Mergers & Acquisitions

Mergers & Acquisitions 2020 Ninth Edition

Editors: Lorenzo Corte & Scott C. Hopkins Global Legal Insights Mergers & Acquisitions

2020, Ninth Edition Editors: Lorenzo Corte & Scott C. Hopkins Published by Global Legal Group GLOBAL LEGAL INSIGHTS – MERGERS & ACQUISITIONS 2020, NINTH EDITION

Editors Lorenzo Corte & Scott C. Hopkins, Skadden, Arps, Slate, Meagher & Flom (UK) LLP

Head of Production Suzie Levy

Senior Editor Sam Friend

Sub Editor Megan Hylton

Group Publisher Rory Smith

Chief Media Officer Fraser Allan

We are extremely grateful for all contributions to this edition. Special thanks are reserved for Lorenzo Corte & Scott C. Hopkins of Skadden, Arps, Slate, Meagher & Flom (UK) LLP for all of their assistance.

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

ISBN 978-1-83918-053-8 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 qualified professional when dealing with specific situations. The information contained herein is accurate as of the date of publication. CONTENTS

Austria Horst Ebhardt, Hartwig Kienast & Sarah Wared, Wolf Theiss 1

Belgium Luc Wynant, Koen Hoornaert & Jeroen Mues, Van Olmen & Wynant 12

Canada Valerie Mann, Lawson Lundell LLP 19

France Coralie Oger, FTPA Avocats 27

Germany Sebastian Graf von Wallwitz & Heiko Wunderlich, SKW Schwarz Rechtsanwälte 37

India Anuj Trivedi & Sanya Haider, Link Legal India Law Services 45

Indonesia Eric Pratama Santoso & Barli Darsyah, Indrawan Darsyah Santoso, Attorneys At Law 53

Ireland Alan Fuller, Aidan Lawlor & Elizabeth Maye, McCann FitzGerald 65

Italy Marco Gubitosi, Legance – Avvocati Associati 75

Japan Yohsuke Higashi, Ryo Chikasawa & Shimpei Ochi, Mori Hamada & Matsumoto 84

Luxembourg Marcus Peter & Irina Stoliarova, GSK Stockmann 97

Mexico Bernardo Canales, Pablo Enríquez R. & Diego Plowells Cárdenas, Canales, Dávila, De la Paz, Enríquez, Sáenz, Leal, S.C. 102

Morocco Kamal Habachi & Salima Bakouchi, Bakouchi & Habachi – HB Law Firm LLP 109

Norway Ole K. Aabø-Evensen, Aabø-Evensen & Co 118

Saudia Arabia Abdulrahman Hammad & Samy Elsheikh, Hammad & Al-Mehdar Law Firm 136

Spain Ferran Escayola & Rebeca Cayón Aguado, J&A Garrigues, S.L.P. 141

Switzerland Dr. Mariel Hoch & Dr. Christoph Neeracher, Bär & Karrer AG 149

Taiwan James Huang & Eddie Hsiung, Lee and Li, Attorneys-at-Law 153

United Kingdom Michal Berkner, Claire Keast-Butler & James Foster, Cooley (UK) LLP 157

USA Nilufer R. Shaikh, Steven Khadavi & Kirk Dungca, Troutman Pepper LLP 174 FROM THE PUBLISHER

Dear Reader,

elcome to the ninth edition of Global Legal Insights – Mergers & WAcquisitions, published by Global Legal Group. This publication provides corporate counsel and international practitioners with comprehensive jurisdiction-by-jurisdiction guidance to mergers and acquisitions regulations around the world, and is also available at www. globallegalinsights.com. The chapters, which in this edition cover 20 jurisdictions, provide detailed information for professionals dealing with mergers and acquisitions. As always, this publication has been written by M&A lawyers and industry specialists, for whose invaluable contributions the editors and publishers are extremely grateful. Global Legal Group would also like to extend special thanks to contributing editors Lorenzo Corte and Scott C. Hopkins of Skadden, Arps, Slate, Meagher & Flom (UK) LLP for their leadership, support and expertise in bringing this project to fruition.

Rory Smith Group Publisher Global Legal Group Austria

Horst Ebhardt, Hartwig Kienast & Sarah Wared Wolf Theiss

Introduction While Austria had a fairly robust M&A year in 2019, the global effects and disruptions brought about by COVID-19 as well as the legislative measures introduced in order to combat its further spread render any forecasts related to M&A activity in 2020 speculative. The global economy has been shaken up in an unprecedented manner, and at the time of writing this chapter (early June 2020), the economic, financial and socio-political effects of the shockwaves created by the pandemic still cannot be fully measured. Global markets are struggling to evaluate and price-in the longer term effects of the crisis, as evidenced by 30 million new jobless claims in the US in March and April 2020 (with 40 million employees in the Eurozone being at risk of losing their jobs), a share price increase of 23% of the global stock market from a perceived bottom at the end of March 2020 (Sources: Refinitiv; and FTSE All-World index) and the S&P 500’s biggest monthly rally since 1987. Governments, central banks and supranational agencies and banks are working intensely to both protect the lives of countless individuals and to create stimulus incentives which are aimed at securing the financial liquidity of companies and consumer markets. Global supply chains have been severely disrupted and many companies have been pushed to the brink of bankruptcy by closures, an extreme reduction in demand for certain goods and services, massive lay-offs and, as a consequence, eroding revenues. Governments are currently trying to mitigate these effects with enormous financial means which appear to be largely built on the premise that COVID-19 is a short- to medium-term phenomenon and that the shortfall of revenues and personal income due to the global lockdown can, at least to a significant degree, be replaced by stimulus funds and accompanying legislation. For example, based on an emergency law in Austria, companies that are technically insolvent can benefit from a more relaxed maximum term to file for bankruptcy (120 days instead of 60 days). Such measures are aimed at buying time in order to provide companies with breathing space until the economy rebounds to at least a limited degree, and to allow for new liquidity provided by way of government funding schemes to actually reach companies. In Austria, such emergency funding can be secured by state guarantees for new loans of up to EUR 120 million per company, with the government providing a guarantee for either 90% or 100% of the amount of the new loan. The size of such funding depends on a range of factors, including the size of the company and the adverse impacts suffered by COVID-19 in the current financial year compared to 2019. Another option includes a government grant of up to EUR 90 million per company which does not have to be repaid (again, the actual amount depends on a range of detailed criteria). It is still too early to say whether and to what extent such measures will be successful in avoiding a wave of bankruptcies in Austria stemming

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Wolf Theiss Austria from COVID-19. Not all of the rules are clear, and there are almost daily changes in the more detailed regulations or conditions that allow for access to government support schemes. The Austrian government has also launched a large job protection programme whereby companies are incentivised financially to avoid laying off staff. Under this scheme, the government effectively pays up to 90% of the net salary of an employee for three months and potentially even six months (subject to detailed rules and conditions such as the obligation not to dismiss employees who are funded by the programme). This programme is designed to avoid mass lay-offs and an unemployment rate the likes of which the US has suffered, to enable companies to easily restart operations once the spread of the crisis slows down and to maintain consumer spending in the hope that it will prevent a domino effect in the economy. The scheme is intended in particular for businesses that had to close down because of new health regulations and governmental closure orders; these include, for example, retail, restaurants and hotels. However, as practice shows, the programme is widely available now to companies in a variety of industries. Based on a persistent decline of new virus infections, Austria is one of the first countries in the world to start gradually relaxing COVID-19 measures: all shops were allowed to reopen on 2 May; restaurants will open again in mid-May; and hotels by the end of May, subject to certain health-related conditions. The goal is to get back to a new normal as soon as possible, recognising that no government scheme would be able to fund such a massive revenue shortfall over a longer period of time. As one of the wealthiest countries in Europe and on the back of a historically healthy state budget, Austria is, in principle, well placed to continue funding a downturn for longer than other countries. On the other hand, Austria’s economy is closely intertwined with other major economies. It is also part of the global supply chain because it is largely built on specialised medium-sized companies which are global niche players. This means that Austria also depends on wider global economic recovery in order to avoid more significant financial and economic impacts over the long term. Let us briefly look at the M&A environment in Austria in 2019 before we turn to the strong market in Q1/2020. Then, despite a significant degree of unpredictability, we will look at likely M&A trends in Austria for 2020.

M&A trends in 2019 Austria saw 328 M&A transactions in 2019, compared to 324 transactions in 2018 based on a recent study by EY, which essentially constitutes a steady number of transactions year on year. A significant number of transactions were announced during the final weeks of the year, which was a very positive surprise after the more cautious outlook that had persisted through the end of Q3/2019. The total value of transactions increased to EUR 12.1 billion, compared with EUR 7.9 billion in 2018. The increase is largely the result of one large outbound transaction: the EUR 4.6 billion acquisition of listed German OSRAM Lighting by ams AG, the Austrian semiconductor manufacturer (SIX:AMS). It is therefore fair to say that 2019 was a stable M&A year in Austria, broadly similar to the country’s M&A environment over the last four years. The funding of the transaction by ams AG by way of a rights issue was affected by the adverse stock market developments in March 2020 and the poor take-up of the newly issued shares (only 70% of the new shares were successfully sold to investors according to company filings) so that the underwriting banks ended up owning a USD 550 million stake in ams AG (the largest ever shortfall in banks placing a rights issue since 2008, based on a report by the FT).

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OMV’s purchase of a 15% stake in the Abu Dhabi Oil Refining Company for a consideration of EUR 2.2 billion marks the second-largest transaction involving an Austrian transaction party in 2019. The third-largest was TELUS’s EUR 915 million acquisition of CCC Holding, a leading business process outsourcing provider for the EU, from Ardian, the European Private Equity fund. What was unique in 2019 is that the two largest Austrian M&A transactions were outbound acquisitions by Austrian companies. Additionally, there were two other notable transactions in the banking sector in 2019 which technically qualify as Private Equity exits, though both were equity capital markets transactions which did not count towards the year’s M&A totals. Firstly, US-based Advent International listed Addiko Bank, one of its portfolio companies, on the Vienna Stock Exchange in July 2019. The IPO raised EUR 172 million and valued Addiko, an Austrian bank active in several markets in Central and Southeastern Europe, at EUR 312 million. Secondly, in November 2019, following several prior sales of portions of its shareholding, US-based distressed assets specialist Cerberus sold a 13.5% stake in listed Austrian bank BAWAG P.S.K. for EUR 420 million via an accelerated bookbuild (BAWAG P.S.K. is a bank it had initially acquired in 2007 out of distress for a purchase price of EUR 3.2 billion). We saw significant investor appetite for Austrian target companies by trade buyers as well as Private Equity in 2019. Private Equity has become even more active in scouting for suitable targets, and in almost every auction sale, Private Equity will make up at least 50% of the bidder group. This includes the world’s leading Private Equity fund managers as well as smaller funds that target mid-sized companies. Additionally, large-cap Private Equity now partly uses different fund structures to be more flexible and to be ableto pursue smaller transactions than its flagship funds. Some Private Equity funds use special situations vehicles that allow for a more opportunistic approach in the way they can pursue transactions. Private Equity portfolio company acquisitions fuelled by the desire to optimise the earnings potential and diversification of Private Equity platform companies are also on the rise. These acquisitions are conducted by the portfolio company, but Private Equity deal teams support and optimise such M&A processes by safeguarding Private Equity investment criteria and a swift deal execution. Despite the modest decline of economic growth in Q4/2019 and a somewhat less optimistic outlook, company valuations remained high, such that the Austrian M&A market in 2019 can rightly be called a sellers’ market, in line with the overall European trend in 2019. Debt funding for acquisitions remained easily accessible through banks throughout the year. Looking back at 2019, a few transaction- and risk-related developments are worth mentioning: Locked Box and Completion Accounts mechanisms were used widely in M&A transactions, with Private Equity sellers favouring the Locked Box approach in pricing arrangements. We likely saw Completion Accounts mechanisms used more often again compared to previous years, though it is difficult to measure objectively because deal information is mostly kept confidential. The Austrian Data Protection Authority issued its first large fine for an alleged breach of data protection rules. The fine of EUR 18 million against Austrian Post was an unusually high amount for Austrian standards and constitutes one of the largest penalties issued so far in the European Union. The Austrian Data Protection Authority determined that Austrian Post had improperly sold the personal data of its customers. Appeal proceedings against this decision are pending. However, a large number of individuals, whose data was allegedly misused, have also brought private enforcement damage claims for non-material damage

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Wolf Theiss Austria before ordinary courts by using the decision of the Austrian Data Protection Authority as a basis. These cases are currently pending before numerous courts (first instance judges have wide discretion as to how they award damages in such cases). Ultimately, the Austrian Supreme Court will decide whether and to what degree individual damage claims are permitted in the context of data breaches. In the context of M&A transactions, this means that buyers of companies, in particular companies that have a large retail customer base, must now expand their due diligence to assess a target’s risk exposure under data protection regulations and to request indemnity protection outside of total claim caps for any such breaches by the target prior to closing in the acquisition documentation. Bank loans taken out by a target company are typically subject to a change of control clause. In 2019, we noted an increasing reluctance among banks to waive such clauses and a more intense scrutiny on the financial position of the buyer, in particular Private Equity buyers and the specific fund structure used for an acquisition. This also applied in relation to prominent global Private Equity funds. Such scrutiny is based on Know Your Customer (KYC) and Ultimate Beneficial Owner (UBO) regulations that apply to financial institutions and increasingly focuses on the control rights of limited partners in the fund structure and their potential UBO status. We have observed that such processes are becoming very time- consuming and burdensome, including the level of detail required in the context of disclosures sought by banks. While KYC and UBO considerations are formally the primary focus of the compliance departments of banks, we have also occasionally seen banks consider the leverage position of the buyer group in the context of assessing change of control waivers. In a few cases, we had to assist clients with refinancing targets locally prior to closing, or within a short termination term after closing, because the existing lenders did not grant a waiver or unduly delayed the decision-making process. Unless a buyer intends to refinance the target’s debt out of its existing funding lines and by substituting local lenders in any event, we recommend fast-tracking the dialogue with Austrian financing banks early in the transaction process. This will avoid an untimely delay in the completion process and allow for arranging alternative debt funding without adversely affecting the transaction timeline. It should be noted that about 80% of the debt funding of European companies is provided by banks, so that banks have a fairly strong position in conducting such discussions. The public M&A market in Austria was very quiet in 2019: even though stakes in listed companies were acquired below control thresholds on a number of occasions, no company listed on an Austrian stock exchange was subject to a public takeover in 2019 (the acquisition of a controlling stake) by way of a mandatory or voluntary bid.

M&A trends in HY1/2020 There were several notable M&A transactions involving Austrian companies that were announced in the first six months of 2020, continuing the positive transactions trend of 2019. Interestingly, and in sharp contrast with the disruptions brought about by COVID-19 starting in March, the first quarter of 2020 alone saw more large (and larger) transactions involving Austrian parties than in all of 2019. In addition, some other large transactions are either ongoing or likely to take place in 2020. At the end of May, Merck acquired all shares in Themis Bioscience GmbH, an Austrian pharma company, for an undisclosed cash consideration. Themis Bioscience is said to have a pipeline of vaccine candidates and immune-modulatory therapies, which have been developed using its measles virus vector platform. In March 2020, the Austrian vaccine- maker joined a consortium alongside France-based Institut Pasteur and The Center for

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Vaccine Research at the University of Pittsburgh for developing a vaccine candidate, which will target the SARS-CoV-2 virus for the prevention of COVID-19. Royal DSM, a global science-based company in nutrition, health and sustainable living, announced on 12 June 2020 that it has reached an agreement to acquire ERBER Group, a world-leading animal nutrition and health specialty business headquartered in Austria, for an enterprise value of EUR 980 million. ERBER Group’s specialty animal nutrition and health businesses, Biomin and Romer Labs, specialise primarily in mycotoxin risk management, gut health performance management, and food and feed safety diagnostic solutions, expanding DSM’s range of higher value-added specialty solutions. Romer Labs also complements DSM’s human nutrition and health offering to food industry customers. The acquired businesses have combined sales of EUR 330 million and an adjusted EBITDA margin above 20% for the 12 months to the end of March 2020, with a high single-digit organic sales growth rate over the past five years. The value of the transaction represents an EV/EBITDA multiple of about 14× the 2020 EBITDA (fiscal year ending September 2020). Wiener Stadtwerke, the utilities arm of the City of Vienna, acquired a 28.35% stake in listed EVN GROUP, a regional energy company, for a rumoured consideration of EUR 870 million (details of the transaction have so far not been disclosed), from the German energy group EnBW. The closing of this public-to-public transaction is subject to regulatory clearances. The stake acquired is slightly below the 30% threshold that would require Wiener Stadtwerke to launch a mandatory takeover bid for all shares in EVN. There is still some speculation regarding whether a mandatory offer may become necessary based on possible contractual arrangements between the parties to the transaction that could qualify as “acting in concert” from a takeover law perspective and other existing corporate affiliations among such parties. In early February 2020, Austria’s listed insurance group UNIQA, an insurance provider with a staff of 20,000 people that is active in 15 countries in Central and Southeastern Europe, acquired AXA’s insurance subsidiaries in Poland, the Czech Republic and the Slovak Republic for a total consideration of ca. EUR 1 billion. This is part of UNIQA’s long-term strategy to achieve a strong market position in the key high-growth insurance markets in Central Europe. As a result of the transaction (which is still subject to regulatory clearances and is debt-financed), UNIQA will rank fifth in Poland and the Czech Republic and fourth in the Slovak Republic in terms of insurance premium income. The transaction was conducted as an auction sale by AXA and had attracted the interest of a number of large insurance companies from around Europe. In early March 2020, OMV, the listed Austrian incumbent, active in oil and gas, innovative energy and high-end petrochemical solutions with sales of EUR 23 billion, purchased an additional stake of 39% in the Austrian company Borealis AG. Borealis is one of Europe’s leading petrochemical companies with global sales of EUR 9.8 billion and a net profit of EUR 872 million. The seller is Mubadala Investment Company, the sovereign investor controlled by the government of Abu Dhabi, and the purchase price amounts to USD 4.86 billion. By way of the transaction, OMV is increasing its total stake in Borealis to 75%. The closing of the transaction is expected by the end of 2020 and is subject to regulatory approvals. OMV describes this acquisition as a transformative transaction aimed at repositioning the company on ESG principles and for a low carbon future. The transaction makes OMV a leading provider of polyolefins and base chemicals. The joint production capacities make OMV the number one producer of ethylene and propylene in Europe and one of the top 10 polymer producers worldwide and marks a strategic extension of OMV’s value chain into high-value chemicals. According to OMV, the financing of the transaction (which includes

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Wolf Theiss Austria debt financing) is supported by a divestment programme, synergies and active cash flow management. With the transaction, OMV announced a divestment programme of EUR 2 billion until the end of 2021. The recent dramatic plunge in oil prices in combination with the adverse effects of COVID-19 has put significant strain on the transaction, and OMV had to significantly increase the large-scale cost efficiency programme only recently. As part of its divestment programme, OMV intends to sell its 51% stake in Austrian GCA GmbH, which operates a high-pressure gas grid of ca. 900 km across Austria. Verbund AG, the listed Austrian energy company which is controlled by the Republic of Austria, is currently in exclusive negotiations to acquire that stake from OMV. A due diligence process is currently ongoing. GCA is 49% co-owned by a company jointly owned by Allianz Capital Partners, the investment arm of the Allianz insurance group, and Italy’s SNAM S.p.A., one of the largest gas grid operators in Europe, which had acquired its stake from OMV only in 2016 for a purchase price of EUR 601 million. Market observers believe that the 51% sale transaction might involve a consideration in the range of EUR 600–800 million. In February 2020, a company indirectly jointly owned by investors Ronny Pecik, a prominent corporate raider, and Peter Korbacka acquired 10.7% of the shares in listed Immofinanz AG, for a consideration of EUR 29.50 per share (stock market value of the stake: EUR 286 million). While it was a sizeable transaction on its own footing, the transaction is widely seen as a prelude to a future merger of Immofinanz AG and S IMMO AG, another Austrian listed real estate investment company. Together with other investors, Ronny Pecik is also a 14.1% shareholder in S IMMO. S IMMO and Immofinanz AG also own shares in each other and Ronny Pecik’s shareholder group, together with S IMMO, now jointly own ca. 29% of Immofinanz AG. Both companies together own commercial real estate with a value of ca. EUR 7 billion. The merger rumours have intensified because Ronny Pecik was appointed CEO of Immofinanz AG on 23 April 2020, and important minority investors support a tie- up on the basis of expected synergies of EUR 19–28 million, which is said to have a positive combined valuation impact of EUR 300–500 million. Due to COVID-19, concrete merger talks appear to have been suspended but are expected to resume later in 2020. As one can see, all the mentioned M&A transactions that are taking place, or are likely to take place in 2020, have a specific strategic or even transformative component, and the businesses concerned are either largely unaffected by the current crisis, or the long-term impact or valuation potential of the transaction is seen as an overriding feature. In terms of the valuations used in Q1/2020, according to Mergermarket the YTD Median EBITDA multiples in Private Equity buy-outs in Europe have shown a decline to 10.7× from 12× recorded in 2019. We expect such multiples to fall further in the course of 2020, though there will be positive exceptions in the form of companies that will be able to demonstrate resilience in the current difficult environment. Sellers will be slow to recognise the falling valuations and to engage in transactions on the back of the decline, which is a trend we also observed in the 2008 financial crisis. This will obviously not apply to distressed transactions, which we expect to see more of in 2020 than in the last financial crisis due to the widespread impact of COVID-19 measures and the large-scale increase in indebtedness of companies.

2020 M&A trends – the impact of COVID-19 With a decline of 72% in the value of announced transactions compared to March 2020 according to Refinitiv, April 2020 had the lowest monthly value of M&A transactions globally since September 2002.

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In Q1/2020, the total value of transactions announced globally was down 39% compared to Q1/2019. In the last week of April, no single transaction with a value exceeding USD 1 billion took place globally for the first time since 2003, according to the FT. Looking at the volume of transactions involving European targets in April 2020 (EUR 5.6 billion), the decline was 91% compared to March 2020, and the lowest monthly value since August 1992. Interestingly, on the back of several large transactions in the period of January to April 2020, the volume of transactions with a European target in that period is still 28% higher than in the same period in 2019. Against this background of the trends in the first four months of the year, the outlook for M&A activity and some of the expected key themes for M&A transactions in Austria in 2020 can be summarised as follows: • As a firm we saw a busy first quarter in terms of transaction activity. M&A transactions that had been ongoing for some time (for example, with the due diligence completed) were in many cases continued in April and are on track to be completed. This is because the target businesses of these transactions were not significantly exposed to the crisis- driven downturn (technology, infrastructure, healthcare/pharmaceuticals, food). • In other cases, and in particular in early phase transactions, deals were put on hold with the notion to revisit their possible continuation in July or September 2020. Sale processes that were scheduled to be launched in April or May 2020 were pushed back to September 2020 by the sellers’ corporate finance advisors due to the limited potential to launch a truly competitive process in the current environment. • We also saw several new M&A transactions starting in April, also including sizeable transactions. • In addition, many target companies are in the process of assessing the actual implications of the crisis on their customers and suppliers, effects that may in many cases not become visible until Q3/2020. Many companies are busy securing financial support through government-sponsored schemes (please see above), and whether and to what extent such funding will actually be made available will only become known in Q2/2020 or, as regards the availability of non-repayable grants, in Q2/2021. • In Austria, M&A transactions rarely contain a Material Adverse Change (MAC) clause. In most M&A transactions, achieving transaction certainty has historically been the main objective of a seller in our market. While we had occasionally tried to introduce a MAC clause to protect a buyer, proposing that concept in a sellers’ market carried the risk that a bidder would not be allowed to continue in the process. Consequently, this legal concept has been of limited relevance for transaction parties seeking to get out of a signed transaction prior to closing on the basis of the harsh immediate effects and resulting negative outlook caused by COVID-19-related measures. It is likely that such clauses will become more popular in the current environment, also as a result of sellers’ weaker comparative position than in the recent past. • The biggest underlying theme for companies right now is to determine the likely long- term impact of COVID-19 on a company and the additional debt-funding required to overcome the – hopefully temporary – loss of income. The immediate need for many companies is to simply buy time and to secure short-term liquidity even when it is uncertain if the additional debt can actually be repaid (including new debt that benefits from government guarantees up to 90% or 100% of its nominal amount). Companies that have applied for government-guaranteed debt funding can, in addition, also apply for non-repayable grants. If such grants do in fact become available, the excess debt can (and, based on applicable regulations, must) at least partly be repaid.

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• The Austrian government is considering measures that exempt companies “located in tax havens” from receiving government support (loan guarantees and grants as described above). There is no draft law available as yet, but it is possible that new legislation will be introduced, whereby companies that are owned through corporate holding structures, in particular holding structures used by Private Equity, involving so-called “tax havens”, may not be able to benefit from financial support measures. The development of legislation in that context should be carefully monitored. • The Austrian share index (ATX) lost 30% of its value in the period of 1 January to 30 April 2020. This makes the acquisition of stakes (and controlling stakes) in Austrian listed companies potentially attractive. The Austrian government is very concerned about foreign buyers exploiting the weak share price level and is about to promulgate a new Investment Control Act which will provide it with the right to veto the acquisition of stakes of at least 25% (or even 10%) in companies considered to be “strategic”. Please see the below summary of the expected key features of the new law. • The focus of due diligence has been expanded to allow for a more substantial assessment of a target company’s exposure to the effects of COVID-19. The financial and liquidity position of a company, and thus the cash cushion available to fund a company’s operations through the current crisis, are key items to analyse in detail. Apart from existing cash reserves and the continuing availability of financing lines (also based on the covenants’ regime), this includes the access of a company to government-funded wages and other financial support schemes as well as the resulting effect on a company’s long-term debt position. • Due diligence must also look closely into the supplier arrangements in place and how COVID-19 has affected the operations and financial position of a company’s key suppliers, including whether alternative suppliers are available to the company at comparable costs and on a short-term basis (in a worst-case scenario). Generally, supply chain security and flexibility will become a significantly more important feature in assessing a company’s operational sustainability. • Also, the reliance on customer relationships must be scrutinised from a legal and financial perspective in order to assess whether a target company can rely on continuing sales or whether an adverse impact on sales and resulting revenues can be expected. This includes an assessment of the operational and financial exposure of key customers due to the implications of COVID-19 and recent changes in payment terms offered to such customers by the target company. • Target companies that have retail operations (for example, in shopping malls) may have entered into special contractual arrangements concerning the payment, deferral or partial waiver of rent payments, which may have a significant impact on the current and future cost base of a company. In many cases, companies, while closed down due to governmental orders, did not pay rent. Therefore, there is a risk of litigation around the actual amounts owed combined with the risk of being evicted due to non-payment. • Ordinary course of business covenants will have to address the specific new effects of the current environment both from the perspective of a buyer and a seller. • Warranty and indemnity (W&I) insurance cover arrangements will address the current situation with insurance providers seeking to limit their exposure in relation to adverse implications brought about by COVID-19. • We expect an increase of closing accounts mechanisms as well as of purchase price earn-out components in order to overcome valuation gaps among buyers and sellers.

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• We expect that small and medium-sized transactions will continue to take place, although on a reduced level. We also see a potential for transformative large transactions but, depending on the buyer and the sector, such transactions may come under scrutiny by the Austrian government under the new Investment Control Act (please see below). Companies active in TMT, technology, infrastructure, energy, healthcare and pharmaceuticals will continue to be much sought-after target companies throughout the downturn, with valuations remaining fairly robust. Chinese buyers and Private Equity buyers will be particularly active in the pursuit of transactions that offer attractively low valuations. • We expect a significant increase of distressed transactions as well as transactions involving the sale of non-core assets in order for companies to reduce excess debt.

Foreign Direct Investment Control – the new Investment Control Act Already for some time, the EU and several of its Member States have been concerned that companies in Europe that are considered to be of strategic relevance could be bought up by non-European investors with no regard for public interest considerations. This concern has been based on a) certain buyers not being obliged to meet arm’s-length standards in the way they price deals and thereby outbidding traditional investors, b) the lack of reciprocity in relation to freedom of capital rules in the buyer’s home jurisdiction, and c) “strategic assets” coming under foreign control. Chinese buyers, certain sovereign wealth funds and companies under significant foreign state influence have been singled out as potentially problematic investors on that basis. While the EU has created a soft framework regime for its Member States to apply in evaluating whether to disallow certain transactions, Member States are, in principle (and within EU law boundaries), free to enact national legislation that – similar to CFIUS in the US – requires governmental approval for certain transactions involving strategic national targets. This approach has received increasing attention and a new focus due to the effects of COVID-19. There is now significant additional concern that European companies can be bought up at discounted valuations. As a result, the government of Austria is about to propose to Parliament a new “Investment Control Act” which is to expand the Austrian government’s right to block transactions involving the acquisition of shares in Austrian companies active in critical sectors by non-European buyers. The acquisition of a stake of at least 25% of the shares or corresponding corporate control rights in companies active in certain industry sectors will generally fall under the new approval regime. These sectors are (in our view, too) broadly defined and include critical infrastructure within the meaning of the law, i.e. “systems, networks or parts thereof that have a strategic relevance for the maintenance of important functions of society, which, if interrupted or eliminated, would create material adverse consequences for the health, security and the economic and social wellbeing of the population or the effective functioning of state agencies”. In addition, the draft law mentions the following specific sectors by way of example: energy; information technology; transport; health; food; telecommunications; data processing or data storage; defence; constitutional (sovereign) functions; finance; R&D; social welfare and distribution; the chemical industry; artificial intelligence; robotics; semiconductors; cyber security; defence technology; quantum or nuclear technology; nanotechnology; biotechnology; supply of energy; supply of raw materials; supply of food; supply of pharmaceutical products, vaccines or protective equipment; access to sensitive information (including personal data); and freedom and plurality of media. This is obviously a very wide catalogue which, if enacted in its current scope, will subject many transactions to the new approval regime.

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For certain industries, an even lower qualifying threshold of at least 10% of the share capital or corresponding corporate control rights applies and triggers the approval requirement: military defence products or technologies; the operation of critical energy infrastructure; the operation of critical digital infrastructure, in particular 5G infrastructure; water; the operation of systems that ensure the data sovereignty of Austria; and R&D in the fields of pharmaceutical products, vaccines, medical products and personal security equipment (the same approval requirement again applies once the stake is increased to 25% and 50%). In relation to the items set in italics, the 10% threshold will cease to apply as from 1 January 2023. According to the draft law, only companies that have more than 10 employees and annual revenues exceeding EUR 2 million fall under the approval requirement. The approval must be applied shortly after the signing of a transaction, and the regulator (the Ministry of Economy) has one month to issue a decision in principle on whether a transaction requires an approval. If that decision confirms the approval requirement, the regulator must issue its final decision on whether the approval is granted within an additional two-month term. If no decision is rendered within two months, the approval is deemed to have been granted. It is also possible to apply for a non-objection letter prior to the implementation of the transaction, thereby clearing the transaction from the approval requirement. This technique will be helpful in situations where it is not clear whether an approval is in fact required (given the broad definitions used). We expect that the new law (if enacted in the wording of its current draft, which is widely expected) will delay transactions due to increased regulatory scrutiny in relation to M&A transactions in a fairly broad range of industries and will make acquisitions by non-EEA shareholders more difficult. The new law will most likely come into effect in July 2020.

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Horst Ebhardt Tel: +43 1 51510 5100 / Email: [email protected] Horst Ebhardt heads the firm-wide Corporate/M&A team. He specialises in complex cross-border transactions in the fields of M&A, privatisation and restructuring in Austria and throughout the CEE/SEE region. He has also been advising companies from a broad range of industries – with a particular focus on financial institutions, life sciences and private equity – on corporate finance and governance matters. Having worked on approximately 80 transactions as lead attorney over the last 10 years (including several transactions involving a value of more than EUR 1 billion), Horst offers a wide range of experience concerning legal and tax aspects in connection with complex cross-border transactions, combined with a thorough understanding of clients’ needs from a business perspective. He has been in private practice for 25 years focusing on corporate law and M&A. Horst holds degrees from the University of Graz Law School (Dr. iur.) and the London School of Economics and Political Science (LL.M.). Horst is admitted to the Bar in Austria and teaches an M&A programme at the law school of the University of Vienna.

Hartwig Kienast Tel: +43 1 51510 5863 / Email: [email protected] Hartwig Kienast is a member of the Corporate/M&A team. He specialises in mergers and acquisitions, corporate reorganisations and has recently been involved in large cross-border M&A transactions and restructurings. He has gained extensive professional experience with transactions in the infrastructure, energy, consumer goods and pharmaceutical sectors. Hartwig focuses on growth companies in the technology sector, advising start-ups as well as investors into start-ups. In addition to his law degree, Hartwig also holds a degree from the Vienna University of Economics and Business (Mag. rer. soc. oec.).

Sarah Wared Tel: +43 1 51510 5200 / Email: [email protected] Sarah Wared is a partner in the Corporate/M&A team. She specialises in cross- border transactions in the field of M&A, corporate, and private foundation law. Sarah has expertise in a wide range of industry sectors including private equity and venture capital, financial institutions and TMT. Before joining Wolf Theiss, she worked for other major law firms in Vienna and also gained international experience in the USA and Singapore. Sarah is admitted to the Bar in both Austria and Germany. Sarah is the author of various publications on selected issues of Austrian corporate law.

Wolf Theiss Schubertring 6, 1010 Vienna, Austria Tel: +43 1 51510 / URL: www.wolftheiss.com

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Luc Wynant, Koen Hoornaert & Jeroen Mues Van Olmen & Wynant

Overview Mergers and acquisitions are governed by a wide range of European, national and regional legislation, including company, securities and contract law. The new Belgian Code of Companies and Associations also includes the basic principles on the transferability of shares and various procedures for corporate restructurings for the various types of company in Belgium. Other particular pieces of legislation, such as the Prospectus Act of 11 July 2018, published on 20 July 2018, the Takeover Decree (Royal Decree of 27 April 2007 on takeover bids) and the Squeeze-out Decree (Royal Decree of 27 April 2007 on squeeze- out bids) are relevant for specific types of M&A transaction. In addition to this, parties involved in an M&A transaction will need to assess whether the transaction requires a merger filing in view of applicable – national or European – competition law. From an M&A perspective, the Belgian market of 2019 was very stable, relatively transparent and open for domestic and foreign investors including private equity funds and institutional players. Corporate law provides a broad range of flexible solutions in view of structuring an M&A transaction. M&A activity stabilised in 2019 although with the outbreak of the COVID-19 crisis at the end of Q1 2020 in Belgium, a substantial drop in M&A activity is expected in the short term. 2019 was fuelled by the high activity of private equity players in the market and Belgian corporates aiming to enlarge their international footprint. The solid economic conditions, abundant cash holdings, a strong demand and the favourable consequences they had for investors helped boost confidence in the M&A market. The 2020 M&A Monitor (Vlerick Business School, May 2020) confirms that deal activity stabilised in 2019; however, deal activity will most likely be frozen the first two quarters of 2020 due to the COVID-19 crisis. It is still unclear as to whether the impact of the COVID-19 crisis can be seen as a short-term shock or as the start of an extended economic downturn. Valuation levels were still high in 2019, with stabilising enterprise value (“EV”) and earnings before interest, tax, depreciation and amortisation (“EBITDA”) multiples. A combination of factors can explain such high valuations: the scarcity of opportunities; the amount of cash available; and the low interest rate environment. The 2020 M&A Monitor confirms that debt financing for this type of transaction is still abundant in the current economic circumstances. Regarding the levels of debt financing, the average net financial debt (“NFD”)/EBITDA ratio is 3:2. This multiple is in line with previous years. The average (semi-)equity contribution in management buy-outs and management buy-ins (including mezzanine financing such as preference shares and subordinated debt) is around 31%, it being recognised that, in

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Van Olmen & Wynant Belgium general, the equity contribution increases with the size of the deal. For micro-transactions, the equity-to-value ratio is 26%, whereas deals with a transaction value above €100 million are usually 39% equity-financed.

Significant deals and highlights The Belgian M&A market made a huge leap forward in 2019 compared to the previous year in terms of total deal value. Belgian companies were involved in operations worth a combined total of €40 billion. Although this figure is significantly influenced by two large deals with the beer giant AB InBev, it should be noted that even without these two mega-deals, the Belgian M&A market performed 11% better compared to 2018, with a total amount of €25.5 billion. This result is supported by a growing number of deals exceeding €500 million (De Tijd). Due to the limited size of the Belgian stock market, the number of private M&A transactions outweighs the number and total value of public transactions by far. Despite its relatively small size, the Belgian market is notoriously international, with most deals containing at least one cross-border element. As in previous years, mid-market deals dominated the M&A scene, reflecting the strength of Belgium’s smaller and medium-sized businesses. The following noteworthy transactions stand out on grounds of scale or complexity: Mega-deals with AB InBev Asahi acquisition of CUB (AB InBev) Beer giant AB InBev has sold its Australian division Carlton & United Breweries (“CUB”) to Asahi. The Japanese group paid €10 billion in cash to acquire all of CUB’s shares. Asahi also bought the rights to commercialise AB InBev brands in Australia. With this sale, AB InBev intends to further reduce its debt. Budweiser Brewing On 30 September 2019, AB InBev listed 13% of the shares of its Asian branch on the Hong Kong Stock Exchange for HK$27 each. With this pricing, the IPO of Budweiser Brewing Company APAC will yield at least HK$39.2 billion, converted at €4.5 billion. AB InBev retains a majority interest in the company of approximately 88%. The proceeds of the IPO will be used to further reduce AB InBev’s debt. Elder care Colisée acquisition of Armonea The French retirement housing owner Colisée has bought Armonea, the largest commercial retirement housing group in Belgium. As a result of this deal, the three largest private retirement housing owners in Belgium are now owned by French companies. The cash consideration of the transaction was approximately €550 million. One of the former shareholders and the management of Armonea took the opportunity to reinvest. With Armonea added, Colisée has become the fourth largest European player in elder care. The new group will have more than 18,000 employees and will care for 26,800 people in 270 residential care centres. Colisée and Armonea are particularly complementary geographically. Colisée has 119 residential care centres in France, Italy and Spain, accounting for almost 10,000 beds. Armonea is active in Belgium, Germany and also Spain. Aedifica acquisition of Hoivatilat (Finland) At the beginning of November 2019, Aedifica, a Belgian listed healthcare real estate company specialised in retirement housing, launched an acquisition bid for Finnish healthcare property investor Hoivatilat. The real estate company had to raise the bid and lower the acceptance threshold along the way. In the end, 90% of all issued and outstanding

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Van Olmen & Wynant Belgium shares and voting rights in Hoivatilat were offered during the offer period. Together with the shares acquired by Aedifica on the stock exchange, it now controls approximately 95.9% of the shares and voting rights. Aedifica will start a squeeze-out procedure and request the delisting of the Hoivatilat shares on the Helsinki Stock Exchange. The reported transaction value was €609 million. Pharmaceutical industry UCB acquisition of Ra Pharma UCB has acquired the American biopharmaceutical company Ra Pharmaceuticals. The American company was founded in 2008 and develops treatments against diseases that threaten the immune system. The most important drug candidate developed by Ra Pharma is zilucoplan: a possible treatment for myasthenia gravis, a serious muscle disease that affects 200,000 people worldwide. Zilucoplan is in phase 3: the final stage of development of a drug candidate before it can receive approval from the authorities to enter the market. UCB paid $48 in cash per Ra Pharma share and paid a total of €2.2 billion for the U.S. company. Dedalus acquisition of Agfa IT HealthCare The Agfa-Gevaert Group has successfully completed the sale of part of Agfa HealthCare’s IT business to the Dedalus Group at an enterprise value of €975 million. Pascal Juéry, President and CEO of the Agfa-Gevaert Group, stated that the sale of this business is a major step in the transformation process of the company. Given the uncertainty of the current economic context, Agfa chose to use the proceeds of the sale to secure the future of the company, to further execute the strategies of the company’s divisions and to address long-term liabilities. Gilead acquisition of Galapagos The Belgian-Dutch pharmaceutical company Galapagos NV made a billion-dollar deal with Gilead Sciences, Inc. The American biotech company paid $3.95 billion for access to the drugs in Galapagos’ development and invested €1.1 billion in shares. Gilead also agreed not to make a takeover bid for the next 10 years. This 10-year R&D partnership gives Gilead access to Galapagos’ current and future portfolio of drug candidates. Gilead can also use the Galapagos research division, which has more than 500 scientists, and the research platform of the Belgian-Dutch company. Galapagos and Gilead have already worked together closely in the development of filgotinib. They expect to introduce the drug in Europe later this year, and in the United States next year. Gilead previously paid hundreds of millions to Galapagos in exchange for the U.S. sales rights to the drug. Other Bâloise acquisition of Fidea On 15 April 2019, Swiss insurance group Bâloise Holding AG announced the acquisition of Belgian insurer Fidea NV for €480 million in cash. With this acquisition, Bâloise has significantly strengthened its fifth place on the Belgian market in the non-life insurance segment. The integration goes beyond simply merging the two companies. The focus is on synergies, in order to incorporate Fidea’s strengths and assets and further strengthen Bâloise. The takeover of all of Fidea’s employees by Bâloise is therefore a crucial part of this acquisition. GBL acquisition of Webhelp French Webhelp Group, specialised in business process outsourcing, was acquired by Belgian investment company Groupe Bruxelles Lambert (“GBL”), the listed investment fund of the Belgian Frère and Desmarais families. It paid €800 million for Webhelp, acquiring 61% of its shares on the basis of an enterprise value of €2.4 billion for 100% of the Webhelp Group. The remaining 39% remains with the founders of Webhelp and its managers. With this transaction, GBL acquired its largest shareholding in an unlisted company.

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GBfoods acquisition of Continental Foods Spain-based manufacturer GBfoods acquired European peer Continental Foods from private equity firm CVC Capital Partners. With Continental Foods and GBfoods operating in different key European markets, the deals should be considered a major strategic milestone for GBfoods, resulting in a robust and diversified business platform fully focused on developing strong local brands. The cash consideration for the transaction was approximately €900 million.

Key developments The legal system is well-developed, whereas corporate law provides sufficient flexibility in view of structuring M&A transactions. Corporate law: the (new) Code of Companies and Associations The new Code of Companies and Associations (“Companies Code”), which entered into force on 1 May 2019, fully applies to all companies as of 1 January 2020. The new Companies Code provides a more flexible regime for financial assistance, which certainly will result in an increased use of the safe harbour regulation. On 16 April 2020, the Belgian Parliament approved certain improvements and corrections to the Companies Code, containing some technical and material corrections in relation to, among others, control, the sole shareholder in a private limited liability company (besloten vennootschap) and directors’ liability. Corporate income tax Effective as of 1 January 2020, for a financial year starting on 1 January 2019 at the earliest, the second phase of the corporate income tax regime reforms entered into force whereby, for the most part, provisions from the Anti-Tax Avoidance Directive (“ATAD”) of the European Union and OECD proposals in relation to Base Eroding and Profit Shifting (“BEPS”) have been implemented. In a third phase, effective from 1 January 2021, for a financial year starting on 1 January 2020 at the earliest, a further reduction of the corporate income tax rate, which dropped to 29.58% in 2018 and again to 25% in 2020, will take place, as well as, among others, the new thin capitalisation rules stipulating that “exceeding borrowing costs” will only be deductible in the tax period in which they are incurred and only up to the higher of 30% of the taxpayer’s EBITDA or €3 million (the so-called “threshold amount”). In principle, the rule does not apply to loans that were concluded prior to 17 June 2016 to which, as of this date, no “fundamental” modifications have been made i.e.( modifications relating to, for instance, the contracting parties, the interest rate or the duration of the loan). For these loans and also for interest payments to tax havens, the current 5:1 thin capitalisation rule will remain applicable. 2020 Belgian Code on Corporate Governance The new 2020 Belgian Code on Corporate Governance (“2020 Code”), as published on 9 May 2019, applies compulsorily to reporting years beginning on or after 1 January 2020 and will replace the 2009 Code. The 2020 Code applies to companies incorporated in Belgium whose shares are admitted to trading on a regulated market (“listed companies”) as defined by the Companies Code. The 2020 Code is the third Belgian Code on Corporate Governance, which replaces the versions previously published in 2004 and 2009. Ultimate beneficial owner As of 30 September 2019, the directors of a company are obliged to submit identification of the ultimate beneficial owner(s) (“UBO”) of the company to the UBO register. Note, however, that a tolerance policy was applied up until 31 December 2019. A UBO is the natural person owning the company or exercising control. A UBO is first and foremost

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Van Olmen & Wynant Belgium any natural person holding at least 25% of the shares or voting rights in the company and secondly, any natural person with control over the company by other means (e.g. a shareholders’ agreement). If no UBO can be identified by the aforementioned criteria, the directors themselves will be appointed as UBO. Identification of shareholders With the Law of 28 April 2020, the Shareholders Rights Directive II (Directive (EU) 2017/828) (“SRDII”) has been implemented in Belgian law. The SRDII aims to, among others, give the right to listed companies to identify its ultimate shareholders, allowing them to communicate directly with said shareholders. With the amendment of the Law of 2 May 2007 on disclosure of major holdings, intermediaries (such as financial institutions and investment firms), providing custody services must provide the shareholders’ information to the listed company (i.e. identity and number of shares held). The intermediary is further obliged to provide all information to the ultimate shareholder, allowing said shareholder to exercise all of its rights in relation to its shares.

Industry sector focus M&A activity has not been dominated by a particular sector. In 2019, the biotechnology, pharmaceutical and IT sectors in particular have seen numerous transactions. The slight increase we have witnessed during the past year is mainly driven by the smallest transactions, attracting considerable attention from buyers across a good range of sectors. In terms of valuation, the M&A Monitor indicates that there are widespread differences across sectors. Companies in scalable and heavily patented industries such as pharmaceuticals, chemistry and technology are the most highly valued. On the other hand, companies within regulated industries such as telecoms, energy and utilities sell well above the average multiple of 6.5, whereas companies in more traditional sectors such as consumer goods (6.2) and industrial products are just below the average EV/EBITDA threshold. The most CAPEX-intensive industries such as retail, transport and logistics and construction are acquired at the lowest EBITDA multiples.

The year ahead While stabilisation in M&A activity over the past year has been observed, the expectations for the future seem to be more ambiguous. The uncertainty in the market is mostly driven by the unprecedented and unseen challenges of the COVID-19 crisis. The COVID-19 crisis has forced sellers to mitigate the impact and focus ongoing concern, while potential buyers are saving their liquidities and postponing investments. In addition, acquisition financing requests have been put on hold by the banks (2020 M&A Monitor). Uncertainty is clearly the key word in today’s markets, causing volatility in stock prices and a sharp drop in global M&A activity, at least in Q1 and Q2, compared to the number of transactions in 2019. Although 2020 is likely to be an uncertain year both politically and economically, and the main concerns with the COVID-19 crisis are absolutely valid, attractive buying opportunities could arise for interested buyers. We can potentially transit from a sellers’ market into a buyers’ market within a short timeframe, in view of a likely, significant decrease in acquisition prices for attractive companies, possessing valuable technologies, due to short-term liquidity issues. In healthy sectors (e.g. technology and health), M&A will contribute to growth; in the least viable sectors, M&A will be about survival.

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Despite the COVID-19 crisis, activity in the Belgian private M&A market is still going on due to the combination of low interest rates and the presence of numerous companies and businesses with significant growth potential (in many cases, family-owned), which has resulted in very competitive processes and interesting multiples for the sell-side. Due to an overcrowded mid-size segment and few opportunities for larger deals, strategic as well as financial buyers are increasingly considering deals in the smaller segments. The trends we anticipate in (i) the next 12 months, and (ii) the longer term for M&A transactions in Belgium are (a) an increased use of private equity (e.g. succession of family- owned enterprises), and (b) a continued change in the investment focus of investors (such as an increased focus on companies with a sustainable, social and/or environmental impact). In view of the transaction documents, we anticipate a revived interest for a Material Adverse Change (“MAC”) clause, allowing a buyer to back out of the transaction, or renegotiate (some aspects of) the terms of the acquisition, should there be a change in circumstance that has a significant negative impact on the value of the target e.g.( COVID-19). Traditional contractual risk allocation mechanisms, such as specific indemnities, purchase price reductions, earn-outs, higher liability caps, and closing conditions will continue to be important factors in mitigating COVID-19 crisis-related losses from a buyer’s perspective.

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Luc Wynant Tel: +32 2 644 05 11 / Email: [email protected] Luc Wynant is Head of the corporate law, private equity and M&A practice. Luc has extensive experience in all aspects of corporate law, in particular regarding mergers and acquisitions and private equity in both transactional and financial work. He focuses specifically on international and domestic share and assets acquisitions, venture capital and debt capital markets, (leverage) management buy-outs, divestitures, fund formations, mergers and company reorganisations. Luc Wynant is also a Ph.D. Researcher (Doctorate in Business Administration (DBA)) – joint Ph.D. programme at the Vlerick Business School, Gent University and KU Leuven in the field of private equity. As founding partner of Van Olmen & Wynant, Luc is well-known in the Belgian legal scene and recognised as such in all major rankings.

Koen Hoornaert Tel: +32 2 644 05 11 / Email: [email protected] Koen Hoornaert is Partner in the corporate law practice at Van Olmen & Wynant. Koen has broad experience in all aspects of corporate law, in particular, regarding Belgian and cross-border mergers and acquisitions and private equity. He advises Belgian and foreign clients especially on share and assets acquisitions, mergers, divestitures, corporate reorganisations, corporate governance and general corporate law questions. In addition, Koen has a special focus on advising family businesses, their shareholders and directors.

Jeroen Mues Tel: +32 2 644 05 11 / Email: [email protected] Jeroen Mues, Counsel at Van Olmen & Wynant, specialises in corporate law. Jeroen has over 10 years of experience and his corporate practice includes national and international transactional work for companies active in diverse industries. Jeroen specialises in (de)mergers, acquisitions, liquidations, joint ventures, corporate real estate and financing transactions and business restructurings, and has experience working for national and international non-profit organisations.

Van Olmen & Wynant Avenue Louise 221, B-1050 Brussels, Belgium Tel: +32 2 644 05 11 / Fax: +32 2 646 38 47 / URL: www.vow.be

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Valerie Mann Lawson Lundell LLP

Overview At the start of the second quarter of 2020, Canada, most of the United States and much of western Europe is dealing with the impact of the novel coronavirus, COVID-19. China, the origin jurisdiction of the disease, appears to be coming out of the first wave of infections and is moving towards a reintroduction of citizen mobility after a very severe lockdown period of 10 weeks. Whether China’s economy recovers quickly will, in part, depend on how long the rest of the world, and particularly the developed world, is in shutdown. As of April 2020, early indications are that the measures, implemented through closures of public services such as schools and community gathering places, and the required closure of all non-essential ‘bricks and mortar’ businesses such as restaurants, store-front retail and personal services together with the general appeal to the public to ‘shelter-in-place’ are flattening the growth of this first wave of the disease. Clearly, government policy and the culture of trust in Canada has resulted in a dramatically different health outcome than in the United States which has now surpassed Italy in the number of COVID-19 deaths. Western Canada in particular, through a combination of good timing, good policy and the greater availability of testing in BC and Alberta, has fared better than central Canada. As of the end of the first week of April 2020, British Columbia is experiencing a levelling off of COVID-19 reported cases (1,445 in total) and deaths (58 in total), with almost 900 being recorded as fully recovered. Compare that to Washington State, the largest city of which, Seattle, is some 300 km away from British Columbia’s largest city, Vancouver. Washington State has 10,225 recorded cases, almost 500 deaths and no reported recoveries. Washington State, one of the early centres of recorded cases of COVID-19, has in fact done much better than the northeastern parts of the United States, where cases continue to mount and the death toll has now eclipsed Italy’s. Prior to March 2020, the stock markets in North America were on a continuing bull run. Business confidence was, however, starting to wane largely as valuations were questionable and, after such a sustained upward trend, corporate performance was proving that the enthusiasm was not warranted. Now, with the impact of COVID-19, the world has dramatically changed and trillions of dollars have been poured into the global economy in a very short period of time in an attempt to address the immediate disruption to business, supply chains, and employment. The United States government approved a US$2 trillion aid package. The Government of Canada has just passed legislation implementing a C$107 billion aid package comprised of emergency wage supplements, tax deferrals, and small business support. In addition, provincial governments have stepped up to provide aid by way of funding for critical support services, tax relief, employment support, and renter’s supplements. For example, in British Columbia, the initial package of economic support is C$5 billion.

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Generally, the Canadian government and most Provinces are in a good position, relatively speaking to other countries, to implement such programmes. There is no question that the economic impact to the country is significant. Different Provinces will weather the economic fallout better or worse, depending on their underlying sector drivers and how quickly they ‘flattened the curve’ of the pandemic in their jurisdiction. In British Columbia, economists are of the view that best case scenarios model a contraction of the Province’s GDP of six to eight per cent. This is the most dramatic decline or contraction in GDP in recent memory. By way of comparison, after the 2008 financial crisis, the Province’s GDP contracted by just under three per cent. Particularly hard hit are areas of the economy that will take some time to recover when current restrictions are relaxed, such as tourism and many small businesses, many of which will not survive even with government support. The television and film industry, which contributes over C$1 billion to the British Columbia’s GDP, has also materially ceased operations in the Province (some animation and digital editing can continue remotely) and it will be some time before it can ramp up again. For many of these industries, even if they pull through a period of shut-in, they will not see a resurgence in business until a vaccine is developed. Two Provinces that will be most dramatically affected by the current economic circumstances are Alberta and Newfoundland. Alberta is an energy province and has suffered since the collapse in oil prices in 2014. The Province produces 80 per cent of the country’s oil. Alberta’s economy is simply not diversified, and it has already sustained significant losses prior to the current era of uncertainty. With limited ability to get oil to other markets through pipelines (including pipeline expansions) that have not been built and are, in some jurisdictions, bitterly opposed, there has been for some time an ‘Alberta discount’ to the price of oil. The Western Canada Select index price averaged US$36.82 a barrel in January 2020. Just prior to the full implementation of COVID-19 stay at home requirements, policies and entreaties, a price war between Russia and Saudi Arabia drove the price of oil down further. Add that to the now severely curtailed demand for oil, and the effective price of oil from Alberta is now less than US$7 a barrel. The other Province that is also significantly impacted by low energy prices is Newfoundland. Although a small Province, without the same overall impact to Canadian GDP, and supplying only five per cent of the country’s oil, the Province is dependent upon those revenues. Prior to the onset of the recent issues outlined above, the Province had seen a decline in oil-related revenues of C$1 billion (from a contribution to government revenues of C$1.5 billion to C$500 million). The S&P/TSX composite index rebounded in 2019 from late 2018 declines, and was on track to post the best yearly performance in 10 years. While the year ended with a small decline, through the year it had gained 21 per cent in 12 months. By the end of February 2020, all of those gains were wiped away with back-to-back days of triple-digit declines. There has been quite a bit of volatility since, reacting to global good and bad news around the virus, and the introduction of government stimulus programmes. To make matters more challenging for Canada and Canadian public markets, the trade war between Russia and Saudi Arabia over the supply of oil on world markets, coupled with a decline in global demand as people are sheltering in place, has further damaged an already suffering Canadian energy sector. With the onset of COVID-19 planning, the Bank of Canada cut the overnight rate by 50 basis points three times, on March 7, March 13 and again on March 27, bringing the overnight rate to ¼ per cent. The accompanying press release indicated “[t]he intent of our decision

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Lawson Lundell LLP Canada today is to support the financial system in its central role of providing credit in the economy, and to lay the foundation for the economy’s return to normalcy”.1 The Bank of Canada went further in its emergency fiscal planning. It implemented a Commercial Paper Purchase Program to help short-term funding. It also started a programme of acquiring Government of Canada securities in the secondary market beginning with purchases of a minimum of C$5 billion per week, across the yield curve. The Canadian dollar started the year at just over $0.77 to the US dollar but has dropped to just over $0.71 to the US dollar currently. The Canadian dollar is affected by the price of oil because of the significance of this export. As outlined above, this is certainly a challenged industry in Canada at present. There is also, in a time of crisis, a flight to safety and the US dollar is typically the beneficiary as between Canada and the United States. In the midst of all of the turmoil currently in place, the three-year effort to renegotiate the North American Free Trade Agreement (NAFTA), culminating in the USMCA (United States/Mexico/Canada) trade agreement (referred to in Canada officially as the CUSMA agreement) received royal assent in Canada on March 13, 2020. Canada notified both the United States and Mexico that it has completed its ratification process and is now ready to implement the measures in the new agreement. CUSMA is to take effect on the first day of the third month after all three countries have given their notice of readiness to comply. Neither the US nor Mexico have sent a similar notice of readiness, and at present, the date of full implementation is unknown with governments otherwise preoccupied. While it was thought that the ratification of CUSMA and its implementation would reignite a business confidence that was starting to wane, and would lead potentially to an uptick in M&A, that thinking is likely now being revised. Canada–China relations which dipped to a new low in 2018 and 2019 have, in the present environment, thawed a little. China represents Canada’s second largest trading partner after the United States. Following the arrest in Vancouver of the Chief Financial Officer of Huawei Technologies Co. Ltd., China’s giant telecommunications company, as she was transiting through the country, China has detained two Canadian citizens on allegations of spying, arrests that are believed to be in retaliation and which Canada calls ‘arbitrary’. The extradition proceedings are now delayed with a closure of all Courts in British Columbia, and the two Canadians who were imprisoned in retaliation remain in limbo. However, China’s agricultural products retaliation has eased somewhat with a repurchase of canola. Huawei is attempting to win over public support by sending much-needed personal protective equipment (PPE) to Canada. For China to succeed again, and regain lost ground, it will need a strong global economy. But it is too early to see whether the current thawing will take hold, post-crisis. China has clearly cooled on acquisitions in the energy sector (oil) in Canada and large-scale acquisitions in that sector are unlikely.

Sectors Overall deal activity in Canada in 2019 clocked in at US$160 billion. Private equity firms continued to contribute to M&A activity in addition to strategic acquisitions, as private equity firms pursued mergers to boost growth. Although lower than the previous year (down 20 per cent from 2018), the average deal size increased by 27 per cent to US$217 million. The most active sectors were mining, largely dominated by Newmont Mining Corp’s C$17.1 billion acquisition of Goldcorp Inc., and technology. Technology deals had the highest level of transaction activity, although still down some 23 per cent from 2018. The size of such deals does tend to be smaller, however, than resource deals.

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Mining After some large acquisitions announced in 2018 completed in 2019 (Newmont’s acquisition of Goldcorp, for example), the view at the start of the 2019 year was that low valuations across the mining sector might lead to very active M&A activity. Low-risk jurisdictions such as Canada and Australia were primary drivers. Certain specific commodities benefitted from this activity. The total transaction of gold M&A in 2019, for example, was estimated at C$20.2 billion. Absent the current disruption, consolidation in the sector was thought to be a continuing trend through 2020. One forecast is that, after mine closures for safety reasons around COVID-19, decreased demand, and cash flow challenges, there may be opportunistic acquisitions in the latter half of 2020 and into 2021. Technology Aggregate deal volume in the technology sector continued in 2019. Large and notable transactions included the C$1.4 billion buyout of Autodata Solutions Inc. by Thoma Bravo, LLC. Autodata provides vehicle, technology and inventory merchandising solutions for the automotive sector. That transaction completed in the first half of 2019 and, at the end of 2019, J.D. Power, a data analytics and consumer intelligence company, announced a merger with Autodata Solutions, also a Thoma Bravo portfolio company. In the spring of 2019, SaaS-based environmental, health, safety and quality management software company, Intelex Technologies, announced its acquisition by Industrial Scientific and subsidiary of Fortive Corporation for US$570 million. Technology companies are mobile, and talent can be easily moved to the United States, for example. As a result, a number of smaller technology companies were acquired and the key personnel moved to the US. California’s technology industry generates revenues that are more than double that of all of Canada’s tech sector combined. The total available capital to fund technology company growth is substantially greater in the US, and with high growth requirements, Canadian start-ups often get acquired at a relatively early stage, in part because of the difficulty in accessing growth capital. With the current health crisis gripping the world, the one area where there is an upside is the technology industry. Technology companies that focus on assisting in remote mobilisation of a workforce, or that get products delivered to customers (rather than companies that operate in the gig economy for movement of accommodation or people) are expected to do well. Some large global companies are continuing with expansion in Canada, such as Amazon, and that is expected to generate opportunities for technology talent and potential small acquisition targets that come to the attention of the larger players. Private equity Private equity continued to be very active in 2019. Some of the most significant transactions in 2019 included Canada Pension Plan Investment Board and Ontario Teachers’ Pension Plan’s (together with Warburg Pincus) C$3.4 billion take-private acquisition of Inmarsat, a mobile satellite services company, and Brookfield Asset Management Inc.’s acquisition of just over 60 per cent of Oaktree Capital Group, LLC, the latter with US$120 billion in assets under management (to Brookfield’s US$385 billion in assets under management), completed in the spring of 2019. Perhaps, in hindsight, the most spectacularly mistimed private equity M&A deal was Onex Corporation’s acquisition of WestJet Airlines, a Canadian airline, second in the domestic market after Air Canada. The take-private transaction, valued at C$5 billion including assumed debt, was completed on December 11, 2019. In March 2020, WestJet announced

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Lawson Lundell LLP Canada the suspension of commercial operations for all trans-border and international flights. Domestic flights are severely curtailed and the company has laid off half its workforce. Inbound M&A activity by private equity included, notably, a C$5.2 billion recapitalisation acquisition by BC Partners of a majority stake in Montreal-based Garda World Security Corp. Overall M&A transaction value in Canada’s private equity market was C$19.6 billion in 2019, which was down from C$22.3 billion in 2018. The most active sectors within private equity were IT and media, consumer and manufacturing. Canadian private equity funds were principally focused on domestic transactions, but they were active in outbound deals as well. Real estate Commercial real estate activity in Canada was strong in 2019. The trend of private equity, institutional capital and pension funds acquiring real estate assets in Canada continued. Interest rates continued their historic lows through 2019 and institutional investors with longer time horizons and an appetite for cash flow-generating assets made the sector an active one. Blackstone Group Inc. continued its portfolio acquisition by acquiring Canada’s Dream Global REIT for C$3.3 billion. Dream Global gives Blackstone office and industrial property as well as exposure to European real estate. The market also saw significant joint ventures in 2019. For example, Revera Inc. and Axium Infrastructure formed a joint venture to own long-term care homes located in Western Canada and Ontario, with Axium bringing capital to operator Revera. Energy Last year, it could be safely said that the principal issue for the industry, based primarily in the Province of Alberta, was the alleviation of market access constraints. The ‘lock-in’ of supply was one of the biggest challenges for Canada and the Canadian economy. As outlined above, the industry has now experienced even more profound challenges. The year started off with a significant transaction in Encana Corporation’s acquisition of Newfield Exploration company for an announced all-stock deal of C$5.5 billion completed in Q1. The deal was announced in Q4 2018 but by closing, Encana stock had fallen by more than 20 per cent. The deal also included assumption of over US$2 billion in Newfield debt. The acquisition, made through Encana’s US subsidiary, makes it one of the largest shale oil producers. In order to achieve projected annual savings of US$250 million, the company significantly cut back on its senior management team and overall reduced positions in the combined company by 15 per cent. LNG Canada, a joint venture of Shell, PETRONAS, PetroChina Company Limited, Mitsubishi Corporation and Korea Gas Corporation, announced its decision in 2018 that it would be proceeding with a C$40 billion liquefied natural gas project in British Columbia. After a decade of pursuing liquefied natural gas projects, this is the first large-scale LNG facility to announce. The project did get underway in 2019 but faced considerable headwinds with opposition to TC Energy’s Coastal GasLink pipeline construction, necessary to transport gas from the Dawson Creek area to the facility in Kitimat, where LNG’s facility would then convert the gas to a liquefied state. Although Coastal GasLink received approval from the Oil and Gas Commission on May 1, 2019, the Wet’suwet’en Nation hereditary chiefs objected to what they viewed as incomplete and inadequate consultation, although elected chiefs on the same route had entered into impact benefit agreements with TC Energy. What started as a protest camp blocking a key access road to the construction site, erupted into a nationwide protest in support of the hereditary chief’s

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Lawson Lundell LLP Canada claims. After negotiations between the Federal Government, the Provincial Government in BC and the hereditary chiefs negotiated an agreement. All of that took place in early March, and at present, the acceptance of the deal amongst the First Nations peoples in the area is unknown. The Wet’suwet’en Nation hereditary chiefs cancelled a meeting to consider the proposed agreement that was scheduled in mid-March amid concerns over COVID-19 risks.

Emerging sectors Cannabis. The cannabis industry is going through a significant period of adjustment. Significant over-supply has resulted in the closure of some growing facilities following mergers completed within only the past 12–24 months. The industry continues to wrestle with regulatory hurdles, and capital issues. In 2019, it might have been referred to as the year of ‘broken deals’, with 95 terminated deals reported for a combined value of US$2.46 billion.2 To add to regulatory uncertainty and over-supply, vaping products, particularly with THC, were withdrawn from the market or restricted, as a result of deaths directly attributable to such devices. Not surprisingly, cannabis valuations have fallen.

Issues Resource project/consultation Projects in Canada, and Western Canada in particular, that involve an interest in lands, minerals, forestry, energy extraction or transportation or any right granted by a governmental authority (such as a permit to construct or operate) can be significantly impacted by Indigenous rights. Many Indigenous groups have constitutionally protected rights under the Constitution Act, 1982. But otherwise, in light of the government’s unique relationship with Canada’s Indigenous peoples, current Canadian case law requires that provincial and federal governments consult with and accommodate, where appropriate, the concerns of Indigenous groups who may be affected by a government action or decision. In British Columbia, where there are no treaties, this is particularly the case. As noted above, Coastal GasLink, a TC Energy project to bring gas to an LNG facility at tidewater in Kitimat, faced significant opposition this year. At the beginning of 2020, the Supreme Court of Canada dismissed British Columbia’s reference case appeal to the Trans Mountain Expansion Project and in early February, the Federal Court of Appeal affirmed the Government of Canada’s consultations with Indigenous communities. The project is now underway and accelerating. The Trans Mountain Corporation has signed agreements with 58 Indigenous communities to date. Whether there will be similar opposition as has been seen to the Coastal GasLink project notwithstanding such agreements remains to be seen as the project nears the coast.

Debt/crisis and outlook As outlined above, the country is going through an unprecedented upheaval with the virtual cessation of economic activity, other than essential services or services that can be undertaken remotely, and massive amounts of government stimulus. How long this takes to emerge from, and what will be left of activity in 2020, is still uncertain. The prevailing view does now appear to be that the recovery will be ‘U-shaped’ (rather than a sharp ‘V-shaped’ recovery), and, optimistically, will take some three-plus years to overcome, even if our global health crisis comes to an end much sooner than that.

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M&A activity in the first quarter of 2020, before the crisis bit into North America, was active but slowing in any event. Deals that are able to be completed appear to be continuing where possible, but review of material adverse change (MAC) clauses is a more prevalent question on the part of parties to a proposed transaction.

* * *

Endnotes 1. Bank of Canada Press Release, March 27, 2020. 2. S&P Global Market Intelligence.

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Valerie Mann Tel: +1 604 631 9173 / Email: [email protected] Valerie is a Partner of Lawson Lundell LLP, a Canadian law firm with offices in four cities in Western Canada and the North, with a head office in Vancouver, British Columbia where the firm is the largest independent head-office law firm in the city. Valerie is the Co-chair of the firm’s Mergers & Acquisitions practice group and the Chair of the Technology Law practice group. In her practice, Valerie has extensive experience with mid-market acquisitions and dispositions in a variety of industries, including real estate, technology, resources, manufacturing and service industries. A significant portion of her practice is private company acquisitions/dispositions as well as private equity and venture capital fund formations. Over the past several years, Valerie has assisted clients in private equity and venture fund formations. Valerie is the former Managing Partner of Lawson Lundell. She has been recognised as one of BC’s Most Influential Women in Business (2015) and Most Influential Women in Finance (2018) by BC Business magazine, was recognised by Lexpert as one of 50 leading women lawyers (2013) and was inducted into the Women’s Executive Network Canada’s Most Powerful Women: Top 100™ Hall of Fame in 2018.

Lawson Lundell LLP Suite 1600 Cathedral Place, 925 West Georgia Street, Vancouver, British Columbia V6C 3L2, Canada Tel: +1 604 685 3456 / URL: www.lawsonlundell.com

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Coralie Oger FTPA Avocats

Overview Despite the overall uncertainty created by the Yellow Vests movement, which held repeated protests against the government throughout the year, the French market has shown resilience. The year 2019 recorded an average level of mergers and acquisitions (“M&A”) deals in France, amounting to $180.1 billion (€160.2 billion). This figure is close to the 2018 financial year numbers, marked by both domestic and international factors that weakened the attractiveness of the French market and lowered French actors’ confidence. However, the French market contrasts with the trend observed worldwide. Indeed, worldwide M&A activity amounted to $3.9 trillion during 2019 which represents a decrease of 3% compared to a year ago. However, despite this decrease, it was still the fourth-largest annual period for M&A since records began in 1980 and the sixth consecutive annual period to surpass $3 trillion. Whereas M&A activity for European targets amounted to $751 billion (a decrease of 25% compared to 2018 levels), M&A activity for US targets totalled $1.8 trillion during 2019, an increase of 6% compared to the level of activity seen during 2018. Overall, 49,889 worldwide deals were announced during 2019, which represents a 32% decrease compared to the previous year. In 2019, M&A activity in France increased to 21.1%, reaching an amount of $180.1 billion (€160.2 billion), whereas in 2018, the volume of transactions amounted to $173 billion (€153 billion). In France, 226 leveraged buyout (“LBO”) transactions were completed in 2019, far fewer than 2018 which saw 300 LBO transactions. Six LBO transactions with a valuation greater than or equal to €1 billion were listed. The two biggest LBO transactions of 2019 were those conducted by Groupe Bruxelles Lambert on Webhelp amounting to €2.4 billion ($2.713 billion), and by Goldman Sachs Private Equity Group on B&B Hotels amounting to €1.9 billion ($2.148 billion). Private equity-backed buyouts accounted for 13% of M&A activity during 2019. Overall value increased by 5% compared to a year ago, but registered a 1% decrease by number of deals. 2019 marks the strongest annual period for private equity deals since the beginning of the financial crisis. 2019 was also a successful year for initial public offerings (“IPOs”) in France, and was characterised by (i) the trade tensions between the United States and China, (ii) the beginning of the change in interest rate policy in the United States and Europe, (iii) concerns about the decline in global growth, and (iv) continuing geopolitical tensions (Brexit, Hong Kong, Middle East). Eight IPOs were conducted in 2019, five of which were carried out on

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Euronext Growth and three on Euronext. In 2018, 17 IPOs were performed, but the amount raised increased by 100% in 2019 (€1,093 billion ($1,236 billion) raised in 2018, compared to €2,928 billion ($3,321 billion) raised in 2019), the highest level since 2015. We must point out that the increase in amounts raised is due to two major transactions: the biggest IPO on Euronext Paris of the last 15 years conducted by La Française des Jeux, which raised €1.8 billion (approximately $2 billion); and the IPO carried out by Verallia, which raised more than €900 million (approximately $1 billion).

Significant deals and highlights Acquisitions by French actors around the world in 2019 CAC 40 companies from all sectors announced multi-billion deals in 2019 and realised acquisitions around the world. Strengthening of LVMH in the United States LVMH, the world’s leading luxury group, and Tiffany & Co., the global luxury jeweller, entered into a definitive agreement on 25 November 2019, whereby LVMH acquired Tiffany for $135 per share in cash, in a transaction with an equity value of approximately $16.2 billion (approximately €14.3 billion). The acquisition of Tiffany will strengthen LVMH’s position in jewellery and further increase its presence in the United States. The addition of Tiffany will transform LVMH’s Watches & Jewellery division and complement LVMH’s 75 distinguished Houses. Acceleration of the digital transformation of Publicis In April 2019, Alliance Data Systems Corporation, a leading global provider of data-driven marketing and loyalty solutions, entered into a definitive agreement to sell its Epsilon business to Publicis Groupe, one of the world’s largest leading global marketing, creative and business transformation companies, for $4.4 billion (approximately €3.8 billion). This transaction aimed to accelerate Publicis’ transformation to provide its customers with marketing solutions based on technology and data. Dassault Systèmes at the forefront of the digital transformation of life sciences In October 2019, Dassault Systèmes announced the completion of the acquisition of Medidata Solutions, Inc., whose clinical expertise and cloud solutions enable the development and commercialisation of smarter therapies, for $5.8 billion (approximately €5.1 billion). This acquisition will position Dassault Systèmes at the forefront of the digital transformation of life sciences in the era of personalised medicine and patient-centric experience, with a comprehensive offering that reflects an in-depth knowledge ofthe healthcare sector, its ecosystem and its needs. Saint-Gobain’s development in the field of construction In November 2019, Saint-Gobain and Continental Building Products entered into a definitive agreement pursuant to which Saint-Gobain acquired all of Continental Building Products’ outstanding shares for $37 per share, in cash, in a transaction valued at approximately $1.4 billion (approximately €1.3 billion). This represented Saint-Gobain’s biggest acquisition in the last 10 years. This acquisition will enhance and strengthen the Group’s industrial and commercial presence in the field of lightweight construction systems in North America, will broaden Saint-Gobain’s asset portfolio and enhance its ability to provide a wider customer base with innovative solutions.

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Total’s development in Africa Total entered into a binding agreement with Occidental to acquire Anadarko’s assets in Africa (Algeria, Ghana, Mozambique, South Africa) for a consideration of €8.8 billion ($9.9 billion) in the event of a successful completion of Occidental’s ongoing bid for Anadarko. In August 2019, Total and Occidental Petroleum entered into a Purchase and Sale Agreement (“PSA”) in order for Total to acquire Anadarko’s assets in Africa. Under this agreement, Total and Occidental completed the sale and purchase of the Mozambique and South Africa assets. Total decided not to acquire the remaining assets in Algeria and Ghana. Public offers involving a French target in 2019 The Terreis issuer bid The issuer bid by Terreis, a real estate company based predominantly in Paris, for its own shares was the biggest closed bid in 2019. The transaction resulted in the repurchase of €392 million ($433 million) worth of shares, valuing the company at €889 million ($1,004 billion). It was followed by a squeeze-out offer in September 2019, launched by the majority shareholder, Ovalto. Searchlight Capital Partners’ tender offer bid over Latécoère The second most important offer for 2019 was a takeover bid launched by Searchlight Capital Partners over Latécoère, a French aeronautical equipment manufacturer. The American investment fund launched the offer after acquiring a 26% stake in Latécoère in April 2019. The offer was extended until December 2019, allowing the fund to increase its ownership to 65.55% of the capital. This acquisition was made for an amount exceeding €100 million ($113 million). Latécoère is a leader in the field of aerostructures and interconnection systems. This represents Searchlight Capital Partners’ first acquisition in the aeronautical field and in France. Andromeda Investissements’ simplified tender offer over April The third-largest bid listed in 2019 was a simplified tender offer STOA(“ ”). It was launched by Andromeda Investissements over APRIL Group, a French insurance company. In June 2019, the acquisition resulted in the repurchase of shares for €118 million, valuing APRIL at €886.5 million ($1 billion). Another major deal in which the target was listed: Merger between the French Peugeot Citroën and the Italian-American Fiat Chrysler In December 2019, Peugeot Citroën merged with Fiat Chrysler for €40 billion ($45.1 billion). This deal was one of the five major M&A transactions in Europe in 2019. This “merger of equals” will enable the two automotive companies to create the world’s fourth- biggest car maker. The Italian-American and French companies said the 50-50 tie-up would create a company with annual vehicle sales of €8.7 million ($9.8 million), revenues of €170 billion ($192 billion) and operating profits of more than €11 billion ($12.43 billion). It is expected to generate savings and other benefits of €3.7 billion ($4.18 billion) without any factory closures.

Key developments Law n°2019-744 of 19 July 2019 relating to the simplification, clarification and updating of the corporate law (“SOILIHI Law”) The objective of the SOILIHI Law is to simplify corporate law in France.

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General meetings within public limited companies (sociétés anonymes) • Meeting agenda The nullity of deliberations taken at shareholders’ meetings in public limited companies on a subject that has not been included in the agenda is now optional for courts (where in the past it was mandatory).1 • Vote count The vote-counting method in the General Meeting of Shareholders within public limited companies is modified, since only the votes cast by the shareholders present or represented shall be counted. Abstentions and null and void votes or blank votes shall therefore no longer be considered negative votes and shall simply be excluded from the count.2 These new provisions began to apply from the shareholders’ meetings convened to rule on the first financial year ending after 19 July 2019. • Meetings dematerialisation The right of shareholders of unlisted public limited companies (SA) representing at least 5% of the share capital to oppose the holding of meetings by videoconference or by telecommunication means is now limited to extraordinary meetings.3 • Answers to written questions The board of directors or supervisory board of public limited companies (SA) has the possibility to delegate the answering of written questions from shareholders to one of its members, to the managing director or to the deputy managing director of the company. Decisions adopted by the board of directors or the supervisory board The members of the board of directors or supervisory board of a public limited company (SA) may now, subject to the provisions of the articles of association, adopt certain decisions by written consultation (authorisation of endorsements and guarantees, transfer of the registered office within the same department, convening of the meeting, etc.).4 Automatic resignation of public limited company officers (SA) The SOILIHI Law provides that the director, the chairman of the board, the managing director, the deputy managing director or the member of the executive board or the supervisory board of a public limited company placed under tutorship is deemed to have resigned automatically.5 It also specifies that the decisions in which these same officers would have taken part, in the event that they would have been irregularly appointed or would have been deemed to have resigned automatically (i.e. in the event of reaching the age limit or, henceforth, of being placed under guardianship), are no longer null and void. Nullity of shareholders’ collective decisions within limited liability companies (société à responsabilité limitée) The breach of the quorum and majority rules relating to limited liability companies’ general meetings provided for in Articles L.223-29 and L.223-30 of the French Commercial Code is now punished by the (optional) nullity of decisions, which may be requested by any interested party. Dismemberment of shares and collective decisions In virtue of the SOILIHI Law, in the event of the dismemberment of shares in simplified joint-stock companies (SAS), limited liability companies (SARL), limited partnership with shares (sociétés en commandite par actions) or non-trading companies (sociétés civiles), the voting right still belongs to the beneficial owner for the allocation of profits but may now be attributed, by agreement between the parties, either to the bare owner or to the beneficial owner for all other matters.6

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Moreover, the SOILIHI Law now recognises the right of the beneficial owner and the bare owner, in any company, to participate in collective decisions regardless of who holds the voting right. Convening notices must therefore be addressed to each of them. Capital increase reserved for employees The three-year obligation to convene an extraordinary general meeting to decide on a capital increase reserved for employees of joint-stock companies who are members of a company savings plan is abolished. Endorsements and guarantees The granting of endorsements and guarantees by a public limited company (SA) (other than banking or financial institutions) is subject to the authorisation of the board of directors or supervisory board, which must generally limit the amount thereof. As an exception, to guarantee the commitments of controlled subsidiaries within the meaning of Article L.233-16, II of the French Commercial Code, the board of the parent company may now (i) grant this authorisation globally and annually without any limit on the amount, and (ii) authorise the managing director or the executive board to grant such endorsements and guarantees globally and without any limit on the amount, subject to a report to the board at least once a year.7 Specific advantages and industry contributions (apport en industrie) within simplified joint- stock companies (sociétés par actions simplifiée) In simplified joint-stock companies, the obligation to appoint a court-appointed auditor in case of (i) granting specific advantages at the time of the company’s incorporation, or (ii) industry contributions, is abolished.8 Exclusion of simplified joint-stock companies’ shareholders An exclusion clause can now be adopted or amended in the articles of association of a simplified joint-stock company, in the same way as an approval clause, subject to statutory majority rules (and not necessarily by a unanimous vote as was the case before the SOILIHI Law).9 Allocation of stock options within a listed company The period during which listed companies are prohibited from granting stock options on the grounds of publication of the accounts or knowledge of inside information has been shortened. Stock options may now be granted as of the day following the publication of the financial statements or the date on which inside information is made public, as the case may be.10 Repurchase by a company of its own shares The legal regime for the repurchase by an unlisted company of its own shares is more flexible, since the shareholders may, as of the general meeting authorising the repurchase, authorise the management to use the repurchased shares for a purpose other than that initially planned.11 Listed companies that intend to repurchase their shares in order to allocate them to their employees or managers are now required to do so in accordance with the provisions of Article L.225-209 of the French Commercial Code. Extension of the simplified merger regime The regime for simplified mergers benefiting, with certain divergences, (i) joint-stock companies and limited liability companies (SARL) in the event of the absorption of a subsidiary in which they hold 100% of the capital, and (ii) joint-stock companies in the event of the absorption of a subsidiary in which they hold at least 90% of the voting rights, is extended to the case of a merger between sister companies as long as the parent company permanently holds 100% of the capital or at least 90% of the voting rights of the two entities between the filing of the draft merger agreement with the Trade Register and the completion of the transaction.12

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Similarly, the law applies the simplified merger regime to a partial asset contribution carried out by a wholly-owned subsidiary for the benefit of its parent company or by a parent company for the benefit of its wholly-owned subsidiary if, between the filing of the draft partial asset contribution agreement with the Trade Register and the completion of the transaction, the ownership remains unchanged.13 Finally, a simplified merger regime is created between non-trading companiessociétés ( civiles) allowing, subject to certain exceptions, “if the articles provide for consultation of the shareholders of the absorbing company”, the absence of such consultation “where, from the time the proposed merger is filed with the Registry and until the transaction is completed, the absorbing company holds at least 90% of the shares of the company being acquired”.14 Statutory auditors The SOILIHI Law now (i) offers the possibility of requesting the appointment of a statutory auditor by the shareholders of joint-stock companies (SA, SAS and SCA), (ii) lowers the ownership threshold to one-third of the share capital regardless of the corporate form, and (iii) limits the term of office of the auditor thus appointed to three financial years. Transfer of shares within non-trading companies The filing with the Trade Register, for the purposes of third-party effectiveness, of the share transfer deed in non-trading companies (sociétés civiles) can now be realised electronically, as is the case for limited liability companies (SARL).15 Goodwill The SOILIHI Law simplifies the drafting of business transfer agreements by removing a certain number of mandatory mentions (name of the previous seller, statement of liens and pledges encumbering the business, turnover over the last three years, etc.).16 Previously, the absence of such mentions could result in the deed being declared null and void. Moreover, a business can now be under a management lease (location-gérance) even if it has not been previously operated for a period of two years by its owner.17 Determination of the selling price by an expert Article 1592 of the French Civil Code provides that the determination of the selling price may be left to the appraisal of a third party, but “if the third party is unwilling or unable to make the appraisal, there is no point of sale”. The SOILIHI Law now allows, in the event of default by such third party, the intervention of a second expert on a subsidiary basis. Modifications of the legal regime relating to the foreign investments in France pursuant to Decree n°2019-1590 and Order of 31 December 2019 (effective as of 1 April 2020) Extension of the scope of the Ministry’s prior authorisation Foreign investment projects in the following sectors are now covered by the prior authorisation procedure: • The production, processing or distribution of agricultural products listed in Annex I of the Treaty on the Functioning of the EU, when they contribute to certain food security objectives (9°, II of Article R. 151-3 CMF amended by Decree n°2019-1590). • Publishing, printing or distribution of the written press for political and general information, together with online press services for political and general information (10°, II of Article R. 151-3 CMF amended by Decree n°2019-1590). • Research and development (“R&D”) activities relating to critical technologies, such as quantum technologies and energy storage when these activities and technologies are implemented in one of the sectors concerned by the control system (11°, II of Article R. 151-3 CMF amended by Decree n°2019-1590).

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Unification of the list of controlled activities to all investors The decree introduced a single list of controlled activities, regardless of the investor’s domicile. Consequently, the list of controlled activities has been extended for European investors. Extension of the notion of French investor controlled by a foreign company Where control has not been established on the basis of Article L.233-3 of the Commercial Code, it must now be assessed in the light of Article L.430-1 of the Commercial Code, i.e. in consideration of the rights, contracts or other means which, alone or jointly and having regard to the factual or legal circumstances, confer the possibility of exercising a decisive influence on the business of the company. Lowering of the threshold required for investments from a non-member country The 33.33% threshold has been lowered to 25%. The decree mentions that this threshold can be crossed “directly or indirectly, alone or in concert”. Amendments relating to the authorisation procedure The list of documents and information to be provided in support of the request for authorisation has been modified and the timing for the analysis of the filing by the French Ministry of Economy has been reduced from two months to 30 working days. In the absence of a reply within this period, the filing is now deemed to be rejected. Modifications of the legal regime to the foreign investments in France in the context of COVID-19 contribution by the order of 27 April 2020 In the context of COVID-19, France announced at the end of April 2020 that the government reinforced the legal regime of the foreign investments in France. Extension of the list of critical technologies The order, dated 27 April 2020, added biotechnologies to the list of “critical technologies”, composed of seven sectors: (i) cybersecurity; (ii) artificial intelligence; (iii) robotics; (iv) additive manufacturing; (v) semiconductors; (vi) quantum technologies; and (vii) energy storage. Lowering the threshold for initiating the procedure The threshold shall be temporarily lowered to 10% for French listed companies. The General Direction of the Treasury specified the terms and conditions of such forthcoming lowering of the threshold: • it will apply only to listed French companies; • it will not apply to European investors; • it should be applicable in the second half of 2020, until 31 December 2020; and • it will be carried out according to a special procedure: any investor from a non-Member country crossing the 10% holding threshold will have to notify it, and the Minister of the Economy will then have 10 days to decide whether or not the transaction should be subject to further examination on the basis of a full application for authorisation. The 2020 Finance Law Finance Law n°2019-1479 dated 29 December 2019 contains a certain number of tax measures: Delayed implementation of reduced corporate income tax rate for large companies The 2020 Finance Law modifies the rate reduction for “large companies” (i.e. those with revenue equal to or greater than €250 million, such threshold of revenue being determined at the level of a tax consolidation group, when appropriate). The standard corporate income tax rate for such companies is (i) 31% for financial years beginning on or after 1 January 2020, while a corporate income tax rate of 28% continues to be imposed on the first

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€500,000 of taxable profit (already effective for financial years opened on or after 1 January 2019), and (ii) 27.5% for financial years beginning on or after 1 January 2020 on their entire taxable profit. For the other companies (i.e. those with revenue below €250 million, such threshold of revenue being determined at the level of a tax consolidation group, when appropriate), the standard corporate income tax rate remains unchanged and is 28% for financial years beginning on or after 1 January 2020. Taxation of corporate executives Under new rules provided by the 2020 Finance Law, executives of large French companies whose annual turnover exceeds €250 million will be deemed to perform their principal professional activities in France and, consequently, will be considered French tax residents. If the company is a member of a group of controlled companies, the €250 million annual turnover threshold is determined at the level of the group within the meaning of Article L.233-16 of the French Commercial Code. The rule covers: • the chairman of the board of directors when he or she assumes the general management of the company; • the managing directors; • the deputy managing directors; • the chairman and the members of the executive board; and • the managers and other officers with similar functions. This new rule covers not only personal income but also real estate wealth tax (impôt sur la fortune immobilière), together with inheritance and gift taxes. It applies from (i) 1 January 2019 for individual income tax, (ii) 1 January 2020 for real estate wealth tax, and (iii) the date of publication of the law, for inheritance and gift taxes. Adjustment of the R&D tax credit French tax law provides for an R&D tax credit on qualifying research expenses. Eligible expenses generally include R&D staff expenses, together with general and administrative (“G&A”) expenses used for R&D activities in France. The 2020 Finance Law provides for a decrease of the percentage (from 50% to 43%) of G&A expenses taken into account as qualifying expenses for R&D activities in France. The 2020 Finance Law also introduced a specific set of measures in order to prevent the abuse of subcontracting schemes which allowed some taxpayers to benefit, several times, from the R&D tax credit. These measures are effective with regard to expenses incurred from 1 January 2020. Postponement of the non-resident withholding tax The 2020 Finance Law postponed the removal of the partially final nature of the withholding tax which will now apply to income received from 1 January 2021. Further, the specific non-resident withholding tax system with its three rates (0%, 12%, and 20%) is maintained until 1 January 2023. Wages, pensions, and life annuities received from 2023 will fall under the withholding tax system (Prélévement à la Source) introduced in 2019 and will be applicable to French resident taxpayers.

The year ahead Deal makers were optimistic about M&A and capital markets in 2020. Throughout January and February 2020, financial markets seemed to be resilient against the fallout from COVID-19; however, the situation changed dramatically in March 2020. According to an

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Accenture analysis, in March 2020, companies cancelled four times the number of deals compared to the same month the year before. The headline figures for the first quarter of 2020 looked fairly healthy in Europe. The value of announced M&A was up 74% year-on-year to $302 billion, the second-highest quarter for 10 years. French companies remained active, with cross-border deals rising five-fold year- on-year, driven by large deals such as Alstom’s $8.2 billion offer for train-builder Bombardier Transportation, and French insurance group Covéa’s acquisition of PartnerRe for $9.1 billion. Nevertheless, it is likely that the most affected countries, such as France, will experience a recession this year, even though the French government took exceptional measures in order to support businesses encountering cash issues, such as (i) postponement of certain tax and social security payments without penalty or late payment interest, (ii) the creation of a solidarity fund, and (iii) financial support from BPI France, the French public bank. The French government also extended the regime of partial unemployment in order to maintain the level of employment. Prior to the crisis, the number of M&A deals was already on a slight downward trend. This trend will accelerate at least in the short term due to COVID-19. We anticipate that there will be strategic opportunities to acquire IP, capabilities and talents but probably in distressed situations. There will be a significant increase in distressed M&A. Nevertheless, M&A trends will probably be different by sector and geography and the long- term impact of COVID-19 on the economy remains uncertain.

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Endnotes 1. See Article L.225-121 of the French Commercial Code. 2. See Articles L.225-96 and L.225-98 of the French Commercial Code. 3. See Article L.225-103-1 of the French Commercial Code. 4. See Articles L.225-37 and L.225-82 of the French Commercial Code. 5. See Articles L.225-19, L.225-48, L.225-54, L.225-60 and L.225-70 of the French Commercial Code. 6. See Article 1844 of the French Civil Code. 7. See Articles L.225-35 and L.225-68 of the French Commercial Code. 8. See Articles L.227-1 and L.227-1 of the French Commercial Code. 9. See Article L.227-19 of the French Commercial Code. 10. See Article L.225-177 of the French Commercial Code. 11. See Article L.225-209-2 of the French Commercial Code. 12. See Article L.236-11-1 of the French Commercial Code. 13. See Article L.236-22 of the French Commercial Code. 14. See Article 1854-1 of the French Civil Code. 15. See Article 1865 of the French Civil Code. 16. See Article L.141-1 of the French Commercial Code. 17. See Article L.144-2 of the French Commercial Code.

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Sources This chapter is based on reports in the financial press, specialist reports, and company and financial websites (Refintiv, CF News, Accenture, etc.).

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Coralie Oger Tel: +33 01 45 00 86 20 / 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 Paris 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 the Orange County office (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 Avocats 1 bis, Avenue Foch, 75116, Paris, France Tel: +33 01 45 00 86 20 / URL: www.ftpa.com

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Sebastian Graf von Wallwitz & Heiko Wunderlich SKW Schwarz Rechtsanwälte

Overview The following chapter provides an overview of the M&A landscape in Germany in 2019. It addresses key market trends and transactions as well as significant 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. Compared with the previous year, the total volume of deals with a German component in 2019 has decreased significantly. After an extraordinary year in 2018, the statistics have now dropped back to a normal level. In terms of total transaction volume, a strong third quarter was followed by a very weak fourth quarter, so that the year for overall M&A in Germany will be remembered as below average. This decline is especially due to the trade dispute between the US and China and also Brexit, which has led to much uncertainty, particularly in export-dependent sectors of the German industry. Especially after the last quarter, it turned out that there were no deals with significant value (USD 10bn or more) in 2019. Volume and value of transactions According to a study by Allen & Overy, the total volume of deals in 2019 with a German component amounted to approximately USD 143bn (EUR 127bn). This is only a little more than half of the deal volume of 2018 (USD 257bn). According to statistics from PwC, there were 757 deals with a foreign component by mid- November, which is more or less the average for that time. The expectation was that the number would have increased to about 866 transactions for the full year. This would be a slight increase as compared to 837 deals with foreign participation for 2018. Interestingly, the average transaction value decreased from around EUR 317m to EUR 258m. This development is due to the fact that the trend drifted towards smaller investments. On a global level, Europe achieved a volume of around EUR 889bn in 2019 according to the IMAA Institute. This represents a decrease of about 17.4% on last year’s deal values. Most buyers of German companies came from the US, with 179 transactions by mid- November. The UK came in second with 111 transactions. Other significant purchasers were Switzerland with 67 transactions and France with 59, followed by the Netherlands with 45 deals and China, including Hong Kong, with 40 deals. Significant deals and highlights in 2019 In 2019, there was a growing tendency towards two types of transactions: the “public-to- private” deals on the one hand; and the so-called “carve-outs” on the other. Prominent examples were the intended takeovers of German-based companies Scout24 and OSRAM Licht AG by private equity investors and their anticipated withdrawal from the stock exchange. Both transactions failed in the end but show the trend in taking companies off the stock market.

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Besides, more companies are selling off areas that are not part of their core business; for example, the sale of the Animal Health Business unit from Bayer AG to US-based Elanco Animal Health Inc. which was the largest transaction of the year. The EUR 6.6bn transaction was announced in August 2019 and is currently still pending. The rationale for this deal is the need for Bayer to raise cash after the hugely expensive Monsanto transaction. Second place of the largest transactions in 2019 went to the announced takeover of OSRAM Licht AG by Austrian ams AG with a deal volume of EUR 3.6bn. The sale of Currenta GmbH & Co OHG. to Macquarie Infrastructure & Real Assets (Europe) Limited (an Australian investment bank) for EUR 3.5bn was also announced in August 2019. Once closed, it will be the third-largest transaction of 2019. US financial investor KKR & Co. Inc. acquired shares in Axel Springer SE forEUR 2.9bn, which was announced in May 2019. This transaction is highly significant for the German media industry, given the importance that the Axel Springer publishing house has had over decades. The acquisition of Axel Springer is part of a larger push by KKR into the German media market. The Finnish Fortum Oyj planned to purchase shares in Uniper SE for EUR 2.2bn. Triton Investment Advisers LLP and Luxinva S.A. (GB) bought IFCO SYSTEMS GmbH for EUR 2.2bn. The deal was closed in May 2019. Hudson’s Bay Company – Europe Retail Ops was sold to SIGNA Retail GmbH in October 2019 for EUR 1.3bn. In September 2019, Qualcomm Incorporated (USA) bought 49% of RF360 Europe GmbH for EUR 1bn. The Japanese company DIC Corporation announced it would be taking over BASF’s global pigment unit for EUR 1bn. The transaction is also still pending and should be completed in the fourth quarter of 2020.

Key legal practice developments MAC clauses – gain in importance So-called material adverse change (MAC) clauses, which grant a contractual right of withdrawal in case material adverse changes occur in the target company or its market environment, are becoming increasingly important during the current coronavirus (COVID-19) crisis. These clauses in the future will be much more of a focus in contract negotiations than they used to be as a result of the pandemic. Data protection Another topic that has quickly become a focus in the context of M&A transactions is the issue of data protection. This is a result of the rapidly rising importance of big data as a transaction rationale and the requirements of the General Data Protection Regulation (GDPR) in the transaction process. This also ties into the increasing use of legal tech instruments in German transactions. Increased scrutiny for foreign investment in Germany As reported previously, the German Foreign Trade Ordinance (Aussenwirtschaftsverord- nung) was amended to now apply to transactions from non-EU buyers who intend to purchase in excess of 10% of the shares in a German company which is part of Germany’s critical infrastructure.

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As a direct response to the COVID-19 crisis and the concern that German companies might be easy targets for foreign takeovers, the definition of critical infrastructure will be expanded to companies active in specific sectors of the healthcare industry, such as manufacturers of vaccines or personal protective equipment (PPE). This further change in the law is expected to come into effect during the summer of 2020. Use of foreign notaries As addressed in last year’s chapter, the use of foreign notaries – mostly Swiss and Austrian – for transactions involving a limited liability company (GmbH) in Germany was facilitated through a court decision of the Berlin High Court (Kammergericht) of 24 January 2018 (docket number 22 W 25/16). The Court held the notarisation of corporate measures of the GmbH, in this case the founding of the GmbH, by a Swiss notary from the canton of Bern as being in line with German notarial procedures and therefore effective. The Court ordered that the registration of such measures with the German commercial register would have to proceed. The practice of having documents notarised by notaries outside of Germany has been for the straightforward reason of avoiding the non-negotiable, and fairly substantial, fees charged by German notaries on the basis of statutory notary fee regulations. By contrast, for example in Switzerland, it is possible to freely negotiate notary fees, which leads to not insignificant reductions of transaction costs. The indicated approval in principle of the use of foreign notarisations which was suggested by the Berlin High Court decision was re-confirmed again by a further decision rendered by the Kammergericht Berlin, dated 26 July 2018 (docket number 22 W 2/18). It objected to the commercial register’s decision to not register a merger, notarised in the canton Basel- Stadt. The High Court outlined the equivalence in that specific case of the notarisation process of Basel-Stadt in comparison to the German requirements. However, it also stated that the notarisation should preferably be carried out by a German notary, because such notarisation is deemed to have been done according to German requirements. The question for or against the use of a foreign notarisation will have to be looked at on a case-by-case basis, but the recent court decisions have certainly strengthened the case for using foreign notaries in transactions where transaction costs matter. Exclusion of statutory liability for purchaser claims in an SPA In its decision of 26 September 2018 (docket number VIII ZR 187/17), the German Supreme Court (Bundesgerichtshof ) had a chance to examine aspects of representations and warranty exclusions in M&A transactions. The background of the decision was a lawsuit brought by a purchaser of a former 50/50 joint venture. The purchaser had bought the outstanding 50% of the shares in a GmbH (limited liability company) which he did not already own. After closing, it transpired that the GmbH was essentially insolvent. The sales and purchase agreement (SPA) contained an exclusion of all legal warranties other than as set forth in the SPA. The Court first reiterated its long-standing jurisprudence by which the purchase of all, or almost all, of the shares in a GmbH is to be considered under the civil code rules governing the purchase of (defective) products rather than the rules governing those of (defective) rights. However, in a case where one party already owns 50% of a GmbH and purchases the remaining 50% of the shares, this is to be seen (only) as a purchase of rights to which the rules on defective products do not apply. This is true even in cases where the company proves to be insolvent at the time of the purchase. The seller is not liable for the economic value of the rights (shares) but only for their existence as such.

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The Court also ruled that in an SPA, the exclusion of liabilities of the seller or the buyer, as far as these relate to statutory provisions for remedies for defective goods or rights, is acceptable in principle. However, even if the SPA contains such exclusion language, this will not generally rule out that either party may claim for an adjustment of the contract in the event that fundamental underlying assumptions of the transaction, such as the ongoing viability of the company, may prove to be incorrect. In this regard, the judgment is fairly important in that it opens the way for the buyer to claim a repayment of the purchase price even short of fraud by the seller.

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). When real estate property is concerned, Real Estate Transfer Tax (RETT) is also of importance. Regarding income tax, a number of specific rules such as thin capitalisation rules or change in ownership rules for tax losses carried forward must be taken into account alongside the Reorganisation of Companies Tax Act (RCTA) and the Foreign Tax Act (FTA). Although German tax law distinguishes between several different types of income, in this chapter we only address business income as this is the most important income source from an M&A perspective, although private equity/venture capital funds in particular do not normally 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 on the personal level of natural persons and to income derived from people 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 on the partner’s level. Correspondingly, profit distributions (withdrawals of profit) 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 (such as 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 flat rate of 15% and also to the solidarity surcharge of 5.5% on the CIT (altogether equating to a tax rate of 15.825%). However, as corporations are not transparent, profit distributions (dividend payments) are taxable as income on the level of the shareholders. Moreover, the corporation is obliged to withhold and pay to the fiscal authorities a withholding tax of 25% plus a 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. 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 profit). However, regarding dividend payments, the 95% exemption is only granted if the directly held participation quota in the company is at least 10% at the beginning of the calendar year.

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Trade Tax 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 businesses as such are taxable. Thus, to determine the TT, additions and reductions from the profit must be made. For instance, lease payments must be added to the profit as well as interest payments. On the other hand, profit 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 profits 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 fiscal year. A loss carry-forward can be set-off against profits of up to EUR 1m without limitations. Above that, only 60% of the profits can be set-off against losses carried forward per year. As regards income and partnerships, 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 profits and capital gains deriving from the respective partnership. Change in ownership rule A loss carried forward for CIT and TT purposes might be extinguished in part or in full if a direct or indirect change in ownership of a corporation takes place. The decisive quota is 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 sufficient amount. The same applies for the TT loss carried forward of a partnership. For restructuring measures, it must be taken into account that, in general, a capital increase will also be treated 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 1 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 prove, inter alia, that the business performed is identical for at least three years before the harmful change in ownership. If the business will be ended, the loss carry-forward will cease accordingly. This regulation intends 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 was intended, as now loss carried forward can again – in a positive way – be taken as a valuable asset for an ongoing enterprise. Thin Capitalisation Rule (Interest Barrier Rule and Licence Barrier Rule) Germany’s current Thin Capitalisation Rule (also known as the Interest Barrier Rule) is based on the premise that international groups shift profits from German companies to companies abroad by granting interest-bearing loans to the German companies, which are therefore

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© Published and reproduced with kind permission by Global Legal Group Ltd, London SKW Schwarz Rechtsanwälte Germany designated to limit the tax deduction of interest paid by a company. The Thin Capitalisation Rule does not apply if (i) the difference between interest earned and interest paid is less than EUR 3m, (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 it exceeds such – in the amount of the “clearable EBITDA”. Clearable EBITDA is defined as 30% of the profit, modified by some additions and some subtractions. Clearable EBITDA not used can be carried forward for the purpose of the Thin Capitalisation Rule. In particular, the rules for determining the equity ratio are complex and a detailed database of all group companies is necessary. The Thin Capitalisation 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 final resolution. The newly introduced Licence Barrier Rule, which entered into force as from 1 January 2018, is another aspect of Germany’s Thin Capitalisation Rule concept. The target of the concept is to hinder German taxpayers in 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 (whereas low tax is defined within the law more specifically). However, the deduction on the licensee’s level is permitted if the taxpayer can prove that the licensor has taken advantage of a nexus approach according to the OECD definition. Reorganisation of the 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 benefit from the tax neutrality. Moreover, very often an ongoing German taxation right is one of the requirements to be met for obtaining the 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, cross-border reorganisations within the EU can also be tax neutral under special requirements. Some of the measures dealt with in the RCTA will be considered not as measures under the Reorganisation of Companies Act (RCA) but rather as, e.g., a capital increase in kind. Value Added Tax Within the EU there is – based on an EU directive – a common system of VAT, meaning that the VAT rules in general are the same in every EU Member State, with only a little room for a few small national deviations. VAT is one of most important taxes concerning the revenues derived by the State. VAT is also a very formal tax, which means that very often it is decisive that formal requirements must be 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 the 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

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© Published and reproduced with kind permission by Global Legal Group Ltd, London SKW Schwarz Rechtsanwälte Germany regarding income tax and thus, very often, the German taxation rules will be modified (fully or partly overruled) by the regulations of the respective double taxation treaties. With few exceptions, Germany applies the exemption method (and not the credit method) in its treaties in order to avoid 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 to be 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 (TP) rules, 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 According to PwC, the most active sector in 2019 in terms of M&A transactions was industrial production, with 152 deals by mid-November (20%; -2% as compared to 2018), followed by the technology sector with 122 deals (16%; +1% compared to 2018). Third place went to the retail and consumer sector with 119 deals (16%; -3% compared to 2018). The media sector boomed in 2019 with 69 deals (9%; +2% compared to 2018 with only 60 deals). The healthcare sector scored 64 deals, remaining at 8% when compared to last year’s data. The materials sector closed 57 deals which is a significant increase (+3% compared to 2018). Real estate landed 64 deals, and energy increased from only 3% to 6% with 49 deals. Other sectors, such as business services, telecommunications, transport and financial services accounted for 72 deals.

The year ahead In his annual forecast, the German Council of Economic Experts (GCEE) already assumed that both the German and the global economy would stagnate and that economic growth will slow down markedly in the coming years. A key reason for this was the weakness of the industrial sector across countries as well as the ongoing trade disputes with the United States and the impact of Brexit. Now – in times of COVID-19 – it is impossible to create a meaningful forecast of economic development. The outlook for the German economy is also dire, even though it managed the COVID-19 crisis better than other countries. Despite this, and a EUR 130bn government- sponsored investment package, the GDP is expected to contract by 6–7% in 2020 with a recovery of around 5% in 2021. These estimates are, however, entirely dependent on the development of the COVID-19 situation. German M&A activity has essentially come to a complete hold during the lockdown. According to Intralinks, much will depend on when the global economy resumes operations and markets have stabilised to a point where asset valuation is possible again. The closure of deals which are already in process will probably be delayed in some cases until operations can be continued and the damage evaluated. In addition, some of the protection measures adopted as a result of COVID-19, as well as the fundamental increase of protectionism, such as the buying block in Germany, could have a negative impact on the cross-border M&A market in the long term.

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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 firm 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 office 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 financing as well as the succession and estate planning of entrepreneurs and individual persons, as well as authorisation in relation to opposition and fiscal 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 field of international fiscal law and hasa 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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Anuj Trivedi & Sanya Haider Link Legal India Law Services

Overview With a large volume of eclectic deals in both the mergers and acquisitions (“M&A”) and private equity (“PE”) spheres, 2018 witnessed M&A and PE activity in India achieving a great feat, with aggregate deal value crossing the much coveted USD 100 billion mark. Whilst in contrast to overall M&A activity in India hitting a record high in the first half of 2018, the deal value in the first half of 2019 crashed by more than half to USD 41.6 billion, as both domestic and cross-border deals plummeted. M&A deals in India in 2019 witnessed a 5% drop in volume and a whopping 44% decline in deal value as compared to 2018. Even then, M&A activity in India during 2019 surpassed USD 67 billion in aggregate deal value, making 2019 the second-best year for deal activity in India despite a steep decline of 44% compared with 2018. The highlights of 2019, however, were the PE deals. Whilst PE transactions had a rough start in 2019, towards the latter part of the year, PE investment value surpassed the 2018 figure, with deal value growing by over 63% to USD 33.6 billion across around 800 investments. The PE players banked upon India’s long-term growth potential which led to the growth in PE transactions in 2019. The steep increase in the PE sphere was primarily driven by five deals in the billion-dollar club and 67 large deals of USD 100 million and above.

Legal framework The key pieces of legislation that govern M&A transactions in India are listed below: The Companies Act, 2013: The Companies Act is the primary legislation governing all companies in India. All corporate transactions, be it mergers, primary/secondary acquisitions or PE funding must be implemented in accordance with the provisions of the Companies Act, 2013 and read with the rules framed thereunder. The Foreign Exchange Management Act, 1999 (“FEMA”) and Foreign Direct Investment (“FDI”) policy: FEMA and the various rules and regulations issued under FEMA by the Reserve Bank of India regulate foreign exchange transactions in India. The FDI policy issued by the Department of Industrial Policy and Promotion, Government of India (“DIPP”), inter alia, provides contours of law governing foreign investment in India. The Securities and Exchange Board of India (“SEBI”): The securities market in India is, inter alia, governed by the regulations and directions issued by SEBI, the market regulator for publicly listed companies. The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, inter alia, govern M&A transactions which involve the acquisition of a substantial stake in a publicly listed company.

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The Insolvency and Bankruptcy Code, 2016 (“IBC”): The National Company Law Tribunal, being the regulating body as constituted in accordance with the IBC, regulates the dealing of distressed assets under the corporate insolvency resolution process. The IBC has been one of the major contributories to the M&A deal table since it was codified as law. The Competition Act, 2002: The Competition Act, 2002, read with the Competition Commission of India (Procedure in regard to transaction of business relating to combinations) Regulations, 2011, regulate “combinations” and govern those M&A transactions likely to cause an appreciable adverse effect on competition in India. The Income Tax Act, 1961: The tax treatment of M&A transactions in India is governed by the Income Tax Act, 1961 read with double taxation avoidance treaties signed between India and the jurisdictional country of the non-resident person, if any, who is party to the transaction.

Significant deals and highlights Some of the key M&A deals entered into or closed in 2019, under various sectors, are set out below: Retail sector Amazon – Future Group E-commerce giant Amazon acquired a 49% stake in Future Coupons, the promoter entity of India’s second-largest retail chain Future Retail, worth approximately INR 15 billion (USD 200 million). Future Coupons owned 7.3% shares in the publicly listed Future Retail and through this transaction, Amazon has also acquired an approximate 3.58% stake in Future Retail. Technology, media and telecommunications Bharti Airtel – rights issue Bharti Airtel’s rights issue of INR 250 billion (USD 3.5 billion) through issuance of fully paid-up shares at a price of INR 220 per share, and an additional INR 70 billion (USD 0.98 billion) through a foreign currency perpetual bond issue, is set to be one of the most prominent deals of 2019. In the month of April 2019, Bharti, the telecom major, received approval from the Reserve Bank of India to raise funds for increasing its customer experience and base. As per media reports, the fresh fundraising will help to bring down the debt-to-equity ratio of Bharti Airtel from 1.5 times to 0.9 times and the tailing 12-month net debt-to-EBITDA from 4.4 times to 3.5 times. Vodafone Idea – right issue Vodafone Idea’s rights issue raised INR 250 billion (USD 3.5 billion) which is in one of the largest rights issues in the country. This was Vodafone Idea’s first capital raising after the merger of Vodafone India and Idea Cellular in August 2018. Vodafone offered approximately 20 billion equity shares at INR 12.50 per equity share. The issue was covered around 1.08 times. Vodafone Idea had 32% of the revenue market share as of December 2018, and 387 million subscribers. The promoter shareholders, Vodafone Group and Aditya Birla Group, picked up INR 110 billion and INR 72.5 billion worth of shares, respectively. As per media reports, the fresh fundraising will help to bring down the debt- to-equity ratio of Vodafone Idea from 1.6 times to 0.9 times and the tailing 12-month net debt-to-EBITDA from 30.4 times to 23.6 times. Technology sector Brookfield – Reliance Jio Tower In July 2019, Reliance Industrial Investments and Holdings Limited, a wholly owned subsidiary of Reliance Industries Limited, entered into an agreement with BIF IV Jarvis

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India Pte. Limited, an affiliate of Brookfield Asset Management Inc., for an investment by Brookfield (along with co-investors) of USD 3.7 billion in the units proposed to be issued by the Tower Infrastructure Trust. Jio Platforms deals Jio Platforms Limited has raised INR 671.95 billion (USD 8.95 billion) from leading technology investors including Facebook, Silver Lake Partners, Vista Equity Partners and General Atlantic in a span of four weeks in 2020. Facebook bought a 9.9% stake in Reliance Jio for INR 435.74 billion (USD 5.8 billion) in a deal that gives the social media giant a firm foothold in a fast-growing market and helps the Indian oil-to-telecom conglomerate to significantly cut debt. American PE giant Silver Lake Partners bought a 1% stake in Jio Platforms for INR 56.56 billion (USD 750 million) in a deal that took Jio’s enterprise value to INR 5.15 trillion (USD 68.6 billion) – a 12.5% premium to the value indicated by Facebook. The Jio–Silver Lake deal came less than two weeks after the Facebook deal. Vista Equity Partners, a US-based PE firm that runs the world’s largest exclusively tech- focused fund, picked up a 2.32% stake in Jio Platforms for INR 113.67 billion (USD 1.5 billion), making it the third high-profile investment in the Reliance Industries Limited (“RIL”) unit in as many weeks and underlining its status as a next-generation software and platform company. Vista’s investment, which is the third-largest investor in Jio Platforms behind RIL and Facebook, is at a 12.5% premium over the deal with the social media network announced in April 2020. Environment sector Acquisition by Metropolis Investments Holdings Pte. Limited in Ramky Enviro Engineers Limited US buyout giant Kravis Kohlberg Roberts & Co. Inc. (“KKR”) acquired a 60% stake in Hyderabad-based Ramky Enviro Engineers, a waste management company, for approximately USD 530 million. It was the New York-based PE firm’s first deal in the sector after Prime Minister Narendra Modi launched a massive clean-up programme. The acquisition of Ramky Enviro Engineers was made by Metropolis Investments Holdings Pte. Limited (a company belonging to KKR). The deal was significant due to a couple of firsts: for one, this was KKR’s first investment in the impact sector (environment sector) across the globe; and two, this was first investment/acquisition of the scale of USD 530 million in the environment sector. Health and wellness Radiant Life – Max Healthcare merger In June 2019, KKR-backed hospital management firm Radiant Life Care Private Limited acquired a 49.7% stake in Max Healthcare Institute Limited and Max India Limited from South Africa-based Life Healthcare for a consideration of around INR 21.36 billion (USD 284 million). As part of the transaction, Max India’s promoters received an advance of INR 3.61 billion (USD 48.1 million) from KKR in exchange for a 4.99% stake in the merged entity. The acquisition was followed by the merger of Radiant’s Healthcare and Max Healthcare in June 2020, which resulted in KKR and Radiant promoter, Abhay Soi, together acquiring a majority stake in Max Healthcare.

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Renewable energy sector Greenko bond offering Indian renewable energy company Greenko Energy Holdings issued Asia’s largest green bond offering of the year, raising USD 950 million. It was the largest high-yield bond issuance from India for 2019. It is the third issuance from the Indian clean energy producer, which has 4.1 gigawatts of operational capacity across wind, solar and hydropower. Greenko’s shareholders include GIC Holdings and the Abu Dhabi Investment Authority. The notes comprised two tranches: USD 500 million 5.55% senior notes due 2025; and USD 450 million 5.95% senior notes due 2026. The notes are guaranteed on a senior basis by Greenko Energy, and secured by a share pledge over the capital stock of Greenko Solar and a first priority security interest in an escrow account of the net proceeds from the sale of the notes, before the release, to lending or subscription of offerings by Greenko’s Indian subsidiaries. Manufacturing ArcelorMittal and Nippon Steel’s acquisition of Essar Steel ArcelorMittal, the world’s biggest steelmaker, together with Nippon Steel Corporation completed the acquisition of Essar Steel India Limited in December 2019 which, at USD 7.2 billion, was the largest stressed-asset deal to be closed in the country. The Arcelor– Nippon acquisition of Essar Steel was also the largest deal in 2019 by deal value.

Key developments Press Note 4 of 2019 Series By issuance of Press Note 4 of 2019 Series (“PN4 2019”), the DIPP amended the FDI policy with effect from 28 August 2019. Some of the key changes brought in by PN4 2019 are set out below: Contract manufacturing Prior to PN4 2019, whilst the FDI policy permitted 100% FDI under automatic route (that is, without the prior approval of any governmental authority) in the manufacturing sector, there was no clarity with respect to contract manufacturing. However, PN4 2019 has clarified that 100% FDI is also permitted under the automatic route specifically for contract manufacturing activities undertaken in India. This clarifies that foreign investors can set up and operate entities engaged solely in the business of contract manufacturing. The liberalisation has been announced with a view to boost the “Make in India” campaign and will benefit high-value sectors such as pharma. Digital media Prior to PN4 2019, the FDI policy allowed 26% FDI under approval route for print media (that is, the publishing of newspapers and periodicals dealing with news and current affairs) and 49% under approval route in “Uplinking of News and Current Affairs” television channels. However, there was no express provision with respect to digital media in the FDI policy. Considering the growing number of internet users, with PN4 2019, digital media is now on par with print media with 26% FDI under approval route for “uploading/streaming of news and current affairs” on digital media. It is interesting to note that, previously, the FDI policy did not include any limit or restriction on investment in digital media, and thus PN4 2019 has in fact brought about a limit on the permissible FDI in this sector. Single brand retail trading (“SBRT”) The FDI policy permitted 100% FDI under automatic route in SBRT entities with a condition that 30% of the value of goods must be procured from India, if the SBRT entity has an

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FDI of more than 51%. The local sourcing requirement must be met as an average of five years’ total value of the goods purchased, beginning 1 April of the year of commencement of business (that is, the opening of the first store) and must be met thereafter on an annual basis. Sourced goods could be exported: Prior to PN4 2019, the FDI policy did not provide any specific conditions/restrictions with respect to the end use of the sourced goods. However, with a view to boost exports, pursuant to PN4 2019, the goods sourced may now be sold in India as well as be exported. E-commerce operations permissible prior to opening of physical stores: Prior to PN4 2019, the FDI policy allowed only SBRT entities operating through brick-and-mortar stores to undertake retail trading through e-commerce. However, pursuant to PN4 2019, online trade by SBRT entities prior to opening of brick-and-mortar stores is also permitted, on the condition that the SBRT entity will open brick-and-mortar stores within two years from the date of start of online retail. This will help SBRT entities to undertake online sales prior to having a physical presence in India. Entire sourcing from India for global operations to be counted for the purpose of local sourcing: Prior to PN4 2019, the FDI policy provided that only that part of global sourcing which is over and above the previous years’ value will be counted towards the local sourcing requirement. However, pursuant to PN4 2019, entire sourcing from India for global operations (and not just for the incremental value) will now be counted towards the local sourcing requirement. NDI Rules The Government of India notified the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (“NDI Rules”) on 17 October 2019, superseding the erstwhile Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2017 (“TISPRO”) and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018. Further, to put things into perspective, the Reserve Bank of India also notified the Foreign Exchange Management (Debt Instruments) Regulations, 2019 superseding TISPRO, and the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019, which provide for reporting requirements in relation to any investments made under the NDI Rules. The Foreign Exchange Management (Non-Debt Instruments) (Amendment) Rules, 2019, notified on 5 December 2019, inter alia, primarily incorporate the provisions of the PN4 2019 which were not previously reflected in the NDI Rules. While there has not been a drastic revamp of foreign investment regime, below are some of the key changes that came forth with the NDI Rules read with the Amendment Rules: • Hybrid Securities: The NDI Rules introduced the concept of Hybrid Securities as optionally or partially convertible preference shares or debentures or any other such Government- specified instruments, which can be issued to a person resident outside India. • E-commerce: The NDI Rules have limited the purview of e-commerce entities to companies incorporated under the Companies Act, 1956 or the Companies Act, 2013 conducting e-commerce business and no longer includes a foreign company or an office, branch or agency in India, owned or controlled by a person resident outside India, conducting e-commerce business. • Foreign Portfolio Investors (“FPIs”): Under TISPRO, the default aggregate limit for investments made by FPIs in an Indian company was 24%. The NDI Rules have now linked the aggregate limit for investment by FPI in Indian entities to the sectoral cap as

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contained in the NDI Rules. Further, whilst under TISPRO, an FPI could invest only in capital instruments of an Indian company listed on a recognised stock exchange in India, the NDI Rules, inter alia, allow FPIs to invest on a repatriation basis in other instruments such as domestic mutual funds, Category III Alternative Investment Funds, etc. Press Note 3 of 2020 Series In what seems to be a knee-jerk reaction to recent hostile acquisitions made by Chinese companies globally, on 17 April 2020, the Government of India issued Press Note 3 of 2020 Series (“PN3 2020”) with an aim to amend the FDI policy and to curb “opportunistic takeovers/acquisitions of Indian companies”. The PN3 2020, inter alia, provides that an entity of a country, which shares a land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the approval route. Further, any subsequent changes in beneficial ownership, either through direct transfer or otherwise, of any existing or future FDI would result in such beneficial ownership falling within the purview of the first restriction, and has also been put under the approval route. Consequent to PN3 2020, FDIs from Afghanistan, Pakistan, Bangladesh, Bhutan, China, Nepal and Myanmar are now permitted subject to prior Government approval. Labour law reforms The Government of India has taken steps to demystify the complex Indian labour law regime through a new labour law legislation merging 44 laws under four categories: the Code on Wages; the Code on Social Security; the Occupational Safety, Health and Working Conditions Code; and the Industrial Relations Code. While the Code on Wages, 2019 was enacted as legislation in August 2019, the other three Codes are at the pre-legislative consultation stage and are expected to be enacted soon. Tax reforms • Reduction in corporate tax rate: Base corporate tax for existing companies has been reduced from 30% to 22%, and for new manufacturing firms incorporated after 1 October 2019 and starting operations before 31 March 2023, from the current 25% to 15%. • Concessional tax rate of 15% applicable for manufacturing companies to also cover power-generating companies: Under the amended Finance Act, 2019, a concessional tax rate of 15% is applicable on a domestic company set up and registered on or after 1 October 2019 and which starts manufacturing on or before 31 March 2023. This provision has been restricted in application to companies engaged in manufacturing or production and excludes power generation. However, the Government has now decided to extend the concessional tax regime to power-generating companies. • Proposal for a tax holiday for companies bringing new investments: The Ministry of Finance has proposed to give a 10-year full tax exemption to companies making new investments upwards of USD 500 million. The plan will cover sectors including medical devices, electronics, telecom equipment and capital goods. Further, a proposal for a four-year tax holiday to companies that invest USD 100 million or more in labour- intensive sectors such as textiles, food processing, leather, and footwear is also under consideration by the Ministry of Finance. • Dividend distribution tax withdrawn: In a big step to bring in dividend taxation in line with international practices, the Government has decided to withdraw the dividend distribution tax. Under the earlier regime, foreign investors could not get a tax credit for the dividend distribution tax against the taxes to be paid in their home country, leading to double taxation. With the proposal to remove dividend distribution tax, a lower tax rate under the applicable tax treaty may be availed by a foreign investor.

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The year ahead The buoyant M&A and PE activity in India which had a bullish run from 2015 to 2019 seems to have become a despairing victim of compelling economic uncertainties in 2020. These economic uncertainties thrust upon India are not unique to India alone; rather, they are impacting the economies of all countries, with hardly any exceptions. Amidst the Sino-US trade war and the COVID-19 pandemic disrupting the global economy, the Indian economy has had a rollercoaster ride, with the US-Sino trade war giving rise to new opportunities and COVID-19 bringing in some setbacks. The COVID-19 pandemic has had an unprecedented impact on the global economy. The alarming speed at which the pandemic has crippled global economies and brought countries to a standstill has never been witnessed in modern history. Central banks and governments worldwide have unleashed at least USD 15 trillion of stimulus via bond- buying and budget spending to cushion the blow of a global recession tipped to be the worst since the 1930s. With leading economists from global firms lowering the GDP projection of some developed countries, such as the United States of America and the United Kingdom, to negative, the projections of GDP growth for India bring in some hope. As per most leading economists, India in the post-COVID-19 era will still be able to maintain a 2–3% GDP growth rate in this financial year. The Government of India has, in the past few months, announced a wave of reforms to check and revitalise the economy. With special packages being announced to boost the infrastructure sector and the small and medium enterprises sector, India is actively looking to project itself as a global manufacturing hub for companies looking to move their operations out of China. With a projected infrastructure investment of up to INR 111 trillion (USD 1.48 trillion) over five years, India is investing big in facilitating design, delivery and maintenance of public infrastructure as per global standards. InvITs and REITs are likely to ride on the various tax and policy benefits offered to them and are likely to dominate M&A deals in 2020. The relief packages announced by the Government of India to protect companies from the corporate insolvency resolution process under the IBC as part of the COVID-19 reforms could somewhat limit M&A deals in the IBC space. In our view, M&A activity in India will start picking up towards the third quarter, riding high on the various attractive tax policies and regulatory reforms announced by the Government. In the post-COVID-19 era, Indian corporates are more likely to divest their non-core businesses and continue to aspire to consolidate by improving their size, scalability and operating models. Like 2019, this trend may not be limited to strategic investors but could also be closely followed by PE players looking for consolidation in certain sectors by amalgamating their portfolio companies.

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Anuj Trivedi Tel: +91 997 199 2092 / Email: [email protected] Anuj is a Partner with Link Legal India Law Services and has over 15 years of significant experience in mergers and acquisitions, private equity, corporate restructuring and general corporate and commercial laws with an emphasis on foreign investments and joint ventures. He has successfully represented and advised multinational clients on general corporate and commercial law matters, transaction structuring, inbound as well as outbound investments, private equity transactions, acquisitions, business transfers and commercial contract drafting. His experience also extends to advising and assisting a diverse range of clients on complex regulatory matters and assisting them in establishing their presence in India (including by way of joint-venture companies and as not-for-profit companies). Anuj holds a Bachelor of Laws from the National Law Institute University, Bhopal and is a member of the Bar Council of Delhi. Recently, he has been recognised as a “Rising Star” (Corporate and M&A) in the Asialaw Profiles 2020Rankings for India.

Sanya Haider Tel: +91 997 111 9181 / Email: [email protected] Sanya Haider is a Senior Associate at Link Legal India Law Services with a primary focus on the firm’s mergers and acquisitions practice and general corporate advisory. Sanya has seven years of experience in handling matters relating to mergers and acquisitions for leading multinational corporations and foreign investors across sectors including e-commerce, telecom, manufacturing and automotive. Sanya has advised and acted for several mergers and acquisitions transactions, both on the “sell” side as well as the “buy” side. Sanya is involved in the structuring of transactions within the realms of Indian laws. She has drafted and negotiated shareholder agreements, share subscription agreements, share purchase agreements and joint venture agreements and advises on general corporate and commercial aspects of Indian laws.

Link Legal India Law Services Thapar House, Central Wing, First Floor, 124 Janpath, New Delhi 110 001, India Tel: +91 11 4651 1000 / Fax: +91 11 4651 1099 / URL: www.linklegal.in

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

Overview As home to more than 265 million people and being Southeast Asia’s biggest economy based on GDP value, Indonesia has long been recognised as an investment destination with huge, untapped potential. The World Bank’s Ease of Doing Business chart shows that Indonesia ranked 73rd in 2020,1 which remains steady from the rank in 2019,2 and a slight drop from 72nd in 2018.3 Joko Widodo, the incumbent President of the Republic of Indonesia, has stressed the importance of creating a more business-friendly environment so as to improve the perception of Indonesia as a major investment destination. In his second and final term, the President has shifted his development focus from nationwide infrastructure development to improving the quality of human resources in the country and job creation. To implement that vision, the Government has been working on a draft omnibus law that substantially aims to accelerate the business licensing process and eliminate investment-hindering obstacles across numerous sectors. As per May 2020, the omnibus law stands to amend 79 different laws. According to the 2019 edition of Duff & Phelps’s Transaction Trail ReportDuff (“ & Phelps”), M&A deal volume in Indonesia during 2019 reached a total of 94 deals with a total announced deal value of around US$ 7.2 billion, which is a significant decline from 130 deals with a total deal value of US$ 15.1 billion in 2018.4 M&A deal activity in 2019 was mostly carried by sizeable inbound deals in the banking, financial services and insurance sectors where foreign investors have acquired a majority stake in Indonesian- based commercial banks and insurance companies, respectively.5 For M&A activity 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 which we have used in the preparation of this chapter (as per 15 May 2020): • Law No. 40 of 2007 on Limited Liability Companies (“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 (“1999 Antimonopoly Law”); • Law No. 13 of 2003 on Manpower (“Manpower Law”); • Government Regulation No. 27 of 1998 on Merger, Consolidation and Acquisition of Limited Liability Companies;

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• Government Regulation No. 57 of 2010 on Merger or Consolidation of Business Entity and Acquisition of Company Shares which May Cause Monopolistic Practices and Unfair Business Competition; • Government Regulation No. 24 of 2018 on Electronically Integrated Business Licensing Services (“GR No. 24/2018”); • Presidential Regulation No. 44 of 2016 on List of Lines of Business Closed and Conditionally Open to Investment (“2016 Negative List”); • Regulation of Investment Coordinating Board (Badan Koordinasi Penanaman Modal or “BKPM”) No. 6 of 2018 on Guidelines and Procedures of Licensing and Investment Facilities as amended by BKPM Regulation No. 5 of 2019; • the Financial Services Authority (Otoritas Jasa Keuangan or “OJK”) Rule No. 9/ POJK.04/2018 on Takeover of Public Companies (“Rule No. 9/2018”); • OJK Rule No. 74/POJK.04/2016 on Merger or Consolidation of Public Companies; and • other sector-specific laws and regulations (along with certain others cited inthe elaboration below). It is important to note that different M&A rules apply to public companies, foreign investment companies (companies with a 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; a 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; a fit 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 or more companies merge(s) 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 dissolving by operation of law (without liquidation). • Consolidation is when two or more companies 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 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 or more companies, and consequently the transferring company dissolves by operation of law (without liquidation); or (ii) a part of the assets and liabilities of a company is 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. Mergers come second, and are usually undertaken by a certain group

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© 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 efficiency 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, 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 defined under the Company Law, there must be a change of control of the target company for a transaction to be qualified 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 lengthens the time needed to consummate the transaction. The procedural steps involve, among others: an announcement regarding the proposed transaction in at least one Indonesian daily newspaper (to notify creditors and stakeholders of the target company) and in writing to employees of the target company; 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 that, the Company Law does not provide a definition or threshold of ‘control’. In practice, the generally accepted interpretation of ‘control’ is the ability to influence, 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. 9/2018 provides that control over a public company occurs when a party (i.e. an individual, a company, a partnership, an association or an organised group) directly or indirectly: (i) owns more than 50% of the total issued shares with voting rights; or (ii) has the ability to determine, directly or indirectly, in any manner whatsoever, the management and/or policies of a public company. The concept of control in a public company is not limited to a shareholder owning more than 50% of the shares of the public company. Assessment should be conducted on 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. Unlike the previous rule, Rule No. 9/2018 explicitly states that effective control over the management of a public company can be evidenced by certain types of document and/or information which indicates: (i) the existence of an agreement between two or more shareholders who jointly have more than 50% of the voting rights in the public company; (ii) the authority to control financial and operational policy of the public company; (iii) the authority to appoint or dismiss a majority of directors and commissioners of the public company; (iv) the ability to control majority votes in meetings of the board of directors and board of commissioners of the public company; and/or (v) any other abilities which demonstrate control over the public company.

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Caution should be exercised towards an ‘organised group’ that occurs when each of several parties owns less than 50% shares, but jointly they own 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. ‘A certain goal’ refers to control and consequently, the organised group will be deemed 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”) established under Indonesian laws and domiciled within Indonesian territory. Certain sectors are exempted from this requirement, for example, in banking and construction sectors which allow the foreign company to set up a branch or representative office in Indonesia. The general requirements applying to PMA Companies are as follows: • The total investment is more than IDR 10 billion, 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 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. It is important to note that a company is considered to be a PMA Company, and will hence be subject to PMA Company requirements, if there is a foreign shareholder owning even one share in said company. Foreign investments in certain business sectors do not fall under the BKPM’s jurisdiction. For example, in the financial services sector, OJK as the main authority has its own set of regulations overseeing the procedure and requirements of foreign investment in financial services. Following the enactment of GR No. 24/2018, business-licensing applications are now electronically processed via the Online Single Submission (“OSS”) system administered by the BKPM. The OSS system is intended to be a single gateway for business-licensing processes, where licensing requirements from central and regional governments are standardised. The OSS system eliminates the need to obtain prior approval from the BKPM for proposed changes in shareholding or capital structure of PMA Companies, thus accelerating the timeline to complete M&A transactions. Negative List and grandfather clause In the context of M&A transactions, foreign investors must firstly observe whether the line of business of the target company is open to foreign investments. The Indonesian Government 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 specified in the 2016 Negative List, the general presumption is that such line of business is open to 100% foreign investment. Due to the limited nature of the 2016 Negative List, additional research must usually be conducted at the BKPM to ascertain whether the intended line of business is fully open or conditionally open to

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Indrawan Darsyah Santoso, Attorneys At Law Indonesia foreign investment. Aside from foreign shareholding limitations, the 2016 Negative List also sets out other requirements for certain lines of business pertaining to location of the business, specific 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-specific laws and regulations may also set out foreign shareholding limitation, divestment requirements, or shareholder eligibility criteria, among others, in the banking and mining sectors. When a foreign investor intends to acquire a local target company with 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 a maximum of 49% foreign shareholding), and (ii) job training services (with a maximum of 67% foreign shareholding), then the foreign investor may only own up to 49% of the shares in said company. On the other hand, the foreign shareholding limitations stipulated in the 2016 Negative List may not apply in the context of an 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 a 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. • 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 the 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- specific 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 the 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 conflict between those regulations, the Post Law and GR No. 15/2013 prevail as the higher-level regulations.

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Notification requirement to the Business Competition Supervisory CommissionKomisi ( Pengawas Persaingan Usaha or “KPPU”) An acquisition, consolidation or merger transaction that occurs between non-affiliated companies must be notified within 30 business days from the effective date of the acquisition, consolidation or merger to KPPU if the transaction meets the following thresholds: • the value of assets of the combined businesses in Indonesia exceeds: (i) IDR 2.5 trillion; or (ii) IDR 20 trillion for banks (or IDR 2.5 trillion, if only one of the parties is in banking sector); or • the sales turnover of the combined businesses in Indonesia exceeds IDR 5 trillion. The same post-completion notification now also applies for asset transfers that meet the above thresholds and: (a) cause a change of control or possession of the asset; and/or (b) increase the transferee’s capability to control a relevant market. Although it seems that KPPU only aims at transactions with potential control of the relevant market, it is unclear whether asset-transfer transactions that only meet point (a) are required to notify KPPU. Unfortunately, KPPU has yet to provide any written clarification/ guidelines concerning the broad meaning and threshold of circumstances under points (a) and (b) above. KPPU is authorised to impose an administrative sanction in the form of a fine 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. In relation to the above post- completion notification requirement, KPPU also allows relevant parties to do apre- completion consultation. 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 a 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 indefinite period employment agreement (permanent employees), and not for employees hired under a definite 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 practice, an acquirer may require (as condition precedent) that the target company procure a statement letter from each of its employees, principally stating that the employee is willing to continue employment under the same terms and conditions after completion of the change of ownership.

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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 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; • to file 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; • to 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, specifically 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 the 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) file 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) file a request to the relevant district court to conduct an investigation onthe 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. As a general rule, any proposed transaction between a public company and its affiliate that could potentially result in a conflict of interest must first be approved by a general meeting of independent shareholders. Public company acquisition Typical routes The popular structural means of acquiring control of a public company in Indonesia are as follows: (i) shares acquisition from an existing controller of the public company; and (ii) shares subscription via a rights issue mechanism for pursuing a backdoor listing. Backdoor listing requires the existing majority shareholder to: (i) procure the public company to 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 propose to use its majority shares in another company as payment for the subscription (which must be disclosed in the rights issue prospectus by the public company). This gives the acquirer the opportunity to

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Indrawan Darsyah Santoso, Attorneys At Law Indonesia have a tight grip on control over both companies. Apart from the popular routes above, the acquirer may consider acquiring a substantial shareholding through the following: (i) Private placement A public company may increase its capital without giving pre-emptive rights to its shareholders, but such corporate action must be approved by a GMS. In a private placement scheme, the change of control arises from subscription for newly issued shares in a non-pre-emptive offering. To qualify as a private placement, the capital increase may not exceed 10% of the total issued and paid-up capital of the public company, and the public company should observe the limitation of number of investors eligible to participate so as not to trigger public offering requirements. A private placement is normally undertaken when the public company is not in financial distress. Caution should be exercised when conducting this transaction because OJK has added new GMS provisions under which a private placement must now be approved by independent shareholders and shareholders that are not affiliated with: (i) the public company; or (ii) the director, commissioner, principal shareholder or controller of the public company. (ii) Voluntary tender offer The acquirer also has the option of undertaking a voluntary tender offer (“VTO”), under which it makes a public offer (via a newspaper advertisement) to all shareholders of the target public company to purchase their shares. Disclosure and secrecy obligations Prior to closing, negotiations are almost always done under a shroud of secrecy and the content of negotiations is 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 directly or indirectly 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 fine of up to IDR 15 billion. A controlling shareholder, director or employee of the target public company should take precautions in the event that each of them provides any insider information to a prospective controller (i.e. acquirer) with respect to negotiation or due diligence. In practice, the relevant parties (i.e. acquirer, seller and target public company) will normally sign a confidentiality agreement to avoid possible violation of the insider trading rule. Under Rule No. 9/2018, the acquirer may voluntarily announce information on the negotiations in at least one Indonesian daily newspaper with national circulation or through the website of the Indonesia Stock Exchange (“IDX”). Given the acquirer has to undertake a mandatory tender offer (“MTO”) after the acquisition and also to avoid an increase of market price of the shares which will affect the MTO pricing as discussed below, this typical announcement is made before closing. Because the date of the announcement will influence the 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 negotiations (including postponement or cancellation of the acquisition) must be announced within two business days after the 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. When there is a change of control in a public company, the new controller must disclose the acquisition to the public and OJK at the

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Indrawan Darsyah Santoso, Attorneys At Law Indonesia latest one business day following the closing. The disclosure must include the number of acquired shares, the controlling purposes, the purchase price per share, the total value of the acquisition, and the new controller’s total ownership and detailed identity. OJK will also require the new controller to clarify in that disclosure: (i) whether it: forms an organised group to acquire control of the target public company; has obtained relevant approvals from authorities for the acquisition; and has prior affiliation relationship with the target public company; and (ii) who its beneficial owners are. MTO requirements and pricing 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. 9/2018, must be followed by an MTO. An 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 offer through an MTO does not extend to the 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 on the 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 on IDX (and which does not occur via rights issue or capital increase without pre-emptive rights), the MTO price must at least be equal to the higher of: (i) the average of the highest daily traded price reached during the 90-day period prior to the acquisition announcement or the negotiation announcement (if the negotiation announcement is made prior to closing) as explained above; or (ii) the acquisition price. Re-float obligation If the new controller of a public company owns more than 80% of the shares after the MTO is carried out, the new controller must, within two years after the MTO is completed, transfer some of its shares back to the market until at least 20% shares are owned by the public. That two-year period is no longer extendable under Rule No. 9/2018. Rule No. 9/2018 does not require the shares to be held by at least 300 shareholders upon the fulfilment of the re-float obligation as set out in the previous rule; however, the listing rule of IDX still requires the target listed company to fulfil and maintain the following requirements: (i) its minority shareholders must hold at least 50 million shares and 7.5% shares of the total issued and paid up capital; and (ii) it must have at least 300 shareholders with securities accounts. If, following the MTO, the target listed company no longer complies with the requirements under point (i), it is provided with an additional two-year period to fulfil such public free float requirements. Exemptions to MTO requirements Rule No. 9/2018 sets out MTO exemptions if a change of control is triggered by, among others, a merger or VTO. Rule No. 9/2018 also provides limitations on MTO exemptions as elaborated below: (i) With respect to rights issues In the context of a rights issue, the MTO exemption only applies to an existing shareholder that exercises his pre-emptive rights in proportion to his shareholding and consequently becomes the new controller. This will not be beneficial to a backdoor listing transaction, because the MTO requirement now also applies to a new investor that acquires control by way of buying pre-emptive rights from shareholders of the target public company during a rights issue procedure.

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(ii) With respect to capital increase without pre-emptive rights The MTO exemption only applies in a change of control arising from a capital increase without pre-emptive rights, particularly if it is purported to improve the target public company’s financial condition (for example, a debt restructuring). 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 in the party’s shares ownership, through a single transaction or a series of transactions, equivalent to at least 0.5% shares. Failure to comply with these reporting obligations is subject to a fine in the amount of IDR 100,000 for each day of delay, with a maximum fine of IDR 100 million.

Significant deals and highlights One of the most notable deals in 2019 was the acquisition of a 54% stake in PT Bank Danamon Indonesia Tbk by MUFG Bank, Ltd, with deal value of US$ 3.506 billion.

Key developments On 2 October 2019, KPPU issued Regulation No. 3 of 2019 on Assessment of Merger or Consolidation of Business Entities or Acquisition of Company Shares which May Cause Monopolistic Practices and Unfair Business Competition, which became effective on 3 October 2019. This regulation broadens KPPU’s authority to also review asset acquisitions in addition to merger, consolidation and acquisition of company shares. As a side note, this regulation clarifies the effective date of public company acquisitions via a rights issue. The effective date refers to the date of disclosure letter to OJK or the last date of payment for the shares or equity in the exercise of pre-emptive rights. On 23 December 2019, OJK issued Rule No. 41/POJK.03/2019 on Merger, Consolidation, Acquisition, Integration, and Conversion of Commercial Banks, which became effective on 26 December 2019. OJK has introduced the integration and conversion of foreign bank branch offices into and additional criteria of a controlling shareholder of Indonesian banks. Particularly, when determining a change of control, the target bank concerned should not only use the standard test (i.e. a 25% shareholding threshold or if less than 25%, direct/indirect control over the management and/or policies of the target bank), but also observe whether the acquiring party will own the highest shareholding percentage compared to the other shareholders of the target bank. This additional criterion means that the acquiring party owning less than 25% shares (with no intention to exercise actual control) will be considered a new controlling shareholder if no other shareholders have a bigger ownership percentage. Through this rule, OJK also has more involvement in monitoring the process of bank merger, consolidation and acquisition. For example, simultaneously on the date of announcement of the abridged merger or consolidation plan by the bank, it must also submit to OJK certain documents as follows: the merger or consolidation plan approved by the board of commissioners; the draft merger or consolidation deed; and the fit and proper test administrative documents of the main parties of the surviving bank. In the review process of the proposed acquisition, OJK is also authorised to check the source of funds for the acquisition.

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Given the disruptive impact of the COVID-19 pandemic on corporate business activities and transactions, Indonesian regulators have recently given some relaxation on standards and requirements in various sectors which can also support the closing practicalities of M&A transactions. For certain public companies’ businesses such as banks, the proposed acquisition must be approved by GMS. OJK now allows public companies to convene electronic GMS where shareholders can take part remotely by way of e-proxy through a platform facilitated by the Indonesia Central Securities Depository. The COVID-19 pandemic might also trigger renegotiations between the transacting parties or serve as a deal-breaking event. In typical M&A transaction documents in Indonesia, it is not uncommon for the purchaser to invoke the provisions of material adverse change or force majeure under which they are allowed to walk away from the transaction after the CSPA signing if an event occurs that has a significant adverse effect on the target company’s business or market condition. On the other hand, the seller may argue for an expansive list of exceptions that cannot be deemed a material adverse change or a force majeure event. Rather than debating on whether material adverse change or a force majeure event has occurred, the parties can explore alternative closing mechanics such as pricing adjustments or earn-outs. The parties might also face a longer process of obtaining regulatory approvals because regional governments have been imposing large-scale social restrictions, causing most government offices to limit their operational hours (including face-to-face interactions). To help identify and mitigate uncertainties and unexpected delays during the COVID-19 pandemic, it is advisable to involve legal counsel in evaluating the deal-making process and timeline before proceeding with the M&A deal.

Industry sector focus According to Duff & Phelps, the top sectors with high-value deals in 2019 were: (i) banking, financial services and insurance (58%); (ii) materials (14%); (iii) energy (9%); (iv) consumer discretionary (8%); and (v) other (11%).6

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Endnotes 1. The World Bank. Doing Business 2020. Washington D.C.: World Bank, 2020, p. 4. http://documents.worldbank.org/curated/en/688761571934946384/pdf/Doing-Business -2020-Comparing-Business-Regulation-in-190-Economies.pdf. 2. The World Bank. Doing Business 2019. Washington D.C.: World Bank, 2019, p. 5. https://www.doingbusiness.org/content/dam/doingBusiness/media/Annual-Reports/En glish/DB2019-report_web-version.pdf. 3. The World Bank. Doing Business 2018: Reforming to Create Jobs, 15th Edition, World Bank Group, 2018, p. 4. Open Knowledge Repository, http://www.doing business.org/ content/dam/doingBusiness/media/Annual-Reports/English/DB2018-Full-Report.pdf. 4. McLaren, Ashish, et al. Transaction Trail: Annual Issue 2019, Duff & Phelps, p. 13. https://www.duffandphelps.com/-/media/assets/pdfs/publications/valuation/valuation- insights/transaction-trail-report-2019.pdf). 5. McLaren, Ashish, et al. p. 14. 6. McLaren, Ashish, et al. p. 13.

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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 and joint ventures as well as being lead counsel in merger and restructuring arrangements. Eric has counselled clients in a variety of M&A matters, such as foreign shareholding restrictions, direct or indirect change of control, employment benefits triggered by change of ownership, closing conditions, representations & warranties, escrow/holdback arrangement, intellectual property ownership, limitation of liability, indemnification, 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).

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 conflicts 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, in 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).

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 & Elizabeth Maye McCann FitzGerald

Overview Overall, M&A activity in Ireland remained robust in 2019 with strong deal-flow and healthy transaction values recorded. However, the performance of Irish M&A in 2019 did not quite reach the heights of recent record-breaking years and saw an overall reduction in transaction volume when compared with previous years. This decrease in activity should be viewed against the backdrop of a global decline in M&A activity in 2019, which was down 6.9%, according to Mergermarket, on an exceptional 2018 as a result of numerous macro-economic global headwinds, including mounting international trade wars and slow global economic growth, which had a moderating impact on M&A. As regards the Irish experience, it seems that continued uncertainty throughout 2019 relating to Brexit, its impact on Ireland and the future trading relationship with the United Kingdom inhibited M&A activity to a certain degree, although perhaps not as much as had originally been anticipated as investors and deal-makers became accustomed to operating in an uncertain environment. On the whole, Ireland can be seen to have performed quite strongly when viewed in the context of European M&A activity for the year, which witnessed a reduction in both deal value and deal count and accounted for just 23.1% of global deal-making by value in 2019, which is the lowest annual share of European M&A on record according to Mergermarket. The comparative strength of the Irish M&A market in 2019 was underpinned by a healthy Irish economy which proved remarkably resilient in the face of significant economic and political uncertainty, and the strong pace of growth it has demonstrated in recent years continued apace with the Central Bank of Ireland (“CBI”) estimating that GDP grew by 6.1% in 2019. This growth has been driven primarily by sustained gains in employment and associated rising incomes which have supported domestic economic activity. Consequently, consumer spending as well as building and construction investment also increased strongly during 2019. Prior to the outbreak of the COVID-19 pandemic, the CBI had indicated that, although the pace of economic expansion experienced in recent years was likely to gradually slow down, the outlook for economic growth in Ireland remained broadly positive and GDP growth of 4.8% had been forecast for 2020. Evidently this forecast no longer holds true as Ireland continues to attempt to contain the virus and to deal with the economic fallout from it, and we address the potential impact of this unprecedented health crisis in the final section of this chapter. Turning to the statistics for 2019, there was a total of 426 deals announced during the year involving an Irish party, which was a reduction of 7% compared to 2018 according to recent data from Experian. The total recorded transaction value of Irish M&A deals amounted to a healthy €85bn in value, largely due to a small number of big

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© Published and reproduced with kind permission by Global Legal Group Ltd, London McCann FitzGerald Ireland ticket transactions, such as the $63bn acquisition of Allergan plc by AbbVie and Flutter Entertainment plc’s acquisition of The Stars Group Inc. (both discussed in further detail below) which somewhat skew this headline figure. In this regard, it might be noted that although the top 10 private M&A deals by value in 2019 accounted for approximately 84% of the overall disclosed private deal value for the year, as with previous years, the vast majority of deals that made up the overall Irish M&A deal volume in 2019 were mid-market deals with in excess of 80% of all deals disclosing values of less than €100m according to research by Investec Corporate Finance. The sector of the economy that oversaw the largest number of transactions in 2019 was the technology, media and telecommunications sector with the continuing attractiveness of Irish offerings in this sector largely attributable to Ireland’s highly creative and talented workforce, open economy and competitive corporate tax environment. These positive features of the Irish technology landscape have resulted in eight of the top 10 global information technology companies establishing a significant presence in Ireland and have also driven an increased interest in Irish technology businesses and assets in recent years. Private equity continued to feature prominently in Irish deal-making in 2019 as evidenced by the year-on-year increase in the number of deals with a private equity aspect to their funding up from 80 in 2018 to 91 last year according to research by Experian. Similarly, Investec reported that six of the top 10 private M&A deals in 2019 involved private equity buyouts or private equity-backed buyers. This is in line with trends seen across Europe in 2019, where buyout activity continued to grow as private equity firms looked to take advantage of rising investment opportunities and to deploy the huge amounts of “dry powder” available to them following a number of years of strong fundraising.

Significant deals and highlights At the forefront of Irish M&A transactions in terms of deal value for 2019 was the acquisition announced in June of Allergan plc, the Irish domiciled and US-listed manufacturer of pharmaceuticals including Botox, by US-based and listed pharmaceuticals company AbbVie in a cash and stock transaction with a transaction equity value of approximately $63bn. Remarkably, this deal represented the third-largest deal in the world last year according to Mergermarket and, having recently completed, is set to create a diversified biopharmaceutical leader in the sector with an enhanced drug pipeline and growth platform. As regards other notable deals in the Irish public M&A market, late July saw the announcement by Green REIT, which was the first real estate investment trust to float on the Irish stock exchange in 2013, of its intention to sell to a subsidiary of UK private equity firm Henderson Park for €1.3bn. This transaction successfully completed later in 2019 by way of a High Court-approved scheme of arrangement and saw Green REIT delisted from the London and Dublin stock exchanges. Also in July, The Blackstone Group Inc., the listed US-based private equity firm, agreed to acquire the European distribution business of CRH plc, Ireland’s largest company and involved in the manufacture and distribution of building material products, for an enterprise value of €1.64bn. The deal was billed by some commentators as Ireland’s largest buyout in almost a decade. Elsewhere, the merger between Irish headquartered Flutter Entertainment plc (formerly Paddy Power Betfair) and Canadian-based The Stars Group Inc. was announced in October for a reported value of between €6.2bn and €9.5bn (depending on the source). The combined annual revenues of these companies would have totalled £3.8bn in 2018, meaning this deal will see the merged entity becoming the world’s largest online betting and gaming operator

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© Published and reproduced with kind permission by Global Legal Group Ltd, London McCann FitzGerald Ireland and is the latest deal in a wave of consolidation activity in the online gambling industry in recent years as businesses seek to scale up to benefit from synergies. As regards inbound M&A activity in the private sector more generally, despite a decline in overall deal value, there was a 4% increase in the number of inbound deals according to data from Refinitiv. Significant transactions in this space included the acquisition by US-based global investment firm, Avenue Capital Group, of an undisclosed stake in Castlehaven Finance, an Irish-based alternative development property lender, from UK- based private equity firm, Pollen Street Capital, for a minimum consideration of €250m, and Sovereign Capital’s exit from Ireland-based insurance brokerage house Arachas Corporate Brokers for a reported €250m. The following table, produced by Experian, sets out the top 10 deals which took place in Ireland last year:

Consideration Date Deal type Target Bidder (€m) 25/06/2019 55,000 Acquisition Allergan Plc, Dublin AbbVie Inc, USA 02/10/2019 6,225 Acquisition The Stars Group Inc., USA Flutter Entertainment Plc, Dublin 16/07/2019 1,640 IBO CRH Europe Distribution The Blackstone Group, business, Dublin USA 14/08/2019 1,340 IBO Green REIT Plc, Dublin HPREF Dublin Office Bidco Ltd, Dublin 11/02/2019 1,300 Acquisition Accudyne Industries LLC, USA Ingersoll-Rand Plc, Dublin 15/10/2019 1,300 Acquisition Cooper Lighting LLC, USA (from Signify NV, the Eaton Corp Plc, registered in Netherlands Dublin) 31/03/2019 1,068 Acquisition MG LLC, USA Willis Towers Watson Plc, Dublin 22/07/2019 853 Acquisition Souriau SAS, France Eaton Corp Plc, Dublin 18/11/2019 850 Acquisition Rodin Therapeutics Inc, USA Alkermes Plc, Dublin 09/05/2019 664 Acquisition Ranir Global Holdings LLC, USA Perrigo Co Plc, Dublin (Source: Experian, 2019)

In line with previous years, the most prevalent type of transaction according to Investec was the acquisition of a foreign target by an Irish headquartered company, which transactions represented c.64% of deal value recorded. It was further reported by Refinitiv that such outbound acquisitions reached a three-year high last year, despite a decline in the overall number of transactions. This is due in large part to the sizeable Flutter transaction previously discussed which topped the outbound deals list by some distance. Other noteworthy outbound deals included the acquisition by Irish-based ION Investment Group Limited of a majority stake in Acuris, the UK-based provider of global news, intelligence, analysis and data, for an estimated enterprise value of £1.35bn as well as the acquisition by Irish-headquartered but US-listed technology company Aptiv of German microduct system manufacturer gabo Systemtechnik for €283m. Domestic M&A also experienced a strong year, totalling a six-year high of $4.8bn and marking an increase of 22% on the 2018 in-market deal count according to data from Refinitiv and Investec. Notable deals in this space included the sale by the Carlyle Group and Cardinal Capital Group of Payzone, Ireland’s largest consumer payments network, to Allied Irish Bank and First Data as well as three separate hotel acquisitions (The Kildare

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Hotel, Spa and Country Club, the Powerscourt Hotel and Druids Glen Hotel & Golf Resort) which topped the Mergermaket league table of domestic deals for 2019. In terms of Irish deals involving private equity funding in 2019, transactions of note included the Blackstone acquisition referenced above and the sale of aviation services firm ASL Aviation Holdings to UK house STAR Capital Partnership for €208m. As with the previous year, there were also a number of private equity exits in 2019 as funds continued to successfully monetise investments made around 2013/2014 in the wake of the financial crisis. These included Sovereign Capital’s exit from Arachas Corporate Brokers and the sale by the Carlyle Group and Cardinal Capital Group of Payzone, both mentioned above.

Key developments Merger control Merger control thresholds As reported last year, the financial thresholds which trigger a mandatory notification of a transaction to the Irish Competition and Consumer Protection Commission (the “CCPC”) were increased to: (i) €60m (up from €50m) for the aggregate turnover in Ireland of each of the undertakings involved the transaction; and (ii) €10m (up from €3m) for the turnover in Ireland of each of at least two of the undertakings involved in the transaction (in both cases relating to turnover in the undertaking’s last financial year). The revised thresholds took effect from 1 January 2019 and resulted in a 52% decrease in merger notifications for 2019 when compared to 2018, with filings dropping from 98 in 2018 to 47 in 2019. The reduced number of notifications was reflected by a reduction in the number of notifications of relatively small transactions in sectors such as motor fuel (retail/ wholesale) and groceries (retail/wholesale) which would previously have been notifiable to the CCPC but were not likely to raise competition concerns. The changes mean that prospective purchasers of smaller Irish businesses can now avoid the administrative burden and costs associated with a merger notification as well as the deal uncertainty that stems from the requirement to obtain regulatory approval. However, it might be noted that the reduction in the number of notifiable deals in 2019 does not appear to have translated into a swifter assessment of deals by the CCPC, with the timeframe for issuing a determination for non-extended Phase 1 investigations averaging 24.7 working days, which is similar to the timeframe in 2018. Simplified merger notification procedure A merger control measure that is likely to shorten review periods for mergers in Ireland is the recent introduction of a simplified procedure for the notification of mergers that meet the relevant financial thresholds but which do not raise competition concerns in Ireland (the “Simplified Procedure”). The CCPC first announced its decision to introduce the Simplified Procedure on 14 June 2019 and, following a consultation process held in the latter part of 2019 during which the CCPC sought the views of industry stakeholders, it announced on 8 May 2020 that the Simplified Procedure would commence on Wednesday 1 July 2020. Details of the Simplified Procedure are set out in guidelines issued by the CCPC (the “Guidelines”) and the procedure is intended to apply where factual considerations, such as low market share or product or geographic market dissimilarity, suggest that a proposed merger or acquisition will not raise significant competition issues. The Guidelines therefore provide that it may be available for mergers where: (i) there is no active or potential

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© Published and reproduced with kind permission by Global Legal Group Ltd, London McCann FitzGerald Ireland competitive (whether horizontal or vertical) overlap between the parties involved; (ii) there is limited active or potential competitive horizontal overlap (meaning the undertakings involved have a combined market share of less than 15%) or vertical overlap (meaning the market share of each of the undertakings involved in each market is less than 25%) between the parties involved; and (iii) an undertaking, which already has joint control over a company, is to acquire sole control over that company. It should be noted that the standard merger notification procedure may be applied by the CCPC notwithstanding that a merger satisfies the criteria for notification under the Simplified Procedure, and the Guidelines provide a non-exhaustive list of situations in which this may be the case. Parties availing of the Simplified Procedure must use the CCPC’s standard notification form but will be exempt from completing certain sections. The CCPC will inform the merging parties as soon as possible after the deadline for third-party submissions on the merger (10 working days after notification) whether use of the Simplified Procedure is appropriate although it may, at any point, revert to the standard procedure and request further information. Parties are also strongly encouraged by the CCPC to engage in pre-notification discussions to clarify whether a merger is suitable for notification under the Simplified Procedure. If successful, the Simplified Procedure should operate to reduce review periods for no-issue “Phase 1” deals. In this regard, it might be noted that the standard 30-working-day review period still applies to the Simplified Procedure although the CCPC has confirmed it will “endeavour to make a determination as soon as practically possible”. It is expected that a substantial percentage of Irish deals will qualify for this procedure and, provided it fulfils its stated aim of significantly reducing the review periods for non- controversial transactions, it may be seen as a welcome development in the Irish M&A landscape which will reduce the burden on notifying parties to a transaction. Stamp duty changes Two changes to the Irish stamp duty regime were announced as part of the 2020 Irish budget proposals revealed by the Minister for Finance on 8 October 2019, with both changes taking effect from midnight on that date. The first of these changes was that the stamp duty charge on non-residential property was increased from 6% to 7.5% (subject to certain transitional arrangements where a binding contract was entered into before 9 October 2019). Where the land is subsequently used to develop residential property, a refund is available such that the rate of stamp duty chargeable after a full refund is 2%. The rationale cited for this revenue-raising measure was that the Irish commercial property market continues to perform strongly and as such, the sector should be able to bear this increase “without any significant impact”. This new 7.5% rate applies not only to transfers of commercial real estate, but also to contracts for the sale of other types of assets, such as debtors, goodwill or the benefit of contracts, and to certain lease premiums. As such, the increased rate will likely impact on acquisitions taking effect by way of business purchase or asset sale after this date, and prospective purchasers of Irish businesses should be cognisant that this higher rate will apply on the transfer of certain categories of asset. The second change was the introduction of a new stamp duty charge of 1% applicable where a scheme of arrangement involving a “cancellation scheme”, in accordance with Part 9 of the Irish Companies Act 2014, is used to effect the acquisition of a company.

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A cancellation scheme involves a company cancelling its existing shares in a court approved process and re-issuing new shares to the acquiring company. It can be contrasted with a “transfer scheme”, in which case the court is asked to approve the transfer of all existing shares to the acquirer. Cancellation schemes have generally been used over transfer schemes due to the fact that this first method avoided the 1% stamp duty that is payable on the transfer of shares in an Irish company as no stamp duty arises on the issue of new shares. The change to Irish law reflects a change made in the UK in 2015, albeit that the UK prohibited the use of cancellation schemes for takeover transactions (subject to certain exceptions), whereas in Ireland, a cancellation scheme can still be used, but will be treated the same for stamp duty purposes as a transfer scheme. The unexpected nature of these increased stamp duty charges drew censure not least for creating undue uncertainty as to the stability of Irish tax policy. In addition, in the case of the application of stamp duty to cancellation schemes of arrangement, criticism was levied at the Government’s failure to include any transitional provisions for cancellation scheme transactions that were in progress at the time of the announcement and which were therefore impacted by the change without advance warning. Whereas, the increase to the commercial property rate signifies the second unexpected increase in three budgets and means that Ireland now has the third-highest commercial stamp-duty rate in the EU. The move has therefore been criticised by certain stakeholders in the property sector as likely to negatively affect inward commercial real-estate investment to Ireland. Limited Partnership Bill On 20 June 2019, the Irish Government published the Investment Limited Partnership (Amendment) Bill 2019, which proposes a number of changes to the existing Irish legislative framework regulating investment limited partnerships with the aim of modernising this framework so as to better reflect changes in the global private equity market. Once enacted, it is expected that the reformed legislation will greatly enhance the attractiveness of the investment limited partnership structure for private equity managers and investors and will mean that Ireland offers the full suite of preferred legal structures for real asset/private equity investment. This Bill may be seen as a positive step towards Ireland becoming a jurisdiction of choice for the domiciling and servicing of real assets, private equity and infrastructure funds in line with one of the Government’s key objectives under the Ireland for Finance Strategy concerning the development of Ireland’s international financial services sector to 2025. No doubt the prospect of an increased presence of private equity firms in Ireland in the coming years will have knock-on beneficial consequences for Irish deal-making.

Industry sector focus 2019 was a particularly active year for the technology, media and telecommunications industry, which was reported to have accounted for 24% of total deal volume, according to research by Investec, and proved to be the most fertile sector for Irish deal-making in 2019. The continued growth and success of this sector is thanks to Ireland’s position as a prominent exporter of information technology services and the home of many of the world’s major global information technology companies. As a consequence, Irish technological assets continue to prove an attractive proposition for investors and, in a continuation of a trend seen in recent years, approximately one-third of deals in this sector in 2019 involved a foreign company, UK and US-based in particular, targeting an Irish technology business as part of an expansion strategy. Most notable among these deals was the acquisition by UK-based private equity

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© Published and reproduced with kind permission by Global Legal Group Ltd, London McCann FitzGerald Ireland firm Charterhouse Capital Partners of Tarsus Group plc, the Irish-based and UK-listed media holding, for a reported £561m, and the purchase by Spanish wireless telecoms infrastructure operator, Cellnex Telecom, of Cignal from InfraVia Capital Partners for €210m. The sector that recorded the second-highest number of deals in 2019 was the health and pharmaceutical sector and, when the AbbVie acquisition of Allergan plc is included in the statistics for 2019, it is also the sector leading the field in terms of overall deal value for the year. The presence in Ireland of all 10 of the world’s top 10 leading pharmaceutical companies and Ireland’s position as the third-largest exporter of pharmaceuticals globally explain why this sector is perennially a strong performer. The AbbVie deal is also indicative of a broader trend in the global pharmaceutical industry in which large pharmaceutical companies are looking towards acquisitions as an efficient means of replenishing their drug pipelines. This heightened level of acquisitive activity is evidenced by the fact that global life sciences M&A activity reached an all-time record of US$357bn in 2019, according to an EY report on the sector. Another sector that recorded significant deal value in 2019 was the leisure and travel sector with its banner year primarily due to Flutter Entertainment plc’s acquisition of The Stars Group Inc. which significantly inflates the total deal value figure. By deal volume, this sector only accounted for 4.7% of the total volume of transactions. Activity in the financial services sector in 2019 failed to reach the heights of the previous year when it topped the table in terms of deal value. It was nonetheless a reasonably prolific source of deal-making representing a reported 10.3% of the total number of deals. Within this sector, the deals were mainly focused on insurance and wealth management companies which are areas that have witnessed significant consolidation in recent times. The Irish insurance industry in particular has become increasingly appealing to private equity firms as they seek to exploit the consolidation opportunities presented by this fragmented market and is a trend that seems set to continue. Some notable deals announced in this sector in 2019 were Brewin Dolphin’s acquisition of Investec Capital & Management, the acquisition of Robertson Low Insurances and Wright Group Brokers by UK Broker Aston Lark giving it Irish market share, and the acquisition of Goodbody Stockbrokers by Bank of China Stockbrokers for a reported €150m.

The year ahead At the outset of 2020, the initial indicators for M&A activity in Ireland for the year were broadly positive and pointed towards another good year for Irish deal-making. 2019 had concluded with a very strong final quarter of activity and was underpinned by a strongly performing Irish economy which, according to CBI forecasting, seemed set to continue to grow throughout 2020 in spite of continued global geopolitical uncertainty. This positive economic outlook was complimented by the presence in the Irish market of other deal-making fundamentals, such as an abundance of high quality assets and businesses, large reserves of available capital, historically low interest rates, favourable tax structures and healthy competition among financial and strategic players. In addition, the widespread availability of capital offered on attractive terms and in increasingly innovative and flexible formats from an array of lenders in a robust lending market were further important factors that seemed set to facilitate a healthy level of deal-making in 2020. As a result, the outlook for M&A activity in Ireland in 2020, as gauged by market participant sentiment at the beginning of the year, was strongly optimistic, with 90% of M&A executives and advisers in a survey conducted by KPMG (the “KPMG Survey”) expressing their belief that deal volumes in 2020 would remain at or above the levels experienced in 2019.

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In terms of deal drivers, the respondents to the KPMG Survey expected that commercial objectives would be central to the stimulation of M&A activity in Ireland in 2020 as companies look to expand their customer base and geographic footprint, or create synergies with other companies in order to bolster their businesses so as to better insulate themselves against the impact of economic shocks posed by the uncertain geopolitical environment. As a result, it was expected that trade buyers would be most likely to complete the highest volume of transactions in 2020 and that an increase might be seen in cross-sector deals as companies and private equity firms look to diversify or build resilience into their business or portfolio companies. The macro-economic and political issues which seemed, at the beginning of the year, to present the greatest risk to this optimistic outlook and to Ireland, as a highly open economy and therefore particularly exposed to volatility in the international political, taxation and trade environment, were continued global trade disputes, the upcoming Irish general election and US presidential election, and of course the final form of the UK/EU trade deal implementing Brexit. In this regard, it comes as no surprise that a majority of respondents to the KPMG Survey viewed any Brexit outcome which provides certainty as a key facilitator for deal activity in 2020. However, at the time of writing, these concerns and the earlier optimistic outlook for 2020 have largely been eclipsed by the unprecedented global health crisis caused by the outbreak of COVID-19 which the world continues to grapple with and which saw commercial activity in many countries, including Ireland, grind to a near halt as they entered states of “lockdown” in order to contain the spread of the virus. The severe economic shock triggered by this pandemic has already had a significant stultifying impact on global M&A activity, with many deals either abandoned or stalled indefinitely as businesses take stock and focus on shoring up liquidity and assessing their position in this new economic environment. In the first quarter of 2020, there was a reported decline of 28% in the overall value of deals and 16% in the number of deals, the weakest year-opening period since 2016, according to league tables from Refinitiv. In terms of the European story, Mergermarket has reported that M&A figures for April represented the lowest monthly value since 2009. Where deals are proceeding to completion, the remote working practices that have been adopted by most businesses will likely have the effect of extending deal timetables. This is not least because of the impact of such working practices on regulatory authorities, including merger clearance authorities such as the Irish CCPC, who have advised of delays and requested that parties hold off where possible on filing planned merger notifications until further notice. Given the extent of the unknowns surrounding the pandemic at this point in time, it is not possible to do more than speculate as to its full economic impact and, as a result, the likely outlook for M&A activity for the remainder of 2020. However, on the basis of the initial impacts, the CBI has cautioned that Irish GDP could decline by 8.3% this year and commentators seem to agree that the sharp slowdown in deal-making is likely to continue at least until the crisis is brought under control and potentially for some time thereafter, with some 83% of deal-makers canvassed in a Baker Tilly International survey on the outlook for European M&A in 2020 (the “Baker Tilly Survey”) expressing the belief that COVID-19 will have a negative impact on global cross-border M&A activity throughout 2020 and possibly beyond.

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In the interim, the attendant uncertainty may also drive an increase in deal flow in certain sectors and could result in an upsurge in certain types of deal such as restructurings and distressed deals, particularly in labour-intensive sectors, such as retail trade, food and beverage activities, accommodation, tourism and travel which have been the sectors worst affected by the pandemic. Equally, given the sharp fall of share prices on the equity markets, it may be that 2020 will see an increase in defensive public mergers as companies seek to consolidate their positions and/or acquire struggling competitors. Well-capitalised buyers, and private equity funds in particular who are sitting on significant financial reserves, may seek to take advantage of the investment opportunities that arise from all of this uncertainty. Prior to this health crisis, it was expected that the sectors that would see the most M&A activity in Ireland in 2020 were once again the technology, agri-food and healthcare/pharma sectors which are areas that have traditionally provided robust levels of investment in Ireland. In particular, it had been anticipated that the increasing clarity around Brexit might have a stimulating effect on the agri-food sector which had been particularly affected by the protracted and ambiguous Brexit negotiations. At present, the focus on the technology sector is even more pronounced as the COVID-19 pandemic has highlighted the importance of a robust digital capability. This is borne out by market research with 88% of respondents to the Baker Tilly Survey declaring the acquisition of new technology or intellectual property as the top deal driver in 2020. Furthermore, certain experts have posited that although short-term deal-making in the pharmaceutical sector has been stalled by COVID-19, the factors driving acquisition strategies in recent years (such as the need to bolster and diversify drug pipelines and achieve synergies through consolidation) will continue to remain relevant and this, coupled with a drop in market value for biopharmaceutical companies, may set the stage for continued activity in this space once the worst of the virus impacts have been controlled. Notwithstanding the significant uncertainties that exist, it is hoped that the health of the Irish economy prior to this crisis and the presence in Ireland of many of the underlying fundamentals of deal-making, as well as the sudden and sharp manner of the economic shutdown, could result in an equally swift pace of recovery and quick return to normalised levels of M&A activity in Ireland once the virus has been successfully contained.

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

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Alan Fuller Tel: +353 1 607 1372 / Email: [email protected] Alan is a partner in the firm’s Corporate Group whose practice includes mergers and acquisitions, private equity and venture capital, joint ventures, corporate reorganisations and equity capital markets.

Aidan Lawlor Tel: +353 1 607 1450 / Email: [email protected] Aidan is a partner in the firm’s Corporate Group. Aidan specialises in mergers and acquisitions, equity capital markets and corporate advisory work. He also advises clients on IPOs, rights issues and open offers, placings, privatisations and recapitalisations. He advises on private company acquisitions and disposals, particularly in the Agri-Food and Drinks, Finance, Energy and Natural Resources, Betting and Gaming and Environmental sectors.

Elizabeth Maye Tel: +353 1 511 1570 / Email: [email protected] Elizabeth is an associate in the Corporate Group who trained with McCann FitzGerald. Since qualification, Elizabeth has gained experience in a range of practice areas including mergers and acquisitions, corporate reorganisations, joint ventures, private equity and venture capital. She also advises on general corporate law issues.

McCann FitzGerald Riverside One, Sir John Rogerson’s Quay, Dublin 2, DO2 X576, Ireland Tel: +353 1 829 0000 / URL: www.mccannfitzgerald.com

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Marco Gubitosi Legance – Avvocati Associati

Overview According to economists, corporate financiers and practitioners, M&A activity in Italy during 2019 (in line with European and global trends) floundered in value, but not in volume, for the first time after almost 10 years of steady growth. The year 2018 was considered the most performing year for the Italian M&A industry since the 2007–2008 global financial crisis and its ensuing great depression, although these events have been recently obscured by the COVID-19 outbreak, the shutdown and its consequences and externalities on the health and wealth of the entire globe. The 2019 downturn has been mainly accounted to macro-economic and geopolitical issues, such as the growing worries for a downward economic cycle, rising nationalism, trade wars, political uncertainties (mostly in relation to the incoming US presidential election and Brexit deadline) and unemployment. These issues were compounded by the legacy of several years of a seller-friendly market characterised by high valuation of assets which led to ill-matched prices between sellers and potential investors, despite the availability on global markets of institutional and financial investors’ “dry powder” and liquidity, with a pressing need for its deployment. In quantitative terms, the 2019 M&A market registered a sharp drop in value (minus 44% versus 2018) due to the absence of both large and mega-deals, which on the contrary were a feature of the 2018 M&A market (e.g. the aggregation between Essilor and Luxottica and the acquisition by Atlantia, ACS and Hochtief of Abertis Infrastructuras combined were valued at about €40.6bn).1 However, volume remained robust with over 1,000 transactions executed (plus 9% versus 2018),2 including 786 medium transactions versus 604 in 2018.3 The noteworthy increase in small and medium transactions was primarily due to the recent trend of use of M&A transactions by small and medium-sized enterprises (SMEs) as a strategic tool for growing (e.g. early stage, add-on, build-up, district network aggregations) and competing on the domestic and global market. Such a trend flourished from several economic reforms enacted by the legislator in the recent past, which favoured a light recovery in the Italian economy, including regulations favouring SMEs and Srls. The trend is also in line with the DNA of the Italian corporate landscape as the second European manufacturing powerhouse, characterised by a bank-based economy with limited market-based finance, featuring a vast number of family-owned, high-growth SMEs, often with highly skilled workforces. On the contrary, the Italian economy boasts a limited number of listed companies (375 as of December 2019) and of large companies (as of September 2019, only 164 Italian companies recorded net revenues over €1bn while those that recorded revenues over €1bn were ranging between 200 and 258 as of October 2019).4

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Within the context described above, public M&A has been relatively active during 2019, by means of several non-hostile tender offers and a rare and ongoing takeover in the banking sector. However, it was still difficult for institutional and/or activist investors to fully deploy their influence due to the characteristics of the Italian listed companies which (except for a few blue-chip companies) contemplate in their ownership and control structures major anchor shareholders with low contestability opportunities. It is believed that there will be more possibility for activist investors in 2H 2020 as well as 1H 2021. The 2019 correction of the Italian M&A market has been exacerbated at the beginning of 2Q 2020 by the COVID-19 outbreak and the economic shutdown that followed. M&A activity registered a sharp drop in value and volume, after a promising start in 1Q 2020 with 231 registered transactions (plus 8% versus 1Q 2019) for a total value of €9.2bn (plus 40% versus 1Q 2019, but mainly due to the mega-deal between INWIT and Vodafone’s Italian towers business).5 Indeed, both strategic buyers and financial sponsors are expected to focus on the recovery and shielding of their businesses and/or portfolio companies from the economic downturn caused by the COVID-19 outbreak, and at the same time focus on scouting for opportunistic transactions arising from divestitures or consolidation needs. Within this context, it is expected that the Italian M&A market will continue to slow down both in volume and value for the remaining part of 2020, with a mild recovery in 1H 2021. In analysing the trend and features of the Italian M&A market, it is interesting to draw the attention to the relationship between domestic and cross-border M&A (both inbound and outbound), owing to the fact that the current geopolitical and global issues have a profound impact on inbound M&A, which is essential for the Italian economy and traditionally comes from corporations, institutional investors and financial sponsors from the United States, France, the United Kingdom and Germany. More specifically, since 2017, cross-border M&A activity has recorded higher value than domestic M&A, whilst at the same time proving very volatile (€37bn in 2017, €46bn in 2018, €40bn in 2019 and only €1/1.2bn in 1Q 2020). By contrast, domestic M&A value has been very stable throughout the years: €28bn in 2017; €27bn in 2018; and €26bn in 2019.6 In terms of sectors, M&A activity has been very active in the mid-market of the industrial/ machineries, consumer goods and retail and pharmaceuticals sectors. On a larger transaction level, the infrastructure and energy sectors as well as technology, media and telecommunications (TMT) and financial were active in 2019, and TMT and financial institutions in particular are expected to continue to be active in 2H 2020. The Italian M&A legal framework is stable and no major changes have been implemented in recent years, albeit there are some complexities in its actual enforcement by the courts. Its main features can be considered homogeneous to other European continental jurisdictions and its M&A practice tends to follow well-established deal processes, structures and contractual documentation, to a large extent influenced by those belonging to the Anglo- Saxon jurisdictions, since modern M&A and private equity are mostly US-driven industries. Accordingly, this framework provides for the traditional partition of the M&A legal regime in one regime governing listed companies acquisitions (public M&A) and a different one governing non-listed, often closely held, companies acquisitions (private M&A). More specifically, private M&A concerns closely held, non-listed companies in the form of joint stock companies represented by shares (società per azioni or SpA) or limited liability companies represented by quota (società a responsabilità limitata or Srl). Quota,

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Legance – Avvocati Associati Italy differing from shares and securities, is an interest in a fraction of the relevant corporate capital and cannot be offered to the public, except for some specific laws for SMEs enacted in 2017 (as amended). This regime is, in the first instance, provided by the Italian Civil Code which, differing from other civil law countries such as France and Germany, also governs business contracts, corporate entities and commercial transactions. However, some provisions, especially those concerning SMEs, start-ups and specific issues relevant to M&A transactions, are provided in laws other than the Italian Civil Code. Public M&A concerns the relatively few listed joint stock companies (i.e. SpA) and is governed by the Italian Civil Code as complemented by the Italian Financial Act (i.e. Legislative Decree 1998, no. 58, as amended) and its implementing regulations, primarily the so-called Issuers’ Regulation no. 11971/1999, set forth by the Italian Securities and Exchange Commission (CONSOB). Also, regulations set forth by Borsa Italiana, the private entity running and monitoring the Italian Stock Exchange and the entities listed thereto, are relevant. In terms of M&A transaction structures, the system offers, in a nutshell, three main possibilities or a combination of them, the choice of which has distinct legal and tax reverberations for the envisaged transaction and its parties. These are: (i) share deal (re: SpA) or quota deal (re: Srl) often with cash consideration which is the most used structure, especially for re-investment by the founders or sellers of a family-owned business; (ii) asset deal/purchase of a business as a going concern deal or asset contribution, which is mostly used where the transaction concerns only part of a business or where there are significant risks in the original entity itself; and finally, rarely used in Italian practice, (iii) mergers. Foreign direct investments and inbound M&A have always been welcomed in Italy, and in fact have been subject to a very limited scope of government review. Indeed, there are no general restrictions to this aim in Italy. However, the Italian so-called Golden Powers Law (Law Decree no. 21/2012) (GPL) (i) provides for the review of foreign investments into specific strategic sectors (defence and national security, energy, transport and communications), and (ii) limits the exercise of the Italian government’s special powers (i.e. veto rights or request of prescriptions/conditions), only to cases of threat of serious prejudice to national security interest, as detailed by law and subject to judicial scrutiny. Following the outbreak of COVID-19, and in light of the European Commission’s communication on foreign direct investments dated 25 March 2020, Italy extended the scope of the GPL (with the recent Law Decree no. 23/2020, which is currently being converted in Law with certain amendments regarding the scope of application, referred to hereinafter as the Decree). The Decree introduced a provisional regime, which will be applicable until the adoption of an implementing decree that will identify more specifically the strategic assets to be included within the scope of the GPL. Pursuant to such provisional regime, until 31 December 2020, the following transactions are subject to a foreign investment filing: • any resolution and transaction adopted by any EU or extra-EU entity holding strategic assets in the sectors of energy, transportation and communications, as well as high- tech (including, when applicable, assets falling in the financial, banking or insurance sectors), resulting in a change of control, ownership, or destination of use of the above assets (asset deals); • any acquisition of shareholdings, by any EU or extra-EU entity, in companies holding strategic assets in the sectors of energy, transportation and communications, as well as high-tech (including, when applicable, assets falling in the financial, banking or insurance sectors), resulting in a change of control of the target company (share deals); and

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• any acquisition of shareholdings, by any extra-EU entity, in companies holding strategic assets in the sectors of energy, transportation and communications, as well as high- tech (including, when applicable, assets falling in the financial, banking or insurance sectors), resulting in the acquisition of at least 10% of share capital or voting rights (also taking into account shares and rights already directly or indirectly held), provided that the total investment value is equal to or higher than €1m (share deals). Such acquisitions will also be subject to communication whenever the holding thresholds of 15%, 20%, 25% and 50% are exceeded. As for companies holding assets in the high-tech sectors (including, when applicable, assets falling in the financial, banking and insurance sectors), the Italian government is entitled to exercise its special powers (i.e. veto rights or imposition of prescriptions/conditions to the transaction) to the extent that the protection of essential national interest, as well as of security and public order, may not be properly ensured through sectorial regulations. It is important to note that in case of failure to report a transaction as due, the Italian government is entitled to commence ex officio the procedure to assess the exercise of the special powers. In conclusion, considering the new set of rules enacted by the Decree, the scope of the transactions subject to the GPL filing (and, potentially, the Italian government’s special powers) has significantly increased, both in terms of new sectors added within the scope of the GPL (e.g. the financial, banking and insurance sectors, as well as media pluralism, access to sensitive information, steel and food sector), and the type of transactions requiring a communication to the Italian government (e.g. the acquisition of non-controlling stakes may also trigger the obligation of communication). In addition to GPL regulation and in line with other jurisdictions, M&A transactions may also be subject to the scrutiny of sectorial, independent (from the government) supervising authorities, depending on the industries and sector of the envisaged transaction and its relevance for the market competition. To this aim, it is worth noting that M&A transactions are subject to the clearance of the Italian Antitrust Authority (Autorità Garante per la Concorrenza del Mercato) and of the European Union if the envisaged transaction meets the relevant Italian or EU thresholds for clearance and control. The authorisation or notification process of M&A transactions may also be subject to sectorial authorities depending on the specific regulated sectors where the companies that are the object of the transaction are active, for instance but not limited to: the Bank of Italy and/or the European Central Bank (in case of banks and financial institutions, i.e. FIG transactions); IVASS (in case of insurance companies); and AGCOM (in case of TMT). Finally, in relation to foreign direct investment, it is worth recalling that there is the general principle of reciprocity in the Italian system, pursuant to which governmental authorities can challenge or prohibit an M&A transaction in the event of non-reciprocity with the foreign investor’s jurisdiction. Indeed, this principle is by law deemed fulfilled by EU and EEA countries as well as those countries which have signed bilateral investment agreements.

Private equity Global and pan-European private equity investors play a pivotal role in the Italian M&A market, one of continental Europe’s most attractive markets with the competitive advantage of numerous primary transaction opportunities on interesting targets (such as leading manufacturing SMEs with access to international markets, large, globally successful family- owned corporates and a few listed companies) at competitive valuations compared to the opportunities (often secondary transactions) available in other more mature European markets.

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Private equity is nowadays an essential component of the Italian economy and it remains solid and dynamic during this time of increased global and domestic challenge, as witnessed in 2018 and 2019 by the re-opening of offices in Milan by several financial sponsors, which had previously closed after the 2007–2008 global financial crisis. Turning to quantitative data, the invested value by domestic and international financial sponsors in 2019 was €7.2bn (versus €9.7bn in 2018, the record year for the private equity industry in Italy), thus with a nominal decrease of 26% but still the third-highest value ever recorded in Italy for private equity investments. However, if the above amounts are netted of their infrastructure component (being €3,041m in 2018 versus €510m in 2019, a decrease of 83.2%), it is remarkable that the value is equal in 2018 and 2019 with each year registering investments for €6.7bn.7 Accordingly, activity in 2019 substantially confirmed the trend of an increase in volume of investments over the last three years (plus 3% on deal volume), with 370 investments clustered in 168 as early stage, 48 as expansions and 123 as buyouts. However, the 2019 total value dropped with only 10 transactions ranging between €150 and €300m and two transactions over €300m.8 On the contrary, 2018 recorded fewer transactions in terms of total volume but significantly higher value thanks to several mega-exits (the most important of which was the Nexi’s €2.4bn IPO sponsored by a vehicle controlled by Advent International, Bain Capital Private Equity and Clessidra Sgr).9 From a more qualitative perspective, it can be noted that global and pan-European financial sponsors are focused on mid, large and listed companies, while most of the domestic private equity players are mainly focused on the Italian mid-market located in the North and Central regions of Italy (e.g. Lombardy accounts for 146 investments and 40% of the value, Emilia Romagna accounts for 42 investments and 13% of the value, and Veneto accounts for 33 investments and 19% of the value) with only a few transactions in the Southern regions.10 In terms of sectors, the trend of the past years has seen the consumer, industrial, financial and medical/healthcare sectors account for most of the value. This trend continued throughout 2019, as there were 64 executed transactions in ICT, 57 in industrial, 49 in healthcare, 33 in retail, 26 in food, 25 in consumer services, 22 in biotech, 19 in fashion, 16 in energy and environment, 14 in FIG and insurance and 11 in furniture. In terms of value, the industrial (20%), medical and healthcare (16%) and financial and insurance institutions (11%) are the highest value sectors.11 The Italian exit mechanisms are different from those of the Anglo-Saxon capital market- based economy; in 2019, the most common forms were trade sale (59), buy-back by founders or entrepreneurs (28), secondary sale to another private equity fund (27), IPOs (nine) and sale to family offices. There were 135 exits in 2018 and 132 exits in 2019 (with a decrease of 21% in value).12 Private equity players are expected to play an important role in the domestic and inbound Italian M&A market in 2H 2020 and 1H 2021.

Significant deals and highlights During 2019, as per most of the M&A reports, there were approximately eight transactions with a value of over €1bn, most of them involving a financial sponsor, thus confirming the dynamic role played by the private equity industry in the Italian M&A market. Among the most interesting inbound transactions are the following: • CK Holdings Co., Ltd. (KKR & Co. Inc.)’s acquisition of the entire share capital of Magneti Marelli SpA (Fiat Chrysler Automobiles NV);

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• The Carlyle Group’s acquisition of the entire share capital of Forgital Group; • Apollo Global Management’s acquisition of 48.7% of Gamenet; • Nexi SpA (Mercury UK Holdco Ltd)’s offering to the market; • Bain Capital, LP’s acquisition of the entire capital of Immobiliare Stampa Scpa; • Investitori Istituzionali’s acquisition of FinecoBank SpA; and • Cellnex Telecom SA (Edizione Holding SpA)’s acquisition of the entire share capital of Iliad Italia TowerCo. In 1Q 2020, among the transactions over €1bn, Nexi’s acquisiton of Intesa Sanpaolo’s payment system must be recorded. Thus, in line with the European markets in 2019 and 2020, TMT and technology-related M&A has surged, largely due to the 2020 merger between INWIT and the business linked to Vodafone’s Italian transmissions towers. Also, banking sector consolidation has been and is going to be an interesting sector in 2H 2020 and 1H 2021 with the ongoing tender offer of Intesa Sanpaolo over UBI Banca, which could disrupt the status quo of the Italian banking system. It is also expected that top-end and high-tech manufacturing business M&A will be a driving force for 2020.

Key developments The steady growth of presence and influence by foreign strategic and financial investors in the Italian M&A market is opening the door to shareholder activism, although there were very few activist investors in 2019, mainly acting via discrete engagement of board members or, in some cases, via proxy fights and/or litigation. However, it is a relatively growing activity which is predicted to increase in 2H 2020 and 1H 2021 due to the current challenging and disrupting times and increasing market volatility. In addition, in 2019 and 1Q 2020, the presence of financial sponsors consortium and/or joint ventures with strategic investors (although few in number) were registered. Due to the challenging economic conditions, these are expected to increase. It is widely believed that distressed M&A will be an active market sector in the near future, so it is worth highlighting that the insolvency law reform implemented in 2019 stands out among the most high-impact reforms adopted by the Italian legislator. By means of Legislative Decree no. 14/2019, the legislator aimed at achieving a consistent overhaul and reorganisation of the entire sector through the replacement of the Italian Bankruptcy Law (Royal Decree no. 267/1942, as subsequently amended) in its entirety with a new Business Crisis and Insolvency Code. This long-awaited reform was also necessary to facilitate the development and growth of the NPLs market in Italy and to allow the optimisation and efficiency of distressed M&A transactions. Indeed, the Business Crisis and Insolvency Code fosters the adoption of restructuring measures which ensure business continuity as opposed to the liquidation of the corporate assets. With particular reference to the composition with creditors proceedings (concordato preventivo), said Code envisages the introduction of a series of restrictions to access composition with creditors with liquidation purposes (for example, the injection of new financings becomes mandatory), thus prompting shareholders to consider alternative solutions such as, for example, the sale of their shares, of the going concern or of specific business units to third parties with the financial resources and industrial and managerial skills necessary to ensure the turnaround of the business.

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Distressed M&A operations are also facilitated by the provision of leaner and less lengthy restructuring procedures, in some cases even halving the current timeframe for the implementation of the procedures at issue before the courts. Furthermore, crisis alert mechanisms have also been introduced which allow for the implementation of M&A transactions in distress situations which are not yet so serious as to require the commencement of a real bankruptcy procedure. These are out-of-court procedures to be carried out before an ad hoc crisis composition body (Organismo di composizione della crisi d’impresa or OCRI) that will be set up in every Chamber of Commerce. This new restructuring instrument guarantees a certain degree of protection and supervision to the purchaser of the distressed company without being subject to the hurdles of a court proceeding. Moreover, these kinds of M&A transactions could appear more appealing to the market as they would concern distressed companies which are not in a state of real insolvency. These are just a few of the most relevant innovations brought by the new Business Crisis and Insolvency Code that should have entered into force on 14 August 2020; however, due to the COVID-19 emergency, the entry into force has been postponed to 1 September 2021 by means of the Decree. In relation to case law developments in 2019, there was considerable attention from Italian courts and tribunals in relation to the corporate and M&A market which, as well known, was not so common in previous years. In particular, reference is made to the following case law: the Court of Appeal of Rome decision no. 782 dated 3 February 2020, which confirmed that “Russian roulette clauses” can be included in shareholders’ agreements as a valid method of solving deadlocks; the Tribunal of Milan decision no. 6824 dated 21 June 2019, according to which it is possible to grant the “particular rights” of shareholders even to shareholders in the form of companies; the Supreme Court decision no. 8962/2019 regarding the right of withdrawal of quotaholders of limited liability companies; the Court of Appeal of Brescia decision no. 1568/2018 in relation to the terms of shareholders agreements and their renewal; the Supreme Court decision no. 31051/2019 regarding the creation of pledges on limited liability companies’ shares; the Tribunal of Rome decisions dated 29 March and 24 April 2019 in relation to the transfer of shares with reserved ownership; the Tribunal of Milan decision dated 9 August 2019 on capital increases to be subscribed by way of compensation of credits; and the Tribunal of Milan decision dated 18 April 2019 regarding co-sale clauses (or tag-along clauses). In addition, it is also worth mentioning the following two cases which occurred in relation to distressed M&A and reorganisational transactions: the Tribunal of Milan decision dated 27 June 2019 regarding the joint liability of demerged companies with the beneficiaries of demergers; and the Court of Appeal of Rome decision no. 2043 dated 27 March 2019, which admitted the possibility of an actio pauliana for the nullity of the demerger deed (on the same matter, see also the Supreme Court decision no. 31654/2019). However, in terms of new rules in the M&A market, the Italian legislator and government (in line with many jurisdictions) have increased a protectionist approach with the amendment of the previously mentioned GPL described in the overview. On the other hand, there is no specific sign that this recent move is causing major problems or concerns in foreign investors in pursuing their Italian investments. An interesting trend worth mentioning is the Italian M&A risk insurance market’s sharp increase in 2019 (plus 40% versus 2018) with a significant number of Warranties and Indemnities policies executed (in particular, environmental M&A and tax insurance). This trend is expected to continue during 2H 2020 due to the foreseeable challenging period and relevant corporate insolvency issues.13

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The year ahead In conclusion, 2H 2020 will likely experience a further slowdown in M&A activity in Italy both in volume and value due to the above-mentioned global and domestic worries and circumstances. As discussed, a mild recovery should take place in 1H 2021. However, it could also be possible that the Italian M&A mid-market remains active in the coming months due to the increasing need of Italian companies for new equity as well as for international partners, which could support them in the internationalisation and opening of their business and export to foreign markets. This expectation could materialise considering that Italian companies are targets preferred by global investors due to their low valuations in comparison with other European countries, and the further drop in prices and in capital appreciation because of the current shutdown and potential economic recession. Consequently, a number of investment opportunities both in relation to private, closely held companies as well as to publicly listed companies (the latter via public-to-private transactions carried out by a consortium of global or pan- European private equity houses together with foreign activist investors or large corporates) may materialise, to be then combined with the significant and valuable pipeline of announced transactions between 4Q 2019 and 1Q 2020 which have been halted or postponed. Accordingly, M&A cross-border activity (both inbound and outbound) made by strategic or financial investors, directly or through their portfolio companies, is still expected to play an active role in the Italian market in these challenging times.

* * *

Endnotes 1. KPMG Corporate Finance data, May 2020 – Report on Italian M&A Market. 2. Ibid. 1. 3. Dealogic Database (M&A volume data and ranking); KPMG ibid. 1; and Mergermarket (FY 19 EMEA Trend Summary, January 2020). 4. MonitoraItalia data, downloaded from https://www.monitoraitalia.it. 5. Ibid. 1. 6. Ibid. 2. 7. AIFI (Italian Private Capital Association) data. 8. Ibid. 7. 9. Ibid. 1. 10. Ibid. 7. 11. Ibid. 7. 12. Ibid. 7. 13. Marsh private equity and M&A practice – Italian Transactional Risk Insurance Market Report 2019.

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Marco Gubitosi Tel: +39 02 89 63 071 / Email: [email protected] Marco Gubitosi is the London Managing Partner and a Corporate Finance Partner (May 2013) at Legance – Avvocati Associati. Marco has been recognised by The Legal 500 in the “Leading individuals” tier of European firms in London/Italy, as well as by Leaders League in the “Leading” tier of private equity lawyers – Italy. Marco provides hands-on advice and has been involved in several major transactions carried out on the Italian and international markets. In particular, he has outstanding expertise in corporate finance, LBO, mergers, acquisitions (private and public), private equity buyouts, divestitures, real estate transactions, alternative investments and joint ventures. He regularly advises Italian and foreign banks and financial institutions, private equity houses, real estate and sovereign funds, family offices and alternative capital providers, as well as governments and public institutions, corporations and family-owned businesses on a diverse range of transactions. Marco has developed his expertise both in Italy and abroad, particularly whilst working in New York, Beijing and London. He is a regular lecturer at professional associations and academic institutions both in Italy, Europe and the USA as well as a co-author of books and legal publications on corporate law and on M&A and private equity.

Legance – Avvocati Associati Via Broletto, 20, 20121 – Milan, Italy Tel: +39 02 89 63 071 / URL: www.legance.com

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Yohsuke Higashi, Ryo Chikasawa & Shimpei Ochi Mori Hamada & Matsumoto

Overview Despite the global economic and geopolitical uncertainties in 2019, the Japanese M&A market generally continued to be active and outbound M&A activity by Japanese companies remained robust. The total M&A deal volume reached JPY 18 trillion, which was a 40% decrease from the exceptionally large JPY 29 trillion volume in 2018 due to the JPY 7 trillion acquisition of Shire plc (“Shire”) by Takeda Pharmaceutical Company Limited (“Takeda”), the largest-ever outbound deal by a Japanese company, but was still higher than the JPY 13 trillion volume in 2017. The total number of M&A deals increased from 3,850 in 2018 to 4,088 in 2019, making it the busiest year on record. Outbound M&A activity was strong across a variety of industries, including the healthcare, financial institutions, and technology sectors. In 2019, 13 of the 20 largest deals involving Japanese companies were outbound deals. The total value of outbound M&A deals decreased to JPY 10 trillion in 2019 from JPY 19 trillion in 2018, which was an exceptional year due to Takeda’s acquisition of Shire mentioned above. There was a total of 826 outbound deals in 2019, which was the largest annual number on record. There was also a record-high number of 3,000 domestic deals in Japan in 2019. The total deal volume of domestic deals has recovered to the level prior to the 2008–09 global financial crisis, reaching JPY 6 trillion for the first time since 2007. A notable trend has been the increase in the number of domestic M&A deals for the purpose of “business succession”, where founders have difficulty in handing over their business to family members or employees and sell the business to third-party buyers, including private equity buyers, so that the business can continue even after the retirement of the founders. Further, in response to the Japanese government’s policy to reduce the number of listed companies which are subsidiaries of listed parents, we have seen an increasing number of domestic deals where the parent of a listed subsidiary either buys out the subsidiary or sells its holdings in the subsidiary to a third party. Another interesting and important development in 2019 was an increasing number of hostile transactions, including unsolicited tender offers by Japanese companies, which have historically been very cautious about making such offers. In 2020, the outbreak of COVID-19 has brought the global M&A market to a near standstill with a sharp slowdown in deal making. Although the Japanese M&A market continued to be active during the first quarter (and, indeed, even more active than in 2019) and saw a record number of new launches of investment funds focusing on the Japanese market, we are now seeing a rapid decrease in cross-border transactions and expect the slowdown in outbound M&A deals to continue for some time, with more and more Japanese companies adopting a “wait-and-see” approach amid the COVID-19 outbreak. It may take some time for the Japanese M&A market to achieve a full recovery. However, given that the

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Mori Hamada & Matsumoto Japan ageing population and shrinking economy will continue to make it necessary for Japanese companies to pursue overseas growth opportunities, we expect to see M&A activity rebound in the near future once market confidence is restored.

Significant deals in 2019 Outbound M&A deals Outbound M&A deals have been quite active for the last several years in Japan, with the largest ever outbound M&A deal by a Japanese company (Takeda’s acquisition of Shire) having been announced in 2018 and completed on January 8, 2019. It is also notable that Japan has seen more outbound M&A deals in Asia than in North America for the first time in five years, probably due to concerns over, among other things, trade tensions between the U.S. and China. In July 2019, Asahi Group Holdings, Ltd. (“Asahi”), the holding company for Japan’s largest brewer, announced that it would acquire Carlton & United Breweries (“CUB”) of Australia for approximately JPY 1.2 trillion (USD 11 billion) from its Belgian parent, Anheuser-Busch InBev. Although the Australian Competition and Consumer Commission (“ACCC”) first stalled the acquisition over concerns that it would reduce competition in Australia’s cider and beer market, Asahi has recently been given the green light from the regulators on the condition that CUB sells two of its beer brands and three of its cider brands. Nippon Paint Holdings Co., Ltd. also targeted Australia and acquired DuluxGroup Ltd. for around JPY 300 billion (USD 2.7 billion) in cash, thereby obtaining the country’s No. 1 sales channel for paints, coatings and other materials. Mitsubishi UFJ Financial Group, Inc. (“MUFG”) and its subsidiary, MUFG Bank, Ltd., announced in March 2019 that it would purchase the aviation finance division of DVB Bank SE, Germany’s second-largest bank. This acquisition was the latest for Japan’s biggest bank in its series of outbound M&A deals as it seeks to make up for diminishing returns in Japan where interest rates are negative and economic growth is slow. MUFG’s recent acquisitions include its bank subsidiary’s purchase of an additional stake in PT Bank Danamon Indonesia, Tbk. and its trust-banking subsidiary’s acquisition of the asset management unit of the Commonwealth Bank of Australia. M&A activities of SoftBank SoftBank Group Corp. (“SoftBank”) is a global corporate group with a portfolio of companies in the advanced telecommunications, internet services, and artificial intelligence (“AI”), Internet of Things (“IoT”) and other technology sectors and is famous for the SoftBank Vision Fund established in 2017. The company was relatively active in investments outside Japan in 2018, including its acquisition of a 16% stake in Uber Technologies, Inc. (“Uber”) for approximately USD 7.7 billion and its investment in WeWork Companies, Inc. (“WeWork”), which was reportedly more than JPY 1.4 trillion (USD 13.5 billion). In 2019, however, the company suffered losses from these outbound investments. The company reported a net loss of around JPY 1 trillion (USD 9.4 billion) for the fiscal year from April 2019 to March 2020. Of the JPY 1 trillion (USD 9.4 billion) loss, WeWork’s total write-down accounts for JPY 700 billion (USD 6.6 billion). While struggling in the overseas market, SoftBank was fairly active in the domestic market in 2019. SoftBank announced in November 2019 that it would combine its subsidiary Z Holdings Corporation (“Z Holdings”), the operator of Yahoo! Japan internet business, with LINE Corporation (“LINE”), a messaging app provider, to create a JPY 3.2 trillion (USD 30 billion) tech company. The messaging service of LINE was valued at JPY 1.2 trillion

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(USD 11.5 billion). SoftBank and South Korea’s NAVER Corporation, the parent of LINE, will take LINE private and then fold LINE and Z Holdings into a new 50-50 joint venture. In 2019, SoftBank also conducted a couple of other large domestic deals such as: (i) its purchase of additional stakes in Z Holdings of JPY 456 billion; and (ii) Z Holdings’ acquisition of a majority stake in ZOZO, Inc., Japan’s biggest online fashion retailer, for JPY 400 billion. Private equity and other investment fund deals There was a total of 877 M&A deals by investment funds in 2019, which was a 17% increase over the 751 deals in 2018 and represents 21.5% of the total number of M&A deals involving Japanese corporations in 2019. In particular, corporate venture capital investments have been quite active over the last several years in Japan. There were 555 investments by venture capital funds in 2019, representing around 60% of the total number of transactions by investment funds. The investment amount by private equity funds also increased in 2019. Japanese private equity firm Polaris Capital announced in 2019 the acquisition of an 80% stake in the security systems business of Panasonic Corporation. MBK Partners, a South Korean private equity firm, purchased the retail and distribution operations in Japan, South Korea and Australia of Godiva Chocolatier, the Turkish-owned Belgian chocolatier, for more than JPY 101 billion (USD 1 billion). U.S. private equity firm The Blackstone Group Inc. (“Blackstone”) acquired Japanese drug maker AYUMI Pharmaceutical Corporation from the Japanese private equity firm Unison Capital for around JPY 100 billion (USD 1 billion). The 2019 deal was the first M&A deal in Japan by the U.S. firm after it set up a Japan team for M&A transactions in 2017. Healthcare In concert with the global market, M&A activity in the healthcare sector continued to be strong in 2019. Sumitomo Dainippon Pharma Co., Ltd. (“SDP”) acquired from Swiss drugmaker Roivant Sciences Ltd. (“Roivant”) five of its biopharmaceutical subsidiaries and obtained access to Roivant’s proprietary technology platforms for around JPY 302 billion (USD 3 billion). In addition, SDP will acquire more than 10% of the outstanding shares of Roivant and will have options to acquire Roivant’s ownership interests in up to six additional businesses by 2024. Astellas Pharma Inc. took over Audentes Therapeutics, Inc., a U.S.-based gene therapy company, for approximately JPY 302 billion (USD 3 billion) in cash, aiming to establish a leading position in the field of gene therapy. FUJIFILM Holdings Corporation (“Fujifilm”) announced in 2019 that it would acquire Hitachi, Ltd.’s diagnostic imaging equipment business for approximately JPY 170 billion (USD 1.6 billion). Financial institutions Japanese financial institutions have been forced to look abroad for growth amid a shrinking population of Japan, and their outbound activities were particularly strong in 2019. As noted above, MUFG has conducted a series of outbound M&A deals in recent years and acquired in 2019 the aviation finance division of DVB Bank SE for roughly JPY 710 billion (USD 7 billion). Japanese insurance provider Tokio Marine Holdings, Inc. also announced in 2019 that it would acquire U.S. counterpart Pure Group for around JPY 320 billion (USD 3.1 billion). In 2019, Marubeni Corporation (“Marubeni”) and Mizuho Leasing Company, Limited (“Mizuho Leasing”) agreed to acquire U.S. aircraft lessor Aircastle Limited for approximately JPY 250 billion (USD 2.4 billion). Marubeni and Mizuho Leasing have recently announced the completion of their merger with the aircraft

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Mori Hamada & Matsumoto Japan leasing company, with much of the airline industry facing an existential threat after the COVID-19 pandemic. M&A deals driven by restructuring of conglomerates Japanese conglomerates have been restructuring their large portfolios of businesses over the past few years. Global manufacturing conglomerate Hitachi, Ltd. (“Hitachi”) announced in 2019 that it would sell its chemicals subsidiary Hitachi Chemical Company, Ltd. (“Hitachi Chemical”) to Showa Denko K.K. (“Showa Denko”) and its diagnosis imaging equipment business to Fujifilm. As for the Hitachi Chemical divestiture, Showa Denko, Japan’s No. 3 diversified chemicals supplier, agreed to pay around JPY 1 trillion (USD 9 billion) to buy out the chemicals company, a listed subsidiary of Hitachi. The deal is part of a long-term effort by Hitachi to either buy in or sell off listed subsidiaries to streamline its corporate governance. The diagnosis imaging equipment business was sold to Fujifilm for approximately JPY 170 billion (USD 1.6 billion) as noted above. Another electronic conglomerate Toshiba Corporation (“Toshiba”) has been restructuring its entire corporate structure after suffering huge losses in 2016 from its U.S. nuclear power plant business and spinning off its memory business in 2018. In 2019, Toshiba launched tender offers to buy out three of its listed subsidiaries as part of its restructuring effort. Increase in hostile deals In Japan, hostile or unsolicited tender offers had been historically rare. In 2019, however, there were as many as 10 hostile tender offers for Japanese listed companies, which made a striking contrast to 2018 which saw only one hostile tender offer. This tendency continued in 2020, and we have already seen three hostile tender offers as of May 2020. A highlight of the increase in hostile deals was the hostile tender offer made by ITOCHU Corporation, Japan’s major trading company, for DESCENTE, LTD., a Japanese sportswear company. This was the first successful hostile tender offer made by a large Japanese company for another large company. Japan saw another interesting takeover battle in 2019. In July 2019, H.I.S. Co., Ltd. (“HIS”), a major travel agency, launched a hostile tender offer to acquire control ofUNIZO Holdings Company, Limited (“Unizo”), a Japanese hotelier and property company. The offer price was JPY 3,100 per share, representing a 50 to 60% premium over the market price. Unizo first turned to SoftBank-ownedFortress Investment Group (“Fortress”) for help in fending off the offer from HIS. With the support of Unizo’s management, Fortress started a counter tender offer to buy out Unizo at an offer price of JPY 4,000 per share, representing almost a 100% premium. Then, around October 2019, Blackstone emerged as a potential bidder, issuing a statement that it would launch a tender offer for Unizo at JPY 5,000 a share. In the interim, U.S. hedge fund Elliott Management Corporation bought shares and became Unizo’s top shareholder with a holding of 13%. A few other activist investors also each disclosed a stake of more than 5%. Around that time, Unizo withdrew its support for the white knight offer from Fortress. While Blackstone tried to win the support from Unizo management, the management turned to U.S. buyout fund Lone Star Funds (“Lone Star”). In 2020, Lone Star finally struck a JPY 205 billion (USD 1.9 billion) deal through a tender offer for Unizo shares at JPY 6,000 per share, ending a nine-month bidding war among these global investors. It is also notable in this case that, in the course of the takeover battle, Unizo made a rare request to bidders that a group of Unizo employees have certain decision-making or veto rights over the operations of the company. Lone Star accepted a scheme allowing a group of Unizo employees to own 73% of common shares, with Lone Star holding the rest.

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Subject to the potential impact of the COVID-19 outbreak, we expect that the number of hostile deals will continue to increase given that institutional shareholders holding a substantial portion of Japan, Inc. are no longer sympathetic with management prioritising self-defence over shareholder returns, due partly to the government’s efforts to improve management accountability as well as stewardship of institutional investors.

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, financial and economic environment faced by Japanese companies has already highlighted the shortcomings of the rewritten Companies Act. As a result, the first amendment of the Companies Act was passed by the Japanese Diet in June 2014 and came into effect in May 2015, which, among others, introduced (a) a regulation on the issuance of shares that results in creating controlling shareholders, and (b) a fast-track minority squeeze-out procedure. Thereafter, the Ministry of Justice continued discussions of a possible additional amendment of the Companies Act, and the bill on the additional amendment was approved by the Diet in December 2019 and is expected to come into effect before June 2021 (the “2019 Amendment”). The 2019 Amendment primarily focuses on corporate governance issues, such as a requirement for listed companies to make most shareholders’ meeting materials paperless and available only online, a limitation of the number of shareholder proposals to prevent abusive proposals, and a requirement for listed companies to appoint at least one outside director (the topic of which is currently governed by the stock exchange rules). There will also be a streamlining and clarification of rules applicable to director compensation and directors and officers insurance and indemnification. However, there is one major amendment relating to M&A, which is the introduction of a new corporate reorganisation transaction called a “Share Delivery” (kabushiki kofu) – a form of stock-for-stock acquisition. There is currently a transaction known as a “stock-for-stock exchange” (kabushiki kokan) which is available under the Companies Act, but it can only be adopted when the acquirer intends to acquire all issued shares of the target. However, an acquirer will be able to use a Share Delivery to acquire only part of the issued shares of the target in exchange for its own shares (e.g., an exchange offer for a listed target), so long as the target is not a subsidiary of the acquirer prior to the acquisition, but will become one after the acquisition. Such transaction is actually permissible as of now by means of the issuance of the acquirer’s shares in exchange for an in-kind contribution of the target’s shares. However, this current procedure is subject to a requirement that a court-appointed inspector must investigate the value of the target’s shares prior to the issuance of the acquirer’s shares, and the target’s shareholders receiving the acquirer’s shares must indemnify the acquirer if it later turns out that the value of the target’s shares significantly falls short of the value on which the issuance of the acquirer’s shares was based. This requirement tends to be prohibitively burdensome, but the introduction of the Share Delivery will lift the requirement and is expected to provide potential acquirers with broader options for stock-for-stock acquisitions. Pending the introduction of the Share Delivery, a similar arrangement is available under the Act on Strengthening Industrial Competitiveness (the “ASIC”), a special measures act administered by the Ministry of Economy, Trade and Industry of Japan (“METI”), but it requires that the acquisition plan be reviewed and approved by the ministry governing the

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Mori Hamada & Matsumoto Japan relevant industry. In practice, the acquisitions arrangement under the ASIC will continue to be an option in some cases even after the Share Delivery becomes available. While the Share Delivery can only be used in transactions between Japanese companies, the ASIC arrangement can be used by Japanese companies to acquire foreign companies. In November 2019, Datasection Inc., a Japanese AI technology company, received METI’s approval and acquired Jach Technology SpA, a Chilean company, by way of the ASIC arrangement. In combination with the tax deferral treatment for a stock-for-stock acquisition as discussed below, we anticipate an increasing use of stock-for-stock acquisitions in Japan. Amendment of M&A-related taxation There were several M&A-related tax amendments in 2017 and 2018, which will potentially have a significant 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 stock- for-stock acquisition approved under the ASIC (as mentioned above). Due to these amendments, we now have broader structuring options for squeeze-out transactions, and spin-off transactions meeting certain conditions can be completed tax-free. In March 2020, KOSHIDAKA HOLDINGS Co., LTD. completed a spin-off of its subsidiary, CURVES HOLDINGS Co., Ltd., which was the first spin-off transaction completed pursuant to the tax law amendments. Additionally, we are now able to enjoy a tax deferral in a stock-for- stock acquisition approved under the ASIC. In addition to the burdens under the Companies Act explained above, taxation on capital gains on the target’s shares has been one of the main reasons for the unpopularity of exchange offers and other partial stock-for-stock acquisitions in Japan, but this tax law amendment may promote the use of this type of transaction in the near future. Developments in corporate governance Corporate governance has continued to be a hot issue in Japan. The Japanese Financial Services Agency (“FSA”) introduced a Japanese version of a Stewardship Code in February 2014 and subsequently revised it twice – in May 2017 and March 2020. The FSA announced that, as of May 2020, 281 institutional investors have adopted the Stewardship Code. This development is affecting the relationship of Japanese companies with their institutional shareholders, which is also affecting M&A practices in Japan. Furthermore, in June 2015, the Tokyo Stock Exchange (“TSE”) adopted the Corporate Governance Code (the “Governance Code”) and revised it in June 2018. Concurrently with the revision of the Governance Code, the FSA published the Guidelines for Investor and Company Engagement (the “Engagement Guidelines”). The Governance Code is intended to establish fundamental principles for effective corporate governance for listed companies in Japan and takes the “comply-or-explain” approach with respect to its requirements, like the codes of the United Kingdom and other countries. However, what distinguishes the Japanese Governance Code from those of other countries is that it intends to encourage companies’ timely and decisive decision-making with the objective of achieving sustainable growth; therefore, the adoption of the Governance Code has had a significant impact not only on corporate governance but also on M&A practices in Japan. The Engagement Guidelines were adopted to show paths to effectively “comply or explain” pursuant to the requirements under the Governance Code and the Stewardship Code. The Governance Code 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 anti-takeover measures, capital policies that could result in a change of control or in significant dilution (e.g., management buyouts or share offerings), and cross-shareholdings.

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Since the Governance Code is based on the notion that companies need proper corporate governance to achieve sustainable and mid- to long-term growth, it has become 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 Governance Code also tries to address short-termism and recommends that remuneration to directors includes incentives that reflect mid- to long-term performance or potential risks. As one of the reactions to this recommendation, Japanese listed companies now widely adopt restricted stock plans and other types of equity compensation as part of director remuneration. 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 the 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. The revision of the Governance Code in 2018 requires listed companies to, among other things, give weight to the cost of capital in determining business portfolio and resource allocation, to ensure that their boards discharge their responsibility in CEO succession planning and monitoring of CEOs through their election or removal, and to disclose their policy to decrease cross-shareholding. The emphasis on the cost of capital may encourage Japanese listed companies to dispose of their non-core businesses and focus on and expand their competitive edge, through both outbound and domestic M&A. Developments in discussions of listed subsidiaries In June 2019, METI formulated the “Practical Guidelines for Group Governance Systems”, with the aim to discourage listed companies from maintaining listed subsidiaries without good reason because such double listing creates a conflict of interest between the parent and the minority shareholders of the listed subsidiary. The Guidelines recommend that listed parents explain reasonable grounds for keeping subsidiaries separately listed on stock exchanges, and recommend that listed subsidiaries strengthen their corporate governance by, for example, increasing the number of independent outside directors. In response to the Guidelines, the TSE amended its listing rules to tighten the independence standard for independent directors of listed subsidiaries and to oblige parent companies to disclose reasons for keeping their subsidiaries listed. Under such circumstances, we expect to see an increasing number of M&A deals where the parent of a listed subsidiary either buys out the subsidiary or sells its holdings in the subsidiary to a third party. 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 management buyouts or acquisitions of a controlled company by a controlling shareholder. 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 define 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. There were a number of famous cases where challenges were made, such as the REX HOLDINGS CO., LTD., Sunstar Inc. and CYBIRD HOLDINGS Co., Ltd. cases. The

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Mori Hamada & Matsumoto Japan 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 difficult to establish exactly which factors should be taken into account in addressing the issue. In this context, the Supreme Court rendered an important decision in 2016 in the Jupiter Telecommunications Co., Ltd. case (“J:COM case”), reversing 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. However, in the J:COM case, the Supreme Court held that, even in a case where there is a conflict 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. 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 first 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 “generally accepted fair procedures”; (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 finds 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 above-mentioned 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. The J:COM ruling has had a significant impact on Japanese M&A practices and there have been a series of lower court decisions based on the framework of the J:COM case, making it more important to carefully consider the factors that would be regarded as “generally accepted fair procedures” in each transaction. Revision on guidelines on conflict of interest in M&A Back in September 2007, METI formulated the “Guidelines for Management Buyout (MBO) to Enhance Corporate Value and Ensure Fair Procedures” (the “MBO Guidelines”), aiming to present fair rules for management buyouts. In order to reflect developments in corporate governance reforms and court precedents discussed above as well as M&A practices over the past 10 years, and to more widely address conflicts of interest in M&A transactions, METI thoroughly revised the MBO Guidelines in June 2019 and formulated the “Fair M&A Guidelines; Enhancing Corporate Value and Securing Shareholders’ Interests” (the “Fair M&A Guidelines”), which propose best practices to address conflicts of interest with a focus on management buyouts and acquisitions of a controlled company by a controlling shareholder. While the Fair M&A Guidelines are guidelines and do not have any statutory

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Mori Hamada & Matsumoto Japan effect, they are expected to be referred to by Japanese courts, and compliance with the Fair M&A Guidelines should be helpful in demonstrating at court that a transaction was carried out in accordance with “generally accepted fair procedures” under the J:COM ruling. The measures to ensure fairness of M&A transactions that are proposed by the Fair M&A Guidelines include, among others, (a) formation of an independent special committee by the target which should comprise outside directors and other independent members, (b) obtaining advice from independent legal counsel and third-party valuations which should ideally be accompanied with fairness opinions, (c) conducting market checks, (d) adoption of a majority-of-minority condition, and (e) enhancement of information disclosure. While a special committee has been customarily formed for management buyouts, it has not always been the case with acquisitions of a controlled company by a controlling shareholder. The Fair M&A Guidelines express a clear preference to have outside directors as members of the special committee, rather than outside experts being retained solely to serve the special committee. The Fair M&A Guidelines further suggest that the special committee should ideally get involved in negotiations with potential acquirers and receive advice from advisers retained by the special committee independently from the target. Although it has been only one year since the formulation of the Fair M&A Guidelines, we have seen an increasing number of special committees being involved in negotiations with acquirers and retaining their own financial and legal advisors. While it is very customary to obtain a third-party valuation, obtaining a fairness opinion has not been widely seen, but this may change following the introduction of the Fair M&A Guidelines. In 2019, we saw a slight increase in use of fairness opinion, especially in large cap deals. Regarding market checks, while it has been customary in a two-step acquisition for an acquirer to set the offer period in the first-step tender offer to be long enough to enable any potential acquirer to commence a competing bid, active shopping has been very rare. The Fair M&A Guidelines cite the effectiveness of an active market check in management buyouts (which may not be the case with acquisitions of a controlled company by a controlling shareholder), and we will need to see how the M&A market reacts to such suggestion. The level of information disclosure has also been improved. Following the Fair M&A Guidelines, the relevant disclosure documents now contain deal process information in greater detail compared to the previous practice. 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 among existing shareholders over the control of a company. 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 filed 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 reorganisations. Actually, the founding family was against the combination of Idemitsu and SHOWA SHELL SEKIYU K.K. which had been proposed by the incumbent management (and which was subsequently completed in April 2019). The founding family filed 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 rights over material corporate actions.

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Over the last few 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 specific 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 specific third party; therefore, it was less likely that the current management could control who would be the new shareholders or the opinions of such new shareholders; and (b) Idemitsu actually needed new money through this issuance of new shares in order to refinance 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 financing without a thorough review. However, given the court’s conclusion that a public offering of shares may be more acceptable from the perspective 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. Major amendment of the Foreign Exchange and Foreign Trade Act There has been a major amendment to the Foreign Exchange and Foreign Trade Act (the “FEFTA”), which regulates, among others, foreign direct investments in Japan. The amendment came into effect as of May 8, 2020 and is applicable to foreign direct investments in Japan consummated on or after June 7, 2020. While Japan has long required foreign investors to make a notification and undergo screening prior to investments in designated business sectors, the amendment expanded the scope of covered transactions. Following the amendment, the threshold for the notification requirement for acquisition of listed shares engaged in designated business sectors has been lowered from 10% to 1%, which is far lower than the 5% threshold applicable in the large shareholding reporting requirement. To strike a balance, the amended FEFTA concurrently introduced exemptions from such notification requirement, which are available for passive investors who are not foreign governments, sovereign wealth funds or state-owned enterprises (“SOEs”) (save for those specifically accredited by the Ministry of Finance (“MOF”)), if they comply with certain exemption conditions to ensure that they remain passive investors. Such exemption conditions include a requirement to not cause their closely related persons to become a board member of the target, to not propose to the shareholders’ meeting any transfer of business in any designated business sector, and to not access any non-public technology information of the target relating to any designated business sector. Under the amended FEFTA, the designated business sectors, which will trigger the notification requirement, are classified into core sectors and others, where the core sectors cover more sensitive sectors such as weapons, dual-use technologies, nuclear, aircraft, certain cybersecurity and telecommunications. If the target engages in any core-sector business, the above-mentioned exemption from the prior notification requirement will be available only if the foreign investor is a financial institution regulated in Japan or subject to foreign regulation equivalent to that of Japan, or if the relevant investment is an acquisition of listed shares up to 10% and the foreign investor complies with even more stringent exemption conditions. The MOF has compiled and published a list categorising Japanese

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Mori Hamada & Matsumoto Japan listed companies into the three categories: (a) companies not engaged in any designated business sector (no prior notification required); (b) companies conducting business activities in designated business sectors other than core sectors; and (c) companies conducting business activities in core sectors. The list, however, has been prepared for convenience purposes only, and the foreign investor’s reliance on it will not necessarily be protected. An asset transaction (including statutory demerger and merger) will also trigger the prior notification requirement under the amended FEFTA, if it is an acquisition of a business in any designated business sector from a Japanese company by a foreign investor. Furthermore, a foreign investor is now required to make a prior notification before it exercises its voting rights at the shareholders’ meeting of a Japanese company to (a) approve appointment of the foreign investor or its closely related person as a board member of the target, or (b) if the agenda is proposed by such foreign investor, approve a transfer of business in any designated business sector. This requirement will not apply if the foreign investor acquired the shares of the target after making the prior notification (i.e., not relying on the exemption), or the target is a listed company and the holding of the foreign investor does not exceed 1%. For the past several years, the Japanese government has tightened its review on foreign direct investments, and this tendency will certainly continue following the amendment to the FEFTA. Foreign investors, especially SOEs or investors closely related to foreign governments or SOEs, are recommended to analyse the implication of the FEFTA process on any deal-making in Japan. M&A practices relating to anti-corruption regulations As described above, we are still seeing a strong trend of outbound 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 officials. In 2014, the Tokyo District Public Prosecutor’s Office indicted a Japanese railway consulting firm and its executives on charges of making illegal payments to officials in Vietnam, Indonesia and Uzbekistan. In September 2017, METI amended the “Guideline to Prevent Bribery of Foreign Public Officials”, whilst in January 2017, the Japan Federation of Bar Associations revised the “Guidance on Prevention of Foreign Bribery”. In this very active situation relating to 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 While representations and warranties insurance has been used by Japanese companies in cross-border M&A, it has not been widely used in domestic M&A, partly because there was no insurance company that was able to provide the insurance based on a Japanese language due diligence report and transaction documents. However, insurance companies have recently started to actively provide representations and warranties insurance in Japan based on Japanese language documents. There has been an increasing opportunity for providers of this insurance in connection with the increasing number of small- to mid-cap M&A conducted for the purpose of “business succession”. In these transactions, individual sellers tend to prefer little to no recourse surviving the closing, and buyers are seeking alternative protection to accommodate the sellers’ request to limit the recourse as well as to mitigate the credit risk of individual sellers. As a result, representations and warranties insurance is expected to become more common even in domestic M&A.

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The year ahead Overall M&A trends Given the uncertainty caused by the outbreak of COVID-19, Japanese companies will likely become more cautious in using their cash reserves, and may suspend or slow down outbound M&A activity at least until the impact of COVID-19 becomes clearer. However, Japanese companies still need to pursue overseas growth opportunities to survive the ageing population and shrinking economy in Japan, so we expect to see M&A activity rebound in the near future once market confidence is restored. Change in law The Fair M&A Guidelines have had, and will likely continue to have, a significant impact on how management buyouts and acquisitions of a controlled company by a controlling shareholder will be carried out in Japan. The tightened scrutiny on foreign direct investments may also affect the activities of foreign investors, particularly Chinese investors who have been active in the Japanese M&A market.

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Yohsuke Higashi Tel: +81 3 6266 8599 / Email: [email protected] Yohsuke Higashi is a partner at Mori Hamada & Matsumoto. His main practice areas include M&A, private equity and venture capital transactions. He deals with transactions ranging from consolidations of major listed companies to acquisitions of start-ups and small to medium-sized businesses. He has extensive experience in representing international clients on acquisition and joint venture transactions in Japan and negotiating against Japanese companies, including major listed companies. He also specialises in venture capital transactions and has helped foreign investors navigate through unique features of Japanese preferred stock and investment terms. He received his LL.B. degree in 2004 and J.D. degree in 2006 from the University of Tokyo and was admitted to the Japanese Bar in 2006. He also received his LL.M. degree in 2012 from the University of Chicago and was admitted to the New York Bar in 2013. After completing his LL.M. study, he worked with Davis Polk & Wardwell from 2012 to 2013. He served as lecturer at his alma mater, the University of Tokyo, School of Law, from 2010 to 2011, where he taught the Civil Code to J.D. students.

Ryo Chikasawa Tel: +81 3 6266 8719 / Email: [email protected] Ryo Chikasawa is a partner at Mori Hamada & Matsumoto. His main practice areas include M&A, shareholder activism and corporate governance. He excels in advising public and private companies, as well as private equity funds, in complex and high-value corporate matters including acquisitions, divestitures, leveraged buyouts, joint ventures, cross-border deals, shareholder activism, takeover defences and corporate governance matters. He also has extensive experience in representing international clients in M&A transactions in Japan, including unfriendly tender offers for Japanese listed companies. He has written articles in numerous professional publications on topics relating to M&A and corporate governance. He received his LL.B. degree in 2007 from the University of Tokyo and was admitted to the Japanese Bar in 2008. He also received his LL.M. degree in 2016 from the University of Pennsylvania and was admitted to the New York Bar in 2017. After completing his LL.M. study, he worked with Davis Polk & Wardwell from 2016 to 2017.

Shimpei Ochi Tel: +81 3 6266 8969 / Email: [email protected] Shimpei Ochi is a senior associate at Mori Hamada & Matsumoto, specialising in M&A transactions and corporate governance matters, with extensive experience in public M&A deals which require deep understanding of tender offer regulations and disclosure requirements. From 2017 to 2019, he worked as a deputy director at the Ministry of Economy, Trade and Industry of Japan, where he drafted the Fair M&A Guidelines, the revised Act on Strengthening Industrial Competitiveness, and the revised Practical Guidelines for Corporate Governance Systems. He is admitted to practise in Japan and received an LL.B. from the University of Tokyo in 2012.

Mori Hamada & Matsumoto Marunouchi Park Building, 2-6-1 Marunouchi, Chiyoda-ku, Tokyo 100-8222, Japan Tel: +81 3 6212 8347 / Fax: +81 3 6212 8247 / URL: www.mhmjapan.com

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Marcus Peter & Irina Stoliarova GSK Stockmann

Overview This chapter provides an overview of the M&A landscape in Luxembourg in 2019. 2019 was a solid year for the Luxembourg M&A market and has shown a growing trend in M&A transactions in comparison to previous years, despite the United Kingdom’s decision to leave the European Union. Luxembourg continues to be the largest investment funds hub in Europe and the second largest in the world after the United States. Net assets under management in Luxembourg investment funds reached €4,718.9 billion at the close of December 2019 and, as at 31 January 2020, increased to €4,789.797 billion, which shows a continuous and stable growth and development in the market. Therefore, the investment funds industry continues to play an important role for inbound and outbound M&A transactions in Luxembourg. Investors based in Asia, the USA and Latin America have shown their interest by carrying out M&A transactions using Luxembourg- based structures for acquisitions of targets which are typically based outside Luxembourg. Luxembourg continues to serve as a platform for M&A deals involving Luxembourg vehicles in the acquisition of foreign targets or assets. In particular, the number of Luxembourg holding structures and/or fund structures through which real estate or other assets are held has significantly increased in the past few years. The increasing interest in the M&A industry in Luxembourg is due to its legislative stability and attractive, flexible legal framework which allows the creation of various types of structures for different types of investors. The key legislation governing M&A transactions in Luxembourg is the law dated 10 August 1915, as amended (Corporate Law), which implemented the EU Cross-Border Mergers Directive into national legislation. The Corporate Law was amended in the last two years to offer an even better corporate vehicle platform for M&A and joint-venture purposes. The provisions of the Luxembourg Civil Code, in particular the provisions governing contractual relationships between parties, provide additional stable legal framework for the sale and acquisition of corporate vehicles in Luxembourg. Furthermore, the takeover law dated 19 May 2006, as amended (Takeover Law), which implemented the EU Directive 2004/25/EC on takeover bids, fully applies to acquisitions where the target company is a Luxembourg registered company, the shares of which are admitted to trading on the regulated market of the Luxembourg Stock Exchange. The Takeover Law introduced and established a legal framework for mandatory squeeze-out and sell-out transactions of certain categories of securities of companies whose registered office is located in Luxembourg. Finally, the Luxembourg law dated 21 July 2012, on mandatory squeeze-out and sell-out of securities of companies, currently admitted or previously

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© Published and reproduced with kind permission by Global Legal Group Ltd, London GSK Stockmann Luxembourg admitted to trading on a regulated market or having been offered to the public, applies. The law provides security for minority shareholders that their shares will be acquired by the majority shareholders at a fair price and the CSSF (as defined hereinafter) is the competent authority to ensure that the provisions of the law are applied and duly respected. The law dated 24 May 2011 on the exercise of certain rights of shareholders in general meetings of listed companies, for the purposes of compliance with the EU Directive 2017/828 of 17 May 2017, amending EU Directive 2007/36/EC, is applicable to companies registered in Luxembourg and whose shares are admitted to trading on a regulated market in the EU. For M&A transactions relating to the acquisition of regulated vehicles in Luxembourg, the Commission de Surveillance du Secteur Financier (CSSF), responsible for financial regulation in Luxembourg, has to ensure that the provisions of respective product laws are respected and, additionally, has to approve changes to companies’ shareholding structures. There may also be specific legislation to be considered in M&A deals depending on the sector or area of the transaction. We also note that since the United Kingdom’s decision to leave the European Union, Luxembourg seems to be an alternative jurisdiction for different investors and companies that do not want to take any risks due to Brexit. Many insurance companies and asset managers acquired and/or increased their participations in different regulated vehicles and structures in Luxembourg.

Significant deals and highlights Luxembourg remains involved in different M&A transactions involving counterparties from around the globe. The following major deals have been concluded recently: • Acquisition of Quilvest Luxembourg Services (QLS) offering private equity/real estate administration services and supporting over $5 billion of assets by Gen II Fund Services, boosting the latter’s geographical coverage through M&A. • Acquisition of International Administration Group, fund administration and depositary services provider, by Oak, a fund administrator based in Guernsey with its offices in Luxembourg, bringing the total assets under administration of the latter to over £20 billion. • Merger of the Amundi Funds and Amundi Funds II, bringing the total volume of the Amundi Funds family assets under administration to €90 billion. • Acquisition by PAI Partners, a leading European private equity firm, and KIRKBI A/S, the holding and investment company of the Kirk Kristiansen family of Armacell, a global leader in flexible foam for the equipment insulation market and a leading provider of engineered foams from Blackstone in a deal that values the business at approximately €1.4 billion. • Merger of the Luxembourg private telecommunications company Tango with the Telindus Group with effect as of 1 January 2019 to form Proximus Luxembourg.

Key developments As already stated above, the Corporate Law was significantly amended in 2016 by creating additional legal security with regard to the structuring of M&A transactions. Now there is more flexibility with regard to the structuring of share classes and their characteristics; the rules applicable to different forms of companies have been also harmonised. Moreover, new corporate forms were created, such as, for example, the unregulated reserved alternative investment fund (RAIF), as well as more flexible provisions pertaining to the issuance of

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© Published and reproduced with kind permission by Global Legal Group Ltd, London GSK Stockmann Luxembourg bonds and the holding of shareholder meetings. In December 2017, the numbering of the articles and sections of the Corporate Law were significantly changed by the Grand Ducal Regulation; the text of the articles, however, did not change. The other major legal change concerns the KYC and AML regulatory provisions; in particular, the establishment of the register of beneficial owners in respect of corporate and other legal entities incorporated within the territory of Luxembourg as required by the fourth and fifth EU AML Directives. In Luxembourg, the law dated 13 January 2019 created a register of beneficial owners RBO( Law). The RBO Law entered into force as of 1 March 2019. The existing legal entities, in order to comply with the obligation to identify and report the identity of beneficial owner(s), had a transition period until 30 November 2019. In addition to the RBO Law, on 19 February 2019, a Grand Ducal Regulation was published, providing further details regarding the registration methods, the administrative fees as well as access to the information contained in the register. Several other circulars and guidance were issued by various market players, including the CSSF, in order to support and assist companies with the identification of beneficial owner(s). This new development does not seem to have impacted the volume of M&A deals over the year and we believe it will not be an obstacle to the progress of M&A transactions in Luxembourg, as it is part of the EU AML and KYC innovations which were established in each EU Member State. The law dated 24 May 2011 on the exercise of certain rights of shareholders in general meetings of listed companies was amended by the law dated 1 August 2019 in order to be compliant with the EU Directive 2017/828 of 17 May 2017, amending EU Directive 2007/36/EC. As amended, the law establishes specific requirements to encourage shareholder engagement, especially in the long term. These specific requirements apply to the identification of shareholders, transmission of information, facilitation of exercise of shareholders’ rights, transparency of institutional investors, asset managers and proxy advisors, remuneration of directors and related party transactions. On 8 August 2019, the Luxembourg government published bill n°7465 implementing the Directive (EU) 2018/822 on mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements (DAC 6). DAC 6 was adopted on 25 March 2020 and will apply as from 1 July 2020. The first reportable transactions will, however, be those transactions whose first implementation step occurred or will occur between 25 June 2018 and 30 June 2020. The relevant information will then have to be reported to the Luxembourg authorities at the latest by 31 August 2020. DAC 6 will have a major impact on M&A deals.

Industry sector focus In Luxembourg, there is no particular dominant sector for M&A transactions. Some sectors are more popular than others and this depends on investors’ appetite for risk; some investors would rather focus on high-yield areas, promising areas that may bring them the highest return despite the risk being quite high. Judging by the current economic and market conditions, investors are looking for alternatives and seek to diversify their risks. Over the last 12 months, investors have, however, shown particular interest in the telecommunications sector as well as the banking and financial services sector. For transactions involving real estate, assets are mainly located in the other jurisdictions where Luxembourg is used for holding structuring purposes due to its business-friendly and positive legal environment.

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The year ahead We anticipate a stable outlook for the year 2020; however, we expect a lower number of M&A transactions in Luxembourg until mid-2020 due to the COVID-19 developments. However, there is confidence that M&A activity will pick up strongly in the second half of 2020 assuming that the COVID-19 impact will fade. The Luxembourg government is also undertaking many different measures to make Luxembourg a leading centre in the areas of fintech, space technology, and information and communication technology, which all reflect in a positive way on Luxembourg’s business industry, attracting new investors and companies to the market and allowing large diversification of the economy.

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Marcus Peter Tel: +352 2718 02 50 / Email: [email protected] Marcus Peter is a lawyer admitted to practise in Luxembourg and Germany. He studied in Germany and Russia, earning a Master’s and a Ph.D. in law. He specialises in investment funds, private equity & venture capital as well as corporate and M&A law. He worked in a leading independent law firm from 2004 to 2016 (the last four years as partner) and in 2016 he opened the Luxembourg office of GSK Stockmann, a German law firm. He regularly speaks at investment fund events and is also a member of the Cross-Border Business Lawyers Network.

Irina Stoliarova Tel: +352 2718 02 52 / Email: [email protected] Irina Stoliarova is a Senior Associate at GSK Stockmann in Luxembourg. She has experience advising national and international clients on all legal and regulatory aspects in the fields of investment funds (UCITS, AIFs, regulated and non-regulated structures) and private equity as well as corporate and M&A matters. Irina Stoliarova is admitted to the Bar in Luxembourg and speaks Russian, English, French, German and Luxembourgish. She holds a Master’s degree in European and International Financial Law (LL.M.) from the University of Luxembourg, a Master’s degree in Business Law – Corporate Tax Management from the University of Nice Sophia Antipolis, France, and is a member of the Luxembourg-Russia Business Chamber and of the Association of the Luxembourg Fund Industry (ALFI).

GSK Stockmann 44, Avenue John F. Kennedy, L-1855 Luxembourg Tel: +352 2718 02 00 / Fax: +352 2718 02 11 / URL: www.gsk-lux.com

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Bernardo Canales, Pablo Enríquez R. & Diego Plowells Cárdenas Canales, Dávila, De la Paz, Enríquez, Sáenz, Leal, S.C.

Overview As in many other jurisdictions, businesses in Mexico may combine or be acquired through mergers, public tender offers (in case of public companies), joint ventures or stock and asset acquisitions. The structure to be implemented should be defined on a case-by-case scenario and the elements to be taken into account when deciding the ideal structure may include liabilities to be assumed (either from a commercial or tax standpoint), as well as the type or nature of the target and the project to be acquired. Typically, mergers and acquisitions in Mexico follow the same implementation steps as in the United States of America. The first step taken by the parties involved is the execution of a letter of intent or memorandum of understanding, which outlines the general terms of the transaction and is normally a non-binding agreement (except for certain provisions such as exclusivity). Once the parties have executed such preliminary agreement, they enter into a due diligence process (either confirmatory or full) to confirm the price offer and to identify liabilities of the target. If the parties move forward with the transaction, then they negotiate the final and definitive agreements, which may be subject to conditions precedent agreed by the parties or, depending on the particular transaction, to approvals or other conditions imposed by the antitrust authorities or other regulators. If the final and definitive agreements are not subject to conditions precedent, then the transaction will be effective at the time of execution thereof, whereas if the transaction is subject to conditions (whether imposed by law or agreed upon the parties), then the transaction will be consummated once these are satisfied. Transactions subject to a merger or acquisition are regulated and governed by Mexican federal law. The main applicable statutes to these types of transactions are: (1) the General Law for Commercial Companies (Ley General de Sociedades Mercantiles – “LGSM”), which regulates all types of commercial entities and the mergers thereof; (2) the Securities Market Law (Ley del Mercado de Valores – “LMV”), which is the applicable law that covers tender offers, public offers and mergers of publicly traded companies; and (3) the Commercial Code (Código de Comercio), which will be applicable as a default statute for situations not otherwise foreseen in the LGSM or the LMV. Depending on the nature of the transaction, other regulations shall be applicable, such as the Foreign Investment Law (Ley de Inversión Extranjera – “LIE”) and the Federal Competition Law (Ley Federal de Competencia Económica). Also, it is worth mentioning that it is not uncommon for transactions, where the acquiror is a foreign entity, to include foreign law (particularly NY law) as the governing law applicable to the definitive and final agreements. From a foreign investment standpoint, the LIE only prohibits certain activities to foreign investors, such as activities related to cargo and passenger transportation, the issuance of bills and coin minting, as well as the extraction of hydrocarbons.

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As is the case for all other jurisdictions, M&A transactions in Mexico will certainly be impacted by the COVID-19 pandemic. In addition to this, it can be anticipated that here in Mexico, such transactions will also be affected by the policies and actions taken by Mexico’s left-wing administration under the command of Andrés Manuel López Obrador (also known as “AMLO”). Although it is too early to determine the full impact that the COVID-19 pandemic will have on M&A transactions, we believe that certain actions from the federal government (such as the cancellations of the new Mexico City airport and the almost-finished brewery factory built by Constellation Brands in Northwest Mexico, as well as the recent policies issued by the Ministry of Energy (Secretaría de Energía – “SENER”) regarding limits on the development of renewable energies and which will be described briefly below) will not only affect new foreign investment and thus acquisitions, but will also impact investments and acquisitions which were already planned for this 2020 year. M&A transactions during 2019 represented a decrease in volume of transactions of 25% vis-à- vis 2018, with 169 transactions accumulating a volume of ~US$15.8 billion. Even though such volume increased by ~33% in the reported value vis-à-vis the reported value for 2018, a big part of such increase was attributable to two mega-deals (which will be detailed in the next section).

Significant deals and highlights From the 169 registered deals in the Mexican M&A market for 2019, the leading sectors were industrial (24), financial (21), mining (21) and real estate (20), with consumer goods, retail, and IT following closely behind. The first, third and fourth quarters of 2019 were fairly equal regarding M&A transactions in Mexico, totalling 117 reported deals (39, 41 and 37 deals, respectively); May was the least active month of 2019 with no M&A deals registered. Companies from Mexico, the United States and Canada acted as buyers in approximately 34 of the 169 registered deals in the Mexican M&A market in 2019; the remaining registered deals were closed by buyers from Spain, the United Kingdom, Italy, Denmark, France, Brazil, Taiwan, Peru and Australia, among others. The most significant M&A deals in the Mexican M&A market for 2019 were: • Abertis Infraestructuras, S.A., a Spanish company founded in 1967 dedicated to road management in Europe, with a presence in America and Asia, acquired 70% in Red de Carreteras de Occidente, S.A.B. de C.V., a Mexican infrastructure operator and one of the largest toll road operators in Mexico, for US$4.5 billion. Red de Carreteras de Occidente S.A.B. de C.V. has a 100% stake in five concessionaires that manage 876 kilometres through eight toll roads. The acquired company, now fully consolidated in the Abertis Group’s accounts, is one of the largest toll road networks in Mexico, constituting the main transportation route in the central-western region and connecting the main industrial corridor of El Bajío with Mexico City and Guadalajara. • The Canada Pension Plan Investment Board, a sovereign wealth fund, and Ontario Teachers’ Pension Plan Board, a Canadian retirement fund, acquired 40% of Impulsora de Desarrollo y el Empleo de América Latina (also known as “IDEAL”), a Mexican infrastructure developer, for US$2.6 billion. IDEAL’s portfolio includes 18 infrastructure concessions in Mexico consisting of 13 toll roads, three logistics terminals and two wastewater treatment plants, as well as an electronic toll collection service business and an operations business. Based upon comments from M&A experts, it is expected that this transaction will provide exposure to existing and future infrastructure projects throughout Mexico.

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• Fibra UNO, a Mexican FIBRA (REIT), acquired Titan Portfolio, consisting of 74 industrial properties in Mexico from Finsa Ingeniería y Construcción, S.A. de C.V., for US$822 million. The portfolio includes 28 international public companies which will anchor their investments in the country, at least for a period of 15 years. This acquisition includes properties dedicated to the logistics and storage sectors and are located in the central region of the country. • ContourGlobal plc, a British energy company, acquired two natural gas-fired combined heat and power plants, together with development rights and permits for a third plant, from Alpek S.A.B. de C.V., a Mexican petrochemical company, for US$801 million. The two plants will provide electricity and steam under long-term contracts to subsidiaries of Alfa S.A.B. de C.V., a leading Mexican industrial conglomerate. The acquired plants have a gross installed capacity of 518 megawatts and it is planned that the third adjacent plant will have a capacity of 414 megawatts. • Caisse de dépôt et placement du Québec (“CDPQ”), a Canadian private equity fund, invested US$500 million in a minority stake in Laboratorios Sanfer S.A. de C.V. (“Sanfer”), a Mexican pharmaceutical. Sanfer is one of Mexico’s leading independent pharmaceutical companies with a presence in over 25 countries across Latin America. On the other hand, CDPQ is a long-term institutional investor that manages funds primarily for public and partially public (parapublic) pension and insurance plans. • Owens-Illinois Inc., the US manufacturer of glass products, acquired Nueva Fábrica Nacional de Vidrio, S. de R.L. de C.V. (“Nueva Fanal”), a glass container plant in Mexico, from Grupo Modelo (a wholly owned affiliate of Anheuser-Busch InBev SA/NV), for US$188 million. The Nueva Fanal facility is located near Mexico City. Currently, this plant has four furnaces to produce and supply approximately 300,000 tons of glass containers annually for Grupo Modelo brands, which include Corona, Modelo Especial and Pacifico. Owens-Illinois has its headquarters in Perrysburg, Ohio, and is the preferred partner for many of the world’s leading food and beverage brands. • Equinix, Inc., an American big data centre provider, acquired three data centres in Mexico from Axtel S.A.B. de C.V. for US$175 million. The three acquired data centres serve the Mexico City and Monterrey metro areas of Mexico. This expansion will further strengthen Equinix’s global platform by increasing interconnection between North, Central and South America. • Ariston Thermo SpA, an Italian heater manufacturer, acquired Grupo Calorex, S. de R.L. de C.V., a Mexican heater manufacturer, from Grupo Industrial Saltillo, for US$145 million. Ariston Thermo has a commercial presence in 150 countries, and an income of €1,600 million. With more than 70 years of history, Calorex has a significant leadership in the Mexican market and a presence in the United States and Latin America. • Advance Real Estate, through Advance K S. de R.L. de C.V., acquired eight industrial properties in Querétaro and Toluca, from Corporación Inmobiliaria Vesta S.A.B. de C.V. (“Vesta”), an industrial real estate developer, for US$109 million. Vesta is one of the leading pure-play industrial real estate companies in Mexico. The acquired portfolio totals 1.6 million square feet. • Phoenix Tower International, LLC, an American telecommunications company, acquired Uniti Group Inc.’s Latin American Portfolio, consisting of approximately 500 commercial towers located across Mexico, Colombia and Nicaragua, for US$100 million. Uniti Group Inc. is an internally managed real estate investment trust, and a leading provider of wireless infrastructure solutions for the communications industry. Phoenix Tower International owns and manages over 6,000 towers, 986 kilometres of fibre and over 80,000 other wireless infrastructure and related sites.

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Key developments During 2019, there were no enactments of new laws or amendments to existing ones that had an impact on the M&A sector. Nonetheless, and as already discussed above, the continuous speech of our President regarding the rejection of private investment in certain sectors (particularly in the energy sector), together with austerity policies, will definitely raise doubts from investors, with an impact on investments and therefore on acquisitions of projects related to such sector. As mentioned in the Overview section above, using COVID-19 as an argument and a justification in the need to address the effects on electricity demand during such pandemic and without undergoing any public review or further compliance with the formalities required for these type of publications, SENER and the National Center for Energy Control of Mexico (Centro Nacional de Control de Energía – “CENACE”) recently published a number of resolutions and policies which provide, among others, limitations on the development of renewable energies. In summary, these new policies and decrees (the “Decrees”) impose additional burdens and certain limitations for the construction and operation of renewable energy plants (including suspensions of the preoperative tests required by projects to have access to the electricity national grid) and other restrictions to secure permits or to perform interconnection studies. As anticipated, a couple of days after the Decrees were published, a wave of judicial amparo claims (a constitutional claim or remedy under Mexican law to protect constitutional rights) were filed before Mexican courts by owners, developers and investors in these projects with the purpose of challenging the effects of such Decrees, in most cases obtaining preliminary and definitive injunctions against these. It will be very interesting to see how the government reacts, as we anticipate that more amparos and other claims will be filed in the coming weeks.

Industry sector focus In 2019, the industrial, financing, mining and real estate sectors were the most active sectors in M&A transactions in Mexico. Industrial: Activity in the industrial sector exercises important pressure over the general behaviour of the Mexican economy. Even though there was a negative tendency within Mexican industrial production in 2019, by mid-2019 the industrial sector had entered a notorious recession as a consequence, among others, of the deacceleration of the industrial cycle in the United States that began in late 2018. This sector registered the most M&A activity for such year in Mexico, with 24 registered deals and a downfall of just 0.95% by December 2019 vis-à-vis the same period for 2018. Mexico has an advantage of high labour productivity and various free trade agreements with several countries, plus fairly reasonable wages compared to other countries. Financial: As of 2019, 70 companies from the financial sector are ranked among the 500 most important companies in Mexico. Mexico is one of the largest markets for fintech startups in Latin America, with a continuous yearly growth since 2016. By September 2019, public information noted that Mexico housed 500 or more fintech companies and that only 4.5% of fintech companies closed in 2019 (7% less than in 2018). Even though changes and secondary regulations applicable to Mexican fintech law published in 2018 are expected in the near future, further growth in this sector is also expected. Since 2016, Mexico has been implementing a “national strategy for financial inclusion”, seeking access to and usage of formal financial services (accounts, insurance, credits, and retirement savings accounts) under a regulation that guarantees protection and promotes financial literacy among the population. According to the Mexican federal government, financial

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Canales, Dávila, De la Paz, Enríquez, Sáenz, Leal, S.C. Mexico inclusion fosters economic growth and welfare, since it gives tools for the population and businesses to improve liquidity management, prepare and overcome financial emergencies, achieve financial goals, and seize opportunities. It also allows the population to have greater control over their financial resources. The goal of this national strategy, according to the federal government, is to allow 77% of the Mexican population to own at least one financial product by 2024, versus the approximate 68% of adults who owned financial products in Mexico in 2018. Continuous application of this strategy for 2020 might be an important factor for continuous growth in Mexican M&A activity in this sector, given that today there is still an important share of the Mexican population with no access to financial services. Mining: Mining was one of the most active sectors in the Mexican M&A market in 2019, reporting 21 deals. Mexico is the largest silver producer in the world and produced 6,300 metric tons of this metal in 2019; it is also a top producer of gold, copper and zinc, among other minerals. Mexico has a history of being a principal destination for investment in mining exploration within Latin America and the world, given the mineral richness of its territory. M&A activity in this sector might be considered proof of the preference of local and foreign players to invest in this sector. Real estate: During 2019, the real estate sector noted complex behaviour; uncertainty within investors and purchasers in this sector presented, and are expected to present further, a significant challenge for the future of this sector in 2020. The real estate sector contracted in 2019 as a consequence of the deacceleration of the Mexican economy; however, the forecast for the year 2020 expects a 4% growth in this sector according to public sources, caused by lower interest rates promoted by the Mexican Central Bank (Banco de México), among other factors. In 2019, the real estate industry sustained ~4.5 million jobs nationally. Energy: Vis-à-vis 2018, the energy sector suffered a significant reduction in M&A transactions in 2019. Recent regulatory developments, such as the Decrees, will presumably be a strong factor for further reductions in M&A transactions in 2020 in this sector, given that these directly affect private players from operating their renewable energy projects and permit current operating projects to be disconnected. Although there are several legal measures being implemented by current market players which have been affected by these Decrees (principally amparo claims as explained above), there is no certainty of whether the federal government in Mexico will amend its policies so that the energy sector can continue to flourish as anticipated by the energy reforms implemented by the prior administration, or if the government will pursue further measures that will continue to have a negative impact on the Mexican M&A energy market.

The year ahead There is little reason to believe that 2020 will be a year involving many M&A transactions, as a consequence of both the COVID-19 pandemic (which will have an impact all over the world) and the national government position on private investments. Mexico’s GDP growth in 2019 was zero and the forecasts for 2020 is to be reduced between 5–7%. Moreover, during the 1Q of 2020, 36 transactions were announced in Mexico with a total value of ~US$270 million. This information compared to the 1Q of 2019 represents a decrease of ~19% and ~94% in volume and reported value, respectively. In April (when COVID-19 cases started to increase rapidly in Mexico), only six transactions were announced in Mexico with a reported value of ~US$350 million which, compared to April 2019 YTD volume of transactions and their reported value, decreased by 29% and 89%, respectively.

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Notwithstanding this, and as in previous crises, we believe that there will be opportunities in the M&A sector, and that these will be related to strategic divestures or companies which will have difficulty surviving in these turbulent times; and that will be in the eye of those investors, private equity funds or other M&A players willing to take risks if the potential target or proposed acquisitions represent a major upside in the future. We also believe that definitive agreements involving M&A transactions and the whole process thereof will be adapted and will include certain provisions which will take into account the COVID-19 pandemic. For instance, the due diligence process performed by the acquiror should include special attention to risks and liabilities that may arise due to COVID-19 and the determination of how the target could survive or navigate during such pandemic. Furthermore, we believe that, from a financial standpoint, when determining the purchase prices and valuating a company, buyers will want to take a more conservative approach on the target’s future revenues and EBITDA and therefore the offer purchase price. Lastly, we expect that the most important section that will be impacted in M&A transactions and the definitive agreements thereunder by COVID-19 will be the closing conditions and the buyer’s right to “walk away” if a material adverse effect (“MAE”) is triggered. Of course, purchasers will want COVID-19 consequences to be considered as an MAE, such as linking the effects of COVID-19 to the financial or operational condition of the target, or even more precisely by establishing that an MAE will be triggered if certain key employees of the target are diagnosed with COVID-19 during the pre-closing period. In contrast, sellers will want to avoid such “walk away” provisions having any impact on the deal. In any case, MAE agreements will need to be drafted carefully to include the precise situations negotiated and agreed by the parties, taking into account this new reality.

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Bernardo Canales Tel: +52 81 8378 1887 / Email: [email protected] Bernardo’s practice includes corporate and finance law, project financing, mergers and acquisitions, debt restructuring, banking law, aviation and airport law. Likewise, Bernardo is a director in different domestic and international companies and funds.

Pablo Enríquez R. Tel: +52 81 8378 1887 / Email: [email protected] Over the years, Pablo has participated in an extensive range of financial and corporate transactions, including structured finance. Likewise, he has represented Mexican companies and foreign investors relating to acquisitions, joint ventures and strategic alliances in all kinds of industries.

Diego Plowells Cárdenas Tel: +52 81 8378 1887 / Email: [email protected] Diego has participated in several transactions including mergers and acquisitions, joint ventures, corporate finance and corporate restructure. He has represented both national and international companies and individuals with cross-border transactions, including acquisitions and direct investment in Mexico.

Canales, Dávila, De la Paz, Enríquez, Sáenz, Leal, S.C. Ricardo Margain 240, 3er Piso, Col. Valle del Campestre, San Pedro Garza García, N.L., C.P. 66265, Mexico Tel: +52 81 8378 1887 / URL: www.canales.com.mx

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Kamal Habachi & Salima Bakouchi Bakouchi & Habachi – HB Law Firm LLP

Overview Morocco has managed to maintain political and social stability since the adoption of the constitution in 2011, when the government set the basis for a more open and democratic society; a more modern State of law and institutions. Historically referred to as “the land behind the beyond”, or “the land at the end of the world”, Morocco has long capitalised on its location between Europe, the Middle East and Africa. Over recent years, Morocco has engaged in a programme of wide-ranging and fundamental reforms in all sectors of activity which have improved the business climate. The reforms have enabled the country to enhance its attractiveness to foreign investors and to raise infrastructures to international standards. Morocco offers considerable business opportunities in Africa as a result of its growing, diversified economy, its political stability, its geographical location, its attractiveness as a hub for other jurisdictions in Africa, and the fact that it is the first Arab and African country to be granted an advanced status in its relations with the European Union. In this context, since early 2013, the number of M&A transactions has increased and the years 2013 and 2014 saw the biggest transactions and most significant deals in the financial market, agro food sector, environment, etc. On the other hand, regarding legal framework, Morocco is continuously strengthening the sector’s legal framework through many reforms of laws and regulations which cover a wide range of business law. In the last few years, Morocco has amended and supplemented some strategic business laws related to public-private partnerships (PPPs), credit institutions, freedom of prices and competition, the Competition Council, and corporate law. Furthermore, Morocco has launched a financial project opportunity for its investors called Casablanca Finance City (CFC), created under Law 44-10 and enacted in December 2010. Law 44-10 creates the “CFC Status” and also entrusts the CFC Authority with the overall management and institutional promotion of CFC. The enforcement decree of Law 44-10, passed in September 2011, enacts the creation of the “CFC Commission”, the body responsible for the granting of the CFC Status to eligible companies. The CFC Status, officially created by Law 44-10, is a label that gives access to an attractive package of advantages. These advantages include tax incentives and exchange control facilitation measures as well as other benefits for doing business.

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It is also in this context that, in April 2011, the Casablanca Stock Exchange participated in the creation of the Association of French-speaking African Stock Exchanges (ABFA), with the main objective of promoting the integration of stock markets in French-speaking Africa. Furthermore, Morocco has become a leading actor in Africa due to the increase in the volume of its investments in several African countries, and the significant growth of its exports to the countries of the continent in recent years, which has enabled it to become the first Arab investor in West Africa and the second in the continent after South Africa. Most of its investments are concentrated in the banking, insurance, finance, mobile phone and real estate industries. Today, Morocco has many partners throughout Africa and is bound to many States of the continent by agreements covering several sectors, including: Non-double taxation agreements Three bilateral agreements (Egypt, Gabon and Senegal), one multilateral agreement (UMA), three agreements in the process of ratification (Burkina Faso, Cameroon and the Ivory Coast), five agreements about to be signed (Central African Republic, Guinea Conakry, Seychelles, South Africa and Sudan) and five agreements under negotiation. Agreements for the protection and promotion of investments Morocco has signed 17 such agreements with African countries. Seven of these have already entered into force (Egypt, Gabon, Gambia, Libya, Mauritania, Sudan and Tunisia), while the other 10 are undergoing a ratification process (Benin, Cameroon, Cape Verde, Central African Republic, Chad, Equatorial Guinea, Ghana, Guinea, the Ivory Coast and Senegal). Free Trade Agreements (FTAs) Morocco has signed FTAs with five North African countries in addition to two major FTA agreements which are being negotiated with the West African Economic and Monetary Union (UEMOA) and the Central African Economic and Monetary Community (CEMAC). Morocco has also concluded sector-based agreements with Angola (tourism, aviation), Benin (Business Council), the Democratic Republic of the Congo (agriculture), Gabon (health, education), the Ivory Coast (investment, fishing tourism), and Senegal (transportation, mining, energy). Furthermore, CFC and Rwanda Finance Limited (RFL) have signed a memorandum of understanding to promote investment opportunities between Rwanda, Morocco and Africa, and to strengthen long-term cooperation between the two countries. The agreement between CFC and RFL will provide a platform for promoting best practices, through which CFC will support the development of Kigali International Financial Center (KIFC).

Significant deals and highlights Insurance sector Saham Group has sold its insurance division, Saham Assurance, to the South African giant, Sanlam. The latter will increase its stake in the capital from 46.6% to 100%, under an agreement reached between the parties. This $1.05 billion acquisition required one year of negotiations, entirely led by Saham Group teams. Telecommunications sector After the biggest Moroccan telecom operator acquired of the subsidiaries of the Emirati Group “Etisalat” in Benin, Central African Republic, the Ivory Coast, Niger and Togo in 2014, it has today announced that it will transfer up to 53% of its shares to Etisalat.

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In June 2019, the government announced the transfer of 8% of its share capital to the private sector via the stock exchange. This transaction is considered a part of the privatisation movement launched by the government. Initial public offerings In 2018/2019, two initial public offerings were initiated in the Casablanca Stock Exchange: Immorente Invest SA, a specialised real estate development company; and Mutandis SCA, a large retail activity. In light of these M&A transactions, it is undeniable that Morocco is becoming one of the most attractive countries for foreign investors from all over the world, especially Europe, the Middle East and North America, for the reasons explained below: • The strategic location of Morocco. • The strategy of the Moroccan government to encourage foreign investment by facilitating administrative procedures as explained above. • Most importantly, the legal arsenal that is updated constantly in accordance with the new international standards.

Key legal developments Aware of the fact that investment is a key factor in ensuring sustainable and sustained economic growth, Morocco has liberalised its economy by easing procedures, providing better protection to private operators through introducing new laws aiming at improving investment conditions and thus acquiring a significant flow of domestic and foreign private capital, including: • Law 15-95 on the commercial code which governs relations between business partners, rules on means of payments, business assets (fonds de commerce) and the solvency procedure, amended in late 2018 by Law 73-17. • Law 17-95 governing joint stock companies (as amended and supplemented by Laws 81-99, 23-01, 20-05 and 78-12 and recently Law 20-19) which provides the rules that govern the joint stock companies, the obligations and rights of each party and the means of protection of minority shareholders, creditors and third parties. • Law 5-96 governing limited liability companies and other types of corporations which provides rules regarding five types of corporations from creation to dissolution, amended by Law 21-19 in April 2019. • Law 33-96 relating to the securitisation of assets (titrisation des actifs) as amended by Law 119-12 in 2013, Law 05-14 in 2014 and Law 69-17 in 2018. The securitisations provided by Law 33-96 are asset securitisation, project bond and synthetic securitisation. • Law 17-97 governing industrial property (as amended and supplemented by Law 31-05) which provides the means of protection of patents, trademarks, drawings and models and the procedure of registration of such rights. It concerns the following intangible assets: • technical creation: patents; • decorative designs: designs and industrial models; and • distinctive signs: trademarks; company names; trade names; appellations of origin; and geographical indications. This Law introduced new provisions such as the trademark opposition system, border measures for suspected counterfeit goods, protection of sound marks and olfactory marks, and trademarks submitted in electronic form.

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The formalities for protecting the rights of Industrial and Commercial Property and applying international and national legislation are made at the Moroccan Office of Industrial and Commercial Property (OMPIC). • Law 87-18 introducing “Takaful Insurance”. This law amends and completes Law 17- 99 on the concepts of Islamic finance. This provision allows the solving of insurance problems faced by participatory banks. • Law 65-99 governing the labour code which provides for the rights and obligations of both employer and employee, and the institutions that have a role in the protection of all parties. The protected rights include: • trade union freedom and effective adoption of the right to organise and to bargain collectively; • prohibition of all forms of work coercion; • effective abolition of child labour; • prohibition of discrimination in terms of employment and professions; and • equal wages. • Law 26-03 governing public takeover bids on the stock market (as amended and supplemented by Law 46-06) which provides special rules concerning takeover bids which aim to protect the seller’s rights and also the means of protection of minority shareholders. • Law 34-03 governing the organisation of loans and similar institutions, providing the rules that govern the banks and loan institutions from the grant of approval to dissolution. • Law 06-99 governing competition law which provides rules relating to economic concentrations, anti-competitiveness practices including the abuse of a dominant position, abuse of economic dependence, cartels and the role played by the Moroccan Competition Council. • Law 08-05, amending and supplementing Dahir 1-74-447 du 11 Ramadan 1394 (28 September 1974) (Civil Procedure Code), which governs arbitration and conventional mediation, provides rules relating to domestic and international arbitration. • Bill 95-17 relating to arbitration and conventional mediation was adopted on 5 March 2020 by the government council but has not yet entered in force. Unlike the legal framework currently in force, this Law, made up of 107 articles, will be separate from the Code of Civil Procedure and will be the subject of a separate text. It is a kind of “Code of arbitration and mediation” adapted to the economic changes and developments in Morocco and to the evolutions of the CFC. • Law 41-05 as amended and supplemented by Law 18-14 relating to venture capital placement organisations by establishing collective investment placement organisations (OPCC). The main innovations brought by the amendment can be grouped into three main categories for the following purposes: • broadening the scope of the Law to cover all capital activity investment; • greater security of the system and strengthening of the protection of investors; and • improvement of the financial techniques used and their standardisation with international practices. • Law 70-14 introducing real estate collective investment schemes (organisme de placement collectif immobilier or OPCI) regulating investment vehicles whose main purpose is the construction or acquisition of properties for renting. In accordance with the law, this instrument can take two different legal forms: (i) a corporation with legal personality, referred to as “real estate investment companies” (sociétés de placement en immobilier or SPI); or (ii) a co-ownership with no legal personality, referred to as real estate investment funds (fonds de placement en immobilier or FPI).

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The setting up of an OPCI is subject to prior agreement from the Moroccan Stock Exchange Authority (AMMC), and the OPCI must be represented by a portfolio management company (société de gestion) also agreed by the AMMC. These new real estate investment schemes are expected to boost the real estate sector further and to create significant portfolios in Morocco, which may attract foreign investors in the coming years. • Law 31-08 governing the protection of consumers which mainly provides the rules and associations that protect consumers. • Law 09-08 governing the protection of individuals with regard to the processing of personal data which mainly upholds the rights of the individuals subject to the handling of their personal data, the obligations of the data controller and the role played by the institution that controls the protection of personal data, the “National Control Commission for the protection of personal data”. With the adoption of Law 09-08, Morocco is among the firstArab and African countries with a complete protection system and ranks among other safe destinations in terms of movement of personal data. Besides the laws that have been promulgated to promote and encourage investments, some laws have been amended in order to be brought in line with the necessities of the international market. In this regard, three important laws were promulgated in 2015 regarding credit institutions, the competition law, the Competition Council and the PPP. Below are the main amendments that have been provided by these new laws. • Law 13-09 as amended and supplemented by Law 58-15 on renewable energies, allowing the marketing of electricity produced from renewable sources to open up to the private sector. • Law 43-12 on the AMMC. This Law has established the Moroccan Capital Market Authority which replaces the Dahir bearing Law 1-93-212 relating to the Deontological Council of transferable securities (Conseil déontologique des valeurs mobilières) and to the information required from legal persons making public offerings on the one hand, to consecrate the independence of the CDVM and, on the other hand, to strengthen the responsibility of this body in the exercise of its mission. • Law 45-12 relating to securities lending. Securities lending and borrowing is undoubtedly the biggest revolution the Moroccan financial market has seen in recent years. • Law 113-13 allowing the opening of the capital of private clinics to investors. This Law authorises any investor to hold shares of a clinic. Law 104.12 on freedom of prices and competition and Law 20.13 related to the Competition Council General competence in the fight against anti-competitive practices and merger control Law 20-13 endows the Competition Council with a general competence for regulating competition in all markets in accordance with Article 166 of the Constitution. Indeed, under the previous legislation, a significant number of economic sectors were outside the scope of intervention of the Competition Council, either because of the absence of such express provision by the law, or because of the tangle of the prerogatives of advice on regulatory matters and the fight against anti-competitive practices with grants of sectoral regulators, such as Bank Al-Maghrib for credit institutions, ANRT for telephony and internet services, and HACA for radio and television stations, etc.

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These sectoral regulators will now work in tandem with the Competition Council on matters of common interest relating to the field of competition law. The law also allows the Competition Council to ensure the exchange of expertise and skills with those authorities for the purposes of the investigation or trial in a conventional setting. Decision-making power and voluntary investigation Before the reform, the Competition Council did not have any decision-making power since its role was to advise the Prime Minister and certain organisations as provided by the law. With the new law, the Board has a power of injunction and repression. In this regard, it may order an end to cases of abuse of a monopoly. Additionally, any proposed concentration that exceeds the thresholds provided for by the law on freedom of prices and competition is now subject to the prior approval of the Competition Council. Furthermore, the law recognises that the Competition Council has the right to perform a voluntary investigation whenever it finds that a market is malfunctioning or it believes that its intervention is crucial to promote competition in a particular economic sector. Broadening the scope of people that can refer to the Council or ask its opinion The previous law only permitted the government and certain categories of institutions and the competent courts to refer to the Competition Council. The new law extends the scope to any company, which considers itself the victim of crime regarding the law on freedom of prices and competition, to refer to the Competition Council. Power of investigation with the possibility of imposing penalties in case of refusal of cooperation The new law allows the Competition Council to conduct investigations into issues handled by the Competition Council. Discretionary power to prioritise which issues to deal with Under its new status as an independent constitutional authority, the Council now has discretion in terms of selection and prioritisation of the issues it deals with. The sanctioning power of the Competition Council The Competition Council did not have coercive power against entities that violate the law. It should also be noted that the repressive arsenal under the old legislation has significantly changed; not only does the Competition Council now have the power to impose financial penalties on offenders, but in addition, it can now impose sanctions that restrict their freedom in the most serious offences. In addition, the aforementioned repressive arsenal was completed through the development of a system of sanctions in the form of penalties which may be imposed by the Council in case of non-compliance with protective measures, injunctions, etc. Prerogatives “advocacy” in respect of public authorities and economic operators With the new law, the Council has become a major player in the field of regulation of competition and a true driving force, as it can give advice on anything related to competition or conduct studies relating to it. It may also recommend to the administration to implement measures regarding competition law in order to improve the competitive functioning of markets. Similarly, the Competition Council is now responsible, as an independent institution, for transparency and fairness of economic relations, in particular through analysis and market regulation.

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Recognition of legal personality and financial autonomy of the Board Before the reform, the Competition Council was formed as an administrative department attached to the Prime Minister but without legal personality. New Law 86-12 on PPPs The main guidelines of the law on PPPs revolve particularly around accelerating the implementation of socio-economic development programmes and strengthening the infrastructure for a more competitive economy, while taking into account the State’s limited financial resources. In addition, it is improving the quality of public services. The new regulation emphasises the concepts of transparency and competitiveness in the award of this type of PPP contract. In this regard, the award of this type of contract will be subject to the principles of free access, equal treatment, objectivity, competition, transparency and respect for the rules of good governance. As for the award of the contract, it must be made either by competitive dialogue or by tender offer or, in some cases, a negotiated procedure. There are also performance criteria, such as a preliminary evaluation. Risk sharing is also provided by the new law. In this area, the new law provides that the PPP agreement sets the conditions in which the risk sharing between the public entity and the private partner is established, including those arising from foresight and force majeure. This provision aims to preserve the economic balance of the contract and to assign the risks to the partner who is judged to be in a better position to manage them. Law 103.12 relating to credit institutions Among the new provisions introduced in the reform of the banking law, there is essentially the introduction of a new legislative framework governing the activities of Islamic banks known as “participatory banks”. Indeed, the establishment of such a framework is based on the conviction that the services and participatory financial products could potentially provide an important contribution to the mobilisation of savings and financial inclusion in the country. Participatory banks are legal persons entitled to practise as a regular occupation and in accordance with the precepts of Sharia banking activities. The concept of such banks assumes that these are public funds known as “investment deposits”, whose remuneration is linked to performance of the investments agreed with customers. The law introduces new provisions relating to micro-credit associations and offshore banks which, while being governed by their specific texts, will be subject to the provisions of the Banking Act for granting and withdrawing authorisation, the accounting regulation, the regime of sanctions, etc. The law also introduces a legislative framework introducing participatory banking and new banking foundations based on the principles of sharing profits and losses, using only the High Council of Ulemas to give its opinion. The banking law raises the regulatory framework for the creation, operation and activities of participatory banking and defines the points concerning the scope, deposits and the products marketed by participatory banking. It also provides for the establishment of an audit committee to identify and prevent the risk of non-compliance of their operations in the opinion of the High Council of Ulemas. The new law also provides for the harmonisation of banking law with other laws such as: the law on consumer protection; the law on the fight against money laundering; the competition law; and the law relating to the protection of personal data.

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Ultimately, the law has provided the application of the competition rules by establishing bridges between Bank Al-Maghrib and the Competition Authority which could issue opinions concerning mergers and/or acquisitions of credit institutions or similar bodies. Arbitration The arbitration legal arsenal is characterised by a series of innovations aimed at harmonising Moroccan trade law with international principles. Among the novelties that have been introduced is the broadening of the scope of arbitration to legal entities under public law. The implementation of arbitration judgments relating to these acts remains, however, subject to the exequatur which returns to the administrative jurisdiction in the competence of which the judgment will be executed, or in the administrative court of Rabat, when the arbitration judgment concerns the whole national territory. The law also gives the tribunal the right to rule, either automatically or at the request of either party, on the validity or limits of its powers, or the validity of the arbitration agreement. It can also take, at the request of either party, any interim measure it deems necessary within the limits of its mission. It should be noted that Bill 95-17 not only solves the problem of complicated administrative and judicial procedures, but also adapts to new trends in international trade. In addition to being a legal document in its own right, completely separate from the Code of Civil Procedure which, until now, has organised arbitration and conventional mediation, this Bill comes with several amendments.

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Kamal Habachi Tel: +212 522 47 4193 / Email: [email protected] Dr Kamal Habachi is an Executive Partner of HB Law Firm LLP. He is admitted to the Casablanca Bar Association. He received his Ph.D. in 2004 from a French university and is now a law professor in an international university and a famous business and management school. He has significant experience in M&A transactions, financing agreements, and cross-border transactions as well as restructuring. He is specialised in corporate law, finance law, and securities law. He is ranked as a leading lawyer by The Legal 500 EMEA, IFLR1000 and Décideurs Magazine. Kamal speaks four languages: Arabic; French; English; and Spanish.

Salima Bakouchi Tel: +212 522 47 4193 / Email: [email protected] Salima Bakouchi is a Partner at HB Law Firm LLP admitted to the Casablanca Bar. She has developed significant experience in structured finance, project finance, mergers & acquisitions, and real estate. She has also advised on large financing deals in Morocco over the last 20 years, and regularly advises clients on their acquisitions. She also has solid experience in alternative dispute resolution, as well as in legal proceedings and pleadings before the jurisdictions of the Kingdom and participating in institutional mission reform linked to business law. Her skills are recognised in the business world and she is ranked in The Legal 500 EMEA, IFLR1000 and Décideurs Magazine.

Bakouchi & Habachi – HB Law Firm LLP 6, Rue Farabi, Boulevard Rachidi, Residence Toubkal, 2nd floor, Gauthier, Casablanca, Morocco Tel: +212 522 47 4193 / URL: www.hblaw.ma

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Ole K. Aabø-Evensen Aabø-Evensen & Co

Overview In 2019, Norwegian deal activity reached the second-highest ever recorded, only surpassed by the 2017 deal count. Active private equity funds, low financing costs, available capital in the market, volatile oil and gas prices, high equity valuations and a strong focus on technology all continued to contribute to a stable deal-making environment for 2019. During 2019, the Norwegian stock market continued to rise, reaching a year-high in December 2019 (935.2), before it fell back slightly until year end. In terms of the number of M&A transactions, the 2019 market ended up with an approximate 15% increase compared with 2018. As per the beginning of 2020, there had been a total of 325 M&A transactions announced in the Norwegian market during 2019. The total reported deal value increased from €17,522 million for FY2018 to €24,319 million for 2019, while the average reported deal size increased from €259 million for FY2018 to €286 million for FY2019. Per Q4 2019, Norway came in second among the other Nordic countries, ahead of Denmark and Finland both in total reported M&A deal volumes and deal values. In addition, in 2019 the average deal size for Norwegian M&A transactions increased and was ahead of all other Nordic countries. From the end of 2018, the Oslo Stock Exchange (OSE)’s main index began to increase and continued to do so throughout most of 2019, resulting in a 17% increase compared to 2018. The stock market remained buoyant, and as a result the Norwegian IPO market continued to flourish for most of the year, with 15 new listings on the Stock Exchange and Oslo Axess compared with 16 IPOs for 2018. For Q4 2019, the cross-border deals’ share of the total deal volume year-to-date amounted to approximately 44%, which is lower than the historical benchmark of around 50%. At the end of 2019, everything seemed set for another great year for deal-making. However, this was before anyone had heard about COVID-19 (see below).

Significant deals and highlights In 2018, Norway accounted for only one out of the Top 10 Inbound Nordic M&A transactions announced, with an aggregate disclosed deal value of €2.21 billion out of an aggregate €45.582 billion deal value for all transactions announced. However, in 2019, Norway accounted for three out of the Top 10 Inbound Nordic M&A transactions announced, with an aggregate disclosed deal value of €9.08 billion out of an aggregate €32.102 billion deal value for all transactions announced. Since CY2012, most of the public-to-private transactions market comprised corporate trade buyers. In both 2018 and 2019, the market for public takeovers was muted, with only

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Aabø-Evensen & Co Norway seven public takeovers and attempted takeover offers for listed companies issued in 2018, and only five public takeovers and attempted takeover offers for listed companies issued in 2019, compared with 12 takeovers and attempted public takeovers in 2015. The most notable public takeover deals announced during 2019 were Bakkafrost P/F’s €552 million acquisition of The Scottish Salmon Company and the €1,962 million Tieto – Evry merger. In this regard, one could also mention EuroNext NV’s €692 million acquisition of Oslo Børs VPS Holding ASA, despite Oslo Børs VPS Holding ASA only being listed on N-OTC which is, technically speaking, not a regulated market. Technology, Media & Telecommunications (TMT) was the largest sector in terms of acquisitions in Norway, accounting for 26.2% of the total volume of deals for 2019. For 2019, the most noteworthy transaction within this industry was Tieto Oyj (Tieto) of Finland merger with Evry ASA, a Norway-based provider of information technology services, ultimately owned by Apax Partners LLP, in a share swap transaction, valued at €1,962 million. Tieto offered 0.12 newly issued ordinary shares and NOK 5.28 in cash per share of Evry. The consideration consisted of €1,962 million in cash and the issuance of 44.316 million new ordinary shares by Tieto. Upon completion, the newly formed entity was named TietoEVRY and Tieto’s and Evry’s shareholders owned 62.5% and 37.5%, respectively. The purposes of the transaction were to allow Tieto Oyj and EVRY ASA to offer new services, strengthen operations and increase shareholder value. Another standout transaction within the TMT sector announced in 2019 was Cinven’s €750 million sale of a stake in Visma AS, a Norway ERP- software provider to Hg Capital and Canadian Pension Plan Investments. The high activity within the TMT sector has continued into 2020, accounting for 29% of the total volume of deals so far in Q1 2020; however, most of these transactions have been small and not very noteworthy. One transaction worth mentioning from Q1 2020 is AKKA Technologies SA’s €361 million voluntary bid to acquire Data Respons ASA, the Norway-based and listed full- service, independent technology company that provides embedded solutions. The Industrial & Manufacturing sector also had a strong year in 2019 in terms of deal volume. The activity within this sector for 2019 continued to be driven by the sector benefiting from a relatively weak currency rate for the Norwegian Krone, continuing to help Norway’s competitive position. Despite the fact that this sector continued to take a large stake out of the total Norwegian M&A volume in 2019, most of these transactions were, again, small and not very noteworthy. The most notable M&A transactions announced during 2019 within the Industrial & Manufacturing sector were EQT Partners AB’s €1,634 million sale of Autostore AS, a Norway-based robotics and software company providing automation technology to warehouse and distribution facilities to Thomas H. Lee Partners, L.P., and KKR’s €186 million acquisition of a 30% stake in Sector Alarm Holding AS, a provider of alarm systems and security solutions for both residential homes and businesses. Entering 2020, the Industrial & Manufacturing sector continued to lead the way for Norwegian M&A activity and per mid-March 2020, this sector once again continued to be one of the most active in Norway. One transaction within this sector from 2020 worth highlighting is Indutrade AB’s acquisition of Sverre Hellum & Sonn AS for an undisclosed consideration which was announced in February 2019. Also worth mentioning is Eddyfi NDT Inc.’s acquisition of HalfWave AS for an undisclosed consideration, announced in February 2020. Throughout 2019, 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

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Aabø-Evensen & Co Norway energy sector, and in this regard took an interest in shopping for E&P assets at favourable price levels. This trend continued throughout 2016, 2017, 2018 and into 2019, although the activity continued to be somewhat muted compared to the historic figures for this industry. One transaction worth mentioning within the oil and gas sector in 2019 is Var Energi AS’ €4,113 million acquisition of oil and gas assets of Exxon Mobile Corporation, the listed US- based energy company engaged in the exploration, production and distribution of crude oil and natural gas, as well as production of automotive lubricants and petrochemicals. Another was Partners Group Holding AG’s agreement to acquire CapeOmega AS, a Norway-based company engaged in providing infrastructure for transporting natural gas produced on the Norwegian continental shelf and exploration and development of oil and gas assets from HitecVision AS for a total consideration of €1,200 million. Also worth mentioning is Equinor ASA’s €857 million acquisition of a 2.6% stake in the Johan Sverdrup oil field from Lundin Norway AS. Entering 2020, the activity within the oil and gas sector during Q1 has so far been very muted compared with previous years, with no new oil and gas deals having been announced so far. With 42 announced deals, the Norwegian private equity-related M&A volume for 1H 2019 experienced an increase in deal activity compared with the same period in 2018 which saw 37 announced deals. The same trend continued into 2H 2019, with 45 announced private equity deals compared with 37 announced deals for 2H 2018. For 2019, in total, around 47.1% of the total private equity transaction volume comprised new investments and add-ons; 17.2% were secondary; and 35.6% were exits. For the first half of 2019, 10 private equity deals had a disclosed deal value exceeding €100 million, which is three more than the private equity deals with disclosed deal values exceeding €100 million announced during the first half of 2018. For the second half of 2019, only two private equity deals had a disclosed deal value exceeding €100 million, which is one less than the number of deals with disclosed deal values exceeding €100 million announced during the second half of 2018. EQT Partners AB’s €1,634 million sale of Autostore to Thomas H. Lee Partners, L.P. together with Apax’s exit in Evry ASA through a merger with Tieto Corporation were the two most notable private equity exits in 2019. Also worth mentioning is HitecVision’s €1,200 million sale of CapeOmega AS to Partners Group Holding AG, announced in April 2019. The most notable private equity transactions so far in Q1 2020 have been: Goldman Sachs Merchant Banking Division and Summa Equity Fund II’s acquisition of a 66% stake in EcoOnline AS for an undisclosed consideration; and Francisco Partners and EG A/S’ acquisition of Holte AS. During 2019, a few cross-border transactions were announced involving Norwegian entities acquiring foreign targets. One of the most significant examples was Telenor ASA, the Norway-based and listed mobile operator, agreeing to buy a majority stake in DNA Plc, the Finland-based and listed telecommunications company for €3,141 million, followed by a mandatory public offer announced in April 2019. The purposes of the transaction were for Telenor ASA to strengthen existing operations in Finland and create synergies. Another example of M&A transactions involving a Norwegian entity attempting to acquire a foreign target is Equinor ASA’s acquisition of a 22.45% stake in the Caesar Tonga Oil Field in US Gulf of Mexico, for a total consideration of €859 million in cash. The transaction was announced in May 2019, and the purposes of the transaction were for Equinor ASA to strengthen existing operations and expand its presence in the United States. It is also worth mentioning that Visma was one of the most active Norwegian companies attempting to acquire foreign targets during 2019, with seven announced foreign acquisitions in 2019.

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Key developments Generally speaking, there have only been a few changes in Norwegian corporate and takeover law that may be of significant importance to 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. It is also worth noting that the government, due to the current COVID-19 situation, is in the process of implementing several temporary rules and regulations that may affect M&A deals entered into while the current pandemic is ongoing. However, since we expect the virus-situation will most likely come to an end over the next few months, we have not commented on all such COVID-19-specific rules and regulations that are being implemented into Norwegian law. EU initiatives In recent years, the EU has issued several new directives, regulations and/or clarification statements regarding the capital markets. These EU initiatives are of such a nature that Norway, in some form, will also have to adopt and implement them in order to comply with its obligations under the EEA agreement. They will thus most likely come to have an impact, either directly or indirectly, on the regulatory framework for public takeovers in Norway. In 2015, the government appointed an expert committee to evaluate and propose relevant amendments to the existing Norwegian legislation resulting from EU amendments to the Markets in Financial Instruments Directive (MiFID II), the Transparency Directive and the implementation of the Market Abuse Regulation. The Committee has now delivered five reports to the Ministry of Finance. In its first report, published in February 2016, the Committee proposed implementing certain amendments to the Norwegian Securities Trading Act (STA) with regard to disclosure requirements for derivatives with shares as underlying instruments. According to the proposal, the materiality thresholds and disclosure requirements that apply for acquisition of shares in listed companies shall now also apply for derivatives with shares as 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 shall become subject to the same notification regime for both the lender and the borrower. Soft irrevocable undertakings will remain exempt from the disclosure obligations. The existing disclosure obligations under the STA also include an obligation to disclose information in relation to “rights to shares”, regardless of whether such shares have already been issued or not. This is a stricter disclosure and filing obligation than what follows from the minimum requirements set out in the Transparency Directive, and the Committee has proposed to abolish the obligation. If adopted by Parliament, Norwegian law will no longer have mandatory disclosure obligations for warrants and convertible bonds not linked to any issued (existing) shares. In its second report, published in January 2017, the Committee, inter alia, proposed several amendments to the STA in order to implement MiFID II and MiFIR into Norwegian law. In April 2018, the Ministry of Finance issued a white paper to Parliament based on the Committee’s second report and in June 2018, these rules were adopted by Parliament into law. However, these changes do not contain any amendments that are directly relevant for bidders or targets in M&A processes in Norway. 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

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Aabø-Evensen & Co Norway 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 financial instruments. On 12 June 2019, Parliament adopted a bill implementing the Market Abuse Regulation into Norwegian law by amending chapter 3 of the STA. These amendments will, however, not enter into force until all EEA/EFTA states in 2020 have lifted their constitutional reservations. The fourth report was published in January 2018 and concerns the implementation of supplementary regulations regarding MiFID II and MiFIR. A fifth report was finally published in June 2018 and concerns the implementation of the new Prospectus Regulation and rules regarding national prospectus requirements. On 12 June 2019, Parliament adopted a bill implementing the Prospectus Regulation into Norwegian law by amending chapter 7 of the STA. Cf. below. Proposal for New Takeover Rules On 23 January 2019, the above Committee also published an additional report proposing certain amendments to the Norwegian rules on voluntary and mandatory offers. This report focuses in particular on the current limited regulation of the pre-offer phase. This Committee report does not arise out of changes to EU rules, but rather the need to review and update Norwegian takeover rules on the basis of past experience and market developments. The Committee proposed, inter alia, a new requirement that a bidder must carry out certain preparations before it announces that it will launch an offer to acquire a listed company. It also proposed new content requirements for the notification that a voluntary offer will be made, including information on matters of importance for the market’s assessment of the offer and for the formation of the price. In this regard, it is proposed to clarify that the Norwegian Takeover Supervisory Authority (now the OSE) shall publish such notification immediately. Furthermore, a new requirement is proposed that the bidder must present a voluntary offer no later than four weeks from the publication of the notice announcing that an offer would be issued. At the same time, it is proposed that the Takeover Supervisory Authority may grant an exemption from this deadline in special cases. The Committee proposed that the minimum length of the offer period in voluntary offers be extended from at least two to at least four weeks. The existing main rule that the offer price under a mandatory offer must correspond to the highest consideration paid or agreed by the bidder in the last six months before the mandatory offer obligation being triggered is proposed to be continued. However, the Committee proposed a separate regulation setting out rules for calculating the offer price in cases where there is a need for an exception from the above main rule or where it is not possible or reasonable to use the main rule for calculating the offer price. In this regard, it is also being proposed that the offer price should be adjustable if the Takeover Supervisory Authority considers that (i) the stock prices during the period in question are being kept at an artificial level, (ii) the stock purchase which is the basis for the offer price was not carried out on normal “commercial” terms, or (iii) the mandatory offer obligation is being triggered in connection to a restructuring of a company in serious financial distress. In case of adjustment of the offer price where the stock prices have been kept at an artificial level, or where the stock purchase which is the basis of the offer price was not made on normal “commercial” terms, the Committee proposed that the adjusted offer price shall be calculated on the basis of three-month volume-weighted average stock prices.

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Further, the Committee wants to introduce a general requirement that information published on a planned or submitted takeover offer must be correct, clear and not misleading. The scope of application is intended to be broad and comprises both the preparation phase, after a bid is launched and throughout the bidding phase. A new right for the accepting stockholders to revoke their acceptances for a period limited to three trading days after a competing offer is made and disclosed has been proposed, provided this occurs during the offer period for the original (first) offer. A new rule on amending a tender offer has also been proposed, so that a bidder prior to the expiry of the offer period may amend the terms of such an offer in favour of the stockholders and also extend the offer period, provided the bidder has reserved such rights in the offer document itself and that such amendments are approved by the Takeover Supervisory Authority. The Committee does not propose to implement rules regulating the type of transaction agreements used in connection with takeovers of listed companies or similar commitments between a bidder and a target company. Nevertheless, it has been proposed to implement a rule into the new legislation that authorises the government to issue more detailed rules in a separate regulation to govern the use of such agreements in connection with mandatory and voluntary offers. The takeover rules are also proposed to be amended to clarify the scope and applicability of such rules on companies domiciled in another country having issued stocks traded on a Norwegian regulated market. It has also been proposed to introduce an obligation for companies domiciled outside the EEA to ensure that, if such non-EEA company’s stocks are listed on a Norwegian regulated market, the company will have a special obligation to provide information on its website about the rights of its minority stockholders. If approved by Parliament in the proposed form, the Takeover Supervisory Authority will be authorised to issue fines of up to NOK 10 million for natural persons and up to NOK 20 million for legal entities for violation of a number of key rules, or up to 2% of the total annual turnover in the last annual accounts for the same. This will, inter alia, apply to the obligation to provide accurate, clear and non-misleading information in connection with an offer, prerequisites for presenting an offer, the obligation to provide notification of a mandatory or voluntary offer, the obligation to make a mandatory or voluntary offer, requirement for minimum offer price in mandatory offers, etc. It is unclear when Parliament can be expected to adopt these amendments into Norwegian legislation. However, we do not expect the proposed changes to be implemented until 1 January 2021 at the earliest. However, on 27 March 2020, the Ministry issued a bill and a draft resolution to Parliament in which the Ministry follows up on the Committee’s proposal for a regulation setting out rules for calculating the offer price in cases where there is a need for an exception from the above main rule or where it is not possible or reasonable to use the main rule for calculating the offer price. In its proposed bill and draft resolution, the Ministry argues that it anticipates the COVID-19 virus situation, currently ongoing, may create special circumstances under which there may become a need for determining the mandatory offer price based on other principles than what follows from the existing legislation. The Ministry also proposes to abolish the alternative under which the Takeover Authority may resolve that the mandatory offer price should be adjusted to the current “market price”. Instead, the Ministry proposes to replace the “market-pricing” alternative with a more balanced rule set out in a separate regulation. Finally, the Ministry states that it will revert to the Committee’s other proposals in a new and separate bill and draft resolution issued at a later date.

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The Prospectus Regulation In 2017, the EU adopted a new Prospectus Regulation (EU 2017/1129) to improve the existing prospectus regime. The regulation replaced the Prospectus Directive (2003/71/ EC). On 12 June 2019, Parliament adopted a bill implementing the Prospectus Regulation into Norwegian law by amending chapter 7 of the STA. This amendment has now entered into force with effect from 21 June 2019. Under the new Prospectus Regulation, the requirements of a prospectus or equivalent document 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. Debt pushdown From 1 January 2020, certain further easing of the Norwegian financial assistance prohibition rule has now finally been adopted (see below). As a general rule, Norwegian public and private limited liability companies have been prohibited from providing upstream financial 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- financing facilities. However, in practice there have always been a number of waysto achieve at least a partial debt pushdown through refinancing the target company’s existing debt, which should not be regarded as a breach of the prohibition against financial assistance. Effective from 2013, the Norwegian Parliament introduced a type of “whitewash” procedure allowing both public and private target companies to provide financial assistance to a potential buyer of shares in such target (or its parent company), provided, inter alia, such financial assistance did not exceed the funds available for distribution of dividend. Such financial assistance had to be granted on normal commercial terms and policies, and the buyer also had to deposit adequate security for his obligation to repay any financial assistance received from the target. The rule’s requirement for depositing “adequate security” for the borrower’s obligation to repay any upstream financial assistance provided by a target in connection with M&A transactions would, however, mean that it was quite impractical to obtain direct financial assistance from the target company in most leveraged buyout (LBO) transactions, due to the senior financing banks’ collateral requirements in connection with such deals. The reason for this was that the banks normally request extensive collateral packages, so that in practice, there would be no “adequate security” left, or available, from the buying company (or its parent company) for securing any financial assistance from the target group, at least for the purchase of the shares. With effect from 1 January 2020, this situation has now changed. First, provided the target company is a Norwegian ASA company, an exemption from the dividend limitation rule has now been implemented with effect from 1 January 2020. This exemption rule will, however, only apply if the bidder (as borrower) is domiciled within the EEA and is part of, or will form part of after an acquisition of shares, a group with the target company. In the latter situation, the financial assistance may now also exceed the target company’s funds available for distribution of dividend. This group-exemption will, however, not apply if the target company is a Norwegian ASA company. Second, from the same date, the requirement for the buyer (as borrower) to provide “adequate security” for its repayment obligation will no longer be an absolute condition for obtaining such financial assistance from the target company. Having said that, due to

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Aabø-Evensen & Co Norway the requirement that such financial assistance must be granted on normal commercial terms and policies, it cannot be completely ruled out that a bidder in the future may still have to provide some sort of “security” for being allowed to obtain financial assistance from a Norwegian target company. Nevertheless, as long as it can be argued that the acquisition is in the target company’s best interest and such financial assistance can be justified in the absence of any security, since 1 January 2020 it is now possible for a target company to grant financial assistance to a bidder without such security. Any financial assistance must still be approved by the general meeting, resolved byat least two-thirds of the aggregate vote cast and the share capital represented at the meeting (unless otherwise required by the target company’s articles of association). In addition, the board must ensure that a credit rating report of the party receiving the financial assistance is obtained, and also that the general meeting’s approval is obtained prior to any financial assistance being actually granted by the board. The board shall also prepare and execute a statement, which must include (i) information on the background for the proposal of financial assistance, (ii) conditions for completing the transaction, (iii) the price payable by the buyer for the shares (or any rights to the shares) in the target, (iv) an evaluation about to what extent it will be in the target’s best interest to complete such transaction, and (v) an assessment of the effect on the target’s liquidity and solvency. Finally, it is also worth noting that, since 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 pushdowns under Norwegian law. These rules may limit the sponsor’s ability to conduct a debt pushdown, 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. Withholding tax on interest and royalty payments On 27 February 2020, the Ministry of Finance issued a consultation paper in which it proposes to amend the Norwegian Tax Code allowing the government to introduce withholding tax on interest, royalties and certain rental payments to related parties. Companies are considered related if there is a direct or indirect ownership interest between them of at least 50% or a company has a direct or indirect ownership interest in both the payer and the creditor of at least 50%. The related party concept corresponds to the definition in the interest limitation rule. Taxable payments shall be taxed at 15% (gross), unless a reduced rate follows from a tax treaty. In order to fulfil Norway’s obligations under the EEA Agreement, the Ministry proposes also an alternative method for companies resident in the EEA. This means that companies with a withholding tax liability to Norway, which are genuinely established and conduct real economic activity in the EEA, can choose to be taxed according to a net method, i.e. they are taxed at 22% after deduction of costs directly related to the rent or loan. If this method is chosen, the company must submit a tax return to Norway. It will be the debtor or tenant who will be responsible for the deduction of the proper withholding tax. The deduction shall be made on a continuous basis in connection with the payments and shall be paid within seven days, similar to the withholding tax on dividends. The withholding tax on interests is proposed for interest payments to related companies in low-tax countries. The term “low-tax country” refers to countries where the tax burden for the creditor is lower than two-thirds of the tax the company would have paid if it had been a tax resident in Norway. The proposal is thus based on the same low-tax jurisdiction definition as in the Norwegian participation exemption method and the CFC rules. The withholding tax is meant to supplement the Norwegian interest limitation rule that restrains

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Aabø-Evensen & Co Norway multinational groups’ ability to reduce corporate income tax by excessive debt financing of Norwegian subsidiaries. Also, the proposal for introducing withholding tax on rental payments related to intellectual property rights (royalty) shall apply on payments to related companies only. However, withholding tax on royalty payments shall apply regardless of whether the recipient is resident in a low or high tax country. The consultation note also discusses the introduction of withholding tax on payments to related parties for the rental of certain physical assets, such as ships, vessels, rigs, etc., aircraft and helicopters. This could, among other things, affect intra-group leasing in the petroleum sector and “bareboat” agreements. The Ministry has not made a final decision on whether to propose withholding tax on such payments, and says they will consider this more closely based on the input received in the consultation round. Companies within the shipping tax scheme are proposed to be exempted from withholding tax on interest and rental payments. The consultation deadline is 27 May 2020. The new rules are proposed to take effect from 1 January 2021. The interest limitation regime With effect from 1 January 2019, the Norwegian interest limitation regime has been amended, so that interest payable on bank facilities and other external debt within consolidated group companies has now become subject to the same interest deduction limitation regime as interest paid to “related parties”. The new amended rule will apply if the annual net interest expenses exceed NOK 25 million in total for all companies domiciled in Norway within the same group. Where the threshold amount is exceeded, deductions are limited to 25% of taxable EBITDA. The group definition has been slightly changed from the first 2019 amendment as it now includes all companies which could have been consolidated if IFRS had been applied. The previous interest deduction limitation rules will continue to coexist with the new rules, but so that the scope of the old rules 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 or a company not belonging to the consolidated group for accounting purposes). Further, two revised escape rules allowing deduction of interest payments on loans from third parties not forming part of any tax evasion scheme have been implemented. Under the first rule which applies to each Norwegian company in a group separately, the equity ratio in the balance sheet of the Norwegian company is compared with the equity ratio in the consolidated balance sheet of the group. A group company established in the fiscal year or a surviving company in a merger during the fiscal year cannot apply this rule to obtain interest deduction. Under the other, which applies to the Norwegian part of the consolidated group as a whole, the equity ratio for a consolidated balance sheet of the Norwegian part of the group is compared with the balance sheet of the group. In both cases, the Norwegian equity ratio must be no more than two percentage points lower than the equity ratio of the group as a whole. Companies qualifying for the equity escape clause may deduct net interest expenses in full, except for interest expenses to related parties outside of the group. Several adjustments have to be made to the balance sheet of the Norwegian company or the Norwegian part of the group when calculating the equity ratio. If different accounting principles have been applied in the local Norwegian accounts and group accounts, the local accounts must be aligned with the principles applied in the group accounts. Further,

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Aabø-Evensen & Co Norway goodwill and badwill as well as other positive or negative excess values in the group accounts relating to the Norwegian company or the Norwegian part of the company group must be allocated to these entities. The local balance sheets must also be adjusted for intra- group shares and claims which are consolidated line by line in the group accounts. Shares in and claims against such group companies shall be set off against debt and total assets when calculating the group’s equity ratio. The adjusted group accounts and the adjusted local accounts for the Norwegian company or the Norwegian part of the group, must be approved by the companies’ auditor. Taxation of “carried interests” Under current tax law, there is no explicit Norwegian rule for taxation where the managers of investment funds receive a “profit 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 claim, namely that such profit is subject to Norwegian taxation as ordinary income from businesses at the then prevailing tax rate of 28% (now reduced to 22% from 1 January 2019). 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 Appeal 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 profits in this particular dispute was also subject to payroll tax (14.1%) under Norwegian law. Finally, the court ordered that the partners must pay in addition a 30% penalty tax. However, in a final ruling from November 2015, the Norwegian Supreme Court overturned the Court of Appeal and invalidated the tax authorities’ tax assessment. The Supreme Court concluded that the carried interest should be considered as ordinary income from 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 Effective from 1 January 2019, the domestic tax residency rule in the Norwegian General Tax Act has been amended. Any company established under Norwegian law shall be considered a Norwegian tax resident unless the company is a tax resident according to a tax treaty Norway has entered into. The risk that a Norwegian leveraged acquisition vehicle may not be considered a Norwegian tax resident by the Norwegian authorities alone, and therefore not able to apply the group contribution rule to utilise the tax loss, should thus be

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Aabø-Evensen & Co Norway lower than before. On the other hand, the introduction of place of effective management (PoEM) as an additional way of determining Norwegian tax residency is expected to entail more uncertainty with respect to tax residency for companies established under foreign law with Norwegian connection. 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%, is 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 (the AIFM Act) entered into force. This Act implemented Directive 2011/61/EU (the AIFM Directive) into Norwegian law. This 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 defined investment policy. The AIFM Act applies to venture funds, hedge funds and private equity funds irrespective of their legal form and permitted investment universe. However, subject to certain defined criteria with regard to the size of the funds under administration, certain AIFs are exempted from parts of this regulatory regime. Although most of the AIFM Act is not directed at M&A specifically, there are certain parts that are likely to have a sizeable impact on M&A transactions indirectly. First, the AIFM 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 €50 million or a balance sheet exceeding €43 million. 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 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 specification 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

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Aabø-Evensen & Co Norway information must be disclosed no later than 10 business days after the date on which the disclosure obligation was triggered. Thirdly, the AIFM Act imposes limitations on the ability of financial sponsors 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 AIFM Act that, under certain circumstances, limits the financial 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 financial 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 profit for the previous fiscal 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 LBO transactions. Break-up fees and listed companies During the past few years, break-up fees have become an increasingly accepted feature in Norwegian public M&As. However, such fees have normally been lower than in many other jurisdictions, and previously took the form of cost coverage arrangements. In Arris’ offer for Tandberg Television ASA (2007), the parties agreed a break fee of US$18 million (1.54%). In Cisco’s offer for Tandberg ASA (2009), a break fee of US$23 million was agreed (0.83%). In Reinmetall’s offer for Simrad Optronics ASA (2010), the parties agreed an inducement fee of €1.5 million (1.99%). In West Face (Norway)’s offer for Interoil Exploration and Prod. ASA (2010), a break fee (cost coverage) of US$2 million was agreed (4.71%). A break fee of US$1.5 million (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$5 million (exclusive of value added or other such tax) (1.46%). Norwegian takeover legislation does not specifically 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 confirm 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 STA. As a reaction to the trend in recent years 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 difficult 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 financial compensation if the bid does not proceed

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(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 rule in the Code of Practice, this provision shall also apply to any agreement on the payment of financial compensation to the bidder if the bid does not proceed. Any agreement for financial 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 17 October 2018), 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 five 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. Of the seven public M&A offers launched during 2018, a break fee of 4.66% of the offer price was agreed for one of these deals, and a cost cover fee of around 1.18% was agreed in another. Of the five public M&A offers launched during 2019, a break fee of around 2% of the offer price was agreed for one of these deals. 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 was not satisfied with their due diligence inspections. The Court of Appeal based its decision upon the fact that the defendant in this particular matter had not specified in the agreement/ offer document what the legal consequences should be if the defendant was not satisfied with such investigations. Consequently, a due diligence reservation cannot under Norwegian law be considered 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 period of six months from the date of transfer of business, provided the employer has informed all affected employees in writing about such provisions.

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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 orless 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 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 finding 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 seen re-emerging in the US during the last decade, 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 firms, which offer vote recommendations and sometimes cast votes on behalf of their clients, operate directly within Norway, and no explicit proxy voting regulations aiming at regulating such advisors’ activities (conflicts of interests, etc.) are in place. However, such firms do alsooffer advice to clients (in particular, foreign hedge funds and institutional investors) who have invested large stakes in Norwegian investee companies. Consequently, the influence of such proxy advisors is present in Norwegian companies with a high percentage of foreign institutional investors. Based on the initiative in recent years from the European Securities & Markets Authority to review the role of proxy advisory firms, and through forces of

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Aabø-Evensen & Co Norway global convergence, it is not unlikely that in the future Norwegian regulators will also find it necessary to introduce greater transparency and more specific regulations in this area. Examples of aggressive use of derivatives and other accumulations of significant 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 STA. Government holdings A special feature of the Norwegian financial markets is that the Norwegian government has significant holdings in many of the companies listed on the OSE. 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: Equinor ASA (67%); DNB ASA, Norway’s largest bank (34.2%); Telenor ASA, the Norwegian telecom provider (54.7%); and Kongsberg Gruppen ASA (50.001%). Note that in 2014, the government requested 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-term owner. At the beginning of 2015, Parliament adopted a resolution granting permission to exit the government’s holdings in the following companies: Ambita AS; Baneservice AS; Mesta AS; Veterinærmedisinsk Oppdragssenter AS; Entra ASA; and SAS AB. Originally, the government had also asked for permission to exit its investments in Flytoget AS, and to reduce its holding in both Kongsberg Gruppen ASA and in Telenor ASA down to 34%. 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 beneficial 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 significant 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 aims to support governmental savings for financing future national insurance pension fund expenditure. Capital can be invested in shares listed on regulated markets in Norway, Denmark, Finland and Sweden, and in fixed-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 fiscal 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 fluctuations. The fund invests in international equity and fixed-income markets. It also has a mandate to invest in real estate. The aim is to have a diversified investment mix that will give the highest possible risk-adjusted return within the guidelines set by the ministry. As of 31 December 2019, total assets amounted to NOK 10,088 billion. 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.

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Industry sector focus The most active industry in 2019 was TMT, which accounted for a record 26.2% of the deal count for that year in the Norwegian market, while the Business Services sector represented 12.9% of the deal count. Other particularly active industries included the Industrial & Manufacturing sector, with 12.6 % of the total deal count. The Consumer and Energy sectors were also quite active, representing 11.4% and 10.5% of the total deal count for 2019, respectively. Based on the deal volume so far in Q1 2020, it looks as if TMT and Business Services will be the leading sectors for transactions in Norway for 2020, followed by the Industrial & Manufacturing sector.

The year ahead Norwegian M&A activity for 2019 ended on a high note close to the record deal numbers of 2017, and at the beginning of 2020, in spite of geopolitical and regulatory concerns, most commentators would expect Norwegian M&A activity to continue to remain strong throughout 2020, absent any political or economic shocks. However, what no one at that time could predict was the arrival of COVID-19, the “black swan” of 2020, and its spreading from China around the globe, resulting in countries having to close down their borders, airlines, restaurants, schools, kindergartens, etc. in an attempt to stop or at least curb the impact of the virus. This, combined with a deadly cocktail of plummeting oil prices resulting from a breakdown in ongoing negotiations between Russia and Saudi Arabia about reducing existing oil production volumes, has resulted in a significant wind-down in Norwegian deal-making following mid-March 2020, with the impact of COVID-19 on company balance sheets yet to be fully gauged. However, this situation is not unique to Norway, as most other countries are experiencing the same effects. Currently, Norwegian deal activity for Q1 is significantly down, dropping 41.6% in a number of announced deals compared with the same period in 2019. The reported deal values also fell significantly, with the average reported deal value dropping from €209 million for Q1 2019 to €33.6 million for the same period in 2020. After a rather optimistic start to 2020, many businesses are now instead preoccupied with saving their businesses from the impacts of the pandemic, which has also taken its toll on volatile capital markets, with the OSE plummeting. At the beginning of April 2020, we have started to see deals being pulled from the market by their owners. Alternatively, deals have been postponed due to a number of factors, such as whether financing has been firmly lined up and whether the crisis has disproportionate effects on one or more of the parties involved in the deal. The effects of COVID-19 on M&A will vary case by case, and some ongoing deals could continue but may see terms adjusted. Despite the slowdown, Norwegian M&A could return to higher levels once there is more certainty around the ramifications of the virus on businesses and the Norwegian economy. However, there is one thing for sure, that people are not going to do deals simply because assets look cheap today compared with recent valuations; because if you try to catch a falling knife, there is a chance you may cut yourself. Nevertheless, there is a sense that a number of investors are keen to deploy capital over the next few months. There still seems to be plenty of capital to be deployed and we believe that deal volumes are likely to return once the impact of COVID-19 is better known. If the crisis continues for some time and companies experience shortfalls in capital or liquidity,

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Aabø-Evensen & Co Norway we also expect to see an increasing number of opportunistic M&As in the Norwegian market. Even if we currently expect a drop in deal activity in Norway for 2020, we expect continuing strong momentum for new deals within particular sectors such as TMT and Industrial & Manufacturing. 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-life for the funds holding such investments. It is safe to assume that some of these sponsors are experiencing increasing pressure to find 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 weak Norwegian Krone is also expected to continue contributing to fairly high M&A activity levels, since foreign investors may feel this creates an extra opportunity for bargains. Overall, we consequently believe that Norway will be one of the few countries able to handle this pandemic situation due to its strong economy. Therefore, we continue to be relatively optimistic about the Norwegian M&A market for 2020, provided that the world is able to take control of the spread by mid-2020. Nevertheless, no one should disregard the fact that, for the moment, Norway has become more exposed to the force of world events than in previous years, and the views we have expressed all depend on global macroeconomic developments. But, even if things may look bad, it all tends to turn around for the better, if one Keeps Calm and Carries On. The views reflected in this chapter are those of the author and do not necessarily reflect the views of other members of the Aabø-Evensen & Co organisation.

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Ole K. Aabø-Evensen Tel: +47 9099 5470 / Email: [email protected] Ole K. Aabø-Evensen is one of the founding partners of Aabø-Evensen & Co, a Norwegian boutique M&A law firm. Mr Aabø-Evensen assists industrial investors, financial advisors, private equity funds as well as other corporations in friendly and hostile take-overs, public and private M&A, corporate finance 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. Mr Aabø-Evensen is also the author of a 1,500-page Norwegian textbook on M&A. He is recognised by international rating agencies such as The Legal 500, Chambers, IFLR and European Legal Experts, and for more than 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). In the 2012, 2013, 2017, 2018 and 2019 editions 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. Mr Aabø-Evensen is the co-head of Aabø-Evensen & Co’s M&A team.

Aabø-Evensen & Co P.O. Box 1789 Vika, NO-0122 Oslo, Norway Tel: +47 2415 9000 / Fax: +47 2415 9001 / URL: www.aaboevensen.com

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Abdulrahman Hammad & Samy Elsheikh Hammad & Al-Mehdar Law Firm

Overview The formation and operation of legal entities in Saudi Arabia is regulated by the Companies Law (issued by Royal Decree No. M/3 dated 28/01/1437 H. (corresponding to 11/11/2015G)). The main corporate entities commonly involved in acquisitions in Saudi Arabia are limited liability companies (LLCs) and joint stock companies (JSCs). Holding companies, which are LLCs or JSCs created to control other LLCs or JSCs by owning more than 50% of their capital or controlling the formation of their boards of directors, are also often involved in acquisitions. Foreign investment in Saudi Arabia is regulated by the Ministry of Investment or the Economic Cities Authority and is subject to the Foreign Investment Law (issued by Royal Decree No. M/1 dated 05/01/1421 H. (corresponding to 10/04/2000G)). Pursuant to a published Negative List, certain economic activities are not permitted for foreign investment or ownership. However, in line with the government’s Saudi Vision 2030 to diversify the economy and boost the private sector, most sectors are open to foreign investment provided the foreign acquirer obtains a foreign investment licence. The Ministry of Investment has an instant licence regime and investors can apply online for an immediate licence if they meet the requirements. Where a transaction in Saudi Arabia results in economic concentration, the transaction is subject to the Competition Law (issued by Royal Decree No. M/75 dated 29/6/1440 H. (corresponding to 06/03/2019G)). Any entity that is contemplating a transaction that may lead to an economic concentration must notify the General Authority at least 90 days prior to its consummation, where the aggregate annual turnover exceeds SAR 100 million during the last complete fiscal year (Implementing Regulation, Article 12). To promote fair competition and prevent monopolistic practices that affect lawful competition, the General Authority for Competition, an independent authority in charge of supervising the implementation of the Competition Law, monitors the market to ensure the application of the Competition Law and its Implementing Regulation. The most common ways to acquire a private business in Saudi Arabia are (i) share acquisition, and (ii) asset acquisition. The former is more common than the latter. Share acquisitions are considered more efficient than asset acquisition due to several reasons, including but not limited to: the continuity of the company’s business operations in terms of existing supply and sale contracts; the avoidance of time-consuming and costly processes of transferring employee sponsorships to the acquiring entity; the avoidance of the time- consuming process of obtaining activity licences, permits, and vendor qualifications, which can take several months; and a lower chance of VAT assessment of the transfer transaction.

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Significant deals and highlights In 2019, Saudi Arabia saw an increase in the value and volume of deals. As of July 2019, Saudi Arabia recorded 14 deals worth $72,567 million according to Mergermarket. The increase in value as compared to 2018 is largely owed to the deal between Saudi Aramco and Saudi Basic Industries Corporation (SABIC) worth $70.4 billion.1 In March 2019, Saudi Aramco announced the signing of a share purchase agreement to acquire a 70% majority stake in SABIC from the Public Investment Fund of Saudi Arabia. As reported by Saudi Aramco, the Saudi Aramco–SABIC private transaction was for SAR 259.125 billion, which is equivalent to $69.1 billion.2 With 17 deals announced as of September 2019, M&A in Saudi Arabia reached its highest year-to-date (YTD) deal count on Mergermarket record. The Saudi Arabian share of MENA M&A activity by deal count had reached 21.5% as of September 2019.3 Another notable transaction in Saudi Arabia took place in the banking sector. In June 2019, the Saudi British Bank (SABB) and Alawwal Bank merged to create Saudi Arabia’s third- largest lender by assets in a $5 billion deal. The merger required the approvals of the CMA, the Saudi Arabian Monetary Authority (SAMA), and the General Authority for Competition (GAC). The merger created a lender with assets of around $77 billion, with an increased strength in retail and corporate banking.

Key developments Foreign investment In recent years, the Kingdom has taken a number of steps to boost its attractiveness to foreign investors, and these have had a marked impact on M&A activity in the last 12 months. Notably, the government promoted the role of the Saudi Arabian General Investment Authority (SAGIA) to that of the Ministry of Investment, signalling the increased importance that foreign investment will play in the Kingdom. Such a move has already been well- received by foreign investors and sovereign wealth funds. This move follows an earlier decision in late 2017 to accept applications from foreign investors for 100% foreign ownership of trading activities in KSA. While foreign investment was permitted in most services and industrial sectors up to 100%, the foreign ownership of businesses in trading sectors, which cover import and export of goods, distribution, and retail, were limited to 75%. In its continued drive towards economy diversification, Saudi Arabia removed such limitation. Under pressure from non-financial foreign investors, in June 2019 the government relaxed the 49% limit on foreign ownership of publicly listed companies for foreign strategic investors. This change was effective for owning shares of companies listed in the primary exchange (Tadawul) and the parallel (small cap) exchange (Nomu). It is expected that this will open up the capital markets to large-scale M&A activities, particularly from large companies seeking to acquire controlling interests in Saudi businesses and private investors investing in growth businesses with the potential to list in the future. Executives at Tadawul openly discussed their intention to attract activist foreign investors to corporate boardrooms through such moves in an effort to raise the standards of management and governance. This additionally permits pre-IPO investors, such as private equity and venture capital funds, to invest without limitation prior to listing, and to retain their ownership without a push-to-sell as strategic investors following IPO. Legislative and regulatory changes The Kingdom has taken several steps to strengthen the regulatory framework in its effort to attract investors, with a view to demonstrate to financiers that investment will be protected, and

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Hammad & Al-Mehdar Law Firm Saudi Arabia that the Kingdom’s regulations are increasing aligned with international best practices. We set out below the principal legislative and regulatory changes that took place over the past year. Insolvency Law The government has enacted implementing regulations to detail the implementation of the new 2018 Insolvency Law which focus on preserving enterprise value through the effective redeployment of capital. The Law’s objective is to provide a comprehensive approach to insolvency and to preserve enterprise value wherever possible. The new Law differentiates between bankruptcy and insolvency, a major boon for investors who were wary about investing in a system traditionally hostile to debt and insolvency. Recent decisions by the courts have not, however, been entirely convincing. One example of the Insolvency Law working in practice is in the case of the Saad Group and its founder Maan al-Sanea, who are working with the commercial court to settle claims with bank creditors under the insolvency regime; in contrast to this, the commercial court in Dammam rejected two applications from conglomerate Ahmad Hamad Algosaibi and Brothers (AHAB) to settle $22 billion in combined debt. Without this relief, AHAB have been forced to consider restructuring through other jurisdictions. Competition Law The Saudi Council of Ministers passed a new Competition Law in March 2019 to encourage new entrants to the market as well as overseas competitors. Through this legislation, the Council indicated willingness to support small and medium-sized enterprises (SMEs) and focus on offering the Saudi consumer higher quality at fairer prices. The law strictly prohibits economic concentration, defined as “any act resulting in the whole or partial transfer of the title to the assets, rights, liabilities, shares or stocks of an entity to another, or the merger of two or more departments in one joint department”, and bars any business with a dominant position from abusing its strong position to affect or restrict access to the market. Businesses are prohibited from colluding, whether explicitly or implicitly, to restrict fair competition in the market. A new specialised committee for the settlement of disputes has been established to hear cases against businesses that violate the law. Transparency measures Finally, the government introduced a number of measures to boost transparency in both government and private sector spending. In February 2019, a new Financial Reporting Office was launched within the General Auditing Bureau to fight corruption, imbued with the power (and supported by the Public Prosecutor) to monitor state and private sector spending. The Wathiqa electronic platform was also launched as a transparent exchange of information and documentation between various governmental bodies and offers free audit services for dozens of government agencies. Although there is still some way to go, efforts are clearly being made to create a more transparent rules-based environment, an approach that has been welcomed by investors.

Industry sector focus Saudi Arabia continues to showcase strong efforts to diversify the economy away from its heavy dependence on oil and gas and towards investment in sectors with greater long- term economic sustainability. Buyers have followed suit, moving away from traditional government-backed sectors such as oil and gas, construction, and infrastructure and instead focusing their investments in the industrial, agri-food, healthcare, education, and technology sectors, which in total accounted for 63% of M&A activity in 2019.

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The banking and insurance sectors also witnessed a healthy level of M&A activity, spurred by the instability and accumulated losses suffered by the insurance industry in the last 48 months. The SAMA urged companies to consolidate to strengthen their financial positions and is currently studying a new draft law that will compel insurance companies to raise capital to satisfy minimum capital requirements. If passed, this law is expected to force smaller companies into mergers, or otherwise invite offers from global companies. Additionally, the last 12 months witnessed ground-breaking levels of M&A activity in venture capital, which contrasts profoundly with the subdued levels of private equity in the post- Abraaj era. This increase is largely a result of the government’s diversification plans, but can also be attributed to the increased levels of family planning as high-net-worth individuals in the Kingdom share business decision-making with the next generation of investors. The government implemented a number of initiatives to support the start-up ecosystem, including establishing the Saudi Venture Capital Company to invest in Saudi start-ups as well as launching a $1.07 billion fund to invest in venture capital funds which serve as a catalyst for SME investment and job creation. As a result, 2019 was a record year for start-up deals, which spiked by 92%, and it is expected that such strong growth will continue into 2020.

The year ahead At the time of drafting this chapter, the world’s economy is going through an unprecedented time in modern history with the rapid spread of the coronavirus (COVID-19). The pandemic’s impact on the M&A market at this time remains uncertain. Uncertainty in capital markets and in the business environment may lead acquirer boards to adopt a wait- and-see approach. Nevertheless, it is likely that companies will still consider transactions due to various reasons, such as, but not limited to, strategy, necessity, and opportunity. The unpredictability of the impact of the pandemic on businesses will create a challenge for target valuations. Acquirers are likely to seek a lower valuation due to business disruptions that occurred, disruption which may last months, if not longer. Targets may be hesitant to settle for lower valuations as it is not yet known whether the effects of the virus will be short- or long-term. While Saudi Arabia’s government has been quick to implement measures to stop the spread of the virus and has rolled out initiatives to reduce the impact of the virus on the economy, the impact remains unpredictable. The quick and responsive government efforts and measures may provide encouragement for acquirers that the economy will soon stabilise. That said, industry watchers sense Saudi’s Vision 2030 may operate as a long-term economic catalyst to spur deals from companies looking to achieve operational synergy through economies of scale, especially considering pre-COVID-19 shrinking margins and increasing operational costs witnessed across a number of sectors, and thus it may be possible to see a rise in M&A activity from strategic investors seeking to benefit and take advantage of depressed valuations during 2020.

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Endnotes 1. https://events.mergermarket.com/saudi-arabia-boasts-record-first-half-ma-value. 2. https://www.saudiaramco.com/en/news-media/news/2019/aramco-sabic#. 3. https://events.mergermarket.com/here-are-4-charts-to-summarise-saudi-arabian-ma- during-2019.

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Abdulrahman Hammad Tel: +966 0 92 000 4626 / Email: [email protected] Abdulrahman Hammad joined Hammad & Al-Mehdar Law Firm in 2015, and leads the firm’s M&A and Projects practice. Mr. Hammad is a member of the New York State Bar. He earned his Juris Doctor degree with magna cum laude Honours from the University of Miami, U.S.A., concentrating on securities, finance, and business law. Prior to that, Mr. Hammad earned a Bachelor of Science with cum laude Honours from Southern Illinois University, majoring in Finance – Investments. Mr. Hammad worked for a major U.S. law firm in New York concentrating on energy, infrastructure, and project finance work. Mr. Hammad also worked at the Saudi Aramco Law Department with a practice focusing on project development and M&A.

Samy Elsheikh Tel: +971 0 50 157 5726 / Email: [email protected] Samy Elsheikh joined Hammad & Al-Mehdar Law Firm in 2017. Samy is a qualified Egyptian lawyer. He earned his Master’s degree in International Business Law from Paris I Panthéon-Sorbonne University. Prior to that, he earned a Bachelor of Laws from Cairo University and Paris I Panthéon- Sorbonne University. Prior to joining Hammad & Al-Mehdar, Samy worked in international and top-tier law firms in Doha, Qatar and Cairo, Egypt. Samy specialises in M&A and Projects in addition to corporate commercial work.

Hammad & Al-Mehdar Law Firm King Road Tower, L-12, Office 1209, King Abdulaziz Road, Jeddah, Kingdom of Saudi Arabia Tel: +966 0 92 000 4626 / Fax: +966 0 12 606 9190 / URL: www.hmco.com.sa

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

Overview The total value of M&A transactions in Spain suffered a slight slowdown in 2019, decreasing from €116bn in 2018 to almost €90bn in 2019. The number of transactions, however, remained steady but with a lower value average. Q1 and Q3 of 2019 in Spain were particularly disturbing due to political uncertainty. Spain held general elections in both April and November, the latter due to the impossibility of forming a government after the April 2019 election. After the 2019 election, Spain moved for the first time to a coalition government. Political uncertainty and the lack of legal and economic policies had an adverse effect on domestic and foreign investors. Accordingly, the M&A market in 2019 did not thrive as it did in 2018. In late January 2020, Spain’s new government was ready to provide some stability and willing to find a solution to the everlasting situation in Catalonia, a domestic mix that, in theory, should bring M&A transactions back. The imminent abandonment of the European Union by the United Kingdom (finally approved on 31 January 2020) also slightly slowed down the Spanish M&A market. The United Kingdom is currently under a transitory period until 31 December 2020. Other existing factors such as the United States trade wars with China and the European Union, the general slowing of the Eurozone economies and the increasing protectionism and foreign direct investment screenings worldwide add up to create a certain sense of uneasiness as to what to expect for 2020. Finally, nobody could have ever imagined what an isolated disease that emerged in December 2019 in Wuhan, China and its subsequent spread around the world as a global pandemic (COVID-19) could do to the world’s economy and consequently to the M&A industry, not only in 2020 but also in the future. As predicted in last year’s edition of this book, GDP growth of 2019 slowed compared to previous years. Spain’s GDP growth rate in 2019 was still relatively healthy, reaching 2% and representing one of the highest growth rates in the Eurozone. This entailed the lowest GDP growth rate since 2014, which was the year in which Spain’s economic recovery began following the 2008 financial crisis. Continuing the trend of recent years, unemployment in Spain reduced in 2019. As of 31 December 2019, the unemployment rate reached 13.7%, which represented a decrease of 0.6% compared to 31 December 2018 (14.3%). However, unemployment continues to be a major problem for the Spanish economy since the financial crisis of 2008, and last year’s positive trend will be severely curtailed by the COVID-19 outbreak. We hope for a slight recovery of Spanish M&A activity in Q4 of 2020.

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The Spanish M&A market The Spanish M&A market has consolidated its 2019 results, closing a total of 2,532 transactions with an approximate total aggregate value of €89.8bn. The number of M&A transactions increased during the course of 2019; however, the aggregate value of said transactions was lower than 2018 due to the decrease in the volume of “mega-deals”. Nevertheless, transaction volume has increased in certain areas, such as real estate, private equity, energy, infrastructure and telecommunications. It is worth noting that in 2018, M&A numbers in Spain were significantly increased by the acquisition of Abertis Infraestructuras, S.A. by Abertis Participaciones, a company owned by Atlantia, ACS and Hochtief of Abertis Infraestructuras, S.A., through a takeover bid valued at €16.16bn. 2019 did not see any “mega-deals” of such magnitude. By number of transactions, traditional M&A enjoyed the largest number of transactions during 2019, followed by asset deals, venture capital and private equity transactions. High-end transactions (over €500m) showed a decrease in number and value compared to 2018, moving from 64.81% to 54.38%. Mid-market transactions (between €100m and €500m) have shown an increase in number and value compared to 2018, moving from 24.72% to 29.09%. Small-sized transactions (below €100m) have shown the most significant increase of the aggregate transactions’ value compared to 2018, moving from 9.08% to 15.14%. As regards to the subsectors with the highest number of M&A deals, 2019 was the first year since 2015 in which the number of deals in the real estate sector decreased. However, deals in the technology, financial industry, insurance and engineering sectors increased in 2019. The Spanish M&A market in 2019 followed an irregular pattern both in number and value of transactions during the four quarters of the year; Q1 and Q3 showed a significant decrease in the number of transactions compared to 2018 (-20.06% and -6.92%, respectively) as compared to Q2 and Q4 (12.46% and 15.54%, respectively). Inbound investments completed during 2019 have remained relatively steady (from 646 in 2018 to 645 in 2019), reaching a total value of €22bn. The ranking per country of purchasers/ investors in Spain, considering the aggregate value, was led once again by the United States with €11bn, followed by the United Kingdom with €10bn and France with almost €5bn. The total number of completed outbound investments in 2019 reached 278 transactions. By number of transactions, Portugal (49), the United States (44) and France (33) were the top three foreign investor countries in Spain. On another note, when considering transaction value, the United States with €8.1bn, the United Kingdom with €3.3bn and Mexico with €2.9bn were the top three countries in which Spanish entities have invested their money. The most active sector in terms of M&A inbound acquisitions in 2019 was real estate, followed by technology, financial and insurance, healthcare and hygiene products, medical aesthetics and cosmetics.

Significant deals and highlights • Real estate: The real estate sector has not been as active as in previous years but is still the most targeted sector in M&A transactions. It is worth noting that the sale and purchase of various loan portfolios (both performing and non-performing) or property acquired from Spanish financial institutions through mortgage foreclosures has decreased substantially. Years of credit bubbles and crisis left a considerable number of asset-secured non-performing loans (“NPLs”) or NPLs-to-be in the hands of financial institutions and later in the hands of the Spanish SAREB asset manager (Sociedad de Gestión de Activos

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Procedentes de la Reestructuración Bancaria). The number of these deals decreased in 2019 as inventory declined and banks recovered some financial stability. It is expected that in 2020, these deals will continue to decrease in the short term subject to the outcome of the COVID-19 pandemic in the banking and real estate sectors. • Oil, gas and energy, mining and utilities: The main transaction in this sector was the acquisition of a 37% stake of Compañía Española de Petroleos, S.A.U. (“CEPSA”) by The Carlyle Group from seller Mubadala Investment Company PJSC for a total of €2.8bn. A significant outbound deal in this sector during 2019 was the offer launched by Blackstone Infrastructure Partners, the holding formed by the Blackstone fund, the Spanish energy company Enagás and the Singapore sovereign wealth fund GIC, to acquire 100% of the share capital of US-based company Tallgrass Energy Partners for approximately €2.7bn. Other mid-market deals in the gas industry such as EDP’s divestment of its LNG Spanish business are remarkable. • Consumer: In February 2019, the major transactions in this area were the launching of a takeover bid of a 29.36% majority stake of DIA (Distribuidora Internacional de Alimentación), S.A. by L1 Retail for a total of €1.6bn, and the merger between Amplifon Ibérica S.A. and Grupo GAES with a total value of €0.6bn. • Sports: The number of transactions in this sector has grown, one of the top transactions being the merger of Global Bike and Dorna for a total of €1.7bn. • Technology: In 2019, Cellnex Telecom acquired the business of UK-based Arqiva for a total of €2.2bn. • Consultancy, audit and engineering: One of the major transactions in this sector has been the acquisition of Accelya by Vista Equity Partners from seller Warburg Pincus for a total of €1.3bn. • Financial services and insurance: In November 2019, Six Group AG filed a takeover bid over the company Bolsas y Mercados Españoles S.A. for a total of €2.8bn which is currently in progress.

Legal framework and key developments 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) specifically foresees this principle, setting forth that the contracting parties may establish any covenants, clauses and conditions deemed convenient, provided that they are not contrary to the law, morals or public order. Based upon said principle, M&A transactions are structured in many different forms, most often driven by the underlying tax structures of the buyers, 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”). As the Spanish M&A market globalises, both buyers and sellers are becoming considerably more sophisticated. In 2019, for instance, we saw a radical increase of Representations and Warranties insurance and related products in Spanish M&A transactions. Accordingly, new insurance and related solutions providers set up shop in Spain, offering competitive prices, extensive coverage and the possibility of entering into these products quickly. Representations and Warranties insurance contributes expedited negotiations and closing transactions within a shorter time frame.

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Below is a brief summary of the basic regulation 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. • Royal Decree 4/2015 of 23 October, which approved the amended and restated Stock Market Securities Act (Ley del Mercado de Valores) and 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 National Securities Market Commission (Comisión Nacional del Mercado de Valores, or “CNMV”). • Corporate Restructuring Act number 3/2009 of 3 April (Ley de Modificaciones Estructurales), which regulates mergers, cross-border mergers, demergers, splits, transformation, transfers of business and the international transfer of registered office. • Antitrust Act 15/2007 (Ley de Defensa de la Competencia) of 3 July, and regulations thereof, as well as the applicable EU 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: a) adopt the form of an S.A.; b) have a minimum share capital of €5m; c) have only one class of shares; d) include in its corporate name “SOCIMI, S.A.”; and e) 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 met within two years following the date in which the election of the SOCIMI regime took place. • Private Equity, Venture Capital Act 22/2014 of 12 November (Ley por la que se regulan las entidades de capital-riesgo, otras entidades de inversión colectiva de tipo cerrado y las sociedades gestoras de entidades de inversión colectiva de tipo cerrado, y por la que se modifica la Ley 35/2003, de 4 de noviembre, de Instituciones de Inversión Colectiva), governs private equity, venture capital and closed-ended entities for collective investments, meaning any entity with a defined investment policy and with the purpose of distributing its profits among investors. This regulation simplifies 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 significantly reduce the costs and time frame for registration. A number of new types of entities were introduced by this Law, allowing greater flexibility in determining the type of investment vehicle. For the first 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 by reducing the percentages, but by 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 24 July 1889, which, among others, regulates the general legal framework for contracts and obligations.

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• Commercial Code (Código de Comercio) published by Royal Decree, dated 22 August 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 figures that may have a 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, among other matters, it establishes that the change of the company’s work centre or an autonomous productive 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 significant legal changes In 2019, some of the regulations passed in late 2018 came into effect. In particular, amendments to certain aspects of the Capital Companies Act, the Commercial Code, the Collective Investment Institutions Act and the Audit Act, affecting dividends, shareholders’ rights, non- financial company information reporting and collective investors’ data, to name a few. While 2019 was not a year with strong Spanish legislative action affecting M&A transactions, on 20 February 2019, the Spanish Congress approved Law 1/2019 as regards trade secrets, which transposed Directive (EU) 2016/943 into the Spanish domestic legal system on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure. The Spanish Act lays down rules for the protection against the unlawful acquisition, use and disclosure of trade secrets, providing for measures and remedies which can consist of, without limitation, preventing the disclosure of information in order to protect the confidentiality of trade secrets. These regulations add up to the existing rules on investor information, insider trading and other rules for stock-traded companies. However, the most significant legal change affecting M&A transactions during 2019 was the innovative legal reform, following approval by the European Parliament and the Council on 27 November 2019, of Directive 2019/2121 amending Directive 2017/1132 as regards cross-border conversions, mergers and divisions (“Directive 2019/2121”). The Spanish legislator and the other EU Member States have until 31 January 2023 to transpose Directive 2019/2121 into national law, which shall include, but is not limited to, the following major legal changes: (i) Additional rules on cross-border mergers involving companies established in EU Member States, including stronger protection for shareholders, creditors and employees and simplifying the preceding procedure. (ii) A comprehensive regulation on cross-border conversions and cross-border divisions which shall involve very similar stages and reporting requirements as in cross- border mergers. (iii) Allow all stakeholders’ legitimate interests to be taken into account in the procedure governing a cross-border operation, including the rights of members who voted against the approval of the cross-border transaction to obtain adequate cash compensation. (iv) Create an adequate system of protection of the interests of creditors whose claims antedate the disclosure of the draft terms of the cross‐border transaction and have not fallen due at the time of such disclosure, especially when creditors are dissatisfied with the safeguards offered to them, such as guarantees or pledges.

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(v) Set forth the mechanism to ensure that employees’ rights to information and consultation are respected in relation to the relevant cross-border operations. (vi) An effective ex ante control system shall be implemented by the competent Spanish authorities to scrutinise the legality of cross-border transactions. In this regard, the relevant Spanish authorities shall issue a pre-conversion, pre-merger and/or pre- division certificate attesting to compliance with all relevant conditions and to the proper completion of all procedures and formalities in Spain. As a consequence of the adverse impact that the COVID-19 pandemic has had and will continue to have over the IBEX 35 and other Spanish stock-traded companies’ valuations, the Spanish government seems to have joined the United States, the European Union and initiatives of other economies controlling and protecting their “crown assets” indefinitely. The increase of foreign investment screenings in Spain, mostly aimed to prevent the adverse effects of volatility, Spanish stock-traded companies valuation and consequent undesired takeovers, will indubitably have an impact on the Spanish M&A market.

The year ahead In general, 2019 was a good year for the M&A market in Spain despite the slight decrease in the value of the transactions completed. As in previous years, investors continue to have a positive perception of Spain and see the potential of carrying M&A transactions involving Spanish entities. Political uncertainties in Spain during 2019 and foreign global policies curbed the M&A market which is entering into a new phase as M&A transactions are worldwide. The global economy is currently facing different threats which could eventually affect the Spanish market. 2020 is the transition year of Brexit; it is also an election year in the United States. Domestically, 2020 will see elections in the Basque Country and in Catalonia, both jointly with Madrid, which are powerful regions in the investment and M&A landscapes. The COVID-19 pandemic is sure to have an effect on the M&A market in Spain (and, of course, worldwide) during 2020 as its consequences are currently unforeseeable. Unlike the 2008 financial crisis, there is a much more optimistic view regarding the financial crisis that will most likely result from COVID-19 and hopefully it will only impact M&A transactions scheduled for Q1, Q2 and perhaps part of Q3. It is expected that in Q4 2020, the M&A market will begin to see some progress towards normality, hopefully returning fully to normal by Q1 2021. From an asset standpoint, sectors such as hospitality (hotels and restaurants), services and aviation – some of the most damaged due to global lockdowns and mobility restrictions of the worldwide population – may create restructurings and distress asset acquisition opportunities in the short term, particularly if the summer season is cancelled and the arrival of millions of tourists into Spain is prevented. All factors considered, the Spanish market is still seen by investors as one of the most attractive markets when considering the competitive pricing of the targets, the quality of the assets and the economic stability of recent years. Access to financing in 2020 will also remain in its prime, fostering favourable conditions for leveraged transactions. In line with the transactions analysed during 2019, it is expected that buyers and sellers in 2020 will remain focused in classic sectors such as renewable energy and health including pharma and industry, and in a still relevant but less active real estate sector (excluding hotels and resorts).

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2020 will therefore be a critical year in which Spain (and all relevant world economies) will face the consequences of the COVID-19 pandemic. Should the economic impact of the pandemic be addressed within a relatively short period, the M&A market will follow, adapt and rise. However, if Q1, Q2 and part of Q3 2020 are worse than just a “global pause” in the markets, the adverse impact and the drop in the number and value of M&A transactions in Europe, and in particular in Spain, may be of an unprecedented scale.

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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 / Email: [email protected] Ferran Escayola is a Corporate M&A and Private Equity partner based in Spain and co-chairs the firm’s US Desk. Until January 2016, he headed the firm’s office in New York. His practice focuses on Spanish M&A and PE, with particular emphasis on cross- border transactions with the US and LatAm and American investments in Spain. Ferran has a significant track record and experience with multijurisdictional acquisitions and foreign investments. He graduated from the Autonomous University of Barcelona where he completed the specialisation in European Community Law. Later, he obtained his LL.M. in International Economic Law in Washington, D.C. (with honours) and supplemented his studies by completing a postgraduate programme at Harvard Law School. In 2005, he worked as a foreign associate in the M&A department of Skadden, Arps, Slate, Meagher & Flom LLP in New York.

Rebeca Cayón Aguado Tel: +34 93 253 37 00 / Email: [email protected] Rebeca Cayón is a Corporate M&A and Private Equity associate. Her practice focuses on domestic and international M&A, private equity and venture capital. She graduated from the Comillas Pontifical University in Madrid where she earned her Spanish degree in Law and International Relations in 2012. Later, she obtained her LL.M. in International M&A and Corporate Law from the University of Virginia. In 2013, she worked as an associate in the Corporate Department of Von Wobeser and Sierra in Mexico City, and then continued her career as an associate in the Corporate M&A and Venture Capital department of an international law firm in Madrid until she joined the M&A and Private Equity department of Garrigues in 2017.

J&A Garrigues, S.L.P. Hermosilla, 3, 28001 Madrid, Spain Tel: +34 91 514 52 00 / URL: www.garrigues.com

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

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: no or very limited investment restrictions (a notable exception being the so-called Lex Koller; see below); vast flexibility of the parties in the asset or share purchase agreement (e.g. with regard to the R&W, indemnities, disclosure concept, cap, etc.); and low bureaucracy. Below, please find a brief overview of regulations which may be relevant. Public takeovers by way of cash or exchange offers (or a combination thereof) 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 fulfilment of the listing requirements. The Federal Takeover Board (TOB) and the Swiss Financial Market Supervisory Authority (FINMA) are responsible for ensuring the compliance of market participants with the Swiss takeover regime. Decisions of the TOB may be challenged before the FINMA and, finally, the Swiss Federal Administrative Court. If a transaction exceeds a certain turnover threshold (turnover thresholds 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 must also be considered. Any planned combination of businesses must be notified to the Competition Commission (ComCo) before closing of the transaction in case (a) certain thresholds regarding the involved parties’ turnovers are met, or (b) 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, finally, before the Swiss Supreme Court. Further, foreign buyers (i.e., foreigners, foreign corporations or Swiss corporations controlled by foreigners) must consider the Federal Law on Acquisition of Real Estate in Switzerland by Non-Residents (the so-called Lex Koller). They must 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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In November 2019, Switzerland implemented legislation with regard to the legal and beneficial ownership of Swiss legal entities, following the recommendations of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes as well as the Financial Action Task Force (FATF). Bearer shares of stock corporations have essentially been abolished for most private companies. On 1 January 2020, two new acts entered into force: the Financial Services Act (FinSA); and the Financial Institutions Act. Although primarily addressing the financial services industry, the FinSA in particular could become relevant in the context of (public) M&A transactions. The FinSA contains rules regarding the duty to publish an issuance prospectus in case of a public offering of securities. It sets out the required content of prospectuses, bringing the requirements in line with international standards and those already applied by SIX Swiss Exchange for listing prospectuses, and replacing the outdated rules of the Swiss Code of Obligations which only required very limited disclosure. Overview of M&A activity in 2019 After all-time record deal volumes in 2018, deal activity in Switzerland has remained high. In 2019, 402 recorded transactions involved Swiss corporations (2018: 493) and the total transaction volume has only slightly decreased compared to 2018 (around four to five per cent). The number of outbound deals was approximately twice as high as the number of inbound deals. The most attractive sectors were the industry sector as well as the pharmaceuticals & life sciences sector. Private equity firms again were very active in Switzerland and took part in almost half of the 50 biggest transactions in 2019 (according to the KPMG M&A Report 2019 for Switzerland). Swiss private equity firms continued to expand their presence, both in Switzerland and abroad.

Significant deals and highlights The most significant deals of the year were the acquisition of Nestlé Skin Health bya consortium led by Sweden-based private equity investor EQT and the Abu Dhabi Investment Authority for a total purchase price of approximately CHF 10.2 billion, and the public exchange offer by DSV A/S for all publicly held registered shares of Panalpina Welttransport (Holding) AG for approximately CHF 4.6 billion. Seven IPOs took place in Switzerland in 2019. The biggest IPO was the listing on the SIX Swiss Exchange of Alcon AG, a spin-off of the eye care division of Novartis, with a market capitalisation of CHF 28.369 billion. These transactions are prime examples of the attractiveness of Swiss companies for foreign investors.

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, trade disputes between the US and China, etc.). The following key factors can be identified for this positive trend. First, interest rates continue to stay low and the borrowing conditions remain generous, which promotes fundraising and puts pressure on investors to invest. Private equity investors, who tend to be highly leveraged, are benefiting from this environment in particular. Second, 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.

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Third, Swiss companies continue to transform and reshape their portfolios through M&A transactions (e.g. by strengthening digital capabilities or focusing on the core business). Finally, in the field of public M&A, private equity clients appear more frequently as possible bidders in take-private transactions. Another trend is shareholder activists who continue to engage more broadly in Swiss targets (e.g. Cevian with Panalpina prior to the take- private by DSV A/S). A number of campaigns launched in 2018 are still running. Another continuing trend is anchor shareholders in listed companies.

Industry sector focus In Switzerland, various sectors (healthcare, technology, media, pharma) are facing a consolidation wave, which increases M&A activity. Industry consolidation in particular concerns the healthcare sector, where we see a high level of M&A activity including private equity investors having dedicated healthcare desks for such investments. Tech targets such as payment systems and internet platforms continue to be in high demand.

The year ahead In general, the key drivers which led to high M&A activity in 2018 and 2019 continued to be relevant in 2020 at the beginning of the year. However, the impact of the COVID-19 pandemic has altered the general economic outlook. It remains to be seen how far the COVID-19 pandemic will slow down M&A activity and – more importantly – for how long. A lot will depend on the duration of the governmental lockdown of businesses, as well as the ability of companies to rebound their revenues up to pre-crisis levels once their businesses reopen.

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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 fights, 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, financial services, retail, transportation and industrials.

Dr. Christoph Neeracher Tel: +41 58 261 50 00 / Email: [email protected] Christoph Neeracher specialises in international and domestic M&A transactions (focusing on private M&A and private equity transactions, including secondary buyouts, public-to-private transactions and distressed equity), transaction finance, venture capital, start-ups, corporate restructurings, relocations, corporate law, general contract matters (e.g. joint ventures, partnerships and shareholders agreements) and all directly related areas such as employment matters for key employees (e.g. employee participation and incentive agreements). He is experienced in a broad range of national and international transactions both sell and buy side (including corporate auction processes) and the assistance of clients in their ongoing corporate and commercial activities. Additionally, Christoph Neeracher represents clients in litigation proceedings relating to his specialisation.

Bär & Karrer AG Brandschenkestrasse 90, CH-8002 Zurich, Switzerland Tel: +41 58 261 50 00 / Fax: +41 58 261 50 01 / URL: www.baerkarrer.ch

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James Huang & Eddie Hsiung Lee and Li, Attorneys-at-Law

Overview The main laws and regulations governing M&A activity in Taiwan are the M&A Act, the Company Act, the Securities and Exchange Act and the Fair Trade Act. In addition, under the Securities and Exchange Act, a set of tender offer rules are prescribed to govern tender offers for acquiring shares of public companies. Other laws and regulations may also be relevant, such as the Labor Standards Act, regulations governing foreign investments and investments from the People’s Republic of China (PRC), and tax laws and regulations. The main regulatory body in charge of public M&A transactions is the Securities Futures Bureau (SFB) of the Financial Supervisory Commission (FSC), which is the government agency responsible for public companies. Other relevant regulatory bodies include the Taiwan Fair Trade Commission (TFTC), the authority in charge of antitrust clearance, and the Investment Commission (IC), the authority in charge of reviewing foreign and PRC investments. If the target holds any special licence, the authority in charge of that special licence may also need to review the transaction. Statistics show that there were fewer M&A transactions in 2019 than in 2018 and the total value of the transactions decreased by around $6.65 billion. According to Bloomberg’s M&A Legal League Table Rankings, the total value of announced deals in 2018 was around $18.86 billion with a deal count of 231, while the total value of announced transactions in 2019 was around $12.21 billion with a deal count of 197. Both private and public M&A transactions drive the M&A market in Taiwan. While there were a few notable public M&A transactions in 2018 and 2019, there were several private M&A transactions in the market as well. For example, there were several acquisitions in the energy sector partly due to local trends in the development of offshore wind farms, and smaller M&A deals for emerging technology companies. There may have been fewer investments by PRC/PRC-invested companies in Taiwanese companies through M&A due to the change in political climate and the sensitive cross-strait situation.

Significant deals and highlights Compared to 2018, 2019 was a relatively modest year for M&A in Taiwan. However, there were some significant transactions in different sectors, including hostile takeovers and transactions in the energy sector. There were two notable hostile M&A transactions in 2019. One was WPG Holdings’ (WPG) investment in up to 30% of the shares of WT Microelectronics via a tender offer, valued at $270 million (NT$45.8 per share). WPG and WT Microelectronics are the leading semiconductor distributors in the Asia-Pacific region. WPG’s investment in

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WT Microelectronics’ shares attracted the public’s attention, not only because it was one of the highest-profile deals in 2019 due to both WPG’s and WT Microelectronics’ listing on the Taiwan Stock Exchange (TWSE) and the large number of shareholders, but also because WT Microelectronics protested strongly against WPG’s hostile move by claiming that the proposed acquisition required the filing of a combination notification with the TFTC. This transaction led to a heated discussion on whether WPG should submit a combination notification to the TFTC and obtain a clearance prior tothe completion of the tender offer. Finally, the TFTC announced that this transaction did not require the filing of a combination notification. Another notable deal was Hitachi’s acquisition of the shares in Yungtay Engineering, an elevator and escalator manufacturer listed on the TWSE. Hitachi, a Tokyo Stock Exchange- listed Japanese company, launched a tender offer through its Taiwanese SPV to acquire all of Yungtay’s outstanding shares. During the process, the independent director raised concerns regarding the acquisition, challenging, among other things, the fairness of the price and the fiduciary duty of the incumbent directors. The independent director called an extraordinary general meeting (EGM) to re-elect the incumbent directors, after which Hitachi applied for, but failed to obtain, a preliminary injunction to prohibit the convention of the EGM. Upon completion of the acquisition, Hitachi Group holds approximately 39.7% of the outstanding shares of Yungtay, valued at around $248 million (NT$65 per share). While Hitachi did not obtain a majority stake, Hitachi became the largest shareholder of Yungtay after the acquisition. Yungtay remains listed on the TWSE since the acquisition.

Key developments The 2016 amended M&A Act offers more flexibility in terms of the types of consideration that an acquirer is permitted to offer in statutory M&A transactions, such as a share exchange. It also reinstates the possibility of structuring a triangular merger under the Taiwanese legal system. Since the amendment, we have seen a series of M&A transactions that adopted the new cash-out share exchange structure in order to achieve the acquisition of 100% equity interest. In 2019, the slowing down of major transactions appeared to reflect public calls for more stringent disclosure and voting requirements for cash-out deals and delistings. In November 2018, the Justices of the Constitutional Court granted a minority shareholder in a cash-out merger in 2007 an appraisal right in Interpretation No. 770, on the basis that the then effective M&A Act failed to afford sufficient protection and was therefore unconstitutional. The Justices of the Constitutional Court further opined that the current M&A Act (in effect since 2016) is also flawed in terms of shareholder protection, including with regard to disclosure requirements. Public comment on this Constitutional Court interpretation is that the validity of the current M&A Act is not immediately affected. On the other hand, the competent authority is expected to amend the current M&A Act in response to the Constitutional Court’s concerns, including potentially raising the EGM voting threshold for delisting, thereby affording minority shareholders more protection. Since the latest amendments to the Company Act took effect in November 2018, shareholders holding over 50% of shares are now permitted to call a shareholders’ meeting, without relying on the board to call such meeting. This allows insurgent shareholders to replace the incumbent board as soon as the insurgent shareholders acquire a majority stake. This is worth noting for hostile takeovers.

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The government has also proposed to amend the Statute for Investment by Foreign Nationals, which governs foreign investments, by replacing the current prior approval system with a post-closing notification system for deals under a certain size. The proposed amendment also aims to shorten the foreign investment review process. By and large, the proposed amendment is expected to be friendlier to cross-border M&A deals; however, there is no definitive timeline for the legislative process.

Industry sector focus A recent trend is the emergence of activity in the renewable energy sector, which parallels the Taiwanese government’s policy to promote green energy. One of the most recent transactions saw Macquarie Group Limited and Swancor Renewable Energy, two of the three shareholders of the Taiwanese offshore wind farm Formosa I, enter into definitive agreements to sell 25% and 7.5% of the equity interests in Formosa I, respectively, to JERA, a joint venture between two large Japanese utility companies, Tokyo Electric Power Company and Chubu Electric Power. JERA will acquire a total stake of 32.5% in Formosa I to become its second-largest shareholder. It is expected that more shareholders of offshore wind farm projects in Taiwan will plan to release parts of their equity interest. In addition to several major exits by the investors of offshore wind project companies in 2019, there were also various acquisition projects involving large- and small-scale solar energy plants. In line with government policy and global trends, as well as a local movement pushing for disinvestment in nuclear energy, we expect that M&A will continue to thrive in the renewable energy sector.

The year ahead From a legal and policy perspective, considering the current government’s attitude towards PRC investment, and due to the sensitivity of the cross-strait relationship, we do not expect major transactions this year involving PRC funding to take place in Taiwan. However, it is anticipated that there will be more inquiries regarding so-called “variable interest entity (VIE) structures” or other alternative structures to achieve collaboration between PRC investors and Taiwan companies. We also expect that the outbreak of the COVID-19 pandemic will disrupt M&A activity in Taiwan. For example, some investors might become more conservative towards the economic outlook and therefore halt transactions. It is also expected that there might be more disputes arising due to the pandemic, especially regarding the interpretation of the force majeure clause in transaction documents.

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James Huang Tel: +886 2 2763 8000 ext. 2157 / Email: [email protected] Mr James Huang is a partner in the banking and capital market department of Lee and Li, with principal practice areas in banking, capital markets and M&A. Mr Huang has represented clients in various high-profile M&A transactions. He also advises local and international banks, securities firms, insurance companies, financial holding companies and other financial institutions on drafting and review of relevant transaction documents, regulatory compliance issues and applications and permits for relevant business. He also has extensive experience in syndicated loans, acquisition finance, project finance, mortgaged loan securitisation, and disposals of non- performing loans by financial institutions.

Eddie Hsiung Tel: +886 2 2763 8000 ext. 2162 / Email: [email protected] Mr Eddie Hsiung is licensed to practise law in Taiwan and New York, and is also a CPA in Washington State, U.S.A. His practice focuses on M&A, securities, banking, finance, asset and fund management, cross-border investments, general corporate and commercial, etc. Mr Hsiung has participated in many private and public corporate transactions (such as M&A, JVs, group restructuring) spanning a broad range of industries (such as tech, manufacturing, media, cable, private equity, financial, biotech, logistics, gaming, tourism). Matters he recently handled include the privatisation/delisting of TPEx-listed HH Leasing & Financial Corporation, Google’s acquisition of HTC, NXP’s sale of Standard Products business, Japanese DyDo DRINCO’s investment in TPEx-listed TCI, the restructuring of J.P. Morgan Asset Management, and the M&A between MediaTek and MStar.

Lee and Li, Attorneys-at-Law 8th floor, No. 555, Section 4, Zhongxiao East Road, Taipei 11072, Taiwan, R.O.C. Tel: +886 2 2763 8000 / URL: www.leeandli.com

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Michal Berkner, Claire Keast-Butler & James Foster Cooley (UK) LLP

Overview Setting the scene Public M&A in the UK is, unsurprisingly, subject to considerably more law and regulation than private M&A, where the parties have greater flexibility as regards the terms and implementation of an acquisition. As such, this chapter focuses primarily on some of the notable features of the UK’s public M&A framework, albeit that relevant competition and tax matters are of general application. Certain features of, and trends emerging from, private M&A acquisition agreements are also noted. Key features of the public M&A framework Generally speaking, takeovers of public companies registered in the UK that are traded on a regulated market or multilateral trading facility in the UK, and other public companies that are deemed to be resident in the UK, are governed by the City Code on Takeovers and Mergers (the “Takeover Code”). In certain circumstances, the Takeover Code also applies to transactions involving private and dual-listed companies. Developed continually since 1968, the Takeover Code comprises general principles and detailed rules (with accompanying notes) that govern the takeover process, including the timetable of events, the information that must be made available to the target’s shareholders (and other stakeholders), and the conduct of offerors and targets, both during the offer period and following a successful acquisition. A fundamental principle of the Takeover Code is the fair and equal treatment of the target’s shareholders (among holders of the same class of shares), including with respect to the information they are given and the price they are offered. This places important restrictions on what offerors can and cannot do, not least by prohibiting offerors from making “special deals” with selected shareholders. The administration and enforcement of the Takeover Code is the responsibility of the Panel on Takeovers and Mergers (the “Takeover Panel”), which acts on a statutory basis as the government’s regulator of takeovers. Representatives of the Takeover Panel (members of the Panel Executive) play an active role in the takeover process, every new transaction being assigned a case officer who maintains frequent dialogue with the parties’ advisers throughout the takeover process. As a result of the complexities of takeover transactions, the Takeover Panel is frequently required to adjudicate on the application of the rules to novel circumstances and to provide formal rulings, a process that may result in the Takeover Code being updated to clarify or expand the rules for future takeovers. The Takeover Code is also amended (following public consultation) to ensure that it reflects current practice in important areas.

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Under the Companies Act 2006 (the “Companies Act”), the core companies legislation in the UK, the Takeover Panel has the power to apply to the courts to enforce the rules of the Takeover Code, including to compel the provision of information and the payment of compensation. Despite having these powers since 2009, the Takeover Panel has continued to rely on private and public censure as its primary (and highly effective) means of sanction. A court case that concluded in February 2018 was the first in which the Takeover Panel exercised its statutory enforcement powers. The UK’s general public M&A (takeover) framework applies equally to offers made by domestic and foreign offerors, although certain transactions, including those in the airline, energy, and financial services industries, are subject to rules that apply to foreign offerors specifically. A notable feature of the UK takeover regime is the “put up or shut up” rule, which requires that, within 28 days of an offeror’s intentions becoming public (either following an approach to the target’s board or due to market rumours), it must either make a formal offer for the target (“put up”) or announce that it does not intend to make an offer (“shut up”), in which case it is generally prohibited from making an offer for the target for six months. It is also worth noting that break fees are generally prohibited due to concerns that such deal protection measures can deter potential bidders from making competing offers. The Takeover Code also requires that, if any shareholder (including persons “acting in concert” with it) acquires shares carrying 30% or more of the voting rights of a company that is subject to the Takeover Code, or if a shareholder (again including concert parties) increases its holding of between 30% and 50% of the voting rights in such a company, it is required to make a mandatory offer (with a minimum acceptance threshold of 50%). Such offer must be made in cash (or include a cash alternative) at the highest price paid by the shareholder or any concert party for any interest in shares of the relevant class during the 12 months prior to the announcement of the offer. The mandatory offer rule can be disapplied by a vote of the other shareholders (with the approval of the Takeover Panel) under what is known as the “whitewash procedure”. Takeover-related litigation in the UK is rare. The primary source of potential liability is the information provided to the target’s shareholders, for which the offeror and its directors can be held liable in the event of any misrepresentation. Principal legislation Alongside the Takeover Code and contract law, the principal legislation that governs public and private M&A and the bodies responsible for their administration and enforcement are: • the Companies Act, which is subject to the jurisdiction of the courts. In particular, it governs the “squeeze-out” procedure relevant to contractual offers and, separately, the procedure for schemes of arrangement (see below); • the Financial Services and Markets Act 2000 (“FSMA”), under which the Financial Conduct Authority (“FCA”) regulates issuers and financial markets. Takeovers of companies whose shares are admitted to trading on a relevant stock exchange are subject to obligations under the FCA Handbook; • the Prospectus Regulation EU No. 2017/1129 which contains the rules that govern offers of shares to the public (relevant when shares are offered as consideration for the target’s shares), together with certain provisions of the FSMA and the FCA Handbook; • the Market Abuse Regulation EU No. 596/2014 (“MAR”), enforced by the FCA, and the Criminal Justice Act 1993, subject to the jurisdiction of the courts, governing (alongside other legislation and guidance) insider dealing and market abuse; • the Enterprise Act 2002 (the “Enterprise Act”) under which the Competition and Markets Authority (“CMA”) acts as the UK merger control authority;

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• the EU Merger Regulation (“EUMR”), overseen by the European Commission (“EC”), which provides a “one-stop-shop” for mergers with an “EU dimension”. At present, transactions which fall within scope of the EUMR will not be subject to separate merger review in the UK, unless public interest issues such as media plurality or national security arise; and • the Companies (Cross-Border Mergers) Regulations 2007, overseen by the EC, which provide for specific types of cross-border mergers (primarily used for reorganisations and very rarely for takeovers). Contractual Offers and Schemes Offers for public companies in the UK are conducted as either an offer (aContractual “ Offer”) or a scheme of arrangement (a “Scheme”), with many of the most important features of the UK takeover regime stemming from the differences between them. The Takeover Code applies to both. So-called because the offer document circulated by the offeror to the target’s shareholders becomes a contract with those who accept its terms, a Contractual Offer to acquire all (or, in rare cases, some only) of the shares in the target will include a threshold above which the offeror will be obliged to acquire the shares in respect of which the offer has been accepted. A Contractual Offer can become effective at a (minimum permitted) acceptance threshold of 50% plus one share. However, in most cases, the offeror will set the acceptance threshold at 90% so that it qualifies to use a legal right to “squeeze-out” any remaining shareholders using a compulsory acquisition procedure under the Companies Act. If the offeror does not receive acceptances in respect of the minimum number of shares before the relevant deadline, the offer will lapse. Unsuccessful offerors are usually prohibited from preparing or making (or indicating any intention to make) another offer for the target for a 12-month period. A Scheme is a distinct legal process that is supervised and sanctioned by the courts. In general terms, for an offer conducted as a Scheme to be successful, it must be approved at a court-ordered meeting by a majority in number of the shareholders (voting in person or by proxy) of each class of the target shares, who must also represent at least 75% in value of the shares of each class that are voted, as well as the sanction of the court. Crucially, the outcome of this shareholder vote results in the offeror acquiring either all or none of the target’s shares. Unlike a Contractual Offer, where the offer document is prepared by the offeror, the target is responsible for the documents required to implement a Scheme (principally the scheme circular issued to its shareholders) and the associated court process. Because they have the potential to secure full control of a target without a further legal process, Schemes have long been the most common means of effecting a takeover offer. In 2019, 47 of 66 firm offers announced for companies on the London Stock Exchange’s Main Market or AIM were by way of a Scheme (compared with 31 of 42 in 2018). For both Contractual Offers and Schemes, the price payable for the shares may be settled in the form of cash, securities, or a combination of both, subject to the Takeover Code, which may require an offeror to provide a cash alternative. In 2019, of 66 firm offers, 52 were cash only offers, 10 were share only offers, and the remaining four were mixed consideration offers. The timetable for either type of takeover transaction will be dictated by customary factors, such as any competition or regulatory clearances, but as a general rule, a Contractual Offer can usually be concluded within a 10-week period, whereas a Scheme will take a few weeks longer, usually as a result of the court process.

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M&A considerations for listed companies Listing Rules requirements for premium listed companies Companies that have a premium listing on the FCA’s Official Listpremium (“ listed companies”) have to comply with the provisions of the FCA’s Listing Rules (the “Listing Rules”) relating to class 2 transactions, class 1 transactions, reverse takeovers and related party transactions. A premium listed company will need to assess any M&A transaction for the purposes of Chapter 10 of the Listing Rules and, if the transaction is with a related party, Chapter 11 of the Listing Rules. Transactions are classified by reference to the outcome of four class tests which each give a percentage ratio by dividing: (i) the gross assets of the subject of the transaction by the gross assets of the premium listed company; (ii) the profits attributable to the assets of the subject of the transaction by the profits of the premium listed company; (iii) the consideration for the transaction by the market capitalisation of the premium listed company; and (iv) for an acquisition, the gross capital of the company or business being acquired by the gross capital of the premium listed company. Connected transactions completed in the preceding 12 months must be aggregated for these purposes. • Class 2 transactions – Where the transaction involves a sale or acquisition of a company or assets amounting to 5% or more on any of the class tests, but less than 25% on each of the class tests, it will be a class 2 transaction and the premium listed company will be required to announce the key terms of the transaction as soon as possible once agreed, including certain prescribed disclosures. • Class 1 transactions – Where the transaction involves a sale or acquisition of a company or assets amounting to 25% or more on any of the class tests, it will be a class 1 transaction and the same announcement obligations will apply as for a class 2 transaction. In addition, the premium listed company may only enter into the transaction with shareholder approval and must produce a circular setting out details of the transaction (a class 1 circular) which is reviewed and approved by the FCA and which sets out certain prescribed information. This includes, among other things, historic financial information on the target (in the case of an acquisition) presented in a form that is consistent with the premium listed company’s own accounting policies which can involve significant work. • Reverse takeovers – Where any of the class tests is 100% or more, or in substance results in a fundamental change in the business or a change in board or voting control of the premium listed company, the transaction will be a reverse takeover. The same rules as for a class 1 transaction apply to a reverse takeover, and in addition, the premium listed company’s listing will usually be cancelled on completion and it will be required to apply for re-admission of the enlarged group. • Related party transactions – A related party is, broadly, a current or former (last 12 months) shareholder of 10% or more in the premium listed company or any of its subsidiaries, a current or former (last 12 months) director of the premium listed company or any of its subsidiaries, a person exercising significant influence over the premium listed company or an “associate” of any of them. A transaction with a related party, co- investment with a related party or other similar transaction or arrangement, the purpose and effect of which is to benefit a related party, which amounts to 5% or more on any of the class tests, will be a related party transaction requiring announcement as for a class 2 transaction and shareholder approval (with the related party and its associates not being able to vote on the relevant resolution). The related party circular will need to be reviewed and approved by the FCA and set out certain prescribed information. In the case of a “smaller” related party transaction, where each of the class tests is less than 5%, but one or more of the class tests exceeds 0.25%, the premium listed company is

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required to make an announcement and obtain written confirmation from an investment bank acting as sponsor that the terms of the transaction are fair and reasonable so far as shareholders of the premium listed company are concerned. AIM Rules for Companies The AIM Rules for Companies published by the London Stock Exchange (“AIM Rules”) contain similar class tests to those that apply to premium listed companies under the Listing Rules, also including a turnover test. Shareholder approval is only required under the AIM Rules for a reverse takeover (which also requires publication of an admission document in respect of the proposed enlarged group and re-admission of the enlarged group to AIM on completion) and a disposal resulting in a fundamental change of business, being a disposal which, when aggregated with any other disposals over the previous 12 months, exceeds 75% in any of the class tests. Substantial transactions that exceed 10% in any of the class tests require an announcement with certain prescribed details. Transactions with related parties (with the test for a related party being similar, but not identical, to that under the Listing Rules) which exceed 5% in any of the class tests require announcement with certain prescribed details, including a statement that the independent directors consider, having consulted with the company’s nominated adviser, that the terms of the transaction are fair and reasonable insofar as its shareholders are concerned. Disclosure obligations – MAR UK listed and publicly traded companies undertaking M&A will need to be mindful of their obligations under MAR. Companies have an obligation to disclose “inside information”, being non-public information which is precise and price-sensitive, as soon as possible. Companies are able to delay disclosure where it would be likely to prejudice their legitimate interests (with M&A negotiations being covered by this legitimate interest exception), subject to the caveats that this is not likely to mislead the public and that confidentiality of the information can be maintained. If, however, there is press speculation or market rumour relating to the M&A transaction, an immediate announcement may be required. Insider lists need to be established and internal records maintained in order to comply with MAR. Key features of the UK merger control regime Filing in the UK is voluntary, which means that even if a transaction falls within the scope of the UK jurisdictional rules, there is no obligation on the merging parties to notify the CMA – it is up to the merging parties to decide whether or not to do so. However, the CMA actively monitors the market for transactions through its merger intelligence function. Therefore, if a transaction meets the UK jurisdictional thresholds and the parties do not notify, there is a risk that the merger could be “called in” for review by the CMA at any point up to four months from the date of completion of the transaction or four months from the date on which “material facts” about the merger have entered the public domain (whichever is the later). This is likely to involve the imposition of a “hold separate” order for the duration of the CMA’s investigation and could potentially result in the merger being unwound by the CMA at the end of its investigation. The CMA has jurisdiction to review a transaction if it amounts to a “relevant merger situation”. This will arise where the following conditions are satisfied: • two or more enterprises have “ceased to be distinct”. Enterprises may cease to be distinct through coming under common ownership (acquisition of an enterprise) or common control (de jure or legal control resulting from the acquisition of a controlling interest), through the acquisition of de facto control of commercial policy, or through the acquisition of material influence, meaning the ability to make or influence commercial policy (see further explanation below); and

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• the merger creates or enhances a share of supply of 25% or more of specific goods or services in the UK or in a substantial part of it (the “share of supply test”). It should be noted that this is not a market share test and the CMA has a wide discretion in describing the relevant goods or services; or • the UK turnover of the target exceeded £70 million in the previous financial year (the “turnover test”).

Enterprises “cease to be distinct” “Control” is not limited to the acquisition of outright voting control. Three levels of control are distinguished (in ascending order): 1. “material influence” – the lowest level of control that may give rise to a “relevant merger situation”, it covers the acquirer’s ability to materially influence the commercial policy of the target such as the management of its business. Assessment of material influence requires a case-by-case analysis, but it may be achieved through a minority shareholding in the target, board representation and/or through other sources of influence such as agreements with the target or financial arrangements. For example, in the recent Amazon/Deliveroo transaction, the CMA asserted jurisdiction to review the transaction on the grounds that the acquisition by Amazon of a minority shareholding in Deliveroo, together with certain other rights (including board representation), gave Amazon “material influence” over Deliveroo’s affairs; 2. “de facto” control – this refers to the situation where the acquirer effectively controls the target’s policy, without having an actual controlling interest. It includes situations where the acquirer has, in practice, control over more than half of the votes actually cast at a shareholder meeting; and 3. “de jure” control – a controlling interest, which generally means a shareholding conferring more than 50% of the voting rights in the target. A change from material influence tode facto control or de jure control, or from de facto control to de jure control, can constitute a new relevant merger situation.

Other notable features of the UK merger control regime include the following: • the CMA cannot investigate a merger if more than four months have elapsed since closing, unless closing has not been made public (in which case, the four-month period starts from when it is made public); • if parties choose to notify a merger, they must do so using the formal merger notice, which requires a large amount of information. Filing fees of between £40,000 and £160,000 apply, depending on the turnover of the target business; • the CMA expects parties to engage in pre-notification to discuss the draft merger notice. Pre-notification discussions tend to take four to five weeks on average but have been known to take as long as five months in more complex cases; • once the draft merger notice is deemed complete by the CMA and formally submitted, the CMA has a statutory period of 40 working days to either: (i) clear the transaction unconditionally; or (ii) decide that it is under a “duty to refer” the merger for a more in-depth Phase II investigation. Where the CMA determines that it is under a “duty to refer”, it may accept “undertakings in lieu” of reference (“UIL”) from the parties to remedy the identified concerns. If no UILs are offered by the parties or the CMA is unwilling to accept the UILs proposed by the parties, the CMA will open a Phase II investigation, the duration of which is 24 weeks which can be extended by up to eight weeks in special circumstances; and

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• the CMA may (and, as a matter of practice, routinely does so where a merger has already been completed) impose an initial enforcement order (“IEO”) to prevent the merging parties from integrating during the CMA’s investigation.

CMA blocks airline booking merger On 9 April 2020, the CMA blocked Sabre’s proposed $360 million acquisition of Farelogix, two of the largest US providers of software solutions to help airline companies sell flights via travel agents. Following an in-depth Phase II investigation, the CMA found that Sabre’s purchase of Farelogix could result in less innovation in the airline ticketing industry and increased prices for certain products. The CMA also found that Farelogix had developed technology to enable airlines to offer more choice to passengers who purchased tickets through travel agents, for example, by booking specific meals. Sabre was investing in developing similar technology; however, the CMA concluded that Sabre would be unlikely to continue such investment if it purchased Farelogix. As a result, airlines, and ultimately their passengers, would lose out from both this lack of innovation and the insufficient competition between the remaining companies in the market. The decision has caused considerable consternation in the US, not least since it came two days after a US District Court of Delaware cleared the deal. On 21 May 2020, Sabre filed an application to the UK’s Competition Appeal Tribunal for a review of the CMA’s decision on the grounds that the decision was “unlawful”: (i) in asserting jurisdiction over the transaction; and/or (ii) in respect of its substantive findings.

On 11 June 2018, lower UK merger control thresholds were introduced for transactions involving companies active in certain sectors related to national security. Under these new rules, the government is able to intervene in mergers on grounds of national security where the target: • is active in the development or production of items for military or dual military and civilian use or has interests in advanced technology (defined as intellectual property relating to the operation of computer processing units or involvement in quantum technology); and • has a turnover of £1 million in the UK; or • has a share of supply of at least 25% in one of the specified affected sectors in the UK (even if the share of supply or acquisition does not increase as a result of the merger). Proposed new regime for acquisitions that have national security implications On 24 July 2018, the UK government published a White Paper and a draft Statutory Statement of Policy Intent setting out a proposed “longer-term” reform of the national security regime. The proposals build on a green paper published in October 2017 and proposed a significant increase in the government’s powers to scrutinise investments on national security grounds, including through the creation of an entirely new regime for reviewing transactions that would extend to all sectors of the economy and apply to a much wider range of transactions. There are a number of similarities with the CFIUS regime in the United States. Under the 2018 proposals, the government must have a “reasonable suspicion” that a transaction may pose a risk to national security before it can launch an investigation. Unlike the current regime, there would be no need for the transaction to reach a particular turnover or share of supply threshold. There would be no mandatory filing requirement, although parties are encouraged to make voluntary notifications to the government if they believe a transaction might raise national security concerns.

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Whereas typically only one transaction a year has been subject to a national security review under the current regime, the 2018 proposals anticipated that around 200 notifications would be made each year under the proposed regime, of which 100 are likely to raise national security concerns and 50 would require remedies. By way of comparison, since 2002, the government has intervened in a total of 12 transactions on national security grounds. The government has made repeated commitments to legislate for implementation of the 2018 proposed reforms, most recently in the December 2019 Queen’s Speech, where the government set out the framework of a new National Security and Investment Bill and underlined its intention to upgrade its “existing powers to scrutinize investments and consider the risks that can arise from hostile parties acquiring ownership of, or control over, businesses or other entities and assets that have national security implications”. On 1 June 2020, the UK Parliament launched a consultation on the role of the Foreign Office in guiding the government’s decisions in relation to the foreign takeover of UK companies where national security risks may be involved. At the time of writing, it appears the UK government is considering making it mandatory for British companies to report attempted foreign takeovers that could lead to security risks. Such a duty would be backed by criminal sanctions. This goes significantly further than the 2018 proposals, under which companies would have been expected to make voluntary notifications. Key features of the tax regime Stamp duty at 0.5% will generally be payable on the purchase of shares in a UK company. This is typically borne by the purchaser – although, on international transactions, influenced by US market practice, the cost is now occasionally split with the sellers. The stamp duty treatment of earn-outs can be complicated and lead to surprising results. UK corporate sellers will often qualify for the “substantial shareholdings exemption” from tax on chargeable gains. The basic requirements are that a 10% stake in a trading group has been held for at least 12 months (although it can also apply where assets used in a trade for 12 months are hived into a new subsidiary, prior to disposal). Some of the requirements for this exemption were relaxed in 2017. Where this exemption is not available (for example, for individuals), “rollover” treatment may be available to defer gains, where consideration is provided in the form of shares or loan notes in the purchaser entity. Where this treatment is intended, a tax clearance is sometimes sought, which generally takes up to 30 days to obtain. Management sellers can qualify for a reduced rate of capital gains tax (originally called “entrepreneurs’ relief”, but now renamed as “business asset disposal relief”), although the conditions and financial limits for this have recently been tightened, which has had an impact particularly on private equity transactions. Going forwards, another, new, reduced rate of capital gains tax called “investors’ relief” will become increasingly important. This can apply broadly where an individual (who is not an officer or an employee) has held shares in an unquoted trading company for at least three years. In private M&A transactions, purchasers typically expect a relatively high level of protection in respect of unexpected historic tax liabilities in the purchased group. This is often provided through a “tax covenant” from the seller. It is increasingly common for claims under the tax covenant to be covered by warranty and indemnity insurance. Although the range of tax risks which can be insured continues to expand, certain types of exposure remain difficult to cover through insurance. A recent innovation, offered by a number of insurers, is for a “synthetic tax covenant” to be entered into directly between the insurer and the purchaser.

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Significant deals and highlights

At a glance • Excluding the £30 billion Comcast–Sky acquisition, there was a £5 billion increase in the value of inward transactions between 2018 and 2019. • Inward M&A in 2019 was supported by 12 high-value deals (between £1 billion and £10 billion), compared to six in 2018. • Outward M&A fell from £23.8 billion in 2018 to £20.9 billion in 2019. • Domestic M&A also decreased dramatically, from £27.7 billion in 2018 to £8.7 billion in 2019.

Public and private deal flows in 2019 On 3 March 2020, the UK’s Office for National Statistics ONS(“ ”) published its latest data on completed UK public and private acquisitions (in which one company acquires more than 50% of the shares or voting rights in another with a value of £1 million or more). On the basis measured by the ONS, total inward M&A for 2019 was £53.8 billion, significantly less than the £78.8 billion of 2018. However, removing the impact of the £30 billion Comcast– Sky deal in 2018 reveals an increase of £5 billion. The underlying data reveal that, although activity in 2018 was higher than in 2019, the overall trend in 2019 was an increase in deal volume and a reduction in deal value. It is worth noting, however, that although the overall trend in 2019 was for lower deal values, there were more transactions in 2019 with values between £1 billion and £10 billion compared with 2018. The overall values for 2018 were skewed by a small number of “mega deals” worth over £10 billion, including Comcast’s £30 billion acquisition of Sky in October 2018. Strong inward flows continued to be driven by generally favourable economic conditions and a buoyant global M&A market. Some deal activity may also have resulted from the increasing attractiveness of UK targets due to continued weakness in the pound following the Brexit referendum in June 2016. 2019 saw a dramatic reduction in the aggregate value of domestic transactions; UK-to-UK deals totalled £8.7 billion, a decrease of £19 billion against 2018. The 2019 domestic figure is comparable to the levels recorded between 2009 and 2015, where the average annual domestic M&A total was £8.4 billion. Looking at the underlying deals for 2019 compared to 2018, there were fewer high-value domestic deals, with only one deal between £1 billion and £10 billion in 2019, compared to four in 2018. There was also a lower number of domestic deals overall: 817 in 2019 compared with 960 in 2018. The value of outward M&A fell from £23.8 billion in 2018 to £20.9 billion in 2019. The fall in 2018 and 2019 figures from £77.5 billion in 2017 can be attributed to the fact that there were no very high-value domestic deals (above £10 billion) in either year, unlike 2017 in which deals included Reckitt Benckiser’s acquisition of Mead Johnson for £12 billion and British American Tobacco’s acquisition of the 58% of Reynolds American that it did not already own for $49.9 billion. Public M&A – Main Market and AIM There were 66 takeover offers in 2019, of which 13 valued the target at more than £1 billion. This compares with 42 offers in 2018, with 17 crossing the £1 billion mark. Public M&A was characterised by a higher volume of lower-value deals. Activity in Q4 2019 was the highest throughout the year, with 18 announced offers, attributable (in part) to the certainty provided by the result of the general election in December.

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Industry sector focus For public M&A, the technology sector was again the most active in 2019, with 10 transactions involving computer and electronic equipment companies, which together represented 15% of firm offers. Despite the slight increase in the number of transactions from 2018 to 2019, the overall proportion fell from 21% to 15%. The travel, hospitality, leisure & tourism industry also saw a lot of activity, with five transactions and 11% of the deal volume, and three deals with individual deal values of above £1 billion. This includes KIRKBI’s £4.8 billion acquisition of Merlin Entertainments. Other notable industries in 2019 include the investment industry and the media & telecommunications industry, which both saw five transactions and 11% each of the deal volume for 2019. The largest deal of 2019 was Takeaway.com’s £6.3 billion offer for Just Eat in the food & beverages sector.

Mega deals – Takeaway.com’s acquisition of Just Eat The takeover of Just Eat by Takeaway.com was the biggest deal of 2019. Just Eat received an all-share merger offer from Takeaway.com on 29 July 2019, with the parties announcing the terms of the all-share merger valuing Just Eat at £4.98 billion seven days later. On 22 October 2019, Just Eat received a competing £4.9 billion cash offer from Prosus (quoted on Euronext Amsterdam), which was rejected by the Just Eat board on the basis that the Takeaway.com combination provided Just Eat shareholders with the potential for greater value creation. Prosus later reduced the acceptance threshold for its offer from 90% to 75% and then, on 9 December 2019, raised its cash offer to £5.1 billion. Despite the higher, all-cash offer, the board of Just Eat continued to recommend the Takeaway.com offer, stating that the increased Prosus offer significantly undervalued Just Eat and its attractive assets and prospects, both on a standalone basis and as part of the proposed all-share combination with Takeaway.com. Accordingly, Just Eat’s board announced on 10 December 2019 that it unanimously recommended that shareholders reject the increased Prosus offer. The deal structure was initially intended to take the form of a scheme of arrangement, but later changed to a contractual offer in early November. Takeaway.com believed that the revised structure provided the Just Eat shareholders with increased deal certainty, the lower threshold for achieving de facto control afforded by an offer structure outweighed the benefits of a scheme. On 19 December, Prosus raised its offer a final time to £5.5 billion. Takeaway.com simultaneously increased its final offer, valuing the company at £6.3 billion. After receiving acceptances and irrevocable commitments representing 46% of Just Eat’s share capital, Takeaway.com reduced the level of acceptances required to satisfy the final offer to 50% plus one share. On 20 December 2019, Just Eat announced that its board continued to believe that the combination with Takeaway.com was based on a compelling strategic rationale which allowed shareholders to participate in the upside potential of the enlarged group and, based on the board’s own analysis, that the final increased Takeaway. com offer would deliver greater value to Just Eat shareholders than the final Prosus offer. On 10 January 2020, Takeaway.com announced that it had an acceptance level of 80.4% of the issued share capital of Just Eat, making the offer unconditional as to acceptances. The Prosus offer therefore lapsed.

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Interestingly in this case, the CMA’s mergers intelligence function identified the transaction as warranting an investigation early on in the process. On 6 August 2019, the parties responded by sending a briefing note to the CMA’s mergers intelligence committee. While the CMA informed Takeaway.com at the time that it had no further questions on the transaction, it also noted that the CMA could (in keeping with the position set out in its published guidance) ask further questions or open an investigation at a later stage. It was only until 10 January 2020, when Takeaway.com’s offer for Just Eat was declared unconditional as to acceptances, that the CMA then “called in” the case for investigation on 22 January 2020. Whilst it is extremely rare for the CMA to reopen investigations in this manner, it is a reminder that the CMA can open an investigation at any point up to four months from the date of completion of the transaction or four months from the date on which “material facts” about the merger have entered the public domain (whichever is the later). On 30 January 2020, the CMA imposed a “hold separate” order on the parties to ensure no integration during the CMA’s investigation. As part of its investigation, the CMA considered whether the merger could reduce competition in the supply of online food platforms in the UK. In particular, the CMA considered whether, in the absence of the merger, Takeaway.com would have re-entered the supply of online food platforms in the UK and, if so, whether this would have resulted in a more competitive situation than would exist following the merger. Following a thorough assessment of the available evidence including internal documents and third-party views, the CMA concluded that there was no realistic prospect that Takeaway.com would have re-entered the supply of online food platforms in the UK absent the merger. The hold separate order was revoked on 15 April 2020 and the transaction was ultimately cleared on 23 April 2020.

Hostile bids Although the vast majority of public M&A transactions are recommended by the target’s board, hostile deals are not uncommon. In 2019, five offers were hostile when announced, compared to three in 2018. Two takeovers were announced without any definitive recommendation from the target board. One hostile offer, Spectre Holdings’ £5.7 billion offer for Bonmarché, became recommended following the target board reporting a deterioration in its financial position. This offer was the only successful hostile takeover of 2019. When an offer is recommended by the target’s board, offeror and target will issue a joint document. In a hostile situation, the target’s board will circulate a separate “defence document”, outlining to shareholders the reasons why, in its opinion, the offer should be rejected. In a hostile takeover situation, the Takeover Code prohibits the board of the target from taking certain actions to frustrate an offer (or potential offer) without shareholder approval, including issuing shares and disposing of assets.

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Hostile takeovers – Spectre’s acquisition of Bonmarché Spectre’s £5.7 billion offer for Bonmarché was initially hostile, but was later recommended by the target board after Bonmarché reported a deterioration and uncertainty in the trading and financial position of the business on 26 June 2019. Following the Bonmarché announcement, Spectre expressed concern that the passage of time and a further decline in the performance of Bonmarché had eroded Spectre’s ability to provide the advice, guidance and support needed to secure the long-term future of the Bonmarché business, its stores and employees. In light of this information, Spectre believed that it had no option but to close the offer and announced that it would do so on 12 July 2019, as the future of the Bonmarché business remained uncertain. Spectre was especially concerned by the suggestion that PwC, Bonmarché’s auditor, would express uncertainty about the company’s ability to continue as a going concern in its FY19 accounts. The offer was unconditional from the outset, Spectre having acquired 52%of Bonmarché’s issued share capital from its majority shareholder, BM Holdings, thereby triggering a mandatory offer.

Competition regime highlights The CMA issued a total of 57 Phase I decisions in the financial year 2018/2019 and 62 in the financial year 2019/2020. This was broadly consistent with previous years. Of the decisions for the period 2019/2020, 38 were cleared unconditionally and 13 were referred to a Phase II review. Notably, recent decisions have demonstrated the CMA’s increasingly interventionist approach to global deals and its expansive interpretation of the “share of supply test”, particularly in global deals with a limited UK nexus. For example, in the case of Sabre/ Farelogix, the CMA eventually established that the “share of supply test” was met in respect of the indirect distribution of airline content to a single customer, British Airways (“BA”). Farelogix’s customer was, in fact, American Airlines (“AA”), but on account of BA’s interline arrangement with AA, the CMA concluded that Farelogix supplied BA indirectly. This assessment was the culmination of several attempts to establish jurisdiction and is contentious – Sabre has filed an appeal with the UK Competition Appeals Tribunal (“CAT”). In this case, the turnover test was not met, as Farelogix did not have any material turnover in the UK, demonstrating its marginal nexus with the UK.

Key developments Macro trends so far UK M&A activity in the first quarter of 2020 declined dramatically, with reductions in both the volume and value of deals. Q1 of 2020 had an aggregate deal value of £2.4 billion, down from £11 billion in Q4 of 2019. The dual effects of Brexit and, more significantly, COVID-19, are likely to continue to weigh on M&A activity for the foreseeable future. COVID-19 One of the immediate effects of the COVID-19 pandemic has been, unsurprisingly, a dramatic decline in global M&A activity, as potential purchasers focus on ensuring their own business is able to weather the unprecedented financial stresses created by the prolonged lockdowns and travel bans. As ever, times of crisis also present opportunities for financially strong purchasers to make distressed acquisitions, but the continued uncertainty

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Cooley (UK) LLP United Kingdom as to when lockdown in the UK and elsewhere will be over and COVID-19’s effects on the UK and global economy are limiting deal progress. To the extent that the ongoing uncertainty continues to depress share prices and the value of the pound, overseas bidders will see increasingly attractive opportunities in the UK. For those that do make offers, it may be possible to secure better terms, with shareholders preferring the certainty of a deal to the uncertainty of the company’s performance. Where deals are proceeding, extra attention is being paid to previously mundane provisions. For example, acquisition agreements for private M&A transactions typically require the target company to operate in the “ordinary course of business” in all material respects and to refrain from taking certain specified actions between signing and closing. During the pandemic, purchasers and sellers are seeking to specifically address how the actions taken by companies as a result of COVID-19 (such as closing offices and manufacturing facilities, furloughing workers and delaying rent payments) should be taken into account in the interim operating covenants, ensuring these provisions are not used as an escape hatch for purchasers. Some targets have negotiated the ability to take reasonably necessary, non-ordinary course actions to protect the health and safety of their employees and other business relations and to respond to supply and service disruptions caused by the pandemic while operations are suspended. Others have sought to make the ordinary course requirement subject to the evolving business environment presented by COVID-19. In turn, purchasers have sought affirmative notification obligations for actions proposed in response to COVID-19, the ability to direct the target not to take any such action and, where deviations are permitted, an obligation for the target to resume normal operations as soon as possible. Another key transaction term that is being closely scrutinised as a result of COVID-19 is the definition of a material adverse change (“MAC”). MAC is most commonly used to qualify warranties given by sellers in private M&A transactions and, as a practice imported from the US, as a bring-down condition to completion. Parties are now carefully drafting the MAC definition and its exclusions with the term “pandemic” and/or “COVID-19” being negotiated as a clear exclusion from a potential trigger of a MAC. We have seen this exclusion become commonplace, consistent with the prevailing theory underlying MAC definitions that exogenous factors generally should not count toward a MAC (except to the extent they disproportionately affect the relevant company). In public M&A, the Takeover Panel is the arbiter of whether a MAC clause can be invoked and the Takeover Code and related rulings have set a high bar that requires the relevant circumstances to be “of material significance to the bidder in the context of the offer”. In 2001, WPP sought to invoke a MAC clause to withdraw its bid for Tempus following the 9/11 terror attacks and the resulting economic downturn and stock market crash. In its ruling, the Panel noted that the adverse change in question needed to be “of very considerable significance striking at the heart and purpose of the transaction in question”, a test which had not been met in the circumstances, given that the adverse economic effects of the tragic events were widespread and did not affect the rationale for the original offer. In March this year, Menoshi Shina (via a Bidco) made an offer for Moss Bros (a men’s suit and formalwear retailer), the scheme document for which was published in April. Given the potential implications of a prolonged closure of retail outlets due to COVID-19 and the inevitable financial deterioration of the target, the Bidco sought a ruling from the Takeover Panel to invoke the MAC and for its offer to lapse. In May, the Panel Executive ruled that Menoshi Shina had not established that the circumstances were of material significance to it in the context of its offer and was therefore required to continue with the transaction, reiterating the difficulty of relying on a MAC clause except in exceptional circumstances.

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Brexit With the transition period scheduled to expire in December 2020, the ongoing Brexit negotiations are likely to continue to prompt caution from potential investors, many of whom are expected to “wait and see” before making a decision at a time when the UK’s political and economic future remains subject to a high degree of uncertainty. The impact is likely to be particularly acute for takeover targets that operate in sectors that are heavily regulated by the EU. In preparation for Brexit, the government and the Takeover Panel have proposed a number of changes to both the Companies Act and the Takeover Code, including to reflect the fact that the Takeover Directive would no longer apply. The key change to the Takeover Code will be the removal of the shared jurisdiction regime, but given that the Takeover Panel has only had shared jurisdiction on eight takeovers since 2006, the amendments are not expected to affect many companies (at the end of 2018, there were only 36 to which it would apply). Changes will also be made to the Takeover Code to remove obsolete references and make other technical amendments that result from the UK leaving the EU. Crucially, the changes to the Companies Act 2006 and the Takeover Code will not result in substantive changes to the role of the Takeover Panel or the way takeovers are conducted in the UK. The competition regime On 22 April 2020, the CMA published “Merger Assessments during the Coronavirus (COVID-19) pandemic”, outlining its approach to UK merger control during the pandemic. At the time of writing, the approach remains unchanged: statutory deadlines remain in place and the standards by which mergers are assessed have not been relaxed. That said, the CMA is “conscious of the challenges” that businesses are facing during the pandemic and will seek to take these into account where it can. For example, the CMA is not likely to impose penalties where companies can demonstrate that they are experiencing difficulties brought about by COVID-19 in responding to statutory information requests. The CMA may stop the clock where merging parties struggle to provide the requested information within the specified deadline. Regarding timings, unlike other competition authorities, the CMA is not asking merging parties to delay notifying transactions. However, given the challenges with obtaining information during this period, the CMA recognises that it is possible that the pre-notification process will take longer. The CMA is prepared to take steps to mitigate any delay, for example, by publishing invitations to comment during the pre-notification period. However, the CMA also encourages merging parties to consider whether some filings could be postponed; for example, where the merger is not particularly well advanced and may not ultimately proceed. The CMA also acknowledges that the current market environment may lead to additional claims that companies involved in mergers are failing financially and would have exited the market absent the merger – the so-called “exit firm scenario” or the “failing firm defence”. The CMA has therefore published a “Summary of CMA’s position on mergers involving ‘failing firms’”, which offers a refresher on its position. Until the end of the transition period on 31 December 2020, EU competition law will continue to apply in the UK as if the UK were still a Member State. This means that the EU’s “one- stop-shop” rules will continue to apply to cross-border deals and the EC will retain jurisdiction over cases notified or referred to it before 31 December 2020. For those mergers not notified

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Cooley (UK) LLP United Kingdom by 31 December 2020, the EU “one-stop-shop” system will no longer apply and transactions may be subject to parallel UK and EC investigations. Parties are therefore well-advised to factor this possibility into their initial jurisdictional assessment and transactional planning. Tax changes A significant recent development is a change that allows intangible assets to be hived down to a new company, without the subsequent disposal of that company triggering a “degrouping charge” – which is especially significant in the pharmaceutical and life science sectors. Another development (which is relevant to business, not share, acquisitions) is the re-introduction of tax relief for the amortisation of purchased goodwill (although this is capped at a multiple of expenditure incurred on “qualifying IP assets”). There has been an extension to the situations in which overseas investors can be taxed on gains from UK real estate. A disposal of shares by a non-UK resident investor can potentially be subject to UK tax if, broadly, 75% of the value of the investee company is derived from UK real estate. The UK has been at the forefront of international developments to tackle perceived gaps and mismatches in tax rules. Over recent years, this has resulted in new tax legislation which, among other things, restricts the tax deductibility of interest, and counteracts “hybrid” arrangements giving rise to different tax treatment in different jurisdictions. These, together with interactions with US tax reform, have impacted on the structuring of M&A transactions, in particular by reducing the tax benefits of high leverage in bid vehicles. A significant development is a new EU directive on administrative cooperation, commonly known as “DAC6”. This will require notification to tax authorities (by intermediaries, including advisers) of certain cross-border tax transactions featuring particular “hallmarks”. Although loosely based on the UK’s existing “disclosure of tax avoidance scheme” (“DOTAS”) legislation, DAC6 is much broader in scope. The first notifications were originally due to be made from July 2020 but, at the time of writing, this looks likely to be delayed by at least three months due to the COVID-19 pandemic. Although the EU directive would not be binding on the UK after the end of the Brexit “transition” period (which runs until 31 December 2020, unless extended), it is implemented through domestic UK legislation and it is understood that the UK government intends that this will continue to operate. Final thoughts The UK continues to offer a sophisticated and well-established takeover framework, a legal system that is internationally renowned for being predictable, fair and efficient, and a business environment that supports some of the world’s largest and most innovative companies. As with the COVID-19 pandemic itself, its effects on M&A transactions are fluid and continuing to evolve. In the near-term, M&A activity is likely to be severely depressed in the UK and globally. However, we expect that as the lockdown is eased or ended in the coming months, there will be an immediate increase in opportunistic M&A, especially in the life science and technology sectors. Directors of public companies should also be prepared to respond to increasing levels of shareholder activism and unsolicited takeover offers amid market volatility resulting from the COVID-19 pandemic. While we have not yet seen an immediate uptick in this area, we expect activists to apply extra scrutiny to companies that have been negatively affected by the pandemic, including as a result of sharp drops in share prices. Sooner rather than later, public company boards should assess enterprise risk and strategic plans and evaluate their takeover readiness with the help of experienced M&A counsel.

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Acknowledgments The authors would like to thank David Wilson and Christine Graham for their invaluable assistance in the preparation of this chapter. David is a partner in Cooley’s Tax practice. Tel: +44 20 7556 4473 / Email: [email protected] Christine is an associate in Cooley’s Antitrust and Competition practice. Tel: +44 20 7556 4455 / Email: [email protected]

* * * This piece incorporates data originally published on Practical Law What’s Market (uk.practicallaw.com) on 17 January 2020 and is reproduced with the permission of Thomson Reuters. This piece contains public sector information licensed under the Open Government Licence v3.0 (https://www.nationalarchives.gov.uk/doc/open-government-licence/version/3). M&A data compiled by the Office for National Statistics are available at https://www.ons.gov.uk/ businessindustryandtrade/changestobusiness/mergersandacquisitions.

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Michal Berkner Tel: +44 20 7556 4321 / Email: [email protected] Michal Berkner leads cross-border mergers and acquisitions, including negotiated and unsolicited transactions and joint ventures. Her clients include strategic and private equity buyers and sellers in public and private transactions, as well as financial advisors. She represents clients across industries, with a focus on the technology and life science sectors. Recently, she represented Therachon in its sale to Pfizer for up to $810 million. She is dual qualified in New York and England & Wales.

Claire Keast-Butler Tel: +44 20 7556 4211 / Email: [email protected] Claire Keast-Butler’s practice focuses on capital markets transactions. She represents issuers, investment banks and investors in initial public offerings and secondary offerings. She also regularly advises listed companies on corporate and securities law matters and corporate governance, and has considerable experience in public and private mergers and acquisitions and general corporate matters.

James Foster Tel: +44 20 7556 4497 / Email: [email protected] James Foster has advised on a range of high-profile domestic and international transactions with a focus on M&A. His experience includes advising clients from startups to the world’s largest companies on a variety of complex corporate and commercial matters, including technology commercialisation, private equity investments and joint ventures. He has also been seconded to work with the corporate and M&A team of a major international bank.

Cooley (UK) LLP Dashwood, 69 Old Broad Street, London, UK EC2M 1QS, United Kingdom Tel: +44 20 7583 4055 / Fax: +44 20 7785 9355 / URL: www.cooley.com

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Nilufer R. Shaikh, Steven Khadavi & Kirk Dungca Troutman Pepper LLP

Overview 2019 M&A numbers Following the uptick in overall global M&A volume in 2018 over the previous year, the approximately 36,000 transactions that closed globally in 2019 represented an 8% drop in number of transactions from the previous year, while the $3.1 trillion worth of transactions that closed in 2019 represented a 14% drop from 2018 in deal value. In contrast, the domestic M&A market continued to be robust, with the overall value of transactions based in North America exceeding $2 trillion as it has for the last few years. In keeping with the trend in recent years, this volume level was again aided by a large number of “mega-deals”, including two deals valued in excess of $70 billion each: Bristol Myers Squibb’s acquisition of Celgene Corporation; and the acquisition of Raytheon Company by United Technologies Corporation. Indeed, of the 11 largest global transactions announced in 2019, nine involved both a U.S. target and U.S. acquiror and those nine deals accounted for approximately 23% of the overall value of domestic M&A activity. Transactions in excess of $500 million constituted roughly 75% of the aggregate deal value of M&A activity while accounting for slightly more than 10% of the number of total transactions. This activity was significantly driven by large-scale deals in the healthcare and information technology (“IT”) sectors. The median transaction size in North America was $76.4 million, a $16.4 million increase from 2018. Overall, inbound investment in the United States witnessed a 16% decline in total deal value and a 1.2% decrease in the total number of deals in 2019 compared to 2018. Macroeconomic deceleration and political tension both have a role to play. In particular, isolationist rhetoric and trade disputes have continued to dissuade potential Chinese buyers from purchasing U.S.-based assets, as well as heightened scrutiny of foreign investments in the United States by the Committee of Foreign Investment in the United States (“CFIUS”). 2019 marked the third straight year of decreases in cross-border transactions with China. Chinese acquisitions of North American targets experienced significant declines from 2018 to 2019 of 60.4% and 81.6% in number and value, respectively. Similarly, inbound investment levels from Canada and Europe have declined. Uncertainty surrounding the negotiation of the United States–Mexico–Canada Agreement (“USMCA”), set to go into effect in July 2020, likely impacted the flow of Canadian investment, while the uncertainty over the terms of Brexit in the United Kingdom and much of the European Union has had a negative ripple effect on Europe’s appetite for overseas investing. The sustained strength of the dollar and U.S. equity markets that were high for much of the year have also served to make inbound U.S. acquisitions more expensive. Canada remained the

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Troutman Pepper LLP USA leading nation for inbound M&A activity in 2019, followed by the United Kingdom and France as measured by aggregate dollar value and by Japan and the United Kingdom as measured by the number of transactions. Although the end of 2019 saw continued anxiety regarding an anticipated economic recession, the arrival of COVID-19 in the first quarter of 2020 has disrupted all projections. M&A activity in North America in the first quarter of 2020 reached $400.8 billion dollars, representing a 25.1% decline from the first quarter of 2019, while the number of closed transactions increased slightly to 3,169, representing a slight 2.6% gain over the same period. It is likely that a very significant number of the transactions entered into or closed in the first quarter were prior to the global awareness of the severity of the public health threat presented by COVID-19. The decline in the number of multi-billion-dollar deals directly resulted in a dramatic drop in deal value; the total value of M&A deals in excess of $1 billion was $132.8 billion in the first quarter of 2020, marking the lowest figure since the first quarter of 2014. In addition to an immediate focus on stabilising companies, amending existing debt facilities for a difficult period ahead, assessing the eligibility of companies for governmental stimulus packages such as the U.S. Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), undertaking cost-cutting measures and navigating workforce issues arising from shutdowns and quarantines, the diminished appetite of financial sponsors for larger deals played a role in declining M&Amega- deals; such deals are typically too large for a single private equity firm and club deals are logistically more complex to arrange. Despite a few bright spots, M&A multiples appear to be deflating, with the rolling four-quarter median falling from 10.1× in the last quarter of 2019 to 9.8× in the first quarter of 2020. COVID-19, coupled with lower CEO confidence and potential future tightening of the credit markets (although given the significant recent growth of credit funds and other structured alternatives, this risk may be less likely now than in the last downturn), are expected to accelerate this decline.

U.S. dealmaking Strategic v. PE dealmaking Sponsor-backed M&A activity levels in the United States in 2019 increased slightly over 2018 in terms of the number of deals but decreased significantly as a proportion of overall M&A activity. In 2019, 9% of all transactions in the United States were closed by financial buyers, and the remaining 91% were closed by strategic buyers, according to S&P Capital IQ data. As a comparison, in 2018, 29% of all transactions were closed by financial buyers, while strategic buyers accounted for the remaining 71%. The competition and pressure to deploy capital among private equity firms remained strong in 2019 as private equity firms found themselves with a $1.5 trillion war chest of accumulated capital. Fundraising rose to an all-time high in 2019, though the median holding time for funds dropped from a high of 5.9 years in 2014 to 4.9 years in 2019. Blackstone Capital Partners, Vista Equity Partners, TPG Capital, Leonard Green and Veritas raised the largest funds, each of them exceeding $10 billion. Commitments for Blackstone Capital Partners VIII reached $26 billion, the largest private equity vehicle of all time. Shareholder activism Despite a decline in public activist campaigns, shareholder activism continued to play a significant role in 2019, with a number of new entrants in the space. Although the number of companies publicly targeted and the average capital deployed declined from 2018 levels, the number of investors launching campaigns represents an all-time high at 147 investors. M&A- related activism included multiple instances of activists pushing or opposing announced

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Troutman Pepper LLP USA transactions or seeking spinoffs or break-ups. A number of household names were targeted in 2019, including AT&T (which was the largest company targeted, with a market capitalisation at the time in excess of $250 billion), HP, Caesars, eBay and Bristol Myers Squibb. Investors continued to utilise proxy contests, or the threat of proxy contests, to obtain board seats. Of the 122 board seats that were won in 2019, only 20 were obtained through an actual shareholder vote, indicating that most companies prefer to concede a board seat to an investor rather than engage in a costly and protracted battle that takes place in the public spotlight. A settlement also spares a company from potentially losing a proxy contest, which could indicate a loss of confidence by shareholders in its management and/or the Board. Focus on social issues Investors continued to place an emphasis on environmental, social and governance (“ESG”)- related and corporate social responsibility issues in 2019. A majority of shareholder proposals included in proxy statements in 2019 were ESG-related. Proposals related to disclosure on political contributions/lobbying and climate change were the two leading ESG issues. Additionally, the U.S. Business Roundtable, a group of executives of over 150 major U.S. companies and institutional investors, issued its “Statement on the Purpose of a Corporation” in August 2019, which referenced taking into account a wider range of stakeholders than serving the best interests of only shareholders, a re-evaluation which was endorsed by Leo E. Strine, Jr., former Chief Justice of the Delaware Supreme Court. The Statement called on companies to also consider the needs of employees, customers, suppliers and communities, and echoes other mechanisms such as constituency statutes and incorporation as a B-corporation to broaden the purpose of capitalism. While the focus on ESG issues is not as far along as in Europe and is advancing among U.S. public companies, the U.S. private equity industry is becoming sensitised to the importance of such issues from a diligence and investment perspective, partly due to pressure from limited partners such as CalPERS, the California state retirement pension authority. It is as yet unknown whether COVID-19 will contribute to a meaningful retrenchment from this exploration of the purposes of the corporation, or whether it will help accelerate this trend towards stakeholder capitalism as the devastating economic and social impact of the pandemic ripples through our society.

Industry sector focus In 2019, Industrials, IT and Consumer Discretionary were the three sectors with the most M&A activity in the United States, as determined by number of transactions according to S&P Capital IQ data. Approximately 23% of the U.S. transactions closed in 2019 were in the Industrials sector, 16% were in the IT sector and 16% were in the Consumer Discretionary sector. These numbers are slightly different than the industry breakdown of M&A activity that was seen in 2018, where approximately 21% of the U.S. transactions were in the IT sector, 19% were in the Industrials sector and 13% were in the Consumer Discretionary sector. In 2019, IT comprised 19.9% of total M&A value in North America, the second-highest percentage on record for the sector, according to PitchBook data. After three consecutive years of declines, healthcare M&A value increased in 2019, commanding a respectable 15.6% of all North American M&A value. The COVID-19 pandemic is expected to increase the percentage of transactions in healthcare and IT. For example, the IT sector’s share of total deal value for North America in the first quarter of 2020 compared to the first quarter of 2019 increased from 17.4% to 21.7%.

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Key developments Case law developments There have been certain significant decisions in 2019 originating out of the Delaware and New York courts that are of particular interest to the M&A legal community. The cases discussed below address: the standards of review for transactions, continuing the refinement of the MFW and Corwin doctrines; the importance of Board oversight during crises, confirming the potential risk ofCaremark liability; mechanisms to protect privileged communications; the scope of books and records demands to cover informal electronic communications; and the importance of nuanced contract drafting. Standards of review for transactions: Continued refinement of MFW and Corwin doctrine in Olenik and Towers Watson In the Olenik v. Lodzinski case, the Delaware Supreme Court provided further guidance regarding the circumstances under which reliance on certain procedural protections pursuant to the so-called “MFW standard” can operate to restore the presumption of the business judgment rule to a controlling stockholder buyout. In the 2014 case Kahn v. M&F Worldwide Corp. (“MFW ”), the Delaware Supreme Court held that the director-friendly protections of the business judgment rule would apply to a going private transaction proposed by a controlling stockholder when the controlling stockholder conditioned the transaction ab initio on two procedural protections: (1) the approval by an independent, fully empowered special committee that fulfils its duty of care; and (2) the uncoerced, informed vote of a majority of the minority stockholders. In Olenik, the parties had what the Delaware Court of Chancery characterised as “preliminary” and “exploratory” discussions for 10 months before the buyer imposed the MFW protections in its formal offer and the special committee was formed. The Delaware Supreme Court found, however, that those early discussions had included “substantive economic negotiations” because the parties had “set the playing field” for the high and low ends of the deal pricing. The Delaware Supreme Court therefore held that MFW protections did not apply, and emphasised that the MFW standard must be imposed early in the process and indicated that the appropriate time is “during the germination stage of the Special Committee process”, which is when advisors are being selected, due diligence is beginning, and before there has been “any economic horse trading”. The Olenik decision provides guidance around the specific point in time by which the procedural safeguards established in MFW need to be in place and also indicates that Delaware courts are prepared to engage in factual investigations into whether the requirements of MFW have been strictly met. The In Re Towers Watson & Co. Stockholders Litigation case continued the trend of Delaware courts to presume application of the business judgment rule. Much like certain decisions covered in the Eighth Edition of Global Legal Insights – Mergers & Acquisitions, this case turned on whether the plaintiff-stockholders had sufficiently plead facts to rebut the presumption of the business judgment rule in connection with the proposed “merger of equals” of Towers Watson and Willis Group Holdings plc. The plaintiff-stockholders asserted that Towers Watson’s Chief Executive Officer (“CEO”) had breached his fiduciary duties by failing to properly disclose to the Board of Directors that, while negotiating the merger, the CEO had received a compensation proposal from Willis’ second-largest stockholder. The Court found that the compensation proposal was ultimately immaterial, reasoning that the independent Board members were well aware that the merger would presumably lead to an increase in compensation for the CEO. Because the transaction was primarily a stock-for-stock merger, the Court explained that there was no dispute that the business judgment rule presumptively applies, concluded that plaintiff-stockholders

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Troutman Pepper LLP USA had failed to rebut that presumption and declined to invoke the “recently fashionable Corwin doctrine” which would assess the adequacy of deal protections such as a fully informed, uncoerced stockholder vote. However, in a related case, In re Willis Towers Proxy Litigation, brought in federal court, the United States Court of Appeals for the Fourth Circuit held that the failure to disclose such compensation discussions in the proxy materials mailed to stockholders constituted sufficient grounds to support claims that the proxy materials omitted material facts in violation of the U.S. Securities Exchange Act. Board oversight: Confirming potential Caremark liability in Marchand and In re Clovis Two decisions by Delaware courts in 2019 revived discussions surrounding the nature and scope of a Board of Directors’ duty of oversight, historically viewed as among the most difficult theories in corporate law upon which plaintiffs could prevail. Such breach of duty of oversight claims, known as “Caremark claims” based on the seminal 1996 In re Caremark decision, require a plaintiff to demonstrate that the Board “utterly failed” to adopt controls and systems for reporting “mission critical” legal and business risks to the Board or, if a system has been established, that the Board failed to continually and effectively monitor it. In Marchand v. Barnhill, the Delaware Supreme Court reversed the dismissal of plaintiff-stockholders’ Caremark claims against the directors of Blue Bell Creameries USA, Inc. following an outbreak of listeria in its facilities that resulted in three deaths. Blue Bell Creameries suffered significant financial harm, as well as a number of costly lawsuits following the outbreak. The Delaware Supreme Court found that the Board of Directors had failed to establish any food safety reporting systems or controls, which the Court viewed as a “mission critical” risk for that business, thereby laying the groundwork for the viability of Caremark claims against the Board. The actions of the former CEO of Blue Bell Creameries were so egregious that he was eventually indicted in May 2020 on criminal charges alleging efforts to deceive customers about contaminated products. Following the Marchand decision, the Delaware Chancery Court in In re Clovis Oncology Inc. Derivative Litigation declined to dismiss plaintiff-stockholders’ Caremark claims. In this case, the plaintiffs did not allege that the Board of Clovis Oncology Inc. failed to have the proper systems in place for oversight and reporting, as the Nominating and Corporate Governance Committee of the Board was designated to provide compliance oversight. Rather, the plaintiffs alleged that the Board had failed to sufficiently monitor the oversight system, by failing to act upon “red flags” raised during the company’s late- stage clinical trial for its developmental oncology drug. While Marchand and In re Clovis indicate a willingness by the Courts to allow Caremark disputes to survive motions to dismiss, particularly for Boards overseeing companies in highly regulated industries where the application and effectiveness of corporate compliance and related reporting systems and controls are “mission critical” corporate risks, these cases do not necessarily represent a change in the law regarding Caremark claims or stand for the proposition that plaintiffs will ultimately prevail in such cases. However, effective Boards should identify mission critical risks and take steps to implement and continually review and monitor “reasonable compliance and reporting systems” in order to properly exercise their duties of oversight. Protection of privileged communications: Reminders of best practices in Shareholder Rep Services and Argos Delaware and New York courts provided reminders of the importance of preserving attorney-client privilege in transactions through contracts as well as by following best practices. In Shareholder Representative Services LLC v. RSI Holdco, LLC, the Delaware Court of Chancery revisited the issue of when a buyer in a merger transaction may use the

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Troutman Pepper LLP USA target’s privileged pre-merger communications in post-closing litigation against the sellers. The buyer in RSI Holdco obtained possession of the target company’s computers and email servers that contained approximately 1,200 pre-merger emails between sellers and their counsel, which the buyer sought to use in post-closing litigation, arguing that the sellers had not taken steps to segregate privileged communications and had effectively waived privilege. The Court previously addressed this in Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, where it found that the sellers waived their ability to assert privilege in a merger because they neither negotiated for that right in the merger agreement, nor prevented the surviving company from taking actual possession of the communications. The Court in RSI Holdco, however, concluded there was no similar waiver of privilege, finding that the sellers had used their contractual freedom to negotiate a carve-out provision in the merger agreement that affirmatively preserved their right to assert privilege over pre-merger attorney-client communications and specifically prevented the buyer from using such communications in post-closing litigation. The case cautions that sellers should negotiate for the preservation and control over pre-closing privileged communications in their sale and merger agreements, which will be respected, despite the absence of efforts to segregate and excise such communications by closing. A federal court in the Southern District of New York provided guidance in Argos Holdings Inc. and PetSmart Inc. v. Wilmington Trust N.A. with regard to preserving privilege in the context of communications between counsel to a portfolio company’s Board and directors who were also partners in the private equity sponsor of such portfolio company. Plaintiff Argos was the sole stockholder of plaintiff PetSmart, and the sponsor-designated directors of the portfolio company were principals of the private equity sponsor of Argos. In connection with the acquisition by PetSmart of Chewy, Inc. and subsequent transfers of Chewy’s stock, plaintiffs filed suit against Wilmington as the administrative agent, during the course of which plaintiffs asserted their privilege with regard to certain communications between their law firms and the sponsor-designated directors. Plaintiffs contended that “where there is no conflict of interest, a stockholder is entitled to assert the privilege as to communications with its representatives on the Board of Directors of one of its portfolio companies”, while the defendant argued that unless the entities are jointly represented or the common interest doctrine applies, an investor may not invoke the privilege possessed by the portfolio company. The Court agreed with the defendant on this point and found that the sponsor-designated directors had received the relevant communications in their capacity as partners of the private equity sponsor, rather than as Board members of the portfolio company. Among other things, those communications were sent only to the sponsor-designated directors, not the full Board of the portfolio company, and were sent to their sponsor email addresses, rather than PetSmart addresses. Aside from the portfolio company and private equity sponsor entering into a common interest agreement to extend the privilege from the portfolio company to its private equity sponsor, plaintiffs should have established documents, protocols and training designed to protect the privilege, including measures to prevent disclosure (and therefore, inadvertent waiver of privilege) to private equity sponsors of privileged communications between counsel to a portfolio company’s Board and sponsor-designated directors, and maintained the distinction between using portfolio company email addresses and private equity sponsor email addresses/servers. Scope of demand rights: Focus on broad rights in Schnatter and KT4 Partners There was renewed focus on the scope of access to books and records under Section 220 of the Delaware General Corporation Law (as amended, “DGCL”) and recognition of the evolving use of technology in corporate communications, as demonstrated by Schnatter

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Troutman Pepper LLP USA v. Papa John’s International and KT4 Partners LLC v. Palantir Technologies Inc. The former case involved a demand by Mr. Schnatter as a director of the pizza company to inspect certain categories of documents in response to the Company’s decisions to terminate certain agreements it had with Mr. Schnatter following publication of a negative Forbes magazine article on him. Mr. Schnatter is also the Company’s founder, largest stockholder and former chairman of the Board. Mr. Schnatter stated that the demand inspection request was to ensure that the Board was fulfilling its fiduciary duties in connection with how he was treated. The Delaware Court of Chancery determined that the Company failed to show that Mr. Schnatter’s demand request was improper merely because it was personal and failed to show that it was not reasonably related to his position as a director because Mr. Schnatter’s image was inextricably linked with the Company’s brand. In its decision, the Court reaffirmed the distinction between demands made by stockholders (who must show proper purpose related to interests as a stockholder and any requested documents must be necessary to such purpose) and those by directors (who have much broader rights of access under demand rights). The opinion also confirms that demand rights may extend to emails and text messages from personal accounts and those stored on personal devices in recognition of the expanded formats in which relevant communications may exist. In another case, KT4 Partners LLC v. Palantir Technologies Inc., the Delaware Supreme Court considered the question of access under a stockholder demand request to investigate suspected wrongdoing by seeking electronic communications of directors and senior management (i.e., emails and other informal communications). The Company had recently amended its investor rights agreement to eliminate contractual inspection rights held by Palantir and other stockholders, who subsequently filed a demand request under DGCL Section 220. Here, the Delaware Supreme Court reversed the lower court’s decision which had upheld a traditional view that stockholders may access only formal Board- level documents. In its decision, the Court noted that the Company lacked formal minutes and Board materials, preferring to conduct business through emails. Companies should proceed with caution in opposing a director’s demand rights under DGCL Section 220, given the broad rights they generally enjoy, and should adhere to corporate formalities of documenting their processes in minutes and other formal presentations so as to minimise the ability of stockholders to request electronic communications. Contract interpretation Oxbow: Courts are reluctant to write a provision into a contract when the parties could have done so themselves In Oxbow Carbon & Minerals Holdings, Inc. v. Crestview-Oxbow Acquisition, LLC, the Supreme Court of Delaware reviewed the Court of Chancery’s interpretation of an exit sale provision in an LLC Agreement. The Court of Chancery had held that a gap exists in the LLC Agreement relating to the terms on which the two minority members affiliated with the majority had become members due to the silence of the Company’s Board as to the terms of admission and rights of these minority members and the failure of the Company to follow corporate formalities, such as obtaining pre-emptive rights waivers in connection with the issuances to these minority members. Relying on the implied covenant of good faith and fair dealing to ask what the parties would have agreed to themselves had they considered the issue in their original bargaining positions at the time of contracting, the Court “filled the gap” by allowing certain non-affiliated minority members to force a multi-billion-dollar sale as a solution to the perceived gap. In a unanimous decision, the Supreme Court affirmed the lower court’s plain language interpretation which gave effect to multiple provisions in the LLC Agreement when read

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Troutman Pepper LLP USA together, but it reversed the lower court opinion to the extent that it had inserted the implied covenant of good faith and fair dealing as a gap filler to the contractual provisions. Under the Supreme Court’s interpretation of the plain language of the LLC Agreement, these affiliated minority members are entitled to block an exit sale. The Supreme Court noted that the permissive discretion given to the Board in the LLC Agreement was a contractual choice, and the lack of exercise of that discretion did not equate to a contractual gap. The Court emphasised that, even where a contract is truly silent concerning the matter at hand, under precedent a court “should be most chary about implying a contractual protection when the contract could easily have been drafted to expressly provide for it”. Sophisticated transaction parties should be very precise in drafting exit provisions, comply with the requirements of admission and consider how existing rights and percentages should be calculated with respect to newly admitted members. Vintage Rodeo and Genuine Parts: Contracts are to be interpreted in a way that does not render any provisions illusory or meaningless In Vintage Rodeo Parent, LLC v. Rent-A-Center, Inc., the Delaware Court of Chancery applied a contract’s extension, termination, notice and waiver provisions, which it considered to be clear and unambiguous, and accordingly declined to deviate from such terms despite the plaintiffs’ argument that the purchaser entity had constructively complied withthe notice provision for extension. The merger agreement between the plaintiffs/acquirors and the defendant/target specified an end date (“End Date”), which could be extended at the unilateral election of either party by written notice, and allowed for termination by either party upon written notice after the End Date. Plaintiff Vintage failed to provide notice extending the End Date under the terms of the merger agreement. Very shortly following the End Date, defendant Rent-A-Center gave Vintage notice of termination and demanded payment of an outsized but agreed-upon termination fee (representing 15.75% of deal value) from Vintage. Plaintiffs argued that, during the course of dealing, the parties had represented the closing would not take place until after the End Date. But the Court declined to find the agreement’s extension requirement a “meaningless formality”. Neither plaintiffs’ nor defendant’s statements about an expected closing following the End Date was sufficient to satisfy a contractual notice requirement extending the End Date. This case highlights that courts will enforce an agreement’s disputed provision as clearly written. In Genuine Parts Company v. Essendant Inc., the Delaware Court of Chancery considered a termination provision’s connection with other sections in a merger agreement in order to interpret the operative terms of the agreement as a whole. Defendant Essendant had received earlier interest from a potential acquiror, Sycamore Partners, whose portfolio includes the office supplies chain Staples. The defendant subsequently entered into an acquisition agreement with plaintiff Genuine Parts, which contained a general non-solicitation provision, with an exception allowing Essendant’s Board of Directors to provide information to and have discussions with any person who has made a written offer that did not arise from a breach of the non-solicitation covenant and that the Board determines is, or is likely to lead to, a “Superior Proposal”. After executing the Genuine Parts agreement, the defendant Essendant accepted a revised acquisition offer from Sycamore Partners, terminated the Genuine Parts agreement and paid a termination fee, and proceeded to close the deal with Sycamore Partners. Plaintiff Genuine Parts argued that Essendant materially breached the non-solicitation covenant such that recovery should not be limited to the termination fee. Essendant moved to dismiss, arguing that the termination fee was the exclusive remedy under the agreement, which the plaintiff acknowledged in accepting the fee. The Court denied the motion to dismiss, finding the merger agreement’s language was not clear and unambiguous in limiting the remedy to exclusively the termination fee. Due to cross-references between the exclusive remedy,

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Troutman Pepper LLP USA termination and non-solicit provisions, the termination fee was Genuine Parts’ exclusive remedy for termination if Essendant had paid the fee “in accordance with” the exception to the non-solicitation provision. The Court found the only reasonable construction when considering the various terms at issue allowed the plaintiff to argue that the exclusive remedy provision does not apply because there was no Superior Proposal from Sycamore Partners; and, if there was one, it resulted from a material breach by Essendant of its non-solicitation obligation. Accordingly, the plaintiff’s acceptance of the termination fee did not preclude it from pursuing breach of contract claims against the defendant. Channel: Courts will interpret materiality standards under precedent At issue in Channel Medsystems, Inc. v. Boston Scientific Corporation were plaintiff’s purported breaches of representations arising from fraud by an employee, including in submissions to the U.S. Food and Drug Administration in connection with the medical device product of the target, Channel Medsystems, and whether they entitled the buyer, Boston Scientific, to terminate the merger agreement with Channel Medsystems –this was the first post-Akorn Delaware case to revisit the determination of a material adverse effect (“MAE”). The merger agreement included a customary closing condition that representations would be brought down at closing, subject to an MAE standard. Because the representations at issue contained materiality qualifiers, the Delaware Court of Chancery first considered whether the inaccuracies in the plaintiff’s representations were material. Materiality was not defined in the merger agreement, so the Court applied the Frontier Oil test – whether there is “substantial likelihood that the ... fact [of breach] would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information”. The Court found the inaccuracies were material. The Delaware Court of Chancery next considered whether, under the terms of the agreement, the failure of such representations to be true and correct at closing breached the MAE standard. For purposes of assessing materiality in the context of an MAE, the Court relied on the 2018 Akorn, Inc. v. Fresenius Kabi AG case to determine whether the effect “substantially threaten[s] the overall earnings potential of the target in a durationally-significant manner”, where an 86% decline in the target’s EBITDA, which was likely to continue, was determined to meet this standard. The Court also noted that Boston Scientific was unwilling to confer with the target or seek additional information over its concerns, as required by Boston Scientific’s obligations to use reasonable efforts to close the transaction. Under the high bar set by the Akorn decision, the Court held that the Boston Scientific defendants were not entitled to terminate the merger agreement and granted specific performance to close the transaction. FIRRMA and antitrust developments Final rules to implement FIRRMA effective February 2020 On September 17, 2019, proposed regulations to implement the U.S. Foreign Investment Risk Review Modernization Act (“FIRRMA”) were issued by the U.S. Department of the Treasury for public comment, and on January 13, 2020, the final rules to implement FIRRMA were released, effective February 13, 2020. In October 2018, the U.S. Department of the Treasury had issued interim regulations and introduced a “pilot program” which was largely implemented in these final rules. FIRRMA expands the authority of the interagency CFIUS to review control acquisitions or non-control investments by foreign persons in certain U.S. businesses from a national security perspective, with particular scrutiny of transactions with China. The COVID-19 pandemic has aggravated pre-existing U.S.–China tensions which are likely to result in even more scrutiny of Chinese investments, including by proxies. The drivers for CFIUS reform are multifold: a recognition that early-stage technologies could become strategic for national security; increasing convergence between

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Troutman Pepper LLP USA economic and military security; greater complexity in transaction structures that could result in gaps for review; and changes in China’s investment strategy as part of its “Made in China 2025” plan. FIRRMA, as modified by the new regulations, implements changes to CFIUS in two major areas: (1) increasing CFIUS’ jurisdictional reach over a broader set of “covered transactions” involving critical technologies in certain sectors; and (2) amending the existing CFIUS review process to require mandatory filings for investments, whether controlling or non-controlling, in U.S. businesses involved in critical technologies, critical infrastructure or the maintenance or collection, directly or indirectly, of sensitive personal data of U.S. citizens (so-called “TID US Businesses”). The final rules clarify certain aspects of FIRRMA such as: the scope of sensitive data; exceptions from mandatory filings for “excepted investors” and other bases (i.e., investments under a valid security clearance and oversight agreements to address foreign ownership, control or influence (“FOCI”)); and thresholds for mandatory filings by indirect foreign government investments. The final rules also flag additional areas for future rulemaking, such as the basis for classification of critical technologies and the definition of “emerging and foundational technologies”. Practically speaking, these changes lay the framework for a more far-reaching, dynamic and powerful CFIUS that is in the process of transforming how acquisition and investment transactions are being sourced, structured, financed and executed. Even before the impact of the COVID-19 pandemic, many foreign jurisdictions were evaluating the adequacy of their foreign direct investment regimes in the face of new technologies that could become core strategic assets, on the one hand, and the convergence of economic and geopolitical competition with China, Russia and certain other countries, on the other hand. Accordingly, a number of countries such as Australia, France, Germany and Spain have recently passed legislation to expand the scope of their review along similar lines as the United States. FIRRMA has expanded CFIUS so that it no longer covers only foreign acquisitions of controlling interests in relevant companies. Going forward, CFIUS may review any non- passive, non-controlling foreign investment in a U.S. business that produces, designs, tests, manufactures or develops “critical technology” in 27 specified sensitive industries identified according to North American Industry Classification System (“NAICS”) codes, such as electronics, semiconductor manufacturing and nanotechnology/biotechnology research and development. The U.S. Department of the Treasury has signalled that it will move away from classification based on self-reported NAICS codes towards one based on required export control licences in future regulations. Critical technologies include: defence articles or defence services on the U.S. Munitions List set forth in the International Traffic in Arms Regulations (“ITAR”); items on the Commerce Control List set forth in the Export Administration Regulations (“EAR”) (when controlled for specific reasons); certain specially designed and prepared nuclear equipment, parts and components, materials, software, and technology; select agents and toxins; and “emerging and foundational technologies”. Further, under the final rules’ “substantial interest” definition, an investment by a foreign person that constitutes at least a 25% voting interest in a TID US Business and where the foreign person itself is at least 49% controlled, directly or indirectly, by a single foreign government, will trigger a mandatory filing with CFIUS; however, in the case of a private equity fund, such minimum 49% interest needed to qualify as a “substantial interest” must be in the general partner, not the limited partnership. Further, real estate control and non-controlling transactions (whether structured as a sale, lease or concession, whether involving developed or undeveloped land) involving airports or maritime ports or real estate in close proximity to a U.S. military installation or other sensitive U.S. government properties, are subject to CFIUS review. The U.S. Department of Commerce released on March 25, 2020 a web-

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Troutman Pepper LLP USA based reference tool to assist potential investors in determining the applicable geographical proximity or extended range for specific addresses that would trigger CFIUS jurisdiction. Scope of FIRRMA For purposes of determining a “foreign person” under CFIUS, the final rules clarify that private equity funds with foreign limited partners will not on that basis alone be “foreign persons”, and therefore will fall outside the scope of CFIUS. To do so, they must meet certain criteria including management exclusively by a U.S. general partner who is controlled by U.S. persons, the absence of approval or block rights by investors over general partner decisions and the lack of access by investors to material non-public technical information. Moreover, the “principal place of business” of any fund (i.e., the primary location where the fund’s activities are primarily directed, controlled or coordinated on behalf of the general partner) must be within the United States, as stated in its most recent filing (whether tax, regulatory or otherwise) with any federal, state or foreign government, unless shown to be subsequently changed to the United States. Conversely, private equity fund structures that provide foreign limited partners with, among other things, access to material non-public technical information, board or observer rights or any other involvement in substantive decisions (other than through the voting of shares) of certain U.S. portfolio companies will not fall outside CFIUS’ jurisdiction because such investments are non-passive and accordingly, a limited partner may have a filing obligation. Funds that may be foreign persons for CFIUS purposes will need to be careful in understanding the export control status of the businesses they propose to invest in, and monitor any subsequent changes in their rights or ownership that could trigger CFIUS’ review. The U.S. portfolio companies at issue are those dealing with the use, release or maintaining of sensitive personal data of U.S. citizens, the use, acquisition or release of critical technologies or the management, operation or supply of critical infrastructure. Smaller or emerging companies often do not have the resources or sophistication to assess whether their products and technologies are subject to export control regulations and therefore possibly CFIUS. Further, the U.S. government is continuing to update their export control regime for emerging and foundational technologies, adding further uncertainty to whether a CFIUS filing could be triggered. Accordingly, investors focused on early-stage technology will need to tread carefully, both to avoid incorrect analysis of a mandatory CFIUS filing (for which penalties can be as severe as unwinding the transaction or up to the value of the transaction) as well as allocating identified CFIUS- related deal risk contractually in acquisition/investment documents, whether through closing conditions, stringent interim efforts, covenants addressing potential mitigation measures and use of reverse termination fees payable through enforceable credit support mechanisms. The definition of “foreign person” under the final regulations exempts investors from the mandatory filing requirement for certain non-controlling, non-passive investments through a “white list” of “excepted foreign states” with particularly close intelligence-sharing relationships with the United States, conditionally limited to Australia, Canada and the United Kingdom. Importantly, these investors continue to remain subject to CFIUS jurisdiction and review for control transactions. “Excepted investors” must be organised under the laws of, and have their “principal place of business” in, the United States or an excepted foreign state, and must have at least 75% of their Board members and each person holding at least 10% of the voting interest of the excepted investor, be nationals from the United States or excepted foreign states and not dual nationals with other states. Another area to monitor is the mandatory filing triggered by non-controlling investments in companies that maintain or collect “sensitive personal data”, which, given current data-rich business models, could cover an extensive set of companies today. The final rules indicate that companies that collect, or

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Troutman Pepper LLP USA have the intent to collect, sensitive data on at least 1 million persons over the preceding 12 months would be included as a TID US Business, and that such “sensitive personal data” may include subsets of identifiable genetic, mental or physical health, geolocation, biometric or financial hardship data. CFIUS recognises the potential for foreign actors to exploit, blackmail or monitor individuals through access of personal and medical data. New CFIUS filing fees effective May 2020 In March 2020, proposed regulations to impose filing fees with CFIUS were released by the U.S. Department of the Treasury, which became effective May 1, 2020. The fee structure is tiered based on transaction value, similar to U.S. antitrust filing fees, and ranges from zero for deals valued at less than $500,000 to a maximum of $300,000 for deals valued at a minimum of $750 million. The fees are payable at the time of submission of formal written notice with CFIUS, whether or not the filing was voluntary or mandatory. Filing the five- page declaration discussed below, whether voluntary or mandatory, does not trigger filing fees. Partly as a result, we may see more short-form declarations filed with CFIUS. Filings and declarations A declaration must be filed at least 30 days prior to the closing of a transaction. Upon receiving a declaration, CFIUS will begin a review process, which is statutorily limited to 30 calendar days, as opposed to up to several months for a full standard notice. Timelines may be further extended as a result of office closures, remote working arrangements, and limited access from home to classified information, as necessitated by COVID-19 responses. Upon completion of the review of a declaration, CFIUS may: (i) request that the parties file a full standard notice; (ii) inform the parties that CFIUS is unable to reach a decision and that the parties may file a full standard notice regarding the transaction; (iii) initiate a unilateral review of the transaction; or (iv) clear the transaction. There is no safe harbour other than affirmative clearance. Failure by the parties to file mandatory declarations may result in civil penalties up to the full value of the transaction. CFIUS may negotiate mitigation agreements to address national security risks of particular transactions and, in extreme cases, has authority to unwind a transaction. Mitigation measures historically have included: divestiture of the U.S. business; limiting the transfer of certain intellectual property; providing that only U.S. citizens handle certain products and services and that they are located only in the United States; limiting access to certain technology, information and government contracts to designated persons; and excluding sensitive assets from the transaction. CFIUS has imposed monetary penalties (e.g., a $1 million penalty) for violations of mitigation agreements and interim orders. The declaration is a five-page filing, instead of the longer 45-page full standard notice. However, while the intent of these short-form declarations may have been to streamline and expedite the review process, it has not yet resulted in quicker review by CFIUS staff already at capacity. In most cases, these declarations will end up in the “regular” review process, requiring submission of the lengthier full notice filing, particularly if there is any complexity or perceived risk. The desired streamlining is expected to occur for low-risk transactions. Further, CFIUS is expected to increase review of, and enforcement actions with respect to, transactions that do not make a CFIUS notification. Recent transactions: Grindr, PatientsLikeMe, TikTok and others In a transaction that highlighted the reach of CFIUS in 2018, the U.S. President blocked, through executive order, the $117 billion hostile bid by Broadcom, a Singapore chipmaker, to acquire California-based Qualcomm, citing national security concerns in ordering both companies to immediately abandon the proposed transaction. This move came soon after CFIUS issued a negative recommendation. Pointedly, CFIUS expressed concern that

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Qualcomm and, by extension, the United States, could be disadvantaged in the race to develop next-generation 5G wireless technology against rivals such as China’s Huawei Technologies Co., the largest supplier of telecommunications network equipment and the second-largest maker of smartphones, which in May 2019 was added to a U.S. trade blacklist. The swiftness of the decision was broadly seen as the U.S. President leveraging escalating tension with China to send a clear message about foreign investment in American technology. In March 2019, CFIUS ordered a divestiture by a Chinese gaming company, Beijing Kunlun Tech Co. Ltd. (“Kunlun Tech”), of its interest in Grindr, LLC, a popular LGBTQ dating application, which includes a user’s location and HIV status. In that transaction, CFIUS may have focused on the potential vulnerability to blackmail of military and intelligence officers whose data was available to the application. In April 2019, CFIUS forced a Chinese digital health company, iCarbonX, to divest its 2017 majority stake in PatientsLikeMe, Inc., a U.S. healthtech start-up which provides an online platform to help patients locate others with similar health conditions based on the collection of personal and health data. The PatientsLikeMe transaction was small at $100 million and neither that deal nor the Grindr investment had resulted in a CFIUS filing. In March 2020, President Trump issued an order requiring Beijing Shiji Information Technology Co., a publicly listed Chinese company, to divest its holdings in StayNTouch, Inc., which provides cloud-based software services for the hotel management industry, years after its initial investment in 2016, due to concerns over accessing hotel guest personal and financial data. CFIUS was authorised to implement measures to verify compliance with the order. Since the end of 2019, members of Congress have called on CFIUS to investigate the popular video-streaming app, TikTok, owned since 2017 by a Chinese parent, ByteDance, due to concerns over censorship of political protests in Hong Kong and the ability to amass personal data, particularly as a result of heavy use during the COVID-19-related lockdowns. The company is supposedly in mitigation discussions with CFIUS. Areas to watch for future dealmaking There are several areas to watch as CFIUS continues to evolve through future regulations: the definition of emerging and foundational technologies; the interplay with future export control legislation; and in light of the current global COVID-19 crisis, a sharper focus on supply chains, healthcare and pharmaceutical investments and acquisitions as potential TID US Businesses. Healthcare is included as “critical infrastructure” and accordingly, protecting the domestic supply chain of essential medicines, ventilators and protective equipment is paramount. Similarly, biotechnology is included as a “critical technology” such that deals with foreign investors in this industry in connection with vaccine development, testing and treatment could present CFIUS risk. The final rules further clarify that joint ventures located overseas between foreign and U.S. companies, “incremental acquisitions”, bankruptcy sales and certain debt transactions by foreign lenders (where on a likely default, they would exercise control over a sensitive U.S. business or obtain certain sensitive information) may now fall under CFIUS review. Investors and companies should be aware that CFIUS may not review an initial investment but may decide to review an add-on investment or additional round of financing that results in materially different governance rights. Transaction parties should be aware of a rapidly expanding sphere of what might constitute “national security” which could incorporate genetic information or sexual orientation to less technical, but nonetheless essential, supply chains. Technology and consumer companies may be unpleasantly surprised to find their transactions now within CFIUS’ ambit, even years after an acquisition or investment. Additional proposed rules are being issued by CFIUS at the time of finalising this chapter that, among other things, would expand mandatory filings for non-passive investments in “critical technologies” by eliminating the

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Troutman Pepper LLP USA sensitive industry nexus and tying these more closely to export control rules; therefore, investors and companies should closely monitor this space. Antitrust In connection with the antitrust aspect of transactions, 2019 saw more extensive scrutiny from the U.S. Department of Justice (“DOJ”) and the U.S. Federal Trade Commission (“FTC”), the chief antitrust/competition regulators in the United States, of the technology sector’s acquisition of nascent competitors and continued attention to “vertical transactions” with a counterparty’s customers or suppliers. Towards that end, the FTC created a new Technology Enforcement Division to focus on technology mergers, which is reportedly reviewing Facebook’s and Google’s prior acquisitions to determine whether they were part of an anticompetitive strategy. The FTC and the DOJ also issued draft vertical merger guidelines in January 2020. In the run up to the U.S. Presidential election in 2020, candidates have been calling attention to the dominance of certain large technology companies and even calling for them to be broken up. In 2019, the DOJ blocked a proposed $360 million acquisition by Sabre Corporation of Farelogix, Inc., which was then cleared by a U.S. court in April 2020, only to be blocked by the UK Competition Authority, finally resulting in the termination of the deal in May 2020. The $85 billion purchase by AT&T of Time Warner was challenged by the DOJ as the first litigated vertical merger challenge in recent memory and ultimately dismissed on appeal with the D.C. Circuit Court in February 2019. The FTC went on to clear vertical mergers between Staples/Essendant, Fresenius/NxStage and UnitedHealth/DaVita over the minority objections of certain FTC Commissioners. Another notable trend of 2019 was more activism on the part of state attorneys general, which is evidenced by the suits by certain attorneys general to prevent T-Mobile’s $56 billion merger with Sprint, the third- and fourth-largest mobile providers, even though the DOJ and the FTC cleared it after requiring certain divestitures. A federal court rejected the states’ claims and enabled the transaction to close. Finally, antitrust authorities are also monitoring no poach agreements among employers since issuing guidance in 2016 that they could be subject to criminal antitrust violations. Several state attorneys general once again disagreed with the DOJ over its permissive views on private litigation relating to no poach provisions in franchise agreements.

The year ahead Any predictions regarding future performance of the M&A markets were upended by the outbreak of COVID-19. Hopes of maintaining momentum from 2019 were dashed in March 2020. In the aftermath of the COVID-19 outbreak, buyers are beginning to test their ability to terminate transactions for reasons relating to the outbreak and related government responses. For example, a prominent casualty of the COVID-19 pandemic was the $525 million sale of a majority stake in Victoria’s Secret, the lingerie company, by L Brands to Sycamore Partners. Sycamore Partners claimed that L Brands had breached the transaction agreement by furloughing employees and closing retail stores. Rather than attempting to force the issue in litigation, the parties mutually terminated the agreement without the payment of any break fees or expense reimbursement. Another example where the parties mutually agreed to terminate without the payment of any fees was the proposed $6.4 billion all-stock merger between aircraft parts suppliers Hexcel Corporation and Woodward, Inc. A number of other buyers involved in pending transactions that were executed prior to the COVID-19 pandemic are seeking to terminate deals by either arguing that an MAE has occurred in connection with the COVID-19 outbreak or that the sellers breached the interim

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Troutman Pepper LLP USA covenant to operate in the ordinary course of business by taking extraordinary actions in response to the COVID-19 outbreak. The home goods retailer Bed Bath & Beyond filed suit against 1-800-Flowers.com, Inc. in response to a unilateral action taken by 1-800-Flowers to delay the closing of the $252 million purchase of the PersonalizationMall.com business for the stated purpose of determining whether an MAE had occurred. Although the transaction agreement did not contain a specific exclusion for pandemics from the definition of MAE, Bed Bath & Beyond maintains that no MAE occurred because the COVID-19 pandemic did not have a “disproportionate effect” on the target company, as often required by carve-outs to the definition of MAE in acquisition agreements. Another transaction that has resulted in litigation is the acquisition of dine-in theatre chain Star Cinema Grill by Cinemex Holdings USA, Inc.; Cinemex has subsequently filed for Chapter 11 bankruptcy protection. According to Star Cinema, Cinemex refused to close the transaction because of the COVID-19 pandemic. In this case, the MAE clause specifically excluded epidemics, pandemics and outbreaks from the definition, other than to the extent they had a disproportionate impact on the target. In the case of the proposed acquisition of Level 4 Yoga, a franchisee yoga studio, by CorePower Yoga, Level 4 Yoga filed suit against CorePower Yoga after CorePower Yoga alleged that, among other things, Level 4 Yoga had violated the covenant to operate in the ordinary course of business by shutting down its studios in response to government directives without seeking buyer’s consent. Level 4 Yoga is seeking damages and legal costs, as well as a declaratory judgment that the purchase agreement remains in full force. We expect to see more such litigations arising out of pending transactions as the pandemic continues. A heightened level of deal-related litigation is expected to continue until the global economies recover from the COVID-19 crisis. Potential purchasers may be looking at declining financial situations for themselves or for the target companies and rethinking whether to proceed with previously agreed-upon acquisitions. In the meantime, for any transactions that are entered into after the initial outbreak in March and April 2020, parties are expected to specifically address the pandemic in the context of the MAE definition, extend timetables in anticipation of regulatory agency delays and clearly define actions that a target may take in response to the outbreak without violating the interim covenant to operate in the ordinary course of business. Despite Delaware’s landmark Akorn, Inc. v. Fresenius Kabi AG decision in 2018 finding the occurrence of an MAE, it is unlikely that the COVID-19 pandemic will ultimately result in many additional findings of an MAE in order to provide a valid termination right to a buyer because of the unique facts of the Akorn case. We also expect to see an increase in litigation against Boards of Directors and management in connection with second-guessing how companies severely affected by COVID-19 have responded to the crisis, from decisions relating to financings, entering or terminating strategic transactions to handling communications to employees, customers and shareholders on issues affecting public health and safety. The impact of COVID-19 on future M&A transactions is continuing to unfold. Slowing economies in key regions due to COVID-19, stricter foreign investment review regimes, uncertainty over the impending U.S. Presidential election and the spectre of an escalating trade war continue to concern investors. The election may offer competing visions for how to drive sustainable and inclusive economic growth, with special attention to struggling private equity-backed retail and healthcare companies as well as proposals seeking to “rein in” certain aspects of the private equity industry. After a rough start, government agencies have transitioned to virtual working along with the court systems, and all parties are now looking ahead to staged reopenings of the economy implementing varying restrictions. Similarly, as transaction parties come to resign themselves to the “new normal” for the foreseeable future,

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© Published and reproduced with kind permission by Global Legal Group Ltd, London Troutman Pepper LLP USA they are beginning to learn to source, diligence and fund potential transactions without physical meetings and site visits and using new technological tools of collaboration and communication to bridge the gaps. Nonetheless, given these constraints and expected delays in obtaining antitrust and other regulatory approvals, transactions will take longer to execute. This challenging environment casts a spotlight on the potential for disruptions in upstream supply chains and downstream end-markets as a part of business and legal diligence for new transactions. Add-on and roll-up transactions and acquiring carved-out assets from strategics are likely to continue as a sizeable portion of overall deals. The duration of the pandemic as a severe global public health threat without an effective treatment or vaccine will significantly determine the duration and severity of the economic downturn. While it is still relatively early in what could be a protracted period of an economic recession, the sellers’ market is in the midst of flipping to a buyers’ market that seeks to shift risk of further deterioration of the business to sellers. Transaction parties are expected to try to protect themselves from the uncertainty around valuation and declines in the business through more creatively structured transactions involving minority/toehold investments, private investments in public equities (“PIPEs”), earn-outs, seller notes, call options, convertible/hybrid instruments, increased management rollover amounts, reverse termination fees for failure to receive regulatory approvals, and possible specialty representations and warranty insurance products. Looking ahead, opportunistic investors, including sponsors, will seek bargain-priced assets in weakened sectors such as travel, leisure and mass transportation, while sponsors on the sell-side anticipate holding portfolio companies longer, including through transfers from funds nearing end of term and GP-led secondaries and supporting them during the downturn through recapitalisation and equity infusions, while they wait for public markets and other exit avenues to recover. As a result, distressed M&A transactions are expected to comprise a significant percentage of transactions in the next cycle, as happened during the 2008 global financial crisis. Investors will also be exploring sectors positioned for growth resulting from COVID-19 such as telemedicine, biotech, virtual collaboration platforms, e-commerce, logistics and supply chains, and food security and data security services, which may well continue to mature in the post-COVID world.

* * *

Acknowledgments The authors would like to thank Adam Dennett for his invaluable contribution to this chapter. Mr. Dennett is a Corporate Associate at Troutman Pepper LLP’s New York office. His practice focuses on the representation of public and private companies in connection with corporate governance, mergers and acquisitions, security offerings, and general corporate law. Mr. Dennett is also a member of Troutman Pepper’s hospitality, golf and resort group, where he assists with various hospitality transactions and strategic planning for hotel owners, developers, operators and lenders. Mr. Dennett holds an undergraduate degree from Cornell University’s School of Hotel Administration and a J.D. degree and an M.B.A. degree, both from Emory University. Tel: +1 212 704 6306 / Email: [email protected] The authors also gratefully acknowledge the assistance of Mr. Cagatay Akkoyun and Ms. Jennifer Lang, Associates in the New York office of Troutman Pepper LLP, with this chapter.

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Nilufer R. Shaikh Tel: +1 212 808 2709 / Email: [email protected] Nilufer R. Shaikh is a Partner at the New York office of Troutman Pepper LLP and a member of the corporate group where she focuses on mergers and acquisitions, joint ventures, minority investments, venture financings, recapitalisations, complex commercial and licensing transactions and general corporate matters. She regularly advises private and public companies, strategic, growth equity and financial sponsor clients and their portfolio companies in a variety of buy-side and sell-side transactions, both domestic and cross-border, across multiple industries, including technology, life sciences, consumer goods and manufacturing. Ms. Shaikh has also represented U.S. clients in transactions throughout Europe, Latin America, Asia, the Middle East and Australia. Prior to joining Troutman Pepper LLP, she worked at two international law firms, concentrating on mergers and acquisitions and private equity. Ms. Shaikh holds an M.A. degree in Middle Eastern Studies and a J.D. degree, both from Harvard University.

Steven Khadavi Tel: +1 212 704 6207 / Email: [email protected] Steven Khadavi is a Partner at Troutman Pepper LLP and Managing Partner of the New York office. He counsels public and private companies on complex securities matters. He regularly advises boards of directors and special committees on issues of corporate governance and fiduciary duties. He has substantial experience advising underwriters and issuers in a wide range of debt and equity financing transactions, including SEC-registered offerings, private placements, debt tender offers, consent solicitations and exchange offers. He also counsels investment banks serving as financial advisors to deliver fairness and solvency opinions. Mr. Khadavi represents clients in the United States and abroad in various sectors, including telecommunications, healthcare and consumer products. He also advises Israeli clients operating in the United States and companies and investors doing business in Israel. Mr. Khadavi holds a J.D. degree from George Washington University Law School and a B.A. degree in Economics from Clark University.

Kirk Dungca Tel: +1 212 382 7076 / Email: [email protected] Kirk Dungca is a Corporate Associate at Troutman Pepper LLP’s New York office. He concentrates his practice on mergers and acquisitions, securities law and general corporate law, regularly representing public and private companies in a variety of domestic and cross-border transactions, including acquisitions, dispositions, auctions and joint ventures, and corporate governance. In addition, he has counselled numerous non-profits in general corporate and commercial matters and individual pro bono clients in immigration and asylum cases. Mr. Dungca holds a J.D. degree from the University of Minnesota, as well as a B.S. degree in Applied Mathematics and a B.A. degree in Economics from the University of California, Los Angeles.

Troutman Pepper LLP 875 Third Avenue, New York, NY 10022, USA Tel: +1 212 704 6000 / URL: www.troutman.com

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