This country-specific Q&A gives an overview of mergers and acquisition law, the transaction environment and process as well as any special situations that may occur in Romania.
It also covers market sectors, regulatory authorities, due diligence, deal protection, public disclosure, governing law, director duties and key influencing factors influencing M&A activity over the next two years.
This Q&A is part of the global guide to Mergers & Acquisitions. For a full list of jurisdictional Mergers & Acquisitions Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/mergers-acquisitions/
What are the key rules/laws relevant to M&A and who are the key regulatory authorities?
Key rules/laws: Civil Code, Companies Law No. 31/1990, Capital Markets Law No. 297/2004, Competition Law No. 21/1996
Key authorities: Commercial Registry Office, Competition Council (merger control), National Bank of Romania (banks and non-bank financial institutions), Financial Supervision Authority (capital markets, insurance, pensions)
What is the current state of the market?
The market is going through a favorable period, with a reasonably high number of transactions (carried out both by strategic investors and private equity funds).
Which market sectors have been particularly active recently?
From what we have seen so far the financial markets, agriculture, industrial goods and retail sectors seem to be particularly active.
What do you believe will be the three most significant factors influencing M&A activity over the next 2 years?
The global economic trends and the stability of the Romanian government and its policies (especially tax policies) appear to be the challenges to be faced by the Romanian M&A market in the next couple of years.
What are the key means of effecting the acquisition of a publicly traded company?
Publicly traded companies are acquired either by public offers (of various types, in line with EU directives and practice) or by special sale orders.
What information relating to a target company will be publicly available and to what extent is a target company obliged to disclose diligence related information to a potential acquirer?
Private (non-listed) companies publish a limited amount of information. Data concerning, amongst others, the share capital, shareholders, directors, scope of business, headquarters and minimal financial information are available with the competent Commercial Registry Office.
In addition, listed companies publish key information in line with EU-wide regulations.
To what level of detail is due diligence customarily undertaken?
The level of details is decided on a case by case basis. Time limitations (e.g. the previous three years) and materiality thresholds (e.g. exposures over EUR 100,000) usually apply.
What are the key decision-making organs of a target company and what approval rights do shareholders have?
Depending on the type of target company, the key decision-making bodies are the shareholders meeting, the board of directors (one tier system), the supervisory council and the directorate (two tier system).
The powers of the shareholders meeting are usually set out in the articles of association. In principle, any material transactions require approval from the shareholders meeting, but the materiality thresholds may differ.
What are the duties of the directors and controlling shareholders of a target company?
The main duties of the directors and controlling shareholders are: (i) acting in the best interest of the company and (ii) acting in good faith (i.e. also observing the interests of the minority shareholders).
Other duties of the directors include complying with the decisions of the shareholders meeting; and complying with the duties imposed by law and the articles of association.
Do employees/other stakeholders have any specific approval, consultation or other rights?
Employees are informed or consulted about important decisions concerning major changes in the labor conditions. Employees have a say (e.g. veto right) only if such right is set out in the articles of association or collective labour agreement (which is rare).
To what degree is conditionality an accepted market feature on acquisitions?
Most medium-size and large acquisitions are subject to various conditions (the most frequent of which is merger clearance). Even small acquisitions tend to become conditional.
What steps can an acquirer of a target company take to secure deal exclusivity?
The acquirer may enter into an exclusivity agreement with the seller. An exclusivity clause is usually provided in the memorandum of understanding (MoU) / letter of intention (LoI).
What other deal protection and costs coverage mechanisms are most frequently used by acquirers?
The parties usually cover their own costs. Break fees are sometimes used, but they are not the norm in M&A deals.
Which forms of consideration are most commonly used?
The consideration mostly takes the form of cash (either paid directly or via escrow accounts). Share consideration is rarely used.
At what ownership levels by an acquirer is public disclosure required (whether acquiring a target company as a whole or a minority stake)?
Disclosure is required by listed companies when the acquisition becomes price sensitive information (i.e., the price of the acquirer’s shares is likely to be influenced).
Private companies do not need to disclose information regarding acquisition. However, in case of these companies, the acquisition may become public as soon as the share transfer is registered with the Commercial Registry Office (in case of limited liability companies where the registration of this share transfer is mandatory).
At what stage of negotiation is public disclosure required or customary?
Please see above. Confidentiality is usually maintained until the main terms of the deal are reached.
Is there any maximum time period for negotiations or due diligence?
No. In practice, the due diligence exercise and the negotiations are completed within 2-3 months.
Are there any circumstances where a minimum price may be set for the shares in a target company?
The price is subject to negotiations by the parties and, as a matter of principle, may not be set at a value which is clearly below the real value of the shares (thus generating doubts about the purpose of the transaction).
Is it possible for target companies to provide financial assistance?
Public limited companies are prohibited from providing financial assistance (although LBO mechanisms are used in practice). Private companies may provide financial assistance, as there are no specific legal restrictions (although legal scholars sometimes contest the legality of this practice).
Which governing law is customarily used on acquisitions?
In practice we have seen Romanian law and English law as governing laws of the acquisition documentation. Other laws (e.g. Austrian) are also occasionally used.
What public-facing documentation must a buyer produce in connection with the acquisition of a listed company?
Depending on the mechanism used, usually, the buyer must prepare an offer document (plus various notes published on the stock market – regulated market or ATS).
What formalities are required in order to document a transfer of shares, including any local transfer taxes or duties?
In case of private companies, the main documents that need to be prepared in order to document a share transfer are: the sale-purchase agreement, the shareholders register, corporate approvals and registration forms with the Commercial Registry Office (in case of limited liability companies).
In the case of listed companies, the parties must complete the stock market-specific formalities for share transfers.
Are hostile acquisitions a common feature?
What protections do directors of a target company have against a hostile approach?
Directors may use poison pills (although very rare and difficult to implement in practice).
Are there circumstances where a buyer may have to make a mandatory or compulsory offer for a target company?
Yes – in line with EU directives
If an acquirer does not obtain full control of a target company, what rights do minority shareholders enjoy?
The rights of the minority shareholders vary on a case by case basis depending on the way in which they are regulated under the articles of association. Material veto rights (e.g. on budget or commercial policies) are usually not available.
Is a mechanism available to compulsorily acquire minority stakes?
Squeeze-out rights are provided only for listed companies and only under strict conditions.