acquiring a 1% interest, whereby the current statutory minimum notifi cation threshold is 3%. In a letter to the Lower House (Tweede Kamer) dated 29 March 2018, the Minister for Economic Affairs and Climate, Mr Eric Wiebes, announced that a draft bill has been prepared for a statutory response time that can also be invoked in the event of a hostile takeover bid, but that fi rst advice is being sought from the Council of State (Raad van State) whether the draft bill would confl ict with EU legislation (e.g. the freedom of capital). Protection of the Dutch telecoms industry from a national interest point of view On 16 February 2017, the former Minister for Economic Affairs and Climate (Mr. Henk Kamp) published, for consultation, draft legislation under which the Dutch government could in the future potentially block a foreign acquisition of a Dutch telecoms company. The aim of the draft legislation is to create the power for the Minister to block a change of control in the Dutch telecoms sector if such is deemed to be in the interest of the Dutch public order or national security. The Dutch government notes that, as a result of globally shifting economic power, the chances are increasing that a change of control in the telecoms business would partly be driven by geopolitical motives. It believes that that could give rise to national security or public order concerns. For instance, according to the Dutch government, control could potentially be used to further a political agenda, putting pressure on the Dutch government. Also, it says, control over telecommunications infrastructure and services could potentially be abused to gather information from confi dential communications. Where such confi dential communications belong to the Dutch government, this may affect national security. The draft legislation defi nes relevant control, and relevant infl uence in the telecoms sector. It also lays down the criteria based on which the Minister would need to assess whether the public order or national security is at risk. The legislation would furthermore enable the Minister to terminate existing relevant control at a telecoms player, based on the same grounds. However, such interference in an existing situation would only be allowed if the relevant facts on the basis of which the interference is sought would have occurred after the acquisition of control, or would have become known to the Minister after such acquisition of control by the party concerned. Following the consultation phase, the Undersecretary for Economic Affairs and Climate, Ms Mona Keijzer, announced on 19 April 2018 that she had sent the draft bill to the Council of State for review. Although the contents of the revised draft bill were not made public at the time this article went to press, the Undersecretary did announce that the bill would not only cover internet, cellular and landline telecom providers, but also companies that provide vital services such as internet hubs, data centres and hosting providers, because these are also of importance to the continuity, reliability and security of the services and the infrastructure in the Netherlands. By means of the draft bill, the Undersecretary, therefore, introduces a notifi cation obligation for parties that wish to take over such telecom companies. The Undersecretary qualifi es this as a form of active approval of important takeovers.

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The government expects to submit the draft bill for discussion to the Lower House after the summer of 2018. Revised Corporate Governance Code The Dutch Corporate Governance Code sets out generally accepted principles and best practices for good governance in the Netherlands. Dutch listed companies are required to adhere to the provisions of the Dutch Corporate Governance Code, as noted above, on a ‘comply or explain’ basis, and report on such adherence as part of their annual fi nancial reporting. Following public consultation, the Dutch Corporate Governance Code underwent a signifi cant revision in 2016. The revised Corporate Governance Code entered into force as of 1 January 2017. Dutch listed companies are, for the fi rst time, required to report on their adherence to the Code in their annual fi nancial reporting over the fi nancial year 2017. A key change in the revised Corporate Governance Code is the increased focus on long- term value-creation for the company and its stakeholders, which is considered vital to good governance. Many of the incidents and misconduct that have occurred over recent years are arguably attributed to a focus on short-term gains. The Corporate Governance Code now more explicitly requires (management and supervisory) board members to act in a sustainable way by making informed decisions about the long-term viability of the strategy being pursued and how this impacts stakeholder interests. This includes matters of corporate social responsibility. The Dutch Corporate Governance Code now also addresses company culture, including the “tone at the top”. Companies are required to create a culture that promotes desired behaviour and encourages employees to act with integrity. The Corporate Governance Code has also been updated to better refl ect current corporate governance structures, including best practices related to executive committees and a clarifi cation of best practices with regards to companies employing a one-tier board model. Further changes include a stronger positioning of risk management and the internal audit function of the company, an increased focus on responsible remuneration practices, and more explicit requirements to the explanation given if a company opts not to comply with a specifi c principle or best practice provision of the Dutch Corporate Governance Code. EU proposal for foreign investment screening During 2017, national security concerns have also been resonating on a European level. On 13 September 2017, the European Commission published a draft regulation containing a framework for screening of foreign direct investments into the European Union (COM(2017) 487 fi nal). The regulation would allow member states to apply a national screening mechanism to safeguard public order and safety, which is very broadly defi ned. Among other things, this would include protecting high-end technology. The European Commission defi nes foreign direct investments (FDI) as equity participations by investors from non-member states in enterprises located within member states, which participations would allow such foreign investors to actually take part in board decisions or otherwise exercise control over those domestic companies. The European Commission would itself also have a right to issue (non-binding) recommendations on FDIs to safeguard public order and safety if it is plausible that such FDIs could infl uence projects or programmes that are of Union interest. For instance, this would include projects that are substantially fi nanced by the EU or that are subject to sectorial EU legislation in relation to critical infrastructure (e.g. energy, transport, telecom and data), critical technologies (e.g. AI, semiconductors and nuclear technologies) or critical natural resources.

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In addition to the screening mechanisms for individual member states and the European Commission, the draft regulation aims to establish a cooperation mechanism between the member states and the European Commission to inform each other of, and comment on, FDIs that may threaten security or public order, and to exchange information in this regard. This cooperation mechanism should allow for better coordination of any screening decision taken by member states, and should increase awareness of member states and the European Commission about planned or completed FDIs that may affect security or public order.

Industry sector focus No particular sector dominates the M&A market in the Netherlands. In the midmarket, we see a particular interest in the technology sector, the media sector, and the food sector. As noted above, not many public deals happened in 2017. Of those that did get announced, the tech and engineering sectors do well, with a heavy cross-border focus. In an entirely different fi eld, the Dutch fi nancial regulators are known to be supportive of consolidation, and fi nancially sound deal-making generally, in the (life) insurance business. We, in fact, expect more deal-making in the sector during the upcoming year. Food and consumer goods remain another focus for potential market consolidation. Finally, we see the logistics sector as an active (growth) area where we would expect more deal-making to come.

The year ahead Similar to 2016, 2017 was a successful year for M&A in the Netherlands and there is no reason to believe that M&A activity will necessarily decline in 2018. The economic upturn in the Netherlands, the abundance of capital, and the cheap means of debt fi nancing continue to be the main drivers for M&A deals. The year ahead might also see a, long-anticipated, sale of energy company Eneco (by its current government shareholders). Eneco, which has a substantial retail business and a focus on renewable energy generation, may now see its shareholders aligned with a view to getting a deal done. M&A activity is also expected to stay strong in the midmarket. Experts indicate that at least half of the transactions in the midmarket are private equity-driven. Also, more than half of the M&A deals in the midmarket involve foreign investors (both private equity and strategic buyers), and the general expectation is that foreign investors will continue to be highly interested in the Dutch market. This can be generally explained by the solid (ICT-) infrastructure and the general high educational levels in the Netherlands.

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Alexander J. Kaarls Tel: +31 20 605 6110 / Email: [email protected] Alexander J. Kaarls focuses on (cross-border) corporate transactions, including public and private M&A, and equity capital markets work. Before joining Houthoff, Alexander practised law with Skadden, Arps, Slate, Meagher & Flom LLP from 1994 until 2004. He is recognised as a leading M&A practitioner in the Netherlands by Chambers Global, Chambers Europe, Who’s Who Legal – Mergers and Acquisitions, and IFLR1000. Alexander studied at Leiden University (School of Law) and Sciences Po. Alexander is a member of the Bar in Amsterdam and in California.

Willem J.T. Liedenbaum Tel: +31 20 605 6136 / Email: [email protected] Willem J.T. Liedenbaum focuses on (cross-border) corporate transactions, including private & public M&A, fi nancing and capital markets. Willem studied at Radboud University Nijmegen (School of Law). Willem is a member of the Bar in Amsterdam.

Houthoff Gustav Mahlerplein 50, 1082 MA, Amsterdam, The Netherlands Te l: +31 20 605 6000 / UR L: www.houthoff.com

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Ole K. Aabø-Evensen Aabø-Evensen & Co Advokatfirma

Overview Throughout 2016, optimism started to return to the Norwegian M&A market. Despite volatile oil and gas prices throughout most of 2016, the Brexit vote and the US presidential election, the Norwegian economy remained positive thanks to advantageous monetary and fi scal policies. The Norwegian stock market continued to rise throughout 2016. During the fi rst six months of 2016, the Stock Exchange’s Main Index OSEBX seemed to move sideways due to volatile oil prices. However, from July 2016 and throughout most of 2016, oil prices continued to improve and as a result, the Main Index OSEBX ended up on an all-time high, with a 12% increase compared to 2015. In terms of number of M&A transactions (both public and private), the 2016 market ended up with approximately 20% growth compared with 2015. Entering 2017, a continuing optimistic outlook for the Norwegian economy, resulting from improved oil and gas prices and a weaker currency, in combination with a strong global M&A market and supportive fi scal and monetary policies, continued to drive Norwegian deal activity. As a result, per the beginning of 2018, there had been a total of 332 M&A transactions announced in the Norwegian market during 2017. This was a 23% increase in deal volume compared with 2016. What is also interesting is that the total reported deal value increased from €14,489m for FY2016 to €38,747m for FY2017, while the average reported deal size increased from €133m for FY2016 to €391m for FY2017. Actually, for 2017, the Norwegian market turned out to be the year with both the highest M&A volume and the overall highest reported deal values since 2006/2007. Per Q4 2017, Norway was ahead of all other Nordic countries in reported deal values, and came in second, just behind Sweden in total reported deal volumes. In addition, in 2017 the average deal size for Norwegian M&A transactions was ahead of all other Nordic countries except for Finland. For 2017, the Oslo Stock Exchange’s main index once again ended on an all-time high, with a 19% increase compared to 2016. A buoyant stock market also made the Norwegian IPO-market fl ourish during 2017, with 18 new listings on Oslo Stock Exchange and Oslo Axess compared with nine IPOs for 2016. For Q4, cross-border deals’ share of the total deal volume year-to-date amounted to approximately 44.8%, which is lower than the historical benchmark around ±50%.

Signifi cant deals and highlights In 2016, Norway accounted for two out of the Top 10 Inbound Nordic M&A transactions announced (a substantial decrease from fi ve out of the Top 10 in 2014), with an aggregate disclosed deal value of €6.255bn out of an aggregate €31.018bn deal value for all Top 10

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Inbound Nordic M&A deals. Also for 2017, Norway accounted for two out of the Top 10 Inbound Nordic M&A transactions announced, with an aggregate disclosed deal value of €12.39bn out of an aggregate €59.608bn deal value for all Top 10 Inbound Nordic M&A transactions announced. As for CY2012, 2013, 2014, 2015, 2016 and 2017, the public-to-private transactions market comprised corporate trade buyers. In both 2016 and 2017, the market for public takeovers has been muted, with only seven public takeovers and attempted takeover offers for listed companies issued in 2016, and only fi ve public takeovers and attempted takeover offers for listed companies issued in 2017, compared with 12 takeovers and attempted public takeovers in 2015. Apart from Golden Brick Silk Road’s €1.12bn bid for Opera Software ASA in 2016, the most notable public takeover deals announced during 2016 and 2017 were Oslo Energy Holding AS’ €969m bid for Hafslund ASA, announced in April 2017, and Transocean Ltd’s €2.84bn voluntary bid for Songa Offshore ASA announced in December 2017. Another standout public takeover announced in 2017, not structured as a traditional voluntary offer, was Solstad Offshore’s and Deep Sea Supply Plc’s joint acquisition of Farstad Shipping AS, a Norwegian listed company operating within the offshore supply vessel sector. The transaction was announced at the beginning of 2017, and was in reality structured as an €2.1bn three-way rescue merger. The combined company was expected to operate a fl eet of 154 vessels post-completion. The purpose of the transaction was to allow the companies to sustain the downturn in the OSV market and position themselves to exploit a possible market recovery. The Industrial & Manufacturing sector continued to show strong momentum for M&A deals throughout 2016. The activity within this sector for 2016 continued to be driven by the sector benefi ting from a weakening currency rate for the Norwegian Krone, helping Norway’s competitive position. Even if this sector continued to take a large stake out of the total Norwegian M&A volume in 2016, most of these transactions continued to be very small-size and not very noteworthy. One transaction worth mentioning from 2016 was Agility Fuel Systems, Inc.’s acquisition of Hexagon Composites ASA’s CNG Automotive Products Division for €122m, at 10.3 × EBITDA, which was announced in June 2016. Entering 2017, the Industrial & Manufacturing sector continued to lead the way for Norwegian M&A activity and per December 2017, this sector once again continued to be the most active in Norway. One transaction within this sector from 2017 worth highlighting is Hydro ASA’s acquisition of Orkla ASA’s 50% stake in Sapa for €1.41bn which was announced in July 2017. Also worth mentioning is Triton Partners’ acquisition of a 75.16% stake in Glamox AS for €269m, which was announced in September 2017. Technology, Media & Telecommunication (TMT) also had a strong year in terms of deal volume for 2016. For 2016, the most noteworthy transaction within this industry was EQT’s acquisition of Jacob Hatteland Computer AS (doing business as AutoStore), a Norway-based provider of automated storage and retrieval systems, from Jacob Hatteland holding AS, a Norway-based company engaged in research and development of new technologies and solutions, for an undisclosed consideration rumoured to be more than €500m. The high activity within the TMT sector has continued into 2017, and in 2017, we witnessed some very large transactions within this sector. The most noteworthy of these was the €4.7bn acquisition by an investor group, comprising HgCapital LLP (HgCapital), Intermediate Capital Group PLC, Montagu Private Equity LLP and GIC Pte Ltd and Visma AS’ management, of a 40.74% stake in Visma AS, an Oslo-based software publisher,

GLI - Mergers & Acquisitions 2018, Seventh Edition 193 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Aabø-Evensen & Co Advokatfirma Norway from Cinven Partners LLP (Cinven) and KKR & Co LP (KKR), in a privately negotiated transaction. The transaction was announced in June 2017. Another TMT deal worth mentioning from 2017 is InvestCorp’s €190m acquisition of Abax AS, from Norvestor in a leveraged buyout. Throughout 2016 and 2017, the Norwegian energy sector also witnessed some notable transactions. Traditionally, there has been an oversupply of oil, gas and supply industry deals in the Norwegian market. Since the autumn of 2014 and until mid-2016, declining oil prices continued to have a dampening effect on deal activity within this sector. However, during the summer of 2015, some private equity sponsors started to look for deals within the energy sector, and in this regard took an interest in shopping for E&P assets at favourable price levels. This trend continued into 2016, even if the activity at the beginning of the year in this sector was muted due to volatile oil and gas prices, in particular at the beginning of 2016. Since then, a gradual improvement in oil prices has improved the situation. One transaction within this segment from the end of 2016 worth mentioning is Lundin Norway’s acquisition of a 15% stake in the Edvard Grieg fi eld from Statoil for €442m. Another was National Oilwell Vaco’s agreement to acquire Fjords Processing, a company offering support systems for gas, oil and water from Akastor ASA for a total consideration of €140m. Entering 2017, there has been a 35% uptick in deal activity within the oil and gas segment, even if the activity continues to be somewhat muted compared to the historic fi gures for this industry. The most noteworthy transactions within this sector from 2017 include: Total’s €6.32bn acquisition of Maersk Oil and Gas; Neptune Oil & Gas Limited’s €4.61bn acquisition of a 70% stake in ENGIE E&P International S.A.; and Aker BP ASA’s €1.65bn acquisition of Hess Norge AS. During the autumn of 2017, it was also announced that Transocean, one of the world’s largest offshore drilling companies, intends to acquire Songa Offshore, a Norwegian-Cypriot drilling company that specialises in the deep-and- harsh weather environment for €2.84bn in deal value. If the transaction is consummated, this will be the largest drilling deal since the oil price collapse in 2014. With 42 announced deals, the Norwegian private equity-related M&A volume for 1H 2017 experienced a clear increase in deal activity compared with the same period in 2016, when there were 23 announced deals. The same trend continued into 2H 2017 with 40 announced private equity deals compared with 30 announced deals for 2H 2016. For 2016 in total, around 53% of the private equity transaction volume were new investments and add-ons; 11% were secondary; and around 36% were exits. For 2017, 50% of the total private equity transaction volume were new investments and add-ons; 15% were secondary; and 35% were exits. For the fi rst half of 2017, six deals had a disclosed deal value exceeding €100m, while only three deals with a deal value of more than €100m were announced during fi rst half of 2016. For the second half of 2017, only three deals had a disclosed deal value exceeding €100m, while four deals with a deal value of more than €100m were announced during the second half of 2016. Nordic capital’s €4.1bn sale of Lindorff Group to Intrum Justitia was the most notable private equity exit in 2016. Also worth mentioning is Norvestor Equity’s €254m sale of Phonero AS to Telia AB, announced in November 2016. The most notable private equity transactions in the fi rst half of 2017 were: the €4.7bn acquisition by a group including HgCapital LLP (HgCapital) and Intermediate Capital Group PLC, of a 40.74% stake in Visma AS from Cinven Partners LLP (Cinven); and KKR & Co LP (KKR), and CVC/Carlyle’s €4.6bn acquisition of ENGIE E&P International carried out through Neptune Oil & Gas Limited.

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In September 2017, it was also announced that Triton Partners had acquired a 75.16% stake in Glamox AS for €269m in deal value. Other notable private equity transactions announced in 2017 included: Point Resources’ (a portfolio company of HitechVision AS, a Norway-based private equity fi rm) agreement to acquire the upstream business in Norway of Exxon Mobile Exploration and Production Norway AS for a total consideration of €867m; Norvestor’s sale of Abax AS to InvestCorp for €190m in consideration; and FSN Capital Partners’ acquisition of Active Brands AS, a Norway-based sportswear and sports equipment supplier from Holta Invest AS, for an estimated deal value of more than €122m. During 2017, there have also been a few cross-border transactions announced involving Norwegian entities acquiring foreign targets. One of the most signifi cant examples was Norwegian state-owned Statoil ASA’s agreement to acquire a 25% ownership interest in the Roncador fi eld of Petroleo Brasileiro SA Petrobras, a Rio De Janeiro-based oil and gas exploration and production company for €1.99bn, in a privately negotiated transaction announced in December 2017. The purposes of the transaction were for Statoil ASA and Petroleo Brasileiro SA Petrobras to acquire competitors’ strategic assets, to increase shareholder value and to strengthen its operations and expand its presence in Brazilian market. Another example of M&A transactions involving a Norwegian entity attempting to acquire a foreign target is Wilh. Wilhelmsen’s acquisition of Drew Marine Inc.’s technical solutions business for a total consideration of €367m in cash. The transaction was announced in April 2017, and the purposes of the transaction were for Wilh. Wilhelmsen to strengthen its existing operations and expand its presence in new geographical regions. It is also worth mentioning that Link Mobility Group ASA was the most active Norwegian company attempting to acquire foreign targets during 2017, with six announced foreign acquisitions in 2017.

Key developments Generally speaking, there have only been a few changes in Norwegian corporate and takeover law that may be of signifi cant importance to the M&A activity. However, several changes that have been conducted over the last few years have had a general relevance to investors, in particular in Norwegian-listed companies. Still, there are some recent legal developments, proposed or expected changes, and trends that may have a bearing on how M&A transactions will be structured in the future under Norwegian law. New National Security Act proposed In 2017, the Ministry of Defence issued a proposed bill and draft resolution to the Parliament to implement the new National Security Act. This proposal grants the Government powers to intervene and stop acquisitions of shares in a company holding investments in sectors considered vital from a Norwegian national security perspective. If the proposal is adopted by the Parliament, which it most likely will be during 1H 2018, it means that Norway will now also implement a national security review of acquisitions fairly similar to the type of review conducted by the US Committee of Foreign Investments. Merger control Taking effect from 1 April 2017, the previous power held by the King Council to intervene in merger control cases has been abolished. Instead, these powers have now been transferred to an independent appeal board for handling appeals in merger control cases. EU initiatives In recent years, the EU has issued several new directives, regulations and/or clarifi cation statements regarding the capital markets. Such EU initiatives will most likely come to have

GLI - Mergers & Acquisitions 2018, Seventh Edition 195 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Aabø-Evensen & Co Advokatfirma Norway an impact, either directly or indirectly, on the regulatory framework for public takeovers in Norway. However, due to constitutional challenges with regard to transferring national authorities to a supranational fi nancial supervisory system in the EU, several of these revised EU rules are not yet implemented. However, in June 2016, the Norwegian Parliament resolved to amend the Norwegian Constitution allowing the Parliament to consent to the inclusion of Norway in the European fi nancial supervisory system. Consequently, most of the above EU initiatives will most likely come into effect also in Norway in the near future, following which the regulatory framework in Norway that relates to the capital markets will be realigned with what applies within the EU. In this regard, it is worth mentioning that in 2015, the Government appointed an expert committee to evaluate and propose relevant amendments to the existing Norwegian legislation resulting from the EU amending the MiFID II, the Market Abuse and the Transparency Directive. The committee was requested to prepare three reports to the Parliament, the fi rst of which was going to be delivered in December 2015, the second in June 2016, and the last report was going to be delivered by June 2017. All three reports have now been delivered. In February 2016, the committee issued its fi rst report, in which it inter alia proposed to abolish the requirements for quarterly fi nancial reporting from publicly listed companies. This proposal was the result of an amendment to the Transparency Directive (2004/109/ EC) by Directive 2013/50/EU, under which the respective EU states are prohibited from requiring more frequent fi nancial reporting from listed companies than semi-annually. The committee has also proposed to amend the Norwegian Securities Trading Act (STA) so that the same materiality thresholds and disclosure requirements that apply for the acquisition of shares in listed companies also apply for derivatives with shares as an underlying instrument, irrespective of such equity derivatives being cash-settled or settled by physical delivery of the underlying securities. The committee further proposed that both borrowing and lending of shares should become subject to the same notifi cation regime for both the lender and the borrower. Soft-irrevocable undertakings will, however, still not be subject to such disclosure obligations. Note that the existing disclosure obligations under the STA also contain an obligation to disclose information in relation to “rights to shares”, regardless of whether such shares have already been issued or not. This is a stricter disclosure and fi ling obligation than follows from the minimum requirements set out in the Transparency Directive. Consequently, the committee also proposed abolishing this rule. If the latter proposal is adopted by the Parliament, this means that there will no longer be any mandatory disclosure obligations under Norwegian law for warrants and convertible bonds that are not linked to any issued (existing) shares. The second report, which deals with the implementation of MiFID II and MiFIR rules in Norwegian law, does not contain proposals which are directly relevant for the bidder and/ or target in a M&A process. The third report, which deals with the implementation of the Market Abuse Regulation, includes proposals by which the STA rules governing market abuse are expanded. This includes more detailed regulations concerning inside information, by a proposal for new rules concerning so-called “market sounding” that occurs in preparation for a potential transaction, amongst others. It is also proposed that primary insiders will be personally obligated to publish information about their trading activities in listed fi nancial instruments. The committee is also working on a report concerning the Norwegian rules governing voluntary and mandatory offers, with a particular focus on the STA current limited regulation of the pre-offer phase. This Committee report does not arise out of changes to EU rules

GLI - Mergers & Acquisitions 2018, Seventh Edition 196 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Aabø-Evensen & Co Advokatfirma Norway but rather the need to review and update Norwegian takeover rules on the basis of past experience and market developments. The Committee is expected to publish its report in Q2 2018 and the proposed new rules are expected to become effective in 2019. As a part of the capital markets union, the EU adopted in June 2017 a new Prospectus Regulation (EU 2017/1129) to improve the prospectus regime. The regulation will replace the existing Prospectus Directive (2003/71/EC). Both the Prospectus Directive and the existing Prospectus Regulation 809/2004 are implemented in Norwegian law, and these rules are set out in the STA and the securities trading regulation (“STR”). The requirement of a prospectus or equivalent document will no longer apply to securities offered in connection with a takeover by means of an exchange offer, merger or a division, provided that a document is made available that contains information describing the transaction and its impact on the issuer. Any amendments of Norwegian legislation resulting from the proposed new Prospectus Regulation can only enter into effect in Norway after implementation under the EEA agreement. Implementations in Norway will most likely take place by mid-2019 at the earliest. Debt push-down The Ministry of Trade, Industry and Fishery has issued a consultation paper in February 2016, proposing certain further easing of the Norwegian fi nancial assistance prohibition rule (see below). As a general rule, Norwegian public and private limited liability companies have been prohibited from providing upstream fi nancial assistance in connection with the acquisition of shares in a target company (or its parent company). This prohibition prevented Norwegian target companies from participating as co-borrowers or guarantors of any acquisition-fi nancing facilities. However, in practice there have always been a number of ways to achieve at least a partial debt pushdown through refi nancing the target company’s existing debt, which should not be regarded as a breach of the prohibition against fi nancial assistance. Effective from 1 July 2013, the Norwegian Parliament amended the Norwegian Limited Liability Companies legislation, thereby easing Norwegian companies’ ability to provide fi nancial assistance through the introduction of a type of “whitewash” procedure. Under this exemption rule, both private and public target companies can, subject to certain conditions, provide fi nancial assistance to a potential buyer of shares in the target. The fi nancial assistance must be granted on normal commercial terms and policies, and the buyer must also deposit adequate security for his obligation to repay any fi nancial assistance received from a target. Further, the fi nancial assistance must be approved by the target’s shareholders’ meeting by a special resolution. The resolution requires the same majority from the target’s shareholders that is needed to amend the articles, which is (unless otherwise required by the articles) at least two-thirds of the votes cast and the share capital represented at the shareholders’ meeting. In addition, the target’s board must prepare a special report which must contain information on: (i) the proposal for fi nancial assistance; (ii) whether or not the fi nancial assistance will be to the target’s corporate benefi t; (iii) conditions that relate to the completion of the transaction; (iv) the assistance’s impact on the target’s liquidity and solvency; and (v) the price payable by the buyer for the shares in the target, or any rights to the shares. The report must be attached to the notice of the shareholders’ meeting. The target’s board will also have to obtain a credit rating report on the party receiving the fi nancial assistance. The rule’s requirement for depositing “adequate security” for the borrower’s obligation to repay any upstream fi nancial assistance provided by a target in connection with M&A

GLI - Mergers & Acquisitions 2018, Seventh Edition 197 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Aabø-Evensen & Co Advokatfirma Norway transactions will, however, mean that it becomes quite impractical to obtain direct fi nancial assistance from the target company in most LBO-transactions, due to the senior fi nancing banks’ collateral requirements in connection with such deals. The reason for this is that the banks normally request extensive collateral packages, so that in practice, there will be no “adequate security” left, or available, from the buying company (or its parent company) for securing any fi nancial assistance from the target group, at least for the purchase of the shares. While in theory a number of possibilities may still apply for securing such claims, the extent to which the offered security is “adequate” may mean that the target, in practice, has diffi culty providing such upstream assistance, except if the new ultimate owners, or the vendors, are able to come up with some additional collateral. Consequently, the amended rules have so far had very little impact on how LBO fi nancing is structured under Norwegian law after the new regime came into force, at least in private equity LBO transactions. This means that in most cases, the parties will continue to pursue debt pushdowns by refi nancing the target company’s existing debt, the same way as previously adopted. However, in the consultation paper from February 2016, the Ministry now proposes to abolish the requirement that a buyer (borrower) must deposit “adequate security” towards the target company if such buyer receives any form of fi nancial assistance from the target in the form of security for the buyer’s acquisition fi nancing. If the Ministry’s proposal is fi nally adopted in its current form it looks as if, in the near future, Norway will have implemented a type of “whitewash procedure” that could also work for leveraged buyout transactions. This is something that has been lacking under Norwegian law thus far. It is currently unclear when and whether the proposal will be implemented. Finally, also note that, from 1 July 2014, private equity sponsors must continue to ensure they observe the new anti-asset stripping regime (see below) when attempting to achieve debt push-downs under Norwegian law. These rules may limit the sponsor’s ability to conduct a debt push-down, depending on the status of the target (listed or non-listed), the number of the target’s employees, and the size of such target’s revenues or balance sheet. Corporate tax reform – status Since 2015, the Norwegian government has proposed and implemented several new rules based on a previous proposal for a broader tax reform (the proposed tax reform) issued in October 2015. For example, with effect from 7 October 2015, loans granted from a Norwegian company to any of its direct or indirect shareholders being private individuals (or such shareholders’ related parties) are now taxed as dividends on the part of such individual shareholder. The justifi cation for this rule is to counterattack tax planning and simplify the regulatory framework. This rule also applies on loans granted from third party lenders to such individual shareholders, provided the company in which such borrower owns shares, and/or another company within the same group of companies, provides security for such third-party loans. Also during 2017, the government continued to follow up on some of the previous proposals in the proposed tax reform. For example in March 2017, the Ministry of Finance issued a report further elaborating on a previous proposal to reduce the possibility for treaty shopping by implementing a rule stating that all entities established and registered in Norway will have Norwegian tax domicile, unless a treaty with other states leads to a different result. Consequently, companies registered in Norway shall in the future never be considered “stateless”. Later, in May 2017, the Ministry of Finance also issued a consultation paper proposing that the interest payable on bank facilities and other external debt within consolidated group

GLI - Mergers & Acquisitions 2018, Seventh Edition 198 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Aabø-Evensen & Co Advokatfirma Norway companies is going to become subject to the same interest deduction limitation regime as interest paid to ‘related parties’ (see below). It was expected that the Ministry of Finance would follow up on both of the above proposals in the 2018 Fiscal Budget. However, contrary to what was expected, the Ministry did not follow up on the above proposals for the 2018 Fiscal Budget published in October 2018. Instead, the Ministry stated that it needed more time to return to these proposals. Having said that, in the Fiscal Budget for 2018 the government, inter alia, proposed to reduce the corporate tax rate from 24% to 23%, to take effect from 1 January 2018. From 1 January 2018, the government further proposed to increase the tax on dividends received from, or capital gains derived from realisation of, shares held by Norwegian private individuals (in excess of the allowance for shareholder equity), but so that the government’s proposal aims to maintain the overall marginal tax rate on dividends and capital gains. This shall be achieved by fi rst taking the amount derived from such dividend distributions, gains etc., multiplying the relevant number by 1.33 (an increase from 1.24 for 2017), and such grossed-up amount is thereafter to be taxed as ordinary income for such private individuals at a tax rate of 23% (reduced from 24% in 2016). In effect, this increases the effective tax rate on such distributions from today’s 29.76% to 30.59% in 2018. The proposal was justifi ed by a simultaneous proposal to reduce the Norwegian tax rate on ordinary income for both companies and individuals from 24% to 23%. By resolving to distribute extraordinary dividends for 2017, it was, nevertheless possible for individual shareholders to achieve a 0.83% tax saving compared to distributing the same amount of dividend in 2018. Note, however, that it will be necessary to consider implementing measures (if possible) to avoid potential negative double-wealth tax effects. Finally, note that the government previously has stated that it intends to adopt a rule allowing it to introduce withholding tax on interest and royalty payments. In the proposal for the 2018 Fiscal Budget, however, the government did not follow up on these previous proposals for now. It is not clear at this stage if legal changes will be implemented with regard to withholding tax on interest payments and on royalty and, if so, the potential timing of these changes or the applicable withholding tax rate. The government stated in the 2018 Fiscal Budget that in 2018 it also intends to submit a consultation paper for amending the Norwegian-controlled foreign companies rules. The interest limitation regime Since 1 January 2014, a bill has been in place that broadly restricts interest deductions arising on related-party debt. The term ‘related-party’ covers both direct and indirect ownership or control, and the minimum ownership or control requirement is 50% (at any time during the fi scal year) of the debtor or creditor. Additional restrictions to this rule were implemented with effect from 1 January 2016, and in 2017, further restrictions have now been proposed (see below). For now, the interest limitation regime will only apply if the net interest cost (both external and internal interest) exceeds NOK 5m during a fi scal year. The NOK 5m represents a threshold and is not a basic tax-free allowance, which means that if, or when, the threshold is exceeded, the limitation rule also applies to interest costs below the threshold. According to the limitation rules, net interest expenses paid to a related party can be deducted only to the extent that the internal and external interest costs combined do not exceed 25% (reduced from 30% from 1 January 2016) of the taxable profi t after adding back net internal and external interest expenses and tax depreciation. In reality, this is a

GLI - Mergers & Acquisitions 2018, Seventh Edition 199 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Aabø-Evensen & Co Advokatfirma Norway type of taxable approach to the borrower’s EBITDA. Note that when the net interest is paid, certain premiums and discounts connected to a loan will be considered as interest under the new limitation rule. The same goes for gains and losses on receivables issued at a higher or lower price than the strike price. Still, such gains and losses are not regarded as interest income or expenses for the person who acquires the debt in the secondary market. Also note that neither currency gains nor losses, nor gains or losses on currency and interest derivatives, will be considered as interest under the limitation regime. Under certain circumstances this rule will also apply to, and restrict, interest deductions on third-party debt from external lenders (typically from banks). According to the rules, if a related-party to the borrowing company has provided security for loans raised from an external lender, the interests paid to that external lender will (subject to certain exceptions) be considered as internal interest that becomes subject to limitation for deduction for tax purposes. The reason given for this is that the provision of security from a related-party may increase the borrower’s borrowing capacity, and thus a higher interest deduction would be achievable than would be the case for an independent company. However, according to a regulation adopted by the Ministry of Finance on 24 April 2014, interests paid under a loan secured by a related-party will not become subject to the interest limitation rule if the security is a guarantee from the related-party of the borrowing company, and such related- party is a subsidiary owned or controlled by the borrowing company. The same exemption rule applies on loans from a third party secured by a related party of the borrowing company if such related-party security is either: (i) a pledge over that related party’s shares in the borrowing company; or (ii) a pledge or charge over the related party’s outstanding claims towards the borrowing company. With regard to security in the form of claims towards the borrower, it is not required that such claim is owned by a parent company. Negative pledges provided by a related party in favour of a third-party lender are not to be deemed as security within the scope of the interest limitation rule. Any related party interest payments that are not deductible due to the limitation rules may be carried forward for a maximum time period of 10 years. Interest received will be classifi ed as taxable income for the creditor company even if the debtor company is denied deductions due to the limitation rule. Note that group contributions and losses carried forward cannot be used to reduce income resulting from the interest limitation rule. The interest limitation rule applies on an annual basis: if the criteria for considering interest paid as internal interest is fulfi lled only for parts of a year, then only the interest relating to such period will be considered as internal interest subject to the limitation rule. Consequently, it is important to monitor the level of equity, external debt and internal debt, as well as expected taxable income and tax depreciation, to ensure that interest is deductible for tax purposes. Private equity funds, in particular, must revisit and review their fi nancing structures in connection with acquisitions by their existing portfolio investments to understand the effects of the rules and to see if any potential negative effects could be mitigated. In addition, the Ministry of Finance has previously stated that it intends to continue its work to implement further restrictions under the limitation rule, and also to consider if all external debt should be included in the interest-limitation rule, i.e. disallowing tax deductibility on interest payments on external bank fi nancing too. Note that on 25 October 2016, the EFTA Surveillance Authority issued a reasoned opinion in which it stated that in their current form, the Norwegian interest limitation rules violate the freedom of establishment and thereby violate Article 31 in the EEA Agreement. The reasoning here is that the rules in their current form are deterring Norwegian companies

GLI - Mergers & Acquisitions 2018, Seventh Edition 200 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Aabø-Evensen & Co Advokatfirma Norway from establishing a cross-border group relief scheme under which a company may make a “group contribution” with affi liated group members in other EEA States (or conversely, deterring companies from such States from establishing similar groups with affi liated group members in Norway). The interest limitation rules, in their current form, are in practice very unlikely to apply to wholly Norwegian groups of companies, and will never apply to groups that are entitled to grant each other group contributions. This gives rise, in economic terms, to a higher tax charge for groups of companies with a cross-border structure than for wholly Norwegian groups of companies. Therefore, cross-border intra- group interest contributions will de facto be subject to the interest cap rules to a greater extent (since the exception provided under group contribution rules is not available to them). The EFTA Surveillance Authority requested Norway to take the measures necessary to comply with the opinion. In a response from January 2017, the Ministry of Finance maintained that the Norwegian rules are compatible with Norway’s EEA obligations. The next step for the EFTA Surveillance Authority is to decide whether it will take Norway to the EFTA court for infringing its EEA obligations. In May 2017, the Ministry of Finance issued a consultation paper in which it proposed that interest payable on bank facilities and other external debt within consolidated group companies should become subject to the same interest deduction limitation regime as interest paid to “related parties”. The new rule is proposed only to apply if the annual net interest expenses exceed NOK10m. Further, the Ministry proposed two complexed “escape rules” aiming to ensure that interest payments on loans from third parties not forming part of any tax evasion scheme still should be tax-deductible. It also proposed that the existing interest- deduction limitation rules should co-exist with the proposed new rules. If approved by the Parliament, the scope of the old rules shall then only apply to interest paid by Norwegian enterprises to a related lender outside of the consolidated group (typically where the related lender is an individual). The Ministry further stated that for enterprises within the petroleum sector, it may consider introducing a separate interest deduction limitation regime. Originally, the government was expected to follow up on this proposal in the 2018 Fiscal Budget. Instead, the Ministry stated that it needed more time to return to this proposal, and a fi nal revised proposal is now expected to be issued in 2018, with the aim of having the new rules implemented with effect from 1 January 2019. Taxation of “carried interests” Under current tax law, there is no explicit Norwegian rule for taxation where the managers of investment funds receive a “profi t interest” or “carried interest” in exchange for their services and receive their share of the income of the fund. The prevailing view up until recently has been that as long as such managers invest capital into the funds, the carried interest will be considered as capital gain and taxed at capital gains rates. However, during the last year the Norwegian tax authorities have initiated a number of administrative actions challenging the prevailing view by seeking to treat such capital gains as income, subject to ordinary income taxation at a higher tax rate. In a dispute between the Norwegian tax authorities, Herkules Capital (a Norwegian private equity fund’s advisory company) and three key executives employed by the advisory company, Oslo District Court issued a ruling in December 2013, rejecting the tax authorities’ primary claim, namely that such “carried interest” should be considered as income from labour subject to income taxation. The court also rejected the tax authorities’ argument that distributions from a private equity fund to its partners should be subject to additional payroll tax (14.1%). However, the court concurred with the tax authorities’ alternative

GLI - Mergers & Acquisitions 2018, Seventh Edition 201 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Aabø-Evensen & Co Advokatfirma Norway claim, namely that such profi t is subject to Norwegian taxation as ordinary income from businesses at the then prevailing tax rate of 28% (now reduced to 23% from 1 January 2018). The taxpayers, being the adviser and three key executives, had argued that carried interest should not be taxed as a capital gain allocated to the general partner, as the general partner (in this particular case) did not have any ownership interest in the fund. This decision was appealed, and in January 2015, the Norwegian Court of Appeals overturned the District Court and upheld the tax authorities’ original tax assessment, i.e. that the carried interest should be considered as salary income for the relevant leading employees. The Court of Appeal further concluded that distribution to the partners of such profi ts in this particular dispute was also subject to payroll tax (14.1%) under Norwegian law. Finally, the court ordered that the partners had to pay 30% penalty tax on top. However, in a fi nal ruling from November 2015, the Norwegian Supreme Court overturned the Court of Appeals and invalidated the tax authorities’ tax assessment. The Supreme Court concluded that the carried interest should be considered as ordinary income from businesses at the then prevailing tax rate of 28%, but that such income could not be considered as salary income for the relevant leading employees. Leveraged holding companies It should also be noted that in some previous cases, the Norwegian tax authorities have even tried to deny Norwegian incorporated companies’ residency for tax purposes, particularly in cases of leveraged holding companies with tax losses. The risk of not being considered as tax-resident in Norway is particularly relevant for highly leveraged holding companies with limited activity beyond owning the shares of an operative company. Such holding companies have typically been used as an acquisition vehicle in M&A transactions (by being incorporated for the purposes of the acquisition). The income of such companies will normally just consist of group contributions or dividends from the target company, which could be offset against its interest costs. To avoid such a view by the tax authorities, it is essential to fulfi l all formal requirements set out in the Norwegian Companies Act, in particular with regard to board composition, board meetings and locations of such meetings. The board should meet physically in Norway to approve the fi nancial accounts, and also to decide upon important issues for the company. Effective from 6 October 2011, a parent company’s right to deduct losses on receivables on related entities, where the creditor has an ownership of more than 90%, has been restricted. The limitation shall, however, not apply to losses on customer debt, losses on debts which represent previously taxed income by the creditor, or losses on receivables arising from mergers and demergers. This rule was introduced as a reaction to a trend in recent years of using highly leveraged holding companies as acquisition vehicles in M&A transactions. This technique was enabling investors to deduct losses on intra-group loans for tax purposes if the investment went bad while, on the other hand, if the investment was successful, the investors’ investment in shares, and dividend from such investments, would be largely tax-exempt. Act on Alternative Investment Fund Managers On 1 July 2014, the Norwegian Act on Alternative Investment Fund Managers (AIFM) entered into force. This Act implemented Directive 2011/61/EU (the AIFM Directive) into Norwegian law. The Directive seeks to harmonise the regulations of the various forms of investment management of alternative investment funds (AIF), which is any investment undertaking that seeks to raise capital from a number of investors with a view to investing it in accordance with a defi ned investment policy.

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The Act applies to venture funds, hedge funds and private equity funds irrespective of their legal form and permitted investment universe. However, subject to certain defi ned criteria with regard to the size of the funds under administration, certain AIFMs are exempted from parts of this regulatory regime. Although most of the AIFM Act is not directed at M&A specifi cally, there are certain parts that are likely to have a sizeable impact on M&A transactions indirectly. First, the Act imposes a set of disclosure obligations on the fund’s manager. This disclosure obligation is triggered when an AIF acquires control (more than 50% of the votes) of a target company, that either: (i) has its shares admitted to trading on a stock exchange or another regulated market (irrespective of that listed target company’s number of employees, revenues or balance sheet); or (ii) is a non-listed private or non-listed public company, but employs 250 or more people, and either has annual revenues exceeding €50m or a balance sheet exceeding €43m. Under these circumstances, the AIF’s fund manager is obliged to notify the Financial Supervisory Authority of Norway (FSA) about the transaction as soon as possible, and no later than within 10 business days after the AIF has acquired control. In addition, the AIF is obliged to specify in such notice the number of votes acquired, the timing and conditions (if any) for obtaining control, including specifi cation of the involved shareholders and persons entitled to exercise any voting rights on their behalf. For such non-listed target companies as set out above, the AIF’s fund manager is also obliged to inform the target and its shareholders about any strategic plans for the target and any potential consequences for the target’s employees. The AIF’s manager is further obliged to request that the target’s board informs the target’s employees about the same. These disclosure requirements will not apply to target companies whose sole purpose is to own, acquire or administer real properties. Secondly, if an AIF acquires shares in such non-listed companies set out above, and the AIF’s portion of shares reaches, exceeds or falls below 10%, 20%, 30%, 50% or 75% of the votes, then the AIF’s investment manager must inform the FSA about the transaction. Such information must be disclosed no later than within 10 business days after the date when the disclosure obligation was triggered. Thirdly, the Act imposes limitations on fi nancial sponsors’ ability to take part in post-closing asset-stripping of listed target companies. In line with this, the Norwegian Ministry of Finance has implemented a regulation under the AIF Act that, under certain circumstances, limits the fi nancial sponsors’ ability to facilitate, support or instruct any distribution, capital reduction, share redemption or acquisitions of own shares by a listed target, for a period of 24 months following an acquisition of control of such target. This limitation rule is triggered if any such distributions (and so on), mean that the target’s net assets (as set out in the target’s annual accounts on the closing date of the last fi nancial year) are, or following such a distribution would become, lower than the amount of the subscribed capital plus those reserves which may not be distributed under the law or the statutes. The limitation rule is also triggered if any such distributions (and so on) exceed the profi t for the previous fi scal year plus any subsequent earnings and amounts allocated to the fund for this purpose, less any losses and other amounts that, in accordance with applicable law or statute, must be allocated to restricted funds. The above limitations on distribution do not apply to a reduction in the subscribed capital, the purpose of which is to offset losses incurred or to include sums of money in a non- distributable reserve, provided that the amount is no more than 10% of the subscribed capital. The above anti-asset-stripping provision also applies to non-listed companies that fall within the thresholds set out in the legislation with regard to number of employees, revenue, etc. It must be assumed that this limitation rule is likely to have an impact on private equity funds’ ability to conduct debt pushdowns in connection with leveraged buyout transactions.

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Break-up fees and listed companies During the past few years, break-up fees have become an increasingly accepted feature in Norwegian public mergers & acquisitions. However, such fees have normally been lower than in many other jurisdictions, and used to take the form of cost coverage arrangements. In Arris’ offer for Tandberg Television ASA (2007), the parties agreed a break fee of US$18m (1.54%). In Cisco’s offer for Tandberg ASA (2009), a break fee of US$23m was agreed (0.83%). In Reinmetall’s offer for Simrad Optronics ASA (2010), the parties agreed an inducement fee of €1.5m (1.99%). In West Face (Norway)’s offer for Interoil Exploration and Prod. ASA (2010), a break fee (cost coverage) of US$2m was agreed (4.71%). A break fee of US$1.5m (1.3%) was agreed in Finisar’s offer for Ignis ASA (2011), and in Lamprell’s offer for Maritime Industrial Services (2011) the parties agreed a break fee of US$5m (exclusive of value added or other such tax) (1.46%). Norwegian takeover legislation does not specifi cally prohibit break-up fees. However, in October 2010, the Norwegian Corporate Governance Board published a revised edition of the Norwegian Code of Practice for Corporate Governance, amending some important provisions regarding takeover offers. According to section 7 of the OSE’s Continuing Obligations, companies listed at OSE/Axess shall confi rm the application of the Norwegian Code of Practice and shall explain deviations from the code. The 2010 edition of the Code of Practice imposed requirements that went beyond the requirements of the Norwegian Securities Trading Act (STA). As a reaction to recent years’ trend regarding break-up fees, the code recommended that the board should exercise caution in agreeing to any commitments by the target company that make it more diffi cult for competing bids from third-party bidders to be made, or that may hinder any such bids. Such commitments, including commitments in respect of exclusivity (no-shop) and commitments in respect of fi nancial compensation if the bid does not proceed (break fee), should be clearly and evidently based on the shared interests of the target company and its shareholders. In October 2012, the Norwegian Corporate Governance Board implemented additional restrictions, adopting a rule in the Code of Practice stating that any agreement with a bidder that acts to limit a company’s ability to arrange other bids for the company’s shares should only be entered into where it is “self-evident that such an agreement is in the common interest of the company and its shareholders”. According to the new rule in the Code of Practice, this provision shall also apply to any agreement on the payment of fi nancial compensation to the bidder if the bid does not proceed. Any agreement for fi nancial compensation (break-up fee) to be paid to the bidder should be limited to the costs the bidder has incurred in making a bid. As a consequence of these amendments to the Code of Practice (latest version dated 30 October 2014), the use of break-up fees has become less common in Norwegian M&A transactions compared to other jurisdictions (especially with respect to public acquisitions). Of the 15 public M&A offers launched in the Norwegian market during 2014, a break fee was agreed for 20% of these deals. This was actually an increase from the same period in 2013. Out of the voluntary tender offers announced in 2015, break fee provisions were agreed in 9% of these deals. These fees were around 1.05% of the offer price. Of the seven public M&A deals launched in the Norwegian market in 2016, no break fee provisions were included in any of the transaction agreements. However, in one of these transactions, a reverse break-fee of around 3% of the offer price was agreed. Of the fi ve public M&A offers launched in Norway during 2017, a break fee of around 1.17% of the offer price was agreed in one of these deals.

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Due diligence reservations In Madlastokken vs. Otrium (LG-2009-19469), the Gulating Court of Appeal ruled that the defendant Otrium (the offeror) was legally bound to buy the shares in a target company, even if Otrium had taken a due diligence reservation. The Court of Appeal stated that such due diligence reservation would not automatically grant an offeror or a buyer the right to terminate or withdraw from an offer, or from an agreement even if the bidder or offeror were not satisfi ed with their due diligence inspections. The Court of Appeal based its decision upon the fact that the defendant in this particular matter had not specifi ed in the agreement/offer document what should be the legal consequences if the defendant was not satisfi ed with such investigations. Consequently, a due diligence reservation cannot under Norwegian law be considered as a magic formula to escape liability for the purchaser if it wants to withdraw from a transaction. If such reservations shall have the desired effects, it will be necessary for the buyer (offeror) to state this explicitly in the offer document/ agreement. Non-recruitment clauses in takeover situations As from 1 January 2016, non-recruitment clauses between an employer and other businesses will be invalid, except when such undertakings are agreed in connection with takeover situations. After 1 January 2016, a non-recruitment clause can, however, only be agreed in takeover situations for a maximum period of six months from the date the parties resolve to terminate their negotiations, if such takeover negotiations fail. Non-recruitment clauses can further be agreed for a maximum time-period of six months from the date of transfer of business, provided the employer has informed all affected employees in writing about such provisions. At present, it is not obvious if the “letter of the new law” in fact also prohibits a seller and a buyer in a share purchase transaction from agreeing such non-recruitment clauses for longer time periods, provided the target company itself (as the employer for the relevant employees) is not a direct party to such agreement. It is possible to argue that a non- recruitment clause in such share purchase agreement does not (at least directly) violate the new legislation as long as the non-recruitment clause only refers to the target company’s employees, and such target company itself is not a party to the agreement. Note that there is a risk that non-recruitment clauses agreed for longer time periods between buyers and sellers in such share sale-and-purchase transactions may still be invalid. The reason for this is that even if the target company itself (as the employer for the relevant employees) is not a direct party to such sale-and-purchase agreement, the effects of such clauses in share purchase agreements may still turn out to be the same as if a target company had in fact become party to such agreement. Consequently, it can be argued that non-recruitment clauses agreed for longer durations in share purchase agreements at least violate the spirit of the new legislation, and thus also must be considered prohibited. Frustrating actions and shareholder activism In a public tender offer situation, the target company is allowed to take a more or less cooperative approach. The board of the target company is restricted from taking actions that might frustrate the willingness or otherwise of an offeror to make an offer or complete an offer that has already been made. Such restrictions apply after the target has been informed that a mandatory or voluntary offer will be made. These restrictions do not, however, apply to disposals that are part of the target’s normal business operations, or where a shareholders’ meeting authorises the board or the manager to take such actions with takeover situations in mind. As a result, a fairly large number of Norwegian listed

GLI - Mergers & Acquisitions 2018, Seventh Edition 205 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Aabø-Evensen & Co Advokatfirma Norway companies have adopted defensive measures aimed at preventing a successful hostile bid. However, advanced US-style ‘poison pills’ are currently not common in the Norwegian market. If such measures do not apply – or can be overcome – the normal reaction pattern of a Norwegian hostile board would be to seek to optimise the position for its shareholders in other ways. In this regard, it should be noted that despite the restrictions on frustrating actions, several options remain, including: persuading shareholders to reject the bid; making dividend payments or using the Pac-Man defence; or fi nding a so-called white knight or white squire. Shareholder activism in its traditional form of proxy contests in connection with (or as a reaction to) M&A transactions, as lately seen re-emerging in the US, has so far not been very present in the Norwegian markets. However, so-called operational activism as a reaction from shareholders against a company management’s way of running its business operations, is more frequent, but not as frequent as in many other jurisdictions, due to the shareholder structures in Norwegian companies. Currently none of the large international third-party proxy advisory fi rms, which offer vote recommendations and sometimes cast votes on behalf of their clients, operate directly within Norway, and no explicit proxy voting regulations aimed at regulating such advisors’ activities (confl icts of interests, etc.) are in place. However, such fi rms do also offer advice to clients (in particular, foreign hedge funds and institutional investors) who have invested large stakes in Norwegian investee companies. Consequently, the infl uence of such proxy advisors is present in Norwegian companies with a high percentage of foreign institutional investors. Based on recent years’ continuing initiative from the European Securities & Markets Authority to review the role of proxy advisory fi rms (European Commission, 2011; ESMA, 2012), and through forces of global convergence, it is not unlikely that in the future Norwegian regulators will also fi nd it necessary to introduce greater transparency and more specifi c regulations in this area. Examples of aggressive use of derivatives and other accumulations of signifi cant stakes in a target company by activist shareholders are, of course, also seen in Norwegian companies prior to, or in connection with M&A transactions, but it is not very common for activists to seek to interfere with the completion of announced transactions in the Norwegian market. Stealth accumulations through stake-building in Norwegian listed companies do, however, face certain challenges, such as the 5% disclosure requirement imposed by the Norwegian Securities Trading Act. Government holdings A special feature of the Norwegian fi nancial markets is that the Norwegian government holds signifi cant holdings in many of the companies listed on the Oslo Stock Exchange. At the end of December 2017, the Norwegian government controlled (directly or indirectly) 33.66% of the shares in such listed companies, measured in market value. It is worth mentioning that many of these investments are strategic and not just fi nancial. The government has previously stated that it would like to keep an active ownership policy so long as company legislation and popularly accepted principles for corporate governance allow for this. Examples of such investments are the government’s investments in: Statoil ASA (67%); DNB ASA (34%) (Norway’s largest bank); Telenor ASA, the Norwegian telecom provider (53.97%); and Kongsberg Gruppen ASA (50.001%). Note that in 2014, the government asked for the Parliament’s permission to reduce its ownership in several companies in which it is no longer considered natural that the Norwegian State is a long-

GLI - Mergers & Acquisitions 2018, Seventh Edition 206 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Aabø-Evensen & Co Advokatfirma Norway term owner. At the beginning of 2015, the Parliament adopted a resolution granting permission to exit the government’s holdings in the following companies: Ambita AS; Baneservice AS; AS; Veterinærmedisinsk Oppdragssenter AS; Entra ASA; and SAS AB. Originally, the government had also asked for permission to exit its investments in AS, and to reduce its holding in both Kongsberg Gruppen ASA and in Telenor ASA down to 34%. The Parliament approved a reduction of the government’s shareholdings in Telenor ASA down to 34%, but did not approve its exit from Flytoget AS, or a reduction in its shareholdings in Kongsberg Gruppen ASA. It is expected that going forward, the sitting Norwegian government will aim at more privatisation of government-owned companies and businesses, based on what is considered most economically benefi cial for the State. Following the 2017 Norwegian Parliamentary Election, in which the sitting conservative government was re-elected, we expect a continuing trend of increased privatisation of government-owned companies and businesses. In addition, the Norwegian government has signifi cant holdings in both foreign and domestic companies, invested through two government pension funds. The Government Pension Fund Norway constitutes a part of the Government Pension Fund, and has the aim of supporting governmental savings for fi nancing future national insurance pension fund expenditure. Capital can be invested in shares listed on regulated markets in Norway, Denmark, Finland and Sweden, and in fi xed-income instruments where the issuer is domiciled in these countries. The Norwegian Government Pension Fund Global is one of the world’s largest sovereign wealth funds. The fund was set up in 1990 as a fi scal policy tool to support long-term management of Norway’s petroleum revenue. The capital is invested abroad to avoid overheating the Norwegian economy and to shield it from the effects of oil price fl uctuations. The fund invests in international equity and fi xed-income markets. It also has a mandate to invest in real estate. The aim is to have a diversifi ed investment mix that will give the highest possible risk-adjusted return within the guidelines set by the ministry. As of 30 September 2017, total assets amounted to NOK 7,952bn. The government also invests in non-listed Norwegian companies. Very often, such investments are carried out through government-owned investment companies, such as Argentum and Investinor.

Industry sector focus The most active industry in 2016 was Industrials & Manufacturing, which accounted for 18.9% of the deal count for that year in the Norwegian market, while the Technology, Media & Telecommunications sector represented 17.8% of the deal count. Other particularly active industries included the Energy sector, with 15.9% of the total deal count. The Consumer sector and the Business Service sector were also quite active, each representing 11.9% of the total deal count for 2016. Entering 2017, Industrials & Manufacturing continues to hold fi rst position, representing 17.8% of the total deal count, followed by the Technology, Media & Telecommunication sector, representing 16.9%, and the Consumer sector, representing 11.7% of the total deal count for 2017. Other active sectors were the Business Services sector and the Energy sector, each representing respectively 11.1% and 10.5% of the deal count for 2017. Based on the deal volume so far in Q1 2018, it looks as if the Industrial & Manufacturing sector will continue as the leading sector for transactions in Norway for 2018, followed by the Technology, Media & Telecommunication sector.

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The year ahead Norwegian M&A activity was strong and fi nished at record levels in 2017. Also 2018 looks to be a busy year for M&A practitioners in the Norwegian market. Norwegian- based companies continue to be exposed to the same pressures that are currently driving deal activity, including lack of opportunity for organic growth in a generally low-growth environment, transformational developments in technology, and the need to acquire new technology to stay ahead of competition. Equity markets seem to continue to advance to new record highs, which also contributes to increase the buying powers of strategic buyers using shares as consideration for carrying out acquisitions. At the same time, cheap means of debt-fi nancing also continue to be one of the main drivers for M&A deals in the Norwegian market. The Norwegian economy has so far fared better than expected after the historic drop in oil prices during 2014 to mid-2016. Oil and gas prices now seem once again to have started climbing and most of the fall in oil investment seems to be tapering off, which slowly has started to help the industries affected by the oil slump. At the same time, business dynamism and sound management of natural resources wealth have helped propel Norway to among the highest levels of GFP per capita in the world. Most experts seem to predict that oil investments are projected to increase slightly for 2018, which normally is considered good news for the Norwegian economy. Improved economic outlook, the presence of strong public markets, large cap deals, improved CEO confi dence, and the transaction pipeline all seem to indicate that the M&A market most likely will be strong also in 2018. However, we will not be surprised if Norwegian deal volumes retract somewhat in 2018 after seeing record levels in 2017. This trend has, for example, lately been observed in the global markets, with Q3 2017 being the slowest quarter since 2013 in terms of deal count and values. It is also worth noting that even if we believe the outlook for the 2018 deal activity to be good, there are still some looming uncertainties to consider. For now, capital continues to be both inexpensive and plentiful. Still, many experts predict a steeper yield curve in the time ahead, and as a result, the Norwegian Central Bank may also raise the Norwegian interest rate during the next 12 to 24 months. In combination with stricter leveraging regulations that, for now, have let some air out of an infl ated Oslo market, this could trigger a further housing market correction. If so, the critical issue is to what extent the market is heading for a soft or a hard landing. An IMF house-price regression exercise has recently suggested that Norway’s house prices were overvalued by 15% at the end of 2016, which suggests a soft landing being possible. Nevertheless, a housing market correction is expected to slow investment growth somewhat in 2018, and this could indirectly contribute to less deal activity in the Norwegian market. At the same time, Chinese corporate debt seems to be at a record high. If this reaches some sort of breaking point it could trigger a new fi nancial crisis and recession, resulting in a weaker global economy. Escalating geopolitical tension in the Middle East or in other parts of the world (Korea) may also have a negative effect on global M&A activity – indirectly also affecting Norwegian deal-volume. Even so, within particular sectors such as TMT and Industrials, we continue to see strong momentum for new deals. A lot of cash is waiting to be invested, and even if we have seen a number of private equity exits over the last few years, there also seems to be a continuing exit overhang in some equity sponsors’ portfolios approaching end-of-lifetime for the funds holding such investments. It is safe to assume that some of these sponsors are experiencing

GLI - Mergers & Acquisitions 2018, Seventh Edition 208 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Aabø-Evensen & Co Advokatfirma Norway increasing pressure to fi nd solutions to the situation, which in the end, in most cases, will lead to some sort of M&A transaction. Irrespective of which position one may take, the author believes that many investors will continue to view Norway as a good place to invest, due to its highly educated workforce, technology, natural resources and well-established legal framework for M&A transactions. A weaker Norwegian krone is also expected to continue contributing to high M&A activity levels, since foreign investors may feel this creates an extra opportunity for bargains. Consequently, overall, we are optimistic for the Norwegian M&A market also for 2018. Nevertheless, we should not close our eyes to the fact that for the moment, Norway is more exposed to the force of world events than in previous years, and the views that we have expressed above all depend on global macroeconomic developments. The view refl ected in this chapter is that of the author and does not necessarily refl ect the view of other members of the Aabø-Evensen & Co organisation.

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Ole K. Aabø-Evensen Tel: +47 2415 9010 / Email: [email protected] Ole K. Aabø-Evensen is one of the founding partners of Aabø-Evensen & Co, a Norwegian boutique M&A law fi rm. Ole assists industrial investors, fi nancial advisors, private equity funds as well as other corporations in friendly and hostile take-overs, public and private mergers and acquisitions, corporate fi nance and other corporate matters. He has extensive practice from all relevant aspects of transactions, both nationally and internationally, and is widely used as a legal and strategic advisor in connection with follow-up of his clients’ investments. Aabø-Evensen is also the author of a 1,500 pages Norwegian textbook on M&A. Recognised by international rating agencies such as The Legal 500 and European Legal Experts, and during the last 10 years he has been rated among the top three M&A lawyers in Norway by his peers in the annual surveys conducted by the Norwegian Financial Daily (Finansavisen). Both in the 2012, 2013 and in the 2017 edition of this survey, the Norwegian Financial Daily named Mr Aabø-Evensen as Norway’s No 1 M&A lawyer. He is also the former head of M&A and corporate legal services of KPMG Norway. Aabø-Evensen is the co-head of Aabø-Evensen & Co’s M&A team.

Aabø-Evensen & Co Advokatfi rma P.O. Box 1789 Vika, NO-0122 Oslo, Norway Tel: +47 2415 9010 / Fax: +47 2415 9001 / URL: www.aaboevensen.com

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Matej Kavčič, Simon Bračun & Jana Božič Law firm Kavčič, Bračun & Partners, o.p., d.o.o.

Overview General legal framework While the purchase and sale of a company’s shares or assets in Slovenia are mainly subject to the rules of the Obligations Code, where the autonomy of contracting parties prevails over statutory provisions, the (mandatory) corporate legal framework for M&A activity is set out in the Companies Act. The latter governs inter alia mergers and divisions of companies as well as other forms of corporate restructuring, corporate governance, fi nancial assistance rules and prohibitions, squeeze-out procedures and the rights of minority shareholders, etc. Whenever a target company or its assets are the subject of insolvency proceedings, the provisions of the Financial Operations, Insolvency Proceedings and Compulsory Winding- up Act have to be observed as lex specialis in the sale process of distressed companies. Provided that relevant turnover thresholds triggering merger control (as set forth in the Prevention of the Restriction of Competition Act) are exceeded, the transaction has to be notifi ed to the Competition Protection Agency of the Republic of Slovenia, which then decides on the compatibility of the concentration with competition rules. The Takeovers Act regulates mandatory and voluntary takeover bids and procedures for takeovers of listed and larger non-listed joint-stock companies, and imposes certain target defence restrictions and other rules relevant in the takeover context. Other laws applicable in the M&A framework include the: Book Entry Securities Act; Financial Instruments Market Act and Ljubljana Stock Exchange rules for capital market rules (such as IPOs, disclosures, etc.); Law of Property Code for questions of property rights; Employment Relationship Act and Worker Participation and Management Act for employment-related questions; and Corporate Income Tax Act for taxable M&A transactions. In addition, sector-specifi c rules (applicable to banking, fi nancial, insurance and media industry) provide for buy-side regulatory approval obligations when target companies are regulated entities. Overview of M&A activity in 2017 In 2017, the volume of M&A transactions continued to decrease. According to publicly available information, 34 deals have been completed in 2017, whereas in 2016 the number of closed deals reached 49, which was 13 less than the year before. It should be noted, however, that many M&A transactions are not publicly disclosed, therefore the exact number remains unknown. The gradual decline of M&A transactions in recent years could be attributed to the relatively small geographic and economic size of the market, in which the sale of state-owned and distressed companies dominated M&A activity. Due in part

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Signifi cant deals and highlights Adria Mobil/Trigano The acquisition of one of Europe’s leading caravan manufacturers, and most recognisable brands in the European leisure vehicle market (Adria Mobil), by the French-based Trigano group, can undoubtedly be labelled deal of the year 2017. The transaction was reportedly worth around €200m. Following the completion of the transaction, Trigano acquired an 85% stake in the holding company Protej (owner of Adria Mobil) while the remaining 15% stake has been retained by the management of Adria Mobil and may be subject to further acquisition by Trigano in the near future. As Trigano was only interested in acquiring Adria Mobil, the remaining assets of Protej will likely be divided among some of Protej’s former majority shareholders after completion of the transaction. Geoplin/Petrol In July 2016, the Republic of Slovenia, represented by the state holding company SDH, entered into a binding agreement with the Slovenian leading energy group Petrol, pursuant to which the Republic of Slovenia would sell a controlling interest in Geoplin to Petrol in exchange for a controlling interest in Plinovodi, the Slovenian natural gas transmission system operator. Following completion of this swap agreement, the state would acquire sole control over Plinovodi, thereby ensuring full ownership unbundling of the domestic network operator. In March 2017, the European Commission approved the proposed acquisition of Geoplin by Petrol under the EU Merger Regulation, and declared it compatible with the internal market and EEA Agreement. This was the fi rst merger of Slovenian- based companies with a EU dimension that was examined by the European Commission. In December 2017, Petrol announced that it had become a majority shareholder in Geoplin by acquiring an additional 49.6% stake in the company, increasing its stake to 56.9% in total. The state holding company SDH acquired a 52.3% stake in Plinhold, the owner of the natural gas transmission system operator, Plinovodi. No fi nancial details of the transaction were disclosed. Cimos/TCH Ownership of the Koper-based company, specialised in the manufacture of turbo compressors and turbine housings, chassis and car-body parts and power train components, was transferred on to the Slovene “Bad bank” at the beginning of 2017 as a ‘plan B’ to restructure the company according to the private investor principle. One of the longest transactions in the history of Slovenia was fi nally completed in May 2017 when the company was sold to TCH, part of Italy’s investment fi rm Palladio Holding Group, for €100,000. For the purposes of recapitalisation of Cimos, an extra €18.3m has been remitted by the buyer to Cimos to repay its debt and modernise production. Summit Leasing/Nova KBM Following the 2017 merger with KBS bank (purchased in 2016 from Austria’s Raiffeisen Bank International) and the 2016 merger with Poštna banka Slovenije, Nova KBM, ranking second in terms of total assets, continued to grow its network. In March 2017, Nova KBM bank acquired Summit Leasing, the country’s leading leasing company, in order to expand the customer base and complement its services. The transaction was managed through Biser Bidco, owned by Apollo Global Management and the European

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Bank for Reconstruction and Development (EBRD), which purchased Nova KBM in 2016 for approximately €250m. Mercator/Sberbank After being sold to the regional wholesale giant Agrokor in 2014 in a €540m transaction, Russia’s Sberbank announced that it had acquired a 18.5% stake (reportedly worth €40.6m) in one of Slovenia’s major food retailers, Mercator. Sberbank, which is Agrokor’s biggest creditor, acquired 18.53% of Mercator at an auction which was initiated by the Russian bank. Merkur Trgovina/HPS Investment Partners As a follow-up to the acquisition of the retail arm of insolvent Merkur hardware group for a price of €28.56m, the US investment fund HPS Investment Partners purchased 13 retail stores from Heta for an additional price of €49m. It has been reported that the US fund was also interested in other shopping centres rented by Merkur Trgovina and owned by Merkur’s real-estate arm, Merkur Nepremičnine. Merkur Trgovina and Merkur Nepremičnine have been established from the healthy core of Merkur, which was put into an insolvency procedure in 2014. Other Other noteworthy transactions completed in 2017 include: (i) Belgian Soudal Holding’s acquisition of Slovenia-based adhesive manufacturer Mitol; (ii) the sale of US-owned medical laser company Fotona at an estimated value of between €80m and €120m; (iii) the increase of shareholding in local poultry producer Perutnina Ptuj by the Slovene steel manufacturer SIJ, now holding a 90.69% stake after acquiring an additional 12.77% stake in the company for €11.2m; and (iv) the sale of arms production company AREX to Czech private equity fund RSBC. In December 2017 Serbian bank AIK published a takeover intent for Gorenjska Banka, one of the most successful Slovenian banks, and the only major one that escaped the 2014 bailout. AIK already holds a 21% stake and the deal with the selling consortium, led by largest shareholder Sava, would take it to almost 60%. However, as Serbia’s central bank has withdrawn its consent for AIK in the process, the sale of Gorenjska Banka to AIK is becoming highly unlikely.

Key developments After the delay in the implementation of MiFID II, due to become effective across the EU as of 3 January 2018, the fi nal version of the new Market in Financial Instruments Act is expected to be approved by the Parliament by the middle of 2018. In the M&A context, no signifi cant regulatory developments have taken place since 2015 when numerous amendments to the Takeovers Act were introduced. A noteworthy change, aimed at limiting leveraged acquisitions, came in the form of an obligation for the offeror to prove that the payment for any target company’s securities (not just the ones that are the subject of the takeover bid but also those acquired outside the takeover procedure) has not been in any way conducted through a pledge of collateral, insurance securities or another form of the target company’s assets. An obligation to disclose plans regarding the target company’s potential future asset pledges is also a novelty. A new minimum success threshold for mandatory takeover bids has been set at 50% plus one share. In addition, technical harmonisation of takeover legislation resulting from the introduction of TARGET2-Securities standards in Slovenia will facilitate international trading opportunities through a centralised delivery-versus-payment settlement.

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Amendments to the Companies Act were also introduced in 2015. With a view to limiting the unfair commercial practice of limited liability companies “chaining”, the corporate law changes inter alia prohibit the incorporation or acquisition of a company by a person who has already been involved in the incorporation of a limited liability company within the past three months, or has acquired a share in a limited liability company that was established within three months before acquisition. Another signifi cant change that aims to strengthen transparency was the adoption of a new rule linking the legal transfer of shares in limited liability companies to mandatory registration of ownership change in the court register.

Industry sector focus The largest volume of transactions in 2017 was made in Manufacturing/Industrial production and Retail, followed by a number of deals concluded in the Banking/Finance & Insurance sector.

The year ahead After the initial surge of M&A activity in previous years, mainly driven by the sale of distressed companies and privatisation of state-owned companies, a visible decline in M&A transactions followed in 2016 and 2017. Further decline may be expected in 2018, especially in terms of larger-value deals. The Slovenian Bad Bank, which took over the non-performing assets from systemically important banks, has ceased most of the activity connected to the sale of over-indebted companies, while the sale of companies controlled by the banks as a result of debt restructuring is often hindered by their signifi cant indebtedness. A recent example is the 2016 freezing of the sale process of the country’s leading logistics company, Intereuropa, currently in debt for €75m, which is said to reopen this year. Creditor banks are still looking for a buyer for the approximately €300m claims against the Tuš retail chain after the purchase procedure, initiated in 2016 by creditor banks, ended without a buyer being selected. In terms of state-owned companies, many planned privatisation attempts have been delayed or postponed several times, as strategic questions remain open. Nevertheless, the Slovenian government and state holding company SDH continue to seek to implement their asset-management policy, thus further privatisation of considerable state portfolio will continue to shape M&A activity in the future. Hopefully, the positive macroeconomic outlook may further boost the interest of international investors and promote private M&A activity. Curently, the list of capital assets owned by the state (either directly or via its state holding company SDH) includes 14 companies planned for sale in 2018. The decision to renew the process for the sale of Unior, Cinkarna Celje and incumbent fi xed and mobile operator Telekom Slovenije will be made depending on market conditions and business environment. After making a commitment to the EU in 2013 to privatise the country’s biggest bank, NLB, in exchange for the European Commission’s approval of state aid, the government is planning to reopen the process for the sale of NLB after the general election which is expected to take place in June. Slovenia was reluctant to sell its largest banks in the past under the pretext of national interest, so the government still controls the larger part of the sector. The sale of the country’s third biggest bank, Abanka, which was part of the 2013 state aid commitment package, is also under way. Three state-owned casinos,

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Casino Bled, Casino Portorož and Hit, are also on the list for sale in 2018, but the laws on gambling and gaming will have to be amended prior to the launch or completion of any sales activities. According to media reports, Chinese giant Haier (one of the biggest world producers of household appliances) is interested in a strategic partnership or takeover of Gorenje. The largest Slovenian manufacturer of home appliances has also adopted a strategic plan based on which Gorenje intends to divest all non-core assets and subsidiaries by 2020. Pharmaceutical wholesaler Salus has published a letter of intent by which it plans to take over the majority stake in Sanolabor, Slovenian medical, pharmaceutical and laboratory distributor.

* * *

The information in this chapter is based on various articles from business and fi nancial press, company and fi nancial websites and has not been independently verifi ed by the law fi rm.

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Matej Kavčič Tel: +386 1 244 55 00 / Email: [email protected] Matej Kavčič is a lawyer and a managing partner at Law Firm Kavčič, Bračun & Partners, o.p, d.o.o. He specialises in corporate/M&A, competition law, commercial law, banking & fi nance, IT & telecommunications and litigation. He has notable expertise advising domestic and international clients from various industry sectors on privatisation processes, as he represents the interests of both buying and selling parties in the proceedings, as well as the interests of target companies. He has been involved as a lead lawyer in the majority of antitrust and signifi cant merger control cases.

Simon Bračun Tel: +386 1 244 55 00 / Email: [email protected] Simon Bračun is a lawyer and a managing partner at Law Firm Kavčič, Bračun & Partners, o.p, d.o.o. His fi elds of expertise include corporate/M&A, banking and fi nance, intellectual property, public procurements, insolvency law, IT & telecommunications and media law. Simon regularly advises domestic and international clients in major M&A transactions as well as transactions on the purchase of performing and non-performing loan portfolios. He has been regularly involved in many fi nancial restructuring and refi nancing cases and is specialised in payment services and electronic money issuing.

Jana Božič Tel: +386 1 244 55 00 / Email: [email protected] Jana Božič is a senior associate at Law Firm Kavčič, Bračun & Partners, o.p, d.o.o. She joined the law fi rm in 2014 and has been a member of the bar since 2011. Jana specialises in corporate law/M&A, capital markets, banking and fi nance, competition law, commercial law and data protection. She has been actively involved in several corporate/M&A and restructuring cases, including transactions on sale/purchase of performing and non- performing loan portfolios. Jana also specialises in payment services and electronic money issuing.

Law Firm Kavčič, Bračun & Partners, o.p, d.o.o. Trg republike 3, 1000 Ljubljana, Slovenia Tel: +3 86 1 244 55 00 / Fax: +386 1 244 55 01 / URL: www.kbp.si

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Ferran Escayola & Rebeca Cayón Aguado J&A Garrigues, S.L.P.

Overview The Spanish economy continued growing during 2017 as it did over the past three years. This positive trend confi rms that the economic recovery initiated by mid-2013 is consolidating. Foreign political turmoil such as Brexit, the U.S. presidential elections or the terrorist attacks of August have shown, so far, no adverse effects or direct negative impact on the Spanish economy during 2017. According to the Bank of Spain, the projections of the Spanish Government of a 3.1% GDP growth for 2017 were achieved. The 2017 growth rate was similar to 2016 and represented one of the major growth rates in the Eurozone. It was also a great year for the M&A industry. The number of transactions exceeded the volume of transactions of 2005, which set the record year until now. The number of transactions in 2017 would have reached an even higher number in both deal numbers and volume had it not been the political uncertainty that affected Catalonia in the fourth quarter. Growth resulted from an increase in domestic consumption and a decrease in unemployment, refl ecting a higher confi dence and overall better perception of the real economy. The budgetary austerity and labour market reforms that the Spanish Government put in place led to a general improvement of the Spanish economy and a steady path to stability and growth. The evolution of the euro to US dollar exchange rate resulted in a stronger euro and boosted Spanish outbound M&A. As in previous years, unemployment is still a big concern; however, Spain has consistently reduced unemployment since 2013. As of December 31, 2017, the unemployment rate reached around 16.7%, which is 1.7% lower than the unemployment rate seen on December 31, 2016 and far away from the past crisis numbers. Spain has found the path to stability and unrelenting growth and has left behind a rather complicated situation, making it, once again, a very interesting investment market. Prices, valuation criteria and EBITDA multipliers of target companies and assets remain stable (although growing in certain strategic sectors), allowing buyers and sellers to easily align positions, get fi nanced and execute deals.

The Spanish M&A market Transactional activity is usually linked to general economic conditions, macroeconomic indicators, political factors, business sector appeal or opportunity for the investment. Most of the above events coincided in 2017, resulting in an exceptional year for the Spanish M&A market by number of transactions. The market reached a total of 2,185 transactions with an aggregate value of €113bn, 1.8% higher than the €111bn reported in 2016. The

GLI - Mergers & Acquisitions 2018, Seventh Edition 217 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London J&A Garrigues, S.L.P. Spain number of transactions increased by 8.01% over the previous year and 44.22% in total value compared with 2016 transactions. High-end transactions (over €500m) showed an increase in number and value compared to 2016, from 33 to 36, and the total value from €42.4bn to €76.6bn. Mid-market transactions (between €100m and €500m) increased in value compared to 2016, reaching €24.1bn, although the number of transactions slightly decreased, from 116 to 106. Small-sized transactions (below €100m) showed a slight increase in value compared to 2016, reaching a total of €12.2bn and an increase in number, totalling 878 transactions. The fi rst semester of 2017 was exceptional in number of deals and transactions value. The end of the third quarter was, nevertheless, driven by the domestic political situation and the beginning of the fourth quarter left some deals that had been in prospect, stuck. Inbound investments increased both in number – reaching 471 transactions – and in volume, reaching a peak of €64.1bn during 2017 compared to the €34.2bn of 2016. The number of foreign Private Equity and Venture Capital Funds investing in Spanish companies increased by a remarkable 49.47%. The ranking of per country investment in Spain, considering the aggregate value, was led by Germany with €20.6bn, followed by Italy and the US, with €17.1bn and €11.5bn, respectively. Outbound investments remained positive. During 2017 the number of outbound investments reached 247 transactions, representing a remarkable increase of 11.2%. France with €2.2bn, the US with €1.8bn and with €965m, were the top three target countries for Spanish corporates. The most active sector in terms of M&A deals was real estate, with 596 deals closed of the total number in 2017. The upward trend that began in 2014 continued throughout 2017. In general terms, the real estate market continues growing as big banks keep unloading assets, and tax structures such as Spanish Reits (SOCIMIS) and collective investment vehicles remain appealing to domestic and foreign investors. Additionally, the year has been pushed signifi cantly by Atlantia’s and Hochtief’s takeover bids over Abertis, of €16bn and €18.6bn, respectively, announced in May and in October 2017, which are currently in progress. As in recent years, in 2017 foreign investment funds have been key players in large real estate transactions or transactions with an underlying real estate component, such as sales of loan portfolios (both performing and non-performing) or property acquired from Spanish fi nancial institutions through mortgage foreclosures. Years of credit bubbles, and the crisis that followed in certain markets, left a considerable number of asset-secured non- performing loans (NPLs) or NPLs-to-be in the hands of fi nancial institutions and later in the hands the Spanish SAREB asset manager (Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria), or which are estimated to hold around €200bn in this type of asset consistently put in the market for sale. New accounting standards and capital requirements (particularly those deriving from the intended adoption of IFRS 9 Financial Instruments for Spanish fi nancial institutions) may also accelerate sales by fi nancial institutions.

Signifi cant deals by sector • Real estate: Similarly to 2016, this has been the most active sector during 2017, with 596 transactions. The major transaction, currently in progress, starring Banco Bilbao Vizcaya Argentaria, S.A., as seller, of the assets of Anida Grupo Inmobiliario

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to Cerberus Capital Management, L.P., as purchaser, for a value of €4bn. Other signifi cant real estate deals were the takeover bid by Inmobiliaria Colonial, S.A. over Axiare Patrimonio, SOCIMI, S.A. (€1bn); the acquisition by Intu Properties, PLC of Madrid Xanadú Management, S.A.U. (€530m); and by Xella International GmbH of Ursa Insulation, S.A. (€470m). • Technology: Technology was the second-most relevant sector by number of deals in 2017, with an aggregate of 279 transactions. The merger of Siemens Wind HoldCo, S.L. and Gamesa Corporación Tecnológica, S.A. merger (€6.6bn) resulted in the leading wind power generation company in the world. Other signifi cant deals in this sector during 2017 were: (i) the acquisition of a 24.8% stake in Telxius Telecom, S.A. by KKR from Telefónica, S.A. (€790m); (ii) the acquisition of Telecable de Asturias Parselaya by Euskaltel from Zegona (€441m); (iii) the acquisition of a 33.69% stake in Hispasat, S.A. by Abertis Infraestructuras, S.A. (€302m); (iv) the takeover of 93.96% of Tecnocom, Telecomunicaciones y Energia, S.A. by Indra Sistemas, S.A. for an amount of €300m; and, (v) the acquisition of Social Point, S.L. by Take-Two Interactive Software, Inc. for an amount of €233m. • Financial sector: The fi nancial sector was a relevant sector in number of deals, with 155 transactions. With a few exceptions, most of the fi nancial sector transactions seen in 2017 had a real estate component to them. Some signifi cant transactions were: (i) the acquisition of Banco Popular Español, S.A. by Banco Santander, S.A. from the Fund for the Orderly Restructuring of the Banking Sector (FROB) for an amount of €7bn; (ii) the acquisition of Allfunds Bank S.A. by Hellman & Friedman LLC for an amount of €1.8bn; and (iii) the acquisition of HI Partners Holdco Value Added, S.L. by Blackstone Group, L.P. from Banco de Sabadell, S.A. for €630m. • Healthcare: The healthcare industry is traditionally active in Spanish M&A. In 2017 there were fewer but higher-value transactions in this sector, some of the most signifi cant being: (i) the acquisition of SARquavitae Servicios a la Dependencia, S.L by GeriaVi, S.L. from G Square for €550m; and (ii) the acquisition of Vitalia Plus, S.A. by CVC Capital Partners from Portobello Capital for an amount of €258m. Other global M&A deals with a remarkable tranche in Spain have occurred during 2017, such as Carestream’s sale of its dental digital business to Clayton, Dubilier & Rice and Hillhouse/CareCapital for $800m. • Oil, gas and energy supply: In the traditional energy sector: (i) the acquisition of Naturgas Energía Distribución, S.A. by Nature Investments, S.à.r.l. from EDP – Energias de Portugal, S.A. for an amount of €2.6bn; and (ii) the acquisition of a 20% stake of Nedgia, S.A. by Allianz Capital Partners and Canada Pension Plan Investment Board from Gas Natural Fenosa (€1.5bn) were amongst the most signifi cant deals of the year. • Construction: Atlantia’s and Hochtief’s takeover bids over Abertis, of €16bn and €18.6bn, respectively, announced in May and in October 2017, and still in progress, may become the most signifi cant transactions in Spain since 2007.

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Legal framework The general principle that governs private transactions in general, and M&A in particular, is the free will of the parties. The Spanish Civil Code (Código Civil) specifi cally foresees this principle, establishing that the contracting parties may establish any covenants, clauses and conditions deemed convenient, provided that they are not contrary to the laws, morals or to the public order. Based upon the said principle, M&A transactions are structured in many different forms, most often driven by the underlying tax structures of the buyer, the characteristics of the asset to be acquired or the regulated status of the company to be acquired. The most common structure in an M&A transaction is a share deal versus asset or debt for equity deals. Another type of transaction commonly seen in the Spanish market is leveraged buyouts (LBO). The regulation of fi nancial assistance has a relevant impact on these kinds of transactions. The general rule is that Spanish S.L.s may not advance funds, grant credits or loans, provide security or furnish fi nancial assistance to purchase their own quotas, or the quotas created or the shares issued by a company of the group to which they belong. With regards to Spanish corporations (Sociedades Anónimas, or S.A.s for its acronym in Spanish), they may not advance funds, grant credits or loans, provide security or furnish fi nancial assistance in order to purchase their own shares or the quotas created or the shares issued by their direct controlling companies and/or other upstream controlling companies by a third party. Infringement of this prohibition shall be subject to a penalty to be imposed upon the infringing company’s directors or managers, or persons with powers to represent the company committing the infringement: (i) following examination of the proceeding by the Ministry of Economy and Tax, with a hearing for the interested parties and in accordance with the procedure regulations for the exercise of sanctioning authority (in case of S.L.); or (ii) by the National Stock Exchange Commission (Comisión Nacional del Mercado Valores, or CNMV for its acronym in Spanish), which is the Spanish counterpart to the Securities and Exchange Commission, of an amount up to the par value of the quotas assumed or shares subscribed, purchased or accepted as security by the company or purchased by a third party with fi nancial assistance from the company. Notwithstanding the above, there are two (2) specifi c exceptions to the general prohibition of providing fi nancial assistance, which are only applicable to S.A.s: (i) Employees: for the purpose that the employees may acquire shares of the employer company, or for the acquisition of shares or quotas of another company in the group to which the employer company belongs. (ii) Banks and other credit institutions: in the ordinary course of businesses within their corporate purposes, this is paid for out of the company’s available assets. Listed below is a brief summary of the main legislation applicable to M&A transactions: • Capital Companies Act (Ley de Sociedades de Capital), published by Royal Legislative Decree 1/2010, of 2 July, which regulates the different forms of companies in Spain. S.A.s and limited liability companies (sociedades de responsabilidad limitada or S.L.s for its acronym in Spanish) are the most common types of companies in Spain. • Stock Market Securities Act (Ley del Mercado de Valores), as amended and restated by Royal Decree 4/2015, of 23 October and the Royal Decree 1066/2007, of 27 July which regulates the capital markets in Spain including IPOs, listing of securities, takeovers, public offerings and other transactions related to listed securities; the stock market is supervised by the CNMV.

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• The Corporate Restructuring Act number 3/2009, of 3 April (Ley de Modifi caciones Estructurales) which regulates mergers, cross-border mergers, demergers, splits, transformation, transfers of business and the international transfer of registered offi ce. • Antitrust Act 15/2007 (Ley de Defensa de la Competencia), of 3 July, and regulations thereof, as well as the applicable European Union regulations and directives. • SOCIMI Act number 11/2009, of 26 October which regulates the SOCIMI regime. The main attraction of the SOCIMI regime is its favourable tax treatment. The real estate income for SOCIMIs is taxed at a zero corporation tax rate (instead of the general rate of 25%), provided that the requirements of the SOCIMI regime are met, which can be summarised as follows: • adopt the form of an S.A.; • have a minimum share capital of €5m; • have only one class of shares; • include in its corporate name “SOCIMI, S.A.”; and • trade (within a certain time frame) its shares on a regulated stock market (such as the Alternative Stock Market, or “MAB”). • Once the SOCIMI regime is consolidated, these companies must distribute a high level of dividends and they must invest in certain kinds of assets. • The requirement of the SOCIMI regime must be complied within two years following the date in which the election of the SOCIMI regime took place. • Private Equity, venture capital Act number 22/2004 of 12 November governs private equity, venture capital and closed ended entities for collective investments, meaning any entity with a defi ned investment policy and with the purpose of distributing its profi ts among investors. This regulation simplifi es the intervention regime of the CNMV, making it easier to register newly formed entities when they are going to be managed by an existing registered entity. The changes signifi cantly reduce the costs and timeframe for registration. A number of new types of entities were introduced by this Law, allowing a greater fl exibility in determining the type of investment vehicle. For the fi rst time in Spain there is also a special regime for selling shares abroad. With the aim of making the market more accessible, this law introduces ratios, not reducing the percentages, but allowing assets with new characteristics the possibility of being included as permitted assets for such purposes. This is the case for participatory loans and shares of other venture capital or private equity entities. • Spanish Civil Code (Código Civil) published by Royal Decree, dated July 24, 1889, which, amongst others, regulates the general legal framework for contracts and obligations. • Commercial Code (Código de Comercio) published by Royal Decree, dated August 22, 1885, which regulates relations between companies and commercial contracts in general, as well as sale and purchase agreements, deposit and loan agreements, and other legal fi gures that may have direct impact in M&A deals. • Insolvency Act 22/2003 (Ley Concursal), of 9 July which regulates bankruptcy and restructuring procedures in Spain. • Workers’ Statute Act (Estatuto de los Trabajadores), revised by Royal Legislative Decree 2/2015, of 23 October. This Act is important because, amongst other matters, it establishes that the change of the company’s work centre or an autonomous productive

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unit’s ownership will not extinguish the employment relationship on its own. In that respect, the new employer is subrogated (as an ongoing concern) to the labour and social security rights and obligations of the former, including pensions commitments.

Some signifi cant legal changes 2017 has not been a frenzied year in terms of legislative action affecting M&A. However, the following amendments to relevant corporate regulations are worth mentioning: • Approval of Royal Decree-Law 18/2017, of November 24 (“RDL 18/2017”), by virtue of which the following three Spanish laws have been amended: (i) the Spanish Commerce Code; (ii) the Capital Companies Act; and (iii) the Account Auditing Law, approved on July 20, 2015, regarding non-fi nancing information and diversity. RDL 18/2017 integrates to the Spanish internal regulations, the Directive 2014/95/EU of the European Parliament and of the Council, approved on October 22, 2014, regarding the disclosure of non-fi nancial information and information on diversity by certain large companies and certain groups. Note that the abovementioned amendment is applicable to Spanish capital companies; this is, public limited companies, limited liability companies and limited partnerships that, simultaneously, fulfi l the following scenarios: (i) have the status of “public interest entities”; (ii) their number of employees during the fi scal year is greater than 500; and (iii) their net amount of turnover, calculated in total assets and in average number of workers, determines such qualifi cation in the terms of Directive 2013/34/EU of the European Parliament and of the Council, of June 26, 2013 (“Directive 13/34/EU”). Moreover, please note that RDL 18/2017 affects those public interest companies which are required to prepare consolidated accounts, provided that the group is classifi ed as “large” according to the same Directive. After analysing the legal developments introduced by the RDL 18/2017, it is important to point out that, pursuant to new regulations, the abovementioned companies must include in their consolidated management report, or in a separate report regarding the same year, a “consolidated non-fi nancial information status”, by virtue of which they must analyse and make reference to different environmental, social and anti-corruption matters. • On the other hand, one of the most controversial laws enacted during the year 2017 is the Royal Decree-Law 15/2017, of October 6, for urgent action on the mobility of economic operators within the national territory (“RDL 15/2017”). The RDL 15/2017 modifi ed article 285.2 of the Capital Companies Act by adding a new facility to the managing body of the companies by virtue of which, the managing body is entitled to move the registered offi ce of the relevant company anywhere within the Spanish territory unless the bylaws expressly state that the management body does not have this facility. Until this moment, the change of address could only be agreed by the shareholders’ meeting or, if expressly stated in the bylaws, by the managing body. Approving the change of address by means of a shareholders’ meeting entails a more complex process which involves calling the shareholders’ meeting and organising the actual meeting, which could take several weeks. The controversy lies at the background of the approval of RDL 15/2017: after a period of a political uncertainty and institutional crisis in Spain, regarding the will of the regional government of Catalonia to achieve the independence of its territory, the situation of economic uncertainty allowed the Spanish Government to enact a Royal

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Law-Decree (a type of legislation reserved for extraordinary and urgent situations) in order to enable Spanish companies, but mainly companies with registered offi ces in Catalonia, to move their registered address to any other location within the Spanish territory to gain stability and markets confi dence. • Amendments to commercial legislation, which was enacted in 2014. Law 31/2014 of December 3, amending the Capital Companies Act which entered into force at the beginning of 2015 to enhance corporate governance matters. The changes introduced by this new law amending the Capital Companies Act can be grouped under two main headings: Shareholders’ meetings: reforms geared towards expanding the powers of the shareholders’ meeting, strengthening minority shareholders’ rights and ensuring transparency in the information received by shareholders. The powers of the shareholders’ meeting of all corporations were amended to include the acquisition or disposal of essential assets or their contribution to another company, as partially provided for in current recommendation three of the Unifi ed Code for listed companies. Unlike recommendation three, the statutory reform does not require that the acquisition or disposal entail an actual change in the corporate purpose, it being suffi cient for the transaction to involve essential assets. The law presumes that an asset is essential where the amount of the transaction exceeds 25% of the total value of the assets listed in the last approved balance sheet. In the case of all corporations, the interpretational doubts over the calculation of majorities have been clarifi ed according to the following rules: • Ordinary resolutions: simple majority (obtained when there are more votes in favour than against). • Special resolutions: absolute majority (more than half of the shareholders present in person or represented at the meeting by proxy), unless, on second call, there are shareholders representing at least 25% but less than 50% of the subscribed voting capital, in which case two-thirds of the capital represented in person or by proxy at the meeting must vote for the resolution. Reforms aimed at maximising the material protection of the corporate interest and the minority shareholders, applicable to all corporations: • Unifying all cases for challenging resolutions under one general system for annulment of resolutions with a one-year time limit for doing so (three months in the case of listed companies), except for resolutions contrary to public policy (no time limit). • Clarifying that resolutions adopted in breach of the shareholders’ meeting or board regulations are voidable. • Expressly providing that the corporate interest is also damaged, even though the resolution does not cause damage to the company’s assets, if it is imposed in an abusive manner by the majority. It is deemed that a resolution is imposed in an abusive manner where it does not meet a reasonable need of the company and is adopted by the majority in its own interest and to the unjustifi ed detriment of the other shareholders. • Reducing from 5% to 1% the percentage of share capital that must be held by shareholders to challenge resolutions adopted by the board or any other collective managing body. In the case of listed companies, it is set at 0.1%.

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• Boards of directors: reforms aimed at tightening the legal rules on directors’ duties and liability, promoting diversity on boards in terms of gender, experience and expertise, introducing the role of ‘coordinating director’ – where one person holds offi ce as chairman and as chief executive offi cer – and for listed companies, shortening the term of offi ce of directors to four years, clarifying the rules on compensation and directors’ approval by the shareholders’ meeting, or making the nominations and remuneration committee legally mandatory, like the audit committee. The main changes to the directors’ duties and liabilities are: • Duty of diligence: this has completed the rules by establishing different regimes, having regard to the functions entrusted to each director, and enshrining in legislation what is known as the ‘business judgment rule’, the aim of which is to protect the entrepreneur’s discretion in matters of strategy and making business decisions. The law also makes explicit the right and duty of directors to request the necessary information to make informed decisions. • Duty of loyalty: this has improved the order and description of the obligations fl owing from such duty, completing the current list – above all, in the area of confl icts of interest – and extending it to de facto directors in a wide sense. It has also extended the scope of penalties beyond indemnifi cation for damages caused, so as to also include provisions on returning ill-gotten gains. • In particular, it develops the rules on the imperativeness of, and exemption from, the duty of loyalty, stipulating that the rules on the duty of loyalty and on liability for its breach are imperative and cannot be limited in the bylaws. This notwithstanding, the company may grant individual exemptions, authorising a director or a related person to perform a certain transaction with the company, to use certain corporate assets, to take advantage of a specifi c business opportunity or to obtain an advantage or compensation from a third party. The authorisation must necessarily be resolved by the shareholders’ meeting where it relates to an exemption from the prohibition on obtaining an advantage or compensation from third parties, or where it relates to a transaction whose value exceeds 10% of the corporate assets. • Rules on liability: to extend the rules on directors’ liability to similar persons and to facilitate company actions for liability against directors, reducing the ownership interest needed to qualify for standing and permitting; in cases of breach of the duty of loyalty, such an action should be fi led directly without having to wait for a resolution by the shareholders’ meeting. Finally, it is also remarkable that the new Corporate Income Tax Act (“CIT”) Law 27/2014 and certain tax measures amending the CIT that were approved in December, 2016 were on full display in 2017. The amendments impacted the taxation of M&A players, private equity and venture capital entities. Amongst the changes: (i) the scope of the participation exemption on dividends and capital gains on transfers of shares, originally intended for foreign subsidiaries, was extended to domestic source dividends and capital gains; (ii) losses on the transfer of investments qualifying for participation exemption or permanent establishments were non-deductible as from or after 1 January 2017; (iii) deductibility for tax purposes of merger goodwill disappeared as a mechanism for avoiding double taxation and the requirements for amortisation of goodwill following an asset deal became more fl exible; and (iv) rules regarding the deductibility of fi nancial expenses were modifi ed, restricting the effectiveness of traditional structures originally implemented to fi nance acquisitions and debt push-down.

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The year ahead The M&A outlook for 2018 looks very promising. Considering the current economic situation in Spain and the EU, and absent any material political or fi nancial markets turmoil, the M&A market for 2018 will see more transactions and higher values. The forecast for the Spanish M&A market in the fi rst quarter of 2018 will presumably involve a steady growth regarding domestic M&A transactions and a mix between intense activity and caution amongst foreign investors with a Spanish target (particularly if the target is located in Catalonia). Even in that case, some say that political uncertainty may also be seen as an opportunity, encouraging M&A deals on specifi c companies or assets amongst investors looking for discounted prices or lower EBITDA multipliers with high potential returns. Healthcare, technology, insurance and life sciences will become fertile grounds for M&A activity and will add to the longstanding activity in the real estate M&A sector. In addition, the existence of a large number of start-up companies maturing quickly will also be a great opportunity for M&A and Venture Capital (growth) deals. The increase of global deals with a signifi cant impact in Spain will also help raise the value of transactions. We will see more foreign investors (hedge, PE funds and investment banks) landing in Spain and looking for investment opportunities. Domestic private equity funds and asset managers will remain interested in co-investment opportunities with foreign funds, particularly in large deals and offering their “boots on the ground” approach and expertise to larger players, spurring M&A activity. According to the legislative program presented by the Spanish Government for 2018, it is foreseen that 287 regulations will be approved: 9 Organic Laws, 38 Ordinary Laws, 240 Royal Decree-Laws and 53 directives from the EU will be integrated into Spanish domestic regulations; this will most likely result in legislative amendments affecting M&A. In this regard, we can anticipate that the Spanish Government will pass a resolution to amend article 348 bis of the Capital Companies Act regarding the minority shareholders’ separation right arising out of the lack of dividend distribution; this amendment will most likely be approved in 2018 and will aim to protect the companies from economic harm that could originate from the obligation to distribute dividends to minority shareholders. In summary, Spain remains as an inviting option to invest for European and non-European investors who wish to diversify their portfolios, access Latin America taking advantage of the Spanish holding companies regime and benefi ting from slightly lower company valuations and attractive prices or, in case of non-European investors, gain access to the European Union’s large market. Should the excess of liquidity in the international markets, the increasing economic growth in Spain (2.4% growth rate in 2018 according to the IMF), the low interest rates in Europe and the attractiveness of prices remain, the M&A industry in Spain could be targeting a record year.

* * *

Sources The Spain chapter has been drafted using both public resources and private information analysed from different economic and legal publications and from the online services of Transactional Track Record and Mergermarket.

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Ferran Escayola Tel: +34 93 253 37 00 / +1 212 751 9233 Email: [email protected] Ferran Escayola is a Corporate M&A and Private Equity partner and co- chairs the Firm’s U.S. Desk. Between 2010 and 2016 he headed the Firm’s offi ce in New York. His practice focuses mainly on M&A, Private Equity and Acquisition Finance, with particular emphasis on domestic and cross-border transactions with US and European investors in Spain and LatAm and Spanish investors abroad, and regularly advises multinationals, domestic and foreign funds, investment banks, mid-size and large family offi ces. Graduated from the Autonomous University of Barcelona where he completed the specialisation in European Union Law (Jean Monnet Chair), Ferran later obtained his LL.M. in International Economics & Law in Washington D.C. (with Honours) and supplemented his studies by completing a post-graduate program at Harvard Law School. In 2005, Ferran worked as an associate in the Mergers and Acquisitions department of Skadden, Arps, Slate Meagher & Flom, LLP, in New York.

Rebeca Cayón Aguado Tel: +34 93 369 39 57 / Email: [email protected] Rebeca Cayón is a Corporate M&A associate. Her practice focuses on domestic and international M&A and venture capital. She graduated from the Pontifi cal University of Comillas in Madrid where she earned her Spanish degree in Law and International Relations. Later, she obtained her LL.M. in International M&A and Corporate Law at the University of Virginia. In 2013, she worked as an associate in the Corporate Department of Von Wobeser & Sierra in Mexico City, and then continued her career as an associate in the corporate M&A and Venture Capital department of DLA Piper, in Madrid.

J&A Garrigues, S.L.P. Avda. Diagonal, 654, Esc. D 1ª - 08034 Barcelona, Spain 780 Third Avenue, 35th Floor, NY 10017, USA Tel: +34 93 253 37 00 / Fax: +34 93 253 37 50 Tel: +1 212 751 9233 / Fax: +1 212 355 3594

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Jonas Bergquist, Jennie Thingwall & Hanna Reiding Magnusson Advokatbyrå

Overview The global M&A market Globally, the M&A market in 2017 showed a decrease in comparison with the record year of 2016. The number of deals decreased to 18,433, compared to 18,592 deals for the previous year (down by 0.8%), with a total deal value of US$ 3.15tn; a decrease of US$ 0.11tn or 3.2% compared to 2016. Even though the market fell compared to the previous year, 2017 became the fourth straight year in which the value of global M&A deals surpassed US$ 3tn.1 The cross-border contribution to the market value continued to be important. The number of cross-border deals amounted to 6,459 with a total deal value of US$ 1.32tn, a 1.3% drop from US$ 1.33tn in 2016. Cross-border deals increased their share of total global deals to 35.1% of the number and 41.9% of the deal value. The share of the deal count was the second-highest since the fi nancial crisis, surpassed only by 2011’s 35.4%.2 The next wave of technology was a driving factor across all sectors. The technology sector reached its highest annual deal count on Mergermarket (since 2001) with 2,569 deals. Even though showing a decrease of 7.7% or US$ 45m, the Energy, Mining and Utilities sector continued to be the largest target sector by value, with 1,541 deals with a total value of US$ 543bn.3 The Nordic and the Swedish M&A market The available statistics regarding the outcome of the M&A market in 2017, which vary somewhat depending on the source, all show that 2017 was a record year for M&A in the Nordic countries. The statistics from Mergermarket show an increase of deal value with 74% (deal value rose from US$ 64bn in 2016 to US$ 111.3bn in 2017)4 and, according to another source, the total disclosed deal value in the Nordics increased by 55% (deal value rose from US$ 74.9bn in 2016 to US$ 135.1bn in 2017, with 69% private undisclosed deals, a drop of 1% compared with the previous year).5 A large contributing factor to the increase of deal values was the increase in “mega deals”, deals with a value of €1bn or above. During 2017, 21 such deals were completed in the Nordics.6 The Nordic M&A market showed an increase in both the number of deals, as well as in deal value, compared with 2016. The total number of deals with a Nordic acquirer or target company rose to 1,620 compared to 2016’s 1,389.7 Private equity (PE) companies were involved in 15% (247) of the deals on the Nordic market, and featured on the buy-side in 70% (173), the sell-side in 19% (48), and secondary buy-out in 11% (48) of the deals.8 The spin-off of the Swedish company Essity AB by SCA and the following listing of Essity

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AB, with a total deal value of US$ 26.7bn, had a signifi cant impact on the increase of the deal value for the Nordic countries, representing almost 39% of the increase.9 The Nordic market also showed a growing infl uence on the European market, representing 12.7% of the European market. Stable governments, low interest rates, an abundance of capital on the market, as well as strong balance sheets, have been contributing factors for the strong year of the Nordic market, and will likely carry on the trend into 2018.10 In Sweden, the Essity deal, contributed to the highest full-year deal value ever recorded (please see further information under ‘Signifi cant deals and highlights’, below). Without the Essity deal, 2017 would have seen the lowest deal-value year for the Swedish M&A market since 2013.11 According to the global transaction forecast for 2018 by Oxford Economics, which is based on statistics up until November 2017, total deal value for Sweden 2017 was estimated at US$ 30bn, 1.2% of the value for global M&A deals, an increase from 2016 of 142.4% (US$ 12.5bn).12 There are no other freely available statistics for actual deal value for 2017. According to statistics from a well-renowned accounting fi rm, Swedish companies were featured in 854 or 47.15% of the Nordic deals, i.e. on the seller, buyer, or on both the seller and the buyer side (Swedish companies on the buyer-side in 674 deals and Swedish companies on the seller-side in 552 deals). 55% of the targets acquired by Swedish companies were Swedish, while 14% of the targets were located in the other Nordic countries, and 31% from countries outside of the Nordics. These statistics for Sweden are comparable to those for the Nordic region, where internal activity represents the lion’s share of the market. Swedish companies are, compared to the other Nordic companies, the most active outside the Nordic market, 5% ahead of Norway, the Nordic country second-most active outside the Nordic market.13 The Oxford Economics forecast shows 168 inbound and 258 domestic (426 in total) deals for Sweden in 2017, an increase of the total by 5.3% from 2016 (143 inbound and 245 domestic deals, 388 in total). The numbers also show an increase of the inbound share of the total. Inbound deals comprised 36.9% of the total in 2016, a number which rose to 39.4% in 2017. Hence, all of the available statistics show a high inbound and outbound activity on the Swedish market.14 Relevant legislation and regulations Swedish M&A deals are usually made through an acquisition of all or part of the shares of the target company (so-called “public tender offers” or “takeovers” with regard to acquisitions of public companies) as they give the parties more fl exibility compared to business or asset transfers which may require i.a. consent from various counterparties and union consultations. Acquisitions by way of mergers of public and private companies are unusual within Swedish M&A since the rules regarding mergers under the Swedish Companies Act (2005:551) give the parties less fl exibility in respect of i.a. the confi dentiality and timetable of the transaction. In general, there are no restrictions on foreign investments under Swedish Law. However, it should be noted that some business sectors are subject to a permit for foreign buyers, e.g. production of military equipment, which can impose restrictions on foreign ownership. Swedish M&A is characterised by a signifi cant degree of contractual freedom. The Swedish Sales of Goods Act (1990:931), which provides certain protection for the buyer, is applicable on (non-consumer) sales of goods and moveable assets (i.e. all assets other

GLI - Mergers & Acquisitions 2018, Seventh Edition 228 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Magnusson Advokatbyrå Sweden than real property), including shares. The Swedish Sales of Goods Act is, however, non- mandatory, and it is common that the parties agree to deviate from the Act. In a cross-border asset transfer, the United Nations Convention on Contracts for the International Sale of Goods (CISG) may be applicable. CISG applies automatically to (non-consumer) sales of goods (excluding shares) between parties whose places of business are in different states and where both states are contracting parties to CISG. However, it is also common that the parties agree to deviate from CISG. The Swedish Companies Act contains e.g. provisions relating to the board of directors’ responsibilities towards different stakeholders (such as the company and the shareholders), compulsory acquisitions of minority shareholdings, etc. Swedish tax laws are highly relevant in Swedish M&A deals, especially in respect of the fi nancing and structuring of the deal. In addition to the above, the two main sources in Sweden regarding public tender offers (takeovers) are the Swedish Takeover Act (2006:451), which contains provisions regarding public tender offers and is an implementation of the Takeover Directive (2004/25/ EC), and the Takeover Rules. The Takeover Rules have been adopted by the Swedish stock exchanges (Nasdaq Stockholm and Nordic Growth Market), in compliance with the Swedish Securities Market Act (2007:528) and the Takeover Directive. Thereto, the marketplaces have issued their own rules (e.g. Nasdaq Stockholm Rule Book for Issuers), containing disclosure requirements and certain other provisions applicable on takeovers while the Swedish Market Abuse Penalties Act (2016:1307) provides rules for improper disclosure of insider information. Apart from relevant case law and above-mentioned rules, the private body the Swedish Securities Council promotes good practice in the Swedish securities market. Regulatory authorities Private and public acquisitions and mergers are regulated by the Swedish Competition Authority (SCA) and the European Commission. The SCA is a state authority responsible for the enforcement of the Swedish Competition Act (2008:579). The SCA must be notifi ed of a concentration if the combined aggregate turnover in Sweden of the parties in the preceding fi nancial year exceeded SEK 1bn and each of the entities concerned had a turnover in Sweden in the preceding fi nancial year which exceeded SEK 200m. The European Commission shall, according to the EC Merger Regulation (2004/139/ EC), be notifi ed when a concentration has a EU dimension and the aggregate worldwide turnover of the parties the preceding fi nancial year exceeded: (i) €5bn and the EU-wide turnover of each of at least two parties the preceding fi nancial year exceeded €250m (big concentrations); or (ii) €2.5bn and the EU-wide turnover of the parties the preceding fi nancial year exceeded €100m in at least three member states in the EU, and the turnover of each party the preceding fi nancial year exceeded €25m in at least three member states in the EU (smaller concentrations). In addition to the above, public tender offers (takeovers) and mergers are supervised by the Swedish Financial Supervisory Authority (SFSA) and the Swedish Corporate Governance Board. The SFSA is a state authority which i.a. supervises public tender offers and enforces compliance with the Swedish Takeover Act. The Swedish Corporate Governance Board is a self-regulated body that promotes good corporate governance of listed companies in Sweden and proposes amendments to the Takeover Rules.

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Signifi cant deals and highlights Largest Swedish M&A deals of 201715

Deal value Announcement date Acquirer Target Acquirer sector US$ 15 June 2017 Existing Essity AB Consumer 26,666m Shareholders, product and retail Sweden Sweden US$ 3,217m December Zhejiang AB Volvo (7,853%) Automotive and Holding Group Co transportation Ltd (Geely), Sweden China US$ 1,799m 20 July 2017 Ingenico Group SA Bambora Group AB Diversifi ed (Ingenico), industrial products France Sweden US$ 931m 23 January 2017 Dalian Wanda Nordic Cinema Real estate Group Corp Ltd Group AB

China Sweden US$ 577m 02 June 2017 Fam AB Sandvik AB Financial services (Sandvik Process Sweden Systems), Sweden

Essity AB The Essity spin-off was more than twice as large as the second-biggest deal on the Nordic market, the acquisition of the Finnish company Fortum Oyj by Uniper SE, valued at US$ 11.7bn.16 In fact, the Essity spin-off was the sixth-largest deal on the European market 2017, and the second-largest within the Consumer sector.17 By the divestment of Essity AB, SCA separated its hygiene and foresting business, with the hygiene business placed in Essity AB. During the separation of the companies, SCA acquired the German company BSN Medical for US$ 3.2m (€2.7m), which became part of Essity AB. BSN Medical was consolidated into Essity AB on 3 April 2017 and contributed with US$ 140.3m to Essity AB’s EBITDA, which amounted to US$ 1.6bn for the full year.18 AB Volvo Geely (the owner of Volvo Cars) acquired Cevian Capital’s shares in AB Volvo, the holding company of the Volvo group including, among others, Volvo Construction Equipment and Volvo Trucks. Through the acquisition, Geely became the largest shareholder in AB Volvo (8.2% of the capital and 15.6% of the votes).19 Through the investment in AB Volvo, Geely is able to take a position on the commercial vehicle market. AB Volvo’s 45% holding in the Chinese truck manufacturer Dongfeng may also be a motivation behind the acquisition.20 Bambora Group AB The venture capital fi rm Nordic Capital sold its shareholding in Bambora Group AB to the French payment services company Ingenico for US$ 1.8m (€1.5m).21 The Bambora Group AB stems from Nordic Capital’s acquisition of SEB’s international payment platform in 2013. The Bambora Group AB has, since its formation, acquired several other payment companies, among others Eurolin, DK Online, Keycorp, and, as late as two months before Ingenico’s acquisition, Devcode Payment and Innocard.22

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Key developments Changes to the Takeover Rules in 2017 and 2018 Changes in 2017 On 1 November 2017, the Takeover Rules were changed. The main changes were in essence: • Indirect acquisitions – the rule that if the offeror has acquired shares in the offeree company in the six months prior to publishing an offer (a “prior transaction”), the terms and conditions of the offer may not be less favourable than the terms and conditions of the prior transaction, shall also apply to indirect acquisitions. This means, e.g., that when an offeror has acquired control of a company (“holding company”) which, in turn, owns shares in the offeree company, the terms of the indirect acquisition will need to be taken into account when determining the minimum offer price. In the press release regarding the offer and in the structure of an offer document, the offeror is obliged to provide information on the purchase price for the holding company, how the purchase price was allocated between the offeree company shares and other assets, and the reasoning that led to this allocation. • Payment of the offer consideration – the prerequisites for submitting a public offer have been made stricter. Any regulatory approvals required in order for the bidder to be able to pay the consideration must have been secured before the bid is announced. • General updates – if deemed required, the Swedish Securities Council may issue instructions regarding how the parties should act in the event of competing offers. • Sanctions – the maximum fi ne for breaches of the Takeover Rules have been raised from SEK 100m to SEK 500m. The above-mentioned changes regarding indirect acquisitions and payment of the offer consideration were changed in light of the Chinese company HNA Tourism Group’s (“HNA”) acquisition of Carlson Hotels on 7 December 2016. As a result of the acquisition, HNA purchased an indirect majority stake (51.3%) in Rezidor, which triggered an obligation for HNA to make a mandatory offer for the outstanding shares in Rezidor. HNA’s mandatory offer did not include how much the majority stake in Rezidor was valued in the prior acquisition of Carlson Hotels and was conditioned upon several Chinese regulatory approvals (i.a. regarding transfer of funds out from China). The board of Rezidor unanimously recommended the shareholders to reject HNA’s bid for the full ownership of Rezidor, i.a. since the offer did not refl ect the value of Rezidor from a fi nancial perspective (the shareholders of Carlson Hotels had received a signifi cant higher purchase price than the shareholders of Rezidor would have received in the mandatory offer). Changes in 2018 On 1 April 2018, the Takeover Rules were changed. The main updates were in brief: • New procedural rules regarding regulatory approvals – the offeror is to withdraw the offer as soon as possible or apply for an exemption from the Swedish Securities Council if it becomes evident that the required regulatory approvals will not have been received within the maximum nine-month acceptance period (Rule II.7). • Right to return with a new offer – an offeror that has withdrawn its offer due to the rules governing the maximum acceptance period (i.e. according to Rule II.7) and that

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subsequently receives the required regulatory approvals is permitted to return with a renewed offer within four weeks thereafter, without prejudice to the general rule that a new offer may not be submitted within 12 months of the previous offer (Rule II.24). The changes above were introduced in light of HNA’s mandatory offer in Rezidor and Knorr-Bremse’s offer of the shares in Haldex, which was conditioned upon US and EU competition approvals. Registration of benefi cial ownership On 1 August 2017, a new law concerning registration of benefi cial owners entered into force. The law is an implementation of the Fourth Anti-Money Laundering EU Directive. The purpose of the law is to increase the transparency regarding the ownership and the control of the companies, associations and other legal entities, in order to prevent money laundering and terrorist fi nancing. Essentially, the law implies that legal entities are obligated to notify the Swedish Companies Registration Offi ce of their benefi cial owners. A benefi cial owner is a natural person who, alone or together with someone else, ultimately owns or controls a legal entity, or a natural person who benefi ts from someone who is acting on his or her behalf. A natural person is presumed under the law to exercise ultimate control of a legal entity, e.g.: (i) when the person due to his or her shareholding or membership controls more than 25% of the total number of votes in the legal entity; (ii) when the person has the right to appoint or resign more than half of the legal entity’s board members or corresponding management; or (iii) when a person is able to exercise equivalent control through agreements with the owners, members or the legal entity, or through the provisions in the articles of association, through shareholder agreements or similar documents. The most signifi cant obligation for legal entities, which is imposed by the new law, are that they must obtain reliable information on who their benefi cial owners are, and the nature and extent of the benefi cial owner’s interest in the legal entity which must be submitted to the Swedish Companies Registration Offi ce. If information on benefi cial ownership is missing or if reliable information cannot be obtained, the legal entity must provide information about the lack of information to the Swedish Companies Registration Offi ce. Furthermore, the legal entity must notify the Swedish Companies Registration Offi ce without delay of any change in the benefi cial ownership. The registration requirement only applies to private companies, not to public companies. It should be mentioned that this exception has little practical use, since the registration requirement still applies to subsidiaries of such public companies, which will have to register the ultimate benefi cial owner of the parent company, i.e. the public company. A legal entity that does not comply with the rules regarding registration of benefi cial ownership will be subject to fi nes. Reduc ed corporate income tax and interest deduction limitations The Swedish Government has presented its proposals on new tax legislation, which i.a. include an interest deduction in the corporate sector, a reduction of the corporate tax rate and tax rules on fi nancial leases, to the Swedish Council on Legislation. The proposal is expected to be put before the Swedish Parliament on 16 April 2018. The current proposal implies a new general EBITDA-based interest deduction limitation for negative net interest, i.e. the difference between interest income and interest expenses. The

GLI - Mergers & Acquisitions 2018, Seventh Edition 232 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Magnusson Advokatbyrå Sweden cap is calculated as 30% of EBITDA. Negative net interest which is not deductible can be carried forward for a maximum of six years. Furthermore, an interest deduction prohibition is proposed when a related company in another state obtains a tax deduction for the same interest expense, or when the corresponding interest income is not subject to tax due to the classifi cation of the income for tax purposes (anti-hybrid rules). The new proposed tax-rules regarding fi nancial leases implies that the interest element in certain leases should be determined and included in the EBITDA calculation, as a lease can correspond to the lending of funds. Accordingly, a cooperation cannot circumvent the interest deduction limitation by leasing instead of debt-fi nancing a purchase. The Swedish Government also proposes to reduce the corporate tax rate from 22% to 20.6% for the fi nancial year commencing 31 December 2020. The proposed tax legislation follows from the EU Anti-Tax Avoidance Directive and has clarifi ed the tax rules regarding interest deductions, but it remains to be seen if the tax legislation will be passed by the Swedish Parliament. Compared to the minimum requirements in the EU Anti-Tax Avoidance Directive, the proposal by the Swedish Government is generous. How the proposed tax legislation will affect M&A is hard to say, but generally if a cooperation does not receive deduction for interest expenses, a debt fi nance may not be an alternative, which will lower the leverage. Furthermore, it may also affect the group’s overall debt.

Industry sector focus Of the 1,620 deals on the Nordic market, the buyer and the seller were active within the same sector in 738 of the deals. The Technology sector was the most active, with 176 (24%) same-sector deals, followed by Diversifi ed Industrial Products (115 deals or 15%), Consumer Products and Retail (92 deals or 12%), and Real Estate (77 deals or 10%). This is a shift from the 2016 same-sector breakdown, in which the largest sector was Diversifi ed Industrial Products with a share of 18%, followed by Technology at 16% and Consumer Products and Retail with 12%. Hence, Technology did not only pass Diversifi ed Industrial products, but also increased its share of the M&A market by 50%.23 Sweden remains a strong technology country, the home to the “Nordic Silicon Valley”, Kista, with 53% of all Nordic technology M&A.24 The Nordic countries have historically been a strong tech company market. Since 2013, 627 tech-related deals at a value of US$ 48.2bn have taken place in the Nordic countries. In the same period, 438 deals were completed in France at a value of US$ 37.6bn; in Germany, 531 deals at US$ 25.4bn; and in the UK, 896 deals at US$ 85.8bn.25 The most buy-side cross-sector active sector during the year was Wealth and Assets Management, which accounted for 325 out of the 882 cross-sector deals (37%), a sector that includes PE companies and fi nancial sponsors and has historically been the largest cross-sector sector. Other cross-sector active sectors were Diversifi ed Industrial Products (108 deals or 12%), Technology (73 deals or 8%), and Consumer Products and Retail (59 deals or 7%). Hence, the overall most buy-side active sectors in the Nordic market during 2017 were Wealth and Assets Management (325 deals or 20%), Technology (249 deals or 15%), and Diversifi ed Industrial Products (220 deals or 14%).26 PE companies increasingly targeted technology and growth companies during 2017. Companies in the payment services sector attracted particular interest from PE companies, where Nordic Capital’s sale of the Bambora Group AB is a notable deal (please see further information under ‘Signifi cant deals and highlights’, above).

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The year ahead The outlook for Swedish M&A activity in 2018 remains strong and most M&A experts predict that 2018 will be at least as good as 2017. The fundamental conditions for M&A deals remain; low interest rates, wealthy companies and a stable political environment in the Nordic countries. According to the Baker McKenzie Transaction Attractiveness Indicator (presented in the Global Transaction Forecast for 2018), Sweden is ranked as the sixth-most attractive country in the world for M&A activities (ranked number 5 in 2016). The Transaction Attractiveness Indicator rates the attractiveness of a country’s environment for M&A and IPO activity on a scale from 0 to 10. The score is based on a weighted average of 10 key economic, fi nancial and regulatory factors that are typically associated with higher M&A and IPO activity (key factors include the country’s economic growth, stock market size, size of the economy, openness to trade, sovereign credit risk, political stability, ease of doing business, legal structure, freedom to trade, and business regulation).27 In the past few years, numerous so-called dual-tracks, i.e. where the seller considers both a private transaction and an IPO, have resulted in IPOs. Due to the fact that corporate valuations on the Swedish private market continue to rise, dual-tracks are expected to more often result in private transactions. A recent example is Nippon Steel & Sumitomo Metal Corporation’s acquisition of the Swedish steel producer, Ovako. Artifi cial intelligence The use of artifi cial intelligence (“AI”), specifi cally machine-learning technology pre- trained to recognise legal concepts, has increased signifi cantly in the M&A process during 2017 and the number of M&A deals where AI is used is likely to increase in the next few years. Within the Swedish M&A market, the top business law fi rms in Sweden have started to experiment with and evaluate AI solutions in their M&A processes; some have already adopted AI solutions such as Luminance, Kira Systems, etc. AI solutions used in due diligence processes are intended to increase the review speed, as well as reduce costs, which has been predicted to change business models and pricing within the M&A sector. Warranty & Indemnity insurance in Swedish M&A We have seen a signifi cant increase in the use of Warranty & Indemnity (“W&I”) insurance in Swedish M&A, especially with regard to PE sellers, which are very reluctant to assume any post-closing liabilities. The costs of these insurances are often borne by the seller and amount to large sums (the premiums are often between 1% and 1.5% of the insured value). We expect the use of W&I insurance in Swedish M&A to continue to increase during 2018. GDPR’s impact on the M&A market On 25 May 2018, the EU’s new data privacy law, the General Data Protection Regulation (“GDPR”), will come into force. GDPR apply to all business that collect or process EU citizens’ personal data, regardless of geographic location. GDPR is expected to impact the M&A process, in the sense that an acquirer must exercise caution and conduct appropriate due diligence to evaluate if the target company is compliant with GDPR, e.g. how the target company collects, stores, uses and transfers personal data. If the target is not compliant with GDPR, appropriate measures, such as price reductions, indemnities or covenants, should be considered. Non-compliance with GDPR may result in signifi cant fi nes up to the higher of €20 million or 4% of the infringer’s worldwide annual revenue.

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Increase in Chinese outbound investment Chinese outbound M&A activities have increased in Sweden over the last few years. However, the Chinese government’s restrictions on outbound investments (such as a rule requiring that Chinese companies investing over US$ 300m overseas gain the required approval from relevant Chinese authorities) have had a negative impact on Chinese outbound investment into Europe and the US, which decreased dramatically in 2017 (62% decrease in the fi rst nine months of 2017). These restrictions caused sellers outside China to become ever-more cautious of the ability of Chinese bidders to close the deals, mostly from a founding perspective. China has, however, resolved on a relaxation to the rules regarding foreign investments, and outbound M&A acquisitions from China are expected to pick up again during 2018.

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Endnotes 1. Mergermarket Global & Regional M&A Report FY 2017 (https://www.mergermarket. com/info/mergermarket-releases-2017-full-year-global-ma-trend-report). 2. Mergermarket Global & Regional M&A Report FY 2017. 3. Mergermarket Global & Regional M&A Report FY 2017. 4. Mergermarket Global & Regional M&A Report FY 2017. 5. Nordic Capital Markets Insights Full Year 2017 Review http://www.ey.com/Publication/ vwLUAssets/EY_Nordic_Capital_Markets_Insights_-_januar_2018/$FILE/EY- nordic-capital-markets-insights-januar-2018.pdf. 6. http://www.realtid.se/urstark-ma-marknad. 7. Nordic Capital Markets Insights Full Year 2017 Review. 8. Nordic Capital Markets Insights Full Year 2017 Review. 9. Mergermarket Global & Regional M&A Report FY 2017, Mergermarket Deal Drivers EMEA: Full-year 2017 edition (https://www.mergermarket.com/info/deal-drivers- emea-full-year-2017-edition). 10. http://www.realtid.se/urstark-ma-marknad. 11. http://www.realtid.se/urstark-ma-marknad. 12. Baker McKenzie & Oxford Economics Global Transactions Forecast 2018 (https:// www.bakermckenzie.com/-/media/fi les/insight/publications/gtf/global_transactions_ forecast_2018.pdf). 13. Nordic Capital Markets Insights Full Year 2017 Review. 14. Baker McKenzie & Oxford Economics Global Transactions Forecast 2018. 15. Nordic Capital Markets Insights Q1 (http://www.ey.com/Publication/vwLUAssets/ EY_Nordic_Capital_Markets_Insights_-_april_2018/$FILE/EY-nordic-capital- markets-insights-april-2018.pdf), Nordic Capital Markets Insights Q2 (http:// www.ey.com/Publication/vwLUAssets/EY_Nordic_Capital_Markets_Insights_-_ june_2017/$FILE/EY-nordic-capital-markets-insights-june-2017.pdf), Nordic Capital Markets Insights Q3 (http://www.ey.com/Publication/vwLUAssets/EY_Nordic_ Capital_Markets_Insights_-_september_2017/$FILE/EY-nordic-capital-markets- insights-september-2017.pdf), Nordic Capital Markets Insights Full Year 2017 Review.

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16. Nordic Capital Markets Insights Full Year 2017 Review. 17. Mergermarket Deal Drivers EMEA: Full-year 2017 edition. 18. Essity AB Financial Report 2017 (https://www.essity.se/Images/Essity-rapport-Q4- 2017-SVE_tcm340-51453.PDF). 19. https://www.di.se/nyheter/cevian-har-slutfort-volvo-forsaljning/. 20. https://www.di.se/nyheter/forskaren-geelys-kop-gynnar-volvo-och-sverige/. 21. https://digital.di.se/artikel/bambora-saljs-for-14-miljarder-till-franska-betaljatten- ingenico. 22. https://digital.di.se/artikel/bambora-saljs-for-14-miljarder-till-franska-betaljatten- ingenico. 23. Nordic Capital Markets Insights Full Year 2017 Review. 24. https://hampletonpartners.com/nordic-tech-ma-hits-new-records-1h-2017-transaction- volumes-tech-ma-webinar-scandi-focus/. 25. http://events.mergermarket.com/tech-in-the-nordics-a-model-market. 26. Nordic Capital Markets Insights Full Year 2017 Review. 27. Baker McKenzie & Oxford Economics Global Transactions Forecast 2018 (https:// www.bakermckenzie.com/-/media/fi les/insight/publications/gtf/global_transactions_ forecast_2018.pdf).

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Jonas Bergquist Tel: +46 8 463 7500 / Email: [email protected] Jonas is a Partner and part of the M&A team in Stockholm. He specialises in M&A and corporate, particularly in the Energy sector, and has signifi cant experience in advising foreign clients on Swedish inbound investments. Jonas is ranked in Chambers Global and Europe 2017.

Jennie Thingwall Tel: +46 8 463 7500 / Email: [email protected] Jennie Thingwall is a Swedish lawyer and a senior associate based in Stockholm. Jennie works with M&A, corporate and commercial agreements and has worked at Magnusson for six years. Jennie was admitted to the Swedish Bar Association in 2017.

Hanna Reiding Tel: +46 8 463 7500 / Email: [email protected] Hanna R eiding is an associate based at Magnusson’s offi ce in Stockholm. Hanna mainly works with M&A and general corporate matters. She studied law at Uppsala University and has also studied at University of New South Wales, Sydney.

Magnusson Advokatbyrå Hamngatan 15, 111 47 Stockholm, Sweden Tel: +46 8 463 7500 / URL: www.magnussonlaw.com

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Dr. Mariel Hoch & Dr. Christoph Neeracher Bär & Karrer Ltd.

Overview Statutory and regulatory M&A framework in Switzerland The regulatory environment in Switzerland is still very investor-friendly for the following three main reasons: limited investment restrictions (a notable exception being the so- called Lex Koller, see below); vast fl exibility of the parties in the asset or share purchase agreement (e.g. with regards to the R&W, indemnities, disclosure concept, cap, etc.); and low bureaucracy. Below, please fi nd a brief overview of regulations which may be relevant. Public takeovers by way of cash or exchange (or a combination thereof) offers are governed by the Financial Markets Infrastructure Act (FMIA), which came into force on 1 January 2016 and replaced the respective provisions in the Federal Act on Stock Exchanges and Securities Trading (SESTA) and a number of implementing ordinances. Within this framework, the SIX Swiss Exchange (SIX) is responsible for issuing regulations regarding the admission of securities to listing as well as the continued fulfi lment of the listing requirements. The Federal Takeover Board (TOB) and the Swiss Financial Market Supervisory Authority (FINMA) are responsible to ensure the compliance of market participants with the Swiss takeover regime. Decisions of the TOB may be challenged before the FINMA and, fi nally, the Swiss Federal Administrative Court. If a transaction exceeds a certain turnover threshold (which are rather high, compared to other European countries: (a) the undertakings concerned together report a turnover of at least CHF 2 billion, or a turnover in Switzerland of at least CHF 500 million; and (b) at least two of the undertakings concerned each report a turnover in Switzerland of at least CHF 100 million) or if a restructuring has an effect on the Swiss market, the regulations of the Federal Act on Cartels and other Restraints of Competition also need to be considered. Any planned combination of businesses has to be notifi ed to the Competition Commission (ComCo) before closing of the transaction in case certain thresholds regarding the involved parties’ turnovers are met or in case one of the involved parties is dominant in a Swiss market and the concentration concerns that market, an adjacent market or a market that is up- or downstream thereof. The ComCo may prohibit a concentration or authorise it only under certain conditions and obligations. The ComCo’s decision may be challenged before the Swiss Federal Administrative Court and, fi nally, before the Swiss Supreme Court. Beyond, foreign buyers (i.e., foreigners, foreign corporations or Swiss corporations controlled by foreigners) need to consider the Federal Law on Acquisition of Real Estate in Switzerland by Non-Residents (the so-called Lex Koller). They have to obtain a special permit from cantonal authorities in order to purchase real property or shares in companies or businesses owning real property, unless the property is used as a permanent business establishment.

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On 1 July 2015, a new Swiss law entered into force with the aim to prevent money laundering and tax evasion. Among other things, the new legislation states that entities acquiring (alone or in concert with third parties) bearer or registered shares representing at least 25% of the share capital or voting rights in a non-listed Swiss stock corporation must disclose their benefi cial owner to the target company. Also, each acquisition of bearer shares in a non-listed Swiss stock corporation has to be reported to the company, regardless of the amount of acquired bearer shares (the so-called GAFI-notifi cation). Overview of M&A activity in 2017 After a very active 2016, M&A activities further increased in 2017 with a total of approximately 400 transactions involving Swiss corporations (+9%). Despite the growth in the number of transactions, the total deal volume declined in 2017 to US$ 101.5 billion (-15%) which is due to the Syngenta/ChemChina transaction in 2016 with a deal volume of US$43 billion.1,2 Unlike 2016, the generated total volume was more evenly spread in 2017, with 8 out of 10 transactions exceeding the US$1 billion threshold in the fi rst half of 2017. The largest transaction was the takeover of the Swiss biotech company Actelion by Johnson&Johnson for approximately US$30 billion in February 2017. The number of transactions involving private equity investors increased, particularly in the third quarter of 2017, which saw 39 recorded deals. Overall, private equity investors were involved in one third of the transactions in 2017.3

Signifi cant deals and highlights Actelion / Johnson&Johnson The acquisition of Actelion Pharmaceuticals Ltd. by Johnson&Johnson, with a transaction volume of over US$ 29 billion, was the largest transaction in 2017 and among the fi ve largest transactions in the M&A history of Switzerland. Dufry Group / HNA Group A notable deal was the acquisition of a 16.79% stake of the travel retail specialist Dufry Group with a transaction volume amount to US$ 1.5 billion. With the investment made by HNA Group Co., Chinese investors confi rmed their increasing interest in investment opportunities in the Swiss Market (in the last two years, HNA Group has already acquired, inter alia, SR Technics and Gategroup). Breitling / CVC Capital Partners Another transaction that stands out is the acquisition of Breitling, one of the last independent Swiss manufacturers of luxury watches, by CVC Capital Partners, with a transaction volume of nearly US$ 1 billion – a deal that is symbolic of the high volume of activity from private equity players in the Swiss M&A market.

Key developments Broadly speaking, the Swiss M&A market and, in particular, the private equity market, seem to be in good shape, in spite of some geopolitical uncertainties (such as Brexit) which have emerged in the recent past. The following key factors can be identifi ed for this continuingly positive trend. First, despite new regulations on capital outfl ows, the appetite of Chinese investors for investment opportunities in Switzerland has not shown signs of waning in 2017, e.g. with the acquisitions of Dufry and of Glencore’s oil products and logistics business, and we estimate that Chinese buyers will increase their activity in the Swiss M&A market in the future.

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Secondly, generous borrowing conditions, and the ongoing availability of transaction fi nancing at attractive interest rates, continue to facilitate the funding of potential acquisitions, and put pressure on investors to invest. Private equity investors, who tend to be highly leveraged, are benefi ting from this environment in particular. Thirdly, Switzerland remains attractive for investors, with various investment opportunities – notably small and medium-sized enterprises, which will need to deal with succession planning in the coming years (estimated to be approximately 80,000) are particularly attractive targets for (private equity) investors.

Industry sector focus Affected by the strong Swiss franc in the aftermath of the suspension of the minimum exchange rate of CHF 1.20 per EUR, especially the tourism, industrial and retail sectors are struggling with a high price pressure. The ongoing pressure of change and adjustments in those sectors may lead to further structural changes and higher M&A activities.

The year ahead We have seen a very high level of private equity activity in 2017, resulting in the second- highest deal volume involving private equity since the fi nancial crisis. We are fairly optimistic that this will continue to be a trend over the next 12 months. A key driver remains the low interest rates that facilitate the funding of investments and create a high demand, especially for private equity investments.

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Endnotes 1. https://home.kpmg.com/ch/en/home/services/advisory/ma-report.html. 2. https://www.handelszeitung.ch/invest/bilanz-fur-2017-ma-boom-der-schweiz. 3. https://home.kpmg.com/ch/en/home/services/advisory/ma-report.html; https://www2. deloitte.com/content/dam/Deloitte/ch/Documents/mergers-acqisitions/ch-de-m-a- midcap-study-2018.pdf.

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Dr. Mariel Hoch Tel: +41 58 261 50 00 / Email: [email protected] Mariel Hoch is a partner in the corporate and M&A department at Bär & Karrer. Her practice focuses on domestic and cross-border public tender offers and mergers, general corporate and securities matters, including proxy fi ghts, hostile defence matters and corporate governance. She also represents clients in M&A-related litigations. She has advised a broad range of public and private companies and individuals in Switzerland and abroad in a variety of industries including healthcare, pharmaceuticals, technology, fi nancial services, retail, transportation and industrials.

Dr. Christoph Neeracher Tel: +41 58 261 50 00 / Email: [email protected] Christoph Neeracher is a partner at Bär & Karrer and head of the Practice Group Private M&A and Private Equity. He is recognised as one of the preeminent private M&A and private equity attorneys at law in Switzerland and as a leading lawyer in fi nancial and corporate law. Christoph Neeracher is experienced in a broad range of domestic and international transactions, both sell- and buy-side (including corporate auction processes), and specialises in private M&A, private equity and venture capital transactions. He furthermore advises clients on general corporate matters, corporate restructurings as well as on transaction fi nance and general contract matters (e.g. joint ventures, partnerships and shareholders’ agreements), relocation and migration projects, and all directly related areas such as employment matters for key employees (e.g. employee participation and incentive agreements). In his core fi elds of activity, he represents clients in litigation proceedings.

Bär & Karrer Ltd. Brandschenkestrasse 90, 8027 Zurich, Switzerland Tel: +41 58 261 50 00 / Fax: +41 58 261 50 01 / URL: www.baerkarrer.ch

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Sergii Zheka, Mykhailo Razuvaiev & Olga Ivlyeva Wolf Theiss LLC

Overview Ukrainian M&A remains relatively modest in comparison to other CEE countries, and is well below the peak of 2013. However, in 2017 Ukrainian M&A increased by 37% compared to the previous year: 67 deals, with a combined value of slightly more than US$ 1 billion, compared to 55 deals with a total value of US$ 748 million in 2016. Nevertheless, last year, apart from the agricultural sector, investors largely adopted a wait-and-see attitude with respect to deals in Ukraine, as the country has yet to gain an economic as well as political foothold after the economic turmoil of 2014–2015 and ongoing confl ict in the East of Ukraine. Nevertheless, many foreign investors notice positive changes in the investment environment in the country, high potential of certain (especially export-oriented) industries, and expect more economic growth in the future. Investors typically seek M&A targets with resilient business models, strong management teams and well-implemented corporate governance systems. The amount of inbound M&A fell by a third in 2017 compared to 2016 (to US$ 351 million). However, the overall number of inbound deals (20 per year) has remained stable. This is said to indicate that foreign investors’ interest and confi dence in Ukraine remains strong despite sluggish reforms and modest economic growth. Foreign direct investments have increased signifi cantly since 2014 with North American, European and CIS-based investors leading the pack. CIS-based investors focused on acquiring assets in Crimea from Ukrainian parties for whom it is no longer feasible to conduct business on the peninsula, given the recent annexation and the current confl ict between Russia and Ukraine. The acquisition of IntroPro by Luxoft was the only inbound deal from Europe. Investors from North American acquired a 13% stake in Ferrexpo (a group of investors led by Black Rock) for US$ 126 million and a 10% stake in Astarta (Fairfax Financial Holdings from Canada) for US$ 37 million. Outbound M&A mostly focused on CIS (primarily Russia) and North America. In particular, IDS Borjomi Group (a mineral water producer with large Ukrainian-based assets and operations) acquired Chistaya Voda plant (Russia) for US$ 26 million, and Konti (a large Ukrainian confectionery producer) acquired the Russian Krasnaya Zorya confectionery factory for US$ 17 million. Both transactions were aimed at gaining access to the more populous Russian consumer market. All in all, in 2017 the majority of the M&A deals by number and by total value (more than 60%) were smaller domestic M&A. In this regard, the Ukrainian M&A landscape is similar to that of the US (as opposed to the EU), where in around 55–60% of the deals, no foreign parties were involved.

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Privatisation M&As were not particularly brisk in 2017, with US$ 122 million obtained by the state from the privatisation of stakes in fi ve regional power distribution companies (Oblenergo) by DTEK making up the majority of all funds raised by the state from privatisation. Banking sector deals in 2017 were spurred mostly by restrictions imposed by the state (e.g. ban on dividend distribution and repayment of interbank loans abroad) on operations of Russian banks (and their subsidiaries) in Ukraine, with the Russian banks trying to dispose of their local assets, which proved to be a challenging task. Another reason for the increase in M&A activity in the banking sector was active enforcement of recapitalisation requirements by the National Bank of Ukraine. This, for instance, caused the sale of Universal Bank (by Eurobank Group from Greece) to TAS Group (controlled by Mr. Sergiy Tihipko, a prominent Ukrainian businessman). Due to this, in 2017 the banking sector saw more activity than in 2016 but smaller overall amount of funds involved in the transactions (US$ 40 million in total). The increase in M&A activity in the metals and mining sector was caused by disruptions in coal supplies from the confl ict areas in the East of Ukraine. Other industrial goods could also hardly be delivered from the Donbass Region across the disputed line. The largest industrial and mining companies have been either restructuring or stopping operations in the confl ict zone. A signifi cant obstacle to a more vibrant M&A scene in Ukraine is diffi culties that potential purchasers of Ukrainian assets/companies face with raising fi nancing for such deals, as well as diffi culties for Ukrainian investors in obtaining fi nancing for M&A activity both at home and abroad. Virtually no foreign commercial banks have been fi nancing acquisitions in Ukraine. Only certain international fi nancial institutions (e.g. EBRD, IFC, OPIC) provided limited fi nancing (in the form of investments) to private equity funds involved in deals in Ukraine. Domestic investors are also largely cut off from domestic bank fi nancing due to prohibitively high interest rates at local banks and very stringent requirements to loan recipients. The situation is a result of the current economic crisis in the country and the volatility of the national currency (since 2014 the national currency has lost ca. 60% of its value). For the above reasons, to fi nance Ukrainian M&A deals, acquirers mostly use either their own funds or cheap fi nancing available from various sources (e.g. proceeds from IPO/ bond issue, etc.). Such cheap fi nancing is available to a very limited number of Ukrainian companies (holdings) that are active and well established on international capital markets. Other major macro factors that hinder the increase of M&A activity (in terms of quality, value and number) in Ukraine include: 1. ineffi cient system of private property protection and the still existing ban on the free sale and purchase of agricultural land plots; 2. fi scal (as opposed to stimulating) function attributed by local fi scal authorities to taxes and taxation in general; and 3. high currency risks and various limitations on the transfer of currency abroad occasionally imposed by the local regulator in order to support stability of the national economy. Relevant laws and principal regulators The laws and regulations governing M&A transactions vary depending on the corporate form of a legal entity and sector of economy involved. The principal legislative acts governing M&A include the following:

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• the Civil Code of Ukraine, dated 16 January 2003; • the Commercial Code of Ukraine, dated 16 January 2003; • the Labour Code of Ukraine, dated 10 December 1971; • the Law of Ukraine “On Joint Stock Companies” No. 514-VI, dated 17 September 2008 (the “JSC Law”); • the Law of Ukraine “On Limited and Additional Liability Companies” No. 2275-VIII, dated 6 February 2018 (the “LLC Law”); • the Law of Ukraine “On Business Corporations” No. 1576-XII, dated 19 September 1991; • the Law of Ukraine “On Securities and Stock Market” No. 3480-IV, dated 23 February 2006; • the Law of Ukraine “On State Registration of Legal Entities, Private Entrepreneurs and Civic Associations” No. 755-IV, dated 15 May 2003; • the Law of Ukraine “On Protection of Economic Competition” No. 2210-III, dated 11 January 2001; • the Law of Ukraine “On Banks and Banking Activity” No. 2121-III, dated 7 December 2000; • the Law of Ukraine “On Financial Services and State Regulation of Financial Services Market” No. 2664-III, dated 12 July 2001; • the Law of Ukraine “On Depository System of Ukraine” No. 5178-VI, dated 6 July 2012; • the Law of Ukraine “On Privatisation of State and Communal Property” No. 2269- VIII, dated 18 January 2018 (the “Privatisation Law”). The principal regulators include: (i) the Antimonopoly Committee of Ukraine; (ii) the National Commission on Securities and Stock Market; and (iii) the National Bank of Ukraine.

Signifi cant deals and highlights Three major deals, each worth more than US$ 100 million, dominated the Ukrainian M&A landscape in 2017: 1. In June 2017, Kernel (the largest Ukrainian agricultural holding, listed on the Warsaw Stock Exchange) acquired Ukrainian Agrarian Investments from Onexim Group (Russia) for US$ 155 million cash, which it raised in the course of a Eurobond issue earlier that year. In 2017, Kernel also purchased a number of smaller agricultural businesses in various regions of Ukraine. The acquisitions will further strengthen Kernel’s lead on the Ukrainian agricultural market. 2. In January 2017, a group of international investors (including Black Rock and TT International) acquired a 13% stake in Ferrexpo (a large LSE-listed Ukraine-based metal producer) from CERCL Holdings for US$ 126 million. Reportedly, the disposal was the result of a difference in opinion as to the company’s future strategy among the largest shareholders. 3. In May 2017, DCH Group acquired an iron ore mine and a benefi ciation plant from Evraz Group for US$ 110 million. The deal was part of Evraz’s strategy aimed at disposal of Ukrainian assets in the light of the tensions between Russia and Ukraine and the military confl ict in the Donbass Region.

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The 10 largest deals accounted for around 70% of all M&A activity in the country in 2017. Half of these 10 largest deals (by number as well as by size) were concluded in the agricultural sector; two deals were made in the metals and mining sector (US$ 236 million in total); two deals were in the power and utilities sector (US$ 58 million in total); and one deal was concluded in the IT sector (US$ 53 million). In the agricultural sector, another large Ukrainian agricultural producer, Astarta, managed to attract a US$ 37 million investment from Fairfax (a Canadian group of companies specialising in fi nancial services and investments) by way of sale of shares of its foreign holding company. Reportedly in connection with acquisition of the shares, Astarta and Fairfax entered into a Relationship Agreement whereby Fairfax was granted the right to nominate the chairman of the board. In addition, Astarta agreed that a number of actions concerning the company’s shares and other equity securities would require the prior consent of Fairfax. Businesses operating in other sectors also often view agriculture as the place to go when it comes to new avenues for investments. As a case in point, last year Epicentre (the operator of the largest Ukrainian chain of DIY stores) continued its expansion into the agricultural domain. The company, through its off-shore structures, purchased controlling stakes in 10 agricultural enterprises from Glencore International for US$ 55 million. Epicentre also signifi cantly beefed up its agricultural operations in January 2018 through the purchase of US$ 11 million worth of agricultural machinery from Case IH. The acquisition of IntroPro by Luxoft for US$ 53 million was the largest deal in Ukraine’s active IT sector. Luxoft is a leading international provider of software development services and innovative IT solutions. IntroPro is active in the telecom and media sector, serving several blue chip clients based in North America and having offi ces in Ukraine as well as the US. The deal follows in the footsteps of similar deals in the IT sector that took place in the previous years whereby IT services providers based in Ukraine (or having signifi cant presence in the country) were acquired by global players in the fast-growing and developing IT fi eld. The only high-profi le privatisation deals in 2017 were DTEK’s acquisitions of minority stakes in the fi ve regional power distribution companies (Oblenergo), which helped boost the value of deals in the power and utilities sector to US$ 122 million last year (up from a meagre US$ 27 million in 2016). The deals also accounted for the lion’s share of funds obtained by the state from privatisation in 2017.

Key developments The corporate and takeover laws in Ukraine were subject to signifi cant reforms during the course of 2017 and beginning of 2018. These adopted legislative changes either have already become effective, or will enter into force during the fi rst half of 2018. Given the governmental moves designed to overhaul the investment climate and attract more foreign and domestic capital, as well as the implementation of the EU Association Agreement, further changes to legislation governing M&A may be expected. (i) New takeover rules and other signifi cant changes for Joint Stock Companies During 2017 a number of important amendments were introduced to the JSC Law. The new rules are aimed to improve corporate governance of joint stock companies (“JSCs”). The procedure for acquisition of shares (including controlling shareholding) was changed, and squeeze-out and sell-out mechanisms were introduced. The

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amendments also changed the procedure for approval of material agreements and interested party transactions. Investors and shareholders should consider the new rules when structuring M&A transactions resulting in acquisition of shares (direct or indirect) in Ukrainian JSCs. In particular, the following amended requirements should be considered: • Notifi cation requirements. Pre- and/or post-closing notifi cation on acquisition of shareholding (5% or more for public JSCs (“PJSCs”) and 10% or more for private JSCs (“PrJSCs”)). Acquisition of shareholding constituting: (i) more than 50%, 95% or more in PrJSCs; or (ii) more than 50%, 75% or more, 95% or more in PJSCs, shall be subject to specifi c requirements, including disclosure of information on the highest purchase price. • Mandatory bid to shareholders. As a result of acquisition of more than 50% of shares in any JSC, or 75% or more in PJSCs, the acquirer is obliged to make a mandatory irrevocable bid to the remaining shareholders to purchase their shares, in compliance with the established requirements. • Squeeze-out. Minority squeeze-out is possible in case of acquisition of at least 95% of ordinary shares in the JSC. • Sell-out. Sell-out is possible for minority shareholders after disclosure of information on acquisition of at least 95% of shares in the JSC. • New corporate governance rules. A supervisory board is mandatory for the majority of JSCs. At least ⅓ of all supervisory JSCs’ board members should be independent. (ii) Enforceability of shareholders’ agreements in Limited Liability Companies Starting from 18 February 2018, shareholders of limited liability companies (“LLCs”) are able to enter into binding and enforceable shareholders’ agreements, rather similar to shareholders’ agreements under English, Dutch and other developed foreign corporate laws. The express introduction and regulation of shareholders’ agreements in LLCs is important for Ukrainian M&A deals. (iii) New Law on Limited Liability Companies On 17 June 2018, a long-awaited LLC Law will come into force (except for certain provisions on succession of a participation share). The LLC Law will signifi cantly improve and modernise the legal framework regulating LLCs, being the most popular form of Ukrainian companies used by both local and foreign investors. The following are among the most important developments introduced by the LLC Law: • The sole shareholder limitation is cancelled. The restriction when an LLC may not have a sole shareholder which, in its turn, is also owned by the sole shareholder, is cancelled. This cancellation will help to streamline corporate structures of groups of companies with LLCs as operational or asset holding entities. • Cancellation of the limitation on the number of shareholders. The cap on the number of shareholders that an LLC may have is removed. This development allows Ukrainian JSCs with over 100 shareholders to transform into a more fl exible LLC form. • Supervisory Boards in LLCs. In the past, the question of whether an LLC can have a supervisory board was open and, to a certain extent, debatable. The LLC Law

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explicitly addressed this question and introduced the supervisory board as one of the LLC’s governing bodies. • Increased liability and duties for LLCs’ executives. Among other requirements, LLCs’ executives will have to report on their affi liations with other companies. Failure to do so may be a reason for the termination of a contract with an executive. The executives will be liable for losses incurred by the LLC as a result of the executives’ misconduct. • Signifi cant and interested party transactions. The defi nitions of signifi cant and interested party transactions are introduced together with a mechanism for approval of such transactions. (iv) New law on privatisation On 7 March 2018, the new Privatisation Law came into effect. It improved the outdated approach to privatisation and established simplifi ed, competitive, transparent and investor-friendly procedures for privatisation of state and municipal property. Certain pre-privatisation formalities, such as preparation and approval of the privatisation plan and creation of the privatisation committee, as required under the old law, are now abolished. This should signifi cantly shorten the privatisation process. Privatisation disputes between investor and the state may be submitted for international arbitration (special rules apply if the parties did not agree on the forum). Additionally, until 1 January 2021, sale and purchase agreements regarding large privatisation objects may be governed by English law, except for certain provisions which should be imperatively governed by Ukrainian law. (v) Tax regime There have been no signifi cant developments to the tax regime in recent years that are relevant to M&A deals. At the same time, the Ukrainian government has been moving forward to simplify the mechanism of administration of taxes and make the Ukrainian taxation regime more stable and predictable for investors. In 2016, Ukraine committed to implementing the de-offshorisation package, which will affect corporate aspects of structuring M&A transactions. In particular, a working group with a view to transposing anti-BEPS measures into Ukrainian law was created. Its aim inter alia includes introducing controlled foreign company rules, automatic exchange of fi nancial accounting information, adopting rules on combating aggressive tax planning, etc. Also, starting from 1 January 2017, Ukraine became a member of the Inclusive Framework on the base erosion and profi t shifting (“BEPS”) project and committed to implement four minimum standards of the BEPS package: Action 5 (countering harmful tax practices); Action 6 (prevention of treaty abuse); Action 13 (implementation of country- by-country reporting); and Action 14 (enhancing dispute resolution mechanisms). (vi) Simplifi ed merger clearance and increased merger thresholds In 2016, the legal framework on merger control became the subject of further improvements. In particular, a two-tier jurisdictional test and a simplifi ed review process were introduced, as well as signifi cant increases in the turnover/assets thresholds. These developments were important moves to improve the overall image of Ukrainian merger clearance practices, which previously have been considered as one of the most diffi cult in the world and as a bottleneck for cross-border M&A transactions.

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Amendments to merger control regulations considerably decreased the regulatory burden on undertakings and shortened the merger clearance review process. Foreign- to-foreign M&A transactions benefi ted the most from the overhaul.

Industry sector focus The role of the agricultural sector in M&A increased in 2017 mainly due to high crop yields, natural conditions of the country, improved profi tability, export orientation and ability of the largest players to obtain fi nancing (mostly in the form of debt) and further increase (consolidate) their assets. It is therefore natural that the largest M&A deal in 2017 was done in the agricultural area: Kernel (the largest Ukrainian agricultural holding) acquired Ukrainian Agrarian Investments from Onexim Group (Russia) for US$ 155 million. Ukrainian Agrarian Investments holds more than 190,000 hectares of leasehold farmland and approximately 200,000 tonnes of grain storage capacity. To put things in perspective, Kernel also acquired a number of minor agricultural companies during 2017 and a major Ukrainian oilseed crushing plant from Ukrgazbank (in a process of foreclosure by Ukrgazbank on the collateral that secured a loan to Creative Group) in 2016. The agricultural sector alone accounted for 44% of total Ukrainian M&A and generated deals worth US$ 452 million – a three-fold increase on 2016. Investors see the agricultural sector as a safe haven for their investments (due to its ability to generate export revenue and relatively high returns on invested capital) in the country, which still has a volatile political as well as economic environment. Additionally, the sector is expected to have good prospects as the IMF is pushing through reforms that should liberalise this area of business and make access to the Ukrainian agricultural land easier for investors. The ongoing, though signifi cantly less violent, confl ict in the East of Ukraine, and resulting disruptions in production of coal and steel, with coal mines and steel plants being cut off from the Ukrainian economy, coupled with the exit of Russian businesses from the country, also infl uenced M&A in the metals and mining sector. Due to the US$ 110 million sale by Evraz Group to DCH Group (controlled by Mr. Yaroslavskiy, a local businessman) of the Sukha Balka iron ore mine and a benefi ciation plant (city of Kryvyi Rih), M&A activity in the sector increased in value three times compared to 2016. Notably, in March 2018, Evraz announced the sale of yet another of its Ukrainian assets to DCH Group – the Dnipro Iron and Steel Works – for US$ 106 million. Key industrial and mining companies are either restructuring or cutting off their operations in the disputed part of the Donbass Region, as transportation of industrial goods across the disputed line virtually ground to a halt in 2017. The 2017 M&A landscape was also signifi cantly shaped by: (i) renewed interest from Dragon Capital (Ukraine’s largest investment and fi nancial services group of companies) in commercial and logistics real estate due to low purchase prices and expected high returns; (ii) a high volume of investment in the IT sector due to presence of foreign players, the export focus of the industry and availability of a large number of qualifi ed IT specialists in the country; (iii) the exit of Russian banks and other companies from the country due to signifi cant restrictions on their operations that were imposed as a result of the military stand-off with Russia and overall decrease of the role of Russian capital in the Ukrainian economy; and (iv) increased roles of domestic M&A players (the majority of the deals in 2017 were internal).

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The year ahead As already noted above, during 2017 to the fi rst quarter of 2018, there have been a number of developments in Ukrainian legislation aimed at enhancing the investment climate in the country. Among them are: the adoption of the long-awaited law on LLCs; and the introduction of shareholder agreements, squeeze-out and sell-out mechanisms, enhancing the protection of businesses from any abuses by state authorities. The above developments are expected to simplify the process of doing business in Ukraine and enhance international investors’ interest in Ukrainian assets, which eventually should lead to an increase in the number of M&A deals in the domestic market. Additionally, the adoption of the law on privatisation of state assets should result in an increase in M&A deals involving state assets on, inter alia, the energy market. In 2017, M&A activity increased compared to the past years. We expect this trend to continue in 2018, and the number and value of M&A deals involving Ukraine to increase in 2018 compared to 2017. Agriculture and IT will most probably stay on trend in 2018, due to the good current state of the industries and their export orientation, and the agricultural sector is poised to preserve its leading role. The energy sector may also generate M&A activity due to planned privatisations of state assets. We expect an increase in international investors’ interest in the pharma industry. Real estate assets are also poised to grab investors’ attention due to low prices of real estate objects and utilities (compared to those in the EU/USA). The purchase by Dragon Capital in March 2018 of the Victoria Gardens shopping mall in Lviv (the biggest in the city), is a case in point. Another important sector in Ukraine that will likely see inbound investments and joint- venture type of activity is gas transportation and storage. The Ukrainian government is in the process of attracting a partner for the joint operation of the Ukrainian gas transportation system. By the capacity of its assets, the Ukrainian gas transportation system is one of the largest gas transportation systems in Europe. It is expected that either one of the EU’s gas transportation system operators, or a consortium of such operators, will act as the partner for the operation of Ukrainian assets. Despite the positive developments in Ukraine, there are a number of factors that make institutional investors cautious when considering investments in Ukraine. Among them are: the simmering confl ict in the East of the country; slow pace of reforms; currency fl uctuations; corruption; and dawn raids of businesses conducted by state authorities (the most recent example is dawn raids at the offi ces of Nova Posta – one of the biggest delivery services in Ukraine). Apart from this, the presidential election is due to take place in Ukraine in 2019. At this stage, it is not clear who stands the highest chance of becoming the next President of the country and what policy the future President will pursue. Absence of a clear vision of the future political situation in Ukraine may also affect M&A in 2018. At the same time, considering the overall attractiveness of the market, domestic and international investors have got used to navigating their business and investments in Ukraine despite these political factors.

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Sergii Zheka Tel: +38 044 3 777 500 / Email: [email protected] Sergii Zheka is a Senior Associate at the Wolf Theiss Kyiv offi ce with over 10 years of legal experience in various areas of law, including corporate and M&A, corporate dispute resolution, capital markets and contracts. Sergii’s primary experience includes advising Ukrainian and foreign clients on different matters in connection with M&A transactions and dispute resolution. He has also been extensively involved in negotiating contracts, participating in due diligence projects, and advising clients on corporate matters. Sergii holds a Master of Law (LL.M.) degree from the University of Pittsburgh (Pittsburgh, USA, 2009) and a Master of Law degree from the National University of Kyiv-Mohyla Academy (Kyiv, Ukraine, 2008).

Mykhailo Razuvaiev Tel: +38 044 3 777 500 / Email: [email protected] Mykhailo Razuvaiev is an Associate at the Wolf Theiss Kyiv offi ce. During his 10 years of legal practice, Mykhailo has: advised clients on various corporate and antitrust matters; participated in M&A transactions; advised on corporate and individual taxation, including on international tax planning and restructuring; and dealt with regulatory, customs and currency control issues. Mykhailo holds a Master of Law degree (with Honours) from the National Technical University of Ukraine (Kyiv, Ukraine, 2008).

Olga Ivlyeva Tel: +38 044 3 777 500 / Email: [email protected] Olga Ivlyeva is an Associate at the Wolf Theiss Kyiv offi ce with over 10 years of legal experience in various areas of law, including antitrust/competition, corporate and M&A and contracts. Olga has particularly focused on projects advising Ukrainian and foreign clients on merger clearance requirements and procedures, as well as representing Ukrainian and foreign clients before Ukrainian competition authorities. Olga also has extensive experience negotiating contracts, participating in due diligence projects, and advising on corporate and regulatory matters. Olga holds a Master of Law (LL.M.) degree from the Central European University (Budapest, Hungary, 2008) and a Master of Law degree from the Donetsk National University (Donetsk, Ukraine, 2007).

Wolf Theiss LLC 9A Khoryva Str., Kyiv 04071, Ukraine Tel: +38 044 3 777 500 / Fax: +38 044 3 777 501 / URL: www.wolftheiss.com

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Jan Mellmann, Vineet Budhiraja & Andrea Bhamber Watson Farley & Williams LLP

Overview of the M&A market in 2017 Global overview1 2017 was the strongest year for M&A (by deal count) since records began, with 49,448 deals announced worldwide, a 3% uplift from 2016. Deal values stayed at roughly the same level as 2016, with the total deal value for the year hitting US$3.6tn. Despite more outbound M&A from acquirers based in the United States and intra-Europe M&A activity, a 35% drop from 2016 levels in China outbound M&A meant cross-border M&A activity totalled US$1.3tn during 2017, a 10% decline on 2016 and the slowest year for cross-border M&A since 2014. Announced M&A activity with EMEA involvement totalled US$1.2tn from 18,497 deals, down 2.4% compared to US$1.3tn last year. The sectors leading the M&A mix in 2017 were Real Estate, Energy and Power and Technology. The value of deals made in the Real Estate sector totalled US$529.8bn, an increase of 47% on 2016 and an all-time annual record. M&A in the Energy & Power and Technology sectors each accounted for 13% of overall M&A during the year, while Industrials accounted for 12% of activity. M&A activity in the Materials and Media space saw the greatest decline in activity, down 46% and 21%, respectively. Nonetheless, the value of worldwide M&A announced during the fourth quarter of 2017 increased by 33% compared to the third quarter of the year, with a total of US$1.1tn in deal value. A swathe of high-value transactions in the pipeline suggest an ongoing upward trend into 2018. UK overview2 After the Brexit vote in June 2016, the fall in the value of the pound made UK assets more attractive to foreign buyers. Since Theresa May’s appointment as Prime Minister, however, the UK has taken a more cautious approach to foreign acquisitions of British assets. The government supported new Takeover Code rules fi rst published by the Takeover Panel on 19 September 2017 (and effective from 8 January 2018) giving companies, unions and other employee representatives more time to respond to takeover bids. This was in response to Kraft Heinz’s attempt to buy Unilever in February 2017 for approximately US$143bn (£114.49bn), which failed when Unilever rejected its offer but which, if it had succeeded, could have affected thousands of jobs in Britain.3 Such a protectionist approach to large foreign acquisitions may have encouraged smaller domestic deals in the UK in 2017. UK inbound M&A deals decreased by 12.9% to US$115.1bn, and UK outbound M&A decreased by 9.4% to US$112.5bn. This is in contrast to the increase in volume of UK domestic M&A to US$68bn (£50.3bn) from US$34.3bn in

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2016, as the number of deals between British groups rose steeply from 1,480 to 1,681, the highest level since 2008. The number of deals where a UK company was the target grew to 1,543 from 1,493 in 2016, and their combined value rose more than 17% to £157.4bn – the second-highest total since the fi nancial crisis.4 Main market vs AIM5,6 Overall, equity fundraising was approximately £38.5bn for the year, principally driven by secondary issues. Initial public offerings (“IPOs”) almost doubled, raising over £25m in 2017 compared to 2016, as investors saw growth opportunities, particularly in the mid- market. 106 companies fl oated on the London Stock Exchange (the “LSE”), raising £15bn, up 63% by number of IPOs and up 164% by value of IPOs compared to 2016, surpassing all European exchanges and ranking second globally by money raised. Nine of the top 10 IPOs by size came from outside of the UK, with 20 North American companies choosing London for their listing. In addition, there were 35 investment vehicle IPOs in London, more than anywhere else in the world. Forty-nine new companies fl oated on AIM, raising £2.1bn, a 97% increase by money raised compared to 2016. In total, £7.3bn was raised on AIM in initial and secondary fundraising, an increase of 45% compared to 2016. A particular highlight was the raising by logistics company Eddie Stobart of £393m on AIM in April 2017, the largest AIM IPO since 2005. In May 2017, the LSE launched its new International Securities Market (“ISM”), an additional market for the issuance of primary debt targeted at institutional and professional investors. There are now 11 bonds listed on ISM, including the world’s fi rst Komodo bond; the fi rst green bond from the Gulf region; and the fi rst UK bank green bond. The LSE has also received confi rmation from the Financial Conduct Authority (the “FCA”) of the intention to register AIM as an SME Growth Market, with this status becoming effective on 3 January 2018. This follows AIM and AIM Italia providing 69% of all fi nance to growth companies across EU growth markets in 2017, supporting the Capital Markets Union project in its ambition to create more jobs in the EU. Private equity7,8 Despite record levels of un-invested cash in the private equity market, which reached US$963bn in July 2017, private equity fi rms have been raising even more capital. As of Q2 2017, there were 1,908 funds seeking a total of US$635bn in capital commitments, in comparison to under 1,200 funds raising about US$400bn in 2013. As a result, many believe that private equity transactions will increase in 2018. Generally, the regional balance of private equity refl ects that of all M&A activity, and Europe usually has the greatest number of deals. Over the fi rst three quarters of 2017, North America saw 885 private equity buyouts valued at US$163bn. This is compared to 997 deals worth US$115bn in Europe and 331 deals valued at US$100bn in the Asia Pacifi c region. Europe’s economy is rapidly recovering and consumer confi dence in the EU rose from -3.3 in May 2017 to -1.3 in June 2017 – the highest level in roughly a decade. In the UK, £16.2bn was invested across 104 disclosed transactions (61 in London), which is almost triple the fi gure invested in 2016. Three large transactions potentially contributed: 1. the investment by Blackstone (a United States private equity fi rm) and CVC Capital Partners (a UK private equity fi rm) in Paysafe Group (a UK-based online payments company) for £2.9bn;

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2. the sale by Cinven (a UK private equity fi rm) of CPA Global (a UK-based provider of intellectual property software and data) to Leonard Green & Partners (a United States buy-out fi rm) for £2.4bn; and 3. the sale by OMERS Private Equity (a Canadian private equity fi rm) of Civica (a UK- based specialist system and outsourcing services company) to Partners Group (a UK private equity fi rm) for £1.06bn. Despite these three mega-deals, private equity funds are continuing to seek smaller deals, with the average European deal value in Q4 2017 at €94.7m.9

Signifi cant deals and highlights

Deal Value Announcement Bidder Target Target Sector Date

1. US$ 17/01/2017 British American Reynolds American Consumer 60.6bn10 Tobacco Plc Inc Staples / Food United Kingdom (57.83% Stake) and Beverage United States 2. US$ 01/02/2017 Benckiser Group Mead Johnson Consumer 17,828.5m11 PLC Nutrition Co (100%) Staples / Food United States United Kingdom and Beverage 3. US$ 02/06/2017 China Investment Logicor Ltd (100%) Real Estate / 13,742.4m12 Corp United Kingdom Non Residential China 4. US$ 09/08/2017 Vantiv Inc Worldpay Limited Business 10,231m United States United Kingdom Services 5. US$ 06/12/2017 Hammerson Plc Intu Properties Plc Real Estate / 9,329m United Kingdom United Kingdom Non Residential

Regulatory prohibitions in 2017 to deals announced in 201613 The offer by Twenty-First Century Fox, Inc (“Fox”) for the 61% stake in Sky Plc (“Sky”) which it did not already own was announced on 15 December 2016 as a pre-conditional offer. The acquisition was subject to the receipt of competition clearance in the EU and the receipt of various other antitrust and regulatory clearances in a number of jurisdictions. Although on 7 April 2017 the transaction was cleared by the European Commission, in January 2018 the Competition and Markets Authority (the “CMA”) provisionally ruled that the takeover may be expected to act against the public interest because it would concentrate too much infl uence over the UK media industry in the hands of the Murdoch Family Trust. On 14 December 2017, a fresh layer of complexity was added when The Walt Disney Company (“Disney”) announced it had agreed to buy Fox’s entertainment assets including its stake in Sky, such deal also being subject to regulatory clearance. The Takeover Panel then published a statement confi rming that the announcement of the Disney transaction did not alter Fox’s obligations under the Takeover Code (the “Code”) regarding its existing pre- conditional offer for Sky. The CMA is expected to deliver its fi nal verdict on the transaction to the Secretary of State in May 2018. Another proposed merger announced in 2016 was that of Deutsche Börse AG with London Stock Exchange Group plc (“LSEG”) on 16 March 2016. On 28 September 2016, the

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European Commission initiated an in-depth Phase 2 investigation into the proposed merger and raised anti-trust concerns. Despite LSEG agreeing to sell its clearing house, LCH SA, to Euronext N.V. to address these concerns, the European Commission instead required the parties to commit to the divestment of LSEG’s majority stake in another entity, MTS, to secure merger clearance. However, LSEG considered that it was unlikely that a sale of MTS could be satisfactorily achieved and therefore, the merger was ultimately prohibited by the European Commission in March 2017.

Key developments The Takeover Code (the “Code”)14 Following public consultations by the Takeover Panel in July and September 2017, certain changes to the Code took effect on 8 January 2018. There are two main changes: the fi rst relates to asset sales and the second relates to statements of intention. Asset sales The new rules prevent bidders from buying signifi cant assets (regarded as those worth more than 75% of the consideration, their value and the operating profi t attributable to them relative to the target as a whole) of a target company, to circumvent restrictions under the Code. Changes to Rule 21.1 restrict the target board from selling assets or entering other transactions which may result in an offer being frustrated or in shareholders being denied the opportunity to decide on the offer’s merits. A target board will not need to obtain shareholder approval if the proposed action is conditional on the bid being withdrawn or lapsing (although the target board will instead be required to make an announcement of the proposed action). However, where the target’s board seeks shareholder approval, it must get competent independent advice about whether the fi nancial terms of the proposed action are fair and reasonable, and must send a circular to shareholders containing prescribed information. In addition, new rules provide that where, in competition with an existing or possible offer, the target board states it proposes to sell all or substantially all of the company’s assets and to return to shareholders all or substantially all of the company’s cash balances: (i) any statement made by the target’s board about the amount per share that shareholders can expect to receive counts as a “quantifi ed fi nancial benefi ts statement”; and (ii) a buyer of some or all of the target’s assets is restricted from acquiring interests in shares in the target during the offer period unless the board of the target has made a statement quantifying the cash sum expected to be paid to shareholders, and then only to the extent that the price paid does not exceed the amount stated. Statements of intention When making statements of intention with regard to the business, employees and pension schemes of the target company, the bidder must now include specifi c statements of intention regarding: (i) any research and development functions of the target company; (ii) the balance of the skills and functions of the target company’s employees and management; and (iii) the location of the target company’s headquarters and headquarters’ functions. This information must be provided at the time of the Rule 2.7 announcement, to give target company boards, employee representatives, pension scheme trustees and other stakeholders more time to consider the effects of, and give their opinions on the offer. A bidder now cannot publish an offer document for at least 14 days from the announcement of its fi rm intention to make an offer without the consent of the target board. This means

GLI - Mergers & Acquisitions 2018, Seventh Edition 254 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Watson Farley & Williams LLP United Kingdom that in a hostile offer, the target’s board will now normally have at least 28 days from the date of the fi rm offer announcement to put together its opinion on the offer and to prepare its response document. The Code now requires a party making a post-offer undertaking (i.e. a statement about a course of action that it commits to take, or not take, after the end of the offer period) to publish its periodic written reports to the Panel detailing progress made in complying with the undertaking. The interval between reports now must not exceed 12 months. FCA rule changes15 On 26 October 2017 the FCA published its Policy Statements PS17/22 and PS17/23 which detail certain changes proposed to rules governing the IPO process. PS17/23 fi nalises changes to improve the range, quality and timeliness of information available to investors during the equity IPO process. The package of measures is aimed at restoring the centrality of the prospectus in the IPO process, creating the necessary conditions for “unconnected” IPO research to be produced, and addressing the underlying confl icts of interest that can arise in the production and distribution of “connected” research (i.e. by analysts of the syndicate banks which are responsible for managing and running the IPO). The changes will be made to the Conduct of Business Sourcebook and will apply to fi rms which have agreed to provide underwriting or placing services in respect of an admission of shares or global depositary receipts for the fi rst time to a regulated market, and who intended to distribute connected research in respect of the issuer or its securities before the admission. The new rules will not apply to IPOs on multi-lateral trading facilities such as AIM. The new rules come into force on 1 July 2018.16 PS17/22 enhances the Listing Regime, including by changing the approach to the suspension of listing for reverse takeovers, updating how premium listed issuers may classify transactions, and enabling property companies to take better account of asset values when seeking a premium listing. The changes, which will clarify and enhance the listing process in ways that are benefi cial to foreign companies seeking to list in the UK, should benefi t UK IPO activity. AIM rule changes On 5 December 2017 the LSE published AIM Notice 48 which confi rmed its application to the FCA for AIM to be registered as an SME Growth Market and consequential changes to the AIM Rules for companies. In particular, certain of the company information-disclosure requirements under AIM Rule 26 are amended. The revised AIM Rules came into force on 3 January 2018 to coincide with the Markets in Financial Instruments Directive II (“MiFID II”) implementation date, to introduce the concept of an SME Growth Market (a new designation developed by the European Commission to create a bespoke regulatory framework for European growth markets) and the approval of AIM as an SME Growth Market. The requirements are not retrospective for disclosures made before the implementation date. Rule 26 of the AIM Rules incorporates the eligibility requirements for SME Growth Markets, which require that certain regulatory information (for example any prospectus, annual accounts, half-yearly, quarterly or similar fi nancial reports, and any regulatory notifi cations made public containing inside information for the purposes of the Market Abuse Regulation) remains available for fi ve years once published. This is longer than currently required by the AIM Rules. According to the LSE, the SME Growth Market designation is expected to raise the profi le and visibility of SME Growth Markets across the EU as well as distinguish them from

GLI - Mergers & Acquisitions 2018, Seventh Edition 255 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Watson Farley & Williams LLP United Kingdom multilateral trading facilities, which generally operate as trading facilities that do not have a primary market function. UK Corporate Governance Code17 On 5 December 2017, the Financial Reporting Council published for consultation proposed revisions to the UK Corporate Governance Code and Guidance on Board Effectiveness. The proposed revised Corporate Governance Code is shorter and more concise than the existing version. There is signifi cantly greater focus on aligning the company’s purpose, strategy and values to achieve long-term success. Companies will be expected to adopt one of three approaches (or an appropriate equivalent) for ensuring the employee voice is heard in the boardroom. The draft Code also broadens the remit of the remuneration committee to include oversight of workforce policies and practices. Key proposed changes to the Code focus on fi ve main areas: • stakeholder engagement; • responding to a signifi cant vote against a resolution; • board composition; • diversity; and • remuneration. Consultation on the draft Code ended on 28 February 2018 and it is anticipated that the draft Code will be fi nalised in early summer 2018 and be effective for accounting periods beginning on or after 1 January 2019. Prospectus rules The FCA has published Handbook Notice No. 50 confi rming administrative changes to the Prospectus Rules effective from 3 January 2018 as a consequence of (technical) amendments to s86(7) of the Financial Services and Markets Act 2000 (“FSMA”) (defi nition of “qualifi ed investor”) to implement MiFID II. The Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017 have been published and came into force on 3 January 2018. The regulations implement parts of the MiFID II Directive. In particular, they make some changes to FSMA, including to the defi nition of “qualifi ed investor” in s86 (Exempt offers to the public), and some consequential changes to the Companies Act 2006 (to replace references to MiFID to MiFID II). Persons with Signifi cant Control (“PSC”) The Information about People with Signifi cant Control (Amendment) Regulations 2017 widen the PSC regime so that, as of 24 July 2017, companies previously exempted by virtue of being “DTR 5 issuers” are now caught (if they are not companies with voting shares admitted to trading on a regulated market in the EEA or on one of certain specifi ed markets). This means that UK incorporated companies trading on AIM and certain other prescribed markets such as NEX Exchange Growth Market will be required to maintain a PSC register for the fi rst time. The PSC regime is also extended to unregistered companies by modifi cations to the Unregistered Companies Regulations 2009 and to Scottish limited partnerships and certain Scottish general partnerships under a new separate instrument enacted (the Scottish Partnerships (Register of People with Signifi cant Control) Regulations 2017). In addition, from 26 June 2017, PSC information is no longer updated annually on the confi rmation statement but instead only when needed. Companies and LLPs will

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Competition Competition Law – General Competition law must be considered in the early stages of planning a deal. Two initial points to highlight: fi rst, internal company documents explaining a deal’s commercial rationale can be disclosable in merger control proceedings and may affect how competition authorities perceive a deal, so should be prepared carefully. Second, it may not be apparent or easily discoverable in due diligence whether the target has violated competition law (for example, through participation in a cartel), yet this may have substantial fi nancial and reputational implications (as well as professional or even criminal implications for individuals involved) if/when those violations are later uncovered.

EU merger control The “one-stop shop” The original EU Merger Regulation18 (“EUMR”) established the “one-stop shop” for assessing structural transactions19 (known as “concentrations”) between fi rms that met certain turnover thresholds (“Community Dimension”). In such cases, the EU’s jurisdiction ousts the Member States’, and so reduces the parties’ overall regulatory burden. Article 4(5) of the updated EUMR20 introduced the principle of “upward referral” by which parties can request the European Commission to take over a case that would otherwise fall into the jurisdiction of three or more EU Member States. After Brexit, and subject to any transitional provisions and the shape of a future UK-EU deal, a transaction falling within UK and only two EU Member States’ respective jurisdictions will no longer qualify for upward referral. Establishing Community Dimension Primary thresholds: • the combined aggregate worldwide turnover (in the preceding fi nancial year) of all the undertakings concerned exceeds €5bn; and • the aggregate community-wide turnover of each of at least two of the undertakings concerned exceeds €250m. Secondary thresholds: • the combined aggregate worldwide turnover of all the undertakings concerned exceeds €2.5bn; • in each of at least three member states, the combined aggregate turnover of all the undertakings concerned exceeds €100m; • in each of those three member states, the aggregate turnover of each of at least two of the undertakings concerned exceeds €25m; and • the aggregate community-wide turnover of each of at least two of the undertakings concerned exceeds €100m. Even where the primary and secondary thresholds are met, there is no Community Dimension if each of the undertakings achieves more than two-thirds of its aggregate EU- wide turnover within one and the same member state. The deal may then fall within the

GLI - Mergers & Acquisitions 2018, Seventh Edition 257 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Watson Farley & Williams LLP United Kingdom jurisdiction of one or more EU member states. In any case, mandatory fi lings may also be required under the competition laws of countries outside the EU. If a public bid falls within the EUMR, the offeror may submit a notifi cation after announcement. From the date the European Commission accepts a notifi cation as complete, it has 25 working days to decide on the fi rst phase. If the parties submit commitments to resolve identifi ed competition issues, this period can be extended to 35 working days. At the end of Phase I, the European Commission may clear the merger (with or without commitments) or open a Phase II investigation, which can take a further four to seven months. Interaction with the Code Rule 12.1(b) of the Code requires that it must be a term of the offer that it will lapse if, before the later of: (i) the fi rst closing date; or (ii) the date when the offer is declared unconditional as to acceptances, the European Commission either decides to initiate: (i) a Phase II investigation; or (ii) following a referral by the European Commission back to the CMA, there is a subsequent reference for a Phase II investigation by the CMA.

UK merger control The CMA may investigate a merger if it believes that a relevant merger situation has been created and that this results, or may result, in a substantial lessening of competition. A relevant merger situation occurs when: • two or more enterprises cease to be distinct (or there are arrangements in progress which, if carried into effect, will lead to enterprises ceasing to be distinct); and • either: • the value of the UK turnover of the enterprise proposed to be taken over exceeds £70m in the preceding fi nancial year; or • as a result of the merger, a 25% share of the supply of goods or services of a particular description is created or enhanced in the UK or in a substantial part of it. The merging parties are not legally required to notify the CMA of a proposed transaction. If they do not, the CMA may still investigate, impose remedies or even block the deal. In practice, therefore, many qualifying takeovers are notifi ed. The EUMR does not impose fi ling fees on the parties; however, UK merger control does, for all qualifying mergers, based on the value of the UK turnover of the target:

Fee Charge band £40,000 Turnover of the target is £20m or less £80,000 Turnover of the target is more than £20m but less than £70m £120,000 Turnover of the target is more than £70m but less than £120m £160,000 Turnover of the target is more than £120m

The only way to notify the CMA of a takeover is by formal Merger Notice. Where the parties can satisfy the CMA that there is a good faith intention to proceed with the transaction, they are encouraged to enter into pre-notifi cation discussions. Once the CMA has confi rmed the Merger Notice is complete, it has 40 working days in Phase I either to clear the merger (with or without conditions) or to open a Phase II investigation.21

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If no Merger Notice is submitted, the CMA may initiate an investigation within four months of completion of the takeover. The CMA can then seek and enforce undertakings from the parties to a takeover instead of a reference for a Phase II investigation. At the end of Phase II, the CMA will either clear the transaction, prohibit it, or approve it subject to conditions (typically, undertakings). If the takeover has already taken place, the CMA has wide powers to require divestments or prohibit the transaction altogether and require the parties to unwind it. Interaction with the Code As noted above, a Rule 9 offer must contain a term that it will lapse if the CMA opens a Phase II investigation. If the CMA then clears the deal, the offer must be reinstated on the same terms and at not less than the same price as soon as possible.

Brexit and UK competition law Brexit will change UK law, including competition law and merger control, in ways that depend on the UK’s post-Brexit relationship with the EU. Before the referendum and in the immediate aftermath, many speculated about future “models” for this relationship, including whether it might follow the “Norway” model (EEA), the “Swiss” model (EFTA), the Canadian or the Turkish models. The UK government has been negotiating on the basis of leaving the single market and the customs union, in effect, seeking a bespoke UK-EU deal. As noted above, the EUMR creates a “one-stop shop”. After Brexit, particularly a “hard” Brexit (involving leaving the single market), the UK is likely to lose the benefi t of this principle, and the merging parties would potentially be required to notify their transaction both to the European Commission and to the CMA where the transaction meets both the EU and the UK thresholds. This could lead to increased transaction costs, both in terms of adviser costs and merger fi ling fees. A “hard” Brexit could also increase uncertainty for companies, as separate notifi cations to the European Commission and the CMA may lead to confl icting decisions from the two authorities. For instance, the UK might legislate to take into account public interest considerations in mergers beyond those currently permitted under Article 21(4) of the EUMR. These considerations could include safeguarding research and development capability in important sectors such as the pharmaceutical industry, or the retention of manufacturing capability in the UK. The loss of the “one-stop shop” may also increase the burden on the CMA. For instance, it is estimated that up to 50 additional merger transactions, most of which are likely to be large and complex, could fall within the CMA’s jurisdiction, creating a signifi cant resourcing challenge. It could meet this challenge by charging signifi cant, but proportionate fi ling fees for large mergers. In other words, adding one or more charging bands to the fi ling fees sliding scale in the table above. This is, however, unlikely to be suffi cient for the CMA to plug the funding gap. The CMA could instead, or in addition, increase the UK jurisdictional thresholds, or increase the de minimis exception from £3m to closer to £10m.22 In the short term, regulatory uncertainty during and immediately after Brexit may be reduced by transitional merger control arrangements. There are three instances where issues are likely to arise: • where a merger was notifi ed to the European Commission before Brexit and, at the point of exit, the European Commission is still reviewing the transaction; • where a merger has not been formally notifi ed to the European Commission at the point

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of Brexit, but the merging parties are already in advanced pre-notifi cation discussions with the European Commission; and • where a merger has been reviewed by the European Commission before Brexit, but the merging parties wish to challenge its decision and the enforcement of remedies following Brexit. Any transitional arrangements would, at the very least, need to consider: (i) the appropriate cut-off point for the CMA to take over jurisdiction, instead of the European Commission; (ii) whether for those mergers that are currently under review by the European Commission, or under appeal to the European courts, the companies involved should continue to have the same rights of defence post-Brexit; and (iii) perhaps an agreement between the CMA and the European Commission to allow for co-operation between the two authorities.

Predictions for 201823 Many foresee an acceleration of M&A activity in 2018, both in the number of deals and the value of the transactions. Key events which may drive M&A activity in 2018 include President Trump’s recent tax reforms in the US, development of Brexit talks in Europe, and China becoming more active in the M&A space after a drop in activity in the fi rst half of 2017. For Britain, M&A activity is predicted to remain strong and some have taken the view that, as organic growth is currently diffi cult, the only way to grow is through M&A.24 We expect that Real Estate, Energy and Power and Technology will continue to lead the M&A sector mix in 2018.

* * *

Endnotes 1. Mergers & Acquisitions Review, Legal Advisors, Full Year 2017, Thomson Reuters. 2. Brexit Sparked a £50 billion UK deal boom in 2017 as companies “bulk up”, The Business Insider, 29 December 2017. 3. Government backs tighter rules on takeover of UK companies, The Guardian, 20 September 2017. 4. UK mergers and acquisitions hit a new record last year as companies defend themselves from foreign takeovers, City A.M., 9 January 2018. 5. Remaining Focussed, Equity capital markets Update, Deloitte, Winter 2017/2018. 6. London IPO Market Soars in 2017, London Stock Exchange Group Media Centre, 29 December 2017. 7. M&A Pulse, Private Equity riding high, Mergermarket. 8. The Overview, Marble Hill Partners. 9. Private Equity Wire, “Top-heavy quarter masks strong year for small cap deals says Q4 2017”, Private Equity Barometer, 15 February 2018. 10. Global & Regional M&A report FY 2017, Including League Tables of Financial Advisors, Mergermarket. 11. Mergers & Acquisitions Review, Legal Advisors, Full Year 2017, Thomson Reuters. 12. Mergers & Acquisitions Review, Legal Advisors, Full Year 2017, Thomson Reuters.

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13. Public M&A Trends and Highlights 2017, A review of takeover offers for Main Market and AIM Companies in 2017, Thomson Reuters. 14. The Takeover Panel, Consultation Paper Issued by the Code Committee of the Panel, Statements of Intention and Related Matters, 19 September 2017. 15. FCA reforms to enhance the effectiveness of UK primary markets, FCA website, 26 October 2017. 16. Enhancing the UK’s Listing Regime: New Rules for UK IPOs, November 2017. 17. FRC consultation on the UK Corporate Governance Code, PWC, December 2017. 18. Council Regulation (EEC) No 4064/89, which entered into force on 21 September 1990 (as amended, notably by Council Regulation (EC) 1310/97). 19. These will include mergers, acquisitions and the creation of full-function joint ventures. 20. Council Regulation (EC) No 139/2004, which entered into force on 20 January 2004. 21. The CMA will be under a duty to refer the merger for a detailed Phase II investigation by one of its Inquiry Groups under sections 22 and 33 of the Enterprise Act 2002. Where the merger raises a defi ned “public interest consideration”, the UK system allows the Secretary of State to intervene. 22. For a detailed discussion, see “Brexit Competition Law Working Group: Second Roundtable” (5 December 2016) at http://www.bclwg.org/activity/bclwg-note-second- roundtable?_sft_subjects=mergers. 23. Insight Factsheet, A Literary Interpretation of 2017’s M&A trends and 2018’s Prospects. 24. Brexit Sparked a £50 billion UK deal boom in 2017 as companies “bulk up”, The Business Insider, 29 December 2017.

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Jan Mellmann Tel: +44 20 7814 8060 / Email: [email protected] Jan is a Partner and Head of the fi rm’s Natural Resources Group. He specialises in corporate fi nance and M&A, particularly in the energy, natural resources and transport sectors. Jan is noted in Chambers 2018 and The Legal 500 UK.

Vineet Budhiraja Tel: +44 20 7814 8414 / Email: [email protected] Vineet is a Senior Associate in the London Competition & Regulatory Group. He advises on the whole spectrum of competition law, including: merger control; competition investigations and litigation; abuse of dominance; compliance; State Aid; EU sanctions; and the legal implications of “Brexit”.

Andrea Bhamber Tel: +44 20 3036 9842 / Email: [email protected] Andrea is an Associate in the London Corporate Group. She practises general corporate law, advising on domestic and cross border deals including private M&A and equity capital markets. Andrea has worked in the fi rm’s London, Athens and Singapore offi ces.

Watson Farley & Williams LLP 15 Appold Street, London EC2A 2HB, United Kingdom Tel: +44 20 7814 8000 / Fax: +44 20 7814 8141/2 / URL: www.wfw.com

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Eric L. Cochran & Robert Banerjea Skadden, Arps, Slate, Meagher & Flom LLP

Overview M&A activity in numbers On the heels of the two years with the strongest M&A activity on record, 2017 saw a year- over-year decline of 16% in the dollar volume of announced deals with a U.S. target, from $1.7 trillion to $1.4 trillion, according to Thomson Reuters. This represents a decrease of 29% from the record amount set in 2015, and of 6% from the 2007 pre-fi nancial crisis high. In comparison, worldwide M&A activity was essentially unchanged from 2016, at $3.6 trillion. When measured by number of announced deals, however, U.S. M&A activity increased by 14% to an all-time high of 13,069 transactions, following a 7% increase in 2016. Thus, 2017 continued the prior year’s pattern of fewer mega-deals but strong mid-market activity. The decline in large transactions becomes apparent when comparing the number of deals with an equity value of at least $5 billion announced in the last three years: it dropped from a record 52 in 2015, to 32 in 2016, to 21 in 2017. In another parallel to 2016, the largest deals were announced in the fourth quarter of the year, including Broadcom Limited’s $105 billion offer to acquire QUALCOMM Incorporated (which was subsequently increased to $121 billion, then cut to $117 billion, before being withdrawn in March 2018); CVS Health Corporation’s $69 billion offer to acquire Aetna Inc.; and The Walt Disney Company’s $66 billion offer to acquire Twenty-First Century Fox, Inc. (following a pre-merger spin-off of certain news, sports and broadcast businesses). In the fi rst three quarters, dealmakers had mostly been in wait-and-see mode, given uncertainties regarding the U.S. tax reform, trade regulation and antitrust enforcement. Another indication of the strength of the M&A market is the increase in deal multiples registered in 2017, which, according to Thomson Reuters, climbed from an average of 14.6 times EBITDA in 2016 to 16.2 times EBITDA in 2017, barely missing 2015’s 16.3 average multiple. The average bid premium over the four-week stock price preceding announcement declined from 35.6% to 29.4% – not a surprise, given the general advance of stock prices in the past year, as exemplifi ed by the 22% gain in the Standard & Poor’s 500 index. Withdrawn offers The deal value of withdrawn acquisition offers for public U.S. targets dropped by just over 50% from $279 billion to $137 billion, according to data provided by Deal Point Data. The big percentage drop was primarily attributable to the fact that the 2016 number had been infl ated by the large size of Honeywell International Inc.’s $90 billion offer to acquire United Technologies Corporation, which was withdrawn in March 2016.

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The three largest transactions withdrawn in 2017 were Anthem, Inc.’s proposed acquisition of Cigna Corporation; Aetna Inc.’s proposed acquisition of Humana Inc.; and Emerson Electric Co.’s offer to purchase Rockwell Automation, Inc., with equity values of $47 billion, $35 billion and $29 billion respectively. The Anthem/Cigna deal, announced in June 2015 and highlighted by us in the 5th edition of Global Legal Insights, was terminated by Cigna in February 2017, following an order by the U.S. District Court for the District of Columbia, enjoining the merger on antitrust grounds. Cigna has fi led suit in the Delaware Court of Chancery seeking a $1.85 billion reverse termination fee from Anthem and damages for wilful breach of the merger agreement exceeding $13 billion, including the lost premium value to Cigna’s shareholders. The Aetna/Humana deal, announced in July 2015 and also highlighted in the 5th edition of Global Legal Insights, was mutually terminated in February 2017, again following an order of the U.S. District Court for the District of Columbia enjoining the transaction on antitrust grounds. Aetna has paid a $1 billion termination fee to Humana. As noted above, less than 10 months after calling off the Humana deal, Aetna announced its merger with CVS Health, perhaps evidence of how an unsuccessful bid can put the bidder into play. Emerson Electric’s hostile approach of Rockwell Automation found its end much more quickly than the Cigna and Humana offers: Emerson withdrew its offer after less than a month in light of the unwillingness of Rockwell’s board to engage in discussions. Unsolicited activity The dollar volume of openly unsolicited or hostile transactions declined by 34% from $266 billion to $174 billion, according to data provided by Deal Point Data. These numbers do not tell the whole story, however, as there continues to be a large and, according to market spectators, increasing number of transactions commencing on an unsolicited basis that are not reported as such. After a number of big unsolicited offers failed in 2016 (including, most notably, Honeywell International Inc.’s above-mentioned $90 billion offer to acquire United Technologies Corporation and Mondelez International, Inc.’s $23 billion offer to acquire The Hershey Company), 2017 saw only three openly unsolicited offers above the $10 billion mark: Brookfi eld Property Partners L.P.’s $14 billion offer to acquire GGP Inc., and the above- mentioned withdrawn offers by Broadcom Limited to acquire QUALCOMM Incorporated, and by Emerson Electric Co. to acquire Rockwell Automation, Inc. Broadcom was forced to withdraw its offer to acquire QUALCOMM after the President of the United States issued an executive order prohibiting the transaction. Rockwell’s successful defence focused primarily on the long-term prospects of Rockwell and the inadequacy of Emerson’s bid. It serves as a good example of how, in an age where traditional, structural defence mechanisms, such as “poison pills” or staggered boards, have fallen out of favour, the target’s communication strategy and ability to demonstrate its stand-alone value is key to fending off hostile suitors. Private equity Private equity deals closed in 2017 dropped in dollar volume by 8.9% to $538 billion, according to Pitchbook. The average holding period of PE funds went up, with 34% of private equity-backed companies having been acquired more than fi ve years ago. Exit volume decreased by 11% year-over-year, to $184 billion. $77 billion worth of private equity exits took the form of secondary buyouts. Fundraising continued to be very active, with 75% of follow-on funds being larger than their predecessors and the median time between funds dropping from a high of 4.3 years in

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2012 to 2.8 years in 2017. Apollo, CVC Capital Partners, Silver Lake Partners, KKR and Vista Equity Partners raised the largest funds, each of them exceeding the $10 billion mark. Commitments for Apollo Investment Fund IX reached $24.7 billion, the largest private equity vehicle of all time. As in prior years, private equity funds continued to exercise discipline in the face of elevated equity prices, often foregoing larger deals and focusing on smaller add-on acquisitions instead. Consequently, not one buyout reached the $10 billion mark. Shareholder activism The number of activist campaigns against U.S. based targets was essentially fl at in 2017, at 461 campaigns compared to 456 in 2016, according to Activist Insight. While we had noted a trend in 2016 away from large cap and towards mid and small cap campaigns, 2017 proved that a large market capitalisation does not inoculate against activists, as Trian Fund Managements waged a proxy fi ght against Procter & Gamble Co., the largest target of a proxy fi ght ever, and Greenlight Capital, Inc. took on General Motors Company. After a shareholder vote that was too close to call and a disputed recount of votes, Procter & Gamble offered a board seat to Trian’s Nelson Peltz, acknowledging his broad shareholder support. Proxy advisory fi rms Institutional Shareholder Services and Glass Lewis had recommended voting for Peltz. Trian is said to have spent approximately $25 million on the proxy fi ght, and Procter & Gamble four times as much. Greenlight’s campaign against General Motors was less successful, as its proposal to split GM’s shares into two classes, one receiving dividends, the other being entitled to all remaining earnings and buybacks, was overwhelmingly voted down by shareholders. As in prior years, activists continued to shape M&A activity. Globally, 21% of activist demands were M&A-related, according to Activist Insight. Notable examples include Amazon.com Inc.’s $14 billion acquisition of Whole Foods Market Inc. following pressure for a sale by activist investor Jana Partners, reportedly netting Jana Partners a $300 million profi t, and a successful campaign by Corvex Management LP and 40 North derailing Huntsman Corporation’s $20 billion merger with Swiss specialty chemicals company Clariant AG.

Signifi cant deals and highlights Broadcom Limited / QUALCOMM Incorporated The largest transaction announced in 2017 was Broadcom Limited’s above-mentioned unsuccessful offer to acquire chipmaker QUALCOMM Incorporated. Had it succeeded, it would have constituted the largest tech deal ever. Twelve fi nancial institutions had committed to provide up to $100 billion in debt fi nancing and Silver Lake Partners, KKR and CVC Capital Partners had committed to provide $6 billion in convertible notes fi nancing. The offer was made during the pendency of QUALCOMM’s offer to acquire Dutch chipmaker NXP Semiconductors N.V., but not conditioned upon the success of the NXP offer. Initially, Broadcom went out with a $105 billion offer, consisting of $60 in cash and $10 in Broadcom stock per QUALCOMM share. When QUALCOMM’s board rejected the offer as inadequate, Broadcom commenced a proxy fi ght and increased its offer to $60 in cash and $22 in stock, or an aggregate consideration of $121 billion. Two weeks later, QUALCOMM raised the price of its offer to acquire NXP. To compensate for what Broadcom called a “value transfer”, Broadcom lowered the cash component of its offer to $57 per share, thereby reducing the aggregate offer value to $117 billion. QUALCOMM responded by issuing a statement that “Broadcom’s reduced proposal has made an inadequate offer even worse.”

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At the time Broadcom increased its offer to $121 billion, it announced that it would withdraw this “best and fi nal” offer following determination of the results of QUALCOMM’s 2018 annual meeting, unless the parties had entered into a defi nitive agreement or Broadcom’s six board nominees (down from an initial nomination of 11 nominees) had been elected. It also conditioned its offer on QUALCOMM not delaying or adjourning its annual meeting beyond March 6, 2018. On March 4, 2018, the Committee on Foreign Investment in the United States (CFIUS) ordered QUALCOMM to postpone its annual meeting by 30 days to allow CFIUS to fully investigate the proposed acquisition by Broadcom, which is based in Singapore. Broadcom, which had previously announced that it would redomicile to the United States at a future date, announced it would move to do so by April 3, 2018, two days before the new date for QUALCOMM’s annual meeting. Before it could do so, the President of the United States issued an executive order on March 12, 2018, prohibiting the transaction and disqualifying all of Broadcom’s board nominees from standing for election as directors of QUALCOMM. The executive order cited “credible evidence” leading the President to believe that Broadcom “might take action that threatens to impair the national security of the United States”. On March 14, 2018, Broadcom announced the withdrawal and termination of its offer, and the withdrawal of its slate of director nominees. While it is not uncommon for targets of unsolicited offers to employ regulatory defences based on antitrust grounds, this deal highlights that national security concerns may present another option for those seeking a defence. This episode shows that foreign companies interested in acquiring U.S. businesses should pay particular attention to CFIUS issues. CVS Health Corporation / Aetna Inc. The second-largest transaction announced in 2017 was the above-mentioned $69 billion merger between CVS Health Corporation and Aetna Inc. The consideration consisted of 70% of cash and 30% of CVS stock. While mixed consideration is relatively rare among public deals in general (with only 11% of deals announced in 2017 providing for a stock/ cash mix and another 6% for a right to elect between stock and cash), it is in fact very common among larger transactions. Thus, from the 11 deals exceeding $10 billion in equity value announced in 2017, fi ve deals provided for a mix of stock and cash (including the aforementioned QUALCOMM offer), and two for a right to elect between stock and cash. The Aetna offer is emblematic of consolidation pressures in the health care industry. We already noted above Aetna’s failed 2015 bid to acquire Humana Inc., a transaction reportedly prompted by the passage of the Affordable Care Act. Also in 2015, CVS had swallowed Omnicare, Inc. in a $13 billion transaction designed to broaden its distribution channels. But in 2017, a new threat to CVS and other drugstore operators emerged, as Amazon.com, Inc. applied for and received wholesale pharmacy licences in 12 U.S. states. Market commentators believe this to have been a driving factor behind CVS’s Aetna bid. As we enter 2018, pressure by Amazon continues to be an M&A stimulant. For example, merger pressures in the retail industry have been ascribed to competition from Amazon and other online retailers. The Walt Disney Company / Twenty-First Century Fox, Inc. With a transaction value of $66 billion, The Disney Company’s pending acquisition of Twenty-First Century Fox was the third-largest deal announced in 2017. Immediately prior to the closing of the transaction, Twenty-First Century Fox will separate certain news, sports and broadcasting businesses into a newly listed company that will be spun off to its shareholders. Fox shareholders will receive shares in Disney representing, in the aggregate,

GLI - Mergers & Acquisitions 2018, Seventh Edition 266 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Skadden, Arps, Slate, Meagher & Flom LLP USA an estimated 25% stake in Disney. The per share consideration is subject to adjustment for certain tax liabilities arising from the spinoff and other transactions related to the acquisition. Apart from its size and complexity, this transaction is notable as being last year’s only transaction with a value above $10 billion in which the consideration consisted entirely of the acquirer’s stock. Brookfi eld Property Partners L.P. / GGP Inc. Also among the top fi ve deals by size was the pending unsolicited offer by Brookfi eld Property Partners, L.P., a commercial real estate company with dual listings on the NYSE and the Toronto Stock Exchange, to acquire the remaining 66% of retail property owner and operator GGP Inc. that it did not already own. The offer valued the entire company at an enterprise value of $35 billion. Under the terms of the offer, GGP shareholders are entitled to elect between stock and cash consideration, subject to proration based on a 50/50 split between stock and cash. The transaction would create one of the largest listed property companies in the world, with almost $100 billion in real estate assets globally. GGP has formed a special committee to review the offer. The GGP offer is reminiscent of 2016’s successful hostile offer by British American Tobacco plc to acquire the remaining 57.8% it did not already own in Reynolds American Inc. As we noted in last year’s edition, unsolicited bids for companies in which the bidder already holds a substantial foothold stake may be diffi cult to resist.

Key developments Case law developments In last year’s edition, we reported on the Delaware Chancery Court’s landmark decision In re Trulia, Inc. Stockholder Litigation, in which the Chancery Court announced its increasing vigilance against disclosure-based settlements. We also reported on the resulting decline of merger challenges brought in Delaware, and the corresponding increase of claims brought outside Delaware. This trend continued in 2018. Particularly remarkable was the number of M&A-related claims brought in federal courts, which, according to Cornerstone Research, went up to a record 198 cases, more than double the number seen in 2016. Notwithstanding this development, both the Delaware Chancery Court and the Delaware Supreme Court continued to issue decisions of great relevance to M&A practitioners. In the following paragraphs, we would like to highlight the most important developments with respect to appraisal rights, merger challenges under the so-called Corwin doctrine, and purchase price adjustment disputes. Appraisal rights 2017 saw important developments on the appraisal front, as the Delaware Supreme Court reversed two Chancery Court cases highlighted in last year’s Global Legal Insights edition, DFC Global Corporation v. Muirfi eld Value Partners, L.P. and Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd. In DFC Global, the Delaware Supreme Court refused to create a presumption, as had been requested by the defendants, that the deal price is the best evidence of fair value when the transaction giving rise to appraisal results from an open market check, and when certain other conditions indicative of an arm’s length transaction process pertain. Reaffi rming its 2010 Golden Telecom, Inc. v. Global GT LP decision, the Court pointed out that Section 262 of the Delaware General Corporation Law requires the court to “take into account all relevant factors”. However, the Court rejected the Chancery Court’s methodology of

GLI - Mergers & Acquisitions 2018, Seventh Edition 267 www.globallegalinsights.com © Published and reproduced with kind permission by Global Legal Group Ltd, London Skadden, Arps, Slate, Meagher & Flom LLP USA assigning one-third weight to each of the deal price, the discounted cash fl ow valuation and the comparable companies valuation. The Supreme Court stated that it could not discern the basis for this allocation, in light of the Chancery Court’s fi ndings about the robustness of the market check and substantial public information available. The Supreme Court also rejected the Chancery Court’s concept of a “private equity carve-out”, i.e., the Chancery Court’s argument that the deal price was not dispositive in a private equity transaction given the buyer’s “attention on achieving a certain internal rate of return”. In the same vein, in Dell the Delaware Supreme Court held that the Chancery Court’s decision to give the stock and deal price no weight and exclusively rely on a discounted cash fl ow valuation (thereby arriving at a fair value 28% above the deal price) did not follow from the Chancery Court’s key factual fi ndings and from relevant, accepted fi nancial principles. It found that the Chancery Court’s had erroneously relied on a conclusion that several features of management buyouts render the resulting deal prices unreliable, given that these features were largely absent in the Dell transaction. While the Supreme Court conceded that there was no requirement to assign some mathematical weight to the deal price, it held that, in this case: “[T]he record as distilled by the trial court suggests that the deal price deserved heavy, if not dispositive, weight.” The Supreme Court also rejected the Chancery Court’s notion of “investor myopia” creating a “valuation gap” between market and fundamental prices, and reaffi rmed DFC’s rejection of a “private equity carve-out”. In support of its fi nding that the deal price deserved heavy weight, the Supreme Court cited the competitive auction process (including the canvassing of 67 parties), a 45-day go-shop designed to raise “fewer structural barriers than the norm”, and Michael Dell’s involvement in the due diligence by competing bidders. While not going so far as assigning the deal price dispositive weight, the DFC and Dell decisions give dealmakers signifi cant reassurance with respect to the indicative value of the deal price in appraisal proceedings. In addition, Dell serves as a reminder of the importance of a well-run process in avoiding surprises at the appraisal stage. Evolution of the Corwin Doctrine In the 5th edition of Global Legal Insights, we had highlighted the case Corwin v. KKR Financial Holding, LLC, in which the Delaware Supreme Court held that an uncoerced, fully informed vote of disinterested stockholders in favour of a challenged transaction provides an independent basis to invoke the business judgment rule, insulating the transaction from all attacks other than on the grounds of waste. Last year, the Delaware Chancery Court issued a string of decisions further refi ning the Corwin doctrine. In In re Solera Holdings, Inc. Stockholder Litigation, the Chancery Court had occasion to expound on the burden of proof with respect to disclosure defi ciencies potentially invalidating a Corwin defence. The Court held that the plaintiff challenging the stockholder approval of the transaction bears the burden of identifying a defi ciency in the operative disclosure document. In In re Merge Healthcare Inc. Stockholders Litigation, the Court reaffi rmed its 2016 Larkin v. Shah decision, holding that coercion is assumed (with the result of the entire fairness standard, rather than Corwin, applying) when the disputed transaction involves a controlling stockholder and the controlling stockholder engages in a confl icted transaction, i.e., sits on both sides of the transaction. It further reaffi rmed the 2012 decision In re Synthes, Inc. Shareholder Litigation in its holding that the mere liquidity interest of the controlling stockholder does not create a confl ict. Rather, the controlling stockholder must seek liquidity under circumstances akin to a “crisis” or “fi re sale” to satisfy an exigent need.

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In re Saba Software, Inc. Stockholder Litigation is an example of a case in which the defendants attempted in vain to invoke Corwin, the Court concluding that the stockholders’ approval of the transaction was neither fully informed nor uncoerced. Noting that the Court was typically not receptive to “why” or “tell me more” disclosure claims (and rejecting certain of the plaintiffs’ claims on that basis), the Court drew a distinction between claims relating to board decisions (in the context of which “why” claims are usually not considered meritorious), and claims relating to factual developments not constituting purposeful decisions of the board; in this case, Saba’s repeated failure to restate its fi nancials. The Court held that absent full information with respect to such failure, the stockholders would have no means to evaluate the choice between selling the company and awaiting the company’s restatement of its fi nancials, which was necessary to avert the deregistration of its stock. Furthermore, the Court found that the parties’ failure to include in their proxy statement information on Saba’s post-deregistration options, and to recite the investment bankers’ advice that the company was selling itself at a discount to market price and that a transaction would eliminate upside from standalone value creation, constituted material omissions undermining the cleansing effect of the stockholder vote under Corwin. In addition to fi nding it not fully informed, the Court also determined that the vote was coerced, as the company placed stockholders into a situation where they had to choose between a non-premium sale of the company and holding potentially worthless stock of a deregistered company. In Re Massey Energy Company Derivative and Class Action Litigation contained an important (if self-evident) clarifi cation that the Corwin doctrine only applies to challenges of the economic merits of the transaction itself, and “was never intended as a massive eraser, exonerating corporate fi duciaries for any and all of their actions or inactions preceding their decision to undertake a transaction for which stockholder approval is obtained”. The Court was “mystifi ed” by the argument that Corwin could apply to the defendants’ conduct over multiple years prior to the transaction and its resulting harm on the company. Just before the end of the year, the Chancery Court issued its decision Lavin v. West Corporation. Here, the defendant had invoked Corwin as a defence against the plaintiff’s request to inspect the defendant’s books and records pursuant to Section 220 of the Delaware General Corporation Law, after the company had been sold. Under applicable case law, Section 220 demands require demonstration by the stockholder, by a preponderance of the evidence, of a credible basis from which the court can infer that mismanagement, waste or wrongdoing may have occurred. The defendant argued that, following the sale of the company, any Section 220 claim would have to overcome the Corwin defence. The Court held that Corwin was not suitable to bar inspection in a Section 220 proceeding, consistent with the Chancery Court’s rejection of “similar attempts to invoke merits-based defences that turn on doctrinal burden shifting as a basis to defend otherwise properly supported demands for inspection”. The Court went on to note that the decision was not intended to suggest that the defendant would not prevail with a Corwin defence in a subsequent challenge by the plaintiff of the stockholder approval of the merger. However, the information the plaintiff would receive under Section 220 would help him prepare a better complaint. Among the categories of documents whose production the Court approved were banker presentations, deal documents exchanged with bidders, board minutes, communications about the sale of business segments, including emails, memoranda and notes, and director independence questionnaires. Following Carl Icahn’s fi ling of a Section 220 demand with SandRidge Energy Inc. in January of this year, the legal press has speculated that Section 220 demands may become a more frequently used tool in challenging M&A deals.

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In re Paramount Gold and Silver Corp. Stockholders Litigation raised the interesting question of the interplay between Corwin and the Unocal standard for reviewing deal protection devices. However, the Court did not have to resolve this issue, fi nding that the measures in question did not constitute deal-protection devices. Similarly, Van Der Fluit v. Yates et al. touched upon the interplay between Corwin and the Revlon standard for reviewing change-of-control transactions. But again, the Court did not have to resolve the issue, given that under the facts of the case (which included disclosure defi ciencies), the defendants could not rely on Corwin. Purchase price disputes In its widely discussed Chicago Bridge & Iron Company N.V. v. Westinghouse Electric Company LLC and WSW Acquisition Co., LLC decision, the Delaware Supreme Court overturned the Chancery Court’s fi nding that the dispute process the parties had agreed upon for purposes of resolving purchase price adjustment or “true up” disputes constituted the appropriate mechanism for resolving a near-$2 billion claim relating to the GAAP compliance of the target’s net working capital calculation. The Supreme Court argued that the purchase price adjustment process was a “cabined remedy available to address any developments affecting […] working capital that occurred in the period between signing and closing”. In reaching its decision, the Supreme Court also relied on the fact that the parties had agreed to exclude all indemnifi cation claims with respect to breaches of representations, and that the dispute primarily revolved around the company’s historic accounting practices. This argument has created some confusion among commentators as to whether the decision would also apply to purchase agreements permitting indemnifi cation claims. The Supreme Court also considered as relevant the fact that the parties had designated the independent accounting fi rm to act as an expert, not an arbitrator. While not all of these arguments may necessarily withstand critical examination – in particular, the notion that purchase price adjustments are limited to the post-signing period is at odds with the fact that parties typically use an average or desired target working capital, rather than the working capital as of signing – they demonstrate the importance of avoiding ambiguity in crafting purchase price adjustment provisions. This applies to: (i) clarifying the purpose of the purchase price adjustment process; (ii) specifying what takes preference between historic or agreed accounting principles, on the one hand, and GAAP, on the other hand; (iii) defi ning the scope of review by the independent accounting fi rm; (iv) specifying whether the accounting fi rm acts as expert or arbitrator; and (v) separating true- up claims from indemnifi cation claims. Buyers will generally favour provisions allowing them to challenge historical accounting practices as part of the true-up process, as this will result in speedier resolution and avoid caps, baskets and other applicable indemnifi cation limitations. Sellers can be expected to resist this, or, at a minimum, to require an exclusive remedy provision that would prevent buyers from getting a second bite at the apple via indemnifi cation claims. In negotiating exclusive remedy provisions, buyers should be aware that claims that are subject to exclusive review in the purchase price adjustment dispute will not benefi t from the longer survival terms typically applying to fi nancial statement representations and related indemnifi cation claims. Following issuance of the Chicago Bridge decision, we have noticed increased focus on the scope of purchase price adjustment provisions and related indemnifi cation provisions. For example, a (small) number of publicly fi led agreements expressly states that the purpose of the purchase price adjustment is to capture fl uctuations of working capital, and not to introduce new accounting methodologies.

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Legislative developments Tax Cuts and Jobs Act First and foremost among legislative developments in 2017 impacting the M&A landscape is the Tax Cuts and Jobs Act, signed into law on December 22, 2017. Of particular interest to dealmakers will be: (i) the reduction of the corporate tax rate to 21%; (ii) limitations on the use of net operating losses (which, under the new regime, can only offset up to 80% of taxable income and cannot be carried back); (iii) the availability of 100% “bonus” depreciation (allowing 100% of the purchase price for qualifi ed tangible property to be immediately deductible); (iv) the limitation of interest deductibility to business interest income plus 30% of adjusted taxable income; and (v) a dividend exemption system permitting repatriation of cash held by foreign subsidiaries at a lower U.S. tax cost than previously permitted (which effect is, however, expected to be offset to a signifi cant degree by the new “global intangible low-tax income” tax). Market spectators expect the Tax Cuts and Jobs Act to fuel M&A activity, as companies put to work the additional cash available to them as a result of the reduced corporate tax rate and the lower cost of accessing cash in foreign subsidiaries. In addition, the reduction of the corporate tax rate may make U.S. domiciled companies more attractive targets for inbound M&A activity. The new tax law may also impact the structuring of transactions, as the introduction of 100% “bonus” depreciation may increase the attractiveness of asset sales, or of stock sales that are subject to a Section 338(h)(10) election (i.e., that, for tax purposes, are deemed to be an asset sale followed by a liquidation). The imposed limits on deducting interest expense will be disadvantageous to companies with large debt burdens. In addition, they may impact private equity activity, as buyouts employing a high degree of leverage will become less attractive. The cash freed up as a result of the lower corporate tax rate and from foreign subsidiaries could also attract activist investors, prompting demands on companies to increase their dividends or share buybacks, or to otherwise apply such cash for the benefi t of their shareholders. CFIUS reform On November 8, 2017, the U.S. House of Representatives and the U.S. Senate each introduced a bill that would dramatically reform national security reviews performed by CFIUS. The proposed Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA) would, among other things: (i) expand the scope of transactions within CFIUS’ purview to include joint ventures, strategic partnerships, certain licensing agreements, non-controlling investments in U.S. critical technology and infrastructure companies, and purchases and leases of real estate near sensitive U.S. government properties; (ii) introduce short-form and mandatory notifi cation procedures; (iii) permit CFIUS to analyse transactions with respect to their nexus to “countries of special concern”; (iv) expand the initial review period from 30 to 45 days (with an additional 30 days available in extraordinary circumstances); and (v) broaden the President’s authority to take any action the President considers appropriate to address risks to national security. While still a long way from becoming law, if passed, FIRRMA would have a signifi cant impact on the feasibility, structure and timeline of many cross-border transactions. Antitrust enforcement Speculation that antitrust enforcement would become more lenient under a Republican administration has, thus far, not been proven true. While this may change as more Department

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Industry sector focus In 2017, Technology and Energy & Power continued to rank among the top three sectors with the most M&A activity, according to Thomson Reuters. Healthcare re-entered the top three, swapping its place with Media, which dropped from third to fourth place. Technology Technology deal volume equalled $240 billion, accounting for a 17% market share, according to Thomson Reuters. Transactions were driven by the need to acquire new technologies and technology platforms, as well as access to digital distribution channels. Much of the activity crossed industry sectors, as non-technology companies scooped up technology businesses. At times, we also saw examples of the reverse, i.e., of technology companies acquiring brick-and-mortar businesses, most notably Amazon.com Inc.’s above-mentioned $14 billion acquisition of Whole Foods Market Inc. Sector-crossing activity was not limited to tech transactions, however. According to Dealogic, $961 billion worth of transactions crossed industry sectors. Notable technology transactions included the above-mentioned unsuccessful Broadcom/ QUALCOMM offer; Marvell Technology Group Ltd.’s $6 billion acquisition of semiconductor company Cavium, Inc.; and KKR & Co. L.P.’s $2.8 billion acquisition of health information provider WebMD Health Corp.

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Energy & Power With a deal volume of $229 billion, Energy & Power deals grabbed a 16% market share. Many deals were motivated by a desire to optimise or reorganise corporate structures and joint ventures. An example is the largest energy transaction seen in 2017, ONEOK Inc.’s $24 billion (based on 100% of the enterprise value of the target) acquisition of the 60% limited partnership interests in ONEOK Partners LP, one of the largest publicly traded master limited partnerships, that it did not already own. We also saw consolidation among natural gas players as, in the year’s second-largest energy deal, EQT Corporation’s $8.8 billion acquisition of Rice Energy Inc. Jana Partners attempted, in vain, to derail this deal. The sector’s third-largest deal was AtlasGas Ltd.’s $6 billion acquisition of clean energy provider, WGL Holdings, Inc. Healthcare $211 billion worth of transactions secured Healthcare a 15% market share. Activity abounded across all subsectors, with managed care and long-term care emerging as leaders, according to a PwC study. A third of the deal volume can be ascribed to the above-mentioned CVS/Aetna merger. The second-largest deal was Becton, Dickinson and Company’s $24 billion acquisition of medical technology company, C. R. Bard, Inc. Private equity sponsors exhibited particular appetite for healthcare targets, due to their perceived stability resulting from favourable demographics. An example is Pamplona Capital Management’s $5 billion buyout of PAREXEL International Corporation, a life science consulting and contract research fi rm.

The year ahead 2018 is off to a good start. The view espoused by both dealmakers and market spectators is that we should continue to see robust M&A activity, as the factors driving last year’s activity continue to be in place. These include boardroom confi dence, buoyant equity markets, strong balance sheets, and pressure on businesses to make acquisitions as a means to access new technologies and supplement limited opportunities for organic growth. As noted above, the U.S. tax reform is expected to further stimulate M&A activity. These favourable conditions are to a certain extent offset by a return of volatility to U.S. equity markets after a period of unusual stability (February saw the greatest point-decline of the Dow Jones Index in history), the prospect of four interest rate hikes in 2018 under new Federal Reserve Bank leadership (and their impact on equity valuations and the cost of debt fi nancing), uncertainty over the future of the North American Free Trade Agreement, and a potentially challenging regulatory environment (depending on the further development of antitrust enforcement and the CFIUS reform). In light of this mix of M&A drivers and constraints, we expect to see continued healthy deal-fl ow, more likely than not fuelled by a signifi cant number of strategic transactions and only a limited number of “bet the company” type mega-deals.

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Eric L. Cochran Tel: +1 212 735 2596 / Email: [email protected] Eric L. Cochran is a corporate attorney, concentrating on mergers and acquisitions, securities law and general corporate law. Mr. Cochran has been listed in numerous editions of Chambers USA and Chambers Global as a leading lawyer for business. In addition, he has been repeatedly selected for inclusion in The Best Lawyers in America. Mr. Cochran is also actively involved in the fi rm’s management and administration, including the administration of the Mergers and Acquisitions Group and the fi rm’s efforts to promote a diverse and inclusive workplace.

Robert Banerjea Tel: +1 212 735 3748 / Email: [email protected] Dr. Robert Banerjea focuses his practice on mergers and acquisitions, securities law, and corporate governance. He has advised public and private clients on a variety of domestic and cross-border transactions, including negotiated and contested acquisitions, dispositions, auctions and joint ventures. In addition, he has represented pro bono clients in death penalty, clemency and asylum cases. Dr. Banerjea has authored and co-authored numerous publications on M&A and corporate law issues, including a treatise on derivative actions.

Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square, New York, New York 10036, USA Tel: +1 212 735 3000 / Fax: +1 212 735 2000 / URL: www.skadden.com

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