Published in cooperation with Advokatsko druzhestvo Andreev, Stoyanov & Tsekova)

1 Relevant Authorities and Legislation

1.1 What regulates M&A?

The mergers (incl. takeovers) and de-mergers (spin-offs and splits) as well as the share transfers and business (going concern) transfers are regulated on a general level by the Commerce Act. A number of other statutes, however, may also affect certain aspects of M&A transactions, including: the Obligations and Contracts Act; the Competition Protection Act; the Ownership Act; and the Labour Code, etc.

Where the target is a public company, the specific rules set down in the Public Offering of Securities Act ("POSA") need to be observed. Takeover bids with respect to public companies are extensively regulated under Regulations No 13/2003, enacted by the Financial Supervision Commission ("FSC") on the basis of a delegation under POSA.

Certain laws are in place establishing rules for mergers and demergers of special categories of companies, such as: pension funds (under the Social Insurance Code); banks and other financial institutions (under the Credit Institutions Act); privatisation funds (under the Privatisation Funds Act); insurance companies (under the Insurance Code); and special purpose vehicles (under the Special Purpose Investment Companies Act), etc.

Acquisitions and reorganisations of companies that are fully or partially municipality-owned or State-owned are governed by the Privatisation and Post-Privatisation Supervision Act.

1.2 Are there different rules for different types of company?

Generally speaking, M&A transactions which involve joint-stock companies (AD) are regulated by more rules which different rules from those which involve limited liability companies (OOD). The principal differences concern the form of the M&A documentation, the required approvals and registrations, and the voting majorities. Please see also the information provided in our answer to question 2.11.

As mentioned above, POSA provides for specific rules for M&A transactions for the shares in public companies (note that only jointstock companies (AD) can be public or non-public), and in particular for takeover bids. Takeover bids are supervised by the FSC, provided that the public companies:

  • have a registered seat in Bulgaria and their shares are admitted to trade on a regulated market in Bulgaria or in another country;
  • have shares admitted to trading on a regulated market in Bulgaria, provided that their shares are not admitted to trading on a regulated market in the EU Member State where their registered seat is located;
  • have shares admitted for the first time to trading on a regulated market in Bulgaria; or
  • have shares admitted simultaneously to trading both on a regulated market in Bulgaria and in another EU Member State, but the issuer has chosen the FSC as the competent authority to supervise the takeover bid.

Special rules are in place for the cases where the shares have been admitted to trading on a regulated market in another EU Member State, in addition to their admission on a regulated market in Bulgaria. The bid in such cases has to be made accessible also to the shareholders in the other EU Member States where the shares are traded on a regulated market.

As far as a company has ceased to be a public one under the meaning of POSA and this circumstance is duly registered with the Trade Registry, the M&A transactions have to be carried out under the general rules of the Commerce Act.

Furthermore, the general regulations on takeover bids do not apply to bids relating to securities issued by collective investment schemes.

1.3 Are there special rules for foreign buyers?

As a general rule, investments by foreign entities are governed by the same provisions that are applicable to Bulgarian investors. Therefore, all investor-friendly provisions applicable to Bulgarian companies apply likewise to foreign investors. Furthermore, if an international agreement provides for more favourable provisions towards entities from certain countries, the latter have priority over the local Encouragement of Investments Act (EIA).

Similarly, restrictions on investments also apply on an equal footing to Bulgarian and foreign entities. By way of example, such restrictions apply to companies which are in the process of liquidation or in bankruptcy proceedings. In accordance with the Commission Regulation (EC) No 1628/2006, there are investment restrictions towards certain sectors – the same indicated in the said Regulation (for production of products in the coal and steel industry, the shipbuilding and synthetic fibres sectors, fisheries and aquaculture). Furthermore, there are investment restrictions for investors from countries which treat Bulgarian investors in a discriminative manner. These countries are listed in the Council of Ministries' official list.

1.4 Are there any special sector-related rules?

Transactions within certain regulated sectors (i.e. banking, insurance, media, telecommunication, etc.) may trigger compliance with various special rules in addition to the general rules governing the transaction under the Commerce Act. Typically, before execution of the transaction, an approval must be obtained from the relevant controlling body. As an example, an acquisition or sale of a shareholding in a Bulgarian bank whereby the thresholds of 20, 33, 50, 66, 75 or 100% shareholdings are reached or exceeded triggers the requirement to obtain a preliminary approval by the Bulgarian National Bank. Similarly, acquisitions of shares exceeding 5% of an insurance company's capital may be completed only after a preliminary approval of the FSC.

1.5 Does protectionism operate in favour of local owners?

There is no general rule imposing protectionism in favour of local owners.

1.6 What are the principal sources of liability?

In addition to the contractual liability and liability in tort, participants in M&A transactions must consider the administrative liability for non-compliance with any notification/approval requirement as those described under question 1.4 above or similar restrictions under regulatory statutes (i.e. insider dealing or market manipulation). The consequences of non-compliance with regulatory provisions may be severe.

For example, the completion of an M&A transaction without the prior notification/approval by the Competition Protection Commission (where this is required), may trigger a penalty in the amount of up to 10% of the aggregate turnover of a company or a group of companies in the preceding financial year.

The fines for infringement of POSA may be equally harsh, i.e. a breach of the rules regarding takeover bid procedures may reach up to BGN 20,000 (ca. EUR 10,225), or where the perpetrator is a legal entity – BGN 50,000 (ca. EUR 25,564). In addition, any income from activities in breach of POSA, in so far as it is not paid as compensation to the person being harmed, is to be confiscated by the State.

2 Mechanics of Acquisition

2.1 What alternative means of acquisition are there?

Acquisition of a Bulgarian company may take place not only by way of an outright purchase of its shares (completed, in case of a public company, by registration of the shares transfer with the Central Depositary), but also through a purchase of business (going concern), merger or de-merger. The Commerce Act regulates in detail the merger/de-merger procedure, including the mandatory steps that should be followed, documentation that must be prepared, granting shareholders access to information, and publicising and registration of the relevant decisions.

2.2 What advisers do the parties need?

In a customary M&A transaction, the parties have to be advised by local legal, financial and tax consultants. With regard to specific sectors of business, additional specialised advisers may be necessary for certain aspects such as technical, environmental, and construction issues. Professional investment advice must be obtained when the target is a public company.

2.3 How long does it take?

The timeframe of an M&A transaction depends on its structure and the approvals/notifications that might be required.

Takeover bid procedures under POSA involve a prior examination of the bid by the FSC. The FSC has 14 business days to (tacitly) approve or abolish the bid. Then, the bid must stay open for a minimum of 28 days, and a maximum of 70 days as from the date of publicising the takeover bid in at least two national newspapers.

If the transaction requires a prior concentration approval by the Competition Protection Commission, a fast-track investigation takes up to 25 business days, but the running of this term is automatically stayed in cases of procedural inaccuracies or where it is necessary to produce additional information. An in-depth investigation may be launched by the Commission if the latter has established (within the fast-track investigation) that a dominant position would be enhanced and consequently a threat on competition would be posed. Such an in-depth investigation may take up to four months, but in cases of factual complexity, the term may be further extended by 25 business days.

2.4 What are the main hurdles?

An M&A transaction may be delayed when a preliminary notification must be served, an administrative approval should be obtained or a tax certificate (in case of merger, de-merger or transfer of business) must be issued. Apart from such formalities, another hurdle on a practical level might be the lack of established guidelines or case law for more specific or novel circumstances.

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

As a rule, the price and other transaction terms can be freely negotiated between the parties. When the target is a public company, the price in a takeover bid is subject to the restrictions provided by POSA. The price may not be lower than the highest of the following three: 1) the fair price of the shares, supported by a detailed reasoning following the application of appraisal methods that are regulated in detail in a piece of the Regulations enacted by the FSC; 2) the average market price of the shares within the last three months; or 3) the highest price paid for the shares by the bidder, during the last six months.

Further, specific rules regulate the investment activities of a special type of companies called Special Investment Purpose Joint Stock Companies (SIPJSC). The purpose of these companies is to create investment incentives to small investors, which allows them to benefit from tax exemptions. Before a SIPJSC acquires or disposes of receivables or real estate property, it must assign to one or more experts to determine the price of the respective asset. This procedure is subject to a detailed regulation under the Special Investment Purpose Companies Act. The price at which the SIPJSC actually acquires receivables or real estate property may not be substantially higher and the price at which it sells such assets may not be substantially lower than the expert appraisal price, unless there are exceptional circumstances.

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

In the prevailing number of cases, M&A transactions in Bulgaria are based on a cash consideration. If other consideration is offered (e.g. transfer of shares or receivables, assumption of debt, set-off) the rules regulating the effectiveness of such other consideration will also apply (e.g. endorsement of the transferred shares, notification of the debtor under a transferred receivable, consent of the creditor under an assumed debt, set-off notification, etc.). In a takeover bid scenario, a shares exchange bid must always include as an alternative the option for cash consideration.

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

As mentioned above, the transactions' terms may be freely negotiated between the parties; for example, different terms for the different targets' shareholders.

However, when the target is a public company and a takeover bid has been launched, POSA provides that all shareholders in that company have to be treated equally. There is no court practice fleshing out whether this principle applies only towards the price, or if it can be interpreted as a general prohibition of discriminative terms.

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

Generally, each purchase envisages only a specific (single) class of target securities.

However, when the target is a public company and a takeover bid has been launched, POSA provides that the offer must be geared to all shareholders with voting rights. So, if there are different classes of shares carrying voting rights, all these classes will be covered by the takeover bid.

2.9 Are there any limits on agreeing terms with employees?

The labour contracts concluded by the target company remain in force irrespective of an M&A transaction. It may not serve as a basis for the transferee to amend employees' rights and obligations resulting in worse working conditions for the employees, except by mutual agreement with the employees.

In case of a merger, de-merger or another company re-organisation, the transferee is liable for the employer's obligations assumed under labour contracts concluded before the transaction. In case of any other type of transfer of a property over the company or any of its assets – i.e. share purchase, takeover, transfer of a part of or the whole business of the company, both parties to the transaction are jointly and severally liable. That is how article 3, paragraph 1 of Council Directive 2001/23/EC (couched in permissive terms) has been transposed in Bulgaria.

2.10 What role do employees play?

Firstly, certain notification obligations exist affecting a wide range of transactions, including a merger, demerger, change in the company's owner, transfer or rent of a business (going concern). In any of those cases, the employees must be a notified at least 2 months before the occurrence of the change.

Secondly, in cases where any measures towards the employees are being contemplated (i.e. a relocation, redundancy cuts, etc.), there is a further obligation to make consultations with the trade unions and the representatives of the employees, and to make efforts to reach an agreement with them on those measures.

In a takeover bid scenario, one of the mandatory requisites of the bid is to contain information about any intention about important changes in the labour agreements, as well as about the strategic plans that might have an impact on the employees of both the bidder and the target companies.

The management boards of both the bidder and the target must present the takeover bid to the representatives of their employees or to the employees themselves (if there are no representatives).

Additionally, the management board of the target company must present to the representatives of the employees or the employees themselves a motivated opinion about the impact on employees of the contemplated transaction. Should the management board receive in advance an opinion by the representatives of the employees, it must attach the latter opinion to its opinion that must be presented to both the FSC and the employees.

2.11 What documentation is needed?

The Commerce Act provides for compulsory documentation to be executed in cases of corporate transformations, i.e.: mergers and demergers including a transformation plan; agreements; reports of the management body; reports of the controller (auditor); protocols of the general meeting of each company participating in the transformation; and certificates of good standing for each company participating in the transaction, etc.

The transfer of shares in a limited liability company (OOD) requires execution of a protocol of the general meeting of the shareholders, a notary-certified share-purchase agreement, new articles of association (to reflect the transfer) and a certificate of good standing for the target shareholders. The transfer of shares in a joint stock company (AD) requires, generally, only endorsement of the respective material shares or, if the shares are non-material (electronic), registration of the transfer with the Central Depository. The transfer of business (going concern) requires a notary-certified business transfer agreement.

The implementation of a bid procedure under the POSA requires as a minimum the following documents: a bid offer (the minimum contents of which have been substantially expanded in 2009 to include a lot of details about the offer that may affect the shareholders, for example – a strategic plan of the bidder, the mandatory elements of which, in turn, are laid down in detail); declaration that the bidder has informed the management board of the target about the offer, the employees, as well as the regulated market where the shares have been admitted to trading; certificate of good standing for the bidder; evidence for the financial stability of the bidder in view of the bid that has been made; and sample forms of the bid acceptance, etc.

2.12 Are there any special disclosure requirements?

In cases of mergers and de-mergers, a licensed auditor's report must be prepared on the contemplated transaction. Where prior accounting/financial assessments are required by law, those are to be made by an accounting/financial expert. In most of the M&A transactions, the target company must present a recent financial report, and in particular the statutory M&A rules usually refer to the annual financial report. Furthermore, each company that is being terminated as a result of a merger or de-merger transaction must produce a final financial report, while each newly created company as a result of such a transaction must produce an initial financial report.

When the M&A transaction involves a public company, either as a target, a buyer or a seller, such public company must disclose to the regulated market where its shares are traded and to the general public any specific information, including any key advancement in the M&A negotiations, which may reasonably be expected to affect the price of its shares (inside information).

Also, any acquisition or disposal, or any binding commitment for an acquisition or a disposal, of at least 5% (or a multiple of 5%) of the votes in a public company must be disclosed to the public company and the FSC. In turn, the public company must disclose such information to the general public.

2.13 What are the key costs?

The state fees due to the Trade Registry for the compulsory promulgation are nominal. Advisory and investment professionals' fees (if applicable) depend on the individual arrangements with the specific adviser/investment professional.

In cases that require a prior notification to the Competition Protection Commission, a state fee of the BGN equivalent of approximately EUR 1,000 must be paid upon filing of the notification. Provided that the transaction is approved, the state fee due is 0.1% of the total turnover of the undertakings concerned for the previous year but not exceeding the BGN equivalent of approximately EUR 30,600.

2.14 What consents are needed?

If the transaction takes place in a business sector regulated by special rules, it may require a prior approval/permission by the relevant state supervision authority. Please see the information provided in our answer to question 1.4.

In case of a bid procedure under POSA, the bid offer must be registered with the FSC and could be made public only if there is no prohibition imposed by the FSC within a period of 14 business days following the registration.

In compliance with the Competition Protection Act, an M&A transaction requires prior approval by the Competition Protection Commission if the aggregate turnover on the territory of Bulgaria for the preceding year of all the undertakings concerned exceeds the BGN equivalent of approximately EUR 12.8 million and either the turnover of each one of at least two undertakings concerned in the territory of Bulgaria for the preceding year exceeds the BGN equivalent of approximately EUR 1.53 million or the turnover of the target entity on the territory of Bulgaria for the preceding year exceeds the BGN equivalent of approximately EUR 1.53 million.

2.15 What levels of approval or acceptance are needed?

The general meeting of a limited liability or a joint stock company is required to approve in advance an intended merger or de-merger. The required minimum majority is 3/4 of the shareholders.

A transfer of shares must be approved by the general meeting of a limited liability company.

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

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

Nevertheless, the payment terms are strictly regulated in the case of a takeover bid procedure under POSA. In case of a successful bid procedure, the payment must be completed within seven days upon expiration of the bid term.

If, prior to the expiration of the bid term, the shareholder who filed a bid acquires shares at a higher price, the transactions with all shareholders who have accepted the bid offer have to be executed at such higher price and not at the one initially proposed in the bid.

3 Friendly or Hostile

3.1 Is there a choice?

POSA provides for some specific rules toward hostile transactions. In particular, the general meeting of the target must approve in advance any steps that the board intends to take in order to undermine the transaction (such as sales of assets, or issuance of shares), except for steps geared at encouraging competing bids.

3.2 Are there rules about an approach to the target?

In the case of a takeover bid procedure under POSA, there is a long list of principles that must be observed. For example: all shareholders should be treated equally, including the shareholders who have not accepted the bid offer; all shareholders should be provided with sufficient time and information to make an informed decision; and the target should not be placed in a position which may impede its normal course of business for an unreasonably long period, etc.

Furthermore, there are mandatory requisites that the bid must contain.

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.

Apart from the above, the management bodies of the companies participating in the merger/de-merger are obligated to prepare a written report on the transaction explaining its legal and economic rationale. It must be presented to the Trade Registry and must be made public at least 30 days before the date of the general meeting convened to decide on the transaction. Ultimately, however, it is the general meeting that has to approve the transaction, and must in addition approve the management body's report as well. If the transaction is approved by the general meeting, the management body is obligated to execute it.

In cases of takeover bids, the management body of the target public company must produce a reasoned opinion on the proposed transaction, including: the consequences for the company and its employees if the offer is accepted; the strategic plans of the bidder and their repercussions over the employees; and the location where the company's business is carried out.

In hostile transactions, the board's tactics to resist the transactions require a prior approval of the general meeting of shareholders (please see our answer to question 8.2 below).

3.4 Does the choice affect process?

In practice, the transaction negotiations and execution processes run more efficiently if the co-operation of the target board has been secured in advance. In general, the management body cannot turn down the transaction if the general meeting has approved it. However, it may delay or be a hurdle to it.

4 Information

4.1 What information is available to a buyer?

The law does not require that information about the target be provided to the buyer. Therefore, in cases where the access to information is impeded by the target's board, the investor may at least obtain publicly-available information. As an example, the actual legal status of Bulgarian companies, including the main corporate documentation (e.g. articles of association, certain corporate resolutions, etc.) and annual financial statements, is publicly accessible and may be obtained from the Trade Registry. If the transaction involves real estate property, the legal title over it or the existence of any encumbrances may be checked with the Real Estate Registry.

Any information that is not publicly-available may be obtained only with the cooperation of the target. The investor must bear in mind that certain internal rules may be in place impeding information disclosure.

Aside from this, in cases of takeover bids with respect to public companies, POSA requires that certain minimum information be provided to the buyers such as: information concerning the target shares that are already possessed directly or indirectly by the bidder; the term of the bid; the amount of compensation that will be paid to the other shareholders in the target if some of their rights are not observed; and the plan for the future of the target's business, etc.

4.2 Is negotiation confidential and is access restricted?

Please see our answer to questions 2.12 and 8.1 regarding the obligation of public companies to disclose inside information, including any key advancement in the M&A negotiations.

In case of a bid procedure under POSA, the bid has to be presented before the FSC in order to be approved for publication. After publication of the bid, there is no legal requirement to reveal information concerning the negotiations. The negotiations are considered internal information. The results of the bid, however, must be reported to the FSC and published by the bidder.

Apart from the above mandatory disclosure rules, the parties are free to undertake an obligation to keep confidential any information concerning the details of the transaction. Under the Protection of Competition Act, however, companies are generally not allowed to aggravate their competitors' position by, e.g. disclosing trade secrets.

4.3 What will become public?

In the case of share transfers in a non-public joint stock company, there is no legal obligation for public registrations or notification. Thus, all information will remain available only to the participating parties and the target company. The share transfer in public joint stock companies must be registered with the Central Depositary, which must keep the company's shareholders' structure confidential. However, the bid to acquire shares in a public company and the amendments therein are public (please see our answer to question 4.2).

The transfer of shares in a limited liability company requires registration of the transfer agreement with the Trade Registry (thus, becoming public). The same applies to merger and de-merger transactions. It is a common practice for the parties to present only a brief extract of the final agreement before the Trade Registry, without disclosing the main parameters of the transaction or the price.

There are special regulations on the information that must be revealed in the process of public offering of securities, the most important relating to the obligation to publish a prospectus and to disclose certain information on an on-going basis. Such regulations were significantly revised in 2007, in order to comply with Directive 2003/71/EC, and furthermore Regulation 809/2004/EC is now directly applicable in Bulgaria.

If the transaction would require a prior notification/approval by the Competition Protection Commission, certain information about the transaction would become public. Such information is usually limited to the corporate details of the parties to the transaction, the economic purpose of the transaction, and whether the buyer would acquire sole or joint control over the target.

4.4 What if the information is wrong or changes?

As mentioned above, in the case of bid procedures under POSA, the bid is subject to the FSC's prior approval. If the information provided in the bid is insufficient or incorrect, the FSC must prohibit the publication of the bid and the bidder has 14 business days to rectify it, or in cases of voluntary bids made by holders of more than 5% of the shares in a public company – three business days to do so.

Once the bid has been published, POSA imposes no prohibition on its further amendments, the latter being however subject to the FSC's prior approval. No approval is required if the amendment concerns an increase in the price or the offer term up to the maximum term provided under the statute, i.e. 70 days. In any case, amendments in the bid can be made no later than 10 days before the offer's expiration.

5 Stakebuilding

5.1 Can shares be bought outside the offer process?

Under POSA, shares in a public company may be bought up to the threshold triggering a mandatory offer without initiating a bid procedure. If a shareholder acquires 50% of the voting shares in the target, he may not acquire, within each subsequent annual period, such a number of the shares that exceeds 3% of the total shares, without making a bid.

5.2 What are the disclosure triggers?

Any shareholder who has acquired, directly or indirectly, voting shares in a public company is obligated to notify the FSC and the public company if, following the acquisition, his voting rights reach, exceed or fall below 5% or a multiple of 5% of the total number of the voting shares. The same rule is applicable towards shareholders who reached the above thresholds as a result of a transfer of their own shares.

5.3 What are the limitations and implications?

After placing a bid and until expiry of its term the bidder is not allowed to purchase shares outside the bid procedure.

6 Deal Protection

6.1 Are break fees available?

Bulgarian law does not expressly provide for break/inducement fees to be payable by the target or by the bidder. There is no legal obstacle for the parties to agree on those types of fees, but such arrangements are not very common.

Nevertheless, each of the parties is entitled to a fair compensation should the opposite party fail to negotiate in good faith – culpa in contrahendo.

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

The Bulgarian law of contracts permits such agreements between the parties. It is common for the target board not to shop the target or its assets for a certain period of time. For that purpose the parties may sign a letter of intent indicating the exclusivity period.

However, the target board has a principal obligation to manage the company in compliance with the shareholders' interest. That's why the board must evaluate very carefully the competing proposals before entering into any lock-out agreement.

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

There is no legal obstacle impeding the target from issuing shares or selling assets, i.e. crown-jewel assets. Performance of such steps might require the prior approval of the general meeting – the latter is necessary for a capital increase in all types of companies, disposing of real property rights by a limited liability company, and certain high value transactions of a public company that are specified in detail under POSA.

Further, a prior approval of the general meeting is required if the issue of shares or the sale of assets could be considered an action, the primary purpose of which is to undermine the acceptance of the bid offer or to create considerable difficulties or costs to the buyer. Please see also the information provided in our answer to question 3.1.

6.4 What commitments are available to tie up a deal?

It is not a customary practice to use commitments other than those indicated in questions 6.1 to 6.3 in order to tie up a deal.

7 Bidder Protection

7.1 What deal conditions are permitted?

As a general rule, Bulgarian legislation requires that the parties negotiate in good faith. Any further conditions on carrying out the negotiations may be agreed between the parties in advance without however breaching the good faith principle, and due regard must be paid to the public companies' takeover bid restrictions.

With respect to public companies, the bidder is not entitled to withdraw a mandatory bid after it has been published. Exceptions are permitted where 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, and the FSC has granted its approval on the withdrawal. In certain cases when the bid is voluntary, it may be withdrawn without being subject to the above conditions.

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

There is no legal basis for the bidder to exercise any control over the target during the takeover bid process. Therefore, the bidder may not avoid defensive measures initiated by the target boards.

However, should the defensive steps be taken in bad faith or in violation of the rules on negotiations (please see questions 7.1 and 6.3 above), the target shareholder may claim damages.

7.3 When does control pass to the bidder?

To acquire control over most of the decisions in the general meeting, i.e. the body deciding on the most important matters concerning a company, the investor should acquire at least 50%+1 of the voting shares. Unless the minority shareholders have been given special veto rights, this level of control would allow the bidder to appoint the entire management of the company. A more efficient level of control (that would guarantee the passing of a broader spectrum of decisions in the general meeting, including termination of the company, increasing/reducing the capital, or amending its articles of association) may be gained by an acquisition of 2/3 of the shares. A total control (over all decisions in the general meeting – including decisions on merger/de-merger of a company, and decisions on certain high-value transactions involving public companies listed in the statute) may be obtained by holding 3/4 of the shares.

The title to shares in a public company passes to the bidder as from the transfer registration in the Central Depository. In case of a share transfer in a non-public joint stock company or a limited liability company, the shareholders' rights pass upon endorsement of the shares coupled with a registration of the share transfer in the company's shareholders' books or upon execution of a notary certified share transfer agreement. In the case of merger and demerger reorganisations (irrespective of the type of company that is reorganised), the control passes to the bidder after registration with the Trade Registry.

7.4 How can the bidder get 100% control?

According to POSA, the bidder who has acquired at least 95% of the voting shares in a public company as a result of a takeover bid is entitled to buy the remaining shares (squeeze-out). The remaining shareholders are obliged to sell their shares to the bidder.

8 Target Defences

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

This depends on whether the discussions would qualify as inside information, i.e. information that is specific and may reasonably be expected to affect the price of the target shares. If the discussions would qualify as inside information then the board must disclose the discussions, or the key elements of the discussions that qualify as inside information, to the regulated market where the target's shares are traded and to the general public.

There are also express requirements for the board of the target to present certain opinions in certain particular cases. By way of example, within a 7-day term upon receipt of the takeover bid, the board of the target must present to the FSC, to the representatives of the employees, if any, or to the employees themselves a motivated opinion on the proposed transaction.

Apart from such express particular obligations, the management bodies have a general obligation to discharge their duties, taking into account the interests of all shareholders and the company. This obligation may be interpreted as requiring their discussions to be publicised in some important cases. The company's internal rules on the board of directors' activity or the management agreements concluded with directors may specifically provide for such a duty.

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

The internationally-known practices to resist a change of control may be applied in Bulgaria, but there are some restrictions in relation to this.

If the target is a public company, the target's board is not allowed to frustrate the acceptance of the offer by e.g. issuing new shares, or selling the target's assets, unless such steps have been approved by the target's general meeting in advance. The board is, however, permitted to search for a competitive offer.

Further, a general meeting approval would be required for some of the target defences regardless of whether the target is a public company or not.

In view of the measures that may concern the target's capital structure, Bulgarian law permits the company to acquire its own shares but sets a limit on such acquisitions of up to 10% of the share capital. A public company may acquire its own shares subject to compliance with a bid procedure under POSA.

8.3 Is it a fair fight?

Under POSA, in a takeover bid procedure all shareholders in the target company must be treated equally. Bulgarian law does not provide for further specific rules in this relation.

Apart from the takeover bid procedure and the case where the prospective buyer is not already a shareholder in the target, the latter's board is not restricted to treat certain companies in a more favourable manner than others.

9 Other Useful Facts

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

The cooperation of the target company's board has significant importance for the success of an M&A transaction. The board can exercise influence over the major shareholders and the employees. The employees may constitute an influential group, particularly in former State companies that have been privatised and where the employees still possess a significant number of shares.

Depending on the particular business sector, the State authority responsible for supervision may also affect the transaction whenever its prior approval is required.

Furthermore, the investor should be wary about possible changes in the legislation during the negotiation period and especially for tax changes, and changes in the regulatory framework of the relevant business sector, i.e. concerning requisite permissions, licences, or registrations.

9.2 What happens if it fails?

The participants are free to agree in advance on the consequences should the transaction fail, including the liability of each party. If the buyer or the seller is a public company, some special regulations and procedures might need to be observed.

10 Updates

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

All new cases and major developments have already been addressed in the previous sections.

This article appeared in the 2013 edition of The International Comparative Legal Guide to: Mergers & Acquisitions; 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.