What are the key rules/laws relevant to M&A and who are the key regulatory authorities?
Mergers & Acquisitions (2nd edition)
The key corporate specific legislation governing M&A in the Norwegian market is primarily the Private Limited Liability Companies Act (1997) (the "LLCA"), the Public Limited Liability Companies Act (1997) (the "PLLCA") and the Partnership Act (1985). Further, public companies whose securities are listed on the Oslo Stock Exchange or another regulated market in Norway are also subject to the Securities Trading Act (2007) (the "STA"), the Securities Trading Regulation (2007), the Stock Exchange Act (the "SEA"), the Stock Exchange Regulation (the "SER").
In addition to the above-mentioned corporate framework, business transactions will on a case by case basis be supplemented by various and more general provisions found in, inter alia, the Contract Act (1918) (which applies to almost any contract), the Sales of Goods Act (1988), the Income Tax Act (1999) and the Accounting Act (1998) (both pertaining to transactional tax considerations) and the Working Environment Act (2005). Further, the Competition Act (2004) provides regulations on, and the procedure to intervene against, anti-competitive concentrations. Companies that are active in the Norwegian market (generally in larger transactions) must also consider and abide by the merger control provisions set out in the EEA Agreement.
The primary regulators governing the M&A activity in Norway are the Financial Supervisory Authority (Finanstilsynet) (FSAN), the Norwegian Competition Authority (the "NCA"), the Ministry of Finance, the Ministry of Justice and the Ministry of Trade, Industry and Fishery.
The main laws governing business combinations are the Myanmar Companies Act 1914 (MCA), the 2016 Myanmar Investment Law (MIL) and the 2015 Competition Law.
The MCA is expected to be replaced in 2018 by the Myanmar Companies Law, which was passed on 6 December 2017 (MCL). While enacted, the MCL will not enter into force until the issue of an implementing notification by the President of Myanmar, expected to be after the implementation of a computerised companies’ registry. Other matters required to fully implement the MCL include development of regulations and similar instruments, such as the model constitution to be used by companies to develop their company constitution. The MCL will modernise the MCA once it enters into force (for example, improving companies’ ability to manage their capital structure) and remove some barriers to foreign investment.
Importantly, companies incorporated under the MCA (and in future, the MCL) are classified as either a “foreign company” or a “Myanmar company”. This distinction is important as there are a number of legal and practical restrictions to foreign companies doing business in Myanmar. For example, in relation to mergers and acquisitions in sectors involving significant land use (such as agriculture or construction) the 1987 Transfer of Immoveable Property Restriction Law (TIPRL) prohibits the transfer of immoveable property to, or its acquisition or lease for more than one year by, a foreign company. However, while under the MCA, a Myanmar company was defined as a company with no foreign shareholding, under the MCL up to 35 per cent foreign shareholding will be permitted in such a company.
The MCL also abolishes the requirement for foreign companies to obtain a permit to trade, required under section 27A(3) of the MCA for a foreign company to carry on business in Myanmar, and which in practice, was only very rarely given for foreign companies intending to engage in trading activities.
The companies’ registrar, the Directorate of Investment and Company Administration (Dica), has committed to implement the MCL by 1 August 2018, which appears optimistic as we understand that work on the new computerised registry only began after the MCL was enacted on 6 December 2017. However, for the purposes of this guide, we have assumed the MCL will be implemented in line with Dica’s timeline and focused on the applicable requirements of the MCL rather than the MCA.
Foreign investment regulations
The MIL, which was passed on 18 October 2016, also simplified and deregulated the investment regime in Myanmar. It combined the previous local and foreign investment laws into one law and provided for a streamlined investment approval process. Generally, a permit will be required under the MIL from the Myanmar Investment Commission (MIC), which administers the MIL, for large-scale projects, including investments that are strategically important, capital intensive, have a large potential impact on the environment or local community, use state-owned land and other designated investments. MIC approval will also be required for the direct or indirect acquisition of a majority of shares or controlling interest in a company with an MIC permit or endorsement (discussed below).
In terms of the restrictions under the TIPRL noted above, the MIL permits foreign investors with an approval under the MIL to lease land for an initial term of up to 50 years (with two extensions of 10 years each). Such approval under the MIL may be in the form of an MIC permit or endorsement, which was intended to be a streamlined approval, together with a land rights authorisation. In practice, MIC endorsements have not proved to be a streamlined approval process and MIC generally requests detailed documentation as part of endorsement applications, based on the application process for MIC permits.
MIC issued the 2017 Myanmar Investment Rules (MIR) on 30 March 2017 setting out the process of obtaining approval under the MIL, and Notification No 15/2017 titled List of Restricted Investment Activities in relation to section 42 of the MIL (Negative List) on 10 April 2017, setting out the types of investments that are restricted to foreign investment, require approval of a Myanmar government ministry or may only be made through a joint venture with a Myanmar company. While the Negative List was intended to be a comprehensive list of all such restrictions, it has not proved to be so in practice, and legal advice should be obtained on the specific restrictions applicable to particular mergers and acquisitions.
Myanmar’s Competition Law (Law No. 9/2015) entered into force on 24 February 2017. This law prohibits collaborations that ‘intend to raise extremely the dominance over the market’, or lessen competition in a limited market; or would result in a market share above the prescribed amount.
Business combinations prohibited under the Competition Law may be exempt in certain circumstances, including if the acquired business is at risk of insolvency or if it will promote exports, technology transfer or productivity. As a new law, it is not yet clear how its requirements will be applied in practice. As of 15 January 2018, no regulations had been issued under the Competition Law and the competition law regulator had not yet been formed.
Myanmar passed the Securities and Exchange Law in 2013 (SEL) and established the Yangon Stock Exchange (YSX) pursuant to that law in 2015. However, the YSX is still developing as a stock exchange and as of 15 January 2018, there were only four listed companies in Myanmar, with a fifth company, TMH Telecom Public Co. Ltd., approved to list on 26 January 2018. Under Instruction 1/2016 of the Securities and Exchange Commission of Myanmar (SECM), foreign companies cannot trade on the YSX. Many issues will need to be resolved before foreign investment is permitted in companies listed on the YSX.
As summarised above, the key regulatory authorities applicable to mergers and acquisitions are Dica, MIC, YSX and SECM.
Provisions affecting mergers and acquisitions are spread in an impressive number of laws. The basic legal framework is included in the corporate codified Law 2190/1920 having an entire chapter dedicated to mergers, reverse mergers and transformations of Greek societés anonymes (SAs). Law 3777/2009 implementing the cross-border merger Directive 2005/56/EC is relevant, while Law 3461/2006 transposing Directive 2004/25/EC and Law 3556/2007 transposing the Transparency Directive 2004/109/EC in relation to information obligations in case of the acquisition of significant holdings in listed companies also apply to listed companies, along with Law 4443/2016 on market abuse. Further laws regulating special types of companies also contain specific M&A provisions, such as Law 4072/2012 on private limited companies (PCs), Law 3190/1955 on limited liability companies (Ltds) and Law 2515/1997 on mergers between credit institutions.
Law 3959/2011 regulates competition law aspects related to concentrations and applies in conjunction with the EC Merger Regulation 139/2004. The laws offering tax neutrality to transactions are of significant importance, as they have facilitated numerous M&As and corporate transformations in Greece. Tax incentives are principally provided by Legislative Decree 1297/1972, Law 2166/1993 and Law 4172/2013 (the Income Tax Code).
Greece does not have a specialised M&A market regulator. Specific issues regarding takeover bids are regulated by the Hellenic Capital Market Commission (HCMC), while concentration matters are dealt by the Hellenic Competition Commission. For transactions in regulated market areas, such as financial institutions including insurance companies, or licensed entities as, e.g. in the energy sector, the sector-specific authorities are also in charge.
1.1 Private M&A Transactions
a) Key rules/laws
In Germany, most private transactions are implemented by share deals using share purchase agreements. As the main corporate entities commonly involved in private acquisitions are limited liability companies (“GmbH”) and limited partnerships (“KG”), the key German laws governing private M&A Deals are the Limited Liability Company Act, the Commercial Code and the German Civil Code.
b) Key regulators
The German Federal Cartel Office (“FCO”) has jurisdiction to review certain transactions that meet the statutory thresholds set out in the German Act Against Restraints of Competition (“ARC”, Gesetz gegen Wettbewerbsbeschränkungen, GWB), provided that they are not subject to review by the EU Commission.
• EU Commission jurisdiction
The EU Commission has exclusive jurisdiction if a transaction results in a concentration having an EU dimension as specified by the Regulation (EC) No.139/2004 on the control of concentrations between undertakings (“EU Merger Regulation”). A transaction that is notified before the EU Commission generally precludes filings at a Member State level (so-called “one stop shop”), though exceptions may apply.
Mergers or transactions that bring about an acquisition or a change of control require merger notification with the EU Commission if the revenues of the companies involved in the transaction (i.e., “undertakings concerned”) exceed the primary or secondary statutory turnover thresholds set out in the EU Merger Regulation. Typically, transactions between companies with high revenues are subject to merger review by the EU Commission.
The primary thresholds include instances where, (a) the combined aggregate worldwide turnover of all undertakings concerned exceeds EUR 5 billion in the past financial year, and (b) each of at least two of the undertakings concerned has an EU-wide turnover exceeding EUR 250 million in the past financial year.
The secondary thresholds are more complex and require that, in respect of the past financial year (a) the combined aggregate worldwide turnover of all undertakings concerned exceeds EUR 2.5 billion; (b) each of at least two of the undertakings concerned has an EU-wide turnover exceeding EUR 100 million; (c) in each of at least three EU Member States, the combined aggregate turnover of all undertakings concerned exceeds EUR 100 million; and (d) in at least three of these same Member States, each of at least two of the undertakings concerned has turnover exceeding EUR 25 million.
There are exceptions from notifying the EU Commission if each of the undertakings concerned has more than two-thirds of its EU-wide turnover in one and the same Member State.
• Jurisdiction by the FCO
Where a transaction does not fall within the exclusive jurisdiction of the EU Commission, it may require clearance by the FCO if it constitutes a reportable concentration, and if the primary or the alternative statutory thresholds set out in the ARC are met.
In Germany, a concentration is reportable if it leads to the acquisition of the majority of the assets, 25% or 50% of the shares, or acquisition of control or of a “competitively significant influence” in another company.
A reportable concentration must be filed with the FCO if the primary thresholds are met, i.e., in the past financial year, (a) the combined worldwide turnover of the undertakings concerned exceeds EUR 500 million; (b) at least one of the undertakings concerned has turnover in Germany exceeding EUR 25 million; and (c) one other undertaking concerned has turnover in Germany exceeding EUR 5 million.
Under the alternative thresholds, if (a) and (b) above are met but neither the target nor any other undertaking concerned meets the EUR 5 million threshold then a transaction is only subject to merger notification in Germany if the value of the transaction is more than EUR 400 million, and the target company has “significant activity” in Germany. For the latter criterion, the present activity of the target company (i.e., not the last business year’s activity) is determinative.
The criteria “transaction value” and “significant activity” have recently been introduced into the ARC in June 2017 by its Ninth Amendment, and it is expected that the FCO will provide some guidance shortly. Until then, the explanatory memorandum to the Ninth Amendment provides background information.
• Transaction Value
According to the explanatory memorandum, the transaction value consists of the value of liabilities assumed by the purchaser and the purchase price-including all monetary payments, tangible and intangible assets, securities, voting rights, compensation for non-compete agreements and payments that depend on the occurrence of a certain condition typically contained in “earn out” clauses.
Transaction valuations may be more difficult in complex M&A transactions because the price may fluctuate based on performance and other factors, and the price may not be set until closing. The FCO will accept any method to calculate the purchase price as long as that method is a recognized valuation practice.
• Significant Activity
The Amendment’s explanatory memorandum offers little guidance in defining “significant activity”. The criterion must be assessed on a case-by-case basis. Factors to be considered include: whether customers are located in Germany; whether customers use the relevant products or services in the country; the maturity of the product or service; whether the market is fully monetized (e.g., free apps are not fully monetized); and whether there is a customer base (which can include a certain number of “monthly active users” in case of an app). Merely marginal operations in Germany do not constitute a “significant activity”.
For a “significant activity” to arise, no actual revenue needs to be generated. In other words, the target company can offer its users or customers free products and services. Furthermore, the explanatory memorandum states that R&D activities also count as “being active”. This could apply, for example, to pharmaceutical or technology start-up companies.
Federal Ministry for Economic Affairs and Energy Foreign ownership restrictions
Under the Foreign Trade Act (Außenwirtschaftsgesetz) and the Foreign Trade Ordinance (Außenwirtschaftsverordnung), the Federal Ministry for Economic Affairs and Energy (“MET”). (Bundesministerium für Wirtschaft und Energie, BMWi) has the authority to review foreign investments in order to safeguard the public order or national security of Germany.
Given the recent increasing number of non-European investors interested or successfully acquiring stakes in German hi-tech companies (such as Midea's takeover of German robot manufacturer Kuka), in July 2017, an amendment to the German Foreign Trade and Payments Ordinance was adopted to tighten control by the MET over acquisitions of domestic companies by foreign investors.
Depending on the business sector in which the target company is active, an acquisition of a direct or indirect stake of at least 25% of the voting rights in a German company by a non-German investor may be subject to sector-specific examinations (e.g., for sectors such as weaponry, armored military vehicles and certain security-related IT products).
Acquisitions of a direct or indirect stake of at least 25% of the voting rights in a German company by non-EU and non-EFTA buyers may require cross-sectorial examinations (e.g., for industries such as energy, telecommunications, water, and other critical infrastructure, including certain IT functions, databases and software).
Both sector-specific and cross-sectorial examinations may be prohibited by the MET on grounds of public order or security concerns. If the transaction involves a company active in one of the above mentioned sectors and industries, mandatory reporting obligations of the transaction apply. In case of cross-sectorial examinations, the MET may also initiate an investigation within three months from the date on which the MET became aware of the transaction, which may delay the closing of an M&A transaction.
Hence, a careful case-by-case analysis is required in order to determine whether an application should be made with the MET. This ensures swift implementation of the envisaged transaction.
1.2 Listed Company Takeovers and Tender Offers (“Public Takeovers”)
In Germany, the acquisition of a listed entity is regulated. A public takeover and related tender offer are not merely a matter of negotiations between a buyer and a seller. The regulatory regime provided by the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz or WpÜG, the “German Takeover Act”) must be observed.
The vast majority of potential German targets for public takeovers are organized as stock corporations (Aktiengesellschaft). There are also a few listed German companies which are organized in the legal form of a “partnership limited by shares” (Kommanditgesellschaft auf Aktien) or a European public company (Societas Europea, SE).
a) Key rules/laws
Shares of a listed company can be acquired directly by a privately negotiated acquisition from certain shareholders or via the stock exchange (both subject to mandatory offer thresholds, see below) or by public takeover (or a combination).
Public tender offers targeted at a German company admitted for trading on an organized market in Germany are mainly governed by the German Takeover Act, which does not only regulate so-called takeover offers, (i.e., offers targeted at the acquisition of control), but also regulates any other publicly made offers for the acquisition of shares in listed companies. The Takeover Act is supplemented by a number of ordinances, most importantly the Takeover Act Offer Ordinance (WpÜG-Angebotsverordnung), inter alia, setting out requirements for the content of the offer document and the pricing rules.
In the takeover context, a number of other statutory rules may be of relevance, including certain provisions of the German Stock Corporation Act (Aktiengesetz), the German Securities Trading Act (Wertpapierhandelsgesetz) as well as the German Securities Prospectus Act (Wertpapierprospektgesetz). Finally, the rules and regulations of the respective Stock Exchange may generally be relevant.
b) Key regulators
The main regulatory players in the course of the tender offer process are the German Federal Financial Services Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) ("BaFin") and the respective Stock Exchange. However, their functions are mostly procedural in nature and provide regulatory oversight to ensure an orderly offer process complying with the requisite standards of disclosure. The BaFin has authority to enforce the rules by imposing instructions for specific behavior, and administrative fines of up to EUR 1 million. Furthermore, non-compliance with certain rules triggers legal consequences by operation of law. For example, failure to comply with the mandatory bid obligation results in the loss of shareholder rights (including voting rights) for the period that the violation is on-going, under the Securities Trading Act, the ban on voting rights may last even longer.
Other than regulations and approvals relating to the takeover process, dealing restrictions and disclosures, merger control filings may have to be made pursuant to the applicable merger control laws in the relevant countries.
The following regulation is typically relevant to M&A:
- the Belgian Companies’ Code for general principles of company law and laying down the procedures for (de)mergers;
- the Belgian Code of Economic Law, which contains rules on competition;
- public takeover bids are governed by the Act of 1 April 2007 and its executing Royal Decree of 27 April 2007;
- the Belgian Civil Code, which sets out the general principles of contract law.
There are mainly two key regulatory authorities:
- the Financial Services and Markets Authority (FSMA), which is the relevant regulatory authority in respect to public takeover bids;
- the Belgian Competition Authority is the competent administrative body in relation to competition law.
1.1 In relation to all types of Vietnam-domiciled target companies, M&A transactions in Vietnam are primarily regulated by:
- the Law on Enterprises (2014) and its implementing legislation (the Law on Enterprises), from a general corporate law perspective; and
- the Law on Investment (2014) and its implementing legislation (the Law on Investment), from a general investment law perspective.
1.2 In the context of listed and unlisted public companies, the Law on Securities (2013) and its implementing legislation (the Law on Securities) are of fundamental importance and in many cases apply in precedence to the Law on Enterprises and/or the Law on Investment.
1.3 Other industry sector-specific laws also contain specific provisions regulating M&A transactions occurring within the relevant industry sectors, which are also of fundamental importance. Key indicative examples include:
- the Law on Credit Institutions (2010) and its implementing legislation (the Law on Credit Institutions), in the context of the banking and finance sector; and
- the Law on Real Estate Business (2014) and its implementing legislation (the Law on Real Estate Business), in the context of the real estate sector.
1.4 International treaties of which Vietnam is a member are also crucial and must always be considered in relation to any Vietnam-based M&A transaction (albeit to a lesser extent in relation to listed or unlisted public target companies). Most important amongst these international treaties is the market access commitments made by Vietnam to the WTO upon accession in 2006 (the WTO Commitments). In many cases the WTO Commitments are the key source of foreign ownership restrictions and related market access rules.
1.5 It is also often necessary for parties to consider other broadly-applicable laws such as, for example, the Law on Competition (2004) and its implementing legislation (the Law on Competition) (from a merger control perspective).
1.6 The key (but not the only relevant) regulatory authorities in relation to Vietnam-based M&A transactions include:
- the Ministry of Planning and Investment (at central Government level) (the MPI) and the various relevant Departments of Planning and Investment (at municipal or provincial level) (the DPI);
- the Ministry of Industry and Trade (at central Government level) (the MOIT) and the various relevant Departments of Industry and Trade (at municipal or provincial level) (the DOIT), as well as the Vietnam Competition Authority (the VCA), which falls under the jurisdiction of the MOIT;
- the State Securities Commission (the SSC), in the case of listed or unlisted public target companies; and
- the State Bank of Vietnam (the SBV), which, amongst other important functions, regulates foreign exchange control in Vietnam (foreign exchange control laws being of fundamental importance in relation to any vendors or purchasers being foreign citizens or foreign-domiciled companies or other organisations).
The key source of law relevant to private M&A is the Swiss Code of Obligations. For companies listed on a Swiss stock exchange, the Financial Market Infrastructure Act ("FMIA") contains specific rules on public tender offers, the disclosure of shareholdings as well as insider dealing and market manipulation. The provisions of FMIA are specified in three implementing ordinances, the Financial Market Infrastructure Ordinance ("FMIO"), the Financial Market Infrastructure Ordinance by FINMA ("FMIO-FINMA") and the Takeover Ordinance by the Swiss Takeover Board ("TOO"). Companies listed on the SIX Swiss Exchange ("SIX") are also bound by, among others, the Listing Rules, the Directive on Ad hoc Publicity, the Directive on Management Transactions and the Directive on Delistings. Statutory mergers are governed by the Swiss Merger Act.
The supervising authority on public tender offers is the Swiss Takeover Board ("TOB"). The TOB issues binding decisions relating to any public tender offer. Decisions of the TOB can be appealed before the Swiss Financial Market Supervisory Authority FINMA ("FINMA"). Against FINMA's decisions an appeal can be lodged with the Federal Administrative Court.
Other key regulatory authorities include the Swiss Competition Commission ("COMCO"), which is the authority for merger filings, and FINMA, which supervises companies that are active in the financial sector (banks, insurance companies, funds). Approvals from other authorities may be required in transactions in sectors that require a permit or licence (e.g. telecommunications, gambling, radio broadcasting or aviation).
The main document regulating the M&A sector in Russia is the Civil Code of the Russian Federation (Part 1) dated 30 November 1994 No. 51-FZ, which has recently undergone substantial reform aimed, inter alia, at liberalisation of legal regulation of the M&A sector and, generally, corporate and contract law.
Depending on the form of the target Russian company, Federal law ‘On joint-stock companies’ or Federal law ‘On limited liability companies’ also will apply to a transaction in question.
An important part of M&A regulation is set forth in Federal law ‘On protection of competition' dated 26 July 2006 No. 135-FZ.
Specific M&A relevant provisions can be found in other laws and regulations, such as Federal law ‘On securities market’ dated 22 April 1996 No. 39-FZ and Federal law No. 57-FZ ‘On procedures for foreign investments in companies of strategic importance for national defence and state security’ dated 29 April 2008.
The Federal Antimonopoly Service of the Russian Federation (FAS) is responsible for control over compliance with antimonopoly legislation, legislation in the field of natural monopolies’ activity, legislation on foreign investments in Russia. FAS may also issue some decrees or regulations related to some procedural aspects of M&A transactions.
A wide range of powers is being exercised by the Central Bank of Russia starting 1 September 2013. Since that time, it has been responsible for adoption of regulations, control and supervision over all financial markets.
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)
The Qatar Financial Markets Authority (QFMA) and the Ministry of Economy and Commerce are the regulators in this regard. The Qatar Stock Exchange (QE) also administers listed companies. The key laws/regulations are comprised of:
(a) Law No. (8) of 2012 (QFMA Law);
(b) Law No 11 of 2015 (the Commercial Companies Law);
(c) The QFMA Mergers and Acquisition Rules; and
(d) The QE Rulebook.