This article appeared in the 2012 edition of The International Comparative Legal Guide to: Mergers & Acquisitions 2012; published by Global Legal Group Ltd, London

1 RELEVANT AUTHORITIES AND LEGISLATION

1.1 What regulates M&A?

In Slovakia, M&A transactions are primarily governed by the Commercial Code and the Securities Act. Certain sectors, e.g. banking or insurance, are further regulated by specific laws such as the Banking Act or the Insurance Companies Act. Some aspects of M&A transactions are included in separate laws, e.g. the Stock Exchange Act provides, inter alia, for listing with the Bratislava Stock Exchange (BSE), the Act on Supervision of Finance Markets defines the supervisory powers of the National Bank of Slovakia (NBS), the Act on Protecting the Economic Competition deals with the anti-monopoly aspects of transactions, the Labour Code deals with obligations when employments are being transferred, the Bankruptcy and Restructuring Act regulates certain aspects of the transfer of shares of insolvent companies. The law applicable to state-owned companies is the State Enterprise Act. Privatisation is governed by the Act on Transfer of State Property to Other Persons.

1.2 Are there different rules for different types of company?

The rules for various types of business companies are regulated by the provisions of the Commercial Code and may differ in respect to particular procedures. More strict regulation applies to the public companies that are joint stock companies and which have all or part of their shares accepted for trading on the regulated market situated or operated in a member country of the European Economic Area. The transfer of shares of public companies in the regulated securities market is regulated by the Securities Act and the Stock Exchange Act.

1.3 Are there special rules for foreign buyers?

In principle, foreign buyers are subject to the same rules as domestic buyers and hold the same rights and obligations as Slovak citizens or business entities with their seat in Slovakia.

1.4 Are there any special sector-related rules?

In certain highly-regulated sectors, e.g. banking, insurance or administration of private pensions, participants in M&A transactions must comply with specific regulatory control provisions and are required to obtain a prior approval of the NBS to their transaction and/or have certain reporting duties towards the NBS. Generally, no special approval requirements apply for M&A transactions in the standard areas of business (save for competition approvals). Nevertheless, certain types of licences are not capable of being passed to any legal successor, therefore it might be necessary to obtain them anew as a result of a M&A deal.

1.5 Does protectionism operate in favour of local owners?

In principle, the Slovak law provides for the equal treatment of the foreign and domestic entities as regards the acquisitions/disposals of shares and participations in domestic entities. No specific protectionism mechanism in favour of local owners apply in M&A deals.

1.6 What are the principal sources of liability?

Beyond tort and contractual liability (for actual damages and lost profits) pursuant to the Commercial Code and/or the Civil Code, participants may be held liable for not complying with the various notification and approval requirements, for market manipulation and insider trading, e.g. pursuant to the Securities Act or the Act on Protecting the Economic Competition. The Criminal Code provides for criminal liability of natural persons (inclusive managers of the participating companies) for fraud or capital fraud. Penalties to breaching parties may involve considerable fines or imprisonment for up to 10 years (depending on the scope of damage). Under the concept of "indirect criminal liability of legal entities" the legal entities – despite not being held directly criminally liable – may be punished by specific sanctions, namely confiscation of financial amounts or confiscation of the entity's entire assets, in cases where the crime was committed or attempted in connection with the performance of the representation, decision- making or surveillance rights in the entity concerned and the assets of the entity concerned were acquired wholly or in part from the criminal activity or its proceeds. In case of a merger or demerger, the sanction shall be imposed to the successor entity.

2 MECHANICS OF ACQUISITION

2.1 What alternative means of acquisition are there?

A control in a Slovak business entity may be acquired through various means, while the most commonly used are the mergers, acquisition of shares of private companies pursuant to the Commercial Code or acquisitions of shares of public companies pursuant to the Securities Act. An alternative means of acquisition to be mentioned are the asset deals pursuant to the Commercial Code (the purchase of an enterprise or the part of an enterprise). The majority of Slovak M&A transactions are private deals, governed by the Commercial Code. In cases involving the transfer of shares in a joint stock company the provisions of the Securities Act regulating the transfer mechanics apply too. In private transactions where at least one of the parties involved is a foreign entity or the transaction has another non-Slovak element, private agreements are often made in a foreign language and are governed by a foreign law. In case of a merger, the draft of the merger agreement has to be reviewed by an independent, court-appointed auditor or expert ("independent expert"), suggested by the board(s) of directors, unless waived by all shareholders of all participating companies. The independent expert shall prepare a written report on the draft merger agreement. The draft merger agreement is filed with the Commercial Register (collection of deeds) for all participating companies. The boards of directors of all participating companies shall prepare a detailed report explaining the economic and legal aspects of the merger and the figures indicated in the draft merger agreement (in particular the exchange ratio of shares). Next, the supervisory boards of all participating companies shall review the intended merger and submit their statement on the intended merger to the general meeting. The draft agreement must be approved by the general meetings by a 2/3 majority of votes of shareholders attending the general meeting. The resolution must be made in the form of a notarial deed. The draft agreement, reports, relevant annual accounts and reports of all participating companies must be made accessible to all shareholders at the seats of all participating companies. Upon registering the transaction with the Commercial Register, the board of directors of the successor company ensures the exchange of shares of the successor company for the shares of the terminating companies or the payment of the respective cash compensation. De-mergers basically follow a similar procedure as indicated above, with certain specific features. Specific conditions apply to mergers involving limited liability companies and cross-border mergers in the European Union. Generally, public companies whose shares are not admitted to trading in regulated securities markets require that a prospectus of securities is prepared, submitted to the NBS for approval and published. The Securities Act lists some exceptions from the publication duty, e.g. if the offer is intended exclusively to qualified investors or to a limited scope of persons, less than 150 in one Member States, who are not qualified investors, or where the total amount in European Union is less than EUR 100,000 for 12 consecutive months.

To public companies, procedures of a voluntary or mandatory public takeover bid apply. Details are governed by the Securities Act. A takeover bid is a public offer for concluding a purchase agreement for a portion, or all, of the shares issued by the target company or for the exchange of these shares for other securities, addressed to the shareholders of this company and is either mandatory – triggered upon acquiring of a controlling portion (at least 33% of the voting rights attached to the shares of a target company) in the target company, or voluntary – aiming at acquiring a control portion in the target company. The terms of the public bid must be equal for all shareholders of the same class. A person who has adopted a decision to make a voluntary public bid or who is obliged to make a public bid (bidder) shall notify it in writing to the board of directors of the target company and the NBS, without undue delay, and publish it in a nationwide daily newspaper (as well as in those Member States, to the regulated markets of which the shares of the target company have been admitted for trading). Upon notification, the board of directors of the target company informs of its content the supervisory board and the employees' representatives or directly the employees of the target company. However, all these persons must keep the information so received confidential until its publication. For modifying a voluntary public bid after its publication the consent of the NBS must be obtained. The bidder must supply the shareholders with sufficient information for being able to make a decision on accepting the bid and shall also disclose the current concentration amount of its shareholding in the target company. A voluntary public bid may be revoked if such an option is expressly stipulated in the bid (provided noone has yet accepted it).

Upon acquiring the shares of a public company representing at least 33% of the voting shares by a person (acting alone or with persons acting in concert with it), such person must make an offer to buy all the shares of that company (mandatory public bid). The price offered for the shares must be fair (as evidenced by an expert opinion) and may not be lower than the highest price provided by offeror(s) for a public company's shares in the last 12 months before the duty of announcing the mandatory public bid has arisen, or than the consideration determined by an expert opinion and neither lower than the value of the net equity of an enterprise per share (including the value of intangible assets), according to the latest annual financial statements audited prior to the duty to announce the mandatory public bid has arisen and for listed shares lower than an average price of such shares on the Stock Exchange for the last 12 months before the duty to announce the mandatory public bid has arisen.

2.2 What advisers do the parties need?

Most often, the parties would engage local legal-, tax-, and financial-advisors. Depending on the sector of the transaction, environmental, actuarial and other specialist or technical experts may be also used.

2.3 How long does it take?

Depending on the transaction type and structure, the timeframe can range from a few weeks (in case of simple share transfers) to many months (e.g. complex mergers involving antimonopoly issues). The usual time limit for private transactions involving the completion of a due diligence, making the relevant public notifications and obtaining the necessary regulatory consents, is 3-5 months.

2.4 What are the main hurdles?

Strict formalities, notification duties and regulatory approvals are the usual hurdles. Impediments can be expected e.g. at a takeover bid, merger clearance or undergoing the fit-and-proper test.

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

Generally, deal terms and price are subject to negotiation between the parties. In takeover bids, the price must be fair and may not be lower than what is set in the Securities Act (for details see question 2.1).

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

While the majority of private transactions are cash-based transactions, other types of consideration, such as receivable or shares are also accepted. Consideration in public takeover transactions must be made either in cash or shares of the acquirer.

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

The terms in a takeover bid must be equal for all shareholders of the same class.

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

Within the public bid/mandatory public bid, the bidder is obliged to purchase all shares in the target company. In private transactions there is no such statutory duty.

2.9 Are there any limits on agreeing terms with employees?

By law, M&A transactions leave established employment terms unaffected. The obligations of the former employer towards its employees are transferred automatically to the new employer. One month before the transfer of the rights and obligations relating to an employment, the employer shall inform the employees' representatives (or if no such exist with the employer, directly the employees) about the date or proposed date of the transfer, its reasons, labour law-, economic- and social consequences of such a transfer to the employees, and planned measures relating to the transfer that will affect employees and to discuss these measures with the employees' representatives.These obligations concern both the old and the new employer.

2.10 What role do employees play?

In principle, the employees do not play a significant role in M&A deals. In case of an asset deal, the Labour Code provides for the transition of the labour relationship to the acquirer and certain information and consultation duties vis-a-vis the employees are imposed on both the transferor, as well as the acquirer of the assets. If the deal is performed by means of a cross-border merger or a cross-border acquisition and the surviving company shall be seated in Slovakia, special provisions on the participation of the employees in company's management apply. In certain cases, such a merger/acquisition shall not be registered in the Slovak Commercial Register unless an agreement on employee's participation in the surviving company's management was concluded or a decision of a particular negotiating body was adopted or the term for negotiation of such an agreement/decision has expired in vain. These provisions are aimed at preventing the decrease of the extent of the employees' rights to participate in the company's management as a result of the cross- border merger or a cross-border acquisition.

2.11 What documentation is needed?

The Commercial Code, the Securities Act and other relevant regulations provide for all necessary resolutions, reports, statements and filings for completing the contemplated transaction. For details, see question 2.1 above.

2.12 Are there any special disclosure requirements?

In cases of mergers and de-mergers, reports of independent experts must be secured and the financial reports for the past three years must be made available to shareholders (and in case of a cross- border merger, also to employees' representatives / employees) at least 30 days prior to the general meeting resolving the transaction, in the seats of the participating companies.

2.13 What are the key costs?

The key costs in M&A transactions are internal costs, the fees of advisors, filing costs (e.g. registration with the Commercial Register, Central Securities Depositary, exchange costs for shares purchased on the BSE) and notary fees (which in case of a notarial deed are calculated by a percentage of the deal value).

2.14 What consents are needed?

Depending on the transaction, approval of the Anti-Monopoly Office, consents of the NBS and certain sector-related approvals of the relevant regulatory bodies may be required.

2.15 What levels of approval or acceptance are needed?

A simple majority vote of attending and voting shareholders of the selling company is required for approving asset deals. The bylaws of the participating companies may provide for higher majority requirements or other corporate requirements, e.g. approval by the board of directors. The transferability of shares accepted for trading on the regulated market cannot be restricted.

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

Parties to private transactions are usually free to negotiate the terms of settling consideration, which may involve, e.g. advance payments, deferred payments, earn-out clauses or escrow payments. In public transactions settlement of consideration occurs upon transfer of the shares.

3 FRIENDLY OR HOSTILE

3.1 Is there a choice?

Generally, the hostile bids are rare; mainly due to the low level of free float of Slovak-listed companies.

3.2 Are there rules about an approach to the target?

There are some general rules requiring that the bidder prevent the negative influencing of the public market or the market manipulation, as well as the premature dissemination of information or dissemination of misleading information or misuse of confidential information.

3.3 How relevant is the target board?

With regard to mergers, the board of directors of all participating companies shall prepare a detailed report explaining the economic and legal aspects of the merger, which is then reviewed by the supervisory board and submitted to the general meeting.

In a public bid, upon notification, the target board informs the supervisory board and the employees' representatives / employees of its contents. From notification until the publication of the results of the bid the target board may not adopt any measures or perform any acts – with the exception of negotiating more beneficial terms of the bid and provoking a competing bid – that could prevent the shareholders of the target company from making a free and informed decision on the bid.

3.4 Does the choice affect process?

There is no statutory distinction made by Slovak law.

4 INFORMATION

4.1 What information is available to a buyer?

An extensive source of information is publicly available to the buyer. Basic corporate data of companies with their seat in Slovakia are available online at www.orsr.sk (displaying both actual and historical data) and authentic extracts can be obtained at the Commercial Register. Certain deeds (e.g. shareholders resolutions, financial statements and annual reports, specimen signature) are available to third persons at the Commercial Register's Collection of Documents. The Cadastre contains information on titles on immovables and mortgages over immovables, available online at www.katasterportal.sk. Information on liens on tangible assets is available at the Central Notarial Register, accessible online at www.notar.sk. With regard to liens on securities the Central Securities Depositary can be contacted. Encumbrances on intellectual property are registered with the respective database of Industrial Property Office, accessible at www.upv.sk. The Social Insurance Institution, health insurance companies and the Tax Authorities provide lists of debtors. Information regarding real estate property with environmental burdens may be acquired through a dedicated website maintained by the Ministry of Environment. Further information is available at the webpage of the respective company.

For information not publicly available, the cooperation of the target company is needed. Legal provisions on insider trading and confidentiality must be upheld.

4.2 Is negotiation confidential and is access restricted?

Except for obligatory reporting/notification and publication requirements (see question 2.1 above), the parties may in principle agree to keep negotiation confidential.

4.3 What will become public?

In case of a merger, the draft of the merger agreement and the merger agreement (executed in the form of a notarial deed) have to be filed with the Commercial Register – and will become available to the public by accessing the Collection of Documents. Voluntary and mandatory public bids must be notified to the board of directors of the target company and the NBS and subsequently published. General information on merger control shall be also published.

4.4 What if the information is wrong or changes?

For modifying a voluntary public bid after its publication the consent of the NBS must be obtained. Publishing misleading or inaccurate information may entail civil and criminal liability.

5 STAKEBUILDING

5.1 Can shares be bought outside the offer process?

Once the threshold for the mandatory bid is reached (acquiring the shares controlling at least 33% of the voting rights by a person acting alone or with persons acting in concert), the purchaser must launch a mandatory bid. Below that figure, shares may be bought outside the offer process, provided there is no takeover process underway.

5.2 What are the disclosure triggers?

Notification has to be made upon reaching, exceeding or falling below any of the relevant thresholds. The disclosure figures foreseen for public companies are 5, 10, 15, 20, 25, 30, 50 or 75% of voting rights in target shares. A shareholder who acquired or transferred a relevant threshold of shares of a listed target must, without undue delay, disclose the transaction to the target and the NBS.

5.3 What are the limitations and implications?

Prior approval of the NBS or the Anti-Monopoly Office may be required.

6 DEAL PROTECTION

6.1 Are break fees available?

For private deals, agreeing break fees is not uncommon.

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

While such agreements are not prohibited under Slovak law, the board members should act with professional care and in the interests of the company and all of its shareholders. They are not required to conduct an auction, but they have to entertain competing offers. In addition, agreements not to shop the company must be carefully assessed by competition rules.

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

Pursuant to the Securities Act, in the course of a voluntary or a mandatory bid, the corporate bodies of the target company may not resolve on the increase of its share capital, on the issuing of convertible bonds, on buying its own shares, on assuming on behalf of the company any obligations at undervalue, or on carrying out legal acts which would result in a substantial change in the economic situation of the target company. Further, a joint stock company may not provide financial assistance, e.g. a loan or security to an acquirer to enable the acquisition of its shares. With the above exceptions, the target can sell assets also in the course of the offer process.

6.4 What commitments are available to tie up a deal?

In Slovakia, it is not common to use such instruments to tie up a deal.

7 BIDDER PROTECTION

7.1 What deal conditions are permitted?

In private transactions the parties are in principle free to agree on any conditions they consider fit. In public transactions, a deal can be conditional only upon approval by the relevant regulatory authorities (e.g. merger control) or in voluntary bids, if they fail to tender a certain minimum number of shares (as specified in the bid).

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

In private transactions, the bidder can exercise negative control by the usual pre-closing covenants, however, anti-monopoly provisions must be upheld in any case. In the course of public transactions, the bidder has not much of a control over the target company during the process.

7.3 When does control pass to the bidder?

Control passes to the bidder upon the transfer of shares and registration of such change of shareholders by the target company. In case of mergers, registration with the Commercial Register must be completed.

7.4 How can the bidder get 100% control?

The Securities Act provides for squeeze-out provisions, pursuant to which an offeror, who (i) has made an offer for acceptance (that was not partial or conditioned) and (ii) holds voting shares in the offeree company with the total nominal value of at least 95% of the registered capital of the offeree company, may request that all remaining shareholders of the offeree company transfer to the offeror their shares in exchange for adequate consideration. The time limit for exercising this right is three months from the expiration of the validity period of the offer for acceptance. Upon the elapse of the three months time limit the right ceases to exist. The transaction is subject to the NBS approval.

8 TARGET DEFENCES

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

The board of the target shall inform the supervisory board and employee representatives/employees. It is not specifically required by law to inform shareholders and since voluntary and mandatory bids are also published in a nationwide newspaper, the information is deemed public. There is no explicit obligation of the board of directors of the target company to publicise discussions

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

Under Slovak law, defensive strategies are very limited. For private companies, bylaws may restrict (however, not exclude) the transferability of registered shares. Public and listed companies have no effective tools to resist a change of control. Nevertheless, current shareholders of joint stock companies have a right to preferential acquisition of any bonds, but not increasing the registered capital, issued by a company. In the event of increasing the registered capital of a company, current shareholders have a right to preferential subscription of the shares increasing the registered capital.

8.3 Is it a fair fight?

In the bid procedure, all the targeted shareholders must be treated equally. Slovak law does not provide for further specific rules in this connection.

9 OTHER USEFUL FACTS

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

An important element to success is the cooperation of the selling shareholders, target board and the respective authorities. Furthermore, engaging the right professionals will enhance compliance with the ever-changing legal environment.

9.2 What happens if it fails?

In private transactions, parties are free to agree to the consequences and remedies of a failed transaction. In the event of a failed bid, the tendered shares are released to the selling shareholder and the deposited consideration to the potential buyer, i.e. restoration to the situation before the transaction.

10 UPDATES

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

There have been no relevant new laws passed concerning the M&A in Slovakia in 2011. Several amendments to the Act on Securities were adopted, while the latest amendment aimed mainly at some simplification of the prospectuses in respect of public offer of the shares and increasing the level of investors' protection, in particular the information rights of the small investors.

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.