Slovenia: The International Comparative Legal Guide To: Mergers And Acquisitions 2015 – Slovenia Chapter

1 Relevant Authorities and Legislation

1.1 What regulates M&A?

In Slovenia, different aspects of M&A are regulated by different bodies of law. The company law aspects (corporate governance, corporate finance, changes of the corporate form and mergers) are subject to the Companies Act. Certain aspects of takeovers of public companies (the mandatory bid rule, the takeover offer process, target defence restrictions) are regulated by the Takeovers Act. Moreover, the Markets in Financial Instruments Act and the Ljubljana Stock Exchange Rules provide a regulation of the capital markets aspects of M&A. The Slovenian M&A framework is also set by regulations provided for, inter alia, by the Prevention of Restriction of Competition Act, the Employment Relationship Act, the Code of Obligations and the Law of Property Code.

Certain sector-specific regulations, e.g., the Insurance Act, the Banking Act, the Investment Funds Act, and the Media Act, etc., provide for special regimes with respect to mergers/acquisitions of certain regulated corporate entities.

Certain additional requirements with respect to acquisitions and reorganisations of municipality/state-owned companies are governed by the Public Finance Act.

In the course of 2013 and 2014, the legislative measures geared at mitigating the impact of the financial crisis (e.g. the legislation establishing the Slovenian "bad bank") and facilitating the privatisation process (e.g. the legislation establishing and regulating the status of the Slovenian Sovereign Holding, "SSH") have been seen to impact M&A transactions in respect of both state and privately owned target companies (see question 10.1 for further information).

1.2 Are there different rules for different types of company?

The takeovers regime stricto sensu (the Takeovers Act – mandatory bid rule, the takeover offer process, target defence restrictions) only applies to acquisitions of (i) listed companies (i.e. joint-stock companies, the shares of which are admitted to trading on an organised market), and (ii) non-listed joint-stock companies if certain requirements regarding the size of the target company are met (at least 250 shareholders or total assets of at least EUR 4 million).

Similarly, capital markets regulations (such as market transparency and market abuse) only apply to such companies. For example, the Financial Instruments Market Act provides for certain reporting obligations with regard to stakebuilding in a listed company. Once a single shareholder (option holder, a person entitled to jointly exercise voting rights, etc.) has reached 5, 10, 15, 20, 25, 33, 50 or 75% of all voting rights in a public listed company (or if its stake has fallen below such a threshold), it is obliged to notify the management of the respective company of such fact. In turn, the company management is obliged to publish the fact that such an acquisition has been effected. This obligation applies mutatis mutandis to a non-listed joint-stock company that is subject to the Takeovers Act.

These rules do not apply to companies falling outside the purview of the Takeovers Act.

1.3 Are there special rules for foreign buyers?

As a rule, foreign buyers (especially EU/EEA-based buyers) are subject to the same regulations and requirements as the Slovenian buyers. Specific restrictions may apply to non-EU/EAA companies buying real estate in Slovenia; however, a Slovenian incorporated company may serve as an SPV for such purpose (see however below as regards the EU sanctions regime regarding the Russian Federation).

Certain sector-specific regulations (see question 1.4 below) provide for certain additional conditions that are to be met by an acquirer of a shareholding in certain regulated entities in order to obtain a respective authorisation by the competent public authority.

As of 2014 special rules apply for investors from the Russian Federation. In particular, certain black-listed individuals are prohibited from acquiring the shares or assets of Slovenian entities and concluding certain other transactions that pertain to the parties or assets located in Slovenia. Since the sanctions are aimed at beneficial owners, SPVs cannot be used to conceal the ultimate ownership of the acquirer. The sanctions are in line with EU regulations enacted on the matter. The application of the EU sanctions by Slovenia is further detailed by the Act Relating to Restrictive Measures Introduced or Implemented in Compliance with Legal Instruments and Decisions Adopted within International Organisations and the Decree on restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, and implementation of Council Regulations (EU) No. 269/2014, No. 692/2014 and No. 833/2014.

1.4 Are there any special sector-related rules?

Transactions within certain business sectors (banking, insurance, fund management, media) are, in addition to the general M&A regime, governed by various sector-specific rules aimed at prudential regulation and "fit and proper" assessment. Usually, an approval by the relevant controlling public authority is required before the acquisition of a controlling stake in a regulated entity can be completed. For instance, the acquisition or sale of a shareholding in a Slovenian financial institution (e.g. bank, insurance company or fund management company) upon which the thresholds of 20, 33, or 50% of all the voting rights in such financial institution are reached or exceeded, triggers the requirement for preliminary approval by the relevant regulator (e.g. Bank of Slovenia, Slovenian Insurance Supervision Agency). Similarly, an acquisition of 20% or more shares in a daily media publishing undertaking may only be effected upon consent of the Slovenian Ministry of Culture.

1.5 What are the principal sources of liability?

In addition to contractual liability (arising from e.g. misrepresentations or breaches of undertakings within the context of the transactional documentation) and directors' duties in the process of M&A transactions, the participants in M&A transactions should consider the liability provided for non-compliance with regulatory obligations.

Most notably, these would include the obligation to duly notify the Slovenian Competition Protection Agency (the "CPA") of the merger (when triggered) or seek an approval by the competent public authority (when applicable – see question 1.4 above). For example, the completion of an M&A transaction without the prior notification/ clearance from the CPA (when required) may entail a penalty in the amount of up to 10% of the turnover that the undertaking (along with other undertakings of the same group) achieved in the past business year, to be imposed upon the undertaking obliged to notify. Further, the CPA may require the acquirer to dispose of the respective shares (or a portion thereof) within a certain period of time.

Additionally, the fines for infringement of the rules regarding bid procedures set out in the Takeovers Act (e.g. the failure of the bidder to instigate the tender offer procedure when it acquires more than 1/3 of the voting capital in the target company), may reach the amount of EUR 3,750,000. Further penalties are provided under the sector-specific regulations mentioned under question 1.4 above. In addition to a monetary fine, the acquirer will also suffer a loss of the voting rights, stemming from the shares acquired outside the tender offer procedure.

Moreover, the Financial Instruments Market Act provides for a monetary penalty for the failure to report an acquisition of a significant stakeholding (please see question 1.2 above).

Lastly, the acquirer of a Slovenian public company (joint-stock company) should take into account the provisions of the Financial Instruments Market Act regarding insider dealing and market abuse (closely mirroring the Directive 2003/6/EC on insider dealing and market manipulation). Breach of the respective provisions may, inter alia, entail a monetary fine of up to EUR 1,500,000 for the infringing undertaking (in cases of the most serious infringements), prohibition from further trading with financial instruments, as well as criminal sanctions (including imprisonment) for the responsible persons within the undertakings.

2 Mechanics of Acquisition

2.1 What alternative means of acquisition are there?

The control of a business is usually obtained by acquiring control of the corporation-legal entity owning the business. This may be implemented by way of share purchase, takeover/merger, de-merger, share capital increase in the target company or through a management agreement (where a dominant company controls the target company based on an agreement, not equity ownership). On the other hand, the acquirer may opt for acquiring control over the target business via an asset purchase.

In case of a share purchase, the investor will generally acquire control once the transfer of the title to the shares (closing) has duly taken effect. In order to gain (positive) control, the investor should acquire at least 50%+1 of the voting shares. A more efficient level of control is obtained by the acquisition of at least 75% of the voting shares in a company and full control is obtained by the acquisition of 90% of the voting shares (as the shareholders aggregately holding at least 10% interest still have certain minority blocking rights under Slovenian corporate law).

Due to the effects of the financial crisis (and the resultant widespread over-indebtedness of the Slovenian companies), debt-to-equity (D/E) swaps (acquisitions by corporate creditors of equity in their borrower in exchange for their debt claims) have emerged as an alternative means of acquiring (controlling) equity stakes. D/E swaps may either be effected on a voluntary/contractual basis (e.g. as a measure of financial restructuring pre-insolvency), or, in the context of statutory insolvency, as a result of court-sponsored compulsory settlement proceedings (implemented on a compulsory basis if supported by a sufficient percentage of eligible creditors with voting rights in such proceedings). Notably, in these circumstances, the Takeovers Act provides for certain exemptions to the mandatory takeover bid requirement.

2.2 What advisers do the parties need?

In a common M&A transaction, the parties to the deal are (depending on the size and complexity of the transaction) usually advised by legal, financial and tax consultants. With regard to specific sectors of business, additional specialised (technical, operational, etc.) advisors may be necessary (such as environmental regulation/ industry specialists).

In high-end transactions, commonly both the seller(s) and the (potential) investor(s) are additionally engaging investment banks and specialised M&A advisors (consultancy firms).

2.3 How long does it take?

The timeframe of an M&A transaction depends on the transaction structure and the eventual regulatory approvals/notifications required.

In case of bid procedures under the Takeovers Act, the bidder must, before submitting the bid: (i) publish a takeover intent declaration; and (ii) obtain an authorisation/approval of the bid from the SMA. Once the said conditions are met, the bid shall stay open for a minimum of 28 days and a maximum of 60 days.

If the transaction requires that a prior notification needs to be filed before the CPA, the general timeframe will usually be extended by up to one month for the CPA's preliminary (phase I) investigation. If the CPA decides to initiate a full investigation (in cases where the proposed transaction could lead to a market concentration significantly impeding effective competition on the Slovenian market – phase II), the CPA's decision should be expected in three months upon such initiation. The CPA has established the practice that a notification can be filed before the parties execute a binding agreement, if the undertakings concerned show a serious intent to enter into the planned transaction and disclose to the CPA all the milestones of the envisaged transaction.

2.4 What are the main hurdles?

An M&A transaction may experience hurdles in cases when preliminary notification/approval by a public authority is required (see questions 1.4 and 2.3 above). Delays are mainly caused by the formalities that must be complied with and, sometimes (depending on the sector/public authority), the lack of decisive guidelines and/ or practice – especially in cases of complex transactions.

See also question 6.3 below as regards certain specific (corporate law driven) limitations applicable to Slovenian corporates – parties to an M&A transaction.

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

In principle, the price and other transaction terms may be freely negotiated between the parties.

When the target is a public company falling within the scope of the Takeovers Act regime, the price in a public bid is subject to the restrictions provided therein. A takeover offer must be made in relation to all shares in the target (no partial bids) and the offer price (i) must be the same for all the shares in the target company/ all the shares in the target company falling into a certain class, and (ii) may not be lower than the highest price at which the bidder has obtained the shares in the target company within the past 12 months. Furthermore, if, within one year of the acquisition based on a successful bid, the bidder acquires additional shares in the target company at a higher price than the one offered in the bid, the bidder is obliged to pay the acceptors of the original bid the respective price difference. Similarly, in an event that a takeover is followed by a squeeze-out (a resolution which is passed within three months following the conclusion of the takeover), the cash compensation to be paid to the minority shareholders must be equal to the price per share paid to the shareholders in the course of the takeover bid.

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

In the prevailing number of cases, M&A transactions in Slovenia are based on cash consideration. However, other kinds of consideration may also be agreed upon.

Pursuant to the Takeovers Act, either (a) cash, (b) shares in the bidder/company controlling the bidder, or (c) a combination of the former, may be offered as consideration to the free-float in the mandatory takeover offer. In principle, the same legal regime applies to all aforementioned transaction modes.

On the other hand, in transactions implemented by way of corporate restructurings (e.g. mergers, spin-offs, etc.) cash cannot be offered as a form of compensation – share exchange is a mandatory rule. Only a very limited exception applies to the said rule, namely, in case an exchange ratio cannot be rounded up to a single share cash may be offered to compensate for the difference.

Increasingly, debt claims of corporate creditors (by way of in-kind contribution in exchange for shares in the equity) are being used as consideration in acquisition transactions within the context of either voluntary (contractual) or compulsory (by way of court-sponsored compulsory settlement) D/E swaps (see question 2.1 above for further information).

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

When a takeover offer is made to the free-float shareholders the bid must provide for the same price (and other conditions) with respect to all the shares in the target company/all the shares in the same class (equal treatment rule). Similarly, in the case of a squeeze out the same share price and exit conditions must be offered to all shareholders who are being squeezed out.

In other cases, the transaction terms may be freely negotiated between the acquirer and the selling shareholders, e.g., different terms with respect to different shareholders in the target company.

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

According to the Takeovers Act, the (mandatory or voluntary) takeover offer must be addressed to all "securities" issued by the target which are not held by the offeror; for the purpose of the respective provision, "securities" are defined as (i) shares of the target carrying voting rights, and (ii) call option warrants issued by the target. A bidder is thus not under an obligation to also purchase non-voting shares in the target company.

2.9 Are there any limits on agreeing terms with employees?

As a general rule, the employment contracts concluded by the target company shall remain in force after an M&A transaction. The acquirer is bound by/not allowed to amend the provisions of such employment contracts and employees' rights and obligations stemming from them except by way of a mutual agreement with the employees. Notably, in case of asset deals, the acquirer of a (part of) the target business must guarantee the employees the rights and obligations stipulated by a collective bargaining agreement (to the extent the seller of the business was bound by one) for at least one year after the acquisition.

In case of a legal merger, de-merger or transfer of an undertaking (by way of an asset deal), the acquirer shall be liable for the employer's obligations assumed by way of employment contracts concluded before the transaction. Moreover, both parties to the transaction are deemed jointly and severally liable for any claims of the employees arising up to the date the transfer was effected.

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

Depending on the nature of the planned transaction/its impact on the employees' position, the employer (target) must: (A) inform the employees about the envisaged measure (e.g. a change or reduction in the size of the business); (B) consult the employees with regard to the envisaged measure (e.g. the sale of the company business, winding up, corporate reorganisation, reduction of the number of employees); or (C) obtain prior consent of the employees with respect to such a measure (e.g. if actions described under (B) will result in the change of a significant number of employees). Since the above obligations are only binding on the "employer" (i.e. the management of the target), shareholder-level transactions (share sale/purchase agreements) are arguably not affected thereby.

In the context of a public takeover (governed by the Takeovers Act), the following applies: the target company and the acquirer/ offeror must immediately inform the employees (via employee representatives) of the takeover intent (decision to make a takeover offer) and make available to the employees the target board's opinion on the effects of the takeover offer. Moreover, the target board is obliged to publish the employee's opinion with regard to the takeover offer (if it receives such opinion in good time).

In practice, target company's creditors may also have a significant (indirect) influence over the acquisition process on the basis of contractual restrictions in loan agreements (e.g. change-of-control clauses and termination rights in cases of breaches of certain covenants of the target). Such an influence is amplified in cases where the target company is undergoing a (distressed) debt restructuring process – predominantly because of the (implied) reduction in the value of the equity and lender coordination.

2.11 What documentation is needed?

Documentation needed for a transfer of shares in a public company depends on: (i) the number of shares/level of control acquired (potential trigger of a CPA notification obligation/prior clearance requirement); (ii) the nature and size of the target company (if listed and/or meeting certain requirements as to the size – see question 1.2 above – the transaction will be subject to the Takeovers Act regime); and (iii) whether or not the deal is based on a (first-step) privately negotiated bilateral block acquisition (in which case a detailed share purchase agreement is usually drawn up).

The implementation of a bid procedure under the Takeovers Act requires, inter alia, the following documents: the takeover intent declaration; the bid; the bid prospectus; the opinion of the target board; the confirmation of the Slovenian Central Securities Clearing Corporation (the "CCC") that (a) a bank guarantee amounting to the consideration for all the shares that are subject to the takeover bid has been provided, or (b) alternatively, that an equal amount of cash has been deposited with the CCC; if shares are offered as consideration, a confirmation that such shares have been deposited with the CCC; and a report on the target shares which the bidder has acquired in the past 12 months (submitted on a special form), etc.

The transfer of shares in a limited liability company is effected upon the execution of a share transfer agreement in the form of a notarial deed. In order to register the transfer with the court register (publicity), the following documents must, inter alia, be executed/submitted to the court register: a share transfer agreement executed in the form of a notarial deed; the updated company's articles of association and certain other documents – depending on the specific circumstances of the case (e.g., in case of an entry of a new shareholder, a statement that all companies in which such new shareholder holds a 25% stake have settled all outstanding taxes and other public charges).

In cases of legal mergers and de-mergers, the Companies Act provides that, inter alia, the following documentation is to be executed/submitted to the court register in order to effect the transformation: the division plan (only in case of de-mergers); the draft terms of the merger; the report of the management body; the report of the financial auditor; the protocol of the general meeting of each company participating in the transformation; and the approval of the competent public authority (if applicable), etc.

2.12 Are there any special disclosure requirements?

In the context of a public takeover, the offer document must contain, inter alia, the identification of the offeror, the definition of the target securities, consideration (cash, securities, combination), the acceptance deadline and, if applicable, the threshold condition (the minimum number of shares acceptable for the offeror). If the target company is not listed, but is subject to the Takeover Act because it fulfils the additional criteria (see question 1.2 above), the offer document must further contain a (court-appointed) auditor's opinion as to whether the consideration offered for the target shares is fair/ equitable. In case of consideration in the form of securities, the offer document must contain detailed information on such securities (mirroring the requirements of the EU Prospectus Directive).

As noted above, the target board must, within 10 days of the publication of the takeover offer, publish its opinion on the effects of the proposed takeover including an indication of any prior dealings with/agreements between the board and the offeror.

Furthermore, individual members of the offeror and target company's boards must disclose any transactions with target securities which they (as natural persons) or their family members have entered into in the 12 months prior to the publication of the takeover offer.

Ad-hoc notification obligation pursuant to the Financial Instruments Market Act may also be triggered in the process. Please see questions 4.2 and 8.1 below.

2.13 What are the key costs?

The official fees due to the court register and the Official Gazette (for the compulsory publication, where applicable) are nominal. Legal advisors' and investment professionals' fees (if applicable) depend on individual arrangements with the respective legal adviser/ investment professional.

Currently, in cases that require prior notification to the CPA, a fee of EUR 2,000 shall be paid upon the filing of the notification via bank transfer. The fee due to the SMA for the issuance of an approval to the takeover bid (the Takeovers Act) amounts to 0.2% of the nominal value of the entire body of shares issued by the target company, but no less than EUR 2,000 and no more than EUR 12,000.

2.14 What consents are needed?

If the transaction takes place in a sector regulated by special rules, prior approval/permission by the relevant public supervisory body may be required. Please see question 1.4 above.

In case of a bid procedure under the Takeovers Act, the bid shall be approved by the SMA prior to publication. Please also see question 2.3 above.

Pursuant to the Prevention of Restriction of Competition Act, an M&A transaction requires prior approval by the CPA if the combined aggregate annual turnover of all the undertakings concerned (including undertakings belonging to the same group), exceeds EUR 35 million before tax on the Slovenian market in the last business year and (a) the annual turnover of the target company (including undertakings belonging to the same group) exceeded EUR 1 million on the Slovenian market in the last business year, or (b) in the event of the creation of a joint venture, the annual turnover of at least two participating undertakings (including undertakings belonging to the same group) exceeded EUR 1 million on the Slovenian market in the last business year.

If a concentration does not meet the above thresholds, but the market share of the undertakings concerned exceeds 60% within the Republic of Slovenia, the undertakings concerned are obliged to inform the CPA of the concentration (but not submit a formal notification).

In the context of privatisation, parliamentary consent for the sale of state shareholdings exceeding a certain threshold must be provided (see question 10.1 below).

See question 6.3 below as regards certain (corporate law-driven) restrictions/consent requirements applicable in M&A transactions.

2.15 What levels of approval or acceptance are needed?

In case of a – voluntary or mandatory – public offer (submitted in relation to the shares in a company subject to the Takeovers Act), the offeror is free (but not obliged) to set an acceptance threshold.

In case of private limited companies the Companies Act provides for a default statutory pre-emptive right of the existing shareholders. Articles of association of private and – to a limited extent – public companies may also require the consent of the target to the transaction in question (to be given by either the management or supervisory board or by the general meeting) and stipulate the respective voting majority requirement.

As far as (fundamental) corporate changes are concerned, the following applies: an envisaged merger or de-merger must be approved in advance by the general meeting of the (de)merging company(ies). The required minimum majority is 75% of the share capital represented at the voting in the case of a joint-stock company and 75% of the entire share capital in the case of a limited liability company. A larger majority may be provided for by the articles of association.

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

The parties to an M&A transaction are usually free to negotiate the consideration payment terms, i.e. advance payments, delayed payments, escrow payments, etc.

Nevertheless, the payment terms are strictly regulated if an investor initiates a bid procedure under the Takeover Act. First and foremost, the consideration (cash or securities) offered for the target securities must be deposited with the CCC prior to the publication of the takeover offer. In case of a successful bid procedure, the CCC is obliged to effect the payment of the deposited cash/transfer of the deposited shares to the acceptors of the bid within eight days upon having received the decision on successfulness of the bid issued by the SMA. Please see question 2.11 above.

3 Friendly or Hostile

3.1 Is there a choice?

The law itself does not distinguish between friendly and hostile takeovers. In practice, a takeover attempt is deemed hostile if it is opposed by the management and/or the supervisory board of the target company.

The Takeovers Act limits the actions of the target company's management board while the tender offer procedures are pending. In particular, a prior approval by the general meeting is required for defensive measures of the board (any steps that the board intends to undertake in order to resist the transaction such as the sale of assets, the acquisition of its own shares, the issuance of new shares/ an increase of share capital, etc.). See also question 6.3 below.

3.2 Are there rules about an approach to the target?

There are no explicit rules about the bidder's approach to the target; however, such an approach may result in the target board disclosing/publishing this fact (either voluntarily or on the basis of the target board's mandatory disclosure obligation under the Financial Instruments Market Act – inside information). Please also see question 4.2 below.

3.3 How relevant is the target board?

Practically, the cooperation of the target board is of great importance in the due diligence and negotiation process. In practice, the target board may also (indirectly) influence a takeover process by means of a written opinion on the published takeover bid (which the board is obliged to do pursuant to the Takeovers Act).

In addition, the managing bodies of companies participating in corporate restructurings (mergers/de-mergers) are obliged to prepare a written report on the transaction – legal and economic rationale of the transaction (which shall be presented for publication with the Companies Register). Note however that, in such instances, it is the general meeting that approves the transaction, bearing in mind the information contained in the managing body report. If the transaction is approved by the general meeting, the management body is obliged to execute it.

In hostile transactions, the board's tactics to resist the transactions usually require prior approval of the shareholders (please see questions 3.1 above and 8.2 below).

3.4 Does the choice affect process?

In practice, the transaction negotiation and execution processes will run more efficiently if the co-operation of the target board has been secured in advance.

4 Information

4.1 What information is available to a buyer?

A significant amount of information on the target company is publicly available. The public Companies Register (available at www.ajpes. si) provides public access to the main corporate documentation (e.g. articles of association, certain general assembly resolutions, some supervisory board resolutions, the company's legal status history, share-transfer agreements relating to limited liability companies, etc.). Most companies (public and private) are also obliged to publish their financial statements for each financial year (which, as a default rule, equals the calendar year). Certain other registers such as the Land Register (cadastre) are also available online.

Any information that is not publicly available may, in principle, only be obtained with the cooperation of the target. As a rule, an acquirer who already holds shares in the target has access to certain non-public information – on an equal basis with the other shareholders.

4.2 Is negotiation confidential and is access restricted?

In practice, negotiation is kept confidential on the basis of an agreement between the parties. However, in case of listed (public) companies, the fact that negotiations are taking place between the board and the (potential) bidder may trigger the target board's ad hoc disclosure obligation (if made public, the fact that such negotiations are taking place could have a significant impact on the target's share price). The target may, nevertheless, postpone the publication of any such inside information as long as, broadly, such withholding is not considered deceiving and the information in question is kept secret.

However, the SMA may, notwithstanding the above, request that the potential acquirer and/or the potential target company's management board disclose any ongoing negotiations, which may result in the tender offer. Even if there is no such request from the SMA, the target company's management is required to notify the SMA of any arrangements or negotiations with the bidder, or report that there are no such ongoing arrangements or negotiations, within two business days after the publication of the takeover intention.

If there is an agreement with the target company regarding the acquisition of the latter, such an agreement must be disclosed in the prospectus used in the tender offer procedures.

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

In case of public companies, the acquirer is obliged to publish a takeover intent declaration within three business days from reaching the takeover threshold. More specifically, the acquirer is obliged to inform the SMA, the CPA and the target management of its intent to submit a takeover bid and, on the same day, make the takeover intent declaration public. Within 30 days after the publication of the takeover intent declaration, the acquirer will have to publish the takeover offer along with, inter alia, a detailed prospectus containing a wealth of information on both the target company and the acquirer (see question 2.12 above).

In case of acquisitions off-exchange/outside the takeover bid process (e.g. if the acquirer enters into a direct agreement with the seller of a controlling block), the purchase price – in principle – need not be disclosed to the public.

In case there is a merger/de-merger agreement involving joint-stock companies (public or non-public), a copy of the merger/de-merger agreement is kept with the Companies Register, thus making it available to the public.

The transfer of shares in a limited liability company may be effected only on the basis of a share transfer agreement in a form of a notarial deed, which must be submitted to the Companies Register (where it is made available to the public). The same applies to the merger and de-merger transactions where the merger agreement is kept at the Companies Register. For this reason, it is common that the parties present to the Companies Register an abbreviated form of the share transfer agreement or merger/de-merger agreement, without disclosing the main parameters of the transaction – although the viability of this practice has recently been questioned in legal writing.

4.4 What if the information is wrong or changes?

In the tender offer procedure, the SMA will scrutinise the prospectus (which is an integral part of the bid documentation) for errors, discrepancies, and omissions prior to issuing its consent that the tender offer may proceed. The acquirer will be requested to correct wrong information.

If the prospectus includes false information, the persons who prepared it or took part in its preparation shall be jointly and severally liable to the holders of securities for damage if they knew of or should have known that the information was false.

The bidder may amend the takeover bid no later than 14 days prior to the expiration of the time allowed for acceptance of the bid. Once announced, the bidder may amend the offer only by:

1. offering a higher price or a more favourable conversion rate; or

2. setting a lower successful bid threshold if any.

If the bidder amends his takeover bid, it shall be considered that accepting parties that have accepted the takeover bid prior to the publication of such amendment have also accepted the amended takeover bid.

5 Stakebuilding

5.1 Can shares be bought outside the offer process?

After placing the (mandatory or voluntary) takeover offer and until its expiration, the bidder is not allowed to make any purchase of the shares outside the tender offer procedure.

In this regard, note that the mandatory tender offer process is only triggered if: (i) the target is a listed public company (or a non-listed public company meeting certain criteria with respect to size – see question 1.2 above); and (ii) the respective ownership thresholds set forth by the Takeovers Act are met. An investor is deemed to have reached the threshold: (a) upon the acquisition of 1/3 of the voting shares in the target company; and (b) each time such investor subsequently acquires 10% or more of the shares in the target company after the conclusion of a successful bid process. The obligation to submit a public bid ceases to apply once the investor has acquired 75% of all the voting shares in the target.

Note also that an investor may acquire title to shares also after having reached/exceeded the mandatory tender offer thresholds; however, such investor shall lose the voting rights from its shares in the target until a tender offer is published. There is also a monetary penalty for the investor for failing to publish the tender offer despite reaching the trigger threshold (see question 1.5 above).

5.2 Can derivatives be bought outside the offer process?

As of the publication of the takeover bid and until the expiry of the deadline for its acceptance, the bidder is prohibited from acquiring securities of the target company which are the subject of the bid (see question 5.1 above). For the purpose of the respective provision, "securities of the target company" are defined as (i) shares of the target carrying voting rights, and (ii) share option warrants issued by the target. No other limitations apply with regards to acquiring instruments relating to the target (please note however the stakebuilding disclosure triggers – question 5.3 below).

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

Pursuant to the Financial Instruments Market Act, any shareholder who: (a) directly or indirectly, acquires 5, 10, 15, 20, 25, 33, 50 or 75% of all voting shares (or call options in respect of such shares) in a public (joint-stock) company (meeting the criteria described in question 1.2 above); or (b) if the total number of its voting rights falls below any of the said thresholds, is obliged to notify the public company thereof. In turn, the respective issuing company is obliged to publish the reported change within three business days upon the receipt of such notification from the shareholder.

5.4 What are the limitations and consequences?

After the placing of the bid and until its expiration, the bidder is not allowed to make any purchase of the shares outside the bid procedure. Please see question 5.1 above for other limitations.

6 Deal Protection

6.1 Are break fees available?

In transactions between the (controlling) shareholder/seller(s) and the acquirer, the parties involved are free to agree on any potential break fees. In the past, such practice was not widespread. However, given the current volatile market conditions in Slovenia, more and more (particularly international) investors seek protection for their investment by way of introducing walk-away-rights, mostly against payment of a break fee calculated as a percentage of the total agreed purchase price.

Apart from this, Slovenian legislation provides that the party, which remains loyal to negotiations, is entitled to be fairly reimbursed for the costs suffered during the negotiations in case the opposite party breaks the negotiations without reason – culpa in contrahendo.

Given the concentrated ownership structure in most Slovenian companies, transactions where management is acting on behalf of the (non-controlling) shareholders are rare. In such instances, break fees (payable by the target) can be arranged; however, such an arrangement may be problematic from the perspective of directors' duties and financial assistance rules.

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

Slovenian legislation does not generally prohibit such arrangements between the parties and it is not uncommon that the target board undertakes not to shop the target's shares or asset for a certain period of time. For that purpose the parties usually sign a Letter of Intent or a similar legal instrument indicating the exclusivity or agree a lock out period. In any case, company or asset shopping by the board is somewhat limited on the basis of statutory restrictions to actions of the target company during the bid process (see question 6.3 below).

It should be taken into consideration, however, that no-shop or lock-out commitments might constitute a breach of the general rules on the duty of management loyalty and care. The target board has the principal obligation to manage the company in compliance with the shareholders' interest. This is why the boards are well advised to carefully evaluate the possible competing proposals before entering into a lock-out agreement.

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

In case of a tender offer process pursuant to the Takeover Act, certain statutory restrictions as to defensive actions of the target company board during the bid process are prescribed. By way of example, the target company is prohibited from increasing its share capital, acquiring own/treasury shares or from entering into transactions exceeding the normal course of business to the effect that the above listed actions are considered null and void unless approved by the general meeting of the target's shareholders with a three-quarter majority of the share capital represented. Therefore, the ability of the target company to issue shares or sell assets during the tender offer procedure is rather limited by the Takeovers Act.

The following rules apply irrespective of a tender offer process:

The issuing of (voting) shares by public companies is generally subject to a strict pre-emption right regime in favour of existing shareholders which, however, can be excluded by the statute/articles of the respective company or a 75% majority of the capital present at the voting on the resolution on the share issuance/capital increase.

Pursuant to the Companies Act, the statute/articles may authorise the management board of the respective company to increase the company's share capital up to the amount stated in the articles (authorised capital), whereas the amount of such authorised capital may not exceed ˝ of the total share capital of the respective company.

The Companies Act requires for all joint-stock companies that the transfer of assets in the value equalling or exceeding 25% of all the company's assets is approved by the general assembly, with a qualified majority of 75% of the capital present at the general assembly. However, such approval requirement has the nature of an internal restriction and has no influence on the validity of the transaction vis-a-vis third parties acting in good faith.

6.4 What commitments are available to tie up a deal?

Apart from the – legally risky – break fee, no shop and lock-out agreements, no other formal mechanisms are available. Target management may, of course, influence the shareholders by advocating for or against a certain bidder.

7 Bidder Protection

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

As a general rule, the Slovenian legislation obligates the parties to deal in good faith. Any further deal conditions may be agreed between the parties without breaching the said legal principle, and, with regard to the public companies, in compliance with the above restrictions.

In case of joint-stock companies falling within the scope of the regulation provided by the Takeovers Act, the bidder is not entitled to withdraw a takeover bid after it has been published, unless the bid cannot be executed due to circumstances beyond the control of the bidder, provided that the time limit for its acceptance has not expired. In certain cases, a voluntary bid may be withdrawn. Please note that the bidder may make the bid subject to certain conditions (such as the minimum acceptance threshold and administrative authorisations). Notably, a bidder cannot make his offer conditional upon merger control clearance.

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

There are no statutory grounds for the bidder to exercise any control over the target during the deal process.

Usually, however, the purchaser – in the context of a negotiated block deal – will reserve the right to walk away in case of deviations from course of events predefined in the share purchase agreement (MAC and ordinary course of business clauses) and/or will extract adequate commitments from the target. In this context, please also note the statutory restrictions applicable to target company boards (see question 6.3 above).

7.3 When does control pass to the bidder?

Legally, the title to shares (and the attached control rights) passes to the bidder at the moment of registration of the transfer with the CCC. In case of share transfer in a private limited company, control passes to the investor upon the execution of the share transfer agreement in the form of a notarial deed and subsequent registration of the transfer with the management of the acquired company. In case of reorganisations by way of a merger or a de-merger, the control passes to the investor/bidder upon the registration of the merger/ demerger agreement with the Companies Register.

7.4 How can the bidder get 100% control?

Pursuant to the Companies Act, the bidder who has acquired the title to at least 90% of the entire issued share capital in a joint-stock company (by way of on- or off-market transactions and/or a (subsequent) takeover bid), is entitled to squeeze out the minority shareholders against payment of a fair (market) price for the respective shares.

8 Target Defences

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

In case of listed (public) companies, the fact that negotiations are taking place between the board and the (potential) bidder may trigger the target board's ad hoc disclosure obligation, both in cases where the Takeovers Act applies, as well as in the event of stakebuilding notification pursuant to the Financial Instruments Market Act.

Apart from this, the management bodies have the general obligation to discharge their duties in the shareholders' and the company's best interests. This obligation may be interpreted as requiring that bids should be reported to the shareholders. The rules on the board of directors' activity and the management agreements may expressly provide for such a duty. Please also see question 4.2 above.

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

In the case of a tender offer pursuant to the Takeover Act, certain statutory restrictions as to the actions of the target company board during the bid process are provided for; by way of example, entering into transactions exceeding the normal course of business, acquisition of own/treasury shares or performance of any and all actions that may frustrate the bid is deemed null and void if it is not approved by the general meeting of the target. See question 6.3 above.

In cases where the Takeovers Act does not apply, the target company is pretty much free to resist the change of control as long as the capital maintenance rules, equal treatment of shareholders rule and managerial duties of care and loyalty are observed. The disposal of the assets in a joint-stock company, however, is again subject to certain restrictions. See question 6.3 above.

8.3 Is it a fair fight?

In the tender offer procedures, the SMA will supervise (to a certain extent) that there is a fair fight.

Outside the tender offer procedure and when the company which intends to acquire shares is not at the same time a shareholder in the target, the board is not required to treat such companies in a more or less favourable manner.

9 Other Useful Facts

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

Judging from past experience, the cooperation of the target company's board may prove decisive for the success of the M&A transaction.

In view of certain specific (regulated) sectors, the state regulating authority in charge may also affect the transaction whenever prior approval is required.

Further, especially in the context of privatisation-driven deals, the overall political environment and public opinion need to be considered. In the past, the Slovenian politics (and populace) was quite sceptical about the sale of Slovenian blue-chip companies to foreign investors.

9.2 What happens if it fails?

Above all, the issue of the reimbursement of the transaction costs (e.g. for due diligence process, advisers) may arise. Therefore, it is advisable that the participants agree in advance how the costs should be split (if at all).

10 Updates

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

The legislative developments as well as the M&A market landscape in 2014 have been shaped by two main factors: the legislative and governmental (rescue recapitalisation) attempts in reviving the economy in the aftermath of the financial crisis; and the ongoing process of privatisation of (wholly or partially) state-owned companies.

On the first token, amendments to the Slovenian insolvency legislation were adopted in late 2013 with the aim of facilitating financial restructurings of distressed companies. Noteworthy (from the M&A perspective) is that the respective regime now allows for an easier process of D/E swaps and acquisitions of business in the process of restructuring/insolvency. First cases of such distressed transactions are already taking place in practice.

In the same context, the Bank Assets Management Company (the "BAMC") – the Slovenian bad bank – started its operations in 2013. A substantial amount of non-performing loans have been transferred from commercial banks to the BAMC along with the collateral (often consisting of shares in Slovenian companies) which, in turn, has had implications on the M&A market. By way of example: in the course of 2012/13, banks who have acquired shareholdings in Slovenian companies on the basis of such collateral arrangements have been seen to act as sellers (usually forming selling consortia); lately, BAMC is increasingly seen as a (major) party to such sell-side transactions.

The main legal framework of the ongoing privatisation process is provided by the Slovenian Sovereign Holding Act. Under the latest amendment the Act envisages the Parliament to adopt a comprehensive list of the state-owned companies that will be put up for sale. However, the Parliament has so far only adopted one preliminary list (in 2013) which put 15 companies up for sale.

Three of the companies from the list have already been privatised while some of the transactions are currently underway. SSH became fully operational in 2014 and is now in charge of the privatisation process on behalf of the state.

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.

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