1 RELEVANT AUTHORITIES AND LEGISLATION

1.1 What regulates M&A?

On 1 January 2014, a recodification of the entirety of Czech civil law entered into force, introducing a brand new Civil Code, Act No. 89/2012 Coll., Civil Code (the "CC") and a new Business Corporations Act, Act No. 90/2012 Coll., Business Corporation Act (the "BCA"), replacing, among others, the existing Civil Code (Act No. 40/1964 Coll., the Civil Code, as amended (the "CivC"), and the existing Commercial Code (Act No. 513/1991 Coll., the Commercial Code (the "CommC")).

Essentially, the main source of legal regulation of M&A in the Czech Republic from 1 January 2014 is the CC, supplemented particularly by the BCA, which provides for a special regulation concerning business corporations (e.g. a private limited liability company, a joint-stock company), their formation, organisation and management, including residual special regulation on the acquisition of shares. Similarly, if an M&A takes the form of an asset deal, such as the transfer of an enterprise or its part, the CC provides for general rules, with the BCA setting out additional special requirements.

That being said, the general rules for a contract on the transfer of shares in a joint-stock company (in Czech "akciová společnost") will be set out in the CC and further supplemented by special rules set out in the BCA, and/or in further sector-specific regulation (see further information below). In the case of a private limited liability company (in Czech "společnost s ručením omezeným"), the vast regulation of a share (quota) transfer will be found in the BCA, and a share transfer to a non-shareholder will require the approval of a General Meeting, unless the Memorandum of Association provides otherwise. If a private limited liability company has only a single shareholder, the share is always transferable to third parties without any limitation.

Specifically, concerning a joint-stock company, the BCA regulates public offers for the purchase or exchange of securities issued by a joint-stock company to which shares in the registered capital, or in the voting rights of the target, are attached; or securities issued by a joint-stock company to which rights to obtain the such securities are attached (in Czech "účastnické cenné papíry"). Generally, this is a special regulation building upon a general public offer regulation set out in the CC that addresses both mandatory and voluntary offers, regardless of whether the company is publicly traded or not. In each case, it does not apply if: (i) the offer is made to fewer than 100 persons; (ii) the total nominal value of the affected securities does not exceed 1% of the registered capital; or (iii) the offer is made exclusively on the European regulated market. Furthermore, another relevant source of regulation in this respect is Act No. 104/2008 Coll., on takeovers (the "TA"), regulating takeover offers addressed to the owners of shares issued by a joint-stock company seated in the Czech Republic, whose securities are admitted to trading on a regulated market; i.e. it regulates situations where the bidder intends to gain control over a publicly traded company or discharged obligations under the mandatory takeover offer. The TA also addressed selected issues related to cross-border takeover offers.

In addition, the BCA also regulates the process of a minority shareholders squeeze-out in a joint-stock company, where a shareholder holding shares with a total nominal value of at least 90% of the company's registered capital and which has at least a 90% share in the voting rights in the company is allowed to apply to the Board of Directors for the convocation of a General Meeting to decide on a transfer of all remaining shares in the company to such a shareholder.

For completeness, further fractions of Czech M&A regulation are to be found in Act No. 125/2008 Coll., on Transformations, as amended, governing mergers, de-mergers, asset takeovers by a majority shareholder, and changes of a company's legal form; and in Act. No. 256/2004 Coll., on Undertakings on Capital Markets, as amended (the "AUCM") impacting primarily on publicly traded companies. Furthermore, Act No. 143/2001 Coll., on Protection of Economic Competition, as amended sets specific rules for acquisitions without cross-border effect on the EU market, and Act No. 6/1993 Coll., on the Czech National Bank, as amended regulates the tasks and competences of the Czech National Bank as a financial markets supervisory authority.

1.2 Are there different rules for different types of company?

Generally, different sets of rules are set for the acquisition of a share (quota) in a private limited liability company and for the acquisition of a share in a joint-stock company, whereby the rules for joint-stock companies also differ based on whether the shares are publicly traded or not (where a stricter regime applies to transfers of shares in listed companies).

Firstly, in the case of private limited liability companies, the transferability of shares (quotas) depends on the wording of the Memorandum of Association combined with the identity of the buyer/ acquirer. As a general rule, a shareholder may transfer its share to another shareholder without any approval, unless the Memorandum of Association requires an approval from a company's body. In case of a transfer to a non-shareholder, the transfer requires an approval of a General Meeting, unless the Memorandum of Association provides otherwise. If the company has a single shareholder, the share is always transferable to third parties without any limitation.

Secondly, for a joint-stock company, a bearer share (in Czech: "akcie na majitele") is transferable without any limitations, unless issued as a non-certificated share, in which case rules for registered shares (in Czech: "akcie na jméno") will similarly apply. In this respect, the bearer shares may only be issued as non-certificated shares or immobilised securities. On the other hand, the transferability of registered shares might be limited by the Articles of Association or the law in general, but cannot be excluded.

In this respect, further regulation applies to the shares in publicly traded companies where the rules of a mandatory takeover offer, including a supplementary takeover offer and a competition takeover offer, will apply under the TA. Generally, the mandatory takeover offer is required if and when a shareholder of the target company has obtained a decisive share (in Czech: "rozhodný podíl") in voting rights, being set to a level of at least 30% of all votes associated with securities issues by the target company, and at the same time such a shareholder controls or has acquired a control over the target company. Generally, under the BCA, a shareholder (or together with persons acting in concert) having 40% of all voting rights in a company shall be deemed as a controlling person. In such a case, the shareholder shall make a takeover offer to all other owners of the target company's securities within 30 days of the day following the date of acquisition, exceeding the decisive shareholding threshold.

In addition, if the bidder has made an unlimited and unconditional takeover offer and has consequently acquired the securities of the target company representing at least a 90% share in all voting rights and in the registered capital of the target company, such a bidder will be obliged to provide a supplementary takeover offer to all owners of the target company's securities within 30 days of the last effective date of the takeover offer.

For completeness, the TA also regulates voluntary offers, i.e. offers concerning shares in publicly traded companies made at the discretion of the bidder. Nevertheless, such regulation is used rarely in practice, and the buyer usually prefers to enter into direct negotiations, if and where permitted, and to rely solely on the CC regulation.

1.3 Are there special rules for foreign buyers?

In principle, the Czech law does not impose any extraordinary specific duties or obligations on foreign buyers.

A specific regime would apply to selected economic sectors (e.g. the banking sector, the air transportation sector, the military material trade) where an origin of a direct/ultimate buyer would be generally subject to scrutiny and/or further specific requirements. Under the TA, a bidder with a domicile or registered office outside of the Czech Republic must appoint a representative to handle takeover offer matters, being an attorney-at-law or a person who is authorised to provide investment services in the territory of the Czech Republic. This does not apply if such a bidder has a branch established in the territory of the Czech Republic.

For completeness, Czech entities with a foreign investor meeting prescribed thresholds will be subject to an annual reporting duty towards the Czech National Bank under Act No. 6/1993 Coll., on the Czech National Bank, as amended.

1.4 Are there any special sector-related rules?

Generally, an acquisition of a shareholding stake in certain entities may be subject to additional sector-specific limitations, restrictions and/or requirements (see question 1.3 above).

In particular, these would apply to businesses in the financial sector where the approval of the Czech National Bank – being a Czech financial market supervisory authority – is generally required. Accordingly, acquiring a qualified shareholding stake in a Czech bank (or an increase of such a stake to or over 20%, 30% or 50%) or becoming a controlling person in one will require the prior consent of the Czech National Bank.

1.5 What are the principal sources of liability?

In principle, the provisions addressing sanctions and/or liability can be found in majority in Czech M&A regulations, and a particular list of such provisions depends on the respective matter at hand.

That being said, a transferor of a share (quota) in a private limited liability company will stand surety for the company with respect to any debt associated with the transferred shares. Further to this, an allocation of a liability regarding an M&A deal would primarily depend on the mandatory rules governing a particular acquisition mode and the mechanics of the allocation of risks incorporated in the SPA (e.g. liability limitation, reliance language). With respect to mandatory public offers under the BCA, a failure to make a mandatory offer will result in the offeror being liable for damages or being obliged to mandatorily enter into a share transfer agreement. For completeness, minority shareholders may seek a court protection if the consideration provided for shares was not adequate within a squeeze-out procedure.

Specifically with respect to the TA, if the bidder fails to make a mandatory takeover offer, or if the takeover documentation contains false or incomplete information, the bidder will be primarily liable for damages. Furthermore, a failure to make a mandatory takeover offer results in the inability to vote the shares in the target until the mandatory takeover offer is made. Similarly, the target company's bodies are liable if their statement to the offer documentation contains any false or incomplete information. Finally, where the consideration for the shares would be inadequate, the seller may claim an adequate compensation at the court.

2 MECHANICS OF ACQUISITION

2.1 What alternative means of acquisition are there?

Generally, a share (quota) in a private limited liability company can be acquired only by a written contract (purchase agreement, gift contract). Exceptional cases of acquisition would include, without limitation to, inheritance or forced sale in a public tender or, if permitted by special legal regulation, at a public auction, in case of a default under a share pledge agreement.

With respect to the shares in a joint-stock company, these would also be primarily acquired by a mutual agreement of a buyer and seller entering into an agreement (purchase agreement, gift contract). Such an agreement would be primarily governed by rules set out in the CC, with residual special regulation contained in the BCA. Furthermore, different forms of company transformations (mergers, spin-offs) may also lead to the acquisition of shares in a joint-stock company. In addition, minority shareholders squeeze-outs, public offers, and mandatory and voluntary takeover offers under the TA (may) result in an acquisition of shares in a joint-stock company (for details, see question 1.1 above).

2.2 What advisers do the parties need?

Generally, it is well-established market practice for both contracting parties to engage legal advisors, and the buyer usually involves an experienced financial advisor to optimise the process and to further assist with tax and accounting-related matters.

Depending on the deal structure, an expert valuation may be required to determine due consideration for the shares (in case of a mandatory takeover offer, for example), or further entities must be involved (such as a bank or a security broker, if the shares are publicly traded). A buyer is also usually supported during the transaction by its investment bank.

2.3 How long does it take?

In principle, the duration of the process depends on statutory mandatory requirements and limitations, as well as on the size and specifics of the acquisition project.

Typically, following the buyer's due diligence, identified legal, financial and other risks are assessed, evaluated and reflected in the draft acquisition agreement. Such an agreement is then subject to negotiations resulting in a signing followed by an optional closing occurring several weeks/months after the signing.

The duration of the process vastly depends on the qualities of the target (e.g. regulated entity, considerable market position, etc.) and also on the underlying reasons for the transaction. Accordingly, in case of a mandatory takeover offer, under the TA several duties must be duly discharged, including the preparation of takeover documentation, expert valuation, and approval of the Czech National Bank, before the agreement may be entered into. Similarly, in case of a merger of entities holding considerable market shares in the relevant market, a merger approval from the Czech Office for the Protection of Economic Competition or the European Commission would be required. All of these requirements have a considerable impact on the transaction timing. In light of this, the acquisition process may take from a few weeks, in the case of an acquisition of a sole shareholder private limited liability company, to up to several months or even over a year, if an approval of a business sector regulator or a merger clearance is required.

2.4 What are the main hurdles?

In principle, the hurdles are profoundly connected with the statutory requirements and regulation applicable to the underlying transaction. Typically, the most burdensome processes are connected with acquisitions under the TA regime (e.g. a mandatory takeover offer), sector specific regulation (e.g. insurance companies or banks regulation) or a squeeze-out procedure. Furthermore, approval from the Czech Office for the Protection of Economic Competition or the European Commission imposes additional requirements.

2.5 How much flexibility is there over deal terms and price?

Generally, a standard share deal acquisition based on a current standard European M&A practice provides for considerable flexibility in the determination and allocation of the deal's risks, terms and/or price. Contracting parties may freely agree on the terms of the transaction and the price; alternatively, the statutory regulation would apply. The shares must be duly identified in the contract, and if the transfer will be onerous, the purchase price or its calculation mechanism should be clearly set out in the contract.

Such flexibility would not be available for a shares acquisition under the TA regime where the mandatory takeover offer must be unconditional and cannot be cancelled by the bidder. Similarly, suggested consideration will be subject to review of the Czech National Bank, and an expert valuation report may also be required to substantiate that the suggested consideration represents a fair price. The consideration must be provided within 60 days of the end of the offer term. A voluntary takeover offer under the TA provides for more flexibility while the fulfilment of respective conditions still cannot depend on the bidder. Furthermore, the voluntary takeover offer can be cancelled or modified, if properly justified and permitted in the offer documentation. If the modification relates to the consideration, it cannot be less favourable for the addressees of the offer. The bidder must notify its intention to cancel or modify the bid at least five days prior to the announcement of the changes to the Czech National Bank, which may prohibit the modification or cancellation of the bid, if it is contrary to the TA.

The consideration for shares in case of both the mandatory takeover offer and voluntary takeover offer shall be in cash or securities, or a combination of both. If the securities offered as a consideration in case of the mandatory takeover offer are not liquid securities traded on the European regulated market, cash always must be offered as an alternative consideration. The amount of consideration shall correspond to the "premium price", being the price for which the bidder or a person co-operating with the bidder acquired the target shares within the last 12 months before the bid. If the premium price cannot be determined, the bidder shall pay the "average price", being the price corresponding to the weighted average price for which the shares were traded on the European regulated market within the last six months before the offer duty arose. The amount of consideration might be modified by the Czech National Bank in order to represent an adequate consideration, and the Czech National Bank may further ask the bidder to submit an expert valuation report. That being said, the Czech National Bank may also decrease the amount of the consideration, if the bidder acquired the shares in order to avoid the bankruptcy of the target company. As always, if the shareholders do not agree with the amount of the determined consideration, they may claim determination of an adequate consideration with the court.

Finally, with respect to the mandatory public offer governed by the BCA (see question 1.1 above), the consideration shall be adequate to the value of the shares for the purposes of a mandatory public offer, and the offeror shall prove such adequacy by an expert valuation report. If the shares are publicly traded, the offeror shall prove the adequacy of the consideration to the Czech National Bank, while an expert valuation report will not be required if the offeror substantiates the adequacy of the consideration in another sufficient manner.

2.6 What differences are there between offering cash and other consideration?

Essentially, both forms may be offered under the TA, even in combination, while the provided consideration must be identical for the addressees of the offer holding similar securities (equal treatment rule). In the case of a mandatory takeover offer where securities are offered as a consideration but such securities are not liquid securities traded on the European regulated market, the bidder must offer cash as an alternative. Also, the Czech National Bank may modify the consideration or request an expert valuation report to be provided.

Substantially similar rules apply to mandatory public offers under the BCA, where the consideration may be offered in cash as well as in other securities, and adequacy of the consideration must be substantiated by an expert valuation report. Specific rules apply to a minority shareholders squeeze-out procedure, where the shareholders will receive only cash consideration in the amount determined by the expert valuation report.

2.7 Do the same terms have to be offered to all shareholders?

Under the TA, the equal treatment rule applies whereby all shareholders holding similar securities must be treated equally. To the extent the offer was modified to provide for more favourable terms, such modification shall apply equally to all shareholders, including those that already accepted the offer.

Generally, for a standard share deal acquisition based on a current standard European M&A practice with no sector-specific rules applicable, the price and other terms may be freely agreed by the contracting parties, and the equal terms rule would not apply as a matter of principle.

2.8 Are there obligations to purchase other classes of target securities?

In case of the mandatory takeover offer under the TA, the offeror must make the offer to all owners of participant securities issued by the target company admitted to the trading on the European regulated market. The term participant securities would include securities issued by the target company bearing shares in registered capital or voting rights of the target company, and securities bearing a right to acquire such securities (e.g. exchangeable bonds). In light of this, the offeror will be required to make an offer also for other securities rather than the shares, if such securities will qualify as participating securities. Generally, the TA has a wider scope than the Directive 2004/25/EC on takeover bids.

Substantially similar conclusions would apply to a minority shareholders squeeze-out procedure under the BCA, except the underlying securities do not need to be traded on the regulated market.

2.9 Are there any limits on agreeing terms with employees?

In principle, Czech law does not require approval of the transaction from the employees' side, and accordingly there are no limits with respect to the target company.

Under the TA, the offeror and the Board of Directors of the target company will inform the employees' representatives (e.g. trade unions), or single employees, if the target company does not have employees' representatives, on the publication of the takeover documentation. Furthermore, the Board of Directors of the target company will hand over all documentation obtained in connection with the takeover offer to the employees' representatives (or to the individual employees, if there are no employees' representatives), and will inform the representatives that they can make an individual statement to the offer within a set time period. The Board of Directors will also provide the employees' representatives with the statements of the target company bodies to the offer.

Generally, from the Czech labour law perspective, the employer must inform its employees, respectively employees' representatives, among others, of its economic and financial situation and of the prospects of its future development. Accordingly, a takeover offer may need to include communication with the employees, and respectively employees' representatives, if it would meet these parameters. That being said, upon the acquisition of the target company by the acquirer, the acquirer will become the new employer by the operation of law, without any impact on the existing employment relationships.

2.10 What role do employees, pension trustees and other stakeholders play?

In line with our response to question 2.9 above, employees do not play an important role in the acquisition process. While usually the employees would be informed of the contemplated acquisition, they will not be able to affect the transaction.

If the employees' participation rights exist within the target joint-stock company and accordingly the Supervisory Board consists of one-third of the company's employees, such employees would participate in the process under the TA, e.g. in the preparation of a statement of the offer. Since employees' participation rights have been abolished with effect from 1 January 2014, it may well be expected that its relevance will be decreasing.

2.11 What documentation is needed?

Generally, under the TA an offer (bid) would be an essential document with prescribed content including: (i) the identification of all participating persons; (ii) the offeror's share in the registered capital and in the voting rights of the target, as well as the share of co-operating persons; (iii) the essential data of the purchase agreement, including the identification of securities subject to the bid offer and offered consideration; (iv) the average price and, in case of a mandatory bid, also the premium price; (v) the period for acceptance of the offer; (vi) the process of the transfer of the shares and conditions and the methods of payment of the consideration; (vii) the rules for the cancellation of the offer; (viii) the intentions of the offeror with respect to the future activity of the target and its employees; (ix) the sources and manner of the financing of the consideration; (x) the law governing the internal matters of the target, purchase agreement and any disputes under the offer; and (xi) the details of the supervising authority to the offer. A mandatory takeover offer must also set out the reasons for the bid, including a description of the methods used to determine the form and amount of the consideration and details on the acquisition of the target's shares by the offeror in the last 12 months.

In specific cases, an expert valuation report on the figure of the consideration will be required, either by law or by decision of the Czech National Bank. Under the TA, the offer can be accompanied by a statement of a credible person other than the offeror confirming that the bid offer complies with the law.

Furthermore, the target company's bodies will need to prepare a statement to the offer containing an opinion of the respective body on the compliance of the offer with the target company's interests, the addresses of the offer and the target company's employees and creditors. Such a statement will also contain an opinion on the means and amount of the offered consideration.

Substantially similar documentation will be required for a mandatory public offer under the BCA: i.e. the offer itself, the statement of the target company's bodies, and an expert valuation report on the adequacy of the consideration.

Finally, a standard share deal acquisition based on a current standard European M&A practice with no applicable sector-specific rules would require only the share purchase agreement, and some possibly ancillary documentation, to close the deal (e.g. the share pledge agreement in the case of an external financing).

2.12 Are there any special disclosure requirements?

Generally, a mandatory public offer under the BCA concerning shares traded on the European regulated market would need to be presented to the Czech National Bank both for review and consideration before being published, and the adequacy of the consideration would need to be substantiated (the expert valuation report on the adequacy also may be required eventually). The offer may be published only after the lapse of a 15-day period, unless the Czech National Bank decides on its prohibition.

Under the TA, the offeror shall ensure that no premature and unequal distribution of information on its intention to make the takeover offer occurs. The bidder shall instruct all persons participating in the offer on the imposed confidentiality duty and prohibition of the use of insider information under the AUCM, and shall take all measures to prevent the dissemination of the insider information and its abuse. At the same time, the offeror must immediately disclose information that its bodies have decided to make a takeover offer or, if the bidder is a natural person, that he/she made the final decision to proceed with steps aimed at making a takeover offer, or that events occurred resulting in a duty to make the mandatory offer. Furthermore, the TA provides that the offeror may notify the target company of its intention to make a takeover offer or of its intention to proceed so that the mandatory takeover offer is established, even before this information was published, and negotiate with the target company. Once the offeror has published its intention to make the offer, the offer (bid) itself has to be published, while in the case of a voluntary public offer, the offer document can be published without the explicit consent of the Czech National Bank, and in the case of the mandatory public offer, the offer document must be approved by the Czech National Bank. The content of the offer (bid) is set out in more detail in question 2.11 above. The target company's bodies will prepare their statement to the offer, and publish such statement together with a statement of the target company's employees (if available).

Under the AUCM, a notification duty against the target company and the Czech National Bank must be discharged if a respective percentage in the voting rights is acquired or disposed of in an issuer of shares or similar securities representing a share in the issuer that is admitted to trading on the European regulated market, and where such issuer has a registered seat in the territory of the Czech Republic or in the territory of a state which is not a member of the European Union if the prospectus has been approved in the Czech Republic. The notification duty would be triggered if the buyer acquires a certain share (3% – if the registered capital of the target exceeds CZK 100,000,000, and 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50% or 75%) in voting rights of the target company, or decreases its share under these limits.

2.13 What are the key costs?

In principle, the key costs are related to the purchase price (consideration for shares) and internal costs of the buyer (including tax advisors, legal advisors, etc.). Other additional costs may include expert reports and/or the costs of the offer's publishing (public offer), as well as public notary, court and administrative fees.

2.14 What consents are needed?

As a matter of current standard European M&A practice, appropriate internal decisions of competent bodies of the buyer and/or seller typically would be sought. In principle, the target company does not have to approve or accept either the public offer under the BCA or the takeover offer under the TA. That being said, internal approvals may be required (e.g. where registered shares have limited transferability requiring a prior approval of the Board of Directors).

Furthermore, the consent of the Czech National Bank may be required depending on business sector specifics (e.g. the acquisition of an investment broker or a bank) and/or the method of acquisition (e.g. the mandatory takeover offer under the TA). Finally, the Act on Protection of Economic Competition sets economic thresholds (net turnover) triggering a need to seek approval of the respective competition authority (the Office for the Protection of Economic Competition).

2.15 What levels of approval or acceptance are needed?

Generally, an approval of the transaction should be specific enough to comprise of all particular elements of the underlying deal. Similarly, the acceptance on the buyer's side should be expressed and unequivocal, and would be typically set out in the acquisition contract.

For completeness, depending on business sector specifics and/or the method of acquisition, approvals of public authorities may be required (see question 2.14 above).

2.16 When does cash consideration need to be committed and available?

In principle, the consideration would be provided within the time period agreed upon in the acquisition contract. Exception would apply to mandatory takeover offers under the TA where the consideration must be provided within 60 days of the offer's effectiveness. For completeness, under the TA, the Czech National Bank may request the offeror to prove it has sufficient financial means and to prove the origin of such.

3 FRIENDLY OR HOSTILE

3.1 Is there a choice?

Generally, Czech regulation does not differentiate between friendly and hostile acquisitions, i.e., hostile acquisitions can be deemed as permitted.

That being said, the TA imposes a neutrality duty on the target corporate bodies whereby if and when the members of the Board of Directors or the Supervisory Board of the target company become aware of facts from which it can reasonably be expected that a takeover offer will be made, they will not implement any measures that may take away the opportunity to freely decide on the takeover offer with the proper knowledge from the offer addressees. Also, such members will refrain from doing anything that could thwart the offer until the results of the takeover offer are published, unless such an action is approved during the time for the acceptance of the offer by the General Meeting. The Board of Directors may convene the General Meeting to receive the consent to break the neutrality duty. In addition, the members of the Board of Directors, as well as the Supervisory Board, may also seek a competitive takeover offer, even without the consent of the General Meeting, or make the competitive offer themselves.

3.2 Are there rules about an approach to the target?

Generally, there are no special rules with regard to the target company from the Czech law perspective. The TA merely states, as a principle, that the target company may not be disproportionately limited in its business activity by the takeover offer.

Furthermore, the TA provides for the possibility of the offeror to approach the target even before an intention to make the offer (or duty to make a bid) is published, and liaise directly with the target company. Such measure is nevertheless rarely applied as it may be prejudicial to the transaction and hinder the successful target takeover.

3.3 How relevant is the target board?

Essentially, the role of the Board of Directors of the target company is not absolute with respect to the takeover offer.

Under the TA, the offeror has a duty to inform the target company about its intention (or duty, in the case of a mandatory offer) to make a takeover offer. The Board of Directors and the Supervisory Board must then prepare a statement to the offer within five business days from the offer documentation delivery, and comment particularly on the alignment of the offer with the target company's, offer addressees', the target employees' and creditors' interests. Such statement must also set out information on the differing opinions of the members of the Board of Directors or Supervisory Board, as well as notices if a particular member of the target's corporate bodies was appointed due to the influence of the offeror. The statement shall be delivered within two business days after its completion to the offeror and published at the cost of the offeror, and it shall also be delivered to the Czech National Bank.

The Board of Directors must also immediately inform the employees of the target company (or their representatives) about the offeror's intention to make the offer, and provide all offer documentation and inform on the possibility to make an individual statement to the takeover offer.

Most importantly, the Board of Directors may, along with the Supervisory Board and with the prior consent of the General Meeting, take measures to hinder the takeover. The members of the Board of Directors may also seek for a competitive takeover offer or file a competitive takeover offer themselves.

The BCA contains a brief regulation on the role of the Board of Directors, and it merely states that the offeror must send the public offer to the target at least 10 business days prior to its publication. The Board of Directors shall then provide the offeror with a common statement to the public offer containing similar information as under the TA.

The CC does not contain a regulation with respect to the Board of Directors in connection with a voluntary offer, though it might be regulated by the Articles of Association. The Articles may impose a requirement of a prior consent of the Board of Directors (or another body of the joint-stock company) to the transfer of registered shares. Lack of such approval would render the share purchase agreement ineffective.

3.4 Does the choice affect process?

Further to question 3.1, the Czech regulation does not distinguish between a hostile and a friendly takeover. That being said, the Board of Directors may under certain circumstances take measures against the offeror under the TA, i.e., prejudice the offer's success, while such measures would be typically taken only in case of a hostile offer. Furthermore, the bodies of the target company may themselves make a competitive offer against the original offeror.

4 INFORMATION

4.1 What information is available to a buyer?

In principle, the basic official sources of information for the buyer are the public registers maintained by the Czech public authorities.

Firstly, each business corporation has to be registered in the Czech Commercial Register kept by a respective commercial court. This register contains general corporate information about the company and its history. This register is available online on websites of the Ministry of Justice. Particularly the following data must be published for each business corporation: (i) the business name; (ii) the date of its incorporation; (iii) the legal form; (iv) the Identification No.; (v) the registered seat; (vi) the scope of business; (vii) the members of the statutory body and the supervisory body (if any); (viii) the amount of registered capital; (ix) the information on liquidation or bankruptcy; and (x) the identification of the shareholders of a private limited liability company or the sole shareholder of a joint-stock company.

The Czech Commercial Register also contains a Collection of Deeds where respective documents are displayed and publicly available, and each company is obliged to submit the respective documents thereto. The Collection of Deeds contains, in particular, the following documents: (i) the foundation documents; (ii) the annual reports or accounts; and (iii) the selected decisions of the General Meeting, etc.

Secondly, the Czech National Bank maintains registers of certain subjects (such as banks, investment companies and issuers of publicly traded shares) that contain basic information on these subjects. Such information is available through the Czech National Bank's website.

Thirdly, information on real estate owned by a specific company can be obtained either from the Czech Land Register or from a Czech public notary (or a Czech Point). The Land Registry is also available online. Fourthly, the Industrial Property Office keeps an online, searchable register of intellectual property rights. Fifthly, the Chamber of Public Notaries keeps a register of pledges for movable property or real estate that is not registered in the Land Registry, and the Chamber of Executors keeps a public register of enforcements in the Czech Republic where the executors insert details on the enforcement of court decisions, enforcement orders, as well as on the termination of enforcement and further data.

4.2 Is negotiation confidential and is access restricted?

In principle, under the TA there is limited possibility for negotiations due to the equal treatment rule excluding a possibility of negotiating on terms of the purchase agreement based on the offer. That being said, the offeror may nevertheless directly approach any of the shareholders before the offer is made, for example to seek willingness to sell. Before the offer is published, the offeror may also contact the target company and negotiate with its corporate bodies.

In each case, all persons participating in the negotiations will be under a confidentiality duty with respect to the information, and accordingly will be obliged to ensure that no premature and unequal information spreads regarding the offeror's intention to make the takeover offer. Such persons will also be obliged to instruct all persons who carry out activities for them related to the takeover offer about their confidentiality duty, and about a ban on the use of the insider information. This similarly applies to anyone gaining access to such unpublished information from the offeror or from the target company.

For the acquisition of a private limited liability company, the negotiations are usually confidential, and only the future contractual parties are involved. For public offers under the BCA, the offer is identical for all shareholders, usually with no negotiations.

4.3 When is an announcement required and what will become public?

Generally, the offeror will make public its intention to make the takeover offer in case of share price fluctuations or existing speculations regarding the takeover offer. Such information must also be provided to the Czech National Bank.

The offeror shall make the information on the offer public, once it internally decides to make such an offer or circumstances occur establishing a duty to make the mandatory offer. The Czech National Bank may upon request postpone a duty to make such information public in order to minimise damages to the offeror, if the offeror protects access to the underlying information. The offeror is also obliged to announce the offer to the Czech National Bank within 15 business days from the occurrence of the obligation to make the information public.

In principle, the method of publication of the information will be selected to eliminate any misuse of the underlying information or occurrence of market deformations (see question 2.12 for further documents and information).

The offeror shall make public the results of the whole procedure when the time period for accepting the offer expires. Such information will be made public without undue delay in the similar manner in which the offer document was published, and the offeror will also send the results to the target's Board of Directors and Supervisory Board.

Under the AUCM, if the offeror reaches or exceeds the respective share thresholds, it shall notify the Czech National Bank (for details see question 2.12).

For voluntary acquisition of a private limited liability company, the buyer will be registered in the Czech Commercial Register as a new shareholder, and such duty would also apply to a joint-stock company with sole shareholder. The share purchase agreement must also be submitted to the Collection of Deeds of the respective company kept by the competent Commercial Register.

4.4 What if the information is wrong or changes?

In principle, the consequences would depend on the type of information and/or respective circumstances.

Firstly, the TA provides for a liability for damages caused by false or incomplete information contained in the offer. If such information is relevant for the assessment of the offer, each shareholder may claim the damages suffered with respect to such incompleteness and/or incorrectness. If the offer was supported by a statement from a reliable person that the offer is in compliance with the legal regulations, such a person will be jointly and severally liable for the damages with the offeror. Furthermore, if the statement of the corporate bodies of the target company contains false and/or incomplete information, the members of such bodies will be jointly and severally liable for the damages incurred to by the shareholders.

Secondly, if the information changes in the course of the pending offer, the offeror may eventually lose interest in the target, and may attempt to modify or cancel the offer. The availability of this vastly depends on the type of offer. Accordingly, a mandatory offer cannot be cancelled; after publication it can be modified, but only to the advantage of the addressees. A voluntary takeover offer can be changed only if this is permitted in the offer document and if the change is duly reasoned, i.e., particularly if it is not dependent on the discretion of the offer. In each case, the consideration can be changed only to the benefit of the shareholders, and if the change follows the conclusion of an agreement under the conditions of the original bid, the changes will also retrospectively apply to such agreements. The offeror has to notify the Czech National Bank of its intention to cancel or modify the offer at least five business days prior to publishing the changes, and the Czech National Bank may prohibit such changes.

Finally, there is no special regulation concerning change of information with respect to voluntary acquisitions (ordinary SPA) under the BCA. That being said, if any of the parties provide the other party with intentionally false information, the former may claim damages.

5 STAKEBUILDING

5.1 Can shares be bought outside the offer process?

Under the TA, the offerors are generally allowed to acquire shares in the target before announcing the offer, without any limitations. For transactions that are not regulated by the TA – being most M&A transactions in the Czech Republic – shares can be bought outside of the offer process.

During the time period for accepting the offer, neither the offeror nor persons co-operating with the offeror are allowed to take any legal steps leading to the contractual acquisition of the securities under conditions that are different from those set out in the offer. In each case, the TA contains several exceptions to this rule, for example, if the offeror acquires shares in connection with the execution of its exchange right that has been acquired before a decision to make the offer was made. The Czech National Bank may, however, approve an exception to this acquisition/sale prohibition.

If these prohibitions are breached, the offeror and/or a co-operating person will not be allowed to exercise voting rights in the securities for three years as of the occurrence of the breach.

5.2 Can derivatives be bought outside the offer process?

Generally, if the derivatives are issued as securities by a joint-stock company to which shares in the registered capital or in the voting rights of the target are attached, or if the derivatives are issued by a joint-stock company to which rights to obtain such securities are attached (in Czech "účastnické cenné papíry"), the rules described in question 5.1 shall apply. Other derivates are not subject to the offer process under the TA.

5.3 What are the disclosure triggers for shares and derivatives stakebuilding before the offer and during the offer period?

Generally, the disclosure triggers are regulated by the AUCM. The shareholders have a notification duty towards the target and the Czech National Bank if they acquire a certain percentage of voting shares in a target that has shares or similar securities representing shares admitted to trading on a European regulated market. The notification duty applies if the buyer acquires, exceeds and/or decreases its share over 3% (if the registered capital of the target exceeds CZK 100,000,000), 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50% or 75% of the voting rights in the target company. The notification shall be done within four business days after the shareholder discovered or should have discovered that it has such a duty. The AUCM further regulates specific disclosure situations, such as the identity of the persons acting in concert with the shareholder.

5.4 What are the limitations and consequences?

In particular, if the shareholder acquires shares in the target company bearing at least 90% of the voting rights and the registered capital of the target through an unlimited and unconditional takeover offer, it has to make a supplementary takeover offer within 30 days. The consideration shall correspond at least to the consideration offered within the original offer.

If the shareholder acquires shares of 90% of the registered capital and voting rights in the target, it may squeeze out the minority shareholders from the target. For details on squeeze-outs, see question 1.1.

For further consequences please refer to questions 5.1 and 5.2.

6 DEAL PROTECTION

6.1 Are break fees available?

In principle, the Czech law does not expressly regulate the concept of break fees. Nevertheless, the CC generally provides for a possibility to agree on a severance payment. If the parties include a provision in the contract that one or either party is entitled to terminate the contract by paying a certain amount as severance, the contract shall be terminated from the time of its conclusion. For completeness, the company shall not reimburse any loss towards the bidder (costs of due diligence, etc.) for not concluding the agreements with the shareholders.

Czech law also acknowledges that the termination of negotiations of an agreement without proper reason may lead to the liability of the breaking party for damages, including expenses that the other party suffered (culpa in contrahendo).

6.2 Can the target agree not to shop the company or its assets?

Generally, the members of the Board of Directors and the Supervisory Board have to exercise their competences with due managerial care, protecting at all times the best interests of the company and its shareholders. Accordingly, the target may decide not to shop the company; however, it will consider the advantages of the offer and evaluate other options, in particular it will consider competitive offers.

Under the TA, the members of the Board of Directors and the Supervisory Board may not adopt measures that could cause the addressees of the takeover offer (the shareholders) to not have the opportunity to freely decide on the takeover offer with full knowledge of all the facts. Furthermore, the members of the Board of Directors and the Supervisory Board may take steps to hinder the acquisition only with the approval of the General Meeting.

6.3 Can the target agree to issue shares or sell assets?

The General Meeting of the target joint-stock company may decide to increase the registered capital and issue new shares. Each shareholder has the priority right to subscribe a part of the company's new shares in proportion to all shares in the company's registered capital, provided that the contributions will be monetary. In each case, the shareholders may disregard the statutory rules, and agree on the scope of their participation on the registered capital increase, i.e., it is also possible for the acquirer alone to obtain all the newly issued shares.

The assets can be sold at any time by the company, respectively upon the decision of the Board of Directors as a competent body for business management matters. Generally, within the process under the TA, the corporate bodies of the target shall refrain from any actions that may prevent or frustrate the offer, unless these steps were approved by the General Meeting of the target company. This means that if the issuance of shares or the sale of assets deters the offeror, the Board of Directors will generally need the consent of the General Meeting.

6.4 What commitments are available to tie up a deal?

Generally, the Board of Directors and the Supervisory Board shall issue their statements to the offer under the TA whereby they may recommend or confirm that the offer is in compliance with the legal regulation and provide their opinions on the offered terms. The Board of Directors and the Supervisory Board cannot provide false statements; otherwise, they will be liable for any damage incurred by the shareholders. Furthermore, the Board of Directors and the Supervisory Board may not take measures under which the addressees of the takeover offer would not have the opportunity to freely decide on the takeover offer with the proper knowledge of all underlying facts.

In principle, under the CC the acquirer may enter into a future sales contract with the shareholders under which one or both contractual parties undertake to enter into a future contract within the stipulated deadline with – at minimum generally defined – content. The obligor will be obliged to enter into the contract without undue delay after it was called upon to proceed by the other party in accordance with the agreement. If the obliged party does not fulfil its obligation to enter into the contract, the entitled party may ask the court to replace the consent by its ruling, or may request the damages resulting from the breach of the obligation to enter into the contract.

7 BIDDER PROTECTION

7.1 What deal conditions are permitted and is their invocation restricted?

Please see question 2.5 above.

7.2 What control does the bidder have over the target during the process?

Generally, the buyer does not have any control over the target unless it is a shareholder, and even in such a case its competences are rather limited. As a shareholder, the buyer may exercise its rights as stipulated by the BCA. If it is a minority shareholder, it may request the convention of the General Meeting with a suggested agenda. For the most critical company development decisions, the BCA sets higher voting thresholds in order for the General Meeting to adopt the respective resolution.

Under the TA, the corporate bodies of the target must remain neutral (see question 3.1), i.e. they cannot be under any control or influence.

7.3 When does control pass to the bidder?

In principle, the control can pass to the offeror after the completion of the takeover offer under the TA. That being said, the offeror may acquire only a few shares, and accordingly does not have to necessarily gain control over the target. In each case, the buyer may also gain control over the company even with less than 100% of shares (voting rights) because it might have a sufficient majority to vote through the resolutions at the General Meeting, for example on the election of members of the Board of Directors and the Supervisory Board. That being said, the members of the Board of Directors and the Supervisory Board must always act with due managerial care and in the best interests of the company.

For merger control issues please see question 2.3.

7.4 How can the bidder get 100% control?

Generally, the easiest way is to agree on a transfer of all shares with all the shareholders.

Another possible way is to squeeze out the minority shareholders, if the shareholder holds shares with a total nominal value of at least 90% of the company's registered capital to which 90% of voting rights are attached. In such a case the shareholder may ask the Board of Directors to convene the General Meeting to vote on a transfer of all remaining shares in the company to the majority shareholder. The adoption of the resolution by the General Meeting requires the consent of at least 90% of the votes of all owners of subscriber securities. The protection of the minority shareholders is guaranteed through claims on inadequacy of consideration provided by the majority shareholder for their shares.

For completeness, under the Act No. 125/2008 Coll., on Transformations, as amended, the shareholders or a respective body of the target may decide that the target will be dissolved without liquidation, and its assets, including rights and obligations from employment relationships, will pass over to a shareholder.

8 TARGET DEFENCES

8.1 Does the board of the target have to publicise discussions?

Under Czech law, the Board of Directors of the target is not obliged to publish minutes from its meetings. Under the TA, the Board of Directors has a duty to inform the employees, and to prepare a statement on the offer that will contain information on whether the offer complies with the interests of the target, the addressees of the offer, the employees, the creditors and an opinion on the method and the amount of consideration.

8.2 What can the target do to resist change of control?

In principle, the target's possibilities are limited without the approval of the General Meeting. The Board of Directors of the target can comment on the offer in the mandatory written statement (see question 8.1). The Board of Directors of the target is explicitly allowed to seek for a better offer or to place a competing takeover offer themselves.

With the approval of the General Meeting of the target, changes in the registered capital, the restructuring and sale of assets, or the purchase of new assets are common means of resisting a change of control.

8.3 Is it a fair fight?

Generally, there is no regulation on the relationships between the target corporate bodies and the offeror. That being said, the target's Board of Directors in particular must remain objective and must refrain from any actions that could prevent or frustrate the offer, unless approved by the General Meeting of the target (see question 8.1).

9 OTHER USEFUL FACTS

9.1 What are the major influences on the success of an acquisition?

In principle, the most important impact on the success of the acquisition would be found in the proper planning of the process, i.e. taking into account all the necessary and variable steps. Tax, accounting and legal advice would be essential. The offered consideration, as well as statements of the Board of Directors and the Supervisory Board of the target, under the TA would also play an important role.

All in all, in the process of acquiring a private limited liability company or a non-traded joint-stock company, good transactional documentation (SPA) would be vital.

9.2 What happens if it fails?

Even when the offer fails, the information duty regarding the takeover offer is unaffected. The information shall be published and delivered to the target. If the offer fails, the applicable law prohibits the offeror from bidding further for the target for one year from the publication of the offer's failure.

10 UPDATES

10.1 Please provide a summary of any relevant new law or practices in M&A in Czech Republic.

Please see question 1.1.

This article appeared in the 2015 edition of The International Comparative Legal Guide to: Merger Control; published by Global Legal Group Ltd, London.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.